News on 20 June

BusinessWorld

June 20, 2000, Tuesday

HEADLINE: Closed Prime Bank tops PDIC claims list BYLINE: Leilani M. Gallardo

Closed Prime Savings Bank (Prime Bank) topped the list of the banks where the Philippine Deposit Insurance Corp. (PDIC) ended up servicing the biggest amount of deposits for the year. This is because of the massive splitting of accounts in the thrift bank, reportedly done by unscrupulous depositors and with the connivance of bank insiders to qualify for the P100,000 ceiling on deposits insured by the State.

For this year alone, PDIC president Norberto C. Nazareno said the state deposit insurer has already paid P1.3 billion to Prime Bank clients - the biggest amount of insured deposits it has paid, ironically, for a thrift bank with a negative capital of P22.47 million before it closed in March 1999.

In comparison, Mr. Nazareno said PDIC paid depositors of closed Orient Commercial Banking Corp. P800 million. For Urban Bank, it serviced P400 million, and P500 million for the Rural Bank of San Miguel. In an earlier statement, PDIC said massive splitting of accounts during Prime Bank's seven-month bank holiday hampered its examination of the bank's records and the servicing of deposits.

Prime Bank was placed under PDIC receivership last Jan. 7 after declaring a bank holiday in June 1999. Prior to the bank holiday, the thrift bank was having difficulty beefing up its capital to meet the Bangko Sentral's increased requirements.

Mr. Nazareno also said the PDIC is looking into the possibility of condoning the interest payments of P1.37 billion in outstanding loans made available by Prime Bank through its Kumpare Livelihood Loans Program (KLLP). This is because PDIC's examination of the Prime Bank's records showed the bank "overcharged" its clients.

"As a matter of course, we have to file a case against the borrower. Ang sabi ko huwag na lang nating i-recover 'yung iba; 'yung principal na lang. (I said let's not recover the rest, just the principal) because I'm trying to put justice into it through the PDIC," he told BusinessWorld.

Documents obtained by BusinessWorld from PDIC show that under the KLLP facility, Prime Bank charged its borrowers with a 66% annual interest, 4% in late payment charge, 25% of the total loaned amount for attorney's fees, 25% of the total loaned amount for liquidated damages and an additional P300 charge for every bounced check and replacement check issued.

In addition, the documents also show that for a P24,000 principal amount, a borrower can only take home less than half of the principal at P10,468. The reduced amount resulted from deductions of P6,630 for unearned interest income; P3,000 for marketing fee; P1,500 collection fee; P1,000 commitment fee; P772 for handling fee; P500 for credit investigation fee; and P300 for development fee.

At present, PDIC said there are a total of 96,579 outstanding KLLP accounts, of which 24,006 are subject to litigation in various courts all over the country. Considering the large number of cases, the PDIC said it is looking into the possibility of endorsing the collection of the accounts to external counsels or collecting the amount out of court.