Was it "Too Good to be True"?

Interest Rate of 20%pa on Peso Time Deposit!


I had been enjoying receiving (20/12)%pm on my Peso Time Deposit with Bank of East Asia, since March 2005. That is, until this month, December 2008!



That particular Bank was part of the Legacy Financial Group, all 13 of which have now been placed under 'Receivership' by the Monetary Board (MB).


What this means is all assets of the Bank are seized whilst they conduct inspections of the Banks records, and all Bank accounts. So we have lost the income from that Bank, and 4 others with that we also deposited with from the Legacy Group.


The good news is that all our Deposits are fully covered by the PDIC. This means if the Bank has been declared 'Closed' by the 'MB', the PDIC are then appointed as 'Liquidators' and will invite Depositors, to service 'claims'.



So far only 2 of these 13 x LFG Banks have actually been declared 'Closed'. These being Rural Bank of Paranaque Inc., and Pilipino Rural Bank. Whilst some of the others may also get declared closed, it is not 'automatic' as options such as 'rehabilitation' are normally considered (especially if this is less expensive than paying back the Insured Deposits).

Senate to probe Legacy banks’ bankruptcy

"MANILA, Philippines—The Senate will open an investigation in January into the issue of seven troubled rural banks that early this month either unilaterally declared a bank holiday or were shut down by the central bank for questionable practices.


Before adjourning for a month-long Christmas break on Wednesday, the plenary referred Senate Resolution 812 introduced by Sen. Miriam Defensor-Santiago to the Senate committee on banks, financial institutions and currencies".

.....
"The seven banks on Senator Santiago’s list are among nine believed to be affiliated with the controversial Legacy group that the BSP closed down and placed under receivership early this week.


Not included on the senator’s list are Bank of East Asia in Cebu and First Interstate Bank in Tacloban City in Leyte province."




As it is the Christmas break, it will be January before it is announced we can collect Claims Forms for PRB. Those with Deposits under Php100K, with RBPI are able to get claims forms, and schedule for submission, already given by the PDIC. Those with Deposits over Php100K @ RBPI, having to wait until the New Year also.
http://www.pdic.gov.ph/index.php?nid1=8&nid2=2&nid=294


Changes to the current RA 3591 as amended (PDIC Charter), will become effective in 2009 also.
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=3371


One of these is 'doubling' the Maximum Insured Deposit (MID) to Php50,000.00.


PDIC also got the authority to form, establish, organize and operate and engage subsidiaries or corporations whose primary purpose is to operate as bridge bank and/or manage acquired assets of the PDIC.

Bridge banks refer to a temporary bank licensed by the Bangko Sentral ng Pilipinas, established and operated to acquire assets of a failed bank to facilitate its resolution.
The measure also specifies that investment products such as bonds, securities, trust accounts and other similar instru ments and deposit accounts or transactions that are unfounded, fictitious or fraudulent will not be covered.



Furthermore, deposits that are marketed, solicited, accepted and received in violation of the law or the rules of the Bangko Sentral ng Pilipinas and deposits accounts or transactions deemed emanating from unsafe and unsound banking practices as determined by PDIC will not be covered either.


Here is the actual Senate Bill No. 2964 proposes to amend Republic Act 3591 or the Philippine Deposit Insurance Corp. (PDIC) Act.


http://www.senate.gov.ph/lisdata/96438674!.pdf

THE CORPORATION SHALL NOT PAY DEPOSIT INSURANCE FOR THE FOLLOWING ACCOUNTS OR
TRANSACTIONS, WHETHER DENOMINATED, DOCUMENTED, RECORDED OR BOOKED AS DEPOSIT BY THE BANK:

1. INVESTMENT PRODUCTS SUCH AS BONDS AND SECURITIES, TRUST ACCOUNTS, AND OTHER SIMILAR INSTRUMENTS;
   
   
2. DEPOSIT ACCOUNTS OR TRANSACTIONS WHICH ARE UNFUNDED, OR THAT ARE FICTITIOUS OR FRAUDULENT;
   
   
3. DEPOSITS THAT ARE MARKETED, SOLICITED,ACCEPTED, RECEIVED, EVIDENCED BY, AND/OR RECORDED, IN VIOLATION OF LAW, OR THE RULES AND REGULATIONS ISSUED BY THE BANGKO SENTRAL NG PILIPINAS(BSP);
   
   
4. DEPOSIT ACCOUNTS OR TRANSACTIONS CONSTITUTING, AND/OR EMANATING FROM, UNSAFE AND UNSOUND BANKING PRACTICE/S, AS DETERMINED BY THE CORPORATION, IN CONSULTATION WITH
   THE BSP; AND
   
   
5. DEPOSITS THAT ARE DETERMINED TO BE THE PROCEEDS OF AN UNLAWFUL ACTIVITY AS DEFINED UNDER REPUBLIC ACT 9160, AS AMENDED.

PARAGRAPHS 3 AND 4 ABOVE SHALL IMMEDIATELY AND EXCLUSIVELY APPLY TO DEPOSITS MADE AFTER THE PUBLICATION OF A CEASE AND DESIST ORDER OR A WARNING ISSUED BY THE CORPORATION AGAINST SUCH DEPOSIT TRANSACTIONS.


THE ACTIONS OF THE CORPORATION TAKEN UNDER THIS SECTION SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT, EXCEPT ON APPROPRIATE PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION WAS TAKEN IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO A LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED WITHIN THIRTY (30) DAYS FROM NOTICE OF DENIAL OF CLAIM FOR DEPOSIT INSURANCE.”




Whilst this sounds a bit 'daunting' - the PDIC being able to select what Bank Products are NOT to be covered by the Insurance, in practice it is just to ensure, the Banks offer Products emanating from sound Banking Practice.


So unless a particular Bank, that you want to place a Peso Time Deposit with, has received a 'Cease & Desist' Order, or a 'Warning' issued by the PDIC against a specific Deposit transaction, such Deposit will still be covered by the PDIC.


Just make sure all transactions are conducted directly with authorised Bank Officers and on Bank Premises.


If the Bank then offers a particular 'Promo', and the PDIC considers such Deposits to be fictitious, fraudulent, or unfunded, or constitute or emanate from unsound banking practice they need to issue said Bank with a WARNING or a Cease & Desist ORDER.


I would ask the Bank to sign a Statement, that they have not received any such Warning or Order to stop offering that particular Deposit Product or 'Promo', before placing such Deposit.

Alternatively contact the Depositors Assitance Bureau (DAB) or Department of Consumer Affairs, BSP and ask them if any such Warning/Order issued (this could trigger an investigation and subsequent issuance of such Warning to the Bank, but at least you should know that the product is 'legal' and PDIC covered).


NB: It only applies to Products issued AFTER the Warning issued!

All Deposit products available at the time of placing the Deposit, for which NO Warning, or C&D Order, issued, are covered by the PDIC it would appear.


Rural Banks are perfectly able/capable of offering Peso Time Deposits of 20%pa (or even as high as 33.33%pa?), if they are offering LOANS @ 3% - 5%pm (36 - 60%pa).


They just need to balance/ensure such LOANS, including provision for bad debt, covers such Deposit Interest and overheads/profits for the Bank. If a Bank has voluntarily dropped a High Reward Time Deposit Product, because they are getting 'cash rich', and need to turn off the funds coming in from that product, this is a good sign they are operating to sound Banking Practice, and unlikely to be receiving such Warnings or Notices to stop such products.


When we receive our Deposits from our PDIC 'Claims' (in January 2009 hopefully) and this new Increased PDIC Insured Deposit Limit of Php500,000 per Depositor/Bank is introduced/operational, we will be placing into the few Rural Banks still operating and offering such Peso Time Deposits.


A Family of 3 will then be able to place 3 x Single Accounts up to Php500,000.00 each, as well as Joint Account Insured Deposit 'Shares' up to Php500K. The combined Total, fully PDIC insured, should then be Php3M per Bank for a Family of 3. Persoanlly we will not place Time Deposits up to this Maximum, but leave one Joint Account as a Peso Savings Account that the Interest for the other Deposits, gets paid into. A Standing Order Instruction to transfer to a Commercial bank Account, when Balance gets to say Php250K, being set up, perhaps?


Pilipino Rural Bank, failed to pay Php16,666.67 into my LandBank Account for the Month of November.
This was before any 'Receivership Notice given by the MB. Trouble if they then took a 'Bank Holiday' before confirming they would check into the 'late' payment of Interest, and credit my account accordingly. I am concerned that the PDIC might not pay this Interest if it takes me over the PDIC insured Deposit Limit (which it will with the current limit of Php250,000). This is why I figure it might be advantageous to have a Joint Account for the Interest payments in the same Bank, even if just for the total Interest for say 2 months.