Numerous loan-collateral properties selling by auction
Some banks buying to recover soured loans
By Edlyn Benfield
Stabroek News
December 8, 2003
After the boom must come a bust, as banks in Guyana are now experiencing. Many loans made during the 1990s have gone sour and real estate lodged as collateral is hard to sell.
At recent auctions arranged by the Supreme Court many bankers have seen it wiser to buy properties themselves given that there are few takers at the prices they need.
At one recent auction, Stabroek News saw banks, in their efforts to get at least a portion of the funds lost in unpaid loans, purchase properties so as to resell them on the open market in the hopes of getting a better price.
What is clear is that the defaults on loans and the subsequent auctions have left a glut of properties on the market and prices have dropped considerably. This is not necessarily the case with higher priced locations where prices have generally remained firm but more with out-of-town areas or less high end parts of the city. Coupled with a large housing drive, many homeowners are not finding the buyers or prices they might expect.
Meanwhile the auctions continue. The Supreme Court, at random periods during each year, organises these allowing the highest bidders to acquire properties, vehicles and other items on which levy proceedings have been instituted by the court. Another auction is set for tomorrow at 1 pm at the State Warehouse in Kingston where several banks will be trying to sell an array of properties.
At the action held last month bankers were among the successful bidders and in some instances, these properties and some vehicles, were those for which the same bank had obtained judgement through the court for non-payment of loans.
Chief Executive Officer of the Guyana Bank for Trade and Industry (GBTI), RK Sharma, explained to Stabroek News how execution sales helped to serve the banks in the loan recovery process.
"The implementation of the Financial Institutions Act (FIA) in 1995 forced the banking community to manage their loan portfolios in a manner which saw `character loans' being ousted." Those were loans based on essentially the good character of the applicant as opposed to any stringent regulations about what the funds might be used for and how they might be repaid.
He said the banks considered two fundamentals regarding customers who wanted to borrow, "their ability to repay and their willingness to do so."
The failure of projects because of an unreliable flow of revenue, the accumulation of arrears and in some instances, plain dishonesty were the chief reasons why loans were not repaid within the agreed time limit, Sharma said.
"I think I speak for all bankers when I say that we would simply prefer that the customer honour his contractual obligations."
He said legal action was always a last resort: "We attempt to work with the customer and encourage him to cut costs and better manage their business."
But if the customer still does not take action to clear his arrears, the bank takes legal action against the customer and after judgement is granted in the bank's favour, the property is put up for execution sale.
Sharma said the process is very "transparent and the customer is aware of all aspects of the procedure." The execution sale is first published in the Official Gazette and to ensure that the public is aware of the sale, the bank advertises the sale in the newspapers.
He described two scenarios which result in the bank buying its own properties.
"In the event that no one is interested in purchasing a property, perhaps because of its location or other factors, the bank buys the property to protect its interests. Additionally, if for example, a property is worth $10M and the amount owed to the bank is $10M but the highest bid is $2M, this means the bank could lose $8M. Therefore, in its own interests, the bank buys the property and sells it after a period of time at a price for us to recover the loan."
He said the bank was allowed to maintain possession of the property for a maximum of two years.
At the most recent auction, GBTI, through its agents Narine Sukhraj and Shaliza Shaw, bought plots at 176 'A' East half of Bel Air, West Coast Berbice and at Tract 'WW' Wash Clothes and two parts of Block 'N' of the Mahaicony River/Creek area for $300,000, $500,000, $700,000 and $1.7M on November 18.
At that auction, 16 of 35 properties, located in various rural and urban districts, were sold to bidders - most of whom were local businessmen and bankers.
The highest bid on that day was $14.6M for a property at 17 Westbury, West Coast Essequibo, including 89 acres of rice land and this was jointly purchased by Deonarine and Rudranauth Persaud.
A legal source told this newspaper these properties might be bought by speculators who know that its actual value exceeds the final bid by more than 50 percent and would then sell it at a later date for a much higher price.
Citizens Bank, through P. Burrowes and W. Suhraj respectively, obtained Lot 48 Plantation Meten-meer-zorg, West Coast Demerara at $5M and lots 278 and 422 on Plantation Dartmouth, Essequibo for $750,000.
The South half of Lot 21 Stanleytown, West Bank Demerara went to the New Building Society through N. Mohamed at $3.1M.
Stanford Solomon acquired the west half of the southern section of Lot 29 east of Queen Street, Prince Edwards Town, Kitty at $2.5M.
King Solomon Enterprises and A. Da Silva with a bid of $7.6M took the east half of Lot 23 North Road, Bourda.
A piece of land measuring 8.03 acres was sold to Hiralall Persaud for a bid of $500,000 and a Stewartville, West Coast Demerara lot went for $701,000 to Christopher Da Silva while S. Patadin managed to obtain Lot 297 Retrieve North Mackenzie, Linden for $1M.
Of the 34 bids on the properties available, 18 were stayed for various reasons including offers too low.
Those persons interested in participating in the execution sales event should be aware that any amount exceeding $200,000 in cash should be paid directly at the Supreme Court registry with a manager's cheque and 25% of the bid should be paid immediately on close of sale.