BSP to CA: Banco Filipino operated pyramid scheme

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) informed the Court of Appeals (CA) that there was an urgent need to shut down beleaguered Banco Filipino Savings and Mortgage Bank after the erstwhile largest savings bank in the country operated a pyramid scheme.

In a 170-page comment or opposition filed yesterday before the appellate court, the BSP and some members of the Monetary Board said there was no option left but to order the closure of Banco Filipino and place it under receivership of the Philippine Deposit Insurance Corp. (PDIC) last March 17 after it continued to engage in a Ponzi scheme where withdrawals were funded by later deposits.

“In view of all these undisputed facts, BSP’s action in recommending and thereafter placing under the receivership of PDIC was the only course left in order to protect Banco Filipino’s depositors, creditors, and the public in general,” BSP stated in the comment.

The central bank told the appellate court that Banco Filipino lured depositors by offering 6.0 percent to as high as 14 percent interest for special savings accounts while most banks were paying only 1.8 percent to 3.3 percent.

Instead of investing the deposits, the BSP said Banco Filipino used these to pay the interest of old deposits and for day-to-day operations.

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. It was named after Charles Ponzi who became notorious for using the technique in early 1920.

The BSP said Banco Filipino owner Albert Aguirre and other bank directors, officers, and so-called related interests (DOSRI) borrowed P2.2 billion of the depositors’ money and never paid them back and violated existing caps or limits set by the BSP.

The central bank added that Banco Filipino paid P250 million to officers and consultants as well as P245 million in legal fees to former Securities and Exchange Commission (SEC) chairman and bank vice chairman Perfecto Yasay Jr. and lawyer Harry Roque last year.

“Banks are not created for the benefit of its directors or officers. Instead Banco Filipino was being run to the extreme prejudice of its depositors since it was violating various laws and BSP regulations, including its refusal to submit periodic financial statements for the few years to hide its true financial weakness,” the BSP said in a press statement.

Based on a memorandum submitted by the Integrated Supervision Department II of the BSP and the report of examination cited in the comment, Banco Filipino incurred average losses of P2.8 billion for the years 2007 to 2009. During the period, the bank posted an average gross income of around P242.5 million that was insufficient to pay the average interest expense of P1.1 billion.

The BSP pointed out that Banco Filipino was insolvent as it had P8.4 billion more liabilities than assets.

“Under the law, BSP through the Monetary Board, must put an insolvent bank under receivership to protect the depositors,” it said.

Furthermore, the BSP said bank officials led by Yasay and executive vice president Francisco Rivera admitted in open court that the bank was unable to generate enough income from normal banking operations after it accumulated losses of P12 billion.

The central bank noted that Banco Filipino officials said the bank had a capital deficiency of P1 billion, preventing it from covering deposit liabilities and operations “without safety” to its creditors, depositors and the general public.

The BSP said Banco Filipino failed to hold any meeting of its board of directors and its executive committee to review the financial situation of the bank.

Banco Filipino managed to lure 177,652 depositors with accounts amounting to P15 billion, 53 percent of whom have accounts with deposits below P5,000 each. Deposit accounts amounting to P500,000 are covered by insurance and would be paid by the PDIC.

The central bank also revealed that Banco Filipino owes the BSP about P4.4 billion in past due loans as of September last year, since chunk of the beleaguered bank’s assets are losses that have been capitalized.

It added that Banco Filipino was no longer able to settle its obligations as they fall due.

As of March 15, the BSP said the Philippine Clearing House Corp. (PCHC) returned about P798-million worth of checks to Banco Filipino as it had insufficient balance in its demand deposit account with the central bank.

‘Subok na matibay, subok na matatag’

The rising number of complaints from depositors due to the failure of Banco Filipino to open its 32 branches in Metro Manila and 30 branches in the provinces last March 15 prompted the BSP to order its closure last March 17.

The bank, with a popular slogan “Subok na Matibay, Subok na Matatag,” was founded in 1964 by Tomas Aguirre.

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.

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

The bank has questioned the closure order before the CA and reiterated that it has P30-billion worth of real estate assets that is more than enough to cover its deposit liabilities amounting to P15 billion.

Last April 1, the BSP filed criminal charges against bank directors and offices for falsification, grant of illegal loans, and major violations of banking laws, rules and regulations.

Charged were chairman and president Teodoro Arcenas Jr., vice chairman Albert Aguirre, executive vice president Maxy Abad, executive vice president Catherine Aguirre-Hernandez, senior vice president Roberta Afable and directors Yasay, Orlando Samson, Adelaida Adduru-Bowman, Francisco Rivera, and Ramon Montano.