It’s high time policy-makers imposed penalties on banks and government financial institutions (GFIs) that abuse “free-market” penalties on small depositors and borrowers, making them even worse than loan sharks.
Dream houses turn to nightmares?
At Public Attorney’s Offices (PAOs), you hear hundreds of complaints from couples and overseas Filipino workers (OFWs) who lose their homes even after paying twice to six times their loans, simply because of unpaid arrearages, making them victims of unscrupulous financing of erring developers and banks.
One OFW broke his back in the Middle East, sending a total of P5 million for his dreamhouse, only to return and see the posts of an unbuilt house. Another couple paid over P750,000 for an original SSS loan of P120,000, because of compounded penalties and arrearages and loan-restructures. While paying bigger amounts five times the original amortizations, the debts mounted faster as arrearages remained. Retirement benefits were used to settle all, but the problem doesn’t stop here as many aging couples, no longer earning anything, lose their ancestral homes to rising unpaid property taxes.
A widow-senior citizen, Carmen Ramos, was evicted from her house while a court case was ongoing. She paid over P1.5 million on a housing contract of P920,000 with Durawood Construction & Lumber Inc., which was discovered later to have no license as home developer and financier.
After her husband’s death, Ramos said the developer’s secretary tore off the contract, claiming it was no longer valid with his death, and replaced it with a new contract, followed by more onerous agreements. While laws are bent, she feels what’s legal is not necessarily moral. She may appeal with higher courts, but after losing home, and savings to costly lawyers, neutralized by her adversary, she lost the strength to continue fighting.
Perhaps, it’s time to review loan policies to give consideration to borrowers, just caught as victims, not of their making, but of dysfunctional short-term job contracts.
Banks are worse than loan sharks?
Another problem is how 80 percent of depositors, mostly ordinary people on a Pareto principle estimate, hardly keep their P2,000 minimum bank balances. Most banks slap a P350 monthly penalty less than the minimum, which is 17.5 percent of P2,000, or 210 percent if annualized for 12 months.
Deducting another P350 on the remaining P1,650; and P350 every month thereafter, you end up with only P250 on the sixth month, beyond which, the account is closed. Penalties and effective interest rates in these months show increasing usury, much worst than loan sharks.
Another P350 deduction on the second month against the remaining P1,650 is a 21.21 percent penalty, or 254.54 percent per annum. Subsequently, it’s 323.07 percent per annum on the third month; 442.1 percent on the month; 700 percent on fifth; and 1,680 percent sixth month.
Banks can freely do this. But by definition, theft happens when somebody steals from you stealthily without your knowledge; qualified theft when a person entrusted does the stealing; and robbery happens when forcibly taken from someone. Can we say, banks are legally practicing “qualified theft and robbery?”
Tap banks for development
Experiences of Japan, South Korea, China, Taiwan and others show that they tapped banks to generate capital through a “hidden tax” or “stealth tax” by offering depositors interests lower than market rates to fund industries, exports and agriculture.
Joe Studwell discussed this in his book How Asia Works: Success and Failure in the World’s most Dynamic Region, a must-read for policy-makers.
Local interests on savings are already low at 0.1 percent, and lending at 6 percent or more, or a 6,000- percent margin difference. Unfortunately, these margins are mostly kept as profits and not channeled to fund physical wealth-creation in industry and agriculture that generate productive jobs.
“It is no surprise why big bank owners are among our top billionaires,” says economist Cielito Habito, saying that, while “GDP grew by 5.8 percent the past 15 years, banks grew higher by 8.7 percent. And when GDP hit its lowest at 0.9 percent in 2009, the banks grew by a hefty 8.3 percent! Bankers seemingly profit through thick or thin.”
But banks shying away?
Supposedly, agri-agra loan law requires banks to invest 25 percent of loan portfolios into agriculture, but the Banko Sentral ng Pilipinas (BSP) allows banks an escape clause to invest in government securities as a form of compliance. This is estimated to be about P500 billion.
Lending to farmers will likely further drop as the BSP and the Philippine Deposit Insurance Corp. cannot seem to solve the problem of the padlocking of close to 20 small banks every year, or a total of 325 banks from 2000 to August 2018. There may be abuses and legitimate reasons, but because it is happening yearly, and not corrected, it invites questions.
Unfortunately, commercial banks, replacing them in the provinces, are hesitant lending to farmers. In fact, capital is siphoned out from the countryside as a bank manager in Ilocos once said years back, he retains only 2 percent of inflows from thrifty Ilocanos abroad, for withdrawals and loans, and sends 98 percent to Manila headquarters.
When you can bank on banks?
Reforms needed are not entirely aimed for the government to capture excess margins as tax, but to forcibly push banks through policy to lend more liberally to physical-wealth-creating sectors—agriculture and industry.
E-mail: mikealunan@yahoo.com.