The Puerto Rico Economic Development Bank has undergone what its President Luis Burdiel called a “financial re-engineering” that in 2019 will allow it to begin lending again and cater to different niches.
In an exclusive interview with this media outlet, Burdiel said 2019 will also be a year of “rebirth” for the financial institution that prior to Hurricane María had been restructuring its finances to unload liabilities and generate more cash.
“We’ve sold some segments of our loan portfolio, so we can lend again. This was done two months ago under a very transparent process via the internet. We conducted background checks, verified sources of funding and we sold some segments of the portfolio,” he said, adding that those transactions reduced the bank’s loan portfolio to $65 million.
In January 2017, when he took over the reigns of the EDB, the financial statements reflected long-term, non-liquid assets and liquid, long-term liabilities — “the worst-case scenario for a bank.”
The bank reportedly had 12 percent liquidity in December 2016, according to published reports. The EDB had sold the totality of its $700 million in investments and was operating on interest generated by its loans, a portfolio that at one point reached $349 million. However, the bank had a 20 percent default rate. The EDB also lost some $445 million in deposits that were transferred to the Government Development Bank, leaving the institution insolvent.
Without the EDB, Puerto Rico’s small and mid-sized businesses faced an uphill battle in getting loans to open or expand their operations.
“We turned that around by making liquid most of the assets that were long-term and negotiated all liabilities to make them low-term, at low rates,” he explained. “It was a financial re-engineering that had to be done.”
The restructuring represents at savings of $60 million for the bank that as part of its debt renegotiation was able to offer haircuts to its creditors and put the remaining balance into a long-term debt vehicle, Burdiel said.
Looking for niches
With access to cash once again, the EDB will seek to fill niches, particularly those that federal government agencies and local private banks do not.
On the list is creating a loan guarantee program for those areas that the U.S. Small Business Administration is currently not filling and together with the Housing Finance Authority, step up its mortgage insurance program to address those gaps that the Federal Housing Authority cannot bridge in Puerto Rico, Burdiel said.
“We cannot go back to traditional ways, to regular lending activity. We have to create different products and services,” Burdiel said. The goal is to emphasize guarantees to maximize the impact of the invested capital in terms of economic activity and job creation, he said.
Next year, the EDB will roll out an electronic lending service — merchant loans — through which bank customers will be able to get cash advances through points of sale. Testing of the service began two months ago, and should be ready by next summer, Burdiel said.
“This is a product the market doesn’t have and a product that private banks don’t want to go into,” he said.
With all of the initiatives in the pipeline, Burdiel said the EDB is “back in business for good,” and urged small- and mid-sized businesses to knock on the institution’s doors for financing.
While he acknowledged that it is now easier to get a loan from the EDB, the many regulations the institution is subjected to makes the process “a little difficult, but we’re now faster than ever.”