Penalizing erring banks
by Bingo P. Dejaresco

Banks Have Long Been people’s sanctuary of hard-earned money. That they should represent the epitome of trust is a given. They have a fiduciary obliga tion over the customers’ deposits.

That is why regulatory agencies like our own Bangko Sentral ng Pilipinas (BSP) act more than a whip-lashing parent on erring children when it comes to violation of banking rules by banks themselves.

Last September “ Times Magazine” reported that Wells Fargo - once a poster boy of banking prudence- was slapped a whooping US$181-M (about P9-Billion) in penalties by American regulators -for what?

For hoodwinking clients in the tens of thousands in opening bank and credit card accounts without their permission resulting in unwarranted fee income to bank of US$2.6 M (about close to P100M).

The penalty of P9-B versus the “dishonest” fee income of P100-M is by no means a “slap in the wrist”. Even Massachusetts senator Elizabeth Warren angrily commented - in exasperation- in a Wells Fargo case senate hearing that “ The only way Wall Street will change is if the executives face jail time when they preside over massive frauds.”

It was reported Wells Fargo staff were pressured by management to “cross sell” other bank products massively and yet in the expose of the scandal by the Los Angeles Timesonly the lowly employees numbering 5,300 were fired- but a golden parachute”” was given to the outgoing bank officer in charge of community banking.

Could the hard-sell “cross selling” not have come from Board of Directors’ instructions or their tacit approval?

Here at home-sometime in August- the BSP (after conducting a special examination) on RCBC (Rizal Commercial Banking Corporation) involved in the Bangladesh Bank Heist Scandal (US$81-M) fined the bank a record amount of P 1-B by the BSP.

This will be payable in two tranches this year and in 2017.

The BSP wielded the baton as the regulatory policeman of banks-although there is much debate whether the “record fine” was commiserate to the offense.

Although that would hardly make a dent on the stability of the bank which earned P5-B in 2015 alone. But it is a bite charged to equity holdings.

RCBC was able to withstand the backlash as it already made P2.6-B in the first half of 2016 and would likely perhaps equal the earnings of the previous year.

The greatest blow, however, was done to the country’s image in the international finance community. It exposed the weakness of our money laundering system and cast a bit of doubt about professionalism even among major banks.

In fairness, according to the BSP , RCBC has strengthened its AMLA patterns as well as the Counter Terrorism Financial Risk Management. It had also accepted the resignation-without chargesof its chief management officers- president Lorenzo Tan and treasurer Raul Victor Tan. More heads rolled inside, according to insiders.

RCBC also swept its board ranks and placed 7 instead of 4 independent directors to strengthen the “oversight capability” of the Board of Directors. Former Citibanker and ex-DBP and BPIa capable banker (all his life) Gil Buenaventura took over as new CEO.

Populists are still grouching why only a lowly RCBC branch manager seemed to have borne the brunt of the Bangladesh mess -and not people higher than her, who they averred, could not have been innocent or ignorant of an amount as staggering as US$81-M going through their banking mills early this year.

Debacles like this -can still, however, strengthen the system further- if the system learns its lessons well.

So far, we have not seen large bank failures in the 2000s, except that of Urbank Bank in the early turn of the century and the Banco Filipino Savings and Mortgage Bank in 2011.

In the recent years -only the smaller banks bellied up. In 2015 14 rural banks went under- 10 in Luzon and 4 in Mindanao while the year previous (2014) 13 rural banks and 2 development banks collapsed.

This is partly because of the exemplary watchdog role of the BSP, which made the Philippine banking system as one of the strongest in the region in terms , maybe not of size, but of stability and loss provisioning.

The BSP remains hawk-eyed. They are implementing Basel 3 Reforms to include putting up additional bank capital (aside from those to pass capital adequacy standards for most banks) - of 1.5% to 2.5% of their “ risk weighted assets” and increasing the “liquidity coverage ratio” of risk assets from 60% in 2016 graduated to 100% by January 1, 2019.

All these are guaranteed to ensure no more big fish bank collapses to the detriment of depositors and investors.

To ordinary folks and businesses, it is important to know more about the bank where they place their deposits and investments, maintain as much as possible more than one bank and remember that deposits P500,000 and below (only) are the ones insured by the PDIC (Philippine Deposit Insurance Corporation).

No one gets killed by asking around for bank information.. Go-ask, boys.

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