MANILA - Banks placed under receivership of Philippine Deposit Insurance Corp. (PDIC) should be liquidated outright, the state agency said on Wednesday, as it believes rehabilitation is no longer a viable option for institutions ordered to shut down because of financial distress.

The outright liquidation of banks ordered closed by the Monetary Board (MB) is included in the package of proposals PDIC is pushing for in amending the Charter of the Bangko Sentral ng Pilipinas (BSP).

A total 511 closed banks were under PDIC receivership and liquidation as of end-September.

The figure could grow much higher if the BSP decides to close some 179 rural banks that were under so-called Prompt Corrective Action, or PCA, as of last month.

A bank found to be in its early stage of distress is placed under PCA within a reasonable period of time, during which it should take measures to address its deficiencies. Enforcing PCA prevents the imposition of harsher measures usually applied when the bank’s condition deteriorates.

PDIC’s own offsite bank monitoring system lists 103 rural banks as capital deficient. The combined assets of these banks, which hold P11 billion in deposits, account for 8.8 percent of the total assets of the rural banking industry as of end-June.

“Rehabilitation after bank closure is no longer viable and the only option for PDIC is to liquidate the closed bank,” PDIC president Jose Nograles said in a statement.

Closed banks placed under PDIC receivership are allowed to undergo rehabilitation under the present system, he said. Owners are still given another chance to revive the failed institutions and the right to approve or reject a proposal to allow entry of a new investor.

“Bank rehabilitation should be undertaken during the PCA phase. I am [of] the opinion that PCA is the period to correct the deficiencies of a bank and that bank rehabilitation is part of strengthening efforts,” Nograles said.

“Hence, it should be made at that point and not after bank closure,” he added.

Of the 511 closed banks taken over by PDIC, only four have been rehabilitated.

From 2005 to September 2009, 81 banks were ordered closed by the Monetary Board, 27 of which applied for rehabilitation but none were found to be viable for rehabilitation, according to PDIC.

“These historical data show that once closed, a bank’s chances for rehabilitation is almost nil,” the PDIC chief said. “Hence, it would be better if rehabilitation is done during the PCA period when a bank’s capital has not been eroded to the point that it is closed by the MB.”