MANILA, Philippines (Mindanao Examiner / Sept. 18, 2011) – The Philippine Congress is set to launch its own probe into the collapse of the LBC Development Bank which lawmakers claimed distressed thousands of depositors, including overseas workers whose remittances to their dependents here remain unpaid.
Congressman Arnel Ty said the House committee on banks and financial intermediaries will look into the collapse of LBC Development Bank. “This case interests us because regulators were fully aware the bank had been having serious problems, long before it was finally closed down on September 9,” Ty said in a statement sent to the Mindanao Examiner.
The Bangko Sentral ng Pilipinas (BSP) had supposedly earlier issued a number of cease-and-desist orders against the bank; however, these corrective measures were evidently not complied with, according to Ty.
He said there were reports that excessive advances allegedly made to the courier firm LBC Express Inc. ruined the bank could also be instructive to regulators moving forward.
“This could serve as a lesson for the BSP to henceforth be extra watchful when in comes to banks that have tie-ups with non-bank remittance firms, whether these are affiliates or not, but especially if these are affiliates of the banks concerned,” he said.
The BSP has claimed the bank became insolvent due to unwarranted advances to LBC Express; large amounts of non-performing as well as high-risk loans, against which no adequate provisions were set aside; and the unusually high interest rates it paid for deposits.
The bank had 321,516 accounts with an aggregate of P6.09 billion in deposits when it was shut down.
Ty cited the need to enable regulators to take forceful preemptive actions against unsafe banking practices in order to protect depositors, encourage savings, reinforce public confidence in the banking sector, and build up the industry.
“It would seem that due to the menace of potential lawsuits, regulators are somewhat being deterred from taking aggressive preventive actions against unsound banking practices,” he said.
“We have to find out whether specific amendments to our banking laws are necessary to give regulators the confidence they need to rigorously supervise the industry and deal with institutions in apparent trouble,” he added.
Ty said there are many ways for the BSP to step in whenever a bank appears to be taking on too much risk. He said regulators normally compel the bank to increase capitalization, reduce bad loans, or stop certain risky activities.
He also urged financial consumers to be wary of banks offering abnormally elevated deposit interest rates, which he said “could be virtual red flags or warning signs.”
“These institutions may possibly be under extreme pressure to lure new money. Some of them may well be facing potential liquidity issues,” he said.