BSP shuts down Banco Filipino

MANILA, Philippines –  The Bangko Sentral ng Pilipinas (BSP) ordered yesterday the closure of Banco Filipino Savings and Mortgage Bank of the Aguirre family for insolvency after its liabilities overwhelmed its assets by P8.4 billion, prompting monetary authorities to prepare charges against the board of directors and officials of the bank.

At a hastily called press conference, BSP Deputy Governor Nestor Espenilla Jr. said the central bank’s seven-member Monetary Board (MB) decided yesterday to place Banco Filipino under the receivership of the state-run Philippine Deposit Insurance Corp. (PDIC).

Espenilla pointed out that Banco Filipino has insufficient realizable assets to meet its obligations, with its net realizable value at -P8.4 billion.

“Banco Filipino cannot continue in business without involving probable losses to its depositors and creditors,” Espenilla stressed.

He explained that the MB also took note of the failure of the board of directors and management of Banco Filipino to restore its financial health and viability despite considerable time given to address its financial problems.

The BSP extended P3.5-billion worth of emergency loans to Banco Filipino in 2002, of which P2.6 billion remains outstanding.

On Monday, the MB rejected Banco Filipino’s plea for another P3-billion emergency loan to cover its huge “overdraft” amounting to over P900 million.

“It has therefore decided to prohibit Banco Filipino from doing business in the Philippines and to place its assets and affairs under receivership,” he said, citing section 30 of Republic Act 7653 or the New Central Bank Act.

The decision, he said, would provide immediate relief to the bank’s 177,652 depositors.

Of the total number of depositors, Espenilla said 97 percent can be considered small depositors and covered by the deposit insurance of P500,000 each.

The BSP official said the PDIC took over the head office of Banco Filipino in Makati City yesterday afternoon to secure vital records and documents as well as prevent further dissipation of the bank’s assets.

“The BSP is coordinating closely with PDIC so that deposit insurance can be paid out as soon as possible. In this connection, the condition, coverage, and quality of the records and documents of Banco Filipino will be material in ensuring immediate service to depositors,” Espenilla said.

The BSP said depositors with balances of P5,000 and below accounting for about 53 percent of the total account holders need not file their deposit insurance claims as the PDIC would immediately process and mail payments within the week, while those with balances above P5,000 would still have to be validated and need to file their claims.

“For depositors with account balances of more than P5,000, claim forms will be distributed during Depositors’ Forums to be conducted nationwide next week. During the forums, procedures, instructions and requirements for filing claims will be discussed. The schedule for claims receiving will be announced shortly after the examination of bank records,” PDIC president Jose Nograles said in a statement.

Espenilla said the MB authorized the filing of appropriate cases against the directors, officers, and other individuals who may be found liable for violation of banking laws and BSP rules and regulations that led to the bank’s financial travails.

He revealed that Banco Filipino lost around P2 billion a year from 2007 to 2009, and P277 million every month in the first nine months of last year.

Aside from interest payments amounting to P1 billion a year, Espenilla said Banco Filipino had incurred huge expenses – P500 million for compensation, which was 2.5 times its gross income; and legal fees amounting to P131 million or about 61 percent of its gross income.

“Their expenses are way above industry levels,” he stressed.

Furthermore, he added that more than half of its outstanding loans amounting to P4.1 billion went to directors, officers, stockholders and related interest (DOSRI).

Several branches of Banco Filipino began shutting down last Tuesday after officials announced the bank was “suffering from extraordinary panic caused by a well orchestrated smear campaign, quoting BSP as the source of inaccurate and malicious imputations.”

Banco Filipino has been seeking P25-billion worth of financial assistance and regulatory relief as well as P19 billion in compensation for its alleged illegal closure in 1985.

A Makati court issued an order on Nov. 18, 2009 directing the BSP and the MB to immediately implement Banco Filipino’s approved business plan. 

Likewise, the Supreme Court also affirmed a decision by the Court of Appeals (CA) ordering a court to proceed with the P18.8-billion damage suits filed by Banco Filipino against the Central Bank Board of Liquidators (CBBoL) in connection with the bank’s closure in 1985.

The bank, with a popular slogan “Subok na Matibay, Subok na Matatag,” was founded in 1964 by Tomas Aguirre. It has 32 branches in Metro Manila and nearby areas as well as 30 branches in the provinces.

In its website, Banco Filipino claimed that it was ordered closed by the Central Bank in 1985 due to alleged insolvency despite the bank’s outstanding performance. In 1966, Banco Filipino emerged as the biggest savings bank in the country with 92 branches prior to its closure.

In 1994, the bank opened 15 of its 92 branches. It now has 62 branches nationwide.

Banco Filipino vice chairman and former Securities and Exchange Commission chairman Perfecto Yasay Jr. said he would file the necessary case against BSP.