‘Unsound’ banking practices doomed BF—BSP

'Unsound' banking practices doomed BF—BSP

By Michelle Remo
Philippine Daily Inquirer

First Posted 16:03:00 03/27/2011

Filed Under: business, Banking, Central Banks
Most Read
MANILA, Philippines—The Bangko Sentral ng Pilipinas has accused officers of Banco Filipino Savings and Mortgage Bank (BF), which was recently placed under receivership, of mismanaging deposits of the public by using the money for unsound lending.

The BSP specifically said that more than half, or P2.2 billion, of its outstanding loans of P4 billion were those extended to its directors, officers, stockholders and related interests (DOSRI). "Related interests" are companies related to a bank.

The BSP also said that 91 percent of its outstanding loans had been past due as of September 2010.

Moreover, the central bank said spending by BF on salaries, benefits, and professional fees from 2000 to 2009 averaged at P597 million a year, more than twice its gross income of only P242.5 million.

Regulators said the "unsound" practices by the bank led to its failure.

"...BF mismanaged money entrusted to them by their depositors by its lavish spending and allowing loans to remain unpaid, including billions in overdue loans granted to its stockholders, officers and related companies," the central bank said in a statement issued Friday.

BF owes the central bank P4.4 billion in past due loans as of September 2010, according to the BSP. The loans were used to address its liquidity problems.

Prior to the release of the statement, BSP Deputy Governor Nestor Espenilla Jr. said the central bank was looking at potential cases it might file against officers of BF.

He said the central bank's legal team had been reviewing records of the bank to determine legal liabilities of its officers.

On March 17, the central bank placed BF under the receivership of Philippine Deposit Insurance Corp., three days after BF failed to service withdrawals of its clients.

Since then, PDIC has taken over BF's assets and liabilities, including deposit liabilities. PDIC said it has been expediting the process of validating deposit accounts so that valid deposit insurance claims would be settled soon.

Perfecto Yasay Jr., vice chairman of the BF, earlier protested the placement of the bank under receivership. He said the BSP was wrong in closing the bank, stressing that BF was not insolvent.

He said the bank had sufficient assets, which could very well serve the withdrawals of its clients if turned into cash.

Yasay blamed the BSP for not granting it an emergency loan, which could have temporarily addressed the lack of cash to service withdrawals of clients on the days prior to its placement under receivership.

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