New law expedites payments to depositors of closed banks

MANILA, Philippines – State-run Philippine Deposit Insurance Corp. (PDIC) said depositors of banks ordered closed by the Bangko Sentral ng Pilipinas (BSP) now have quicker access to their insured deposits.

PDIC president Cristina Que Orbeta said Republic Act 10846 that amended its charter provides payment of deposit insurance would now be based on depositors’ records and not just solely on the basis of records maintained by the closed bank.

Orbeta said this addresses the inconvenience caused to depositors by the absence of deposit records of closed banks or by irregularities in the recording, documentation and deposit record-keeping of a closed bank.

She added depositors’ evidence of deposits and records include savings passbooks, certificates of deposit, ATM cards, transaction receipts, check books and other bank records.

She stressed the need for depositors to always secure their deposit records and keep their information updated with their banks.

The PDIC reported there had been several instances when the records of closed banks were found to be in a state of disarray upon PDIC’s takeover. In situations like these, payout operations encountered delays due to the need to examine carefully deposit records of the bank causing undue inconvenience to depositors.

The new law also allows gross settlement of deposit insurance claims, except in instances when depositors have past due loans and when their deposits are under hold-out agreements with the bank.

This means loans that are current would no longer be deducted from the amount of deposit insurance to be paid by PDIC to the depositors of closed banks, enabling the borrowers to benefit from the payment period agreed with the bank. 

“This will expedite the payment of deposit insurance claims and quicker access to their trapped funds. Borrowers are, however, reminded of their responsibility to continue to pay their loans. PDIC, as liquidator, will continue to collect loans owed to the bank,” Orbeta said.

The new law empowers PDIC to further strengthen depositor protection, minimize disruption in the financial system in times of bank closures, promote financial inclusion through continued access to banking services, strengthen PDIC as an organization; and ensure PDIC policies are aligned with international best practices.

The BSP has so far ordered the closure of 11 banks consisting of 10 rural banks and one thrift bank this year.

These include the New Rural Bank of Binalbagan (Negros Occidental) Inc.; GSIS Family Bank; the Rural Bank of Amadeo (Cavite) Inc.; Surigao City Evergreen Rural Bank Inc., Rural Bank of Malinao (Aklan) Inc.; the Rural Bank of Bayawan; Lapu-Lapu Rural Bank Inc. based in Carcar City, Cebu; the Rural Bank of Villaviciosa (Abra) Inc.; Koronadal Rural Bank Inc.; Rural Bank of Panay Inc.; and Rural Bank of Basay (Negros Oriental) Inc.

The BSP is looking at consolidating the Strengthening Program for Rural Banks (SPRB) Plus and the Comprehensive Program for Rural Banks (CPRB) to entice mergers among smaller banks with the entry of stronger foreign banks into the country.

Latest data from the BSP showed the number of banks operating in the Philippines decline to 622 in end-March this year from 646 in end March last year amid the continued consolidation of banks as well as the exit of weaker players particularly rural banks.

The number of big banks or universal and commercial banks went up to 41 in end March this year from 36 in end March last year with the entry of new foreign banks. 

These comprised of 21 universal banks consisting of 12 private domestic banks, three government banks, and six foreign bank branches as well as 20 commercial banks comprised of five private domestic banks, two foreign bank subsidiaries, and 13 foreign bank branches.

The BSP said the number of thrift banks reached 66 in end March this year from 69 in end March last year while the number of rural and cooperative banks decreased to 515 in end from 541.