MANILA - The Philippine Deposit Insurance Corporation (PDIC) will no longer cover deposit accounts that were used to split over P500,000 deposits within 120 days after a bank in financial trouble declares a holiday.
The practice, called deposit splitting in financial lingo, is the breaking down of deposits worth more than P500,000 into 2 or more accounts to be owned by 2 or more individuals. This usually involves putting some of the deposit money in risky instruments masquerading as deposits.
Under the amended charter of PDIC, the deposit insurance covers a minimum amount of P500,000 pesos per bank per person.
Instead of bearing the higher risk associated with higher interest, the PDIC said erring bankers and depositors split their deposits so that each account will be well within the PDIC's maximum deposit insurance coverage of P500,000. While this had benefitted the troubled banks' valued clients in the past, this left a good number of small depositors holding the bag.
"They shift the risk to PDIC by resorting to splitting so that each split account will be within the maximum deposit insurance coverage. This is a circumvention of the deposit insurance law and poses undue risk to the DIF [deposit insurance fund]," said PDIC President Jose Nograles in a statement.
The Bangko Sentral ng Pilipinas and the PDIC have tightened measures against certain practices, including deposit splitting, following the Legacy scandal.
Deposit-splitting was one of the dirty schemes employed by the collapsed Legacy group of rural banks.
Of the estimated P14 billion insured deposits in the Legacy banks, the PDIC found P6 billion worth of deposit accounts "doubtful" due to incomplete documents and suspicious transactions.
Amendments in the state deposit insurer’s charter, signed last April under Under Republic Act No. 9576, doubled the insurance coverage for bank depositors to P500,000 from P250,000.