Philippine Deposit Insurance Corp. (PDIC) will unload idle assets in bulk to clean up its balance sheet, targeting to sell as much as P7 billion early next year.
PDIC president Jose Nograles said the deposit insurer had commissioned state-owned Land Bank of the Philippines to help it reduce its outstanding acquired assets, currently worth P23.8 billion.
He said the target was to conduct a portfolio sale within the first half of next year.
“We have many assets, but [they are] difficult to sell,” Nograles said.
PDIC is preparing itself to play a bigger role as the central bank’s co-regulator of the banking system.
“We’ve engaged Land Bank to help us. They’re now doing the due-diligence [audit],” Nograles said.
The law granting fiscal incentives on transactions conducted under special purpose vehicles, provided by the government to encourage banks to clean up their books, expired early this year. Still, PDIC will pursue its own asset sale even without such incentives.
“Remember we’re a government instrumentality. We’re not created normally for money but to provide service, so even without fiscal incentives, we can take a hit,” he said.
Since PDIC would be selling the assets at a discount, Nograles said the company would take a hit on its deposit insurance fund, currently worth P55 billion.
“That’s what insurance is all about,” he said.
PDIC is also seeking charter amendments that would, among others, increase the deposit insurance coverage to P500,000 per depositor from P250,000 for a period of three years to build up confidence in the financial system given the global financial crisis.
It is also seeking authority to increase the amount of coverage and duration “if condition that threatens monetary or financial stability exists as determined” by the central bank, the National Economic and Development and Authority and Department of Finance, Nograles said.
Nograles is also pushing for authority to use a “bridge bank” as an additional method in resolving bank problems.
“Under a bridge bank, the government takes ownership, unlike cases like that of PBCom [Philippine Bank of Communications] where we gave assistance, then the same owners would run it,” he said.
“In this case, the stockholders are out. We close ABC bank on a Friday, on a Monday it reopens as ABC-PDIC Bank. We will continue performing critical banking functions,” he said.
He said the bridge bank resolution method would be more applicable to bigger banks with good assets.
“The primary consideration is—what will be the cost of bridge bank versus cost of payout. At the end of the day, our job is to protect the insurance fund, if the deposit base is too large. If it’s small, we can take a hit,” Nograles said.
At present, he said, PDIC’s only option is to take over a bank shut down by the central bank and pay the insured deposits.
“With a bridge bank, you take over the assets and assume the liability,” Nograles said, noting that PDIC could use the bridge bank for a maximum of three years.
“It’s easier to sell a bank when it’s operating rather than when it’s closed. You take over, clean it up and sell it. You’re actually liquidating the bank when you sell it, minimizing our cost,” he said.
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