At long last, a response from BSP!

We’ve written several columns in this corner and in The Freeman about the role of the Bangko Sentral ng Pilipinas (BSP) since the rural banks of the Legacy Group collapsed last December. Unfortunately, we never got even a single reply, remark or comment from any of the BSP officers assigned in Cebu or Manila. So call it a pleasant surprise that finally after a very long time I got a letter e-mailed to me by BSP Deputy Governor Nestor Espenilla Jr. Because of the length of this letter, allow me to reprint only the pertinent excerpts:

“Dear Bobit, We have been reading your column pieces in both The Philippine STAR and The Freeman regarding the closure of rural banks, starting with those related to the Legacy group of companies. To keep you updated on this issue, we have been sending you copies of Bangko Sentral’s official statements regarding our actions related to this group of banks by fax and e-mail. Nevertheless, we also noted that you have raised certain questions for the Bangko Sentral.

“In particular, your column dated Jan. 26, 2009 in The Philippine STAR featured a letter from a reader who alleged corrupt practices of some examiners. As head of the Supervision and Examination Sector of the Bangko Sentral ng Pilipinas, I personally assure you and your readers that we have zero tolerance for corruption. In fact, we do not hesitate to file charges against a number of examiners for committing irregularities. In this connection, we request your support in our efforts to ensure that any irregular practices of our examiners are reported to us so we can immediately act against them.

“In regard to your other questions, I believe the following statement I delivered last Jan. 30 at the hearing called by the House committee on banks and financial intermediaries chaired by Rep. Jaime Lopez will be useful:  

‘Chairman Lopez, the honorable members of the committee on banks and financial intermediaries, we are here to cooperate with the House of Representatives in its objective to determine possible legislation related to the banking sector arising from lessons learned from the failed banks associated with the Legacy group. These banks unilaterally declared bank holiday when they were no longer able to serve the withdrawal of funds by their depositors.        

‘Why did this happen? We find that these banks were implementing unsafe and unsound banking practices that constitute violations of banking laws and regulations. Essentially, in order to attract large-scale funding, these banks aggressively offered depositors exceedingly high interest rates and expensive promotional items that were many times over prevailing market rates and clearly unsustainable. This included a double-your-money program in three to five years with advance interest and a pakotse/motorcycle program.

‘The banks were also found to have granted highly questionable and irregular loans, disbursements, and cash advances. For instance, loan documentations were inadequate as to credit investigation reports and proof of capacity to pay while disbursements included excessive payment of commissions for marketing deposits. In addition, there were large amounts of cash advances not related to normal banking operations extended to affiliated companies and personalities. As a result, these banks had been losing money and had become capital-deficient in terms of both the Bangko Sentral’s prescribed capital adequacy ratio (CAR) requirement of 10 percent and the minimum required capital based on the classification of the banks.

‘Based on the examination reports completed in 2006 and 2007, the Bangko Sentral conducted several meetings on a corrective action and rehabilitation program with the management of the banks. In accordance with procedure, the Bangko Sentral had been requiring these banks to meet standards by infusing additional capital, among others. However, while the banks claimed that they had infused additional capital, the banks’ management imposed restrictions that prevented proper verification by the Bangko Sentral’s examination team.

‘In June 2008, the BSP was preparing to place the banks under receivership. However, by virtue of the writ of injunction issued by Manila Regional Trial Court (RTC) Judge Niña Antonio-Valenzuela, which was also upheld by the Court of Appeals, the Bangko Sentral was restrained from placing the banks under receivership. Specifically, the injunction prevented the examination team to submit their report and recommendation to the Monetary Board. The injunction also covered the Monetary Board which was restrained from acting on the examination report and recommendation.’”  

We thank Deputy Governor Espenilla for his letter and hope that the BSP would exercise more transparency in the future.    

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For e-mail responses to this article, write to [email protected]. Bobit Avila’s columns can also be accessed through www.philstar.com. He also hosts a weekly talkshow, “Straight from the Sky,” every Monday, 8 p.m., only in Metro Cebu on Channel 15 of SkyCable.