- The Philippine Depository Insurance Corporation
- Maximum PDIC Coverage Per Depositor
- Exceptions To PDIC Account Coverage
- PDIC Coverage Scenarios
- Bank Failure
- Filing A PDIC Claim
- Time-Frame For PDIC To Pay Claims
- Unsafe And Unsound Banking Practices
- The Deposit Insurance Fund
- Bank Balance Sheet
-
The Bottom Line
PDIC: The Philippine Depository Insurance Corporation
Like The FDIC, There Is A Maximum PDIC Coverage Per Depositor
Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together.
Exceptions To PDIC Account Coverage
R.A. No. 9576 stipulates that PDIC will not pay deposit insurance for the following accounts or transactions:
- Investment products such as bonds, securities and trust accounts;
- Deposit accounts which are unfunded, fictitious or fraudulent;
- Deposit products constituting or emanating from unsafe and unsound banking practices;
- Deposits that are determined to be proceeds of an unlawful activity as defined under the Anti-Money Laundering Law.
PDIC Coverage Scenarios
Another similarity to FDIC is the fact that joint accounts are insured
separately from any individually-owned deposit account. So a married
couple can have up to 2,000,000 PHP in a single bank and it can all be
insured under PDIC in four separate accounts: two held individually and
two held jointly and each account containing the 500,000 PHP
maximum.
Exercise caution with joint accounts. If you carefully study the
PDIC scenarios and explanations
you will find that the P500,000 limit applies on a per account basis.
If you have more than P500,000 in a single account, then that excess
will not be covered. This is regardless of how many joint account
holders own the account or how much coverage they have left over from
other joint accounts they may hold.
PDIC provides some useful tools for you to determine exactly what can
be covered across various scenarios. The
PDIC coverage scenarios
are a good primer for showing you how certain hypothetical account
scenarios would be covered (or not covered), but the best tool is the
PDIC calculator
which allows you to input details of exactly how you want to create
your accounts and it will show you what is and is not covered.
Be careful about accounts in multiple banks, because sometimes what appears to be different banks is actually the same bank, so if the parent fails, then your different accounts get added together and you lose.
Bank Failure
Bank failure in the Philippines does not seem to be any more common
than it is in the US - just my anecdotal opinion. But it does happen.
Most of the time it will be the smaller banks, like rural banks that
fail. In my near decade in the Philippines I have never had any personal
experience with any kind of bank failure nor do I know anyone who
has.
I learned only after the the fact that we may have dodged a bullet back
in the 2011/2012 time-frame when we had significant accounts with PNB.
Back then, when PNB was in the process of merging with Allied Bank, PNB
was considered to be
borderline insolvent:
Philippine National Bank (PNB) has a borderline insolvency ratio of 153.50% as of June 30, 2012, down 6.03% from 163.35% as of March 31, 2012.
Allied Bank was in better financial shape than PNB and since that time PNB has steadily improved. I do not believe that PNB would have ever been allowed to fail, because it is one of the biggest and oldest banks in the Philippines. The failure of PNB would have cost the Philippines a great deal of economic confidence at home and abroad.
Filing A PDIC Claim
If your bank fails, then you must
file a claim
with PDIC within 24 months. Otherwise you forfeit your right to file a
claim. However you may still be able to make a claim against the assets
of the bank. This is also the case if you have a balance over the
insured limit. Filing a claim against bank assets is not guaranteed to
be a success and even if successful there will be costs associated and
much time spent and still no guarantee that you will get back all or any
of your money. Such claims must be filed with the liquidator of the
closed bank within sixty (60) days from publication of notice of
closure. Keep in mind that there will most likely be a long line of
other creditors that may be ahead of you.
To limit loss and hassle, keep all accounts within the insured limits
and promptly file a claim in case of bank failure.
Time-Frame For PDIC To Pay Claims
The claim for insured deposit should be settled within six (6) months from the date of filing provided all requirements are met but the claim must be filed within twenty-four (24) months after bank takeover. The six-month period shall not apply if the documents of the claimant are incomplete or if the validity of the claim requires the resolution of issues of facts and law by another office, body or agency, independently or in coordination with PDIC.
Unsafe And Unsound Banking Practices
- Solicitation and acceptance of deposits outside bank premises.
- Solicitation and acceptance of deposits outside bank premises.
- Non-compliance with the minimum identification and documentation requirements for depositors for opening of deposit accounts.
- Failure to keep bank records (printed and/or electronic) within the bank premises.
- Recording deposits or withdrawals without legitimate supporting documents
- Offering and accepting high cost deposits despite the Cease and Desist Order issued by the Monetary Board.
- Granting high interest rates when the bank has (i) negative unimpaired capital and (ii) either a liquid assets-to- deposits ratio of less than 10% or an operating loss.
- Allowing depositors to deposit directly into the bank’s deposit account/s with other banks without implementing controls.
- Allowing unauthorized bank personnel and non-bank personnel to handle deposit transactions.
- Failure to reconcile inter-branch deposit transactions or deposit float items within 7 banking days.
- Allowing depositors to deposit, withdraw, and/or transfer funds without proper documentation such as a duly accomplished deposit or withdrawal slip or debit/credit memo, or its equivalent.
- Making, use or issuance of bank advertisements, marketing proposals or strategies, and other similar statements or issuances, which directly or indirectly offer, promise, represent, or promote: (a) a separate and distinct PDIC deposit insurance cover for deposit accounts maintained in the same right and capacity of a depositor, either in his own name or in the name of others who have no beneficial ownership over the account/s; or (b) deposit insurance coverage that is inconsistent with and otherwise violative of the laws, rules and regulations and/or policies on beneficial ownership and deposit splitting.
- Failure to adopt a Board-approved Operations Manual (OM) on Deposit Record Keeping and/or submission of an inadequate OM that does not reflect deposit practices.
- Allowing bank employees to process their own deposit transactions including those of their relatives up to fourth degree of consanguinity or affinity.
The Deposit Insurance Fund
The Deposit Insurance Fund
is the fund that PDIC uses to pay out covered accounts. The Deposit
Insurance Fund is composed of three parts:
The Deposit Insurance Fund (DIF) is the capital/equity account of the Corporation and consists of the following: (a) the permanent insurance fund; (b) reserves for insurance losses; and (c) retained earnings. The DIF shall be maintained at a reasonable level to ensure capital adequacy.
This information came from
Financial Highlights, Page 11 under f.2 Equity, located under the Site Map on the PDIC
website.
Page 4, Statements of Financial Position, shows a total equity of
147,150,186,499 PHP for these three components. This is the total
amount of cash available to pay out in case of bank failures.
Within the PDIC Quarterly Deposit
Trend for December 2018, on page 1 we find that total deposits as of December 2018 amount to
12.7453 trillion PHP (figures are given in billions so 12,745.3
billion PHP = 12.7453 trillion PHP).
The graphics and tables on page 4 show that 96.3% of 62.9 million
total accounts are at or below the 500,000 PHP coverage limit. But
these 60.5 million fully covered accounts only account for 11.8% of
total deposits, leaving 11.178 trillion PHP in deposits only partially
covered. We know that this 11.178 trillion PHP is held by 2.3 million
accounts (table 5), so multiplying 2.3 million accounts by the 500,000
PHP limit we can know that of the 11.178 trillion PHP only 1.15
trillion PHP is covered by PDIC. Adding this to the 1.504 trillion in
fully insured accounts gives us a total of 2.654 trillion PHP that is
covered by PDIC insurance.
Bank Balance Sheet
The items I scan for on the balance sheets are assets,
liabilities, nonperforming assets (NPA) and the Capital Adequacy Ratio
(CAR).
I want to compare the assets to the liabilities and also see how the
two compare over time. What were they on the previous quarterly reports.
Have there been big changes? Is capital adequate to cover liabilities?
The NPL (non performing loan) ratio is usually around 1.5% for a healthy
bank. With COVID19 it is trending up and is above 2% as of September
2020.
I also want to know about nonperforming assets. NPAs are loans that have not been paid in 90
days or more and they are broken into two categories: gross NPAs and
net NPAs. Gross NPAs are the total of all NPAs, whereas net NPAs is
the amount of badloans for which the bank has no cover or
provision.
There is always going to be a certain percentage of NPAs, but
in general gross NPAs are held to about 10% of total loans. Any more
than that or if they is an uptrend across quarterly reports and I will
be concerned. I would be concerned about putting my money
into any bank with more than a couple of % gross NPAs.
CAR formula:
Capital adequacy ratios (CARs) are a measure of the amount of a bank's core capital expressed as a percentage of its risk-weighted asset.
Capital adequacy ratio is defined as:
TIER 1 CAPITAL = (paid up capital + statutory reserves + disclosed free reserves) - (equity investments in subsidiary + intangible assets + current & brought-forward losses)
TIER 2 CAPITAL = A) Undisclosed Reserves + B) General Loss reserves + C) hybrid debt capital instruments and subordinated debts where Risk can either be weighted assets () or the respective national regulator's minimum total capital requirement. If using risk weighted assets,
≥ 10%.[1]
The percent threshold varies from bank to bank (10% in this case, a common requirement for regulators conforming to the Basel Accords) and is set by the national banking regulator of different countries.
Two types of capital are measured: tier one capital (above), which can absorb losses without a bank being required to cease trading, and tier two capital (
above), which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.
The Bottom Line
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