BSP acts to prevent repeat of Unitrust Bank fiasco

Stung by the collapse of Unitrust Development Bank, the Bangko Sentral ng Pilipinas (BSP) wants authority to clear all bank takeovers before the transactions are consummated to prevent similar failures.

BSP Governor Rafael Buenaventura said the central bank is looking into its own rules and regulations to explore mechanisms that would allow it to clear the sale of bank shares before they become final.

According to Buenaventura, such a mechanism is necessary to ensure that bank owners who decide to sell their holdings would still remain responsible for the bank until the BSP clears their transaction.

In the case of Unitrust, controversial Japanese businessman Genta Ogami bought into the bank and within days put out advertisements announcing that it was expanding its banking mission to include, essentially, saving the world.

The BSP immediately looked into the sale of Unitrust to Ogami, sparking a bank run that ultimately forced the bank to shut down. The Philippine Deposit Insurance Corp. has taken over Unitrust Bank.

According to Buenaventura, the former owners of the bank had repeatedly argued that they could no longer be held accountable for what happened to the bank since they had already sold their interests.

"And they are right," Buenaventura said. "They were no longer responsible for what happened since it had already been sold to Ogami."

Buenaventura said this was the central point that had to be corrected. He said there was a need for some mechanism that would allow the BSP to make a determination whether a bank involved in a possible takeover would end up being in the same danger.

"One way is to require banks to clear the transaction with the BSP before it is consummated," Buenaventura said. He explained that under existing rules, the BSP could only apply the so-called "fit and proper" rule on the appointment of new bank officers but the sale of bank shares would still be consummated whether or not the appointments fell through.

However, he did not elaborate how the BSP’s clearing authority would apply and to what extent. The central bank would have to specify whether it wanted to clear bank takeovers in order to apply the "fit and proper" rule or whether it would also concern itself with the terms of the sale.

The BSP’s ultimate concern, Buenaventura said, would be the prevention of another Unitrust-type crisis that eventually affectd over 18,000 bank depositors at a time when confidence was already at a low ebb.

Late last year, Ogami’s G. Universal Co. Ltd. and Minamoto Saiken Kaishu Co. Ltd. acquired Unitrust from Group Management Corp., a company controlled by former Philippine Stock Exchange president Jose Luis Yulo; former Rizal Congressman Emigdio Tanjuatco and businessman Ed del Fonso.

Buenaventura said he suspected the bank’s problems came to a head after its officers resigned when the new owners took over – a move that was not approved by the Monetary Board.

The BSP said it was unable to determine whether the new owners of Unitrust met its "fit and proper" rule because it could not get sufficient information from the Japanese government regarding G. Universal Co. Ltd. and Minamoto Saiken Kaishu Co. Ltd.

However, Ogami’s control of the bank became obvious when the new owners approved a resolution that changed Unitrust’s name to the Philippine Bank of Ogami.