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Navarro, Diana Lee O.

EMGT101 – A06
CASE STUDY of BANCO FILIPINO
Banco Filipino: Subok na Matibay, Subok na Matatag (Tested Strong, Proven Stable), was a well-known
bank in the Philippines a few years ago. However, this bank has faced various challenges and was actually closed
twice in 1985 and 2011.
In the year 1964, Banco Filipino Savings and Mortgage Bank was established. It was funded by Tomas
Aguirre and was introduced as a thrift bank. The bank also became the number one bank in the Philippines in 1965
because of their innovations and being the first all-woman bank. Further innovations have led the bank to become the
largest savings bank in 1966. Banco Filipino was also the first bank to have online transactions which was in the year
1969. From 1970 to 1981, Banco Filipino was able to expand their reach, having provincial branches opening in
various parts of the country, whereas the first branch opened in Naga City. The bank’s customers continued to increase
to one million, despite the enactment of martial law. And by the year 1981, BF had produced 89 branches all over the
country, four billion pesos worth of assets, three million customers, and three thousand shareholders.
Unfortunately, on the 23rd of July 1984, the bank went on a self-imposed bank holiday due to its illiquidity.
This ultimately led to the closure of the bank due to an alleged insolvency from the order of Bangko Sentral ng
Pilipinas on 25th of January 1985. This closure due to the command of BSP was eventually declared illegal by the
Supreme Court in 1991. This led to the reopening of 15 branches of the bank in 1994. In the year 1995, Banco Filipino
became a member of BancNet, and soon launched the BF cash card. The issuance of the bank’s first Visa credit card
followed the year after. BF was re-listed on the Philippine Stock Exchange (1998) and became entitled to damages
payments due to its illegal closure in 1985 according to the ruling of the Supreme Court (1999).
In 2009, the Supreme Court allowed the P 18.8 billion damage suit filed by the Savings bank in Makati
Regional Trial Court. On March of the following year, Makati RTC commanded the BSP to give rehabilitation
assistance and pay latter costs to Banco Filipino that totaled in at least 30 billion pesos. However, on the 10 th of March
2011, the Philippine Stock Exchange revoked the bank in their official registry, that resulted in the inability of the
bank to buy or sell shares of stocks. A few days after, the BSP’s monetary board ordered the closure of Banco Filipino
for the second time around. The bank voluntarily closed all of its branches from depositors without prior notice. This
order from the BSP was due to Banco Filipino’s illiquidity and insolvency, due to the fact that its liabilities is greater
than its assets. This is prohibited by the law which states that a bank’s assets must be equal or greater than its liabilities.
In the case of Banco Filipino, its liabilities exceeded its assets by P 8.4 billion. It also placed BF under the receivership
of the Philippine Deposit Insurance Corporation (PDIC). The Bangko Sentral ng Pilipinas stated that it had gathered
sufficient evidence that proves that there is mismanagement of their depositor’s money. BF then filed a complaint
against BSP and its Monetary Board of the 1st of April of the same year for anti-graft and corrupt practices. This
resulted in the filing of criminal charges against the directors and officers of BF for several violations of central bank
laws and unsound banking practices.
Banco Filipino was in great competition with savings bank, e.g. Philippine Savings Bank and Centennial
Savings Bank. Presently, Banco Filipino is known for its property developments such as BF Homes and subdivisions
in Paranaque, Quezon City, and Las Pinas. BF was also first in utilizing open teller counters instead of traditional
glass-encased counters. Currently, all banks have adopted this idea.
CASE ANALYSIS:
Being a well-known bank, like Banco Filipino before, cannot guarantee stable business if there is not proper
management. The case of Banco Filipino should serve as an example to other banks so that they would handle and
manage their funds and depositors’ money wisely. Banco Filipino had encountered a huge overdraft, which is a deficit
in a bank account by drawing more money than the account holds, due to mismanagement. The bank admitted to
having ‘extraordinary financial panic.” The mismanagement of the money of depositors was a huge factor that
eventually resulted to its closure, because of the lavish expenditure and lead to unpaid loans to the central bank and
the bank itself.
There is also failure in the submission of regular reports to the Philippine Stock Exchange which lead to
delisting of its thinly traded stocks. Besides that, there is also failure in submission of financial reports to the Securities
and Exchange Commission for several years. These reports are important because these are some of the evidences that
would prove a bank is in good financial condition. Upon the second closure, BSP discovered that the bank had an
average loss of P 2 billion per year from 2007 to 2009. Francisco Rivera, BF executive vice president and corporate
secretary, admitted that the bank continued to lose P 800 – 900 million a year ever since its reopening in 1994. This
could be the reason for its failure to submit the financial reports. During these years, the bank had an annual gross
income of P 242.5 million, however, its expenses amounted to P 597 million. This resulted in the past-due loans of
Banco Filipino to BSP that amounted to P 4.4 billion as of September 2010.
The loss of hundreds of millions of pesos of Banco Filipino also occurred due to unsafe practices, according
to Amando Tetangco Jr., Governor of BSP. As stated by Nestor Espenilla Jr., deputy governor of BSP, Banco Filipino
affianced in high-risk, high-yield schemes to attract depositors. An example of this scheme is the interest rate of BF,
which ranged from 6 to 13.9 percent, whereas the interest rate of other banks only ranges from 1 to 2 percent only.
This high interest rate was offered for special savings deposit that caused the bank’s interest expense higher than its
interest income. The bank had an average negative net interest margin of P 1 billion a year during 2007 to 2009. BF
was also engaged in falsification of bank reports to conceal operating losses for loans that are past due and
uncollectible. Before BF was placed under PDIC, it was trying to sell hundreds of properties. Most of Banco Filipino’s
assets are unpaid by the buyers as of August 2010. Despite the procuring lots of assets, BF’s debt still exceeded its
assets by P 8 billion and was unable to settle its obligations. According to the Bangko Sentral ng Pilipinas, BF’s assets
were actually capitalized losses. They also disclosed that Banco Filipino was engaging in a Ponzi scheme, wherein
the incoming deposits were used to pay the interest of old deposits and daily operations instead of being used to invest.
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors and not from any actual
profit earned but from their own money or money paid by subsequent investors, according to The Philippine Star.
Banco Filipino still blames the BSP for its closure, and argues that the BSP makes the decision for them and
the BSP mismanaged them. Upon its first closure, the bank was already unable to recover and was unable to have
competitive advantage over the long-established banks.
RECOMMENDATIONS:
Banco Filipino did not learn from its previous mistakes or from their first closure so, history repeated itself.
The bank had incompetent governance and financials. Insolvency was the reason for their first closure and it was
resolved. However, the problem occurred again which only shows that there is very poor management. Maybe because
the first closure was ruled as illegal, Banco Filipino became too confident to return to the banking industry. BF also
focused too much on gaining competitive advantage. Offering higher interest rates for deposits yields higher interest
expense, on the other hand, giving higher interest loans would then be difficult because clients would be discouraged
to apply for loans. Therefore, there was a lower interest income than interest expense.
Furthermore, Banco Filipino also offers interest on a daily basis. This also yields a higher interest expense
rate, that is why interest must be given on a monthly or annual basis. Business must conduct in-depth study before
applying it directly into their business. There should have been stricter banking practices that would result in a more
stable bank, rather than personalizing it to gain more depositors. The bank could also have investors that would be
willing to take over to manage its operations, since it was previous closed due to bankruptcy and excessive liabilities.
A system of effective internal control that covers all parts of banking business and operation should have been placed
to ensure that the bank would be stable and have long term profitability targets. More importantly, a bank, or any
business for that matter, should not engage in any scheme, such as Ponzi scheme that would only guarantee its
downfall.
There should have been accurate records of financial transactions so that the financial and management
reporting is reliable and complete. A system of policies that is supposed to achieve the objective of compliance with
the applicable laws and regulations policies and procedures in the banking industry.
Also, a risk assessment should always be performed before applying it in the real world. This should be done
to identify and evaluate the internal and external factors that could affect the performance of the bank. This must be
done to reduce the risk associated with a certain reward. Monitoring of the capital, liquidity, asset quality, and
profitability performance in conformity with its budget and its compliance with banking regulations should be done
regularly by the board of directors.
During the 60s to 80s, Banco Filipino was at its peak. It was a one of the largest, most popular, and most
preferred bank in the country. What happened to this bank should be remembered and studied, and learn from their
mistakes, so as not to repeat history.
REFERENCES:

Case Study for Banco Filipino Closure. (2017, Dec 06). Retrieved from https://paperap.com/paper-
on-case-study-for-banco-filipino-closure-342/
BSP wins BF Case. Retrieved from http://www.mb.com.ph/articles/337287/bsp-wins-bf-case
Banco Filipino filed cases vs most BSP governors. Retrieved from https://news.abs-
cbn.com/business/04/01/11/banco-filipino-filed-cases-vs-most-bsp-governors
http://xicowner.jefmart.com/index.php/2011/04/02/repeating-a-history-of-bankruptcy
Banco Filipino declares holiday, BSP says explain. Retrieved from
https://www.gmanetwork.com/news/money/content/215308/banco-filipino-declares-holiday-bsp-says-
explain/story/
Repeating a History of Bankruptcy. Retrieved from
http://xicowner.jefmart.com/index.php/2011/04/02/repeating-a-history-of-bankruptcy/