Philippine Deposit Insurance Corporation (PDIC) President Jose C. Nograles said that the state deposit insurer had validated 81.5% or 109,791 accounts out of the total 134,653 deposit accounts in the 12 Legacy-affiliated banks, after the first validation phase was completed end August 2009. Nograles explained that PDIC’s verification process is at two levels.

First, the deposits are verified to be valid deposits based on the available records at the closed bank upon takeover by PDIC. It is important that the deposit is recorded in the bank and that the cash inflow is determined to have existed. The second level requires the validation of the claim of the depositor based on the standard operating procedures for claims processing. Validation of claims requires submission of supporting documents to substantiate the deposit insurance claim. “It is not enough that we validate the deposit accounts, we also need to validate the claimants to ensure that we pay the right owner of the account, ” Nograles said.

If the claims pass the second validation phase, these will translate to payments worth P10.7 billion or 76.4% of the total estimated insured deposits of P14 billion.

Earlier, PDIC had targeted to complete the examination of all accounts in the Legacy banks end of July 2009. But operations were considerably slowed down by incomplete and missing documents in the banks as well as the big volume of accounts involved and allegations of fraud. These prompted PDIC to carry out extraordinary measures to hasten the examination process amidst these difficulties. Steps included the deployment of more than half of PDIC’s personnel complement on field and the engagement of one of the largest external auditors in the country, KPMG Manabat Sanagustin, to assist and speed up the examination. With these measures, examination of accounts was completed end August 2009.

Of the total number of accounts, 10.4% or 14,019 accounts amounting to P1.8 billion had been referred for resolution of legal issues, some 6% or 8,124 accounts amounting to P1.15 billion have been initially validated to have incomplete bank records hence, PDIC cannot proceed with its validation; and 2% or 2,719 accounts representing P374 million had been denied.

PDIC reported in the first quarter of 2009 that some P6 billion of the deposit accounts in the Legacy banks were initially found to be doubtful accounts because of incomplete records and questionable transactions. Some of these accounts had since been validated as PDIC diligently searched for bank documents in the course of the validation process. A number of doubtful accounts had either been referred for legal resolution or had remained as accounts with incomplete documents. To aid in these efforts, PDIC had demanded that former bank officers turn over documents and records. It had also filed several cases against officers who refused to comply.

Nograles said that the completion of the validation process will significantly hasten the processing of claims which is the second phase of validation process. The second phase requires the matching of filed claims against the validated accounts. As of end August 2009, PDIC had received a total of 114,721 claims for P12.6 billion. Of these filed claims, PDIC had already paid 24,125 claims for P1.43 billion. Some 6,523 more claims amounting to P834 million are being processed for payment as of end August.

Meanwhile, 21,819 claims for P2.83 billion are found to be document deficient. PDIC has started sending notices to depositors of the required documents for submission. In cases when the documents submitted are insufficient to validate a claim, PDIC is authorized under the law to require additional documents from the depositors to support the claim. If the submission of the required document is satisfactorily complied with, these claims will likewise be paid.

PDIC reported that it had denied 4,164 claims for P204 million, a big chunk of which were claims for accounts not even in the banks’ records. A total of 19,070 claims amounting to P2.55 billion were placed on hold as these accounts await validation. PDIC continues to process 39,020 claims representing P4.76 billion.

Nograles expressed confidence that all valid claims will be paid soon. He said that PDIC had been meticulous in the first and second phases of the validation in accordance with the standard procedures in claims processing to ensure proper disbursements according to audit rules of the Commission on Audit (COA).