The impending probe is an offshoot of House Resolution (HR) 570 filed on Wednesday by Isabela Rep. Rodolfo Albano who said the violations, if left unchecked, could erode the general public’s confidence in the Philippine banking system.
The House committee on rules chaired by Mandaluyong Rep. Neptali Gonzales II has recommended approval of the measure that was referred to the House committee on banks and financial intermediaries.
Citing documents submitted by UOBP to the Securities and Exchange Commission, HR 570 stated that the Singapore-based United Overseas Bank Ltd. (UOBL) which acquired majority shares of Westmont Bank which has since been renamed UOBP, violated not only the Constitution but also the Anti-Dummy Law.
Proponents of the resolution noted that UOBL committed an infraction of RA 771 which limits foreign equities in local banks to a maximum of 60 percent by acquiring an additional seven percent of the voting stock of UOBP "for purposes of gaining absolute control over the bank" through a shell corporation known as Manta Ray Holdings Inc.
The legislators also asserted that UOBP extended "substantial loans" to two corporations – Harbor Holdings Inc. and Lion City Landholdings Inc. – principally owned by a certain Ernst Tanchi Jr. and described as "thinly capitalized and unqualified to obtain loans from banks and other financial institutions.
The two firms were allegedly used by UOBL to circumvent the law prohibiting alien ownership of land in the Philippines "by simulating assignments of said assets to said corporations under a complex yet purely fictitious scheme, to create an appearance of financial capacity" for the borrowers.
The measure also cited findings by the state-run Philippine Deposit Insurance Corp. (PDIC) indicating that UOBP misclassified as accounts receivables the DOSRI loans granted to the two Tanchi corporations in violation of RA 8791, otherwise known as the General Banking Law and the GAAP.
The PDIC discovered that as of Dec. 31, 2000, UOBP borrowed P2.4 billion from UOBL, P150 million from the Hong Kong Bank Manila and P99.9 million from the Bank of New York at an interest rate of 7.17 percent.
However, UOBP did not use the total loan proceeds to retire maturing obligations, but instead deposited P919.7 million with UOBL at an interest rate of 6.67 percent, resulting in a "negative spread" or loss of 0.5 percent for UOBP.
"The unsound banking practices of UOBP are detrimental not only to UOBP’s depositors and stockholders, but also to the BSP (Bangko Sentral ng Pilipinas) and the PDIC, which extended emergency credit accommodations to UOBP," the lawmakers noted.