By Roy Pelovello and Christine F. Herrera

ALLIES of House Speaker Prospero Nograles yesterday slammed the Bangko Sentral for failing to act swiftly on the case of 15 rural banks, which were affiliated with the Legacy Group but were closed down after duping depositors out of billions of pesos through a pyramid scheme.

Nograles, who has admitted investing about P10 million in the Legacy Group, yesterday said he could not seek to recoup his investments aggressively because his brother led the Philippine Deposit Insurance Corp.

In yesterday’s hearing, Makati Rep. Teodoro Locsin urged central bank officials to expose the people behind the Legacy Group banks.

“Please provide us with the list of the names of the board of directors [and] ostensible stockholders of all the Legacy banks. They are not protected by bank secrecy—that should be a matter of public record. The public wants blood, the press wants blood, and they deserve it in this case. Let’s feed them these guys,” Locsin told central bank officials at yesterday’s hearing.

“We don’t want to create a core of professional dummies, so let’s expose them, the directors of these banks. We want the names, addresses, faces, photographs and distribute this to the media,” he added.

During the hearing, the committee on banks led by Manila Rep. Jaime Lopez sought to establish if the Bangko Sentral had adequate powers to stop irregular banking practices, and if it exercised enough diligence to prevent the collapse of the rural banks.

Camarines Sur Rep. Luis Villafuerte noted that the central bank did not prescribe a ceiling for interest, allowing Legacy-affiliated banks to offer “excessive rates” to lure unsuspecting investors or depositors.

“It is the duty and responsibility of the BSP to regulate [the industry],” Villafuerte said.

The general counsel for the central bank, Elmore Capule, said that under current rules, there was a “free market” environment with respect to interest rates being offered by banks. But Bangko Sentral Deputy Gov. Nestor Espenilla said the market was governed by Circular 640 on “unsafe and unsound” banking practices.

Espenilla defined an unsafe and unsound banking practice as a cycle where funds were raised from the public at very aggressive rates, which were linked to assets and investment activities but had little chance of paying out the returns.

“A 5-percent interest per month is a potentially unsafe and unsound banking practice. It’s unsustainable and there is very little chance of being repaid,” Espenilla said.

But Locsin and Villafuerte said Circular 640, adopted only in January, came not only too late but also failed to define clearly what an unsafe and unsound banking practice was.

“This has no retroactive effect,” Villafuerte said, noting that the Legacy banks were closed in December. Besides, he said, the circular took effect only 15 days after it was published in a newspaper of general circulation.

“We are asking you these questions because we want you to give us legal ammunition to go after this Legacy Group. There is something fake in what you are doing—you rush a new regulation now that these cases have already blown up,” Villafuerte said.

Locsin said the Bangko Sentral’s refusal to give Legacy a copy of the examination report in 2005 gave the banks affiliated with the group the opportunity to challenge their closure in court.

“You gave them good cause for delay. By refusing to give them that report, you gave them the chance to go to court,” Locsin said.

Agusan Del Sur Rep. Rodolfo Plaza said that although the central bank was investigating the Legacy Group’s practices as early as 2005, the banks were closed down only in 2008.

Pending legislative action on remedial measures that would prevent the same thing happening, Locsin said, the committee should at least expose the directors of the Legacy bank groups.

Lawmakers are considering lengthening the 30-day period before a bank’s closure prohibiting depositors from splitting their accounts.

Plaza also suggested that the Bangko Sentral should have a definite timeline in ordering a bank’s closure from the time of the initial examination that found unsafe banking practices.

In the case of Legacy, he said, the central bank waited three years—the term of a congressman—before closing banks that had already collapsed, Plaza said.

There were also suggestions to relax bank secrecy laws to allow the PDIC, which insures deposits, to inquire into the soundness of a bank’s practices.

PDIC president Jose Nograles said that most deposits were P250,000 and below in the 15 banks affiliated with Legacy Group.

His agency is asking the Bangko Sentral for a P14-billion loan to ensure it has enough funds to cover its obligations.

Nograles said they were looking into 135,000 accounts in 50 locations involved in the 15 banks under the Legacy Group that folded up.

“We are examining the accounts and those that are obviously clean we set aside, they would be the first to be paid. Accounts which are doubtful we set aside and label as FFV—for further verification—to check if they are legitimate,” Nograles said.

He said they expected to begin paying depositors of the closed Legacy banks by February.

Nograles accused former PDIC chief Ricardo Tan of “twisting and distorting the truth” about his alleged dealings with Legacy owner and Albay Mayor Cesar delos Angeles.

He said Tan was getting back at him for refusing to help him extend his term at the PDIC.