Tuesday, May 8, 2007

PDIC Insured Deposit - reduces Risk?

Depositing funds in Philippine Rural Banks is Risky?

Why - becuse some 8 x Rural Banks get closed down by the Monetary Board each year!

Having said this, deposits are insured (up to Php250,000 per depositor/per bank), by the Philippine Deposit Insurance Corporation (PDIC), which reduces/offsets, this risk somewhat?

Banko Sentral ng Pilipinas (BSP) is taking steps to improve banking practices, so there is less chance of the Monetary Board needing to close a particular bank down.

  • "In particular, the market and liquidity risk guidelines provide that if the BSP determines that an FI’s risk exposures are excessive relative to the FI’s capital, or that the risk assumed is not well managed, the BSP will direct the FI to reduce its exposure to an appropriate level and/or strengthen its risk management systems. "Although the guidelines are not strictly Basel 2 to conform with institutional arrangements and operating realities in the Philippines, the principles outlined are consistent with Basel 2 principles and international best practices," the BSP said".
  • The Bangko Sentral ng Pilipinas (BSP) has approved a further tightening of its "fit and proper" rule for directors and officials of banks and other financial institutions. The new set of guidelines expand the grounds for disqualification of bank directors and officers by adding more crimes and offenses not previously included in the existing guidelines.

    The "fit and proper" rules were intended to ensure that officials in charge of banks and other financial institutions possessed the required integrity and competence for prudent and sound management. The BSP started tightening such rules in 2002 and two years later began prohibiting top officials from holding concurrent positions in different bank entities. It has also has been tying up loose-ends in the directorship and officership of banks to prevent conflicts of interest that could open loopholes for unsafe and unsound bank practices.
  • The 50-year-old Bank Deposits Secrecy Act has now been changed. Previously, owing to the absolute secrecy of deposits, unscrupulous, bankers have managed to manipulate financial reports to the detriment of the depositing public. This absolute confidentiality of bank deposits, over the years, has abetted unsound banking practices, which, in turn led to the collapse of a number of banks and the financial ruin of tens of thousands of depositors.

    Previously it was only after the Monetary Board has already closed down an erring bank, that regulators are able to examine deposits and belatedly discover unsound banking practices. Examiners from the BIR, Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC) may now scrutinize bank deposits "for supervisory and tax audit purposes". Hopefully this will allow them to now discover erring banks with unsound banking practices, and take action, before the banks needs to be closed?
  • Based on Section 16 of the General Banking Law, to maintain the quality of bank management and afford better protection to depositors and the public in general the MB will "prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit."
  • "After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position," the BSP law said. The BSP added that in determining whether an individual is fit and proper to hold the position of a directoror officer of a bank, regard "will be given to his integrity, experience, education, training, and competence.
  • "The [BSP's] Supervision and Examination Sector shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three-year renewal period, if based on assessment, the external auditors' report did not comply with BSP requirements," the circular says.
  • The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved tighter guidelines on dealings of banks with their Directors, Officers, Stockholders and Related Interests (DOSRI) under the provisions of the General Banking Act. "We hope these regulations would curb excessive DOSRI lending which has been a major cause of bank failure," said BSP Governor Rafael Buenaventura.

Republic Act 9302 not only increased the amount of deposit covered by insurance (to Php250,000) but also restored the Philippine Deposit and Insurance Corp.’s (PDIC) authority to implement stricter monitoring and governance standards for banks. The new law is careful to point out that it is not duplicating work being done by the Bangko Sentral ng Pilipinas. RA 9302 reverts examination powers to PDIC, a mandate curiously taken away from the agency when the General Banking Act was signed in 2000. With the restoration of examination powers, the PDIC can once again look at bank ledgers, and even conduct an investigation on a bank based on a complaint lodged against it.

Tightening the screws

"Some other relevant provisions stipulated in RA 9302 worth mentioning are: continuing deposit insurance coverage for depositors even if the bank is delinquent in premium payments; stiffer criminal and civil liabilities for erring bank owners and officers; legal indemnification for acts of PDIC officials done in good faith; and enhanced regulatory and liquidation powers which includes the authority to reduce abnormally high interest rates on accounts held by closed banks. Erring bank owners found engaged in unfair and unsound banking practices will be liable to up to 12 years in prison or up to P2 million in fines. Banks that peddle in dubious bank promotions that promise "double your money" schemes in one year should beware.

Let’s just hope that the new law gives PDIC enough muscle and teeth to carry out its mandate.

Shoring depositors’ confidence

At least, the amendments on the PDIC Charter will boost the sagging morale of wary depositors who fear bank closure each time the political and economic scenario dims. With the higher insurance coverage, 96 percent of the total deposits in the banking system will now be fully backed by deposit guarantees, up from 91 percent from the previous insurable cap.

Based on 2003 banking data approximating deposits in the system at P2.4 trillion, the new insurance coverage translate to full insurance coverage for some P716 billion in deposits versus P462 billion at the previous P100,000 cover.

For now, depositors have one more good reason to leave their hard-earned money with banks rather than in the hands of pyramiding con artists."
If you read what the press and the PDIC report on Banks getting closed, such as Bank of Cebu, which was closed on August 31, 2006, you should also see, how responsive the PDIC are becoming.
"The PDIC took over THE BANK OF CEBU (A DEVELOPMENT BANK) and its branches, assets, records and affairs effective August 31, 2006".
"A week from takeover of The Bank of Cebu (A Development Bank), state insurer Philippine Deposit Insurance Corporation (PDIC) will start servicing depositors’ claims for insured deposits on September 8, 2006. This is in keeping with PDIC’s commitment to start claims servicing in single-digit turn-around-time (TAT) from bank takeover".
Now you could be thinking, it is one thing to "starting to service claims", but actually "paying out the returned deposits", could take several months?
A friend of mine posted the following message to a Forum on 11th september 2006:-
“Just a little bit of information, a Filipino friend has just received [last Friday - 8th September] a payment of Php 250,000 from the PDIC. after his account went down the Bank of Cebu, his balance at closure was 600,000, he has been informed that the remaining balance will also be refunded, However no time span was given, as the Banks assets have to be sold first.
So the PDIC payment was pretty prompt (8 Days)".
It seems the PDIC can start paying out pretty quickly, after you have submitted your claim with all the required documents, and provided the banks records are accurate and complete.
"Deposit records are subjected to an examination prior to the start of servicing/settlement of claims. As soon as the pre-settlement examination is completed, PDIC shall schedule the servicing of claims".
The length of time needed for the pre-settlement examination of deposit liabilities of a closed insured bank largely depends on the completeness and accuracy of records turned over by the Bank to PDIC and the number of deposit accounts to be examined. On the average, claims servicing for banks with problematic records starts 2-3 months after takeover by PDIC.

I don't know what you think about this PDIC insured deposit, but for me, it definately reduced the risk of me losing my money, if such bank, where I placed my deposit, were to be declared closed, by the Monetary Board (MB).
The way I see it, is investing my money, by placing funds in a Peso Time Deposit. with a registered, controlled, regulated Bank, and having such deposit insured by the PDIC, is lot less risky, than investing in Stocks & Shares and say UITF's?

1 comment:

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Sorry for offtopic