PDIC warns against deposit splitting
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.
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Who would want to deposit more than Php500K to consider such?
The 'normal' Depositor, would stick to placing P250,000.00 in a Bank, then go to another Bank if he had more funds than this.
A 'couple' however can each place P250,000.00, and also place a Joint Account of P250,000.00, which is 'split' into P125,000.00 to each of the 2 x Co-owners. They could then place another Joint Account of P250,000.00 and get another P125,000.00 'half-share' giving them P125,000.00 + P125,000.00 = P250,000 in Joint Accounts Total as well as their P250,000.00 Single Account.
If that 'couple' had more than Php1M to place on Deposits, they could go to another Bank.
This is using the Rules to ones advantage to ensure you maximise the PDIC cover.
Now it has increased to P500,000.00, those figures are doubled, but be careful going over P250,000.00! The Government is to pay any Claims over P250,000.00 with PDIC only paying up to P250,000.00 - this was for 2 years so 1st June 2011, before PDIC will be paying above P250,000.00
Look at the problems Depositors in those closed Banks since December 2008 have been having getting their Claims paid of P250,000.00 or less. 3 months to announce Claims Acceptance (been nearly 11 months since Rural Bank of Polangui got issued MBR, and still no official Claims acceptance notice from the PDIC). It has been 8 months nearly 9, since submitting claims and still waiting.