The Philippine Deposit Insurance Corporation (PDIC), statutory receiver of the closed Rural Bank of Subangdaku, Inc. (RBSI) in Cebu, filed on January 13 with the Department of Justice (DOJ) a criminal complaint against the former President and the former Loans Manager of the closed bank for the creation of fictitious loans and for conducting business in an unsafe and unsound manner. The RBSI was placed under PDIC receivership by the Monetary Board on January 8, 2009.

In its complaint, PDIC alleged that respondents Paz Radaza (President and Member of the RBSI Credit Committee) and Julius Eullaran (bankwide Loans Manager) conspired and caused the creation of 6,051 fictitious loans amounting to almost P2.6 billion from 2004 to 2008 and comprised about 97% of all the loans supposedly released by the RSBI – Head Office during the said period.

The complaint further stated that the respondents orchestrated the creation of official receipts and made it appear that payments were being made to the Bank, when in fact, no payment was being received. These supposed payments were used to provide the purported source of the fictitious loan proceeds.

Based on the sworn affidavit of the Bank’s former Loan Officer, respondents Eullaran and Radaza ordered their subordinates to create fictitious loans, “no questions asked” based on the list that respondent Eullaran provided, which contained information to be used in creating the fictitious loans. This claim was supported by the findings of the expert forensic accounting team from Alba Romeo & Co. that PDIC engaged to assist in the investigation.

Results of the forensic investigation showed that 5,470 of the 6,051 fictitious loans did not contain the required credit information. In addition, 581 of these loans did not have any supporting documents. Consequently, demand letters to the named borrowers of these loans were returned because of unknown addresses or because the borrowers did not exist.

The Corporation continues to pursue legal actions against bank officials and personnel who have been found to have engaged in unsafe and unsound banking practices. These activities pose grave threats to the stability of the country’s banking system. As co-regulator of banks, deposit insurer and receiver/liquidator of closed banks, the PDIC is authorized to conduct investigations and file appropriate cases against erring bank officials and individuals who are found to have violated banking laws. The pursuit for justice against erring bank owners, officers and employees is an important undertaking of PDIC to protect the Deposit Insurance Fund, PDIC’s funding source for payment of insured deposits, as well as to maintain financial stability.

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