Bangko Sentral ng Pilipinas (BSP) is eerily quiet on how much in “money lifeline” it has extended to Bankwise before it decided to close down the thrift bank which is said to have P1.3 billion in deposit liabilities.

After all, it can thank its lucky stars that the ongoing focus on the broadband controversy can afford the banking regulator to take it easy with nary a word on how insolvent Bankwise is. This, after  more than a year of letting the thrift bank go about seeking  a supposed white knight, ostensibly that of Philippine Veterans Bank (PVB).

After coming out with a terse circular on Bankwise’s closure for being insolvent, the Bangko Sentral has yet to announce to the depositing public how much in public funds had been dissipated; one estimate from a bank analyst put it at more than P2 billion. If the P1.3 billion in deposit liabilities that would have to be paid by Philippine Deposit Insurance Corp. (PDIC) is to be included, that means a whopping P3.3-billion losses in government money.

BSP, in keeping with its corporate- governance standards and transparency, should tell the depositing public how the thrift bank ended up being insolvent. Was it run to the ground by its officers? How? Were there unsound banking practices that occurred as to allow a supposedly loss-free business to wallow in red ink? After all, the banking business—with its no-cost deposits on checking accounts and up to 5 percent in interest paid to savings accounts and time deposits against its lending rates of between 11 percent and 18 percent—is a profitable business model.

The estimate of P3.3 billion in losses for the government that a bank analyst reckons from the closure of Bankwise hews closely to the lifeline that the PVB sought from PDIC for its takeover bid on Bankwise. The bank asked, but was rebuffed, for P3.5 billion from PDIC for its supposed white- knight role in Bankwise. The late PDIC president Michael Osmeña turned down the importuning of PVB, and the closure proved him right.

More than five years ago, Bankwise reported no investments in government securities. It also got P700 million in advances from the Bangko Sentral while there were reports swirling around in the banking industry that the bank got a huge, clean loan from another financial institution. Has the BSP failed in flagging down the inherent risks in the way the bank was being managed? Or did it gloss over the infractions that were apparent due to the possible entry of another government bank, PVB, into the picture?

For all we know, the Bangko Sentral pumped in more money after the P700 million in advances it initially placed. There is no way of knowing this in much the same way that there is no accurate way of telling how the banks are faring in their management of UITFs (unit investment trust funds) in the light of the debacle in the stock market, the ups and downs of the bond market and the subprime mess that has engulfed the US banking industry.

Was the banking industry hurt, too, by the subprime mess? Remember that financial institutions such as banks, as part of their diversification thrust, could invest their funds in collateral debt obligations (CDOs) or what passed for investment-grade debt papers that had, as underlying assets, packaged financial instruments which lumped together the debt notes of so-called subprime borrowers buying housing units. The CDOs had a blowout, and with it, blue-chip US banks.

The possibility of a huge loss from the subprime mess for the local banking industry was earlier asked of a Bangko Sentral official. This was prompted by the unaccounted-for P5 billion in net worth in the banking industry for the period up to September last year. We understand that the local banking industry’s net income for the nine-month period stood at P5.5 billion, compared with the end-2006 period. However, the net worth of the banking industry rose only by a paltry P500 million.

Where did the P5 billion go? This we asked from a Bangko Sentral official. And we were promised the answer. Unfortunately, the P5 billion which has not been accounted for has yet to be properly addressed. It would be difficult to surmise that the P5 billion could have resulted from losses arising from the subprime mess. It is also just as difficult to pin down the reasons for the insolvency of Bankwise as it is similarly problematic to determine how long the money woes of the bank has been festering.

But why did the Bangko Sentral extend that initial lifeline of P700 million to Bankwise, at a time when its deposits were at P2 billion as per its financials then? It would seem that the P700 million evaporated on top of another P700 million since its deposit liabilities turned out to be just P1.3 billion when it was closed down. What was the collateral that Bankwise used in getting that P700 million at a time when it had no investments in government securities, also as per its financials?

How the Bankwise story will unravel is a difficult call at a time of pronouncements from the Bangko Sentral that all is well in the banking industry, with the ratios well within the acceptable limits and the nonperforming loans being addressed aggressively. But the BSP should not let its guard down and be caught unawares again by another Bankwise scenario, where it extended a lifeline that went down the drain, akin to having good money chasing bad money. 

E-mail: hugagni@yahoo.com

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