LBC Express caused bank's fall
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.
Source: ABS CBN News
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