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Law to quadruple bank deposit insurance


October 22, 2008

Philippines: Law to quadruple bank deposit insurance
Philippine President Gloria Arroyo is to ask Congress to pass a law quadrupling bank deposit insurance to boost confidence in the banking system amid a global credit crisis, AFP quoted aides as saying Tuesday.

The maximum insured deposit guaranteed by the state-run Philippine Deposit Insurance Corp. will be increased from 250,000 pesos to one million pesos (about 20,800 dollars).

Arroyo sees the increase as a "proportionate response to the global uncertainties," Executive Secretary Eduardo Ermita told a news conference.

He stressed that while the country's banking system is stable the increase was felt necessary to help underline confidence.

"There are no bank runs now," Arroyo spokesman Jesus Dureza stressed.

"The 1997 (Asian) crisis prepared us for this eventuality," he said. "Our fundamentals are strong but we are ready for possible problems in the future."

Dureza said the step would also be in line with those already made by other Association of Southeast Asian Nations (Asean) members that have "already increased their deposit insurance."

A million-peso guarantee on bank deposits could also require "a possible injection of equity" by the government into the deposit insurer, Ermita said.

Arroyo has ordered her economic advisers to thrash out the details of the proposed law with congressional leaders, he added.

The central bank earlier said Philippine banks' combined exposure to sub-prime securities was less than one percent of the assets of the country's banking system.

The banks holding these assets have made provisions for potential losses.

Earlier Tuesday the central bank said the non-performing loans on the books of the Philippines' largest banks were 3.88 percent of their total assets in August, an improvement over the previous month's 3.98 percent and the 5.28 percent ratio a year earlier.

Universal and commercial banks, which are allowed to engage in other financial services such as investment banking, now have bad loans totalling 91.53 billion pesos compared to their total loan portfolio of 2.36 trillion pesos.

The central bank gave no data for thrift banks.

"The industry sustained an improving trend for the past six months and kept the NPL ratio below four percent for the past three months," it added.

The 1.07 percent month-on-month improvement was complemented by a 1.45 percent expansion in the total loan portfolio of universal and commercial banks.

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