PDIC project seen to help stabilize financial system

MANILA, Philippines - The Department of Finance (DOF) expects the Philippine Deposit Insurance Corp’s financial modeling project for bank stress-testing and bank failure prediction to improve its oversight functions over member-banks and help maintain stability in the financial system.

In a statement, Finance Secretary Cesar Purisima said the project has his full support as it would enhance PDIC’s monitoring and surveillance capabilities and help the state deposit insurer manage its funds well.

The World Bank, through the Financial Sector Reform and Strengthening (FIRST) Initiative, will help develop customized stress-testing and failure protection models to better gauge the financial position of banks under various scenarios.

The models will also allow PDIC to more reliably assess the adequacy of the Deposit Insurance Fund (DIF) based on  the results.

The DIF is the fund that the PDIC draws on for paying out the insured deposit claims for closed banks and for financial support of joint bank strengthening programs of the regulators such as the Strengthening program for Rural Banks Plus (SPRB Plus) of the Bangko Sentral ng Pilipinas (BSP) and PDIC.

The World Bank will also orient and train PDIC personnel on the implementation and integration of the model to its risk management functions. The implementation of the model is expected to be completed next month.

FIRST is a multi-donor grant facility that offers technical assistance to promote financial sector strengthening.

Purisima expressed optimism that studying other deposit insurance-related issues, such as governance, and risk-based assessments of deposit insurance premiums will be supported by multilateral organizations like the World Bank.

World Bank Country Director Motoo Konishi is hopeful that once the project is implemented, the PDIC will have the enhanced capability to assess the financial condition of banks.

Konishi earlier noted that effective deposit insurance is a crucial element in bringing more Filipinos to park their savings in banks.

Under the law, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together.

A joint account shall be insured separately from any individually-owned deposit account.

As co-regulator of the banking system, the PDIC is tasked to promote public confidence in the banking system. The state deposit insurer has made it a priority to improve its regulatory and supervisory oversight functions for the early detection of bank weaknesses and unsafe and unsound banking practices in the industry as part of its Roadmap to 2016.