Editorial: PC Bank needs new oversight
One of the questions in the FAQ section of the website of Jamaica's National People's Cooperative Bank (NPCB) has to do with the rigour with which the NPCB assesses loan applications and how, in this respect, it compares with commercial banks.
The response: "Although we offer cheaper loans, we still require good collateral, a good credit rating, and the project must be technically feasible and financially viable." Judging from what is now emerging about the finances and management of the NPCB, that answer should carry a proviso that these requirements do not apply to members of the board or connected persons. They, it seems, get a pass.
But the failures reside not only at the PC Bank, but with the permissive ineptitude of its management and governors. We attach nearly as much blame to its primary regulator, the Agricultural Credit Board (ACB), for which the job has long since become too demanding, especially in an increasingly sophisticated and complex financial environment. The Development Bank of Jamaica (DBJ), on whose behalf the PC Bank retails loans, and from which it tells potential clients it receives "oversight and assistance in several areas", appears also to have been lax in its efforts and should now account for its stewardship. In other words, the PC Bank is in need of new regulatory arrangements.
The PC Bank is a cooperative, very much like the island's many credit unions. Most of its members are farmers and rural dwellers. But it has a history of being poorly run and of periodic interventions by the Government to shore it up. The bank is again into one of those episodes, having again been put under management by the ACB.
A recent audit disclosed that it couldn't properly account for J$665.6 million, or 21 per cent of the saving deposits of members, and that governors were allowed to borrow with abandon, without regard for conflict of interest and/or the protection of the debt and in contravention of policy. Indeed, loans were approved for board members and disbursed without the payment of commitment fees and restructured within months, at lower interest, ahead of the debt becoming delinquent. Board members, by that move, could remain as governors.
In one case, a J$50-million loan to a board member was rejected by the DBJ because the project it was to support was deemed unfeasible. However, a loan of a similar size, for the same purpose, was approved by the board member's PC Bank colleagues, who had earlier allowed him bridging financing of J$10 million.
These revelations in the audit of the bank suggest rank dereliction of fiduciary responsibility by the board and management of the PC Bank, for which they should be appropriately censured, to the full extent allowed by the law. Further, all attempts must be made to recoup the PC Bank's money, including, where possible, taking control of assets with which loans were secured.
Two other things are important. With assets estimated at $4 billion, it is a relatively large financial organisation, whose failure would hurt many people. It is in need of a deeper forensic analysis to determine its true state and an overhaul of its management. Next, as is being proposed for credit unions, it ought to be brought under the oversight of the Bank of Jamaica.