The report covers the period from 2018 to 2022
A qualified opinion from the Office of the Comptroller of Puerto Rico on the Economic Development Bank (BDE) warns that the entity in question “faces significant risks and uncertainties and does not currently have sufficient financial resources to comply with its obligations.”
The banking authority responded to the report, indicating that the aforementioned situation had already been overcome.
The report covers the period from July 1, 2018 to July 31, 2023, and contains a “special comment” on the accumulated deficit from 2018 to 2022 as it appears in the audited financial statements.
He notes that in that period BDE had income of $145,790,130, expenses of $159,069,802, a capital transfer of ($866,671) and a net change of ($14,146,343).
On the other hand, he warns that the Egyptian Development Bank began monetizing most of its loan portfolio starting in 2017, and although these sales provided temporary liquidity relief, they also reduced the loan portfolio. This contributed to a significant decline in their loan portfolio, which is why they stopped receiving the interest they generate. “This puts the operational safety of the BDE at risk,” they point out.
The Comptroller's document establishes that the described situation occurred because, as a result of the economic decline affecting the Government of Puerto Rico in recent years, the private sector withdrew deposits and exercised its options to sell BDE promissory notes.
They add that government agencies and public companies also transferred their deposits from the BDE to the Government Development Bank of Puerto Rico (GDB), reducing the BDE's ability to issue commercial loans or invest in financial instruments.
The report recommends that the Governor and the Legislature ensure that the Board continues with the plan in place to address BDE Bank's financial and operational condition. The bank president recommended continuing to develop strategies to avoid net losses in its operations and maintain control of its expenses.
In written statements, the President of the Egyptian Development Bank confirmed that during the periods assessed in this report, the fiscal years from 2018 to 2022, the bank actually had an excess of expenses over accumulated income of $14.1 million.
He explained, “To correct this situation, the bank entered into a debt restructuring process at the end of 2022, and ended in 2023, as it was approved by the Financial Supervision Board, which was accompanied by more efficient management of expenses and improvement of the commercial client portfolio.” , resulting in positive capital of $133 million at the end of calendar year 2023.
He added that as part of BDE's sustainability and strategic planning process, a proposal was submitted to the United States Federal Treasury (under funds from the American Rescue Plan Act) and approved.
“Puerto Rico's BDE has been selected to manage the island's $109 million allocated for a financing program with the participation of local commercial banks, collateral deficiencies, and venture capital support. This allocation from the Treasury will also allow BDE to continue its position as a commercial institution intended to provide support with alternative access to Capital, at an interest rate starting from 4%, for new entrepreneurs and other existing companies in the process of expansion.”
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