MANILA
On 12 March 2011, the Philippine Stock Exchange (PSE) effectively delisted thrift bank Banco Filipino Savings and Mortgage Bank (BF) for "continuous violation" of disclosure rules and failing to submit structured reports. At least for two succeeding years, the bank failed to submit at least an annual report to the bourse.
In the 1980s, the Central Bank of the Philippines, under the Marcos regime closed the bank, supposedly done so arbitrarily. Then the Supreme Court ordered it opened in 1994. The rebuilding plan that the Makati Regional Trial Court approved in November 2010 required that BSP infuse P25 billion in financial assistance to BF. BSP however appealed the order to the Court of Appeals. BF later filed a complaint for contempt against BSP. BSP filed an injunction case at the Court of Appeals.
On 28 March 2011, BSP revealed that the bank suddenly listed Perfecto Yasay Jr., a former chairman of the Securities and Exchange Commission, as its vice chairman, replacing Albert Aguirre. Since the recent bank holiday, only Yasay came forward to defend publicly the thrift bank, claiming it had more than P30 billion assets.
History
Banco Filipino got established in 1964, founded by Tomas Aguirre. The Aquirre family controlled the thrift bank. It innovated in 1965 to become the first all-woman bank, making it a hit. In 1969 it became the first bank to process online transactions in real time, giving customers the ability to deposit in any online BF branch. Since 1966 until its closure in 1985, BF was the largest savings bank in the Philippines.
In 1972, BF grew and was voted the most preferred bank in Metro Manila in 1975. By 1981, it had 89 branches, four billion pesos worth of assets, three million customers and three thousand shareholders.
But on 23 July 1984 BF declared a self-imposed bank holiday due to illiquidity. CBP did not order it closed immediately but placed it under conservatorship a week after the declaration. The central bank infused P3 billion pesos as a credit to help it. After six months of examination and supervision, the BSP released the supervision and examination (SES) report on 23 January 1985.
At the recommendation of the report, the Central Bank of the Philippines closed the bank on January 25 on the basis of illiquidity and insolvency. For most of the 1980s it remained closed until the Supreme Court declared in 1991 the bank's closure as illegal. The Court found the report was based on incomplete findings. It subsequently opened in 1994 with only 15 branches out of its original 92 branches.
In 1996, the Philippine Stock Exchanged relisted it in the bourse.
The Supreme Court in 1999 declaired that BF was entitled to damages payments because of its illegal closure.
In 2002, BSP extended P3.5 billion worth of emergency loan to Banco Filipino, of which P2.6 billion is still outstanding.
Current Condition
Bank examiners found out that Banco Filipino has been posting losses averaging P2 billion a year from 2007 to 2009, which reached to about a monthly loss of P277 million last in the first nine months of 2010. As of December 2010, it incurred P12 billion in losses. BF executive vice president and corporate secretary Francisco Rivera admitted that the bank continued to lose anywhere between P800 million to P900 million a year since it reopened in 1994. This ongoing bleeding of its finances may have been the reason it stopped filing financial reports to the PSE, resulting to its recenting delisting in the bourse.
Aside from interest payments amounting to P1 billion a year, BF has been incurring huge expenses after it paid compensation of P500 million or 2.5 times its gross income and legal fees amounting to P131 million in the third quarter of 2010 alone. More than half of the bank's outstanding loans amounting to P4.1 billion was extended to entities of directors, officer, stockholders and related interest (DOSRI). The 900 million emergency loan from the BSP in 2002 may as well have been swallowed in this DOSRI loans.
As of 10 September 2010, 91 percent of the bank's total loans became past due, which meant their principal and interest remained unpaid 30 days after their due date. Of this uncollected overdue loans, more than half (P2.2 billion) had been loaned to DOSRI.
BSP also revealed that it paid salaries, benefits, and professional fees (SBF) more than its gross income. Between 2007 and 2009, BF averaged an annual gross income of P242.5 million, but its SBF expenses amounted to P597 million a year, or 2.5 times more than its annual gross income.
BF also owed BSP about P4.4 billion in past-due loans as of September 2010.
The BSP pointed out in its comment to the Court of Appeals filed in April 5 that Banco Filipino was insolvent as it had P8.4 billion more liabilities than assets.
Voluntary Closure
On 15 March 2011 (Tuesday), BF voluntarily closed its branches from depositors without prior notice. Only the assigned guards can be found in branch premises, who in turn told bewildered depositors that the employees have not reported to work.
Information coming from an insider in a Dumaguete branch indicated that the employees received on March 14 (Monday) at 11:00 PM not to report to the bank the following day.
Two days later, the BSP ordered the closure of BF, and placed it under the receivership of Philippine Deposit Insurance Corp. (PDIC). BSP said that its liabilities topped its assets by P8.4 million. It had gathered evidence showing the bank's top officers mismanaged their depositors' money.
Banking Practices
Nestor Espenilla Jr., deputy governor of the Bangko Sentral ng Pilipinas (BSP), said that BF engaged in high-risk, high-yield schemes to attrack depositors, such as offering 14 percent interest on deposits despite the fact that other banks offer 1-2 percent only.
Because of the dismal income performance, BF lured depositors with interest rates way above prevailing market rates. While most banks pay interest of 1-2 percent for special savings deposits, BF paid so much more--from 6-13.9 percent. This result to its interest expense higher than its interest income. Between 2007 and 2009, it averaged a negative net interest margin of P1 billion a year.
BSP also disclosed that a big chunk of BF assets were actually losses that had been capitalized.
In its 170-page comment filed with the Court of Appeals on April 5, BSP said that BF operated a Ponzi scheme. Instead of investing the deposits, the savings bank used these to pay the interest of old deposits and for the daily operations. Named after its originator Charles Ponzi who made it notorious in early 1920, a Ponzi scheme is "a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned but from their own money or money paid by subsequent investors," The Philippine Star reported. This resulted into a dismal performance of P242.5 million in average gross income that cannot serve its average interest expense of P1.1 billion.
Views
Senator Juan Ponce Enrile (Finance Secretary when BF was first closed in the 1980s): "You know, the money there does not belong to the bankers, it belongs to the depositors. Kawawa ang mga depositors (The depositors are the ones at a losing end), they have to be protected."
Sources
Lawrence Agcaolili: "BSP to CA: Banco Filipino operated pyramid scheme," The Philippine Star 6 March 2011
Roderick Dela Cruz: "Banco Filipino cooked the books, says Bangko Sentral,"Manila Standard Today 28 March 2011
Lawrence Agcaoili: "PDIC starts inventory of Banco Filipino assets," The Philippine Star 23 March 2011
Roderick Dela Cruz: "BSP: Banco Filipino felled by high-risk game," The Manila Standard Today 23 March 2011
Jhunnex Napallacan, Irene Sino Cruz, Doris Dumlao: "Banco Filipino blames BSP," Philippine Daily Inquirer 16 March 2011
___: "Banco Filipino operates 'without safety'--BSP," Manila Standard Today 30 December 2010
