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BSP, DoF support bill giving PDIC flexibility to adjust deposit insurance limits

The Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DoF) expressed support for a Senate bill that gives the Philippine Development Insurance Corp. (PDIC) the flexibility to adjust the maximum deposit insurance coverage, depending on current economic indicators.

The Senate Committee on Banks, Financial Institutions and Currencies on Friday began its hearings on Senate Bills no. 1260 and no. 3464 that seek to introduce amendments to the PDIC Charter.

“The proposed amendments remove the tedious process of passing a law each time the maximum coverage needs to be adjusted. They will also do away with the requirement of a BSP-determined financial crisis to make a routine adjustment in the insurance coverage levels. In other words, the proposed bill will make the PDIC more responsive to the constantly changing financial landscape,” Finance Secretary Carlos G. Dominguez told the Senate committee.

The PDIC currently provides a maximum deposit insurance coverage of P500,000 per depositor for each bank.

Under SB 3464 authored by Senator Juan Edgardo “Sonny” M. Angara, the PDIC Board of Directors can increase the maximum deposit insurance coverage to an amount deemed appropriate, considering various economic indicators and inflation. This amount will be reviewed every three years.

BSP Governor Benjamin E. Diokno also supported the proposal that would give the PDIC “the flexibility to increase the maximum insurance coverage to an amount indexed to inflation or in consideration of other economic factors.”

However, the BSP chief and banking industry leaders were cool to the provision under SB no. 1260, which sought to raise the maximum deposit insurance coverage to P1 million.

While he admitted the current deposit insurance coverage of P500,000 is “inappropriate” at this time, Mr. Diokno said raising the maximum amount will require an adjustment in premium payments by banks.

Foundation for Economic Freedom’s Romeo L. Bernardo noted there is a need to be “mindful of moral hazard that may accompany overly high insurable maximum amounts.”

“When indexed to inflation…the P500,000 (deposit insurance) should be adjusted to P675,000… Determining the limit should be left to the board of the PDIC to allow for timely adjustments. Maximum limits should reflect the depositor profile and seek to protect the vast majority of depositors, with a focus on small ones,” Bankers Association of the Philippines President Jose Arnulfo A. Veloso said, adding that most deposits in banks are already insured in the Philippines.

If the current deposit insurance is doubled, it is estimated the premiums of the banking industry will increase to two-fifths of one percent of total deposits from the current one-fifth of one percent of total deposits.

The Rural Banks of the Philippines and Chamber of Thrift Banks (CTB) both noted banks might not be able to cope with the potential premium increases, as many continue to struggle amid the pandemic.

“Increasing the premium coverage will create stability for the banking system as this will boost public confidence and trust in the banking sector. However, banks are adversely affected by the pandemic, particularly loan portfolios, hence cannot afford any increase in premium,” said CTB President Paul D. San Pedro said in the hearing.

The Senate bills also proposed the BSP take over the regulatory functions of the PDIC, “such as the issuance of cease-and-desist orders relating to unsound banking practices.” The PDIC, which is currently under the Department of Finance, will also become an attached agency of the BSP.

Mr. Dominguez said this would help prevent “confusing functions and sending confounding signals to the banking industry.”

“Overall, the proposed amendments are reasonable. These will ensure that the PDIC will be fully capable of protecting our people’s hard-earned savings. The bill will also help in revitalizing our economy over the long term,” Mr. Dominguez said.

The counterpart measure, House Bill no. 8818, was approved on second reading by the House of Representatives earlier this week. — G.M.Cortez

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