043009: Deposit cover raised

Vol. XXII, No. 190
Thursday, April 30, 2009 | MANILA, PHILIPPINES

Today’s Headlines

 

PRESIDENT Gloria M. Arroyo yesterday signed into law the amendments to the state deposit insurer’s charter, doubling the insurance coverage for bank depositors to P500,000.

Republic Act No. 9576, which comes amid a dim global financial environment, will also enhance the Philippine Deposit Insurance Corp.’s (PDIC) powers to help protect tax payers from suffering losses due to criminal banking schemes similar to that perpetrated by the Legacy group of banks.

But Bangko Sentral ng Pilipinas (BSP) said a real, meaningful improvement of the local financial system’s regulatory framework will hinge largely on the approval of the long-delayed amendments to the BSP’s charter.

"The amendments contain important reforms in the country’s deposit insurance system and seek to promote public confidence in our banking systemin the midst of the present global financial crisis," the PDIC said in a statement..

The law will take effect as soon as its implementing rules and regulations is finalized.

For the first three years after the law takes effect, the first P250,000 to be paid to depositors of closed banks will come from the PDIC, while the remaining half will be paid by the National Government.

This gives the PDIC ample time to beef up its reserves, to give it the ability to comfortably cope with the doubling of its liabilities.

PDIC can now also issue state-guaranteed bonds or other forms of debt to improve its fiscal position.

Aside from the increase in insurance cover, provisions of the new law include the relaxation of the deposit secrecy law, allowing the PDIC to look into deposit accounts of banks that face "threatened or impending closure."

But PDIC President Jose C. Nograles said looking into bank accounts will require the approval of the Monetary Board.

He also said the PDIC will have to clearly define the conditions that will trigger the PDIC’s examination of bank deposit accounts. The PDIC was previously allowed to examine deposits only after a bank is closed.

He said the likely criterion the PDIC will monitor is a bank’s capital adequacy ratio (CAR), or its ability to absorb losses from the amount of money it lends out.

Local banks have maintained an average CAR of just under 15% as of the third quarter of last year, higher than the 10% minimum required by the BSP and the 8% floor prescribed by the Bank of International Settlements.

The younger Mr. Nograles added that to avoid abuse of the increased deposit coverage, the PDIC plans to require depositors to make their claims under oath to discourage the "splitting" of deposits by bank clients.

Splitting of deposits is allowed under law if done no less than a month before bank closure, but the new PDIC charter makes this illegal if done three months or less before a bank is closed.

The law also exempts the PDIC from taxes for the first six years after the law takes effect, helping it raise its insurance fund, which now stands at P60 billion.

However, to completely avoid criminal bank schemes, BSP — PDIC’s co-regulator — said its own charter amendments need to be fast-tracked. "The BSP’s proposals are intended to fill up a lot of regulatory gaps," BSP Gov. Amando M. Tetangco, Jr. said.

Charter amendments sought by the BSP include relaxing of the deposit secrecy law for BSP depositors and lifting of the requirement of "extraordinary diligence" by bank examiners. BSP also wants to be immune from restraining orders issued by courts lower than the Court of Appeals. — Paolo Luis G. Montecillo