Banking system sound & stable - BSP

Banking system sound & stable - BSP
By Lawrence Agcaoili (The Philippine Star)
Updated March 21, 2011 12:00 AM

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said over the weekend that the country’s banking industry remains sound and stable despite the closure of insolvent Banco Filipino Savings and Mortgage Bank last week.

BSP Governor Amando M. Tetangco Jr. said monetary authorities have not monitored any negative impact on the banking industry since Banco Filipino was ordered closed by the central bank’s Monetary Board last March 17.

“As we said in our statement, the banking system remains sound and stable. We have not observed any negative impact on the rest of the banking system,” Tetangco stressed.

Monetary authorities believe that 2010 was a banner year for Philippine banks contributing largely to the country’s stronger-than-expected economic growth.

The lending, deposits, and profitability of banks posted healthy growth rates in 2010. The total assets of the banking system rose by 7.2 percent to P6.7 trillion as of end-September last year from P6.2 trillion as of end-September of 2009. Bank deposits went up by 9.8 percent to P5.1 trillion last year while banks loans posted a double-digit growth of 11 percent to P2.314 trillion as of January.

On the other hand, the income of Philippine banks doubled to about P41.1 billion as of end-June last year from P20.5 billion as of end-June in 2009.

The BSP said the banking system posted a capital adequacy ratio of 15.23 percent on solo basis and 16.21 percent on consolidated basis as of end-June last year. The ratio was well above the 10 percent minimum requirement of the BSP and the 8 percent standard ratio of the Basel Accord.

The BSP believes that the implementation of tighter capitalization standards for major players in the banking industry under BSP Circular 639 or the implementing regulation on the International Capital Adequacy Assessment Process (ICAAP) this year would further strengthen the country’s financial sector.

Furthermore, the central bank has also raised the minimum capital requirement for new entrants in the banking industry to boost their competitiveness and further strengthen the country’s banking system.

The BSP recently raised the minimum capital requirement for thrift banks to P1 billion from P325 million for those with head offices located in Metro Manila and to P500 million from P52 million for those with head offices in Cebu and Davao. Furthermore, the minimum capital requirement for thrift banks in other areas was likewise raised to P250 million from P52 million.

The higher minimum capital requirement would be imposed on new thrift banks as well as those converting their existing bank to a thrift bank and those relocating their head office in areas of higher classification.

Last November, the BSP raised the minimum capital requirement for rural banks by 53 percent to as much as 285 percent. The last time the required minimum capital for rural banks was increased was way back in December 1999.

The BSP raised the minimum capital requirement for rural banks with head offices in Metro Manila to P100 million from the current level of P26 million while the capital requirement for rural banks in the cities of Cebu and Davao was increased to P50 million from P13 million.

On the other, the minimum capital requirement for rural banks in the first to fourth class municipalities was raised to P10 million from P6.5 million followed by the fifth to sixth class municipalities was increased to P5 million from the existing P2.6 million.

Prior to the decision of the Monetary Board, the BSP imposed a minimum capital requirement of P6.5 million for rural banks located in first to third class cities and first class municipalities as well as P3.9 million for banks located in fourth to sixth class cities and second to fourth class municipalities.

Latest data showed that the number of banks operating in the Philippines were reduced by 33 in the first nine months of last year on the back of the continued consolidation of major players in the industry as well as the closure of problematic banks.

Data released by the central bank showed that the number of banks stood at 764 as of end-September last year from 797 as of end-September in 2009 and nine banks fewer that the end-June number of 773 due to mergers and consolidations as well as the exit of weaker players in the banking system.

On the other hand, the number of universal and commercial banks was steady at 38 while the number of thrift banks was also unchanged at 73. The number of rural banks fell to 661 from January to September last year compared to 653 in the first nine months of last year from 686 in the same period in 2009 due primarily to the closure of weaker banks.

The BSP reported that the number of branches of universal and commercial banks, thrift banks, and rural banks increased by 176 to 8,740 in the first nine months of last year from 8,564 in the same period in 2009.

“Subok na matibay, Subok na matatag” no more

Banco Filipino with a popular slogan “Subok na Matibay, Subok na Matatag” was finally ordered closed by the BSP last March 17 after it failed to reopen for three straight days as the liabilities of the bank owned Aguirre family overwhelmed its assets by P8.4 billion. It was placed under the receivership of the PDIC as monetary authorities to prepare charges against the board of directors and officials of the beleaguered bank.

BSP Deputy Governor Nestor Espenilla Jr. said the central bank’s seven-man Monetary Board decided to place Banco Filipino under PDIC receivership as examinations found that it has insufficient realizable assets to meet its liabilities after the bank’s net realizable value reached —P8.4 billion meaning its liabilities are bigger than its assets.

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

He explained that the policy setting body of the BSP also took note of the failure of the board of directors and managerment 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 loan to Banco Filipino in 2002 of which P2.6 billion are still outstanding.

The decision, according to him, would provide immediate relief to the 177,652 depositors of Banco Filipino.

Furthermore, Espenilla said the Monetary Board authorized the filing of appropriate cases against directors, officers, and other individuals who may be found liable for violation of banking laws and the BSP rules and regulations.

He revealed that bank examiners found out that Banco Filipino has been posting losses averaging P2 billion a year from 2007 to 2009. The figure mounted to about a monthly loss of P277 million in the first nine months of last year.

Aside from interest payments amounting to P1 billion a year, Espenilla said Banco Filipino 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 fourth quarter alone. “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 of Banco Filipino were extended to entities of directors, officer, stockholders and related interest (DOSRI).

On the other hand, PDIC executive vice president Cristina Orbeta said the government-owned insurer would pay P9.4 billion worth of deposit claims of Banco Filipino out of its Deposit Insurance Found (DIF) amounting to P64.6 billion. BSP data showed that the deposit base of Banco Filipino dropped to P15 billion as of March 15 from about P17 billion as of end-December.

PDIC assured that about 97 percent of the total deposit accounts of the closed bank are fully insured by the maximum coverage of P500,000. Banco Filipino has 177,652 deposit accounts.

The PDIC official said the agency would fasttrack the payment of deposits with balances of P5,000 and below that make up 53 percent of total accounts.

“We target to start payment for depositors with accounts of P5,000 and below with no outstanding loans and whose addresses are current in the bank records, a week after take over. These depositors need not file claims. We shall mail payment directly to them via registered mail,” she added.

According to her,PDIC would send postal money order (PMO) that could be encashed at any of the over 1,400 post offices and over 300 branches of Land Bank of the Philippines nationwide.

On the other hand, depositors with balances of P5,000 and below who have outstanding loans or whose addresses are not updated as well as depositors with balances above P5,000 need to file claims.

The PDIC will hold Depositors Forums starting this week to explain procedures and requirements on filing claims and answer depositors’ queries.

She also reminded borrowers of Banco Filipino to settle their outstanding loans to authorized PDIC deputies or designated PDIC accounts with the Philippine National Bank (PNB).

Orbeta told reporters that PDIC personnel have been deployed to the 62 banking units of Banco Filipino nationwide to gather and preserve the bank’s records and assets, preparatory to examination so that the claims servicing process may start.

Banco Filipino to contest closure

Banco Filipino vice chairman and former Securities and Exchange Commission chairman Perfecto Yasay Jr. vowed to contest the closure of the “asset rich” bank and threatened to haul BSP officials to court.

Yasay said the bank was not insolvent as it has assets amounting to over P25 billion. The bank was founded in 1964 by Don Tomas Aguirre and now 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. As early as 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 and has now 62 branches nationwide. About 740 employees of Banco Filipinos are about to lose their jobs.

As early as March 15, several branches of Banco Filipino were closed after its officials announced that it was “suffering from extraordinary panic caused by a well orchestrated smear campaign quoting BSP as the source of inaccurate and malicious imputations.

“As you are all aware, we have been suffering from extraordinary panic caused by a well orchestrated smear campaign quoting BSP as the source of inaccurate and malicious imputations,” Banco Filipino executive vice president Maxy Abad stated in the memo dated March 14.

Abad said the bank is exhausting all efforts to protect its depositors by asking the BSP to stave off the heavy withdrawals by denying the derogatory news articles attributed to them and by providing emergency loan assistance after submitting sufficient collateral.

“Despite the urgency of all these requests, we have not received any official work from the BSP Monetary Board on the action they have taken, if any. Furthermore, we have also reiterated the immediate implementation of the approved business plan as ordered by the Makati regional trial court,” the bank official said.

He reiterated that the lower court in Makati has issued an order prohibiting the BSP, its officials, agents, and any persons acting for and in their behalf from committing any act prejudicial to the operation of the bank

Banco Filipino has been seeking P25 billion worth of financial assistance and P19 billion in damages as compensation for its alleged illegal closure of the bank in 1985.

The Makati RTC issued an order in November 18, 2009 directing the BSP and the Monetary Board to immediately implement Banco Filipino’s approved business plan. The court directed the BSP and the policy setting body to release the bank’s financial assistance and package of regulatory relief without delay.

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

Yasay has accused the BSP of oppressive and arbitrary action despite the ruling made by the Supreme Court that the closure order of the old Central Bank in 1985 as illegal.

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