Soft-spoken PDIC prex to get tough on shenanigans

Valentin A. Araneta, appointed president of the Philippine Deposit Insurance Corp. (PDIC) in June last year, could have simply continued enjoying a more financially rewarding and less difficult life in the private sector as a banker.

However, when the opportunity to work in government under the current administration beckoned him, he had no second thoughts about obliging.

“I had no hesitation. I knew I wanted to serve the public under the P-Noy administration,” Araneta tells SundayBiz. He says the good-governance platform of President Benigno “Noynoy” Aquino III was something inspiring enough, that he got the urge to leave his comfort zone and take on all the challenges entailed in public service.

Unlike many public figures, the soft-spoken Araneta is aloof from the press. Already nine months on the job, he has yet to call his first press conference (SundayBiz was just granted this interview after constant prodding of PDIC’s public-relations staff).

Members of the media who are constantly on the lookout for news may have different interpretations of his shying away, but Araneta says this was just because he believes in running an organization in a decentralized manner.

And so about any news involving PDIC, he says in his low-volume voice, the immediate officers responsible for specific issues are the best to speak.

His unassuming aura, however, does not reflect the very tough agenda he has for PDIC.

Araneta, who once served as president of Rizal Commercial Banking Corp. and chief operating officer of Philippine National Bank, says that one of the key objectives of PDIC under his leadership is to put shenanigans in the banking sector behind bars.

He says the scam involving the Legacy Group, the biggest so far in the history of banking in the Philippines, is something the public and the government should not take on with a kid’s gloves.

The PDIC chief says people should see perpetrators of scams in the banking sector pay for their wrongdoing so that unscrupulous individuals are discouraged from plotting more financial-related crimes.

The rural banks under the Legacy Group were ordered closed about three years ago by regulators, who said these entities were using wise banking schemes to steal depositors’ money.

PDIC, being the one in charge of returning money of depositors once a bank is shut down, had to pay a hefty P11.5 billion in deposit insurance.

“PDIC spent P11.5 billion to pay the depositors, but what it has generated so far [from the liquidation of the assets of the closed rural banks] is just half a billion,” Araneta says. “We should not let this go,” he adds.

Various cases have been filed against people behind the Legacy Group, owned by Celso delos Angeles, and Araneta says he wants to see the government win those cases.

PDIC is currently beefing up its legal department, Araneta says, ensuring it has the resources it needs in pursuing the cases.

He adds that PDIC is considering tapping the services of a private law firm to assist its legal staff, if such a move would be given blessing by the Commission on Audit.

“We are strongly pursuing cases versus errant stockholders, directors, managers, and owners of closed banks. It’s our job to deter shenanigans and to continually pursue criminals,” Araneta says.

After the closure of the Legacy-owned banks, there have been more rural banks ordered closed by the Bangko Sentral ng Pilipinas.

Araneta says PDIC is studying the circumstances behind the bank closures to determine any wrongdoing and to pursue cases if any probable criminal offenses are determined.

In the meantime, while PDIC works on the cases involving banking scams, it is also focusing on the equally important task of educating the public about how to avoid being victimized by financial criminals.

Araneta says PDIC has been conducting road shows in various parts of the archipelago, teaching people how to become intelligent depositors. PDIC has also put up materials on financial education in its website to help the public guard against scams.

For instance, average deposit interest rate is posted in the website and is constantly updated for reference of the public. He says that with this information, people should be wise enough to question the integrity of banks offering deposit interest rates that are absurdly high.

Many banks, including those owned by the Legacy Group, that were ordered closed for unsafe and unsound banking practices were offering interest rates that were way above market average to lure people to depositing money.

“We advise people that if an interest rate being offered is so high, depositors must be wary. High yields usually come with high risks,” Araneta says.

He says PDIC also informs people about deposits that are covered by insurance and those that are not. Investment products offered by banks are not covered by deposit insurance, he says, and so people wanting to purchase these products must carefully study their design.

Araneta says he wants PDIC, as a co-regulator of the central bank, to have significant contributions to the overall goal of further strengthening the country’s banking sector.

PDIC is pushing for policies and working on programs that are geared toward this objective, he says.

One of these policies is the “bridge banking” system. For several years now, PDIC has been pushing for an amendment to its charter that will allow the implementation of bridge banking.

Araneta says he wants to see the amendment finally enacted into law under his watch.

Under the proposed system, which Araneta says is observed in advanced countries like the United States and Japan, PDIC will temporarily operate a bank immediately after it is ordered closed so that disruption of service to depositors is avoided.

Such a system, Araneta says, will significantly reduce panic resulting from bank closures.

“In countries where bridge banking is observed, you will see a bank closed on a Friday and then reopened on Monday,” he says.

In the banking sector, panic is deemed costly as this could cause people to withdraw funds even from stable banks. This is the reason PDIC commits to on-time payment of deposit insurance, he says, as this eases discomfort among depositors. He says keeping public confidence on the banking sector is a paramount task for the state-owned deposit insurer.

Araneta says PDIC, together with industry members, is drafting a uniform and enhanced system of operation for rural and cooperative banks. Such a system—which is intended to cover various functions, including accounting, financial reporting, lending, and treasury—will be designed based on international standards and is aimed at having a more financially sound and stable banking sector guided by the principles of good corporate governance.

He says that while PDIC makes it a point to pay deposit insurance as promptly as possible to maintain public confidence in the country’s banking sector, there is a higher goal that the deposit insurer wants to achieve.

“What we ultimately want to see is a banking sector that is so strong—and which is run with integrity—that closure orders, and thus payment of deposit insurance, will no longer be necessary,” Araneta says.