Urban Bank management declared bank holiday

The decision to place Urban Bank Inc. under receivership three years ago was the key to the bank’s rehabilitation, which allowed the depositors to get their money back.

That was the argument placed by Bangko Sentral ng Pilipinas Governor Rafael B. Buenaventura in his motion filed with the Court of Appeals (CA). Buenaventura stressed that he cannot be held liable for the bank’s closure because "it was Urban Bank’s management itself that closed the bank when it declared a bank holiday."

The Monetary Board (MB), the highest governing body of the BSP, simply followed the law that says any bank that cannot meet its obligations in the "ordinary course of business" may be put under receivership to protect its depositors, in the discretion of the MB.

In order to avoid the experience of previous bank holidays, the MB appointed a receiver on April 26, 2000, one day after Urban officials declared a bank holiday to ensure that the records are kept intact and the assets are not dissipated behind the bank’s closed doors. Former Urban Bank president Teodoro Borlongan, the petitioner, said this was too "abrupt."

The CA, however, upheld the former bank president and ordered Buenaventura and other BSP officials suspended for one year for neglect of duty.

Buenaventura said the Court of Appeals should not have entertained Borlongan’s appeal since the Office of the Ombudsman had already exonerated him on this issue. Under the law, this exoneration ruling is "final" and "unappealable."

He claims that the BSP and Philippine Deposit Insurance Corp.’s (PDIC) "prompt" action preserved Urban Bank’s assets, protected the integrity of its records and safeguarded the interest of its depositors, creditors and the general public. These facilitated the entry of a "white knight."

The bank continuous its rehabilitation and is presently known as the Export and Industry Bank, which has worked out a plan to give back the depositors‚ money over three years. Less prompt action in other failed banks resulted in depositors not getting back all their money.

In his motion, the BSP Governor pointed out that bank’s own board did not see BSP’s action as "abrupt," but one that was "prompt" and meant to "hasten or accelerate the immediate rehabilitation of (the bank) and enable it to service its depositors and investors at the soonest time possible."

The decision to place Urban Bank under receivership, he said, came after the MB, following months of evaluation, concluded that the bank could no longer service its clients, a fact that its own managers admitted to at the time.

Buenaventura disclosed that at the time of its declaration of a bank holiday, it had:

• Non-performing loan (NPL) ratios consistently exceeding the industry average;

• Resorted to inter-bank borrowings exceeding P5 billion a month to meet its mounting liquidity requirements;

• Attempted to raise its capital to P2.4 billion to maintain its status as a commercial bank to no avail.

Buenaventura recalled that in a meeting on April 25, 2000, then Urban Bank chairman Arsenio Bartolome III informed him that Urban Bank could no longer service P1-billion to P2-billion worth of checks drawn against the bank and would have to declare a bank holiday on that day.

He said Bartolome and former Urban Bank president Teodoro Borlongan "categorically admitted that Urban Bank was, by that time, without doubt, unable to pay its liabilities as they are expected to become due in the ordinary course of business the following day."

Buenaventura also pointed out in his motion that "the BSP and PDIC tried their best to secure financing and find a white knight for Urban Bank."

The monetary authority offered to provide Urban Bank a P3.5-billion emergency loan equivalent to half of its total deposits allowed by law, while PDIC offered up to P1.5 billion. However, Urban Bank officials opted not to avail of these offers because they could not produce enough collateral and submit a resolution to their board.

"They deliberately kept the board in the dark because they were afraid that their directors themselves would withdraw their money and aggravate the bank’s problems," the motion said.

Investigations following the bank’s closure showed that Urban Bank shut down after five weeks of heavy withdrawals that took out over P3.5-billion worth of deposits. The withdrawals came following reports that Urban Bank’s investment unit, Urbancorp Investments Inc., was experiencing liquidity problems because of preterminations by clients concerned over Urbancorp’s investments in the property sector.

Urban Bank, bank documents showed, purchased over P4.5 billion worth of "junk" debt papers on April 19, 24 and 25, 2000 to bail out Urbancorp. It was done despite the fact that Urban Bank faced difficulties servicing its day-to-day operations and while Bartolome and Borlongan were meeting with BSP and PDIC officials to look for solutions to save the bank.

Buenaventura also argued that he could not be made administratively liable on the principle of "command responsibility." Citing a Supreme Court decision, he said it ruled that "command responsibility" is "generally limited in its application to principal and agent or to master and servant (i.e., employer and employee)."

Quoting further, he added: "If a public officer were to personally examine every single details before affixing his signature as the final approving authority, if only to avoid prosecutions our bureaucracy would end up with public managers doing nothing else but superintending minute details in acts of their subordinates."