Publicly listed Urban Bank has declared a bank holiday or temporary suspension of operations starting today due to liquidity problems caused by heavy withdrawals.
In a statement released last night, Urban Bank president and chief executive officer Teodoro C. Borlongan said that the decision to declare a bank holiday was made during an emergency meeting of the bank's board of directors.
"It is unfortunate that we have to make this decision, but it is to the best interest of our clients and for the preservation of our assets that we have to declare a bank holiday," Borlongan said.
It was not immediately clear, however, whether Urban Bank will proceed with its planned merger with Banco de Oro.
Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura who met with Urban Bank officials prior to the release of the statement said, "anything is possible at this stage" when asked if the merger between Urban Bank and Banco de Oro will proceed.
Sources, however, said Banco de Oro balked at the extent of Urban Bank's financial woes. They said Banco de Oro, upon examination of Urban Bank's finances, decided to do a double take.
Borlongan said the decision was prompted by the heavy cash withdrawals from the bank over the past four weeks.
"The liquidity problem is also attributed to the negative reaction of the bank's clientele and depositors on the reported downgrading of the bank into a thrift bank despite assurances that the plan was to convert the bank into a holding company that will focus on information technology and mortgage banking," he said.
Urban Bank was previously categorized as an expanded commercial bank which allowed it to invest in non-allied interest such as real estate and investment banking. But its license was later downgraded to a regular commercial bank after it failed to shore-up more funds to comply with the higher minimum capital requirement imposed by the BSP.
Borlongan said Urban Bank remains "solvent" and vowed to service its depositors. He said the bank holiday will enable Urban Bank to look for possible entities that will take over ownership and management.
A merger with Banco de Oro would have rescued Urban Bank from its financial woes. Borlongan said despite Urban Bank's financial difficulties, it did not seek financial help from the BSP.
Buenaventura confirmed that the bank did not seek any BSP assistance and instead liquidated some of its assets.
Sources said Urban Bank was adversely affected by the 1997 financial crisis which affected its real estate investments.
Urban Bank was already on its way to be a universal bank when the crisis hit and it was forced to abandon its plans for a universal bank status.