PDIC studying ‘risk-based’ pricing for deposit insurance fees

Philippine Deposit Insurance Corp. INQUIRER FILE PHOTO

MANILA, Philippines – The Philippine Deposit Insurance Corp. (PDIC) is studying the possibility of implementing a “risk-based” pricing mechanism for fees that banks pay to insure the deposits of the banking public, in a bid to deter lenders from making risky investment moves.

Speaking to reporters last week, officials of the PDIC –– which is mandated to protect bank savings –– said they would try to complete the study this year, much earlier than the 2027 deadline set in its amended charter.

At present, the PDIC collects a flat rate of one-fifth of 1 percent a year of the total deposit liability of a bank, which lenders pay to the state insurer so that depositors can be reimbursed up to a certain amount if a bank is ordered closed by the Bangko Sentral ng Pilipinas (BSP).

READ: PDIC doubles bank deposit insurance to P1M

But the PDIC also has five years from 2022 –– the year its revised charter took effect –– to conduct a study on the need to establish a risk-based assessment system, which could result in higher premiums to be paid by banks that engage in riskier investment activities.

“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 general counsel Maria Antonette Brillantes-Bolivar said.

The result of the study would have to be reported to Congress.

If the need to create a risk-based pricing of fees is established, the PDIC would still have to gather comments from the banking industry before enforcing a new regulation.

Market discipline

It is still unknown whether the risk-based pricing system would replace the current flat assessment rate, or if the two mechanisms could co-exist.

But for now, PDIC president and CEO Roberto Tan assured the banking industry that any changes to assessment rates would be “fair”.

“It’s quite a complex method that we need to develop,” Tan said.

“It provides discipline for banks to improve their standing, operation, management, capital and governance. But it will have to be studied thoroughly,” he added.

The ongoing study coincided with the PDIC’s recent decision to double the maximum deposit insurance coverage to P1 million per depositor per bank, from P500,000 previously.

BSP Governor Eli Remolona Jr. earlier said that beefing up the protection for bank deposits would unlikely create a moral hazard, as he stressed the need to make the local deposit insurance system ready for systemic risks.