THE Commission on Audit (COA) has affirmed the validity of the notices of disallowance (NDs) issued by its auditors against the Philippine Deposit Insurance Corp (PDIC) in relation to the condonation of P1.657 billion in financial assistance extended to Westmont Bank and another P325 million to Keppel Monte Savings Bank more than 20 years ago.
COA chairperson Gamaliel Cordoba and Commissioners Roland Café Pondoc and Mario Lipana were unanimous in denying the petition for review filed by former PDIC Board of Directors chairman Edgardo Espiritu, PDIC president and BOD vice chairman Ernest Leung, Bangko Sentral ng Pilipinas Deputy Gover-nor and alternate PDIC board director Alberto Reyes, director Celso Dayrit, BSP Deputy Governor and PDIC director Feliciano Miranda, and acting secretary of finance and PDIC BOD former chairman Solo-mon Cua.
In a previous decision issued in 2012, the COA Proper composed of chairperson Ma. Gracia Pulido Tan and Commissioners Juanito G. Espino Jr. and Heidi L. Mendoza had denied PDIC’s request to write-off the cash assistance to the two private banks, noting that it will result in losses on the part of the gov-ernment.
The 2012 ruling was anchored on a 2008 Supreme Court decision limiting the authority of PDIC to con-done only “ordinary receivables, penalties and surcharges” where the loan principal was already paid.
The COA noted that what PDIC wanted to write-off included a portion of Westmont’s principal loan, regular interest as well as accumulated interest.
Records showed the PDIC first extended cash bailouts to Westmont when it was still operating under the name Associated Bank in 1989 with a P400 million direct loan.
On July 20, 1994, after the bank became Westmont Bank, PDIC granted another financial assistance of P1.395 billion released in four tranches.
On September 16, 1999, the PDIC Board of Directors approved a restructuring of Westmont’s 1994 FA. This was affirmed by the Bangko Sentral’s Monetary Board eight days later.
Under the restructuring scheme, PDIC purchased Westmont’s non-performing assets worth P6.8 billion. Of the said amount, P4.9 billion had a buy-back guarantee by Westmont while the P1.9 billion had no such assurance.
PDIC also waived accumulated deferred interests of P444 million that was due on June 1999 and anoth-er P462 million due on December 1999.
The entire P6.8 billion bailout was lent by the BSP to PDIC “at no cost.”
However, the PDIC corporate auditor issued an opinion dated August 24, 2000 declaring the condona-tion improper since PDIC’s own Charter requires that any assistance to be extended to ailing banks should have the assurance that it will get something in return.
This view was concurred in by COA’s Corporate Government Sector in a memorandum issued on January 26, 2004.
On the case of Keppel Bank, COA noted that the P325 million assistance was part of a P1.5 billion bailout package released in May 1997 by buying non-performing loans of Monte de Piedad by the same amount.
To finance the bailout, BSP extended a P1.175 billion loan to PDIC payable in 20 years at 4 percent inter-est per year. PDIC shelled out the balance of P325 million.
Initially, PDIC recorded the P325 million as “financial assistance-acquired assets” only to revise it later as “cost of rehabilitation,” which was treated as an outright expense.
Held liable in the ND against the Keppel Monte’s financial assistance were Espiritu, Leung, Reyes, Dayrit, PDIC Board Director Cesar Querubin, and Keppel Bank president Hoe Eng Hock.
For the 1994 financial assistance to Westmont, held liable were Leung, Miranda, former PDIC director Antonio Poblete Sr. and Espiritu as president of the bank.
In the 1999 financial assistance also in favor of Westmont, those who were found liable were Cua, Leung, Reyes, Querubin, and Westmont Bank president and chief executive officer John Anthony Espir-itu.
In its most recent decision dated December 7, 2023 but released only yesterday, the COA en banc over-ruled the petitioner’s argument that they were deprived of due process with the issuance of the NDs.
“The essence of due process contemplates the twin requirements of notice and an opportunity to be heard. Here, petitioners were given the opportunity to file their appeal in. Thus, their arguments and issues were ventilated before this Commission, and that is tantamount to exercising their right to be heard,” the Commission pointed out.
It clarified that the issuance of the disallowance was an auditorial decision after post-audit work, taking off from the COA decision of 2012.
The COA also swept aside the contention that the condonation of the P444 million accumulated de-ferred interest was a component of the grant of the financial assistance to Westmont Bank.
“In the case of PDIC vs. COA, the SC agreed with this Commission that the power to condone applies only to ordinary receivables, penalties, and surcharges and must be submitted to COA before it is im-plemented. In other words, the power of PDIC to compromise claims and settle liability under its Charter should still be subject to review by the Commission,” it noted.
Despite the 2012 COA ruling, the PDIC still pursued the condonation of the accounts of both banks, hence the disallowance was only proper.
“There was a loss of government funds when PDIC condoned the FA. While the grant of the FA is not illegal or irregular, the condonation thereof was illegal or irregular since PDIC should have collected or required payment from WB (Westmont Bank) and KMSB (Keppel Monte Savings Bank),” it added.