Appendix D
Letter from G. Seaver to Archibald Harrison, Philippine National Bank

Bacolod, Occ. Negros
August 9,1918

Archibald Harrison, Esq.
Secretary, Philippine National Bank
Manila, P.I.

Sir:

The inspection of the province of Negros Occidental covered a period of twenty-seven days, commencing July 12 and ending August 7, 1918, both dates inclusive. No Sundays or holidays were observed and the work continued every day, regardless of weather conditions. By starting very early and continuing until dark, we were able in the period mentioned to examine 230 mortgages in 16 municipalities, representing a money value of P3,461,370 and covering 49,695 hectares of land. Included in this work also, there were examined 127 crop loans granted for this year's crop, unpaid on last year's crop and delinquent since 1916, amounting to P2,209,311 approximately. The area covered by this inspection extends from Cauayan in the southern end of the province to Escalante near the northern extremity and from the coconut groves along the beach on the western boundary to the abaca and coffee plantations in the mountains near the eastern border, viz., Bacolod, Talisay, Silay, Victorias and Manapla, uninspected. All the properties not inspected lie in excellent agricultural district.

Your attention is invited to the following general conditions which the inspection disclosed should be remedied. Particular cases will be submitted to you separately and in more definite form.

EXCESSIVE AMOUNTS OF LAONS GRANTED

Great liberality seems to be the greatest characteristic of the Bank's attitude in Negros, both in the number of loans and the amount allowed on security offered. In the past, the amount of the loan seems to have been based upon a speculative selling price of the land, if a purchaser could be found, and

not on the revenue derived from the crops raised thereon. From present indications, I believe the Bank will be the largest land-owner in the Island of Negros within five years, unless immediate steps are taken to curb the practice of granting loans on security with so little a margin above the loan value that a year or two of poor crops will depreciate it below the amount borrowed, especially if interest and amortization payments are not promptly collected.

Loans have been made for large amounts, for agricultural purposes, on mountain-land 25 miles from the nearest market that has never been cultivated and, owing to its location and formation can never be cultivated. Many loans were found to be in excess of the assessed value of the land and, in other cases, the owner had declared the land at several times its value for the purpose of getting a larger loan from the Bank. In other cases, it was found that the Bank has granted loans for more than would be required to buy equally good land adjoining the property mortgaged and, in addition, a large crop loan is also granted. As might be expected, the mortgagor is in arrears in interest and amortization payments and, when payment is forced, the Bank will find itself with the land on its hands.

The practice of giving an increase in the loan to meet interest and amortization payments will lead to disaster if continued.

Several very striking examples have been found, demonstrating a great risk of loaning money on Spanish titles. In one case, there were found to be three Royal titles, covering the same tract of land. In another case, the Bank's mortgage is for 248 hectares under Royal title and the cadestral survey shows a fraction less than 137 hectares.

LOCAL AGRICULTURAL BANK INSPECTORS

Both Inspectors Grupe and Perez are old men, long passed the prime of life when it is possible for them to endure the exertion and fatigue incident to properly inspect agricultural property, except under the most favorable circumstances. The fact that both made a failure as hacenderos seems to be their greatest qualification for the position. Perez is too old and decrepit to walk and too fat to ride. Inquiries made on outlying property develop the fact that they approved several applications for loan without personal investigation and inspection.

Indications of dishonest methods by local inspectors are quite plentiful. Cases have been found wherein the inspector has collected money from the mortgagor to pay the cost of his inspection trip, etc. Several patrons of the Bank have told me that both inspectors expect a small gratuity for their service, especially if the matter is expedited. These matters were not investigated by me, as my instructions did not authorize me to investigate any officer or employee of the Bank. If the Bank's interests are to be

protected, inspections must be more strict, rigid and frequent. The Bank will pay in bad loans, principal and interest lost many times the cost of proper inspection and supervision. As before stated, many mortgages have never been inspected and others have not been visited by the Bank's inspectors in years. Each property mortgaged should be inspected at least twice a year and a report by the inspector on prescribed form forwarded to the Agricultural Department of the Bank in Manila.

I recommend that in future all loans be passed by an Appraisement Board of three members, two of whom to be from the staff in Manila. Their duty will be to appraise the land on the basis of the revenue that will be derived, fixing the amount sufficiently low so that with all interest charges the land can be readily sold for more than enough to make the Bank safe.

FAILURE OF MORTGAGORS TO COMPLY WITH TERMS OF MORTGAGE

Of the 230 mortgages inspected, a great many have not complied with the terms under which the loan was granted and, as far as we can judge, had no intention of doing so at the time the money was obtained. Several of them frankly admitted it. Others claimed that they did not know what reasons were stated in the applications, the Bank's officials advised them to change the reasons given and suggested other purposes which the Bank's Directors favored and would, therefore, stand a better chance of being approved. In some cases, the money obtained from the Bank for agricultural purposes had been diverted into commercial or industrial investments, and instances were found where the money had been loaned out to other farmers at the rate of 25% per annum. Each of these will be the subject of a separate and later report. A majority had complied in part with the conditions under which the mortgage was granted, at least to such an extent that action against them is not recommended, unless after considering their cases, you direct otherwise.

PROTECTION TO CUSTOMERS

It appears that some men of influence in various communities, in one case, the Justice of the Peace, have induced owners to apply for a loan and acted as their agent in making out the papers; had the check forwarded in their care when the loan was approved; induced the owner to indorse it; cashed the check and deducted an amount they considered sufficient for their service, which, in one case reported, amounted to 50% of the loan. Rec-

ommend that in the future the applicants for loan be required to come to the Bank in person, that the papers be filled out without cost by the clerical force of the Bank, and that the money loaned be delivered only to the person mortgaging his property.

Respectfully submitted:

G Seaver [Bank investigator]

Source: Quezon Papers, National Library of the Philippines, Manila.