Increased PDIC coverage of P500,000

James Ryan Jonas

The bill increasing the amount of insured bank deposits to P500,000 has already been approved but, until now, very few people know when this law will take effect.

In March, the Philippine National Bank (PNB) issued Long-Term Negotiable Certificates of Deposit (LTNCD) with minimum investment amount of P500,000. This entire amount will already be fully insured, according to a representative from the Philippine Deposit Insurance Corp. (PDIC). However, she also said she herself doesn’t know when exactly the law will take effect.

So when is the effectivity date of the increased PDIC coverage of P500,000?

I found the answer on major newspapers published last Sunday. In all the major dailies, the PDIC has a full-page announcement of the signing of Republic Act (RA) No. 9576 (An Act increasing the Maximum Deposit Coverage, and in connection therewith, to strengthen the regulatory and administrative authority, and financial capability of the Philippine Deposit Insurance Corporation (PDIC), amending for this purpose Republic Act No. 3591, as amended, otherwise known as the PDIC Charter).

RA 9576 will take effect on Monday, June 1, 2009.

New Powers of the PDIC under R.A. 9576

This means that starting June 1, the PDIC:

  • 1. will increase the maximum deposit insurance coverage from P250,000 to P500,000 [Sec. 4];
  • 2. will now have authority to exclude certain deposit accounts and transactions from the coverage of deposit insurance [Sec. 2];
  • 3. can conduct special bank examinations [Sec. 5];
  • 4. can inquire into or examine deposit accounts under certain conditions [Sec. 5];
  • 5. will have authority to issue bonds and other debt issuance with sovereign guarantees [Sec. 10]

One controversial section of the law is Section 2 which now gives power to the PDIC to exclude certain deposit accounts from insurance coverage. This amendment was obviously an offshoot of the collapse of Legacy banks.

Deposit Accounts not Covered by PDIC Insurance

According to Section 2, the PDIC will not pay deposit insurance “for the following accounts or transactions, whether denominated, documented, recorded or booked as deposited by the bank:

  • a) Investment products such as bonds and securities, trust accounts, and other similar instruments;
  • b) Deposit accounts or transactions which are unfunded, or that are fictititous or fraudulent;
  • c) Deposit accounts or transactions constituting and/or emanating from unsafe and usound banking practice/s, as determined by the Corporation, in consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the Corporation against such deposit accounts or transactions; and
  • d) Deposits that are determined to be the proceeds of an ulawful activity as defined under Republic Act No. 9610, as amended.”

Splitting of Deposit Accounts

Section 11 of RA 9576 also states that splitting of deposit account is prohibited within 120 days before bank holiday or closure.

This means the PDIC is not obliged to pay beyond the coverage to any deposit account with an outstanding balance beyond P500,000 that is broken down and transferred into two (2) or more accounts within 120 days or 4 months prior to a bank holiday or closure.

In light of the Legacy scandal and consequent closures of several banks in the Philippines, we hope the amended PDIC Charter will indeed be for the benefit of the Filipino depositor.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.