Banco Filipino lent half its loans to insiders — the central bank shut it down

Banco Filipino Savings and Mortgage Bank, one of the Philippines' oldest thrift banks founded in 1964, was ordered closed by the Bangko Sentral ng Pilipinas (BSP) on March 17, 2011. The Monetary Board placed the bank under PDIC receivership after its liabilities exceeded realizable assets by P8.4 billion. It was the second time the bank had been shut down — the first was in 1985, and it reopened in 1994 after the Supreme Court declared that closure illegal.

The bank's financial condition had deteriorated severely. It was losing approximately P2 billion annually from 2007 to 2009, and P277 million monthly in the first nine months of 2010. The BSP had extended P3.5 billion in emergency loans in 2002, of which P2.6 billion remained unpaid. When the bank requested another P3 billion loan, the BSP rejected it after discovering an overdraft of over P900 million.

The bank's expenses were far above industry norms. It spent P1 billion a year on interest payments and P500 million on compensation — 2.5 times its gross income. Legal fees alone consumed P131 million, about 61% of gross income. More than half of its P4.1 billion outstanding loan portfolio went to directors, officers, stockholders, and related interests (DOSRI lending), a practice that concentrates risk rather than diversifying it.

The BSP filed criminal charges against bank officials including chairman Teodoro Arcenas Jr. for falsification, illegal loans, and major violations of banking laws. The bank counter-sued BSP officials for violating the Anti-Graft and Corrupt Practices Act. The closure affected 177,652 depositors, though 97% were small depositors covered by the P500,000 deposit insurance. The bank's assets remained tied up in legal disputes for years after the closure.