Bank Liquidation in the Philippines:

PDIC Experience

Ma. Ana Carmela L. VillegasExecutive Vice President

Philippine Deposit Insurance Corporation

17th IADI APRC Annual Meeting / International ConferenceDeposit Insurance and Bank Liquidation: Standards, Best Practices and Innovations

June 27, 2019

St. Petersburg, Russia

Legal Framework

Operational Framework

Benefits of the Philippine Framework

PDIC Liquidation Experience

Challenges and Response

Moving Forward

Outline of Presentation

Governing law is the PDIC Charter (Republic Act 3591, as amended)

A special law governing insolvency of banks

PDIC mandated as statutory receiver (Sec.12)

Authorities of the receiver and effects of placement of bank under

liquidation (Sec. 13)

Service of notice of closure and takeover activities (Sec. 14)

Purchase of assets and assumption of liabilities (Sec. 15)

Conventional liquidation (Sec. 16)

Involves the constitution of a liquidation court which has exclusive

jurisdiction to adjudicate disputed claims and approve asset

distribution plan of a closed bank

Legal Framework

Operational Framework

Objective

To immediately distribute assets to creditors and

terminate liquidation of closed banks

Operational Framework

Bank takeover

Payout of insured deposits

Preservation and

recoveries of assets

Preparation of Asset

Distribution Plan (ADP)

Filing of ADP with the

Liquidation Court

• Constitution of a regular

court as liquidation

court

• Adjudication of disputed

claims

• Court approval of the

Asset Distribution Plan

Implementation of

Liquidation Court -

approved ADP

Winding down of affairs

Report to the Monetary

Board and Securities and

Exchange Commission

MB

Resolution

JUDICIAL ADMINISTRATIVE(Post-Judicial)

ADMINISTRATIVE(Pre-Judicial)

Process

Operational Framework

Structure and Functions

RECEIVERSHIP & LIQUIDATION SECTOR

Conducts takeover activities

Manages affairs, assets, post closure transactions

except those managed

by other groups

Evaluates claims against

the bank

Prepares/Implement

Asset Distribution Plan

Prepares assets for disposal

Preserves/manages the assets

Conducts marketing /sales activities

Manages/administers loan portfolio

Formulates loan strategy such as restructuring,

compromise settlement,

foreclosure

Provides data, logistical and secretariat support

Provides pre and post resolution support for

assets of closed banks

Controls budget and

disbursement transactions

Receivership & Bank

Management Group

Loans Management

Group

Asset Management &

Disposal GroupReceivership &

Liquidation Services

Group

PDIC has flexibility to adopt and adjust, for improvements, policies and guidelines in the exercise of PDIC’s administrative procedures in liquidation of banks

The Liquidation Court, as an independent party to adjudicate disputed claims, observes judicial evaluation process governed by existing laws

Benefits of the Philippine Framework

Banks under liquidation

376

Banks turned over by the old Central

Bank to PDIC

193Banks taken over

by PDIC

119

Banks with approved terminal

report

312

There are 688 banks closed from 1963 up to 2018

Number of Closed Banks Closed Banks with Approved

Terminal Report

PDIC Liquidation ExperienceProfile of Closed Banks (as of 31 December 2018)

PDIC Liquidation Experience

Judicial Proceedings

From Filing of Asset

Distribution Plan to Finality of

Court Approval

Winding Down

From finality of Court

Approval to Termination of

Liquidation

Asset Preservation,

Recovery & Distribution

Start of Liquidation up to Filing of

Asset Distribution Plan

Administrative

(Pre-Judicial)Judicial

Administrative

(Post-Judicial)

Average of 8 years Average of 1.1 year Average of 4 years

119 Terminated Banks

Asset Preservation,

Recovery & Distribution

Start of Liquidation up to Filing

of Asset Distribution Plan

Administrative

(Pre-Judicial)

• Average period = 8 years (1992-2018 for 119 Terminated banks)

• 24% (28 banks) with Asset

Distribution Plans (ADPs) filed

within target of 5 years

• PDIC faced operational challenges

large number of closed banks inherited from

old Central Bank

increasing number of closed banks since

PDIC assumption of receivership role

cases challenging closure of banks

legal/ownership issues of assets

widely dispersed location of assets

fraud, irregularities or anomalies discovered

after bank closure

resource (technology and manpower)

constraints

PDIC Liquidation Experience

Judicial Proceedings

From Filing of Asset

Distribution Plan to Finality of

Court Approval

Judicial

• Average period = 1.1 year or 13

months for 119 Terminated banks

PDIC Liquidation Experience

• PDIC tied up with Philippine

Judicial Academy (PHILJA) in

2009

Seminars conducted for better

appreciation and understanding of the

Judiciary of PDIC’s functions and

attendant issues

ADPs filed

prior to 2010

(85 banks)

ADPs filed

starting 2010

(34 banks)

1.3 year

(15 months)

0.6 year

(7 months)

Winding Down

From Finality of Court

Approval to Termination of

Liquidation

Administrative

(Post-Judicial)

• Average period = 4.1 years for 119

banks

PDIC Liquidation Experience

Court approval

prior to 2012

(102 banks)

Court approval

starting 2012

(17 banks)

4.3 years 2.5 years

• A dedicated department for

winding down and termination of

liquidation of closed banks was

created in 2012

• process improvements and

simplification of forms for

settlement of creditors’ claims

Challenges and Response

Challenges Response

• large number of closed banks

inherited from old Central Bank

• increasing number of closed

banks taken over by PDIC

• formed dedicated teams to focus on cleaning

up the backlog of Asset Distribution Plan

• cases challenging closure of

banks

• provision that no court except the Court of

Appeals shall issue temporary restraining

order, preliminary injunction or preliminary

mandatory injunction against the Corporation

for any action under the Charter (Sec. 27

PDIC Charter, added in 2004)

• provision that in no case shall a bank be

reopened and permitted to resume banking

business after being placed under liquidation

(Sec. 13 (e.1), PDIC Charter, added in 2016)

Challenges and ResponseChallenges Response

• legal/ownership issues of assets

• widely dispersed location of

assets

• reorganization of the sector in-charge of liquidation

to form groups specializing in loan resolution/

recovery and real and other property disposal

• fraud, irregularities or anomalies

discovered after bank closure

• provision to conduct investigations on fraud,

irregularities and anomalies committed by bank and

the authority to appoint, hire persons or entities in

forensic and fraud investigations (Sec. 10 (b.1)

PDIC Charter, added in 2004 and amended in 2016)

• resource constraints • outsourcing of processes

• adoption of technology

• protracted judicial proceedings • partnership with the Philippine Judicial Academy

• backlog in the implementation of

court approved ADPs

• created a dedicated department for bank termination

to wind down affair of closed banks

• process improvements and simplification of forms

for settlement of creditors’ claims

Banks with Approved

Terminal Report (Terminated Banks)

312Liquidation Court

not yet constituted

With Liquidation Court constituted

ADP filedwith Liquidation

CourtOn-going

implementation of Liquidation Court -

approved ADP

Banks under liquidation

376

200

6540

71

Number of Closed Banks

There are still 376 closed banks under liquidation

Banks under liquidation

Moving ForwardProfile of Closed Banks (as of 31 December 2018)

Expedite filing of Asset Distribution Plans(ADPs) for the remaining 265

closed banks under liquidation

Target ADPs set from 2019 to 2023 to clean up ADP backlog

Adoption of strategic initiatives in support of the target

Outsourcing/engagement of service providers (accounting, consultant for

loan portfolio sale, verification of bank ownership documents from

external sources, property managers, additional collection channels)

Review of structure, processes and systems of sector in-charge of

liquidation

Enhancement of marketing channels

Promulgation by the Supreme Court of Rules of Procedure for Liquidation of

Closed Banks

Moving Forward

Thank You