PDIC Forum December 2004

The Cover

The gold key symbolizes security and protection - the centerpiece of PDIC’s mandate to protect depositorsand help maintain public confidence in the stability of the banking system. PDIC’s powers were further enhancedwith the enactment of Republic Act 9302, which amended the PDIC Charter.

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RICARDO M. TANPresident & Chief Executive OfficerPhilippine Deposit Insurance Corporation

I am pleased to present the December 2004 issue of the PDIC Forum which walks us through the vitalprovisions of Republic Act 9302, the law that amended the Charter of the Philippine Deposit InsuranceCorporation. RA 9302 was signed by President Gloria Macapagal-Arroyo on July 27, 2004 and took effecton August 12, 2004. This issue unravels the benefits of RA 9302 to the 26 million depositors of banks and tothe general public. It also highlights policy reforms and new procedures to further strengthen depositorconfidence essential in maintaining stability in the banking system.

Senator Sergio Osmeña III, the prime mover of the PDIC bill, sat down with PDIC Forum to share hispersonal views on the new law, and disclosed legislative moves to further strengthen the financial sectorand protect the depositing public. His insights, proposals, as well as present and future advocacies aresummarized in Straight Talk.

The articles prepared by our Research Department for the PDIC Front, provide understanding of thetreatment of deposit accounts under the amended PDIC Charter and present enhancements in thereceivership/ liquidation powers of PDIC.

In DI World, Dr. Salusra Satria and Hari Prasetya, of the Ministry of Finance of Indonesia, share the basicfeatures of the Indonesia Deposit Insurance Corporation in the article, “Welcoming a Deposit InsuranceSystem in Indonesia”.

Professionals and ordinary folks share their insights to the most essential question, “How do youchoose your bank?” in Perspectives.

I hope that this special issue on the amended PDIC Charter will enlighten the depositing public onthe enhanced role of PDIC as a pillar of the financial safety net system.

“PDIC Forum” Trademark Registration Pending @November 2003

PDIC FORUM is published twice a year by the Philippine Deposit Insurance Corporation with editorial office at the Public Affairs Department, G/F PDIC Bldg.,2228 Chino Roces Avenue, 1231 Makati City, Philippines Tel. No: (632) 841-4000 loc. 4047-4049; (632) 841-4051Email address: [email protected]: www.pdic.gov.ph

Editorial BoardChairpersonROSALINDA U. CASIGURAN, Senior Executive Vice President

Vice ChairpersonIMELDA S. SINGZON, Executive Vice President

MembersNOEMI R. JAVIER, Senior Vice President, Management Services Group RESCINA S. BHAGWANI, Vice President, Training and Public Affairs Group VICENTET. DE VILLA III, Assistant Vice President, Insurance Risk Assessment Group

Editor: RESCINA S. BHAGWANI Assistant Editors: AURAMAR D.O. CALBARIO, ISABEL P. GAVIOLA Writers: ANNA LIESE L. ROQUE, ARIES T.GAMBOA Layout Artists: KATHLEEN P. VILORIA, GILBERT E. PAGARIGAN Coordinators: NIMFA D. CAMUA, CELY E. APOLINARIO, VERONICAC. DIONISIO Circulation: DENNIS H. CONCEPCION, MILET B. SANTOS

5 Salient Features of Republic Act 9302: TheStrengthened PDIC CharterA landmark legislation signed on July 27, 2004 by President GloriaMacapagal-Arroyo, R.A. 9302 reinforced PDIC’s powers toprotect depositors and help maintain public confidence in thestability of the banking system.

7 STRAIGHT TALKSen. Sergio Osmeña III: On Steering thePassage of R.A. 9302 and Advocating for aStronger Financial System thru LegislativeReformsSen. Sergio Osmeña III, the primary force behind R.A. 9302,discusses the benefits of the new law and outlines the Senate’sreform agenda to strengthen the financial sector.

11 PDIC FRONTDetermining Insured Deposit Under R.A. 9302The relevant provisions and illustrative cases in determining thenew maximum deposit insurance cover.

Towards More Efficient Liquidation of ClosedBanksStrengthened receivership and liquidation powers in resolvingdifficulties encountered in the management of closed banks.

19 INDUSTRY SCANStatistics of the Philippine Banking SystemRural Bank Statistics by Region

Selected Financial Ratios of the PhilippineBanking System

Domestic Deposit Liabilities by Size ofAccounts

Regional Distribution of Domestic DepositsPercentage Share of Domestic Deposits by

RegionGrowth in Domestic Deposits

Growth in AmountsGrowth in Accounts

Deposit Movement with Selected VariablesRelated to its Growth

Glossary of Terms

35 DI WORLDWelcoming a Deposit Insurance System inIndonesiaDr. Salusra Satria and Hari Prasetya of the Ministry of Finance ofIndonesia discuss the operational framework and design of thenewly established Indonesia Deposit Insurance Corporation.

38 PERSPECTIVESHow do you choose your bank?Professionals and ordinary depositors share their views on thefactors that affect their choice of banks.

Salient Features of Republic Act 9302:The Amended PDIC Charter

PDIC FORUM/DECEMBER 2004 5

The signing into law of Republic Act 9302 (R.A. 9302) on July 27, 2004, after the

12th Congress approved the bill on its last day of session on July 10 this year, capped

more than five years of a rigorous legislative process.

R.A. 9302 provides greaterprotection to 26 million depositorsnationwide by increasing themaximum deposit insurancecoverage (MDIC) to P 250,000. Thisrepresents 2.5 times more insuranceprotection than the previousmaximum coverage of P100,000which has been in effect since 1992.Even in real terms, the new MDICoffers a higher level of protectionthan the previous MDIC.

With no corresponding increasein assessment rates, there is a muchgreater risk posed to the Deposit In-surance Fund (DIF). To counter this,the law enhances PDIC’s capabilityto minimize risks to the DIF by rein-stating its authority to examine bankssubject to prior approval of the Mon-etary Board. This authority will fortifythe financial system’s safety net

through complementary surveil-lance and examination by theBangko Sentral ng Pilipinas (BSP) andPDIC, allowing prompt remedial in-tervention.

Additionally, R.A. 9302 seeks toinstitute reforms in the system by al-lowing PDIC in coordination with theBSP to set standards for depositrecord-keeping to facilitate insur-ance claims processing in the eventof bank closures.

The new law also commits toevery depositor continuedprotection through depositinsurance, as PDIC’s authority toterminate the insurance status ofbanks, even those with delinquentpremium payments, has beenrevoked. Thus, depositors no longerneed to worry whether their bankspay premium to PDIC or not. Instead,

the responsibility shifts to the officersand owners of banks who are nowpersonally liable to stiff fines andpenalties for non-payment of theinsurance premium.

The amended Charter instillsfinancial discipline among bankowners and officials through theimposition of stiffer penalties forunsafe and unsound bankingpractices of up to 12 years in prisonand a maximum of P2 million in fines,or both. Punishable under theamended Charter are: submission offalse material information in relationto any financial assistance extendedto the bank; splitting of deposits orcreation of fictitious loans or depositaccounts; refusal to allow PDIC totake over a closed bank under itsreceivership power or obstructingsuch action; refusal to turn over, or

6 Salient Features of Republic Act 9302: The Amended PDIC Charter

destroying, or tampering of bankrecords; fraudulent disposal, transfer,or concealment of any asset orliability of the closed bank underreceivership; and violation of theexemption from garnishment, levy,attachment, or execution providedunder R.A. 9302 and the New CentralBank Act.

In the same manner, the law alsopromotes greater market disciplineby deterring depositors fromsplitting large deposit balances in abank to get around the insurancelimit. The new MDIC, effectiveAugust 12, 2004, will now be appliedon the sum of all the shares of adepositor in all joint accounts in aclosed bank. Furthermore, depositorswil l no longer be attracted toabnormally high interest rates. PDIC,as receiver, has obtained theauthority to reduce interest ratesdue depositors in closed banks towithin prevailing market rates.

As an added measure to protectdepositors and restore confidencein the banking system, the amendedPDIC Charter extends theprescriptive period for filing claimsfrom 18 months to 24 months, therebygiving more time to depositors tofile their deposit insurance claims.

In sum, RA 9302 has strengthenedthe depositor protection capabili-ties of the PDIC through various re-forms involving not only regulators,but the depositors and bank manag-ers as well.

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As chairman of the Committee onBanks and Financial Intermediaries,he laid the groundwork for thenecessary amendments to the PDICCharter and steered it through itsfinal ratification. In this exclusiveinterview with the PDIC Forum,Senator Osmena, in retrospect, walksthrough the proceedings on theenactment of RA 9302 while sharingwith us his present and futurelegislative advocacies relative tofinancial sector legislative reforms.

Forum: In your personal view, howvital is the passage of Republic Act(RA) 9302 to the banking system andthe 26 million depositors?

Sergio Osmeña III: The passage of RA9302 strengthened the regulation ofthe Philippine banking system andprovided greater protection mostcrucial to small depositors byincreasing the coverage of thedeposit insurance. The new lawfostered greater stability as well asrenewed confidence in the bankingsector.

Sen. Sergio Osmeña III:On Steering the Passage of R.A. 9302

and Advocating for a Stronger FinancialSystem thru Legislative Reforms

Senator Sergio Osmeña III


Senator Sergio Osmena III counts as one of the few staunchest proponents of

vital policy and structural reforms in the legislative front who champions both a sound

financial system and strong protection for depositors and consumers of financial products

and services.

Forum: The new law did not containall the original major provisions in theSenate version of the Bill. Whichprovisions do you consider mostunfortunate to not have been passedand why?

SO: The Senate approved to restorethe power of the deposit insurer toexamine the books of member bankswhenever necessary. By requiringprior MB approval for PDIC bankexamination, the new legislationdefeats the Senate’s originalintention of empowering the PDIC toswiftly examine banks’ finances, andmakes it more difficult for PDIC tomore accurately evaluate risks offailure in banks as basis for resolvingproblems.

Another major loss is theprovision on the immunity of PDICofficials and staff from civil, criminaland administrative liability in thedischarge of their functions. TheSenate provision was aimed toprotect PDIC officials and staff fromlawsuits in the course of performingtheir duties and to ensure that PDICexaminers will be emboldened toconduct bank examinationssupplemental to BSP. Thus, theprovisions of the AdministrativeCode as well that of R.A. 9302, whichexplicitly allows PDIC to incur and


8 Straight Talk

advance costs pertaining to thecase wil l have to suffice. Theemployee sued may be liable torefund such costs if case is decidedagainst him.

Lastly, the Senate proposedamendments to enhance thereceivership and liquidation powersof PDIC. The proposed powers for thereceiver that were not included inthe enacted version are:

• To sell, transfer or convey theassets of the closed bankwithout approval by the Boardof Directors and stockholders ofsuch closed bank; and

• To suspend or stay all legalproceedings against the bankunder receivership for 90 days.

Forum: Apart from the original Senateprovisions, some had to give way tothe harmonized bicameral version. Inhindsight, do you think there could bemore reforms pertaining to moralhazard that could be addressed bythis legislation?

SO: Additional studies should havebeen conducted on the following:

• The assessment rate charged byPDIC to its member banks. Theincrease in the maximumdeposit insurance cover withouta corresponding rise in thepremium on banks mayencroach on the viability of thedeposit insurance fund.

• Removal of continuity ofinsurance coverage even incase of delinquent premiumpayments by banks. This createsa moral hazard so strictadherence to the punitiveprovisions of the law to beimposed on the officersresponsible for non-payment isnecessary.

Forum: Do you think bankexamination functions reverted toPDIC will now provide the necessarychecks and controls to help limitunscrupulous bank practices?

SO: To a greater extent, yes. The riskmanagement activities of PDIC nowcomplement the supervisoryfunctions of BSP in promotingstability of the banking system.

With the amendment restoringthe examination power of the PDICover the banks, prompt correctiveaction can be undertaken with lessneed for financial assistance. Thisauthority will fortify the financialsystem’s safety net throughcomplementary surveillance and

examination by the BSP and PDIC,allowing prompt remedialintervention that could sparedepositors and communities theadverse effects of bank closures.

Forum: Now that PDIC’s Charter hasbeen amended and its powersenhanced, what internal reforms doyou think PDIC should embark on tofunction more effectively as animportant component of the financialsafety net?

SO: PDIC, in coordination with BSP,would have to draft guidelines onbank examinations to ensure thatthese are done effectively despitethe restriction of limiting this to onlyonce every 12 months for individualbanks. The guidelines should ensurethat there is no overlapping of effortsbetween the two regulators.

To facilitate the conduct of theexamination of banks, a review ofreportorial requirements for banksshould also be done.

To ensure better managementof the financial sector, PDIC shouldhave closer coordination with the

With the amendment restoringthe examination power of the PDIC over

the banks, prompt corrective actioncan be undertaken with less need for

financial assistance.



domestic regulators. Theinterconnectedness among thedifferent types of financialintermediaries makes more difficultthe task of enforcing prudentialdiscipline because of the potentialfor regulatory arbitrage by takingadvantage of more lax rules wherepossible. This argues for a substantialstrengthening of consolidatedsupervision mechanism via closercooperation among the four keyagencies, namely BSP, PDIC, theSecurities and Exchange Commissionand the Insurance Commission.

Forum: Are you satisfied with theP250,000 MDIC under the new lawgiven the Senate proposal of anincrease to P200,000 only?

SO: Yes, this is a product of acompromise from the proposal toraise the MDIC to a high of P400,000which would have required anincrease in assessment rates, to alevel that would still increase thelevel of insurance protectionconsiderably, but not the need toimpose higher levy on banks. Still, atP250,000, greater protection wasgiven to more depositors. It covers96 percent of total number ofaccounts in the banking system in2003 compared to 91 percent at theprevious cover. The Senateproposed level of P200,000 wouldhave resulted in a lower coverageat 95 percent but would be moreeffective in l imiting the moralhazard.

The timely passage of R.A. 9302afforded security to unfortunatedepositors of First Savings Bank, Inc.,a thrift bank, which had a total of10,609 deposit accounts. Less thana month from effectivity, the law wasapplied for the first t ime todepositors of this closed bank andbased on the bank’s latest report,almost all accounts were fully insuredat the new MDIC of P250,000.

Forum: What other moves in theLegislature, particularly in the Senate,are geared towards strengthening thefinancial sector and the protection ofthe depositing public?

SO: The Legislature recognizes theneed to continue fostering anefficient, stable and competitivebanking system that supports thesustainable growth of the economy.

Priority measures at the Senateaimed at restructuring and reformingthe financial sector, which thisrepresentation has been persistentlyadvocating for, include, but notlimited, to the following proposals:

The Legislature recognizes the needto continue fostering an efficient, stable

and competitive banking system thatsupports the sustainable growth of the

economy.a. Amendments to the BSP charter

– to strengthen its supervisorypowers to better promote asound banking system

b. Corporate Recovery Act – tomodernize and clarify the rulesfor recovery of financially-distressed enterprises and theresolution of their indebtedness

c. Pre-Need Code – to strengthenand enhance the regulatoryframework to protect futureinvestors and planholders

d. Personal Equity RetirementAccount (PERA) Bill – to improvethe country’s savings rate byinstitutionalizing a retirementfund for public and privatesector employees and self-employed individuals with taxincentives

e. Revised Investment CompanyAct – to ensure protection forinvestors through properregulation and to encourage


10 Straight Talk

more investors to invest in long-term securities

f. Amendments to the Charters ofSSS and GSIS – to enhanceregulation to improve themanagement of pension fundswhich are in poor financialhealth resulting in growingfunding gaps, deficits anddeclining surpluses

g. Single Regulator Bil l – toestablish a central monetaryauthority for the entire financialsector that would tightengovernment regulation over thefinancial markets by minimizinggaps in the regulation of

financial intermediaries and, inturn, curb corporate fraud orfailures.

Senator Sergio R. Osmeña III’s mettlein public service descends in his family.He is the grandson of former Philippinepresident Sergio Osmeña Sr. whoserved from 1944-1946. His grandfather,Esteban dela Rama, and his father,Sergio Osmeña Jr., had been electedsenators.

Serving the Senate on his second term(elected in May 1995 and re-elected inMay 2001), Senator Osmeña authored65 laws and co-authored 55 other lawsdedicated to improving the socio-economic conditions of the Filipino. In

all past Congress, Sen. Osmeña III hasalways filed the most number of bills inthe Senate.

As Chairman of the Committee onBanks, Financial Institutions andCurrencies of the 12th Congress,Senator Osmena championed thecause of the depositors by steering thepassage into law of the amendmentsto the PDIC Charter.

He is currently the Chairman of theSenate Committee on Social Justice,Welfare & Rural Development andMember of Commission onAppointments and JointCongressional Power Commission of the13th Congress.

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Determining Insured Deposit UnderR.A. 9302

The new Charter has broadenedPDIC’s power to fulfill its mandate of

protecting small, unsophisticateddepositors, instill confidence in banks

and help maintain stability in thefinancial system

R.A. 9302, an act amending R.A. 3591, otherwise known as the “Charter of

the Philippine Deposit Insurance Corporation”, was signed into law on July 27, 2004

and took effect on August 12, 2004. Under the new law, the maximum deposit insurance

cover (MDIC) is increased from P100,000 to P250,000.

The revised PDIC Charter hasbroadened PDIC’s powers to fulfill itsmandate of protecting small,unsophisticated depositors, instillconfidence in banks and helpmaintain stability in the financialsystem. This article discusses how RA9302 changes the way insureddeposits are determined, givendifferent scenarios.

Treatment of Joint accounts

The relevant provisions underSection 4 (g) of the revised Actreads:

“…. A joint account regardlessof whether the conjunction “and,”“or,” “and/or” is used, shall beinsured separately from anyindividually-owned depositaccount: provided, that (1) if theaccount is held jointly by two ormore natural persons, or by two ormore juridical persons or entities,the maximum insured deposit shallbe divided into as many equalshares as there are individuals,juridical persons or entities, unlessa different sharing is stipulated inthe document of deposit; and (2)if the account is held by a juridicalperson or entity jointly with one ormore natural persons, themaximum insured deposit shall bepresumed to belong entirely tosuch juridical person or entity:provided, further, that the

aggregate of the interests of eachco-owner over several jointaccounts, whether owned by thesame or different combinations ofindividuals, juridical persons orentities, shall likewise be subject tothe maximum insured deposit oftwo hundred fifty thousand pesos(P250,000.00)…”

Joint accounts shall be dividedequally into as many shares as thereare individuals and shall beconsidered as owned solidarily by thedepositors named in the account,regardless of whether the accountis maintained as “and”, “and/or”, or“or”, unless a different sharing isstipulated in the document ofdeposit. If the depositor is a co-owner in several joint accounts, hisshare in the insured amount of eachjoint account shall be addedtogether, the sum of which shall notexceed P250,000.

The new provision limits insureddeposits per depositor to a maximumof P500,000, P250,000 for individual/

singular account and anotherP250,000 for total shares in jointaccounts.

In the previous charter, depositaccounts maintained in the sameright for the depositor’s benefiteither for himself or for another shallbe added together or consolidated.Since it was not explicitly expressedthat joint and several accounts weretreated as separate from individual/singular accounts in computinginsurance coverage, the MDIC wasapplied for each joint depositaccount with distinct combinationof individuals.

It is now clearly stated in the newAct that joint accounts are insuredseparately from the individual/singular account/s of the depositor.A depositor, therefore, may receiveup to P250,000 in insured deposits forall account/s maintained solelyunder his name and up to P250,000for the sum of his shares in all jointaccounts. The deposit beyond theinsured limit shall constitute theuninsured portion of his deposits,


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12 Determining Insured Deposit Under R.A. 9302

which shall be paid after liquidation of the closed bank provided that net proceeds from liquidation are enough tocover such claims after payment of preferred creditors. Uninsured deposits are classified as ordinary credits andare paid after preferred credits but before the bank’s shareholders.1

For illustration, consider the following deposit accounts:Jose P 300,000 Jose and Pilar P 400,000Jose and/or Pilar 250,000 Jose and/or Anita 300,000

The total insured deposits due toJose is P500,000, and not P625,000,divided into P250,000 for hisindividual account and anotherP250,000 for the sum of his share inthree (3) joint accounts. His totalinsured deposit share from his jointaccounts exceeds the MDIC byP125,000, which brings his totaluninsured deposits to P275,000. Pilar’sinsured deposits equal P250,000 forher two (2) jointaccounts, with P75,000uninsured, while Anita’sinsured share isP125,000. Her uninsureddeposit is P25,000.

Offsetting of loans

Insured deposit isthe amount due to anydepositor for deposits inan insured bank net ofany obligation of thedepositor as of the dateof closure, but not toexceed P250,000. If adepositor has an

outstanding loan with the closed bank, whether matured or unmatured asof closure date, his outstanding loan shall be netted from his totaloutstanding deposits and not from the insured portion of his deposits incomputing his insured deposit. The net outstanding deposit thereforebecomes the basis for computing the insured deposit due to the depositor.

If the depositor is a co-owner of a joint account and has an outstandingloan with the closed bank, the insured deposit is determined by deductingthe outstanding loan from his share of the joint account. His loan obligationshould not be deducted from the share of his co-owner.

To illustrate, consider the following case with balances as of date ofbank closure:

Deposit Account:Patria and/or Carlos 400,000

Outstanding Loan:Patria: Matured Loan 150,000Carlos: Unmatured Loan 50,000

Accounts

Patria and/or CarlosLoan

PatriaCarlos

Net DepositInsured DepositsUninsured Deposits

Share in theDeposit

Patria

Insured Deposit

200,000

(150,000)

50,000

Carlos

200,000

(50,000)

150,000

AccountBalance

400,000

150,00050,000

Patria

50,000

Carlos

150,000

UninsuredDeposit

Patria

150,000

Carlos

25,000

1 Sec. 12 of PDIC Charter and Chapter 2, Article 2241 of the Civil Code.

The computation will be as follows:

Deposit AccountName

JoseJose and/or PilarJose and PilarJose and/or Anita

Total DepositTotal Insured DepositTotal in excess of MDICTotal Uninsured Deposits

Share in the Deposit

Jose

Share in the InsuredDeposit Uninsured Portion

300,000125,000200,000150,000

775,000

Pilar

-125,000200,000

-

325,000

Anita

---

150,000

150,000

Jose Pilar Anita

250,000125,000125,000125,000

625,000500,000

-125,000125,000

-

250,000250,000

---

125,000

125,000125,000

AccountBalance

300,000250,000400,000300,000

1,250,000

Jose Pilar Anita

50,000-

75,00025,000

125,000275,000

--

75,000-

-75,000

---

25,000

-25,000

TotalInsuredDeposit

250,000250,000250,000250,000


If a loan is secured by hold-out (a deposit account securing a loan fromthe same bank) on a joint “and/or” account, then the loan balance shall benetted from the entire account, regardless of who among the owners of thejoint account is the registered borrower. Although the conjunction, “and/or”, does not matter for purposes of computing insured deposits for jointaccounts under the amended charter, the basic nature and concept of an“and/or” account of being jointly and severally owned is the basis for theretention of its full treatment as security to a loan 2. By virtue of the hold-outagreement, the total amount in the joint account, and not just the borrower’sshare shall be the subject of the hold-out. However, if the loan is held againsta joint “and” account, the netting of the loan shall only be applied to theshare of the borrower, unless the other owners of the account haveconsented to their shares to the hold-out agreement.

Given the following information as of date of closure:

Elena’s P150,000 obligation is netted from the whole P400,000 balanceof the joint account, and the resulting net deposit is subjected to the MDICthen divided into two equal shares to determine the insured deposits dueto Elena and Bayani, each receiving P125,000. Both will receive sameamount even if the loan was less than P150,000 because the deposit balancewill exceed the MDIC.

Using the same information in the above example except that the jointdeposit is an “and” account instead of “and/or”, and that Bayani has notconsented to the hold-out of their deposit, Elena’s whole P150,000 loanbalance shall be netted out only from Elena’s share in the joint deposit. Theresulting insured deposits shall then be P50,000 and P125,000 for Elena andBayani, respectively.

Deposit Splitting

The new Act imposes fines of up to P2 million including imprisonment ofdirectors, officers, employees or agents of a bank found guilty of facilitatingthe fraudulent splitting of deposits or creation of fictitious loans or depositaccounts.

Splitting of deposits occurs whenever a deposit account with anoutstanding balance of more than the statutory maximum amount of

insured deposit maintainedunder the name of natural orjuridical persons is broken downand transferred into two or moreaccounts in the name/s ofnatural or juridical persons orentities who do not actually havebeneficial ownership of thetransferred deposits.

Splitting of deposits withbalances of more than P250,000done within 30 days before bankclosure or during a bank-declaredholiday will make the responsiblebank officer l iable to fines andpenalties of up to P2 mil l ionincluding imprisonment of up to 2years. After being given due process,if the depositor fails to substantiatehis claim and the bank officerresponsible for the splitting fails toprove the validity of the splitdeposits, then the splitting shall beconsidered fraudulent and the splitdeposits shall be reverted to theoriginal accounts for purposes ofcomputing the maximum insureddeposits and the officer guilty offraud shall be penalized accordingly.

The propensity to split issignificantly minimized by both thepenalties on those found guilty offraudulent splitting and the newtreatment of joint accounts whereeach co-owner’s total share in all hisjoint accounts is capped at P250,000and the stiff application of the MDIC.

Deposit records-keepingstandards

The major reason for delays inthe payment of insured deposits isthe poor quality of deposit recordsupon takeover of the closed bank.This makes it diff icult for PDICexaminers to instantaneouslydetermine insured amounts payableto depositors. The provision in thenew Act authorizes PDIC, incoordination with the Bangko Sentralng Pilipinas, to institute guidelinesand acceptable standards for

2 J.F.D. Clariza, Opinion No. LAS-067-04, PDIC-ICG Memo, August 5, 2004.

Deposit Account:Elena and/or Bayani

Outstanding Loan secured by hold-out on Elena and/or Bayani account

Accounts

Elena and/or BayaniLoan

ElenaBayani

Net DepositInsured DepositsUninsured Deposits

Share in theDeposit

Elena

Insured Deposit

50,000

Bayani

150,000

AccountBalance

400,000

150,000-

250,000

Elena

125,000

Bayani

125,000



deposit record-keeping proceduresin order to hasten insurance claimspayout.

Each insured bank shall berequired to keep and maintainaccurate records of daily deposittransactions consistent with the setstandards, for which complianceshall be duly certified. Failure to issuethe required certif ication shallsubject the concerned officer tofines of up to P2 mill ion and/orimprisonment of up to 2 years asprovided for in the law.

Compliance by banks with theprescribed deposit record-keepingstandards will expedite the paymentof insured deposit claims in case of

bank closures and facil itateassessment audit by PDIC of premiumcollection essential to building thedeposit insurance fund.

This article has outlined howinsured deposits are determinedunder the amended PDIC Charter,which shifted the focus from “depositaccounts” to “depositors”. Depositsplitting is now explicitly defined inthe Charter with correspondingincrease in fines. The treatment ofjoint accounts that caps all sharesof a co-owner of several jointaccounts to P250,000, together withthe increase in fines, maysubstantially mitigate thedepositors’ propensity to split their

accounts. Adherence to newstandards for record keeping ofdeposit transactions will reduce thelag time between the date of PDICtakeover of a closed bank and theactual payout of insured deposits.These new provisions of law havetaken the quality of depositorprotection and enhancement ofconfidence in the banking systemseveral notches higher.

* Written by Aries T. Gamboa, SeniorResearch Specialist, ResearchDepartment.

14 Determining Insured Deposit Under R.A. 9302


Towards More Efficient Liquidationof Closed Banks

Background

The Philippine Deposit Insurance Corporation (PDIC) became

mandatory receiver and liquidator of closed banks since 1992 by virtue of Republic

Act 7400. The bank receivership and liquidation functions previously vested in the then Central

Bank of the Philippines (now Bangko Sentral ng Pilipinas) were transferred to PDIC to allow the

Central Bank to focus its resources on its role as the monetary authority and bank supervisor.

The authority of PDIC to act as themandatory receiver and liquidatorof closed banks is provided for inSection 30 of the New Central BankAct (RA 7653), which was enacted inJune 1993.

The Monetary Board may placea bank under PDIC’s receivershipupon determination that a bank isinsolvent, or when it can no longerservice its short-term liabilities or cannot continue operating with safetyand soundness to the depositingpublic under the following grounds:a) inability to pay its liabilities as

they become due in the ordinarycourse of business;

b) insufficient realizable assets, asdetermined by the BSP, to meetits liabilities;

c) cannot continue in businesswithout involving probablelosses to its depositors orcreditors;

d) willful violation of a cease anddesist order under Sec. 37 of RA7653 that has become final,involving acts or transactionswhich amount to fraud or adissipation of the assets of theinstitution.In carrying out its mandate as

receiver/liquidator, PDIC had beenconfronted with the tedious and

difficult process of converting intocash the largely non-performingassets of closed banks, and withimpediments which are difficult toresolve in the absence of explicitprovisions of Law – such as closedbank owners’ resistance to PDICtake-over, missing bank records andassets, withholding of owners’consent to rehabilitation proposals,and labor claims, among others.With the recent amendments to thePDIC Charter through RA 9302, theadministration and disposal of closedbank assets are hastened, and theliquidation of the closed banks’assets is expedited and maximized.

Receivership andLiquidation Functions

Upon its appointment by theMonetary Board as receiver of aclosed bank, PDIC immediately takescontrol and preserves the closedbank’s assets, records and affairs,and administers the same for thebenefit of the institution’s depositorsand other creditors. Under Section30 of the New Central Bank Act, thePDIC, as receiver, should as soon aspossible but not later than 90 days

from takeover, determine whethera bank placed under receivership bythe Monetary Board may berehabil itated with safety to itsdepositors, creditors, and thegeneral public. If PDIC, as receiver,determines that the institutioncannot be rehabil itated orpermitted to resume business, theMonetary Board shall notify in writingthe board of said institution anddirect PDIC to proceed with itsliquidation. Only until then can PDICcommence to sell or dispose of theassets of closed banks.

As liquidator, PDIC is mandatedto convert the assets of the closedbank into cash at maximum possiblerecovery in the best interest of thebank’s creditors. The funds to begenerated from the liquidation, netof the expenses incurred in carryingout receivership/liquidation, are tobe distributed to the creditors inaccordance with the legal prioritiesset by law upon approval by theLiquidation Court. Remaining fundsand other assets, if any, are to bedistributed as interests orcompensatory damages to thecreditors, at the legal rate of 12% perannum from the date of bank closureto the date of payment of theirprincipal claims. Any surplus funds



and other assets remaining afterpayment to the creditors are fordistribution to the bank’sstockholders.

Legal AmendmentsPertaining to Receivership

and Liquidation

PDIC faced numerous challengesin pursuit of receivership andliquidation of closed banks.Foreclosure of mortgages, filing ofcollection cases against delinquentdebtors, and consolidation of titlescould not be initiated in severalclosed banks because of deficiencyor absence of relevantdocumentation. Other problemsinvolved adverse claims fi ledagainst the assets, including the lackof funds to defray the costs involved.These lessons learned paved the wayfor the significant reforms inscribedin RA 9302. Presented below are themajor problems pertaining toreceivership and liquidation withcorresponding remedies obtainedfrom recent legislativeamendments.

Inability to Take Over Closed Bank

There have been many instanceswhen bank owners resisted orrefused to turn over the closed bankto PDIC. The problem is compoundedwhen owners question the closureorder in court, leading PDIC to getembroiled in a legal battle thatcould take several years to resolve.Such was the case of Rural Bank ofSara (Iloilo), Inc., which was orderedclosed in 1994 but was resolved bythe courts only in 2003. The case ofRural Bank of Muntinlupa (Rizal), abank ordered closed in 1978, remainspending in court.

A temporary restraining order(TROs), prohibiting, albeittemporarily, the implementation ofthe closure order of the MonetaryBoard further delays the process ofreceivership or liquidation until theclosure order is upheld in court.

The issuance of TROs preventedthe takeover of the Rural Bank of Tuy,Inc. and the Rural Bank of Balayan,Inc. in Batangas, both ordered closedin year 2000, until their cases wereresolved more than three (3) yearsafter closure. By the time PDIC wasfinally able to take-over these banks,vital bank records, such as generaland subsidiary ledgers, credit files,and securities and collaterals, couldno longer be located. The recordson outstanding deposit liabilities inthe bank premises were inadequate.

Although PDIC was able to takeover Orient Commercial BankingCorporation (1998) and UnitrustDevelopment Bank (2002), it wasprevented from liquidating theclosed banks’ assets pending theresolution of the court casesquestioning their closure.

Under Sec. 24 of R.A. 9302, nocourt, except the Court of Appealsand the Supreme Court, may issueTROs, preliminary injunctions orpreliminary mandatory injunctionsagainst the Corporation. Thisprohibition applies to all cases,disputes or controversies fi ledagainst the Corporation by a privateparty, the insured bank, or any of itsshareholders. The Supreme Courtmay issue a restraining order orinjunction when the matter is ofextreme urgency involving aconstitutional issue, such that unlessa TRO is issued, grave injustice andirreparable injury will arise. The partyapplying for the issuance of arestraining order or injunction shallfile a bond in an amount to be fixedby the Supreme Court, which bondshall accrue in favor of theCorporation if the court should finallydecide that the applicant was notentitled to the relief sought. [UnderSec. 24 of RA 9302, states that] “Anyrestraining order or injunction issuedin violation of this section is void andof no force and effect and any judgewho has issued the same shall sufferthe penalty of suspension of at leastsixty (60) days without pay.”

Another constraint encounteredby PDIC in implementing takeoveroperations is the inability of the

Corporation to take control of bankrecords and assets. It must be notedthat in some instances, non-availability of bank records andassets is temporary, resulting, notfrom any hostile action of the ownersor employees, but from records andassets being withheld from thereceiver by the lessors of thepremises because of the unpaidrentals prior to bank closure, as wasthe case of the Rural Bank ofTacloban (Leyte) (1995). Prior to thenew law, PDIC was not authorized topay obligations of the closed banksuch as rent as of closure. Instead thecreditor, such as the lessor, wouldhave to wait for liquidation to beapproved by Court to be able torecover past due rental paymentsfollowing the priority of creditors setby law. The new law empowers theCorporation to “pay accruedutil it ies, rentals and salaries ofemployees of the closed bank, for aperiod not exceeding three months,from available funds of the closedbank.” This provision is intended toensure continuous delivery of utilityservices such as power, telephone,and water including use of bankpremises. These payments will haveto be sourced from funds of theclosed bank.

Managing Assets under Liquidation

While PDIC, under its old charter,can collect loans and other claimsof the closed bank, this has becomean expressed authority in RA 9302.The amendment provides that theCorporation can modify,compromise or restructure the termsand conditions of such loans orclaims as may be deemedadvantageous to the interest of theclaimants of the closed bank.

Dealing with Court Cases

PDIC is no longer hindered fromfiling collection cases to recoverreceivables of closed banks due toinsufficiency of closed bank’s fundsto pay docket fees. The amendedCharter provides that in all cases or

16 Towards More Efficient Liquidation of Closed Banks


actions filed by the Corporation asreceiver for the recovery of, orinvolving any asset of the closedbank, payment of all docket andother court fees shall be deferreduntil the action is terminated withfinality. With this new provision, thereceiver will now be able to file acase to recover assets of a closedbank even if the bank does not havethe funds to defray the costs of filingthe case. Such deferred payment,however, will constitute a first lienon any judgment, if favorable, oragainst administrative expensesduring the distribution of the assetsof the closed bank, if unfavorable.

PDIC is now expressly allowed tohire or retain private counsels as maybe necessary.

Assets not subject of Garnishment,Levy or Attachment

Despite the provision of Section30 of the New Central Bank Act thatthe assets of a closed bank are incustodia legis or “in the hands of thereceiver and liquidator“, PDIC isimpeded in performing its duty ofpreserving and recovering theassets of some banks because somecourts sti l l issue orders ofgarnishment, levy, or attachment infavor of parties who have nopreference under the law over theconcerned assets.

An important provision under thenew law explicitly reversed thisconstraint with a provision that “fromthe time the closed bank is placedunder receivership, its assets shall notbe subject to attachment,garnishment, execution, levy or anyother court processes”. Any judge,officer of the court or any person whoshall issue, order, process or causethe issuance or implementation ofthe writ of garnishment, levy,attachment or execution shall beheld liable under the law.

Labor Issues

PDIC likewise has to deal withproblems pertaining to labor claims.There have been instances when


terminated employees of closedbanks resort to filing cases with theDepartment of Labor andEmployment to compel the receiver/liquidator to pay their claims even ifthe closed bank does not havesufficient funds to pay them. Wheresuch payments have to be made,PDIC would make advances,exposing PDIC to further losses.Problems have also arisen when bankofficers, employees, directors andstockholders continued to transactbusiness in the name of the closedbank despite notice to them thattheir authority had ceased as oftake-over by the receiver.

The new law provides that evenif recognized under the Labor Code,PDIC is empowered to suspend orterminate the employment ofofficers and employees and thatpayment for separation pay orbenefits accruing as of bank closuremay be made only after the bank hasbeen placed under liquidation, andsubject to the availability of fundsafter considering reasonablereceivership and liquidationexpenses.

High Interest Rates on Deposits

When banks get into distressedsituation and unable to servicewithdrawals, they attract deposits byoffering above market interest rates.In the past, PDIC had to honor theseterms and pay interest rates whichwere unusually higher than prevailingmarket rates. This did not only exposethe Deposit Insurance Fund to biggerlosses, but also brought about seriousmoral hazard on the part ofdepositors. The new law has rectifiedthis situation such that if thestipulated interest on deposits isunusually high relative to prevailingapplicable interest rates, the PDIC,as receiver, may reduce interest toa reasonable rate; provided that anymodification or reduction shall applyonly to unpaid interest. This willminimize moral hazard arising fromdepositors’ propensity to chase afterhigh interest rate, mindless of the riskof bank failure since their deposits

and corresponding interest incomeare guaranteed by PDIC anyway.With this amendment, problembanks may no longer continueattracting deposits by out-pricingother banks at the expense of theDeposit Insurance Fund.

Conclusion

Considerable gains have beenachieved with the enactment of RA9302 in terms of minimizing losses tothe Deposit Insurance Fund. It wouldhave been ideal if PDIC’s crucialproposal to allow liquidationimmediately after closure obtainedlegislative support as this wouldhave paved the way for theresolution of failed banks throughpurchase and assumption by biggerand stronger banks, allowingseamless closures. Such measurewould have enabled a bank closedon a Friday to reopen on a Mondayas a unit of an existing strong bankas being done in more advanceddeposit insurance systems.Furthermore, the provision on legalimmunity presented by PDIC toCongress as one of its proposedamendments did not pass legislativescrutiny. In order for PDIC toefficiently and effectively undertakeits mandate without fear of reprisal,there is a need to cloak its employeeswith legal immunity from suit for actsperformed in their official capacity,and in good faith, withoutnegligence.

While it may take more time forPDIC to be so empowered, RA 9302has succeeded in clarifying a lot ofthe gray areas in the receivershipand liquidation powers of the PDICwhich present obstacles to promptliquidation.

* Written by Anna Liese L. Roque,Research Specialist, ResearchDepartment.


18 Towards More Efficient Liquidation of Closed Banks

Charter Amendments pertaining to receivership and liquidation

• To suspend the powers, functions and duties, as well as all allowances, remunerations andperquisites of the closed bank’s directors, officers, and stockholders, and the relevant provisionsof its Articles of Incorporation and By-laws. This power will prevent the directors, officers andstockholders from transacting business in the name of the bank after it has been taken over byPDIC.

• To bring suits to enforce liabilities to or recover assets of the closed bank.

• To suspend or terminate the employment of officers and employees of the closed bank; Provided,that payment of separation pay benefits shall be made only after the closed bank has beenplaced under liquidation pursuant to the order of the Monetary Board under Section 30 of R.A.7653, and such payment shall be made from available funds of the bank after deductingreasonable expenses for receivership and liquidation.

• To pay accrued utilities, rentals and salaries of personnel of the closed bank, for a period notexceeding three (3) months, from available funds of the closed bank. This power will reduce, ifnot eliminate, problems of records being withheld from the receiver by lessors because of unpaidrentals; and utility providers refusing to continue services to the bank because of unpaid billings.

• To collect loans and other claims of the closed bank, and for the purpose, modify, compromise,or restructure the terms and conditions of such loans or claims as may be deemed advantageousto the interest of the creditors and claimants of the closed bank. While this is considered aninherent power of the receiver and liquidator, it is necessary to explicitly provide this power inthe law to enable the receiver/liquidator to perform its function more efficiently and effectively.

• To hire or retain private counsels as may be necessary.

• To borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed bank, whennecessary to preserve or prevent dissipation of the assets, or to redeem foreclosed assets of theclosed bank, or to minimize losses to the depositors and creditors. This resolves the problem ofinability of closed banks to redeem an encumbered valuable property due to lack of availablefunds.

• If the stipulated interest on deposits is unusually high relative to prevailing applicable interestrate, the Corporation as receiver may exercise such powers that include a reduction of theinterest rate to a reasonable rate; provided that any modification or reduction shall apply onlyto unpaid interest. Interest rates on deposit liabilities of many banks closed prior to R.A. 9302were unusually high compared with the market rates prevailing as of the dates of closure of thebanks. In the absence then of a power to reduce these unusually high interest rates, PDIC had noalternative but to pay the deposits thereby unreasonably reducing the deposit insurance fund.This situation has been addressed with the vesting in the receiver the power to reduce theunusually high interest rates.

• In all cases or actions filed by the Corporation as receiver for the recovery of, or involving anyasset of the closed bank, payment of all docket and other court fees shall be deferred until theaction is terminated with finality. With this new provision, the receiver may now be able to file acase to recover assets of a closed bank even if the bank does not have the funds to defray thecosts of filing the case.

NEW PROVISIONS SECTION10b

10c-1

10c-3

10c-4

10c-5

10c-6

10c-7

10c-8

11

IIIIIndustryndustryndustryndustryndustry SSSSScancancancancan

Overview

In our pursuit to provide professionals and other interested parties with valuable

banking and deposit information derived from the performance of our mandates, we

present in the following pages our bank statistics as of June 30, 2004.

The statistics offer an overviewof the current banking industry profileand performance from whichconclusions may be drawn. This canalso serve as springboard for furtherresearch.

This issue contains selectedbalance sheet and incomestatement accounts and keyperformance ratios for the PhilippineBanking System, further broken downinto Commercial, Thrift and RuralBanks. Current data summarized inbar graphs showing various capital,asset quality, earnings and liquidityindicators are also included.

Aside from the financial data,statistics on bank deposits,particularly as to size of domesticdeposit accounts are also provided.The same are disaggregated intotype of deposit (e.g., demand,savings, time and foreign currencydeposits), amount (clusters rangingfrom below P15,000 to over P250,000)and geographic distribution amongthe country’s 17 regions. The tablesand figures presented are as follows:

A. Tables1. Statistics of the Philippine Banking

System (PBS)A. Commercial Banks (KB)

a.1 Expanded KBs (EKB)a.2 Non-Expanded KBs (NEKB)a.3 Foreign Banksa.4 Specialized Government

Banks (SGB)B. Thrift Banks (TB)

b.1 Savings & Mortgage Banks(SMB)

b.2 Private DevelopmentBanks (PDB)

b.3 Savings & LoanAssociation (SLA)

b.4 Micro Finance OrientedBanks (MFO)

C. Rural Banks (RB)c.1 Cooperative Banksc.2 Regular & MFOs

2. Rural Bank Statistics by Region3. Domestic Deposit Liabilities by

Size of AccountsA. Philippine Banking SystemB. Commercial BanksC. Thrift BanksD. Rural Banks

4. Regional Distribution of Domestic

DepositsA. Philippine Banking SystemB. Commercial BanksC. Thrift BanksD. Rural Banks

5. Percentage Share of DomesticDeposit Per Region

B. Figures1. Selected Financial Ratios of the

Philippine Banking System2. Growth in Domestic Deposit

Amounts in line graph for PBS, KB,TB and RB from Dec-end 1995 toJune-end 2004

3. Growth in Domestic DepositAccounts in line graph for PBS, KB,TB and RB from Dec-end 1995 toJune-end 2004

4. Deposit Movement withSelected Variables Related to itsGrowth from Dec-end 1998 toJune-end 2004A. Philippine Banking SystemB. Commercial BanksC. Thrift BanksD. Rural Banks

C. Glossary of Terms

CaveatThe material provided herewith presents data obtained from financial reports submitted periodically by banks in

compliance with existing regulations of the Philippine Deposit Insurance Corporation (PDIC). Submitted reports whichare subjected to an internal process of system validating financial disclosures, are the responsibility of banks’ Boardand management.

In cases of non-submission of a report by a bank for the current period, the bank’s most recent available report ofthe same type is used in the generation of industry statistics (please see notes on unsubmitted reports on page 34).As a result of this methodology, there may be discrepancies when comparing the same account entry against differentstatistics generated by the PDIC sourced from different types of reports. Certain discrepancies with statistics of otherregulatory agencies mainly attributed to timing differences in data generation and frequency in accessing datasources may arise as well. Other details and/or explanation provided in the material should also be noted as thesemay contain important information on how the figures were derived or whether there were any procedural refinementsapplied to the data.

For further queries and information on presented statistics, please contact the Bank Performance MonitoringDepartment at telephone numbers (632) 841-4206, 841-4208 and 841-4000 locals 4211 to 4213, by fax at (632) 812-4116and 813-3815, by e-mail at [email protected] or write to PDIC 2228 Chino Roces Ave., Makati City 1231, Philippines.Other relevant banking industry data may also be accessed on-line at www.pdic.gov.ph lodged under Bank Statistics.

Industry Scan 19

Source: Consolidated Statement of Condition and Consolidated Statement of Income & Expenses.Note: SGB refers to Specialized Gov’t Banks (Land Bank of the Philippines, Development Bank of the Philippines and Al-Amanah Islamic Investment Bank

which are considered Commercial Banks.)Zero (0) means value is less than five hundred thousand (500T)

Table 1Statistics of the Philippine Banking System (PBS)As of June 30, 2004 (Amounts in Million Pesos)

20 Industry Scan

Table 1Statistics of the Philippine Banking System (PBS)

As of June 30, 2004 (Amounts in Million Pesos)Accounts

COMMERCIAL BANKS (KB) THRIFT BANKS (TB) RURAL BANKS (RB) GRANDTOTALEKB Non -

EKBForeign SGB Total SMB PDB SLA MFO Total Coops Regular

& MFOTotal

STATEMENT OF CONDITION

Quick AssetsGross LoansInterest Earning AssetsRisk AssetsRisk Weighted AssetsNon-Performing LoansROPOANon-Performing AssetsTotal Restructured LoansCurrent Restructured LoansPast Due Restructured LoansGross Problematic AssetLoan Loss ProvisionTotal AllowanceTOTAL ASSETSTotal DepositsTotal BorrowingsTOTAL LIABILITIESCapital for Capital to Risk Asset RatioQualifying CapitalCapital for NPL, NPA & GPA to Capital RatioBOOKED CAPITAL

INCOME AND EXPENSESInterest IncomeInterest ExpenseNet Interest IncomeOther Operating IncomeOther Operating ExpenseProvisions for Loan LossesNet Operating IncomeNon-Operating IncomeNet Income Before TaxNet Income After Tax

RATIOS (In Percentage)Capital to Risk AssetsRisk-Based Capital Adequacy RatioNon-Performing Loans to CapitalNon-Performing Assets to CapitalGross Problematic Assets to CapitalNon-Performing Loans to Gross LoansNon-Performing Assets to Total Assets+Total Allow.Loan Loss Provision to Non-Performing LoansGross Loans to Total Assets+Total Allow.Quick Assets to Total AssetsReturn on EquityReturn on AssetsNet Interest MarginOperating Expense to Operating IncomeOperating Expense excl. Provisions to Operating IncomeNon-Operating Income to Net Income Before TaxQuick Assets to Total DepositsGross Loans to Total DepositsNo. of PDIC Member Banks

692,8661,139,7551,616,7101,755,9341,184,489190,646149,863343,71096,05057,30038,749

405,24897,402

108,0122,187,9351,567,242173,5451,909,908201,713

176,295314,493

278,028

57,44630,56426,88217,76530,588

4,4119,6482,306

11,9549,919

11.514.9

60.6

109.3

128.9

16.7

15.0

51.1

49.6

31.7

9.11.23.2

78.4

68.5

19.3

44.2

72.7

12

111,972119,878205,460219,653163,490

19,91024,64844,632

8,5645,1323,432

50,40911,45712,501

287,197189,510

43,320250,136

29,381

33,30042,131

37,061

9,1205,0374,0831,6054,349

632708296

1,003785

13.420.4

47.3

105.9

119.6

16.6

14.9

57.5

40.0

39.0

4.80.64.2

87.6

76.5

29.5

59.1

63.3

9

263,243299,732544,139456,207280,034

15,3592,579

18,0515,3252,6992,655

20,76514,80515,360

573,573310,530

79,224487,253

82,614

85,32898,054

86,320

16,8056,142

10,6632,4188,8641,2722,9451,5184,4633,021

18.130.5

15.6

18.4

21.2

5.1

3.1

96.9

50.9

45.9

10.31.64.2

77.5

67.8

34.0

84.8

96.5

18

182,077231,204377,829284,135214,021

32,79221,44554,30028,24715,88812,36070,78624,93827,320

440,678247,833132,145402,180

35,799

37,78163,325

38,498

14,4604,9189,5422,2567,6742,2901,834

2052,0401,990

12.617.7

51.8

85.7

111.8

14.2

11.6

76.0

49.4

41.3

9.60.95.0

84.5

65.0

10.1

73.5

93.3

3

1,250,1581,790,5692,744,1372,715,9301,842,034

258,709198,535460,693138,186

80,98957,196

547,209148,602163,193

3,489,3832,315,116

428,2333,049,477

349,507

332,704518,003

439,906

97,83146,66151,17024,04551,476

8,60515,135

4,32519,46015,715

12.918.1

49.9

88.9

105.6

14.4

12.6

57.4

49.0

35.8

9.01.23.7

79.9

68.4

22.2

54.0

77.3

42

57,555124,409164,702172,141134,171

13,74619,92233,982

1,8341,192

64235,669

5,6956,571

213,341161,074

11,930182,521

25,754

27,59932,859

30,819

8,7033,9494,7541,3925,368

68494

273367156

15.020.6

41.8

103.4

108.6

11.0

15.5

41.4

56.6

27.0

0.30.06.1

98.5

87.3

74.4

35.7

77.2

31

12,94931,69538,04048,12140,757

5,5688,354

13,9672,0491,642

40717,890

2,5602,826

60,47138,30512,93854,088

4,170

4,2057,053

6,383

2,1251,476

649367

1,2638

-255267

12-52

8.710.3

79.0

198.0

253.7

17.6

22.1

46.0

50.1

21.4

-3.0-0.43.6

125.1

124.3

2166.3

33.8

82.7

26

4,8125,4168,908

10,78710,552

9472,5873,574

1066243

3,769362401

14,9329,1841,880

11,6223,183

2,7823,600

3,310

551278273127420

13-3225-7

-21

29.526.4

26.3

99.3

104.7

17.5

23.3

38.3

35.3

32.2

-0.8-0.26.2

108.0

104.9

-336.7

52.4

59.0

30

73122167128121

20-

2000-

201717

229453587

134

135152

142

353

329

367-20-2-1

104.4111.6

13.2

13.2

13.2

16.4

8.1

86.8

49.5

31.8

0.00.0

43.8104.2

87.4

2.4

162.3

272.2

2

75,389161,642211,816231,179185,602

20,28130,86351,543

3,9892,8961,093

57,3488,6359,816

288,973208,608

26,784248,319

33,241

34,72143,664

40,654

11,4145,7055,7081,8957,087

712-195565370

81

14.418.7

46.4

118.0

131.3

12.5

17.3

42.6

54.1

26.1

-0.30.05.7

102.6

93.2

152.6

36.1

77.5

89

1,1694,4124,8015,4735,473

538248786125108

17895234238

6,0383,6161,0975,010

986

9861,253

1,027

367195172166255

1272

87979

18.018.0

42.9

62.7

71.4

12.2

12.5

43.4

70.3

19.4

13.82.37.5

78.8

75.3

9.5

32.3

122.0

44

24,46653,57466,59678,26978,269

6,7197,722

14,450684486198

14,9392,7162,943

89,78264,697

6,24175,78713,610

13,61016,581

13,995

5,1382,1143,0241,2893,476

112725250975862

17.417.4

40.5

87.1

90.1

12.5

15.6

40.4

57.8

27.3

12.21.99.8

83.2

80.6

25.7

37.8

82.8

720

25,63457,98771,39783,74283,742

7,2567,970

15,236809594215

15,8342,9503,181

95,82068,314

7,33880,79814,596

14,59617,834

15,022

5,5052,3093,1961,4563,730

124797258

1,054941

17.417.4

40.7

85.4

88.8

12.5

15.4

40.7

58.6

26.8

12.31.99.7

82.9

80.2

24.4

37.5

84.9

764

1,351,1812,010,1973,027,3503,030,8502,111,377

286,246237,369527,472142,984

84,47958,504

620,392160,187176,190

3,874,1752,592,038

462,3543,378,593

397,344

382,021579,501

495,582

114,75054,67660,07427,39662,293

9,44115,737

5,14820,88516,737

13.118.1

49.4

91.0

107.1

14.2

13.0

56.0

49.6

34.9

8.31.14.0

82.0

71.2

24.6

52.1

77.6

895

Table 2Rural Bank Statistics by Region

As of June 30, 2004 (Amounts in Million Pesos)

Source: Consolidated Statement of Condition and Consolidated Statement of Income & Expenses.Zero (0) means value is less than five hundred thousand (500T).


AccountsNCR

STATEMENT OF CONDITION

Quick AssetsGross LoansInterest Earning AssetsRisk AssetsNon-Performing LoansROPOANon-Performing AssetsTotal Restructured LoansCurrent Restructured LoansPast Due Restructured LoansGross Problematic AssetLoan Loss ProvisionTotal AllowanceTOTAL ASSETSTotal DepositsTotal BorrowingsTOTAL LIABILITIESCapital for Capital to Risk Asset RatioCapital for NPL, NPA & GPA to Capital RatioBOOKED CAPITAL

INCOME AND EXPENSESInterest IncomeInterest ExpenseNet Interest IncomeOther Operating IncomeOther Operating ExpenseProvision for Loan LossesNet Operating IncomeNon-Operating IncomeNet Income Before TaxNet Income After Tax

RATIOS (In Percentage)Capital to Risk AssetsNon-Performing Loans to CapitalNon-Performing Assets to CapitalGross Problematic Assets to CapitalNon-Performing Loans to Gross LoansNon-Performing Assets to Total Assets+Total Allow.Loan Loss Provision to Non-Performing LoansGross Loans to Total Assets+Total AllowanceQuick Assets to Total AssetsReturn on EquityReturn on AssetsNet Interest MarginOperating Expense to Operating IncomeOperating Expense excl. Provisions to Operating IncomeNon-Operating Income to Net Income Before TaxQuick Assets to Total DepositsGross Loans to Total Deposits

No. of PDIC Member Banks

1,9295,0136,2887,137

23561384813911028

958132142

8,2176,224

3147,261

917

1,060

957

536266269

82327

619395747

12.922.2

80.0

90.4

4.7

10.1

56.4

60.0

23.5

17.22.09.6

94.7

93.0

67.4

31.0

80.5

27

Regions1 2 3 4-A 4-B 5 6 7 8 9 10 11 12 CAR ARMM CARAGA

1,9184,9495,6256,752

823529

1,352483910

1,390251281

7,6345,851

4046,719

880

1,166

915

368171198118266

644135654

13.070.5

115.9

119.2

16.6

17.1

30.5

62.5

25.1

7.70.97.2

86.2

84.2

22.4

32.8

84.6

68

1,0803,0863,4484,354

527415942

534013

982175188

4,7932,871

8034,076

716

905

717

288127161111218

648176556

16.558.2

104.0

108.5

17.1

18.9

33.3

62.0

22.5

12.01.89.6

82.2

80.1

25.5

37.6

107.5

33

4,1579,801

12,11414,595

1,1671,4272,594

1207545

2,672376399

16,35011,5611,489

13,7102,580

2,991

2,640

838381457250551

13142

54196192

17.739.0

86.7

89.3

11.9

15.5

32.2

58.5

25.4

13.42.28.2

79.9

78.0

27.5

36.0

84.8

105

7,14512,04116,06120,069

1,8513,1925,051

855233

5,103636681

23,30418,118

91119,910

3,269

3,964

3,394

1,174520653278790

2811368

181160

16.346.7

127.4

128.7

15.4

21.1

34.4

50.2

30.7

12.61.78.5

87.8

84.8

37.6

39.4

66.5

146

7471,3441,6961,974

207109316

1339

3207982

2,2221,547

1291,794

425

508

428

12852763374

134

23635

21.540.8

62.3

63.0

15.4

13.7

38.3

58.4

33.6

12.32.49.4

69.0

67.9

5.8

48.3

86.9

27

6653,4803,6444,268

313257571

9894

4

665149154

4,6073,196

6094,020

573

735

587

26715611150

1443

143

1615

13.442.6

77.7

90.5

9.0

12.0

47.5

73.1

14.4

1.80.26.7

91.5

89.6

16.2

20.8

108.9

50

1,0843,0083,2893,783

460163623

362412

648218230

4,2743,134

3093,699

562

793

576

249106143

75178

437

54139

14.857.9

78.5

81.6

15.3

13.8

47.5

66.8

25.4

6.30.99.3

83.2

81.5

11.1

34.6

96.0

77

1,8222,8793,9704,634

424431855

196

13

861235259

5,5154,255

1934,703

791

1,053

811

405186220

82283

414344937

17.140.3

81.1

81.7

14.7

14.8

55.3

49.9

33.0

8.11.3

11.495.3

93.8

70.7

42.8

67.7

57

434862

1,0881,138

10820

1285048

2

1767578

1,333898126

1,092235

316

241

7837411762

1-51

-5-6

20.734.2

40.4

55.7

12.5

9.1

69.6

61.1

32.6

3.50.79.9

109.4

107.8

-12.0

48.3

96.0

27

2961,0401,1941,272

653195

101

964245

1,395733231

1,077317

362

317

95276826671117

11816

24.917.9

26.3

26.4

6.2

6.6

64.8

72.3

21.2

11.92.7

12.182.0

70.6

4.5

40.4

141.9

16

1,3633,2013,8884,107

404295700

533320

733237271

4,9312,299

8123,4051,466

1,737

1,526

34089

25089

2341096

8104

83

35.723.3

40.3

42.2

12.6

13.4

58.6

61.5

27.6

10.33.2

14.071.7

68.9

7.6

59.3

139.2

47

1,4392,5093,5783,531

119129248

513516

28493

1014,2873,242

1313,678

591

693

609

19243

14969

1492

672

6957

16.717.1

35.8

40.9

4.7

5.7

77.8

57.2

33.6

20.63.1

11.369.3

68.4

3.4

44.4

77.4

21

4121,2521,4261,682

165128293

12111

3077078

1,8771,155

2161,511

357

438

367

13332

10138

1012

367

4239

21.237.6

67.0

70.0

13.2

15.0

42.2

64.1

22.0

17.43.6

15.374.1

72.7

15.4

35.7

108.4

21

4391

119124

515---

566

13857299246

52

46

142

12570

10-

1010

37.28.9

9.8

9.8

5.0

3.5

125.5

63.5

31.2

30.010.118.240.3

39.6

0.00

75.9

160.9

4

GRANDTOTAL

5102,4222,5592,881

249121370

2618

8

388115122

3,2211,913

5622,651

550

673

570

31191

221105218

2682

68877

19.137.0

55.0

57.6

10.3

11.1

46.2

72.4

15.8

24.94.3

17.974.8

66.9

6.7

26.7

126.6

19

25,63457,98771,39783,742

7,2567,970

15,236809594215

15,8342,9503,181

95,82068,314

7,33880,79814,596

17,834

15,022

5,5052,3093,1961,4563,730

124797258

1,054941

17.440.7

85.4

88.8

12.5

15.4

40.7

58.6

26.8

12.31.99.7

82.9

80.2

24.4

37.5

84.9

764

5901,0061,4091,440

136108244

642

2486164

1,7211,258

701,400

321

386

322

8925642862

130

03029

22.335.4

63.4

64.4

13.5

13.7

44.6

56.4

34.3

14.42.89.8

68.1

67.2

0.2

46.9

80.0

19

Figure 1Selected Financial Ratios of the Philippine Banking System (in %)(as of June 30, 2004)

22 Industry Scan

Source: Consolidated Statement of Condition and Consolidated Statement of Income & Expenses.

120

88

55

23

-10

NPL toGrossLoans

LLP to NPL

NPA toTotal

Assets

TotalAllow.to NPA

QA toDeposits

Returnon

Equity

Returnon

Assets

NetInterestMargin

Oper.Efficiency

Ratio

Oper.Efficiency

w/oProv

NPL toCapital

NPA toCapital

PBS

KB

TB

RB

14.24

14.44

12.55

12.51

55.96

57.44

42.58

40.65

13.02

12.61

17.25

15.39

33.40

35.42

19.04

20.88

52.13

54.00

36.14

37.52

8.30

9.00

-0.32

12.31

1.09

1.16

-0.05

1.94

4.00

3.73

5.68

9.66

82.01

79.88

102.56

82.87

71.22

68.44

93.20

80.20

49.40

49.94

46.45

40.69

91.02

88.94

118.04

85.43

QA toTotal

Assets

34.88

35.83

26.75

26.09

Table 3Domestic Deposit Liabilities by Size of Account

As of June 30, 2004(Amounts in Million Pesos)

A. PHILIPPINE BANKING SYSTEM

DEPOSIT SIZE

P 15,000 & Below

P 15,000.01 - P 40,000

P 40,000.01 - P 60,000

P 60,000.01 - P 80,000

P 80,000.01 - P 100,000

P 100,000.01 - P 150,000

P 150,000.01 - P 200,000

P 200,000.01 - P 250,000

Over P 250,000

Total

19,214,140

2,057,808

895,268

470,906

511,396

705,637

321,280

245,853

1,261,213

25,683,501

46,349

51,473

44,574

32,327

47,485

83,411

55,208

54,559

2,162,955

2,578,382

1,151,811

221,753

80,586

51,307

35,417

61,192

36,948

29,147

152,448

1,820,609

5,316

5,578

3,961

3,550

3,174

7,432

6,367

6,577

274,124

316,079

17,712,424

1,622,714

565,607

316,846

253,762

446,197

177,305

154,368

667,372

21,916,595

39,167

39,968

27,835

21,677

23,049

51,851

30,326

33,836

936,975

1,204,685

112,723

72,406

155,022

31,209

155,138

54,194

25,447

18,523

123,390

748,052

596

1,870

7,839

2,164

15,259

6,328

4,686

4,307

196,951

239,999

237,182

140,935

94,053

71,544

67,079

144,054

81,580

43,815

318,003

1,198,245

1,270

4,057

4,939

4,936

6,002

17,801

13,829

9,879

754,905

817,620

TOTAL DEPOSITS DEMAND/NOW DEPOSITS SAVINGS DEPOSITS TIME DEPOSITS FCDs

Account Amount Account Amount Account Amount Account Amount Account Amount% to TotalAmount

% to TotalAccount

74.8%

8.0%

3.5%

1.8%

2.0%

2.7%

1.3%

1.0%

4.9%

100.0%

1.8%

2.0%

1.7%

1.3%

1.8%

3.2%

2.1%

2.1%

83.9%

100.0%

Source : Consolidated Report on Deposit Liabilities by Size of Account.Note: Domestic deposits exclude deposits in overseas branches of Philippine banks.

B. COMMERCIAL BANKS

P 15,000 & Below

P 15,000.01 - P 40,000

P 40,000.01 - P 60,000

P 60,000.01 - P 80,000

P 80,000.01 - P 100,000

P 100,000.01 - P 150,000

P 150,000.01 - P 200,000

P 200,000.01 - P 250,000

Over P 250,000

Total

DEPOSIT SIZE

12,716,808

1,606,193

718,144

380,877

370,715

541,547

269,941

213,131

1,097,560

17,914,916

34,889

40,487

35,802

26,106

34,106

64,004

46,218

47,064

1,972,851

2,301,527

861,692

188,641

69,986

45,088

32,464

54,504

33,368

26,233

141,034

1,453,010

4,161

4,759

3,440

3,120

2,910

6,622

5,747

5,895

260,801

297,455

11,594,973

1,242,509

439,098

249,721

181,418

345,905

143,014

130,936

568,732

14,896,306

29,207

30,812

21,666

17,059

16,324

40,300

24,400

28,524

820,781

1,029,073

38,929

40,644

120,199

17,961

92,545

27,999

15,084

14,001

92,291

459,653

313

1,036

6,034

1,227

9,118

3,289

2,784

3,186

161,232

188,218

221,214

134,399

88,861

68,107

64,288

113,139

78,475

41,961

295,503

1,105,947

1,207

3,881

4,663

4,700

5,753

13,793

13,287

9,459

730,037

786,781

TOTAL DEPOSITSDEMAND/

NOW DEPOSITS SAVINGS DEPOSITS TIME DEPOSITS FCDs

Account Amount Account Amount Account Amount Account Amount Account Amount% to TotalAccount

71.0%

9.0%

4.0%

2.1%

2.1%

3.0%

1.5%

1.2%

6.1%

100.0%

1.5%

1.8%

1.6%

1.1%

1.5%

2.8%

2.0%

2.0%

85.7%

100.0%

% to TotalAmount


24 Industry Scan

Table 3Domestic Deposit Liabilities by Size of Account (cont.)As of June 30, 2004(Amounts in Million Pesos)

Source : Consolidated Report on Deposit Liabilities by Size of Account.Notes: Domestic deposits exclude deposits in overseas branches of Philippine banks.

No recorded Foreign Currency Deposits (FCDs) for Rural Banks.

D. RURAL BANKS

P 15,000 & below

P 15,000.01 - P 40,000

P 40,000.01 - P 60,000

P 60,000.01 - P 80,000

P 80,000.01 - P 100,000

P 100,000.01 - P 150,000

P 150,000.01 - P 200,000

P 200,000.01 - P 250,000

Over P 250,000

Total

DEPOSIT SIZE

4,531,924

230,657

82,029

40,477

83,326

59,721

20,167

6,812

45,049

5,100,162

6,354

5,519

4,011

2,806

7,994

6,897

3,541

1,631

29,539

68,293

89,179

5,280

1,440

833

579

768

399

162

1,172

99,812

253

126

70

57

52

92

71

36

727

1,485

4,400,182

202,683

63,167

32,089

37,356

41,093

13,877

4,487

31,057

4,825,991

5,877

4,797

3,065

2,215

3,491

4,742

2,402

1,008

20,252

47,850

42,563

22,694

17,422

7,555

45,391

17,860

5,891

2,163

12,820

174,359

225

596

876

534

4,451

2,063

1,068

587

8,560

18,959

TOTAL DEPOSITS DEMAND/NOW DEPOSITS SAVINGS DEPOSITS TIME DEPOSITS

Account Amount Account Amount Account Amount Account Amount% to TotalAccount

88.9%

4.5%

1.6%

0.8%

1.6%

0.2%

0.4%

0.1%

0.9%

100.0%

% to TotalAmount

9.3%

8.1%

5.9%

4.1%

11.7%

10.1%

5.2%

2.4%

43.3%

100.0%

C. THRIFT BANKS

P 15,000 & Below

P 15,000.01 - P 40,000

P 40,000.01 - P 60,000

P 60,000.01 - P 80,000

P 80,000.01 - P 100,000

P 100,000.01 - P 150,000

P 150,000.01 - P 200,000

P 200,000.01 - P 250,000

Over P 250,000

Total

DEPOSIT SIZE

1,965,408

220,958

95,095

49,552

57,355

104,369

31,172

25,910

118,604

2,668,423

5,106

5,467

4,760

3,416

5,385

12,510

5,449

5,905

160,564

208,562

200,940

27,832

9,160

5,386

2,374

5,920

3,181

2,752

10,242

267,787

902

693

451

372

212

718

549

646

12,596

17,138

1,717,269

177,522

63,342

35,036

34,988

59,199

20,414

18,945

67,583

2,194,298

4,084

4,360

3,104

2,403

3,233

6,809

3,523

4,305

95,942

127,762

31,231

9,068

17,401

5,693

17,202

8,335

4,472

2,359

18,279

114,040

58

238

929

403

1,691

976

834

535

27,159

32,823

15,968

6,536

5,192

3,437

2,791

30,915

3,105

1,854

22,500

92,298

63

175

276

237

249

4,008

542

420

24,868

30,839


Account Amount Account Amount Account Amount Account Amount Account Amount% to TotalAccount

73.7%

8.3%

3.6%

1.9%

2.1%

3.9%

1.2%

1.0%

4.4%

100.0%

% to TotalAmount

2.4%

2.6%

2.3%

1.6%

2.6%

6.0%

2.6%

2.8%

77.0%

100.0%

Table 4Regional Distribution of Domestic Deposits



AREANo. of

BankingOffices

TOTAL NCR

City of ManilaCity of MuntinlupaKalookan CityLas Piñas CityMakati CityMalabon CityMandaluyong CityMarikina CityNavotasParañaque CityPasay CityPasig CityPaterosQuezon CitySan JuanTaguigValenzuela City

580849065

39136

1045720

13078

15310

634882255

2,597

4,816

9,575,544 1,726,733 968,143 201,743 7,528,732 695,671 380,634 159,001 698,035 670,319

1,774,831247,997323,059221,584

2,093,853116,896508,415199,280

66,433444,377371,245541,995

41,3872,139,742

241,15983,999

159,292

16,091,538 851,573 852,317 114,407

327,80933,14044,65114,548

699,46612,86264,91516,071

5,14644,03535,03178,184

2,103266,701

62,5703,595

15,908

186,53928,16632,91020,925

222,26710,80340,23217,169

5,94142,43726,32059,835

2,863216,391

35,9043,430

16,011

32,3144,4624,5891,693

76,8261,0976,4021,996

7136,0654,745

13,586258

37,4056,248

8462,495

1,401,250189,843262,409181,390

1,497,28197,117

438,990162,520

56,632364,150324,606435,241

36,2031,718,841

157,23977,862

127,158

155,60412,61626,198

8,756179,514

8,47633,547

8,2383,348

19,86618,29436,549

1,337149,407

23,9341,5988,389

47,1309,4348,3224,540

185,3882,1235,2537,445

8419,9425,311

16,209988

54,55415,874

2497,031

30,0195,7494,908

99459,394

9952,4672,677

3873,6322,1507,159

14124,98711,153

332,195

139,91220,55419,41814,729

188,9176,853

23,94012,146

3,01927,84815,00830,710

1,333149,956

32,1422,4589,092

109,87210,313

8,9563,104

383,7322,333

22,4983,160

69814,472

9,84220,889

36754,90321,234

1,1172,829


Account Amount Account Amount Account Amount Account Amount Account Amount

Source: Report on Breakdown of Deposit Liabilities by Type (BDL) submitted by member banks.Notes: Domestic deposits exclude deposits in overseas branches of Philippine banks.

Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.

TOTALPROVINCIAL

(Regions)123

4-A4-B56789

101112

CARARMM

CARAGA

TOTAL PHILIPPINES

365203799

1,145118217386483126113240236159108

1999

7,413

14,372,798 508,806 366,213 81,058 500,210 147,301

1,187,960565,336

2,266,8253,557,698

390,832765,630

1,424,7961,573,527

498,655457,808892,107867,615631,314447,922

74,147489,366

25,667,082 2,578,306 1,820,460 316,150 21,901,530 1,204,478 746,847 240,059 1,198,245 817,620

59,05824,201

131,646180,120

12,19129,34878,522

136,54821,80127,00636,29850,13823,67326,222

2,21112,589

40,60625,307

128,142184,489

15,63743,88783,233

104,09723,29124,12346,93354,28431,66120,593

4,60821,426

5,7153,570

13,43219,865

2,4304,938

10,59618,216

4,6034,2417,5497,8004,2543,760

4283,009

1,066,470521,154

1,978,4963,172,552

365,528688,337

1,257,8041,357,689

458,482414,339811,716775,095573,535403,741

68,541459,319

39,56816,84280,092

101,9917,706

18,63849,94469,01913,93017,42721,23630,14815,91616,951

1,6627,735

34,4227,757

64,32982,197

4,74217,16331,39646,220

7,1368,837

15,43216,18418,324

6,769575

4,730

4,5791,564

11,73317,884

8812,7377,071

17,6461,2962,7273,4755,0691,5851,741

581,014

46,46211,11895,858

118,4604,925

16,24352,36365,521

9,74610,50918,02622,052

7,79416,819

4233,891

9,1952,225

26,38940,380

1,1743,036

10,91131,668

1,9732,6114,0387,1201,9183,770

64831


Table 4Regional Distribution of Domestic Deposits (cont.)As of June 30, 2004(Amounts in Million Pesos)

B. COMMERCIAL BANKS

AREANo. of

BankingOffices

TOTAL NCR


2,012 8,176,462 1,589,230 819,715 189,903 6,413,255 616,596 306,580 135,908 636,912 646,823

478576937

32129863816

1076299

5490

641341

1,589,204187,996275,222168,171

1,828,616101,460475,733152,930

59,668378,094331,075423,097

20,2351,787,963

205,05259,312

132,634

306,49027,65439,12610,646

665,68911,45762,61413,116

4,81138,78732,75768,264

1,325234,171

55,2173,152

13,954

164,24821,31527,29014,445

197,6439,579

35,72313,345

4,91435,30222,28848,290

1,815176,185

31,0942,824

13,415

30,7084,0004,3581,432

72,9291,0126,1841,806

6635,5524,610

12,785199

34,5995,875

8042,386

1,253,377143,049223,725138,944

1,277,24383,981

413,193125,802

51,158313,037290,955340,662

17,2211,447,458

132,30753,983

107,160

143,2449,886

22,2186,183

160,2867,478

32,0096,7673,164

17,23816,82331,757

834130,304

19,9511,2607,193

40,2356,3926,7672,393

174,6381,9103,9753,110

6875,6554,0946,562

7733,82911,851

2244,181

26,0524,8194,335

56755,330

8282,2501,679

3102,5591,8734,499

619,757

9,23723

1,783

131,34417,24017,44012,389

179,0925,990

22,84210,673

2,90924,10013,73827,583

1,122130,491

29,8002,2817,878

106,4868,9508,2142,464

377,1432,139

22,1712,864

67313,439

9,45019,224

28649,51120,153

1,0652,592

TOTAL DEPOSITSDEMAND/

NOW DEPOSITS SAVINGS DEPOSITS TIME DEPOSITS FCDs



Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.

TOTALPROVINCIAL

(Regions)123

4-A4-B56789101112

CARARMM

CARAGA

TOTAL PHILIPPINES

2,197

14370

330443

3997

221255

7177

116136

89571438

4,209

9,740,247 712,443 633,880 107,623 8,486,231 412,540 151,101 52,322 469,035 139,958

727,749338,147

1,351,3121,944,381

159,629422,723

1,078,0621,092,941

352,410348,500483,106516,032393,773293,021

60,621177,840

48,44820,726

103,645134,512

9,82623,96171,657

120,62120,02125,50832,15644,80421,49322,632

2,08410,349

31,05220,91984,788

116,18511,69736,47573,99478,56022,09622,98637,30941,19124,76015,432

4,60811,828

5,3403,504

12,09217,619

2,3204,744

10,34517,430

4,5774,1427,2617,1764,0873,618

4282,941

638,628302,522

1,156,5751,701,523

141,902364,800936,164923,993316,379308,595420,309445,242356,253258,127

55,042160,177

32,39913,85460,54471,339

5,94714,73745,69257,54112,52216,28118,34527,19814,46014,315

1,5375,830

13,9973,667

19,59623,150

1,4005,378

17,13927,816

4,2886,4998,0368,6615,2013,781

5481,944

2,1431,1545,8968,058

4111,4975,193

14,953973

2,4902,6453,7681,0801,256

56747

44,07211,03990,353

103,5234,630

16,07050,76562,572

9,64710,42017,45220,938

7,55915,681

4233,891

8,5662,214

25,11337,495

1,1472,982

10,42730,697

1,9492,5963,9066,6621,8653,444

64831

17,916,709 2,301,673 1,453,595 297,526 14,899,486 1,029,136 457,681 188,230 1,105,947 786,781

26 Industry Scan

Table 4Regional Distribution of Domestic Deposits (cont.)



Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.No recorded Foreign Currency Deposits (FCDs) for Rural Banks.Zero (0) means value is less than five hundred thousand (500T).


C. THRIFT BANKS

AREANo. of

BankingOffices

TOTAL NCR


TOTALPROVINCIAL

(Regions)123

4-A4-B56789

101112

CARARMM

CARAGA

TOTAL PHILIPPINES

10221192167

61712

3211635

3142

231

11

520

742

368

158253

222941

10375

2926

811

-6

1,262

1,242,328 132,560 143,229 11,773 980,019 76,282 57,957 21,010 61,123 23,496

185,62749,86340,30441,751

259,76614,27929,71531,163

4,16460,09040,17082,606

5,673339,620

35,401883

21,253

1,426,095 76,002 124,558 5,366 1,214,279 51,480 56,083 11,813 31,175 7,343

77,69220,552

234,753438,428

63,55291,80057,162

232,78718,981

9,23463,86854,34316,26433,489

-13,190

2,668,423 208,562 267,787 17,138 2,194,298 127,762 114,040 32,823 92,298 30,839

21,3185,3305,4183,411

32,7181,3812,0172,432

3144,8812,2748,776

51032,457

7,293127

1,903

4,745738

15,79726,788

8582,2063,658

11,719754681

2,1282,723

6992,262

-246

22,2915,7275,6135,499

24,5631,2244,2333,1791,0247,0624,032

10,567741

40,1464,741

792,508

1,606458231255

3,89785

216185

50511135788

562,804

37315

108

147,87338,30231,40232,673

215,64111,98624,00625,129

2,87747,32133,65165,634

4,384259,400

24,301606

14,833

12,3602,6293,9112,175

18,683976

1,3601,346

1632,4511,4714,278

30019,045

3,92449

1,159

6,8952,5201,3111,2399,737

206378

1,382153

1,9591,2173,278

33720,609

4,01721

2,698

3,967880533341

3,549126113604

76885277

2,04472

5,2171,916

10399

8,5683,3141,9782,3409,825

8631,0981,473

1103,7481,2703,127

21119,465

2,342177

1,214

3,3851,363

742639

6,589194327296

241,033

3921,666

815,3911,081

52238

5,9271,916

21,65243,354

3,2796,1696,108

17,2671,025

5745,3305,5781,7944,091

-494

29227

1,0911,937

108184230702

2493

206246

97120

-11

66,94917,661

189,248359,360

59,63383,38947,057

207,81117,734

8,50457,25045,82213,87827,297

-12,686

3,235647

10,88416,997

6781,6592,1548,780

674571

1,5171,419

4331,600

-234

2,426896

18,34820,777

3452,0692,3994,760

12367

7141,829

357963

-10

59052

2,5474,970

45309789

1,26633

2274601117216

-2

2,39079

5,50514,937

295173

1,5982,949

9989

5741,114

2351,138

--

62912

1,2752,884

2753

484971

2415

132458

53326

--



Table 4Regional Distribution of Domestic Deposits (cont.)As of June 30, 2004(Amounts in Million Pesos)


Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.No recorded Foreign Currency Deposits (FCDs) for Rural Banks.Zero (0) means value is less than five hundred thousand (500T).

D. RURAL BANKS

AREANo. of

BankingOffices

TOTAL NCR


TOTALPROVINCIAL

(Regions)123

4-A4-B56789

101112

CARARMM

CARAGA

TOTAL PHILIPPINES

-627311712-

1922183

65

1,877

186125311449

5791

124125

483195746240

554

1,942

156,754 4,944 5,199 67 135,458 2,793 16,097 2,083

-10,138

7,53311,6625,4711,1572,967

15,1872,6016,193

-36,29215,47912,159

70623,804

5,405

4,925,196 63,127 93,879 1,418 4,672,288 44,786 159,029 16,923

382,519206,637680,760

1,174,889167,651251,107289,572247,799127,264100,074345,133297,240221,277121,412

13,526298,336

5,081,950 68,071 99,078 1,485 4,807,746 47,579 175,126 19,006

-155108491

1,06023

284523

21366

-1,143

2687360

31651

5,8642,738

12,20318,820

1,5073,1823,2084,2081,026

8172,0142,6101,4811,328

1271,993

-1,124

7981

61-

276645

373

-978307

6069

52788

-4070-2502-

13220

271

-8,4927,2829,7734,3971,1501,791

11,5892,5973,792

-28,94514,59811,983

63123,273

5,165

-101

69398544

23178124

21176

-513203

5759

28837

-522244908

1,0137

9002,953

12,328

-6,369

574116

64

152

-503986

5150

104393

0188

-617

6314

00

13

3,6272,472

21,70224,950

6611,2433,1318,270

170563

4,2947,5155,1071,070

-9,104

8338

250310

2102284

26

83378

7022

-57

360,893200,971632,673

1,111,699163,993240,148274,583225,885124,369

97,240334,157284,031203,404118,31713,499

286,456

3,9352,3428,664

13,6551,0812,2422,0982,698

734575

1,3751,5321,0231,037

1251,671

17,9993,194

26,38538,270

2,9979,716

11,85813,644

2,7252,2716,6825,694

12,7662,025

272,776

1,846358

3,2894,856

424930

1,0881,426

290236556700388269

2264

TOTAL DEPOSITS DEMAND/NOW DEPOSITS SAVINGS DEPOSITS TIME DEPOSITS

Account Amount Account Amount Account Amount Account Amount

28 Industry Scan

The Philippine Archipelago


Source: Report on Breakdown of Deposit Liabilities by Type (BDL) submitted by member banks.Notes: *Signifies insignificant deposit amount relative to total domestic deposit.

Table 5Percentage Share of Domestic Deposit per RegionAs of June 30, 2004

30 Industry Scan

Region BankType

No. ofOffices Amount

(In Millions)A

% toIndustry

Accounts(In Absolute Figure)

B

Average Size(In Millions)

C=A/B

% Share InRegion

KBTBRB

Sub-Total

Deposit

KBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-TotalKBTBRB

Sub-Total

NCR

I

II

III

IV-A

IV-B

V

VI

VII

VIII

IX

X

XI

XII

ARMM

TOTAL

2,01252065

2,59714336

186365708

125203330158311799443253449

1,145392257118972991

21722141

124386255103125483717

48126775

311131162995

2401362674

236898

62159571140

10814-5

19396

5499

1,589,230132,560

4,9441,726,733

48,4484,7455,864

59,05820,726

7382,738

24,201103,645

15,79712,203

131,646134,512

26,78818,820

180,1209,826

8581,507

12,19123,961

2,2063,182

29,34871,657

3,6583,208

78,522120,621

11,7194,208

136,54820,021

7541,026

21,80125,508

681817

27,00632,156

2,1282,014

36,29844,804

2,7232,610

50,13821,493

6991,481

23,67322,632

2,2621,328

26,2222,084

-127

2,21110,349

2461,993

12,5892,578,306

61.65.10.2

66.91.90.20.22.30.8

*0.10.94.00.60.55.15.21.00.76.90.4

*0.10.50.90.10.11.12.80.10.13.04.70.50.25.40.8

**

0.81.0

**

1.01.20.10.11.41.70.10.11.90.8

*0.10.90.90.10.11.10.1

-*

0.10.4

*0.10.5

100.0

8,176,4621,242,328

156,7549,575,544

727,74977,692

382,5191,187,960

338,14720,552

206,637565,336

1,351,312234,753680,760

2,266,8251,994,381

438,4281,174,8893,557,698

156,62963,552

167,651390,832422,723

91,800251,107765,630

1,078,06257,162

289,5721,424,7961,092,941

232,787247,799

1,573,527352,410

18,981127,264498,655348,500

9,234100,074457,808483,106

63,868345,133892,107516,032

54,343297,240867,615393,773

16,264221,277631,314293,021

33,489121,412447,922

60,621-

13,52674,147

177,84013,190

298,336489,366

25,667,082

0.190.110.030.180.070.060.020.050.060.040.010.040.080.070.020.060.070.060.020.05

80.67.0

12.4100.0

81.67.5

10.8100.0

91.34.74.1

100.088.3

8.63.1

100.091.8

3.54.7

100.094.5

2.53.0

100.088.6

5.95.5

100.089.4

5.45.2

100.090.8

3.06.3

100.086.3

8.65.1

100.094.3

-5.7

100.082.2

2.015.8

100.0

0.060.010.010.030.060.020.010.040.070.060.010.060.110.050.020.090.060.040.010.040.070.070.010.060.070.030.010.040.090.050.010.060.050.040.010.040.080.070.010.060.03

-0.010.030.060.020.010.030.10

92.07.70.3

100.082.0

8.010.0

100.085.6

3.111.3

100.078.712.0

9.3100.0

74.714.910.4

100.0

CAR

CARAGA

7,413

Growth in Domestic Deposits


Source : Consolidated Report on Domestic Deposit Liabilities by Size of Account.

PBS

TB

K B

R B

Dec-1995 Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Dec-2003

2.024.01-2.721.77

1.546.33

-12.603.28

10.4715.54-0.685.34

3.817.49

-12.205.89

1.034.11

-9.02-2.09

1.673.65

-10.052.65

8.1210.77-0.233.28

2.303.08

-3.952.88

-3.16-4.920.112.21

PBSKBTBRB

16.00

10.00

4.00

-2.00

-8.00

-14.00

Figure 3Growth in Accounts (in %)

Jun-2003

-1.00-1.55-1.681.49

-1.28-2.50-0.672.94

Jun-2004

Notes : From June 2003 onwards, growth rates are computed on a semestral basis.

Figure 2Growth in Amounts (in %)

PBSK B

R B

TB

Dec-1995 Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Jun-200326.7925.2242.5133.56

26.8326.2032.6228.28

28.9931.0312.0220.47

4.865.64

-2.801.64

9.2510.33

0.11-4.27

9.229.286.41

16.48

5.664.84

14.3613.81

6.926.637.67

16.32

1.691.265.287.26

PBSKBTBRB

45.00

35.00

25.00

15.00

5.00

-5.00Jun-2004

5.004.785.899.77

Dec-2003

3.212.718.295.98

Figure 4 Deposit Movement with Selected Variables Related to its Growth

32 Industry Scan


Total DepositsPeso Denominated Dep.FCDU Peso Equiv.US$ Value of FCDUBSP Guiding Fx Ref. RateDerived Int. Rate (%)# of Bkg. OfficesTot. Dep. to Bkg. Offc.

Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Jun-2003

1,735.671,145.79589.8815.0739.158.08

7,5150.23

1,896.131,289.96606.1715.0440.306.00

7,5920.25

2,070.941,384.14686.8013.7449.995.877,4020.28

2,188.151,514.97673.1813.0251.695.927,4020.30

2,339.541,654.59684.9512.8653.253.607,2930.32

2,455.631,709.61746.0213.4255.593.397,3510.33

Dom

estic

Dep

osits

(in

Billi

on P

esos

)

2,600

1,300

650

66% 68% 67% 69% 71% 70%

34% 32% 33% 31% 29% 30%

70%

30%

Dec-2003

2,379.161,670.64708.5313.2453.523.30

7,3380.32

68%

32%

Jun-2004

2,578.381,760.76817.6414.5556.183.377,4130.35

1,950

B. COMMERCIAL BANKS

Source : Consolidated Report on Domestic Deposit Liabilities by Size of Account and Report on Breakdown of Deposit Liabilities by Type (BDL) for number(#) of banking offices.

Notes: Domestic deposits exclude deposits in overseas branches of Philippine banks.Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.


1,566.88985.15581.7414.8639.157.69

4,0860.38

1,728.781,130.48598.3014.8540.305.72

4,1840.41

1,889.281,215.29674.0013.4849.995.70

4,1200.46

1,980.641,323.82656.8312.7151.695.75

4,1750.47

2,112.041,446.94665.1012.4953.253.42

4,1280.51

Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002

2,400

1,800

1,200

600

Dom

estic

Dep

osits

(in

Billi

on P

esos

)

63% 65% 64% 67% 69% 67%

37% 35% 36% 33% 31% 33%

66%

34%

2,196.461,474.25722.2012.9955.593.22

4,1720.53

Dec-2003

2,301.531,514.75786.7814.0156.183.18

4,2090.55

Jun-2004

68%

32%

2,138.571,453.77684.8012.7953.523.154,1720.51

Jun-2003

Figure 4Deposit Movement with Selected Variables Related to its Growth (cont.)


C. THRIFT BANKS


Dom

estic

Dep

osits

(in

Billi

on P

esos

)

220

165

110

55

172.77152.9219.850.37

53.254.80

1,2700.14

Dec-2002

89%

11%

181.89158.1723.730.44

53.524.08

1,2640.14

Jun-2003

87%

13%

131.71123.56

8.140.2139.1511.961,4850.09

Dec-1998

94%

6%

131.86123.99

7.870.20

40.308.48

1,5040.09

Dec-1999

94%

6%

90%

10%

160.46144.1116.350.32

51.697.57

1,3320.12

Dec-2001

196.96173.1423.820.43

55.594.57

1,2810.15

Dec-2003

88%

12%

91%

9%

140.31127.5112.800.26

49.997.27

1,3780.10

Dec-2000

208.56177.7230.840.55

56.184.73

1,2620.17

Jun-2004

85%

15%

D. RURAL BANKS

Source : Consolidated Report on Domestic Deposit Liabilities by Size of Account and Report on Breakdown of Deposit Liabilities by Type (BDL) for number(#) of banking offices.

Notes: No recorded Foreign Currency Deposits (FCDs) for Rural Banks.Domestic deposits exclude deposits in overseas branches of Philippine banks.Banking offices refer to Head Offices, Branches, Money Shops, Extension Offices and Saving Agencies of banks as reported.

Peso Denom. Dep.Derived Int. Rate (%)# of Bkg. OfficesTot. Dep. to Bkg. Offc.

37.0810.381,9440.02

Dec-1998 Dec-1999

70

57

43

30Dom

estic

Dep

osits

(in

Billi

on P

esos

)

35.499.54

1,9040.02

41.348.62

1,9040.02

Dec-2000

47.058.19

1,8950.02

Dec-2001

54.737.01

1,8950.03

Dec-2002

58.706.361,9020.03

Jun-2003

62.216.05

1,8980.03

Dec-2003

68.295.87

1,9420.04

Jun-2004

IIIIIndustryndustryndustryndustryndustry SSSSScancancancancan

Glossary of TermsSelected Accounts

1. Quick Assets (QA). Highly liquidassets composed of Cash on Hand,Checks & Other Cash Items, Due fromBSP, Due from Banks, Due fromPhilippine Clearing HouseCorporation (PCHC), TradingAccount Securities (TAS, Equity &Investments), Available for SaleSecurities (ASS) and Investment inBonds and Other Debt Instrument(IBODI). For Rural Banks (RBs), QuickAssets is composed of Cash on Hand,Checks & Other Cash Items, Due fromBSP, Due from Banks and IBODI.

2. Interest Earning Assets. Assets whichgenerate interest income, such asDue from BSP, Due from PCHC, Duefrom Banks, TAS, ASS, IBODI and

Current Loans. For RBs, InterestEarning Assets consist of Due fromBSP, Due from Banks, IBODI andCurrent Loans.

3. Non-Performing Loans (NPL) asreported by banks per BSP CircularNo. 202, 248 and 351.

4. Non- Performing Assets (NPA).NPL, ROPOA (Real PropertiesOwned or Acquired) and Non-Performing Sales ContractReceivables.

5. Gross Problematic Assets (GPA).NPL, ROPOA (Gross) and CurrentRestructured Loans.

6. Loan Loss Provision (LLP). Thesum of Specific and General LoanLoss Provision.

7. Total Allowance. LLP, Allowancefor Probable Losses on ROPOA andon Sales Contract Receivable.

Selected Ratios

8. Risk Assets Ratio (RAR). Capitaldivided by Risk Assets. Capital isBooked Capital net of AppraisalIncrement Reserves, Net UnrealizedGain on Securities Available for Sale(SAS), Deferred Income Tax,Goodwill and Unsecured DOSRI. RiskAssets is Total Assets net of Non-RiskAssets, Goodwill, Unsecured DOSRIand Accumulated Market Gain onprivate issuances (i.e., UnderwritingDebt & Equity Securities Purchased,ASS excluding Accumulated MarketGain on ASS-Government).

(Non-Risk Assets. Cash on Hand, Duefrom BSP, Due from PCHC, TASInvestments, ASS-Government,IBODI-Government, Bank Premisesand Deferred Income Tax).

9. Risk Based Capital Adequacy Ratio(RBCAR). Qualifying Capital dividedby Risk Weighted Assets reported bybanks and as defined under BSP

Circular No. 280. Due to unavailabilityof data for RBs, Capital to Risk Assetswas used to represent RBCAR.

10. NPL to Capital. NPL is defined undernote #3. Capital is inclusive of TotalAllowance as defined under note #7net of Appraisal Increment Reserves,Net Unrealized Gain on SAS,Deferred Income Tax, and Goodwill.

11. NPA to Capital. NPA is defined under#4. Capital is defined under note#10.

12. GPA to Capital. GPA is definedunder #5. Capital is defined undernote #10.

13. Return on Equity (ROE). Net IncomeAfter Tax (NIAT) divided by AverageEquity. For Non-Year-end period,Income & Expense Accounts areAnnualized in relation to BalanceSheet Accounts. Average BalanceSheet Accounts is the sum of Year-on-Year data (ie. June-end 2004 plusJune-end 2003) divided by 2.

14. Return on Asset (ROA). NIAT dividedby Average Total Assets.

15. Net Interest Margin (NIM). NetInterest Income divided by AverageInterest Earning Assets as definedunder note #2.

16. Operating Efficiency. Computed bydividing the sum of Other OperatingExpenses and Provision Expense bythe sum of Net Interest Income andOther Operating Income.

17. Non-Operating Income (Non-OI) toNet Income Before Tax (NIBT).Measures level of reliance to non-recurring, extra-ordinary income ingenerating revenues. These non-operating income are generallyrealized from the disposal/sale ofROPOA.

18. Derived Interest Rate. Computed bydividing Interest Expense on Depositby Average Deposit.

34 Industry Scan

No. of Unsubmitted ReportsAs of June 30, 2004

Bank TypeType of Report

C - 16 BDL

CommercialBanksSub - Total

-

-

-

-

Thrift Banks

Sub - Total

-

-

1

1

Rural Banks

NCRRegion 1Region 2Region 3Region 4ARegion 4BRegion 5Region 6Region 7Region 8Region 9Region 10Region 11Region 12CARARMMCARAGA

Sub - total

Grand total

---1432511-1--22-

22

--1543-41---121--

22

22 23

SOC

-

-

1

1

---2-123-1-1--31-

14

15

SIE

-

-

1

1

-1-22124-1-1--21-

17

18

RBCAR

-

-

2

2

-3-

109351156161-222

66

68

DIDIDIDIDI WWWWWorldorldorldorldorld

Welcoming a Deposit Insurance System inIndonesia

Preface

On September 22, 2004, the Government of Indonesia, after the

approval of the Parliament, enacted the law creating the Deposit Insurance

Corporation. The Law stipulates that Indonesia Deposit Insurance Corporation (IDIC) will be

established and fully operational in a year’s time after the Law is enacted.

Depositors knowing that they will notsuffer losses if a bank fails do not

impose market discipline on banks bywithdrawing deposits when they

suspect that the bank assumes toomuch risks.

Moving toward a normal limiteddeposit insurance system from ablanket guarantee will be a majorchange in the Indonesian bankingindustry, that benefited for a longtime from such guarantee scheme.In this paper, we wil l share ourexperiences relative to blanketguarantee and toward preparing forthe establishment of a formaldeposit insurance system.

Blanket Guarantee

Since February 1998, theGovernment of Indonesia hasprovided a blanket guaranteescheme to all bank depositors andcreditors. The scheme was designedas an instrument for promotingfinancial stability in the wake ofuncertainty generated by theeconomic and monetary crisis (AsianFinancial Crisis of 1997-98). Byproviding protection to depositorsand creditors, the Governmentaddressed the reluctance ofdepositors to place their funds in thedomestic banking system, whichhelped prevent bank runs andminimize disturbances to financialstability.

While the blanket guaranteeserved well in calming depositors’fears and avoiding systemic liquidityproblems, the Government

recognized two major drawbacksout of providing such protection.First, it created serious moral hazard.Depositors knowing that they will notsuffer losses if a bank fails do notimpose market discipline on banks bywithdrawing deposits when theysuspect that the bank assumes toomuch risks. Bankers under a blanketguarantee enjoy an incentive totake on greater risks due to thegovernment’s guarantee of alldepositors and creditors. Second,the premium assessment levied onbanks did not cover the risk posedby banks to the Government/taxpayers. The cost of a blanketguarantee is ultimately borne bytaxpayers and eventually representsan increased burden on Governmentexpense.

Realizing the risks, theGovernment decided to phase outthe blanket guarantee. The transition

from a blanket guarantee to a limitedcoverage system has become moredifficult the longer the blanketguarantee remains in place. Toensure public confidence in thebanking sector, the phase outprocess wil l be gradual andaccompanied by the establishmentof the Deposit InsuranceCorporation. In addition, thereduction of the blanket guaranteewill be accompanied by a transitionplan that will clearly identify keyissues to provide for an orderlytransition. A public awarenesscampaign will be conducted toeducate and gain support fromdepositors and the public on alimited coverage.

On October 18, 2004, theGovernment issued a presidentialdecree calling for an orderly phaseout of the guarantee of bankliabilities. The first stage is to cancel



the guarantee of all bank liabilities,except for deposits and interbankplacements effective 6 months afterthe decree is issued. The next phasetakes place as IDIC beginsoperations. By that time, the blanketguarantee will be terminated andthe IDIC wil l take over theresponsibil ity of protectingdepositors. Interbank placementswill no longer be guaranteed and onlydeposits will be covered. Over thenext one and a half years, the levelof coverage will be reduced everysix months from full coverage of Rp5billion, to Rp1 billion, then to thetarget limited coverage level ofRp100 million.

Public Policy Objectives

In setting up the IDIC, we havebenefited from other countryexperiences as well as guidanceaccorded by InternationalAssociation of Deposit Insurers (IADI),and from these we have identifiedthe public policy objectives ofIndonesia deposit insurance system.

Preventing bank runsIn response to real or perceived

difficulties of a bank, depositors mayquickly begin to withdraw theirmoney from the bank. Once a bankrun begins, it may lead to more bankruns regardless of individual banks’condition, as depositors may find itdifficult to differentiate betweensound and unsound banks. Theexistence of a formal depositinsurance should prevent bank runssince depositors feel protected fromloss in the event of a bank failure.

Protecting small depositorsThe opaqueness of information

on banks makes it difficult - if notimpossible - for small depositors toobtain and analyze the financialcondition of a bank. As a result, smalldepositors are at a disadvantage.Limited deposit coverage wil lprotect the interest of smalldepositors while providingincentives for large depositors to

36 Welcoming a Deposit Insurance System in Indonesia

create market discipline, which inturn helps restrict overly riskybehavior of banks.

Creating formal mechanism forresolving failed banks

Experience suggests that thefailure of a bank must be promptlyhandled due to the tendency oftroubled banks to deterioraterapidly, while minimizing the adverseeffects to the overall f inancialsystem. In the past, formalmechanism for resolving failed banksin Indonesia was ruled by agovernment regulation resulting in aless powerful and more difficultmechanism to enforce. Now the IDICLaw has put in place formal and clearmechanisms that deal with resolutionof failed banks.

Actively participate in promotingfinancial stability

A deposit insurance system on itsown cannot ensure financial systemstabil ity, especially in cases ofsystemic crisis. The IDIC is a part of acoordinated financial safety net thatincludes supervisory and regulatorysystem, payment system, lender oflast resort facilities, and fiscal policyarrangements. A CoordinatingCommittee will be established tofacil itate the decision-makingprocess among financial safety netplayers. The Government has beendrafting the legislation on financialsafety net and the legislation onsingle financial services authority tobe deliberated with the Parliament.

Mandates and Powers

Considering the broad publicpolicy objectives, the IDIC was giventhe mandate and powers as a riskminimizer rather than as a pay boxsystem.

The IDIC has the followingauthorities:

• control entry and exit from thedeposit insurance system,• require bank examinations frombanking supervisor,• access examination data from

banking supervisor,• access timely information frominsured banks,• assess and evaluate individualbank and systemic risk to thedeposit insurance fund,• provide capital injection torescue fail ing banks and toadminister these banks,• undertake resolution activities,and• recover its funds throughsupervision of the l iquidationproceedings.

IDIC’s mandates and powers aredesigned to meet the public policyobjectives while the law clearlydefines IDIC’s role to ensure thatthere are no overlaps with otherfinancial safety net players. The Lawalso states that cooperationmechanisms should be establishedfor information sharing andcoordination. As a risk minimizer, theIDIC will control and minimize itsexposure reducing the overall costto the deposit insurance fund.

Basic Features

MembershipThe IDIC membership is

mandatory to every commercialand rural bank operating within theterritory of the Republic of Indonesiaincluding foreign bank branches andsubsidiaries. As of October 2004,there are 135 commercial banks andapproximately 2,150 rural banks. Thedecision to extend regulation toforeign bank branches andsubsidiaries is based on the idea thatforeign banks benefit from a stablefinancial system. Through foreignbank participation, a level playingfield exists, minimizing competitiveadvantages or disadvantages bycomparable treatment to all banks.Due to lack of supervision andregulation, the membership wouldnot cover certain vil lage creditagent namely BKD.

Level of CoverageThe level of deposit coverage



varies considerably from country tocountry based on their public policyobjectives. One suggestion is thatthe rule of thumb for the level ofdeposit coverage is 2 – 3 times percapita GDP. However, Indonesia didnot follow this rule since our GDP felldue to the last crisis and currencydepreciation. In addition, bankdeposits in Indonesia are thedominant instruments for financialsaving and distributed skewed witha small percentage of depositorsowning a large percentage of thedeposits. The IDIC Law sets depositinsurance coverage at Rp100million. The protection would coveraround 98 percent of depositoraccounts and 48 percent of totaldeposits.

Insurance ReservesIn order to effectively function

as a participant in the financialsafety net, the IDIC will maintain andaccumulate adequate insurancereserves. In targeting the insurancereserves, we considered variablessuch as number or percentage ofannual failures, level of depositinsurance coverage and recoveryrates. Although there is no precisemethod to estimate what theinsurance reserves should be, theIDIC has set a target level of 2.5percent of total deposits of thebanking industry. The IDIC may onlyinvest its reserves in governmentsecurities.

FundingThe IDIC initial capital will be

funded by a contribution from theGovernment with a minimumcontribution of Rp4 trillion (aroundUS$444 million) up to a maximumcontribution of Rp8 trillion (aroundUS$889 mil l ion). The IDIC isresponsible for the management andadministration of the fund and allother assets.

Upon establishment, the IDICwould charge initial contribution(admission fee) on entry equivalentto 0.1 percent of each bank’s equity.The insured bank must remit to theIDIC semi-annually at a flat rate

premium payment of 0.1 percent oftheir deposits. The IDIC has an optionto employ a risk-based premiumonce all circumstances regulated inthe Law are met.

In the event of a large bankfailure or multiple failures, the IDICFund may need additionalcontribution. Should IDIC encountera liquidity problem, it can borrowfunds from the Government. Whenthe IDIC’s capital drops below itsinitial capital as a result of bankfailures, the Government mustrestore the IDIC capital.

Governance

The IDIC is an independentgovernment entity. Although it isaccountable to the President, theIDIC is not part of governmentdepartment. The Board ofCommissioner is the highest decision-making body of the IDIC. The Boardcomprises six individual members:the Deputy of Ministry of Finance, theDeputy Governor of BankingSupervisor, and the DeputyGovernor of Central Bank are exofficio members while the threeremaining members are nominatedby the Ministry of Finance from publicor private sectors. The Presidentappoints Board members for a termof 5 years and one of the non-exofficio members shall be designatedas Chairman of the Board. Anothernon ex officio member shall beappointed as Chief ExecutiveOfficer to carry out the operationalactivities of the IDIC.

The law also establishes theindependence of the IDIC and thePresident cannot terminate a Boardmember for reasons other than theones clearly stated in the Law. Inmaking decisions on governance ofits tasks and duties, the IDIC cannotbe influenced by other parties.However, independence demandstransparency and accountability toall its stakeholders. The governancestructure reflects a desire to avoidthe possible moral hazard effects ofa purely government entity and the

potential conflict of interest in aprivate sector-led deposit insurancesystem. The combination ofindependent status andgovernment board membership is anattempt to balance theindependence of deposit insuranceand its ultimate accountability togovernment.

Conclusion

In 1998, the Governmentprovided a blanket guarantee as anemergency policy to prevent bankruns and to restore publicconfidence. Realizing the enormouspotential taxpayer burden andmoral hazard of such guarantee, theGovernment decided to phase outthe blanket guarantee and to phasein a limited deposit insurance system.The establishment of the IDIC isexpected to help promote a soundand stable banking system and fosterpublic confidence in the bankingsystem. Companion measuresinclude significantly strengthenedregulatory and supervisoryframework of the banking industry byway of preparing for a singlefinancial services supervisor modeland designing financial safety netarrangements.

In the future, the more complexfinancial services industry would be,the greater the risks to the depositinsurance. The IDIC should play asuitable role in mitigating the risk andcontribute to the financial stabilityof the system. In achieving its goal,the IDIC is fully committed tocooperate and collaborate withdeposit insurance colleaguesworldwide to share commonexperiences and challenges.

* Written by Salusra Satria, Ph.D. andHari Prasetya, Head and member,respectively, of the working teamresponsible for the establishment ofIDIC. Mr. Satria is an official of theDirectorate General of FinancialInstitutions, Ministry of Finance(MOF). Mr. Prasetya is also with theMOF.

PPPPPerspectiveserspectiveserspectiveserspectiveserspectives

38 How do you choose your bank?

How do you choose your bank?I choose a bank based on its strength para hindi nakakatakot na ilagay ko ang perang pinaghirapan ko. By

being a strong bank, I mean that it has many branches. I also base my decision on what I read about the bank. It isalso important for me that I know the branch manager or the bank staff whom I can call anytime. - Mrs. Sonia Agne,retired COA staff

Convenience, para mas madali akong makapag-transact, mas mataas na interes, matatag na bangko tuladng Land Bank. Bagamat mahirap mag-withdraw o magpapalit ng tseke dahil maraming ID ang hinihingi, nakakatiyaknaman kami na ligtas ang aming pera. - Mr. Cesar Caponpon, entrepreneur/former OFW

Size

I prefer to put my hard-earned money into big banks because of stability and security. These are the banks thatalso offer more value-added services compared to smaller banks. - Ysmael Coronel, Government Employee

The bank should be stable and competitive. Dapat maraming branches, matagal nang nag-o-operate samarket at maraming depositors. - Joey N. Copertino, 38, Seaman

Popularity

Advertisements work for me. Since I don’t have the expertise to really examine their financial statements, Iget to know the bank and what they can do for me through TV, radio, and print advertisements.

- Gudofredo Fernandez, Insurance Underwriter

As a reporter, I choose a bank based on its reputation in the industry, and how media and business peopleperceive it. Since media gets hold of regular bank reports, interview bank officers, and know vital bank statisticsmore extensively than ordinary depositors, such as non-performing assets and level of capitalization, they knowwhich banks are financially sound. If you don’t have time to pore over financial statements, i suggest you ask yourmedia friends who cover business and banking and people who are in business which banks they trust, and mostlikely, they’ll give you a fair and truthful assessment. In the end, it all boils down to reputation, NPAs, and therecommendation of a good and satisfied customer. - Paolo Lising, reporter, BusinessWorld Online

Proximity

Any bank will do for me, but the bank nearest my home is the best. I own a small store adjacent to my house; Anyincome derived from the day’s sale goes straight to my neighbor bank, giving me security and convenience

- Luzviminda Emphante, Proprietor

I choose my bank using the following criteria: (a) accessibility - it needs to be near to where I live or work, andbelongs to a network like Bancnet or Megalink, so you can easily do an ATM transaction. Hirap kasi ng bankong sakanila ka lang pwedeng mag-withdraw. (b) credibility - tested in terms of its track record and history. Ten to 15 yearsof being in the business is good enough for me though it’s not a guarantee for stability. There are banks kasi namatatakot ka na baka biglang magsara. (c) profitability - I don’t know how banks are classified according toprofits. I would like to know interest rates on deposits. - Romy Osteniane, 33, Sales Executive

I open bank accounts where my company deposits our salary. If, however, I have the money to save in a bank, I’dchoose a non-commercial, non-universal bank because they offer higher interest rates. I’d just make sure that thebank has good financial backing just so the risk of a bank run is low. - Nonoy Albelar, Business Analyst Philamlife ITGroup

I choose banks which are credible, well-known, and with numerous branches around the country for easiertransactions. Most of all, it must be a member of PDIC to guarantee return of my money in case of bank closure orbank run. - Jhoanna Ongtengco, Information Officer, Taxpayers Assistance Service, Bureau of Internal Revenue

PDIC FORUM is published twice a yearby the Philippine Deposit Insurance

Corporation (PDIC).

Articles and other sectionsof this publication may be reproduced

in whole or in part, provided sourceis properly acknowledged and cited.

The views expressed in the articlesare those of the authors and do not

reflect those of the Philippine DepositInsurance Corporation.

For information on subscription, we referyou to http://www.pdic.gov.ph.

For further information, commentsor feedback, contact

PDIC Forum Editorial Staffthru mail at the G/F PDIC Building,

2228 Chino Roces Avenue,Makati City, 1231 Philippines,

at telephone numbers(632) 841-4047 to 49;

fax (632) 841-4051or at e-mail [email protected].

PDIC Forum December 2004

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Transcript of PDIC Forum December 2004