Editorial: ACB well past its time
There is little doubt that Jamaica National People's Cooperative Bank (NPCB) is badly managed and just as, or even more, poorly regulated. The latter job is the responsibility of the Agricultural Credit Board (ACB), a creature of the agriculture ministry. It is not only the competence of the ACB that is at issue; rather, it is that the arrangement is an anachronism in an increasingly sophisticated financial market.
Neither the members of the ACB nor the mandarins of the agriculture ministry will share our view of the regulatory agency. They will point to the ACB's recent decision to take the PC Bank into management after an internal audit unearthed a free-for-all governance arrangement that, on the face of it, was nothing short of fiduciary misfeasance.
In the event, it wasn't the ACB's diligence that led to the discoveries. It happened because of a decision by the Government's Development Bank of Jamaica (DBJ) to write off nearly $1 billion in loans to the PC Bank, threatening it with insolvency, jolting the regulator into a serious look at the bank.
What was discovered was not pretty. More than $650 million can't be accounted for. Board members breached policy and loaned themselves money without the appropriate collateral, or commitment fees, and for expenditures not normally facilitated by the PC Bank. They, with apparent arbitrariness, restructured loans to governors, just ahead of the debt becoming non-performing, which would trigger rules requiring the members to leave the board.
And if a loan was rejected by the DBJ because a project was not deemed feasible, a board member could expect, as happened with a $50-million facility, that his colleague governors would give the green light to the debt. In this case, the loan soon ran into arrears.
A major part of the reason why the NPCB got away for so long with the swashbuckling approach to financial management is that it is not a commercial bank or financial-services entity policed by the central bank or the Financial Services Commission. It is a cooperative, similar to a credit union, which services mostly farmers and rural residents. But it is outside the existing self-regulating society of the credit union movement. It is policed by the ACB, an anodyne remnant of less complex or sophisticated times of financial intermediation, when institutions operated mostly in silos with far fewer risks of contagion.
Yet, with assets of approximately $4 billion, 36 branches and thousands of members, the PC Bank is not an inconsequential institution. But the law demands no special skills of its regulators, but the blessing of the minister. If the ACB had been vigilant, it might have become publicly vocal as the PC Bank wracked up a deficit of approximately $1.5 billion and circumvented insolvency in 2012 with a $338-million gain on the revaluation of property.
Despite their stability of the past, the central bank, concerned about systemic risks to the financial markets, is moving to bring credit unions under its regulation. The incompetence of the ACB insists that the PC Bank and other agricultural credit societies be part of that thrust. Clearly, too, its board members must meet the fit-and-proper tests applied to the governors of other financial institutions.