PDIC finds evidence of 'unsound banking practices' by Urban Bank

Urban Bank may have been engaging in "unsound banking practices" involving the so-called "self-dealing" which may have contributed to the demise of the bank.

Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura said over the weekend that the "Philippine Deposit Insurance Corp. (PDIC) had looked at some transactions of Urban Bank and there were questions on some transactions they had."

He said there was a discussion on the possible violation of the so-called "self-dealing."

Self-dealing basically involves a transaction wherein one institution buys the assets of an affiliate or a subsidiary. A violation is committed if the transaction prejudices the creditors or investors of the purchasing entity especially if the asset being bought is actually a bad asset.

Buenaventura pointed out that "if there was self-dealing, then there's obviously a violation."

He pointed out, however, that the investigation has just started, "so we are not pre-judging them on whether they violated or not violated because we haven't seen it."

Buenaventura said "if there was self-dealing, then there's obviously a violation," adding that the violation could be "unsound banking practice or creditors could sue for fraud."

The BSP and the PDIC also have to check the transaction on the side of the investment house because so far what had been examined is the transaction on the bank side.

Urban Bank president Teodoro Borlongan, however, in an interview with The STAR insisted that there was nothing wrong in Urban Bank helping out its investment house.

The BSP, based on its initial examinations, has traced the problem of Urban Bank to its support of its investment house, Urbancorp Investment Corp.

Meanwhile, Urban Bank will not seek legal action against the BSP and the PDIC for putting the bank under receivership even if it was still solvent since the bank was confident the regulators will be able to reopen the bank within 90 days, according to banking sources.

They said Buenaventura and PDIC president Roberto Nazareno have promised Urban Bank officials in a meeting last Thursday night that the bank will be rehabilitated with new owners.

"It's a bit strange that the bank was closed on day zero of the bank holiday," sources said. "It was the only bank that was closed and placed under receivership on the same day that it declared a bank holiday whether it is under the old Central Bank or the BSP."

They said the regulators did not even take time to determine the bank's financial condition, assess its assets and liabilities. They said a bank could only be put under receivership if it was insolvent, that is, if it has a negative capital. The bank they said has a positive capital account of P2.2 billion as of April 25. -- With Jun Ebias