THE PHILIPPINE DEPOSIT Insurance Corp. said banks closed by the central bank should no longer be allowed to undergo rehabilitation, but should instead be immediately liquidated.
PDIC said this reform should be part of the pending bill to amend the charter of the Bangk Sentral ng Pilipinas.
“When a bank is ordered closed, rehabilitation is no longer a viable option due to the negative financial condition of the bank,” PDIC President Jose Nograles said in a statement.
Undercapitalized banks are placed under the prompt and corrective action (PCA) program of the BSP. Under this program, the central bank monitors a troubled bank more tightly and proposes measures that will help it recover.
According to Nograles, rehabilitation of a bank should already form part of the PCA program. If the central bank sees no progress in a bank under PCA and decides to close it down, Nograles said, that bank should no longer be rehabilitated. Its assets should be sold at once, he added.
“Unlike ordinary corporations that do not have a PCA phase, banks are regulated, examined and undergo PCA when the ... regulator [finds] certain weaknesses requiring immediate action by bank owners and officials,” Nograles said.
Therefore, he added, banks need not be rehabilitated after closure because they already had the opportunity to be rehabilitated when they were still under the PCA program of the central bank.
Under the present system, banks closed by the BSP and placed under PDIC’s receivership are allowed to be rehabilitated. Proposals for rehabilitation are submitted to the PDIC by incumbent owners.
“Ironically, 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 [of the central bank],” Nograles said.
For PDIC, allowing closed banks to undergo process of rehabilitation is a waste of time. Time spent for it should instead be used for liquidation, from which the deposit insurer may already generate revenues to cover for its expenses for deposit insurance.
Data showed that from 2005 to September 2009, 81 banks were ordered closed by the central bank, 27 of which applied for rehabilitation but none were found to be viable for rehabilitation.
