Express Bank violated rules – BSP

Express Bank violated rules – BSP

By LEE C. CHIPONGIAN
July 11, 2011, 1:30am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP), which has assisted the Department of Finance's (DoF) pursuit of legal charges against the Local Water Utilities Administration (LWUA) and its unauthorized cash infusion in Laguna-based Express Savings Bank, said the thrift bank violated several rules and regulations that ultimately led to its closure last week.

In a letter to DoF Secretary Cesar V. Purisima, BSP Deputy Governor Nestor A. Espenilla Jr. said the BSP had "categorically" denied Express Bank's request for approval of the proposed acquisition by LWUA of a majority shares of stock in the bank, formerly owned by the clan of businessman William T. Gatchalian.

Espenilla said that despite the rejection of the proposed investments and cash deposits, LWUA, which was then headed by former congressman Prospero Pichay, transferred P400 million of government money in Express Bank. This capital infusion was booked in the deposit for stock subscription account.

"(Also) the Gatchalian family already turned over the management of Express Bank to a new set of board of directors composed of LWUA-appointed directors," Espenilla added.

Last April, Purisima and the DoF filed criminal charges against Pichay and other LWUA officials for the "anomalous" acquisition of the thrift bank which was then owned by the Gatchalian family and its corporate vehicle, The Wellex Group. Based on BSP data, before the LWUA cash infusion, the Gatchalian family owned 86.68 percent of the bank.

Espenilla said that they have not approved LWUA's acquisition of 59.99 percent of shares, thus diluting The Wellex Group's stocks to 26.85 percent.

The Monetary Board also denied the request for the transfer of shares of the bank's voting equity to LWUA on June 2009. The BSP likewise did not approve the new set of the Board of Directors of Express Bank, which elected Pichay as chairman.

What the BSP directed Express Bank to do, was to hold LWUA's equity investments as a trust fund which should "not be used in the business of Express Bank and should neither be reflected in the books of Express Bank."

LWUA is a government-owned and controlled corporation.

The DoF said the equity investment of LWUA to the thrift bank was not in pursuit of its mandate as a specialized lending institution.

"The funds to be used for acquiring major stockholdings in Express Bank can be utilized instead by LWUA in providing the much needed funding by several water districts, which cannot access funds from the government financial institutions and private financing institutions," said Espenilla, quoting a DoF opinion.

Espenilla said other violations that the Express Bank committed includes the acceptance of government deposits without approval from the BSP.

They have ordered the bank to return the cash deposits of the LWUA and other local water districts however this directive has been ignored. The "blatant disregard of existing (BSP) rules and regulations," the BSP official said, put government funds at risk.

Last week, the Philippine Deposit Insurance Corp. (PDIC) issued a statement that the Monetary Board has placed Express Bank under receivership. The PDIC took over the bank's assets on July 8 based on MB Resolution No. 987B.

Express Bank operates four branches in Laguna. As of March 31, PDIC said the thrift bank have total deposit liabilities of P608.36 million consisting of 2,673 accounts.

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