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ECONOMIC RISK ANALYSIS

ECONOMIC RISK ANALYSIS. AFP RETIREMENT & SEPARATION BENEFIT SYSTEM. ECONOMIC RISK ANALYSIS. On The. AFP RETIREMENT & SEPARATION BENEFIT SYSTEM. Cmdr. Modesto T. Kapuno, PN (Res) Medical Officer V, City Health Office Deputy Cmdr., Naval Res. Cmd. For Southern Luzon.

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ECONOMIC RISK ANALYSIS

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  1. ECONOMIC RISK ANALYSIS AFP RETIREMENT & SEPARATION BENEFIT SYSTEM

  2. ECONOMIC RISK ANALYSIS On The AFP RETIREMENT & SEPARATION BENEFIT SYSTEM Cmdr. Modesto T. Kapuno, PN (Res)Medical Officer V, City Health Office Deputy Cmdr., Naval Res. Cmd. For Southern Luzon

  3. SEQUENCE OF PRESENTATION • Introduction • Rationale • Main Body • Analytical Brief • Conclusion • Recommendation

  4. INTRODUCTION 1.1 The RSBS • 1.1.1.Creation -created by PD No. 361 dtd 30 December 1973 Contribution of 4% of base and long pay. Gov’t infusion of 200M pesos. -amended by PD No. 1656 dtd 21 Dec. 1979 -further amended by PD 1909 dtd 22 Mar 1984. Contribution of 5% of base pay.

  5. Organization

  6. Findings of the Fact Finding Commission: • The RSBS never discharged its mandate. • For 2003, fund requirement for AFP retirees is P10,482.122B.(J-6) • The funding requirements of a true pension system escalate as the compensation of AFP military personnel is increased. • The RSBS did not contribute anything at all towards reducing the burden on the national treasury of payment of AFP retirement benefits. • The RSBS, in its present conception and structure, is fundamentally flawed.

  7. Recommendations of the Fact Finding Commission: • Liquidate present RSBS in an orderly manner. • Return the Soldiers’ RSBS contributions. • Initiate an AFP Service and Insurance System. • Implement fully the recommendations of the Senate Blue Ribbon Committee

  8. 2. RATIONALE Look into the viability of the fund to meet the financial needs of its soldier-members, the insolvency problem and evaluate the potential risk.

  9. 2. RATIONALE 2.2 Methodology • Employment of various techniques in data gathering. • Interview with key officials of RSBS.

  10. 3. MAIN BODY 3.1. Stakeholders Analysis

  11. 3. MAIN BODY 3.1Financial Risks Failure to ensure the ability to pay of borrowers Failure to take action on delinquent borrowers Low collection efficiency. Losses on investments in real estate 5. Inability to meet current obligations to creditors and members 6. Failure to pay loans 7. Additional losses due to penalty charges for restructured loans 8. Possible loss of real estate properties securing loans, if foreclosed 9. Losses in dacion en pago 10. Inability to operate as a self-sustaining system 11. Possible insolvency

  12. Security Risks Adverse effects on AFP’s operations (lack of funds) Low morale of military personnel

  13. 3. MAIN BODY 3.2. Risks Analysis 1-No Risk 2-Low Risk 3-Moderate Risk 4-High Risk 5-Greatest Risk

  14. 3. MAIN BODY 3.2. Risks Analysis

  15. 3. MAIN BODY 3.2. Risks Analysis 1-No Risk 2-Low Risk 3-Moderate Risk 4-High Risk 5-Greatest Risk

  16. Limitations of the Analysis The facility of data gathering was not attained. The originally intended bases and the corresponding analytical processes for each risk are as described.

  17. Risk 1. Failure to ensure that borrowers are able to pay. “walk through of transactions documents” – not available Analysis of related accounts in the financial statement. P967,580,223 - loans receivable 647,019459 – (67%) past due- defaulted for more than 180 days. 247,557,444 (28%) under litigation Borrowers were not tested as to their capacity to pay.

  18. Risk 2. Failure to take action on delinquent borrowers. The fact that the AFP-RSBS has allowed its past due loans to reach 67% of its loan receivables is evidence that it does not take immediate actions against the delinquent borrowers.

  19. Risk 3. Low collection efficiency The accumulation of the loans receivable, including non-collection even of the restructured loans, are obvious signs of low collection efficiency. Sale of Antipolo properties ,Inc (P77M) have not been collected since its sale in late 1990s

  20. Risk 4. Losses on investment in real estate. • Land & Land Improvements P4,423,273549 • Residential Subd & 3,306,358,092 • Townhouses • Member-related projects- 192,407,774 • Net of Depreciation _ • TOTAL P7,922,039,415 The AFP-RSBS has and continued to lose from the investments in terms of cost of money and reduction on the value of properties.

  21. Risk 5. Inability to meet current obligations. Notes payable P104,256,454 Accounts payable & Accrued Exp 667,562,181 Members’ contribution payable 153,106,632 Restructured long term debt 84,166,971 Liability on earnings of members’ contribution 51,451,978 TOTAL P1,060,544,216 The amount exceeded current assets of P779,911,379 by P281M. RSBS has liquidity problem.

  22. Risk 6. Failure to Pay Debts The debts of the AFP-RSBS which were related with the real estate investments were categorized into: Current portion of restructured - P84,166,971 Long term-debt restructured long term-debt - 1,655,661,190 Since the loans have already been restructured, it did come to a point when the AFP-RSBS could not pay its loan obligation due to liquidity problems.

  23. Risk 7. Additional losses due to penalty charges for restructured loans. It has become increasingly difficult for the AFP-RSBS to meet its current obligation.

  24. Risk 8. Possible loss of real state properties Data show that the AFP-RSBS has been able to comply with conditions of the restructuring agreement. Since the loan have already been restructured, it came to a point when AFP-RSBS could not pay its loan obligation.

  25. Risk 9. Losses in dacion en pago. To prevent further losses, the system had to forego their assets. P516M outstanding loans in 2002 were settled through this arrangement. The arrangement did not incur losses, though.

  26. Risk 10. Inability to operate as a self sustaining system. The AFP-RSBS has not been able to pay the retirement and separation benefits of military personnel. At most it can only refund contributions. To assume pension payment, P94.989B is needed to bring fund level to P100.707B and annual infusion P1.707B. From the beginning, the AFP-RSBS never had the capability to give the service expected from it.

  27. Risk 11. Possible Insolvency. There are grave concerns raised by our legislature about alleged bankruptcy and misuse of funds and assets. The current liabilities have reached crises proportions that presently it is significantly bigger than its current assets. The RSBS is incurring huge loans from other financial institutions (P5B). It has been in default for three times. …this may undermine the system’s viability that may lead to insolvency if there is no corrective or bold measures undertaken…

  28. Risk 12. Low morale of military personnel All the respondents are concerned with whatever happens with the AFP-RSBS being “part-owners “ of the system. 20 out of 21 respondents believe that the system is being mismanaged and they feel demoralized. 20 of 21 sympathize with issues raised by Oakwood mutineers but averse against violence. With majority of 120,000-strong AFP personnel feeling this way, this could threaten national security.

  29. Risk 13. Adverse effect on AFP operations. The continued dependence of pension payments from AFP appropriations, the AFP is unable to use the fund for its operations. With annual pension estimated at P8.5B, the amount is significant which was “bitten-off” from the AFP’s operations. The AFP’s capability to perform better has been very much hampered.

  30. 4. ANALYTICAL BRIEF On the whole, the AFP-RSBS situation is quite volatile and could lead to demoralization of the armed forces which will further lead to militant actions from agitated members.

  31. 5. CONCLUSIONS The system is not a viable self-sustaining source of fund. AFP-RSBS is on the verge of insolvency.

  32. 6. RECOMMENDATIONS Create study group to work on the mathematics, economics, and security aspects of RSBS.

  33. AFP BUDGET PROPOSED VS. APPROPRIATED

  34. Financial Risks 7. Additional losses due to penalty charges for restructured loans 8. Possible loss of real estate properties securing loans, if foreclosed 9. Losses in dacion en pago 10. Inability to operate as a self-sustaining system 11. Possible insolvency Failure to ensure the ability to pay of borrowers Failure to take action on delinquent borrowers Low collection efficiency. Losses on investments in real estate 5. Inability to meet current obligations to creditors and members 6. Failure to pay loans

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