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Philippine bank scams thousands with Ponzi scheme

MANILA, April 6, 2011 (AFP) – A Philippine bank has been shut down for running a “Ponzi” scheme, luring thousands of people with high yields and using new deposits to pay interest on old ones, the central bank said Wednesday.

It said it had asked the justice ministry to file criminal charges against 10 senior officials and members of the board of Banco Filipino, which the monetary authority closed last month after it was hit with heavy withdrawals.

“Banco Filipino was operating as a pyramid or Ponzi scheme in the past years, using new deposits to pay old ones, and with its officers paying themselves and their lawyers much more than the bank was earning,” it said.

It said the bank’s directors, officers, and shareholders had lent themselves 2.2 billion pesos ($51 million) or more than half its total loan portfolio, and 91 percent of all loans were past due as of September last year.

While the savings bank’s annual income averaged 242.5 million pesos in the three years to calendar year 2009, it spent 2.5 times this amount on salaries, benefits and professional fees, a central bank statement said.

The lender also owed the central bank 4.4 billion pesos in past due loans as of September last year, it added.

It said the thrift lured its 177,652 depositors with rates of between 6.0 and 13.9 percent compared to the industry savings account standard of between 1.0 and 2.0 percent, causing interest expenses to top interest income.

More than half its clients had deposits of 5,000 pesos or less, it added.

However a lawyer for Banco Filipino, Harry Roque, rejected the accusation, saying that the bank was under the comptrollership of the central bank, so it could not have engaged in such misdeeds.

“How can they say pyramiding can happen in a bank which has a comptroller and was even under enhanced monitoring?” he told AFP.

Roque charged that the central bank only made the accusation in retaliation after Banco Filipino filed charges of illegal closure against the central bank last week.

He reiterated that Banco Filipino’s troubles were due to the central bank’s refusal to extend it an emergency loan to cover the rush of withdrawals.

President Benigno Aquino meanwhile complained that the central bank was being prevented from properly overseeing ailing banks due to legal injunctions by bank owners.

Referring to Banco Filipino, Aquino asked: “What is going to happen to our banking system if the banks’ misdeeds are ignored and the (government deposit insurance system) is left to pay their depositors?”

Banco Filipino was earlier closed by the central bank in 1985 for alleged insolvency but in 1994 it was allowed to reopen after the Supreme Court ruled that its closure was illegal. Balita Media Inc.’s website is Balita.com.

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