Bank deemed insolvent, but depositors can get money: Central Bank takes over Bank of Cebu

Depositors of the Bank of Cebu must have felt like they woke up on the wrong side of the bed yesterday as the Bangko Sentral ng Pilipinas (BSP) closed all seven branches of the bank after they deemed it insolvent.

The members of the BSP monetary board decided to close the bank after they found out that it was already incapable of paying its creditors.

Affected by the closure of the bank are its 7,870 depositors. The closure order was announced through posters that were plastered on the different branches yesterday.

Officials of Philippine Deposit Insurance Corporation (PDIC) and the BSP however said that depositors need not panic as their money is insured by the PDIC.

The PDIC covers deposits up to a maximum of P250,000. This means, that those depositors who have less than P250,000 in the bank can get their money back in full from the PDIC.

However, Francis Randy Hortelano, Supervising Information Specialist-Depositors Assistance Bureau of the PDIC said that only 98 percent of the depositors can claim their money in full from PDIC. This is because some depositors have more money than the maximum insurance coverage in the bank.

Two percent of these depositors, whose deposits exceed the maximum insurance claim allowed per depositor, will still get to recover their deposits from the proceeds when the bank disposes its properties, Hortelano said.

He explained that Bank of Cebu has been considered insolvent, because the bank's assets are not anymore sufficient to cover its liabilities.

For depositors to be able claim their money, he said that they have to fill up the clearance form provided by the PDIC and present two identification cards.

The announcements on the posters at the various branches said that the BSP and PDIC have put the bank under receivership.

BSP-Central Visayas regional director Lorenzo Zafico said that when a bank is declared under receivership, it does not mean that it is bankrupt, but the current operation is just unhealthy to service liquidity transactions.

Zafico, however, refused give details on the Bank of Cebu case.

The closure of Bank of Cebu is the first bank-related crisis since the Urban Bank closure in the late 1990s, which was an aftermath of the 1997 regional economic crisis in Asia.

According to Zafico, the solid grounds for closing a bank (and its branches) include problems on liquidity, real and other properties owned and acquired or ROPOA, and non-disposal of Non-performing Assets (NPAs) among others.

When under receivership, a bank will be under the full supervision of PDIC, while the bank management will be given opportunity to present their rehabilitation plans that will assure monetary soundness, if the bank management wants to reopen.

There is still a possibility that the bank will reopen, but this will be dependent on how Bank of Cebu board members will be able to present a rehabilitation plan to bring back the bank's capacity to provide immediate service to its depositors.

Cebu Bankers Club (CBC) former president Prudencio Gesta explained that when a bank is "temporarily" closed and under the receivership of PDIC and BSP, it is usually linked to liquidity problems like heavy past due loans.

Peninsula Equity Realty Assets Inc. owns 45 percent of Bank of Cebu, which has a paid up capital of P37 million. The Development Bank of the Philippines owns 15 percent of the stocks; a certain Atty. Leandro Cedo owns nine percent; five percent is owned by TSK Marketing; and 1.4 percent belongs to the Land Bank of the Philippines.

The director of the BSP's Department of Private Development Banks Fernando Caballa, was not available for comment yesterday as of press time. This is division of the BSP, which monitors the performance of the private development banks, does not maintain a business unit in Cebu.

The Bank of Cebu's main branch is located at corner Osmeña Blvd. and V. Gullas St.. The other branches are in Carcar, Consolacion, Lapu-Lapu City, Mandaue City, Mactan Economic Zone, and Tabunok. (/NLQ)