The Philippine Deposit Insurance Corporation (PDIC) recently obtained technical assistance from the World Bank for its project on Financial Modelling for bank stress-testing and bank failure prediction. The said project aims to enhance PDIC’s ability to manage and ensure the adequacy of the Deposit Insurance Fund (DIF), and to improve its surveillance and oversight capabilities over member banks and mitigate risks.

The funding for the project will be provided by the Financial Sector Reform and Strengthening (FIRST) Initiative, a multi-donor grant facility that offers technical assistance to promote financial sector strengthening. The World Bank with the funding from the FIRST will help develop the PDIC’s bank stress testing methodology to enable PDIC to assess the financial position of banks under various stress scenarios. FIRST will also assist PDIC in formulating a bank failure prediction model that would allow PDIC to more reliably assess the adequacy of the Deposit Insurance Fund based on model results.

The grant by World Bank through FIRST will fund the engagement of international experts, due to arrive in the first quarter of 2013. In addition to assisting PDIC to develop the bank failure prediction and stress testing models, they shall also orient and train PDIC personnel on the implementation and integration of the model to its risk management functions. The implementation of the model is expected to be completed by April 2013.

World Bank Country Director Motoo Konishi said supporting this initiative is very important to help expand financial inclusion in the Philippines. “Only about one third of adult Filipinos have a bank account. Effective deposit insurance is a crucial element in the effort to bring more Filipinos to save safely in the formal financial system where their deposits are protected. We are looking forward to our continued cooperation with PDIC," Mr. Konishi said.

Prior to this project, the PDIC and the World Bank through FIRST have collaborated in the project, “Enhancement of Insurance Reserves Targeting (IRT) Framework”, aimed at improving the adequacy assessment of PDIC’s Deposit Insurance Fund. The said project was completed in 2011 and adopted last year.

As co-regulator of the banking system, the PDIC is tasked to help maintain financial stability and to promote public confidence in the banking system. The state deposit insurer has made it a priority to improve its regulatory and supervisory oversight functions for the early detection of bank weaknesses and unsafe and unsound banking practices in the industry as part of its Roadmap to 2016.

PDIC President Valentin A. Araneta has stressed that the strengthening of the Corporation’s early detection and surveillance capabilities is important, citing that “prevention is much better than cure”.

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