It was shocking to hear that yet another large Philippines Bank failed this week. LBC Bank announced a “bank holiday” last Friday, and immediately all money was not accessible by anyone who had an account at the bank. This same tragedy happened back in March of 2011 at Banco Filipino. Both closures had zero public warning. How will I know if my bank will fail? The short answer: You won’t! So, what can we do to protect ourselves?
What is the PDIC? How much money will they give me, and when?
The PDIC stands for “Philippine Deposit Insurance Corporation”. This government-run fund exists to provide insurance for bank depositors in the event that a bank closes. They post news updates on their site in the event of bank closures: www.pdic.gov.ph. The PDIC insures you for up to P500,000. Timing of these payments can take months, and sometimes years!
If you look at the Banco Filipino closure as a benchmark, here are some statistics:
-The bank closed mid-March, 2011
-As of August 11, 2011, 79% of all insured deposits had been paid back (P6.13 billion of the 7.76 billion insured)
At this rate, roughly 20% payout happens per month. Thus, we can project a rough payout schedule of 6 months. If the bank is bigger, this could take longer. Banco Filipino had 172,323 depositor accounts. LBC Bank has more: 321,516. However, the total insured amount to be paid out is only half as much: P3.73 billion. At this point, we can only estimate the repayment schedule, but 6 months is a safe estimate. On an optimistic note, 99.4% of LBC Depositors have less than P500,000 in their accounts, and they will be paid back.
A good piece of advice: Make sure you maintain an up-to-date phone number, address and contact information with your bank. Some of the outstanding payments haven’t been made because they can’t contact the depositors! Also, if you have an outstanding loan for an amount larger than your deposit amount, of course you won’t be receiving a refund.
I’m scared to put my money in a bank now! What should I do?
The BEST advice we can give at this point is the following:
1. Do NOT keep large amounts of money at home. There are obvious risks to this (theft, fire, flood, etc)
2. As part of good family financial planning, you should regularly take a percentage (let’s say 10%) of your wages and put it into savings. Slowly building up savings will protect you in emergencies, prevent you from engaging in bad debt practices, and allow you to achieve your goals: education, educational gadgets for the family, a new side business, new home, new car, retirement, etc. Put that 10% savings money into a DIFFERENT bank. If one of the banks closes, you will still have access to your money in the other bank to keep your money obligations and bills paid (rent, phone bill, electricity, etc)
3. If you have more than P500,000 in cash: Congratulations from team Raining Pesos! This is a different and exciting problem to solve. You can begin to open accounts in other banks. If you are increasing your cash as a result of being a successful entrepreneur, you’ve probably thought through your options at this point. We always vote for investing your money in new ventures!