EDB out to show it remains an important growth tool for the commonwealth

By The Star Staff

The Economic Development Bank (EDB) may start to provide products and services normally offered by private banks in a battle to survive efforts by the federal Financial Oversight and Management Board and the island government to shut it down and to show it is an important economic development tool in Puerto Rico, said its new president, Luis Alemañy.

Although the EDB must complete a market study first, Alemañy said he is evaluating the possibility that the bank can provide insurance to agencies and launch investment instruments, such cash instruments, bond issues, equity investments and mutual funds. The EDB is also considering providing home mortgage and automobile loans.

Since its creation in 1985, the bank has been dedicated to creating or expanding its businesses, thus contributing to job creation and development, but it has fallen on hard times.

The EDB is one several agencies proposed for privatization or closure in the fiscal plan. The other agencies are the Model Forest; the Culebra Conservation and Development Authority; the Cantera Peninsula Integrated Development Co.; the Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority; and the National Guard Institutional Trust.

The bank’s finances took a hit after former EDB President Luis Burdiel sold its $384 million loan portfolio, which contributed to its decapitalization. The EDB is trying to reverse the transaction.

Alemañy, who has been on the job for a month, insists that despite other information to the contrary, the island government does not intend to close the EDB and is behind his efforts to transform it.

“I have talked about this with the governor and in other forums,” Alemañy said.

He is waiting for Gov. Pedro Pierluisi Urrutia to allow him to hire Carlos Viña, a former senior vice president and chief financial officer (CFO) for Oriental Bank and for the now-defunct Doral Bank, as the EDB’s CFO to help in the transformation.

Alemañy is also launching a five-pillar plan that would, he hopes, capitalize the bank and help it broaden its product offering.

The EDB is in a critical situation because businesses no longer see the institution as being capable of helping them, requiring Alemañy to meet with business groups to erase that perception, he said.

“We have to raise awareness that we are the tool that businesses need to serve their needs,” he said.

As a subrecipient of Housing Department grants, the EDB gets $ 225 million in Community Development Grant funds which the bank is using to in turn give grants to small businesses.

Of that amount, the EDB gets a portion, or about $30 million, for its operations, including meeting payroll for 81 employees. The EDB has awarded 384 grants, creating 2,000 jobs and maintaining 3,000 others. About 41% of the grants have gone to service sector businesses, 37% to the tourism sector, 25% to the agricultural sector, 5% to the manufacturing sector, and 26% to other types of businesses.

The loan program is not doing very well as the bank is only closing up to 10 loans per month on average, but Alemañy believes it is because businesses are receiving federal stimulus funds and do not see the need for loans.

“From the budget, we are identifying resources that we can use for loans,” he said.

While the EDB is exploring broadening its products to provide insurance, investment instruments and mortgage loans, it also wants to work with investors who move to Puerto Rico to take advantage of Acts 20 and 22, which attract individual investors through tax incentives as long as they establish businesses on the island. The bank also wants to have a role in reshoring initiatives and on the business opportunity zone program.

Alemañy said changes to the EDB’s charter law may be needed, but he has yet to propose new legislation.

“We want to be partners in economic development and this is all part of our transformation,” he said.

The EDB is also selling its estimated 20 properties, including land parcels.

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