MANILA, Philippines - Less bank closures this year pushed up the deposit insurance fund (DIF) used by the government to cover deposit claims on shuttered lenders, the Philippine Deposit Insurance Corp. (PDIC) said.
This year, the DIF rose to P120 billion from P100 billion a year ago, PDIC president Cristina Orbeta told reporters in a roundtable last Friday.
“Our DIF is at its desired level,” she said in a text message to The STAR after the roundtable.
Under RA 3591, the PDIC serves as the receiver of padlocked banks and insures deposits on those lenders are safeguarded and serviced up to the maximum insurance of P500,000.
To raise fund for the insurance, the PDIC requires banks to segregate between one and 1.5 percent of their total deposit liabilities as contribution to the DIF.
The DIF, in turn, is used to service their deposits in case they go bankrupt.
“The DIF is used to fund deposit claims for closed banks so if there is less banks which were closed, there is less reason for us to tap it,” Orbeta explained.
PDIC data showed a downtrend on closing lenders for the past five years. From 25 in 2010, closures hit a high of 29 in 2011 before going down to 24 in 2012 and 18 in 2013.
There were 15 closures last year, and this year, the number inched down to 14, all of which are rural lenders.
Orbeta said she sees a continued “tapering off” in bank closures next year, especially with the recently launched consolidation program for rural banks, conducted with the Land Bank of the Philippines and the central bank.
The program provides incentives and assistance to rural banks which will pursue merger and consolidation.
“We’re hoping that they can consolidate so that they can be more resilient, flexible, and then they can be more viable,” she pointed out.
Currently, she said the PDIC is meeting with eight groups which have “manifested interest” to merge. One group composed of Visayan lenders are already in the “advanced” stage of discussions.
Aside from lower number of closures, Orbeta said the DIF could increase in 2016 if local interest rates rise following the hike in their US counterparts last week.
Of the P120 billion DIF, 95 percent are invested in government securities as mandated by law, while five percent are held in cash.
“If interest rates rise next year, then we could expect that to contribute to our investment returns,” Orbeta said.