Salient Provisions on the new PDIC Charter

Philippine Deposit Insurance Corporation (PDIC)

Lesson contents:

i. Subject Matter

ii. Terms

iii. Objectives

 Know PDIC, its functions and mandate

 Know what deposits are insurable and the maximum amount covered
 Know how a depositor of a closed insurance bank file his insurance claim

iv. Lesson proper

intro:
There are 2 classifications of Corporations:
1. Private – under the Revised Corporation Code (B.P. 68 as revised by R.A. 11232)
2. Public – under the Local Government Code (R.A. 7160)

Government-Owned or -Controlled Corporation (GOCC) refers to any agency

organized as a stock or nonstock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government of the Republic of the Philippines directly or through its
instrumentalities either wholly or, where applicable as in the case of stock
corporations, to the extent of at least a majority of its outstanding capital
stock: Provided, however, That for purposes of this Act, the term “GOCC”- shall
include GICP/GCE and GFI as defined herein (Sec.3, Chapter 1, R.A.10149)

2 types of GOCCs
1.
c) Non-chartered GOCC - A GOCC organized and operating under Batas Pambansa
Bilang 68 (The Corporation Code of the Philippines).
(f) Chartered GOCC refers to a GOCC, including Government Financial Institutions,
created and vested with functions by a special law.
 PDIC belongs to the the chartered GOCC Classification, having its features in R.A.
3591 as amended.

What is PDIC and what are its functions?

The Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created on 22 June
1963 by Republic Act 3591 entitled, An Act Establishing the Philippine Deposit Insurance Corporation
(PDIC), Defining Its Powers and Duties and for Other Purposes It is an attached agency of the
Department of Finance.

The latest amendments to RA 3591 are contained in RA 10846 signed into law on May 23, 2016. RA
10846 empowered PDIC with stronger authorities to protect the depositing public and promote financial
stability. The new law also includes important provisions to ensure that the PDIC remains financially and
institutionally strong to fulfill its mandate under its Charter.

It is mandated to give bank depositors protection and financial stability by providing permanent and
continuing deposit insurance

Public Policy Objectives

PDIC was established to promote and safeguard the interests of the depositing public by way of providing
insurance coverage on all insured deposits. PDIC also aims to strengthen the mandatory deposit insurance
coverage system to generate, preserve, and maintain faith and confidence in the country's banking system, and
protect it from illegal schemes and machinations.

3 Mandates or functions of PDIC:

1. Deposit Insurance

DIC provides a maximum deposit insurance coverage of PhP500,000 per depositor per bank. To pay claims on
insured deposits, PDIC builds up the Deposit Insurance Fund (DIF) primarily through assessments of banks at
an annual flat rate of 1/5 of 1% of their total deposit liabilities.

The relationship between a bank and a depositor constitutes a simple loan or mutuum wherein the
bank is the debtor while the depositor is the creditor. Hence, the bank has the obligation to return the
amount being deposited, and the sum of the deposits would be multiplied by 0.2% (1/5 of 1%) to be
mandatorily paid to PDIC annually.

Insurance -  A contract in which one party agrees to indemnify another against a predefined
category of risks in exchange for a premium.
Risk — (1) Uncertainty arising from the possible occurrence of given events. (2) The insured or
the property to which an insurance policy relates.

t) The term risk-based assessment system pertains to a method for calculating an insured bank’s
assessment on the probability that the DIF will incur a loss with respect to the bank, and the likely
amount of any such loss, based on its risk rating that takes into consideration the following:

“(1) Quality and concentration of assets;

“(2) Categories and concentration of liabilities, both insured and uninsured, contingent and
noncontingent;

“(3) Capital position;

“(4) Liquidity position;

“(5) Management and governance; and

“(6) Other factors relevant to assessing such probability, as may be determined by the
Corporation: (Sec 5, paragraph.t, R.A. 10846)

2. Receivership of Closed Banks

Receivership of Closed Banks. PDIC proceeds with the liquidation process upon order of the Monetary Board
of the Bangko Sentral ng Pilipinas (BSP). The assets of the closed bank are managed and eventually disposed
of to settle claims of creditors in accordance with the preference and concurrence of credits as provided by the
Civil Code of the Philippines.

Receivership -  the process of appointment by a court of a receiver to take custody of the
property, business, rents and profits of a party to a lawsuit pending a final decision on
disbursement or an agreement that a receiver control the financial receipts of a person who is
deeply in debt (insolvent) for the benefit of creditors.

(https://legal-dictionary.thefreedictionary.com/)

3. Co-regulator ng banks.. Altho BSP ang regulator

PDIC regulatory issuance 2011-01 included is unsafe and unsound banking processes, Sila ang
nagsasanction ng
PDIC Composition

 DOF Secretary – ex officio Chairman

 PDIC President – appointed by the President of the Philippines

-Vice Chairman of the Board

 BSP Governor –ex officio member

 4 Members from the private sector
 GCG (Governance commission for GOCCs) provides a short list to the president, and from that
shortlist, the president will appoint the PDIC President which will also serve as the Vice chairman.

Membership

Membership with PDIC is mandatory for all banks licensed by the BSP to operate in the Philippines:

 Banks incorporated under Philippine laws, such as commercial banks, savings banks, mortgage banks,
stock savings and loan associations, development banks, cooperative banks, and rural banks
 Domestic branches of foreign banks

As of 31 December 2017, there are 587 banks in the Philippine banking system. These consist of 43
commercial banks (including branches of foreign banks), 55 thrift banks (savings banks, mortgage banks, stock
savings and loan associations, and development banks), and 489 rural banks (including cooperative banks).

What types of Deposits are covered?

Scope of the Deposit Insurance Protection

PDIC provides a maximum deposit insurance coverage of PhP500,000 per depositor per
bank. It covers all types of bank deposits in banks whether denominated in local or foreign
currencies. All deposit accounts of a depositor in a closed bank maintained in the same right
and capacity shall be added together.

DEPOSIT INSURANCE COVERAGE

(Renumbered from Sec.5 by R.A. No. 10846, 11 June 2016)

Sec.6. The deposit liabilities of any bank which is engaged in the business of receiving deposits as
herein defined on the effective date of this Act, or which thereafter may engage in the business of receiving
deposits, shall be insured with the Corporation. (As amended by R.A. No.6037, 04 August 1969; R.A. No.
10846 11 June 2016)

As of 31 December 2017, around 57.1 million accounts in 587 banks are covered by deposit insurance. Of
the total number of accounts, 96.3% are with balances not exceeding the maximum deposit insurance
coverage of PhP500,000 per depositor per bank. For the same period, total deposits in the Philippine
banking system amounted to PhP11.7 trillion, of which 20.8% is covered by deposit insurance.

By Deposit Type By Deposit Amount By Currency

Savings Single Php
Special Savings Joint Foreign Currency
Demand/Checking By, ITF, FAO
Negotiable Order of
withdrawal
Time Deposits

PDIC Covers only the risk of a bank closure ordered by the Monetary Board. Thus, bank losses due to
theft, fire, closure by reason of strike or existence of public disorder, revolution or civil war are not
covered by PDIC.

The only risk covered is Bank closure ordered by BSP thru its Monetary Board

What are NOT covered by PDIC deposit

insurance?
The following, whether denominated, documented, recorded or booked as deposit
by the bank, are excluded from PDIC deposit insurance (Section 4 (f) of the PDIC Charter):

• Investment products such as bonds and securities, trust accounts and other similar instruments
• Deposit accounts or transactions that:
-- Are unfunded, fictitious or fraudulent
-- Constitute and/or emanate from unsafe and unsound banking practice/s3 as
determined by the PDIC, in consultation with the BSP, after due notice and hearing and
publication of PDIC’s cease & desist order against such deposit accounts/transactions
-- Are determined to be proceeds of an unlawful activity as defined in the Anti- Money
Laundering Act (Republic Act 9160, as amended)

PDIC issuance #2011-01

Unsafe and unsound deposit related activities

The following may be considered unsafe and/or unsound deposit-related practices:

1. deposit-related practice, activity, or transaction without the requisite approvals or without

adequate controls, as mandated by existing laws, rules, and regulations,.

2. Failure to keep bank records (printed and/or electronic) within the bank premises

3. 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.

4. Non-compliance with PDIC Regulatory Issuances.

5. Other deposit-related practices,

SINGLE ACCOUNTS

Single Accounts are individually-owned accounts or accounts held under one name,
either as natural person or juridical entity.

• Natural Person refers to any individual person. Single proprietors are considered
natural persons.

• Juridical entity refers to a corporation, partnership or cooperative.

JOINT ACCOUNTS

Joint Accounts are accounts held under more than one name
 A joint account regardless of whether the conjunction “and”, “or” or “and/or” is used
shall be insured separately from single accounts.

 Unless a different sharing is stipulated in the deposit documents, the insured amountup to
the Maximum Deposit Insurance Coverage of Php500,000 shall be divided equally
between or among co-owners of a joint account.

 The total shares of a co-owner in several joint accounts may exceed Php500,000 but will
only be insured up to the Maximum Deposit Insurance Coverage of Php500,000.

 Joint accounts held in the names of a juridical entity and a natural person shall be
presumed to belong solely to the juridical entity

Assuming all deposits are in one bank

Account name Deposit Julia’s share in the insured
deposit
Julia Barreto or Bea Alonzo 500,000 250,000

Julia Barreto and Gerald 1,000,000 250,000

Anderson
Julia Barreto and/or Joshua 1,000,000
Garcia
Total 2,500,000 500,000

*When we say banks, it includes all branches

By ITF, FAO Accounts

In a “By” account, “Ana by Ben”, Ana is the depositor.

• In an “In Trust For” (ITF) account, “Ana In Trust For Ben”, Ben is the depositor.

• In a “For the Account of” (FAO) account, “Ana For the Account of Ben” , Ben is the
depositor.

Example Exercises:

1. How much is Julia Barreto’s insured deposit if she has the following four deposit accounts in the same
bank?
Account Name Deposit Insured Deposit of Julia B.
Julia Barreto 100,000 100,000
Gerald Anderson FAO Julia 150,000 150,000
Barreto
Dominic Roque ITF Julia Barreto 150,000 150,000
Julia Barreto’s Tilapia store 600,000 100,000
TOTAL 1000,000 500,000

2. How much is Bea Alonzo’s insured deposit if she has the following three joint accounts in the same
bank?

Account name Deposit Bea Alonzo’s share in the insured

Deposit
Bea Alonzo or Julia Barreto 500,000 250,000
Bea Alonzo and Dominic Roque 500,000 250,000
Bea Alonzo and Gerald 500,000 0
Anderson
TOTAL 1500,000 500,000

3. How much is Gerald Anderson’s share in the insured deposit in the following deposits in the same
bank?
Account name Deposit Gerald Anderson’s share in the
insured Deposit
Gerald Anderson 100,000 100,000
Bea Alonzo by Gerald Anderson 100,000 0
Gerald Anderson ITF Dominic Roque 200.000 0
Julia Barreto FAO Gerald Anderson 700,000 400,000
Gerald Anderson Salon 200,000 0
TOTAL 500,000

4. How much is Julia Barreto’s insured deposit for all her single and joint accounts in the same bank?
Accounts Deposit Julia Barreto’s share in the
Insured Deposit
Alll single accounts of Julia 1000,000 500,000
Barreto in Q1
All Joint Accounts of Julia 2,500,000 500,000
Barreto in Q2
TOTAL 3,500,000 1,000,000