Former, current DBP officials face off at Senate on behest loans

MANILA, Philippines - Former and current officials of the Development Bank of the Philippines (DBP) faced off at a joint Senate committee hearing yesterday over allegations of behest loans to a firm owned by businessman Roberto Ongpin.

The businessman, a trade minister during the Marcos regime, allegedly used the P510-million and P150-million loans to Delta Venture Resources Inc. (DVRI), which he owns, to buy 50 million shares in Philex Mining Corp. in 2009 for P12 each. The shares were later sold for P21 each to Two Rivers Pacific Holdings Corp. of businessman Manuel Pangilinan.

The Securities and Exchange Commission (SEC) said Ongpin may be liable for insider trading for his purchase of the shares, citing his being Philex’s director and vice chairman.

Incumbent DBP president Francisco del Rosario and DBP chairman of the board Jose Nuñez clashed with former DBP president Reynaldo David over the legality of the loans to DVRI during yesterday’s hearing on the issue by the Senate Blue Ribbon committee and the committee on banks, financial institutions and currencies.

Ongpin, who is out of the country, issued a statement through his lawyer Alex Poblador. Ongpin left for a business engagement in Europe on Sept. 23, weeks before the Senate announced the holding of public hearings. He is expected to return to Manila on Oct. 25. The next Senate hearing is on Oct. 14.

Ongpin said the loans should not be considered “behest” because based on rules and jurisprudence, “only defaulted or non-performing loans can be legally classified as behest.”

Ongpin said DVRI, established in 1977, is not undercapitalized and that its paid-up capital is “irrelevant.”

David said transactions with DVRI were aboveboard. “The transactions will always be advantageous to the DBP sans any irregularities or violations of laws, rules, and regulations,” he said.

David said records showed that the net worth of DVRI was more than thrice the size of the loan. “Hence, the transaction was risk-less and payment is guaranteed as the shares were pledged and always remained with DBP,” he added.

He said the loans “were fully paid even before their respective maturity dates.” But Del Rosario rebuffed David’s claims, saying basing approval of loans on the availability of collateral was risky.

“If I may clarify, a bank normally operates and grants a loan on the basis of capacity client’s capacity to pay, we are not in the business of owning assets of clients which are not able to pay,” Del Rosario explained. “If the client is not able to pay, you end up with non-earning assets which will affect your balance sheet.”

Aurita Villoso of the DBP’s internal audit noted deviations from DBP internal policies in its loans to DVRI. “These (policies) were waived,” Villoso told senators.

“It means that prior to the granting of loan, they waived the evaluation of DVRI’s financial capacity,” Villoso said, when asked for explanation by Sen. Sergio Osmeña. Osmeña chairs the Senate committee on banks, financial institutions and currencies.

“We have an observation that… evaluation of and approval were done in haste,” she added. 

“This last phrase is throwing me off because they waived DVRI’s capacity to pay the loan,” Osmeña said in reaction.

Senators noted that Ongpin and David were both members of the Philex board at the time the deals were made.

At the start of the hearing, Nuñez assured the Senate that the present board “will always be mindful that the DBP’s developmental mandate should be more responsive to the needs of public interest.”

“We observe and practice the principles of good governance and transparency in the conduct of our banking business and operations. We realize too well that the continued viability and sustainability of DBP as a banking institution depend on our compliance with banking laws and regulations as well as our internal credit policies and procedures,” Nuñez said.

He said current DBP executives had filed cases with the Ombudsman against former officials involved in irregularities because “we are morally and legally bound to establish accountabilities in the bank’s loan and other transactions in order to protect the DBP and all its stakeholders.”

He said the cases are “based on the well-documented findings stated in the report of the DBP’s Internal Audit as well as that of the Commission on Audit (COA).”

COA findings

COA chair Gracia Pulido-Tan told the Senate committees that the sudden spike in the prices of Philex shares had led them to suspect that insider trading had taken place. She said they began doing audit on the DBP deal last April.

“The finding of our auditor is because of time, in less than 30 days, there was such an appreciation of the (share) price, and considering the amount of money that could have been incurred as a profit by government, there are certain implications that some form of insider trading may have happened or some fraud may have happened, which at this point we are not saying to be a fact,” Tan said.

“The price had almost doubled that, had DBP been the seller of the shares to Two Rivers, DBP would have made P400 million more than what it did when it first sold shares to DVRI. DBP could have made a profit based on P21 per share if it had sold directly to Two Rivers,” Tan said.

“On the relevant dates, there was interlocking directorship between DBP and Philex. Mr. Rey David was independent director and chairman of the audit committee of Philex, while Mr. Ongpin was vice chair. Manny Pangilinan (of First Pacific) at that time was chair,” she said.

Senators Ferdinand Marcos Jr. and Francis Escudero sought clarification from Tan if there was political motive for the COA probe. Tan at first said a column written by The STAR columnist Jarius Bondoc prompted the inquiry. She later said it was actually a DBP Board resolution that made them initiate an inquiry.

“We have to determine whether there is political motive behind all these probes…if this is instigated as part of a witch-hunt,” Marcos said after the hearing.

In his opening statement, Blue Ribbon chairman Sen. Teofisto Guingona III reiterated the need for his committee to look into the suicide of DBP lawyer Benjamin Pinpin, who killed himself allegedly after caving in to pressure from the ongoing investigation of the behest loans.

“We will not preempt the Philippine National Police in solving the mysterious death of attorney Benjamin Pinpin. But it is the responsibility of the Senate to look into the root of this mystery – the reported half a billion-peso loan granted by the DBP to a personality with strong ties with the previous administration,” Guingona said.

Ongpin, in his statement, said “it is beyond doubt that the investigation has caused the suicide” of Pinpin.

“It is also a fact that DBP’s profits for the first half of 2011 were down 39 percent from last year’s equivalent period… Thus, it is obvious that all of Nunez’s accusations is a ‘smokescreen’ to divert attention from Atty. (Benjamin) Pinpin’s suicide and his (Nuñez) dismal performance at DBP,” Ongpin’s statement read.