Nov. 5--PHILIPPINE Deposit Insurance Corp. (PDIC) wants to forego rehabilitation as an option for banks during their receivership, as the state insurer prefers such a tack included during the prompt and corrective action (PCA) phase when their deficiencies can be corrected. In a statement, Jose Nograles, PDIC president, said rehabilitation is no longer a viable option during the receivership period because of the negative financial condition of the bank.

"Rehabilitation after bank closure is no longer viable and the only option for PDIC is to liquidate the closed bank," he said.

Under the present system, PDIC accepts rehabilitation proposals during the receivership period and determines if a closed bank may still be resuscitated.

PDIC data showed that about 81 banks were ordered closed by the Monetary Board from 2005 to September 2009. Of the total, about 27 applied for rehabilitation but none were found to be viable as a going concern.

"These historical data show that once closed, a bank's chances for rehabilitation are almost nil. Hence, it would be better if rehabilitation is done during the PCA period when a bank's capital has not been eroded to the point that it is closed by the [Monetary Board]," Nograles said.

PDIC is managing 511 closed banks under receivership and liquidation at end-September this year and only four have been rehabilitated. The last bank rehabilitation was in 2004.

The PDIC is pushing to include the outright liquidation of banks ordered closed by the Monetary Board in the proposed charter amendments of the Bangko Sentral ng Pilipinas (BSP).

The BSP strengthened its PCA regulation by requiring a Monetary Board approval on the quality of a bank's rehabilitation plan, which will be committed under a memorandum of understanding.

The PCA, under the General Banking Law, seeks to restore a bank, which is found in the early stages of non-compliance with standard conditions/ratings, to normal operations within a reasonable period of time.

This will avoid the imposition of harsher measures usually instituted when the entity is in advanced stages of deterioration.

PDIC said the cited proposals come from the incumbent owners and stockholders of the closed banks. In case of third party investors, the concurrence of these stockholders is required. But these stockholders had earlier failed to comply with the remedial measures under the PCA agreement and failed to keep their banks afloat prior to closure by the Monetary Board.

Besides scrapping rehabilitation during receivership, PDIC endorsed the inclusion of bank dormancy as an additional ground for receivership including the bank's inability to service deposit withdrawals. The state insurer also wants to have information sharing with the BSP on transfers or acquisition of shares of banks that affect majority ownership and/or control.

PDIC also wants to enjoy the same authority as BSP to examine deposit accounts, as well as organize and operate bridge banks.

Other provisions of the bill revising the BSP charter that the PDIC is endorsing pertain to the proceeds from disposition of bank franchise for the benefit of creditors, and the retention of loan collateral in the list of assets of the closed bank.

-----

To see more of The Manila Times, or to subscribe to the newspaper, go to http://www.manilatimes.net.

Copyright (c) 2009, The Manila Times, Philippines

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

A service of YellowBrix, Inc.