It may be legal, but is it moral?

I received another letter from Salvador Tirona, president of Lopez Holdings, commenting on our column of Nov. 7 about the Development Bank of the Philippines (DBP) loans to different corporations belonging to the Lopez Group of Companies. These loans, totaling more than P4 billion, were not paid and were written off by DBP, causing more than P4 billion in losses to the government-owned bank. Tirona insisted that the Lopez Group was not a “recipient of special favors from the DBP” in spite of the fact that P4 billion in debt of the Lopez Group was written off by the bank, meaning, it doesn’t have to pay that debt anymore. That’s like winning the lotto many times over, or finding Yamashita’s treasure and King Solomon’s mines at the same time. If I were given a tiny fraction of that, I would consider it a very special favor.

An earlier letter from the same group has already been published in the Letters to the Editor page, but Tirona asked that his second letter be published in my column. So in the interest of fairness and balanced reporting, I will grant him one more favor. Here is his letter:

“Lopez Holdings and its operating units were never recipients of behest loans from any financial institution. The loans acquired by our group, not just from the DBP, came from various local and international banks. The loans were granted as a result of rigorous credit review procedures and met all the banks’ lending requirements. Each lender had every opportunity to deny our loan application if they found it not creditworthy. In fact, in all cases, DBP was never the sole lender and in most cases, was simply a participant.

“Proceeds of the loan were invested in legitimate businesses such as water distributions, telecom and cable service, which were taken on by the private sector in the absence of public funding for such basic services. These funds were used for investments in real infrastructure for the development of the nation and not for speculation. Unfortunately, the businesses suffered economic losses partly from the Asian financial crisis of 1997, but mainly due to the hostile regulatory regime pervading at that time.

“Those loans were eventually settled between the respective companies and the various lenders, including the DBP, either through consensual agreement or by court mandate.

“Lopez Holdings did not use its loans to gamble in the stock market, unlike certain loans being investigated in the Senate which were reported to have been granted arbitrarily or as special accommodations. There is absolutely no comparison between such speculative loans and the loans provided in the regular course of business intended for the country’s development.

“DBP is a development bank that lends money to the private sector for undertakings in infrastructure and public services that entail certain risks. All the projects undertaken by Lopez Holdings, in particular, were entered into on the invitation of government for the private sector to participate in and support national development.

“In resolving issues such as these, all parties suffer losses. The biggest loss of all was booked by Lopez Holdings Corporation. Not only was it unable to recover all its equity and advances but in the case of Maynilad, it also had to return the concession to government. In the end, the failure of its investments cost Lopez Holdings P20.7 billion.

“It has been a decade since these loans were granted to our group of companies (1996-2000), but isn’t it curious that these issues are being surfaced at the same time that the Senate is investigating DBP for loans which were granted to Mr. Roberto Ongpin’s companies allegedly under questionable circumstances? Was this intended to divert the public attention from the real issues?

“Salvador G. Tirona

“President

“Lopez Holdings Corporation”

* * *

My comments: There was never any intention on my part to divert public attention from the Roberto Ongpin loans. My intention was to point out the unfairness of it all.

When a poor teacher or a clerk secures a housing loan from a bank, for example, he has to mortgage his house and lot to the bank. When he is unable to pay the loan, the bank forecloses on the mortgage and the bank takes possession not only of the house but also of the lot on which it is built. He loses everything and he is thrown out in the streets.

When very rich corporations are unable to pay their loans, however, the debts are simply written off and the borrowers and the lender banks can start all over again with clean slates. Isn’t that unfair?

I don’t care if the bank writing off the debts is a private commercial bank. The bank’s executives have to explain their decision to their stockholders and their depositors. But the DBP is a government bank. It was initially funded by taxpayers’ money. Taxes collected from taxpayers are supposed to go back to them in the form of public services and other needs. But in this case, public money was lost to bad loans extended to groups of companies that are still earning billions of pesos and are even boasting about it in media. In short, they can still pay for those debts. Doesn’t the bank owe an explanation to the public so it would be informed where the people’s money went and why?

The banks say the write-off was legal, allowed by the Special Purpose Vehicle (SPV) Law. It was to allow the banks, they said, to erase the bad debts from their records and start with a clean slate.

In return, the banks’ own debts with the Bangko Sentral ng Pilipinas (BSP) in the form of unpaid tariffs and other fees would also be wiped clean. The Bangko Sentral would also start with a clean slate, as though the banking system did not lose tens of billions of pesos in loans that went sour.

It may be legal, but is it moral?