Banco Filipino's Parallels with Urban Bank

Parallels with Urban Bank

There are parallels in Banco Filipino's condition as of December 2002 with Urban Bank's condition prior to Urban Bank's closure in 2000. The similarities are as follows:

1. Similar size: Urban Bank's asset base stood at P 12.22 billion in 1999, the year prior to closure; Banco Filipino's stood at P 12.00 billion as of December 31 2002¹.

2. Declining profitability. Urban Bank's return on assets declined from 3% to 0% from 1997 to 1999. Banco Filipino's own return on assets has declined at a similar rate: from 4% in 1999 to 0% in 2002².

Urban Bank vs. Banco Filipino Comparison of Return on Assets Year prior to closure3 (In %)
Bank	Year -4	Year -3	Year - 2	Year -1
Urban Bank	N.A.4	3%	1%	0%
Banco Filipino	4%	3%	2%	0%

3. Purchase of illiquid assets:

Urban Bank used its funds to buy P 2.80 billion worth "trash receivables" in cash at "face value, including accrued and unbooked interest,  sub-standard and/or doubtful receivables from the Urban Investments Inc.’s trust department…The proceeds were used to service the continuing massive withdrawals and pre-terminations of placements of UII clients and investors, among whom are the relatives of Mr. Bartolome (Urban Bank's Chairman)⁵" 

Banco Filipino used its funds to extend at least P 1.5 billion worth of loans to at least nine companies of which Albert C. Aguirre is the ultimate beneficial owner. The bank then readily accepted these companies' proposals to settle their loan obligations with overvalued property. The property was valued to cover loan principal, accrued and unpaid interest, capital gains taxes, and documentary stamp expenses associated with the settlement.

4. Decline in liquid earning assets

Urban Bank's earning assets occupied a lower and lower share of the bank's total asset base in the three years prior to the bank's closure. Urban Bank's earning assets base declined from 77% of total assets in 1997 to only 58% in 1999.

Banco Filipino's earning assets declined to similar levels. Earning assets as a percentage of total assets declined from 81% in the year 1999 to only 56% as of December 2002.

Urban Bank vs. Banco Filipino Earning Assets as % of Total Assets Year prior to closure6 (In %)
Bank	Year –4	Year -3	Year - 2	Year -1
Urban Bank7	N.A.	77%	68%	58%
Banco Filipino	81%	79%	63%	56%

5. Decline in liquidity

As a result of the decline in earning assets, both Urban Bank and Banco Filipino have suffered increasing illiquidity. Urban Bank's liquidity ratio declined from 35% in 1997 to only 14% in 1999. Banco Filipino's liquidity ratio dropped from 37% in 1999 to only 12% as of 2002.

Urban Bank vs. Banco Filipino Liquidity Ratio Quick Assets/Total Deposits Year prior to closure8 (In %)
Bank	Year -4	Year -3	Year - 2	Year -1
Urban Bank	N.A.	35%	18%	14%
Banco Filipino	37%	39%	23%	12%

6. Similar Emergency Loans

When Urban Bank experienced its liquidity crisis in March 2000, the BSP was willing to extend Urban Bank P 3.50 billion in emergency loans equivalent to 50% of their total deposits as allowed by law. However, Urban Bank management "opted not to avail of it because they found the requirements too stiff, e.g. producing collateral for the full amount and submitting a resolution of the board of directors."

Like Urban Bank, Banco Filipino, during its liquidity crisis in the 4th quarter of 2002, was offered an emergency loan facility from BSP that could total up to P 3.5 billion or 50% of its total deposits as allowed by law.  Unlike Urban Bank, Banco Filipino availed of it and produced the collateral and the board resolution required to execute the loan.

Like Banco Filipino in March 2011, Urban Bank claims that it was arbitrarily closed in the year 2000.

However, Urban Bank's closure was much less costly to the both PDIC and to the BSP.  First of all, Urban Bank did not avail of an emergency loan facility of PHP 3.5 billion from the BSP.  Urban Bank's closure cost PDIC only PHP 427.7 million at a time when deposit insurance covered only a maximum of PHP 100,000.00.  Had deposit insurance been raised to the current PHP 500,000.00 level, it would have  cost PDIC an additional PHP 330.0 million in deposit insurance.  At the PHP 100,000 deposit insurance level, an estimated PHP 8.3 billion in went uninsured.  At the PHP 500,000 deposit insurance level,  only PHP 7.97 billion would have gone uninsured.

Urban Bank's closure was also less costly to the public.  Its closure affected only around 12,000 depositors.  Around 9,197 depositors were fully insured and only 2,677 were uninsured at the time of closure.

In contrast Banco Filipino's closure cost the BSP around PHP 2.27 billion in past due emergency loans.  It also PDIC PHP 9.4 billion in deposit insurance.  Uninsured deposits amounted to PHP 5.6 billion.  See a previous blog post, "Where were the Regulators?"

Banco Filipino's closure affected almost 180,000 depositors - fifteen times the number of Urban Bank depositors.  Of this, 171,000 were fully insured.  and 5,255 were partially insured. 

1 Banco Filipino's Unaudited 2002 figures taken from December 2002 management report.

2 Unaudited 2002 figures taken from December 2002 management report.

3 Urban Bank: Year -3 (1997); Year -2 (1998); Year -1 (1999). Urban Bank was closed in Year 2000. Banco Filipino: Year -4 (1999); Year -3 (2000); Year -2 (2001); Year -1 (2002). Banco Filipino is still operating.

4 Not Available.

5 Urban Bank Case On Track, October 13, 2000 News Release, Bangko Sentral ng Pilipinas. www.bsp.gov.ph

6 Urban Bank: Year -3 (1997); Year -2 (1998); Year -1 (1999). Urban Bank was closed in Year 2000. Banco Filipino: Year -4 (1999); Year -3 (2000); Year -2 (2001); Year -1 (2002). Banco Filipino is still operating.

7 Adjusted for Substandard Receivables from UII

8 Urban Bank: Year -3 (1997); Year -2 (1998); Year -1 (1999). Urban Bank was closed in Year 2000. Banco Filipino: Year -4 (1999); Year -3 (2000); Year -2 (2001); Year -1 (2002). Banco Filipino is still operating.