“Report Warns Puerto Rico Economic Development Bank Faces Significant Risks and Financial Uncertainties”
A new report issued by the Puerto Rico Comptroller’s Office has raised concerns about the financial stability of the Economic Development Bank (BDE) for the period of July 1, 2018 to July 31, 2023. The report indicates that the BDE “faces significant risks and uncertainties and currently does not have sufficient financial resources to comply with its obligations.”
During the period covered by the report, the BDE recorded income of $145,790,130, expenses of $159,069,802, a capital transfer of ($866,671), and a net change of ($14,146,343). The report warns that the BDE began to monetize most of its loan portfolio in 2017, causing a significant reduction in their loan portfolio and endangering the operational viability of the bank.
The Comptroller’s document attributes the financial difficulties faced by the BDE to the economic deterioration that affected the government of Puerto Rico in recent years. It notes that the private sector withdrew deposits and exercised its options to sell BDE promissory notes, while government agencies and public corporations transferred their deposits from the BDE to the Government Development Bank for Puerto Rico (GDB).
As a response to the report, the president of the BDE stated that the bank effectively had an excess of expenses over accumulated income of $14.1 million during the fiscal years 2018 to 2022. To address this situation, the BDE entered into a debt restructuring process and submitted a proposal to the United States Federal Treasury under funds from the American Rescue Plan Act, which was approved.
The approved proposal allows the BDE to manage a $109 million allocation for a financing program with the participation of local commercial banks, providing support for collateral deficiencies and risk capital. The BDE aims to use this funding to support new entrepreneurs and existing businesses in the process of expansion with an interest rate starting at 4%.
The report recommends that the Governor and the Legislative Assembly ensure that the BDE Board of Directors continues to address the fiscal and operational situation of the bank, and that the president continues developing strategies to avoid net losses in its operations and maintain expense control.
It remains to be seen how the recommendations from the report will be implemented and the impact it will have on the future financial stability of the BDE. The report covers the period from 2018 to 2022 and contains a “Special Comment” on the accumulated deficits as reflected in the audited financial statements. The BDE has indicated that the situation described in the report has already been overcome, as of the end of calendar year 2023.