Bank officers, employees barred from unsafe banking practices

MANILA, Philippines - State-run Philippine Deposit Insurance Corp. (PDIC) has barred banks or its directors, officers, and employees from marketing and promoting transactions that constitute or emanate from unsafe and unsound banking practices.

PDIC President Jose Nograles said in a statement that the proposed regulatory issuance would help boost the government’s campaign against unsafe and unsound banking practices and at the same time develop market discipline among depositors.

Nograles reminded the public that deposit accounts or transactions emanating from unsafe and unsound banking practices and covered by the directive to cease and desist (DCD) would not be covered by deposit insurance.

The proposed regulatory issuance of a DCD from marketing, issuing, and/or offering deposit accounts or transactions constituting, and/or emanating from, when its examination of a bank discloses that the bank or its directors or agents have committed, are committing, or about to commit unsafe and unsound banking practices as authorized by Section 4 (fc)[3] of the PDIC Charter.

The PDIC chief said an exposure draft of the regulation is already being finalized for dissemination to all member-banks. 

He added that the proposed issuance would enable the PDIC to safeguard and build up the Deposit Insurance Fund (DIF).

“A stronger DIF contributes to the stability of the financial system,” he explained. 

Under the regulatory issuance, Nog-rales said the PDIC would adopt the unsafe and unsound banking practices identified by the Bangko Sentral ng Pilipinas (BSP) in one of its circulars.

Unsafe and unsound banking practices under the BSP Circular No. 3410 involve acts or omissions that have resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity, or solvency of the institution as well as acts or omissions that have resulted or may result in material loss or damage, or abnormal risk to the institution’s depositors, creditors, investors, stockholders, the BSP or to the general public.

Other practices prohibited by the BSP include acts or omissions that have caused any undue injury, or has given unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence as well as acts or omissions that involve entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank, or trust entity, whether or not the director or officer profited or would profit thereby. 

Nograles said the regulation would take effect immediately and would cover deposit insurance on all deposit accounts or transactions that are opened, renewed, rolled over, converted, or transformed.

He explained that a DCD, unlike a cease and desist (CDO) order provided under the PDIC charter, does not need the prior submission of a report to the BSP’s Monetary Board.

Accounts or transactions including investment products such as bonds and securities, and other similar instruments that do not fall under the definition of a deposit; unfunded, fictitious, or fraudulent deposit accounts or transactions; and deposits that are determined to be the proceeds of an unlawful activity are not covered by deposit insurance.

He said a penalty of prision mayor or a fine of not less than P50,000 but not more than P2 million would be imposed on any officer of the bank found to have conducted business in an unsafe and unsound manner.