Aquino defends BSP on closure of Banco Filipino

MANILA, Philippines -  President Aquino yesterday defended the Bangko Sentral ng Pilipinas (BSP) for closing the insolvent Banco Filipino (BF) for unsound banking practices.

Banco Filipino has filed a petition before the Court of Appeals seeking a temporary restraining order or an injunction to stop the BSP and the Philippine Deposit Insurance Corp. (PDIC) from placing the bank under receivership.

“They (BF) pay out double digit interest rates while other members of the industry pay out single digit interest rates. They accumulate funds faster but how will they be able to pay the interest?” Aquino said.

Banco Filipino, owned by the Aguirre family, was run by polo player Albert Aguirre, whose brother Adolfo is the father of Aquino’s former girlfriend Shalani Soledad.                     In a 170-page comment, the BSP told the appellate court that it ordered the bank placed under PDIC receivership last March 17 because it operated under a Ponzi scheme, a fraudulent investment scheme in which 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 said.                                                                              

The central bank said the bank lured depositors by offering interest rates within the range of 6.0 percent to 14 percent for special savings accounts when most banks were paying only 1.8 percent to 3.3 percent.

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

A Ponzi scheme is an investment operation that pays returns to investors not from actual profit earned but from money paid by subsequent investors. It was named after Charles Ponzi who became notorious for using the technique in the1920s.                                                                    

The BSP said Banco Filipino borrowed P2.2 billion of the depositors’ money and never paid them back. The bank also 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 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 from 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 because its liabilities overtook its asset base by P8.4 billion.

The central bank noted that Banco Filipino had a capital deficiency of P1 billion, preventing it from covering deposit liabilities. The bank also 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, mostly small depositors with accounts having deposits below P5,000. Its whole deposit base, however, swelled to P15 billion.  

Now that the bank has been placed under receivership, deposits as high as P500,000 would be paid by PDIC. 

Banco Filipino also owes the BSP about P4.4 billion in loans as of September last year.

As of March 15, the Philippine Clearing House Corp. returned P798 million worth of checks to Banco Filipino because it had insufficient balance in its demand deposit account with the central bank.