PDIC, World Bank collaborate on risk-based deposit insurance

MANILA, Philippines — The Philippine Deposit Insurance Corp. (PDIC) has signed a landmark agreement with the World Bank Group to develop a risk-based assessment system (RBAS) for deposit insurance, a move seen to strengthen the country’s financial safety net and align it with global standards.

PDIC president and CEO Roberto Tan and World Bank-International Bank for Reconstruction and Development (IBRD) country director Zafer Mustafaoglu formalized the advisory engagement in Makati on June 26.

Under the agreement, the IBRD will conduct a comprehensive study on the feasibility and design of a risk-based premium framework, which would determine banks’ deposit insurance contributions based on their individual risk profiles.

Currently, banks pay uniform premiums to the Deposit Insurance Fund.

The shift to a risk-based system would align the cost of insurance with the risk each lender poses, encourage prudent risk management, and reduce moral hazard, the PDIC said.

“This risk-based assessment System will help the PDIC better foresee and address potential problems as new challenges emerge from a more complex banking environment,” Tan said.

“With the global expertise of World Bank-IBRD and our commitment to see this project through, we are paving the way for an enhanced deposit insurance system in the country.”

The World Bank, for its part, will provide technical assistance in crafting the framework, methodology, and implementing guidelines for the system. Mustafaoglu stressed that a sound RBAS would promote financial stability and reinforce public trust in the banking system.

The initiative also fulfills a provision under the amended PDIC charter requiring a study on the establishment of a risk-based assessment system.

The project is expected to modernize PDIC operations and ensure a more equitable and sustainable funding mechanism for its Deposit Insurance Fund.

The partnership comes as the PDIC pushes for further legislative reforms to expand its mandate and strengthen its role in safeguarding depositors and promoting confidence in the banking system.

Meanwhile, Tan and Land Bank of the Philippines president and CEO Lynette Ortiz earlier signed a memorandum of agreement (MOA) to implement a new payment option to make settlement for closed bank creditors’ claims faster, easier and more secure.

Under the agreement, the Landbank Bulk Credit System will serve as an additional settlement channel for creditors of closed banks under PDIC receivership, replacing time-consuming manual processes with a streamlined, web-based platform capable of processing high-volume electronic fund transfers in a single transaction.