MANILA,Philippines. The Bangko Sentral ng Pilipinas (BSP) said the LBC Development Bank had been making huge cash advances to its sister company, remittance firm LBC Express. That was partly the reason why the thrift bank became insolvent.
BSP Deputy Governor Nestor Espenilla Jr. said that based on the results of the investigation by the central bank, LBC had been giving cash advances to LBC Express so that the latter could facilitate the delivery of remittances to clients much faster. Some of the cash advances remained unpaid, thus causing the bank’s financial burden.
Espenilla said the practice of the LBC Development Bank to give cash advances was one of the key reasons why the bank was placed under the Prompt Corrective Action (PCA) program of the central bank. LBC had been under the PCA program for more than a year prior to its closure last week, the official said.
Espenilla said that under the PCA program, LBC Development Bank was told to stop giving out cash advances to LBC Express. However, it did not comply.
Espenilla could not yet give the exact figure of the unpaid cash advances, but said the amount ran in the billions of pesos.
Espenilla said the Monetary Board ordered the thrift bank closed in the belief that allowing it to operate could spell more trouble to depositors due to its bad financial standing.
Another unsound banking practice by the LBC Development Bank, the central bank official said, was its offering of very high interest rates on deposits to woo people to place money in the bank.
The Monetary Board of the BSP placed LBC Development Bank under receivership of the Philippine Deposit Insurance Corporation. (inq.net)