It should be understood as a main premise: that all banks and financing institutions are under the supervision and administration of the Central Bank (CB), as the regulatory governmental body, with the solitary power to close and place under Receivership or Liquidation erring banks.
A rural bank in good standing is re-discounted by the CB money at say nine percent or 12 percent etc. per annum, which, in turn is lent out to borrowers at 23 percent interest plus five percent penalty; and the extras of notarizations; inspection fee; fire; life; motor car insurance coverage, further charged the borrower…so, how can the rural bank ever lose?
Banks are closed; placed under Receivership or Liquidation by the CB, only, as a last resort…for continuous violation and non-compliance of bank practice rules and regulations. Before such drastic measures are imposed by the CB, yearly audit is conducted by CB examiners and the bank and members of its Board of Directors are furnished copies of the Audit Report with the deficiencies noted as well as the remedies recommended. The violations indicated in the Audit Report should be addressed and corrected by the bank to the satisfaction of the CB. There will be numerous reminders to the bank calling its attention to the deleterious banking practice acts being admonished and required to be rectified. It is to be emphasized, that only then, after numerous banking directives have remained unheeded, would the bank be closed by the CB.
Ergo, for a bank to be ordered closed and placed under liquidation by the CB, clearly means it is mortally wounded financially; in the ICU and prognosis for recovery low. Final closure is a long process because the CB is tasked with maintaining the health of the banking industry.
Aside from failure to comply with CB banking rules which led to its banking demise, there are numerous subtle indicias which should have warned off depositors to withdraw their money.
One definitive sign is contained in the bank definition of a scam, which is apparent, when a bank pays interest on deposits at rates far beyond the prevailing interest rates in the banking industry. On time deposits and other long-term investments, Interest rates range from 3.75 percent, 3.25 percent, four percent, 4.25 percent, 4.75 percent per annum; whereas, a defunct lender pays interest on deposits at three percent per month. The depositor is ecstatic because his hard-worked and saved P1 million earns P30,000 a month…and will invest more, Greed overwhelming him. And as borne out by events, it turned out it was his money being paid him as Interest until the bank folds.
Under liquidation, million pesos depositors are initially paid P500,000 by the Philippine Deposit Insurance Corp. (PDIC) by provision of law, then the banks assets are sold, that is, if they have substantial assets left; whenever the sale maybe; and the depositors paid, whenever, it maybe. You see, the conservator has to decide which depositor shall be paid. So, maybe this year…next year…usually never.
Another factor which pulls down a bank is over-expansion. Be wary of banks, who, absent financial national prominence and stability, continue to open branch offices everywhere. More often the branch offices, being new in the community, needs a period of familiarity and acceptance for local depositors, to start coming in. And in the interim period, the branch office and its staff will register monthly losses. Several non-profit branch offices will affect the financial condition of the bank.
And another culprit is mismanagement which only comes from errors of judgment committed by the top echelon. Qualified and good personnel translates to sound and stable banks. Low salaries paid gives you employees with IQ below room temperature…and that is what will happen to your bank.
With the difficulty entailed in earning an honest living, one must be careful in the choice of bank to protect and safeguard your loot./PN
