Citing Banco Filipino mess, BSP urges banks to adhere to good governance

By Lawrence Agcaoili, The Philippine Star

Posted at Mar 24 2011 03:50 AM | Updated as of Mar 24 2011 11:50 AM

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) urged major players in the thrift banking industry yesterday to pursue necessary reforms to transform banks into even better and stronger financial institutions amid the controversy surrounding the closure of Banco Filipino Savings and Mortgage Bank.

BSP Governor Amando Tetangco Jr. said in a speech during the Chamber of Thrift Banks 2011 Convention yesterday that there is a need to continue to pursue necessary reforms that would transform banks into even better and stronger institutions, banks that adhere to good governance practices, and banks that operate in a safe and sound manner as part of its total customer care commitment.

“Let us not forget: banking is imbued with public trust,” Tetangco stressed.

He pointed out that banks should streamline processes to become more efficient, invest more to strengthen the core competencies of bankers, and strengthen the guidelines that protect the public from potential “abuse and malfeasance.”

“While our banking sector remains sound and stable, we should not be complacent. The market landscape continues to shift and change…. and so should we. And at all times, good governance will be the key to long-term sustainable growth,” he said.

Last March 17, the BSP’s Monetary Board ordered the closure of Banco Filipino and placed it under the receivership of the state-run Philippine Deposit Insurance Corp. (PDIC) after its liabilities exceeded its assets by P8.4 billion making the beleaguered bank insolvent. Bank examiners found out that Banco Filipino has been posting losses averaging P2 billion a year from 2007 to 2009 which mounted to about a monthly loss of P277 million in the first half of last year.

The BSP’s Monetary Board also authorized the filing of appropriate cases against directors, officers, and other individuals who may be found liable for violation of banking laws and BSP rules and regulations after incurring huge expenses that are way above industry levels.

Aside from interest payments amounting to P1 billion a year, BSP Deputy Governor Nestor Espenilla said Banco Filipino has been incurring huge expenses after it paid compensation of P500 million or 2.5 times its gross income and legal fees amounting to P131 million in the fourth quarter of last year alone.

Examiners also found that more than half of its outstanding loans amounting to P4.1 billion were extended to entities related to directors, officer, stockholders and related interest (DOSRI).

Tetangco said major players in the banking industry should advocate faithful adherence to good governance practices and intensify efforts to educate and empower Filipinos with basic financial information in order to make prudent decisions in saving and growing their money.

“Through responsible and responsive banking, thrift banks can make development truly inclusive. You have this capability; I hope, therefore, that you will use this to the best of your abilities,” he added.

Tetangco said major players in the thrift banking industry would continue to play a major role in the country’s economic expansion as it accounts for 10% of the banking sector’s deposits, loans, and capital.

“I believe the Philippine thrift banking industry will continue to contribute in keeping our economy on the growth track. I say this on the basis of its track record,” the BSPchief said.

Data showedthat consolidated deposits in thrift banks surged 88% to P491 billion while net loans jumed 87% to P345 billion between December 2005 and December 2010.

During the five-year period, total assets of the thrift banking industry expanded by 75% to a record high P606 billion while capital increased 47% to an all-time high of P66.8 billion in December 2010.