Jun Vallecera / Reporter
NOW it can be told: The
failure of LBC Express, the remitting affiliate of LBC Development
Bank, to honor billions of pesos in advances caused the bank’s downfall,
regulators disclosed on Tuesday.
It
was also revealed, to refute insinuations the bank’s closure was
precipitate, that the regulators discovered something wrong with LBC
Bank’s operations a year ago and gave it time to correct the situation;
it failed, however.
Bangko Sentral ng
Pilipinas (BSP) Governor Nestor Espenilla Jr. said LBC Express Inc.
regularly accepted money-transfer transactions from millions of
customers in the country and abroad but never bothered to settle the
advances.
Espenilla
said LBC Bank extended billions of pesos in cash advances to LBC
Express for several years as part of its role as payout agent. Each time
a customer remitted money to beneficiaries through one of the many
offices of LBC Express in the Philippines, and abroad, LBC Bank advanced
the money to the beneficiary, effectively extending the affiliate
another credit. The problem is the credits were never settled.
And
because LBC Express failed to settle what it owed the bank, the steady
buildup of cash advances became unmanageable and eventually too large
that it broke the bank.
“The
constant need to make cash advances slowly eroded the bank’s capital.
Eventually, the capital deficiency resulted in the bank posting a
negative capital account,” Espenilla, head of the BSP’s supervision and
examination sector, said but without citing numbers.
The
state-owned Philippine Deposit Insurance Corp. (PDIC) earlier said LBC
Bank accumulated deposit liabilities totaling P6.09 billion at the time
the Monetary Board, the policy-making body at the BSP, issued the order
putting the bank under receivership by the PDIC.
LBC
Bank assets are worth P5.5 billion only, based on data obtained from
the BSP, which were clearly insufficient to meet the bank’s outstanding
liabilities.
Espenilla
said the BSP also issued a cease-and-desist order stopping the bank
from making advances on behalf of LBC Express clients to prevent a
further deterioration of the situation.
Espenilla
also acknowledged having placed LBC Bank under the prompt corrective
action (PCA) program, which, in essence, is a rehabilitation framework
that attempts to spot a bank’s problems long before these became
irreversible.
“We
placed them under the PCA program for well over a year and they failed
to make the grade. They’ve been trying to fix the bank’s problems and
that failed, as well,” he said.
Espenilla
also said LBC Express does not fall under the sphere of influence the
BSP has over bank and nonbank financial institutions. The BSP has some
residual authority over the remittance unit only on issues pertaining to
anti-money laundering issues and not much else.
He
said while some of the smaller and weaker lenders eventually fall by
the wayside, all the other banks in operation have posted significant
improvements in the quality of management and the amount of capital they
have in their vaults, among other considerations.
“There
are a few that may be mismanaged by their owners but, by and large, the
thrift- banking system in the country is financially healthy,”
Espenilla said.
The
BSP earlier ordered the closure of Banco Filipino Savings and Mortgage
Bank and the operations of Express Savings Bank organized under the
charter created for the Local Water Utilities Administration and headed
by former legislator Prospero Pichay.
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