Diverting such funds ‘dangerous’ – ex-DOF official
Diverting any idle state funds to non-mandated purposes such as the Philippine Deposit Insurance Corp. (PDIC) remittances now with the Treasury poses risk to the banking system and may be ruled “unconstitutional,” a former finance undersecretary said.
Former Department of Finance (DOF) Undersecretary Cielo Magno was reacting to an earlier statement by the DOF that P107.23 billion in excess funds remitted by the PDIC to the Bureau of the Treasury (BTr) last year may be used to augment funding for government priority projects to support initiatives to boost the economy.
“The decision to tap PDIC’s funds is unconstitutional and dangerous,” Magno told the Malaya Business Insight yesterday. “It is unconstitutional because it indirectly amends laws through the General Appropriations Act,” Magno, now an associate professor at the University of the Philippines School of Economics, said.
“It is dangerous because it diverts funds that are, by law, to be built up and maintained by the PDIC,” she added.
Citing the case of a non-mandated transfer of Philippine Health Insurance Corp. funds to other purposes, which had been slapped with a temporary restraining order, Magno said: The Supreme Court should extend the same provisional protections to the PDIC funds, as it did with the idle funds of PhilHealth.”
“Depleting the Deposit Insurance Fund (DIF) erodes faith in the banking system and undermines the safety that the laws creating the PDIC promise bank depositors,” she said.
“Ultimately, the Supreme Court should declare these attempts to poach funds from government-owned and -controlled corporations as unconstitutional,” she added.
PDIC funds mandate
Magno pointed out that under Republic Act No. 10846 (2016), if the target DIF is reached, the PDIC shall remit dividends to the national government.
“We have to question why the DOF is sweeping PDIC’s fund when it is already remitting dividends as provided for by law,” Magno said.
“Based on Section 18 of the law, PDIC shall only remit dividends if the GOCC has met the target DIF level. We should question if they are collecting beyond the dividends because the dividends already represent the excess in DIF,” she added.
Magno also called for the disclosure by the board of the minutes on the decision to turn over the P107.23 billion to the Treasury.
PDIC’s ‘adequate resources’
Malaya Business Insight has sought reactions from both DOF Secretary Ralph Recto and PDIC President Roberto Tan to Magno’s statement.
While Tan has yet to respond as of press time, Recto responded on Monday, saying: “Please refer to PDIC‘s statement yesterday (Sunday). They have adequate resources etc.”
Over the weekend, the DOF said the P107.23 billion in excess funds that PDIC remitted to the BTr last year supports government initiatives to boost the economy by helping fund priority projects.
The idle funds form part of the PDIC’s DIF, which the agency uses to pay claims on insured deposits and provide financial assistance to banks. With the dormant fund tapped to support other priority projects, the DIF now stands at around P250 billion, Tan said.
“We assure the public that after the remittance, the DIF of the PDIC remains adequate to cover risks in the banking system and that the PDIC is still capable of delivering its services effectively, in case of insurance calls,” Tan has said.
“The DIF continues to be maintained within the target level set by its Board of Directors based on international best practices,” he added.
Banks seen sound, liquid
Michael Enriquez, Sun Life Investment Management and Trust Corp. President, in reaction, said: “The important thing is PDIC should be able to demonstrate that they are still strong enough to absorb any potential bank fallout.”
“I guess they are confident as all the local banks continue to be very sound and liquid,” he added.
Enriquez also highlighted that PDIC should consider increasing the maximum deposit insurance from the current P500,000 to a much larger amount to demonstrate a stronger protection for depositors.
“I think that should be their priority. The P500,000 has been in place for a long time already while the individual deposits have significantly grown over the years. This is evident in the high time deposit volume that banks have been servicing,” he said.
Earlier, Tan said there was a study to adjust the maximum deposit insurance coverage of P500,000 per depositor.
“The board is now in discussion on the results of the study. The recommendation is to increase it. Probably we’ll announce it within the first half (of the year). The implementation, that will have to be studied in detail when do we start implementing it,” Tan said.
“It has been eroded by inflation. The present value of that now is not anymore (the same P500,000) years ago. So I think that was 2013. So, it’s been a long time,” he added.
