Thursday, February 2, 2012

News Update Court of Appeals orders reopening of Banco Filipino

MANILA, Philippines - The Court of Appeals (CA) has ordered the reopening and rehabilitation of Banco Filipino Savings and Mortgage Bank, and directed the Bangko Sentral ng Pilipinas (BSP) to allow it to resume business. In response to the CA decision, Bangko Sentral ng Pilipinas (BSP) deputy governor and general counsel Juan de Zuñiga, Jr. said: “Our lawyers are reviewing the decision of the Court of Appeals to determine the legal remedies available to us. Beyond this, we have no further comments.” In a 50-page decision penned by Associate Justice Agnes Reyes-Carpio, the appellate court granted Banco Filipino’s petition for certiorari and mandamus on the basis that the bank “was not accorded due process when it was placed under receivership,” and the court found that the bank was not insolvent. Associate Justices Vicente Veloso and Normandie Pizarro concurred with the decision. The BSP and other respondents in the case, the Monetary Board (MB) and Philippine Deposit Insurance Corp. (PDIC), were also directed to extend to Banco Filipino its financial assistance package of not less than P25 billion. Aside from the implementation of the business plan, the appellate court also directed the BSP to extend financial support to Banco Filipino by putting up a special liquidity fund equivalent to its deposit base amount or more to enable it to service expected heavy withdrawals when it reopens. “The Bangko Sentral ng Pilipinas and the Monetary Board are hereby ordered to reopen Banco Filipino Savings and Mortgage Bank and allow it to resume business in the Philippines under the comptrollership of the Bangko Sentral ng Pilipinas and the Monetary Board, complete with viable rehabilitation plan, in order to ensure fast and immediate recovery of the bank from the ill-effects of the illegal closure,” the CA said. The CA overturned MB’s findings in its Resolution 372-A on March 17, 2011, which cited “unsound banking practices” of the bank as basis for its closure. “In this case, we do not see any proof that Banco Filipino committed unsafe banking practice and whether its attention was called to rectify or remedy the same. We also do not see from the records if any administrative sanction as prescribed above had been imposed by respondent BSP and MB to any of the bank’s officials and employees,” the appeals court held. The CA pointed out that the business plan crafted by the BSP, MB and Banco Filipino which provided for the grant of P25 billion emergency loan to the bank was already up for approval before the closure order came. However, with the expected heavy withdrawals on the first day of the resumption of the Banco Filipino’s business, the appellate court said adjustments in the business plan may be necessary. It also noted that prior to the bank’s closure, it had around P16 billion deposit accounts that were reduced substantially as PDIC started paying depositors and creditors. “We are fully aware too that given the media hype this case had generated, at the very first hour that the doors of Banco Filipino are opened to the transacting public, depositors would seize every available opportunity to withdraw their deposits and to transfer them to other banks which they perceive to be healthier and safer,” the CA said. “Thus, the challenge is for this Court to give a clear and particular direction to the reopening and reorganization of Banco Filipino, with the objective that it be restored in such a state that it can continue with its business with safety and confidence to its creditors, depositors and the general public and at the same time preventing a repetition of this case the third time around,” it added. Banco Filipino had denied it had negative net asset value, claiming that the total assets of the bank exceeded its liabilities by P25 billion. The PDIC claimed the deposit liabilities of the bank amounted to P19.4 billion. The BSP and MB maintained that Banco Filipino is insolvent since its total realizable assets was only P14.5 billion as of September 30, 2010, while the total liabilities to be paid out is P22.86 billion. This, the BSP and MB claimed, brings the net realizable value at -P8.4 billion. Banco Filipino owns prime real properties in Commonwealth(Payatas), Manila Newtown, Sto. Cristo(Norzagaray), Pinewoods, Victoria Homes, Ayala Southvale, Naga, Pagudpud, Intramuros Condominium, Forbes Park, CDO-Zaraga, Maguindanao Hotel, Southland, Tropical Place, Daanghari, and Binondo with a total appraised value of P37.89 billion. The BSP and MB claimed these appraisals deserve “scant consideration” since these were prepared after PDIC took over as Banco Filipino’s receiver, and that “all existing liens and encumbrances” were disregarded as if the properties were “free and clear under responsible ownership.” The CA held that the bank should not be faulted if the appraisal was done after if was placed under PDIC receivership since in real estate appraisals, most of the documents are public records and may be verified by the appraiser. The appellate court also upheld the position of the Banco Filipino that it was “unimaginable” for the bank to have committed unsound banking practices since it was co-managed by the BSP through its BSP-assigned comptroller. “It should be noted that the BSP placed Banco Filipino under a comptroller since it re-opened in 1994... Thus, it is safely implied that with Banco Filipino under the comptrollership of the BSP, it was earning income, which also means that the same was effectively being managed with the comptroller at the helm,” the CA said. The court further said it was “quite surprising” that the BSP and MB were not alarmed when Banco Filipino asked for emergency loans. “We do not see any proof that Banco Filipino committed unsafe banking practice and whether its attention was called to rectify or remedy the same,” it said. As to the refusal to grant emergency loans to Banco Filipino, the appellate court ruled that such was “an exercise of grave abuse of discretion” on the part of BSP and MB due to its ruling that the bank is not insolvent. “To our mind, Banco Filipino had sufficiently complied with the requirements as provided for by Sec. 84 of RA(Republic Act) 7653,” the CA said. The CA likewise held that the bank would not have been declared insolvent and cannot be granted emergency loan had MB exercised caution. The appellate court grave credence to the appraisal report prepared by Saromo Realty Appraisal and Consultancy Firm in compliance with the directive of the House of Representatives Committee on Banks and Financial Intermediaries contradicting MB’s findings that Banco Filipino is already insolvent. It noted that even one of MB’s members, lawyer Nelly Favis-Villafuerte, issued a memo seeking MB’s reconsideration of its decision to declare Banco Filipino insolvent considering that it was not given notice of advance findings and accorded five days to refute the findings of the Supervision and Examination Sector. “As proven in this case, haste makes waste. Had respondents BSP and MB exercised due diligence, depositors and creditors would have been spared from the agony and the nightmare this case had caused. They would not have experienced sleepless nights and serious anxieties,” the court stressed. - By Edu Punay