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MANUAL OF REGULATIONS

FOR BANKS
ANKS
FOREWORD

The 2005 Manual of Regulations for Banks (MORB) is an updated compilation of


banking regulations and policy issuances of the Bangko Sentral ng Pilipinas (BSP). Available
in hard and soft copies, it is a convenient reference and guide for banks in the conduct of their
operations.

The updated MORB incorporates regulatory policies issued to align banking practices
on risk management, good corporate governance, and capital adequacy, accounting and
reporting with international standards. It also includes rules implementing legislative
reform measures, the more significant of which are the General Banking Law of 2000, the
Anti-Money Laundering Act of 2001 and the Special Purpose Vehicle Act of 2002.

In providing banks and the banking public easy access to this information, the updated
MORB seeks to facilitate compliance with the BSP’s supervisory and regulatory requirements
that will contribute to the enhancement of the partnership between BSP and the banking
sector, and ultimately to the strengthening of the Philippine Banking System and the economy.

AMANDO M. TETANGCO, JR.


Governor
FOREWORD

Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the
Monetary Board recognized the need not only to update but also to improve the presentation
of the Manual of Regulations for Banks to make it a more useful and accessible information
resource for the banking industry and the interested public. A special committee was therefore
created to revise the old Manual accordingly.

This revised format Manual is the outcome of that effort. It benefits from the inputs of
many concerned departments of the BSP as well as the various banking industry associations.
By combining the multi-dimensional perspective, we are hopeful that this new Manual and
its subsequent updates will be able to more effectively disseminate the regulatory issuances
of the BSP on a timely basis and provide appropriate guidance to the banking community.

We also believe that it will be a especially useful tool at this time when the BSP has
come up with many new banking regulations and issuances in response to the unprecedented
challenges posed by the Asian crisis.

Nevertheless, we recognize that there will always be room for improvement. Our
task is therefore a continuing one of constant search for a better product to provide better
services to the public.

GABRIEL C. SINGSON
Governor
PREFACE

The 2005 Manual of Regulations for Banks (MORB) is an updated edition of the 1996
MORB. The updates consist of the significant policy developments and changes in statutory
laws. It shall serve as the principal source of banking regulations issued by the Monetary
Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance
with the rules and regulations embodied therein.

A multi-departmental Committee on the Updating of the Manual of Regulations for


Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series
of 2007 dated 08 June 2007. Under the aforesaid office order, the Committee is tasked to
update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose
revision/deletion of provisions which have become obsolete, redundant, irrelevant or
inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv) oversee
printing of the Manuals/Updates in coordination with the Corporate Affairs Office.

The Committee is composed of Deputy Director Alberto A. Reyes (Central Point of


Contact [CPC] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the General
Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse, Manager II
(Centralized Applications and Licensing Group [CALG]); Mr. Aristides R. Wylengco, Manager II
(Supervision and Examination Department [SED] III); Ms. Jocelyn L. Lobas, Manager II (SED V);
Atty. Ruben B. Parto, Acting Manager II (SED I); Ms. Ma. Corazon T. Alva, Acting Manager II
(SED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of Supervisory Policy Development
[OSPD]); Atty. Lord Eileen S. Tagle, Bank Attorney I, (OGCLS); Ms. Maria Cynthia M. Sison,
Bank Officer III (OSPD); Mr. Armando M. Dizon, Bank Officer II (CALG)); Atty. Florabelle S. Madrid,
Bank Officer I (CPC I), members; and Deputy Governor Nestor A. Espenilla, Jr. of the
Supervision and Examination Sector, Adviser.

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst. Manager


(SED IV), Head; Ms. Ma. Corazon B. Bilgera, Bank Officer I (OSPD); Ms. Donah P. Marcelino,
Administrative Services Officer III (SED V); Mr. Felix B. Corsino, Jr., Administrative Services
Officer III (SED III), members.

The Bangko Sentral ng Pilipinas

v
PREFACE
The Manual of Regulations Banks (the “New Manual”) is not only an updated edition
but also a revised and consolidated version of the first three volumes of the present Manual of
Regulations for Banks and Other Financial Intermediaries, Book I, II and III (the "Old Manual").
Its adoption was impelled by certain considerations, namely: (1) that the Central Bank of the
Philippines as the administrative agency of the monetary, banking and credit system which
promulgated the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the
central monetary authority, (2) that the Old Manual was last updated as of 31 December 1989
and since that time, significant developments in the statutory law and the financial system of
the country have rendered many of its provisions obsolete or irrelevant, and (3) that there was
need to simplify the code of banking regulations for ready accessibility to, and the convenience
of, the users.

To accomplish the work of proposing revisions to the Old Manual, the Monetary
Board of the BSP, in its Resolution No. 1203 dated 07 December 1994, directed the creation
of a multi-departmental Ad Hoc Review Committee. This committee was officially
constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General
Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services), as chairman;
Deputy Director Ma. Dolores B. Yuvienco (Supervisory Reports and Studies Office);
Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director
Danilo A. Monasterio (Department of Rural Banks); Deputy Director Erlinda S. J. Marzan
(Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing
Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad
Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head;
and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III, Atty. Policarpo
G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco,
Manager II, as members. Deputy Governor Armando L. Suratos, the BSP General Counsel,
acted as committee consultant.

Under the aforesaid office order, the Ad Hoc Committee was instructed to examine,
evaluate and review the provisions of the four (4) volumes of the Old Manual for purposes of
(1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous or
inconsistent with law, (2) amending provisions so as to make them consistent with each
other or to harmonize them with existing statutes, executive issuances and official policies,
and (3) reformulating provisions to make them more responsive to the needs and concerns of
the banking and financial intermediation industry.

In discharging its mandated tasks, the Ad Hoc Review Committee sought the
comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange,
Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to
provisions of the Old Manual relevant to their operations. Likewise consulted were the
various associations in the banking industry, such as the Bankers Association of the Philippines,
the Chamber of Thrift Banks, the Rural Bankers Association of the Philippines and the Trust
Officers Association of the Philippines. Their valuable suggestions contributed much to the
accomplishment of this project.

vi
The New Manual comprises substantially the regulatory issuances of the BSP, as well
as those of its predecessor agency, the Central Bank of the Philippines, as they were amended
or revised through the years, up to 31 December 1996. It shall serve as the principal source
of all substantive banking regulations issued by the Monetary Board and the Governor of the
BSP and shall be cited as the authority for enjoining compliance with the rules and regulations
embodied therein.

It is fervently hoped that the publication of this long-awaited new code of banking
regulations will measure up to the expectations of the Philippine banking sector.

The Bangko Sentral ng Pilipinas

vii
INSTRUCTIONS TO USERS

The Manual of Regulations for Banks (the “Manual”) is the comprehensive authority
on the specific subjects covered therein. New rules and amendments to the rules shall
immediately form part of the affected section or subsection of the Manual while repealed
rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e., circular
or memorandum, but shall instead cite the particular section or subsection of the Manual.
Banks shall comply with the provisions of the Manual and any violation thereof shall be
punishable under its specific and/or general provisions on sanctions.

As a code of regulations, the Manual is divided into six (6) Parts, further subdivided
into major topic headings which introduce the corresponding sections, and subsections
that made up the provisions governing a particular aspect of bank operations.

Coding of the Manual provisions utilizes six (6) digits where the first four (4) digits
refer to a Section while the last two (2) digits (if there is any and which is separated from the
first four digits by a period) refer to a Subsection.

The first digit refers to a type of bank to which the regulation is applicable. "X"
denotes a common provision applicable to all types of banks; "1" means that the regulation is
applicable to commercial banks (KBs); "2" means that it applies to thrift banks (TBs); and "3"
to rural banks (RBs) and cooperative banks (Coop Banks).

The second digit refers to the Part of the Manual, i.e., "1" refers to "Organization,
Management and Administration"; "2" for "Deposits and Borrowing Operations"; "3" for
"Loans, Investments and Special Credits"; "4" for "Trust, Other Fiduciary Business and
Investment Management Activities; "5" for "Foreign Currency Deposit System and Other
Operations in Foreign Currency"; and "6" for "Miscellaneous Provisions". The third and fourth
digits refer to the main caption of the provision while the fifth and sixth digits, if any, refer to
the subcaption or subsection under the main caption.

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Thus, to illustrate, the code numbers X161.2 and 1162.13 would indicate

Main caption on “Records”

Subcaption on “SFAS”

X 1 6 1 . 2

Part One on “Organization, Management and Administration"

Manual of Regulations for Banks (Common provision)

Main caption on “Records”

Subcaption on “Additional
Reports from KBs"

1 1 6 2 . 13

Part One on “Organization, Management and Administration"

Manual of Regulations for Banks (Unique provision for KBs)

The paging is by Parts, each Part beginning with page 1, and so on, corresponding to the
number of pages of the particular Part. For example, Part I, consisting of six (6) pages will
start with a first page indicated as “Part I - Page 1”, and “Part I - Page 6” as its last page. The
pages for updates will follow the same pagination, with letters added to indicate inserted
pages, in the event amendatory regulations require additional pages.

ix
MANUAL OF REGULATIONS FOR BANKS

TABLE OF CONTENTS

PART ONE - ORGANIZATION, MANAGEMENT AND


ADMINISTRATION
A. CLASSIFICATIONS AND POWERS OF BANKS

SECTION X101 Classifications, Powers and Scope of Authorities of Banks


X101.1 Expansion of banking authorities (superseded by
Circ. 271 dated 08 Jan. 2001)
X101.2 Prerequisites for the grant of a universal banking
authority
X101.3 – X101.5 (Reserved)
X101.6 Conditions for the grant of authority to convert into
a lower category

SECTION X102 Basic Guidelines in Establishing Banks


X102.1 Suspension of the grant of new banking licenses on
the establishment of new banks
X102.2 Partial lifting of general moratorium on the licensing
of new thrift banks and rural banks

SECTION X103 Certificate of Authority to Register

SECTIONS X104 - X105 (Reserved)

B. CAPITALIZATION

SECTION X106 Bank Capital


X106.1 Minimum capitalization
X106.2 Capital build-up program
X106.3 Memorandum of Understanding; Prompt Corrective
Action Program; sanctions

SECTIONS X107 - X110 (Reserved)

C. MERGER OR CONSOLIDATION OF BANKS

SECTION X111 Merger or Consolidation to Meet Minimum Capital


X111.1 Requirement of Bangko Sentral approval
X111.2 Rules on exchange of shares

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SECTION X112 Merger or Consolidation Incentives

SECTIONS X113 - X115 (Reserved)

D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTION X116 Minimum Ratio


X116.1 Qualifying capital
X116.2 Risk-weighted assets
X116.3 Definitions
X116.4 Required reports
X116.5 (Reserved)
1116.5 Market risk capital requirement
2116.5 (Reserved)
3116.5 (Reserved)
X116.6 Sanctions
X116.7 Temporary relief
X116.8 Capital treatment of exposures/investments in certain
products

SECTIONS X117 - X118 (Reserved)

SECTION X119 Issuance of Unsecured Subordinated Debt


X119.1 Minimum features of USD
X119.2 Prior BSP approval
X119.3 Pre-qualification requirements of issuing bank
X119.4 Public issuance of unsecured subordinated debt
X119.5 Private or negotiated issuance of unsecured
subordinated debt
X119.6 Issuance overseas of unsecured subordinated debt
X119.7 Qualified investors/buyers
X119.8 Prohibitions on holdings of USD
X119.9 Accounting treatment
X119.10 - X119.12 (Reserved)
X119.13 Sanctions

SECTION X120 Issuance of Hybrid Tier 1 Capital Instruments

E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN


BANKS

SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks


X121.1 Modes of entry of foreign banks
X121.2 Qualification requirements

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X121.3 Guidelines for selection
X121.4 Capital requirements
X121.5 Composition of capital accounts; compliance with
capital ratios
X121. 6 Prescribed ratio of Net due to and permanently
assigned capital
X121.7 Head office guarantee
X121. 8 Scope of authority for locally incorporated subsidiaries
of foreign banks as well as branches with full banking
authority
X121. 9 Limitations
X121.10 Change from one mode of entry to another
X121.11 Listing of shares with the Philippine Stock Exchange
X121.12 Applicability to Philippine corporations

SECTIONS X122 - X125 (Reserved)

F. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION X126 Shares of Stock of Banks


X126.1 Limits of stockholdings in a single bank
X126.2 Transfer of shares
X126.3 Other foreign equity investment in domestic banks
X126.4 Convertibility of preferred stock to common stock
X126.5 Issuance of redeemable shares: conditions;
certification and report; sanctions
X126.6 Stock options/warrants
X126.7 - X126.9 (Reserved)
X126.10 Dealings with stockholders and their related interests

SECTION 1127 Shares of Stock of Universal/Commercial Banks


1127.1 Limits on stockholdings in several banks
1127.2 - 1127.5 (Reserved)

SECTION 2127 Shares of Stock of Thrift Banks


2127.1 Moratorium on ownership ceilings
2127.2 Preferred shares
2127.3 - 2127.5 (Reserved)

SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks


3127.1 Moratorium on ownership ceiling
3127.2 Government-held shares
3127.3 Limits on stockholdings in several rural banks

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3127.4 Convertibility of preferred stock to common stock
3127.5 Equity investment by holding corporations

SECTIONS X128 - X135 (Reserved)

SECTION X136 Dividends


X136.1 Definitions
X136.2 Requirements on the declaration of dividends
X136.3 Net amount available for dividends
X136.4 Reporting and verification
X136.5 Recording of dividends
X136.6 Issuance of fractional shares

SECTION 1137 (Reserved)

SECTION 2137 (Reserved)

SECTION 3137 Limitations/Amount Available on Dividends Declared by Rural


Banks and Cooperative Banks
3137.1 Dividends on government shares

SECTIONS X138 - X140 (Reserved)

G. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION X141 Definition and Qualifications of Directors; Responsibilities and


Duties of Board of Directors
X141.1 Definition/limits
X141.2 Qualifications of a director
X141.3 Powers/responsibilities and duties of directors
X141.4 Confirmation of the election/appointments of directors
and officers
X141.5 Place of board of directors’ meeting
X141.6 - X141.8 (Reserved)
X141.9 Reports required
X141.10 Sanctions

SECTION X142 Definition and Qualifications of Officers


X142.1 Definition of officers
X142.2 Qualifications of an officer
X142.3 Appointment of officers

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SECTION X143 Disqualification of Directors and Officers
X143.1 Persons disqualified to become directors
X143.2 Persons disqualified to become officers
X143.3 Effect of non-possession of qualification or possession
of disqualifications
X143.4 Disqualification procedures
X143.5 Watchlisting

SECTION X144 Bio-data of Directors and Officers

SECTION X145 Interlocking Directorships and/or Officerships


X145.1 Representatives of government

SECTION X146 Profit Sharing Programs

SECTION X147 Compensation and Other Benefits of Directors and Officers

SECTION 1147 (Reserved)

SECTION 2147 (Reserved)

SECTION 3147 Bonding/Training of Directors, Officers and Employees

SECTION X148 (Reserved)

SECTION X149 Conducting Business in an Unsafe/Unsound Manner


X149.1 – X149.8 (Reserved)
X149.9 Sanctions

SECTION X150 Rules of Procedure on Administrative Cases Involving Directors


and Officers of Banks

H. BANKING OFFICES

SECTION X151 Establishment/Relocation/Voluntary Closure/Sale of Branches


X151.1 Prior Monetary Board approval
X151.2 Prerequisites for the grant of authority to establish a
branch/banking office
X151.3 Application for authority to establish branches
X151.4 Branching guidelines
X151.5 Branch processing fee
X151.6 Date of opening
X151.7 Requirements for opening a branch

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X151.8 Relocation/transfer of branches
X151.9 Voluntary closure/ sale of banking offices
X151.10 Sanctions
X151.11 Relocation/Transfer of branch licenses of closed banks
X151.12 Establishment of branches/ loan collection and
disbursement points of microfinance-oriented banks;
establishment of microfinance-oriented branches/loan
collection and disbursement points of banks that are
not microfinance-oriented (deleted by Cir. 505 dated
12 October 2005)
X151.13 - X151.14 (Reserved)
X151.15 Relocation/Transfer of branch licenses of closed banks

SECTION X152 Relocation/Transfer of Head Offices


X152.1 Sanctions

SECTION X153 Establishment of Additional Branches of Foreign Banks


X153.1 Application for authority to establish additional branch
X153.2 Requirements for establishment of additional branch
X153.3 Date of opening
X153.4 Requirements for opening a branch
X153.5 Choice of locations for establishment of branches
X153.6 Sanctions

SECTION X154 Establishment of Offices Abroad


X154.1 Application for authority to establish an office abroad
X154.2 Requirements for establishing an office abroad
X154.3 Conditions attached to the approved application
X154.4 Date of opening
X154.5 Requirements for opening an office abroad
X154.6 Sanctions
X154.7 - X154.8 (Reserved)
X154.9 Establishment of a foreign subsidiary by a bank
subsidiary

SECTION X155 Tellering Booths

I. BANKING DAYS AND HOURS

SECTION X156 Banking Days and Hours


X156.1 Banking hours beyond the minimum
X156.2 Report of, and changes in, banking days and hours
X156.3 Posting of schedule of banking days and hours

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SECTIONS X157 - X160 (Reserved)

J. RECORDS AND REPORTS

SECTION X161 Records


X161.1 Adoption of the Manual of Accounts
X161.2 Philippine Financial Reporting Standards/Philippine
Accounting Standards
X161.3 - X161.8 (Reserved)
1161.9 (Reserved)
2161.9 (Reserved)
3161.9 Retention and disposal of records of rural/cooperative
banks

SECTION X162 Reports


X162.1 Categories and signatories of bank reports
X162.2 Sanctions in case of willful delay in the submission of
reports/refusal to permit examination
X162.3 Submission of certain required information
X162.4 Report on crimes/losses
X162.5 Report on real estate/chattel transactions
X162.6 Reconciliation of head office and branch transactions
X162.7 List of stockholders and their stockholdings
X162.8 Bangko Sentral offices, where reports are submitted
X162.9 Publication/Posting of statement of condition
X162.10 Consolidated financial statements of banks and their
subsidiaries engaged in financial allied undertakings
X162.11 Reports of other banking offices
X162.12 Reports required of foreign subsidiaries/affiliates/
banking offices or non-bank entities of domestic banks
1162.13 Additional reports from UBs/KBs
2162.13 (Reserved)
3162.13 (Reserved)
X162.14 Reports of strikes and lockouts
X162.15 Report on the Sworn Statement on Real Estate/Chattel
Transactions

K. INTERNAL CONTROL

SECTION X163 Internal Control System


X163.1 Proper accounting records
X163.2 Independent balancing
X163.3 Division of duties and responsibilities

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X163.4 Joint custody
X163.5 Signing authorities
X163.6 Dual control
X163.7 Number control
X163.8 Rotation of duties
X163.9 Independence of the internal auditor
X163.10 Confirmation of accounts
X163.11 Other internal control standards
X163.12 Internal control procedures for dormant/inactive
accounts

SECTION X164 Internal Audit Function


X164.1 Status
X164.2 Scope
X164.3 Qualification standards of the internal auditor
X164.4 Code of Ethics and Internal Auditing Standards

L. MISCELLANEOUS PROVISIONS

SECTION X165 Selection, Appointment and Reporting Requirements for External


Auditors; Sanction; Effectivity

SECTION X166 Audited Financial Statements of Banks


X166.1 Financial audit
X166.2 Posting of audited financial statements
X166.3 Disclosure of external auditor’s adverse findings to
the Bangko Sentral; sanction
X166.4 Disclosure requirement in the notes to the audited
financial statements
X166.5 Disclosure requirements in the annual report
X166.6 Posting and submission of annual report

SECTION X167 Business Name

SECTION X168 Management Contracts

SECTION X169 Duties and Responsibilities of Banks and their Directors/Officers


in All Cases of Outsourcing of Banking Functions
X169.1 Prohibition against outsourcing certain banking functions
X169.2 Outsourcing of information technology systems/
processes
X169.3 Outsourcing of other banking functions
X169.4 Service providers
X169.5 Review of subsisting outsourcing contracts

xviii
X169.6 - X169.10 (Reserved)
X169.11 Other banking services for subsidiaries, affiliates and
related companies
X169.12 - X169.18 (Reserved)
X169.19 Penalties

SECTION X170 Compliance System; Compliance Officer


X170.1 Compliance system
X170.2 Compliance officer
X170.3 Compliance risk
X170.4 Responsibilities of the board of directors and senior
management on compliance
X170.5 Status
X170.6 Independence
X170.7 Role and responsibilities of the compliance function
X170.8 Cross-border issues
X170.9 Outsourcing

SECTION X171 Bank Protection


X171.1 Objectives
X171.2 Designation of security officer
X171.3 Security program
X171.4 Security devices
X171.5 Reports
X171.6 Bangko Sentral inspection

SECTIONS X172 - X195 (Reserved)

SECTION X196 Voluntary Liquidation


X196.1 Prior Monetary Board approval
X196.2 Liquidation plan
X196.3 - X196.7 (Reserved)
X196.8 Liquidation report

SECTION X197 (Reserved)

SECTION X198 Insolvency or Receivership of Banks


X198.1 Definition of term
X198.2 Prohibited acts
X198.3 - X198.8 (Reserved)
X198.9 Penalties and sanctions

SECTION X199 General Provision on Sanctions

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PART TWO - DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS

SECTION X201 Authority to Accept or Create Demand Deposits


X201.1 Prerequisites to accept or create demand deposits
for Thrift Banks/Rural Banks/Cooperative Banks
X201.2 Requirements for accepting demand deposits
X201.3 Sanctions

SECTION X202 Temporary Overdrawings; Drawings Against Uncollected


Deposits

SECTION X203 Checks Without Sufficient Funds

SECTION X204 Current Accounts of Bank Officers and Employees

SECTION 1205 (Reserved)

SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to Accept
Demand Deposits

SECTION 3205 Check Clearing Rules for Rural Banks Who Are Members of the
Philippine Clearing House Corporation

SECTION X206 - X212 (Reserved)

B. SAVINGS DEPOSITS

SECTION X213 Servicing Deposits Outside Bank Premises

SECTION X214 Withdrawals

SECTION X215 Rental Deposits of Lessees

SECTIONS X216 - X222 (Reserved)

C. NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS

SECTION X223 Authority to Accept Negotiable Order of Withdrawal Accounts


X223.1 Prerequisites to accept NOW accounts for thrift banks/
rural banks/cooperative banks
X223.2 Requirements for accepting NOW accounts
X223.3 Sanctions

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SECTION X224 Rules on Servicing NOW Accounts

SECTION X225 Minimum Features

SECTION X226 Clearing of NOW

SECTIONS X227 - X230 (Reserved)

D. TIME DEPOSITS

SECTION X231 Term of Time Deposits

SECTION X232 Special Time Deposits

SECTION X233 Certificates of Time Deposit


X233.1 Prerequisites to issue NCTDs for thrift banks/rural
banks/cooperative banks
X233.2 Requirements for issuing NCTDs
X233.3 Minimum features
X233.4 Insurance coverage
X233.5 Desistance from issuing new NCTDs
X233.6 Sanctions
X233.7 - X233.8 (Reserved)
X233.9 Long-term negotiable certificates of time deposit
X233.10 (Reserved)
X233.11 Long-term non-negotiable tax-exempt certificates of
time deposit

E. DEPOSIT SUBSTITUTE OPERATIONS (QUASI-BANKING


FUNCTIONS)

SECTION X234 Scope of Quasi-Banking Functions


X234.1 Elements of quasi-banking
X234.2 Definition of terms and phrases
X234.3 Transactions not considered quasi-banking
X234.4 Pre-conditions for the exercise of quasi-banking
functions
X234.5 Certificate of Authority from the Bangko Sentral

SECTION X235 Deposit Substitute Instruments


X235.1 Prohibition against use of acceptances, bills of
exchange and trust certificates
X235.2 Negotiation of promissory notes

xxi
X235.3 Minimum features
X235.4 Interbank loan transactions
X235.5 Delivery of securities
X235.6 Other rules and regulations governing the issuance
and treatment of deposit substitute instruments
X235.7 - X235.11 (Reserved)
X235.12 Repurchase agreements covering government
securities, commercial papers and other negotiable
and non-negotiable securities or instruments

SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitute

SECTION X237 Money Market Placements of Rural Banks


X237.1 Definition of terms
X237.2 Conditions required on accepted placements not
covered by prohibition
X237.3 Sanctions

SECTION X238 Without Recourse Transactions


X238.1 Delivery of securities
X238.2 Sanctions
X238.3 Securities custodianship operations

SECTION X239 Issuance of Bonds


X239.1 Definition of terms
X239.2 Compliance with Securities and Exchange
Commission rules on registration of bond issues
X239.3 Notice to Bangko Sentral ng Pilipinas
X239.4 Minimum features
X239.5 Issuance of commercial papers

F. GOVERNMENT DEPOSITS

SECTION X240 Statement of Policy


X240.1 Prior Monetary Board approval
X240.2 Banks which may accept government funds
X240.3 Prerequisites for the grant of authority to accept
deposits from the Government and government
entities
X240.4 Application for authority
X240.5 Limits on funds of the Government and government
entities that may be deposited with banks
X240.6 Liquidity floor

xxii
X240.7 Exempt transactions
X240.8 Reports
X240.9 Sanctions
X240.10 - X240.14 (Reserved)
X240.15 Acceptance by banks with internet banking facility
of payment of fees for account of government entities

SECTION X241 (Reserved)

G. INTEREST

SECTION X242 Interest on Deposits/Deposit Substitutes


X242.1 Time of payment of interest on time deposits/deposit
substitutes
X242.2 Treatment of matured time deposits/deposit substitutes

SECTION X243 Disclosure of Effective Rates of Interest

SECTIONS X244 - X252 (Reserved)

H. RESERVES AGAINST DEPOSIT AND DEPOSIT SUBSTITUTE


LIABILITIES

SECTION X253 Accounts Subject to Reserves; Amounts Required


X253.1 Regular reserves against deposit and deposit substitute
liabilities
X253.2 Liquidity reserves

SECTION X254 Composition of Reserves


X254.1 Allowable drawings against reserves
X254.2 Exclusion of uncleared checks and other cash items
X254.3 Interest income on reserve deposits
X254.4 Book entry method for reserve securities

SECTION X255 Exemptions from Reserve Requirements

SECTION X256 Computation of Reserve Position


X256.1 Measurement of reserve requirement
X256.2 – X256.4 (Reserved)
X256.5 Guidelines in calculating and reporting to the BSP
the required reserves on deposit substitutes evidenced
by repurchase agreements covering government
securities

xxiii
SECTION X257 Reserve Deficiencies; Sanctions
X257.1 Chronic reserve deficiency; penalties
X257.2 Failure to cover overdrawings with the Bangko Sentral
X257.3 Payment of penalties on reserve deficiencies

SECTION X258 Report on Compliance

SECTIONS X259 - X260 (Reserved)

I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS

SECTION X261 Booking of Deposits and Withdrawals


X261.1 Clearing cut-off time
X261.2 Definitions
X261.3 Booking of cash deposits
X261.4 Booking of non-cash deposits
X261.5 Booking of deposits after regular banking hours
X261.6 Other records required
X261.7 Notice required

SECTION X262 Miscellaneous Rules on Deposits


X262.1 Specimen signatures, ID photos
X262.2 Insurance on deposits
X262.3 Certification of compliance with Subsection 55.4 of
R.A. No. 8791

SECTION X263 Service and Maintenance Fees


X263.1 Amendments to terms and conditions for the
imposition of service charges/fees

SECTION X264 Unclaimed Balances

SECTION X265 Acceptance, Encashment or Negotiation of Checks Drawn in


Favor of Commissioner/Collector of Customs

SECTION X266 Deposit Pick-up/Cash Delivery Services


X266.1 Operation of armored cars

SECTION 1266 (Reserved)

SECTION 2266 (Reserved)

SECTION 3266 Qualifying Criteria Before a Rural/Cooperative Bank Engages in


Deposit Pick-up Services

xxiv
SECTION X267 Automated Teller Machines

J. BORROWINGS FROM THE BANGKO SENTRAL

SECTION X268 Eligibility Requirements for Availment of the BSP Rediscounting


Facility by Banks
X268.1 Eligibility requirements for applicant banks
X268.2 Eligible papers and collaterals
X268.3 - X268.9 (Reserved)
X268.10 Constitutional prohibition

SECTION X269 Terms and Conditions of the BSP Loan


X269.1 Rediscounting line
X269.2 (Reserved)
X269.3 Loan value
X269.4 Maturities
X269.5 Rediscount/lending rates and liquidated damages
X269.6 Release of proceeds
X269.7 Remittance of collections/ repayments/arrearages
X269.8 Prohibited transactions
X269.9 Credit examination of borrowing banks
X269.10 Penalties/sanctions
X269.11 Interlocking directorship/officership
X269.12 Transitory provisions

SECTION X270 Repurchase Agreements with the Bangko Sentral

SECTION X271 Bangko Sentral Liquidity Window


X271.1 Nature of liquidity window
X271.2 Terms of credit
X271.3 Limit

SECTION X272 Emergency Loans or Advances to Banking Institutions


X272.1 Nature of emergency loans or advances
X272.2 When an emergency loan or advance may be availed
of
X272.3 Procedures
X272.4 Allowable amount of emergency loan or advance
X272.5 Manner and conditions of release
X272.6 Types of acceptable collaterals
X272.7 Interest rate
X272.8 Term
X272.9 Other documentary requirements
X272.10 General terms and conditions

xxv
SECTION X273 Facility to Committed Credit Line Issuers
X273.1 Nature of special credit accommodations
X273.2 Conditions to access
X273.3 Terms of credit
X273.4 Ceiling

SECTION 1274 (Reserved)

SECTION 2274 Countryside Financial Institutions Enhancement Program for


Thrift Banks (CFIEP)

SECTION 3274 Countryside Financial Institutions Enhancement Program for


Rural and Cooperative Banks

SECTION X275 Recording and Reporting of Borrowings

SECTION X276 Rediscounting Window for Low-Cost Housing as Defined by the


Housing and Urban Development Coordinating Council
(HUDCC)

SECTION 1277 Rediscounting Window Available to All Universal and


Commercial Banks for the Purpose of Providing Liquidity
Assistance to Investment Houses

SECTION 2277 Rediscounting Window Available to TBs for the Purpose of


Providing Liquidity Assistance to Support and Promote
Microfinance Programs

SECTION 3277 Rediscounting Window Available to Rural and Cooperative


Banks for the Purpose of Providing Liquidity Assistance to Support
and Promote Microfinance Programs
3277.1 Eligibility requirements
3277. 2 Microcredit (MCR) line
3277. 3 Terms and conditions
3277.4 Documentary requirements
3277.5 Remittance of collections/ payments/repayments
3277.6 Reports required
3277.7 Accounts verification
3277.8 Sanctions

SECTIONS X278 - X280 (Reserved)

xxvi
K. OTHER BORROWINGS

SECTION X281 Borrowings from the Government


X281.1 Exemption from reserve requirement

SECTION X282 Borrowings from Trust Departments or Investment Houses

SECTION 1283 (Reserved)

SECTION 2283 Mortgage/Chattel Mortgage Certificates of Thrift Banks

SECTION 3283 (Reserved)

SECTION 1284 (Reserved)

SECTION 2284 (Reserved)

SECTION 3284 Borrowings of Rural Banks/Cooperative Banks

SECTIONS X285 - X298 (Reserved)

SECTION X299 General Provision on Sanctions

PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS

SECTION X301 Lending Policies


X301.1 (Reserved)
1301.1 Rules and regulations to govern the development and
implementation of banks’ internal credit risk rating
systems
X301.2 – X301.5 (Reserved)
X301.6 Large exposures and credit risk concentrations

SECTION X302 Loan Portfolio and Other Risk Assets Review System
X302.1 Provisions for losses; booking
X302.2 Sanctions

A. LOANS IN GENERAL

SECTION X303 Credit Exposure Limits to a Single Borrower


X303.1 Definition of terms
X303.2 Rediscounted papers included in loan limit

xxvii
X303.3 Credit risk transfer
X303.4 Exclusions from loan limit
X303.5 Sanctions
X303.6 – X303.7 (Reserved)
X303.8 Limit for wholesale lending activities of government
banks

SECTION X304 Grant of Loans and Other Credit Accommodations


X304.1 General guidelines
X304.2 Purpose of loans and other credit accommodations
X304.3 Prohibited use of loan proceeds
X304.4 Signatories

SECTION X305 Interest and Other Charges


X305.1 Rate of interest in the absence of stipulation
X305.2 Escalation clause; when allowable
X305.3 Floating rates of interest
X305.4 Accrual of interest earned on loans

SECTION X306 Past Due Accounts


X306.1 Accounts considered past due
X306.2 Demand loans
X306.3 Renewals/extensions
X306.4 Restructured loans
X306.5 Write-off of loans as bad debts
X306.6 Writing-off microfinance loans as bad debts

SECTION X307 “Truth in Lending Act” Disclosure Requirement


X307.1 Definition of terms
X307.2 Information to be disclosed
X307.3 Inspection of contracts covering credit transactions
X307.4 Posters

SECTION X308 Amortization on Loans and Other Credit Accommodations.

SECTION X309 Non-Performing Loans


X309.1 Accounts considered non-performing; definitions
X309.2 Reporting requirement

SECTION X310 (Reserved)

xxviii
B. SECURED LOANS

SECTION X311 Loans Secured by Real Estate Mortgages


X311.1 Loans secured by junior mortgage on real estate
1311.2 (Reserved)
2311.2 (Reserved)
3311.2 Eligible real estate collaterals on rural/cooperative
bank loans
X311.3 Insurance on real estate improvements
1311.4 (Reserved)
2311.4 Foreclosure by thrift banks
3311.4 Foreclosure by rural/cooperative banks
X311.5 Redemption of foreclosed real estate mortgage

SECTION X312 Loans and Other Credit Accommodations Secured By Chattels


and Intangible Properties

SECTION X313 Loans and Other Credit Accommodations Secured By Personal


Properties

SECTION X314 Increased Loan Values and Terms of Loans for Home-Building

SECTION X315 Loans Secured by Certificates of Time Deposit

SECTIONS X316 - X318 (Reserved)

C. UNSECURED LOANS

SECTION X319 Requirement for Grant of Loans and Other Credit


Accommodations
X319.1 General guidelines
X319.2 Proof of financial capacity of borrower
X319.3 Signatories
X319.4 - X319.5 (Reserved) (deleted by Cir. 389 dated
25 June 2003)
X319.6 Credit card receivables (superseded by Cir. 398 dated
21 August 2003)

SECTION X320 Credit Card Operations; General Policy


X320.1 Definition of terms
X320.2 Risk management system
X320.3 Minimum requirements
X320.4 Information to be disclosed

xxix
X320.5 Interest accrual on past due loans
X320.6 Finance charges
X320.7 Deferral charges
X320.8 Late payment/penalty fees
X320.9 Confidentiality of information
X320.10 Suspension, termination of effectivity and reactivation
X320.11 Inspection of records covering credit card transactions
X320.12 Offsets
X320.13 Handling of complaints
X320.14 Unfair collection practices
X320.15 Sanctions

SECTION X321 (Reserved)

D. RESTRUCTURED LOANS

SECTION X322 Restructured Loans; General Policy


X322.1 Definition; when to consider performing/non-
performing
X322.2 Procedural requirements
X322.3 Restructured loans considered past due
X322.4 Classification
SECTIONS X323 - X325 (Reserved)

E. LOANS AND OTHER CREDIT ACCOMODATIONS TO


DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED
INTERESTS

SECTION X326 General Policy


X326.1 Definitions

SECTION X327 Transactions Covered

SECTION X328 Transactions Not Covered


X328.1 Applicability to credit card operations

SECTION X329 Direct or Indirect Borrowings

SECTION X330 Individual Ceilings


X330.1 Exclusions from individual ceiling

SECTION X331 Aggregate Ceiling; Ceiling on Unsecured Loans, Other Credit


Accommodations and Guarantees

xxx
SECTION X332 Exclusions from Aggregate Ceiling

SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks

SECTION X334 Procedural Requirements

SECTION X335 Reportorial Requirements

SECTION X336 Sanctions

SECTION X337 Waiver of Secrecy of Deposit

SECTION X338 Financial Assistance to Officers and Employees


X338.1 Mechanics
1338.2 Funding by foreign banks
X338.3 Other conditions/limitations

SECTION X339 Transitory Provisions


X339.1 - X339.3 (Reserved)
X339.4 Reportorial requirements

SECTION X340 (Reserved)

F. MANDATORY CREDITS

SECTION X341 Agrarian Reform and Agricultural Credit


X341.1 Definition of terms
X341.2 Who may borrow; purposes
X341.3 Required allocation for agrarian reform and
agricultural credit in general
X341.4 Computation of loanable funds
X341.5 Allowable alternative compliance
X341.6 Syndicated type of agrarian reform credit/agricultural
credit
X341.7 Interest and other charges
X341.8 Unused agri-agra funds to be utilized for socialized
and low-cost housing
X341.9 Submission of reports
X341.10 - X341.11 (Reserved)
X341.12 Consolidated compliance
X341.13 - X341.14 (Reserved)
X341.15 Sanctions

xxxi
SECTION X342 Mandatory Credit to Small Enterprises
X342.1 Definition of terms
X342.2 Mandatory allocation of credit resources to small and
medium enterprises
X342.3 Eligible investments
X342.4 Ineligible instruments
X342.5 Guarantee coverage
X342.6 Submission of reports
X342.7 Lendings to medium enterprises
X342.8 Sanctions
X342.9 - X342.14 (Reserved)
X342.15 Accreditation guidelines for rural and thrift banks
under the SME Unified Lending Opportunities for
National Growth (SULONG)

G. SPECIAL TYPES OF LOANS

SECTION X343 Interbank Loans


X343.1 Systems and procedures for interbank call loan
transactions
X343.2 Accounting procedures
X343.3 Settlement procedures for interbank loan transactions

SECTION X344 Loans to Thrift/Rural/Cooperative Banks


X344.1 Loans under Section 12 of R.A. No. 7353, Section
10 of R.A. No. 7906 and Article 108, R.A. No. 6938
X344.2 Loans under Section 14 of R.A. No. 7353

SECTIONS X345 - X346 (Reserved)

SECTION X347 Standby Letters of Credit


X347.1 Domestic standby letters of credit
X347.2 Ceiling
X347.3 Reports

SECTION X348 Committed Credit Line for Commercial Paper Issues


X348.1 Who may grant line facility
X348.2 Ceilings
X348.3 Terms; conditions; restrictions
X348.4 Reports to the Bangko Sentral
X348.5 Loan limit

xxxii
SECTION X349 Agriculture and Fisheries Projects with Long Gestation Periods
X349.1 Definition of terms
X349.2 Grace period
X349.3 Responsibility of lending banks
X349.4 Past due loans
X349.5 Non-performing loans

SECTIONS X350 - X360 (Reserved)

SECTION X361 Microfinancing Loans


X361.1 Definition
X361.2 Loan limit; amortization; interest
X361.3 Credit information exemption
X361.4 Exemptions from rules on unsecured loans
X361.5 Sanctions

SECTION X362 - X364 (Reserved)

SECTION X365 Loans to Barangay Micro Business Enterprises


X365.1 Credit delivery
X365.2 Interest on loans to BMBEs
X365.3 Amortization of loans to BMBEs
X365.4 Waiver of documentary requirements
X365.5 Incentives to participating financial institutions
X365.6 Credit guarantee
X365.7 Record
X365.8 Reports to congress
X365.9 Administrative sanctions

SECTION X366 - X375 (Reserved)

H. EQUITY INVESTMENTS

SECTION X376 Scope of Authority


X376.1 Conditions for investment in equities
X376.2 - X376.4 (Reserved)
X376.5 Guidelines for major investments

SECTION X377 Financial Allied Undertakings

SECTION X378 Limits on Investment in the Equities of Financial Allied


Undertakings

xxxiii
SECTION X379 Investments in Venture Capital Corporations
X379.1 Requirements for investors
X379.2 Equity investments of venture capital corporations
X379.3 Business name of venture capital corporations
X379.4 Reportorial requirements; examination by Bangko
Sentral
X379.5 Interlocking directorships and/or officerships

SECTION X380 Non-Financial Allied Undertakings

SECTION 1381 Investments in Non-Allied or Non-Related Undertakings


1381.1 Non-allied undertakings eligible for investment by
universal banks
1381.2 Limits on investments in non-allied enterprises
1381.3 Report on outstanding equity investments in and
outstanding loans to non-allied enterprises

SECTION X382 Investments in Subsidiaries and Affiliates Abroad


X382.1 Application for authority to establish or acquire
subsidiaries and affiliates abroad
X382.2 Requirements for establishing subsidiaries or affiliates
abroad
X382.3 Conditions for approval of application
X382.4 - X382.7 (Reserved)
X382.8 Investment of a bank subsidiary in a foreign subsidiary

SECTION X383 Other Limitations and Restrictions

SECTION X384 (Reserved)

SECTION X385 Sanctions

I. (RESERVED)

SECTIONS X386 - X387 (Reserved)

J . OTHER OPERATIONS

SECTION X388 Purchase of Receivables and Other Obligations


X388.1 Yield on purchase of receivables
X388.2 Purchase of receivables on a “without recourse” basis
X388.3 Purchase of commercial paper
X388.4 Reverse repurchase agreements with Bangko Sentral
X388.5 Investment in debt and readily marketable equity
securities
xxxiv
SECTION 1389 Guidelines on the Investment of UBs and KBs in Credit-Linked
Notes, Structured Products and Securities Overlying
Securitization Structures

SECTION 2389 (Reserved)

SECTION 3389 (Reserved)

SECTIONS X390 – X392 (Reserved)

K. MISCELLANEOUS PROVISIONS

SECTION X393 Loans-to-Deposits Ratio


X393.1 Statement of policy
X393.2 Other methods of compliance
X393.3 Geographical groupings
X393.4 Lagged computation
X393.5 Real and other properties acquired as part of
compliance

SECTION X394 Acquired Assets in Settlement of Loans


X394.1 Posting
X394.2 Booking
X394.3 Sales contract receivable
X394.4 - X394.9 (Reserved)
X394.10 Transfer/sale of non-performing assets to a special
purpose vehicle or to an individual

SECTION X395 Credit Policies of Government-Owned Corporations

SECTION X396 Parcellary Plans on Crop Loans

SECTION 1397 Limits on Real Estate Loans of Universal Banks/Commercial


Banks

SECTION 2397 (Reserved)

SECTION 3397 (Reserved)

SECTION X398 Debt Service Limit on Local Government Borrowings

SECTION X399 General Provision on Sanctions

xxxv
PART FOUR - TRUST, OTHER FIDUCIARY BUSINESS AND
INVESTMENT MANAGEMENT ACTIVITIES

SECTION X401 Statement of Principles

SECTION X402 Scope of Regulations

SECTION X403 Definitions

A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION X404 Authority to Perform Trust and Other Fiduciary Business


X404.1 Application for authority to perform trust and other
fiduciary business
X404.2 Required capital
X404.3 Prerequisites for engaging in trust and other fiduciary
business
X404.4 Pre-operating requirements

SECTION X405 Security for the Faithful Performance of Trust and Other Fiduciary
Business
X405.1 Basic security deposit
X405.2 Eligible securities
X405.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X405.4 Compliance period; sanctions
X405.5 Reserves against peso-denominated Common Trust
Funds and Trust and Other Fiduciary Accounts -
Others
X405.6 Composition of reserves
X405.7 Computation of reserve position
X405.8 Reserve deficiencies; sanctions
X405.9 Report of compliance

SECTION X406 Organization and Management


X406.1 Organization
X406.2 Composition of trust committee
X406.3 Qualifications of committee members, officers and
staff
X406.4 Responsibilities of administration

SECTION X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management


Activities

xxxvi
SECTION X408 Unsafe and Unsound Practices
X408.1 – X408.8 (Reserved)
X408.9 Sanctions

SECTION X409 Trust and Other Fiduciary Business


X409.1 Minimum documentary requirements
X409.2 Lending and investment disposition
X409.3 Transactions requiring prior authority
X409.4 Ceilings on loans
X409.5 Funds awaiting investment or distribution
X409.6 Other applicable regulations on loans and
investments
X409.7 Operating and accounting methodology
X409.8 Tax-exempt individual trust accounts
X409.9 - X409.15 (Reserved)
X409.16 Qualification and accreditation of private banks acting
as trustee on any mortgage or bond issuance by any
municipality, government-owned or controlled
corporation, or any body politic

SECTION X410 Unit Investment Trust Funds/Common Trust Funds


X410.1 Definitions
X410.2 Establishment of a Unit Investment Trust Fund
X410.3 Administration of a Unit Investment Trust Fund
X410.4 Relationship of trustee with Unit Investment Trust Fund
X410.5 Operating and accounting methodology
X410.6 Plan rules
X410.7 Minimum disclosure requirements
X410.8 Exposure limit to single person/entity
X410.9 Allowable investments and valuation
X410.10 Other related guidelines on valuation of allowable
investments
X410.11 Unit Investment Trust Fund administration support
X410.12 Counterparties
X410.13 Foreign currency-denominated Unit Investment Trust
Funds
X410.14 Exemptions from statutory and liquidity reserves,
single borrower's limit, DOSRI

SECTION X411 Investment Management Activities


X411.1 Minimum documentary requirements
X411.2 Minimum size of each investment management
account

xxxvii
X411.3 Commingling of funds
X411.4 Lending and investment disposition
X411.5 Transactions requiring prior authority
X411.6 Title to securities and other properties
X411.7 Ceilings on loans
X411.8 Operating and accounting methodology
X411.9 Tax-exempt individual investment management
accounts

SECTION X412 FCDU/EFCDU Trust Accounts


X412.1 Banks with trust authority
X412.2 Banks without trust authority
X412.3 Additional deposit for the faithful performance of trust
duties
X412.4 Liquidity requirement for FCDU/EFCDU Common
Trust Funds
X412.5 Applicability of rules and regulations

SECTION X413 Required Surplus

B. INVESTMENT MANAGEMENT ACTIVITIES

SECTION X414 Authority to Perform Investment Management


X414.1 Prerequisites for engaging in investment management
activities
X414.2 Pre-operating requirements

SECTION X415 Security for the Faithful Performance of Investment Management


Activities
X415.1 Basic security deposit
X415.2 Eligible securities
X415.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X415.4 Compliance period; sanctions

SECTION X416 Organization and Management

SECTION X417 Non-Investment Management Activities

SECTION X418 Unsound Practices

SECTION X420 Required Surplus

xxxviii
C. GENERAL PROVISIONS

SECTION X421 Books and Records

SECTION X422 Custody of Assets

SECTION X423 Fees and Commissions

SECTION X424 Taxes

SECTION X425 Reports Required


X425.1 To trustor, beneficiary, principal
X425.2 To the Bangko Sentral
X425.3 Post-Bond Flotation Report

SECTION X426 Audits


X426.1 Internal audit
X426.2 External audit
X426.3 Board action

SECTION X427 Authority Resulting from Merger or Consolidation

SECTION X428 Receivership

SECTION X429 Surrender of Trust or Investment Management License.

SECTIONS X430 – X440 (Reserved)

SECTION X441 Securities Custodianship and Securities Registry Operations


X441.1 Statement of policy.
X441.2 Applicability of this regulation
X441.3 Prior Bangko Sentral approval
X441.4 Application for authority
X441.5 Pre-qualification requirements for a securities
custodian/registry
X441.6 Functions and responsibilities of a securities custodian
X441.7 Functions and responsibilities of a securities registry
X441.8 Protection of securities of the customer
X441.9 Independence of the registry and custodian
X441.10 Registry of scripless securities of the Bureau of the
Treasury
X441.11 Confidentiality
X441.12 Compliance with anti-money laundering laws/
regulations

xxxix
X441.13 Basic security deposit
X441.14 Reportorial requirements
X441.15 – X441.28 (Reserved)
X441.29 Sanctions

SECTIONS X442 – X498 (Reserved)

SECTION X499 Sanctions

PART FIVE - FOREIGN CURRENCY DEPOSIT SYSTEM AND OTHER


OPERATIONS IN FOREIGN CURRENCY

SECTION X501 Foreign Currency Deposit System


X501.1 Definition of terms
X501.2 Qualification requirements
X501.3 Authorized transactions
X501.4 Foreign currency cover requirements
X501.5 Foreign currency deposit with the Bangko Sentral
X501.6 Currency composition of the cover
X501.7 Secrecy of deposits
X501.8 Numbered accounts
X501.9 Withdrawability and transferability of deposits
X501.10 Insurance coverage
X501.11 Rates of interest
X501.12 Eligibility as collateral
X501.13 Taxes
X501.14 Exemption from court order or process
X501.15 Inapplicability of the Usury Law
X501.16 Accounting
X501.17 Supervision
X501.18 Sanctions

SECTION X502 Other Transactions in Foreign Currency


X502.1 Mobile foreign exchange booths
X502.2 Off-site automatic multi-currency money changers

SECTION X503 Recognition of positions arising from banks’ foreign currency


options in the computation of net open FX position

SECTIONS X504 – X530 (Reserved)

SECTION X531 Securities Lending

xl
SECTION X532 Repurchase Agreements Involving Foreign Currency-
Denominated Government Securities

SECTIONS X533 – X564 (Reserved)

SECTION X565 Conversion to Peso Loans/ROPA and Transfer to RBU of FCDU/


EFCDU Loans/ROPA

SECTIONS X566 – X598 (Reserved)

SECTION X599 General Provision on Sanctions

PART SIX - MISCELLANEOUS

A. OTHER OPERATIONS

SECTION X601 Open Market Operations


X601.1 Repurchase agreements with Bangko Sentral
X601.2 Reverse repurchase agreements with Bangko Sentral
X601.3 Settlement procedures on the purchase and sale of
government securities under repurchase agreements
with the Bangko Sentral

SECTION X602 Derivatives


X602.1 Scope and pre-qualification requirements
X602.2 Authorized transactions
X602.3 Renewals
X602.4 Risk management guidelines
X602.5 Accounting guidelines
X602.6 Reporting requirements
X602.7 Sanctions
X602.8 - X602.13 (Reserved)
X602.14 Forward and swap transactions
X602.15 Definition of terms
X602.16 Documentation
X602.17 Tenor/maturity of FX forward or swap
X602.18 Cancellations, roll-overs or non-delivery of FX forward
contracts
X602.19 Non-deliverable forward contracts with non-residents
X602.20 Compliance with Anti-Money Laundering rules
X602.21 Reporting requirements
X602.22 - X602.25 (Reserved)
X602.26 Sanctions

xli
SECTION 1602 Forward Contracts With Non-Residents

SECTION X603 Clearing Operations

SECTION X604 Collection of Customs Duties/ Taxes/Levies and Other Revenues


X604.1 Coverage
X604.2 Collection and reporting of internal revenue taxes
X604.3 Collection and reporting of customs duties and import
processing fees
X604.4 Collection and reporting of export/premium duties
X604.5 Remittances thru debit/credit advices
X604.6 Reconciliation of revenue collections
X604.7 Penalty for willful delay on the reporting of
collections/remittances
X604.8 Fines for delayed reports/remittances of collections
X604.9 Liquidity floor requirement on revenue collections
X604.10 Collection of import duties at the time of opening of
letters of credit

SECTION X605 Miscellaneous Operations


X605.1 Collection and paying agents of the Social Security
System
X605.2 Commercial banks as depository of rediscounting
proceeds
X605.3 Collection agents of PhilHealth

B. SUNDRY PROVISIONS

SECTION X606 Bank Premises and Other Fixed Assets


X606.1 Appreciation or increase in book value
X606.2 Ceiling on total investments
X606.3 Reclassification of real and other properties acquired
as bank premises
X606.4 Lease of bank premises
X606.5 - X606.9 (Reserved)
X606.10 Batas Pambansa Blg. 344 – An Act To Enhance The
Mobility Of Disabled Persons By Requiring Certain
Buildings, Institutions, Establishments And Public
Utilities To Install Facilities And Other Devices

SECTION X607 Bank Advertisements

SECTION X608 Assessment Fees on Banks


X608.1 Annual fees on banks

xlii
SECTION X609 Collection of Fines and Other Charges from Banks
X609.1 Payment of fines by banks
X609.2 Cost of checks and documentary stamps
X609.3 Check/demand draft payments to the Bangko Sentral
of thrift, cooperative and rural banks

SECTION X610 Philippine and Foreign Currency Notes and Coins


X610.1 Definition of terms
X610.2 Treatment and disposition of counterfeit Philippine
and foreign currency notes and coins
X610.3 Reproduction and/or use of facsimiles of legal tender
Philippine currency notes
X610.4 Reproduction and/or use of facsimiles of legal tender
Philippine currency coins
X610.5 Clean Note Policy
X610.6 Replacement and redemption of mutilated or unfit
legal tender Philippine currency notes and coins
X610.7 Treatment of Philippine currency notes and coins
called in for replacement
X610.8 Sanctions

SECTIONS X611 - X620 (Reserved)

SECTION X621 Electronic Banking Services


X621.1 Application
X621.2 Pre-screening of applicants
X621.3 Approval in principle
X621.4 Documentary requirements
X621.5 Conditions for Monetary Board approval
X621.6 Pending applications
X621.7 Exemption
X621.8 Transitory provision
X621.9 - X621.11 (Reserved)
X621.12 Sanctions

SECTIONS X622 - X630 (Reserved)

SECTION 1631 Financial Products of Allied Undertakings or Investment House


Units of Banks
1631.1 Statement of principles
1631.2 Prior Monetary Board approval
1631.3 Minimum documentary requirements
1631.4 Financial ratios and other related requirements

xliii
1631.5 Promotional materials; stationeries and other
paraphernalia
1631.6 Contracts/Information to be disclosed
1631.7 Training
1631.8 Other requirements
1631.9 - 1631.10 (Reserved)
1631.11 Sanctions

SECTION 2631 (Reserved)

SECTION 3631 (Reserved)

SECTION X632 Prohibition on the Sale of Foreign-Based Mutual Funds by Banks

SECTION X633 (Reserved)

SECTION 1633 Credit-linked Notes and Similar Credit Derivative Products

SECTION 2633 (Reserved)

SECTION 3633 (Reserved)

SECTIONS X634 - X650 (Reserved)

SECTION 1635 Banks’ Exposures to Structured Products.


1635.1 Statement of policy.
1635.2 Definition
1635.3 Qualified banks.
1635.4 Capital treatment of banks’ exposures to structured
products
1635.5 BSP approval not required

SECTION 2635 (Reserved)

SECTION 3635 (Reserved)

SECTION 1636 EFCDUs Investments in Foreign Currency Denominated


Structured Products
1636.1 Statement of policy
1636.2 Scope
1636.3 Other conditions
1636.4 Capital treatment of EFCDUs
1636.5 BSP approval not required
1636.6 Sanctions

xliv
SECTION 2636 (Reserved)

SECTION 3636 (Reserved)

SECTION 1648 Investments in Securities Overlying Securitization Structures


1648.1 Statement of policy
1648.2 Definition
1648.3 Qualified banks
1648.4 Capital treatment of investments in securities
overlying securitization structures
1648.5 BSP approval not required

SECTION 2648 (Reserved)

SECTION 3648 (Reserved)

SECTION 1650 Offering in the Philippines of Products by Parent Bank and


Branches Abroad of the Parent Bank

SECTION 2650 (Reserved)

SECTION 3650 (Reserved)

SECTION X651 Asset-Backed Securities


X651.1 Definition of terms
X651.2 Authority
X651.3 Management oversight
X651.4 Minimum documents required
X651.5 Minimum features of ABS
X651.6 Disclosures
X651.7 Conveyance of assets
X651.8 Representations and warranties
X651.9 Third party review
X651.10 Originator and seller
X651.11 Trustee and issuer
X651.12 Servicer
X651.13 Underwriter
X651.14 Guarantor
X651.15 Credit enhancement
X651.16 Clean-up call
X651.17 Prohibited activities
X651.18 Amendment
X651.19 Miscellaneous provision
X651.20 Report to BSP

xlv
SECTIONS X652 - X653 (Reserved)

SECTION X654 Recognition and Derecognition of Domestic Credit Rating


Agencies for Bank Supervisory Purposes
X654.1 Statement of policy
X654.2 Minimum eligibility criteria
X654.3 Pre-qualification requirements
X654.4 Inclusion in BSP list
X654.5 Derecognition of credit rating agencies
X654.6 Recognition of PhilRatings as domestic credit rating
agency for bank supervisory purposes.

SECTION X655 - X657 (Reserved)

SECTION X658 Examination by the BSP

SECTION X659 Internationally Accepted Credit Rating Agencies


X659.1 – X659.5 (Reserved)
X659.6 Recognition of FITCH SINGAPORE PTE LTD as
international credit rating agency for bank supervisory
purposes

SECTION X660 – X690 (Reserved)

SECTION X691 Anti-Money Laundering Regulations


X691.1 Minimum guidelines for fund transfers and
correspondent banking account opening and
customer identification
X691.2 - X691.3 (Reserved)
1691.4 Electronic monitoring systems for money laundering
X691.5 – X691.8 (Reserved)
X691.9 Sanctions and penalties

SECTIONS X692 - X698 (Reserved)

SECTION X699 General Provision on Sanctions

xlvi
List of Appendices
05.12.31

LIST OF APPENDICES

No. SUBJECT MATTER

1 Guidelines for the Issuance of a Universal Banking Authority

2 Prescribed Application Forms for the Entry of Foreign Banks

3 Guidelines for the Issuance of a Universal Banking Authority for Branches of


Foreign Banks

4 Format of Affidavit on Transfer of Stocks

5 Standard Pre-Qualification Requirements for the Grant of Banking Authorities

5a Prerequisites for the Grant of Authority to Operate FCDU

5b Qualification requirements for a bank/NBFI applying for accreditation to act as


trustee on any mortgage or bond issued by any municipality, government-owned
or -controlled corporation, or any body politic

6 Reports Required of Banks

7 Certain Information Required from Banks

8 Documents/Information on Organizational Structure and Operational Policies

9 Guidelines for Consolidation of Financial Statements of Banks and Their


Subsidiaries Engaged in Financial Allied Undertakings (deleted by Cir. 494 dated
20 September 2005)

10 Format Certification on Compliance With Rules and Regulations on Bank Protection

11 Pro-Forma Order of Withdrawal for “NOW” Accounts

12 Samples of Standardized Instruments Evidencing Deposit Substitute Liabilities

13 New Rules on the Registration of Long-Term Commercial Papers

14 New Rules on Registration of Short-Term Commercial Papers

15 List of Reserve - Eligible and Non-Eligible Securities

16 Implementing Guidelines of the Countryside Financial Institutions Enhancement


Program

Manual of Regulations for Banks Appendices Page 1


List of Appendices
05.12.31

No. SUBJECT MATTER

17 Rules Governing Issuance of Mortgage/Chattel Mortgage Certificate by Thrift Banks

18 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets
and Setting Up of Allowance for Probable Losses

19 Format of Disclosure Statement on Loan/Credit Transaction

20 Abstract of “Truth in Lending Act” (Republic Act No. 3765)

21 Agreement for the Enhanced Interbank Call Loan Funds Transfer System

21a Settlement Procedures for Interbank Loan Transactions and Purchase and Sale of
Government Securities Under Repurchase Agreements with the Bangko Sentral

21b Intraday Liquidity Facility for the Implementation of Settlement Procedures Under
Appendix 21a thru the Improved Interbank Call Loan Funds Transfer System
(MIPS 2)

22 List of Non-Allied Undertaking where UBs may Invest in Equities

23 Credit Priority Classification

24 Sample Investment Management Agreement

25 Risk Management Guidelines for Derivatives

26 Risk Disclosure Statement for Derivatives Activities

27 Accounting Guidelines For Derivatives (Incorporated in X602.5)

28 Clearing Procedures

28a Clearing Operations Between Regional Clearing Center and the Manila Clearing
Center (Tarlac, Tarlac Used As Sample)

29 Procedures on Collection of Fines From Banks

30 Prescribed Format Memorandum of Understanding

31 Implementing Guidelines for Thrift Banks Authorized to Accept Demand Deposits


and Rural Banks who are Members of the Philippine Clearing House Corporation

32 Illustrations when a Director, Officer and Stockholder (DOS) shall Waive the
Secrecy of Deposits

Appendices Page 2 Manual of Regulations for Banks


List of Appendices
05.12.31

No. SUBJECT MATTER

33 Classification, Accounting Procedures, Valuation and Sales and Transfers of


Investments in All Debt Securities and Marketable Equity Securities

33a Establishing the Market Benchmarks/Reference Prices and Computation Method


Used to Mark-To Market Debt and Marketable Equity Securities

34 Guidelines on the Use of Scripless (Ross) Securities as Security Deposit for the
Faithful Performance of Trust Duties

35 Proforma Payment Form

36 Suggested Gestation/Grace Periods for Agriculture and Fisheries Projects

37 Basic Guidelines in Establishing Banks

38 Guidelines for the Organization of Cooperative Banks

39 Settlement of Interbank Transactions Vis-À-Vis Covering Reserve Requirement/


Deficiency of Banks’ DDA with BSP

40 Guidelines Governing the Rediscounting of Housing Loan Papers of Qualified


Banks Under HUDCC Program

41 Minimum Criteria for Accreditation of Participating Financial Institutions (PFIs) In


Government Banks Wholesale Lending Program

42 Deed of Undertaking for the Issuance of Redeemable Preferred Shares

43 Guidelines to Govern the Selection, Appointment and the Reporting Requirement


for External Auditors of Banks

44 Implementing Rules and Regulations of Republic Act No. 6848 (The Islamic Bank
Charter)

45 Notes on Microfinance

46 Guidelines to Incorporate Market Risk in the Risk-Based Capital Adequacy


Framework

46a Market Risk Capital Treatment for Dollar-Linked Peso Notes

46b Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk
(For Universal Banks and Commercial Banks with Expanded Derivatives Authority)

Manual of Regulations for Banks Appendices Page 3


List of Appendices
05.12.31

No. SUBJECT MATTER

46c Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk
(For Universal Banks and Commercial Banks with Expanded Derivatives Authority
But Without Options Transactions)

46d Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk
(For Universal Banks and Commercial Banks Without Expanded Derivatives
Authority)

46e Procedures to be Observed by Universal and Commercial Banks Applying for


BSP Recognition of Their Own Internal Models for Calculating Market Risk Capital

47 Guidelines for the Establishment and Administration/Management of Sinking Fund


for the Redemption of Redeemable Private Preferred Shares

48 Activities Which May Be Considered Unsafe and Unsound Banking Practices

49 Certification of Compliance with Section 55.4 of Republic Act No. 8791

50 Guidelines on Retention and Disposal of Records of Rural and Cooperative Banks

51 Format Certification on FCDU Lending to RBU

51a Sample Computation on FCDU Lending to RBU

52 Revised Implementing Rules and Regulations R.A. No. 9160, as Amended by


R.A. No. 9194

52a Anti-Money Laundering Regulations

52b Minimum Guidelines for Fund Transfers

52c Minimum Guidelines for Correspondent Banking Account Opening and Customer
Identification

53 Certification of Compliance with Anti-Money Laundering Regulations

54 Details on the Computation of Quarterly Interest Payments Credited to the Demand


Deposit Accounts of Banks’ Legal Reserve Deposits with BSP

55 SME Unified Lending Opportunities for National Growth (SULONG) Bank


Accreditation Application for Rural and Thrift Banks Eligibility and Documentary
Requirements

Appendices Page 4 Manual of Regulations for Banks


List of Appendices
05.12.31

No. SUBJECT MATTER

56 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or to an


Individual

56a Accounting Guidelines on the Sale of Non-Performing Assets to Special Purpose


Vehicles and to Qualified Individuals for Housing Under “The Special Purpose
Vehicle (SPV) Act of 2002”

57 Circular No. 402 Revised Guidelines on the Flotation of Bonds by Local


Government Units (LGUs) [Without National Government Guarantee]

58 Guidelines and Minimum Documentary Requirements for Foreign Exchange (FX)


Forward and SWAP Transactions

59 Conversion/Transfer of FCDU Loans to RBU

60 Rules and Regulations on Common Trust Funds

61 Checklist of BSP Requirements in the Submission of Audited Financial Statements


and Annual Report

62 Quarterly Investment Disclosure Statement

63 Implementation Plans Under the New International Capital Standards as Contained


in the Basel Committee on Banking Supervision (BCBS) Document International
Convergence of Capital Measurement and Capital Standards

63a Qualifying Capital Under the Risk Based Capital Adequacy Framework

64 BSP Rules of Procedure on Administrative Cases Involving Directors and Officers


of Banks

65 Format Certification

66 Regulatory Requirements in Investing in Credit-Linked Notes, Structured Products


and Securities Overlying Securitization Structures by UBs and KBs

67 The Guidelines for the Imposition of Monetary Penalty for Violations/Offenses


with Sanctions Falling Under Section 37 of R.A. No. 7653 on Banks, Directors
and/or Officers

Manual of Regulations for Banks Appendices Page 5


§ X101
05.12.31

PART ONE

ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. CLASSIFICATIONS AND POWERS (d) in case of publicly-listed UBs, the


OF BANKS power to own up to one hundred percent
(100%) of the voting stock of only one
Section X101 Classifications, Powers (1) other UB or KB.
and Scope of Authorities of Banks. The A UB may perform the functions of an
following are the classifications, powers and IH either directly or indirectly through a
scope of authorities of banks, as well as the subsidiary IH; in either case, the
prerequisites for the grant of banking underwriting of equity securities and
authorities. securities dealing shall be subject to
a. Classifications of banks. Banks are pertinent laws and regulations of the
classified into the following subject to the Securities and Exchange Commission
power of the Monetary Board to create other (SEC): Provided, That if the IH functions are
classes or kinds of banks: performed directly by the UB, such
(1) Universal banks (UBs); functions shall be undertaken by a separate
(2) Commercial banks (KBs); and distinct department or other similar
(3) Thrift banks (TBs), as defined in unit in the UB: Provided, further, That a
Republic Act (R.A.) No. 7906, which shall UB cannot perform such functions both
be composed of: (a) savings and mortgage directly and indirectly through a subsidiary.
banks, (b) stock savings and loan associations,
and (c) private development banks; (2) KBs. In addition to the general
(4) Rural banks (RBs), as defined in powers incident to corporations and those
R. A. No. 7353; provided in other laws, a KB shall have the
(5) Cooperative banks (Coop Banks), as authority to exercise all such powers as may
defined in R. A. No. 6938; and be necessary to carry on the business of
(6) Islamic banks (IBs), as defined in commercial banking, such as accepting
R.A. No. 6848. drafts and issuing letters of credit;
b. Powers and scope of authorities discounting and negotiating promissory
The following are the powers and scope of notes, drafts, bills of exchange, and other
authorities of banks. evidences of debt; accepting or creating
(1) UBs. A UB shall have the authority demand deposits; receiving other types of
to exercise, in addition to the powers and deposits and deposit substitutes; buying
services authorized for a KB as enumerated and selling foreign exchange and gold or
in Item “b(2)” and those provided by other silver bullion; acquiring marketable bonds
laws, the following: and other debt securities; and extending
(a) the powers of an investment house credit, subject to such rules as the Monetary
(IH) as provided under existing laws; Board may promulgate. These rules may
(b) the power to invest in non-allied include the determination of bonds and
enterprises; other debt securities eligible for investment,
(c) the power to own up to one the maturities and aggregate amount of
hundred percent (100%) of the equity in a such investment.
TB, an RB, a financial allied enterprise, or a It may also exercise or perform any or
non-financial allied enterprise; and all of the following:

Manual of Regulations for Banks Part I - Page 1


§ X101
05.12.31

(a) invest in the equities of allied (i) act as correspondent for other
enterprises as provided in Sections 31 and financial institutions;
32 of R.A. No. 8791; (j) purchase, hold and convey real
(b) purchase, hold and convey real estate as specified under Sections 51 and
estate as specified under Sections 51 and 52 of R.A. No. 8791; and
52 of R.A. No. 8791; (k) offer other banking services as
(c) receive in custody funds, provided in Section 53 of R.A. No. 8791.
documents and valuable objects; With prior approval of the Monetary
(d) act as financial agent and buy and Board, and subject to such guidelines as
sell, by order of and for the account of their may be established by it, TBs may also
customers, shares, evidences of indebtedness perform the following services:
and all types of securities; (l) open current or checking accounts;
(e) make collections and payments for (m) engage in trust, quasi-banking
the account of others and perform such functions and money market operations;
other services for their customers as are not (n) act as collection agent for
incompatible with banking business; government entities, including but not
(f) upon prior approval of the Monetary limited to, the Bureau of Internal Revenue
Board, act as managing agent, adviser, (BIR), Social Security System (SSS) and the
consultant or administrator of investment Bureau of Customs (BOC);
management/advisory/consultancy (o) act as official depository of national
accounts; agencies and of municipal, city or
(g) rent out safety deposit boxes; and provincial funds in the municipality, city
(h) engage in quasi-banking functions. or province where the TB is located;
(3) TBs. In addition to the powers (p) issue mortgage and chattel
provided in other laws, a TB may perform mortgage certificates, buy and sell them for
any or all of the following services: its own account or for the account of others,
(a) grant loans, whether secured or or accept and receive them in payment or
unsecured; as amortization of its loan; and
(b) invest in readily marketable bonds (q) invest in the equity of allied
and other debt securities, commercial undertakings.
papers and accounts receivable, drafts, bills (4) RBs. In addition to the powers
of exchange, acceptances or notes arising provided in other laws, an RB may perform
out of commercial transactions; any or all of the following services:
(c) issue domestic letters of credit; (a) extend loans and advances
(d) extend credit facilities to private and primarily for the purpose of meeting the
government employees; normal credit needs of farmers, fishermen
(e) extend credit against the security of or farm families as well as cooperatives,
jewelry, precious stones and articles of similar merchants, private and public employees;
nature, subject to such rules and regulations (b) accept savings and time deposits;
as the Monetary Board may prescribe; (c) act as correspondent of other
(f) accept savings and time deposits; financial institutions;
(g) rediscount paper with the Land (d) rediscount paper with the LBP, DBP
Bank of the Philippines (LBP), Development or any other bank, including its branches
Bank of the Philippines (DBP), and other and agencies. Said banks shall specify the
government-owned or-controlled corporations; nature of paper deemed acceptable for
(h) accept foreign currency deposits as rediscount, as well as the rediscount rate
provided under R.A. No. 6426, as amended; to be charged by any of these banks;

Part I - Page 2 Manual of Regulations for Banks


§ X101
05.12.31

(e) act as collection agent; (f) accept drafts and issue letters of
(f) offer other banking services as credit or letters of guarantee, negotiate notes
provided in Section 53 of R.A. No. 8791. and bills of exchange and other evidence
With prior approval of the Monetary of indebtedness under the universally
Board, an RB may perform any or all of the accepted Islamic financial instruments;
following services: (g) act as collection agent insofar as the
(g) accept current or checking payment orders, bills of exchange or other
accounts: Provided, That such RB has net commercial documents are exclusive of riba
assets of at least P5.0 million; or interest prohibitions;
(h) accept NOW accounts; (h) provide financing with or without
(i) act as trustee over estates or collateral by way of leasing, sale and
properties of farmers and merchants; leaseback, or cost plus profit sales
(j) act as official depository of arrangement;
municipal, city or provincial funds in the (i) handle storage operations for goods
municipality, city or province where it is or commodity financing secured by
located; warehouse receipts presented to the bank;
(k) sell domestic drafts; and (j) issue shares for the account of
(l) invest in allied undertakings. institutions and companies assisted by the
(5) Coop Banks. A Coop Bank shall be bank in meeting subscription calls or
organized primarily to provide financial and augmenting their capital and/or fund
credit services to cooperatives and may requirements as may be allowed by law;
perform any or all of the services offered (k) undertake various investments in all
by RBs. transactions allowed by the Islamic Shari’a
(6) IBs. In addition to the general in such a way that shall not permit the
powers incident to corporations and those haram (forbidden), nor forbid the halal
provided in other laws, as well as in (permissible);
Circular No. 105 (Appendix 44), insofar as (l) act as an official government
they are not inconsistent or incompatible depository, or its branches, subdivisions and
with the provisions of R.A. No. 6848, an IB instrumentalities and of government-owned
may perform any or all of the following or -controlled corporations, particularly
services: those doing business in the autonomous
(a) open savings accounts for region;
safekeeping or custody with no (m) issue investment participation
participation in profit and losses except certificates, muquaradah (non-interest-
unless otherwise authorized by the account bearing bonds), debentures, collaterals and/
holders to be invested; or the renewal and refinancing of the
(b) accept investment account same, with the approval of the Monetary
placements and invest the same for a term Board to be used by the IB in its financing
with the IB’s funds in Islamically permissible operations for projects that will promote the
transactions on participation basis; economic development primarily of the
(c) accept foreign currency deposits Autonomous Region;
from banks, companies, organizations and (n) carry out financing and joint
individuals, including foreign governments; investment operations by way of mudarabh
(d) buy and sell foreign exchange; purchasing for others on a cost-plus
(e) act as correspondent of banks and financing arrangement, and invest funds
institutions to handle remittances or any directly in various projects or through the
fund transfers; use of funds whose owners desire to invest

Manual of Regulations for Banks Part I - Page 3


§§ X101 - X101.6
05.12.31

jointly with other resources available to the A bank whose shares of stock are
IB on a joint mudarabh basis; and already listed in the Philippine Stock
(o) invest in equities of the following Exchange (PSE) at the time of filing of its
allied undertakings: application for UB authority shall be
(1) Warehousing companies; deemed to have complied with the public
(2) Leasing companies; offering requirement. Likewise, an
(3) Storage companies; applicant bank may opt to have its shares
(4) Companies engaged in the listed in the PSE directly instead of passing
management of mutual funds but not in the through the process of public offering. In
mutual funds themselves; and either case, at least ten percent (10%) of
(5) Such other similar activities as the the applicant bank’s capital stock should
Monetary Board has declared or may be held by public stockholders before it can
declare as appropriate from time to time, be granted the license for authority to
subject to existing limitations imposed by law. operate as a UB.
c. Listing of bank shares in the stock
§ X101.1 Expansion of banking exchange. Domestic banks granted a UB
authorities. (Superseded by Circular 271 license, existing or new, must list their
dated 8 Jan. 2001) shares in the PSE within three (3) years:
Provided, That in the case of new UBs, the
§ X101.2 Prerequisites for the grant three (3) year period shall be reckoned from
of a universal banking authority the date the license to operate as a UB was
a. Compliance with guidelines. A granted. In the case of existing UBs which
domestic bank seeking authority to operate have not listed their shares in the exchange,
as a UB shall submit an application to the the three (3) year period lapsed on 27
appropriate supervising and examining December 1998.
department (SED) of the BSP. The applicant The guidelines on public offering and
shall comply with the guidelines for the listing of bank shares are enumerated in
issuance of a UB authority and shall submit Appendix 1.
all the documentary requirements
enumerated in Appendix 1. §§ X101.3 – X101.5 (Reserved)
b. Public offering of bank shares. A
domestic bank applying for a UB authority § X101.6 Conditions for the grant of
shall, as a condition to the approval of its authority to convert into a lower category
application, make a public offering of at a. That the bank must have complied
least ten percent (10%) of the required with the end-2000 minimum capital
minimum capital and this condition must requirement and other laws/regulations
be complied with before it can be granted applicable to the lower bank category into
the license for authority to operate as a UB. which it is converting. For this purpose,
The term public offering shall mean the the term “capital” shall be as defined under
offer to sell equity shares to the public. Sec. X106;
Public shall refer to all prospective b. That the bank immediately upon
stockholders, excluding the bank’s receipt of notice of approval of conversion
directors, shareholders owning twenty shall not engage in nor renew transactions
percent (20%) or more of the bank’s under authorities not associated with those
subscribed capital stock, together with those allowed for the lower bank category into
of their relatives within the fourth degree of which it is converting and within six (6)
consanguinity or affinity, and corporations months from date of receipt of notice of
controlled or affiliated with them. approval of its application for conversion,

Part I - Page 4 Manual of Regulations for Banks


§§ X101.6 - X102.1
05.12.31

the bank shall phase-out all inherent mentioned in Item “b” above shall be
powers and activities under special imposed;
authorities not normally associated to the d. That the bank shall submit the
lower bank category into which it is pertinent amended Articles of Incorporation
converting: Provided, That a TB (previously and By-Laws duly registered with the SEC
authorized by the Monetary Board to accept within six (6) months from date of receipt
demand deposits) may be allowed to retain of notice of approval of its application;
such authority when converting into an RB e. That the bank shall fully disclose its
but may clear checks only through a new status in its signage, financial
correspondent bank and shall not be statements and stationeries; and
allowed to participate directly in the PCHC f. That the bank shall start operation
and the BSP check clearing operations: in the lower category into which it is
Provided, further, That for failure to comply converting after approval by the SEC of the
with these requirements, the following bank’s amended Articles of Incorporation
monetary and non-monetary penalties shall and By-Laws, its compliance with all the
be imposed reckoned from the set deadline conditions of approval of the conversion
until the bank has fully complied with the and the issuance by the BSP of a certificate
said requirements of authority to operate.
(1) Monetary penalties The same conditions and sanctions
From UB to KB P30,000/day mentioned in Items “a” to “f” above shall
From KB to TB 15,000/day apply to all banks which have downgraded
From TB to RB or with approved downgrading prior to
Within Metro Manila P 5,000/day 13 March 2000: Provided, That the
Outside Metro Manila 500/day penalties mentioned in Items “b” and “c”
(2) Non-monetary penalties above shall be reckoned from their
(a) Suspension of branching privileges; respective prescribed deadlines or within
(b) Suspension of declaration of cash six (6) months from 13 March 2000, if no
dividends; such deadline is prescribed.
(c) Restriction on lending to affiliates;
(d) Denial of access to BSP Sec. X102 Basic Guidelines in Establishing
rediscounting facilities; Banks. In establishing a new banking
(e) Suspension of authority to accept organization and a Coop Bank, the basic
or handle government deposits; guidelines shown in Appendix 37 and
(f) Suspension of authority to engage Appendix 38, respectively, shall be
in derivatives activities (for a UB converting observed.
into a KB); and
(g) Suspension of authority to invest in § X102.1 Suspension of the grant of
allied undertakings. new banking licenses on the establishment
c. That a bank which has not of new banks. Pending completion of a
corrected as of date of application the major study, there shall be an indefinite
findings/violations noted in its latest moratorium on the establishment of new
examination shall submit upon application banks, except in cities and municipalities
a Memorandum of Understanding that it where there are no existing banking offices.
shall correct the same within a period of The moratorium shall apply to all
six (6) months from date of receipt of notice applications for establishment of new banks,
of approval of its application, otherwise, the including pending ones received prior to
same monetary and non-monetary penalties 16 August 1999.

Manual of Regulations for Banks Part I - Page 5


§§ X102.1 - X102.2
05.12.31

However, approved but not yet opened d. The moratorium under Section 8 of
banks shall be exempted from the R. A. No. 8791 shall not be applicable to:
moratorium. Requests for extension of the (1) acquisition or purchase by foreign
period within which to open approved but banks of up to one hundred percent (100%)
not yet opened banks shall, however, be of the voting stock of existing domestic KBs;
evaluated on a case-to-case basis (2) the transfer of license of an existing
depending, among others, on the bank’s KB to another corporation, subject to prior
substantial compliance with the pre- approval of the Monetary Board;
operating requirements. (3) new KBs resulting out of mergers
In the case of KBs, the following rules or consolidations where at least one (1) of
shall govern: the banks involved in such merger or
a. No new KB shall be established consolidation is a KB; and
within three (3) years from 13 June 2000 (4) downgrading or refocusing of UBs
which is the date of effectivity of R.A. No. into KBs.
8791 or until 12 June 2003. The
moratorium as mandated by said law § X102.2 Partial lifting of general
covers only KBs classified and defined as moratorium on the licensing of new thrift
such under Sections 3.2(b) and 29 of R. A. banks and rural banks. The general
No. 8791 as well as in Item “b.2” of Sec. moratorium on the licensing of new TBs
X101 without prejudice, however, to and RBs is partially lifted to allow the entry
existing or future moratoriums on other of microfinance-oriented banks as follows:
types of bank as has been or may be a. Microfinance-oriented banks may
declared by the Monetary Board. be established on a very selective basis,
b. The moratorium under Section 8 of preferably in places not fully served by
R.A. No. 8791 shall cover all applications existing RBs or in areas not fully serviced
for issuance of new commercial banking by microfinance-oriented banks, subject to
licenses as well as upgrading or conversion the following additional criteria (in addition
of old banking licenses into commercial to standard licensing requirements):
banking licenses, the organization and (1) That the microfinance-oriented
incorporation by foreign banks of new bank to be established shall either be a TB
commercial banking subsidiaries and any or an RB;
and all other transactions that may result in (2) That the capital of the microfinance-
the issuance of new commercial banking oriented banks to be established should be
licenses. owned by private persons, multilateral
c. All such pending applications as of entities or a combination thereof;
13 June 2000, including those which have (3) That in the case of an RB to be
already been decided but with any incident established as a microfinance bank, the
thereto still unresolved or are on minimum paid-in capital shall be P5.0 million
reconsideration or appeal, shall not be or the applicable existing capitalization
further acted upon by the BSP and shall be requirement for a new RB, whichever is
returned to the applicant banks without higher. The capitalization requirement under
prejudice to the resubmission or re-filing existing regulations shall apply to TBs;
thereof upon expiration of the moratorium (4) That the organizers must have the
at the option of the applicant banks. No capacity to engage in microfinancing, which
such application shall be considered as may be indicated by the following:
automatically resubmitted or re-filed upon (a) At least twenty percent (20%) of the
expiration of the moratorium. paid-in capital of the proposed bank must

Part I - Page 6 Manual of Regulations for Banks


§§ X102.2 - X105
05.12.31

be owned by persons or entities with track microfinance-oriented bank may apply for
record in microfinancing. establishment of a branch but the Monetary
(b) Majority of the members of the Board may require additional capital to be
board of directors have experience in infused for every branch in addition to the
microfinancing with at least one (1) minimum capital of the TB/RB.
member having actual banking d. Existing microfinance organizations
experience. applying for authority to establish, or
(c) The proposed bank must have as a convert into a TB or RB may also be allowed
minimum, an adequate loan tracking to convert their existing branches/offices
system that allows daily monitoring of loan into branches of the bank proposed to be
releases, collection and arrearages, and established by simultaneously applying
any restructuring and refinancing. for authority for the purpose. However,
(5) In addition to the requirements for the standard requirements for the
the establishment of banks in Appendix 37, establishment of branches, particularly the
the application for authority to establish a capitalization requirement, have to be
microfinance-oriented bank must be complied with. Moreover, there must be a
accompanied by the following proof that the area is not fully served by
documents: any existing RB.
(a) A vision and mission statement
with clear expression of the commitment Sec. X103 Certificate of Authority to
to reach low-income clients. Register. The SEC shall not register the
(b) A written manual of operations, articles of incorporation of any bank, or any
which shall include the administrative and amendment thereto, unless accompanied
credit program systems and procedures. by a certificate of authority issued by the
The Manual must be consistent with the Monetary Board, under its seal. The
core principles, characteristics and features certificate shall not be issued unless the
of microfinance indicated in Sec. X361. Monetary Board is satisfied from the
(6) At least fifty percent (50%) of the evidence submitted that:
bank’s gross loan portfolio shall at all times a. All requirements of existing laws
consist of microfinance loans as defined and regulations to engage in the business
in Sec. X361. for which the applicant is proposed to be
b. The requirement that the President, incorporated have been complied with;
Chief Operating Officer or General b. The public interest and economic
Manager of a TB or RB must have at least conditions, both general and local, justify
two (2) years experience in banking and/ the authorization; and
or finance may be substituted with c. The amount of capital, the
microfinance experience in cases of financing, organization, direction and
officers of a microfinance organization administration, as well as the integrity and
applying for authority to establish, or responsibility of the organizers and
convert into a TB or RB: Provided, That administrators reasonably assure the safety
the concerned officer is a college graduate. of deposits and the public interest.
c. Subject to the standard branching LIkewise, the SEC shall not register the
requirements, microfinance-oriented banks by-laws of any bank, or any amendment
are also exempted from the general thereto, unless accompanied by a certificate
moratorium on the establishment of bank of authority from the BSP.
branches, under Sec. X151. After one (1)
year of profitable operations, a Secs. X104 - X105 (Reserved)

Manual of Regulations for Banks Part I - Page 7


§§ X106 - X106.1
05.12.31

B. CAPITALIZATION § X106.1 Minimum capitalization.The


minimum capital of banks shall be as
Sec. X106 Bank Capital. The following follows:
provisions shall govern the capital a. UBs - P5.4 billion each
requirements for banks. b. KBs - P2.8 billion each
The term capital shall be synonymous c. TBs -
to unimpaired capital and surplus, (1) With head offices within Metro
combined capital accounts and net worth Manila - P400.0 million each; and
and shall refer to the total of the unimpaired (2) With head offices outside Metro
paid-in capital, surplus and undivided Manila - P64.0 million each.
profits, less: d. RBs -
a. Unbooked valuation reserves and (1) An RB may be established in any
other capital adjustments as may be city or municipality, except in the cities of
required by the BSP; Manila, Kalookan, Quezon, Pasay,
b. Total outstanding unsecured credit Mandaluyong, Makati and Parañaque; in
accommodations, both direct and indirect, the municipalities of Malabon, Navotas
to directors, officers, stockholders, and their and San Juan; and in the cities of Cebu and
related interests (DOSRI) granted by the Davao, with minimum capital requirements
bank proper; as follows:
c. Deferred income tax; (a) In first, second and third class cities
d. Appraisal increment reserve and in first class municipalities - P8.0 million
(revaluation reserve) as a result of each;
appreciation or an increase in the book (b) In fourth, fifth and sixth class cities
value of bank assets; and in second, third, and fourth class
e. Equity investment of a bank in municipalities - P4.8 million each; and
another bank or enterprise, whether foreign (c) In fifth and sixth class
or domestic, if the other bank or enterprise municipalities - P3.2 million each.
has a reciprocal equity investment in the (2) Existing RBs within the excepted
investing bank, in which case, the cities and municipalities shall maintain the
investment of the bank or the reciprocal following minimum capital requirements:
investment of the other bank or enterprises, (a) In the cities of Manila, Kalookan,
whichever is lower; and Quezon, Pasay, Mandaluyong, Makati and
f. In the case of RBs/Coop Banks, the Parañaque and in the municipalities of
government counterpart equity, except Malabon, Navotas and San Juan - P32.0
those arising from conversion of arrearages million each; and
under the BSP rehabilitation program. (b) In the cities of Cebu and Davao -
With respect to Item “b” hereof, the P16 million each.
provisions in Subsec. X326.1 shall apply e. Coop Banks -
except that in the definition of stockholders Coop Banks that may be established
in said Subsection, the qualification that his shall have a minimum authorized capital
stockholdings, individually and/or together of:
with his related interest in the lending bank (1) P200.0 million for national Coop
should at least amount to two percent (2%) Banks divided into such number of shares
or more of the total subscribed capital stock with a minimum par value of P1,000 per
of the bank shall not apply for the purpose share, with a private paid-in capital of at
of this Item. least P20.0 million; and

Part I - Page 8 Manual of Regulations for Banks


§§ X106.1 - X106.2
05.12.31

(2) P20.0 million for local Coop Banks b. TBs which are existing, or which
divided into such number of shares, with a are newly authorized but not yet operating,
private paid-in capital of at least P1.25 or persons from whom completed
million, except as follows: applications to establish TBs have been
(a) P20.0 million minimum private received as of 12 March 1998 but pending
paid-in capitual for Coop Banks to be action by the BSP, are allowed the
established in Metro Manila; following time frame within which to meet
(b) P10.0 million minimum private paid- the above minimum capital requirement:
in capital for Coop Banks to be established
(1) With head office within Metro Manila:
in the cities of Cebu and Davao; and - P250 million on or before 24 December 1998;
(c) P5.0 million minimum private paid- - P325 million on or before 31 December 1999; and
in capital for Coop Banks to be established - P400 million on or before 31 December 2000;* and
in other cities: Provided, however, That for (2) With head office outside Metro Manila:
the first Coop Bank organized in the - P52 million on or before 31 December 1999; and
- P64 million on or before 31 December 2000:*
province, although it will be located in a
city, the minimum private paid-in capital Provided, That for the P325.0 million,
shall be P1.25 million. P400.0 million, P52.0 million and P64.0
The foregoing minimum capital million minimum capital, TBs shall submit
requirements for UBs, KBs, TBs, and RBs to the BSP a capital build-up program for
shall immediately apply to applications filed this purpose within three (3) months from
after 12 March 1998. 12 March 1998.
c. RBs which are existing, or which
§ X106.2 Capital build-up program are newly authorized but not yet operating,
a. UBs and KBs which are existing, or or persons from whom completed
which are newly authorized but not yet applications to establish RBs have been
operating, or banks from which completed received as of 12 March 1998 but pending
applications to operate under an UB/KB authority action by the BSP, are allowed the
have been received as of 12 March 1998 but following time frame within which to
pending action by the BSP, are hereby meet the above minimum capital
allowed the following time frame within requirement:
which to meet the above minimum capital (1) In the cities of Manila, Kalookan,
requirement: Quezon, Pasay, Mandaluyong, Makati
(1) P4.5 billion for UBs and P2.0 and Parañaque and in the municipalities
billion for KBs on or before 24 December of Malabon, Navotas and San Juan:
- P26 million on or before 31 December 1999; and
1998; - P32 million on or before 31 December 2000;
(2) P4.95 billion for UBs and P2.4 (2) In the cities of Cebu and Davao:
- P13 million on or before 31 December 1999; and
billion for KBs on or before 31 December
- P16 million on or before 31 December 2000;*
1999; and
(3) In first, second and third class cities
(3) P5.4 billion for UBs and P2.8
and first class municipalities:
billion for KBs on or before 31 December - P6.5 million on or before 31 December 1999; and
2000:*Provided, That for the P 4.95 billion/ - P8.0 million on or before 31 December 2000;*
P2.4 billion and P5.4 billion/P2.8 billion (4) In fourth, fifth and sixth class cities
minimum capital, UBs/KBs shall submit and second, third and fourth class
to the BSP a capital build-up program for municipalities:
this purpose within three (3) months from - P3.9 million on or before 31 December 1999; and
12 March 1998. - P4.8 million on or before 31 December 2000;*

*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.

Manual of Regulations for Banks Part I - Page 9


§§ X106.2 - X106.3
05.12.31

(5) In fifth and sixth class municipalities: § X106.3 Memorandum of


- P2.6 million on or before 31 December 1999; and Understanding; Prompt Corrective Action
- P3.2 million on or before 31 December 2000:*
Program; sanctions. The following are the
Provided, That RBs shall submit to the BSP a policy guidelines and the corresponding
capital build-up program for this purpose sanctions for banks failing to comply with
within three (3) months from 12 March 1998: the minimum capital requirements and the
Provided, further, That if the prescribed corresponding sanctions:
minimum capital necessitates an increase a. Memorandum of Understanding;
in the authorized capital stock, the RB Prompt Corrective Action Program
shall cause the corresponding (1) The adoption of the Memorandum
amendments to its articles of of Understanding (format shown in
incorporation and submit the same to the Appendix 30) between the bank and the
BSP together with its capital build-up BSP; and
program. (2) The implementation of the Prompt
The deadline of the second phase (1st Corrective Action Program as detailed below:
phase for TBs outside Metro Manila and (a) For undercapitalized banks of up
RBs) of the capital build-up program of to twenty percent (20%) -
banks is extended from 31 December 1999 (i) Require the bank to execute a
to 31 January 2000.* Memorandum of Understanding (MOU)
For banks that have executed a with the BSP, binding itself, among others,
Memorandum of Understanding (MOU) to implement a viable capital restoration
with the BSP, in compliance with Subsec. plan acceptable to the BSP within thirty (30)
X106.3, the following guidelines shall days from date of notice;
apply: (ii) Require the intensified monitoring
(a) For banks with capital deficiency by BSP of bank’s financial condition; and
but with capital-to-risk assets ratio within (iii) BSP to conduct a special
the minimum prescribed and with no examination of the bank.
weaknesses (i.e., high past due loans, (b) For significantly undercapitalized
DOSRI violations, etc.), the MOU may be banks of up to sixty percent (60%) -
set aside: Provided, That the bank will be (i) BSP to call a meeting with bank
able to comply with the minimum capital directors/principal officers to discuss and
requirements as herein prescribed; and agree on remedial measures to be taken and
(b) For banks with capital deficiency the timetable for implementation;
but with significant weaknesses (i.e., (ii) Intensify monitoring by the
deficiency in capital-to-risk assets ratio, Supervision and Examination Sector (SES)
liquidity problems, high past due loans, of the bank’s financial condition;
etc.), the MOU, as executed, shall continue (iii) BSP to conduct immediately an
to be in full force and in effect until such extensive on-site examination;
time that it shall be amended by mutual (iv) Require the bank to execute an
consent of the parties; waived and/or MOU with the BSP, binding itself, among
terminated by the BSP. others, to implement a viable capital
Non-compliance with the above capital restoration plan acceptable to the BSP
requirements shall subject the bank to within thirty (30) days from date of
sanctions/penalties provided under existing discussion. Among the options to be
banking laws and BSP rules and regulations. considered are:

*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.

Part I - Page 10 Manual of Regulations for Banks


§ X106.3
05.12.31

- disposition of a majority - sale of bank to highest bidder


shareholder’s interest; subject to terms set by BSP; and
- sale of assets; - merger (assisted or unassisted) or
- issuance of additional stock/capital consolidation with a stronger bank;
infusion; (vi) Create a BSP Ad Hoc Committee to
- sale of bank to highest bidder oversee the implementation of the action plan;
subject to terms set by BSP; and (vii) Require the creation of a separate
- merger (assisted or unassisted) or unit in the bank – remedial asset
consolidation with a stronger bank; management group to take care of bank’s bad
(v) Require the creation of a separate unit assets and make progress reports to the BSP;
in the bank – remedial asset management (viii)Appoint an external auditor at the
group which will take care of bank’s bad expense of the bank to perform financial or
assets and make progress reports to the BSP; operational audit under the terms of
(vi) Appoint an external auditor at the reference of the BSP;
expense of the bank to perform a financial (ix) If bank’s condition further
or operational audit under the terms of deteriorates to the extent that depositors
reference provided by BSP; and and creditors protection is at stake and
(vii) If necessary, appoint a consultant its capital base is already deficient by
specialist to diagnose the problem and to more than eighty percent (80%), appoint/
recommend the appropriate remedial assist a resident examiner/comptroller or
measures (i.e., introduce new profit conservator, if legally feasible, to oversee/
opportunities, improve internal and take over management of the bank; and
accounting controls, etc.) to restore bank’s (x) If necessary, appoint a consultant
viability. specialist to diagnose the problem and to
(c) For critically undercapitalized recommend the appropriate remedial
banks of more than sixty percent (60%) - measures (i.e., introduce new profit
(i) Place the bank under Prompt opportunities, improve internal and
Corrective Action Unit since this requires accounting controls, etc.) to restore bank’s
more than normal bank supervision; viability.
(ii) BSP to call a meeting with bank’s b. Sanctions. The following sanctions
principal shareholders/directors; for non-compliance with the minimum
(iii) BSP to conduct immediately an capital requirements are hereby prescribed:
extensive on-site examination; (1) Monetary Penalty
(iv) BSP to conduct an intensive For delayed or non-submission of the
monitoring of bank’s financial condition; capital build-up program reckoned from the
(v) Require the bank to execute an time bank was notified in writing up to the
MOU with the BSP, binding itself, among time the program has been submitted, per
others, to implement a viable capital banking day of delay, a monetary penalty of:
restoration plan acceptable to the BSP Type of Bank Amount of Penalty
within thirty (30) days from date of meeting. (a) UBs/ KBs P 10,000.00
Among the options to be considered are: (b) TBs 5,000.00
- disposition of a majority (c) RBs 1,000.00
shareholder’s interest; (2) Non-Monetary Penalty
- sale of assets; Non-monetary penalties shall depend
- issuance of additional stock/capital on the degree of capital deficiency incurred
infusion; by the bank as follows:

Manual of Regulations for Banks Part I - Page 11


§ X106.3
05.12.31

RBs/ - Denial of access to BSP 9 9 9


UBs/ Coop rediscounting facilities
Penalty KBs TBs Banks - Suspension of authority to 9 9 9
(a) Up to twenty percent (20%) - accept or handle govern-
- Suspension of authority to 9 NA NA ment deposits
invest in non-allied under- - Suspension of authority to 9 9 NA
takings (for UBs only) engage in quasi-banking
- Suspension of authority to 9 NA NA activities
invest in allied undertakings - Suspension of authority to 9 NA NA
- Suspension of securities 9 NA NA engage in derivatives
and dealership functions activities
(for UBs only) - Suspension of FCDU/ 9 9 NA
- Suspension of branching 9 9 9 EFCDU activities
privileges - Suspension of trust operations 9 9 NA
- Suspension of declaration 9 9 9 - Suspension of authority to NA 9 9
of cash dividends accept or create demand
deposits or operate
(b) Up to forty percent (40%) - NOW accounts
- Suspension of authority 9 NA NA
to invest in non-allied under- (d) Up to eighty percent (80%) -
takings (for UBs only) - Suspension of authority to 9 NA NA
- Suspension of authority to 9 NA NA invest in non-allied under-
invest in allied undertakings takings (for UBs only)
- Suspension of securities 9 NA NA - Suspension of authority 9 9 9
and dealership functions to invest in allied undertakings
(for UBs only) - Suspension of securities 9 NA NA
- Restrictions on lending 9 9 NA and dealership functions
to affiliates (for UBs only)
- Suspension of branching 9 9 9 - Suspension of branching 9 9 9
privileges privileges
- Suspension of declara- 9 9 9 - Suspension of declaration 9 9 9
tion of cash dividends of cash dividends
- Restrictions on overall 9 9 9 - Denial of access to BSP 9 9 9
loan growth/investments rediscounting facilities
(new loans to the extent - Suspension of authority to NA 9 9
of collections only) accept or create demand
- Denial of access to BSP 9 9 9 deposits or operate NOW
rediscounting facilities accounts
- Suspension of authority NA 9 9 - Suspension of authority to 9 9 9
to accept or create demand accept or handle govern-
deposits or operate ment deposits
NOW accounts - Suspension of authority to 9 9 NA
- Suspension of authority to 9 9 9 engage in quasi-banking
accept or handle govern- activities
ment deposits - Suspension of authority to 9 NA NA
engage in derivatives
(c) Up to sixty percent (60%) - activities
- Suspension of authority to 9 NA NA - Suspension of FCDU/ 9 9 NA
invest in non-allied under- EFCDU activities
takings (for UBs only) - Suspension of trust operations 9 9 NA
- Suspension of authority to 9 9 9 - Suspension of international 9 NA NA
invest in allied undertaking banking activities
- Suspension of securities 9 NA NA - Suspension of lending 9 9 9
and dealership functions activities
(for UBs only) - Suspension of issuance NA 9 NA
- Suspension of branching 9 9 9 of domestic L/Cs
privileges
- Suspension of declaration 9 9 9 (e) More than eighty percent (80%) -
of cash dividends - Suspension of clearing 9 9 9
- Restrictions on overall 9 9 9 privileges
loan growth/investments - Suspension of granting 9 9 9
(new loans to the extent of of bonuses/profit-sharing
collections only) not covered by existing
- Restrictions on lending to 9 9 NA contracts or By-Laws
affiliates - Cease and desist ü ü 9

Part I - Page 12 Manual of Regulations for Banks


§§ X107 - X112
05.12.31

Secs. X107 - X110 (Reserved) § X111.2 Rules on exchange of shares


As a general rule, the ratio of exchange of
C. MERGER OR CONSOLIDATION shares between or among the participants
OF BANKS in a bank merger or consolidation shall be
based on mutual agreement of the parties
Sec. X111 Merger or Consolidation to concerned. However, any appraisal
Meet Minimum Capital. The merger or increment reserve (revaluation reserve)
consolidation of banks or of bank(s) and arising from the revaluation of the fixed
other financial intermediary(ies) to meet assets, as may be agreed upon by the
minimum capital requirements shall be parties shall be limited to premises,
allowed subject to the following improvement, and equipment which are
regulations. necessary for its immediate
For purposes of merger and accommodation in the transaction of the
consolidation, the following definitions bank’s business. Such revaluation should
shall apply: be based on fair valuation of the property
a. Merger - is the absorption of one which shall be subject to review and
(1) or more corporations by another approval by the BSP.
existing corporation, which retains its
identity and takes over the rights, Sec. X112 Merger or Consolidation
privileges, franchises, and properties, and Incentives. In pursuance of the policy to
assumes all the liabilities and obligations promote mergers and consolidations
of the absorbed corporation(s) in the same among banks and other financial
manner as if it had itself incurred such intermediaries as a means to develop larger
liabilities or obligations. The absorbing and stronger financial institutions,
corporation continues its existence while constituent entities may, subject to BSP
the life or lives of the other corporation(s) approval, avail themselves of any or all of
is/are terminated. the following incentives:
b. Consolidation – is the union of two a. Revaluation of premises, improve-
(2) or more corporations into a single new ments and equipment of the institutions:
corporation, called the consolidated Provided, That such revaluation shall be
corporation, all the constituent based on fair valuation of the property
corporations thereby ceasing to exist as conducted by a reputable appraisal
separate entities. The consolidated company which shall be subject to review
corporation shall thereupon and thereafter and approval by the BSP.
possess all the rights, privileges, The following rules shall govern the
immunities, franchises and properties, and revaluation of assets:
assume all the liabilities and obligations of (1) The revaluation of the premises,
each of the constituent corporations in the improvements and equipment shall be
same manner as if it had itself incurred such allowed only to all institutions participating
liabilities or obligations. in a merger or consolidation if all of them
belong to the same category, or at least two
§ X111.1 Requirement of Bangko (2) of them belong to the highest category
Sentral approval. Mergers and among the merging or consolidating
consolidations including the terms and institutions;
conditions thereof shall comply with the (2) In case the merging or
provisions of applicable law and are consolidating institutions do not belong to
subject to approval by the BSP. the same category or only one (1) of them

Manual of Regulations for Banks Part I - Page 13


§ X112
05.12.31

falls under the highest category, all of them (1) The booking on staggered basis
may be allowed to revalue their premises, over a maximum period of five (5) years of
improvements and equipment: Provided, unbooked valuation reserves based upon
That the amount of appraisal increment examination by the BSP may be allowed to
resulting from such revaluation shall be all institutions participating in a merger or
limited to the amount of the total resources consolidation if all of them belong to the
of the institution belonging to the lower same category, or at least two (2) of them
category or categories. belong to the highest category among the
(3) The appraisal increment resulting merging or consolidating institutions.
from the revaluation shall form part of (2) In case the merging or
capital for purposes of determining the consolidating institutions do not belong to
single borrower’s limit and capital-to-risk the same category or only one (1) of them
assets ratio. The use of appraisal increment falls under the highest category, all of them
for cash dividend shall be governed by the may be allowed to book the required
provisions of the Corporation Code. valuation reserves based upon examination
(4) The revaluation of premises, by the BSP on a staggered basis over a
improvements, and equipment of the maximum of five (5) years: Provided, That
institution as well as the recognition of the aggregate amount of the required
goodwill as an incentive to mergers or valuation reserves shall be limited to the
consolidations as provided in item "e" amount of the total resources of the
hereof shall only be allowed if the following institution belonging to the lower category
conditions are met: or categories.
(i) The surviving or consolidated entity c. Exemption from the forty percent
will meet the existing capital requirements (40%) and sixty percent (60%) ownership
after all adjustments are taken up in the limits prescribed in Subsec. X126.1 in the
books of accounts of the merging or new or surviving institution of any Filipino
consolidating entities but before individual or domestic non-bank
considering appraisal increments and corporation: Provided, That this shall be
goodwill, or there will be infusion of fresh allowed only if the bank that is being
capital to meet said existing capital merged is distressed as may be determined
requirements; and by the Monetary Board and such merger is
(ii) The merger or consolidation will for the purpose of rehabilitating the bank:
result in a more viable financial institution Provided, further, That whenever any of
as a result of cost savings and improved said stockholders exceed the prescribed
competitive position. limits, his holdings shall not be increased,
In case of purchase or acquisition of the but may be reduced and once reduced,
majority or all of the outstanding shares of shall not thereafter be increased beyond
stocks of a bank, the same conditions must such limits.
be satisfied. In the case of purchase or acquisition
b. Unbooked valuation reserves based of majority or all of the outstanding shares
upon the BSP examination and other of a bank/quasi-bank by another bank/
capitaladjustments resulting from the quasi-bank, the revaluation of the assets and
merger or consolidation may be booked on the booking of the required valuation
staggered basis over a maximum period of reserves based upon examination by the
five (5) years. BSP over a period of five (5) years shall be
The following guidelines shall govern allowed only if such purchase or acquisition
the staggered booking of valuation reserves: is for the purpose of rehabilitating the

Part I - Page 14 Manual of Regulations for Banks


§ X112
05.12.31

former bank/quasi-bank: Provided, That the institutions into branches of the new or
revaluation of assets and staggered booking surviving financial institutions;
of valuation reserves shall be allowed in g. Condonation of liquidated damages
full only if both banks/quasi-banks belong and/or penalties on loan arrearages to the
to the same category. Otherwise, only the BSP of RBs which are parties to the merger
bank/quasi-bank being acquired/ or consolidation: Provided, That loan
rehabilitated shall be allowed to recognize arrearages of RBs to the BSP are paid in full
in full the appraisal increment resulting or covered by a plan of payment payable
from revaluation of assets and to book on an equal monthly amortization schedule
valuation reserves on a staggered basis, over a period not exceeding ten (10) years;
while in the case of the acquiring bank/ h. Relocation of branches/offices may
quasi-bank, the appraisal increment be allowed within one (1) year from date of
resulting from revaluation of assets and the merger or consolidation in cases where the
privilege of staggered booking of valuation merger or consolidation resulted in
reserves shall each be limited to the amount duplication of branches/offices in a service
of the total resources of the bank/quasi-bank area, or in such other cases/circumstances as
being acquired/rehabilitated. may be prescribed by the Monetary Board;
The exemption from the ownership i. Outstanding penalties in legal
limits prescribed in Subsec. X126.1 on reserve deficiencies and interest on
existing stockholdings of any Filipino overdrafts with the BSP as of the date of the
individual or domestic non-bank merger or consolidation may be paid in
corporation in a banking institution, as an installments over a period of one (1) year;
incentive to purchase or acquisition of j. Rediscount ceiling of 150% of
majority or all of the outstanding shares of adjusted capital accounts for a period of one
stock of bank/quasi-bank shall be allowed (1) year, reckoned from the date of merger
only if the bank being purchased or or consolidation: Provided, That the
acquired is distressed as may be determined merged/consolidated bank meets the
by the Monetary Board and such merger is required net worth-to-risk assets ratio and
for the purpose of rehabilitating the bank/ all of the other requirements for
quasi-bank. rediscounting;
d. If by reason of merger or k. UBs/KBs whose total outstanding
consolidation, the resulting bank is unable real estate loans exceed twenty percent
to comply fully with the prescribed net (20%) of total loan portfolio may be given
worth-to-risk assets ratio, the Monetary a period of one (1) year within which to
Board may, at its discretion, temporarily comply with the prescribed twenty percent
relieve the bank from full compliance with (20%) ratio reckoned from the date of
this requirement under such conditions as merger or consolidation;
it may prescribe; l. Restructuring/plan of payment of
The recognition of goodwill as an past due obligations of the proponents with
incentive to mergers or consolidations shall the BSP as of the date of merger/
only be allowed subject to the conditions consolidation over a period not exceeding
in Item "a (4)". ten (10) years;
e. (Deleted by Circular 494 dated 20 m. In the case of RBs, grant of access
September 2005); to the rediscounting window of the BSP for
f. Conversion or upgrading of the a period of two (2) years from the date of
existing head offices, branches and/or other merger or consolidation even if its past due
offices of the merged or absorbed ratio exceeds twenty five percent (25%) of

Manual of Regulations for Banks Part I - Page 15


§§ X112 - X116.2
05.12.31

loan portfolio but not exceeding thirty percent The foregoing incentives may also be
(30%): Provided, That the merged/ granted in cases of purchases or acquisitions
consolidated bank meets all the other of majority or all of the outstanding shares of
requirements. During said period of two (2) stock of a bank/quasi-bank.
years, its rediscounting limit per application
may also be increased to an amount Secs. X113 - X115 (Reserved)
equivalent to the total of the rediscounting
limit per application of each of the constituent D. RISK-BASED CAPITAL ADEQUACY
banks before merger or consolidation; RATIO
n. Subject to approval of the Monetary
Board concurrent officerships between a Sec. X116 Minimum Ratio. The risk-
merged or consolidated bank/financial based capital ratio of a bank, expressed as
institution and another bank/financial a percentage of qualifying capital to risk-
institution may be allowed; weighted assets, shall not be less than ten
Likewise, with prior approval of the percent (10%) for both solo basis (head
Monetary Board, concurrent directorships office plus branches) and consolidated basis
may be allowed in cases where a bank (parent bank plus subsidiary financial allied
acquires shares of stock of another bank for undertakings, but excluding insurance
the purpose of merging or consolidating the companies).
two (2) banks regardless of whether the The ratio shall be maintained daily.
banks belong to the same category or both (The BSP’s implementation plans for the
have quasi-banking functions; new international capital standards or Basel
o. Subject to other requirements on 2, contained in the Basel Committee on
the establishment of branches, the merged/ Banking Supervision document “International
consolidated RBs may be allowed to Convergence of Capital Measurement and
establish a branch each in Cebu City and Capital Standards: A Revised Framework”,
Davao City if it has put up the minimum are shown in Appendix 63)
capital requirement for these places;
p. Grant of automatic extension of five § X116.1 Qualifying capital. The
(5) years for retirement of government composition of qualifying capital is shown
preferred shares to be reckoned from the in Appendix 63a.
date of merger or consolidation;
q. Training of officers and staff of the § X116.2 Risk-weighted assets. The
merging or consolidating RBs by the BSP; and risk-weighted assets shall be determined by
r. Any right or privilege granted a assigning risk weights to amounts of on-
merging bank under a rehabilitation balance sheet assets and to credit
program previously approved by the equivalent amounts of off-balance sheet
Monetary Board or under any special items (inclusive of derivatives contracts):
authority granted by the Monetary Board Provided, That the following shall be
shall continue to be in effect. deducted from the total risk-weighted
The revaluation of assets and staggered assets: (1) general loan loss provision (in
booking of valuation reserves shall be excess of the amount permitted to be
available for a period of two (2) years from included in upper Tier 2 capital) and
19 February1999 while the rest of the unbooked valuation reserves and (2) other
incentives enumerated under Sec. X112 capital adjustments affecting asset accounts
shall be available for a period of three (3) based on the latest report of examination
years from 31 August 1998. as approved by the Monetary Board.

Part I - Page 16 Manual of Regulations for Banks


§ X116.2
05.12.31

a. On-Balance sheet assets. The risk- with the highest credit quality as defined in
weighted amount shall be the product of Subsec. X116.3;
the book value of asset multiplied by the risk (c) Claims on or portions of claims
weight associated with that asset, as follows: guaranteed by Philippine incorporated
(1) Zero percent (0%) risk weight – banks/quasi-banks with the highest credit
(a) Cash on hand; quality as defined in Subsec. X116.3;
(b) Claims on or portions of claims (d) Claims on or portions of claims
guaranteed by or collateralized by guaranteed by foreign incorporated banks
securities issued by - with the highest credit quality as defined in
i. Philippine National Government Subsec. X116.3;
and BSP; and (e) Claims on Philippine incorporated
ii. Central governments and central private enterprises with the highest credit
banks of foreign countries with the highest quality as defined in Subsec. X116.3;
credit quality as defined in Subsec. X116.3; (f) Claims on foreign incorporated
(c) Claims on or portions of claims private enterprises with the highest credit
guaranteed by or collateralized by quality as defined in Subsec. X116.3;
securities issued by multilateral (g) Loans to exporters to the extent
development banks; guaranteed by Small Business Guarantee
(d) Loans to the extent covered by and Finance Corporation (SBGFC):
hold-out on, or assignment of, deposits/ Provided, That loans to exporters to the
deposit substitutes maintained with the extent guaranteed by the Guarantee Fund
lending bank; for Small and Medium Enterprises (GFSME)
(e) Loans or acceptances under letters outstanding as of the date of the effectivity
of credit to the extent covered by margin of the merger of the SBGFC and GFSME
deposits; shall continue to have a zero percent (0%)
(f) Portions of special time deposit risk weight: Provided, further, That the zero
loans covered by Industrial Guarantee and percent (0%) risk weight shall not apply to
Loan Fund (IGLF) guarantee; loans renewed after the merger of the
(g) Real estate mortgage loans to the SBGFC and the GFSME; and
extent guaranteed by the Home Guaranty (h) Foreign currency checks and other
Corporation (HGC); cash items denominated in currencies
(h) Loans to the extent guaranteed by acceptable as international reserves.
the Trade and Investment Development (3) Fifty percent (50%) risk weight –
Corporation of the Philippines (TIDCORP); (a) Loans for housing purpose, fully
(i) Foreign currency notes and coins secured by first mortgage on residential
on hand acceptable as international property that is or will be occupied or leased
reserves; and out by the borrower, which are not classified
(j) Gold bullion held either in own as non-performing; and
vaults, or in another’s vaults on an allocated (b) Local government unit (LGU) bonds
basis, to the extent it is offset by gold bullion which are covered by Deed of Assignment of
liabilities; Internal Revenue Allotment of the LGU and
(2) Twenty percent (20%) risk weight- guaranteed by the LGU Guarantee Corporation;
(a) Checks and other cash items (COCIs); (4) Seventy five percent (75%) risk
(b) Claims on or portions of claims weight
guaranteed by or collateralized by (a) Defined small and medium
securities issued by non-central government enterprise (SME) and microfinance loan
public sector entities of foreign countries portfolio that meets the following criteria:

Manual of Regulations for Banks Part I - Page 17


§ X116.2
05.12.31

(i) For individual claims that may form shall be increased to one hundred percent
part of the SME and microfinance loan 100% in 2007;
portfolio (5) One hundred percent (100%) risk
(aa) Claim must be on a small or weight –
medium business enterprise as defined All other assets including, among
under existing BSP regulations; and others, the following:
(bb) Claims must be in the form of: (a) Claims on central governments and
- Direct loans; or central banks of foreign countries other than
- Unavailed portion of committed credit those with the highest credit quality;
lines and other business facilities such as (b) Claims on Philippine local
outstanding guarantees issued and unused government units;
letters of credit: Provided, That the credit (c) Claims on non-central government
equivalent amounts thereof shall be public sector entities of foreign countries other
determined in accordance with Subsec. than those with the highest credit quality;
X116.2.b. (d) Claims on government-owned or -
(ii) For the SME and microfinance controlled commercial corporations;
portfolio - (e) Claims on Philippine incorporated
(aa) It must be a highly diversified banks/quasi-banks other than those with the
portfolio, i.e., it has at least 500 borrowers highest credit quality
that are distributed over a number of (f) Claims on foreign incorporated
industries; and banks other than those with the highest
(bb)The past due ratios of the defined credit quality;
SME and microfinance loan portfolio for (g) Claims on Philippine incorporated
each of the immediately preceding three (3) private enterprises and claims on foreign
years do not exceed five percent (5%). incorporated private enterprises other than
(iii) For the bank - those with the highest credit quality;
(aa) It must have adequate risk (h) Loans to companies engaged in
management process approved by the speculative residential building or property
board of directors, including as a minimum, development;
a rigorous credit approval process and an (i) Equity investments (except those
adequate loan tracking system that allows deducted from capital);
timely monitoring of loan releases, (j) Bank premises, furniture, fixtures
collection and arrearages, and any and equipment (net);
restructuring and refinancing; and (k) Appraisal increment - bank premises,
(bb)The bank must be financially sound furniture, fixtures and equipment (net);
and in compliance with major prudential (l) Real and other properties owned or
requirements, particularly the following: acquired (net);
- CAMELS composite rating of at least (m) Foreign currency notes and coins on
“3” and management score of at least “3” hand not acceptable as international reserves;
in its latest BSP examination; and (n) Gold bullion held in either own
- Minimum applicable capital vaults, or in another’s vaults on an allocated
adequacy ratio. basis, that is not offset by gold bullion
(b) Non-performing loans for housing liabilities;
purpose, fully secured by first mortgage on (o) Foreign currency COCIs not
residential property that is or will be denominated in foreign currencies acceptable
occupied or leased out by the borrower; as international reserves;except those which
Provided, That risk weighting for such loans are deducted from capital, as follows:

Part I - Page 18 Manual of Regulations for Banks


§ X116.2
05.12.31

(i) Unsecured credit accommodations, secured by first mortgage on residential


both direct and indirect, to DOSRI; property that is or will be occupied or
(ii) Deferred income tax; leased out by the borrower) and all non-
(iii) Goodwill; performing debt securities: Provided, That
(iv) Sinking fund for redemption of risk weighting for such exposures shall be
limited life redeemable preferred stock with increased to 150% in 2007.
the replacement requirement upon Non-performing loans, which are
redemption; secured by eligible collaterals or guaranteed
(v) Sinking fund for redemption of by eligible guarantors below, shall be
limited life redeemable preferred stock assigned the risk weight of the collateral or
without the replacement requirement upon guarantor: Provided, That in cases of
redemption (limited to the balance of guarantees, the bank is able to pursue the
redeemable preferred stock after applying guarantor of any monies outstanding within
the cumulative discount factor); the period of time stipulated in the
(vi) Equity investments in guarantee contract. Otherwise, the loan in
unconsolidated subsidiary banks and other question shall be assigned the risk weight
financial allied undertakings, but excluding applicable for non-performing loans.
insurance companies; (a) List of eligible collaterals
(vii) Investments in debt capital (i) Securities issued by the Philippine
instruments of unconsolidated subsidiary banks; national government and BSP, and central
(viii) Equity investments in subsidiary governments and central banks of foreign
insurance companies and non-financial countries with the highest credit quality as
allied undertakings; defined in Subsec. X116.3;
(ix) Reciprocal investments in equity of (ii) Securities issued by multilateral
other banks/enterprises; development banks listed under Sec. X116.3;
(x) Reciprocal investments in (iii) Cash in the form of hold out on or
unsecured subordinated term debt assignment of deposits/deposit substitutes
instruments of other banks/quasi-banks in maintained with the lending bank, and
excess of the lower of: margin deposits for loans or acceptances
(aa) an aggregate ceiling of five percent under letters of credit; and
(5%) of total Tier 1 capital of the bank; or (iv) Securities issued by non-central
(bb) ten percent (10%) of the total government public sector entities of foreign
outstanding unsecured subordinated term countries with the highest quality as defined
debt issuance of the other bank/quasi-bank; and in Subsec. X116.3.
(xi) Net due “from” head office, (b) List of eligible guarantors
branches, subsidiaries and other offices (i) Philippine national government and
outside the Philippines, if any (for foreign BSP, and central governments and central
bank branches); and banks of foreign countries with the highest
(p) Starting 2007, non-performing credit quality as defined in Subsec. X116.3;
loans for housing purpose, fully secured by (ii) Multilateral development banks
first mortgage on residential property that listed under Sec. X116.3;
is or will be occupied or leased out by the (iii) IGLF;
borrower. (iv) Home Guaranty Corporation
(6) One hundred twenty five percent (HGC);
(125%) risk weight – (v) TIDCORP;
All non-performing loans (except non- (vi) Non-central government public
performing loans for housing purpose, fully sector entities of foreign countries with the

Manual of Regulations for Banks Part I - Page 19


§ X116.2
05.12.31

highest credit quality as defined in Subsec. counterparty with whom the transaction has
X116.3; been entered into.
(vii) Philippine incorporated banks/ (2) Fifty percent (50%) credit
quasi-banks with the highest credit quality conversion factor –
as defined in Subsec. X116.3; This shall apply to certain transaction-
(viii) Foreign incorporated banks with related contingent items, e.g., performance
the highest credit quality as defined in bonds, bid bonds, warranties and standby
Subsec. X116.3; letters of credit related to particular
(ix) SBGFC; and transactions, and shall include –
(x) LGU Guarantee Corporation (a) Standby letters of credit - domestic
(LGUGC), but only those guaranteed loans (net of margin deposit) established as a
covered by Deed of Assignment of Internal guarantee that a business transaction will
Revenue Allotment of the LGU. be performed; and
b. Off-balance sheet items. The risk- (b) Standby letters of credit - foreign
weighted amount shall be calculated using (net of margin deposit).
a two (2)-step process. This shall also apply to -
First, the credit equivalent amount of (c) Note issuance facilities and
an off-balance sheet item shall be revolving underwriting facilities; and
determined by multiplying its notional (d) Other commitments, e.g., formal
principal amount by the appropriate credit standby facilities and credit lines with an
conversion factor, as follows: original maturity of more than one (1) year.
(1) One hundred percent (100%) This shall include underwritten accounts
credit conversion factor - unsold.
This shall apply to direct credit (3) Twenty percent (20%) credit
substitutes, e.g., general guarantees of conversion factor –
indebtedness (including standby letters of This shall apply to short-term, self-
credit serving as financial guarantees for liquidating trade-related contingencies, e.g.,
loans and securities) and acceptances documentary credits collateralized by the
(including endorsements with the character underlying shipments, and shall include –
of acceptances), and shall include - (a) Outstanding guarantees issued -
(a) Outstanding guarantees issued - shipside bonds/airway bills;
foreign loans; (b) Domestic letters of credit
(b) Outstanding guarantees issued – outstanding (net of margin deposit);
other than foreign loans and shipside bonds/ (c) Sight import letters of credit
airway bills; and outstanding (net of margin deposit);
(c) Export letters of credit – confirmed. (d) Usance import letters of credit
This shall also apply to sale and outstanding (net of margin deposit);
repurchase agreements and asset sales with (e) Deferred letters of credit (net of
recourse where the credit risk remains with margin deposit); and
the bank (to the extent not included in the (f) Revolving letters of credit (net of
balance sheet), as well as to forward asset margin deposit) arising from movement of
purchases, forward forward deposits and goods and/or services.
partly-paid shares and securities which (4) Zero percent (0%) credit conversion
represent commitments with certain factor –
drawdown: Provided, That these items shall This shall apply to commitments with
be weighted according to the type of asset an original maturity of up to one (1) year,
and not according to the type of or which can be unconditionally cancelled

Part I - Page 20 Manual of Regulations for Banks


§ X116.2
05.12.31

at any time, and shall include committed Provided, That for contracts with multiple
credit line for commercial paper issues. exchanges of principal, the factors are to be
This shall also apply to those not multiplied by the number of remaining
involving credit risk, and shall include – payments in the contract: Provided, further,
(a) Inward bills for collection; That for contracts that are structured to settle
(b) Outward bills for collection; outstanding exposure following specified
(c) Items held for safekeeping/ payment dates and where the terms are reset
custodianship; such that the market value of the contract is
(d) Trust department accounts zero (0) on these specified dates, the residual
(e) Late deposits/payments received maturity would be set equal to the time until
(f) Items held as collaterals; the next reset date, and in the case of interest
(g) Travelers’ checks; etc. rate contracts with remaining maturities of
Second, the credit equivalent amount more than one (1) year that meet these criteria,
shall be treated like any on-balance sheet the potential future credit conversion factor is
asset and shall be assigned the appropriate subject to a floor of five tenths percent
risk weight, i.e., according to the obligor, (0.5%): Provided, furthermore, That no
or if relevant, the qualified guarantor or the potential future credit exposure shall be
nature of collateral. calculated for single currency floating/
c. Derivatives contracts. The credit floating interest rate swaps, i.e., the credit
equivalent amount shall be the sum of the exposure on these contracts would be
current credit exposure (or replacement evaluated solely on the basis of their mark-to-
cost) and an estimate of the potential future market value.
credit exposure (or add-on): Provided, That The credit equivalent amount shall be
the following shall not be included in the treated like any on-balance sheet asset, and
computation: shall be assigned the appropriate risk
(1) Instruments which are traded on weight, i.e., according to the obligor, or if
exchange where they are subject to daily relevant, the qualified guarantor or the
receipt and payment of cash variation nature of collateral: Provided, That a fifty
margin; and percent (50%) risk weight shall be applied
(2) Exchange rate contracts with in respect of obligors which would
original maturity of fourteen (14) calendar otherwise attract a one hundred percent
days or less. (100%) risk weight.
The current credit exposure shall be the The extent to which a claim is
positive mark-to-market value of the guaranteed/collateralized shall be
contract (or zero if the mark-to-market value determined by the amount of guarantee
is zero or negative). The potential future coverage/current market value of securities
credit exposure shall be the product of the pledged, in comparison with the book value
notional principal amount of the contract of the on-balance sheet asset or the notional
multiplied by the appropriate potential principal amount of the off-balance sheet
future credit conversion factor, as indicated exposure, except for derivatives contracts
below: for which determination is generally made
Interest Exchange in relation to credit equivalent amount.
Residual Maturity Rate Contract Rate Contract The capital treatment of investments in
credit-linked notes (CLNs) and similar credit
One (1) year or less 0.0% 1.0 %
Over one (1) year to
derivative products such as credit-linked
five (5) years 0.5% 5.0 % deposits (CLDs) and credit-linked loans (CLLs)
Over five (5) years 1.5% 7.5% shall comply with the guidelines in Sec. 1633.

Manual of Regulations for Banks Part I - Page 21


§ X116.3
05.12.31

§ X116.3 Definitions (15) Trading account securities – equity


a. Amount due from the BSP. This (for UBs);
refers to all deposits of the reporting bank (16) Available for sale securities;
with the BSP. (17) Investments in bonds and other
b. Appraisal increment reserve. This debt instruments (IBODI); and
shall form part of capital only if authorized (18) Others, e.g., accounts receivable
by the Monetary Board. and accrued interest receivable.
c. Bank premises, furniture, fixtures Accruals on a claim shall be classified
and equipment net of depreciation. This and risk weighted in the same way as the
refers to the cost of land and improvements claim. Bills purchased shall be classified
used as bank premises, and furniture, as claims on the drawee banks.
fixtures and equipment owned by the bank. g. Consolidated basis. This refers to
d. Cash on hand. This refers to total combined statement of condition of parent
cash held by the bank consisting of both bank and subsidiary financial allied
notes and coins in Philippine currency. undertakings, but excluding insurance
e. Central government of a foreign companies.
country. This refers to the central government h. Debt capital instruments. This
which is regarded as such by a recognized refers to unsecured subordinated term debt
banking supervisory authority in that country. instruments qualifying as capital of banks.
f. Claims. This refer to loans or debt i. Equity investments. This refers to
obligations of the entity on whom the claim investments in capital stock of companies,
is held, and shall include, but shall not be firms or enterprises, made for purposes of
limited to, the following accounts, inclusive control, affiliation or other continuing
of accumulated market gains/(losses) and business advantage.
accumulated bond discount/(premium j. Exchange rate contracts. This
amortization), and net of specific allowance includes cross-currency interest rate swaps,
for probable losses: forward foreign exchange contracts,
(1) Due from BSP; currency futures, currency options
(2) Due from other banks; purchased and similar instruments.
(3) Interbank loans receivable; k. Financial allied undertakings. This
(4) Loans and discounts; refers to enterprises or firms with
(5) Agrarian reform and other homogenous or similar activities/
agricultural credit loans - P.D. 717; business/functions with the financial
(6) Development incentive loans; intermediary and may include but not
(7) Bills purchased; limited to leasing companies, banks, IHs,
(8) Customers’ liability on bills/drafts financing companies, credit card
under LCs/TRs; companies, financial institutions catering
(9) Customers’ liability for this bank’s to small and medium scale industries
acceptances outstanding; (including venture capital corporations),
(10) Restructured loans; companies engaged in stock brokerage/
(11) Trading account securities – loans; securities dealership, companies engaged
(12) Underwriting accounts - debt in foreign exchange dealership/brokerage,
securities (for UBs); holding companies (for UBs), and such
(13) Underwriting accounts - equity other similar activities as the Monetary
securities (for UBs); Board may declare as appropriate from time
(14) Trading account securities – to time, but excluding insurance
investments; companies.

Part I - Page 22 Manual of Regulations for Banks


§ X116.3
05.12.31

l. Claims on foreign country and If a claim has only one (1) rating by any
foreign incorporated bank/private of the BSP recognized rating agencies, that
enterprise and Philippine incorporated rating shall be used to determine the risk
bank/quasi bank/private enterprise with the weight of the claim; in cases where there
highest credit quality. This refers to claims are two (2) or more ratings which map into
on a country, bank or private enterprise different risk weights, the higher of the two
given the highest credit ratings by any of (2) lowest risk weights should be used.
the following BSP-recognized credit rating m. Forward asset purchases. This refers
agencies: to a commitment to purchase a loan,
security or other asset at a specified future
(1) International rating agencies: date, usually on prearranged terms.
Rating Agency Highest Rating
(1) Moody’s “Aa3” and above
n. Forward forward deposits. This
(2) Standard and Poor’s “AA-” and above refers to an agreement between two (2)
(3) FitchRatings “AA-” and above parties whereby one (1) will pay and the
(4) And such other as may be approved by the
Monetary Board other will receive an agreed rate of interest
on a deposit to be placed by one (1) party
(2) Domestic rating agencies: with the other at some predetermined date
Rating Agency Highest Rating in the future.
(1) PhilRatings “PRS Aa” and
o. Gold bullion held in another’s vault
above
(2) And such other rating agencies as may be on an allocated basis. This refers to gold
approved by the Monetary Board bullion held by others to the order of the
bank, and which is separately ascertainable.
Provided, That for purposes of this p. Goodwill. This refers to an
Subsection: intangible asset that represents the excess
(i) Any reference to credit rating shall of the purchase price over the fair market
refer to issue-specific rating; the issuer rating value of identifiable assets acquired less
may be used only if the claim being risk- liabilities assumed in acquisitions accounted
weighted is a senior obligation of the issuer for under the purchase method of
and is of the same denomination applicable accounting.
to the issuer rating (e.g., local currency q. Interest rate contracts. This includes
issuer rating may be used for risk weighting single-currency interest rate swaps, basis
local currency denominated senior claims), swaps, forward rate agreements, interest rate
or in cases of guarantees; futures, interest rate options purchased and
(ii) For loans, risk weighting shall similar instruments.
depend on either the rating of the borrower r. Loans for housing purpose, fully
or the rating of the unsecured senior secured by first mortgage on residential
obligation of the borrower: Provided, That property that is or will be occupied or leased
the loan is of the same denomination out by the borrower. This shall not include
applicable to the borrower rating or rating loans to companies engaged in speculative
of the unsecured senior obligation; residential building or property
Domestic debt issuances may be rated by development.
BSP-recognized domestic or international s. Loans or acceptances under letters
credit rating agencies who may use a of credit to the extent covered by margin
national rating scale acceptable to the BSP, deposits. This shall not include the
while international debt issuances should unnegotiated letters of credit or the
be rated by BSP-recognized international unutilized portion thereof, or other items
credit rating agencies only; and booked under contingent accounts. This

Manual of Regulations for Banks Part I - Page 23


§ X116.3
05.12.31

shall also not include margin deposits y. Other commitments with an original
against loans or acceptance accounts which maturity of up to one (1) year. This includes
are fully liquidated. any revolving or undated open-ended
t. Loans to the extent covered by hold- commitments, e.g., overdrafts or unused
out on, or assignment of, deposits or deposit credit lines, providing that they can be
substitutes maintained in the lending bank. unconditionally cancelled at any time and
A loan shall be considered as secured by a subject to credit revision at least annually.
hold-out on, or assignment of deposit or z. Partly-paid shares and securities.
deposit substitute only if such deposit or This arises where only a part of the issue
deposit substitute account is covered by a price or nominal face value of a security
hold-out agreement or deed of assignment purchased has been subscribed and the
signed by the depositor or investor/placer issuer may call for the outstanding balance
in favor of the bank. This shall not include (or a further installment), either on a date
loans transferred to/carried by the bank’s predetermined at the time of issue, or at an
trust department secured by deposit hold- unspecified future date.
out/assignment. aa. Perpetual preferred stock. This
u. Multilateral development banks. refers to preferred stock that does not have
These refer to the World Bank Group a maturity date, that cannot be redeemed
comprised of the International Bank for at the option of the holder of the instrument,
Reconstruction and Development (IBRD) and that has no provision that will require
and the International Finance Corporation future redemption of the issue. Consistent
(IFC), the Asian Development Bank (ADB), with these provisions, any perpetual
the African Development Bank (AfDB), the preferred stock with a feature permitting
European Bank for Reconstruction and redemption at the option of the issuer may
Development (EBRD), the Inter-American qualify as capital only if the redemption is
Development Bank (IADB), the European subject to prior approval of the BSP.
Investment Bank (EIB); the Nordic bb. Philippine local government units.
Investment Bank (NIB); the Caribbean This refers to the Philippine government
Development Bank (CDB), the Council of units below the level of national
Europe Development Bank (CEDB) and such government, such as city, provincial, and
others as may be recognized by the BSP. municipal governments.
v. Non-central government public cc. Philippine national government.This
sector entity of a foreign country. This refers shall refer to the Philippine national
to entities which are regarded as such by a government and their agencies such as
recognized banking supervisory authority in departments, bureaus, offices, and
the country in which they are incorporated. instrumentalities, but excluding
w. Note issuance facilities and government-owned and controlled
revolving underwriting facilities. This refers commercial corporations.
to an arrangement whereby a borrower may dd. Private sector. This refers to entities
draw down funds up to a prescribed limit other than banks and governments. This
over an extended period by repeated issues shall also include commercial companies
to the market of promissory notes which the owned by the public sector, such as
bank committed to underwrite. government-owned or controlled
x. Other commitments. This includes commercial corporations.
undrawn portion of any binding ee. Redeemable preferred stock. This
arrangements which obligate the bank to refers to preferred stock which may be
provide funds at some future date. redeemed at the specific dates or periods

Part I - Page 24 Manual of Regulations for Banks


§§ X116.3 - X116.4
05.12.31

fixed for redemption, only upon prior which is directly or indirectly owned,
approval of the BSP and, where the controlled or held with the power to vote
conditions of the issuance specifically state, by a bank.
only if the shares redeemed or replaced ii. Treasury shares. This refers to shares
with at least an equivalent amount of newly of the parent bank held by a subsidiary
paid-in shares so that the total paid-in financial allied undertaking in a
capital stock is maintained at the same level consolidated statement of condition.
immediately prior to redemption: Provided, jj. Private enterprises. This refers to
That redemption shall not be earlier than five all commercial companies whether
(5) years after the date of issuance: Provided, organized in the form of a corporation,
further, That such redemption may not be partnership, or sole proprietorship.
made where the bank is insolvent or if such kk. Non-performing debt securities. This
redemption will cause insolvency, refers to debt securities as described below:
impairment of capital or inability of the bank (i) For zero-coupon debt securities,
to meet its debts as they mature. and debt securities with quarterly, semi-
Banks which have issues of limited life annual, or annual coupon payments, they
redeemable preferred shares compliant shall be considered non-performing when
with Subsec. X126.5 and outstanding prior principal and or coupon payment is unpaid
to 01 July 2001 shall be allowed to redeem for thirty (30) days or more after due date.
the same prior to the set redemption date, (ii) For debt securities with monthly
without the need for replacement with at coupon payments, they shall be considered
least an equivalent amount of newly paid- non-performing when three (3) or more
in shares within one (1) year from 26 coupon payments are in arrears: Provided,
September 2003 (effectivity of Circular No. however, That when the total amount of
397) upon prior BSP approval: Provided, arrearages reaches twenty percent (20%) of
That: (i) The redeemable preferred the total outstanding balance of the debt
shareholders will give consent; (ii) The bank security, the total outstanding balance of the
meets the required minimum risk-based debt security shall be considered as non-
capital adequacy ratio (CAR) and minimum performing.
capital level for the bank category after such
redemption; and § X116.4 Required reports. Banks
Such redemption will not cause the shall submit a report of their risk-based
inability of the bank to meet its obligations capital adequacy ratio on a solo basis (head
as they mature. office plus branches) and on a consolidated
ff. Sale and repurchase agreements basis (parent bank plus subsidiary financial
and asset sales with recourse. This refers allied undertakings, but excluding
to arrangements whereby a bank sells a insurance companies) quarterly to the
loan, security or fixed asset to a third party appropriate SED of the BSP in the prescribed
with a commitment to repurchase the asset forms within the deadlines, i.e., fifteen (15)
after a certain time, or in the event to a banking days and thirty (30) banking days
certain contingency. after the end of reference quarter,
gg. Solo basis. This refers to combined respectively. Only banks with subsidiary
statement of condition of head office and financial allied undertakings (excluding
branches. insurance companies) which under existing
hh. Subsidiary. This refers to a regulations are required to prepare
corporation or firm more than fifty percent consolidated statements of condition on a
(50%) of the outstanding voting stock of line-by-line basis shall be required to submit

Manual of Regulations for Banks Part I - Page 25


§§ X116.4 - X119.1
05.12.31

report on a consolidated basis. The met. The Monetary Board may restrict or
abovementioned reports shall be classified prohibit the making of new investments of
as Category A-2 reports. any sort by the bank, with the exception of
purchases of readily marketable evidences
§ X116.5 (Reserved) of indebtedness issued by the Philippine
National Government and BSP included in
§ 1116.5 Market risk capital Item “a(1)(b)i” of Subsec. X116.2, until the
requirement. UBs/KBs shall also measure minimum required capital ratio has been
and apply capital charges for market risk, restored.
in addition to the credit risk capital
requirement in this Section, in accordance § X116.7 Temporary relief. In case of a
with the Guidelines to Incorporate Market bank merger, or consolidation, or when a
Risk in the Risk-Based Capital Adequacy bank is under rehabilitation under a program
Framework in Appendix 46. approved by the BSP, the Monetary Board
The capital treatment of market risk may temporarily relieve the surviving bank,
exposures arising from the holdings of consolidated bank, or constituent bank or
Dollar-Linked Peso Notes (DLPNs) is corporations under rehabilitation from full
indicated in Appendix 46a. compliance with the required capital ratio for
The instructions for accomplishing the a maximum period of one (1) year.
report on computation of the Adjusted Risk-
Based Capital Adequacy Ratio covering § X116.8 Capital treatment of
combined credit risk and market risk are exposures/investments in certain products
shown in Appendices 46b (for UBs and KBs The guidelines on the capital treatment of
with expanded derivatives authority), 46c bank’s exposures/investments in the
(for UBs and KBs with expanded derivatives following products are in Part VI:
authority but without options transactions) a. Credit-linked notes in Sec. 1633.
and 46d (for UBs and KBs without expanded b. Structured products in Subsec. 1635.4.
derivatives authority). c. EFCDU investments in Subsec.
1636.4.
§ 2116.5 (Reserved) d. Investment in securities overlying
securitization structures in Subsec.
§ 3116.5 (Reserved) 1648.4.

§ X116.6 Sanctions. Whenever the Secs. X117 - X118 (Reserved)


capital accounts of a bank are deficient with
respect to the prescribed risk-based capital Sec. X119 Issuance of Unsecured
adequacy ratio (which for UBs/KBs shall Subordinated Debt. The guidelines for the
pertain to adjusted capital adequacy ratio issuance of unsecured subordinated debt
covering combined credit risk and market (USD) eligible as Tier 2 capital are as
risk), the Monetary Board, after considering follows:
a report of the appropriate SED of the BSP
on the state of solvency of the institution § X119.1 Minimum features of USD
concerned, shall limit or prohibit the a. Form. A USD that will be publicly
distribution of the net profits and shall distributed may either be scripless in form
require that part or all of net profits be used or evidenced by certificates such as:
to increase the capital accounts of the bank promissory note, debenture or other
until the minimum requirement has been appropriate certificate of indebtedness. A

Part I - Page 26 Manual of Regulations for Banks


§§ X119.1 - X119.4
05.12.31

USD in scripless form shall comply with the § X119.3 Pre-qualification requirements
provisions of R.A. No. 8792, otherwise of issuing bank. A bank applying for authority
known as the “Electronic Commerce Act”, to issue a USD shall comply with the
particularly on the existence of an assurance following requirements:
on the integrity, reliability and authenticity of a. It has complied with the minimum
the USD in electronic form. An independent amount of capital required under Subsec.
third party USD Registry shall maintain X106.1 or its paid-in capital is at least equal
unissued USD certificates and the USD to the amount required therein.
Registry Book, which must be electronic if b. It has established a risk management
the USD is scripless in form. A USD that will system appropriate to its operations
be issued privately or on a negotiated basis characterized by clear delineation of
shall be evidenced by certificates. responsibility for risk management,
All USD shall be registered in the name adequate risk measurement systems,
of individuals or entities and pre-numbered appropriately structured risk limits, effective
serially. internal controls and complete, timely and
b. Denomination. The USD must be efficient risk reporting system.
issued in minimum denominations of c. It is a locally incorporated bank.
P500,000 or its equivalent if denominated
in a foreign currency. § X119.4 Public issuance of unsecured
c. Mandatory provisions. If the USD subordinated debt. Public issuance of
is not scripless in form, the following USD is an issuance offered to the general
provisions must appear in bolder prints on public, which may or may not be qualified
the face of every note, debenture or other investors/buyers as hereinafter defined. The
certificate evidencing the same: Issuing Bank must be rated by an
(1) This obligation is not a deposit and independent credit rating agency
is not insured by the Philippine Deposit recognized by the BSP and a Public Trustee
Insurance Corporation (PDIC); and shall be appointed for investor protection.
(2) This obligation is subordinated to a. Application for authority
the claims of depositors and ordinary (1) The application shall be signed by
creditors, unsecured, not covered by the the president or officer of equivalent rank
guaranty of (name of Bank) or its of the applicant bank;
subsidiaries and affiliates, and ineligible as (2) The application for authority on
collateral for a loan granted by (name of each USD issue/issue program shall be filed
Bank), its subsidiaries and affiliates. with the appropriate SED of the BSP:
If the USD is scripless in form, the Provided, That the period of an issue
foregoing provisions/information shall be program of two (2) or more tranches shall
furnished every buyer/investor in a separate not exceed one (1) year from date of
written instrument receipt of which must approval; and
be duly acknowledged by him. (3) The application shall be
d. Term. The minimum maturity of a accompanied by:
USD shall be ten (10) years for Upper Tier (a) A certified true copy of the
2 capital and five (5) years for Lower Tier 2 resolution of the Issuing Bank’s board of
capital. directors authorizing the issuance of the
USD indicating, among others, the issue
§ X119.2 Prior BSP approval. No USD size, terms and conditions, offering period,
shall be issued without the prior approval purpose or intended use of proceeds
of the BSP. thereof, the names of the Underwriter/

Manual of Regulations for Banks Part I - Page 27


§ X119.4
05.12.31

Arranger, USD Registry, Selling Agent(s) (a) A written confirmation from the
and Market Maker(s), and Public Trustee; president or officer of equivalent rank of the
(b) A certification by the corporate Issuing Bank stating that the bank has been
secretary that the issuance of the USD has rated by an independent credit rating
been approved by the stockholders owning agency duly recognized by the BSP;
or representing at least two-thirds (2/3) of (b) Information disclosure of the USD
the outstanding capital stock of the Issuing issuance prepared by the Underwriter/
Bank if the USD has convertibility feature; Arranger;
(c) A written confirmation from the (c) Promotional materials;
president or officer of equivalent rank of the (d) Specimen of the proposed Purchase
Issuing Bank stating that all the conditions Advice and Registry Confirmation; and
for USD under Item “b(1)(h)” or Item (e) Copy of the agreements between
“b(2)(c)” of Subsec. X116.1 are complied the Issuing Bank and the Underwriter/
with and that such conditions shall be Arranger/USD Registry/Selling Agent(s)/
contained in the USD Certificates if the USD Market Maker(s), and Public Trustee.
is not in scripless form, in the Information The BSP reserves the right to suspend
Disclosure and Purchase Advice; the date of offering, within the fifteen (15)
(d) A written undertaking from the banking day period from submission of the
president or officer of equivalent rank of the above-mentioned requirements.
Issuing Bank not to support, directly or (2) Within ten (10) banking days after
indirectly, by extending loans, issuing issuance of the initial and subsequent
payment guarantees or otherwise, the buyer/ tranches:
holder of the USD of the Issuing Bank; (a) A written notice of the actual date
(e) A written confirmation from the of issuance/offering of each initial and
president or officer of equivalent rank of the subsequent tranches.
Issuing Bank stating that the designated c. Requirements for other parties
Underwriter/Arranger, USD Registry, involved
Selling Agent(s) and Market Maker(s) were (1) Underwriter/Arranger
provided with a complete list of subsidiaries (a) It is either a UB or an IH: Provided,
and affiliates of the Issuing Bank including That if an offering is on a best effort basis, the
their subsidiaries and affiliates; Arranger may also be a KB: Provided, further,
(f) A written undertaking from the That if an offering is denominated in foreign
president or officer of equivalent rank of the currency, the Underwriter/Arranger may also
Issuing Bank to update the above- be any reputable international investment
mentioned list within three (3) banking days bank.
from the date of change in composition (b) It must be an independent third
thereof; and party that has no subsidiary/affiliate or any
(g) Specimen of the USD. other relationship with the Issuing Bank that
b. Additional requirements for the would undermine the objective conduct of
issuance of USD due diligence.
After a bank’s application to issue a (c) If Underwriter, it must have
USD has been approved, the applicant shall adequate risk management and must be
submit the following additional requirements well capitalized, which for a local
to the appropriate SED of the BSP: Underwriter, shall be evidenced by
(1) At least fifteen (15) banking days compliance with the risk-based CAR
before the date of offering: prescribed under Sec. X116 for the past

Part I - Page 28 Manual of Regulations for Banks


§ X119.4
05.12.31

sixty (60) days immediately preceding the There is no need for a Market Maker if
date of application where applicable. the USD is to be held on to maturity:
(2) USD Registry Provided, That this condition is properly
(a) It may be a UB, a KB, or such other disclosed in the Purchase Advice, Registry
specialized entity that may be qualified by Confirmation and Prospectus/Information
the Monetary Board. Disclosure.
(b) It must be a third party that has no (5) Public Trustee
subsidiary/affiliate or any other relationship (a) It must be a financial institution
with the Issuing Bank that would authorized by the BSP to engage in trust and
undermine its independence. other fiduciary business.
(c) It must not be an Underwriter or a (b) It must be a third party that has no
Market Maker of the USD. subsidiary/affiliate or any other relationship
(d) It must have adequate facilities and with the Issuing Bank that would undermine
the organization to do the following: its independence.
(i) Maintain certificates of unissued (c) It must have adequate risk
USD and the Registry Book which must be management system and must be well
electronic if the USD is in scripless form; capitalized as evidenced by compliance
(ii) Deliver transactions within the with the risk-based CAR prescribed under
agreed trading period; and Sec. X116 for the past sixty (60) days
(iii) Issue Registry Confirmations and immediately preceding the date of
USD Certificates if they are not in scripless application where applicable. The sixty
form to buyers/holders of USD. (60)-day compliance period with the risk-
(e) It must have a CAMELS composite based CAR shall be waived in evaluating a
rating of at least “3” in the last regular bank’s eligibility to act as Public Trustee for
examination, where applicable. another bank’s Unsecured Subordinated
(3) Selling Agent Debt Tier 2 Offering, if the former bank has
(a) It may be any financial institution instituted remedial measure to its CAR
with dealership or brokering license and is deficiency by issuing Tier 2 capital.
under the supervision of the BSP. (d) It may also be the USD Registry.
(b) It must be a third party that has no (e) A Public Trustee is mandatory if
subsidiary/affiliate or any other relationship USD shall be offered to the general public
with the Issuing Bank that would undermine and optional if offering will be limited to
its independence. qualified investors/buyers.
(4) Market Maker d. Functions/Responsibilities of other
(a) It must be a financial institution with parties involved
a dealership or brokering license and is The respective parties shall have, among
under the supervision of the BSP. others, the following functions/
(b) It must be a third party that has no responsibilities:
subsidiary/affiliate or any other relationship (1) Underwriter/Arranger
with the Issuing Bank that would undermine (a) Conducts due diligence on the
its independence. Issuing Bank and determines the valuation/
(c) It must have adequate risk pricing of the primary issue;
management and must be well capitalized (b) Prepares the prospectus/information
as evidenced by compliance with the risk disclosure, including updates for multi-
based CAR prescribed under Sec. X116 for tranche USD issues;
the past sixty (60) days immediately preceding (c) Formulates the distribution/
the date of application where applicable. allocation plan for the initial offering and

Manual of Regulations for Banks Part I - Page 29


§ X119.4
05.12.31

ensures proper and orderly distribution of The sale or distribution of USD may also
the primary offering of the USD; be performed by the issuer through its head
(d) Disseminates information to office and branches subject to the following
prospective investors of USD on the terms conditions:
and conditions of the issue (including (i) The in-house distribution shall not
information of non pre-termination at the exceed fifty percent (50%) of the total issue;
initiative of the holder and the liquidity (ii) The sale/distribution must be done
mechanism in secondary trading) and the under the supervision of an officer of the
rights and obligations of the holder, issuer, Issuing Bank who is capable of determining
Underwriter/Arranger, USD Registry, Selling the suitability of the investor and ensuring
Agent, Market Maker and Public Trustee; and that he fully understands the risk in USD;
(e) When selling to its clients, it must (iii) All personnel assigned to distribute/
perform the functions/responsibilities of the sell USD must be capable of determining
Selling Agent under Item “d(3)” hereof. the suitability of the investor and ensuring
(2) USD Registry that he fully understands the risk in USD; and
(a) Keeps unissued USD certificates (iv) It must also perform the functions/
and maintains USD Registry book, which responsibilities of the Selling Agent.
must be electronic if USD is scripless in form; (4) Market Maker
(b) Records initial issuance of the USD (a) Sets an independent pricing for the
and subsequent transfer of ownership; secondary trading of USD;
(c) Issues USD Certificates for primary (b) Posts daily the bid and offer prices
offerings if USD is not scripless in form; for the USD on the screen of at least one (1)
(d) Issues Registry Confirmation to of the information providers until the operation
buyers/holders; of a fixed income exchange for USD;
(e) Functions as paying agent for (c) Verifies identity of each investor to
periodic interest and principal payments; ascertain that Subsec. X119.8 is not violated
(f) Monitors compliance with the and applies appropriate standards to combat
prohibitions on holdings of USD, as money laundering as required under
prescribed under Subsec. X119.8 hereof; and existing BSP regulations;
(g) Submits within ten (10) banking (d) Determines the suitability of the
days from end of reference month, an buyer and ensures that he fully understands
exception report on Subsec. X119.8 to the the risk involved in a USD;
appropriate SED of the BSP. This report shall (e) Issues the Purchase Advice for the
be classified as a “Category B” report. secondary trading of the USD to the buyer
(3) Selling Agent and sends a copy thereof to the USD
(a) Verifies identity of each investor to Registry; and
ascertain that Subsec. X119.8 is not violated (f) Ensures secondary market transfers
and applies appropriate standards to combat and registration in coordination with the
money laundering as required under USD Registry.
existing BSP regulations; (5) Public Trustee
(b) Determines the suitability of the (a) Monitors compliance of the Issuing
investor and ensures that he fully Bank with the terms and conditions of the USD;
understands the features of the USD and the (b) Monitors compliance of the other
risk involved therein; and parties with their functions and responsibilities
(c) Issues the Purchase Advice for the prescribed under this Memorandum;
primary offering of the USD to the buyer and (c) Reports regularly to USD holders
sends a copy thereof to the USD Registry. non-compliance of the Issuing Bank with

Part I - Page 30 Manual of Regulations for Banks


§ X119.4
05.12.31

the terms and conditions of the USD and (5) This USD cannot be terminated by
such other developments that adversely the holder nor by the Issuing Bank before
affect their interest and advise them of the (maturity date). However, negotiations/
course of action they should take to protect transfers from one holder to another do not
their interest; and constitute pre-termination.
(d) Act on behalf of the USD holders (Item “g(5)” above shall apply if the
in case of bankruptcy of the Issuing Bank. Issuing Bank commits no pre-termination of
e. Change of Underwriter/Arranger, the USD. Otherwise it shall read as follows):
USD Registry, Selling Agent(s), Market This USD cannot be terminated by the
Maker(s). After an application for authority holder before (maturity date). However, it
to issue a USD has been approved by the may be pre-terminated at the instance of the
BSP, the Issuing Bank cannot change its Issuing Bank upon:
Underwriter/ Arranger, USD Registry, (a) Prior approval of the BSP subject
Selling Agent(s), Market Maker(s) and Public to the following conditions:
Trustee without prior BSP approval. (i) The bank’s capital adequacy ratio
f. Agreements Between Issuing Bank is at least equal to the required minimum
and other parties involved. The agreements ratio; and
between the Issuing Bank and the USD (ii) The debt is simultaneously replaced
Registry/Selling Agent(s)/Market Maker(s)/ with the issues of new capital which is
Public Trustee shall comply with the neither smaller in size nor of lower quality
provisions of Sec. X169 on bank service than the original issue.
contracts. The Issuing Bank shall be liable (b) Prior notice to holders on record.
to investors for any damages caused by Negotiations/transfers from one (1)
actions of the USD Registry, Selling Agent(s) holder to another do not constitute pre-
and Market Maker(s), which are contrary to termination.
the agreements entered into. (6) The holders/owners of this USD
g. Purchase Advice and Registry cannot set off any amount they owe to the
Confirmation. The Purchase Advice and Issuing Bank against this USD.
Registry Confirmation shall contain all the (7) All negotiations/transfers of this
terms and conditions on the issuance of USD prior to maturity must be coursed
USD and shall conspicuously state the through a Market Maker until the operation
following caveat: of a fixed income exchange.
(1) This USD is not a deposit and is not (8) The payment of principal may be
insured by the PDIC. accelerated on this USD only in the event
(2) This USD is unsecured and not of insolvency of the Issuing Bank.
covered by a guarantee of the Issuer/ (9) This USD may be converted into
Underwriter/Arranger or related party of the common or preferred shares or payment of
Issuer/Underwriter/ Arranger. principal and interest thereof may be
(3) In case of insolvency, this USD is deferred at the instance of the Issuer if the
subordinated in the right of payment of capital adequacy ratio of the Issuing Bank
principal and interest to all depositors and becomes less than the required minimum
other creditors of the bank, except those ratio.
creditors expressed to rank equally with, or (10) The payment of interest on this
behind holders of the USD. USD shall be deferred in the event of
(4) This USD is not eligible as collateral elimination of dividends on all
for a loan made by the Issuing Bank, its outstanding common or preferred stocks
subsidiaries or affiliates. of the Issuing Bank.

Manual of Regulations for Banks Part I - Page 31


§§ X119.4 - X119.5
05.12.31

(11) The payment of principal and by the Selling Agent or the Market Maker,
interest due on this USD shall not be made as the case may be, with the original given
if the Issuing Bank is insolvent. to the buyer and a second copy to the USD
N.B.: The last three items [i.e., (9), (10) Registry. Upon presentation by the buyer
and (11)] are applicable only to USD of the original copy of Purchase Advice, the
qualifying under Upper Tier 2 capital.The USD Registry shall:
foregoing information shall also be shown (a) record the primary issuance in the
in the Prospectus/Information Disclosure. Registry Book and issue a Registry
h. Pre-termination by the Issuer Confirmation and the corresponding USD
(1) The Issuing Bank may pre- certificate to the buyer if it is not scripless
terminate the USD subject to the following in form; and
conditions: (b) register the transfer of ownership
(a) The Information Disclosure, in the USD Registry Book and issue a
Purchase Advice and Registry Confirmation Registry Confirmation to the buyer, in the
shall include the information that the Issuing case of secondary trading.
Bank has the option to pre-terminate the
USD; § X119.5 Private or negotiated
(b) Compliance with Items “b(1)(h)vi” issuance of unsecured subordinated debt
or of “b(2)(c)vi” as may be applicable, of a. Private or negotiated issuance of
Subsec. X116.1; USD is the issuance of USD to qualified
(c) Prior notification of thirty (30) banking investors/buyers, whether individuals or
days or more to holders of record; and institutions as defined under Subsec.
(d) Notwithstanding any agreement to X119.7. There is no limit on the number
the contrary, the Issuer shall shoulder the of qualified investors/buyers and on the sale
tax due, if any, on the interest income or negotiation of the USD: Provided, That
already earned by the holders. such sale or negotiation shall only be made
(2) Within ten (10) banking days after the to another qualified investor/buyer.
completion of the pre-termination transaction, b. Application for authority of the
the Issuing Bank must submit a written notice Issuing Bank
to the appropriate BSP SED of the following: (1) The application shall be signed by
(a) Actual pre-termination date; and the president or officer of equivalent rank
(b) New capital composition. of the Issuing Bank.
i. Primary offering/secondary trading (2) The application for authority on
(1) The primary offering of a USD shall each negotiated USD issue shall be filed
be executed through an Underwriter under with the appropriate SED of the BSP.
a firm commitment or through an Arranger (3) The application shall be
on a best effort basis. Initial sale/distribution accompanied by:
of USD shall be made by a Selling Agent, (a) A certified true copy of the resolution
the Underwriter/Arranger or, to a limited of the Issuing Bank’s board of directors
extent, the Issuing Bank itself. Subsequent authorizing the private/negotiated issuance of
negotiations in secondary trading must be USD indicating, among others, the amount,
executed through authorized Market duration/maturity, interest rate, purpose or
Maker(s) until the operation of a fixed intended use of proceeds of the USD;
income exchange. (b) A Certification by the corporate
The primary offering as well as the secretary that the issuance of the USD has
secondary trading of a USD must be been approved by the stockholders owning
supported by Purchase Advice to be issued or representing at least two-thirds (2/3) of

Part I - Page 32 Manual of Regulations for Banks


§ X119.5
05.12.31

the outstanding capital stock of the Issuing Issuing Bank and the investor/buyer as
Bank if the USD has convertibility feature; specified inthe application for authority to
(c) A written confirmation from the issue negotiated USD; and
president or officer of equivalent rank of (3) A copy of the income tax return of
the Issuing Bank stating that all the the investor/buyer in case of a natural person.
conditions for USD under Item “b(1)(h)” d. Debt agreement/contract
excluding Item “(xi)” or Item “b(2)(c)” The Debt Agreement/Contract shall
excluding Item “(viii)” of Subsec. X116.1 contain all the terms and conditions on the
are complied with and that such conditions issuance of USD and shall conspicuously
shall be contained in the USD Certificates, state the following caveat:
Prospectus/Information Disclosure and (1) This USD is not a deposit and is not
Debt Agreement/Contract; insured by the PDIC.
(d) An undertaking from the president (2) This USD is unsecured and not
or officer of equivalent rank of the Issuing covered by a guarantee of the Issuer or
Bank that the USD shall be issued only to related party of the Issuer.
qualified investors/buyers; (3) In case of insolvency, this USD is
(e) A certification from the president subordinated in the right of payment of
or officer of equivalent rank of the Issuing principal and interest to all depositors and
Bank that the investor/buyer shall not be other creditors of the bank, except those
among those prohibited to hold USD under creditors expressed to rank equally with, or
Subsec. X119.8 and that the Issuing Bank behind holders of the USD.
has applied appropriate standards to (4) This USD is not eligible as collateral
combat money laundering as required for a loan made by the Issuing Bank, its
under existing BSP regulations; subsidiaries or affiliates.
(f) A written undertaking from the (5) This USD cannot be terminated by
president or officer of equivalent rank of the holder nor by the Issuing Bank before
the Issuing Bank not to support, directly nor (maturity date).
indirectly, by extending loans, issuing (Item “d(5)” above shall apply if the Issuing
payment guarantees or otherwise, the buyer/ Bank commits no pre-termination of the USD.
holder of the USD of the Issuing Bank; and Otherwise it shall read as follows):
(g) Specimen of the proposed Debt This USD cannot be terminated by the
Agreement/Contract containing the terms holder before (maturity date). However, it
and conditions of the USD issuance. may be pre-terminated at the instance of the
c. Additional Requirements for the Issuing Bank upon:
Private Issuance of USD. Within ten (10) (a) Prior approval of the BSP subject
banking days after issuance of the USD, the to the following conditions:
Issuing Bank shall submit the following (i) The bank’s capital adequacy ratio
additional requirements to the appropriate is at least equal to the required minimum
SED of the BSP: capital ratio; and
(1) A written notice of the actual date of (ii) The debt is simultaneously replaced
full receipt of proceeds, accompanied by a with the issues of new capital which is
certification from the president or officer of neither smaller in size nor of lower quality
equivalent rank of the Issuing Bank stating that than the original issue.
the pre-qualification requirements under (b) Prior notice to investors/buyers.
Subsec. X119.3 have been complied with up (6) This USD cannot be sold or
to the time of full receipt of proceeds; transferred and must be held on to maturity by
(2) A copy of each of the duly signed the investor/buyer (in case of negotiated issuance
Debt Agreements/Contracts between the of USD to nineteen (19) or less investors/buyers).

Manual of Regulations for Banks Part I - Page 33


§§ X119.5 - X119.6
05.12.31

(7) This USD may only be sold, (a) Actual pre-termination date; and
transferred or negotiated to another (b) New capital composition.
qualified institutional investor/buyer (in case f. Functions/Responsibilities of the
of qualified issuance to institutional buyers). Issuing Bank
(8) The holders/owners of this USD (1) Prepares the Prospectus/Information
cannot set off any amount they owe to the Disclosure on the USD issues;
Issuing Bank against this USD. (2) Disseminates to prospective
(9) The payment of principal may be investors/buyers information on the terms
accelerated on this USD only in the event and conditions of the USD (including
of insolvency of the Issuing Bank. information on no pre-termination at the
(10) This USD may be converted into initiative of the holder, and where
common or preferred shares or payment of applicable, the liquidity mechanism in
principal and interest thereof may be secondary trading) and the rights and
deferred at the instance of the Issuer if the obligations of the holder and the issuer;
capital ratio of the Issuing Bank becomes less (3) Keeps unissued USD certificates
than the required minimum capital ratio. and maintains USD Register;
(11) The payment of interest on this USD (4) Records initial issuance of USD
shall be deferred in the event of elimination and subsequent transfer of ownership;
of dividends on all outstanding common or (5) Issues USD Certificates and Registry
preferred stocks of the Issuing Bank. Confirmation to original investors/ buyers;
(12) The payment of principal and (6) Issues Registry Confirmation to
interest due on this USD shall not be made subsequent buyers/holders where applicable;
if the Issuing Bank is insolvent. (7) Ensures compliance with X119.8
N.B.: The last three (3) items (10), (11) and applies appropriate standards to
and (12) are applicable only to USD combat money laundering as required
qualifying under Upper Tier 2 capital. under existing BSP regulations; and
e. Pre-termination by the Issuer (8) Determines suitability of the
(1) The Issuing Bank may pre-terminate investors/buyers (original or subsequent)
the negotiated USD subject to the following and assures that he fully understands the
conditions: risk involved in a USD.
(a) The Debt Agreement/Contract shall
include the information that the Issuing Bank § X119.6 Issuance overseas of
has the option to pre-terminate the USD; unsecured subordinated debt. The
(b) Compliance with Items “b(1)(h)vi” overseas issuance of USD shall also be
or “b(2)(c)vi”, as may be applicable, of subject to the provisions of these guidelines,
Subsec. X116.1; except for the following:
(c) Prior notification of thirty (30) a. Overseas issuance of unsecured
banking days or more to lender/investor; and subordinated debt (USD) may be allowed
(d) Notwithstanding any agreement to to be governed by the laws and applicable
the contrary, the Issuer shall shoulder the rules and regulations of the country where
tax due, if any, on the interest income the USD is to be issued with respect to form,
already earned by the holders. qualified investors/buyers and subsequent
(2) Within ten (10) banking days after sale or negotiation;
the completion of the pre-termination b. The requirements under Subsecs.
transaction, the Issuing Bank must submit a X119.1c(1), X119.5d(6) and X119.5d(7)
written notice to the appropriate BSP SED may be allowed to be dispensed with in
of the following: cases of overseas issuance of USD; and

Part I - Page 34 Manual of Regulations for Banks


§§ X119.6 - X119.9
05.12.31

c. The subsequent sale/negotiation in b. Common trust funds (CTFs)


the Philippines of the USDs originally managed by the Trust Department of the
issued overseas shall not be allowed unless Issuing Bank, its subsidiaries and affiliates
all the requirements for domestic issuance or other related entities: Provided, That
are complied with. other funds being managed by the Trust
It is however understood that the Department of the Issuing Bank, its
applicant/issuer shall also secure the subsidiaries and affiliates or other related
approval of the International Operations entities are allowed to purchase or invest
Department (IOD) of the BSP for the in USD of the Issuing Bank subject to the
overseas issuance of foreign currency following conditions:
denominated USD. (1) That the fund owners give prior
authority/instruction to the Trust
§ X119.7 Qualified investors/buyers Department to purchase or invest in the
Qualified buyers of, or suitable investors USD of the Issuing Bank; and
in, a USD can be any of the following: (2) That the authority/instruction of the
a. Banks; fund owner and his understanding of the
b. Investment house (IH); risk involved in purchasing or investing in
c. Insurance company; USD are fully documented.
d. Pension or retirement fund of other For purposes of this Section, an affiliate
entities which have no subsidiary/affiliate or refers to a related entity linked by means
any other relationship with the Issuing Bank; of ownership of at least twenty percent
e. Investment company; (20%) to not more than fifty percent (50%)
f. Funds managed by another bank or of its outstanding voting stock.
other entities duly authorized to engage in
trust or other fiduciary business; § X119.9 Accounting treatment
g. Domestic corporate or institutional Obligations arising from the issuance of
investors with total assets of at least P100 USD shall be booked under a new General
million; Ledger account title “Unsecured
h. Foreign multilateral organizations Subordinated Debt”, which shall be
such as, the ADB and IFC; presented separately in the financial
i. High net-worth individual investor/ statements between total liabilities and capital
buyer who is sophisticated enough to accounts. However, only the net proceeds
understand and appreciate the significance actually received from debt issues shall be
of and the risk involved in USD as may be considered as Tier 2 capital. Moreover, if the
indicated by his/her educational background debt is issued at a premium, the premium
and/or employment/business experience; and shall not be counted as part of Tier 2 capital.
j. Stockholder, director or officer with The net proceeds actually received
the rank of at least a Vice-President of the from the debt issues, whether at a discount
Issuing Bank. or premium shall be considered in the
computation of loanable funds for purposes
§ X119.8 Prohibitions on holdings of of determining compliance with the
USD. The following persons and entities mandatory allocation of funds for agri-agra
are prohibited from purchasing/holding credit required under P.D. No. 717, as
USD of the Issuing Bank: amended.
a. Subsidiaries and affiliates of the Cost incurred related to the issuance
Issuing Bank including their subsidiaries of USD shall be charged to current
and affiliates; and operations or booked under “Deferred

Manual of Regulations for Banks Part I - Page 35


§§ X119.9 - X120
05.12.31

Charges” account to be amortized equally c. On the USD Registry


over a period not exceeding five (5) years. (1) Disqualification from being
A USD denominated in foreign appointed as USD Registry for three (3)
currency may be recorded in the regular years; and
banking unit (RBU) or foreign currency (2) Monetary penalty of P30,000 for
deposit unit (FCDU/EFCDU) of the Issuing each violation.
Bank: Provided, That if booked in the d. On the Selling Agent/Market
FCDU/EFCDU, the following conditions Maker
shall be strictly observed: (1) Disqualification from being
a. The Issuing Bank shall indicate in appointed as Selling Agent or Market
its application that the USD shall be booked Maker for three (3) years; and
in its FCDU/EFCDU; (2) Monetary penalty of P30,000 for
b. The USD shall remain in the FCDU/ each violation.
EFCDU books until full settlement; and e. On the Public Trustee
c. The USD shall be issued only to (1) Disqualification from being
non-residents and offshore banking units appointed as Public Trustee for three (3)
in accordance with Section 72.2.e of CB years; and
Circular No. 1389, as amended. (2) Monetary penalty of P30,000 for
each violation.
§§ X119.10 - X119.12 (Reserved) f. On the certifying officer - A fine
of P5,000 per banking day from the time
§ X119.13 Sanctions. Without of required disclosure up to the time
prejudice to the other sanctions prescribed disclosure was made, or from the time
under Section 37 of R.A. No. 7653 and misrepresentation was made up to the time
the provisions of Section 16 of R.A. No. the information was corrected, and a
8791, sanctions shall be imposed on the possible disqualification if warranted by the
Issuing Bank, USD Registry and other gravity of the offense committed.
parties involved in the transaction for failure g. On the responsible officer - A fine
to perform their respective functions/ of P30,000 for participating in or tolerating
responsibilities and for non-disclosure or the non-disclosure or misrepresentation of
misrepresentation of information, as information, and a possible disqualification
follows: if warranted by the gravity of the offense
a. On the Issuing Bank committed.
(1) Suspension of its authority to issue
remaining tranches, if any; Sec. X120 Issuance of Hybrid Tier 1
(2) Disqualification from future Capital Instruments. Except for the
issuance of USD; accounting treatment, the issuance of the
(3) Disqualification of all outstanding Hybrid Tier 1 capital instruments shall
issues as eligible Tier 2 capital; and generally follow the guidelines on the
(4) Monetary penalty of P30,000 for issuance of unsecured subordinated debts
each violation. eligible as Upper or Lower Tier 2 capital
b. On the Underwriter/Arranger as provided in Sec. X119.
(1) Disqualification from being Eligible Hybrid Tier 1 capital instrument
Underwriter/Arranger for three (3) years; shall be booked as equity instrument under
and the account “Other Equity Instrument –
(2) Monetary penalty of P30,000 for Others”, which shall be accounted for in
each violation. accordance with the provisions of PAS 32.

Part I - Page 36 Manual of Regulations for Banks


§§ X121 - X121.3
05.12.31

E. LIBERALIZED ENTRY AND SCOPE (1) Widely-owned and publicly-listed


OF OPERATIONS OF FOREIGN BANKS (listed in any stock exchange authorized
by the government of the country of
Sec. X121 Liberalized Entry and Scope of origin), unless more than fifty percent
Operations of Foreign Banks. The following (50%) of the capital stock of said foreign
rules shall govern the liberalized entry and bank applicant is owned by the
scope of operation of foreign banks. government of its country of origin. The
bank is considered as widely-owned if it
§ X121.1 Modes of entry of foreign has at least fifty (50) stockholders without
banks. With prior approval of the any stockholder owning more than fifteen
Monetary Board, foreign banks may percent (15%) of its capital stock:
operate in the Philippines through any one Provided, That if the bank is owned/
(1) of the following modes: controlled by a holding company, this
a. By acquiring, purchasing or requirement shall apply to the holding
owning up to sixty percent (60%) of the company; and
voting stock of an existing domestic bank (2) Among the top 150 banks in the
(including banks under receivership or world or the top five (5) banks in its
liquidation, provided no final court country of origin.
liquidation order has been issued); The determination of the top 150
b. By investing in up to sixty percent banks in the world may be based on lists
(60%) of the voting stock of a new banking prepared and published by reputable
subsidiary incorporated under the laws of organizations/publications.
the Philippines; or The determination of the top five (5)
c. By establishing branches with full banks in the country of origin shall be
banking authority. based on information supplied by the bank
Interested foreign banks shall file with supervisory authorities in which country
the Office of the Governor, BSP, their of origin as to the ranking of banks based
application for authority to operate in the on net worth. However, the Monetary
Philippines through any of the modes of Board may also use total assets as a
entry mentioned above. The application criterion: Provided, That the same shall be
must be submitted in the prescribed forms based on book accounts only and on the
shown in Appendix 2. consolidated balance sheet of the head
office and all branches, excluding
§ X121.2 Qualification requirements subsidiaries and affiliates.
a. Investment in an existing In addition to the foregoing
domestic bank. A foreign bank seeking requirements, the foreign bank applicant
to acquire, purchase or own up to sixty must be in compliance with capital
percent (60%) of the voting stock of an requirements as prescribed by the laws
existing domestic bank needs only to and regulations of its country of origin.
meet the selection criteria under Subsec.
X121.3. § X121.3 Guidelines for selection
b. Establishment of subsidiary or The following factors shall be considered
branch. Any foreign bank seeking to in selecting the foreign bank which will
establish a new banking subsidiary or to be allowed to invest in majority of the
establish branches with full banking authority, voting stock of an existing domestic bank
in addition to satisfying the criteria prescribed or to establish a subsidiary or branch in
Subsec. X121.3, must be - the Philippines.

Manual of Regulations for Banks Part I - Page 37


§§ X121.3 - X121.4
05.12.31

a. Geographic representation and § X121.4 Capital requirements


complementation. Representation from a. For locally incorporated subsidiaries
the different parts of the world and/or the - The minimum capital required for locally
international financial centers shall be incorporated subsidiaries of foreign banks
ensured. shall be the same as that prescribed by the
b. Strategic trade and investment Monetary Board for domestic banks of the
relationships between the Philippines and same category.
the country of incorporation of the foreign b. For foreign bank branches with full
bank. Consideration shall be given to the banking authority - A foreign bank
countries of origin of applicant foreign authorized to establish branches with full
banks- banking authority in the Philippines shall
(1) With substantial financial inwardly remit and convert into Philippine
assistance to, and loans and investments, currency, as permanently assigned capital,
past and present, in the Philippines; and the U.S. Dollar equivalent of P210.0 million
(2) With which the Philippines has at the exchange rate prevailing on 05 June
significant volume of trade especially to 1994 (the date of effectivity of R.A. No.
those with which the country has 7721), i.e., P26.979 to US$1. The foreign
substantial net exports. bank shall thereby be entitled to establish
c. Relationship between the three (3) branches in locations of its choice.
applicant bank and the Philippines. For purposes of this Subsection, the
Consideration shall be given to the same foreign bank may open three (3)
capability of the foreign bank to promote additional branches in locations designated
trade with, and to bring foreign investments by the Monetary Board by inwardly
into, the Philippines. Long standing remitting and converting into Philippine
financial and commercial relationship currency, as additional permanently
with, and assistance extended to, the assigned capital the U.S. Dollar equivalent
Philippines, shall likewise be taken into of P35.0 million for every additional
account. branch, computed at the same exchange
d. Demonstrated capacity, global rate of P26.979 to US$1. The Monetary
reputation for financial innovations and Board, in determining the location of the
stability in a competitive environment of next three (3) branches established pursuant
the applicant. Demonstrated capacity and to the provisions of R.A. No. 7721, shall
stability may be indicated by the fact that consider, among other things, development
the applicant ranks among the top 150 in requirements of a region and the
the world or top five (5) in its country of contribution of a bank branch may make
origin. Global reputation may be to regional development, expansion of
measured by international presence, e.g., basic financial services and enhanced
number of branches with full banking access to credit by small and medium-scale
authority outside of its country of origin. enterprises: Provided, That the total number
e. Reciprocity rights enjoyed by of branches for each new foreign bank
Philippine banks in the applicant’s entrant shall not exceed six (6).
country. Philippine banks shall enjoy c. For foreign banks with existing
reciprocity rights in the applicant's country. branches in the Philippines -
f. Willingness to fully share (1) A foreign bank with existing branch
technology. The applicant bank shall or branches in the Philippines upon the
submit an undertaking to this effect effectivity of R.A. No. 7721 shall comply
together with its application. with the required permanently assigned

Part I - Page 38 Manual of Regulations for Banks


§§ X121.4 - X121.5
05.12.31

capital by inwardly remitting and converting of this Section, the bank shall comply
into Philippine currency the U.S. Dollar immediately with the aforesaid ratio.
equivalent of P210.0 million computed at the d. Capital of Foreign Bank Branch
same exchange rate of P26.979 to US$1, Authorized to Operate as Expanded
within a period of one and one-half (1½) Commercial Bank - The capital of a
years from 05 June1994. Philippine branch of a foreign bank which
The said foreign bank may establish up is authorized to operate as a UB may consist
to six (6) branches in addition to its branch of its permanently assigned capital plus the
or branches existing as 05 June1994, the Net due to account: Provided, That at no
first three (3) additional branches in time shall the aggregate of said accounts
locations of its choice, and the next three fall below the amount required for UB
(3) additional branches in locations authority under Subsecs. X106.1 and
designated by the Monetary Board: X106.2: Provided, further, That the amount
Provided, That upon establishing any of the Net due to which may be added to
additional branch, the bank shall comply permanently assigned capital shall not
immediately with the permanently assigned exceed the equivalent of three (3) times the
capital mentioned in the next preceding amount of the permanently assigned capital.
paragraph: Provided, further, That the said The Net due to as described in the
permanently assigned capital shall be the preceding paragraph shall be net of the
capital for the bank’s first three (3) additional items enumerated in Subsec. X121.5d.
branches, including its existing branch or e. Applicable Exchange Rate - It is
branches, and for each branch established understood that the exchange rate of
in addition thereto, the U.S. Dollar P26.979 to US$1 mentioned hereinabove
equivalent of P35 million computed at the is applicable only to the minimum capital
same exchange rate of P26.979 to US$1, requirements provided in Items b and c of
shall be inwardly remitted and converted this Subsection. For other purposes, the
into Philippine currency. exchange rate prevailing at the time of
If the permanently assigned capital of remittance shall be applicable.
the existing branch/es of said foreign bank
that has been converted to Philippine § X121.5 Composition of capital
currency is sufficient to cover the above- accounts; compliance with capital ratios
mentioned amount of assigned capital a. Foreign bank branches shall
required for the additional branches, no comply with the same capital ratios
additional assigned capital shall be applicable to domestic banks of the same
required; otherwise, the foreign bank shall category.
comply immediately with the capital b. For Philippine branches of foreign
requirements under the above paragraphs. banks, the term capital shall include
(2) Foreign banks with existing permanently assigned capital which shall
branches in the Philippines on 5 June1994 be inwardly remitted and converted to
shall have a period of one and one-half (1½) Philippine currency and Net due to up to
years from said date within which to comply an amount prescribed under Subsec.
with the ratio between the assigned capital X121.6. Should there be any Net due from
and the Net due to head office, branches, head office, branches, subsidiaries and
subsidiaries and offices outside the other offices outside the Philippines, the
Philippines prescribed in Subsec. X121.6: same shall be deducted from the capital
Provided, That upon establishing any accounts for purposes of determining
additional branch pursuant to the provisions compliance with the required capital ratios.

Manual of Regulations for Banks Part I - Page 39


§§ X121.5 - X121.8
05.12.31

c. Earnings not remitted to the head be subject to conversion into Philippine


office shall constitute part of the Net due to currency.
of the local branch of a foreign bank: If there is non-compliance with the
Provided, That said bank may elect to prescribed fifteen percent (15%) of Net due
consider such earnings as part of the to required to be inwardly remitted and
assigned capital, in which case said earnings converted to pesos, the bank shall
may no longer be remittable to the head office. immediately inwardly remit and convert to
d. The term Net due to shall be net of: Philippine currency the amount of the
(1) unbooked valuation reserves and other deficiency.
capital adjustments as may be required by Branches of foreign banks shall submit
the BSP; (2) total outstanding unsecured the reports prescribed in Appendix 6 to
credit accommodations, both direct and indirect, show compliance with the requirement that
to DOSRI; and (3) deferred income tax. at least fifteen percent (15%) of its Net due
e. Where a foreign bank has more to shall be inwardly remitted and converted
than one (1) branch or banking office in into Philippine currency.
the Philippines, all its branches and
banking offices shall be treated as a unit § X121.7 Head office guarantee. The
for purpose of determining compliance head office of foreign bank branches shall
with the legal reserve requirement and guarantee prompt payment of all liabilities
with capital requirement prescribed in of its Philippine branches, as well as the
laws/regulations. observance of the constitutional rights of
the employees of such branches.
§ X121.6 Prescribed ratio of Net due
to and permanently assigned capital. The § X121.8 Scope of authority for locally
amount of Net due to which may be added incorporated subsidiaries of foreign banks
to permanently assigned capital for as well as branches with full banking
purposes of determining compliance with authority. Subsidiaries and branches of
capital ratios prescribed in laws/regulations foreign banks established under Subsec.
shall not exceed the equivalent of four (4) X121.1 shall be allowed to perform the same
times the amount of permanently assigned functions and enjoy the same privileges of,
capital: Provided, That for the purpose of a and be subject to the same limitations
foreign bank branch seeking to operate as a imposed upon, a Philippine bank of the same
UB, the ratio shall not exceed three (3) times category. Privileges shall include the eligibility
as provided in Item "d" of Subsec. X121.4. to operate under an expanded commercial
At least fifteen percent (15%) of the Net banking authority subject to compliance with
due to required to comply with the existing rules and regulations and the
prescribed capital ratio shall be inwardly guidelines enumerated in Appendix 3 on the
remitted and converted into Philippine matter: Provided, That foreign bank branches
currency: Provided, That amounts invested authorized to operate under an expanded
in productive enterprises or utilized by commercial banking authority shall be
Philippine companies for export activities, exempted from the requirement of publicly
including foreign currency denominated offering at least ten percent (10%) of its shares.
loans granted to Philippine exporters and The limitations include, among other things,
loans for productive purposes such as the the single borrower's limit, the capital-to-risk
following: agriculture, fisheries and forestry; assets ratio, and the capitalization and other
manufacturing; mining; public utilities; requirements under R.A. No. 337, as
construction; and home building, need not amended, and other related laws.

Part I - Page 40 Manual of Regulations for Banks


§§ X121.9 - X121.11
05.12.31

§ X121. 9 Limitations (i) the granting of authority to establish


a. Limit on mode of entry for each additional subsidiaries and branches;
foreign bank - A foreign bank may avail itself (ii) the granting of authority to (a)
of only one (1) mode of entry provided engage in expanded commercial banking
under Items "a" to "c" of Subsec. X121.1: and trust activities; (b) open an FCDU; (c)
Provided, That entry pursuant thereto shall collect taxes and customs duties; and (d)
not preclude investment in the equity of a invest in the equity of other entities; and
domestic bank pursuant to the provisions (iii) access to rediscounting facilities.
of R.A. No. 337, as amended. A foreign
bank that comes in via the establishment of § X121.10 Change from one mode
branches under R.A. No. 7721 may still of entry to another
invest in the equity of a domestic bank a. As a general rule, a foreign bank which
subject to the provisions of R.A. No. 337, has been authorized to operate in the
as amended. Philippines through any one (1) of the
b. Limit on the number of foreign allowable modes of entry may change to another
banks which may be allowed to establish mode by giving up the first mode it availed of.
branches. The Monetary Board may b. A foreign bank which pursuant to
authorize up to six (6) new foreign banks Items “a” and “b” of Subsec. X121.1, has
to establish branches. However, upon established or acquired a banking subsidiary
recommendation of the Monetary Board, may sell its stockholdings therein and may
the President of the Republic of the apply for authority to establish a branch
Philippines may approve, as the national subject to the provisions of Subsec. X121.9c
interest may require, four (4) additional new and to the following conditions:
foreign banks to establish branches, subject (i) that the disposition/sale of its
to compliance with provisions of this stockholdings in the subsidiary is done
Section. within five (5) years from 5 June 1994;
c. Limit on the period for entry (ii) that the foreign bank qualifies under
through establishment of branches. Foreign the provisions of Subsec. X121.2b; and
banks shall be allowed entry under Item “c” (iii) that the limit of ten (10) foreign
of Subsec. X121.1 by establishing branches banks establishing branches as a mode of
with full banking authority within five (5) entry has not yet been reached.
years from 05 June 1994. The entry of c. Foreign banks with existing
foreign banks through the establishment of branches in the Philippines, as well as those
a new banking subsidiary and through that may be allowed to establish branches
investment in existing domestic banks shall under R.A. No. 7721, may incorporate
not be subject to any time limitation. under Philippine laws, in which case said
d. Control of the resources of the foreign banks may own up to sixty percent
banking system. The Monetary Board shall (60%) of the voting stock of the new bank.
adopt such measures as may be necessary
to ensure that at all times the control of § X121.11 Listing of shares with the
seventy percent (70%) of the resources or Philippine Stock Exchange. At least ten
assets of the entire banking system is held percent (10%) of the capital of banks in
by domestic banks more than fifty percent which foreign banks have invested under
(50%) of the subscribed capital of which is Subsec. X121.1a and b, shall be listed in
owned by Filipinos. Said measures may the PSE within a reasonable period of time
include review of, among other things, the after the investment is made as may be
existing policies on - determined by the Monetary Board.

Manual of Regulations for Banks Part I - Page 41


§§ X121.12 - X126.1
05.12.31

§ X121.12 Applicability to Philippine citizenship of the individual stockholders


corporations in that bank.
a. Any right, privilege or incentive b. A Filipino individual and a
granted to foreign banks or their subsidiaries domestic non-bank corporation may each
or affiliates under R.A. No. 7721 shall be own up to forty percent (40%) of the voting
equally enjoyed by, and extended under the stock of a domestic bank. There shall be
same conditions to, domestic banks. no ceiling on the aggregate ownership by
b. Philippine corporations, whose such individuals and corporations in a
shares of stocks are listed in the PSE, or domestic bank.
which are of long standing for at least ten c. A natural person and a corporation
(10) years, as determined by the Monetary or corporations which are wholly-owned,
Board, shall have the right to acquire, or a majority of the voting stock of which
purchase or own up to sixty percent (60%) is owned, by him may own only up to a
of the voting stock of a domestic bank: combined forty-percent (40%) of the voting
Provided, That said corporations, as well stock of a domestic bank.
as foreign banks may own up to sixty d. The right of Philippine
percent (60%) of the voting stock of only corporations, however, under Section 8 of
one (1) domestic bank. R.A. No, 7721, as implemented under
Subsec. X121.12 shall continue to be in
Secs. X122 - X125 (Reserved) force and effect.
e. Stockholdings of family groups or
F. STOCK, STOCKHOLDERS related interests. Individuals related to
AND DIVIDENDS each other within the fourth degree of
consanguinity or affinity, whether
Sec. X126 Shares of Stock of Banks. The legitimate, illegitimate or common-law,
following shall govern transactions affecting shall be considered family groups or
shares of stock of banks and the limits on related interests but may each own up to
stockholdings in a single bank or in several forty percent (40%) of the voting stock of a
banks. domestic bank: Provided, That said
relationship must be fully disclosed in all
§ X126.1 Limits of stockholdings in a transactions by such corporations or related
single bank. The stockholdings of an groups or persons with the bank.
individual, family, corporate or business f. Two (2) or more corporations
group in any bank shall be subject to the owned or controlled by the same family
limits prescribed in Sections 11, 12, 13 and group of same group of persons shall be
14 of R.A. No. 8791. considered related interests but may each
a. Foreign individuals and non-bank own up to forty percent (40%) of the voting
corporations may own or control up to forty stock of a domestic bank: Provided, That
percent (40%) of the voting stock of a said relationship must be fully disclosed
domestic bank: Provided, That the in all transactions by such corporations or
aggregate foreign-owned voting stock related groups of persons with the bank.
owned by foreign individuals and non-bank g. Ceiling on stockholdings in a Coop
corporations in a domestic bank shall not Bank. The equity investment of any
exceed forty percent (40%) of the cooperative in any Coop Bank shall not
outstanding voting stock of the bank. The exceed forty percent (40%) of the
percentage of foreign-owned voting stock subscribed capital stock of such Coop
in a bank shall be determined by the Bank.

Part I - Page 42 Manual of Regulations for Banks


§§ X126.1 - X126.2
05.12.31

h. Stockholdings in excess of ceilings. (2) The sale or transfer of voting stock


Unless otherwise allowed under existing of banks to any individual or entity, if such
laws, rules or regulations, any or all, as the sale or transfer, in itself, or in relation with
case may be, of the above-mentioned another previous sale or transfer shall result
stockholders owning more than forty in the ownership by foreign persons and/
percent (40%) of the voting stock of a KB or foreign non-bank corporations in excess
or a UB shall comply with said ceiling of forty percent (40%) of the voting stock
within thirty (30) days from 13 May 2002. in a UB or a KB and sixty percent (60%) in
i. Determination of foreign-owned case of a TB.
voting stock and citizenship of corporate (3) The sale or transfer of voting stocks
stockholders in a bank as well as the of UB or KB to any corporation, if such
relationship of stockholders of a bank. sale or transfer, in itself, or in relation with
(1) The percentage of foreign-owned another previous sale or transfer shall result
voting stocks in a bank shall be determined in the ownership by such corporation in
by the citizenship of all the stockholders in excess of forty percent (40%) of the voting
that bank. stock of the bank, unless allowed under
(2) The citizenship of the corporation, R.A. No. 7721 and R.A. No. 8791.
which is a stockholder of a bank shall (4) The sale or transfer of voting shares
follow the citizenship of the controlling of stocks of UBs or KBs or RBs1 to (a) any
stockholders of the corporation, natural person; and (b) any corporation or
irrespective of the place of incorporation. corporations which are wholly-owned or
For purposes hereof, the term “controlling a majority of the voting stock of which is
stockholders” shall refer to stockholders owned by such natural person if such sale
holding more than fifty percent (50%) of of transfer in itself, or in relation with
the voting stock of the corporate another previous sale or transfer, shall
stockholders of the bank. result in the combined ownership by such
(3) The relationship of individuals who natural person and such corporations in
are stockholders of a bank shall be excess of forty percent (40%) of the voting
determined in accordance with the stock of the bank, unless allowed under
provisions of Articles 963 to 966 of the Civil R.A. No. 7721 and R.A. No. 8791.
Code of the Philippines. (5) Any arrangement, such as voting
trust agreement or proxy, which vests in
§ X126.2 Transfer of shares. The any person or corporation the right to vote
following regulations shall govern transfer or control voting stocks in banks, if such
of voting shares of stocks in banks: agreement in itself, or in relation with
a. Unlawful and void transactions another previous similar agreement or
involving voting stocks in banks. The previous sale or transfer shall result in the
following transactions, to the extent of the acquisition of control, in excess of the
excess over any of the prescribed ceilings prescribed limitations.
are hereby declared unlawful. b. Duties of a corporate secretary. In
(1) The sale or transfer of voting stock all transactions, which may lawfully come
of a UB, a KB or an RB1 to any individual, to the knowledge of the corporate secretary
if such sale or transfer, in itself, or in relation involving transfer of voting shares of stock
with another previous sale or transfer shall or registration of voting trust agreements,
result in the ownership by an individual in or any form of agreement vesting the right
excess of forty percent (40%) of the voting to vote the voting shares of stock of the
stock of the bank. bank, the corporate secretary shall:

1 Effective 03 April 2002

Manual of Regulations for Banks Part I - Page 43


§ X126.2
05.12.31

(1) ascertain the identity and citizenship Governor of the BSP of the attempted illegal
of the transferee, voting trustee, proxy or transfer or arrangements, together with the
person vested with the right to vote, and for names, addresses of parties and other
this purpose, he should require the pertinent data with respect to the particular
transferee, voting trustee, proxy or the stock transaction.
person vested with the right to vote to submit In the event the corporate secretary has
proof of citizenship, which may consist, in reason to doubt the legality of the transfer
case of a corporation, of a certified true copy or of the arrangement sought to be
of the articles of incorporation, accompanied registered, he may commence an action
by the affidavit of the corporate secretary before the appropriate body;
of the corporation, certifying to the (4) promptly inform stockholders who
correctness and accuracy of the list of have reached any of the ceilings imposed
stockholders and the percentage of shares by law, of their ineligibility to own or control
owned by them; more than the applicable ceiling; and
(2) require the transferee, voting (5) disclose the ultimate beneficial
trustee, proxy or person vested with the right owners of bank shares held in the name of
to vote, at the time of the receipt of the Philippine Central Depository (PCD)
request for transfer or registration, or at any Nominee Corporation in the quarterly
time thereafter, to disclose all information with report on Consolidated List of Stockholders
respect to persons related to the transferee, and Their Stockholdings which report shall
voting trustee, proxy or person vested with be made under oath by the authorized bank
the right to vote, within the fourth degree of officers/signatories. Any violation of the
consanguinity or affinity, whether legitimate, provision of this Subsection shall be subject
illegitimate or common-law, as well as to a penalty of P30,000 per day until the
corporations, partnerships or associations correct report is submitted to the BSP.
where the transferee, voting trustee, proxy or c. Transfers requiring prior Monetary
person vested with the right to vote has Board approval
controlling interest, and the extent thereof; (1) Prior approval of the Monetary
(3) require the transferee to execute an Board shall be required on the following:
affidavit (sample format shown in Appendix (a) Any sale or transfer or series of sales
4) stating, among other things, that the or transfers which will result in ownership
transferee is a bona fide owner of shares of or control of more than twenty percent
stock and that he acknowledges full (20%) of the voting stock of a bank by any
awareness of the requirements of the law person whether natural or juridical or which
and the prohibitions against exceeding will enable such person to elect, or be
ownership of voting stocks beyond the elected as, a director of such bank; and
prescribed limitations. (b) Any sale or transfer or series of sales
If the request for transfer or the or transfers which will effect a change in
arrangement sought to be registered will the majority ownership or control of the
patently cause the voting stocks of a person voting stock of the bank from one (1) group
or a corporation, to exceed the limits of persons to another group: Provided, That
prescribed by law, the corporate secretary in no case shall such sale or transfer be
shall deny the transfer or registration and approved unless the bank concerned shall
forthwith inform the parties to the immediately comply with the prescribed
transaction in writing. Simultaneous with minimum capital requirement for new
the notice to the parties, the corporate banks, notwithstanding any approved
secretary shall submit a written report to the capital build-up program.

Part I - Page 44 Manual of Regulations for Banks


§§ X126.2 - X126.4
05.12.31

(2) For purposes of these regulations, the voting stock of a domestic bank, including
the sale or transfer of voting stock shall refer foreign-owned shares outstanding and
to sales or transfers of voting stock which foreign-held as of 27 April 1973 and which
are allowed under existing laws or BSP rules continued to be held by the foreign
and regulations and which have not been stockholder up to the date of the acquisition
registered/recorded in the transfer book/ by the foreign banks.
stock ledger or other records of banks. b. (Deleted by Cir. No. 256 dated 15
(3) Sanctions. Any violation of the August 2000)
provisions under Items “c(1)(a)” and “(b)” c. The prior authority of the Monetary
above shall be subject to the sanctions Board is not required if the foreign
prescribed under Sections 36 and 37 of R.A. investor is (1) an individual, (2) a non-
No. 7653, without prejudice to the financial entity, or (3) a non-bank financial
appropriate legal actions for the rescission entity which is not owned or controlled by
and invalidation of the sale or transfer. a bank, its subsidiary or holding company,
d. Requirement for newly established and the investor is acquiring foreign-owned
banks. Entities which may hereinafter apply shares in existing domestic banks:
for a license to engage in banking business Provided, That said shares were outstanding
shall, before being allowed to operate, and foreign-held as of 27 April 1973 and
submit - which continued to be foreign-held up to
(1) An alphabetical list of stockholders the date of acquisition by the foreign
with the number and percentage of voting investor.
stock owned by them; and d. The maximum stockholdings
(2) A separate list containing the names foreigners may own in domestic banks shall
of persons who own voting stocks in banks continue to be governed by existing
and who are related to each other within provisions of law.
the fourth degree of consanguinity or e. Only foreign-owned shares directly
affinity, whether legitimate, illegitimate or funded by inward remittance of foreign
common-law, with proper indication of the exchange sold to the local banking system
combined percentage of voting stocks held are qualified for registration with the BSP
by them in the particular bank, as well as through its appropriate department for
corporations which are wholly-owned or a capital repatriation and remittance of profits/
majority of the stock of which is owned by dividends privileges, in accordance with
any of such persons, including their existing BSP rules and regulations.
subsidiaries.
§ X126.4 Convertibility of preferred
§ X126.3 Other foreign equity stock to common stock. Out of the
investment in domestic banks. Except as convertible preferred shares of stock which
otherwise covered under Sec. X121 and KBs/TBs may henceforth be authorized to
Subsec. X126.1, the following guidelines issue, at least fifty percent (50%) of each
shall be observed on equity investments of such issue, shall be convertible into
foreigners in domestic banks: common stock at the option of the holders
a. The prior authority of the Monetary thereof after five (5) years from date of issue:
Board shall be obtained by foreign banks, Provided, however, That :
including their subsidiaries and their a. The bank concerned may allow the
holding companies having majority conversion of such preferred stock into
holdings in such foreign banks, whenever common stock even before the lapse of five
acquiring more than forty percent (40%) of (5) years from date of issue;

Manual of Regulations for Banks Part I - Page 45


§§ X126.4 - X126.5
05.12.31

b. At the time of the sale of the so that the total paid-in capital stock is
preferred stock, both classes thereof (one maintained at the same level immediately
with convertibility feature and the other prior to redemption: Provided, That the
without convertibility feature) shall be redemption shall not be earlier than five
offered to the purchasers, with the (5) years after the date of issuance:
purchasers having the option to acquire Provided, further, That such redemption
either or both classes of preferred stock; and may not be made where the bank is
c. Preferred shares of stock with a insolvent or if such redemption will cause
cumulative feature issued by banks shall insolvency, impairment of capital or
automatically be convertible into common inability of the bank to meet its debts as
shares of stock at the option of the holders they mature;
thereof whenever the right as may be (b) A sinking fund for the redemption
acquired by the holders by virtue of such of preferred shares is to be created upon
cumulative feature are not satisfied by the their issuance. This is to be effected by
bank within a period of three (3) years from the transfer of free surplus to a restricted
date of issue. surplus account. The fund shall not be
available for dividends. The guidelines for
§ X126.5 Issuance of redeemable the establishment and administration/
shares: conditions; certification and report; management of sinking fund for the
sanctions redemption of redeemable private
a. Conditions. Banks may issue preferred shares are shown in Appendix
redeemable shares subject to the following 47.
conditions: (c) The issuing bank shall not treat in
(1) The applicant bank prior to the any way redeemable preferred shares as
approval of the amendment of articles of time deposit, deposit substitute or other
incorporation to issue redeemable preferred form of borrowings;
shares, has complied with the requirements (d) No dividend shall be declared or
under Items “B1” to “B6”, Appendix 5. paid on redeemable shares in the absence
The articles of incorporation of an of sufficient undivided profits, free surplus
applicant bank shall incorporate the and approval of the BSP;
conditions in Items “a (3)(a)”, “a(3)(b)”, (e) The issuing bank shall execute
“a(3)(c)” and “a(3)(d)” of this Subsection. within ten (10) days after the first issuance
(2) The applicant bank prior to the a Deed of Undertaking (see Appendix 42),
issuance of redeemable shares shall comply to be signed by its directors and principal
with, in addition to the conditions in Item officers, binding them to comply with the
“(1)” above, the requirements under Items requisites and conditions set forth in Items
“B7”, “B8”, and “B12” to “B16”, Appendix 5. “(a)” to “(d)” above; and
(3) The applicant bank after the (f) The conditions in Items “(3)(a)”,
issuance of redeemable shares shall comply “(3)(b)”, “(3)(c)” and “(3)(d)” above shall be
with the following: incorporated in the certificates of stock.
(a) Redemption of shares shall be (g) Shares issued with the replacement
allowed at the specific dates or periods fixed requirement upon redemption shall be
for redemption only upon prior approval eligible as Upper Tier 2 capital for purposes
of the BSP and, where the conditions of the of computing qualifying capital as provided
issuance specifically state, only if the shares in Subsec. X116.1. Shares issued without
redeemed are replaced with at least an such condition shall be eligible as Lower
equivalent amount of newly paid-in shares Tier 2 capital.

Part I - Page 46 Manual of Regulations for Banks


§§ X126.5 - X126.10
05.12.31

b. Certification and report. The bank (d) For failure to submit report of
shall submit within fifteen (15) days after issuance of redeemable preferred shares, a
every issuance of at least twenty percent fine of P1,200 for UBs/KBs; P600 for TBs;
(20%) of the redeemable shares whether and P180 for RBs/Coop Banks per banking
issued in series or at one (1) time, a day of default until the report is submitted.
certification signed by its President/ (2) On the directors and officers:
Chairman under oath, stating that the (a) For violation of any of the terms of
requirements under Items “a(1)” and “a(2)” the Deed of Undertaking, the following shall
above, including all other conditions that the be imposed against the officers and directors
BSP may impose, have been complied with. of the bank who signed the deed:
The applicant bank shall, not later than i. First offense - A fine of P500 per day
ten (10) banking days from the end of for each violation from the time the violation
reference year, submit a yearly report of was committed or up to the time the
issuances of preferred shares to the violation is corrected;
appropriate SED of the BSP indicating ii. Second and subsequent offenses –
therein the name/s of the subscriber/s, the A fine of P5,000 per day from the time the
date the shares were issued and the violation was committed up to the time the
number/amount of shares issued. violation is corrected.
c. Sanctions. Any violation of the (b) If the certification submitted by the
foregoing provisions shall be subject to the bank as required in these guidelines is found
following sanctions: to be false, a fine of P5,000 per day from
(1) On the bank: the time the certification was made up to
(a) For failure to comply with Items the time the certification was found to be false,
“a(3)(a)” to “a(3)(d)” above: shall be imposed against the certifying officer.
i. Suspension of branching privilege;
ii. Prohibition against granting of new § X126.6 Stock options/warrants. A
unsecured loans to DOSRI; bank may grant options/warrants to
iii. Prohibition against declaration of subscribe at par to its capital stock:
dividends; Provided, That:
iv. Denial of access to BSP a. Provisions authorizing such options/
rediscounting facilities; warrants shall be embodied in its articles of
v. Revocation of authority to accept incorporation and in its by-laws; and
government deposits and to handle b. Such options/warrants may be
government funds as a result of agency granted for a maximum period of three (3)
agreements with the BIR, SSS, etc. years from the date such options/warrants
(b) For failure to infuse capital in an become effective.
amount at least equivalent to amount of
redeemed shares as required in Item “a(3)(a)”: §§ X126.7 - X126.9 (Reserved)
i. Sanctions in Item “(a)” above;
ii. No new loans and investments, § X126.10 Dealings with stockholders
except in government securities; and their related interests. Dealings of a
iii. P1,000 fine per banking day until bank with any of its stockholders and their
the required infusion is made. related interests shall be upon terms not less
(c) If the certification submitted by the favorable to the bank than those offered to
bank required in these guidelines is found others. Towards this end, every natural
to be false, suspension of authority to issue person acquiring shares cumulatively
preferred shares for one (1) year. amounting to at least two percent (2%) of

Manual of Regulations for Banks Part I - Page 47


§ X126.10 - 2127.2
05.12.31

the total subscribed capital of a domestic Any natural person or a family group,
bank must disclose all relevant information who, together, with any corporation
on all persons related to him within the majority or all of the equity of which is
fourth degree of consanguinity or affinity, owned by such person or family group,
whether legitimate, illegitimate or common owns more than forty percent (40%) of the
law as well as corporations, partnership or voting stock of any UB or KB may not
associations where he has controlling acquire more than forty percent (40%) of
interests. A corporation acquiring shares the voting stock in any other UB or KB, even
amounting to at least two percent (2%) of the if the shares of stock are being acquired from
total subscribed capital of a domestic bank a natural person in a single transaction and
must disclose its controlling stockholders or the stockholding is in excess of forty percent
group of stockholders as well as the (40%) of the bank’s voting stock.
corporations, partnerships or association For purposes of determining
where such controlling stockholders or group applicability of the limitations provided in
of stockholders have controlling interest. this Section, stockholders shall be deemed
The foregoing information shall also be as affiliated to each other through common
disclosed in cases of the following business interest or a business group in
transactions: availment of credit facility cases where the holdings of such
from the bank; purchase or sale of asset stockholders altogether constitute a majority
from/to the bank; leasing property from or or control in one (1) or more enterprises.
to the bank; providing janitorial,
messengerial, security and other services to §§ 1127.2 - 1127.5 (Reserved)
the bank; and such other transactions as may
be required to be disclosed by the Monetary Sec. 2127 Shares of Stock of Thrift Banks
Board. Where the stockholdings of such The following regulations shall also govern
individual/organization together with his/its shares of stock in TBs.
related interests amount to at least two
percent (2%) of the total subscribed capital § 2127.1 Moratorium on ownership
stock of the bank, the foregoing transactions ceilings. Stockholdings in a TB shall be
shall be subject to the procedural exempt from the ownership ceilings
requirements and the reportorial prescribed under Subsec. X126.1 until 16
requirements prescribed under Secs. X334 March 2005.
and X335, respectively.
§ 2127.2 Preferred shares. Private
Sec. 1127 Shares of Stock of Universal/ development banks may also issue ordinary
Commercial Banks. The following preferred shares of stock to private persons,
guidelines shall also govern shares of stock other than the preferred stock representing
in UBs and KBs. government counterpart capital
contribution: Provided, That said preferred
§ 1127.1 Limits on stockholdings in stock sold to private persons shall be
several banks. Stockholders affiliated to governed by the pertinent BSP regulations
each other through a common interest for preferred stock issued to private
herein termed a business group or any investors.
corporation or association majority or all Preferred shares of stock of private
of the equity of which is owned by a development banks held by DBP/LBP and
business group may not control more than sold thereafter to private persons may, at
one (1) KB nor more than one (1) UB or both. the option of the purchasers, be retained

Part I - Page 48 Manual of Regulations for Banks


§§ 2127.2 - 3127.3
05.12.31

with the same rights as when such shares DBP or any government-owned or
of stock were held by DBP/LBP, or controlled bank or financial institution,
converted at not less than par to common which shall be non-voting and preferred as
shares or to ordinary preferred shares of to assets upon liquidation; and (c) preferred
the class issued to private shareholders. stock with such rights, voting powers,
preferences and restrictions, as may be
§§ 2127.3 - 2127.5 (Reserved) approved by the Monetary Board. Preferred
and common stocks shall have a minimum
Sec. 3127 Shares of Stock of Rural Banks par value of ten pesos (P10) per share:
and Cooperative Banks. The following Provided, That this requirement shall not
rules shall govern stockholdings in RBs and apply to existing RBs whose par value per
Coop Banks. share of stock is less than ten pesos (P10).
An RB may not issue no-par value stock.
§ 3127.1 Moratorium on ownership For Coop Banks, preferred and common
ceiling. Individual stockholdings in RBs in shares shall have a minimum par value of
excess of the forty percent (40%) ceiling as P1,000 per share for national Coop Banks;
of 02 April 2002 and as provided in Section and P100 per share for local Coop Banks:
11 of R.A. No. 8791 may be retained: Provided, That a Coop Bank may not issue
Provided, That such excess stockholdings no-par value shares.
were approved by the Monetary Board: The LBP, the DBP, or any government-
Provided, further, That such stockholdings owned or controlled bank or financial
shall not be further increased, but may be institution, on representation of the said
reduced and once reduced, shall not private shareholders but subject to the
thereafter be increased beyond the forty investment guidelines, policies and
percent (40%) ceiling prescribed under said procedures of the bank or financial institution
Section 11. and upon approval of the Monetary Board,
Any request for exemption from the shall subscribe to the capital stock of any RB/
prescribed ownership ceilings of individual/ Coop Bank, which shall be paid in full at the
non-bank/corporate stockholdings shall be time of subscription in an amount equal to
submitted to the Monetary Board for approval the fully paid subscribed and unimpaired
through the appropriate SED of the BSP and capital of the private shareholders or such
the exemption shall be reflected in the amount as the Monetary Board may prescribe
required report on stock transactions. In cases as may be necessary to promote and expand
where unsubscribed shares of stock are sold rural economic development and/or
to any person other than the existing cooperative movement.
stockholders, the bank’s corporate secretary
shall execute a certificate under oath that all § 3127.3 Limits on stockholdings in
the pertinent requirements of the Corporation several rural banks. Any individual and/or
Code on a valid stock transfer/subscriptions his wholly or majority-owned corporation
have been complied with. or non-bank corporations may own up to
100% of the voting stock in three (3) RBs:
§ 3127.2 Government-held shares Provided, That the individual and/or its
The articles of incorporation of RBs or the subsidiary/ies, may thereafter own shares
articles of cooperation of Coop Banks shall in any number of other RBs only to such an
provide for: (a) common stock with the extent as would not enable this group of
power to vote; (b) preferred stock to investors to elect by virtue of its shareholdings
represent the counterpart capital of the LBP, a director of each additional RB.

Manual of Regulations for Banks Part I - Page 49


§§ 3127.4 - X136.1
05.12.31

§ 3127.4 Convertibility of preferred § 3127.5 Equity investment by holding


stock to common stock. RBs may convert corporations. With the exception of
their unissued preferred shares into shareholdings of non-bank corporations in
common stock. the equities in RBs as provided for under
In the case of sale by the DBP, LBP or Section 11 of R.A. No. 8791, and of
any government-owned or controlled bank Filipino-controlled domestic banks, the
or financial institution of preferred stock to capital stock of any RB shall be fully owned
private persons, such stock may be and held directly or indirectly by citizens
converted into common stock: Provided, of the Philippines or corporations,
That pending amendment of the bank’s associations or cooperatives qualified under
articles of incorporation, if necessary for the Philippine laws to own and hold such
purpose of reflecting the conversion, the capital stock.
transfer shall be recorded by the bank in its The equity investment of any non-bank
stock and transfer book and such corporation in any RB shall not exceed forty
shareholders shall thereafter enjoy all the percent (40%) of the voting stock of such RB.
rights and privileges appurtenant to the A holding corporation for purposes of
converted stock. The certificates for the this Subsection shall refer to a corporation
government preferred stocks so transferred primarily organized to hold equities in RBs.
shall be surrendered and cancelled and the
corresponding common stock certificates Secs. X128 - X135 (Reserved)
shall be issued.
The corporate secretary of the bank shall Sec. X136 Dividends. Pursuant to Section
submit to the appropriate SED and the SEC 57 of R.A. No. 8791, no bank shall declare
a report of every transfer of preferred stock dividends greater than its accumulated net
from the LBP, DBP or any government- profits then on hand, deducting therefrom
owned or controlled bank or financial its losses and bad debts. Neither shall the
institution to private shareholders within five bank declare dividends if, at the time of
(5) banking days from the date of such transfer. declaration, it has not complied with the
When all the preferred shares of stocks provisions of Subsec. X136.2.
held by the LBP, DBP or any government-
owned or controlled bank or financial § X136.1 Definitions. For purposes of
institution have been sold to private this Section, the following definitions shall
shareholders, the bank’s articles of apply:
incorporation shall be amended to reflect a. Bad debts - shall include any debt
the conversion, if any, of the preferred on which interest is past due for a period
shares of stock into common stock. of six (6) months, unless it is well secured
For this purpose, a certificate that all and in process of collection.
preferred shares have been sold and A loan payable in installments with an
transferred to private shareholders shall be automatic acceleration clause shall be
issued, duly signed by the president, the considered a bad debt within the
corporate secretary, and a majority of the contemplation of this Subsection where
board of directors. The bank shall submit installments or amortizations have become
copies of such certificate and the amended past due for a period of six (6) months,
articles of incorporation to the BSP for the unless the loan is well secured and in
issuance of a certificate of authority for the process of collection. For a loan payable
purpose of registering the amended articles in installment without an acceleration
with the SEC. clause, only the installments or

Part I - Page 50 Manual of Regulations for Banks


§§ X136.1 - X136.2
05.12.31

amortizations that have become past due § X136.2 Requirements on the


for a period of six (6) months and which declaration of dividends. At the time of
are not well secured and in the process of declaration, banks shall have complied with
collection shall be considered bad debts the following:
within the contemplation of this Section. a. Clearing account with the BSP is not
b. Well secured - A debt shall be overdrawn;
considered well secured (or fully secured), b. Liquidity floor requirement for
if it is covered by collateral in the form of a government funds;
duly constituted mortgage, pledge, or lien c. Minimum capitalization requirement
on real or personal properties, including and risk-based capital ratio;
securities, having a loan value sufficient to d. Prescribed EFCDU/FCDU cover
discharge the debt in full, including consisting of:
accrued interest and other pertinent fees (1) Thirty percent (30%) liquidity cover; and
and expenses. (2) One hundred percent (100%) asset
c. In process of collection - A debt due cover.
to a bank shall be considered in process of e. Statutory and liquidity reserves
collection when it is the subject of requirement;
continuing extrajudicial or judicial f. No past due loans or
proceedings aimed towards its full accommodations with the BSP or with any
settlement or liquidation or otherwise to institution;
place it in current status. g. No net losses from operations in any
The extrajudicial proceedings, such as one (1) of the two (2) fiscal years
the writing of collection or demand letters, immediately preceding the date of dividend
must have been initiated by the bank and/ declaration;
or its lawyers before the interest or h. Has not committed any of the
installments or amortizations on the debt following major violations:
have become past due and unpaid for a (1) Loans and other credit
period of six (6) months. accommodations and guarantees granted in
The debt shall continue to be excess of the single borrower’s limit;
considered in process of collection for a (2) Loans and other credit
period of six (6) months counted from date accommodations granted/extended in
of the first collection or demand letter and excess of the ceilings on accommodations
if, within this period, the debtor fails to to DOSRI;
make a paymentof at least twenty percent (3) Unsafe and unsound banking practice
(20%) of the outstanding balance of the as defined under existing BSP regulations;
principal on his account, plus all interest (4) Equity investments in excess of the
which may have accrued thereon, the same prescribed ceilings;
shall automatically be classified as bad debts (5) Investments in real estate, bank
unless judicial proceedings are instituted. premises and equipment in excess of
The debt shall continue to be prescribed ceilings;
considered in process of collection during (6) Major violations/exceptions cited in
the pendency of the judicial proceedings. the previous examination not duly acted
When judgment against the debtor has upon or not yet corrected;
been obtained, the bank must be active in (7) Transactions or activities without
enforcing the judgment for the debt to prior approval or necessary license from the
continue to be considered in process of BSP such as, but not limited to, derivatives,
collection. trust and e-banking;

Manual of Regulations for Banks Part I - Page 51


§§ X136.2 - X136.5
05.12.31

(8) Refusal to permit examination into For purposes of this Subsec., any
the affairs of the institution or any willful balance of Paid-in Surplus account may
making of a false or misleading statement be included in the amount available for
to the Monetary Board or to the appropriate stock dividends.
SED; and
(9) Failure to comply with the capital § X136.4 Reporting and verification
build-up program approved by the Declaration of dividends shall be reported
Monetary Board. by the bank concerned to the appropriate
The prescribed duration of compliance SED of the BSP in the prescribed form within
with Items “a” to “e” above shall be the deadline indicated in Appendix 6.
reckoned from the last eight (8) weeks Pending verification of above-
immediately preceding the date of the mentioned report by the appropriate SED
dividend declaration up to the record date of the BSP, the bank concerned shall not
of said dividends. make any announcement or communication
On the other hand, banks which have on the declaration of dividends nor shall
committed any of the major violations under any payment be made thereon.
Item “h” above may only be allowed to Banks, however, whose shares are
declare dividends by the Monetary Board listed with any domestic stock exchange
upon recommendation of the appropriate may declare dividends and give immediate
SED that the bank has corrected the major notice of such declaration to the SEC and
violation/s that it has committed. the stock exchanges, in compliance with
pertinent rules of SEC: Provided, That no
§ X136.3 Net amount available for record date is fixed for such dividend
dividends. The net amount available for pending verification of the report on such
dividends shall be the amount of declaration by the appropriate SED of the
unrestricted or free earned surplus and BSP.
undivided profits less: In any case, the declaration may be
a. Bad debts against which valuation announced and the dividends paid, if after
reserves are not required by the BSP to be thirty (30) banking days from the date the
set up; report required herein shall have been
b. Unbooked valuation reserves, and received by the BSP, no advice against
other unbooked capital adjustments such declaration has been received by the
required by the BSP, whether or not allowed bank concerned.
to be set up on a staggered basis;
c. Deferred income tax; § X136.5 Recording of dividends
d. Accumulated profits not yet received The liability for dividends declared shall
but already recorded by a bank representing be taken up in the books upon receipt of
its share in profits of its subsidiaries under the BSP approval thereof, or if no such
equity method of accounting; approval is received, after thirty (30)
e. Accrued interest as required to be banking/business days from the date the
excluded pursuant to Item “d” of Subsec. required report on dividend declaration
X305.4, net of booked valuation reserves was received by the appropriate SED of
on accrued interest receivable or allowance the BSP, whichever comes earlier. A
for uncollectible interest on loans; and memorandum entry may be made to
f. Foreign exchange profit arising from record the dividend declaration on the
revaluation of foreign exchange date of approval by the board of directors
denominated accounts. and for full disclosure purposes, the

Part I - Page 52 Manual of Regulations for Banks


§§ X136.5 - 3137
05.12.31

dividends declared may be disclosed in declare cash dividends only if the amount
the financial statements by means of a of its reserve for retirement of government
footnote which should include a preferred stock is at least equal to the
statement to the effect that the dividend amount which should have been
declaration is subject to review by the accumulated had the bank transferred
BSP. annually to the reserve account from its
Dividends of all kinds, whether on undivided profits an amount equal to at
common or on preferred shares of stock, least an average of one-tenth (1/10) of the
should not be treated as interest expense, total amount of preferred stock.
considering that as a general policy, only In no case shall cash dividends be
irredeemable stock may be issued by declared whenever any of the following
banks. circumstances is present:
(i) Arrearages in its obligations with
§ X136.6 Issuance of fractional the BSP amount to P1.0 million or more
shares. Whenever the declaration of stock unless covered by an approved plan of
dividend results in the issuance of payment which is being fully complied
fractional shares, banks may observe the with: Provided, however, That cash
following guidelines: dividends shall not exceed ten percent
a. The amount corresponding to the (10%) per annum; or
fraction should be given in the form of cash (ii) Past due loans comprise twenty-five
dividend; and percent (25%) or more of the total loan
b. The certificate of stock issued portfolio at any time during the last six (6)
should be in whole numbers, and the months prior to the dividend declaration.
fractional shares shall be issued in the form b. Coop Banks
of scrip certificates. In no case shall the (1) Interest on share capital -
certificate of stock be issued including such (a) Interest on share capital shall be
fractional share. The scrip certificate is declared only upon compliance with the
temporary in nature and should be requirements prescribed under Sec. 3137a.
redeemed in cash when the bank is in a (b) Government preferred shares shall
position to do so, or stockholders holding be entitled to interest as enumerated in
such scrip certificates may negotiate with Subsec. 3137.1: Provided, That no
other stockholders for the purchase or sale cumulative interest shall be allowed for any
of such shares to convert them into full kind or class of share issued by the Coop
shares, subject to the limitations on Bank.
stockholdings as provided by law. Unless otherwise provided for in the by-
laws of the Coop Bank, the share capital
Sec. 1137 (Reserved) shall earn interest at the rate computed as
follows:
Sec. 2137 (Reserved) Rate of Interest = X (Net Surplus less
Statutory Reserves) ÷
Sec. 3137 Limitations/Amount Available (Total Average Share Month)
on Dividends Declared by Rural Banks where:
(i) “X“ shall be a percentage to be deter-
and Cooperative Banks. The following
mined by the board of directors
rules shall also govern the declaration of
allocated for interest on share capital;
dividends by RBs and Coop Banks. and
a. RBs. In addition to the requirements (ii) “Statutory Reserves” shall refer to Article
prescribed in Sec. X136, an RB may 87of R.A. No. 6938.

Manual of Regulations for Banks Part I - Page 53


§§ 3137 - 3137.1
05.12.31

No allocation of interest on share (iv) If within any period of time


capital shall be made without the approval specified in the by-laws, any subscriber
of the general assembly which may who has not fully paid his subscribed share
increase or decrease any or both. capital or any non-member patron which
(2) Patronage refund - has accumulated the sum necessary for
(a) The amount allocated for membership but does not request nor
patronage refund shall not be less than agree to become a member or fails to
thirty percent (30%) of the net surplus after comply with the provision of the by-laws
deducting the statutory reserves based on for admission to membership, the amount
the principle of equity; so accumulated or credited to their
(b) The rate of patronage refund shall account together with any part of the
not be more than twice the rate of interest general fund for non-member patrons shall
on share capital; be credited to the reserve fund or to the
(c) The sum allocated for patronage education and training fund of the Coop
refunds shall be made available at the Bank.
same rate to all cooperative patrons of the
Coop Bank in proportion to their § 3137.1 Dividends on government
individual patronage: Provided, That - shares
(i) In the case of a cooperative a. Held prior to 09 June 1992.
member patron with paid-up share capital Whenever dividends of not less than
contribution, its proportionate amount of fourteen percent (14%) are declared on
patronage refund shall be paid unless it common stock, government preferred
agrees to credit the amount to its account stock shall be entitled to a cash dividend
as additional share capital contribution; not to exceed two percent (2%) of total
(ii) In the case of a cooperative outstanding preferred stock. Should the
member patron with unpaid share capital dividends declared on common stock be
contribution, its proportionate amount of less than fourteen percent (14%), the
patronage refund shall be credited to its dividend on preferred stock shall be
share capital contribution; proportionately reduced.
(iii) In the case of a non-member patron, b. Held on or after 09 June 1992.
its proportionate amount of patronage Shares held by the LBP, DBP, or by any
refund shall be set aside in a general fund government-owned or-controlled bank or
for such patrons and shall be allocated to financial institution shall share in dividend
non-member patrons only upon request distributions from the date of issuance in
and presentation of evidence of the amount the amount of four percent (4%) on the
of its patronage. The amount so allocated first and second years; six percent (6%) on
shall be credited to such patron toward the third and fourth years; eight percent
payment of the minimum capital (8%) on the fifth and sixth years; ten
contribution for membership. When a sum percent (10%) on the seventh and eighth
equal to this amount has accumulated at years; and twelve percent (12%) on the
any time within a period specified in the ninth to the fifteenth years, which shall be
by-laws, such patron shall be deemed and cumulative: Provided, That the RB and the
become a member of the Coop Bank if it government-owned or-controlled bank are
so agrees or requests and complies with not precluded from entering into an
the provisions of the by-laws for admission agreement providing for rates of dividends
to membership; and other than those prescribed by law.

Part I - Page 54 Manual of Regulations for Banks


§§ X138 - X141.1
05.12.31

Secs. X138 - X140 (Reserved) (4) Is not a relative within the fourth
degree of consanguinity or affinity,
G. DIRECTORS, OFFICERS AND legitimate or common-law of any director,
EMPLOYEES officer or majority shareholder of the bank
or any of its related companies;
Sec. X141 Definition and Qualifications (5) Is not acting as a nominee or
of Directors; Responsibilities and Duties representative of any director or substantial
of Board of Directors. For purposes of this shareholder of the bank, any of its related
Section, the following shall be the definition companies or any of its substantial
and qualifications, responsibilities and duties shareholders; and,
of directors and board of directors, (6) Is not retained as professional adviser,
respectively. consultant, agent or counsel of the institution,
any of its related companies or any of its
§ X141.1 Definition/limits substantial shareholders, either in his personal
a. Definition of directors. Directors capacity or through his firm; is independent
shall include: of management and free from any business
(1) directors who are named as such or other relationship, has not engaged and
in the articles of incorporation; does not engage in any transaction with the
(2) directors duly elected in institution or with any of its related companies
subsequent meetings of the stockholders; or with any of its substantial shareholders,
and whether by himself or with other persons or
(3) those elected to fill vacancies in the through a firm of which he is a partner or a
board of directors. company of which he is a director or
b. Limits on the number of the members substantial shareholder, other than
of the board of directors. Pursuant to transactions which are conducted at arms
Sections 15 and 17 of R.A. No. 8791, there length and could not materially interfere with
shall be at least five (5), and a maximum of or influence the exercise of his judgment.
fifteen (15) members of the board of An independent director of a bank can
directors of a bank at least two (2) of whom be elected as an independent director of its:
shall be independent directors: Provided, (a) parent or holding company; (b)
That in case of a bank/quasi-bank/trust subsidiary or affiliate; (c) substantial
entity merger or consolidation, the number shareholder; or (d) other related companies,
of directors may be increased up to twenty- or vice-versa: Provided, That he is not a
one (21). substantial shareholder of the bank or any
An independent director shall mean a of the said concerned entities.
person who – The foregoing terms and phrases used
(1) Is not or has not been an officer or in Items “(1) to (6)” of this Section shall have
employee of the bank, its subsidiaries or the following meaning:
affiliates or related interests during the past (a) Parent is a corporation which has
three (3) years counted from the date of control over another corporation directly or
his election; indirectly through one (1) or more
(2) Is not a director or officer of the intermediaries.
related companies of the institution’s (b) Subsidiary means a corporation
majority stockholder; more than fifty percent (50%) of the voting
(3) Is not a majority stockholder of the stock of which is owned or controlled
institution, any of its related companies, or directly or indirectly through one (1) or
of its majority shareholders; more intermediaries by a bank.

Manual of Regulations for Banks Part I - Page 55


§ X141.1
05.12.31

(c) Affiliate is a juridical person that (g) Substantial or major shareholder


directly or indirectly, through one (1) or shall mean a person, whether natural or
more intermediaries, is controlled by, or is juridical, owning such number of shares
under common control with the bank or its that will allow him to elect at least one (1)
affiliates. member of the board of directors of a bank
(d) Related interests as defined under or who is directly or indirectly the registered
Sections 12 and 13 of R.A. No. 8791 shall or beneficial owner of more than ten
mean individuals related to each other percent (10%) of any class of its equity
within the fourth degree of consanguinity security.
or affinity, legitimate or common law, and (h) Majority stockholder or majority
two (2) or more corporations owned or shareholder means a person, whether
controlled by a single individual or by the natural or juridical, owning more than fifty
same family group or the same group of percent (50%) of the voting stock of a bank.
persons. Non-Filipino citizens may become
(e) Control exists when the parent owns members of the board of directors of a bank
directly or indirectly through subsidiaries to the extent of the foreign participation in
more than one-half of the voting power of the equity of said bank: Provided, That
an enterprise unless, in exceptional pursuant to Section 23 of the Corporation
circumstance, it can be clearly Code of the Philippines (BP Blg. 68), a
demonstrated that such ownership does not majority of the directors must be residents
constitute control. Control may also exist of the Philippines.
even when ownership is one-half or less of The meetings of the board of directors
the voting power of an enterprise when may be conducted through modern
there is: technologies such as, but not limited to,
i. power over more than one-half of teleconferencing and videoconferencing as
the voting rights by virtue of an agreement long as the director who is taking part in
with other stockholders; or said meetings can actively participate in the
ii. power to govern the financial and deliberations on matters taken up therein:
operating policies of the enterprise under a Provided, That every member of the board
statute or an agreement; or shall participate in at least fifty percent
iii. power to appoint or remove the (50%) and shall physically attend at least
majority of the members of the board of twenty-five percent (25%) of all board
directors or equivalent governing body; or meetings every year: Provided, further, That
iv. power to cast the majority votes at in the case of a director who is unable to
meetings of the board of directors or physically attend or participate in board
equivalent governing body; or meetings via teleconferencing or
v. any other arrangement similar to videoconferencing, the corporate secretary
any of the above. shall execute a notarized certification
(f) Related company means another attesting that said director was given the
company which is: (a) its parent or holding agenda materials prior to the meeting and
company; (b) its subsidiary or affiliate; or that his/her comments/decisions thereon
(c) a corporation where a bank or its were submitted for deliberation/discussion
majority stockholder own such number of and were taken up in the actual board
shares that will allow/enable him to elect at meeting, and that the submission of said
least one (1) member of the board of certification shall be considered compliance
directors or a partnership where such with the required fifty percent (50%)
majority stockholder is a partner. minimum attendance in board meetings.

Part I - Page 56 Manual of Regulations for Banks


§§ X141.2 - X141.3
05.12.31

§ X141.2 Qualifications of a director certain responsibilities to different


A director shall have the following constituencies or stakeholders, i.e., the
minimum qualifications: bank itself, its stockholders, its depositors
a. He shall be at least twenty-five (25) and other creditors, its management and
years of age at the time of his election or employees, and the public at large. These
appointment; constituencies or stakeholders have the
b. He shall be at least a college right to expect that the institution is being
graduate or have at least five (5) years run in a prudent and sound manner.
experience in business; The board of directors is primarily
c. He must have attended a special responsible for the corporate governance
seminar on corporate governance for board of the bank. To ensure good governance
of directors conducted or accredited by the of the bank, the board of directors should
BSP: Provided, That incumbent directors as establish strategic objectives, policies and
well as those elected after 17 September 2001 procedures that will guide and direct the
must attend said seminar on or before activities of the bank and the means to attain
30 June 2003 or within a period of six (6) the same as well as the mechanism for
months from date of election for those monitoring management’s performance.
elected after 30 June 2003, as the case may While the management of the day-to-day
be; and affairs of the institution is the responsibility
d. He must be fit and proper for the of the management team, the board of
position of a director of the bank. In directors is, however, responsible for
determining whether a person is fit and monitoring and overseeing management
proper for the position of a director, the action.
following matters must be considered: c. Specific duties and responsibilities
integrity/probity, competence, education, of the board of directors
diligence and experience/training. (1) To select and appoint officers who
The foregoing qualifications for are qualified to administer the bank’s affairs
directors shall be in addition to those effectively and soundly and to establish
required or prescribed under R.A. No. 8791 adequate selection process for all
and other existing applicable laws and personnel. It is the primary responsibility
regulations. of the board of directors to appoint
competent management team at all times.
§ X141.3 Powers/responsibilities and The board of directors should apply fit and
duties of directors proper standards on key personnel.
a. Powers of the board of directors. Integrity, technical expertise and
The corporate powers of a bank shall be experience in the institution’s business,
exercised, its business conducted and all its either current or planned, should be the key
property shall be controlled and held by its considerations in the selection process.
board of directors. The powers of the board And because mutual trust and a close
of directors as conferred by law are original working relationship are important, the
and cannot be revoked by the stockholders. board’s choice should share its general
The directors hold their office charged with operating philosophy and vision for the
the duty to act for the bank in accordance institution. The board of directors shall
with their best judgment. establish an appropriate compensation
b. General responsibility of the board package for all personnel which shall be
of directors. The position of a bank director consistent with the interest of all
is a position of trust. A director assumes stakeholders.

Manual of Regulations for Banks Part I - Page 57


§ X141.3
05.12.31

(2) To establish objectives and draw up The board should have a schedule of
a business strategy for achieving them. matters and authorities reserved to it for
Consistent with the institution’s objectives, decision, such as: major capital
business plans should be established to expenditures, equity investments and
direct its on-going activities. The board divestments.
should ensure that performance against plan (6) To effectively supervise the bank’s
is regularly reviewed, with corrective action affairs. The board of directors should
taken as needed. establish a system of checks and balances
(3) To conduct the affairs of the which applies in the first instance to the
institution with high degree of integrity. board itself. Among the members of the
Since reputation is a very valuable asset, it board, an effective system of checks and
is in the institution’s best interest that in balances must exist. The system should
dealings with the public, it observes a high also provide a mechanism for effective
standard of integrity. The board of directors check and control by the board over the
should prescribe corporate values, codes of chief executive officer and key managers
conduct and other standards of appropriate and by the latter over the line officers of
behaviour for itself, the senior management the bank.
and other employees. Among others, (7) To monitor, assess and control the
activities and transactions that could result performance of management. The board
or potentially result in conflict of interest, shall put in place an appropriate reporting
personal gain at the expense of the system so that it is provided with relevant
institution, or unethical conduct shall be and timely information to be able to
strictly prohibited. It should provide policies effectively assess the performance of
that will prevent the use of the facilities of management. For this purpose, it may
the bank in furtherance of criminal and constitute a governance committee.
other illegal activities. (8) To adopt and maintain adequate
(4) To establish and ensure risk management policy. The board of
compliance with sound written policies. directors shall be responsible for the
The board should adopt written policies on formulation and maintenance of written
all major business activities, i.e., policies and procedures relating to the
investments, loans, asset and liability management of risks throughout the
management, business planning and institution. The risk management policy
budgeting. A mechanism to ensure shall include:
compliance with said policies shall also be (a) a comprehensive risk management
provided. approach;
(5) To prescribe a clear assignment of (b) a detailed structure of limits,
responsibilities and decision-making guidelines and other parameters used to
authorities, incorporating a hierarchy of govern risk-taking;
required approvals from individuals to the (c) a clear delineation of lines of
board of directors. The board should responsibilities for managing risk;
establish in writing the limits of the (d) an adequate system for measuring
discretionary powers of each officer, risk; and
committee, sub-committee and such other (e) effective internal controls and a
group for the purpose of lending, investing comprehensive risk-reporting process.
or committing the bank to any financial The board may constitute a committee
undertaking or exposure to risk at any time. for this purpose.

Part I - Page 58 Manual of Regulations for Banks


§ X141.3
05.12.31

(9) To constitute the following control, auditing or other issues to persons


committees :1 or entities that have the power to take
(a) Audit committee. The audit corrective action. It shall ensure that
committee shall be composed of members arrangements are in place for the independent
of the board of directors, at least two (2) of investigation, appropriate follow-up action,
whom shall be independent directors, and subsequent resolution of complaints.
including the chairman, preferably with (b) Corporate governance committee.
accounting, auditing, or related financial The corporate governance committee shall
management expertise or experience. The assist the board of directors in fulfilling its
audit committee provides oversight of the corporate governance responsibilities. It
institution’s financial reporting and control shall review and evaluate the qualifications
and internal and external audit functions. of all persons nominated to the board as
It shall be responsible for the setting up of well as those nominated to other positions
the internal audit department and for the requiring appointment by the board of
appointment of the internal auditor as well directors. The committee shall be composed
as the independent external auditor who of at least three (3) members of the board
shall both report directly to the audit of directors, two (2) of whom shall be
committee. It shall monitor and evaluate independent directors.
the adequacy and effectiveness of the The corporate governance committee
internal control system. shall have a written charter that describes
Upon setting up the audit committee, the duties and responsibilities of its
the board of directors shall draw up a members. This charter shall be approved
written charter or terms of reference which by the board of directors and reviewed and
clearly sets out the audit committee’s updated at least annually.
authority and duties, as well as the reporting The committee shall be responsible for
relationship with the board of directors. This ensuring the board’s effectiveness and due
charter shall be approved by the board of observance of corporate governance
directors and reviewed and updated principles and guidelines. It shall oversee
periodically. the periodic performance evaluation of the
The audit committee shall have explicit board and its committees and executive
authority to investigate any matter within management; and shall also conduct an
its terms of reference, full access to and annual self-evaluation of its performance.
cooperation by management and full The committee shall also decide whether
discretion to invite any director or executive or not a director is able to and has been
officer to attend its meetings, and adequate adequately carrying out his/her duties as
resources to enable it to effectively director bearing in mind the director’s
discharge its functions. contribution and performance (e.g.,
The audit committee shall ensure that competence, candor, attendance,
a review of the effectiveness of the institution’s preparedness and participation). Internal
internal controls, including financial, guidelines shall be adopted that address the
operational and compliance controls, and risk competing time commitments that are faced
management, is conducted at least annually. when directors serve on multiple boards.
The audit committee shall establish and The committee shall make
maintain mechanisms by which officers and recommendations to the board regarding
staff may, in confidence, raise concerns about the continuing education of directors,
possible improprieties or malpractices in assignment to board committees,
matters of financial reporting, internal succession plan for the board members and

1 Mandatory for all banks effective 01 January 2005 under Circular 456 dated 04 October 2004

Manual of Regulations for Banks Part I - Page 59


§ X141.3
05.12.31

senior officers, and their remuneration major risks. It shall identify practical strategies
commensurate with corporate and to reduce the chance of harm and failure or
individual performance. minimize losses if the risk becomes real.
The corporate governance committee (iii) Implement the risk management
shall decide the manner by which the plan. The risk management committee shall
board’s performance may be evaluated and communicate the risk management plan
propose an objective performance criteria and loss control procedures to affected
approved by the board. Such performance parties. The committee shall conduct
indicators shall address how the board has regular discussions on the institution’s
enhanced long term shareholders’ value. current risk exposure based on regular
(c) Risk management committee. The management reports and direct concerned
risk management committee shall be units or offices on how to reduce these risks.
responsible for the development and (iv) Review and revise the plan as
oversight of the institution’s risk needed. The committee shall evaluate the
management program. The committee shall risk management plan to ensure its
be composed of at least three (3) members continued relevancy, comprehensiveness,
of the board of directors who shall possess and effectiveness. It shall revisit strategies,
a range of expertise as well as adequate look for emerging or changing exposures,
knowledge of the institution’s risk exposures and stay abreast of developments that affect
to be able to develop appropriate strategies the likelihood of harm or loss. The
for preventing losses and minimizing the committee shall report regularly to the board
impact of losses when they occur. It shall of directors the entity’s over-all risk
oversee the system of limits to discretionary exposure, actions taken to reduce the risks,
authority that the board delegates to and recommend further action or plans as
management, ensure that the system necessary.
remains effective, that the limits are (d) (Deleted by Cir. 456 dated
observed and that immediate corrective 04 October 2004)
actions are taken whenever limits are (10) To meet regularly. To properly
breached. discharge its function, the board of directors
The risk management committee shall shall meet regularly. Independent views in
have a written charter that defines the duties board meetings shall be given full
and responsibilities of its members. The consideration and all such meetings shall
charter shall be approved by the board of be duly minuted.
directors and reviewed and refined (11) To keep the individual members of
periodically. the board and the shareholders informed.
The core responsibility of the risk It is the duty of the board to present to all
management committee are: its members and to the shareholders a
(i) Identify and evaluate exposures. balanced and understandable assessment
The committee shall assess the probability of of the bank’s performance and financial
each risk becoming reality and shall estimate condition. It should also provide
its possible effect and cost. Priority areas of appropriate information that flows
concern are those risks that are the most likely internally and to the public. All members
to occur and are costly when they happen. of the board shall have reasonable access
(ii) Develop risk management to any information about the institution.
strategies. The risk management committee (12) To ensure that the bank has
shall develop a written plan defining the beneficial influence on the economy. The
strategies for managing and controlling the board has a continuing responsibility to

Part I - Page 60 Manual of Regulations for Banks


§ X141.3
05.12.31

provide those services and facilities which (2) To act honestly and in good faith,
will be supportive of the national economy. with loyalty and in the best interest of the
(13) To assess at least annually its institution, its stockholders, regardless of
performance and effectiveness as a body, the amount of their stockholdings, and
as well as its various committees, the chief other stakeholders such as its depositors,
executive officer and the bank itself. The investors, borrowers, other clients and the
composition of the board shall also be general public. A director must always act
reviewed regularly with the end in view of in good faith, with the care which an
having a balanced membership. Towards ordinarily prudent man would exercise
this end, a system and procedure for under similar circumstances. While a
evaluation shall be adopted which may director should always strive to promote
include, but not limited to, the setting of the interest of all stockholders, he should
benchmark and peer group analysis. also give due regard to the rights and
(14) To keep their authority within the interests of other stakeholders.
powers of the institution as prescribed in (3) To devote time and attention
the articles of incorporation, charter, by- necessary to properly discharge their
laws and in existing laws, rules and duties and responsibilities. Directors
regulations. To conduct and maintain the should devote sufficient time to familiarize
affairs of the institution within the scope of themselves with the institution’s
its authority as prescribed in its charter and business. They must be constantly aware
in existing laws, rules and regulations, the of the institution’s condition and be
board shall appoint a compliance officer knowledgeable enough to contribute
who shall be responsible for coordinating, meaningfully to the board’s work. They
monitoring and facilitating compliance with must attend and actively participate in
existing laws, rules and regulations. The board and committee meetings, request
compliance officer shall be vested with and review meeting materials, ask
appropriate authority and provided with questions, and request explanations. If a
appropriate support and resources. It may person cannot give sufficient time and
also constitute a compliance committee. attention to the affairs of the institution, he
d. Specific duties and responsibilities should neither accept his nomination nor
of a director run for election as member of the board.
(1) To conduct fair business (4) To act judiciously. Before
transactions with the bank and to ensure deciding on any matter brought before the
that personal interest does not bias board board of directors, every director should
decisions. Directors should, whenever thoroughly evaluate the issues, ask
possible, avoid situations that would give questions and seek clarifications when
rise to a conflict of interest. If transactions necessary.
with the institution cannot be avoided, it (5) To exercise independent
should be done in the regular course of judgment. A director should view each
business and upon terms not less favorable problem/situation objectively. When a
to the institution than those offered to disagreement with others occurs, he should
others. The basic principle to be observed carefully evaluate the situation and state
is that a director should not use his position his position. He should not be afraid to
to make profit or to acquire benefit or take a position even though it might be
advantage for himself and/or his related unpopular. Corollarily, he should support
interests. He should avoid situations that plans and ideas that he thinks will be
would compromise his impartiality. beneficial to the institution.

Manual of Regulations for Banks Part I - Page 61


§§ X141.3 - X141.10
05.12.31

(6) To have a working knowledge of The election/appointment of all


the statutory and regulatory requirements incumbent directors and officers of all types
affecting the institution, including the of banks as of 17 September 2001 not
content of its articles of incorporation and previously approved/confirmed by the
by-laws, the requirements of the BSP and Monetary Board shall be submitted to the
where applicable, the requirements of BSP through the appropriate SEDs for
other regulatory agencies. A director confirmation.
should also keep himself informed of the
industry developments and business trends § X141.5 Place of board of directors'
in order to safeguard the institution’s meeting. Banks shall include in their by-
competitiveness. laws a provision that meetings of their board
(7) To observe confidentiality. of directors shall be held only within the
Directors must observe the confidentiality Philippines.
of non-public information acquired by
reason of their position as directors. They §§ X141.6 - X141.8 (Reserved)
may not disclose said information to any
other person without the authority of the § X141.9 Reports required. Banks
board. shall furnish all of their directors with a copy
of the specific duties and responsibilities of
§ X141.4 Confirmation of the election/ the board of directors prescribed under
appointments of directors and officers. The Items “b” and “c” of Subsec. X141.3 within
election/appointment of directors and thirty (30) banking days from 17 May 2001
officers of banks shall be subject to in cases of incumbent directors and at the
confirmation by the: time of election in cases of directors elected
Confirming Authority Position Level
after such date.
a. Monetary Board Directors, Senior Vice The directors concerned shall each be
President and above required to acknowledge receipt of the
of UBs and KBs, as copies of such specific duties and
well as the Directors, responsibilities and shall certify that they
President, Chief fully understand the same.
Executive Officer, Copies of the acknowledgment and
Chief Operating certification herein required shall be
Officer, Senior Vice submitted in accordance with Appendix 6.
President or quivalent
rank of TBs, IBs, RBs
and Coop Banks
§ X141.10 Sanctions. Without prejudice
with total assets of at to the other sanctions prescribed under
least P1.0 billion. Section 37 of R.A. No. 7653 and to the
b. A Committee to Directors, Senior provisions of Section 16 of R.A. No. 8791,
be composed of: Vice President and any director of a bank who violates or fails to
· The Deputy above or equivalent observe and/or perform any of the above
Governor - SES rank of TBs, IBs, RBs responsibilities and duties shall for each
· Managing and Coop Banks violation or offense, be penalized as follows:
Directors of SE I whose election
For directors of Amount
and II appointment is not
· Directors of the subject to confirmation UBs/KBs P 30,000
concerned by the Monetary TBs/IBs 15,000
RBs/Coop Banks (national) 5,000
SED of SES Board.
Coop Banks (local) 1,000

Part I - Page 62 Manual of Regulations for Banks


§§ X142 - X143.1
05.12.31

Sec. X142 Definition and Qualifications following matters must be considered:


of Officers. For purposes of this Section, integrity/probity, competence, education,
the following shall be the definition and diligence and experience/training.
qualification of officers. The foregoing qualifications for
officers shall be in addition to those
§ X142.1 Definition of officers required or prescribed under R.A. No.
Officers shall include the president, 8791 and other existing applicable laws
executive vice president, senior vice and regulations.
president, vice president, general
manager, secretary, treasurer, trust officer § X142.3 Appointment of officers
and others mentioned as officers of the a. The appointment of officers of UBs/
bank, or those whose duties as such are KBs/TBs with the rank of Senior Vice
defined in the by-laws, or are generally President (SVP) and above, whether
known to be the officers of the bank (or incumbent or proposed, shall not be subject
any of its branches and offices other than to Monetary Board approval but rather to
the head office) either through Monetary Board confirmation. Appointment
announcement, representation, publication of officers below the rank of SVP shall be
or any kind of communication made by subject neither to Monetary Board approval
the bank. nor Monetary Board confirmation.
A person holding the position of The appointment of above-mentioned
chairman, vice-chairman or any other officers shall be deemed to have been
position of the board who also performs confirmed by the BSP, if after sixty (60)
functions of management such as those banking days from receipt of the required
ordinarily performed by regular officers reports, no advice against said
shall also be considered an officer. appointment has been received by the
bank concerned.
§ X142.2 Qualifications of an officer b. (Deleted by Cir. 434 dated
An officer shall have the following 04 October 2004)
minimum qualifications:
a. He shall be at least twenty-one (21) Sec. X143 Disqualification of Directors
years of age; and and Officers. The following regulations
b. He shall be at least a college shall govern the disqualification of bank
graduate, or have at least five (5) years directors and officers.
experience in banking or trust operations
or related activities or in a field related to § X143.1 Persons disqualified to
his position and responsibilities, or have become directors. Without prejudice to
undergone training in banking or trust specific provisions of law prescribing
operations acceptable to the appropriate disqualifications for directors, the
SED of the BSP: Provided, however, That following are disqualified from becoming
trust officers shall have at least two (2) years directors:
of actual experience or training in trust a. Permanently disqualified
operations or fund management or other Directors/officers/employees
related fields; and permanently disqualified by the Monetary
c. He must be fit and proper for the Board from holding a director position:
position he is being proposed/appointed to. (1) Persons who have been convicted
In determining whether a person is fit and by final judgment of the court for offenses
proper for a particular position, the involving dishonesty or breach of trust such

Manual of Regulations for Banks Part I - Page 63


§ X143.1
05.12.31

as estafa, embezzlement, extortion, forgery, (a) Delinquency in the payment of


malversation, swindling and theft; obligations means that an obligation of a
(2) Persons who have been convicted person with a bank where he/she is a
by final judgment of the court for violation director or officer, or at least two (2)
of banking laws; obligations with other banks/financial
(3) Persons who have been judicially institution, under different credit lines or loan
declared insolvent, spendthrift or contracts, are past due pursuant to Sec. X306;
incapacitated to contract; or (b) Obligations shall include all
(4) Directors, officers or employees of borrowings from a bank obtained by:
closed banks who were responsible for such (i) A director or officer for his own
institutions’ closure as determined by the account or as the representative or agent of
Monetary Board. others or where he/she acts as a guarantor,
b. Temporarily disqualified endorser or surety for loans from such
Directors/officers/employees financial institutions;
disqualified by the Monetary Board from (ii) The spouse or child under the
holding a director position for a specific/ parental authority of the director or officer;
indefinite period of time. Included are: (iii) Any person whose borrowings or
(1) Persons who refuse to fully disclose loan proceeds were credited to the account
the extent of their business interest to the of, or used for the benefit of a director or
appropriate SED when required pursuant to officer;
a provision of law or of a circular, (iv) A partnership of which a director
memorandum or rule or regulation of the or officer, or his/her spouse is the managing
BSP. This disqualification shall be in effect partner or a general partner owning a
as long as the refusal persists; controlling interest in the partnership; and
(2) Directors who have been absent or (v) A corporation, association or firm
who have not participated for whatever wholly-owned or majority of the capital of
reasons in more than fifty percent (50%) of which is owned by any or a group of
all meetings, both regular and special, of persons mentioned in the foregoing Items
the board of directors during their “(i)”, “(ii)” and “(iv)”;
incumbency, or any twelve (12) month period This disqualification shall be in effect
during said incumbency and directors as long as the delinquency persists.
who failed to physically attend for (4) Persons convicted for offenses
whatever reasons in at least twenty-five involving dishonesty, breach of trust or violation
percent (25%) of all board meetings in any of banking laws but whose conviction has not
year, except that when a notarized yet become final and executory;
certification executed by the Corporate (5) Directors and officers of closed
Secretary has been submitted attesting that banks pending their clearance by the
said directors were given the agenda Monetary Board;
materials prior to the meeting and that (6) Directors disqualified for failure to
their comments/decisions thereon were observe/discharge their duties and
submitted for deliberation/discussion and responsibilities prescribed under existing
were taken up in the actual board regulations. This disqualification applies
meeting, said directors shall be until the lapse of the specific period of
considered present in the board meeting. disqualification or upon approval by the
(3) Persons who are delinquent in the Monetary Board on recommendation by the
payment of their obligations as defined appropriate SED of such directors’ election/
hereunder: reelection;

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§§ X143.1 - X143.4
05.12.31

(7) Directors who failed to attend the or Accountant of a branch or office of a bank
special seminar for board of directors is disqualified from holding or being
required under Item “c” of Subsec. X141.2. appointed to any of said positions in the
This disqualification applies until the same branch or office.
director concerned had attended such c. In the case of UBs, KBs, and TBs,
seminar; any appointive or elective official, whether
(8) Persons dismissed/terminated from full time or part time, except in cases where
employment for cause. This disqualification such service is incident to financial assistance
shall be in effect until they have cleared provided by the government or government-
themselves of involvement in the alleged owned or -controlled corporations or in cases
irregularity; allowed under existing law.
(9) Those under preventive suspension; d. In the case of Coop Banks, any
and officer or employee of CDA or any elective
(10) Persons with derogatory records public official, except a barangay official.
with the National Bureau of Investigation e. Except as may otherwise be
(NBI), court, police, interpol and monetary allowed under Commonwealth Act No.
authority (central bank) of other countries 108, otherwise known as “The Anti-Dummy
(for foreign directors and officers) involving Law”, as amended, foreigners cannot be
violation of any law, rule or regulation of officers or employees of banks.
the Government or any of its
instrumentalities adversely affecting the § X143.3 Effect of non-possession of
integrity and/or ability to discharge the qualification or possession of
duties of a bank director/officer. This disqualifications. Directors/officers elected
disqualification applies until they have or appointed without possessing the
cleared themselves of involvement in the qualifications mentioned under Subsecs.
alleged irregularity. X141.2 and X142.2 shall not be confirmed
by the confirming authority provided under
§ X143.2 Persons disqualified to Subsec. X141.4 and may be removed from
become officers office even if he/she has assumed the position
a. The disqualifications for directors to which he/she was elected or appointed.
mentioned in Subsec. X143.1 shall likewise Directors/officers possessing any of the
apply to officers, except those stated in disqualifications as enumerated herein shall
Items “b(2)” and “b(7)”. be subject to the disqualification procedures
b. Except as may be authorized by the provided under Subsec. X143.4 hereof.
Monetary Board or the Governor, the
spouse or a relative within the second § X143.4 Disqualification procedures
degree of consanguinity or affinity of any a. The board of directors and
person holding the position of Chairman, management of every institution shall be
President, Executive Vice President or any responsible for determining the existence
position of equivalent rank, General of the ground for disqualification of the
Manager, Treasurer, Chief Cashier or Chief institution’s director/officer or employee
Accountant is disqualified from holding or and for reporting the same to the BSP. While
being elected or appointed to any of said the concerned institution may conduct its
positions in the same bank; and the spouse own investigation and impose appropriate
or relative within the second degree of sanction/s as are allowable, this shall be
consanguinity or affinity of any person without prejudice to the authority of the
holding the position of Manager, Cashier, Monetary Board to disqualify a director/

Manual of Regulations for Banks Part I - Page 65


§ X143.4
05.12.31

officer/employee from being elected/ f. If the disqualification is based on


appointed as director/officer in any financial any of the grounds for permanent
institution under the supervision of the BSP. disqualification enumerated under Items
Grounds for disqualification made known “(1)” to “(4)” of Subsec. X143.1(a), the
to the institution, shall be reported to the disqualification and watchlisting of the
appropriate SED of the BSP within seventy- concerned director/officer shall be elevated
two (72) hours from knowledge thereof. to the Monetary Board for approval subject
b. On the basis of knowledge and to the same procedures provided in Items
evidence on the existence of any of the “a”, “b” and “c” above.
grounds for disqualification mentioned in g. Upon approval by the Monetary
Subsecs. X143.1 and X143.2, the director Board, the concerned director/officer shall
or officer concerned shall be notified be informed by the appropriate SED through
through registered mail with registry return registered mail with registry return receipt
receipt card at his/her last known address card, at his/her last known address of his/
by the appropriate SED of the BSP of the her disqualification from being elected/
existence of the ground for his/her appointed as director/officer in any financial
disqualification and shall be allowed to institution under the supervision of BSP and/
submit within fifteen (15) days from receipt or of his/her inclusion in the master list of
of such notice an explanation on why he/ watchlisted persons so disqualified.
she should not be disqualified and included h. The board of directors of the
in the watchlisted file. The head of said concerned institution shall be immediately
department may allow an extension on informed of cases of disqualification
meritorious ground. approved by the Monetary Board and shall
c. The director/officer concerned shall be directed to act thereon not later than the
thus be afforded the opportunity to defend/ following board meeting. Within seventy-
clear himself/herself and to submit evidence two (72) hours thereafter, the corporate
in support of his/her position to the secretary shall report to the Governor of the
appropriate SED which shall then evaluate BSP through the appropriate SED the action
the case and submit the recommendations taken by the board on the director/officer
to the Monetary Board. involved.
d. Failure of the director/officer i. Persons who are elected or
concerned to reply within the prescribed appointed as director or officer in any of
period shall be considered a waiver and the the BSP-supervised institutions for the first
SED shall proceed to evaluate the case and time but are subject to any of the grounds
submit recommendations to the Monetary for disqualification provided for under
Board. Subsecs. X143.1 and X143.2 shall be
e. If the ground for disqualification afforded the procedural due process
is delinquency in the payment of prescribed above.
obligation, the concerned director or j. Whenever a director/officer is
officer shall be given a period of thirty (30) cleared in the process mentioned under
days within which to settle said obligation Item “c” above or, when the ground for
or, restore it to its current status or, to disqualification ceases to exist, he/she
explain why he/she should not be would be eligible to become director or
disqualified and included in the officer of any bank, quasi-bank, trust entity
watchlisted file, before the evaluation on or any institution under the supervision of
his disqualification and watchlisting is the BSP only upon prior approval by the
elevated to the Monetary Board. Monetary Board. It shall be the

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§§ X143.4 - X144
05.12.31

responsibility of the concerned SED of the Board. Delisting may be approved by the
BSP to elevate to the Monetary Board the Monetary Board in the following cases:
lifting of the disqualification of the concerned (1) Watchlist – Disqualification File “B”
director/officer and his/her delisting from the (Temporary) –
master list of watchlisted persons. (a) After the lapse of the specific period
of disqualification;
§ X143.5 Watchlisting. To provide the (b) When the conviction by the court
BSP with a central information file to be for crimes involving dishonesty, breach of
used as reference in passing upon and trust and/or violation of banking law
reviewing the qualifications of persons becomes final and executory, in which case
elected or appointed as director or officer the director/officer/employee is relisted to
of a bank, quasi-bank or trust entity, the SES Watchlist – Disqualification File “A”
shall maintain a watchlist of persons (Permanent); and
disqualified to be a director or officer of (c) Upon favorable decision or clearance
such entities under its supervision under by the appropriate body, i.e., court, NBI, BSP,
the following procedures: bank, quasi-bank, trust entity or such other
a. Watchlist categories. Watchlisting agency/body where the concerned individual
shall be categorized as follows: had derogatory record.
(1) Disqualification File “A” Directors/officers/employees delisted
(Permanent) – Directors/officers/employees from the Watchlist – Disqualification File
permanently disqualified by the Monetary “B” other than those upgraded to Watchlist
Board from holding a director/officer position. – Disqualification File “A” shall be eligible
(2) Disqualification File “B” for re-employment with any bank, quasi-
(Temporary) – Directors/officers/employees bank or trust entity.”
temporarily disqualified by the Monetary
Board from holding a director/officer Sec. X144 Bio-data of Directors and
position. Officers
b. Inclusion of directors/officers/ a. Banks shall submit to the appropriate
employees in the watchlist. Directors/ SED of the BSP a bio-data of their directors
officers/employees disqualified under and officers after their election or appointment,
Subsec. X143.4 shall be included in the in a prescribed form and within the deadline
watchlist disqualification files “A” or “B”. indicated in Appendix 6.
c. Confidentiality. Watchlist files shall The bio-data shall be updated in any of
be for internal use only of the BSP and may the following instances:
not be accessed or queried upon by outside (1) Change in educational attainment,
parties including banks, quasi-banks and experience or additional qualifications in
trust entities except with the authority of banking that will enhance the director’s or
the person concerned and with the officer’s competence or will qualify him to
approval of the Deputy Governor, SES or his present position;
the Governor or the Monetary Board. (2) Promotion; and
d. Delisting. All delistings shall be (3) Transfer to other banks.
approved by the Monetary Board upon The bio-data shall be submitted only
recommendation of the operating once. For purposes of updating, only the
departments of SES except in cases of pertinent sections and pages shall be
persons known to be dead where delisting submitted to the BSP.
shall be automatic upon proof of death and b. Banks shall submit to the
need not be elevated to the Monetary appropriate SED of the BSP for evaluation,

Manual of Regulations for Banks Part I - Page 67


§§ X144 - X145
05.12.31

a list of the incumbent members of the board his personal capacity or through his firm; is
of directors and officers (chief executive independent of management and free from
officers down the line) after the annual any business or other relationship, has not
election of the board of directors as engaged and does not engage in any
provided in the bank’s by-laws. Any change transaction with the institution or with any
in the composition of the board of directors of its related companies or with any of its
shall also be reported to the BSP after the substantial shareholders, whether by
election or appointment of a member. himself or with other persons or through a
c. If after evaluation, the Monetary firm of which he is a partner or a company
Board shall find grounds for disqualification, of which he is a director or substantial
the director/officer so elected/appointed shareholder, other than transactions which
may be removed from office even if he/she are conducted at arms length and could not
has assumed the position to which he/she materially interfere with or influence the
was elected/appointed pursuant to Section exercise of his judgment; and
9-A of R.A. No. 337, as amended. (7) Complies with all the qualifications
In the case of the independent directors, required of an independent director and
the bio-data shall be accompanied by a does not possess any of the disqualifications
certification under oath from the director therefor; and has not withheld nor
concerned that he/she is an independent suppressed any information material to his
director as defined under Subsec. X141.1 or her qualification or disqualification as an
that all the information thereby supplied are independent director.
true and correct, and that he/she:
(1) Is not or has not been an officer or Sec. X145 Interlocking Directorships and/
employee of the bank, its subsidiaries or or Officerships. In order to safeguard against
affiliates or related interests during the past the exercise by the same person or group of
three (3) years counted from the date of his persons of undue influence over the policy-
election; making and/or management functions of
(2) Is not a director or officer of the similar financial institutions that could have
related companies of the institution’s an adverse effect on competition or which
majority stockholder; could result in conflict of interest situations
(3) Is not a majority stockholder of the to the detriment of others, the following
institution, any of its related companies, or regulations shall govern interlocking
of its majority shareholders; directorships and/or officerships within the
(4) Is not a relative within the fourth financial system.
degree of consanguinity or affinity, a. Interlocking directorships
legitimate or common-law of any director, (1) Except as may be authorized by the
officer or majority shareholder of the bank Monetary Board or as otherwise provided
or any of its related companies; hereunder, there shall be no concurrent
(5) Is not acting as a nominee or directorships between banks or between a
representative of any director or substantial bank and a non-bank financial intermediary;
shareholder of the bank, any of its related and
companies or any of its substantial (2) Without the need for prior approval
shareholders; of the Monetary Board, concurrent
(6) Is not retained as professional directorships between entities not involving
adviser, consultant, agent or counsel of the an IH shall be allowed in the following cases:
institution, any of its related companies or (a) Banks not belonging to the same
any of its substantial shareholders, either in category: Provided, That not more than one

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§ X145
05.12.31

(1) of the banks shall have quasi-banking at least twenty percent (20%) but less than
functions; majority of the equity of each of the banks
(b) A non-bank financial intermediary, and non-bank financial intermediaries is
other than an IH, not per-forming quasi- owned by a holding company or a bank and
banking functions, and a bank; the interlocking arrangement is necessary
(c) A bank not performing quasi- for the holding company or the bank to
banking functions and an NBQB; and provide technical expertise or managerial
(d) A bank and one (1) or more assistance to its affiliates.
financial institutions in each of which Aforementioned concurrent officerships
majority interest is held by the bank. may be allowed, subject to the following
For purposes of the foregoing, a conditions:
husband and his wife shall be considered (a) that the positions do not involve
as one (1) person. any functional conflict of interests;
b. Interlocking directorships and (b) that the positions of President, Chief
officerships Executive Officer, Chief Operating Officer
(1) Except as may be authorized by the and Chief Financial Officer or their
Monetary Board or as otherwise provided equivalent may not be held concurrently;
hereunder, there shall be no concurrent (c) that the officer involved, or his
directorship and officership between banks spouse or any of his relatives within the first
or between a bank and a non-bank financial degree of consanguinity or affinity or by
intermediary; and legal adoption, or a corporation, association
(2) Without need for prior approval of or firm wholly- or majority-owned or
the Monetary Board, concurrent controlled by such officer or his relatives
directorship and officership in a bank and enumerated above, does not own in his/its
one (1) or more of its subsidiary financial own capacity more than twenty percent
institutions other than an IH, shall be allowed. (20%) of the subscribed capital of the entities
c. Interlocking officerships in which the bank has equity investments; and
As general rule, there shall be no (d) that where any of the positions
concurrent officerships between banks/ involved is held on full-time basis, adequate
quasi-banks or between a bank/quasi-bank justification shall be submitted to the
and non-bank financial intermediary, Monetary Board.
whether or not performing quasi-banking (3) With prior approval of the Monetary
functions, except as follows: Board, the following concurrent officership
(1) With prior approval of the Monetary positions in the same capacity which do not
Board, concurrent officerships may be involve management functions, i.e., internal
allowed: auditor, corporate secretary, assistant
(a) Between a bank and not more than corporate secretary and security officer, may
two (2) of its subsidiary financial institutions; or be allowed between a bank/quasi-bank and
(b) Between two (2) banks and one (1) two (2) or more of its subsidiary/affiliate
of their subsidiary non-bank financial financial institutions within the group.
intermediaries. Transitory provision. Officers
(2) With prior approval of the Monetary concurrently holding the positions of
Board, concurrent officerships may also be president, chief executive officer, chief
allowed between banks, between a bank operating officer and chief financial officer or
and a non-bank financial intermediary other their equivalent in two (2) or more financial
than an IH, or between an NBQB and a non- institutions under BSP supervision shall be
bank financial intermediary: Provided, That given one (1) year from 02 April 2004 within

Manual of Regulations for Banks Part I - Page 69


§§ X145 - X147
05.12.31

which to comply with the aforementioned base for profit sharing for the year during
regulation. which the reversal is made;
For purposes of this Section, members (6) Accumulated profits not yet
of a group or committee, including sub- received but already recorded by a bank
groups or sub-committees, whose duties representing its share in profits of its
include functions of management such as subsidiaries under the equity method of
those ordinarily performed by regular officers, accounting; and
shall likewise be considered as officers. b. The bank may provide in its by-
laws for other priorities in the computation
§ X145.1 Representatives of of net profits for purposes of profit sharing:
government. The provisions of this Section Provided, That in no case shall profit
shall not apply to persons appointed to such sharing take precedence over any of the
positions as representatives of the items in the preceding paragraph; and
government or government-owned or c. Prior approval of the Monetary
controlled entities. Board shall be necessary before a bank
which has received financial assistance
Sec. X146 Profit Sharing Programs. Profit from the BSP may implement its profit
sharing programs adopted in favor of sharing program. Financial assistance shall
directors, officers and employees shall be refer to emergency loans and advances and
reflected in the by-laws of the bank, subject such other forms of credit accommodations
to the following guidelines: which are intended to provide banks with
a. The base in any profit sharing liquidity in times of need.
program shall be the net income for the year
of the bank as shown in its Consolidated Sec. X147 Compensation and Other
Statement of Income and Expenses for the Benefits of Directors and Officers. To protect
year, net of the following: the funds of depositors and creditors, the
(1) All cumulative dividends accruing Monetary Board may regulate/restrict the
to preferred stock to the extent not covered payment by the bank of compensation,
by earned surplus; allowances, fees, bonuses, stock options,
(2) Accrued interest receivable credited profit sharing and fringe benefits to its
to income but not yet collected, net of directors and officers in exceptional cases and
reserves already set up for uncollected when the circumstances warrant, such as, but
interest on loans; not limited to, the following:
(3) Unbooked valuation reserves on a. When the bank is under
loans or the amount required to update controllership, conservatorship or when it
valuation reserves in accordance with the has outstanding emergency loans and
schedule approved by the Monetary Board, advances and such other forms of credit
as well as all amortizations due on deferred accommodation from the BSP which are
charges; intended to provide it with liquidity in times
(4) Provisions for current year’s taxes; of need;
(5) Income tax deferred for the year. b. When the institution is found by the
Provided, however, That in case of reversal Monetary Board to be conducting business
of deferred income taxes which were in an unsafe or unsound manner;
deducted from net income in computing for c. When it is found by the Monetary
profit sharing of previous years, the deferred Board to be in an unsatisfactory financial
income tax reversed to expense shall be condition such as, but not limited to, the
added back to net income to arrive at the following cases:

Part I - Page 70 Manual of Regulations for Banks


§§ X147 - X149
05.12.31

(1) Its capital is impaired; Sec. 3147 Bonding/Training of Directors,


(2) It has suffered continuous losses Officers and Employees. Officers and
from operations for the past three (3) years; employees handling funds or securities
(3) Its composite CAMEL(S) rating in amounting to P5,000 or more in any one
the latest examination is below “3”; and (1) year shall be bonded in an amount
(4) It is under rehabilitation by the determined by the Monetary Board.
BSP/PDIC which rehabilitation may Directors, officers and other personnel
include debt-to-equity conversion, etc. of RBs/Coop Banks shall undergo such
In the presence of any one (1) or more training in banking as may be required by
of the circumstances mentioned above, the BSP.
the Monetary Board may impose the
following restrictions in the compensation Sec. X148 (Reserved)
and other benefits of directors and officers:
a. In the case of profit sharing, the Sec. X149 Conducting Business in an
provision of Sec. X146 shall be observed Unsafe/Unsound Manner. Whether a
except that for purposes of this Section, particular activity may be considered as
the total amount of unbooked valuation conducting business in an unsafe or
reserves and deferred charges shall be unsound manner, all relevant facts must
deducted from the net income. be considered. An analysis of the impact
b. Except for the financial assistance thereof on the bank’s operations and
to meet expenses for the medical, financial conditions must be undertaken,
maternity, education and other including evaluation of capital position,
emergency needs of the directors or asset condition, management, earnings
officers or their immediate family, the posture and liquidity position.
other forms of financial assistance may be In determining whether a particular act
suspended. or omission, which is not otherwise
c. When the total compensation prohibited by any law, rule or regulation
package including salaries, allowances, affecting banks, may be deemed as
fees and bonuses of directors and officers conducting business in an unsafe or
are significantly excessive as compared unsound manner, the Monetary Board,
with peer group averages, the Monetary upon report of the head of the supervising
Board may order their reduction to or examining department based on
reasonable levels: Provided, That even if findings in an examination or a complaint,
a bank is in financial trouble, it may shall consider any of the following
nevertheless be allowed to grant relatively circumstances:
higher salary packages in order to attract a. The act or omission has resulted
competent officers and quality staff as part or may result in material loss or damage,
of its rehabilitation program. or abnormal risk or danger to the safety,
The foregoing provisions founded on stability, liquidity or solvency of the
Section 18 of R.A. No. 8791 shall be institution;
deemed part of the benefits and b. The act or omission has resulted
compensation programs of banks. or may result in material loss or damage
or abnormal risk to the institution’s
Sec. 1147 (Reserved) depositors, creditors, investors,
stockholders, or to the BSP, or to the public
Sec. 2147 (Reserved) in general;

Manual of Regulations for Banks Part I - Page 71


§§ X149 - X151
05.12.31

c. The act or omission has caused any d. Suspension of rediscounting


undue injury, or has given unwarranted privileges or access to BSP credit facilities;
benefits, advantage or preference to the e. Suspension of lending or foreign
bank or any party in the discharge by the exchange operations or authority to accept
director or officer of his duties and new deposits or make new investments;
responsibilities through manifest partiality, f. Suspension of responsible directors
evident bad faith or gross inexcusable and/or officers;
negligence; or g. Revocation of quasi-banking
d. The act or omission involves license; and/or
entering into any contract or transaction h. Receivership and liquidation under
manifestly and grossly disadvantageous to Section 30 of R.A. No. 7653.
the bank, whether or not the director or All other provisions of Sections 30 and
officer profited or will profit thereby. 37 of R.A. No. 7653, whenever
The list of activities which may be appropriate, shall also be applicable on the
considered unsafe and unsound is shown conduct of business in an unsafe or
in Appendix 48. unsound manner.
The imposition of the above sanctions
§§ X149.1 – X149.8 (Reserved) is without prejudice to the filing of
appropriate criminal charges against
§ X149.9 Sanctions. The Monetary culpable persons as provided in Sections
Board may, at its discretion and based on 34, 35 and 36 of R.A. No. 7653.
the seriousness and materiality of the acts
or omissions, impose any or all of the Sec. X150 Rules of Procedure on
following sanctions provided under Section Administrative Cases Involving Directors
37 of R.A. No. 7653 and Section 56 of R.A. and Officers of Banks. The rules of
No. 8791, whenever a bank conducts procedure on administrative cases
business in an unsafe and unsound manner: involving directors and officers of banks are
a. Issue an order requiring the bank shown in Appendix 64.
to cease and desist from conducting
business in an unsafe and unsound manner H. BANKING OFFICES
and may further order that immediate
action be taken to correct the conditions Sec. X151 Establishment/Relocation/
resulting from such unsafe or unsound Voluntary Closure/Sale of Branches. The
practice; BSP shall promote healthy competition in
b. Fines in amounts as may be the banking system and maximize the
determined by the Monetary Board to be delivery of efficient banking services
appropriate, but in no case to exceed especially in underserved areas. Toward
P30,000 a day on a per transaction basis this end, the following are the rules and
taking into consideration the attendant regulations that shall govern the
circumstances, such as the gravity of the establishment, relocation, voluntary closure
act or omission and the size of the bank, to and sale of local branches of domestic
be imposed on the bank, their directors banks, including locally incorporated
and/or responsible officers; subsidiaries of foreign banks and the
c. Suspension of interbank clearing establishment of branches of foreign banks
privileges/immediate exclusion from in the Philippines shall continue to be
clearing; governed by the provisions of Sec. X121.

Part I - Page 72 Manual of Regulations for Banks


§§ X151.1 - X151.2
05.12.31

§ X151.1 Prior Monetary Board under existing regulations, which as of 22


approval. No bank operating in the December 2005 are as follows:
Philippines shall establish, open or operate
branches, or transact business outside the Bank Category Minimum Capital
premises of its duly authorized principal (In Millions)
office without the prior approval of the BSP. Universal Banks P 4,950
For purposes of this Section, the term
branch shall refer to any office or place of Commercial Banks P 2,400
business in the Philippines outside of the
Thrift Banks:
head office at which deposits are regularly With Head Office P 325
received or withdrawn but shall exclude within Metro Manila
stand alone Automated Teller Machine With Head Office P 52
(ATM) or cash-acceptance machine and ad outside Metro Manila
hoc tellering booth. Other banking offices
such as convenience banking centers, Rural Banks:
express banking centers, representative Within Metro Manila P 26
offices, sales/service outlets and banking Cities of Cebu and Davao P 13
kiosks shall be considered a branch subject 1st/2nd/3rd class cities and
1st class municipalities P 6.5
to branching/application rules if manned by
4 /5 /6 class cities and
th th th
P 3.9
at least three (3) officers/employees at any
2nd/3rd/4thclass
time, and deposits are received/accepted municipalities P 3.9
even through ATM or cash acceptance 5th and 6th class
machine. It shall maintain separate books of municipalities P 2.6
accounts and shall be subject to the reportorial
requirements of the BSP. b. The bank’s risk-based capital
Banking offices other than branch as adequacy ratio (CAR) at the time of filing
defined herein may be allowed anywhere, the application is not lower than twelve
without prior BSP approval, subject to the percent (12%);
submission of a certification by the head of c. The bank’s CAMELS composite
the branches department with the rank of rating in the latest examination is at least
vice president or its equivalent or by a “3”, with management component score
higher ranking officer that said banking not lower than “3”;
office shall neither accept deposits nor d. The bank has established a risk
service withdrawals. The certification shall management system appropriate to its
be submitted to the appropriate SED of the operations, characterized by clear delineation
BSP not later than five (5) banking days from of responsibility for risk management,
date of opening. adequate risk measurement system,
appropriately structured risk limits, effective
§ X151.2 Prerequisites for the grant internal control system and complete, timely
of authority to establish a branch/banking and efficient risk reporting system;
office. With prior approval of the Monetary e. No major supervisory concerns
Board, banks may establish branches outstanding on safety and soundness, i.e.,
subject to the following pre-qualification the bank has complied, during the period
requirements: immediately preceding the date of
a. Compliance with the minimum application with the following regulatory
capital required or as may be required checkpoints:

Manual of Regulations for Banks Part I - Page 73


§ X151.2
05.12.31

(1) No unbooked as of date of (13) Real estate loans ratio as of date of


valuation reserves application does not exceed twenty application
percent (20%) of total
(2) Regular and liquidity 12 weeks loan portfolio (for UBs/
reserve requirements on KBs only)
deposits and deposit
substitutes (14) No findings of unsafe 6 months
and unsound banking
(3) Asset and liquidity 3 months practices
cover for EFCDU/
FCDU liabilities (15) Accounting records, as of date of
systems, procedures application
(4) Ceilings on loans 3 months and internal control
to DOSRI are adequate
(5) Liquidity floor on 3 months (16) The applicant bank as of date of
government deposits has generally complied application
(6) Loans-to-deposits ratio 2 quarters with banking laws, rules
and regulations, orders
(7) Past due loans ratio as of date of or instructions of the
does not exceed application Monetary Board and/or
twenty percent (20%) BSP Management
of total loan portfolio
(17) Member in good as of date of
(8) No outstanding as of date of standing of the PDIC application
violation on single application
borrower’s loan limit and f. For purposes of evaluating branch
limit on total investments applications, theoretical capital shall be
in real estate and assigned to each branch to be established,
improvements including including approved but unopened
bank equipment branches/offices, as follows (in millions):
(9) No past due obligation as of date of LOCATION/ UB/KB TB/ RB/
with the BSP or with any application TYPE OF BANK NATIONAL LOCAL
financial institution COOP COOP
(10) No float items out- 3 months 1) National Capital
standing in the “Due Region and the Cities P 50 P 15 P5
From/To Head Office/ of Cebu and Davao
Branches/Offices” and 2) 1st to 3rd class P 25 P5 P 2.5
“Due from BSP” cities
accounts exceeding one
percent (1%) of the total 3) 4th to 6th class P 25 P5 P 1.5
resources as of end of cities
preceding month
4) 1st to 3rd class P 20 P5 P 1.0
(11) Mandatory allocation 2 quarters municipalities
of credit resources to
small and medium 5) 4th to 6th class P 15 P 2.5 P 0.5
municipalities
(12) Mandatory allocation 2 quarters
of loanable funds for The assigned theoretical capital shall
agrarian reform and be deducted from existing qualifying
agricultural credit in capital as defined under Subsec. X116.1
general for purposes of determining compliance

Part I - Page 74 Manual of Regulations for Banks


§§ X151.2 - X151.3
05.12.31

with the ten percent (10%) risk-based capital needs of the basic or disadvantaged sectors
adequacy ratio (CAR). such as farmer-peasants, artisanal fisherfolk,
If the applicant bank’s risk-based CAR workers in the formal sector and migrant
after deducting the assigned capital for the workers, workers in the informal sector,
proposed branch from the existing indigenous peoples and cultural
qualifying capital would be less than ten communities, women, differently-abled
percent (10%), its application shall not be persons, senior citizens, victims of
processed unless it infused such amount as calamities and disasters, youth and students,
may be necessary to maintain its risk-based children, urban poor and low income
CAR to at least ten percent (10%); households for their microenterprises and
g. The bank has been operating small businesses so as to enable them to
profitably for the year immediately raise their income levels and improve their
preceding the date of application, or in the living standards. Microfinance loans are
case of newly-established banks, the granted on the basis of the borrower’s cash
submitted projection showed that flow and are typically unsecured.
profitability will be attained on the third
year of operations, at the latest; and § X151.3 Application for authority to
h. Additional requirements for the establish branches. An application for
establishment of branches of microfinance- authority to establish a branch shall be signed
oriented banks and/or microfinance- by the president of the bank or officer of
oriented branches of regular banks: equivalent rank and shall be accompanied by
(1) Manual of operations on the following information/documents:
microfinancing duly approved by the board a. Business plan detailing the primary
of directors (for microfinance-oriented banking activities/products and services to
branches of regular banks only); be offered; competition analysis to show
(2) The branch shall have an adequate that its application will not lead to over
loan tracking system that allows daily banking in the target market; and financial
monitoring of loan releases, collections and projections for the first three (3) years of
arrearages, and any restructuring and operations showing sustained viability, as
refinancing arrangements; may be required by the appropriate SED.
(3) The proposed branch shall be In the evaluation of the business plan, due
managed by a person with adequate consideration shall be given to banks that are
experience or training in microfinancing able or are committed to invest or deploy
activities; and branch resources in their area of operations;
(4) At least seventy percent (70%) of the b. Certified true copy of the resolution
deposits generated by the branch to be of the bank’s board of directors authorizing
established shall be actually lent out to the establishment of the branch and
qualified microfinance borrowers and the indicating its proposed site;
microfinance loans of said branch shall at c. Organizational set up of the
all times be at least fifty percent (50%) of proposed branch showing the proposed
its gross loan portfolio (for microfinance- staffing pattern; and
oriented branches of regular banks only). d. Certification/Undertaking signed by
For purposes of this Section, a the president or the executive vice president
microfinance-oriented bank or a that the bank has complied or will comply,
microfinance-oriented branch is a bank or as the case maybe, with the prerequisites
branch, respectively, that provides financial for the grant of authority to establish a branch/
services and caters primarily to the credit banking office under Subsec. X151.2.

Manual of Regulations for Banks Part I - Page 75


§ X151.4
05.12.31

§ X151.4 Branching guidelines shopping malls or commercial center


Branches may be established, subject to the complexes, including but not limited
following guidelines: to special export processing zones, public
a. Only one (1) branch application may markets, fish ports, livestock/agricultural
be submitted at any time except for banks trading centers, Bureau of Internal Revenue
with at least P100.0 million unimpaired (BIR) collection offices and industrial/
capital accounts which may be allowed a technological parks;
maximum of five (5) including approved but f. Maximum of two (2) banking
unopened branch applications, at any time; offices shall be allowed in 4th to 6th class
b. Only complete applications shall municipalities;
be accepted. Processing shall be on a first- g. An RB and a local coop bank shall
come, first-served basis; only be allowed to establish a branch if
c. Industry/market notice of their unimpaired capital accounts is at least
application for authority to establish a P10.0 million;
branch shall be posted at the BSP website h. A qualified RB or local coop bank
upon receipt thereof; with unimpaired capital accounts of at least
d. Banks shall be allowed to establish P10.0 million but less than P50.0
branches anywhere in the Philippines, million may establish a branch anywhere
except in the cities of Makati, within two (2) - hour normal travel time by
Mandaluyong, Manila, Parañaque, Pasay, land/sea public transport from the head
Pasig and Quezon and the Municipality of office, except in the NCR;
San Juan, Metro Manila: Provided, That i. An RB with unimpaired capital
branches of microfinance-oriented banks, accounts of at least P50.0 million but less
microfinance-oriented branches of regular than P100.0 million may establish
banks and branches that will cater primarily branches in any island group (Luzon,
to the credit needs of Barangay Micro Visayas or Mindanao) where the head
Business Enterprises (BMBEs) duly- office is located, except in the NCR;
registered under R.A. No. 9178 may be j. A large RB with at least P100.0
established anywhere, subject to million unimpaired capital accounts may
compliance with the minimum capital establish branches anywhere in the
requirements under Subsec. X151.2 and Philippines, except in the NCR;
the following conditions: k. A qualified bank with unimpaired
(1) A microfinance-oriented bank with capital accounts at least equivalent to the
head office outside the National Capital minimum capital required for a TB with
Region (NCR) may establish a branch in the head office in the NCR may establish
NCR after it has put up the minimum capital branches anywhere, except in the cities of
required for a TB with head office in the NCR; Makati, Mandaluyong, Manila, Parañaque,
and Pasay, Pasig and Quezon, and the
(2) A bank with head office outside the Municipality of San Juan, Metro Manila,
NCR may be allowed to establish a unless qualified under Item “d” above; and
microfinance-oriented branch in the NCR l. The BSP may decide to disapprove
only after it has put up the minimum capital an otherwise qualified branch application
required for a TB with head office in the NCR; if in its determination such branch
e. The proposed branch shall be application will lead to an overbanking
located at least 200 meters away from an situation in the specific market: Provided,
existing banking office: Provided, That said That such disapproval shall be subject to
distance requirement shall not apply in confirmation by the Monetary Board.

Part I - Page 76 Manual of Regulations for Banks


§§ X151.5 - X151.8
05.12.31

§ X151.5 Branch processing fee (1) Installation of the required security


Branch processing fee shall be as follows: devices under Subsec. X171.4 has been
complied with; and
a. Microfinance- - P 5,000
(2) Requirements enumerated under
oriented branches/
banks
Subsec. X151.2 have been complied with
b. RB /local coop - P 25,000 up to the time of actual opening.
banks A bank that fails to continuously comply
c. Non-affiliated TBs/ - P100,000 with the requirements under Subsec.
national coop banks X151.2 shall be given an extension of time
d. UBs/KBs/affiliated TBs - P200,000 to open such branch after it has shown
compliance for another test period of the
Provided, That a proposed branch to same duration for each requirement under
be manned by no more than three (3) said Subsection: Provided, That the
officers/employees at any time shall be provisions of Subsec. X151.6 shall be
assessed half (1/2) of the above branch observed if the branch cannot open within
processing fees: Provided, further, That six (6) months from the date of approval
branches of TBs, RBs and local coop banks thereof: Provided, further, That before such
to be established within the region where branch opens for business, the bank shall
the head office is located shall be free from submit to the BSP the requirements under
assessment. Items “a” and “b (1)” of this Subsection; and
a certification by the bank officer mentioned
§ X151.6 Date of opening. Approved under Item “b” hereof that upon opening
branches shall be opened within six (6) of the branch, the bank has complied within
months from the date of approval thereof: the period prescribed therein.
Provided, That an applicant bank may be Banks shall submit a written notice to
given a final extension of another six (6) the appropriate SED of the BSP of the actual
months by the Deputy Governor, SES, date of opening of their branches not later
subject to the presentation of justification than five (5) banking days from such
and valid reason for the bank’s failure to opening.
open within the original six (6)-month
period and proof that said branch/es can § X151.8 Relocation/transfer of
be opened within the succeeding six (6)- branches. Transfer/relocation of branches
month period. shall be allowed without prior BSP approval
subject to the following conditions:
§ X151.7 Requirements for opening a a. Notice of transfer to depositors and
branch. After a bank’s application to establish other creditors by registered mail or Proof
a branch has been approved, it may open the of Delivery (POD) Service by the Philippine
same subject to the following conditions: Postal Corporation (PhilPost) or other mail
a. Submission of the personal couriers and posters in conspicuous places
information sheet (bio-data) of the proposed in the premises of the banking office to be
manager and other officers of the branch transferred at least three (3) months prior to
at least thirty (30) days prior to the intended the transfer: Provided, That said notification
date of opening; and period may be reduced to forty-five (45)
b. A certification signed by the officer- days under any of the following
in-charge of the Branches Department with circumstances:
the rank of a vice president, or its equivalent (1) as an incentive to merger or
or by a higher officer that: consolidation of banks;

Manual of Regulations for Banks Part I - Page 77


§§ X151.8 - X151.9
05.12.31

(2) as an incentive to purchase or only with prior approval of the Bangko


acquisition of majority or all of the Sentral and shall be subject to the following
outstanding shares of stock of a distressed conditions:
bank for the purpose of rehabilitating the (1) Notice of closure to depositors and
same; or other creditors by registered mail or Proof
(3) the proposed transfer site is within of Delivery (POD) Service of the Philippine
the same barangay or district of the same city Postal Corporation (PhilPost) or other mail
or municipality of the branch to be relocated. couriers and posters in conspicuous places
b. A certification signed by the head in the premises of the banking office to be
of the Branches Department with the rank closed at least three (3) months prior to the
of Vice President or its equivalent or by closure;
a higher ranking officer informing the (2) A certification signed by the head
appropriate SED of the BSP of the transfer of the Branches Department with the rank
and that the above requirements have been of vice president or its equivalent or by a
complied with, which shall be submitted higher ranking officer informing the
not later than five (5) banking days from appropriate SED of the BSP of the closure
the date of transfer. The certification shall and that the above requirements have
be accompanied by a certified true copy of been complied with, which shall be
the resolution of the bank’s board of submitted at least ten (10) banking days
directors authorizing the transfer; prior to the date of closure. The
c. Branches located in the cities of certification shall be accompanied by a
Makati, Mandaluyong, Manila, Parañaque, certified true copy of the resolution of the
Pasay, Pasig and Quezon, and the bank’s board of directors authorizing the
Municipality of San Juan, Metro Manila may closure.
be relocated/transferred anywhere; and b. Sale of branches.
d. Branches located in other areas (1) Sale of branches may be allowed
may be relocated/transferred anywhere with prior approval of the Monetary Board
except in the cities of Makati, and subject to the following conditions:
Mandaluyong, Manila, Parañaque, Pasay, (a) The selling and purchasing banks
Pasig and Quezon, and the Municipality shall secure the prior written consent of
of San Juan, Metro Manila: Provided, the PDIC in the transfer of assets and
That branches of RBs and local coop assumption of liabilities as provided
banks may be relocated/transferred only under Section 21 of the PDIC Charter
in areas where they are allowed to (R.A. No. 3591), as amended by R.A. No.
establish branches: Provided, further, 9302;
That existing RBs and local coop banks (b) The selling bank shall get the prior
in cities and municipalities of Metro approval of the BSP to close the branches
Manila other than Makati, Mandaluyong, to be sold subject to the following
Manila, Parañaque, Pasay, Pasig, conditions:
Quezon, and San Juan may be relocated/ (i) Notice of sale to depositors and
transferred anywhere, except in the other creditors by registered mail or POD
aforementioned cities and municipality. Service of the PhilPost or other mail
couriers and posters in conspicuous
§ X151.9 Voluntary closure/sale of places in the premises of the banking
banking offices office at least three (3) months prior to
a. Voluntary closure. Voluntary the closure: Provided, That said
closure of banking offices may be effected notification period may be reduced to

Part I - Page 78 Manual of Regulations for Banks


§§ X151.9 - X152.1
05.12.31

forty-five (45) days when there is no each banking office opened, transferred
actual branch closure or disruption of or closed without prejudice to the
branch operations. The depositors shall sanctions under Section 35 of R.A. No.
likewise be informed of their option to 7653.
withdraw their deposits or to maintain the
same with the acquiring bank; § X151.11 Relocation/Transfer of
(ii) A certification signed by its branch licenses of closed banks. Buyers
president or executive vice president of closed banks shall be allowed to relocate/
(EVP) informing the appropriate SED of transfer acquired branches subject to the
the BSP of the closure and that the above conditions stated under Items “c.” and “d.”
requirements have been complied with, of Subsec. X151.8.
which shall be submitted at least ten (10)
banking days prior to the date of closure. § X151.12 Establishment of branches/
The certification shall be accompanied loan collection and disbursement points
by a certified true copy of the resolution of microfinance-oriented banks;
of the bank’s board of directors establishment of microfinane-oriented
authorizing the closure. branches/loan collection and
(2) The acquiring bank shall pay a disbursement points of banks that are not
licensing fee per branch as follows: microfinance-oriented (Deleted by Cir.
Within Outside
505 dated 22 December 2005)
Type of Bank Metro Manila Metro Manila
UBs and KBs P 1.0 million P 0.5 million §§ X151.13 - X151.14 (Reserved)
TBs P 0.5 million P 0.25 million
§ X151.15 Relocation/Transfer of
§ X151.10 Sanctions. Any violation branch licenses of closed banks. Buyers of
of the provisions of Subsections X151.2 closed banks shall be allowed to relocate/
to X151.4 shall be a ground for the transfer the branch licenses of the acquired
cancellation of the franchise and closure closed banks under the terms and
of any branch established hereunder conditions indicated in Item “b(3)” of
without prejudice to the imposition Subsec. X151.9.
of the applicable criminal and
administrative sanctions prescribed Sec. X152 Relocation/Transfer of Head
under Sections 36 and 37, respectively, Offices. Transfer of a head office or any of
of R.A. No. 7653. its departments shall require prior BSP
If any part of the certification submitted approval and shall be subject to the
by the bank as required in this Section is conditions enumerated under Subsec.
found to be false, the following sanctions X151.8, except that the certification shall
shall be imposed: be signed by the officer with the rank of
a. On the bank. Suspension for one senior vice president or its equivalent or
(1) year of the privilege to establish and/or by a higher ranking officer.
to open approved banking offices.
b. On the certifying officer. A fine § X152.1 Sanctions. If any part of the
of P5,000 per day (P200 per day for RBs/ certification submitted by the bank as
Coop Banks) from the time the required in this Section is found to be false,
certification was made up to the time the the sanctions under Subsec. X151.10 shall
certification was found to be false for be imposed.

Manual of Regulations for Banks Part I - Page 79


§§ X153 - X153.4
05.12.31

Sec. X153 Establishment of Additional § X153.2 Requirements for


Branches of Foreign Banks. The following establishment of additional branch. In
guidelines shall govern the establishment of addition to the standard pre-qualification
additional branches of foreign banks in the requirement for the grant of banking
Philippines pursuant to R.A. No. 7721. authorities in Appendix 5, the applicant
For purposes of this Section, the term bank shall comply with requirements
bank shall refer to the existing branches of prescribed in Subsecs. X121.4b and c,
the applicant bank in the Philippines and X121.6.
reckoned as a single unit.
In the case of a foreign bank which has § X153.3 Date of opening. The
more than one (1) branch and/or other office opening of approved branches shall be
in the Philippines, all such branches/offices subject to the provisions of Subsec. X151.6.
shall be treated as one (1) unit and all
references to the Philippine branches/offices § X153.4 Requirements for opening a
of such foreign bank shall be held to refer branch. After a bank’s application to
to such unit pursuant to Section 74 of the establish a branch has been approved, it
R.A. No. 8791. may open the same subject to the following
conditions:
§ X153.1 Application for authority to a. Submission by the applicant bank
establish additional branch. An application of a written notice at least thirty (30) days
for authority to establish additional branch prior to the intended date of opening,
or branches shall be signed by the Country accompanied by the following:
Manager or the highest ranking officer in (1) Proof or evidence of inward
the Philippines of the applicant foreign bank, remittance needed to meet the requirements
and shall be accompanied by the following prescribed in Subsecs. X121.4b and c, and
information/documents: X121.6;
a. Certified true copy of the (2) List of principal and junior officers
resolution of the bank’s board of directors of the proposed branch/es and their
authorizing the establishment of the respective designations and salaries;
additional branch/es and indicating its (3) Personal information sheet (bio-
proposed site/s and/or authority of the data) for each of the officers to enable the
bank’s Country Manager or highest BSP to evaluate their qualifications as
ranking officer in the Philippines to apply officers; and
for authority to establish additional (4) A certification signed by the bank’s
branch/es and represent the bank in Philippine Country Manager that the
connection therewith; requirements enumerated under Subsec.
b. Banking facilities and services to be X153.2 has been complied with up to the
offered; date of the aforementioned written notice.
c. Organizational set up of the A bank that fails to continuously comply
proposed branch showing the proposed with the requirements under Subsec.
staffing pattern; and X153.2 shall be given an extension of time
d. Certification signed by the bank’s to open such branch after it has shown
Country Manager that the bank’s existing compliance for another test period of the
branches in the Philippines reckoned as a same duration required of each requirement
single unit, have complied with all the in Subsec. X153.2: Provided, That the
requirements enumerated under Subsec. provisions of Subsec. X153.3 shall be
X153.2. observed if the branch cannot open within

Part I - Page 80 Manual of Regulations for Banks


§§ X153.4 - X154.2
05.12.31

six (6) months from the date of approval Sec. X154 Establishment of Offices
thereof: Provided, further, That before such Abroad. The following rules shall govern
branch opens for business, the bank shall the establishment by domestic banks of
submit to the BSP the requirements under branches and other offices abroad.
Subsec. X153.4a with the certification to For purposes of this Section, the term
the effect that the bank has complied with offices shall include branches, agencies,
requirements of Subsec. X153.2 up to the representative offices, remittance centers,
date of the written notice within the period remittance desk offices and other offices.
prescribed therein;
b. The foreign bank branch has § X154.1 Application for authority to
adequate staff, equipment, and other establish an office abroad. An application
facilities to meet the needs of its for authority to establish an office abroad
commercial banking operations: Provided, shall be signed by the president of the bank
That the bank’s premises, vault and office and shall be accompanied by the following
equipment, after inspection by the information/documents:
representatives of the SES of the BSP shall a. Certified true copy of the resolution
have been found to be substantially in of the bank’s board of directors authorizing
compliance with specifications on security the establishment of that office indicating
standards and ready for use by the bank; and its proposed site;
c. Issuance by the Governor of the b. Economic justification for such
permit to open and operate the approved establishment, indicating among other
branch/es. things, the services to be offered, the
Banks shall submit a written notice to minimum outlay such as capital
the appropriate SED of the BSP of the actual requirement of the host country, outlay for
date of opening of their branches not later furniture, fixture and equipment, rental and
than ten (10) banking days from such other expenses;
opening. c. Organizational set up of the
proposed office showing the proposed
§ X153.5 Choice of locations for positions and the names, qualifications and
establishment of branches experience of the proposed manager and
a. A foreign bank authorized to other officers;
establish branches in the Philippines d. Certification signed by the
pursuant to the provisions of R.A. No. president or the executive vice president
7721, may open its first three (3) branches that the bank has complied with the
in locations of its choice. standard pre-qualification requirements for
b. The same foreign bank may open the grant of banking authorities enumerated
its next three (3) additional branches only in Appendix 5; and
in locations designated by the Monetary e. Certification from the host country
Board to ensure balanced economic that the duly authorized personnel/
development in all the regions. examiners of the BSP will be authorized to
examine the proposed office.
§ X153.6 Sanctions. If a bank fails to
submit any certification as required in this § X154.2 Requirements for
Section, or any part of the certification establishing an office abroad. In addition
submitted by the bank as required in this to the standard prequalification
Section is found to be false, the sanctions requirements of Appendix 5, the applicant
under Subsec. X151.10 shall be imposed. bank shall comply with the following:

Manual of Regulations for Banks Part I - Page 81


§§ X154.2 - X154.5
05.12.31

a. The citizenship requirements, e. An office not authorized to perform


ownership ceilings and other limitations on banking business (e.g., representative and
voting stockholdings in banks under liaison offices) shall not carry any of the
existing law and regulations; business of a bank as contemplated within
b. Experience and expertise in the context of the Philippine banking
international banking operations as shown system; and
by: f. The applicant shall defray the
(1) Its international banking operations necessary cost and expenses to be incurred
for at least three (3) years prior to the date by the appropriate SED of the BSP.
of application;
(2) Substantial income derived from § X154.4 Date of opening. The
international banking operations; and opening of any office abroad shall be
(3) Established correspondent relation- subject to the provisions of Subsec. X151.6.
ship with reputable banks.
§ X154.5 Requirements for opening
§ X154.3 Conditions attached to the an office abroad. After a bank’s application
approved application. An approved to establish a branch has been approved, it
application to establish a banking office may open the same subject to the following
abroad shall be subject to the following conditions:
conditions: a. Submission by the applicant bank
a. Without prejudice to the of a written notice at least thirty (30) days
qualification requirements in the country prior to the intended date of opening,
where the office is to be established, the accompanied by the following:
proposed officer(s), at the time of (1) Proof or evidence of outward
appointment must be at least: remittance needed to meet the capital
(1) Twenty-five (25) years of age; requirements prescribed by the host
(2) A college graduate, preferably with country;
training and experience abroad; (2) List of principal and junior officers
(3) With three (3) years experience in of the proposed branch/es and their
international banking operations; and respective designations and salaries; and
(4) Must not possess any of the (3) Personal information sheet (Bio-
disqualification of an officer as provided for data) for each of the officers to enable the
under existing regulations; BSP to evaluate their qualifications as
b. The applicant bank shall comply officers; and
with the licensing requirements of the host b. A certification signed by the bank’s
country and the necessary license to president or executive vice president that
operate shall be secured from the the standard prequalification requirements
appropriate government agency of the host enumerated in Appendix 5 have been
country; complied with up to the date of the
c. The outward investment representing aforementioned written notice.
initial capital outlay and other outlays shall A bank that fails to continuously
be subject to existing regulations; comply with the requirements shall be
d. The proposed office shall submit given an extension of time to open such
periodic reports on its financial condition office after it has shown compliance for
and profitability and such other reports that another test period of the same duration
may be required by the BSP; required of each requirement: Provided,

Part I - Page 82 Manual of Regulations for Banks


§§ X154.5 - X156
05.12.31

That the provisions of Subsec. X151.6 c. The applicant bank has complied
shall be observed if the branch cannot with the standard prequalification
open within six (6) months from the date requirements prescribed in Appendix 5; and
of approval thereof: Provided, further, d. Tax collections received shall be
That before such branch opens for subject to rules on government deposits.
business, the bank shall submit to the
BSP the requirements under Subsec. I. BANKING DAYS AND HOURS
X154.5a together with a certification
stating that the bank has complied with Sec. X156 Banking Days and Hours
the standard prequalification requirements Banks, including their branches and
in Appendix 5 up to the date of the offices, doing business in the Philippines,
written notice within the period shall observe for the conduct of their
prescribed therein. business a regular banking week of five
(5) days, except when such days are
§ X154.6 Sanctions. If any part of the holidays. The regular banking week
certification submitted by the bank as should fall on Mondays to Fridays unless
required in this Section is found to be otherwise authorized by the BSP in the
false,the sanctions under Subsec. X151.10 interest of the banking public. On these
shall be imposed. days, said institution shall transact
business for at least six (6) hours each day.
§§ X154.7 - X154.8 (Reserved) Subject to compliance with other
relevant laws, banks, including their
§ X154.9 Establishment of a foreign branches and offices, may opt to observe
subsidiary by a bank subsidiary. The a banking week in excess of the five (5)
establishment of a foreign subsidiary by a days after reporting to the BSP the
bank subsidiary are subject to the additional days during which such banks
guidelines in Subsec. X382.8. or their branches or offices shall transact
business for at least three (3) hours each
Sec. X155 Tellering Booths. The following day.
rules shall govern the establishment of Without the need for prior approval
tellering booths in BIR offices: of the BSP, and even in the absence of an
a. As a general policy, the approved local holiday, banks and/or their
establishment of tellering booths in BIR branches or other offices are allowed to
offices are not authorized. However, in close on certain days in celebration of
cases where tellering booths in offices important historical and/or religious
are needed as determined by the BIR, events in the locality where these banks
banks shall secure prior Monetary Board operate: Provided, That said closure has
approval; the prior approval of the bankers’
b. A bank’s application shall be association in the locality and in the case
accompanied by a letter from the BIR of bank branches, their respective head
Commissioner or Deputy Commissioner or offices: Provided, further, That said
other officer specifically authorized by the closure will only be allowed in the
Commissioner to sign such letter, stating municipality or city where the festivities
that the BIR has agreed to allow the are centered.
applicant bank to establish a tellering booth Banks and/or their branches or other
in the specified BIR office; offices shall submit, either individually or

Manual of Regulations for Banks Part I - Page 83


§§ X156 - X161
05.12.31

through their head offices, to the banks shall be reported in writing to the
appropriate SED of the BSP a prior notice appropriate SED of the BSP. Banks may
of their intended closure on account of a change the banking days and hours
specific local festivity, together with a previously reported to the BSP by giving
copy of the resolution of the local bankers prior written notice: Provided, That changes
association approving said closure, at in banking days or hours shall not be made
least two (2) days after the date of said oftener than once every thirty (30) days,
resolution. except during emergencies. Emergency
The required notice shall be supported shall mean (a) condition of an area or
by a certification that: locality proclaimed by the President of the
a. On the date of the temporary Philippines as in a state of emergency; or
closure, the bank and/or branch will (b) an event or occasion or a combination
maintain a skeletal force to handle “out-of- of circumstances equivalent to a public
town” clearing items in line with the calamity resulting from fire, flood, or like
provisions of Section X603; disaster, or through some unusual
b. The notice of the bank’s closure and occurrence or pressing necessity not
the reason thereof shall be posted reasonably subject to anticipation calling for
conspicuously in the bank’s premises; and immediate action or remedy.
c. For branches of banks, the closure The prior written notice to the BSP on
has the prior approval of their respective changes in banking days and hours shall
head offices. be given through the fastest means of
communication, at least seven (7) banking
§ X156.1 Banking hours beyond the days before the intended effectivity of the
minimum. For purposes of servicing change in banking hours or days. In case a
deposits and withdrawals, banks may, at bank, due to an emergency, has to open
their discretion, remain open beyond the outside, or close during, the banking hours
minimum six (6) hours and for as long as or days reported to the BSP, a written report
they find it necessary, even before 8:00 AM submitted within twenty-four (24) hours
or after 8:00 PM. Banks may, after prior from opening or closing, as the case may
written notice, also remain open beyond the be, will suffice. The report shall state the
minimum six (6) hours for banking services specific nature of the emergency and the
other than the servicing of deposits and period the bank opened or closed or shall
withdrawals but in no case shall such open or close by reason of emergency.
banking hours start earlier than 8:00 AM
nor extend beyond 8:00 PM: Provided, § X156.3 Posting of schedule of
however, That branches of banks at any banking days and hours. The schedule of
international airport or major fish port are banking days and hours reported to the BSP
allowed to operate on flexible banking shall be posted conspicuously at all times
hours within a twenty-four (24)-hour period, in the bank’s premises.
subject to the condition that the individual
bank’s management will inform the BSP of Secs. X157 - X160 (Reserved)
the schedule of its banking hours which shall
in no case be less than six (6) hours a day. J. RECORDS AND REPORTS

§ X156.2 Report of, and changes in, Sec. X161 Records. Banks shall have a true
banking days and hours. The banking days and accurate account, record or statement
and hours selected for each of the offices of of their daily transactions, particularly those

Part I - Page 84 Manual of Regulations for Banks


§§ X161 - X161.2
05.12.31

referring to their deposit liabilities. The § X161.2 Philippine Financial


making of any false entry or the willful Reporting Standards/Philippine Accounting
omission of entries relevant to any Standards
transaction, is a ground for the imposition Statement of policy. It is the policy
of administrative sanctions under Section of the BSP to promote fairness,
37 of R.A. No. 7653 and the transparency and accuracy in financial
disqualification from office of any director reporting. It is in this light that the BSP
or officer responsible therefor under Section aims to adopt all Philippine Financial
9-A of R.A. No. 337, as amended. This is Reporting Standards (PFRS) and
without prejudice to their criminal Philippine Accounting Standards (PAS)
liability under Sections 35 and 36 of R.A. issued by the Accounting Standards
No. 7653 and/or the applicable Council (ASC) to the greatest extent
provisions of the Revised Penal Code. possible.
Banks shall adopt the Philippine
§ X161.1 Adoption of the Manual of Financial Reporting Standards (PFRS) and
Accounts. Banks shall strictly adopt the Philippine Accounting Standards (PAS)
Manual of Accounts prescribed by the which are in accordance with generally
BSP for recording daily transactions accepted accounting principles in recording
including reportorial and publication transactions and in the preparation of
requirements. financial statements and reports to BSP.
Local branches of foreign banks may However, in cases where there are
continue using their parent bank’s general differences between BSP regulations and
ledger accounts: Provided, That PFRS/PAS as when more than one (1) option
published statements and reports are allowed or certain maximum or
submitted to the BSP follow the account minimum limits are prescribed by the PFRS/
definitions in the BSP-prescribed Manual PAS, the option or limit prescribed by BSP
of Accounts: Provided, further, That the regulations shall be adopted by banks.
mathematical formulas for reconciling For purposes hereof, the PFRS/PAS shall
such published statements and submitted refer to issuances of the Accounting
reports with the general ledger accounts Standards Council and approved by the
of the bank are submitted to the Professional Regulation Commission (PRC).
appropriate SED of the BSP: Provided, Accounting treatment for prudential
finally, That said banks prepare for BSP reporting. For prudential reporting, banks
use, reconciliations of their ledger shall adopt in all respect the PFRS and PAS
accounts with the BSP prescribed Manual except as follows:
of Accounts during regular or special a. In preparing consolidated financial
bank examinations. statements, only investments in financial
Any bank which fails or refuses to allied subsidiaries except insurance
adopt the prescribed Manual of Accounts, subsidiaries shall be consolidated on a
or any of the applicable accounts line-by-line basis; while insurance and
contained therein, or adopts any general non-financial allied subsidiaries shall be
ledger account not specified in the said accounted for using the equity method.
Manual of Accounts without prior written Financial/non-financial allied/non-allied
approval of the Governor of the BSP, shall associates shall be accounted for using the
be penalized by revocation or suspension equity method in accordance with the
of its authority to engage in quasi-banking provisions of PAS 28 “Investments in
function. Associates”.

Manual of Regulations for Banks Part I - Page 85


§§ X161.2 - X162.1
05.12.31

b. For purposes of preparing separate is strongly encouraging banks to submit


financial statements, financial/non-financial their regular reports to the BSP in
allied/non-allied subsidiaries/associates, electronic form.
including insurance subsidiaries/associates, However, the BSP cannot presently
shall also be accounted for using the equity guarantee the security/confidentiality of
method; and data in the course of electronically
c. Banks shall be required to meet the transmitting reports to BSP. BSP
BSP recommended valuation reserves. recommends that sensitive or
Notwithstanding the exceptions in confidential information be provided by
Items “a”, “b” and “c”, the audited annual ordinary post or courier. The BSP will
financial statements required to be accept no responsibility for electronic
submitted to the BSP in accordance with messages/reports/information that may be
the provision of Subsection X164.1 shall hacked or cracked, intercepted, copied
in all respect be PFRS/PAS compliant: or disclosed outside BSP’s information
Provided, That financial institutions shall system.
submit to the BSP adjusting entries
reconciling the balances in the financial § X162.1 Categories and signatories
statements for prudential reporting with of bank reports
that in the audited annual financial a. Categories of reports. Reports
statements. required to be submitted to the BSP by
banks are grouped into Category A-1,
§§ X161.3 - X161.9 (Reserved) Category A-2, Category A-3 and Category
B reports as indicated in Appendix 6.
§ 1161.9 (Reserved) b. Authorized signatories
(1) Category A-1 reports shall be
§ 2161.9 (Reserved) signed by the bank’s chief executive
officer or, in his absence, by the
§ 3161.9 Retention and disposal of executive vice president, and by the
records of rural/cooperative banks. To comptroller or, in his absence, by the
guide RBs/Coop Banks in the disposition of chief accountant, or officers holding
their records and documents which no equivalent positions.
longer need to be retained and in (2) Category A-2 reports shall be
determining which of the records are of signed by the president, executive vice
permanent value and therefore should be president, vice president or by an officer
preserved, RBs/Coop Banks shall follow the holding equivalent position.
guidelines on retention and disposal of (3) Category A-3 and Category B
records in Appendix 50. reports shall be signed by officers or their
alternates, duly designated by the board of
Sec. X162 Reports. Banks shall submit to directors.
the appropriate SED of the BSP all their The designated signatories of
statements and/or periodic reports listed Categories A-1, A-2, A-3 and B reports
in Appendix 6 in such frequency and including their specimen signatures shall
deadlines indicated therein. In the be contained in a resolution approved by
preparation of said statements/reports, the board of directors. A copy of the
banks shall use and strictly follow the board resolution covering the initial
forms prescribed by the BSP. designation and subsequent change(s) in
In line with the policy direction of signatories as well as specimen signatures
R.A. No. 8792 (E-Commerce Act), the BSP of the signatories and alternates, shall be

Part I - Page 86 Manual of Regulations for Banks


§§ X162.1 - X162.2
05.12.31

submitted to the appropriate SED of the (1) Report shall refer to any report or
BSP in such frequency and within the statement required to be submitted by a
deadline indicated in Appendix 6. bank to the BSP.
(4) Reports in computer media that are (2) Willful delay in the submission of
submitted by banks shall be subject to the reports shall refer to the failure of any
same requirements regarding authorized bank to submit on time the report defined
signatories. in Item “a(1)” above. Failure to submit a
(5) Any report submitted to the BSP report on time due to fortuitous events,
that is signed by an officer who is not listed such as fire and other natural calamities,
or included in any of the resolutions and public disorders including strike or
mentioned above, shall be considered as lockout affecting a bank as defined in the
not having been submitted at all. Labor Code, or of a national emergency
(6) All authorized agent banks shall affecting operations of banks, shall not be
submit to the Director, Branch Operations, considered as willful delay.
BSP, the updated specimen signatures of (3) Examination shall include, but
Senior Bank Officers in their respective need not be limited to, the verification,
Head Offices who are authorized to review, audit, investigation and
authenticate the signatures of their inspection of the books and records,
provincial branch officers transacting business affairs, administration and
business with the BSP Regional Offices/ financial condition of any bank including
Branches. the reproduction of banking records, as
The BSP Branch Operations shall be well as the taking possession of the books
advised of any changes in authorized and records and keeping them under BSP’s
branch signatories, as well as custody after giving proper receipts therefor.
authenticating Head Office Senior Officers. It shall also include the interview of the
c. Deadline for submission of reports directors and personnel of any bank
(1) Regular reports. Unless including its Electronic Data Processing
otherwise specified, the deadlines for (EDP) servicer. Books and records shall
submission of reports enumerated in include, but not limited to, data and
Appendix 6, shall be reckoned on the information stored in magnetic tapes, discs,
basis of banking days. For this purpose, diskettes printouts, logbooks and manuals
banking days shall be understood to kept and maintained by the bank or by the
mean Monday through Friday or banking EDP servicer, that are necessary and
days of the BSP. incidental to the use of EDP systems by the
(2) Call Reports. The deadline of bank.
submission of call reports shall be specified (4) Refusal to permit examination shall
in the letter calling for the report. mean any act or omission which impedes,
delays or obstructs the duly authorized
§ X162.2 Sanctions in case of willful BSP officer/examiner/employee from
delay in the submission of reports/refusal conducting an examination, including the
to permit examination. For willful delay act of refusing to accept or honor a letter
in the submission of reports, specific of authority to examine presented by any
sanctions shall be imposed in accordance officer/examiner/employee of the BSP.
with the following rules. b. Fines for willful delay in the
a. Definitions. For purposes of this submission of reports.
Subsection, the following definitions shall (1) Amount of fine. Any bank which
apply. shall incur willful delay in the submission

Manual of Regulations for Banks Part I - Page 87


§ X162.2
05.12.31

of required reports shall pay a fine in with the appropriate SED of the BSP or with
accordance with the following schedule: the BSP Regional Offices, or by sending
(a) For Category A-1, A-2 and A-3 them by registered mail or by special
reports delivery through a private courier, unless
(1) UBs/KBs - P1,200; otherwise specified in the circular or
(2) TBs - 600; memorandum of the BSP.
(3) RBs/Coop Banks - 180; In the first case, the date of
per business day of default until the report acknowledgment by the appropriate
is filed with the BSP: Provided, That for the SED of the BSP or the BSP Regional
report on compliance with the mandatory Office appearing on the copies of such
credit allocation required under R.A. No. reports filed or submitted, and in the
6977 (as amended by R.A. No. 8289) the second case, the date of mailing
amount of fines shall be: postmarked on the envelope or the date
(i) UBs/KBs/FXBs - P 1,000; of the registry receipt or the date of
(ii) TBs - 500; special delivery receipt, shall be
(iii) RBs/Coop Banks - 250; considered as the date of filing.
per business day of default until report is c. Fines for refusal to permit
filed with the BSP; and examination.
(b) For Category B reports (1) Amount of fine - A bank which
(i) UBs/KBs/FXBs - P 240; shall willfully refuse to permit
(ii) TBs - 120; examination shall pay a fine of P3,000
(iii) RBs/Coop Banks - 60; daily from the day of refusal and for as
per business day of default until report is long as such refusal lasts.
filed with the BSP. (2) Basis and effectivity of the
In the implementation of the foregoing imposition of fine.
rules, delay or default shall start to run (a) The BSP officer/examiner/
on the day following the last day required employee shall report the refusal of the
for the submission of reports. However, bank to permit examination to the head
should the last day of filing fall on a non- of the appropriate SED of the BSP, who
working day in the locality where the shall forthwith make a written demand
reporting bank is situated, delay or default upon the bank concerned for such
shall start on the day following the next examination. If the bank continues to
banking day. The due date/deadline for refuse said examination without any
submission of reports to BSP as prescribed satisfactory explanation thereof, the BSP
under Sec. X162 governing the frequency officer/examiner/employee concerned
and deadlines indicated in Appendix 6 shall shall submit a report to that effect to the
be automatically moved to the next banking said department head.
day whenever a half-day suspension of (b) The fine shall be imposed
business operations in government offices starting on the day following the receipt
is declared due to an emergency such as by the said department of the written
typhoon, floods, etc. report submitted by the BSP officer/
Delayed schedules/attachments and examiner/employee con-cerned
amendments shall be considered late regarding the continued refusal of the
reporting subject to the above penalties. bank to permit the desired examination.
(2) Manner of filing. For the purpose of d. Manner of payment or collection
establishing delay or default, the submission of fines. The regulations embodied in
of reports shall be effected by filing them Subsec. X609.1 shall be observed in the

Part I - Page 88 Manual of Regulations for Banks


§§ X162.2 - X162.5
05.12.31

collection of fines from banks for willful b. Incidents involving material loss,
delay in the submission of reports or for destruction or damage to the bank’s
refusal to permit examination. property/facilities, other than arising from
e. Other penalties. The imposition of a crime, when the amount involved per
the foregoing penalties shall be without incident is P100,000 or more.
prejudice to imposition of the other c. The following guidelines shall be
administrative sanctions and to the filing of observed in the preparation and
a criminal case as provided for in other submission of the report:
provisions of law. (1) The report shall be prepared in the
f. Appeal to the Monetary Board. prescribed form in two (2) copies and shall
An aggrieved bank may appeal to the be submitted to the appropriate SED and
Monetary Board any fine imposed by the to the BSP Security Coordinator, thru the
BSP. Director, Security, Investigation and
Transport Department within the deadline
§ X162.3 Submission of certain stated in Appendix 6;
required information. Banks shall submit (2) Where a thorough investigation
to the appropriate SED of the BSP the and evaluation of facts is necessary to
information on bank’s profile required in complete the report, an initial report
Appendix 7. Any change in any of the submitted within the deadline may be
required information submitted, after the accepted: Provided, That a complete report
initial submission, shall be reported to the is submitted not later than fifteen (15)
said department immediately. banking days from termination of
Banks shall likewise submit to the said investigation; and
department any or all of the documents/ (3) Proof of submission of the report
information on bank’s organizational within the deadline shall be determined
structure and operational policies by the date of postmark, if the report was
enumerated in Appendix 8. Any subsequent sent by mail or by the date received, if
change/issuance should be furnished the handcarried to the appropriate SED,
department within fifteen (15) banking days Manila, or in applicable cases, to the unit
from such change/issuance. of the SED in any of the Regional Offices
of the BSP.
§ X162.4 Report on crimes/losses
Banks shall report on the following matters § X162.5 Report on real estate/chattel
to the appropriate SED. transactions. Banks shall within ten (10)
a. Crimes whether consummated, banking days from approval of the transaction:
frustrated or attempted against property/ a. Report to the appropriate SED of
facilities (such as robbery, theft, swindling the BSP, any real estate/chattel transaction
or estafa, forgery and other deceits) and (such as, but not limited to, rentals or
other crimes involving loss/destruction of leases, purchases and sales, or foreclosed
bank property when the amount involved, assets) between the bank and its director(s),
in each crime is P20,000 or more. officer(s), employees, stockholder(s)
Crimes involving bank personnel, owning at least two percent (2%) of the
regardless of whether or not such crimes bank’s subscribed capital stock, or any firm
involve the loss/destruction of bank substantially owned (in the aggregate of at
property, even if the amount involved is less least twenty percent (20%) of the paid-in
than P20,000, shall likewise be reported to capital of such firm) by one (1) or more of
the BSP. such directors/officers/stockholders; and

Manual of Regulations for Banks Part I - Page 89


§§ X162.5 - X162.9
05.12.31

b. Certify to the BSP that such a notation, viz “no change(s) since last
transaction has been thoroughly reviewed report submitted for quarter ended,
and verified as having been entered into in _________ _____, 20_”.
the best interest of the bank.
§ X162.8 Bangko Sentral offices,
§ X162.6 Reconciliation of head office where reports are submitted. Submission
and branch transactions. Banks shall of BSP periodic or call reports shall be as
prepare reconciliation statements covering follows:
transactions between the head office and all a. All banking offices shall submit
its branches within thirty (30) banking days the required reports in accordance with
after the end of each month. Appendix 6 to the BSP, Manila or to the
All items which are unresponded or nearest BSP Regional Offices: Provided,
outstanding in the reconciliation statement That the head office of a bank may submit
for more than (6) months as of reconciliation to the SRSO in electronic form the
statement date shall be reported, with batched copy of all its banking units’
explanations/reasons for their being Quarterly Statement of Condition and
outstanding, to the appropriate SED of the Statement of Income and Expenses by
BSP in such frequency and within the Banking Unit in behalf of its branches and
deadline set in Appendix 6. other offices;
The reconciliation statement shall be b. Where a particular report form calls
made available to any authorized bank for distribution of copies to other
examiner for inspection/examination departments of the BSP, the bank concerned
without need of advance notice. shall furnish said copies of the report direct
A copy of the year-end reconciliation to the respective departments of the BSP;
statement covering transactions between and
the bank’s head office and all its branches c. As an exception to Item “a” above,
shall be furnished the said department not the duplicate copy of the bio-data for
later than the end of January of the directors/officers shall be submitted to the
following year. SRSO of the BSP.

§ X162.7 List of stockholders and their § X162.9 Publication/Posting of


stockholdings statement of condition
a. Banks shall submit to the a. UBs/KBs and TBs with resources of
appropriate SED of the BSP annually a P1.0 billion and above
complete list of stockholders and their (1) Banks belonging to this category
stockholdings in the prescribed form within shall accomplish the prescribed form and
the deadline indicated in Appendix 6. publish their quarterly statements of
b. Any change in the list shall also condition (SOCs) as of the cut-off date
be reported to the said department in such indicated in the call letter of the appropriate
frequency and within the deadline SED of the BSP. The Consolidated Statement
indicated in Appendix 6, indicating the of Condition (CSOC) of a bank and its
name(s) and/or stockholdings involved subsidiaries and affiliates shall be published
which is/are to be cancelled or replaced, side by side with the SOC of its head office
and the new name(s) and/or stockholdings and its branches/other offices subject to the
which shall be included for that quarter. following guidelines:
In case no change occurred during a (a) The CSOC of the bank and its
particular quarter, the report shall provide subsidiaries and associates shall conform

Part I - Page 90 Manual of Regulations for Banks


§ X162.9
05.12.31

with the guidelines of PAS 27 to the appropriate SED of the BSP before
“Consolidated and Separate Financial the publication and within twelve (12)
Statements”, except that for purposes of banking days from receipt of the call
consolidated financial statements, only letter. Thereafter, the published reports
investments in financial allied shall be submitted within twenty (20)
subsidiaries except insurance subsidiaries banking days after the receipt of said call
shall be consolidated on a line-by-line letter.
basis; while insurance and non-financial b. TBs with resources of less than P1.0
allied subsidiaries shall be accounted for billion
using the equity method. Financial/non- (1) A TB belonging to this category may
financial allied/non-allied associates shall either publish its quarterly SOC as of the
be accounted for using the equity method cut-off date indicated in the call letter of the
in accordance with the provisions of PAS appropriate SED of the BSP, in a newspaper
28 “Investments in Associates”. For of general circulation as in Item “a” above
purposes of separate financial statements, or post the same in the most conspicuous
investments in financial/non-financial area of its premises, in the municipal
allied/non-allied subsidiaries/associates, building, municipal public market, barangay
including insurance subsidiaries/ hall and barangay public market where the
associates, shall be accounted for using head office and all its branches are located.
the equity method. The posting shall be printed on 12”x18”
(b) The publication of the CSOC of a white paper, preferably white buff paper
bank and its subsidiaries and affiliates (cartolina) and shall be made within twenty
shall start with the report as of December (20) banking days from the end of every
2002; and quarter and for a period of thirty (30)
(c) The published CSOC as of 20 successive days;
September 2002 shall be that of a bank and (2) The names and position/designation
its financial subsidiaries. of the members of the board of directors,
(2) Such SOC shall be published in a president and executive vice president
newspaper of general circulation in the (senior vice president, if there is no
city/province where the principal office, executive vice president), shall be published
in the case of a domestic bank, or the and shown in the right side column of the
principal branch/office, in the case of a published statement of condition as of June
foreign bank, is located, but if no of every year; and
newspaper is published in the same (3) A copy of the posted statement of
province, then in a newspaper published condition together with an affidavit
in Metro Manila or in the nearest city/ executed by the president or, in his
province. absence, the vice-president or manager
(3) The names and position/ shall be submitted to the appropriate SED
designation of the members of the board of within twenty (20) banking days after the
directors, president and executive vice end of the quarter.
president (senior vice president, if there are (4) TBs shall comply with the following
no executive vice president), shall be guidelines:
published and shown in the right side (a) The duplicate published SOC shall
column of the published statement of be submitted electronically in accordance
condition as of June of every year; and with existing deadlines using either cc:mail
(4) The original and a copy of the or E-mail with the same address at srso-
statement of condition shall be submitted pubcsoctb@bsp.gov.ph;

Manual of Regulations for Banks Part I - Page 91


§ X162.9
05.12.31

(b) Amount shall be in absolute figures; the appropriate SED within twenty (20)
(c) Existing regulations on imposition of banking days after the end of the quarter.
penalties for delayed/erroneous reporting d. Additional information required
shall continue to apply; Banks shall disclose the following
(d) Upon transmission of the information in the quarterly published/
published SOC template file, the bank posted statements of condition:
shall also fax the notarized Control (1) Amount of non-performing loans and
Prooflist on the contents of the data sent ratio to total loan portfolio;
via electronic mail to BSP-SRSO. Original (2) Amount of classified loans and other
copy of the control prooflist, the risk assets;
published SOC and the Publisher’s (3) General loan-loss reserves;
Certificate shall likewise be submitted to (4) Specific loan-loss reserves;
the appropriate SED; and (5) Return on equity (ROE);
(e) SRSO shall run an official validation (6) DOSRI loans/advances and ratio to
test on the reports submitted using the same total loan portfolio; and
program provided to banks. Banks shall be (7) Past due DOSRI loans/advances and
promptly advised on the validation results ratio to total loan portfolio.
and shall be required to correct reports when For purposes of arriving at a uniform
necessary. method of calculating the additional
c. RBs and Coop Banks financial information required, all amounts
(1) An RB/Coop Bank may either and ratios to be reported shall be as of the
publish its statement of condition at the end same call date. However, the basis for
of each quarter in a newspaper of general computing the ROE shall be the latest
circulation as in Item "a" above or post the quarter immediately preceding the call date
same in the most conspicuous area of its using the following formula:
premises, in the municipal building,
municipal public market, barangay hall and Return on Average Equity (%) =
Net Income (or Loss) after Income Tax x 100
barangay public market where the head Average Total Capital Accounts
office and all its branches are located. The
posting shall be printed on 12”x18” Where net income after tax and average
white paper, preferably white buff paper capital accounts shall be:
(cartolina) and shall be made within
Net Income Average TotalCapital
twenty (20) banking days from the end of After Tax Accounts
every quarter and for a period of thirty March Quarter end net Sum of end-month capital
(30) successive days; income after tax accounts (December -
multiplied by 4. March) divided by 4.
(2) The names and position/designation June Semester end net Sum of end-month capital
of the members of the board of directors, income after tax accounts (December -
president and executive vice president multiplied by 2. June) divided by 7.
Sept. Nine (9) mos. net Sum of end-month capital
(senior vice president, if there is no income after tax accounts (December -
executive vice president), shall be published multiplied by September) divided by10.
and shown in the right side column of the 1.33333.
Dec. Year end net Sum of end-month capital
published statement of condition as of June
income after tax. accounts (December -
of every year; and December) divided by 13.
(3) A copy of the posted statement of
condition together with an affidavit executed e. Deferment of publication requirement.
by the president or, in his absence, the vice- The above-mentioned publication
president or manager shall be submitted to requirement may be deferred by the

Part I - Page 92 Manual of Regulations for Banks


§§ X162.9 - X162.12
05.12.31

Monetary Board by at least five (5) as an extension office of a bank without


affirmative votes upon application by the separate books of accounts which directly
bank concerned during periods of national reports its transactions to its mother
and/or local emergency or of imminent branch.
panic which directly threaten monetary and
banking stability. § X162.12 Reports required of foreign
subsidiaries/affiliates/banking offices or
§ X162.10 Consolidated financial non-bank entities of domestic banks. The
statements of banks and their subsidiaries submission of periodic reports of a foreign
engaged in financial allied undertakings subsidiary/affiliate/banking offices or non-
Banks shall submit after the end of the bank entities of domestic banks shall be
calendar year or the end of the fiscal year governed by the following rules:
adopted by the bank their consolidated a. For foreign subsidiaries/affiliates of
financial statements and supported by the domestic banks, the local investor-bank(s)
individual annual financial statements of concerned shall regularly submit to the
their subsidiaries engaged in financial allied appropriate SED of the BSP a quarterly
undertakings. statement of condition and quarterly/
For purposes of this Subsection, the annual report of income and expenses
consolidated financial statements shall concerning the operations of the foreign
conform to the guidelines of PAS 27 subsidiaries/affiliates, including such
“Consolidated and Separate Financial other periodic reports which may be
Statements” except that for purposes of required from time to time in the forms
consolidated financial statements, the prescribed by the BSP for domestic
provisions of Subsec. X161.2a shall financial intermediaries to the extent that
apply. their operations are applicable;
The consolidated financial statements b. For foreign subsidiaries/affiliates of
and the supporting individual financial domestic banks, the appropriate SED shall
statements of their subsidiaries shall be be furnished by said domestic banks copies
submitted to the appropriate SED of the of the annual report prescribed by any of
BSP within the deadline indicated in the supervisory/regulatory authorities in the
Appendix 6. country of operations;
c. When material changes noted in
§ X162.11 Reports of other banking the annual financial statements warrant an
offices. Extension offices of banks which interim comprehensive evaluation, the
maintain separate books of accounts shall foreign affiliate concerned shall be
be subject to all reporting requirements of requested to submit to the appropriate
a regular branch. SED, through its domestic investor-bank,
An extension office whose record of copies of its quarter/interim reports to
transactions/accounts is consolidated daily stockholders or the call reports in the case
with its mother unit shall submit only the of U.S. banks;
Selected Financial Accounts form as listed d. Audited financial statements (AFS)
in Appendix 6. of the foreign banking offices and
Convenience Banking Centers (CBCs) subsidiaries; and
are not required by BSP to submit e. Examination reports done by the
Statement of Condition (SOC) and foreign bank supervisory authority.
Statement of Income and Expenses (SIE). The submission of the documents in
A CBC is not considered as a branch but Items “d” and “e” to BSP shall not be later

Manual of Regulations for Banks Part I - Page 93


§§ X162.12 - X162.14
05.12.31

than thirty (30) banking days from date of be prepared weekly) and submitted weekly
submission/release of said reports to the by all head offices of UBs/KBs to the
foreign banking offices and subsidiaries of Department of Economic Research of the
Philippine banks. Material findings, if any, BSP not later than 4:00 PM on Thursday
contained in said reports should be after end of reference week.
highlighted. b. Short-term prime rates. All UBs and
f. For purposes of this Subsection, KBs shall submit in the prescribed form a
affiliate shall refer to an entity linked report on the volume and interest rates on
directly or indirectly to a bank by means credit line availments under short-term
of: prime rates in such frequency and within
(1) Ownership, control or power to the deadline indicated in Appendix 6.
vote, of ten percent (10%) or more of the c. (Deleted by Cir. 405 dated
outstanding voting stock of the entity, or 28 August 2003).
vice-versa; d. Foreign Exchange Position Report.
(2) Interlocking directorship or Banks may be allowed to submit on a
officership, except in cases involving weekly basis the notarized certification
independent directors as defined under signed by the bank’s President/CEO/
existing regulations; Country Manager and the Treasurer to cover
(3) Common stockholders owning ten the daily hard copies of Schedule 13, FX
percent (10%) or more of the outstanding Form I and CFXPR pertaining to each day
voting stock of each financial intermediary of the week. Delayed submission of the
and the entity; notarized certification shall be subject to
(4) Management contract or any monetary penalty, as follows:
arrangement granting power to the bank Daily Penalty
to direct or cause the direction of 1 banking day of P6,000.00 (equivalent
st

management and policies of the entity, delay P1,200.00 per day for
or vice-versa; and five report dates covered
(5) Permanent proxy or voting trusts in by the certification on the
assumption that the five (5)
favor of the bank constituting ten percent
weekdays of the reference
(10%) or more of the outstanding voting week are all banking days)
stock of the entity, or vice-versa.
For purposes of this Manual, the above 2nd banking day of P1,200.00/day
definition of affiliate shall be adopted delay and onwards
except where the provision of the regulation
expressly states otherwise. § 2162.13 (Reserved)

§ 1162.13 Additional reports from § 3162.13 (Reserved)


UBs/KBs
a. Volume and weighted average § X162.14 Reports of strikes and
interest rates of deposits and loans. Data lockouts. Banks through their president or
on the volume of transactions and weighted chief executive officer shall immediately
average interest rates of certificates of time apprise the Deputy Governor of the SES of
deposits and secured/unsecured loans the BSP on the status of strikes/lockouts
granted, classified by maturity, and involving their banks, if unsettled after seven
outstanding savings deposits classified by (7) calendar days. The bank shall disclose
interest rates, shall be prepared daily the following pertinent information on the
(except data on savings deposits which shall strike/lockout:

Part I - Page 94 Manual of Regulations for Banks


§§ X162.14 - X163.2
05.12.31

a. Cause of the strike/lockout and bank connection with any firm, partnership or
management’s position on its legality; and corporation organized for profits, of all the
b. Bank operations affected. bank directors, officers and major
stockholders as defined under Subsec.
§ X162.15 Report on the Sworn X326.1 should be maintained.
Statement on Real Estate/Chattel e. Information/data pertaining to the
Transactions. The Report on the Sworn electronic data processing (EDP) department
Statement on Real Estate/Chattel or EDP servicer of the bank particularly on
Transactions submitted under BSP Form organization, input controls, processing
Nos. NP06-KB, NP06-TB and RB/COB 20 controls, output controls, software controls,
need not be under the signature of all the program and documentation standards, logs
members of the bank’s board of directors: on the operation of mainframes and
Provided, That: peripherals, hardware controls and such other
(a) transactions reported are being EDP internal control standards prescribed by
availed of strictly in accordance with the the BSP in separate rules and regulations.
terms and conditions of a fringe benefit
program approved by the bank’s board of § X163.1 Proper accounting records
directors and by the BSP; and a. All banks shall maintain proper and
(b) the signatory to the certification is adequate accounting records.
an officer duly authorized by the bank’s b. These records should be kept up-
board of directors. to-date and shall contain sufficient detail so
Transactions not covered under the that an audit trail is established.
bank’s fringe benefit plan shall still be c. All tickets shall bear official
reported under the signatures of all the approval and should be initiated by the
members of the bank’s board of directors. person originating and another person by
checking them.
K. INTERNAL CONTROL
§ X163.2 Independent balancing
Sec. X163 Internal Control System. The a. Independent balancing shall mean
following provisions are the minimum that records posted by a person or cash held
internal control standards for banks to help by a teller or cashier shall be balanced or
promote effective control system. counted by another person.
For this purpose, the following b. The following minimum
records/data shall be compiled and made independent balancing procedures shall be
available for the inspection of BSP adopted.
examiners: (1) Monthly reconciliation of general
a. Records showing compliance with ledger balances against respective
independent balancing procedures. These subsidiary and supporting records and
records should indicate the accounts and the documentation by someone other than the
periodic balancing procedures performed. bookkeeper or the person handling the
b. Statements of actual duties of records.
persons assigned to handle cash and (2) Irregular and unannounced count
securities. of teller’s cash and checks and other cash
c. All internal control audit reports or items at least twice a month and vault
their equivalent. cash including Automated Tellering
d. Information/data on the direct and/ Machine’s (ATM) cash dispensers at least
or indirect equity holdings and/or once a month by the auditor/control

Manual of Regulations for Banks Part I - Page 95


§§ X163.2 - X163.4
05.12.31

officer or by an officer not connected with (5) The receipt of statements from
cash department. depository bank shall be assigned to an
(3) Monthly reconciliation of due from employee other than the one connected
banks, cash in bank accounts (domestic and with the preparation, recording and signing
foreign) and due from/to head office/ of bank drafts;
branches by someone other than the person (6) Custodians of securities shall not
handling the records or posting the general be allowed to handle security transactions;
ledger entries. (7) Collateral appraisal shall be done by
(4) Periodic verification of securities an employee/officer who does not approve
and collaterals by someone other than their loans;
custodian. (8) Incoming checks and other cash
(5) Periodic verification of the accuracy items shall be recorded chronologically in
of the interest credits to deposit liabilities a register by an employee other than the
accounts. bookkeeper before they are forwarded for
posting purposes;
§ X163.3 Division of duties and (9) Credit reports shall be obtained by
responsibilities someone other than lending officers ;
a. The duties of all the officers and (10) Mailing of customers’ statements
employees shall be segregated, clearly and delinquent notices shall be done by
defined, understood, documented and an employee other than the one who
manualized. No individual shall have granted the loan or the one handling the
complete authority and responsibility for records; and
handling all phases of any transaction from (11) Dispatching and delivery of current
beginning to end, without some check or account statements shall be done by
balance from some other part of the someone who is not involved in current
organization. account operations.
b. The physical handling of a c. Extensive background checking
transaction shall be separated from its of persons intended to be assigned to
recording and supervision as follows: handle cash and securities shall be
(1) A person handling cash shall not be conducted. Frequent follow-up checking
permitted to post the ledger records nor after their employment shall also be
should posting the general ledger be made.
performed by an employee who posts the
depositor’s subsidiary ledgers; § X163.4 Joint custody
(2) A lending officer shall never be a. Joint custody shall mean the
allowed to disburse proceeds of notes, processing of transactions in the presence
accept note payment nor post loan of and under the direct observation of a
ledgers; second person. Both persons shall be
(3) The functions of issuing, recording equally accountable for the physical
and signing of drafts/checks shall be protection of the items and records
separated; involved.
(4) Checks and other cash items shall b. Physical protection shall be
be maintained either by an employee not deemed established through the use of two
handling cash or by the Rack/Distributing (2) locks or combinations on a file chest or
Department provided that adequate control vault compartment.
as to custody and disposition of funds are c. Two (2) or more persons shall be
properly maintained; assigned to each half of the control so that

Part I - Page 96 Manual of Regulations for Banks


§§ X163.4 - X163.6
05.12.31

operating efficiency is not impaired if one a. Lending;


(1) person is not immediately available. b. Investment;
d. Persons who are related to each c. Approval of expense;
other within the third degree of d. Various supervisory reports; and
consanguinity or affinity shall not be made e. Bank drafts, manager’s/cashier’s
joint custodians. checks, bank money orders and certificates
e. The following shall be under joint of time deposit.
custody:
(1) Cash in vault and in ATM cash § X163.6 Dual control
dispensers; a. Dual control shall mean the work
(2) All accountable forms; of one (1) person is to be verified by a second
(3) Collaterals; person to ensure that the transaction is
(4) Securities; properly authorized, recorded and settled.
(5) Documents of title and/or b. The routine and completion of each
ownership of properties or fixed assets; transaction shall involve at least two (2) or
(6) Dormant or inactive deposit more individuals.
ledgers/EDP print-outs and corresponding c. Except as herein provided, the
signature cards including on-line posting of following accounts/transactions shall be
dormant/inactive accounts; under dual control:
(7) Import documents; (1) Cashier's/manager's checks,
(8) Trust receipts; telegraphic transfers (TTs) and electronic
(9) Collection items; fund transfer system (EFTS) - The signature
(10) Duplicate keys, safe deposit spare of at least two (2) officers should be required
locks and keys, and keys to unrented safe in the issuance of cashier’s/manager’s
deposit boxes; checks and payment orders (incoming and
(11) Safekeeping items; outgoing) of TTs and EFTS. The board of
(12) Vault door and safe combinations; directors may, however, prescribe a
(13) Unissued specimen signature predetermined amount by which one (1)
books; senior officer can sign checks or payment
(14) Correspondent’s and bank’s own orders, subject to appropriate control
telegraphic and/or electronic fund transfer measures.
system or cable test keys currently in use; (2) Certificates of Time Deposit - The
(15) Test key fixed numbers unissued; board of directors of a bank is given the
(16) Unissued and captured ATM cards discretion to determine the number of
and similar devices; signatories for the issuance of certificates
(17) Access locks and keys to on-line of time deposit (CTDs).
EDP terminals and similar devices; and For this purpose, all banks shall submit
(18) Access locks and keys to EDP to the appropriate SED of the BSP their
mainframes and peripherals. respective internal control measures for
the issuance of CTDs, the minimum of
§ X163.5 Signing authorities. Signing which shall include the following
authorities for the different levels of officers activities:
to sign for and in behalf of the banks shall (a) Joint custody of unissued CTD
be approved by the board of directors and forms;
the extent of each level of authority shall (b) Accounting for all issued/cancelled
be clearly defined. These signing authorities CTDs;
shall include but need not be limited to the (c) Signature requirement for the
following: issuance of CTDs;

Manual of Regulations for Banks Part I - Page 97


§§ X163.6 - X163.10
05.12.31

(d) Counterchecking of issued CTDs (11) Loan accounts;


against the tellers’ proofsheets/validated (12) Expense vouchers;
slips; and (13) Payment orders (incoming and
(e) Recording of CTD transactions. outgoing ) of TTs and EFTS;
Any change in the internal control (14) Transfer requests through EFTS
measures shall be submitted to the involving bank’s accounts abroad;
appropriate SED of the BSP not later than (15) EDP batch transmittal slips of
thirty (30) days prior to the documents; and
implementation. For newly established (16) Due to/from head office/branches
banks, the requirement shall be submitted tickets.
not later than a month from the start of
banking operations. § X163.8 Rotation of duties
(3) Bank Drafts - The signature of two a. The duties of personnel handling
(2) authorized officers should be required cash, securities and bookkeeping records
in the issuance of bank draft. shall be rotated.
(4) Borrowings - The signature of at least b. Rotation assignment shall be
two (2) authorized officers should be irregular, unannounced and long enough
required. to permit disclosure of any irregularities or
(5) All transactions giving rise to Due manipulations.
to or Due from accounts and all instruments c. Tellers/cashiers shall be
of remittances evidencing these transactions temporarily relieved of their duties during
particularly those involving substantial the actual count of their cash
amounts should be approved by two (2) accountabilities by BSP examiners or by
authorized officers. internal/external auditors.

§ X163.7 Number control § X163.9 Independence of the internal


a. Sequence number controls shall be auditor
incorporated in the accounting system and a. The by-laws shall provide for the
should be used in registering notes, in position of internal auditor together with the
issuing official checks and in other similar duties and responsibilities, scope and
situations. Bank management shall objectives of internal auditing.
designate a person who is detached from b. The internal auditor shall report
the banking operations involved to monitor directly to the board of directors or to an
said sequence number controls. audit committee composed of directors
b. The following are the forms, who do not hold executive positions in
instruments and accounts that shall be the bank.
number-controlled: c. The internal auditor shall not install
(1) Bank drafts; nor develop procedures, prepare records or
(2) Manager’s and cashier’s checks; engage in other activities which he normally
(3) Promissory notes; reviews or appraises.
(4) Savings deposit accounts;
(5) Demand deposit accounts; § X163.10 Confirmation of accounts
(6) CTDs; At least once a year, the internal auditing
(7) Letters of credit; staff shall confirm by direct verification with
(8) Collection items; bank clients, the following:
(9) Official and provisional receipts; a. Balances of loans and credit
(10) Certificates of stocks; accommodations of borrowers;

Part I - Page 98 Manual of Regulations for Banks


§§ 163.10 - X163.12
05.12.31

b. Deposit account balances documents under Section 13 of R.A. No.


particularly new deposit accounts, inactive 8792, otherwise known as the “Electronic
or dormant accounts and closed accounts; Commerce Act”.
c. Outstanding balances of borrowings Undelivered statements shall be
and other liabilities; and retained by an organizational unit not
d. Outstanding balances of responsible for demand deposit account
receivables/payables. processing.
(11) An officer shall be designated to
§ X163.11 Other internal control attend to customers who report differences
standards on their statements.
a. Deposit accounts (12) Checkbooks shall be issued only
(1) Entries to dormant account ledgers against requisition forms signed by an
shall be verified and approved by a authorized signatory to the account.
designated officer. His initials shall be (13) Banks shall adopt a system to
placed next to the entry on the ledger sheet. establish the identity of their depositors.
(2) Dormant accounts shall be b. Miscellaneous
segregated from active account ledgers with (1) Loan applications and related
a separate subsidiary control. documents shall be verified to ensure their
(3) Signature cards for dormant authenticity particularly the name,
accounts shall be removed from active files. residence, employment and current
(4) All new current accounts shall be reputation of the borrower.
approved by a designated officer. (2) Tellers paying checks to strangers
(5) Signature cards and deposit ledger shall obtain positive identification of the
sheets shall be authenticated by some form person and the account on which the checks
of validation. Subsequent changes shall are drawn should be verified.
also be validated. (3) No employee shall be permitted to
(6) Signature cards and deposit ledger process transaction affecting his own
sheets shall be accessible only to authorized account.
persons. (4) Tellers and other employees having
(7) Deposit tickets shall be contact with customers shall be prohibited
occasionally examined at irregular intervals from preparing deposit ticket, withdrawal
to determine that postings are made on the slip or other forms for the customer.
actual date deposits are received. (5) All banks shall have a sound
(8) Checks shall be cancelled as soon recruitment policy.
as they have been paid and posted. (6) In the case of TBs, all accountable
(9) Reports on closed accounts and officers and employees shall be bonded.
returned checks shall be prepared daily.
(10) All current account statements § X163.12 Internal control procedures
shall be mailed or sent electronically via for dormant/inactive accounts
electronic mail (e-mail), or such other a. Definition of dormant or inactive
electronic means direct to depositors: accounts
Provided, That banks using the electronic (1) Current or checking accounts
means of sending the current account showing no activity (deposit or withdrawals)
statements shall have prior BSP-approved for a period of one (1) year.
internet banking service and shall strictly (2) Savings account showing no activity
observe the required retention of (deposit or withdrawals) for a period of two
electronic data messages or electronic (2) years.

Manual of Regulations for Banks Part I - Page 99


§§ X163.12 - X164.2
05.12.31

b. Procedures for classification. Banks (7) A trial balance of dormant account


shall review and segregate dormant ledgers shall be taken periodically and
accounts as herein defined at least once in balances with the general control account
every semester. by an employee other than the bookkeeper.
c. Internal control measures (8) Dormant or inactive accounts shall
(1) As a matter of policy, banks shall be verified directly with depositors.
exert all efforts to prevent checking and (9) All transactions affecting dormant
savings accounts from becoming dormant. accounts shall be subject to audit by the
When it becomes apparent that an internal auditor.
account is inactive, a short letter should (10) A semestral report on deposit
be sent to the depositor encouraging him accounts transferred to dormant shall be
to use his account. rendered to bank management.
In case of checking accounts, the
banks shall ensure that the monthly Sec. X164. Internal Audit Function. Internal
statement of accounts reach the audit is an independent, objective assurance
depositors. If the depositors cannot be and consulting function established to
located, the following steps should be examine, evaluate and improve the
undertaken: effectiveness of risk management, internal
(a) Check any significant changes or control, and governance processes of an
fluctuations in the depositors’ account organization.
balances over a period of time with
emphasis on accounts with decreasing § X164.1 Status. The internal audit
balances; function must be independent of the
(b) Verify apparent reactivation entries, activities audited and from day-to-day
represented either by deposit or withdrawal, internal control process. It must be free to
that appears to have prevented the account report audit results, findings, opinions,
from being classified as dormant; and appraisals and other information to the
(c) Investigate any obvious alteration of appropriate level of management. It shall
the ledger records. have authority to directly access and
(2) Segregated dormant accounts shall communicate with any officer or employee,
be placed under joint custody of two (2) to examine any activity or entity of the
responsible officers/employees. institution, as well as to access any records,
(3) A separate ledger control for files or data whenever relevant to the
dormant accounts shall be maintained. exercise of its assignment. The Audit
(4) Signature cards for dormant Committee or senior management should
accounts shall also be segregated from active take all necessary measures to provide the
files and held under joint custody. appropriate resources and staffing that
(5) Entries to dormant account would enable internal audit to achieve its
ledgers shall be verified and approved by objectives.
a designated officer. His initials shall be
placed next to the entry on the ledger § X164.2 Scope. The scope of
sheet. internal audit shall include:
(6) All inquiries on dormant accounts a. Examination and evaluation of the
shall be coursed to one officer who should adequacy and effectiveness of the internal
obtain sufficient identification from the control systems;
inquirer to assure that he is entitled to the b. Review of the application and
information. effectiveness of risk management

Part I - Page 100 Manual of Regulations for Banks


§§ X164.2 - X164.4
05.12.31

procedures and risk assessment or KB as auditor-in-charge, senior auditor


methodologies; or audit manager.
c. Review of the management and The internal auditor of an RB, NSSLA
financial information systems, including the or local coop bank must be at least an
electronic information system and accounting graduate with two (2) years
electronic banking services; experience in external audit or in the
d. Assessment of the accuracy and regular audit of an RB, NSSLA or local
reliability of the accounting system and of coop bank or, in lieu thereof, at least one
the resulting financial reports; (1) year experience in the regular audit
e. Review of the systems and (internal or external) of a UB, KB, TB,
procedures of safeguarding assets; quasi-bank, trust entity or national coop
f. Review of the system of assessing bank as auditor-in-charge, senior auditor
capital in relation to the estimate of or audit manager.
organizational risk; A qualified internal auditor of a UB
g. Transaction testing and or a KB shall be qualified to audit TBs,
assessment of specific internal control quasi-banks, trust entities, national coop
procedures; and banks, RBs, NSSLAs, local coop banks,
h. Review of the compliance system subsidiaries and affiliates engaged in
and the implementation of established allied activities, and other financial
policies and procedures. institutions under BSP supervision.
A qualified internal auditor of a TB
§ X164.3 Qualification standards of or national coop bank shall likewise be
the internal auditor. The internal auditor qualified to audit quasi-banks, trust
of a UB or a KB must be a Certified Public entities, RBs, NSSLAs, local coop banks,
Accountant (CPA) and must have at least subsidiaries and affiliates engaged in
five (5) years experience in the regular allied activities, and other financial
audit (internal or external) of a UB or KB institutions under BSP supervision.
as auditor-in-charge, senior auditor or
audit manager. He must possess the § X164.4 Code of Ethics and Internal
knowledge, skills, and other Auditing Standards. The internal auditor
competencies to examine all areas in should conform with the Code of
which the institution operates. Professional Ethics for CPAs and ensure
Professional competence as well as compliance with sound internal auditing
continuing training and education shall standards, such as the Institute of Internal
be required to face up to the increasing Auditors’ International Standards for the
complexity and diversity of the Professional Practice of Internal Auditing
institution’s operations. (e-mail: standards@theiia.org; Web: http:/
The internal auditor of a TB, quasi-bank, /www.theiia.org.) and other supplemental
trust entity or national coop bank must be a standards issued by regulatory authorities/
CPA with at least five (5) years experience government agencies. The Standards
in the regular audit (internal or external) of address independence and objectivity,
a TB, quasi-bank, trust entity or national professional proficiency, scope of work,
coop bank as auditor-in-charge, senior performance of audit work, management
auditor or audit manager or, in lieu thereof, of internal audit, quality assurance
at least three (3) years experience in the reviews, communication and monitoring
regular audit (internal or external) of a UB of results.

Manual of Regulations for Banks Part I - Page 101


§§ X165 - X166
05.12.31

L. MISCELLANEOUS PROVISIONS be included in the list of BSP selected


external auditors. In case of partnership,
Sec. X165 Selection, Appointment and inclusion in the list of BSP selected external
Reporting Requirements for External auditors shall apply to the audit firm only
Auditors; Sanction; Effectivity. Under and not to the individual signing partners
Section 58, R.A. No. 8791, the Monetary or auditors under its employment.
Board may require a bank to engage the The BSP will circularize to all banks,
services of an independent auditor to be quasi-banks, trust entities and NSSLAs the
chosen by the bank concerned from a list of list of selected external auditors once a
certified public accountants acceptable to the year. The BSP, however, shall not be
Monetary Board. liable for any damage or loss that may
It is the policy of the BSP to promote arise from its selection of the external
high ethical and professional standards in auditors to be engaged by banks, quasi-
public accounting practice and to encourage banks, trust entities or NSSLAs for regular
coordination and sharing of information audit or special engagements.
between external auditors and regulatory a. Rules and regulations. The rules
authorities of banks, quasi-banks, trust and regulations to govern the selection
entities and/or NSSLAs to ensure effective and delisting by the BSP of external
audit and supervision of these institutions auditors of banks and their subsidiaries
and to avoid unnecessary duplication of and affiliates engaged in allied activities
efforts. In furtherance of this policy and to are shown in Appendix 43.
ensure that reliance by regulatory authorities b. Sanctions. The applicable
and the public on the opinion of external sanctions/penalties prescribed under
auditors is well placed, the BSP hereby Sections 36 and 37 of R.A. No. 7653 to
prescribes the rules and regulations that shall the extent applicable shall be imposed
govern the selection, appointment, reporting on the bank, its audit committee and the
requirements and delisting for external directors approving the hiring of external
auditors of banks, quasi-banks, trust entities, auditors who are not in the BSP list of
NSSLAs, their subsidiaries and affiliates selected auditors for banks, quasi-banks,
engaged in allied activities and other trust entities, NSSLAs or for hiring, and/
financial institutions which under special or retaining the services of the external
laws are subject to BSP supervision. auditor in violation of any of the
The selection of external auditors shall provisions of this Section and for non-
be valid for a period of three (3) years. BSP compliance with the Monetary Board
selected external auditors shall apply for the directive under Item “l” in Appendix 43.
renewal of their selection every three (3) Erring external auditors may also be
years. The provisions of Items “A” and “B” reported by the BSP to the PRC for
of Appendix 43 shall likewise apply for each appropriate disciplinary action.
application for renewal.
The SES shall make an annual assessment Sec. X166 Audited Financial Statements
of the performance of external auditors and of Banks. The following rules shall govern
will recommend deletion from the list even the utilization and submission of audited
prior to the three(3)-year renewal period, if financial statements (annual reports) of
based on assessment, the external auditors’ banks. For purposes of this Section, the
report did not comply with BSP requirements. audited financial statements (annual
External auditors who meet the reports) of banks with subsidiaries shall be
requirements specified in this Section shall presented side by side on a solo basis and

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§§ X166 - X166.1
05.12.31

on a consolidated basis (bank and In addition, the external auditor shall


subsidiaries). be required by the concerned institution
to submit an LOC indicating any material
§ X166.1 Financial audit. Banks shall weakness or breach on the institution’s
cause an annual financial audit by an internal control and risk management
external independent auditor acceptable systems within thirty (30) calendar days
to the BSP not later than thirty (30) after submission of the financial audit
calendar days after the close of the report. If no material weakness or breach
calendar year or the fiscal year adopted is noted to warrant the issuance of an
by the concerned institution. Report of LOC, a certification stating said fact shall
such audit shall be made and submitted be submitted in its stead together with
to the board of directors and the the financial audit report.
appropriate SED of the BSP not later than The board shall consider and act on
ninety (90) calendar days after the start the LOC and shall submit, within thirty
of the audit. The report to the BSP shall (30) banking days after receipt of the
be accompanied by the: (1) certification LOC, a copy of its resolution together
on the: (a) dates of start and termination with the said LOC to the appropriate SED
of audit; (b) dates of submission of the of the BSP. The resolution shall show,
financial audit report (AFS) and letter of among other things, the action(s) taken
comments (LOC) to the board of directors/ on the findings and recommendations
executive officer/country head; and (c) the and the names of the directors present
absence of any direct or indirect financial and absent.
interest and other circumstances that may Government-owned or controlled
impair the independence of the external banks, including their subsidiaries and
auditor; (2) reconciliation statement affiliates, as well as other financial
between the audited financial statements institutions under BSP supervision which
and the CSOC and consolidated are under the concurrent jurisdiction of
statement of income and expenses (CSIE) the Commission on Audit (COA) shall be
submitted to the BSP; and (3) other exempt from the aforementioned annual
information that may be required. financial audit by an acceptable external
The audited annual financial statements auditor: Provided, That when warranted
required to be submitted shall in all respect by supervisory concern such as material
be PFRS/PAS compliant: Provided, That weakness/breach in internal control and/
banks shall submit to the BSP adjusting or risk management systems, the
entries reconciling the balances in the Monetary Board may, at the expense of
financial statements for prudential reporting the concerned institution and upon
with that in the audited annual financial recommendation of the appropriate SED
statements. of the BSP, require the financial audit to
The board of directors, in a regular or be conducted by an external
special meeting, shall consider and act on independent auditor acceptable to the
the financial audit report and shall submit, BSP: Provided further, That when
within thirty (30) banking days after receipt circumstances such as loans from
of the report, a copy of its resolution to the multilateral financial institutions,
appropriate SED of the BSP. The resolution privatization, or public listing warrant,
shall show, among other things, the action(s) the financial audit of the concerned
taken on the report and the names of the institution by an acceptable external
directors present and absent. auditor may also be allowed.

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§§ X166.1 - X166.4
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In consonance with the aforementioned ground for civil, criminal or disciplinary


regulations, banks are to be guided with proceedings against the former.
the checklist of BSP requirements in the Bank management shall be present
submission of AFS and annual report as during discussions or at least be informed
shown in Appendix 61. of the adverse findings in order to preserve
Delayed submission of certification of the concerns of the supervisory authority
the external auditor, schedules/attachments and external auditors regarding the
and amendments in the required reports in confidentiality of information.
Appendix 61 shall be considered late b. Sanction. The auditing firm(s)
reporting, subject to the penalties under shall be blacklisted by the Monetary
Subsec. X162.2b(b). Board for a period as the Board may
deem appropriate for their failure to
§ X166.2 Posting of audited financial perform their duty of reporting to the BSP
statements. Banks shall post in a any matter adversely affecting the
conspicuous place in all their branches and condition or soundness of the bank.
other banking offices, their latest audited Banks shall not be allowed to engage the
financial statements consisting of the services of the blacklisted auditing firm.
following:
(a) Balance sheet; § X166.4 Disclosure requirement in
(b) Income statement; the notes to the audited financial
(c) Statement of changes in equity; statements. Banks shall require their
(d) Cash flow statement; external auditors to include the following
(e) Notes to financial statements, which additional information in the notes to
shall include, among other things, disclosure financial statements:
of the volume of past due loans as well as a. Basic quantitative indicators of
loan-loss provisions; and financial performance such as return on
(f) Auditor’s opinion. average equity, return on average assets and
net interest margin;
§ X166.3 Disclosure of external For purposes of computing the
auditor’s adverse findings to the Bangko indicators, the following formulas shall be
Sentral; sanction used:
a. Findings to be disclosed. Banks shall
(1) Return on Average Equity (%) =
require their external auditors to report to Net Income (or Loss) after Income Tax x 100
the BSP any matter adversely affecting the Average Total Capital Accounts
condition or soundness of the bank, such
Where:
as, but not limited to: Average Total = Sum of Total Capital Accounts as of the 12
(1) Any serious irregularity, including Capital month-ends in the calendar/fiscal year
Accounts adopted by the Bank
those involving fraud or dishonesty, that 12
may jeopardize the interest of depositors
and creditors; (2) Return on Average Assets (%) =
Net Income (or Loss) after Income Tax x 100
(2) Losses incurred which substantially Average Total Assets
reduce the capital funds of the bank; and
(3) Inability of the auditor to confirm Where:
Average = Sum of Total Assets as of the 12 month-ends in
that the claims of creditors are still covered Total the calendar/fiscal year adopted by the Bank
by the bank’s assets. Assets 12
The disclosure of information by the
(3) Net Interest = Net Interest Income x 100
external auditor to the BSP shall not be a Margin (%) Average Interest Earning Assets

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§§ X166.4 - X166.6
05.12.31

Where: general accounting principles, changes in


Net = Total Interest Income – Total Interest Expense
Interest accounting policies/practices, principles
Income of consolidation, policies and methods
Average = Sum of Total Interest Earning Assets as of the
for determining when assets are impaired,
Interest 12 month-ends in the calendar/fiscal year recognizing income on impaired assets
adopted by the Bank and losses on non-performing credits,
12
income recognition, valuation policies
b. Risk-based capital adequacy ratio and accounting policies on
under Section 34 of R.A. No. 8791/Sec. X116; securitizations, foreign currency
c. Concentration of credit as to translations, loan fees, premiums and
industry/economic sector where discounts, repurchase agreements,
concentration is said to exist when total premises/fixed assets, income taxes and
loan exposures to a particular industry/ derivatives.
economic sector exceeds thirty percent
(30%) of total loan portfolio; § X166.5 Disclosure requirements in
d. Breakdown of total loans as to the annual report. UBs, KBs, and TBs with
secured and unsecured and breakdown of at least P1.0 billion resources shall prepare
secured loans as to type of security; an annual report which shall include, in
e. Total outstanding loans to bank’s addition to the audited financial statements
DOSRI, percent of DOSRI loans to total loan and other usual information contained
portfolio, percent of unsecured DOSRI loans therein, a discussion and/or analysis of the
to total DOSRI loans, percent of past due following information:
DOSRI loans to total DOSRI loans and a. Financial performance;
percent of non-performing DOSRI loans to b. Financial position and changes
total DOSRI loans; therein;
f. Nature and amount of c. Overall risk management
contingencies and commitments arising philosophy (i.e., a general statement of the
from off-balance sheet items [include risk management policy adopted by the
direct credit substitutes (e.g., export LCs bank's board of directors which serves as
confirmed, underwritten accounts the basis for the establishment of its risk
unsold), transaction-related contingencies management system), risk management
(e.g., performance bonds, bid bonds, system and structure;
standby LCs), short-term self-liquidating d. Qualitative and quantitative
trade-related contingencies arising from information on risk exposures (credit,
the movement of goods (e.g., sight/usance market, liquidity, operational, legal and
domestic LCs, sight/usance import LCs), other risks); and
sale and repurchase agreements not e. Basic business management and
recognized in the balance sheet; interest corporate governance information such as
and foreign exchange rate related items; the bank’s organizational structure,
and other commitments; incentive structure including its
g. Provisions and allowances for remuneration policies, nature and extent of
losses and how these are determined; transactions with affiliates and related
h. Aggregate amount of secured parties.
liabilities and assets pledged as security;
and § X166.6 Posting and submission of
i. Accounting policies which shall annual report. A copy of the latest annual
include, but shall not be limited to, report shall be posted by the bank in a

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§§ X166.6 - X169.1
05.12.31

conspicuous place in its head office, all its responsibility and/or accountability of
branches and other offices. anyone elected or appointed to an officer
The deadline for the submission of the position shall be personal in nature and
annual report to the appropriate SED of the cannot be delegated to a corporation; and
Bangko Sentral is 180 calendar days after c. Any bank that enters into contracts
the close of the calendar or fiscal year contrary to this policy shall be denied the
adopted by the bank. credit facilities of the BSP.

Sec. X167 Business Name Sec. X169 Duties and Responsibilities of


a. UBs/KBs. Only a bank that is Banks and their Directors/Officers in All
granted universal/commercial banking Cases of Outsourcing of Banking Functions
authority may represent itself to the When outsourcing of banking functions is
public as such in connection with its allowed by law, banks shall:
business name. a. Carry out the same in accordance
b. TBs. TBs may be allowed to with proper standards, ensuring the integrity
adopt and use any name: Provided, That of the data, systems and controls of the
the words A Thrift Bank, A Savings Bank, banks and subject to the supervisory,
A Private Development Bank or A Stock regulatory and administrative authority of
Savings and Loan Association, as the the BSP over the banks and their directors/
case may be, are affixed after its business officers;
name. b. Be responsible for the
c. RBs/Coop Banks. RBs/Coop performance thereof in the same manner
Banks may adopt a corporate name or and to the same extent as it was before
use a business name/style with the word the outsourcing;
Rural or Coop, as the case may be. Said c. Comply with all laws and
banks may also adopt a name without regulations governing the banking activities/
such words: Provided, That the services performed by the qualified service
identifying phrase, A Cooperative Bank providers in its behalf such as, but not
or A Rural Bank, as the case may be, is limited to, keeping of records and
affixed after its business name: Provided, preparation of reports, signing authorities,
further, That where the name of the bank internal control and clearing regulations;
is shown on letterheads, billboards and and
other advertising materials, the size of d. Manage, monitor and review on an
the letters of such phrase shall be at least ongoing basis the performance by the
one-half (½) the size of the business qualified service providers of the
name. outsourced banking activities/services.

Sec. X168 Management Contracts § X169.1 Prohibition against


a. Management contracts of banks outsourcing certain banking functions
with management firms shall be limited to No bank or any director, officer, employee,
consultancy and advisory services; or agent thereof shall outsource inherent
b. Only a natural person may be banking functions.
elected or appointed as an officer of a For purposes of this Section,
bank, without prejudice to such person outsourcing of inherent banking functions
being a nominee of a management shall refer to any contract between the bank
corporation: Provided, That the and a service provider for the latter to

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§§ X169.1 - X169.2
05.12.31

supply, or any act whereby the latter (b) Fee structure;


supplies, the manpower to service the (c) Provisions regarding on-line
deposit transactions of the former. communication availability, transmission
Banks cannot outsource management line security, and transaction
functions except as may be authorized by authentication;
the Monetary Board when circumstances (d) Responsibilities regarding hardware,
justify. software and infrastructure upgrades;
(e) Provisions governing amendment
§ X169.2 Outsourcing of information and pretermination of contract;
technology systems/processes. Subject to (f) Mandatory notification by the
prior approval of the Monetary Board, banks service provider of all systems changes that
may outsource all information technology will affect the bank;
systems and processes except for functions (g) Details of all security procedures
excluded in Item “a” below. and standards;
a. Certain functions affecting the (h) Responsibility, fines, penalties and
ability of the bank to ensure the fit of accountability of the service provider for
technology services deployed to meet its errors, omissions and frauds;
strategic and business objectives and to (i) Confidentiality clause covering all
comply with all pertinent banking laws data and information; solidary liability of
and regulations, such as, but not limited service provider and bank for any violation
to, strategic planning for the use of of R.A. No. 1405 (the Bank Deposits Secrecy
information technology; determination of Law) actions that the bank may take against
system functionalities; change the service provider for breach of
management inclusive of quality confidentiality or any form of disclosure of
assurance and testing; service level and confidential information; and the applicable
contract management; and security policy penalties;
and administration, may not be (j) Segregation of the data of the bank
outsourced. Subject to prior approval of from that of the service provider and its other
the Monetary Board and submission of the clients;
same documentary requirements in Item (k) Disaster recovery/business continuity
“b” hereof, consultants and/or service contingency plans and procedures;
providers may be engaged to provide (l) Adequate insurance for fidelity and
assistance/support to the bank personnel fire liability;
assigned to perform such functions. (m) Ownership/maintenance of the
b. Documentary requirements. A bank computer hardware, software (program
intending to outsource information source code), user and system documenta-
technology systems and processes shall tion, master and transaction data files;
submit the following documents to BSP (n) Guarantee that the service provider
which shall treat the same as strictly will provide necessary levels of transition
confidential: assistance if the bank decides to convert to
(1) Proposed contract between the other service providers or other
bank and the service provider which arrangements;
should, at a minimum, include all the (o) Access to the financial information
following: of the service provider;
(a) Complete description of the work (p) Access of internal and external
to be performed or services to be auditors to information regarding the
provided; outsourced activities/services which they

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§§ X169.2 - X169.3
05.12.31

need to fulfill their respective oversight committee to handle and oversee


responsibilities; the efficient implementation and monitoring
(q) Access of BSP to the operations of of the applications/operations of the service
the service provider in order to review the provider to ensure that the same is in
same in relation to the outsourced accordance with the existing information
activities/services; technology initiatives, policies and
(r) Provision which requires the service guidelines of the bank; the list of the
provider to immediately take the necessary members of such committee, its
corrective measures to satisfy the findings organizational chart, and a detailed
and recommendations of BSP examiners description of the roles and responsibilities
and those of the internal and/or external of its members must be included in the
auditors of the bank and/or the service minutes of the meeting or submitted as
provider; and attachments thereto;
(s) Remedies for the bank in the (d) The creation, organization and
event of change of ownership, membership of a help desk to resolve all
assignment, attachment of assets, queries, problems and other concerns
insolvency, or receivership of the service arising from the applications/operations
provider. rendered by the service provider; and
(2) Minutes of meetings of the board (e) The systems and user acceptance
of directors of the bank concerned signed tests that will be conducted by the service
by majority thereof, certified by the provider before full implementation of the
secretary and attested by the President outsourced systems/processes and the
documenting their discussions on the unsatisfactory results of which shall be
following: valid ground to rescind the contract with
(a) The benefits and advantages of the service provider.
outsourcing with respect to, among others, (3) Profile of the selected service
its role and contribution to the accom- provider or the non-bank partner, in case
plishment of the strategic and business plans of joint ventures and other similar
of the bank as well as the economy, arrangements, which should include:
efficiency and quality of its over-all (a) Most recent and complete financial
operations; and operational information;
(b) The careful and diligent (b) Track record;
evaluation, prior to selecting the service (c) List of clientele, particularly banks
provider with which it is entering into an and the services provided thereto by the
outsourcing contract, by the bank of service provider; and
various service providers and their (d) At the option of the service
proposals, including their reputation, provider or non-bank partner, other
financial condition, cost for development, documents demonstrative of its
maintenance and support, internal competence and reputation in the field
controls, recovery processes, service level of information technology as applied to
agreements, availability of competent, banking operations.
technically qualified and experienced
personnel, strategic or convenient § X169.3 Outsourcing of other banking
location of support services and such functions
similar other considerations; a. Subject to prior approval of the
(c) The creation, organization and Monetary Board, banks may outsource the
membership of a senior management following functions, services or activities:

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§ X169.3
05.12.31

(1) data imaging, storage, retrieval and be performed by the external service
other related systems; provider;
(2) clearing and processing of checks (iii) state that the outsourced internal
not included in the Philippine Clearing audit services are subject to regulatory
House System; review and that BSP examiners shall be
(3) printing of bank deposit statements; granted full and timely access to internal
(4) credit card services; audit reports and related working papers;
(5) credit investigation and collection; (iv) state that the external service
(6) processing of export, import and provider will not perform management
other trading transactions; functions, make management decisions, or
(7) property appraisal; act or appear to act in a capacity equivalent
(8) property management services; to that of a member of management or an
(9) internal audit, subject to the employee of the institution, and will comply
following conditions: with professional and regulatory
(a) the board of directors and senior independence guidelines;
management of the regulated entity remain (v) specify that the external service
responsible for maintaining an effective provider must maintain the audit reports and
system of internal control and for providing related working papers/files for at least five
active oversight of the outsourced internal (5) years;
audit activities/functions; (vi) state that internal audit reports are
(b) the external service provider shall the property of the institution, that the
be an independent external auditor institution will be provided with copies of
included in the list of BSP selected external related working papers/files it deems
auditors or a parent company which owns necessary, and any information pertaining
or controls more than fifty percent (50%) to the institution must be kept confidential;
of the subscribed capital stock of the and
outsourcing entity: Provided, That Item (vii) establish a protocol for changing
“A2” of the general requirements under the terms of the service contract and
Appendix 43 shall apply to the parent stipulations for default and termination of
company while Items “A2”, “A4”, “A5”, the contract;
and “A6” shall apply to the independent (10) marketing loans, deposits and other
external auditor; bank products and services, provided it does
(c) the contract/service agreement not involve the actual opening of deposit
with the external service provider shall not accounts;
be entered into for a period longer than (11) general bookkeeping and
five (5) years; accounting services, Provided, That these
(d) there shall be a contingency plan activities do not include servicing bank
to mitigate any significant disruption, deposits or other inherent banking
discontinuity or gap in audit coverage, functions;
particularly for high-risk areas; (12) offsite records storage services;
(e) the written engagement contract or (13) front/back office functions, i.e.,
service agreement with the external service trade support services and downstream
provider shall, as a minimum: processing activities, by parent to a
(i) define the rights, expectations and subsidiary or vice-versa, subject to the
responsibilities of both parties; following conditions:
(ii) set the scope and frequency of, (a) The bank intending to outsource
and the fees to be paid for, the work to the aforementioned functions shall certify

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§§ X169.3 - X169.5
05.12.31

that the front office functions to be done by (7) public relations services,
its parent/subsidiary (service provider) shall procurement services, and temporary
be limited to trade support services; staffing: Provided, That these activities do
(b) The bank shall remain a parent/ not include servicing bank deposits or other
subsidiary of its subsidiary/parent (service inherent banking functions;
provider) and such service provider shall (8) sorting and bagging of notes and
service only entities belonging to its coins;
business group; (9) maintenance of computer
(c) The bank shall certify that no hardware, e.g., disk drives, printers,
inherent banking functions involving monitors, UPS, network cabling systems;
deposit transactions shall be outsourced to (10) payroll of bank employees;
its parent/subsidiary (service provider); (11) telephone operator/receptionist
(d) The bank shall submit a Service services;
Level Agreement duly signed by the (12) sale/disposal of acquired assets
concerned parties and any amendments (ROPA);
thereto, detailing the functions to be (13) personnel training and
outsourced, the respective responsibilities development;
of the bank and its parent/subsidiary (14) buildings, ground and other
(service provider), and a confidentiality facilities maintenance;
clause; and (15) legal services from local legal
(e) Any breach in any of the above counsel;
conditions shall subject the outsourcing of (16) compliance risk assessment and
the aforementioned banking functions to all testing; and
the requirements of this Section; (17) such other activities as may be
(14) back-up and data recovery determined by the Monetary Board.
operations; and
(15) such other activities as may be § X169.4 Service providers. When
determined by the Monetary Board. allowed by law, banks may enter into
The bank concerned must submit the outsourcing contracts only with service
same documentary requirements listed in providers with demonstrable technical and
Subsec. X169.2b, except where they financial capability commensurate to the
exclusively pertain to information services to be rendered.
technology operations.
b. Without need of prior Monetary § X169.5 Review of subsisting
Board approval, banks may outsource the outsourcing contracts. Within six (6)
following functions, services or activities: months from 5 December 2000 –
(1) printing of bank loan statements a. Banks should submit a list of all
and other non-deposit records, bank forms their existing contracts with service
and promotional materials; providers, detailing the:
(2) transfer agent services for debt and (1) Services/activities being outsourced;
equity securities; (2) Terms of the contracts;
(3) messenger, courier and postal (3) Measures, if any, undertaken by
services; the bank and/or service provider to ensure
(4) security guard services; the secrecy of bank deposits and
(5) vehicle service contracts; confidentiality of all other data and
(6) janitorial services; information; and

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§§ X169.5 - X170.1
05.12.31

(4) Such other information as may be (2) As service provider, the following
necessary to show compliance with the shall be upheld by the bank:
pertinent provisions of this Section or be (a) Confidentiality of bank deposits and
required by the Monetary Board; and investment in government bonds;
b. For outsourcing contracts not in (b) Prohibition against outsourcing of
accordance with this Section, the inherent banking functions; and
following alternative courses of action are (c) Prohibition on cross-selling except
available to the bank concerned: as allowed under applicable regulations.
(1) preterminate said contracts;
(2) renegotiate or remedy the same §§ X169.12 - X169.18 (Reserved)
and submit the amendments thereto or new
contracts to the BSP; or § X169.19 Penalties. Violation of this
(3) submit a program of compliance to Section shall be subject to Sections 34, 35,
the BSP. 36 and 37 of R.A. No. 7653, the New
Central Bank Act. If the offender is a director
§§ X169.6 - X169.10 (Reserved) or officer or a bank, the Monetary Board may
also suspend or remove such director or
§ X169.11 Other banking services for officer.
subsidiaries, affiliates and related
companies. A bank may be authorized, Sec. X170 Compliance System; Compliance
upon prior Monetary Board approval, to Officer. Banks shall develop and
render the following services in favor of implement a compliance system and
subsidiaries, affiliates and companies appoint/designate a compliance officer to
related to it by at least five percent (5%) oversee its implementation.
common ownership:
a. Credit card, bank and loans § X170.1 Compliance system. The
reconciliation; compliance system shall have the following
b. Credit card billing; basic elements.
c. Time deposit processing; a. A written compliance program
d. Merchant settlement and care approved by the board of directors:
service; (1) The compliance program shall
e. Collections; enable the bank to identify the relevant
f. Credit application processing; Philippine laws and regulations, analyze
g. Call center support; the corresponding risks of non-
h. Telemarketing of bank and credit compliance, and prioritize the
card products; compliance risks (e.g., low, medium,
i. Human resource-related service; high).
j. Finance/accounting functions; (2) The program shall provide for
k. Documentation; periodic compliance testing with applicable
l. Cashiering; legal and regulatory requirements. Testing
m. Reports preparation; and frequency shall be commensurate with
n. Safekeeping of securities identified risk levels (e.g., annual testing for
subject to the following conditions; low-risk, quarterly testing for medium-risk,
(1) The particular type of service to monthly testing for high-risk). It shall also
be rendered by the bank should be provide for the reporting of compliance
submitted for prior approval of the findings noted to appropriate levels of
Monetary Board; management.

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§§ X170.1 - X170.3
05.12.31

(3) The program shall establish the coordinate the implementation of the
responsibilities and duties of the compliance compliance system. His responsibility shall
officer and other personnel (if any) involved include the identification, monitoring and
in the compliance function. controlling of compliance risk.
(4) A copy of the compliance program b. The appointment/designation of a
and the written approval of the Board of compliance officer shall require prior
Directors shall be submitted to the approval of the Monetary Board. The bio-
appropriate SED of the BSP within twenty data of the proposed compliance officer
(20) banking days from date of approval. shall be submitted to the appropriate SED
(5) The program shall be updated at of the BSP.
least annually to incorporate changes in laws c. The compliance officer shall have
and regulations. Any changes in the program the skills and expertise to provide
shall likewise be approved by the bank’s appropriate guidance and direction to the
board of directors and submitted to BSP bank on the development, implementation
within twenty (20) banking days from the and maintenance of the compliance
date of approval. program.
b. A constructive working relationship d. For UBs/KBs, an independent full-
with regulatory agencies. time compliance officer, who shall have a
The bank, through its compliance rank of at least a Vice President, shall be
officer, may consult the regulatory appointed. However, they are allowed on
agencies for additional clarification on a case-to-case basis, upon recommendation
specific provisions of laws and regulations of the SED concerned, to designate an
and/or discuss compliance findings with incumbent officer (including the Internal
the regulatory authorities. A dialogue may Auditor) as the bank’s compliance officer:
also be initiated with respect to borderline Provided, (i) That such will not give rise to
issues. any conflict of interest situation, (ii) That the
c. A clear and open communication main function of the officer shall be that of
process within the bank to educate and a compliance officer and (iii) That he is
address compliance matters. considered a senior officer in the
Officers and staff shall be trained on the organizational set-up of the bank.
regulatory requirements through regular e. For other types of banks, an
meetings, distribution of manuals and incumbent senior officer may be designated
dissemination of regulatory issuance. concurrently as the bank’s compliance
d. Continuous monitoring and officer: Provided, That such designation will
assessment of the compliance program. not give rise to any conflict of interest
The program shall provide for the situation.
periodic review of the compliance function The internal auditor of a bank may
to measure its effectiveness. The review may also be designated as its compliance
be carried out by the internal audit officer subject to the condition that his
department of the bank. primary duty will be to act as compliance
The compliance program may operate officer.
parallel to or as part of a bank’s internal
control and auditing program. § X170.3 Compliance risk. Compliance
risk is the risk of legal or regulatory
§ X170.2 Compliance officer sanctions, financial loss, or loss to reputation
a. The principal function of the a bank may suffer as a result of its failure to
compliance officer is to oversee and comply with all applicable laws,

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§§ X170.3 - X170.7
05.12.31

regulations, codes of conduct and standards (5) its right to conduct investigations
of good practice. of possible breaches of the compliance
policy;
§ X170.4 Responsibilities of the board (6) its formal reporting relationships to
of directors and senior management on senior management and the board of
compliance. Aside from the duties and directors; and
responsibilities of the board of directors (7) its right of direct access to the board
mentioned under Subsec. X141.3, the of directors or an appropriate committee of
board should oversee the implementation the board.
of the compliance policy and ensure that The compliance charter or other formal
compliance issues are resolved document defining the status of the
expeditiously. Senior management should compliance function shall be
be responsible for establishing a communicated throughout the
compliance policy, ensuring that it is organization.
observed, reporting to the board of
directors on its ongoing implementation § X170.6 Independence. The
and assessing its effectiveness and compliance function should be
appropriateness. Senior management independent from the business activities of
should, at least once a year, report to the the institution. It should be able to carry
board of directors or a committee of the out its responsibilities on its own initiative
board on matters relevant to the compliance in all units or departments where
policy and its implementation, compliance risk exists and must be provided
recommending any required changes to the with sufficient resources to carry out its
policy. The report should assist the board responsibilities effectively. It must be free
members in making an informed assessment to report to senior management and the
as to whether the institution is managing its board or a committee of the board on any
compliance risk effectively. However, any irregularities or breaches of laws, rules and
material breaches of laws, rules and standards discovered, without fear of
standards shall be reported promptly. retaliation or disfavor from management or
other affected parties. The compliance
§ X170.5 Status. The compliance function should have access to all
function should have a formal status within operational areas as well as any records or
the organization established by a charter or files necessary to enable it to carry out its
other formal document approved by the duties and responsibilities.
board of directors that defines the
compliance function’s standing, authority § X170.7 Role and responsibilities of
and independence, and addresses the the compliance function. The role and
following issues: responsibilities of the compliance
(1) measures to ensure the function should be clearly defined. If
independence of the compliance function there is a division of duties and
from the business activities of the bank; responsibilities between different
(2) its role and responsibilities; functions such as legal, compliance,
(3) its relationship with other functions internal audit or risk management, the
or units within the organization; allocation of duties and responsibilities
(4) its right to obtain access to to each function should be properly
information necessary to carry out its delineated. There should likewise be
responsibilities; formal arrangements for cooperation

Manual of Regulations for Banks Part I - Page 113


§§ X170.7 - X171.2
05.12.31

between each function and for the concerned, must be submitted to the
exchange of relevant information. appropriate SED of the BSP at least thirty
(30) days prior to its execution to enable
§ X170.8 Cross-border issues. The review of its compliance with existing
compliance function for institutions that regulations on outsourcing of banking
conduct business in other jurisdictions functions.
should be structured to ensure that local The service level agreement shall ensure
compliance concerns are satisfactorily a clear allocation of responsibilities between
addressed within the framework of the the external service providers and the bank.
compliance policy for the organization as Furthermore, the outsourcing bank should
a whole. As there are significant manage residual risks associated with
differences in legislative and regulatory outsourcing arrangements, including
frameworks across countries or from default, operational failures, and possible
jurisdiction to jurisdiction, compliance disruption of services.
issues specific to each jurisdiction should
be coordinated within the structure of the Sec. X171 Bank Protection. Banks shall
institution’s group-wide compliance observe the following rules and regulations
policy. The organization and structure of on bank protection.
the compliance function and its
responsibilities should be in accordance § X171.1 Objectives. These
with local legal and regulatory regulations are designed to:
requirements. a. Ensure maximum protection of life
and property against bank robberies;
§ X170.9 Outsourcing. Banks should b. Prevent and discourage bank
establish policies for managing the risks robberies; and
associated with outsourcing activities. c. Assist law enforcement agencies in
Outsourcing of services/activities can identifying, apprehending and prosecuting
reduce the institution’s risk profile by perpetrators of bank robberies.
transferring activities to others with the
necessary expertise to manage the risks § X171.2 Designation of security
associated with specialized business officer. The board of directors of each
activities. However, the use of third bank shall appoint or designate a
parties does not diminish the qualified security officer who shall be
responsibility of the board of directors and under the direct supervision of the
senior management to ensure that the president and shall be responsible for the
outsourced activity is conducted in a safe development and administration of a
and sound manner and in compliance security program and the installation,
with applicable laws and regulations. maintenance and operation of security
Compliance risk assessment and devices in accordance with the standards
testing may be outsourced, subject to prescribed by the BSP in separate rules
appropriate oversight by the compliance and regulations.
officer: Provided, That a copy of the The security officer must be: (a) at least
outsourcing agreement stating the duties twenty-five (25) years of age; (b) a college
and responsibilities as well as rights and graduate; (c) with at least two (2) years
obligations of the contracting parties, experience in law-enforcement or police
which agreement shall be approved by the matters; (d) of unquestionable integrity; and
board of directors of the institution (e) of good moral character.

Part I - Page 114 Manual of Regulations for Banks


§§ X171.3 - X196
05.12.31

§ X171.3 Security program. The (1) The incidence of crimes against


security program of each bank shall be in banks and other business establishments in
writing, approved by its board of directors the area in which the banking office is located;
and retained in such form as will readily (2) The amount of currency or other
permit determination of its adequacy and valuables exposed to robbery;
effectiveness and shall contain provisions (3) The distance of the banking office
as may be prescribed by the BSP. from the nearest law-enforcement officers
and the time ordinarily required for such
§ X171.4 Security devices. Within law-enforcement officers to arrive at the
thirty (30) calendar days from the banking office;
designation of the security officer in the (4) The cost of the security devices;
case of a bank with less than ten (10) (5) Other existing security measures in
branches; sixty (60) calendar days in the effect at the banking office; and
case of a bank with ten (10) but less than (6) The physical characteristics of the
twenty (20) branches; and ninety (90) banking office structure and its
calendar days in the case of a bank with surroundings. Each bank shall install,
twenty (20) or more branches, the security maintain and operate security devices which
officer shall, under the direction of the are expected to give a general level of bank
bank’s president, conduct a security protection equivalent, at least, to the
survey and submit a report on the needed standards prescribed by the BSP in separate
security devices in each of the bank’s rules and regulations.
banking offices.
Banks shall effect the installation, § X171.5 Reports. As of the last
maintenance and operation, as individually business day of December of every year,
appropriate, of the following in each each bank shall submit not later than 15
banking office: January of the following year to the
a. A lighting system for illuminating, appropriate SED of the BSP a certification
during the hours of darkness, the area of compliance with the requirements of BSP
around the vault, if the vault is visible from rules and regulations on bank protection in
outside the bank premises; accordance with the format shown in
b. Time delay device to be installed Appendix 10.
in the cash vault or safe;
c. Tamper-resistant locks on exterior § X171.6 Bangko Sentral inspection
doors and windows designed to be Banks shall be subject to inspection by the
opened; BSP to determine if the security measures,
d. An alarm system or other devices or procedures used or adopted by
appropriate device for promptly notifying a bank meet the requirements of these
the nearest law enforcement officers of an regulations and its supplementary
attempted or perpetrated robbery; and regulations. If the bank fails to meet the
e. Such other devices as the security standard herein set forth, the Governor may
officer shall determine to be appropriate direct or require the bank to take necessary
for discouraging robberies and for corrective actions.
assisting in the identification and
apprehension of persons who commit Secs. X172 – X195 (Reserved)
such acts: Provided, That the security
officer shall consider, among other things, Sec. X196 Voluntary Liquidation. The
the following: following guidelines shall be observed when

Manual of Regulations for Banks Part I - Page 115


§§ X196 - X198
05.12.31

a bank decides to undertake voluntary thirty (30) days from submission of


liquidation as a consequence of voluntary aforesaid inventory of assets and
dissolution, such as (i) by vote of the board liabilities.
of directors and stockholders, where no c. Conversion of assets into money.
creditors are affected; (ii) judgment of the Projected timetable in the conversion,
SEC after hearing the petition for voluntary manner of sale (public auction, sealed
dissolution; (iii) amending the articles of bidding, or on negotiated basis), notice
incorporation to shorten the corporate by publication requirement, and report on
term. liquidation to be submitted to the
Monetary Board.
§ X196.1 Prior Monetary Board d. Final notice to claimants/creditors.
approval. Upon voluntary dissolution of Undertaking of the board of directors/
a bank pursuant to the provisions of the trustee/ receiver to cause, within thirty (30)
Corporation Code, voluntary liquidation days from conversion into money of all or
may be undertaken by the bank itself substantially all of the assets of the bank,
through its board of directors, by a trustee the publication in a newspaper of general
appointed by the bank, or by a receiver circulation at least once a week for two
appointed to the bank: Provided, (2) consecutive weeks of a notice giving
however, That no voluntary dissolution claimants/creditors fifteen (15) days within
shall be undertaken by a bank without which to file their claims.
prior approval of the Monetary Board: e. Inventory of remaining claims
Provided, further, That requests for against the bank. Submission to the
approval of a voluntary dissolution shall be Monetary Board of a complete list of all
accompanied by a liquidation plan which remaining claims against the bank, within
lays down the procedure to be adopted by thirty (30) days from the deadline given in
the bank in the event of liquidation: the final notice to claimants/creditors.
Provided, finally, That written notice shall f. Plan for distribution of proceeds of
be sent to the Monetary Board before actual sales and distribution of liquidating
liquidation is undertaken in accordance with dividends. Submission to the Monetary
the liquidation plan previously approved by Board of a distribution plan of assets
the Monetary Board. within thirty (30) days from conversion
of all or substantially all of the assets of
§ X196.2 Liquidation plan. The the bank.
minimum requirements to be set forth in a
liquidation plan are the following: §§ X196.3 - X196.7 (Reserved)
a. Inventory/Appraisal of assets and
liabilities. Submission to the Monetary § X196.8 Final liquidation report. The
Board within thirty (30) days from written board of directors/trustee/receiver shall
notice of liquidation, a schedule/inventory submit to the Monetary Board a final
and status/appraisal reports on assets and liquidation report after winding up the
liabilities of the bank. affairs of the bank.
b. Notice to creditors requirement.
Notice by registered mail to all recorded Sec. X197 (Reserved)
claimants of the bank, and notice by
publication in a newspaper of general Sec. X198 Insolvency or Receivership of
circulation at least once a week for two Banks. The rules and regulations governing
(2) consecutive weeks, to be made within insolvency and receivership are as follows:

Part I - Page 116 Manual of Regulations for Banks


§§ X198.1 - X199
05.12.31

§ X198.1 Definition of term. A “bank f. transferring or permitting or causing


declared insolvent or placed under to be transferred any securities or property
receivership by the Monetary Board” shall of said bank.
refer to a banking institution that has been
forbidden from doing business in the §§ X198.3 - X198.8 (Reserved)
Philippines by the Monetary Board under
the applicable grounds provided for under § X198.9 Penalties and sanctions. Any
Section 30 of R.A. No. 7653 and placed director or officer of a bank declared
under receivership of the PDIC. insolvent or placed under receivership by
the Monetary Board who commits any of
§ X198.2 Prohibited acts. Any director the foregoing acts shall be subject to the
or officer of a bank declared insolvent or sanctions under Sections 36 and 37 of R.A.
placed under receivership by the Monetary No. 7653, in correlation with Section 66 of
Board shall not commit any of the following R.A. No. 8791. Moreover, any such director
acts: or officer thereby sanctioned shall be
a. refusing to turn over the bank’s included in the watchlist files of directors/
records and assets to the designated officers disqualified by the Monetary Board
receivers; from holding any position in any bank or
b. tampering with bank records; financial institution.
c. appropriating for himself or another
party, or destroying or causing Sec. X199 General Provision on Sanctions
misappropriation and destruction of the Except as otherwise provided, any violation
bank’s assets; of the provisions of this Part shall be subject
d. receiving or permitting or causing to Sections 36 and 37 of R.A. No. 7653.
to be received in said bank any deposit, The guidelines for the imposition of
collection of loans and/or receivables; monetary penalty for violations/offenses
e. paying out or permitting or with sanctions falling under Section 37 of
causing to be paid out any funds of said R.A. No. 7653 on banks, their directors and/
bank; and or officers are shown in Appendix 67.

Manual of Regulations for Banks Part I - Page 117


§§ X201 - X201.3
05.12.31

PART TWO

DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS actually accept such deposits, subject to


the following conditions:
Section X201 Authority to Accept or a. Submission of a certification signed
Create Demand Deposits. Banks may by the President/Chairman of the Board
accept or create demand deposits subject of the bank stating that the requirements
to withdrawal by check. enumerated under Subsec. X201.1 have
A UB/KB may accept or create demand been complied with up to the day before
deposits subject to withdrawal by check, the checking account services are actually
without prior authority from the BSP. offered/extended to the public;
A TB/RB/Coop Bank may accept or b. That if it is not a member of the
create demand deposits upon prior Philippine Clearing House Corporation
authority of the BSP. (PCHC), it has appointed a commercial
bank, or a normally operating thrift bank
§ X201.1 Prerequisites to accept or which is a direct participant in clearing with
create demand deposits for Thrift Banks/ the PCHC/BSP and has complied with the
Rural Banks/Cooperative Banks. In minimum capital required for commercial
addition to the Standard Pre-qualification banks, thru which it shall participate in
Requirements for the Grant of Banking the check clearing system; and
Authorities enumerated in Appendix 5, a c. That it has complied with all other
TB/RB/Coop Bank applying for authority to conditions that the BSP may impose.
accept or create demand deposits shall also The applicant bank shall submit a
comply with the following requirements: written notice to the appropriate
a. The applicant TB must have supervising and examining department of
complied with the minimum capital required the BSP of the actual date when the
under Subsecs. X106.1 and X106.2. demand deposit service is offered to the
In the case of RB/Coop Bank, it must public not later than ten (10) banking days
have net assets of at least P5.0 million: from such offering of the service.
Provided, That RBs which have been
authorized to accept or create demand § X201.3 Sanctions. If any part of
deposits prior to the approval of R.A. No. the certification submitted by the bank as
7353 (Rural Banks Act of 1992) shall be required in these guidelines is found to be
allowed to continue servicing such deposits. false, the following sanctions shall be
The terms capital and net assets shall imposed, without prejudice to the
have the same meaning as in Sec. X106. sanctions under Section 35 of R.A. No.
b. It must be a member of the 7653.
Philippine Deposit Insurance Corporation a. On the Bank
(PDIC) in good standing. Suspension of its authority to accept
or create demand deposits for one (1) year.
§ X201.2 Requirements for accepting b. On the Certifying Officer
demand deposits. After a TB’s/RB’s/Coop A fine of P5,000 per day from the time
Bank’s application to accept demand the certification was made up to the time
deposits has been approved, it may the certification was found to be false.

Manual of Regulations for Banks Part II - Page 1


§§ X202 - X203
05.12.31

Sec. X202 Temporary Overdrawings; banks with commercial banks shall not
Drawings Against Uncollected Deposits be subject to the above-mentioned
The following regulations shall govern regulations: Provided, That:
temporary overdrawings and drawings (a) The maintenance of non-resident
against uncollected deposits (DAUDs). correspondent bank’s peso checking
a. Temporary overdrawings. accounts and overdrawings therefrom are
Temporary overdrawings against current covered by reciprocal arrangement;
account shall not be allowed, unless (b) Temporary overdrawings are
caused by normal bank charges and other covered within fifteen (15) days from the
fees incidental to handling such accounts. date overdrawings are incurred; and
Banks which violate these regulations shall (c) Such accounts are credited only
be subject to a fine of one-tenth of one through foreign exchange inward remittance.
percent (1/10 of 1%) per day of violation, b. Drawings against uncollected
computed on the basis of the amount of deposits. DAUDs shall be prohibited
overdrawing or fines in amounts as may except when the drawings are made
be determined by the Monetary Board, but against uncollected deposits representing
not to exceed P30,000 a day for each manager’s/cashier’s/treasurer’s checks,
violation, whichever is lower. treasury warrants, postal money orders and
Technical overdrawings arising from duly funded “on us” checks which may be
“force posting” in-clearing checks shall be permitted at the discretion of each bank.
debited by banks under “Returned Checks
and Other Cash Items Not in Process of Sec. X203 Checks Without Sufficient
Collection” which is part of “Other Assets” Funds. To complement the provisions of
in the Statement of Condition. Items to Batas Pambansa Blg. 22, (An Act Penalizing
be lodged under this account shall consist the Making or Drawing and Issuance of a
only of in-clearing checks which may Check Without Sufficient Funds or Credit),
result in “technical overdrawn” accounts the following regulations shall govern:
and shall be immediately reversed the a. The drawee bank shall stamp, write
following day. or print on a dishonored check or on a paper
The checks lodged under “Returned attached thereto the date the check is
Checks, etc.” shall either be returned or presented for payment and the reason for the
honored the following day before clearing. refusal to pay the same to the holder thereof.
The items to be used as cover for the b. Where the reason for the dishonor
honored checks should only consist of any of a check is stamped, written or printed
of the following: on a paper attached to the checks, the
(1) Cash drawee bank shall indicate the pertinent
(2) Cashier’s, Manager’s or Certified details, such as the names of the drawer,
Checks the payee and the drawee bank, the date
(3) Bank Drafts and amount of the check, the check
(4) Postal Money Orders number and the date of dishonor.
(5) Treasury Warrants c. The drawee bank shall use only
(6) Duly funded “On us” Checks the remark or notation “Drawn Against
(7) Fund transfers/credit memos within Insufficient Funds”, “No Funds”, or
the same bank representing proceeds of loans “Insufficient Funds” stamped, written, or
granted under existing regulations. printed on, or attached to the check
Peso demand deposit accounts dishonored or returned by reason of
maintained by foreign correspondent insufficiency of funds or credit.

Part II - Page 2 Manual of Regulations for Banks


§ X203
05.12.31

d. Notwithstanding receipt of an from the returned COCI. The process


order to stop payment, the drawee bank restores the balances of the demand
shall likewise stamp, write, or print on, or deposits of banks with the BSP to their
attach to the check any of the remarks or position prior to the settlement of the
notations mentioned in Item “c” hereof clearing results affected by the COCI later
indicating that there were no sufficient returned due to insufficient funds or credit.
funds in or credit with such bank for the (b) PM Returned COCI Clearing - The
payment in full of such check, if such be PM returned COCI clearing window shall
the fact. The bank shall also indicate coincide with the afternoon regular
receipt of a stop payment order. clearing. Other dishonored COCI not
e. A check and other clearing item returned in the morning clearing session
(COCI) dishonored by reason of shall be presented by the drawee bank to
insufficiency of funds or credit shall be the negotiating bank in the afternoon
returned by the drawee bank to the regular clearing. Such returned COCI shall
negotiating bank not later than the next be given value on the date the returned
clearing for returned COCI. COCI was presented to PCHC for the
(1) For Local Exchanges integrated Metro Manila area and to BSP
There shall be two (2) separate clearing RCCs.
windows for COCIs returned due to Return of Dishonored COCI - A COCI
insufficient funds or credit in the local dishonored by reason of insufficiency of
exchanges in the integrated Metro Manila funds or credit shall be returned by the
area served by the PCHC and the BSP drawee bank to the negotiating bank not
Regional Clearing Centers (RCCs). (The later than the next clearing for returned
settlement of interbank transactions vis-à- COCI.
vis covering reserve requirement/ (2) For Out-of-town Exchanges
deficiency of banks’ DDA is shown in For out-of-town exchanges, a COCI so
Appendix 39.) dishonored shall be returned by the drawee
(a) AM Returned COCI Clearing - The bank to the negotiating bank within the
AM returned COCI clearing in the period specified in the clearing Circular
integrated Metro Manila local exchange Letters issued by BSP.
shall be conducted from 7:30 AM to 10:00 (3) COCI not coursed through the
AM on the banking day immediately Clearing System
following the original date of presentation A COCI dishonored by reason of
of the COCI to PCHC. insufficiency of funds or credit which was
The AM returned COCI clearing not coursed through the clearing system
window for local exchanges in the BSP shall be returned by the drawee bank to
RCCs shall be conducted from 8:00 AM the holder or the negotiating bank, as the
to 9:30 AM on the banking day immediately case may be, not later than the business
following the original date of presentation day following the date the COCI is
of the COCI to the RCC. presented for payment with the drawee
Returned COCI in the AM clearing bank.
windows shall be given value on the same The negotiating bank shall, in turn,
date as the date of original presentation of return a COCI dishonored by reason of
the COCI to PCHC and RCC. The amount insufficiency of funds or credit to the holder
of debits and credits on the date of original not later than the business day following
presentation shall be reversed to the extent its receipt of the dishonored COCI from
of the amount of credits and debits arising the drawee bank.

Manual of Regulations for Banks Part II - Page 3


§§ X204 - 2205
05.12.31

Sec. X204 Current Accounts of Bank b. In conduit arrangements, caps shall


Officers and Employees. The following be set on the net clearing losses to be
officers and employees of banks are passed on to the conduit KB by the conduit
prohibited from maintaining demand TB.
deposits or current accounts with the To address the settlement risks, the pro-
banking office in which they are assigned: forma conduit arrangement should include
a. All officers; provisions setting aforementioned cap on
b. Employees of the bank’s cash the net clearing losses. The cap is defined
department/cash units; and as the combined value of the following
c. Other employees who have direct amounts:
and immediate responsibility in the handling (1) the TB's reserve deposit with BSP;
of transactions and/or records pertaining to and
demand deposits or current accounts. (2) the value of collateralized
The above-mentioned prohibition shall overdraft line that may be extended by the
include the spouses and relatives within the conduit KB to the conduit TB.
second degree of consanguinity and affinity Parties to existing conduit
of the officers and employees covered by arrangements shall have thirty (30) days
the prohibition, and the business interests from 8 April 1998 to comply with the
of such officers and employees, their above requirement.
spouses and relatives within the second c. For TBs authorized to participate
degree of consanguinity and affinity, in in the PCHC and BSP check clearing
single proprietorships, or partnerships or operations, ceilings for clearing losses not
corporations in which such officers and covered by interbank borrowings shall be
employees, individually or as a group, own established and unwinding of the clearing
or control at least a majority of the capital transactions shall be authorized when the
of the partnership or the outstanding ceilings are breached.
subscribed capital stock (voting and non- (1) The proposed ceiling is defined as
voting) of the corporation. the collateralized overnight clearing line
that will be extended by BSP. Every TB
Sec. 1205 (Reserved) authorized to participate directly in the
clearing operations of PCHC and BSP
Sec. 2205 Check Clearing Rules for Thrift should apply for this line with the BSP
Banks Authorized to Accept Demand Department of Loans and Credit (DLC).
Deposits. The following are the check The availments against the approved loan
clearing rules for TBs authorized to accept line shall bear interest at the ninety-one
demand deposits: (91)-day Treasury Bill rate of the last
a. TBs authorized to accept demand auction immediately preceding the
deposits may participate in the clearing availments.
process conducted by the PCHC in the (2) Procedures for unwinding shall
integrated Metro Manila clearing area and apply to all inward items, other than
by the BSP in regional clearing centers Returned Items and to local exchanges
through either of the following modes: (i) only.
maintenance of NOW accounts with KBs; (3) The aggregate value of all inward
(ii) conduit arrangements with KBs; and items of all clearing centers, including On
(iii) direct participation in clearing Manila clearing demands presented to
operations, at the option of the TB PCHC, shall be ranked from highest to
concerned. lowest. The unsettled net clearing losses

Part II - Page 4 Manual of Regulations for Banks


§§ 2205 - X213
05.12.31

shall be eliminated by unwinding the borrowings. The ceiling is defined as the


inward items starting from the clearing collateralized overnight clearing line that
centers, including PCHC, with highest will be extended by BSP DLC. The
aggregate value. availments against the approved loan line
(4) In case the aggregate value of the shall bear interest at the ninety-one (91)-
inward items for a given clearing center, day Treasury Bill rate of the last auction
except PCHC, exceeds the unsettled net immediately preceding the availments.
clearing losses, the total inward items for (3) Should the overdraft exceed the
that clearing center shall be the subject of ceiling, the BSP Accounting Department is
unwinding. authorized to instruct the PCHC and the
(5) In the case of checks cleared BSP regional clearing centers to unwind the
through PCHC, the inward clearing items clearing transactions following the
shall be unwound to the extent of the procedures defined in Item "c" of this
unsettled net clearing loss. The selection Section.
of the specific demand items to be covered The operating guidelines implementing
by unwinding shall be based on PCHC Items "c" and "d" of this Section are in
rules. Appendix 31.
(6) Checks which are the subject of the
unwound clearing transactions shall be Sec. 3205 Check Clearing Rules for Rural
returned to the presenting banks not later Banks Who Are Members of the Philippine
than 9:00 A.M. of the following clearing Clearing House Corporation. The
day. provisions of Items "c" and "d" of Sec. 2205
d. TBs authorized to participate and the implementing operating guidelines
directly in the clearing in PCHC and BSP in Appendix 31 shall also apply to RBs
regional clearing centers shall be subject which are members of the PCHC.
to the following measures to manage the
settlement risks: Secs. X206 - X212 (Reserved)
(1) Settlement of Outward items shall
be value dated on the day the checks are B. SAVINGS DEPOSITS
cleared, net of returns. For this purpose,
the value date or settlement date referred Sec. X213 Servicing Deposits Outside
to herein shall be defined uniformly as the Bank Premises. Banks may be authorized
next clearing day when dishonored checks by the BSP to solicit and accept deposits
are returned within the reglementary outside their bank premises, subject to the
period, reckoned after the date of following conditions:
presentation for local clearing in the a. Minimum capital requirement is met;
integrated Manila Clearing area for PCHC b. No major supervisory concerns
and in all BSP regional clearing centers. affecting safety and soundness;
For inter-regional clearing items, outward c. The area of operations shall be
Manila clearing items and to Manila within one (1)- hour normal travel time by
clearing items, the value or settlement date land/sea from any head office or branch,
shall be defined in clearing circulars to be except in remote areas where more than one
issued by BSP. (1)- hour normal travel time may be allowed;
(2) A ceiling shall be set on the amount and
of overdraft a TB authorized to accept d. Applicant bank shall institute and
demand deposits may incur due to failure maintain the following minimum
to cover clearing losses through interbank safeguards:

Manual of Regulations for Banks Part II - Page 5


§§ X213 - X215
05.12.31

(1) All deposit solicitors shall be (7) Deposits/withdrawals shall be


initially bonded for at least P1,000 subject recorded by the bookkeeper or any ledger
to the increase thereof to approximate their clerk, except any bank solicitor, in the
daily collections; depositor’s ledger cards and passbooks on
(2) Deposit solicitors shall be provided the same day that such deposits/
with proper identification cards with withdrawals are accepted. Passbooks shall
photograph and signature of each respective be returned to the depositors not later than
solicitor, certified to by the appropriate the following business day;
officer of the bank. Said identification cards (8) At the end of each month,
shall be worn by each solicitor at all times depositors shall be advised in writing of
at the upper breast of his outer garment the balances of their deposits with the
when soliciting deposits; and bank, the advise slips of which shall never
(3) Adequate insurance coverage for be handcarried by the solicitors
funds in transit (representing deposits themselves;
collected outside banking premises) shall (9) Places of assignments of bank
be secured by applicant bank from solicitors shall be rotated at least
insurance companies not included in the quarterly.
list of companies blacklisted by the
Insurance Commissioner; Sec. X214 Withdrawals. Banks are
(4) Deposit slips shall be in booklet prohibited from issuing/accepting
form, prenumbered, in triplicate copies and withdrawal slips or any other similar
in three (3) colors - the original to be issued instruments designed to effect withdrawals
to the depositor, the second copy to be of savings deposits without requiring the
used for posting reference, and the third depositors concerned to present their
copy to be retained in the booklet; passbooks and accomplishing the
(5) All collections shall be turned over necessary withdrawal slips, except for
to the cashier at the end of each day banks authorized by the BSP to adopt the
accompanied by a Collection Summary no passbook withdrawal system: Provided,
Report to be accomplished in duplicate That banks which are already adopting the
which shall contain the following no passbook withdrawal system shall be
minimum information: given six (6) months from effectivity of this
(a) Date of the report Manual of Regulations (MOR) to seek
(b) Names and addresses of the approval from the BSP.
depositors The provisions of Sec. X202b shall also
(c) Deposit slip numbers apply to withdrawals from savings
(d) Amounts of deposit deposits.
(e) Savings account and passbook
numbers Sec. X215 Rental Deposits of Lessees
(f) Name and signature of solicitor The following guidelines shall govern the
rendering the report opening and handling by banks of deposits
(6) Depositors shall always be made by lessees under Section 5(b) of Batas
required to accomplish a Signature Card Pambansa Blg. 25, otherwise known as the
when opening an account, which card Rent Control Law:
shall be used always as reference in a. The deposit made by the lessee
checking the genuineness/authenticity of shall only be accepted by the bank under a
signatures affixed on withdrawal slips or special savings account in the name of the
authorizations for withdrawal; lessor;

Part II - Page 6 Manual of Regulations for Banks


§§ X215 - X223.2
05.12.31

b. The bank shall require the lessee demand feature of checks and investment
to submit a copy of the written notice sent feature of savings accounts.
to the lessor for the deposit made, stating A UB/KB may offer NOW accounts
among other things, the date and amount without prior authority of the Monetary
of the deposit and the name and address Board.
of the lessor; A TB/RB/Coop Bank may accept NOW
c. The bank, at its option, may require accounts upon prior approval of the
the lessee to submit any supporting Monetary Board.
document, such as the lease contract or
official receipts of previous rentals paid, § X223.1 Prerequisites to accept NOW
which will show the specimen signature accounts for thrift banks/rural banks/
of the lessor, or other papers to identify cooperative banks. In addition to the
the lessor; Standard Pre-qualification Requirements
d. The bank shall segregate from its for the Grant of Banking Authorities
regular savings deposit accounts and enumerated in Appendix 5, a TB/RB/Coop
maintain a separate subsidiary control Bank applying for authority to accept
ledger for deposits made under Section 5(b) NOW accounts shall also comply with the
of Batas Pambansa Blg. 25; following requirements:
e. Any withdrawal against these special a. The applicant TB must have
savings deposit accounts may only be complied with the minimum capital
allowed in favor of the lessee concerned required under Subsecs. X106.1 and X106.2.
before the amount deposited under In the case of RB/Coop Bank, it must
consignation has been accepted by the have net assets of at least P5.0 million:
lessor, or when authorized by the lessor; Provided, That RBs which have been
f. The expenses which may be authorized to accept or create NOW
incurred by the bank with respect to such accounts prior to the approval of R.A. No.
rental deposits shall be charged against 7353 (Rural Banks Act of 1992) shall be
the lessor; allowed to continue servicing such
g. All the minimum internal control deposits.
standards applicable to savings deposit The terms capital and net assets shall
accounts prescribed in Sec. X163 shall be have the same meaning as in Sec. X106.
complied with; and b. It must be a member of the PDIC in
h. The acceptance of such rental good standing.
deposits, however, shall be optional or
discretionary only upon the bank § X223.2 Requirements for accepting
concerned. NOW accounts. After a TB’s/RB’s/Coop
Bank’s application to accept NOW account
Secs. X216 - X222 (Reserved) has been approved, it may actually accept
the same subject to the following
C. NEGOTIABLE ORDER OF conditions:
WITHDRAWAL ACCOUNTS a. Submission of a certification signed
by the President/Chairman of the Board
Sec. X223 Authority to Accept Negotiable of the bank stating that the requirements
Order of Withdrawal Accounts enumerated under Subsec. X223.1 have
Negotiable Order of Withdrawal (NOW) been complied with up to the day before
accounts are interest-bearing deposit the NOW account services are actually
accounts that combine the payable on offered/extended to the public; and

Manual of Regulations for Banks Part II - Page 7


§§ X223.2 - X232
05.12.31

b. That it has complied with all other f. A bank statement shall be sent to
conditions that the BSP may impose. each depositor at the end of each month
The applicant bank shall submit a for confirmation of balances.
written notice to the appropriate g. Banks must use the form prescribed
supervising and examining department of by present rules for NOW accounts.
the BSP of the actual date when the NOW Nothing herein shall be construed as
account deposit service is offered to the precluding a TB, RB or Coop Bank from
public not later than ten (10) banking days applying for authority to accept both
from such offering of the service. demand deposits and NOW accounts.

§ X223.3 Sanctions. If any part of the Sec . X225 Minimum Features. The order
certification submitted by the bank as of withdrawal form shall have a size of three
required in these guidelines is found to be (3) inches by seven (7) inches, and shall
false, the following sanctions shall be be printed on security/check paper. It shall
imposed, without prejudice to the sanctions contain as a minimum the features of the
under Section 35 of R.A. No. 7653: proforma order of withdrawal shown in
a. On the Bank Appendix 11.
Suspension of its authority to accept
or create NOW accounts for one (1) year. Sec. X226 Clearing of NOW. Any NOW
b. On the Certifying Officer which may be deposited with a bank other
A fine of P5,000 per day from the than the drawee bank may be cleared
time the certification was made up to the through the PCHC in Manila and the
time the certification was found to be false. Regional Clearing Units in regional
clearing centers designated by the BSP in
Sec. X224 Rules on Servicing NOW accordance with the clearing procedures.
Accounts. The following rules shall be Nothing in this Section shall prevent direct
observed in servicing NOW accounts: settlement between the parties concerned.
a. Prior to or simultaneous with the The provision of Sec. X202 shall also
opening of a NOW account, the bank shall apply for withdrawals on NOW accounts.
inform the depositor of its terms and
conditions. Secs. X227 - X230 (Reserved)
b. The bank shall be responsible for
the proper identification of its depositors; D. TIME DEPOSITS
it shall require, among other things, two
(2) specimen signatures and such other Sec. X231 Term of Time Deposits. Time
pertinent information. deposits shall be issued for a specific period
c. Deposits shall be covered by of term.
deposit slips in duplicate duly validated
and initialed by the teller receiving the Sec. X232 Special Time Deposits
deposit. A copy of the deposit slip shall be Authority shall be automatically granted
furnished the depositor. to any accredited banking institution which
d. NOW accounts shall be kept and may participate in the supervised credit
maintained separately from the regular program to accept special time deposits
savings deposits. from the Agrarian Reform Fund
e. Blank NOW forms shall be Commission with interest lower than the
prenumbered and shall be controlled as rate allowed on time deposits accepted
in the case of unissued blank checks. from the general public. Such deposits

Part II - Page 8 Manual of Regulations for Banks


§§ X232 - X233.4
05.12.31

shall be exempt from the legal reserve b. That it has complied with all other
requirements, as an exception to the conditions that the BSP may impose.
existing policies on the matter. The applicant bank shall submit a
written notice to the appropriate
Sec. X233 Certificates of Time Deposit supervising and examining department of
a. Negotiable Certificates of Time the BSP of the actual date when the NCTDs
Deposit (NCTDs) are actually issued to the public not later
1. UBs/KBs may issue NCTDs than ten (10) banking days from such
without approval of the BSP. issuance.
2. TBs/RBs/Coop Banks may issue
NCTDs upon the prior approval of the § X233.3 Minimum features
BSP. a. Form; denomination - NCTDs may
b. Non-Negotiable Certificates of be issued in bearer or other form denoting
Time Deposit negotiability and shall have a standard
Banks may issue long-term non- format to be prescribed by the BSP which
negotiable tax-exempt certificates of time shall be prenumbered serially and
deposit without approval of the BSP. predenominated. The minimum
denomination shall be at the discretion
§ X233.1 Prerequisites to issue of the issuing bank. No certificate payable
NCTDs for thrift banks/rural banks/ to bearer shall contain words prohibiting
cooperative banks. In addition to the its negotiation.
Standard Pre-qualification Requirements b. Term - The minimum maturity of
for the Grant of Banking Authorities the certificates shall be 731 days.
enumerated in Appendix 5, a TB/RB/Coop c. Manner of issuance - The certificates
Bank applying for authority to issue shall be issued only upon receipt of funds
NCTDs shall also comply with the equivalent to their face value.
following requirements: d. Manner of printing - NCTDs shall
a. Applicant’s capital must be at least be printed on security paper by the
P150.0 million. For this purpose, capital Security Printing Plant (SPP) of the BSP.
shall have the same meaning as in Sec. Orders for the printing of the desired
X106; and forms shall not exceed a total value
b. It must be a member of the PDIC equivalent to twenty percent (20%) of the
in good standing. issuing bank’s capital accounts (based on
the quarter immediately preceding the
§ X233.2 Requirements for issuing request for printing) at any one time.
NCTDs. After a TB’s/RB’s/Coop Bank’s Additional orders for printing which shall
application to issue NCTDs has been result in an excess over the prescribed
approved, it may actually issue the benchmark shall require prior BSP
same subject to the following approval.
conditions:
a. Submission of a certification § X233.4 Insurance coverage. The
signed by the President/Chairman of the NCTDs shall be insured with the PDIC.
Board of the bank stating that the Banks issuing bearer certificates shall
requirements enumerated under Subsec. imprint on the instrument the following:
X233.1 have been complied with up to “For purposes of deposit insurance by
the day before the NCTDs are actually the PDIC, the holder shall have his name
issued to the public; and registered in the books of the issuing bank.”

Manual of Regulations for Banks Part II - Page 9


§§ X233.5 - X233.9
05.12.31

§ X233.5 Desistance from issuing new resolution of the bank’s board of directors
NCTDs. Unless authorized by the BSP, authorizing the issuance of LTNCTD
TBs/RBs/Coop Banks with outstanding indicating, among others, the issue size,
NCTDs shall immediately desist from offering period, purpose or intended use
issuing new NCTDs. of proceeds thereof, Registry Bank,
All outstanding NCTDs shall be valid Underwriter/Arranger, Selling Agent(s) and
and negotiable up to their maturity dates Market Maker(s).
and shall not be subject to renewal. c. Pre-qualification requirements
(1) Issuing bank
§ X233.6 Sanctions. If any part of A bank applying for authority to issue
the certification submitted by the bank an LTNCTD shall comply with the
as required in these guidelines is found following requirements:
to be false, the following sanctions (a) It has complied with the following
shall be imposed, without prejudice capital adequacy requirements:
to the sanctions under Section 35 of (i) Minimum capitalization as defined
R.A. No. 7653. under Section X106; and
a. On the Bank (ii) Risk-based capital adequacy ratio
Suspension of its authority to issue under Sec. X116 within the sixty (60) days
NCTDs for one (1) year. immediately preceding the date of
b. On the Certifying Officer application.
A fine of P5,000 per day from the time (b) It has not incurred net weekly
the certification was made up to the time reserve deficiencies within eight (8) weeks
the certification was found to be false. immediately preceding the date of
application;
§§ X233.7 - X233.8 (Reserved) (c) It has generally complied with
banking laws, rules and regulations, orders
§ X233.9 Long-term negotiable or instructions of the Monetary Board and/
certificates of time deposit. The following or BSP Management in the last two (2)
guidelines shall govern the issuance of long- preceding examinations prior to the date
term negotiable certificates of time deposit of application, more particularly:
(LTNCTD) with a minimum maturity of five (i) The ceilings on credit accom-
(5) years: modations to DOSRI;
a. Prior BSP approval. No LTNCTD (ii) Liquidity floor requirements for
shall be issued without the prior approval government deposits;
of the BSP. (iii) Single borrower’s loan limit; and
b. Application for authority of the (iv) Investment in bank premises and
issuing bank. An application for authority other fixed assets.
on each issue/issue program of LTNCTD (d) It maintains adequate provisions
shall be filed with the appropriate SED of for probable losses commensurate to the
the BSP: Provided, That the issue period quality of its asset portfolio but not lower
of an issue program of two (2) or more than the required valuation reserves as
tranches shall not exceed one (1) year from determined by the BSP;
approval. (e) It does not have float items
The application shall be signed by the outstanding for more than sixty (60)
President/Country Manager (branch of a calendar days in the “Due From/To Head
foreign bank) of the bank. It shall be Office/Branches/Offices” accounts and the
accompanied by a certified true copy of the “Due From Bangko Sentral“ account

Part II - Page 10 Manual of Regulations for Banks


§ X233.9
05.12.31

exceeding one percent (1%) of the total (ii) it is not related in any manner that
resources as of date of application; would undermine the objective conduct of
(f) It has no past due obligations with due diligence.
the BSP or with any government financial (c) Underwriters must be well-
institution; capitalized and must have adequate risk
(g) It has established a risk management management as evidenced by compliance
system appropriate to its operations with Items “c(1)(a), (d), (g) and (h)” as may
characterized by clear delineation of be applicable.
responsibility for risk management, adequate (4) Selling Agent.
risk measurement systems, appropriately It may be any financial institution, with
structured risk limits, effective internal dealership or brokering license, under the
controls and complete, timely and efficient regulatory supervision of the BSP.
risk reporting system; (5) Market Maker
(h) It has a CAMELS Composite Rating (a) It must not be the Issuing Bank;
of at least “3” in the last regular (b) It must be a third party which is
examination; and not related to the Issuing Bank in any
(i) It is a member of PDIC in good manner that would undermine its
standing. independence;
(2) Registry Bank (c) It must be a financial institution,
(a) It may be a UB, a KB, or such with dealership or brokering license, under
other specialized entity that may be the regulatory supervision of the BSP; and
qualified by the Monetary Board; (d) It must be well-capitalized and must
(b) In the case of a UB or a KB: have adequate risk management as
(i) It must be a third party: evidenced by compliance with Items
(aa) with no subsidiary/affiliate “c(1)(a), (d), (g) and (h)” as may be
relationship with the Issuing Bank; and applicable.
(bb) which is not related to the Issuing d. Additional requirements for the
Bank in any manner that would undermine issuance of LTNCTD. After a bank’s
its independence. application to issue an LTNCTD has been
(ii) It must have adequate facilities approved, it may issue the same, subject to
and the organization to do the following: the submission of the following additional
(aa) Maintain the Electronic Registry requirements:
Book (ERB); (1) At least fifteen (15) days before the
(bb) Deliver transactions within the date of offering:
agreed trading period; and (a) Written waiver of the secrecy of
(cc) Issue registry confirmations to deposits on said LTNCTD by the Issuing
holders of LTNCTDs. Bank, its subsidiaries, affiliates and wholly
(iii) It must have a CAMELS or majority-owned or -controlled entities of
Composite Rating of at least “3” in the last such subsidiaries and affiliates;
regular examination. (b) Information disclosure and the
(3) Underwriter/Arranger terms and conditions of the LTNCTD
(a) It is either a UB or an IH: Provided, issuance;
That if an offering is on a best-efforts basis, (c) Promotional materials; and
such Arranger may also be a KB; (d) Specimen of the proposed registry
(b) It must be a third party, such that: confirmation and purchase advice from
(i) it has no subsidiary/affiliate each Selling Agent/Market Maker which will
relationship with the Issuing Bank; and evidence sale of the LTNCTD.

Manual of Regulations for Banks Part II - Page 11


§ X233.9
05.12.31

(2) Within ten (10) days after issuance (3) Selling Agent
of the initial and subsequent tranches: (a) Verifies identity of each investor
Written notice to the appropriate SED and applies other standards to combat
of the actual date of initial/tranche offering money laundering as required under Sec.
accompanied by a certification by the X691; and
President/Country Manager that the pre- (b) Issues the purchase advice for the
qualification requirements under Item primary offering of the LTNCTDs.
“c(1)” have been complied with up to the (4) Market Maker
time of offering. (a) Sets independent pricing for the
e. Functions/responsibilities of the secondary trading of LTNCTDs;
parties involved. The respective parties shall (b) Posts daily the bid and offer prices
have, among others, the following for the LTNCTDs on the screen of at least
functions/responsibilities: one (1) of the information providers until
(1) Registry Bank the operation of a fixed income exchange
(a) Generates and maintains the ERB; for LTNCTDs;
(b) Records any transfer of ownership; (c) Verifies identity of each investor
(c) Issues and sends registry and applies other standards to combat
confirmation to holders; money laundering as required under Sec.
(d) Functions as paying agent for X691;
periodic interest and principal payments; and (d) Issues the purchase advice for the
(e) Monitors compliance with the secondary sale of the LTNCTDs; and
prohibition on holdings of LTNCTD, as (e) Ensures secondary market transfers
prescribed under Item “h” hereof. and registration in coordination with the
(2) Underwriter/Arranger Registry Bank.
(a) Conducts due diligence on the f. Change of Underwriter/Arranger,
Issuing Bank and determines the valuation/ Registry Bank, Selling Agent(s)/Market
pricing of the primary issue; Maker(s). After an application for authority
(b) Prepares the prospectus/ to issue LTNCTDs has been approved by
information disclosure/ updates for multi- the BSP, the Issuing Bank cannot change
tranche issues; its Underwriter/Arranger, Registry Bank,
(c) Formulates the distribution/ Selling Agent(s) and Market Maker(s)
allocation plan for the initial offering and without the prior approval of the BSP.
ensures proper and orderly distribution of g. W a i v e r o f t h e s e c r e c y o f
the primary sale/issue of the LTNCTDs; deposits for Market Makers. A market
(d) Disseminates information to maker who holds an LTNCTD for its own
prospective depositors/investors of account must issue a waiver of the secrecy
LTNCTDs on the terms and conditions of of deposits in favor of the BSP for
the issue (including information of non- examination purposes. Any information
pretermination by the depositor prior to obtained from an examination of said
original maturity and the liquidity LTNCTD shall be held strictly confidential.
mechanism in secondary trades) and the h. Prohibition on holdings of
rights and obligations of the holder, Issuer, LTNCTDs. The Issuing Bank including its
Market Maker/Selling Agent, Underwriter/ related companies (subsidiaries and
Arranger and Registry Bank; and affiliates and wholly or majority-owned or
(e) When selling to its clients, it must -controlled entities of such subsidiaries and
perform the functions/responsibilities of the affiliates) cannot be a holder of the
Selling Agent under Items “e(3)(a) and (b)”. LTNCTDs of the Issuing Bank.

Part II - Page 12 Manual of Regulations for Banks


§ X233.9
05.12.31

The Issuing Bank shall provide the (1) The Purchase Advice and Registry
Registry Bank with an updated list of all Confirmation shall conspicuously contain
related companies. This report shall be a the following caveat:
“Category B” report. (a) “This LTNCTD cannot be
For purposes of this Subsection, an terminated by the holder nor the Issuing
affiliate is an entity, at least twenty percent Bank before (maturity date). However,
(20%) but not exceeding fifty percent negotiations/transfers from one (1) holder to
(50%) outstanding voting stock of which another do not constitute pretermination.”
is, owned by the Issuing Bank. The caveat shall apply if the Issuing
i. Agreements between Issuing Bank Bank commits no pretermination.
and Registry Bank/Selling Agent(s)/Market Otherwise, it shall read as follows:
maker(s). The agreements between the “This LTNCTD cannot be terminated
Issuing Bank and the Registry Bank/Market by the holder before (maturity date).
Makers/Selling Agents shall comply with However, it may be preterminated at the
the provisions of Sec. X169 on bank service instance of the Issuing Bank upon prior
contracts. The Issuing Bank shall be liable notice to the holder on record.
for any damages to investors/depositors Negotiations/transfers from one (1) holder
caused by actions of said Registry Bank, to another do not constitute
Selling Agent(s)/Market Maker(s) contrary pretermination”. and
to the agreements entered into. (b) “All negotiations/transfers of this
j. Minimum features LTNCTD prior to maturity must be coursed
(1) Form; denomination - An through a Market Maker”.
LTNCTD shall be in scripless form with a (2) The Selling Agent/Market Maker
third party Registry Bank maintaining the shall issue a Purchase Advice to evidence
ERB. To have legal effect, it shall comply initial purchase/ secondary trading of
with the provisions of R.A. No. 8792 LTNCTD with the original copy given to
(Electronic Commerce Act) particularly on the holder.
the existence of an assurance on the (3) The Registry Bank shall issue a
integrity, reliability and authenticity of the Registry Confirmation to evidence
LTNCTD in electronic form. LTNCTDs ownership of the LTNCTD, with the
shall be registered in the name of original copy given to the holder.
individuals or corporations, negotiable and l. Issue size and aggregate ceiling. An
prenumbered serially. The minimum Issuing Bank can issue LTNCTDs up to
denomination shall be at the discretion of 300% of its total capital accounts as defined
the Issuing Bank. under Subsec. X106/X121.5: Provided,
(2) Currency - Denomination shall be That each issue/issue program size does not
in Philippine pesos. exceed P5.0 billion pesos. This ceiling shall
(3) Term - The minimum maturity of be subject to a regular review by the BSP.
the LTNCTDs shall be five (5) years. m. Deposit insurance coverage. The
(4) Primary Offering/Secondary LTNCTDs shall be insured with the PDIC,
Trading – The initial offering shall be subject to applicable rules and regulations,
executed through an Underwriter or an among others, on maximum insurance
Arranger. Subsequent negotiations in coverage.
secondary trading must be executed n. Pretermination by the issuer.
through authorized Market Maker(s). LTNCTDs may be preterminated by the
k. Purchase Advice and Registry Issuing Bank, subject to the following
Confirmation conditions:

Manual of Regulations for Banks Part II - Page 13


§§ X233.9 - X233.11
05.12.31

(1) The Information Disclosure, LTNCTDs and a monetary penalty of P


Purchase Advice and Registry Confirmation 30,000 for each violation.
shall include the information that the (2) On the Registry Bank -
LTNCTD may be preterminated by the Disqualification to be a Registry Bank for
Issuing Bank; one(1)-year and a monetary penalty of
(2) Thirty (30) days prior notification P30,000 for each violation.
must be given to the appropriate SED of (3) On all authorized Selling Agents/
the BSP together with the justification for Market Makers – Disqualification to be
the pretermination; appointed as Selling Agent/Market Maker
(3) Thirty (30) days prior notification for one (1) year and a monetary penalty of
to holders of record; P30,000 for each violation.
(4) Notwithstanding any agreement to (4) On the Certifying Officer - A fine
the contrary, the Issuer shall shoulder the of P5,000 per banking day from the time
tax due on the interest income already of required disclosure up to the time
earned by the holders; and disclosure was made; or from the time
(5) The Issuing Bank’s reserve positions misrepresentation was made up to the time
shall be recomputed retroactively based on the information was corrected.
the applicable reserve rate(s) for regular time (5) On the Responsible Officer – A fine
deposits during the affected periods. of P30,000 for participating or confirming
If the recomputed amounts result in a in the non-disclosure or misrepresentation
reserve deficiency, the Issuing Bank shall of information.
be fined with the corresponding monetary
penalties. The preceding monetary penalty, § X233.10 (Reserved)
however, shall not be imposed if
pretermination by the Issuer is due to a § X233.11 Long-term non-negotiable
change in law or regulation that will tax-exempt certificates of time deposit
increase the cost of maintaining the The issuance of long-term non-negotiable
LTNCTDs. tax-exempt certificates of time deposit shall
o. Non-pretermination by the holder. be governed by the following rules.
Presentation of the LTNCTD to the Issuing a. Minimum features
Bank for payment before the maturity date (1) Form; denominations - The
is not allowed. However, negotiation or certificate shall contain words denoting its
transfer from one (1) holder to another shall non-negotiability and shall be issued by
not constitute pretermination of the banks only in the name of individuals with
LTNCTD. denominations in increments of P1,000.00.
p. Sanctions. Without prejudice to the (2) Term - The minimum maturity of
other sanctions prescribed under Section the certificate shall be five (5) years.
37 of R.A. No. 7653 and the provisions of (3) Manner of issuance - The certificate
Section 16 of R.A. No. 8791, the following shall be issued only upon receipt of funds
sanctions will be imposed on any Issuing equivalent to their face value.
Bank, Registry Bank and other parties for (4) Manner of printing - The certificate
failure to perform their respective functions/ shall be printed on security paper.
responsibilities and for non-disclosure or (5) Pre-termination - In case of pre-
misrepresentation of information: termination, the deposit shall be subject to
(1) On the Issuing Bank – Suspension income tax as provided under Section
of its authority to issue LTNCTDs, 24(B)(1) of the Tax Reform Act of 1997
disqualification from future issuance of which states that “xxx a final tax shall be

Part II - Page 14 Manual of Regulations for Banks


§§ X233.11 - X234.3
05.12.31

imposed on the entire income and shall § X234.2 Definition of terms and
be deducted and withheld by the phrases. The following terms and phrases
depository bank from the proceeds of the shall be understood as follows:
long-term deposit or investment certificate a. Borrowing shall refer to all forms
based on the remaining maturity thereof: of obtaining or raising funds through any
(a) Four (4) years to less than of the methods and for any of the purposes
five (5) years 5% provided in Subsec. X234.1 whether the
(b) Three (3) years to less than borrower’s liability thereby is treated as
four (4) years 12% real or contingent.
(c) Less than three (3) years 20%" b. For the borrower’s own account
b. Insurance coverage. The deposits shall refer to the assumption of liability in
shall be insured with the PDIC, subject to one’s own capacity and not in
applicable rules and regulations, among representation, or as an agent or trustee,
others, on maximum insurance coverage. of another.
c. Reserves against long-term non- c. Purchasing of receivables or other
negotiable certificates of time deposit. The obligations shall refer to the acquisition
rate and form of required reserves on regular of claims collectible in money, including
time deposit shall also apply to the required interbank borrowings or borrowings
reserves on long-term non-negotiable tax- between financial institutions, or of
exempt certificates of time deposit. acquisition of securities, of any amount
and maturity, from domestic or foreign
E. DEPOSIT SUBSTITUTE OPERATIONS sources.
(QUASI-BANKING FUNCTIONS) d. Relending shall refer to the
extension of loans by an institution with
Sec. X234 Scope of Quasi-Banking antecedent borrowing transactions.
Functions. The following rules and Relending shall be presumed, in the
regulations shall govern the quasi-banking absence of express stipulations, when the
operations of banks. institution is regularly engaged in lending.
e. Regularly engaged in lending
§ X234.1 Elements of quasi-banking shall refer to the practice of extending
The essential elements of quasi-banking are: loans, advances, discounts or rediscounts
a. Borrowing funds for the borrower’s as a matter of business, as distinguished
own account; from isolated lending transactions.
b. Twenty (20) or more lenders at any
one time; § X234.3 Transactions not considered
c. Methods of borrowing are quasi-banking. The following shall not
issuance, endorsement, or acceptance of constitute quasi-banking:
debt instruments of any kind, other than a. Borrowing by commercial,
deposits, such as acceptances, promissory industrial and other non-financial
notes, participations, certificates of companies through any of the means listed
assignments or similar instruments with in Subsec. X234.1 hereof, for the limited
recourse, trust certificates, repurchase purpose of financing their own needs or
agreements, and such other instruments as the needs of their agents or dealers; and
the Monetary Board may determine; and b. The mere buying and selling
d. The purpose of which is (1) without recourse of instruments
relending, or (2) purchasing receivables or mentioned in Subsec. X234.1: Provided,
other obligations. That:

Manual of Regulations for Banks Part II - Page 15


§§ X234.3 - X234.5
05.12.31

(1) The institution buying and selling R.A. 8791, is not a condition but an
without recourse shall indicate in authorization for the bank or quasi-bank,
conspicuous print on its instrument the phrase once the Monetary Board has granted the
without recourse, sans recourse or words quasi-banking license.
of similar import that will convey the absence In addition to the Standard Pre-
of liability or guarantee by said institution; and qualification Requirements for the Grant of
(2) In the absence of the phrase Bank Authorities enumerated in Appendix
“without recourse”, “sans recourse” or 5, a TB securing BSP authority to engage
words of similar import, the instrument so in quasi-banking functions must meet the
issued, endorsed or accepted, shall following requirements:
automatically be considered as falling within a. The bank must have a networth or
the purview of these regulations: Provided, combined capital of at least P650.0 million
further, That any of the following practices computed in accordance with Section
or practices similar and/or tantamount thereto X106;
in connection with a without recourse b. The bank is well capitalized with
transaction is hereby prohibited: risk-based capital adequacy ratio of not
(a) Issuance of postdated checks by a lower than twelve percent (12%) at the time
financial intermediary, whether for its own of filing the application;
account or as an agent of the debt c. The bank’s operation during the
instrument issuer, in payment of the debt preceding calendar year and for the period
instrument, sold, assigned or transferred immediately preceding the date of
without recourse; or application has been profitable;
(b) Issuance by a financial intermediary d. The bank has elected at least two
of any form of guaranty on sale transactions (2) independent directors and all its
or on negotiations or assignment of debt directors have attended the required
instruments without recourse; and seminar for directors of banks conducted
(c) Payment with its own funds by a or accredited by the BSP;
financial intermediary which assigned, e. The bank has established a risk
sold or transferred the debt instrument management system appropriate to its
without recourse, unless the financial operations characterized by clear
intermediary can show that the issuer has delineation of responsibility for risk
with the said financial intermediary funds management, adequate risk measurement
corresponding to the amount of the systems, appropriately structured risk limits,
obligation. effective internal controls, and complete,
timely and efficient risk reporting system; and
§ X234.4 Pre-conditions for the f. The bank has a CAMELS Composite
exercise of quasi-banking functions. No Rating of at least “3” in the last regular
bank shall engage in quasi-banking examination with management rating of not
functions without authority from the BSP: lower than “3”.
Provided, however, That banks authorized
by the BSP to perform universal or § X234.5 Certificate of Authority from
commercial banking functions shall the Bangko Sentral. A bank securing BSP’s
automatically have the authority to engage Certificate of Authority to engage in quasi-
in quasi-banking functions: Provided, banking functions shall file an application
further, That the authority to obtain funds with the appropriate SED of the BSP. The
from the public, which shall mean twenty application shall be signed by the bank
(20) or more persons under Section 8.2 of president or officer of equivalent rank and

Part II - Page 16 Manual of Regulations for Banks


§§ X234.5 - X235.1
05.12.31

shall be accompanied by the following with this requirement: Provided, further,


documents: That in case, the TB has no approved capital
a. Certified true copy of the build-up program, the minimum capital
resolution of the bank’s board of directors requirement may be substituted by a capital
authorizing the application; build-up program for a period of not more
b. A certification signed by the than five (5) years from 11 November 2004
president or the officer of equivalent rank and which must be approved by the
that the institution has complied with all Monetary Board. Such capital build-up
conditions/prerequisites for the grant of program shall be in equal annual or
authority to engage in quasi-banking diminishing amounts and shall be
functions; submitted to the appropriate SED of the BSP
c. An information sheet; within three (3) months from 11 November
d. Bio-data signed under oath, of the 2004.
members of the managerial staff who will TBs which fail to comply with the
undertake quasi-banking operations; required capitalization upon expiration of
e. Borrowing-investment program for said two (2) year period given them or those
one (1) year which should include at the which fail to comply with approved capital
minimum: build-up program shall liquidate their
(1) planned distribution of portfolios quasi-banking operations within one (1)
as to – year and shall be considered revoked/
(a) underwriting; cancelled. The license of a TB with
(b) commercial paper markets; authority to engage in quasi-banking
(c) stocks and bonds; functions but has not actually engaged in
(d) government securities; quasi-banking functions and has not
(e) receivables financing, discounting complied with the above minimum capital
and factoring; requirements as of 11 November 2004,
(f) leasing; and shall automatically be revoked.
(g) direct loans;
(2) expected sources of funds to support Sec. X235 Deposit Substitute Instruments
investment program classified as to – Any deposit substitute transaction by a
(a) maturity: short, medium and long- bank performing quasi-banking functions
term; shall be limited to its own promissory notes,
(b) interest rates; and repurchase agreements, and certificates
(c) domestic or foreign sources of assignment/participation with recourse.
whether institutional or personal.
TBs authorized to engage and are § X235.1 Prohibition against use
actually performing quasi-banking of acceptances, bills of exchange and
functions but do not meet the new capital trust certificates. Acceptances, bills of
requirement are hereby given a period of exchange, and trust certificates shall not be
two (2) years reckoned from 11 November used by banks as evidence of deposit
2004 within which to comply with the substitute liabilities in connection with
minimum capital requirement in Subsec. their quasi-banking functions. This
X234.4 (a): Provided, That in case the TB prohibition shall not apply to the
has an approved capital build-up program acceptance or negotiation of bills of
under Subsec. X501.2, for its FDCU exchange in connection with trade
license, the approved capital build-up transactions, or to the issuance of trust
program, may be considered compliance certificates creating trust relationships.

Manual of Regulations for Banks Part II - Page 17


§§ X235.2 - X235.3
04.12.31

§ X235.2 Negotiation of promissory f. A conspicuous notice at the lower


notes. Negotiable promissory notes center margin of the face of the instrument
acquired by banks in connection with their that the transaction is not insured by the
quasi-banking functions shall not be PDIC shall be indicated.
negotiated by mere indorsements and/or g. The corporate name of the issuer
delivery, if they do not conform with the shall be printed at the upper center margin
minimum features prescribed under of the instrument and directly below which
Subsec. X235.3. If these notes do not shall be a designation of the instrument,
contain the features, their negotiation shall such as “Promissory Note” or “Repurchase
be covered by any of the appropriate deposit Agreement”.
substitute instruments above-mentioned. h. The words “duly authorized
officer“ shall be placed directly below the
§ X235.3 Minimum features. Deposit signature of the person signing for the
substitute instruments issued by entities maker or issuer.
performing quasi-banking functions shall i. Each instrument shall be serially
have the following minimum features: pre-numbered.
a. The present value and maturity j. The copy delivered to the payee
value and/or the principal amount and shall bear the word “Original” and the
interest rate and such other information as copies retained by the issuer shall be
may be necessary to enable the parties to identified as “Duplicate”, “File Copy” or
determine the cost or yield of the borrowing words of similar import.
or placement shall be specified. k. Only security paper with adequate
b. The date of issuance shall be safeguards against alteration or falsification
indicated at the upper right corner of the shall be used.
instrument, and directly below which shall Borrowings of banks from the loans and
be the maturity period or the word discounts window of other banks or non-
“demand”, if it is a demand instrument. bank financial intermediaries shall be
c. The payee may be identified by his exempted from the documentation
trust account/deposit account number in requirements prescribed in this Subsection:
both negotiable and non-negotiable Provided, That the exemption from the
instruments. documentation requirements prescribed in
d. Securities which are the subject of this Subsection shall not be construed or
a repurchase agreement or a certificate of interpreted as exempting said borrowings
assignment/participation with recourse, from other regulations standardizing
shall be particularly described on the face deposit substitute instruments and from
of said instruments or on a separate other BSP regulations on deposit
instrument attached and specifically substitutes.
referred to therein and made an integral Deposit substitute instruments shall
part thereof as to the maker, value, conform to the language prescribed by the
maturity, serial number, and such other BSP. Any substantial deviation therefrom
particulars as shall clearly identify the or any additional stipulation therein shall
securities. be referred to the BSP for prior approval.
e. The instrument shall provide for the The size and appearance of these
payment of liquidated damages, in addition instruments, shall not be similar to the size
to stipulated interest, in case of default by and appearance of these instruments, shall
the maker or issuer, as well as attorney’s not be similar to the size and appearance
fees and costs of collection in case of suit. of checks. Rubber stamping, typewriting or

Part II - Page 18 Manual of Regulations for Banks


§§ X235.3 - X235.6
05.12.31

handwriting some provisions shall not be The delivery shall be effected upon
considered compliance with said payment and shall be evidenced by a
regulations. (Shown in Appendix 12 are securities delivery receipt duly signed by
the samples of standardized instruments authorized officers of the custodian and
as evidence of deposit substitute liabilities.) delivered to both the lender/purchaser and
seller/borrower.
§ X235.4 Interbank loan transactions b. Sanctions. Violation of any
Except for interbank loan transactions provision of this Subsection shall be subject
evidenced by interbank loan advice or to the following sanctions/penalties:
repayment transfer tickets settled thru the (1) Monetary penalties
demand deposit accounts with the BSP, First Offense – Fine of P10,000 a day
all interbank loan transactions shall be for each violation reckoned from the date
evidenced by a promissory note the violation was committed up to the date
containing the minimum features it was corrected.
prescribed in Subsec. X235.3. Subsequent offenses – Fine of P20,000
a day for each violation reckoned from the
§ X235.5 Delivery of securities 1 date the violation was committed up to the
a. Securities, warehouse receipts, date it was corrected.
quedans and other documents of title (2) Other sanctions
which are the subject of quasi-banking First offense – Reprimand for the directors/
functions, such as repurchase agreements, officers responsible for the violation.
shall be physically delivered, if certificated, Subsequent offense –
to a BSP accredited custodian that is (a) Suspension for ninety (90) days
mutually acceptable to the lender/ without pay of directors/officers responsible
purchaser and borrower/seller, or by for the violation;
means of book-entry transfer to the (b) Suspension or revocation of the
appropriate securities account of the BSP accreditation to perform custodianship
accredited custodian in a registry for said function;
securities, if immobilized or (c) Suspension or revocation of the
dematerialized while the overlying authority to engage in quasi-banking
principal borrowing instrument shall be function; and/or
physically delivered to the lender/ (d) Suspension or revocation of the
purchaser. The custodian shall hold the authority to engage in trust and other
securities in the name of the borrower/ fiduciary business.
seller, but shall keep said securities
segregated from the regular securities § X235.6 Other rules and regulations
account of the borrower/seller if the governing the issuance and treatment of
borrower/seller has an existing securities deposit substitute instruments
account with the custodian: Provided, That a. If there is any stipulation that
a bank/other entity authorized by the BSP payment of the deposit substitute shall be
to perform custodianship function may not chargeable against a particular deposit
be allowed to be custodian of securities account, it shall further provide that the
issued or owned by said bank/entity, its liability of the maker or issuer of the
subsidiaries or affiliates, or of securities in instrument shall not be limited to the
bearer form. outstanding balance of said account.

1
Amendments under Circular 392 dated 23 July 2003 shall take effect on 01 January 2005 for all securities transactions,
regardless of the date of their execution under Circular 460 dated 12 November 2004.

Manual of Regulations for Banks Part II - Page 19


§§ X235.6 - X235.12
05.12.31

b. Any agreement allowing the issuer in accordance with existing BSP


or maker to substitute the underlying regulations.
securities shall further provide that the The absence of proper documentation for
actual substitution shall be with the prior repurchase agreements is tantamount to
written consent of the payee. willful omission of entries relevant to any
c. Automatic renewal upon maturity transaction, which shall be a ground for the
of the instrument may be effected only imposition of administrative sanctions and
under terms and conditions previously the disqualification from office of any
stipulated by the parties. director or officer responsible therefor
d. Stipulations between the maker or under existing laws and regulations.
issuer and the payee which are embodied b. Responsibilities of the Chief
in separate instruments shall be specifically Executive Officer (CEO) or Officer of
referred to in the deposit substitute Equivalent Rank.
instruments and made an integral part It shall be the responsibility of the CEO
thereof. or the officer of equivalent rank in a bank
e. In the case of repurchase to:
agreements and certificates of (1) Institute policies and procedures to
assignment/participation with recourse, prevent undocumented or improperly
the stipulation shall clearly state either (1) documented repurchase agreements
that the underlying securities are being covering government securities,
delivered to the buyer or assignee as commercial papers and other negotiable
collaterals or (2) that the ownership and non-negotiable securities or
thereof is being transferred to the buyer instruments;
or assignee. (2) Submit a notarized certification at
the end of every semester that the bank did
§§ X235.7 - X235.11 (Reserved) not enter into any repurchase agreement
covering government securities,
§ X235.12 Repurchase agreements commercial papers and other negotiable
covering government securities, and non-negotiable securities or
commercial papers and other negotiable instruments that are not documented in
and non-negotiable securities or accordance with existing BSP regulations
instruments. The following regulations shall and that the bank has strictly complied with
govern repurchase agreements covering the pertinent rules of the SEC and the BSP
government securities, commercial papers on the proper sale of securities to the public
and other negotiable and non-negotiable and performed the necessary
securities or instruments of banks as well as representations and disclosures on the
sale on a without recourse basis of said securities particularly the following:
securities by banks. (a) Informed the clients that such
a. Proper recording and documentation securities are not deposits and as such, do
of repurchase agreements. not benefit from any insurance otherwise
Banks shall have a true and accurate applicable to deposits such as, but not
account, record or statement of their daily limited to, R.A. No. 3591, as amended,
transactions. As such, repurchase otherwise known as the PDIC law;
agreements covering government securities, (b) Informed and explained to the
commercial papers and other negotiable client all the basic features of the security
and non-negotiable securities or instruments being sold on a without recourse basis, such
must be properly recorded and documented as but not limited to:

Part II - Page 20 Manual of Regulations for Banks


§ X235.12
05.12.31

(i) issuer and its financial condition; (d) Clearly stated to the client that:
(ii) term and maturity date; (i) The bank does not guarantee the
(iii) applicable interest rate and its payment of the security sold on a “without
computation; recourse basis” and in the event of default
(iv) tax features (whether taxable, tax by the issuer, the sole credit risk shall be
paid or tax-exempt); borne by the client; and
(v) risk factors and investment (ii) The bank is not performing any
considerations; advisory or fiduciary function.
(vi) liquidity feature of the instrument: (3) Report to the appropriate SED of the
(aa) procedures for selling the security BSP any undocumented repurchase
in the secondary market (e.g., OTC or agreement within seventy-two (72) hours
exchange); from knowledge of such transactions.
(bb) authorized selling agents; and c. Treatment as Deposit Substitutes.
(cc) minimum selling lots. All sales of government securities,
(vii) disposition of the security: commercial papers and other negotiable and
(aa) registry (address and contact non-negotiable securities or instruments that
numbers); are not documented in accordance with
(bb) functions of the registry; and existing BSP regulations shall be deemed
(cc) pertinent registry rules and to be deposit substitutes subject to regular
procedures. reserves.
(viii) collecting and paying agent of the d. Certification. The submission
interest and principal; and deadline for the required certification from
(ix) other pertinent terms and the CEO/officer of equivalent rank of the
conditions of the security and if possible, a bank shall initially be 1 February 2005 using
copy of the prospectus or information sheet the format attached as Annex A of Appendix
of the security. 65. Thereafter, the required succeeding
(c) Informed the client that pursuant certification shall be submitted within five
to Subsecs. X235.5 and X238.1: (5) banking days from end of reference
(i) Securities sold under repurchase semester using the format attached as
agreements shall be physically delivered, Appendix 65.
if certificated, to a BSP accredited custodian e. Sanctions. The Monetary Board
that is mutually acceptable to the client and may, at its evaluation and discretion, impose
the bank, or by means of book-entry transfer any or all of the following sanctions to a
to the appropriate securities account of the bank or the director/s or officer/s found to
BSP accredited custodian in a registry for be responsible for repurchase agreements
said securities, if immobilized or covering government securities, commercial
dematerialized; and papers and other negotiable and non-
(ii) Securities sold on a without negotiable securities or instruments that are
recourse basis are required to be delivered not documented in accordance with existing
physically to the purchaser, or to his BSP regulations:
designated custodian duly accredited by (1) Fine of up to P30,000 a day to the
the BSP, if certificated, or by means of concerned entity for each violation from the
book-entry transfer to the appropriate date the violation was committed up to the
securities account of the purchaser or his date it was corrected;
designated custodian in a registry for said (2) Suspension of interbank clearing
securities if immobilized or privileges/immediate exclusion from
dematerialized. clearing;

Manual of Regulations for Banks Part II - Page 21


§§ X235.12 - X237.2
05.12.31

(3) Suspension of access to BSP § X237.1 Definition of terms. As used


rediscounting facilities; in this Section, the following terms shall
(4) Suspension of lending or foreign have the following meanings:
exchange operations or authority to accept a. Money market placements shall
new deposits or make new investments; include investments in debt instruments,
(5) Revocation of quasi-banking license; including purchase of receivables with
(6) Revocation of authority to perform recourse to the lending institution, except
trust operations; and purchase of government securities on an
(7) Suspension for one hundred twenty outright basis.
(120) days without pay of the directors/ b. Government securities shall include
officers responsible for the violation. evidences of indebtedness of the Republic
of the Philippines, the BSP and other
Sec. X236 Minimum Trading Lot and evidences of indebtedness or obligations of
Minimum Term of Deposit Substitute government entities the servicing and
a. The minimum size of any single repayment of which are fully guaranteed by
deposit substitute transaction shall be the Republic of the Philippines.
P50,000. c. Persistent violation shall mean the
No bank performing quasi-banking violation of any of the provisions of these
functions shall issue deposit substitute rules by the director or officer concerned
instruments in the name of two (2) or more for four (4) or more times within a twelve
persons or accounts except those falling (12)-month period from the date the first
under the following relationships in which offense was committed.
cases, commingling may be allowed: (a)
husband and wife; (b) persons related to § X237.2 Conditions required on
each other within the second degree of accepted placements not covered by
consanguinity; and (c) “in trust for” (ITF) prohibition. Placements accepted which
arrangements. are otherwise not covered by the above
b. The minimum term of any single prohibition must comply with the
deposit substitute transaction shall be following conditions:
fifteen (15) days except interbank a. That total money market placements
borrowings, which shall not be subject to of an RB as stated in the certification,
this limitation. including the placement being accepted by
the entity concerned, shall not exceed the
Sec. X237 Money Market Placements of RB’s combined capital accounts or net worth
Rural Banks. Banks shall not accept less current obligations with the BSP or other
money market placements from any RB government financial entities;
unless the latter presents a certification b. The maturity of the money market
under oath stating: (a) that it has no overdue placement shall not exceed sixty (60) days;
special time deposits; (b) that it has no past and
due obligations with the BSP or other c. That placements shall be evidenced
government financial institutions; (c) the in all cases by promissory notes of
amount of its current obligations, if any, acceptingentities/repurchase agreements
with said government financial institutions; and/or certificates of participation/
and (d) the amount of its total outstanding assignment with recourse and that
money market placements. However, in underlying instruments shall be certificates
no case shall such banks sell receivables of indebtedness issued by the BSP or other
to RBs without recourse. government securities the servicing and

Part II - Page 22 Manual of Regulations for Banks


§§ X237.2 - X238.1
05.12.31

repayment of which are guaranteed by the Unregistered commercial papers may


Republic of the Philippines. be sold, discounted, assigned, or negotiated
by banks to the following:
§ X237.3 Sanctions. Violations of the a. other banks;
provisions of this Section shall be subject b. quasi-banks;
to the following sanctions/penalties: c. investment houses (IHs);
a. Monetary Penalties d. insurance companies;
First Offense - Fines of P3,000 a day, e. finance companies;
reckoned from the date placement started f. investment companies;
up to the date when said placement was g. pension or retirement plan
withdrawn, for each violation shall be maintained by the government of the
assessed on the bank. Philippines or any political subdivision
Subsequent Offenses - Fines of P5,000 thereof or managed by a bank or other
a day, reckoned from the date placement persons authorized by the Bangko Sentral
started up to the date placement was to engage in trust functions;
withdrawn, for each violation shall be h. funds managed by another bank or
assessed on the bank. other entities duly authorized to engage in
b. Other Sanctions trust or other fiduciary business; and
First Offense - Reprimand for the i. such other person as the SEC may by
directors/officers who approved the rule determine as qualified buyers, on the basis
acceptance/placement with a warning that of such factors as financial sophistication, net
subsequent violations will be subject to worth, knowledge, and experience in financial
more severe sanctions. and business matters, or amount of assets
Subsequent offenses - under management.
(1) Suspension for ninety (90) days
without pay for directors/officers who § X238.1 Delivery of securities1
approved the placement. a. Securities sold on a without
(2) Suspension or revocation of the recourse basis allowed under Section X238
authority to engage in quasi-banking shall be delivered physically to the
functions. purchaser, or to his designated custodian
duly accredited by the BSP, if certificated,
Sec. X238 Without Recourse Transactions or by means of book-entry transfer to the
No bank shall sell, discount, assign, or appropriate securities account of the
negotiate, in whole or in part, such as purchaser or his designated custodian in a
thru syndications, participations and other registry for said securities, if immobilized
similar arrangements, any notes, or dematerialized, while the confirmation
receivables, loans, debt instruments and of sale or document of conveyance by the
any type of financial asset or claim, except seller shall be physically delivered to the
government securities, or be a party in purchaser. The custodian shall hold the
any capacity in any of the above securities in the name of the buyer: Provided,
transactions, on a without recourse basis That a bank/other entity authorized by the
unless such receivables, notes, loans, debt BSP to perform custodianship function may
instruments and financial assets or claims not be allowed to be custodian of securities
are registered with the SEC. This issued or sold on a without recourse basis by
prohibition includes transactions between said bank/entity, its subsidiaries or affiliates,
a bank and its trust department. or of securities in bearer form.

1
Effective 01 January 2005 under Circular 460 dated 12 November 2004.

Manual of Regulations for Banks Part II - Page 23


§§ X238.1 - X238.3
05.12.31

The delivery shall be effected upon § X238.3 Securities custodianship


payment and shall be evidenced by a operations
securities delivery receipt duly signed by a. Securities sold on a without
the authorized officer of the custodian and recourse basis shall be delivered to the
delivered to the purchaser. purchaser, or to his designated custodian
b. Sanctions. Violation of any duly accredited by the BSP: Provided, That
provision of this Subsection shall be subject a bank/other entity authorized by the BSP
to the following sanctions/penalties: to perform custodianship function may not
(1) Monetary penalties be allowed to be custodian of securities
First offense – Fine of P10,000 a day issued or sold on a without recourse basis
for each violation reckoned from the date by said bank/entity, its subsidiaries or
the violation was committed up to the date affiliates, or of securities in bearer form.
it was corrected. Existing securities being held under
Subsequent offenses – Fine of P20,000 custodianship by banks/other entities
a day for each violation reckoned from the under BSP supervision, which are not in
date the violation was committed up to the accordance with said regulation, must
date it was corrected. therefore, be delivered to a BSP accredited
(2) Other sanctions third party custodian. However, banks and
First offense – Reprimand for the other financial institutions under BSP
directors/officers responsible for the supervision may maintain custody of
violation. existing securities of their clients who are
Subsequent offense – unable or unwilling to take delivery
(a) Suspension for ninety (90) days pursuant to the provisions of Subsec.
without pay of directors/officers X235.5 but who declined to deliver their
responsible for the violation; existing securities to a BSP accredited third
(b) Suspension or revocation of the party custodian subject to the following
accreditation to perform custodianship conditions:
function; (1) the custody arrangements with
(c) Suspension or revocation of the clients have been in existence prior to 05
authority to engage in quasi-banking November 2004 (effectivity of Circular 457
function; and/or dated 14 October 2004);
(d) Suspension or revocation of the (2) the dealing bank/NBFI under BSP
authority to engage in trust and other supervision had been informed in writing
fiduciary business. by the client that he is not willing to have
his existing securities delivered to a third
§ X238.2 Sanctions. Unless specific party custodian;
sanctions are prescribed under these rules, (3) any BSP regulated institution shall
any violation of the provisions of this not enter into securities transactions with
Section shall be subject to any or all of the a client who has outstanding securities not
following sanctions: delivered to a BSP accredited third party
a. Suspension of quasi-banking custodian; and
authority for a period of six (6) months; (4) it shall be the responsibility of any
and BSP regulated institution to satisfy itself that
b. Monetary penalty of P500 per day the person purchasing securities from it has
per transaction for each officer of the bank no outstanding securities holdings which
involved in any capacity in any transaction were not delivered to a BSP accredited
violative of these regulations. third party custodian.

Part II - Page 24 Manual of Regulations for Banks


§§ X238.3 - X239.4
05.12.31

b. Sanctions. Without prejudice to the b. Net book value shall refer to the
penal and administrative sanctions provided acquisition cost of property or accounts
for under Sections 36 and 37, respectively, plus additions and improvements thereon
of the R.A. No. 7653, violation of any less valuation reserves, if any.
provision of this Subsection shall be subject c. Current market value shall refer to
to the following sanctions/penalties: the value of the property as established by
(1) First Offense – a duly licensed and independent appraiser.
(a) Fine of up to P10,000 a day for the
institution for each violation reckoned from § X239.2 Compliance with Securities
the date the violation was committed up and Exchange Commission rules on
to the date it was corrected; and registration of bond issues. All banks with
(b) Reprimand for the directors/officers quasi-banking authority issuing or
responsible for the violation. intending to issue bonds shall comply with
(2) Second Offense - the New Rules on Registration of Long-
(a) Fine of up to P20,000 a day for the Term Commercial Papers promulgated by
institution for each violation reckoned from the SEC (Appendix 13).
the date the violation was committed up
to the date it was corrected; and § X239.3 Notice to Bangko Sentral ng
(b) Suspension for ninety (90) days Pilipinas. Within three (3) days from approval
without pay of directors/officers by SEC of its bond issue, the bank concerned
responsible for the violation. shall notify the appropriate SED of the BSP
(3) Subsequent Offenses – of the approval attaching thereto the
(a) Fine of up to P30,000 a day for the documents required by the SEC for the
institution for each violation from the date issuance and registration of the bond issue.
the violation was committed up to the date
it was corrected; § X239.4 Minimum features. Bonds
(b) Suspension or revocation of the issued by banks shall have the following
authority to act as securities custodian and/ minimum features:
or registry; and a. Form; issue price; denomination.
(c) Suspension for one hundred twenty The trust indenture and the name of the
(120) days without pay of the directors/ indenture trustee shall be indicated on the
officers responsible for the violation. face of the bond certificate.
The SEC-assigned bond registration
Sec. X239 Issuance of Bonds. The number and expiry date, if any, shall
following guidelines shall govern the likewise be indicated, stamped on the face
issuance of bonds by banks with quasi- of each bond certificate issued.
banking authority. Bonds may be issued at face value, at
a discount or at a premium. Minimum
§ X239.1 Definition of terms. For denomination shall be P20,000.
purposes of this Section, unless the context b. Term - The minimum term of the
clearly indicates otherwise, the following bonds shall be four (4) years. No optional
shall have the meaning as indicated: redemption before the fourth year shall be
a. Government securities shall refer allowed.
to evidences of indebtedness of the c. Interest; manner; form of payment
Republic of the Philippines or its The bonds shall not be subject to interest
instrumentalities, or of the BSP, and must rate ceilings prescribed by the Monetary
be freely negotiable and regularly serviced. Board or Act No. 2655, as amended.

Manual of Regulations for Banks Part II - Page 25


§§ X239.4 - X240
05.12.31

d. Trust indenture; collaterals; sinking § X239.5 Issuance of commercial


fund - A trust indenture shall be executed papers. The issuance of other forms of
between the issuer and a qualified trust commercial papers by banks with quasi-
corporation as trustee, which shall neither banking authority shall be subject to the
be an affiliate nor a subsidiary of the new rules on registration of short-term and
issuer. long-term commercial papers appended
The following shall be deemed as hereto as Appendices 13 and 14.
eligible collateral and shall be maintained
at respective values indicated in relation F. GOVERNMENT DEPOSITS
to the face value of the bond issue:
(1) Government - Aggregate Sec. X240 Statement of Policy. As a
securities current general policy, cash balances of the
market value Government, its political subdivisions and
of 100% instrumentalities as well as of government-
(2) Readily marketable - Aggregate
owned or controlled corporations shall be
private securities current
listed in the big board market value deposited with the BSP, with only
of stock exchanges of 150% minimum working balances to be held by
(3) Real estate - Net book government-owned banks and such other
value of 100% banks incorporated in the Philippines as
(4) Unmatured - Net book the Monetary Board may designate:
receivables acquired value of 150% Provided, That such banks may be
with recourse authorized by the Monetary Board to hold
(5) Unmatured - Net book deposits of the political subdivisions and
receivables acquired value of 200% instrumentalities of the Government beyond
without recourse their minimum working balances whenever
Government and private securities, such subdivisions and instrumentalities have
certificates of title and documents outstanding loans with said banks.
evidencing receivables offered as security For purposes of this Section:
shall be physically delivered to the a. The term government-owned or
indenture trustee. Substitution of controlled corporations shall refer to
collaterals shall be allowed provided that government-owned or -controlled
in no case shall the collateral fall below corporations which are created by special
the herein required ratios. laws. It shall exclude government financial
The issuer may, at his option, provide institutions such as DBP, LBP and Al-
for the retirement at maturity of the bond Amanah Islamic Investment Bank of the
issue through the sinking fund to be Philippines, corporations which are
deposited with and managed by the created under the provisions of the
indenture trustee. Corporation Law (Act No. 1459, as
e. Bond registry - The bonds shall be amended) or the Corporation Code (BP
fully registered as to principal and interest. Blg. 68) and private corporations which are
The issuer, its trustee, agent or underwriter taken over by government-ownedor-controlled
must maintain a bond registry duly corporations.
approved by the SEC for recording initial b. Minimum working balances
and subsequent transfers the names of shall represent the minimum amounts
transferees, date of transfer, purchase price necessary to enable the government
and serial numbers of bonds transferred. instrumentality/political subdivision

Part II - Page 26 Manual of Regulations for Banks


§§ X240 - X240.2
05.12.31

making the deposit to transact business (2) an RB may only act as official
efficiently and effectively as determined depository of municipal, city or
by the Department of Finance. provincial funds in the municipality,
city or province where the RB is located;
§ X240.1 Prior Monetary Board and
approval. No private bank shall, without (3) a Coop Bank may accept deposits
prior approval of the Monetary Board, of all government departments, agencies
accept, as depository, any fund or money and units of the national and local
from the Government, its political governments including government-
subdivisions and instrumentalities, and owned or-controlled corporations.
government-owned or-controlled c. Where there is no government
corporations; nor shall a private bank bank or BSP office in the province and
borrow any fund or money therefrom, the nearest government bank or BSP
through the issuance or sale of its office is inaccessible by ordinary
acceptances, notes or other evidences of transportation, or transporting/withdrawing
indebtedness. the government deposits to and from
the said office is impractical or risky,
§ X240.2 Banks which may accept the province, as well as cities and
government funds municipalities located therein, may
a. Banks, the majority of the capital seek approval of the Monetary Board to
of which is owned by the Government, consider all their funds eligible for
may act as depository of funds of the deposits with a qualified private
Government, its political subdivisions and depository bank within the province,
instrumentalities, and government-owned city or municipality, as the case may
or-controlled corporations. be.
b. Private banks incorporated in the d. Banks acting as official
Philippines may act as depository of depository of government funds may
government funds only with the prior accept demand, savings or time
approval of the BSP. Local government deposits.
units may maintain depository accounts e. The authority of a bank to
preferably in government banks and, in accept government deposits does not
exceptional cases and with the prior obligate the Government, its subdivisions
approval of the Monetary Board, in the and instrumentalities and government-
name of their respective government owned or-controlled corporations to
units, in private banks located in or deposit with that bank. Thus, even if a
nearest to their respective areas of TB or RB is authorized by the Monetary
jurisdiction but the depository bank(s) Board to accept government deposits,
must also seek the prior approval of the a municipality is not obligated to
BSP: Provided, That a TB/RB/Coop Bank deposit with that TB or RB. Similarly, a
may only act as official depository of bank which is authorized to accept
government funds pursuant to R.A. Nos. deposits of the Government or a
7906, 7353 and 6938, as follows: government corporation because of
(1) a TB may only act as official outstanding loans granted by the bank
depository of national agencies, and of cannot demand as a matter of right that
municipal, city or provincial funds in the the Government or government
municipality, city or province where corporation make deposits unless there
the TB is located; is a stipulation in the loan agreement.

Manual of Regulations for Banks Part II - Page 27


§§ X240.3 - X240.5
05.12.31

§ X240.3 Prerequisites for the grant or-controlled corporations shall be


of authority to accept deposits from the supported by the following documents
Government and government entities. In whenever applicable:
addition to the Standard Pre-qualification a. A copy of the resolution of the
Requirements for the Grant of Banking barangay, municipal or city council
Authorities enumerated in Appendix 5, (Sangguniang Bayan/Panglunsod) or the
private banks applying for authority to provincial board (Sangguniang
accept deposits from the Government, its Panlalawigan) authorizing the deposit of
subdivisions and instrumentalities and municipal, city or provincial funds;
government-owned or-controlled b. A copy of the resolution of the
corporations and government banks board of directors of the government-
applying for authority to accept owned or controlled corporations
government deposits in excess of minimum authorizing the deposit of funds of said
working balances shall also comply with corporations; or
the following conditions: c. In case of the National
a. The applicant bank must have Government, its unincorporated branches,
complied with the minimum capital agencies and instrumentalities, a written
required under Subsecs. X106.1 and authority to deposit government funds
X106.2; and signed by the duly authorized official of
b. It must be a member of the PDIC the department, agency, office or unit
in good standing. making the deposit.
The resolution or authority should state
§ X240.4 Application for authority the name and location of the depository
An application for authority to accept bank, type and terms of the deposit, and
government deposits shall be signed by that the amount to be deposited represents
the president of the bank and shall be filed working balances.
with the appropriate SED of the BSP. The
application shall be accompanied by a § X240.5 Limits on funds of the
certification by the bank president or Government and government entities that
executive vice-president that the bank may be deposited with banks
has complied with all the requirements a. Funds of the Government, its
enumerated under Subsec. X240.3. subdivisions and instrumentalities and
Banks authorized to accept government government-owned or-controlled
funds as depository shall continuously corporations, deposited with banks
comply with the conditions enumerated authorized to receive deposits shall be
under Subsec. X240.3 even after the limited to the minimum working balance
authority to accept government deposits of the depositor.
has been granted and during the period With prior Monetary Board approval,
while the banks actually hold government government or private banks may be
deposits, otherwise, any violation may be authorized to accept amounts in excess
a basis for the imposition of sanctions of minimum working balances if the
against the bank, its directors and officers, Government or government entity making
or revocation of the authority to accept the deposit has outstanding loan
government deposits. obligations to the depository bank but such
Deposits maintained by the amounts shall not exceed the amount of
Government, its subdivisions and its outstanding loan obligations to the
instrumentalities and government-owned depository bank. The amount of non-

Part II - Page 28 Manual of Regulations for Banks


§§ X240.5 - X240.6
05.12.31

transferable and non-negotiable Eligible securities being used as such


government securities with market or reserve shall not in any way be encumbered
below market interest rate at the time of or be subject to any transaction without prior
issue, issued by the National Government approval of the BSP.
to the depository bank shall be considered Also eligible for liquidity floor are the
as “outstanding loans” of the National following:
Government to said bank within the a. The free portion of the “Due from
meaning of Section 113 of R.A. No. 7653. Bangko Sentral - Local Currency” after
b. The aggregate amount of satisfying the legal and other reserve
government funds which a private bank requirements; and
can hold at any given time shall not b. NDC Agri-Agra ERAP Bonds, which
exceed 200% of the bank’s net worth. are not being used as alternative compliance
c. Where any director, officer or with PD 717. Such bonds shall not in any
stockholder of a private bank, as defined way be encumbered or be subject to any
under Subsec. X326.1, is also an elective transaction without prior approval of the BSP.
or appointive official of a municipality, city c. Securities backed by the unreleased
or province, said bank is prohibited from Internal Revenue Allotments (IRA) of local
accepting deposits from said municipality, government units (issued by a Special
city or province unless it is the only bank Purpose Trust administered by the DBP
existing therein: Provided, That this under the IRA Monetization Program of the
provision shall not be construed as a grant Union of Local Authorities of the
of authority to such elective or appointive Philippines) the release of which IRA on
public official to act as director or officer scheduled date of payment has been
of a private bank. certified by the DBM as not being subject
to any conditionalities: Provided, That
§ X240.6 Liquidity floor. Unless such securities shall be eligible only to the
otherwise prescribed by the Monetary extent of the present value of the bond
Board, authorized government depository computed using the original yield to
banks other than the BSP, and authorized maturity (as of auction/issue date).
private banks shall, inclusive of the d. Tobacco Excise Tax Receivables
required reserves against deposits and/or Monetization Program Investment
deposit substitutes, maintain a fifty percent Certificates (TEXTR Certificates) backed by
(50%) liquidity floor with respect to receivables representing the unreleased
deposits of, borrowings from, and all other portion of the obligation of the National
liabilities to, the Government and Government to its LGU for their share of
government entities, in the form of the Tobacco Excise Taxes under R.A. No.
transferable government securities which 7171 amounting to P1.85 billion and
represent direct obligations of the National covering the years 2001 and 2002: Provided,
Government. That such securities shall be eligible only to
Government securities representing the extent of the present value of the securities
direct obligations of the National computed using the original yield to maturity
Government regardless of maturity, issued as of auction/issue date.
pursuant to the provisions of R.A. No. 245, For purposes of computing the fifty
as amended by P.D. No. 142, which are percent (50%) liquidity floor requirement
not otherwise earmarked or used as part on all government funds held by authorized
of other reserve requirements of the BSP, banks, banks shall adopt a one (1)-week
shall be eligible as liquidity reserves. lag system, effective 04 May 2001.

Manual of Regulations for Banks Part II - Page 29


§§ X240.7 - X240.9
05.12.31

§ X240.7 Exempt transactions. The a. The deposit account with the BSP
following deposits of, borrowings from and/ of the bank concerned shall be debited
or liabilities to, the Government and by the Accounting Department of the
government entities shall be exempt from BSP in the amount of the unauthorized
the liquidity floor: deposit or borrowing upon receipt of a
a. Obligations to the BSP arising report or notice from the appropriate SED
from rediscounting facilities and those of the BSP and the deposit account of
through the sale of government securities the government institutions with the BSP
under repurchase agreements made in shall be credited for the same amount. A
connection with the provisions of Sec. copy of said report or notice of the SED
X269 and Subsec. X601.1 of the MOR; shall be furnished each to the bank
b. Special time deposits (STDs) and concerned and the government institutions.
deposit substitutes under the special b. The withdrawal of previously
financing program of the Government and/ granted authority to accept government
or international financial institution; funds;
c. Obligations to the BSP consisting c. Without prejudice to the sanctions
of emergency advances, overdraft facilities, under Section 35 of R.A. No. 7653, the
and those arising from peso swap following administrative sanctions shall be
differentials and supervision and imposed if any part of the certification as
examination fees; required in this Section is found to be false
d. Marginal deposits on importations; or misleading:
e. Due to the Treasurer of the On the Bank - Cancellation of the
Philippines (unclaimed deposit balances); authority to accept government deposits
f. Funds held by participating if one has already been granted and/or
financial institutions (PFIs) under the GSIS disqualification to act as a government
Housing Loan Programs: Provided, That the depository for not more than one (1) year.
agreement between GSIS and the conduit On the Certifying Officer - A fine of
banks specify that such funds may be held P5,000 per day from the time the
by the conduit banks for a period of not certification was found to be false, for each
more than seven (7) calendar days prior to application filed with the BSP.
their release to the borrower and prior to d. Any bank with deficiency in the
the remittance by the conduit banks of required liquidity floor against deposits of,
payment to the GSIS; and/or borrowings from, the Government
g. Deposits of the BIR and BOC; and and government entities or with excess
h. Any other form of deposits, holdings of such deposits shall: (1) be
borrowings and/or liabilities specifically denied the credit facilities of the BSP; and
authorized by law or exempted by the (2) if the deficiency lasts for four (4)
Monetary Board. consecutive weeks, the bank shall be
prohibited from declaring cash dividends
§ X240.8 Reports. Banks shall submit and making new loans and investments,
to the appropriate SED of the BSP a report of except investments in government securities.
their government deposits from all sources The prohibition shall be lifted by the
in the aggregate in the prescribed form. Governor of the BSP, upon certification by
the appropriate SED that the bank has had
§ X240.9 Sanctions. Any violation of no deficiency in its liquidity floor and no
this Section shall be a ground for the excess holdings of government deposits for
imposition of the following sanctions: at least four (4) consecutive weeks.

Part II - Page 30 Manual of Regulations for Banks


§§ X240.10 - X243
05.12.31

§§ X240.10 - X240.14 (Reserved) § X242.2 Treatment of matured time


deposits/deposit substitutes
§ X240.15 Acceptance by banks with a. A time deposit not withdrawn or
internet banking facility of payment of renewed on its due date shall be treated as
fees for account of government entities a savings deposit and shall earn interest
Domestic private banks with BSP- from maturity to the date of actual
approved internet banking facility are withdrawal or renewal at a rate applicable
allowed to accept payment of fees/other to savings deposits.
charges of similar nature for the account b. A deposit substitute instrument
of the departments, bureaus, offices and not withdrawn or renewed on its maturity
agencies of the government as well as all date shall from said date become payable
government-owned and controlled on demand and shall earn an interest or
corporations: Provided, That the funds so yield from maturity to actual withdrawal
accepted/collected shall be treated as or renewal at a rate applicable to a deposit
deposit liabilities subject to existing substitute with a maturity of fifteen (15) days.
regulations on government deposits and Banks performing quasi-banking
shall not exceed the minimum working functions shall continue to consider
balance of the said government entities. matured and unwithdrawn deposit
These banks are required to notify substitutes as such and subject to reserves.
the appropriate SED that supervises the
bank, copy furnished the Head of the Sec. X243 Disclosure of Effective Rates
Technical Working Group on E- of Interest. Banks are required to disclose
Banking, Supervisory Data Center to depositors the following information on
(SDC), of the names of the government interest computation and payments:
institutions that will interface with their a. Type/kind of deposit;
systems and any changes that may b. Nominal rate of interest and
subsequently be made on the period covered;
arrangements. c. Manner of interest payment, i.e.,
whether credited in advance or otherwise;
Sec. X241 (Reserved) d. Basis of interest payment, i.e.,
whether based on average daily balance
G. INTEREST compounded quarterly or otherwise;
e. Effective rate of interest expressed
Sec. X242 Interest on Deposits/ as a simple annual rate, on the basis of the
Deposit Substitutes. Demand, savings, information above given and indicating the
NOW accounts, time deposits and formula used to arrive at the effective rate
deposit substitutes shall not be subject to of interest; and
interest ceilings. f. Illustration of basis of computing
interest on a hypothetical deposit account.
§ X242.1 Time of payment of Copies of the above-mentioned
interest on time deposits/deposit information shall be made available to
substitutes. Interest or yield on time each and every depositor by attaching
deposit/deposit substitute may be paid at these copies to savings deposit passbooks
maturity or upon withdrawal or in and time deposit certificates. Posters
advance: Provided, however, That interest disclosing the above information and
or yield paid in advance shall not exceed aggregate deposit rates shall also be displayed
the interest for one (1) year. conspicuously within the bank premises.

Manual of Regulations for Banks Part II - Page 31


§§ X244 - X253.2
05.12.31

Secs. X244 - X252 (Reserved) only to REPOs, the documentation of which


conforms with, and were delivered to a BSP
H. RESERVES AGAINST DEPOSIT accredited third party custodian as required
AND DEPOSIT SUBSTITUTE LIABILITIES under existing BSP regulations.

Sec. X253 Accounts Subject to Reserves; § X253.2 Liquidity reserves. On top


Amounts Required. The following rules of the regular reserve requirements,
and regulations shall govern the reserves liquidity reserves against peso demand,
against deposit and deposit substitute savings, time deposit and deposit substitute
liabilities. liabilities shall be maintained, as follows:

§ X253.1 Regular reserves against Liquidity


deposit and deposit substitute liabilities Category of Banks Reserves
The rates of regular reserves against deposit a. UBs/KBs 11%3
and deposit substitute liabilities in local b. TBs 2%
currency of banks shall be as follows: c. RBs/Coop Banks:
(1) Demand Deposits 0%
RBs/ (2) Savings/Time
UBs/KBs TBs Coop Banks Deposits 0%
a. Demand
Deposits 10%1 6% 6%
The liquidity reserves for LTNCTDs
b. NOW Accounts 9% 6% 6%
shall be 0%.
c. Savings
Deposits 10%1 6% 2% The required liquidity reserves may be
d. Time Deposits, maintained in the form of:
Negotiable CTDs, a. Short-term market-yielding government
Long-Term Non- 10%1 6% 2% securities purchased directly from the BSP-
Negotiable Tax- Treasury Department;
Exempt CTDs b. NDC Agri-Agra ERAP Bonds which
Long-term NCTDs 2% 2% 2% are not being used as alternative
e. Deposit compliance with P.D. No. 717. Such bonds
Substitutes 10% 6% NA
shall not in any way be encumbered or be
f. IBCL 0% 0% 0%
subject to any transaction without prior
(Sec. X343)
g. Bonds 5% 5% NA approval of the BSP; and
h. Mortgage/ c. Poverty Eradication and Alleviation
CHM cert. NA 5% NA Certificates (PEACe) bonds only to the
extent of the original gross issue proceeds
Provided, That deposit substitutes determined at the time of the auction, plus
evidenced by repurchase agreements capitalized interest on the underlying zero-
(REPOs) covering government securities up coupon Treasury Notes as and when the
to the amount equivalent to the adjusted corresponding interest is earned over the
Tier 1 capital of the bank shall be subject life of the bonds.
to the statutory reserve of two percent (2%)2: Any deficiency shall be in the form
Provided, further, That such rate shall apply prescribed in Items “a” and “b” of Sec. X254.

1
From 9 % to 10% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.
2
The statutory reserve of two percent (2%) may not yet be availed of pending:
(a) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions evidenced
by REPOs covering government securities; and
(b) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP-accredited third party
custodian.
3
From 10% to 11% under Circular 491 dated 12 July 2005 effective the reserve week starting 15 July 2005.

Part II - Page 32 Manual of Regulations for Banks


§§ X254 - X254.2
05.12.31

Sec. X254 Composition of Reserves. The Provided, That any substitution or


composition of the required reserves shall acquisition satisfies the eligibility
be as follows: requirements prescribed above: Provided,
a. Deposits with the BSP. At least further, That the bank notifies the BSP of
twenty-five percent (25%) shall be in the any such change in the prescribed forms
form of deposits with the BSP. not later than the reporting day following
b. Government securities and cash the change. Securities counted as reserves
in vault. The remaining portion of the may not be hypothecated or encumbered
required reserves may be held by all banks in any way or earmarked for any other
in the form of cash in vault and/or purpose without automatically losing their
government securities or evidences of eligibility as reserves.
indebtedness of the Republic of the Only the buying/lending bank in an
Philippines. agreement covering eligible government
To support the implementation of the securities may use such securities as
provisions of Subsecs. X343.3 and X601.3, reserves against deposits/deposit
the cash-in-vault (CIV) component of substitutes. Conversely, the selling/
available reserves shall be based on the borrowing bank in a resale agreement
actual CIV balance outstanding one (1) covering eligible government securities
banking day lag, for purposes of computing may not use such securities as reserves
the reserve position of the current day. against deposits/deposit substitutes.
For purposes of this Section, The list of reserve-eligible and non-
government securities which may form part eligible securities may be found in
of the reserves against deposits/deposit Appendix 15.
substitute liabilities of banks shall refer to The reserve eligibility of government
bonds or other evidences of indebtedness securities under the reverse repurchase
representing direct obligations of the operations of the BSP shall be suspended
Government of the Republic of the during the term of the reverse repurchase
Philippines: Provided, That such securities agreement.
shall have the following minimum features/ The phrase non-reserve eligible shall
conditions: be stamped on the face of the custodian
(1) The securities must bear an interest receipt being issued by the BSP to buyer
rate of not more than four percent (4%) financial institutions.
per annum, must be non-negotiable and
shall carry BSP support; and § X254.1 Allowable drawings against
(2) The amount, maturity date and rate reserves. Deposit with the BSP to comply
of interest must be definite and stated in with reserve requirements are not regular
the certificate itself. current accounts. The use, therefore, of
Other government securities being BSP checks for drawings against reserve
used for reserve purposes shall continue deposits shall be limited to (a) settlement
to be eligible as such: Provided, That of obligations with the BSP, and (b)
whenever said securities shall have withdrawals to meet cash requirements.
matured, they shall be replaced by
securities carrying the above features. § X254.2 Exclusion of uncleared
The securities held as reserves under checks and other cash items. Checks and
Item "b" and last paragraph of Sec. X253 other cash items which have not been
shall be valued at cost of acquisition and cleared yet through the Clearing Office
the bank may freely alter its composition: should not be debited to the account Due

Manual of Regulations for Banks Part II - Page 33


§§ X254.2 - X256
05.12.31

from the BSP and should not be considered Sec. X255 Exemptions from Reserve
as available reserves against deposit/ Requirements. The following shall be
deposit substitute liabilities. Such items exempt from reserve requirements:
shall be debited to the Checks and Other a. All collections credited to the special
Cash Items account. account “Due to BSP - Internal Revenue
Only after the checks and other cash Account (Other Cities and Municipalities)”;
items have been cleared through the b. Special time deposits from the
Clearing Office can the bank debit the Due Agrarian Reform Fund Commission and
from the BSP account for said items. special savings deposits from farmer-
borrowers; and
§ X254.3 Interest income on reserve c. Unclaimed balances of deposit
deposits. Deposits maintained by banks liabilities already reported to the Treasurer
with the BSP up to forty percent (40%) of of the Philippines in accordance with the
the reserve requirement (excluding the Unclaimed Balances Act (Act No. 3936,
liquidity reserve mentioned in Subsec. as amended) and transferred/reclassified
X253.2 against the combined deposit and from the deposit liability/other credit
deposit substitute liabilities of banks accounts to the liability account “Due to
allowed to be maintained in the form of the Treasurer of the Philippines.”
short-term market yielding government Local banks may deduct from the
securities purchased directly from the BSP- amount of their gross demand deposits,
Treasury Department) shall be paid interest the total of their Due from Local Banks -
at four percent (4%) per annum based on Demand and Due from PNB - Clearing in
the average daily balance of said deposits an amount not exceeding the total of their
to be credited quarterly. Demand Deposits-Banks and Due to Local
The computation of quarterly interest Banks. As used herein, the term “gross
payments credited to the demand deposit demand deposits” shall mean the sum of
accounts (DDAs) of banks’ legal reserve all individual deposits, including deposits
deposits with BSP are shown in Appendix 54. made by other local banks, the Philippine
Effective 01 July 2003, published interest Government, its political subdivisions and
rates that will be applied on BSP’s Regular instrumentalities, and government-owned
DDAs of banks shall be inclusive of the ten or -controlled corporations.
percent (10%) Value Added Tax (VAT).
Sec. X256 Computation of Reserve
§ X254.4 Book entry method for Position. The reserve position of any bank
reserve securities. In the implementation and the penalty on reserve deficiency shall
of the book entry system for transactions be computed based on a seven (7)-day
in government securities eligible for week, starting Friday and ending Thursday,
reserves, transactions concerning reserve- including Saturdays, Sundays, public
eligible securities shall be entered in the special/legal holidays, non-banking days,
respective securities account of each bank unexpected declared non-banking days or
with the BSP and shall be evidenced by declared half-day holidays and days when
securities account debit or credit advices there is no clearing: Provided, That with
to be promptly furnished the institution/s reference to public special/legal holidays,
concerned. No certificate shall be issued non-banking days, unexpected declared
for any purpose. Transactions with third non-banking days, declared half-day
parties other than the BSP shall not be holidays and days when there is no
recognized. clearing, the reserve position as calculated

Part II - Page 34 Manual of Regulations for Banks


§§ X256 - X257
05.12.31

at the close of the business day immediately the corresponding penalties on reserve
preceding such public special/legal deficiencies shall also apply.
holidays, non-banking days and unexpected c. The lagged system in the
declared non-banking days and declared measurement of a bank’s reserve
half-day holidays and days when there is requirement, as provided in Subsec.
no clearing, shall apply thereon. For this X256.1, shall also be adopted in the
purpose, the principal office in the calculation of the two percent (2%)
Philippines and all other banking offices statutory reserve requirements for REPOs
located therein shall be treated as a single covering government securities.
unit. d. Deposit substitutes evidenced by
repurchase agreements covering
§ X256.1 Measurement of reserve government securities in excess of the
requirement. The required reserves in the adjusted Tier 1 capital shall be treated as
current period (reference reserve week) regular deposit substitutes and shall be
shall be computed based on the subject to the regular statutory and liquidity
corresponding levels of deposit and deposit reserve requirements under existing
substitute liabilities of the prior week. regulations.

§§ X256.2 – X256.4 (Reserved) Sec. X257 Reserve Deficiencies; Sanctions


Whenever the reserve position of any bank
§ X256.5 Guidelines in calculating and computed in the manner specified in Sec.
reporting to the BSP the required reserves X256 is below the required minimum, it
on deposit substitutes evidenced by shall pay the BSP one-tenth of one percent
repurchase agreements covering (1/10 of 1%) per day on the amount of the
government securities deficiency or the prevailing ninety-one (91)
a. The Supervisory Data Center (SDC) day Treasury Bill rate plus three (3)
shall determine the maximum allowable percentage points, whichever is higher:
amount of REPOs covering government Provided, however, That a bank shall be
securities that will qualify for the reduced permitted to offset any reserve deficiency
statutory reserve requirements of two percent occurring one (1) or more days of the
(2%). It shall be based on the amount week covered by the report against excess
reported by banks in their weekly reserves which it may hold on other days
Consolidated Daily Report of Condition. The of the same week, and shall be required
adjusted Tier 1 capital reported daily should to pay the penalty only on the average
approximate the quarterly adjusted Tier 1 daily net deficiency during the week.
capital as submitted by banks in compliance In case of abuse, a bank shall
with the provisions of Sec. X116. automatically lose the privilege of offsetting
b. Any material differences that may reserve deficiency in the aforesaid manner
be noted by the SDC between the daily until such time that it maintains its daily
and the quarterly report shall be considered reserve position at the required minimum
as erroneous reporting and shall be subject for at least two (2) consecutive weeks.
to the penalties under existing As used in this Section, “abuse”* in
regulations. The SDC shall also make a re- the privilege of offsetting reserve
run of its computation of the bank’s reserve deficiencies against excess reserves shall
position and in the event that the reserve mean having reserve deficiencies
position resulted to a reserve deficiency/ies, occurring four (4) or more times during

* The reserve weeks, 20 to 26 December 2002 and 27 December 2002 to 2 January 2003, shall be considered as a
single reserve week for the purpose of determining “abuse” of the privilege of offsetting reserve deficiencies against excess
reserves during the reserve week.

Manual of Regulations for Banks Part II - Page 35


§§ X257 - X261.1
05.12.31

any given week for two (2) consecutive consecutive banking days; and (c)
weeks, whether or not resulting in net establishing branches. The denial from
weekly deficiencies. availment of credit facilities of the BSP shall
continue for as long as the bank maintained
§ X257.1 Chronic reserve deficiency; credit balances with the BSP for at least
penalties. In cases where the bank has fifteen (15) consecutive banking days.
chronic reserve deficiency in deposit/ For purposes of computing the total
deposit substitute liabilities, the bank shall available reserves against deposit/deposit
be denied the credit facilities of the BSP; substitute liabilities, the total amount
and the Monetary Board may: (a) limit or of overdrawing in the clearing account with
prohibit the making of new loans or the BSP shall be deducted from available
investments by the bank; and (b) prohibit reserves after the required reserves against
the declaration of cash dividends. The deposit/deposit substitute liabilities shall
board of directors of said bank shall be have been satisfied.
notified of such chronic reserve deficiency
and the penalties therefor, and be required § X257.3 Payment of penalties on
to immediately correct the reserve position reserve deficiencies. Penalties if unpaid
of the bank. within fifteen (15) days from receipt of
As used in this Subsection, “chronic the assessment, shall be charged against
reserve deficiency” shall mean having net the demand deposits of banks with the
reserve deficiencies for two (2) BSP: Provided, That where the bank’s
consecutive weeks. credit balance is insufficient and it fails to
settle the assessment, the Monetary Board
§ X257.2 Failure to cover overdrawings may limit or prohibit the making of new
with the Bangko Sentral. Any bank which loans or investments by the bank.
incurs an overdrawing in its deposit
account with the BSP shall fully cover said Sec. X258 Report on Compliance. Every
overdraft not later than the next clearing bank shall make a weekly report to the
day including interest thereon equivalent BSP of its daily required and available
to one-tenth of one percent (1/10 of 1%) reserves on deposit/deposit substitute
per day or the prevailing ninety-one (91) liabilities in the prescribed forms.
day Treasury Bill plus three (3) percentage
points, whichever is higher. In case a bank Secs. X259 - X260 (Reserved)
fails to cover its overdrawings, it shall be
excluded from clearing on such day and it I. SUNDRY PROVISIONS
shall also be denied the credit facilities ON DEPOSIT OPERATIONS
of the BSP. Such exclusion from clearing
shall continue for as long as it has not Sec. X261 Booking of Deposits and
maintained credit balances with the BSP Withdrawals. The following regulations
for at least five (5) consecutive banking shall govern the booking of deposits and
days. If its clearing account is overdrawn withdrawals of banks.
for five (5) consecutive banking days, it
shall be prohibited from (a) making new § X261.1 Clearing cut-off time. As a
loans or investments, except investment in general rule, all deposits and withdrawals
government securities with BSP support; during regular banking hours shall be
(b) declaring cash dividends until it has credited or debited to deposit liability
maintained credit balances in its BSP accounts on the date of receipt or payment
clearing account for at least fifteen (15) thereof: Provided, however, That a bank

Part II - Page 36 Manual of Regulations for Banks


§§ X261.1 - X262.1
05.12.31

may set a clearing cut-off time for its head banking hours, may, at the option of the
office not earlier than two (2) hours before bank, be booked as deposits on the day of
the start of clearing at the BSP, and not receipt.
earlier than three and one-half (3-1/2) Other non-cash deposits received after
hours before the start of clearing for all its the selected clearing cut-off time shall
branches, agencies and extension offices be treated as contingent accounts on the
doing business in the Philippines, after day of receipt and shall be booked as
which time, deposits received shall be deposits the following banking day.
booked as hereinafter provided:
Provided, further, That banks which are § X261.5 Booking of deposits after
located in areas where there are no BSP regular banking hours. Deposits, whether
regional/clearing arrangements may set a cash or non-cash, received after the close
clearing cut-off time not earlier than two of the regular banking hours shall be treated
(2) hours before the start of their local as contingent accounts on the day of receipt
clearing after which time, deposits and shall be booked as deposits the
received shall be booked likewise as following banking day.
hereinafter provided.
§ X261.6 Other records required
§ X261.2 Definitions. As used in this For record and control purposes, banks
Section, the following terms shall have the shall prepare a daily abstract of deposit
following meanings: transactions treated as contingent accounts.
a. Regular banking hours shall refer
to the banking hours reported to the BSP § X261.7 Notice required. Banks
pursuant to Sec. X156, including the shall post at a conspicuous place near each
extended banking hours reported for teller’s window a notice to depositors indi-
servicing deposits and withdrawals; and cating their selected clearing cut-off time
b. Clearing cut-off time shall mean and a statement to the effect that non-cash
the bank’s closing time for the acceptance items deposited after said cut-off time shall
of deposits in the form of checks, bills and be treated as transactions for the next
other demand items for clearing on the banking day.
day of their receipt.
Sec. X262 Miscellaneous Rules on
§ X261.3 Booking of cash deposits Deposits. Banks shall also be governed
Cash deposits received after the selected by the following miscellaneous rules on
clearing cut-off time until the close of the deposits.
regular banking hours shall be booked as
deposits on the day of receipt. § X262.1 Specimen signatures, ID
photos. All banking institutions are
§ X261.4 Booking of non-cash required to set a minimum of three (3)
deposits. Deposits of checks including specimen signatures to be simultaneously
“on us” checks, manager’s/cashier’s/ required from each of their depositors and
treasurer’s checks and demand drafts, to update the specimen signatures of their
which are drawn against the depository depositors every five (5) years or sooner,
bank and all its offices, as well as treasury at the discretion of the bank. Banks may,
warrants and postal money orders, at their option, require their depositors to
received after the selected clearing cut- submit ID photos together with the
off time until the close of the regular specimen signatures.

Manual of Regulations for Banks Part II - Page 37


§§ X262.2 - X263
05.12.31

§ X262.2 Insurance on deposits. All required minimum monthly average daily


banks shall indicate the coverage of the balance (ADB), subject to the following
PDIC in each passbook, certificate of conditions:
time deposit and/or cover of checkbook a. the imposition of such charges or
for demand deposit/NOW accounts fees is clearly stated among the terms and
stating, among other things, the maximum conditions of the deposit;
amount of insurance. b. the rate or amount of such charges
or fees is properly disclosed among the
§ X262.3 Certification of compliance terms and conditions of the deposit;
with Subsection 55.4 of R.A. No. 8791 c. the deposit account balances have
Banks shall submit to the appropriate fallen below the required minimum
supervising and examining department of monthly ADB for dormant accounts and for
the BSP, through the Deputy Governor of at least two (2) consecutive months for
SES, a statement within seven (7) banking active accounts;
days after end of June and December, d. the required minimum monthly
signed solely by the Vice-President for ADB of deposits are properly disclosed
Administration or Human Resource or among the terms and conditions of the
Personnel, or by any officer assuming deposit; and
equivalent responsibility, certifying their e. in the case of charges and fees for
institution’s compliance with Subsection dormant accounts or dormancy fee, the
55.4 of R.A. No. 8791, which prohibits period of dormancy as prescribed under
banks from employing casual, nonregular Subsec. X163.12 shall be properly
personnel or too lengthy probationary disclosed among the terms and conditions
personnel in the conduct of its business of the deposit, and that the depositors shall
involving bank deposits. A format for the be informed by registered mail with return
certification of compliance is shown in card or Proof of Delivery (POD) service of
Appendix 49. the Philippine Postal Corporation and other
The definition contained in Articles mail couriers on his last known address at
280-281 of the Labor Code of the least sixty (60) days prior to the imposition
Philippines for private banks and Section of dormancy fee.
2 of the Civil Service Commission Said Proof of Delivery Receipt will be
Memorandum Circular No. 40 and Rule accomplished upon the addressee-
VII of Civil Service: Laws and Rules for depositor’s receipt of the letter, with the
government banks shall apply in postal personnel or courier required to
classifying employee/personnel as casual, obtain and safekeep a copy of the signed
regular or probationary. Personnel with POD, for submission to the sender/bank.
too lengthy probationary status are The PhilPost system likewise employs
employees who are allowed to work after a Delivery/Monitoring Report that tallies the
a probationary period of six (6) months number of mails with POD received,
without being considered a regular/ delivered and returned per client/bank,
permanent employee. indicating the name of the letter carrier, his
signature and date signed. Said POD and
Sec. X263 Service and Maintenance Fees Delivery/Monitoring Report may be system
Banks may impose and collect service generated by the bank so as not to rely on
charges and/or maintenance fees on savings the manual inscription of the required
and demand deposit accounts, whether information by the PhilPost and/or other
active or dormant, that fall below the mail courier personnel.

Part II - Page 38 Manual of Regulations for Banks


§§ X263 - X266
05.12.31

Regardless of the forms adopted by the kind, and interest thereon already reported
PhilPost and/or other mail couriers, the to the Treasurer of the Philippines in
proper implementation of the POD service accordance with the Unclaimed Balances
requires as a minimum, that the following Act (Act No. 3936, as amended) shall be
information be stated clearly: (1) name and transferred/reclassified from the deposit
address of the addressee/depositor; (2) liability/other credit accounts to the liability
actual date of delivery/receipt; (3) name and account, “Due to the Treasurer of the
address of sender/bank; and (4) name of Philippines,” until they are deposited with
recipient and relationship to the addressee/ or turned over to the Treasurer of the
depositor. Philippines upon order of the court that
the same have been escheated in favor of
§ X263.1 Amendments to terms and the Government of the Republic of the
conditions for the imposition of service Philippines and as such, the unclaimed
charges/fees. Any change in the terms and deposit liabilities shall no longer be covered
conditions for the imposition of service by reserves required of deposit liabilities.
charges and/or maintenance fees, e.g.,
increase in the amount of such charges and Sec. X265 Acceptance, Encashment or
fees or increase in the required minimum Negotiation of Checks Drawn in Favor of
monthly ADB of deposits, shall take effect Commissioner/Collector of Customs. All
only after due notice to the depositor: checks payable to the Commissioner/
Provided, That information by regular mail, Collector of Customs shall be accepted for
statement of account messages, electronic deposit only to the account of the
mail, courier delivery and/or other Commissioner/Collector of Customs.
alternative modes of communication on the Banks where the Commissioner/Collector
depositor’s last known address at least sixty of Customs has no account shall not encash,
(60) days prior to implementation shall be accept nor negotiate checks payable to the
considered sufficient notice: Provided, Commissioner/Collector of Customs.
further, That failure of the depositor to Any attempt to defraud the government
manifest or register his objection to the new or the bank through the irregular or
service charges and maintenance fees or any unauthorized encashment or deposit of
change in their terms and conditions in these checks to accounts other than that of
writing within thirty (30) days from receipt the Commissioner/Collector of Customs
of written notice of amendment shall be shall be reported immediately by the head
deemed to constitute acceptance of such of the banking office to the BOC, copy
changes, for purposes of this Subsection. furnished the BSP.
Banks shall likewise post said
information on their respective websites, Sec. X266 Deposit Pick-up/Cash Delivery
Automated Time Machine (ATM) on-screen Services. The following are the guidelines
messages, and in conspicuous places within on the deposit pick-up/cash delivery
the bank premises and other places near the services of banks;
bank’s own ATM at least sixty (60) days a. As a general rule, deposit pick-up/
prior to implementation. cash delivery services shall be limited to
the following:
Sec. X264 Unclaimed Balances. All (1) To service the need of valued clients
unclaimed balances, which include credits whose daily average deposit amounts to:
or deposits of money, bullion, securities P500 thousand – for Metro Manila and
or other evidences of indebtedness of any Metro Cebu clients/ depositors

Manual of Regulations for Banks Part II - Page 39


§§ X266 - X266.1
05.12.31

P300 thousand – for outside Metro (3) The risk of loss involved in the pick-
Manila and Metro Cebu clients/ depositors up of deposits/cash delivery shall be
(2) To be serviced during regular adequately covered by insurance, and the
banking hours and days only, unless the armored car/non-armored car to be used
nature of the business and the volume of shall be provided, with at least two (2)
the deposits/cash would warrant servicing armed guards and supervised by at least
beyond regular banking hours and days, in two (2) officers of the bank;
which case justification therefore should be (4) The deposit/cash delivery
submitted to the satisfaction of the transactions shall be booked in accordance
appropriate SED. with existing regulation;
b. Prior BSP authority is not required (5) Pick-up of deposits/cash delivery
before banks can engage in deposit pick- shall not be allowed on days other than
up/cash delivery services, provided, the the bank’s regular banking days;
following conditions are complied with: (6) The strictest measure of safeguards,
(1) Pick-up of deposits/cash delivery control and confidentiality will be adopted
shall be made with the use of armored cars, in implementing the services;
which shall not be operated as a mobile (7) A separate record/log book for each
bank used in soliciting deposits from the armored car/non-armored car shall be
general public, or in any manner in carrying maintained by the bank which shall contain
out banking transactions/services other than the information on the deposit pick-up/cash
to afford security of deposit/cash items in delivery activities of the armored car/non-
transit; armored car to be supported by “trip tickets”
(2) Pick-up of deposits/cash delivery signed by a responsible officer of the bank;
may be made with the use of non-armored (8) Records and/or such other reports
vehicles in the following cases/ that may be required of the bank from time
circumstances: to time shall be made available for
(a) On an unscheduled request; examination/inspection by the authorized
Provided, That: representative(s) of the appropriate SED of
(i) all armored vehicles have already the BSP; and
been fielded and the request has to be c. If the use of the non-armored car
served immediately; and under Item “b(2)(a)” becomes regular, the
(ii) it is within a five (5) kilometer radius bank shall engage an armored car to take
of a servicing banking office. its place. Regularity shall mean daily (i.e.,
(b) In rugged terrain/mountainous regular banking days) or periodic (e.g., every
roads or roads not suitable for heavy 15th or end of the month) servicing of a valued
armored vehicles; client within a three (3) month period.
(c) In critical or rebel-infested areas d. If any of the above conditions are
where there are peace and order problems not met, the BSP may suspend the deposit
as certified by the local police authorities; and pick-up/cash delivery operations of the
(d) In island provinces where the bank without prejudice to the imposition of
transport of cash to a branch or office may sanctions under Section 37 of R.A. No. 7653.
be made only with the use of a ferry boat:
Provided, That the non-armored § X266.1 Operation of armored cars
vehicles are equipped with dual control safe Except for Item “b(2)” of this Section, banks
and supported with adequate security back- shall use armored cars to afford security in
up. Their movements may be coordinated collection and/or delivering cash or
with law enforcement authorities. securities and other valuables from or to

Part II - Page 40 Manual of Regulations for Banks


§§ X266.1 - X268
05.12.31

their clients, branch or extension offices or (4) such other information pertinent to
the BSP, provided such armored cars are the application.
not operated as mobile banks.
Sec. X267 Automated Teller Machines
Sec. 1266 (Reserved) a. Off-site Automated Teller
Machines (ATMs). Banks may establish off-
Sec. 2266 (Reserved) site ATMs, subject to the following
conditions:
Sec. 3266 Qualifying Criteria Before a (1) Banks shall submit a report to
Rural/Cooperative Bank Engages in the appropriate department of the BSP on
Deposit Pick-up Services ATMs which they establish;
a. An RB/Coop Bank desiring to (2) The off-site ATMs shall be
undertake deposit pick-up service must installed only in centers of activity like
meet the following criteria: shopping centers, supermarkets, hospitals,
(1) Its total resources should not be less university campuses: Provided, That
than P100.0 million and its net assets should adequate internal control and security
be at least P10.0 million or the minimum measures shall be adopted and submitted
capital required under Subsec. X106.1, to the BSP; and
whichever is higher; (3) Only banks which have shown
(2) It should not be deficient in its general compliance with laws, rules and
networth-to-risk assets ratio; regulations shall be allowed to open off-
(3) Its past due loan ratio should not site ATMs.
be more than fifteen percent (15%); b. Mobile ATMs. Banks may also
(4) It has no past due obligations with establish mobile ATMs, subject to the
the BSP or with any government financial following conditions:
institution; (1) The mobile ATMs should be
(5) It should have continuous allowed to visit only centers of activity as
profitable operations; and mentioned in Item a(2) above and should
(6) It must show adherence to law, and confine their itinerary to Metro Manila until
BSP rules and regulations. further notice;
b. An RB/Coop Bank that meets the (2) The bank shall secure insurance
above criteria shall submit for evaluation, coverage or adopt a self-insurance scheme
the following justifications on the need for to protect itself against losses of whatever
the RB/Coop Bank and its branches to nature in its mobile ATM operations; and
undertake such service which should (3) The bank shall notify the SED of
contain, among other things, the following: the BSP of the actual date a mobile ATM
(1) the names of clients/companies to be becomes operational and when no longer
serviced, estimated daily average deposit and in operation.
distance/proximity of client from applicant bank;
(2) the names and number of banks, J. BORROWINGS FROM THE
branches, if any, in the area where BANGKO SENTRAL
depositor is situated;
(3) the arrangement in writing between Sec. X268 Eligibility Requirements for
the bank and the client desiring to avail of Availment of the BSP Rediscounting
the service, which arrangement shall define Facility by Banks. The following are the
and specify the respective responsibilities eligibility requirements for availment of the
of the parties; and BSP rediscounting facility.

Manual of Regulations for Banks Part II - Page 41


§§ X268.1 - X268.2
05.12.31

§ X268.1 Eligibility requirements for l. No past due obligations or


applicant banks. Banks applying for collateral deficiencies on account of
availment of the BSP rediscounting facility matured notes/unremitted collections/
must meet the following eligibility missing collaterals.
requirements at all times: m. A CAMELS composite rating of “3”
a. Minimum capital prescribed under or higher based on the latest general
Subsecs. X106.1 and X106.2, as amended examination of the appropriate SED.
based on the latest available report n. Submission of required reports on
submitted to SRSO. time to the departments and/or offices of
b. Risk-based capital adequacy ratio the BSP.
as required under Sec. X116 continuously o. Compliance with other applicable
for a period of thirty (30) days immediately laws, rules and regulations, and/or
preceding date of application based on directives of the Monetary Board.
latest available report submitted to SRSO.
c. Required loan-loss provision and/ § X268.2 Eligible papers and
or valuation reserves as determined in the collaterals. The BSP shall accept loan
last examination of the appropriate SED. papers covering all economic activities
d. Required reserves against deposit except the following: interbank loans,
liabilities/deposit substitutes for two (2) DOSRI loans, extended/ restructured loans,
consecutive weeks immediately preceding past due loans, unsecured loans, other than
the date of application based on latest microfinance loans, personal consumption
available report submitted to SRSO. loans and loans for capital assets acquisition.
e. Past due direct and indirect loans Credit instruments offered as collateral
to DOSRI to the aggregate past due loans shall be subject to the eligibility
of not more than five percent (5%) based requirements provided under Section 82
on latest available report submitted to of R.A. No. 7653.
SRSO. a. Commercial credits – Bills,
f. Past due ratio not exceeding the acceptances, promissory notes and other
industry average plus two percent (2%) as credit instruments with maturities of not
of the latest quarterly report released by the more than180 days from the date of their
SRSO. rediscount, discount or acquisition by the
g. Compliance with the loans-to- BSP and resulting from transactions related
deposit ratio based on latest available report to:
submitted to SRSO. (1) the importation, exportation,
h. Investment in bank premises not purchase or sale of readily saleable goods
exceeding fifty percent (50%) of net worth and products, or their transportation within
based on the latest available report the Philippines; or
submitted to SRSO. (2) the storing of nonperishable goods
i. Required liquidity floor for and products which are duly insured and
government deposits based on latest deposited, under conditions assuring their
available report submitted to SRSO. preservation, in authorized bonded
j. Compliance with the mandatory warehouses or in other places approved
allocation of credit to small and medium by the Monetary Board.
enterprises based on the latest available b. Production credits – Bills,
report submitted to SRSO. acceptances, promissory notes and other
k. No overdrawings in its demand credit instruments having maturities of not
deposit accounts with the BSP. more than 360 days from the date of their

Part II - Page 42 Manual of Regulations for Banks


§§ X268.2 - X269.1
05.12.31

rediscount, discount or acquisition by the (2) Controlling interest in a bank. Any


BSP and resulting from transactions related of the government officials mentioned in
to the production or processing of Section 16, Article XI of the Constitution
agricultural, animal, mineral, or industrial (the "Official") shall be deemed to have a
products. controlling interest in a bank if he owns
c. Other credits – Special credit more than fifty percent (50%) of the voting
instruments not otherwise rediscountable stock of such bank. For the purpose of this
under the immediately preceding Items “a” Subsection, the stockholdings of the spouse
and “b” such as agricultural loans for or minor child of the Official shall be
projects with long gestation period may be included in determining if he has such
eligible for rediscounting in accordance controlling interest.
with rules and regulations which the BSP b. Certification required. A bank
shall prescribe. applying for a loan or financial
The promissory notes (PNs)/export bills accommodation with the BSP shall submit,
(EBs) shall be endorsed in favor of the BSP together with the application, a certification
and certified that the same are still under oath of the President of the bank that
outstanding as of the time of application, the bank and/or any of its stockholders do
by at least two (2) responsible officers not fall within the prohibition under
holding positions not lower than a manager Section 16, Article XI of the Constitution.
or equivalent rank, authorized by the
borrowing bank’s board of directors. Sec. X269 Terms and Conditions of the
BSP Loan. The following are the terms and
§§ X268.3 - X268.9 (Reserved) conditions which shall govern the grant of
the BSP loan.
§ X268.10 Constitutional prohibition
The following regulations shall govern the § X269.1 Rediscounting line. The
implementation of Section 16, Article XI rediscounting availments of all eligible
of the Constitution, which reads as follows: banks shall be drawn against their
"Sec. 16. No loan, guaranty, or other rediscounting line to be based on their total
form of financial accommodation for any credit score under the new Credit
business purpose may be granted, directly Information System (CRIS), which shall
or indirectly, by any government-owned or consider the following factors:
controlled corporation or financial institution a. Management and risk assessment
to the President, the Vice-President, the (1) Management
Members of the Cabinet, the Congress, the (2) Risk management system
Supreme Court, and the Constitutional b. Financial indicators
Commissions, the Ombudsman, or to any (1) Capital adequacy
firm or entity in which they have controlling (2) Asset quality
interest, during their tenure." (3) Profitability
a. Definition (4) Liquidity
(1) The terms "loan", "guaranty" or c. Credit experience
"other form of financial accommodation" (1) Repayment record
as used in these regulations shall refer to (2) Compliance with other terms and
transactions which involve the grant, conditions
renewal or extension to a bank by the BSP The CRIS guidelines shall be reviewed on
of any loan, advance, discount, rediscount a regular basis to maximize its effectiveness
or credit in any form whatsoever. in managing the credit risk of the BSP.

Manual of Regulations for Banks Part II - Page 43


§§ X269.1 - X269.4
05.12.31

The BSP Department of Loans and application together with the related
Credit (DLC) or the appropriate BSP Statement of Income and Expenses.
Regional Loans and Credit Unit (RLCU) (3) Consolidated Daily Report of
shall conduct a credit rating of all banks Condition (CDRC) covering the past two
applying for a rediscounting line. The term (2) consecutive weeks immediately
of the line shall be for one (1) year unless preceding the date of application.
sooner cancelled or revoked by DLC or (4) For RBs and Coop Banks, a
RLCU, renewable annually upon tripartite depository agreement by and
submission of application at least one (1) among the applicant RB/Coop Bank,
quarter before expiry of said line. Should designated depository bank (duly concurred
there be special circumstances or urgency by its Head Office) and the DLC/RLCU;
in the intervening period, a review of the (5) Articles of Incorporation (for new
rediscounting line of the bank concerned applicants only);
will be made immediately. The approval (6) Organizational chart;
of the line/renewal of the same shall be (7) List of board of directors and
subject to the bank’s full compliance with principal officers (top three executive
the prescribed eligibility requirements officers)/education/training and work
provided in Subsection X268.1. The experience;
Director of the DLC or BSP Branch (8) CSOC as of the preceding four (4)
Operations shall approve the rediscounting calendar years ending cut-off date;
line of the applicant bank. (9) CSIE covering the preceding four
a. Basis. The rediscounting line of the (4) calendar years; and
applicant bank shall be based on its total (10) Annual report/audited financial
credit score obtained as follows: statements for the immediately preceding
CRIS Score Rediscounting Line year.
90.1 to 100 200% of net worth
80.1 to 90.0 150% of net worth § X269.2 (Reserved)
70.1 to 80.0 125% of net worth
60.1 to 70.0 100% of net worth § X269.3 Loan value. The loan value
50.1 to 60.0 75% of net worth of all eligible papers shall be eighty percent
up to 50 50% of net worth (80%) of the outstanding balance of
borrower’s PN/EB.
b. Application procedure. Banks
applying for a rediscounting line shall § X269.4 Maturities. The maturity of
submit their application in the prescribed BSP loans/advances/rediscounts are as
form to the DLC or the appropriate RLCU, follows:
together with the following documents: a. Commercial credits - Not to exceed
(1) Board Resolution duly signed by 180 days from the date the proceeds of
the board of directors of the applicant bank, such loans/advances/rediscounts are
authorizing the bank to apply for a released to the applicant bank.
rediscounting line with the BSP and b. Production credits - Not to exceed
designating at least two (2) officers 360 days from the date the proceeds for
authorized to endorse PNs/EBs and sign all such loans/advances/rediscounts are
papers pertaining to rediscounting in the released to the applicant bank.
prescribed BSP forms. c. Other credits – Not to exceed 360
(2) CSOC as of the end of month days, including loans for agricultural
immediately preceding the date of purposes with long gestation periods.

Part II - Page 44 Manual of Regulations for Banks


§§ 269.4 - X269.7
05.12.31

The maturity date of the bank’s a. Total collections received by the


rediscounting loan from the BSP, as borrowing bank before maturity of the
indicated in its PN, shall not be longer than rediscounted PN shall be remitted to the
the latest maturity date indicated in the DLC or RLCU, not later than five (5)
borrower’s collateral paper submitted by banking days following the date of receipt
the bank to support its rediscounting of collections.
availments. In the case of negotiated EBs when the
bank receives the corresponding payment
§ X269.5 Rediscount/lending rates and from its correspondent bank either through
liquidated damages. The rediscount rates actual remittance or credit advice or
for peso loans shall be based on the through entry(ies), charging its
applicable T-Bill rates for the preceding correspondent bank before receipt of
week as follows: advice, the amount rediscounted plus
interest and other charges due shall be
Loan Maturity Applicable T-Bill Rate remitted to the DLC not later than five (5)
90 days or less 91-day banking days following the date of receipt
91 – 180 days 182-day of payment and/or entry(ies) by Head
181 – 360 days 364-day Office/branches.
The bank shall ensure that adequate
The rediscount rate shall continue to records are maintained in its Head Office
be one percentage (1%) point below the on the collections made by the branches.
91-day T-bill rate of the last auction week b. If the borrower’s PN matures
of the previous month. On 04 October before the maturity date of the bank’s
2004, the rediscount rate shall rediscounting loans from the BSP, the loan
automatically revert to the market-based value of the borrower’s rediscounted PN,
pricing mechanism provided under this including the accrued interest thereon,
Section. shall be debited against the bank’s demand
The lending rates that the banks may deposit account with the BSP. For this
charge on their rediscounted papers shall purpose, banks are required to maintain
not be subject to any ceiling. However, sufficient balance in their demand deposit
the spreads made by banks shall be closely accounts with the BSP equivalent to
monitored by the BSP to ensure that these maturing rediscounting obligations;
are consistent with prevailing market rates. otherwise, their rediscounting privilege
Past due BSP loans and unpaid matured will be suspended and all their existing
notes shall be levied liquidated damages loans with the BSP shall be immediately
equivalent to five percent (5%) per annum. due and demandable.
c. The loan value of the unaccounted
§ X269.6 Release of proceeds. The rediscounted PNs and/or underlying
proceeds of the rediscounting availment collaterals discovered during the credit
shall be credited to the borrower bank’s examination, including the accrued
demand deposit account or its depository interest thereon shall be debited against
bank’s demand deposit account with BSP. the bank’s demand deposit account with
the BSP.
§ X269.7 Remittance of collections/ d. The BSP may execute all necessary
repayments/arrearages. The following collection measures allowed by law, such
shall govern remittance of collections, as foreclosure proceedings against banks
repayments and arrearages: with past due loans.

Manual of Regulations for Banks Part II - Page 45


§§ X269.8 - X269.10
05.12.31

§ X269.8 Prohibited transactions. The 1st Offense - Warning


following shall not be allowed: 2nd Offense - If remittance is delayed,
a. Substitution of rediscounted PNs or suspension of rediscounting privilege for
underlying collaterals on outstanding loans fifteen (15) calendar days from date of
with BSP. discovery. If not remitted, suspension shall
b Renewal of rediscounted PN start on the date of DLC/RLCU discovery
without remitting payment while the loan and end fifteen (15) calendar days after date
released against the rediscounted PN is still of payment.
outstanding with the BSP. 3rd Offense - If remittance is delayed,
c. Acceptance of properties as suspension of rediscounting privilege for
payment (dacion en pago) without prior thirty (30) calendar days from date of DLC/
approval of BSP. RLCU discovery. If not remitted,
suspension shall start on the date of DLC/
§ X269.9 Credit examination of RLCU discovery and shall end thirty (30)
borrowing banks. The DLC or the calendar days after date of payment.
appropriate RLCU shall undertake periodic 4th Offense - Cancellation of
credit examination of borrowing banks for rediscounting privilege unless restored in
the purpose of: the next review but in no case shall the
a. determining the extent of their period of suspension be less than ninety
compliance with the terms and conditions (90) calendar days.
of the loans granted to them and adherence b. Non-negotiation of assigned Letters
to applicable laws, rules and regulations and of Credits(LCs)/Purchase Orders(POs)/Sales
credit policies of the BSP; and Contracts (SCs). A penalty of one-tenth of
b. evaluating the effectiveness of their one percent (1/10 of 1%) per day of delay
credit and collection system. DLC/RLCU based on the face value/outstanding
shall obtain documents from other lending balance of the rediscounted PNs but not
institutions and other departments of BSP exceeding P30,000 per day shall be
to validate information. imposed on banks for non-negotiation of
assigned LCs/POs/SCs reckoned from the
§ X269.10 Penalties/sanctions. The date of the BSP grant to date of payment,
following penalties and sanctions shall be unless the BSP has earlier received a written
imposed on the erring bank and/or the notice of extension of the expiry date/
bank’s authorized/certifying officers. validity period of LCs/POs/SCs from the
a. Unremitted collections/delayed bank concerned.
remittances. Without prejudice to the c. Collaterals with technical
criminal sanctions against the culpable deficiency. A penalty of one-tenth of one
persons provided under existing laws, a percent (1/10 of 1%) per day for collaterals
penalty of one-tenth of one percent (1/10th with technical deficiency (which will
of 1%) per day of delay on unremitted increase the credit risk, such as: expired
collections/delayed remittance of insurance, unendorsed PN, etc.) but not
collections commencing from the day exceeding P30,000 per day shall be
following the deadline prescribed in charged to banks, if the deficiency is not
Subsec. X269.7a, shall be imposed on the corrected within fifteen (15) days from date
erring bank. Penalties imposed shall not, of DLC examination.
however, exceed P30,000 per day. In d. Other violations. In addition to the
addition, the following non-monetary penalties prescribed herein, any
sanctions shall be imposed: misrepresentation, violation of the terms

Part II - Page 46 Manual of Regulations for Banks


§§ X269.10 - X271.2
05.12.31

and conditions of the bank’s PN and/or the a. Rediscount ceiling. Banks which
rediscounting line agreement, and have outstanding rediscounted loans-to-net
unauthorized withdrawal of collaterals worth ratio exceeding 100%, as required
from the depository bank, shall subject the under Subsec. X269.1 shall be given five
borrowing bank to the following sanctions: (5) years from 4 October 2002 to reduce
1st Offense - Warning their outstanding rediscounted loans and/
2nd Offense - Suspension of or increase their net worth in order to attain
rediscounting privilege for fifteen (15) the 100% required ratio of rediscounted
calendar days from date of discovery. loans to net worth, in accordance with the
3rd Offense - Suspension of following schedule:
rediscounting privilege for thirty (30) Twenty-five percent (25%) yearly
calendar days from date of discovery. reduction in the ratio of rediscounted loans
4th Offense - Cancellation of the to net worth, starting end-October 2004
rediscounting privilege unless restored in and the succeeding years thereafter until a
the next review but in no case shall the 100% rediscounted loans-to-net worth ratio
period of suspension be less than ninety is reached by year 2007.
(90) calendar days. b. Past due ratio. Banks with past due
For this purpose, failure to account for ratio exceeding the industry average ratio
missing rediscounted PN and/or plus two percent (2%) as required under
underlying collateral shall constitute Subsec. X268.1f shall comply with the
unauthorized withdrawals of rediscounted requirement by 30 June 2007.
PNs and/or underlying collaterals.
If any of the required documents Sec. X270 Repurchase Agreements with
submitted by the bank is discovered to be the Bangko Sentral. Repurchase
false/fake/spurious, a fine of P5,000 per agreements with the BSP shall be governed
day from the date of the release of the loan, by Sec. X601 of the MOR.
up to the date of payment, shall be
imposed separately on the bank and on Sec. X271 Bangko Sentral Liquidity Window
the authorized/certifying responsible The following guidelines shall govern the
officers. grant by the BSP of credit accommodations
through a liquidity window to banks.
§ X269.11 Interlocking directorship/
officership. Banks owned or managed by X271.1 Nature of liquidity window
the same owners, stockholders, directors, The window shall meet the liquidity needs
officers or family/business group shall be of the financial system under normal
automatically suspended from availment conditions and shall be distinct from
of the rediscounting facility once the overdrafts and emergency advances.
rediscounting privilege of any of the banks
belonging to the same group is suspended, § X271.2 Terms of credit
until such time that the suspension of the a. Interest rate. The rate of interest
erring bank has been lifted. chargeable on availments under the
liquidity window shall be the rate
§ X269.12 Transitory provisions. The equivalent to the reference rate for ninety
following shall apply to those banks which (90) days determined and announced by
cannot comply with the required the BSP for floating rate loans, plus or
rediscount ceiling and past due ratio from minus a rate to be determined by the BSP on
04 October 2002: the basis of the prevailing monetary situation.

Manual of Regulations for Banks Part II - Page 47


§§ X271.2 - X272.3
05.12.31

The additional or discount rate § X272.1 Nature of emergency loans


established for any given time shall be made or advances. An emergency loan or
public by the BSP and applied uniformly advance is a credit facility that is intended
to all borrowers during that period. to assist a bank experiencing serious
The additional rate to be imposed over liquidity problems arising from causes not
and above the reference rate shall not be attributable to, or beyond the control of,
less than two (2) percentage points, with the bank management. The grant of such
the applicable additional rate to be facility is discretionary upon the Monetary
determined by the BSP on the basis of the Board, and is intended only as temporary
prevailing monetary situation. remedial measure to help a bank overcome
b. Security. Any paper, irrespective liquidity problems. No emergency loan
of maturity, eligible under Section 82 of or advance may be granted except on a
R.A. No. 7653. fully secured basis.
c. Loan values. The loan values of the
paper offered as collateral should be eighty § X272.2 When an emergency loan
percent (80%) of the amount still due or advance may be availed of. An
outstanding on the paper offered as emergency loan or advance may be granted
collateral. only after the Monetary Board has
d. Repayment period. The term of the ascertained that the bank is not insolvent and
credit accommodation shall not exceed has the assets to fully secure the advances.
seven (7) days. a. During abnormal periods shall
refer to periods of national and/or local
§ X271.3 Limit. Availment by any bank emergency or of imminent financial panic
under this facility shall not exceed ten which directly threaten monetary and
percent (10%) of its net worth, as defined banking stability.
under Sec. X106 as of the end of the quarter b. During normal periods shall refer
preceding the date of application. In the to situations where a particular bank is in
case of branches of foreign banks, the quota a precarious financial condition or under
shall be ten percent (10%) of the assigned serious financial pressures brought about
capitalas of the date of application. by unforeseen events, or events which,
Additionally, a bank or a branch of a though foreseeable, could not be
foreign bank may avail itself of this facility prevented by the bank concerned.
to the extent equivalent to a further five
percent (5%) of its net worth, as defined § X272.3 Procedures. An application
under Sec. X106 or assigned capital, as the shall be filed with the DLC, copy
case may be, as of the end of the quarter simultaneously furnished the appropriate
preceding the date of availment. SED. An application during normal
Any availment of the liquidity window periods shall state the reasons and other
shall fall within the unavailed basic details showing the precarious financial
rediscount ceiling of the bank or the condition or the serious financial pressures
branch of a foreign bank as the case may be. being experienced by the bank, as well as
a listing of the collaterals offered. The
Sec. X272 Emergency Loans or Advances following shall be submitted together
to Banking Institutions. The following with the application:
guidelines shall govern the grant by the BSP a. A resolution of the board of
of emergency loans and advances to directors of the bank authorizing the
banking institutions. availment by the bank of an emergency

Part II - Page 48 Manual of Regulations for Banks


§§ X272.3 - X272.5
05.12.31

loan or advance from the BSP, signifying emergency loan or advance, whichever is
the bank’s commitment to comply with lower: Provided, That in no case shall
the guidelines set forth herein and the such maximum amount exceed the loan
terms and conditions that may be imposed values of the collaterals submitted, as
by the Monetary Board, and designating determined by the BSP.
the officers duly authorized to sign any and
all requisite documents for the emergency § X272.5 Manner and conditions of
loan or advance; release
b. The documents of title and/or a. The grant of any emergency loan
evidences of ownership of the collaterals or advance shall bear the concurrent vote
offered; and of at least five (5) members of the Monetary
c. A resolution of the board of Board.
directors authorizing the BSP to evaluate b. The proceeds of emergency loans
other assets of the applicant bank which or advances shall be released in two (2) or
are available for collateral purposes should more tranches as the need of the bank will
the release of subsequent tranches be arise. The release of a second and
applied for. The resolution shall be subsequent tranches must have the
accompanied by a certification of the bank’s authorization of the Monetary Board by a
external auditor that the said assets are good vote of at least five (5) of its members.
and available for collateral purposes. c. The amount of the first tranche shall
Prior to the release of the second and not exceed twenty-five percent (25%) of
subsequent tranches, the principal the total deposits and deposit substitutes
stockholders of the applicant bank shall of the bank and shall be released only after
submit: the required securities and collateral
(1) An acceptable undertaking to documents duly notarized have been
indemnify and hold harmless from suit a submitted. However, an amount greater
comptroller or conservator whose than twenty-five percent (25%) of the bank’s
appointment the Monetary Board may total deposits and deposit substitutes may
find necessary at any time; and be released upon request of the applicant
(2) The documents of title and/or bank if, as determined by the Monetary
evidences of ownership of the collaterals Board, the circumstances surrounding the
for the amount being applied for release emergency or financial predicament
and, where necessary, such other warrant the release of such greater amount
acceptable security which, in the judgment and the same is adequately secured by
of the Monetary Board, would be adequate applicable loan values of government
to supplement the assets tendered to securities and unencumbered first class
collateralize the subsequent tranche. collaterals approved by the Monetary
Board, and the principal stockholders of the
§ X272.4 Allowable amount of applicant bank furnish an acceptable
emergency loan or advance. The undertaking to indemnify and hold
maximum amount of an emergency loan harmless from suit a comptroller or
or advance shall be limited to the amount conservator of the bank who may be
needed by the applicant bank to overcome appointed by the Monetary Board.
the emergency or financial predicament or d. The release of a second and
the sum of fifty percent (50%) of the subsequent tranche(s) shall likewise be
applicant bank’s total deposits and deposit effected only after submission of the
substitutes as of date of application for required securities and duly accomplished

Manual of Regulations for Banks Part II - Page 49


§§ X272.5 - X273.1
05.12.31

collateral documents, and upon (1) The bank shall not, without the prior
compliance with the other requirements authorization of the Monetary Board,
as stated in Subsec. X272.3. expand its outstanding loans or investments
as of the date of application for the loan,
§ X272.6 Types of acceptable except for investments in government
collaterals. The amount of the first tranche securities.
shall be secured by government securities (2) The bank shall not declare cash
to the extent of their applicable loan values dividends.
and/or unencumbered real estate and other (3) No new loans to DOSRI and/or
first-class collaterals. affiliates/subsidiaries shall be granted by the
For second and subsequent tranches, bank.
aside from the collaterals mentioned (4) The BSP may designate a
above, other assets previously certified by comptroller to be assisted by examiners to
the bank’s external auditor to be good and oversee the operations of the bank under
available for collateral purposes as provided terms of reference to be determined by the
in Subsec. X272.3 hereof, as evaluated by Governor.
the BSP, may be considered. b. Any collection received on loan
All collateralization expenses, such as accounts/proceeds from the sale of
registration fees, documentary stamps, properties assigned/mortgaged to BSP shall
etc., shall be borne by the applicant be held in trust for, and immediately remitted
bank. to, the BSP in payment of the bank’s
outstanding emergency loan or advance and
§ X272.7 Interest rate. The interest corresponding accrued interests.
rate that shall be charged on loans or c. Any other terms and conditions that
advances granted shall be the average may be imposed by the Monetary Board.
ninety-one (91)-day Treasury Bill rate as of Non-compliance with any of the above
the last auction immediately preceding the provisions shall automatically make the
release of the tranche. emergency loan or advance due and
demandable and shall be sufficient cause
§ X272.8 Term. The term of any for the BSP to stop further releases against
emergency loan or advance shall not the bank’s approved emergency loan or
exceed one (1) year. advance, without prejudice to any action
that the BSP may decide to take in
§ X272.9 Other documentary accordance with R.A. No. 7653.
requirements. Before release of any
tranche, the applicant bank shall comply, Sec. X273 Facility to Committed Credit
aside from the documentary requirements Line Issuers. The following guidelines shall
already mentioned above, with such other govern the grant by the BSP of special credit
requirements/ documentation as may be accommodations to banks which establish
required by the DLC, e.g., promissory note committed credit line in favor of
in favor of the BSP. corporations proposing to issue
commercial paper.
§ X272.10 General terms and
conditions § X273.1 Nature of special credit
a. A bank with an outstanding accommodations. The BSP may extend a
emergency loan or advance shall comply loan to any bank which on its own or as a
with the following conditions: member of a group of banks, provides a

Part II - Page 50 Manual of Regulations for Banks


§§ X273.1 - 1277
05.12.31

committed credit line facility to a Sec. 3274 Countryside Financial


corporation proposing to issue commercial Institutions Enhancement Program for
paper. Rural and Cooperative Banks. The CFIEP
shall be implemented under the terms of
§ X273.2 Conditions to access. A reference indicated in Appendix 16.
bank applying for a loan pursuant to the
provisions of this Section shall submit to Sec. X275 Recording and Reporting of
the BSP documents showing that it has Borrowings. The bank’s liability for papers
extended a committed credit line to a discounted and/or rediscounted “with
commercial paper issuer and that such recourse” with the BSP and/or other
issuer has availed itself of said credit line. financial institutions shall be recorded and
shown as “Bills Payable” in all reports
§ X273.3 Terms of credit submitted to the BSP.
a. Interest Rate. The rate of interest The loans and discounts, bills
chargeable on the availment of this credit purchased, acceptances and other accounts
facility shall be that which is equivalent to affected by such discounting and/or
eighty percent (80%) of the total of interest rediscounting transactions shall remain as
and fees received by the bank from the part of the bank’s loan portfolio. A footnote
issuer, net of provision for gross receipts tax in the financial statement shall indicate the
paid by the bank on such income. outstanding balances of the discounted and/
b. Security. The promissory note or rediscounted loans.
executed by the commercial paper issuer
in favor of the bank for the amount drawn Sec. X276 Rediscounting Window for
against the committed credit line shall be Low-Cost Housing as Defined by the
the security for this credit facility. Housing and Urban Development
c. Loan values. The loan value of paper Coordinating Council (HUDCC). The rules
offered as collateral shall be eighty percent and regulations governing the rediscounting
(80%) of the amount still due and outstanding of housing loan papers of qualified banks
on the paper offered as collateral. under the low-cost housing program of the
d. Repayment period. The term of HUDCC are shown in Appendix 40.
the credit accommodation may not
exceed ninety (90) days and shall be non- Sec. 1277 Rediscounting Window
renewable. Available to All Universal and Commercial
Banks for the Purpose of Providing
§ X273.4 Ceiling. If availment of this Liquidity Assistance to Investment Houses
credit facility is outside the other rediscount The following implementing guidelines
ceiling of the bank, it shall be limited to shall govern the new rediscount window
the extent of fifteen percent (15%) of the available to all UBs and KBs under Section
net worth of the bank. 82(c) of R.A. No. 7653, for the purpose of
providing liquidity assistance to IH:
Sec. 1274 (Reserved) a. Criteria for eligibility
(1) Eligible papers
Sec. 2274 Countryside Financial Promissory note of the UB/KB executed
Institutions Enhancement Program for in favor of the BSP and secured by a Deed
Thrift Banks (CFIEP). The CFIEP shall be of Pledge or Assignment of unencumbered/
implemented under the terms of reference unhypothecated commercial papers with a
indicated in Appendix 16. rating of triple "A" and double "A".

Manual of Regulations for Banks Part II - Page 51


§§ 1277 - 3277.1
05.12.31

(2) Loan limit for the purpose of providing liquidity


Availments against this facility shall be assistance to support and promote
charged against the rediscount ceiling of the microfinance programs.
borrowing bank (100% of net worth) as of
the end of the quarter immediately § 3277.1 Eligibility requirements
preceding the date of application. a. Eligible borrowers . RBs and Coop
b. Terms and conditions Banks with at least one (1) year track record
(1) The loan shall be assessed an annual in microfinance and at least 500 active
interest rate equivalent to one percent (1%) borrowers, ratio of past due microfinance
below the weighted average of the ninety- loans to total outstanding microfinance
one (91)-day Treasury Bill rate for the last loans of not more than five percent (5%)
auction of the immediately preceding month. as of end of the month preceding loan
(2) The loan shall have a term of 180 application and collection ratio of not less
days from date of availment. than ninety-five percent (95%) based on
(3) The loan value shall be ninety ratio of total collections (excluding
percent (90%) of the face value of the prepayments) during the preceding twelve
commercial paper. (12)-month period to the sum of past due
(4) The BSP will automatically debit the microfinance loans at the beginning of said
demand deposit account of the UB/KB period and amount of matured loans
upon maturity of the rediscounting loan. including principal amortizations during
(5) The Chief Executive Officer of the the same twelve (12) - month period.
bank or his equivalent must certify that the b. Eligible papers. Promissory Note
rediscounted commercial paper is still (PN) of the RB or Coop Bank executed in
outstanding as of the time of assignment. favor of the BSP and secured by duly
(6) The UBs/KBs shall comply with the endorsed PN of microcredit borrowers.
documentary requirements of the DLC. c. Manual of operations. Written
c. Duration policies on microfinance operations must
Qualified UBs/KBs may avail of this be set forth and documented in a policy
facility until December 2000. manual duly approved by the bank’s board
of directors. The manual should include
Sec. 2277 Rediscounting Window Available the following minimum features:
to TBs for the Purpose of Providing Liquidity (1) Scope of microfinance activities
Assistance to Support and Promote and the types of services or products offered
Microfinance Programs. TBs availing of to clients;
rediscounting facility for purposes of (2) Authorities and responsibilities of:
providing liquidity assistance to support and (a) Board of directors;
promote microfinance programs shall comply (b) Management;
with the guidelines under Sec. 3277, except (c) Chief Executive Officer (CEO) or its
for the requirement of a custodian bank under equivalent;
Subsec. 3277.4a(6). (d) Credit officers; and
(e) Other officers involved in the
Sec. 3277 Rediscounting Window microfinance operations;
Available to Rural and Cooperative Banks (3) Policies and procedures covering
for the Purpose of Providing Liquidity microfinance program/project;
Assistance to Support and Promote (4) Client evaluation process which
Microfinance Programs. The following should involve at least: client orientation,
guidelines shall govern the rediscounting pre-application, credit investigation, and
facility available to RBs and Coop Banks loan application process;

Part II - Page 52 Manual of Regulations for Banks


§§ 3277.1 - 3277.3
05.12.31

(5) Loan processing, documentation (1) year from the date it is granted. The line
and release of proceeds; may be renewed for another year upon
(6) Accounts monitoring system; submission of an application at least two
(7) Accounts delinquency management; (2) months before expiry, subject to full
(8) Management Information System; compliance with the prescribed eligibility
(9) Accounting policies, systems and requirements and the credit review by the
procedures; and DLC.
(10) Internal controls and audit policies, b. Total availments against the facility,
systems and procedures. which shall be charged against the approved
d. A copy of System of Reviewing MCR line, shall form part of the total
Asset Accounts and Setting Up of Adequate authorized rediscount ceiling of the borrowing
Valuation Reserves submitted. bank. The rediscount ceiling for microfinance
e. Staff training and experience. Key shall be equivalent to one hundred percent
officers and staff responsible for microcredit (100%) of the bank’s net worth, net of
operations must have a minimum valuation reserves and other capital
experience of one (1) year and have adjustments as recommended by the DRB as
completed a training course in of the last regular examination of the bank.
microlending activities. c. The proceeds of availment or
f. Prescribed financial ratios and drawdown against the approved MCR line
regulations. Applicant bank must comply shall be credited to the account of the RB or
with the following financial ratios and Coop Bank maintained with the depository
regulations: bank or with BSP. The RB or Coop Bank
(1) Minimum capital prescribed under shall be notified in writing/electronically of
Subsec. X106.1; the credit of such account on the same
(2) Risk-based capital ratio of not less banking day that the proceeds are released.
than ten percent (10%);
(3) Reserves against deposit liabilities § 3277. 3 Terms and conditions
prescribed under existing regulations; a. The loan value shall be equivalent
(4) Ratio of past due direct and indirect to eighty percent (80%) of the outstanding
loans to DOSRI to the bank’s aggregate past balance of the microfinance borrower’s PN.
due loans of not more than ten percent (10%); b. The RB or Coop Bank’s loan from
(5) Loans-to-deposits ratio of at least the BSP shall have a term of not more than
seventy-five percent (75%); 360 days. The maturity date of the
(6) Reports required to be submitted to microfinance borrower’s PN shall in no
the various departments and/or offices of case be beyond the maturity date of the
the BSP; RB or Coop Bank’s PN.
(7) CAMELS rating of “3” or better; and c. The loan shall be assessed an
(8) Ratio of past due loans to total loan annual interest rate equivalent to the 91-
portfolio of not more than the industry day Treasury Bill rate for the last auction
average for RBs as of the preceding quarter. date of the preceding month.
d. The demand deposit account of the
§ 3277. 2 Microcredit (MCR) line RB or Coop Bank will be automatically
a. Application for MCR Line shall be debited at the maturity date of the BSP loan
filed with the DLC, BSP at its head office for the full amount due excluding collections
in Manila or the appropriate BSP Regional from microfinance borrowers which were
Loans and Credit Unit (BSPRLCU). The credited to the Special Savings Account of the
term of the MCR line shall not exceed one BSP with the borrowing bank.

Manual of Regulations for Banks Part II - Page 53


§§ 3277.3 - 3277.5
05.12.31

e. Any responsible officer who is month immediately preceding the date of


holding a position that is not lower than application together with the
manager or equivalent rank must, upon corresponding Statement of Income and
approval by the bank’s Board, endorse the Expenses covering the results of operations
rediscounted PNs and certify that the same for the last three (3) years.
are still outstanding as of the time of (4) Report on required and available
application. reserves covering the past two (2)
f. Collections made on amortizations consecutive weeks immediately preceding
due and maturing PNs shall be remitted to the date of application.
the DLC not later than two (2) banking days (5) Rediscounting Line Agreement
following the date of receipt of collections executed by the CEO of the RB or Coop
by the Head Office/branches located within Bank.
Metro Manila and not later than four (4) (6) Notarized custodian agreement
banking days following the date of receipt executed among the CEO of the RB or
of collections by the Head Office/branches Coop Bank, the third party custodian and
located outside Metro Manila as provided the BSP.
under Subsec. 3277.5. b. Availment of MCR Line. For
g. A penalty of five percent (5%) per availment of MCR line, the RB or Coop Bank
annum shall be imposed on matured and shall submit the following documents:
unpaid bank PNs in favor of the BSP. (1) Application for MCR Line
Full compliance at all times with the Availment – original and one (1) copy in
eligibility requirements as prescribed under prescribed form duly accomplished and
Subsec. 3277.1. signed by the CEO of the applicant bank;
(2) Rediscount Schedule (RS); and
§ 3277.4 Documentary requirements (3) Notarized PNs in favor of the BSP–
a. Application for MCR Line. RBs or original and two (2) copies.
Coop Banks applying for an MCR line shall
submit a letter of application to DLC or the § 3277.5 Remittance of collections/
appropriate BSPRLCU accompanied by the payments/repayments. Collections made
following documents: on amortizations due and maturing PNs
(1) Certificate of the Secretary (original) shall be remitted to the DLC not later than
and copy of the resolution duly signed by two (2) banking days following the date of
the board of directors of the applicant bank, receipt of collections by the Head Office/
authorizing the bank to apply for an MCR branches located within Metro Manila and
line with the BSP and designating the not later than four (4) banking days
officer authorized under Subsec. 3277.3(e) following the date of receipt of collections
to endorse the PNs and sign all papers by the Head Office/branches located
pertaining to the rediscounting line in the outside Metro Manila. As an alternative,
prescribed format. collections may be deposited in a Special
(2) Certification of the applicant bank Savings Deposit Account (SSDA) which
that it has complied with the financial and shall be maintained by the BSP with the
regulatory ratios, conditions, and reportorial borrower-bank and remitted to DLC or the
requirements prescribed under the eligibility appropriate BSPRLCU on the last banking
requirements for rediscounting as provided day of every month. The SSDA shall earn
under Subsec. 3277.1. interest of one percent (1%) lower than the
(3) Consolidated Financial Statements. 91-day Treasury Bill rate for the last auction
Statement of Condition as of the end of the date of the preceding month.

Part II - Page 54 Manual of Regulations for Banks


§§ 3277.5 - X281.1
05.12.31

On due date of the PN, the RB or Coop (1) 1st Offense – a warning that a
Bank shall remit to the BSP the unpaid repetition of the same or similar offense
balance of such PN: Provided, That any shall subject the erring director/officer to
amount credited to the SSDA shall be monetary penalties and/or sanctions;
applied as payment of the PN in favor of (2) 2nd Offense – a fine of P500 per
BSP. The remittance shall be reported day for each violation from the time the
under DLC Form No. 5. The remittance violation was committed up to the time it
to BSP shall be in the form of cash, demand is corrected without prejudice, however,
draft, manager’s check or based on to the imposition of higher penalties; and
authority issued by the bank to debit its (3) 3rd and Subsequent Offenses – a
demand deposit account with BSP. Check fine of P5,000 per day from the time the
payments and demand drafts shall be given violation was committed up to the time it
value when cleared. is corrected without prejudice, however,
to the imposition of higher penalties.
§ 3277.6 Reports required. A If any of the documentary requirements
monthly report on microfinance submitted by the bank as required under
transactions shall be submitted to DLC or Subsec. 3277.4 is found to be false, a fine
the appropriate BSPRLCU within the of P5,000 per day, from the time the
deadline set in Appendix 6. certification was made up to the time the
certification was found to be false, shall be
§ 3277.7 Accounts verification. The imposed against the certifying officer.
microcredit accounts rediscounted shall be
subject to verification and confirmation by Secs. X278 - X280 (Reserved)
authorized DLC or the appropriate
BSPRLCU representatives to determine K. OTHER BORROWINGS
their eligibility and acceptability for
rediscounting. Sec. X281 Borrowings from the
Government. Except as may be authorized
§ 3277.8 Sanctions. Any mis- by existing statutes, no private bank shall,
representation and/or violation of the whether or not performing quasi-banking
provisions of this Section shall subject the RB functions, borrow any fund or money from
or Coop Bank and/or the erring directors/ the Government and government entities,
officers to any of the following sanctions: through the issuance or sale of its
a. Erring RB or Coop Bank acceptances, notes or other evidences of
(1) Fines in amounts as may be debt.
determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty § X281.1 Exemption from reserve
thousand pesos (P30,000) a day for each requirement. The following borrowings
violation; shall not be subject to the reserve
(2) Suspension of rediscounting requirements:
privileges or access to BSP credit facilities; a. Special time deposits (STDs) and
and/or deposit substitutes of specialized
(3) Reduction of rediscounting line. government banks and private banks arising
b. Erring Directors/Officers from their lending operations under the
For violation of any of the provisions of special financing programs of the
this Section the following shall be imposed Government and/or international financial
against the directors and officers of the bank: institutions; and

Manual of Regulations for Banks Part II - Page 55


§§ X281.1 - X299
05.12.31

b. Funds held by participating regulations governing the issuance of said


financial institutions (PFIs) under the GSIS certificates is shown in Appendix 17.
Housing Loan Programs: Provided, That
the agreement between the GSIS and the Sec. 3283 (Reserved)
conduit banks specify that such funds may
be held by the conduit banks for a period Sec. 1284 (Reserved)
of not more than seven (7) calendar days
prior to their release to the borrower and Sec. 2284 (Reserved)
prior to the remittance by the conduit
banks of payments to the GSIS. Sec. 3284 Borrowings of Rural Banks/
c. Borrowings by accredited financial Cooperative Banks. RBs and Coop Banks
institutions under the Wholesale Lending may rediscount papers with any bank.
Program for small and medium enterprises The obligations of RBs arising from
(SMEs) of the Small Business Guarantee availments of rediscounting facilities and
and Finance Corporation (SBGFC). other borrowings from the BSP, will be
considered as deposit substitutes.
Sec. X282 Borrowings from Trust However, with the qualification in the Tax
Departments or Investment Houses Code of 1997 that the term “public” means
Funds borrowed by banks or non-bank borrowing from twenty (20) or more
financial intermediaries performing quasi- individual or corporate lenders at any one
banking functions from trust departments (1) time, it is clear that the obligations of
or managed funds of banks or IHs are not the RBs to BSP, which are entered in their
considered as interbank borrowings and books as “Bills Payable-BSP,” do not
therefore are subject to the: presently fall under the category of deposit
a. Reserve requirement on deposit substitutes.
substitutes;
b. Minimum fifteen (15)-day maturity Secs. X285 - X298 (Reserved)
period; and
c. Minimum trading lot rule. Sec. X299 General Provision on Sanctions
Any violation of the provisions of this Part
Sec. 1283 (Reserved) shall be subject to Sections 36 and 37 of
R.A. No. 7653.
Sec. 2283 Mortgage/Chattel Mortgage The guidelines for the imposition of
Certificates of Thrift Banks. With prior monetary penalty for violations/offenses
approval of the Monetary Board, TBs may with sanctions falling under Section 37 of
issue and deal in mortgage and chattel R.A. No. 7653 on banks, their directors
mortgage certificates. The rules and and/or officers are shown in Appendix 67.

Part II - Page 56 Manual of Regulations for Banks


§§ X301 - 1301.1
05.12.31

PART THREE

LOANS, INVESTMENTS AND SPECIAL CREDITS

Section X301 Lending Policies. It shall c. Minimum operational requirements


be the responsibility of the board of (1) A bank’s internal credit risk rating
directors of a bank to formulate written system must be duly approved by the board
policies on the extension of credit and risk of directors (or equivalent management
diversification and to set the guidelines for committee in the case of Philippine
evaluation of risk assets. Well-defined branches of foreign banks). The board
lending policies and sound lending practices should exercise appropriate oversight over
are essential if a bank is to perform its lending the system in a consistent manner.
function effectively and minimize the risk (2) A bank’s internal credit risk rating
inherent in any extension of credit. The system must be operationally integrated into
responsibility should be approached in a way its internal credit risk management process.
that will provide assurance to the public, the Its output should accordingly be an integral
stockholders and supervisory authorities that part of the process of evaluation and review
timely and adequate action will be taken to of prospective and existing exposures,
maintain the quality of the loan portfolio and respectively. Credit underwriting criteria
other risk assets. should become progressively more
conservative as credit rating declines. All
§ X301.1 (Reserved) credit decisions must be supported by a
written assessment. In the context of
§ 1301.1 Rules and regulations to govern ongoing review, provisioning standards
the development and implementation of must be rationally tied to the internal credit
banks’ internal credit risk rating systems rating system.
a. Statement of policy. It is the policy (3) Banks must have an independent
of the BSP to ensure that banks’ credit risk credit risk control function that is
management processes are sound and responsible for the design, implementation
effective. Towards this end, the following and performance of their credit risk rating
rules and regulations that shall govern the systems. The credit risk control function
use of banks’ internal credit risk rating must be independent from the business
systems are hereby prescribed. functions responsible for originating
b. Scope. UBs and KBs must have in exposures.
place a formal internal credit risk rating (4) Internal ratings must be an essential
system for the underwriting and ongoing part of annual or more frequent reporting
administration, initially, of corporate credit of banks’ changing portfolio quality over
exposures. The internal credit risk rating time to the board of directors (or equivalent
system must be appropriate to a bank’s management committee in the case of
nature, complexity and scale of activities. Philippine branches of foreign banks).
Initially and until such time that the Reporting must include portfolio
Monetary Board prescribes otherwise, breakdown by credit grade, major portfolio
corporate credit exposure shall be defined segments breakdown by credit grade, and
as exposures to companies with assets of analysis of realized default rates against
more than P15.0 million. expectations.

Manual of Regulations for Banks Part III - Page 1


§ 1301.1
05.12.31

(5) Internal and external audit must also exposures across grades with no excessive
review at least annually the bank’s internal concentrations on a single rating grade.
rating system and its operations, including the (5) The ratings output of banks’ internal
operations of the credit risk control function. credit risk rating systems must contain both
d. Minimum technical standards a borrower and a facility dimension. The
(1) Banks must fully document their borrower dimension should focus on factors
internal credit risk rating systems. The that affect the inherent credit quality of each
documentation must address topics such as borrower. The facility dimension, on the
coverage, rating criteria, responsibilities of other hand, should focus on security/
parties involved in the ratings process, collateral arrangements and other similar
definition of what constitutes a rating risk influencing factors of each transaction.
exception, parties that have authority to (6) In rating corporate borrowers with
approve exceptions, frequency of rating total assets of more than P15.0 million, only
reviews, and management oversight of the financial statements audited by SEC-
rating process. A bank must document the accredited external auditors shall be used
rationale for its choice of rating criteria and starting with the 2005 financial statements.
must be able to provide analyses e. Definition of default and loss. In
demonstrating that the rating criteria and connection with the data collection
procedures are likely to result in ratings that exercise prescribed under this Subsection,
meaningfully differentiate risk. banks shall be guided by the following
(2) The rating criteria should reflect an standard definitions of default and loss:
established blend of qualitative and (1) Definition of default
quantitative factors. Transparent ranges A default is considered to have
need to be set for the quantitative standards occurred in the following cases:
based on experience. The quantitative (a) If a credit obligation is considered
criteria must include leverage and cash flow non-performing under existing rules and
standards. regulations;
(3) Banks must maintain rating histories (b) If a borrower/obligor has sought or
on individual accounts, which shall include has been placed in bankruptcy, has been
the ratings of the account, the dates the found insolvent, or has ceased operations
ratings were assigned, the methodology and in the case of businesses;
key data used to derive the ratings and the (c) If the bank sells a credit obligation
analyst who gave the ratings. The identity at a material credit-related loss, i.e.,
of borrowers and facilities that default, and excluding gains and losses due to interest
the timing and circumstances of such rate movements. Banks’ board-approved
defaults, must be retained. Banks must also internal policies that govern the use of their
retain data on the realized default rates internal rating systems must specifically define
associated with rating grades and ratings when a material credit-related loss occurs; and
migration in order to eventually track the (d) If a credit obligation of a borrower/
predictive power of the risk rating system. obligor is considered to be in default, all
(4) A bank’s internal credit risk rating credit obligations of the borrower/obligor
system must have a minimum of 6 rating with the same bank shall also be considered
grades for unclassified accounts and 4 rating to be in default.
grades for classified accounts, which must (2) Definition of loss
be assigned in a consistent manner over Loss, for purposes of accumulating data
time. Moreover, the rating system must on loss in the event of default, refers to
result in a meaningful distribution of economic loss. It must therefore include

Part III - Page 2 Manual of Regulations for Banks


§§ 1301.1 - X301.6
05.12.31

discount effects, as well as direct and counterparties in specific geographical


indirect costs associated with collecting on locations, economic or industry sectors).
the credit obligation. Banks’ board- (3) Diversification of risk is essential in
approved internal policies that govern the banking. Many past bank failures have been
use of their internal rating systems must due to credit risk concentrations of some
include specific policies and procedures kind. It is essential for banks to prevent
that should be followed in the undue credit risk concentrations from
determination of economic loss. excessive exposures to particular
f. Timetable for implementation counterparties, industries, economic
(1) Banks must submit an sectors, regions or countries.
implementation plan to the appropriate SED (4) While concentration of credit risks
of the BSP no later than 31 July 2004. A are inherent in banking and cannot be
monetary penalty of P10,000 per banking totally eliminated, they can be limited and
day shall be imposed for delay until such reduced by adopting proper risk control and
plan is submitted. diversification strategies. Safeguarding
(2) A fully documented internal credit against credit risk concentrations should
risk rating system, duly approved by the form an important component of a bank’s
board of directors, must be submitted to the risk management system.
BSP not later than 31 December 2004. (5) The board of directors of a bank
Upon submission of the system, all shall be responsible for establishing and
prospective and existing corporate accounts monitoring compliance with policies
must immediately be evaluated and governing large exposures and credit risk
monitored according to such system. A concentrations of the bank. The board
monetary penalty of P10,000 per banking should review these policies regularly (at
day shall be imposed for delay until this least annually) to ensure that they remain
requirement is complied with. adequate and appropriate for the bank.
Subsequent changes to the established
§§ X301.2 – X301.5 (Reserved) policies must be approved by the board.
(6) The policy on large exposures and
§ X301.6 Large exposures and credit credit risk concentrations shall, at a
risk concentrations. The following minimum, cover the following:
guidelines shall govern managing large (a) Exposure limits that are reasonable
exposures and credit risk concentrations in in relation to capital and resources for –
line with the objective of strengthening risk (i) Various types of borrowers/
management in the banking system. counterparties (e.g. government, banks and
a. General principles other financial institutions, corporate and
(1) A bank can be exposed to various individual borrowers);
forms of credit risk concentration which if (ii) A group of related borrowers/
not properly managed may cause counterparties;
significant losses that could threaten its (iii) Individual industry sectors;
financial strength and undermine public (iv) Individual countries; and
confidence in the bank. (v) Various types of investments.
(2) Credit risk concentrations may arise (b) The circumstances in which the
from excessive exposures to individual above limits can be exceeded and the party
counterparties, groups of related authorized to approve such excesses, e.g. the
counterparties and groups of counterparties bank’s board of directors or credit committee
with similar characteristics (e.g. with delegated authority from the board.

Manual of Regulations for Banks Part III - Page 3


§ X301.6
05.12.31

(c) The delegation of credit authority (2) Every bank should have adequate
within the bank for approving large exposures; management information and reporting
(d) The procedures for identifying, systems that enable management to identify
reviewing, managing and reporting large credit risk concentrations within the asset
exposures of the bank; portfolio of the bank or of the group
(e) The definition of exposure. Banks (including subsidiaries and overseas
should take into account the nature of their branches) on a timely basis. If a
business and the complexity of their concentration does exist, banks should
products. In any case, a bank’s exposures reduce it in accordance with thei