Senate to consider lower increase in deposit insurance

A SENATOR said lowering the increase in the maximum deposit insurance coverage proposed under measures amending the Philippine Deposit Insurance Corp.’s (PDIC) charter is an “option,” following concerns raised by banks on a possible rise in their premium payments.

Senator Juan Edgardo M. Angara, vice chair of the Senate Committee on Banks, said the measures amending the PDIC charter are now being reviewed by a technical working group, saying one issue being considered is the premiums paid by banks.

“Lowering insurance [below the current P500,000] is not an option; ideal is no change in premiums but insured deposit amount/coverage increases,” Mr. Angara told BusinessWorld in a phone message.

“Lowering below P1 million is an option we will have to discuss,” he added.

Senate Bill No. 1260, filed by Senator Ramon Revilla, Jr. and Senate Bill No. 2089, filed by Mr. Angara, both propose to increase the deposit insurance coverage to P1 million from P500,000.

Mr. Angara’s bill also seeks to amend provisions of Republic Act No. 3591 or the PDIC charter to address the “constantly changing Philippine financial landscape.”

The measure he filed also states that the maximum deposit insurance coverage shall be subject to review of the PDIC Board of Directors every three years and may further be increased to an amount “indexed to inflation or other economic indicators.”

It proposes to transfer the PDIC as a corporation attached to the BSP from the Finance department and also modifies some powers of the state deposit insurer to avoid overlapping functions with the BSP.

During a Senate hearing on March 19, both the Department of Finance and the Bangko Sentral ng Pilipinas expressed support for the bill. 

BSP Governor Benjamin E. Diokno had said in the hearing that the P500,000 maximum insurance deposit coverage “may be inappropriate at this time already.”

However, he said to make the increase sustainable, there should be a “necessary adjustment” in the premiums paid by banks. He said one possibility is increasing the premiums to two-fifth of 1% of total deposits from one-fifth of 1%.

PDIC President Roberto B. Tan also said if there will be an increase in the insurance coverage, “the adequacy of the deposit insurance fund as it is now will diminish.”

“That’s the reason why there must be some corresponding compensation for the deposit insurance fund to be adjusted. This will in effect require an increase in the assessment rate,” he said.

Cecilio D. San Pedro, president of the Chamber of Thrift Banks, said the increase in coverage will stabilize the banking system, but lenders affected by the pandemic may not be able to afford higher premiums.

“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,” Mr. San Pedro said during the hearing.

He added that thrift banks would also have to address the requirements of their micro, small, and medium enterprise clients, a “major niche” of the sector, that have also been affected by the pandemic.

Bankers Association of the Philippines President Jose Arnulfo A. Veloso said the deposit insurance coverage, when indexed to inflation, should be adjusted to P675,000, adding that determining the limits should be left with the board of the PDIC “to allow for timely adjustments.”

“Maximum limits should reflect the country’s depositor profile and seek to protect the vast majority of depositors, with a particular focus on small depositors,” Mr. Veloso said in the hearing, adding that at the current rate P500,000, 97% of all bank depositors were fully insured. — Vann Marlo M. Villegas

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