President Gloria Macapagal-Arroyo on April 29 signed Republic Act No. 9576, the law that doubled the maximum deposit insurance coverage (MDIC) to P500,000 and granted the Philippine Deposit Insurance Corporation (PDIC) institutional and financial strengthening measures to support the MDIC increase.

“The increase in the maximum deposit insurance coverage from P250,000 to P500,000 is a means to encourage our depositors to remain confident in our banks,” PDIC President Jose C. Nograles said.

The increase in the insurance coverage of deposits is also intended as a pre-emptive and precautionary measure should Philippine-based banks be adversely affected by the ongoing global financial turmoil. At this level of coverage, full protection will be extended to 97.2% of all deposit accounts in the country. In addition, the increase now guarantees 31.7% of total amount of deposits in the banking system, up from 24% under the previous level of P250,000.

RA 9576 also provided for the strengthening of PDIC institutionally and financially. Among the institutional strengthening measures granted to PDIC are the authority to determine insured deposits, conduct special bank examination, and examine deposit accounts of ailing banks; and immunity from suits.

Nograles said that the additional powers granted to PDIC will promote the government’s campaign against unsafe and unsound banking practices that tend to abuse the protection provided by the government. The institutional strengthening measures will likewise enable PDIC to safeguard the Deposit Insurance Fund (DIF), which is the source of insurance payouts.

These authorities were complemented by financial strengthening measures to preserve and protect the DIF such as the grant of tax-exempt status to PDIC and sovereign guarantee on PDIC’s borrowings not to exceed twice the amount of the DIF as of date of debt issuance. For the first five years, PDIC’s tax obligations will be charged against the Tax Expenditure Fund. Starting on the sixth year, PDIC will be exempt from income tax, final withholding tax, VAT on assessment collections as well as local taxes. The tax-exempt status and sovereign guarantee on borrowings are consistent with practice in other deposit insurance systems. The new law ensures that PDIC will have the financial capacity to cover the risks posed by threats of insurance calls.

“The signing of the amended PDIC Charter signifies the government’s commitment to enhance the stability of the banking and financial systems amidst an unprecedented global financial crisis. It reinforces PDIC’s role as a vital part of the financial safety net,” Nograles said.

He expressed gratitude to the support of the Senate and the House of Representatives to strengthen PDIC through the passage of RA 9576. Nograles likewise expressed optimism over the continued stability of the financial system with the increase in MDIC and adoption of strengthening initiatives.

RA 9576 will be effective 15 days after its publication in a newspaper of major circulation.