Supreme Court orders closure of 10 rural banks in Philippines

MANILA – The Supreme Court (SC) ordered the closure of 10 rural banks located in various parts of the country as it chided a lower court judge in Manila for interfering with the functions of the Monetary Board.

In a 19-page decision, the SC said the Manila Regional Trial interfered with the Monetary Board functions when it issued a temporary restraining order against the closure of the banks.

The banks belong to the Legacy Group of Companies which went bankrupt due to what the Central Bank of the Philippines described as gross mismanagement and massive stealing of funds by officials.

The banks include the Rural Bank of Paranaque based in suburban Paranaque City, Metro Manila; Rural Bank of San Jose, Batangas province in Southern Luzon; Rural Bank of Carmen in Cebu province, Visayas; San Pablo City Development Bank in Laguna province, Southern Luzon; First Interstate Rural Bank in Leyte province in the Visayas; Rural Bank of Calatagan, Batangas province in Southern Luzon.

Earlier, the Monetary Board ordered the closure of the 10 banks after they were found by Central Bank investigators that they were undercapitalized.

But the Legacy Group officials succeeded in obtaining a temporary restraining order from a Manila lower court judge, which was later affirmed by the Court of Appeals.

In its decision, however, the SC stressed the lower court judge prevented the Monetary Board from appointing a conservator or receiver for the rural banks.

The judge also erred when she stopped the Central Bank from compelling the banks to infuse additional capital, the High Court said.

It also pointed out that contrary to the lower court findings, the Central Bank and the Monetary Board did not violate the right of the rural banks to due process when investigators provided their report of examination to the board before giving copies to the banks.

The SC stressed: “They can point to no provision of law, no section in procedures of the Central Bank that shows that the Central Bank is required to give them copies of the report on examination.”

Central Bank investigators reported they found the banks to be undercapitalized during an audit done on July 31, 2007.

The banks all operate under the aegis of the Legacy Group wich is primarily engaged in selling pre-need plans.

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