MANILA, Philippines — The Philippine Deposit Insurance Co. (PDIC), which was given a period of time to resolve whether or not closed Banco Filipino Savings and Mortgage Bank can still be saved, has reworded its decision to ‘may not be rehabilitated’ instead of ‘cannot be rehabilitated’.

In a letter to the central bank’s Monetary Board dated July 21, 2011, PDIC President Valentin A. Araneta has informed the BSP that Banco Filipino ‘may not be rehabilitated,’ a departure from the language stated in the law which should have said Banco Filipino ‘cannot be rehabilitated’ anymore, hence the justification for its closure last March 17 on the grounds of insolvency.

A source said the Department of Finance (DoF) has been asked by the Bangko Sentral ng Pilipinas (BSP) to clarify the decision of the PDIC to change the wording in the letter as this could be interpreted that Banco Filipino can still be rehabilitated.

The source said National Treasurer Roberto Tan, who is DoF Secretary Cesar V. Purisima’s alternate in the Monetary Board as ex-officio member, has been instructed by the Monetary Board to discuss the issue. Purisima is chairman of PDIC.

The Monetary Board last Friday also decided to ask the PDIC to issue a clarificatory letter to the BSP while the DoF tries to resolve the matter of the language of the letter and its possible implications.

Last May, the House of Representatives ordered the PDIC to come up with a rehabilitation plan for Banco Filipino within 90 days or until the end of this month.

In the meantime, the Court of Appeals last week ruled in favor of the BSP on the P25 billion financial package to Banco Filipino that the latter has been asking the central bank as rehabilitation money. The special 10th division of the appellate court overturned a Regional Trial Court decision ordering the BSP to make available the P25 billion to the bank.

The BSP has placed Banco Filipino under PDIC receivership to pay its 177,652 depositors. The BSP said it has decided to shut down the bank due to its inability to pay its liabilities as they become due in the ordinary course of business, because of its insufficient realizable assets to meet its liabilities, and that the bank ‘cannot continue in business without involving probable losses to its depositors and creditors.’

BSP Deputy Governor Nestor A. Espenilla Jr. stated previously that Banco Filipino has ‘mismanaged money entrusted to them by their depositors by its continued lavish spending and allowing loans to remain unpaid, including billions in overdue loans granted to its stockholders, officers, and related companies.’

Espenilla said the bank also owed the BSP about P4.4 billion in past due loans. The 62-branch Banco Filipino was first ordered closed in 1985 but reopened in 1992 after the Supreme Court declared the closure illegal. The years that followed saw an exchange of lawsuits between the bank and the BSP involving P18.8 billion of damage claims.

It was in 2009 when Banco Filipino requested the BSP for an "income enhancement loan" of P125 billion. This was the financial assistance required to support the bank’s full recovery after it was reopened. In the months that followed, with both BSP and Banco Filipino officials working together for a sustainable business plan, the initial loan negotiated was reduced to P20 billion but the final amount agreed upon was P25 billion.