By Lourdes O. Pilar, Researcher
THE NEED for a national savings program and affordable home financing for working class Filipinos led to the creation of the Home Development Mutual Fund, or more known as the Pag-IBIG (Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno) Fund on June 11, 1978.
More than 40 years later, Pag-IBIG Fund members can tap various loan products aside from housing loan packages. There is the multi-purpose loan, which active members can use to fund various needs, such as minor home improvement, tuition expenses, health and wellness, and small business capital, among others. Meanwhile, there is also the calamity loan, which Fund members in calamity-stricken areas can avail of for immediate financial aid with below-market interest rates.
With the uncertainties brought by the coronavirus disease 2019 (COVID-19) pandemic, Pag-IBIG Fund has offered two other programs for relief on loans: the mandatory grace period of 30 days on loan payments brought about by the Bayanihan Law and the three-month moratorium on all loans, which the agency initiated during the enhanced community quarantine (ECQ). It also expanded its home construction fund to P10 billion from P2 billion to support the country’s housing market and help revive the economy.
With these in mind, BusinessWorld interviewed Pag-IBIG Fund Chief Executive Officer Acmad Rizaldy P. Moti for his thoughts on the future of the institution and how the agency balances sustainability and profitability amid the “new normal” brought by the ongoing pandemic.
Below are excerpts of the interview.
Would you say that Pag-IBIG was prepared for the COVID-19 pandemic? How was this different from other exogenous shocks that led to an increase in demand for loans (or deferred loans)?
I don’t think there is any single corporation, may it be private or government-owned, that is fully prepared for the effects of this pandemic. But for Pag-IBIG Fund, we have been updating our stress-testing… We had our strategic planning last February and based on our assumptions, Pag-IBIG would still be okay should there be a black swan event.
We were lucky to have run our stress-test a few weeks before the declaration of the ECQ. We made certain assumptions on loans and if there is a huge drop in its availment. For example in Metro Manila, we lost two and a half months that we will not recover so we are now looking at around a 20% reduction in our expected business for the year. We are expecting for a decline in our home lending or housing availment.
The silver lining though is that, usually, when there are natural or man-made calamities (this time, a pandemic), there is a huge availment on calamity loans. We expect a large demand for calamity loans and multi-purpose loans, but as far as housing mortgages are concerned, we are looking at 15-20% drop.
We have done our environmental scanning recently and a many of our partner developers are saying the same thing— that it will take them a long time before they can restart and resume full operations. For the first two months of the year, we were on track to hit our numbers. We were supposed to finance a P100 billion worth of mortgages, but now we are only looking at P75-P80 billion until the end of the year. This is at par with our home loan releases in 2018, which was one of our record-breaking years.
You provided two programs (three-month Moratorium and 30-day Grace Period) to defer loan payments of members to assist them during the pandemic. How did these come about?
Immediately after the declaration of ECQ, the Pag-IBIG Fund Board decided to offer a three-month moratorium program for all our loan borrowers— both for housing loan borrowers or short-term loan (STL) borrowers. This program is optional and will run until June 15. Members only need to go to the website of Pag-IBIG and key-in their housing loan account number or membership identification number. There is around 80% of applications received that we expect to be approved immediately.
Knowing the deep impact on the members’ finances caused by the pandemic, moratorium applications for example of our minimum-wage borrowers and low-wage earners are immediately approved — regardless of the loan status, even if the account is undergoing foreclosure. We relaxed our loan programs during this pandemic, as we know that our members would badly need the help of Pag-IBIG.
The beauty in this moratorium… is that the next payment, for say a member with updated payments who availed of the moratorium, would be after June 15. The three months are deferred and even the loan term would be extended by three months, without interest. That is our three-month moratorium.
And when Republic Act (RA) No. 11469, otherwise known as Bayanihan to Heal as One Act, came into law, it implemented a 30-day grace period for all loans due within the ECQ period. In our case, all of our members are covered. What we at Pag-IBIG did is, we made the assumption that all borrowers would avail of staggered payments (on accrued interest on loan payments during the ECQ), such being to their best interest, and thus will not be included in the amount due on their next due date. For example, most of our almost four million STL borrowers would have a due date of June 15. The said interest portion will be set up as accounts receivable but will not be interest-bearing. We will not oblige our members to pay this portion of their loan, but members who want to pay can still do. We will still accept it and post it accordingly.
Both programs are available to our members. After the grace period, members can still avail of the three-month moratorium.
What is not known in the industry is that our penalty policy, comparing it with the penalty policies of various banks, is more member-borrower friendly. (In banks), when you have a loan, say P1 million, and your account defaults or you miss more than 3 months of your payment, the whole loan becomes due and demandable. Then you will get charged a penalty of about 18% of the whole loan amount. In Pag-IBIG Fund, our penalty policy charges 18% only on the missed payments.
While other universal banks have a rather punitive policy, in Pag-IBIG Fund’s case, it is not, because the Fund is owned by the members. There is a penalty, but it’s not 18% of the total outstanding balance, but 18% of missed payments so it is easy to recover for members who borrowed from Pag-IBIG Fund. This penalty policy was not highlighted thoroughly, but I am hoping that the lenders, especially the banks, would extend all the help they can extend to their borrowers, to avoid the number of foreclosures.
Could you describe the traction for the Calamity Loan and the Multi-Purpose Loan programs in terms of applications in the weeks during the ECQ ? How many have so far applied for these loans? How much of these loans were approved as of the latest data available?
When Metro Manila was placed under lockdown, we allowed our members to file calamity loan and multi-purpose loan applications via email. So far, the total number that has been released during the ECQ period reached almost P2 billion and helped almost 130,000 members. While Pag-IBIG Fund has extended a lot of help the past months, we still expect a huge increase in our calamity and multi-purpose loan applications after the lifting of the ECQ.
How quick are the loan applications being processed (average waiting time from application of loan)? Given the anticipated increase of email applications due to the pandemic, how does Pag-IBIG ensure that backlogs are at least minimized?
We have been seeking the understanding of our members during the ECQ and MECQ (modified ECQ) period because we were not allowed to send many of our employees to our offices. Now that the country has been placed under a more relaxed lockdown, the processing time for loan applications will slowly return to normal. We used to process loans in less than two days. When you file an application and if everything is in order, it will only take two days or less for you to receive your loan.
Our Online STL filing is only available for members with valid cash cards used by Pag-IBIG Fund. If a member has any of those cash cards, they can go online instead of going to our branches. Just take a picture of the application form (front and back), a picture of one valid ID and take a photo of yourself or a selfie, in other words. The application then goes straight to our database. When the processors open the system, applications will be seen immediately. This is certainly better and safer, than queuing in line in Pag-IBIG branches to file an application. With our online application, the loan is in fact pre-processed as it goes straight to our database and hence, the processing time is faster.
Housing is one of your agency’s mandates. How were you able perform this despite the times? Just recently, Pag-IBIG Fund released P10 billion for its House Construction Financing Line (HCFL). Why was this done and what are your expectations with this move?
In Pag-IBIG, we have twin mandates: one is to encourage members to save, and second to deploy up to 70% of our funds for home financing. Under our housing loan program, we processed P12 billion in the first two months of the year.
Unfortunately, during the month of April, we only processed P880 million because of the lockdown. From the average of P6 billion in the first two months, it went down to P3.8 billion in March, and then to P882 million in April.
So why did we announce the increase in our developmental loan from P2 billion to P10 billion? That was to send a strong signal to the housing industry, especially to the socialized and low cost housing industry where most of our accredited developers are in, for them to start building socialized and low-cost housing units which would also send a signal to other developers that they have to start to operate again. The P10-billion construction funding acts as a bridge financing facility for them through our HCFL.
HCFL is one of our loan products available to accredited developers with good standing in the Fund. Its main objective is to provide a financial source for our developers that will encourage them to construct units in their developed lot so that there is ready inventory of affordable housing units for our members. These developers can borrow a loan up to 70% of the collateral value.
The P10 billion we have set aside for this is Pag-IBIG Fund’s contribution to stimulate the economy. It is also a means for socialized and low-cost housing developers to restart business even if there is fear in the market. We know that there is a 6.5-million housing demand. If we don’t support the developers, the housing business will collapse, especially those small- and medium-sized developers with P15-million to P100-million-a-year businesses. So at least there is that pump-priming of the socialized and low-cost housing industry courtesy of Pag-IBIG Fund.
How will the COVID-19 pandemic affect Pag-IBIG Fund’s bottom line this year?
There is going to be a huge impact. At the very least, since we lost 2.5 months, if we divide it by 12 months, there would be a 20% reduction. Based on the three scenarios when we did the stress test, for all scenarios, we at the Pag-IBIG Fund will still record tens of billions of pesos of net income, but it will not be a P30-billion income for the year 2020.
If last year we reported a P34-billion net income, this year it would probably be nearing P20 billion — still sizeable but is a 30-40% drop. Pag-IBIG Fund will still record decent net income by end of the year, but it will not be as good as the previous years, but otherwise we are still good. We have been doing a lot of interventions to help our members especially those who have been religiously paying their loans and only now started to miss their payments— and we know those members, so we will take care of all of them.
In the post-COVID-19 environment, would some features of these programs be retained in your other programs? If so, what would they likely be?
We got a glimpse of the new normal during the lockdown. Last December, we launched our Virtual Pag-IBIG. Of course, we did not know that there was going to be a pandemic coming this March. Regardless, Pag-IBIG Fund believes that our members will shift towards the digital platform.
Virtual Pag-IBIG is a virtual branch for every member’s disposal. Before, if you want to know the status of your loan or contributions, you have to go to the branch or you have to call. Now, if you have created a Virtual Pag-IBIG account, you can easily monitor the transactions you have done such as your payments, your savings, loan application status, the dividends you have earned, etc. That is how visible the Virtual Pag-IBIG is. It also has a chat service operating 24/7 for our members, especially our Overseas Filipino Workers (OFWs), with queries with a service agent from the Philippines ready to give an answer.
Pag-IBIG Fund has done a number of digitization and automation that are now proving to be very wise investments. As far as we are concerned, we are ready, the things that we have worked on over the years have paid dividends even more so now that we are in the new normal.
What were the lessons that Pag-IBIG can draw from this experience? What developments can we expect in terms of improvements or new offerings?
It validates our multi-year projects when we were envisioning how the members in the future would transact with us. Before, we were so focused on serving the millennials—a workforce with high technology culture who may not be too excited to wait a long time just to avail of our services. That was the challenge— how to properly serve that sector that forced us to invest digitization and automation projects.
Pag-IBIG Fund will soon push through with our two remaining phases of the Virtual Pag-IBIG. When we launched the Virtual Pag-IBIG last December, we have been working on three versions:
The first is the Virtual Pag-IBIG for Members, which covers all transactions that a member would do in a physical branch.
The second is the Virtual Pag-IBIG for Employers, with transactions in this phase to include remittances of employers, certification for employees availing of loans and Pag-IBIG Fund billing statements.
The third one is the Virtual Pag-IBIG for Developers wherein our partner developers can verify if a member is eligible for a home loan, and will then send via short message service to confirm if that member is interested to buy or reserve a certain unit. If that member says yes, it cuts the process drastically because there is less need for documentation.
One realization is that, we have to work hard to make sure that we get to deploy these phases at the soonest possible time. That is one of the silver linings of the pandemic, we were forced to think of alternative ways with much higher capacity for the whole industry in the long run.
We would also like to encourage borrowers who are capable of paying their loan obligations with the Pag-IBIG Fund to pay, because the interest-rate pricing of Pag-IBIG Fund is mainly driven by the efficiency of the collection. Since the time I was made the head of home lending operations in 2012, our interest rates have always gone down; from 11.5% it lowered to 8%, now it’s down to as low as 5.375% and was never re-priced upward.
So if borrowers could help Pag-IBIG Fund, if they want to help us retain the rates, please continue to pay their loan obligations so we can also re-lend the money that we will be collecting.
We are all about sustainability more than profitability. It was a balancing act between keeping the rates low while being able to give our members, especially the savers and the pure savers, a decent return of their savings in the form of dividends.