PDIC eyes new assessment system for banks to deter risky lending behavior

THE PHILIPPINE Deposit Insurance Corp. (PDIC) wants to introduce a risk-based assessment system to prevent banks from taking on too much leverage following the increase in the maximum deposit insurance coverage (MDIC).

“Presently, we only have one premium assessment, the flat rate assessment system, that applies to all banks, which is one-fifth of 1% of the total deposit liabilities of each bank. With the introduction of the risk-based assessment system, we’ll have to take into account the levels of risk that the banks are undertaking in determining what should be the appropriate assessment rate that will be levied on the banks,” PDIC President and Chief Executive Officer Roberto B. Tan said at a briefing on Friday.

“Basically, the idea is to discourage the banks from engaging into excessive risk-taking practices.”

The PDIC is conducting a study on the feasibility of a risk-based assessment system along with the Bangko Sentral ng Pilipinas and the World Bank, which will be presented to Congress, he said.

The study began in 2022 and is due in 2027, but he said it could be finished within this year.

“The intention is to incentivize prudent practices. So, the riskier banks based on the assessment and based on certain criteria, that may translate to higher fees for the banks if ever they engage in those. It provides discipline for banks to improve their standing, their operation, their management, their capital, and their governance,” Mr. Tan said.

The maximum deposit insurance coverage has been increased to P1 million per depositor per bank effective March 15 from P500,000 previously.

Under the PDIC Charter, the regular assessment rate for banks is at one-fifth of 1% per annum of their total deposit liabilities. Assessments should amount to at least P5,000.

The assessments are collected from member-banks semi-annually and form part of the Deposit Insurance Fund.

The assessment rate is reviewed periodically for potential adjustments, Mr. Tan said.

“But there is no adjustment that we are going to make [right now], even with the increase of MDIC, because of the adequacy of the Deposit Insurance Fund,” he said.

The Deposit Insurance Fund stood at P236.95 billion as of end-2024. Mr. Tan said this is expected to grow by 5% this year, driven mainly by banks’ assessments and the PDIC’s investments in government securities.

The agency will also auction off 350 properties this year to generate revenues, the official said.

Analysts said that the MDIC increase, while positive for depositors, could result in riskier lending behavior among banks.

“The increase means that a larger portion of depositors’ funds is now insured, reducing the risk of financial losses in the event of bank failures. This move reassures depositors, potentially encouraging higher savings and financial inclusion. It could also reduce the risk of bank runs, as depositors feel more secure about the safety of their funds,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said in a Viber message.

“While increasing deposit insurance enhances financial security, it also raises PDIC’s liability in case of bank failures. This means that PDIC must ensure its fund reserves remain adequate to cover potential claims. There’s also the moral hazard risk wherein banks and depositors may take riskier financial positions under the assumption that their funds are insured,” Mr. Rivera said.

IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said the increased deposit insurance could increase confidence in the Philippine financial system and encourage Filipinos to save.

“There’s a possibility that this might incentivize banks to engage in riskier behavior because of more deposits being fully insured, but this moral hazard is unlikely because the country’s financial system remains quite underdeveloped and banks quite conservative,” Mr. Africa said.

“Even with the increase, the country still has among the lowest coverage in Southeast Asia. This is less of a problem than it might seem though, because less than seven million households have the capacity to save and over 20 million have nothing to save — and the latest increase means some 99% of this seven million are already covered.”

Still, Bankers Association of the Philippines President and Bank of the Philippine Islands Chief Executive Officer Jose Teodoro K. Limcaoco said the P1-million coverage is “appropriate for now” and will benefit retail investors.

“Only a small percentage of accounts have balances higher than this (P1 million),” Mr. Limcaoco said.

The PDIC expects to fully insure 98.6% of deposit accounts this year or 147.012 million accounts, Mr. Tan said on Friday. This would translate to deposits worth P5.296 trillion or 24.1% of the total.

This is higher than the 139.98 million accounts covered last year or 97.6% of the total, which was equivalent to P3.73 trillion or 18.4% of total deposits. — A.M.C. Sy