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