Erring banks risk losing insured status

MANILA, Philippines – State-run Philippine Deposit Insurance Corp. (PDIC) vowed yesterday to terminate the insured status of erring banks in its bid to protect the depositing public.

PDIC president Cristina Que Orbeta said it would terminate the insured status of banks engaged in deposit-related unsafe and unsound banking practices as part of the enhanced depositor protection measures.

Orbeta said RA 10846 that amended the PDIC Charter restored the agency’s power to terminate the insured status of banks that fail or refuse to comply with cease-and-desist orders or corrective actions imposed by the Bangko Sentral ng Pilipinas (BSP).

According to Orbeta, banks have within 30 days from notice to comply with the CDOs and corrective actions imposed by the bank regulator for deposit-related unsafe and unsound banking practices.

“The restoration of PDIC’s authority to terminate the insured status of banks is aimed at promoting market discipline and deterring bank officers and employees from engaging in unsafe and unsound banking practices,” she said.

Orbeta explained the termination of the insured status of a bank serves as a warning to the depositing public the bank is engaging in deposit-related unsafe and unsound banking practices.

It also prevents the bank from further enticing depositors to entrust their hard-earned money or add to their existing deposits in the subject bank.

The termination of insured status will take effect upon publication of the notice of termination in a newspaper of general circulation.

“The notice will also inform depositors of the bank that their deposits, less all subsequent withdrawals, remain insured up to the maximum deposit insurance coverage of P500,000 for a period of 180 days upon effectivity of termination,” she added.

Orbeta said depositors would be given ample time to withdraw their deposits from the bank should they choose to do so.

After the date of effectivity of the termination of the insured status of a bank, PDIC would no longer insure any additions to, or renewal of existing deposits and new deposits.

The BSP has so far ordered the closure of 15 banks after stepping up its campaign to protect depositors by getting rid of weak players. Last year, it closed down 14 rural banks.