Today in Filipino history, January 25, 1985, the Central Bank ordered the closure of Banco Filipino for insolvency

(Posted almost 2 years ago under January Events visited 475 times)

On January 25, 1985, the then Central Bank (precursor to the Bangko Sentral ng Pilipinas (BSP)) ordered the closure of Banco Filipino Savings & Mortgage Bank or Banco Filipino by issuing Monetary Board Resolution 75 and placed under receivership upon discovery that the bank had become unviable to continue its operations. The Monetary Board said the bank has turned insolvent, and "would involve probable loss to its depositors and creditors."

Banco Filipino Savings & Mortgage Bank or Banco Filipino
(Banco Filipino Savings & Mortgage Bank or Banco Filipino)

On March 22, 1985, the Central Bank issued another resolution placing Banco Filipino under liquidation.

Banco Filipino was established in 1964 by Tomas Aguirre, who is the patron of the same family who owns Agencia de Empeños de Aguirre, a popular pawnshop at the time. In fact, it was profits from the pawnshop that allowed Aguirre to establish the bank.

Banco Filipino was a fast-rising star, such that in 1966, a mere two years after its founding, it was considered the premier banking institution in the Philippines. By the 1970s, everyone with a bank account had a bank account in Banco Filipino.

Perhaps it was its Filipino branding that moved thousands to put their savings in the bank. Banco Filipino had a unique slogan, Subok na matibay, subok na matatag (Proven to be strong, proven to be stable).

Its client base reached one million accounts in 1972, less than 10 years after opening its first branch. The feat, which no other bank in the Philippines had done before, was thanks to its aggressive expansion plan, especially in the countryside where Filipinos were hesitant to open savings accounts.

On June 29, 1984, Banco Filipino was granted an emergency advance of P119.7 million under Monetary Board Resolution No. 839.

Later, on July 27, 1984, the then Central Bank granted P-3 billion credit line to Banco Filipino. On the same date, the then Central Bank placed Banco Filipino under conservatorship. Based on the major findings of examination by the Department of Supervision and Examination of the Central Bank which indicated insolvency and illiquidity, the then conservator of the Central Bank recommended among others to:

Forbid the Bank Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of office January 25, 1985, pursuant to Sec. 29 of R.A 265, as amended;

When Monetary Board Resolution No. 75 was issued by the then Central Bank on January 25, 1985, Banco Filipino filed a complaint with the Regional Trial Court of Makati to set aside the action of the Monetary Board placing Banco Filipino on receivership. Later, on February 28, 1985 Banco Filipino filed with the Supreme Court (case docketed as G.R. No. 70054) a petition for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the resolution (No. 75) of the then Central Bank on January 28, 1985 – as made without or in excess of jurisdiction or with grave abuse of discretion.

On December 11, 1991, the Supreme Court in an en banc decision nullified Monetary Resolution No. 75 and ordered the Central Bank and the Monetary Board to reorganize the bank and allowed it to resume business. In the words of the Supreme Court:

"The assailed order of the Central Bank and the Monetary Board dated January 25, 1985 is hereby annulled and set aside. The Central Bank and the Monetary Board are ordered to reorganize petitioner Banco Filipino savings and Mortgage Bank and allow the latter to resume business in the Philippines under the controllership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter in connection with its reorganization until such time that the petitioner bank can continue in business with safety to its creditors, depositors and the general public."

Although Banco Filipino reopened in 1994, it was never the same bank. Out of the 92 branches it operated nationwide, only 15 managed to reopen. It lost millions of its clients, and billions of its assets because of its 1985 closure.

After the first closure of Banco Filipino was declared void by the Supreme Court, Banco Filipino also filed for damage claims amounting to P18.8 billion to cover actual damages, liquidation expenses, attorney's fees, interest and other related expenses.

This claim of Banco Filipino for damage claims has not yet been resolved by the time bank was again closed for the second time by the BSP Monetary Board and placed under receivership of the Philippine Deposit Insurance Corporation (PDIC) on March 17, 2011.

The PDIC filed with the Department of Justice a criminal complaint against 20 former stockholders and officers of the closed Banco Filipino Savings and Mortgage Bank (Banco Filipino) and its related entities for conducting business in an unsafe and unsound manner that resulted in estimated losses of P1.4 billion to the bank.

The complaint alleged that in 2001, the respondents took advantage of their positions and connived with officers and stockholders of Banco Filipino and its related entities to sell the bank's Head Office property to BF Homes for P685 million and use the Bank's funds to pay for the purchase. The alleged sale took place when BF Homes did not have the financial capacity to pay for the sale, having been under rehabilitation. Records of the bank revealed that Banco Filipino granted questionable loans in favor of Vastland and Glamor. Both entities allegedly have negative credit standings with at least 20 other banks. The loans were allegedly secured by overvalued properties of BF Homes, BF General and BF Life. These loan proceeds were supposedly to be used by Vastland and Glamor to acquire and develop real estate properties in Cavite. However, the loan proceeds were allegedly diverted to fund the checks of BF Homes which were used to pay for the purchase of the Head Office premises. These transactions showed that the bank used its own funds to buy its own property.

Charged were Banco Filipino officers namely:

  1. Albert C. Aguirre, Director and Vice Chairman (also stockholder of BF Citi and sole receiver of BF Homes, Inc. (BF Homes) at the time the alleged violation was committed) ;
  2. Teodoro O. Arcenas, Jr., Director and Chairman;
  3. Orlando O. Samson, Director and Executive Vice President (also Director of BF Homes);
  4. Lualhati L. D. Nicolas, Executive VP;
  5. Jovito N. Hernandez, Executive VP;
  6. Serafin P. Tongco, Senior VP;
  7. Romeo M. Avila, Senior VP;
  8. Delfin M. Dimagiba, Director and Treasurer (also a BF Citi stockholder);
  9. Elena L. Pallasigue, Assistant VP;
  10. Dionisio M. Domingo, VP;
  11. Directors Conrado P. Banzon and
  12. Cesar S. Paguio;
  13. Grace L. Daguna, Assistant Manager;
  14. Maxy S. Abad, Executive VP (also Chairman and President of Filipino Vastland Company (Vastland), Director and Vice Chairman of BF Citi, BF General Insurance Co., Inc. (BF General) and BF Life Insurance Corporation (BF Life), and Treasurer of BF Homes); and
  15. Officers of related entities namely: Virginia V. Serrano, Director and President of BF Citi (also Assistant Treasurer of Glamor World, Inc. (Glamor), and stockholder of Pro Managers, Inc.);
  16. BF Homes VPs Rosalina E. Tacolod and
  17. Mary Lou A. Vasquez;
  18. Antonio S. Calleja, Executive VP (BF Citi);
  19. Jerome H. Velhagen, Treasurer (Glamor); and
  20. Joseph C. Velhagen, Sr., Director (Glamor and Vastland).

BF Homes, BF Citi, BF General, BF Life, Glamor and Vastland are entities related to the Bank.

The BSP also filed a case against Perfecto Yasay and nine other officers, namely, Chairman and President Teodoro O. Arcenas, Jr., Vice Chairman Albert C. Aguirre, Executive Vice President Maxy S. Abad, directors Orlando O. Samson, Adelaida C. Adduru-Bowman, Francisco A. Rivera and Ramon E. Montano, Executive Vice President Catherine Aguirre-Hernandez and BF SVP Roberta Afable for approving "self-serving" loans worth ₱2.192 billion.

Yasay was former chairman of the Securities and Exchange Commission (1995–2000) and Foreign Affairs Secretary (2016-2017) under President Duterte.

In August 2019, Yasay was arrested as a former director of the Banco Filipino for violating Republic Act No. 8791 or the New Central Bank Act. He was allegedly involved in a conspiracy to secure a ₱350-M loan for a real estate company in the early 2000s.

Source:

  1. Banco Filipino officials sued anew for "unsafe, unsound" business practice, CNN Philippine Staff, December 4, 2019, https://www.cnnphilippines.com/
  2. PDIC files criminal charges vs. ex-officers of Banco Filipino and related companies Unsafe, unsound practices resulted to P1.4-B in bank losses, https://www.pdic.gov.ph/
  3. BSP orders Banco Filipino closed, placed under PDIC receivership, GMA News, March 17, 2011,
  4. What's happening to Banco Filipino, Nelly Favis-Villafuerte, April 18, 2019, https://mb.com.ph/
  5. Banco Filipino does a phoenix-for the second time, https://asianbankingandfinance.net/
  6. After arrest, Yasay insists BSP closure of Banco Filipino illegal, Melissa Luz Lopez, CNN Philippines, August 26, 2019, https://www.cnnphilippines.com/