CA flip-flops: Banco Filipino stays closed

MANILA, Philippines (UPDATED) - The Court of Appeals (CA) has overturned its earlier ruling ordering the Bangko Sentral ng Pilipinas (BSP) to reopen Banco Filipino Savings and Mortgage Bank (BF) and extend a P25 billion assistance to the troubled thrift bank.

In a 19-page decision penned by Associate Justice Noel Tijam and promulgated on November 21, the CA's 7th Division ruled that the Monetary Board of the BSP did not commit grave abuse of discretion when it placed BF under the receivership of state-run Philippine Deposit Insurance Corp. (PDIC).

It reversed a January 27, 2012 decision of the court that said otherwise.

“We disagree with this court's earlier finding of grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any of the respondents BSP, Monetary Board and the PDIC. All of them have merely exercised their legal and statutory duties as expressly granted to them by the law,” the new decision read.

On March 17, 2011, the MB issued Resolution No. 372-A, closing down BF and placing it under the PDIC's receivership, saying it was insolvent.

The MB issued the order after the bank's branches failed to service withdrawals and fund checks. An examination by BSP showed BF's liabilities topped its assets by P8.4 billion.

Ten months later, the CA ruled that monetary authorities violated BF's right to due process when they issued and implemented the resolution. It also ordered the BSP to extend a P25-billion financial assistance to BF, which, according to the shuttered bank, was the amount it needed to get back on its feet.

BF lawyers had argued that the bank was not insolvent, and blamed its financial woes to BSP's refusal to extend the P25-billion aid.

In its latest ruling, the CA said BF “has no financial plan which takes into consideration the possibility of sourcing funds from a different person or entity” apart from the BSP.

It said this means, the bank will “utterly rely on public funds” which will be tantamount to “a government dole-out at the expense of the public with no definite guarantee of return.”

Ponzi scheme

The BSP earlier said the closure order was meant to protect depositors of BF from more losses due to alleged mismanagement by officials of the bank, led by businessman Albert “Bobby” Aguirre. The bank had 177,000 clients at the time it was shut down.

The central bank barred BF from continuing its business operations due to “unsound banking practices,” including a Ponzi or pyramiding scheme.

Under this scheme, the BSP said BF offered interest rates of up to 13.9% -- way higher than the 1.8% to 3.3% that other banks offered -- to attract depositors to put their money in its special savings products.

The BSP said BF used the deposits to “pay for the interest on old deposits and its day-to-day operations.”

Second time

It was the second time that BSP ordered BF padlocked. In 1985, the central bank ordered BF closed due to financial problems, but the move was contested by BF before the courts.

The case reached the Supreme Court, which ruled in favor of BF in 1991, saying the central bank's closure order was illegal and arbitrary.

Thus, in 1994, BF reopened, but under the supervision of a BSP-assigned comptroller.

In its latest case against the BSP, BF argued there was no way it could perform unsound banking practices because it had been “essentially [co-managed] by the BSP” since 1994.

Immediately after BF's closure last year, the PDIC began to pay the insurance claims of the bank's verified depositors. As of August 2011, the bank had paid nearly 80% of all BF deposit claims. - Rappler.com