Auditor General uncovers high level of non-performing loans at JMB
A performance audit of Jamaica Mortgage Bank (JMB) conducted by the Auditor General’s Department has found that during the financial years 2010 to 2016 the bank carried a non-performing loan (NPL) portfolio that averaged 68 per cent of its total loans.
Auditor General Pamela Monroe Ellis noted in a report tabled in the House of Representatives yesterday that, although there was a declining trend in NPL over the period, performing loans also declined. The investigation was carried out between May and August 2016.
“We noted instances of inconsistent application of JMB’s loan policy between 2003 and 2015, which may have contributed to the high level of non-performing loans,” the report said.
Monroe Ellis noted that the JMB, in its response, had indicated that its non-performing loans are sufficiently collateralised, but she insisted that such assets “should be of concern to the JMB and the Government, as JMB may be left holding assets which may prove difficult to liquidate”.
She said further evidence suggests that even if the assets are disposed of, the bank may not realise the full value of the delinquent loans. She argued that the JMB did not consistently assess the financial and technical capabilities of developers to meet loan terms and that board minutes showed no evidence of any discussions about deviating from the bank’s policy.
“This was evident in the approval of five loans totalling $453.3 million, which did not result in the provision of any housing solution, thereby undermining its effectiveness in delivering on its core mandate,” Monroe Ellis said.
Citing examples of inadequate due diligence, the audit team disclosed that in February 2015, JMB approved a $77.1 million loan for the acquisition of 76.7 acres of land in Clarendon without fully assessing the financial capacity of the developer to repay the loan.
“JMB’s management submission to the board indicated that the bank was approached to assist with the acquisition of the development lands “as time was of the essence” in the transaction, and investment funds being raised by the developer would only become available after the deadline for closing the transaction,” the report outlined.
A review of board minutes for the same month showed that the chairman and other board members indicated that they were “uncomfortable in making a rushed decision”, but were informed that management “would not be compromising the due diligence process” and that the chairman, at this juncture, “was comfortable with all the information submitted and the management felt sufficiently comfortable to make the recommendation”.
The developer has since failed to repay the loan. The auditor general said the JMB has indicated that it holds enough security against the loan as the most recent appraisal of the land, dated June 30, 2016, indicated a value of between $130 million and $140 million. The JMB also said it expects full recovery from sale of the lands under the powers of its mortgage.
“However, we noted a 40-45 per cent diminution in value, in a context where the appraised value was $235 million at July 2014,” the auditors countered.
Also, in June 2014 the JMB approved a loan of $160 million to cover 84 per cent of the purchase price to a developer, to complete the acquisition of 255 acres of land for residential development. But the auditor general said records showed that the land was being sold under the powers contained in a mortgage by a debt-recovery company.
“JMB’s board submission noted that “in the interest of time”, the bank was dealing with the acquisition ahead of the project development aspect on the understanding that the completed proposal for financing the infrastructure works would be submitted to the board by July 2014.
According to the auditor general, the JMB only conducted a preliminary financial assessment of the proposed project and deferred the conduct of a detailed analysis to the July 2014 board meeting, one month after the loan was already approved.
“To date, the developer has neither provided any financial proposals nor commenced infrastructural works, and as at March 2016, the amount owed was $176.76 million,” the report stated.
The JMB is a statutory institution that was set up in 1971 to finance affordable housing to Jamaicans by mobilising resources for onlending to other financial institutions and developers.