PALAU BANK OFFICIALS OWE MILLIONS IN UNSECURED LOANS

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By Mark-Alexander Pieper

HAGATNA, Guam (Pacific Daily News, Dec. 1) – Thousands of Palauan citizens and others with accounts at the now-defunct Pacific Savings Bank face a financial crisis after the bank was put into receivership last month.

Palau President Tommy Remengesau Jr. is considering a number of ways to lessen the burden on his citizens, including borrowing millions on the bond market to protect the bank's customers from losing their savings and loans.

Pacific Savings Bank Ltd. is estimated to be US$12 million in the hole and has been deemed insolvent, had its license revoked and was placed into receivership Nov. 7 by Palau's Financial Institutions Commission, according to the U.S. Department of the Treasury Office of the Comptroller of the Currency Special Supervision Division Web site.

Pacific Savings Bank was the first locally owned bank in Palau and is believed to have more than 7,000 customers and more than US$20 million in deposits, according to the World-Check online international financial database.

Several businesses including schools, tour groups and hotels that had their money in the bank are now in murky waters.

Sam Scott, a member of the Belau Tourism Association board of directors and member of the Pacific Asian Travel Association, said an audit released days before the bank closed showed that several members of the Pacific Savings Bank board of directors took out unsecured personal loans in the millions.

A copy of the audit report was not available as of press time last night.

Officials from Pacific Savings Bank and FIC Executive Commissioner G. Semdiu Decherong could not be reached for comment yesterday.

Scott and other members of the Belau Tourism Association and Palau Chamber of Commerce have reviewed the audit and have been meeting with government officials and the International Monetary Fund about the situation.

"The impact has been kind of severe because a lot of people put their money into that bank with the trust that this is a locally owned bank and the fact that some of the state governments had also put their money there as well," said Scott, whose business Sam's Dive Tours kept a few of its small savings accounts with the bank.

"The bottom line is the board of directors basically took loans out with no security on those loans, they borrowed that money and none of it was paid back."

With the bank in receivership there is a chance that patrons may not lose their savings.

Receivership is a form of bankruptcy in which a company can avoid liquidation by reorganizing with the help of a court-appointed trustee. In this case that appointee is Kaleb Udui Jr., president of National Development Bank of Palau, according to the Web site.

Udui is in Malaysia and could not be reached for comment.

Larry Goddard, Remengesau's legal counsel, said the president of the island nation – a member of the United Nations – is meeting with government and banking officials to try to determine how severe the situation is and what the best course of action may be.

"The president is still working out how to resolve this but he has indicated that he wants a full reimbursement for the depositors of the bank," Goddard said.

The Palau government's annual budget, minus federal grant money, is in the US$50 million range, Goddard said.

That means if the government tries to cover the cost of the US$12 million loss, it would be trying to cover a shortfall equal to about one-fourth of its budget.

Scott said some senators and other prominent members of Palau's community are looking into possibly pursuing a class-action lawsuit against the bank's board of directors to recoup the potentially lost deposits.

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