PDIC backs proposed P200,000 insurance coverage

The Philippine Deposit Insurance Corp. (PDIC) in its most recent study disclosed that it cannot financially support an increase in the maximum deposit insurance coverage (MDIC) from P100,000 to P350,000 without necessitating a corresponding adjustment in insurance premium to finance potential losses.

PDIC president and CEO Norberto C. Nazareno explained that House Bill 255 proposing an MDIC of P200,000 will not put an unusual strain on PDIC’s financial position and will not entail an increase in premium charges to the member-banks. As some analysts have in fact expressed, most likely the depositors will be at the receiving end of any strain since any additional costs to the banks will somehow eventually be passed on to the depositors.

It was in 1992 when the MDIC was increased from P40,000 to P100,000 through a legislative amendment of the PDIC charter. During that time, 96.6 percent of the total number of depositors were fully covered while 36.5 percent of the total amounts of deposits were insured. With the decline in value of money and increase in size of deposits, fully insured deposit accounts now stand at 92.1 percent and insured deposits represent 19.1 percent. The increase of the MDIC to P350,000 will restore the protection coverage on deposit accounts and amounts comparable to the 1992 rates.

However, the increase of the MDIC to P200,000 is more consistent with PDIC’s stance to primarily protect small unsophisticated depositors. With P200,000 MDIC, the state deposit insurer shall continue to cover about 95.3 percent of the total number of depositors in the banking system or about 26.2 percent of the total amount of deposits. In fact, the P200,000 level already provides full coverage to 99.3 percent and 96.5 percent of the total number of depositors in the rural banks and thrift banks, respectively or about 58.4 percent and 24.3 percent of the total amount of deposits.

The study also noted that the increase of the MDIC to P200,000 is closest to the purchasing power of the MDIC in terms of peso value when it was increased from P40,000 to P100,000 in 1992. In addition, the dollar equivalent of P200,000 at today’s exchange rate of about P51 is roughly $3,922, which is the same dollar equivalent of P100,000 in 1992 at about P25.50.

The PDIC sutdy further shows that the P200,000 MDIC can more than adequately cover incomes of Filipinos because this is 4.4 times GDP per capita income in the Philippines. The study illustrates that considering this ratio simply measures the ability of the MDIC to protect the income of the average Filipino, 4.4 is more than adequate compared to the world average of 2.4 times.

The PDIC study also disclosed that an MDIC of P200,000 poses less risk exposure to the Deposit Insurance Fund compared to the alternative of P350,000. Current insurance reserves can cover insured deposits even if the MDIC is raised to P200,000 without having to increase the assessment premium of banks.

Finally, Nazareno explained an MDIC of P350,000 shall reduce PDIC’s reserve ratio to an uncomfortable level. He noted that it is to the best interest of the depositors (especially the small ones), the regulators and the banking system to maintain a higher reserve ratio for PDIC to effectively exercise its mandate of protecting the interests of small unsophisticated depositors.