Urban Bank blames heavy withdrawals for closure

More than a week after declaring a bank holiday, Urban Bank officials broke their silence yesterday and explained that there was nothing "irregular" about the bank's move to purchase some P2 billion in promissory notes held by its investment house subsidiary, Urbancorp Investment Inc.

They denied that there was diversion of funds, saying it was allowed under the law that Urban Bank, which holds a quasi-bank license, could buy the debt papers held by any financial institution, including its own investment house.

"The transfer of loans from the investment house to the bank has been allowed since 1993, when the Central Bank issued Circular 1392 which allowed quasi-banks to purchase unregistered commercial papers, a practice prevalent in our industry since then," Urban Bank president Teodoro Borlongan said.

The transactions of Urbancorp will be investigated by both the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC). The SEC has an authority over investment houses, while the BSP has jurisdiction over its trust license.

They also denied reports that they "fooled" the Land Bank of the Philippines into lending to them P1.050 billion through the interbank market. They said P450 million of these loans were fully secured with the bank's receivables from the National Food Authority worth nearly P600 million.

What happened, Borlongan said was that when Urban Bank paid Land Bank, its checks were no longer cleared since it had already declared a bank holiday on April 26.

Urban Bank attributed its woes to the panic withdrawals of its big account holders, mostly Filipino-Chinese, whose deposits account for over a fourth of its total P8 billion-deposits.

Bank officials denied that its troubles were caused by its high real estate loans, comprising over one-half of its total loan portfolio, and loans that had gone sour technically called non-performing loans (NPLs). In fact, they said the bank remained solvent despite these problems.

Borlongan said the bank has been a target of withdrawals by its Filipino-Chinese clients a week before the Holy Week. He said this was the time that Wincorp Investments and ASB Realty went belly up, adding that was mostly the Filipino-Chinese traders who got "burned" by these firms. He clarified, though, that Urban Bank has no dealings with these two companies.

It was also around this time, that reports came out that Urban Bank, whose capital of P2.2 billion was below the P2.8 billion capital requirement for a commercial bank, would be downgraded into a thrift bank.

"It is not accurate to say that the bank's problems were caused by the real estate loans and NPLs because we can manage them. What started it were the heavy withdrawals made by some Filipino-Chinese businessmen, plus the fact that we could not explain (the story behind the reported downgrading in its license)," he said.