Legacy banks faked borrowers — BSP

MANILA, Philippines - The rural banks belonging to the Legacy Group pulled off the "grandest" banking scam in the country’s history, the central bank said, by luring depositors with "double-your-money schemes" and siphoning deposits into fictitious accounts. In a briefing late Friday, Nestor A. Espenilla Jr., Bangko Sentral ng Pilipinas deputy governor for bank supervision and examination, said bank examiners discovered a bevy of "ghost" borrowers through which the rural banks diverted funds to themselves and affiliate companies. Furthermore, these ghost borrowers were paid "commissions" ranging P10,000 to P15,000 by Legacy officials for loans running into the "millions of pesos." "What we found was that the money was being dissipated through fictitious loans and advances to related companies," Mr. Espenilla said. The scam, the official also said, was the "most complete criminal banking model" witnessed in the Philippines. On Friday, the central bank filed charges against 18 officials of four rural banks with the Justice department. This was the second time it had done so. On Jan. 5 — the first working day of the year — the central bank filed complaints against other officials of other rural banks with the Justice department. "The cases were filed as BSP’s investigations uncovered massive diversion of funds by said banks using fictitious loans," the BSP said in a statement late last week. Thirteen rural banks either belonging to or linked with the Legacy Group were shuttered and placed under the receivership of the state deposit insurer in December for insufficient capital, poor liquidity and for practicing unsound and unsafe banking practices. The Philippine Deposit Insurance Corp. has estimated it needs to shell out a total of P14 billion to the banks’ depositors. Mr. Espenilla said the Legacy rural banks also lied about the entry of potential investors and manufactured documents to support the fake loans. These documents included counterfeit mayor’s permits and Department of Trade and Industry registration certificates. There were no investors, no Bank Mega of Indonesia — as claimed by Celso de los Angeles Jr., former Legacy Group chairman — who could have shored up the banks’ finances. "They (Bank Mega representatives) showed up, but they never submitted any concrete investment or rehabilitation proposal [for Legacy]," Mr. Espenilla said. "They (Legacy) said they had injected fresh capital into their companies, but we checked and found out that this was not true," Mr. Espenilla said. To improve the group’s financial statements, the BSP official said the Legacy banks would sell supposedly repossessed land for about 10 times their real value to affiliate companies. And to meet liquidity requirements, the Legacy banks "borrowed" capital from affiliate companies. Finally, to meet their obligations to old depositors, the banks used funds from new depositors. "They had a mechanism for attracting new investors, a mechanism for cleaning their books and a mechanism for siphoning accounts," Mr. Espenilla said. He said Mr. De los Angeles had expanded his network by acquiring undercapitalized banks on the verge of being closed by the BSP. Mr. Espenilla also clarified he never owned a rural bank in Masbate as Mr. De los Angeles had alleged. "Since its establishment up to the present, I never owned any share of stock in RB San Jacinto nor was I involved in its management. I absolutely have no dealings with the bank, either as a borrower or an investor. I have never been employed by RB San Jacinto," he said. BSP Governor Amando M. Tetangco Jr. defended the deputy governor, saying that the latter was being subjected to unfair allegations. "I have known Deputy Governor Nestor Espenilla in the 27 years that he has been a central banker. In all these years, I have known him to be a person of integrity who applies his intellect, professionalism, and dedication in serving the country well as a central banker," Mr. Tetangco said in a statement sent Sunday. Legacy bank officials were not available for comment.— Paolo Luis G. Montecillo, BusinessWorld