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MANUAL OF REGULATIONS

FOR NON-BANK FINANCIAL


INSTITUTIONS

BANGKO SENTRAL NG PILIPINAS


Maynila, Pilipinas
FOREWORD

Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the Monetary
Board recognized the need to revise and regularly update the Manual of Regulations for Banks
and Other Financial Intermediaries to enable the industry to better keep pace with the anticipated
rapid regulatory changes that are unavoidable in a dynamic economic enviroment. A revised
Manual would also be able to appropriately take into account the strenghtened supervisory and
regulatory arrangements set out in the BSP's new charter.

This Manual of Regulations for Non-Bank Financial Institutions is one of the products of
that effort. It benefits from the inputs of many concerned departments of the BSP as well as the
various industry associations of non-bank financial institutions. 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 non-bank financial
institutions.

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

GABRIEL C. SINGSON
Governor
PREFACE
The Manual of Regulations for Non-Bank Financial Institutions (the “New Manual”) is
not only an updated edition but also a revision of the present Manual of Regulations for Banks
and Other Financial Intermediaries, Book IV (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been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the central monetary authority and
(2) that the Old Manual was last updated as of December 31, 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.

To accomplish the work of proposing revisions to the Old Manual, the Monetary Board
of the BSP, in its Resolution No. 1203 dated December 7, 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. Yuvienco1 (Supervisory Reports and Studies Office); Deputy Director Rolando
A. Q. Agustin (Department of Commercial Banks I); Deputy Director Danilo A. Monasterio2
(Department of Rural Banks); Deputy Director Erlinda S. J. Marzan3 (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 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
non-bank financial intermediary industries. Their valuable suggestions contributed much to
the accomplishment of this project.

1
now Director, Department of Commercial Banks II
2
Retired
3
Deceased

v
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 December 31, 1996. It shall serve as the principal source
of all substantive regulations for non-bank financial institutions 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 regulations
for non-bank financial institution will measure up to the expectations of these institutions.

The Bangko Sentral ng Pilipinas

vi
INSTRUCTIONS TO USERS

The Manual of Regulations for Non-Bank Financial Institutions (the “Manual”) is the
comprehensive authority on the specific subjects covered therein. New rules and amendments
to the rules shall immediately from 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. Non-bank financial institutions (NBFIs) governed by the Manual shall comply with the
provisions thereof and any violation thereof shall be punishedable under the specific and/or
general provisions on sanctions.

The Manual contains the rules and regulations on NBFIs subject to supervision by the
Bangko Sentral ng Pilipinas (BSP) under the law. Specifically, these institutions are as follows:
NBFIs performing quasi-banking functions, or quasi-banks, which are subject to BSP supervision
under R.A. No. 7653, The New Central Bank Act; NBFIs performing trust and other fiduciary
activities and building and loan associations (BLAs), under R.A. No. 337, as amended; non-
stock savings and loans association (NSSLAs), under R.A. 3779; and pawnshops, under P.D.
No. 114. The regulations addressed to these institutions are grouped as follows: the Q Regulations,
which are addressed to quasi-banks; the S Regulations, which are addressed to NSSLAs; the P
Regulations, which are addressed to pawnshops; the B Regulations, which are addressed to
BLAs; and N Regulations, which are addressed to other NBFIs subject to BSP supervision.

As a code of regulations, the Manual contains the basic features of division into Parts,
further sudivided into major topic headings which intorduce the corresponding sections and
subsections making up the provisions governing a major operation of the institutions subject to
the regulations. Parts and major topic headings as well as coded setion numbers and headings
are made uniform for all the groups of regulations.

Coding of sections utilizes six (6) digits; i.e., 4123Q.44. The first digit (4 in the example)
refers to the type of financial institution (i.e., non-bank financial institutions as distinguished
from banks or banking institutions, the regulations addressed to which institutions are contained
in another Manual) to which the regulation is applicable; the second digit (1 in the example), to
the Part number, and the third and fourth digits (23 in the example), to the section number. The
other two (2) digits after the decimal point (44 in the example) refers to the subsection number.
The letters Q, S, B, P and N are appended to the pertinent code numbers of the sections to
indicate the particular category of NBFIs the regulations are addressed to, namely: quasi-banks,
NSSLAs, BLAs, pawnshops and other NBFIs subject to BSP supervision, respectively. For example,
Sections 4161Q, 4161S, 4161B and 4161P refer to provisions of reporting requirements of
quasi-banks, NSSLAs, BLAs and pawnshops, in that order.

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To illustrate, the code numbers 4161Q.2 indicates:

Main caption on “Records”

Subcaption on “SFAS”

4 1 6 1 Q . 2

Regulation addressed to quasi-banks

Part One on “Organization, Management and Administration"

Regulations addressed to NBFIs

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. Paging is further identified as to the
group of regulations the particular page belong; for example, Q Regulations.

To facilitate reference, running section headings consisting of the coded numbers of the
sections/subsections whose provisions are contained in a particular page are indicated at either
the upper right- or left-hand corner of the page preceded by the symbols § or §§. The cut-off date
is indicated immediately below the running section heads, as: 96.12.31. Thereafter, the date of
the pages affected by subsequent new issuances or amendments/repeals will be changed to the
end of the semestral period during the semestral updating which shall reflect the changes that
shall have occurred.

viii
MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS

Q REGULATIONS
(Regulations Governing Non-Bank Financial Institutions
Performing Quasi-Banking Functions)

TABLE OF CONTENTS

PART ONE - ORGANIZATION, MANAGEMENT AND


ADMINISTRATION
A. SCOPE OF AUTHORITY

SECTION 4101Q Quasi-Banking Functions


4101Q.1 Financial intermediaries
4101Q.2 Guidelines on lender count
4101Q.3 Transactions not considered quasi-banking
4101Q.4 Delivery of securities
4101Q.5 Securities custodianship operations

SECTION 4102Q Preconditions for the Exercise of Quasi-Banking Functions

SECTION 4103Q Certificate of Authority from the Bangko Sentral

SECTION 4104Q Bangko Sentral Certificate of Authority

SECTION 4105Q Licensing of an Investment House

B. CAPITALIZATION

SECTION 4106Q Minimum Capitalization

SECTION 4107Q Minimum Capital of Investment House

SECTION 4108Q Sanctions

SECTIONS 4109Q - 4110Q (Reserved)

C. MERGER/CONSOLIDATION

SECTION 4111Q Merger/Consolidation Involving Quasi-Banks

SECTION 4112Q Merger/Consolidation Incentives

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SECTIONS 4113Q - 4115Q (Reserved)

D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTION 4116Q Minimum Ratio


4116Q.1 Qualifying capital
4116Q.2 Risk-weighted assets
4116Q.3 Definitions
4116Q.4 Required reports
4116Q.5 Sanctions
4116Q.6 Temporary relief

SECTION 4117Q Treatment of Equity Investment with Reciprocal


Stockholdings

SECTION 4118Q Sanctions on Net Worth Deficiency

SECTIONS 4119Q - 4120Q (Reserved)

E. (RESERVED)

SECTIONS 4121Q - 4125Q (Reserved)

F. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION 4126Q Dividends


4126Q.1 Definition of terms
4126Q.2 Requirements on the declaration of dividends/
net amount available for dividends
4126Q.3 Reporting and verification
4126Q.4 Recording of dividends
4126Q.5 Rules on declaration of stock dividends

SECTIONS 4127Q - 4140Q (Reserved)

G. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION 4141Q Definition; Qualifications; Powers; Responsibilities and


Duties of Board of Directors and Directors
4141Q.1 Limits on the number of the members of the
board of directors
4141Q.2 Qualifications of a director
4141Q.3 Powers/responsibilities and duties of board of
directors and directors

x
4141Q.4 Confirmation of the election/appointment of
directors and officers
4141Q.5 - 4141Q.8 (Reserved)
4141Q.9 Reports required
4141Q.10 Sanctions

SECTION 4142Q Definition and Qualifications of Officers

SECTION 4143Q Disqualification of Directors and Officers


4143Q.1 Persons disqualified to become directors
4143Q.2 Persons disqualified to become officers
4143Q.3 Effect of non-possession of qualifications or
possession of disqualifications
4143Q.4 Disqualification procedures
4143Q.5 Watchlisting
4143Q.6 Prohibition against foreign officers/employees
of financing companies

SECTION 4144Q Interlocking Directorships and/or Officerships


4144Q.1 Representatives of government

SECTION 4145Q Profit Sharing of Directors, Officers and Employees

SECTION 4146Q Monetary Board Confirmation of Directors and Senior


Officers

SECTION 4147Q Compensation and Other Benefits of Directors and Officers

SECTION 4148Q (Reserved)

SECTION 4149Q Conducting Business in an Unsafe/Unsound Manner


4149Q.1 - 4149Q.8 (Reserved)
4149Q.9 Sanctions
SECTION 4150Q Reserved

H. BRANCHES AND OTHER OFFICES

SECTION 4151Q Establishment


4151Q.1 Evaluation guideposts
4151Q.2 Additional capital, if required
4151Q.3 Other requirements/factors to be considered
4151Q.4 Conditions precluding processing of
applications

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4151Q.5 Documentary requirements
4151Q.6 Filing of applications
4151Q.7 Period within which to submit complete
requirements
4151Q.8 Prohibition against operating without SEC
license

SECTIONS 4152Q - 4155Q (Reserved)

I. (RESERVED)

SECTIONS 4156Q - 4160Q (Reserved)

J. RECORDS AND REPORTS

SECTION 4161Q Records


4161Q.1 Uniform system of accounts
4161Q.2 Adoption of statements of financial accounting
standards

SECTION 4162Q Reports


4162Q.1 Categories and signatories of reports
4162Q.2 Manner of filing
4162Q.3 Sanctions in case of willful delay in the
submission of reports/refusal to permit
examination

SECTIONS 4163Q - 4170Q (Reserved)

K. INTERNAL CONTROL

SECTION 4171Q Internal Control Systems

SECTION 4172Q Financial Audit


4172Q.1 Posting of audited financial statements
4172Q.2 Disclosure of external auditor's adverse findings
to the Bangko Sentral; sanction
4172Q.3 Disclosure requirement in the notes to the
audited financial statements
4172Q.4 Disclosure requirements in the annual report
4172Q.5 Posting and submission of annual report

SECTIONS 4173Q - 4179Q (Reserved)

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SECTION 4180Q Selection, Appointment and Reporting Requirements for
External Auditors; Sanction; Effectivity

L. MISCELLANEOUS PROVISIONS

SECTION 4181Q Publication Requirements

SECTION 4182Q Management Contracts

SECTIONS 4183Q - 4190Q (Reserved)

SECTION 4191Q Compliance System; Compliance Officer


4191Q.1 Compliance system
4191Q.2 Compliance officer
4191Q.3 Compliance risk
4191Q.4 Responsibilities of the board of directors
and senior management on complaince
4191Q.5 Status
4191Q.6 Independence
4191Q.7 Role and responsibilities of the
compliance function
4191Q.8 Cross-border issues
4191Q.9 Outsourcing

SECTIONS 4192Q - 4198Q (Reserved)

SECTION 4199Q General Provision on Sanctions

PART TWO - DEPOSIT AND BORROWING OPERATIONS

A. - D. (RESERVED)

SECTIONS 4201Q - 4210Q (Reserved)

E. DEPOSIT SUBSTITUTE OPERATIONS

SECTION 4211Q Deposit Substitute Instruments


4211Q.1 Prohibition against use of certain instruments as
deposit substitutes
4211Q.2 Negotiations of promissory notes
4211Q.3 Minimum features
4211Q.4 Delivery of Securities

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4211Q.5 Regulation on additional stipulation
4211Q.6 Substitution of underlying securities
4211Q.7 Call slips/tickets for 24-hour loans
4211Q.8 Requirement to state nature of underlying
securities
4211Q.9 Compliance with SEC rules

SECTION 4212Q Recording; Payment; Maturity; Renewal

SECTION 4213Q Minimum Trading Lot

SECTION 4214Q Interbank Borrowings

SECTION 4215Q Borrowings from Trust Departments or Managed Funds of


Banks or Investment Houses

SECTION 4216Q Money Market Placements of Rural Banks


4216Q.1 Definition of terms
4216Q.2 Conditions required on accepted placements
4216Q.3 Sanctions

SECTION 4217Q Bond Issues of NBQBs


4217Q.1 Definition of terms
4217Q.2 Underwriting of bonds
4217Q.3 Compliance with SEC rules
4217Q.4 Notice to Bangko Sentral
4217Q.5 Minimum features
4217Q.6 Reserve requirement
4217Q.7 Inapplicability of certain regulations

SECTIONS 4218Q - 4230Q (Reserved)

F. (RESERVED)

SECTIONS 4231Q - 4235Q (Reserved)

G. INTEREST

SECTION 4236Q Yield/Interest Rates

SECTIONS 4237Q - 4245Q (Reserved)

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H. RESERVES

SECTION 4246Q Reserves Against Deposit Substitutes


4246Q.1 Composition of reserves
4246Q.2 Computation of reserve position
4246Q.3 Reserve deficiencies; sanctions
4246Q.4 Exemptions
4246Q.5 Matured and unclaimed deposit substitutes
4246Q.6 Book entry method for reserve securities
4246Q.7 Interest income on reserve deposit with
Bangko Sentral
4246Q.8 Guidelines in calculating and reporting to the
BSP the required reserves on deposit substitutes
evidenced by repurchase agreements covering
government securities

SECTIONS 4247Q - 4255Q (Reserved)

I. (RESERVED)

SECTIONS 4256Q - 4275Q (Reserved)

J. BORROWINGS FROM THE BANGKO SENTRAL

SECTION 4276Q Repurchase Agreements with the Bangko Sentral

SECTIONS 4277Q - 4280Q (Reserved)

K. OTHER BORROWINGS

SECTION 4281Q Borrowings from the Government


4281Q.1 Definition of terms

SECTIONS 4282Q - 4298Q (Reserved)

SECTION 4299Q General Provision on Sanctions

PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS

SECTION 4301Q Management of Risk Assets/Minimum Guidelines


on Lending Operations

xv
4301Q.1 - 4301Q.5 (Reserved)
4301Q.6 Large exposures and credit risk concentrations

SECTION 4302Q Loan Portfolio and Other Risk Assets Review System
4302Q.1 Provisions for losses; booking
4302Q.2 Sanctions

SECTIONS 4303Q - 4305Q (Reserved)

A. LOANS IN GENERAL

SECTION 4306Q Loan Limit to a Single Borrower


4306Q.1 Exclusions from loan limit
4306Q.2 Contingent liabilities included in loan limit
4306Q.3 Sanctions

SECTION 4307Q Interest and Other Charges


4307Q.1 Rate ceilings
4307Q.2 Floating rates of interest
4307Q.3 Effect of prepayment
4307Q.4 Loan prepayment
4307Q.5 Escalation clause; when allowable
4307Q.6 Rate of interest in the absence of stipulation
4307Q.7 Accrual of interest earned on loans

SECTION 4308Q Past Due Accounts


4308Q.1 Accounts considered past due
4308Q.2 Renewal/extension
4308Q.3 Restructured loans
4308Q.4 Demand loans
4308Q.5 Write-off of loans as bad debts

SECTION 4309Q "Truth in Lending Act" Disclosure Requirement


4309Q.1 Definition of terms
4309Q.2 Information to be disclosed
4309Q.3 Inspection of contracts covering credit
transactions
4309Q.4 Posters

SECTION 4310Q (Reserved)

SECTION 4311Q Non-Performing Loans


4311Q.1 Accounts considered non-performing;
definitions

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4311Q.2 Accrual of interest earned on loans
4311Q.3 Allowance for uncollected interest on loans
4311Q.4 Reporting requirement

SECTIONS 4312Q - 4320Q (Reserved)

B. (RESERVED)

SECTIONS 4321Q - 4335Q (Reserved)

C. UNSECURED LOANS

SECTION 4336Q Loans Against Personal Security


4336Q.1 General guidelines
4336Q.2 Proof of financial capacity of borrower
4336Q.3 Signatories
4336Q.4 Sanctions

SECTION 4337Q Credit Card Operations; General Policy


4337Q.1 Definition of terms
4337Q.2 Risk management system
4337Q.3 Minimum requirements
4337Q.4 Information to be disclosed
4337Q.5 Accrual of interest earned
4337Q.6 Finance charges
4337Q.7 Deferral charges
4337Q.8 Late payment/penalty fees
4337Q.9 Confidentiality of information
4337Q.10 Suspension, termination of effectivity and
reactivation
4337Q.11 Inspection of records covering credit card
transactions
4337Q.12 Offsets
4337Q.13 Handling of complaints
4337Q.14 Unfair collection practices
4337Q.15 Sanctions

SECTIONS 4338Q - 4350Q (Reserved)

D. RESTRUCTURED LOANS

SECTION 4351Q Restructured Loans; General Policy


4351Q.1 Definition; when to consider performing/non-
performing

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4351Q.2 Procedural requirements
4351Q.3 Classification

SECTIONS 4352Q - 4355Q (Reserved)

E. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS,


OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS

SECTION 4356Q General Policy


4356Q.1 Definitions

SECTION 4357Q Transactions Covered

SECTION 4358Q Transactions Not Covered


4358Q.1 Applicability to credit card operations

SECTION 4359Q Direct or Indirect Borrowings

SECTION 4360Q Individual Ceiling; Single-Borrower Limit

SECTION 4361Q Aggregate Ceiling; Ceiling On Unsecured Loans

SECTION 4362Q Exclusions from Aggregate Ceiling

SECTION 4363Q Credit Accommodations Under Officers' Fringe Benefit Plans

SECTION 4364Q Procedural Requirements

SECTION 4365Q Sanctions

SECTIONS 4366Q - 4370Q (Reserved)

F. (RESERVED)

SECTIONS 4371Q - 4375Q (Reserved)

G. SPECIAL TYPES OF LOANS

SECTION 4376Q Interbank Loans


4376Q.1 Systems and procedures for interbank call loan
transactions
4376Q.2 Accounting procedures
4376Q.3 Transfer of excess funds
4376Q.4 Settlement procedures

xviii
SECTIONS 4377Q - 4380Q (Reserved)

H. EQUITY INVESTMENTS

SECTION 4381Q Investment in Non-Allied Undertakings

SECTION 4382Q Investments Abroad

SECTION 4383Q Underwriting Exempted

SECTIONS 4384Q - 4385Q (Reserved)

I. (RESERVED)

SECTIONS 4386Q - 4390Q (Reserved)

J. OTHER OPERATIONS

SECTION 4391Q Purchase of Receivables and Other Obligations


4391Q.1 Yield on purchase of receivables
4391Q.2 Purchase of commercial paper
4391Q.3 Investments in debt and marketable equity
securities

SECTION 4392Q Reverse Repurchase Agreements with the Bangko Sentral

SECTION 4393Q (Reserved)

SECTION 4394Q Acquired Assets in Settlement of Loans


4394Q.1 Booking
4394Q.2 Sales contract receivable

SECTION 4395Q (Reserved)

K. MISCELLANEOUS PROVISIONS

SECTION 4396Q Transfer/sale of non-performing assets to a special purpose


vehicle or to an individual

SECTIONS 4397Q - 4398Q (Reserved)

SECTION 4399Q General Provision on Sanctions

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

SECTION 4401Q Statement of Principles

SECTION 4402Q Scope of Regulations

SECTION 4403Q Definitions

A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION 4404Q Authority to Perform Trust and Other Fiduciary Business


4404Q.1 Prerequisites for engaging in trust and other
fiduciary business
4404Q.2 Pre-operating requirements

SECTION 4405Q Security for the Faithful Performance of Trust and Other
Fiduciary Business
4405Q.1 Basic security deposit
4405Q.2 Eligible securities
4405Q.3 Valuation of securities and basis of computation
of the basic security deposit requirement
4405Q.4 Compliance period; sanctions
4405Q.5 Reserves against peso-denominated Common
Trust Funds (CTFs) and Trust and Other
Fiduciary Accounts (TOFA) - Others
4405Q.6 Composition of reserves
4405Q.7 Computation of reserve position
4405Q.8 Reserve deficiencies; sanctions
4405Q.9 Report of compliance

SECTION 4406Q Organization and Management


4406Q.1 Organization
4406Q.2 Composition of trust committee
4406Q.3 Qualifications of committee members, officers
and staff
4406Q.4 Responsibilities of administration

SECTION 4407Q Non-Trust, Non-Fiduciary and/or Non-Investment


Management Activities

SECTION 4408Q Unsafe and Unsound Practices


4408Q.1 - 4408Q.8 (Reserved)
4408Q.9 Sanctions

xx
SECTION 4409Q Trust and Other Fiduciary Business
4409Q.1 Minimum documentary requirements
4409Q.2 Lending and investment disposition
4409Q.3 Transactions requiring prior authority
4409Q.4 Ceilings on loans
4409Q.5 Funds awaiting investment or distribution
4409Q.6 Other applicable regulations on loans and
investments
4409Q.7 Operating and accounting methodology
4409Q.8 - 4409Q.15 (Reserved)
4409Q.16 Qualification and accreditation of quasi-banks
acting as trustee on any mortgage or bond
issuance by any municipality, government-
owned or controlled corporation, or any body
politic

SECTION 4410Q Unit Investment Trust Funds/Common Trust Funds


4410Q.1 Definition
4410Q.2 Establishment of a unit investment trust fund
4410Q.3 Administration of a unit investment trust fund
4410Q.4 Relationship of trustee with unit investment
trust fund
4410Q.5 Operating and accounting methodology
4410Q.6 Plan rules
4410Q.7 Minimum disclosure requirements
4410Q.8 Exposure limit to single person/entity
4410Q.9 Allowable investments and valuation
4410Q.10 Other related guidelines on valuation of
allowable investments
4410Q.11 Unit investment trust fund administration
support
4410Q.12 Counterparties
4410Q.13 Foreign currency-denominated unit investment
trust funds
4410Q.14 Exemptions from statutory and liquidity
reserves, single borrowers limit, DOSRI

SECTION 4411Q Investment Management Activities


4411Q.1 Minimum documentary requirements
4411Q.2 Minimum size of each investment management
account
4411Q.3 Commingling of funds
4411Q.4 Lending and investment disposition

xxi
4411Q.5 Transactions requiring prior authority
4411Q.6 Title to securities and other properties
4411Q.7 Ceilings on loans
4411Q.8 Operating and accounting methodology

SECTION 4412Q (Reserved)

SECTION 4413Q Required Retained Earnings Appropriation

B. INVESTMENT MANAGEMENT ACTIVITIES

SECTION 4414Q Authority to Perform Investment Management


4414Q.1 Prerequisites for engaging in investment
management activities
4414Q.2 Pre-operating requirements

SECTION 4415Q Security for the Faithful Performance of Investment


Management Activities
4415Q.1 Basic security deposit
4415Q.2 Eligible securities
4415Q.3 Valuation of securities and basis of computa-
tion of the basic security deposit requirement
4415Q.4 Compliance period; sanctions

SECTION 4416Q Organization and Management

SECTION 4417Q Non-Investment Management Activities


SECTION 4418Q Unsound Practices

SECTION 4419Q Conduct of Investment Management Activities

SECTION 4420Q Required Retained Earnings Appropriation

C. GENERAL PROVISIONS

SECTION 4421Q Books and Records

SECTION 4422Q Custody of Assets

SECTION 4423Q Fees and Commissions

SECTION 4424Q Taxes

xxii
SECTION 4425Q Reports Required
4425Q.1 To trustor, beneficiary, principal
4425Q.2 To the Bangko Sentral

SECTION 4426Q Audits


4426Q.1 Internal audit
4426Q.2 External audit
4426Q.3 Board action

SECTION 4427Q Authority Resulting from Merger or Consolidation

SECTION 4428Q Receivership

SECTION 4429Q Surrender of Trust or Investment Management License

SECTIONS 4430Q - 4440Q (Reserved)

SECTION 4441Q Securities Custodianship and Securities Registry Operations


4441Q.1 Statement of policy
4441Q.2 Applicability of this regulation
4441Q.3 Prior Bangko Sentral
4441Q.4 Application for authority
4441Q.5 Pre-qualification requirements for a securities
custodian/registry
4441Q.6 Functions and responsibilities of a securities
custodian
4441Q.7 Functions and responsibilities of a securities
registry
4441Q.8 Protection of securities of the customer
4441Q.9 Independence of the registry and custodian
4441Q.10 Registry of scripless securities of the Bureau of
the Treasury
4441Q.11 Confidentiality
4441Q.12 Compliance with anti-money laundering laws/
regulations
4441Q.13 Basic security deposit
4441Q.14 Reportorial requirements
4441Q.15 - 4441Q.28 (Reserved)
4441Q.29 Sanctions

SECTIONS 4442Q - 4498Q (Reserved)

SECTION 4499Q Sanctions

xxiii
PART FIVE - FOREIGN EXCHANGE OPERATIONS

SECTION 4501Q Authority; Coverage

SECTION 4502Q Specific Foreign Exchange Activities

SECTION 4503Q Separate Department

SECTION 4504Q Applicability of Pertinent Bangko Sentral Rules

SECTION 4505Q Aggregate Ceiling on Issuance of Guarantees

SECTIONS 4506Q - 4598Q (Reserved)

SECTION 4599Q General Provision on Sanctions

PART SIX - MISCELLANEOUS

A. OTHER OPERATIONS
SECTION 4601Q Open Market Operations
4601Q.1 Settlement procedures

SECTION 4602Q Repurchase Agreements with the Bangko Sentral


4602Q.1 Reverse repurchase agreements with
Bangko Sentral

SECTION 4603Q Derivatives


4603Q.1 Scope and pre-qualification requirements
4603Q.2 Transactions between parent and subsidiary
4603Q.3 Renewals
4603Q.4 Risk management guidelines
4603Q.5 Accounting guidelines
4603Q.6 Reporting requirements
4603Q.7 Sanctions
4603Q.8 - 4603Q.13 (Reserved)
4603Q.14 Forward and swap transactions
4603Q.15 Definition of terms
4603Q.16 Documentation

xxiv
4603Q.17 Tenor/maturity of FX forward or swap
4603Q.18 Cancellations, roll-overs or non-delivery of FX
forward contracts
4603Q.19 Non-deliverable forward contracts with non-
residents
4603Q.20 Compliance with Anti-Money Laundering rules
4603Q.21 Reporting requirements
4603Q.22 - 4603Q.25 (Reserved)
4603Q.26 Sanctions

SECTION 4604Q Underwriting by Investment Houses

SECTIONS 4605Q - 4625Q (Reserved)

SECTION 4626Q Asset-Backed Securities


4626Q.1 Definition of terms
4626Q.2 Authority
4626Q.3 Management oversight
4626Q.4 Minimum documents required
4626Q.5 Minimum features of ABS
4626Q.6 Disclosures
4626Q.7 Conveyance of assets
4626Q.8 Representations and warranties
4626Q.9 Third party review
4626Q.10 Originator and seller
4626Q.11 Trustee and issuer
4626Q.12 Servicer
4626Q.13 Underwriter
4626Q.14 Guarantor
4626Q.15 Credit enhancement
4626Q.16 Clean-up call
4626Q.17 Prohibited activities
4626Q.18 Amendment
4626Q.19 Miscellaneous provision
4626Q.20 Report to Bangko Sentral

SECTIONS 4627Q - 4650Q (Reserved)

B. SUNDRY PROVISIONS

SECTION 4651Q NBQB Premises and Other Fixed Assets


4651Q.1 Appreciation or increase in book value of
NBQB premises and other fixed assets

xxv
4651Q.2 (Reserved)
4651Q.3 Reclassification of real and other properties
owned or acquired as NBQB premises
4651Q.4 - 4651Q.8 (Reserved)
4651Q.9 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 4652Q Annual Fees on Quasi-Banks

SECTION 4653Q Payment of Fines and Other Charges


4653Q.1 Payment of fines
4653Q.2 Check/demand draft payments to the
Bangko Sentral

SECTION 4654Q Examination by the Bangko Sentral


4654Q.1 Definitions

SECTION 4655Q Applicability of Expanded Commercial Banking Rules on


NBQBs

SECTION 4656Q Basic Laws Governing Investment Houses and Financing


Companies

SECTION 4657Q Recognition and Derecognition of Domestic Credit Rating


Agencies for Bank Supervisory Purposes
4657Q.1 Statement of policy
4657Q.2 Minimum eligibility criteria
4657Q.3 Pre-qualification requirements
4657Q.4 Inclusion in BSP list
4657Q.5 Derecognition of credit rating agencies
4657Q.6 Recognition of PhilRatings as domestic credit
rating agency for bank supervisory purposes

SECTIONS 4658Q - 4660Q (Reserved)

SECTION 4661Q Examination by the BSP

SECTIONS 4662Q - 4690Q (Reserved)

xxvi
SECTION 4691Q Anti-Money Laundering Regulations
4691Q.1 - 4691Q.8 (Reserved)
4691Q.9 Sanctions and Penalties

SECTIONS 4692Q - 4698Q (Reserved)

SECTION 4699Q General Provision on Sanctions

xxvii
04.12.31

LIST OF APPENDICES
No. SUBJECT MATTER

Q-1 Guidelines to Evaluate Investment Houses

Q-2 Determination of Amount of Additional Capital the Entity Must Put


Up

Q-3 List of Reports Required from NBQBs


Annex Q-3-a Information on One-Year Borrowing-Investment
Program to be Submitted by NBQBs
Annex Q-3-b Guidelines Governing the Consolidation of Financial
Satements of Financial Intermediaries and their Allied
Undertakings/Subsidiaries/Affiliates
Annex Q-3-c Reporting Guidelines on Crimes/Losses
Annex Q-3-d Documentary Requirements on Directors/Officers/
Major Individual Stockholders
Annex Q-3-e Documents/Information on Organizational Structure
and Operational Policies
Annex Q-3-f Guidelines on Calculating Additional Information
Required in Published statement of Condition

Q-4 Guidelines on Prescribed Reports Signatories and Signatory Authori-


zation
Annex Q-4-a Format of Resolution for Signatories of Category A-1
Reports
Annex Q-4-b Format of Resolution for Signatories of Category A-2
Reports
Annex Q-4-c Format of Resolution for Signatories of Categories A-3
and B Reports

Q-5 Minimum Internal Control Standards for NBQBs

Q-6 Standardized Deposit Substitute Instruments

Q-7 New Rules on Registration of Short-Term Commercial Papers

Q-8 New Rules on Registration of Long-Term Commercial Papers

Q-9 List of Reserve - Eligible and Non-Eligible Securities

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendices - Page 1
List of Appendices
04.12.31

No. SUBJECT MATTER

Q -10 Guidelines in Identifying and Monitoring Problem Loans and Other


Risk Assets and Setting Up of Allowance for Probable Losses

Q - 11 Format-Disclosure Statement of Loan/Credit Transaction

Q - 12 Abstract of "Truth in Lending Act" (Republic Act No. 3765)

Q - 13 Agreement for the Enhanced Interbank Call Loan Funds Transfer


System
App. Q-13-a Settlement Procedures for Interbank Loan Transactions
and Purchase and Sale of Government Securities
under Repurchase Agreements with the Bangko
Sentral
App. Q-13-b Intraday Liquidity Facility for the Implementation of
App. Q-13-a on the Improved Interbank Call Loan
Funds Transfer System (MIPS 2)

Q - 14 Sample Investment Management Agreement

Q - 15 Risk Management Guidelines for Derivatives

Q - 16 Risk Disclosure Statement for Derivatives Activities

Q - 17 Accounting Guidelines for Derivatives

Q - 18 SEC Basic Rules and Regulations to Implement the Provisions of


Presidential Decree No. 129, Otherwise Known as "The Investment
Houses Law"

Q - 19 New Rules and Regulations to Implement the Provisions of Republic


Act No. 5980 (The Financing Company Act), As Amended

Q - 20 Classification, Accounting Procedures, Valuation and Sales and


Transfers of Investments in Debt Securities and Marketable Equity
Securities
App. Q-20-a Establishing the Market Benchmarks/Reference Prices
and Computation Method Used to Mark-to-Market
Debt and Marketable Equity Securities

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Appendices - Page 2
List of Appendices
04.12.31

No. SUBJECT MATTER

Q - 21 Guidelines on the Use of Scripless (RoSS) Securities as Security De-


posit for the Faithful Performance of Trust Duties

Q - 22 Proforma Payment Form

Q - 23 Anti-Money Laundering Regulations


Annex Q-23-a Certification of Compliance with Anti-Money Laun-
dering Regulations
Annex Q-23-b Rules on Submission of Covered Transaction Reports
and Suspicious Transaction Reports by Covered
Institutions
Annex Q-23-c Customer Due Diligence for Banks and Non-Bank
Financial Intermediaries Performing Quasi-Banking
Functions (NBQBs)
Annex Q-23-c-1 General Identification Requirements
Annex Q-23-d General Guide to Account Opening and Customer
Identification

Q - 24 Activities Which May Be Considered Unsafe and Unsound Practices

Q - 25 Revised Implementing Rules and Regulations - R.A. No. 9160, as


Amended by R.A. No. 9194

Q - 26 Investment Houses and Financing Companies (IH/FC) with Quasi-


Banking Functions - Reverse Repurchase Agreements with BSP Pro-
forma Accounting Entries

Q - 27 Details on the Computation of Quarterly Interest Payments Credited


to the Demand Deposit Accounts (DDAs) of Quasi-Banks' Legal
Reserve Deposits with BSP

Q - 28 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle


or to an Individual
App. Q-28-a Accounting Guidelines on the Sale of Non-Perform-
ing Assets to Special Purpose Vehicles and to
Qualified Individuals for Housing Under "The
Special Purpose Vehicle (SPV) Act of 2002"
Annex Q-28-a-1 Illustrative Accounting Entries to Record Sale of
NPAs to SPV under the SPV Law of 2002
Annex Q-28-a-2 Pro-Forma Disclosure Requirement

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendices - Page 3
List of Appendices
04.12.31

No. SUBJECT MATTER

Q - 29 Guidelines and Minimum Documentary Requirements for Foreign


Exchange (FX) Forward and Swap Transactions

Q - 30 Guidelines to Govern the Selection, Appointment and the Reporting


Requirement for External Auditors of Quasi-Banks

Q - 31 Qualifications Requirements for a Bank/NBFI Applying for Accredita-


tion to Act as Trustee on any Mortgage or Bond Issued by any
Municipality, Government-Owned or Controlled Corporation, or
any Body Politic

Q - 32 Rules and Regulations on Common Trust Funds

Q - 33 Checklist of BSP Requirements in the Submission of Audited


Financial Statements and Annual Report
App. Q-33-a Comparison of Audited Financial Statements and
Submitted Consolidated Statement of Condition
and Income and Expenses

Q - 34 Quarterly Investment Disclosure Statement

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Appendices - Page 4
§§ 4101Q - 4101Q.1
96.12.31

PART ONE
ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. SCOPE OF AUTHORITY claims collectible in money, including


interbank borrowings or borrowings between
financial institutions, or of securities, of any
Section 4101Q Quasi-Banking Functions amount and maturity, from domestic or
Quasi-banking functions consist of the foreign sources.
following: Relending shall refer to the extension
a. Borrowing funds for the borrower's of loans by an institution with antecedent
own account; borrowing transactions. Relending shall be
b. Twenty (20) or more lenders at any presumed in the absence of express
one time; stipulation, when the institution is regularly
c. Methods of borrowing: issuance, engaged in lending.
endorsement, or acceptance of debt Regularly engaged in lending shall refer
instruments of any kind, other than deposits, to the practice of extending loans, advances,
such as: discounts or rediscounts as a matter of
(1) acceptances; business, i.e., continuous or consistent
(2) promissory notes; lending as distinguished from isolated
(3) participations; lending transactions.
(4) certificates of assignment or
similar instruments with recourse; § 4101Q.1 Financial intermediaries
(5) trust certificates; Financial intermediaries shall mean persons
(6) repurchase agreements; and or entities whose principal functions include
(7) such other instruments as the the lending, investing or placement of funds
Monetary Board may determine; and or evidences of indebtedness or equity
d. Purpose: deposited with them, acquired by them, or
(1) relending; or otherwise coursed through them either for
(2) purchasing receivables or other their own account or for the account of
obligations. others.
As used in the definition of quasi- Principal shall mean chief, main, most
banking functions, the following terms and considerable or important, of first
phrases shall be understood, as follows: importance, leading, primary, foremost,
Borrowing shall refer to all forms of dominant or preponderant, as distinguished
obtaining or raising funds through any of from secondary or incidental.
the methods and for any of the purposes Functions shall mean actions, activities
provided in c and d above, whether the or operations of a person or entity by which
borrower's liability thereby is treated as real his/its business or purpose is fulfilled or
or contingent. carried out. The business or purpose of a
For the borrower's own account shall person or entity may be determined from
refer to the assumption of liability in one's the purpose clause in its articles of
own capacity and not in representation, or incorporation/partnership, and from the
as an agent or trustee, of another. nature of the business indicated in his/its
Purchasing of receivables or other application for registration of business filed
obligations shall refer to the acquisition of with the appropriate government agency.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 1
§§ 4101Q.1 - 4101Q.2
96.12.31

To be considered a financial engaged in the function(s) where financial


intermediary, a person or entity must perform intermediation is implied.
any of the following functions on a regular (3) A person or entity performing any
and recurring, not on an isolated basis: of the functions enumerated in Items a to e
a. Receive funds from one (1) group of this Subsection.
of persons, irrespective of number, through
traditional deposits, or issuance of debt or § 4101Q.2 Guidelines on lender count
equity securities; and make available/lend The following guidelines shall govern lender
these funds to another person or entity, and count on borrowings or funds mobilized by
in the process acquire debt or equity non-bank financial intermediaries:
securities; a. For purposes of ascertaining the
b. Use principally the funds received number of lenders/placers to determine
for acquiring various types of debt or equity whether or not a non-bank financial
securities; intermediary is engaged in quasi-banking
c. Borrow against, or lend on, or buy functions, the names of payees on the face
or sell debt or equity securities; of each debt instrument shall serve as the
d. Hold assets consisting principally of primary basis for counting the lenders/placers
debt or equity securities such as promissory except when proof to the contrary is adduced
notes, bills of exchange, mortgages, stocks, such as the official receipts or documents
bonds, and commercial papers; other than the debt instrument itself. In such
e. Realize regular income in the nature case the actual/real lenders/placers as
of, but need not be limited to, interest, appearing in such proof, shall be the basis
discounts, capital gains, underwriting fees, for counting the number of lenders/placers.
guarantees, fees, commissions, and service In a debt instrument issued to two (2)
fees, principally from transactions in debt or or more named payees under an and/or and
equity securities or by being an intermediary or arrangement, the number of payees
between suppliers and users of funds. appearing on the instrument shall be the basis
Non-banking financial intermediaries for counting the number of lenders/placers:
shall include the following: Provided, however, That a debt instrument
(1) A person or entity licensed and/or issued in the name of a husband and wife
registered with any government regulatory followed by the word spouses, whether under
body as a non-bank financial intermediary, an and, and/or or or arrangement or in the
such as investment house, investment name of a designated payee under an in trust
company, financing company, securities for (ITF) arrangement, shall be counted as one
dealer/broker, lending investor, pawnshop, (1) borrowing/placement.
money broker, fund manager, cooperative, b. Each debt instrument payable to
insurance company, non-stock savings and bearer shall be counted as one (1) lender/
loan association and building and loan placer except when the non-bank financial
association. intermediary can prove that there is only one
(2) A person or entity which holds itself (1) owner for several debt instruments so
out as a non-banking financial intermediary, payable.
such as by the use of a business name, which c. Two (2) or more debt instruments
includes the term financing, finance, issued to the same payee, irrespective of the
investment, lending and/or any word/phrase date and amount shall be counted as one (1)
of similar import which connotes financial borrowing or placement.
intermediation, or an entity which advertises d. Debt instruments underwritten by
itself as a financial intermediary and is investment houses or traded by securities

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part I - Page 2
§§ 4101Q.2 - 4101Q.4
04.12.31

dealers/brokers whether on a firm, standby as on the confirmation of sale, the phrase


or best efforts basis shall be counted on the without recourse or sans recourse and the
basis of the number of purchasers thereof following statement:
and shall not be treated as having been (Name of non-bank) assumes
issued solely to the underwriter or trader: no liability for the payment,
Provided, however, That in case of unsold directly or indirectly, of
debt instruments in a firm commitment this instrument.
underwriting, the underwriter shall be (2) In the absence of the phrase without
counted as a lender. recourse or sans recourse and the above-
e. Each buyer, assignee, and/or required accompanying statement, the
indorsee shall be counted in determining instrument so issued, endorsed or accepted
the number of lenders/placers of funds shall automatically be considered as falling
mobilized through sale, assignment, and/or within the purview of the rules on quasi-
indorsement of securities, or receivables on banking.
a without recourse basis, whenever the Provided, further, That any of the
terms and/or attendant documentation, following practices or practices similar and/
practice, or circumstances indicate that the or tantamount thereto in connection with a
sale, assignment, and/or indorsement thereof without recourse transaction renders such
legally obligates the non-bank financial transaction as with recourse and within the
intermediary to repurchase or reacquire the purview of the rules on quasi-banking.
securities/receivables sold, assigned, i. Issuance of postdated checks by a
indorsed or to pay the buyer, assignee, or financial intermediary, whether for its own
indorsee at some subsequent time. account or as an agent of the debt instrument
f. Funds obtained by way of advances issuer, in payment of the debt instrument
from stockholders, directors, officers, sold, assigned or transferred without
regardless of nature, shall be considered recourse;
borrowed funds or funds mobilized and such ii. Issuance by a financial intermediary
stockholders, directors or officers shall be of any form of guaranty on sale transactions
counted in determining the number of or on negotiations or assignment of debt
lenders/placers. instruments without recourse; or
iii. Payment with the funds of the
§ 4101Q.3 Transactions not financial intermediary which assigned, sold
considered quasi-banking. The following or transferred the debt instrument without
shall not constitute quasi-banking: recourse, unless the financial intermediary
a. Borrowing by commercial, can show that the issuer has with the said
industrial and other non-financial companies, financial intermediary funds corresponding
through the means listed in Sec. 4101Q for to the amount of the obligation.
the limited purpose of financing their own Any investment house violating the
needs or the needs of their agents or dealers; provisions of this Subsection shall be subject
and to the sanctions provided in Sections 12 and
b. The mere buying and selling 16 of P.D. No. 129, as amended.
without recourse of instruments mentioned
in Sec. 4101Q: Provided, That: § 4101Q.4 Delivery of securities1
(1) The institution selling without a. Securities sold on a without recourse
recourse shall indicate or stamp in basis allowed under Subsec. 4101Q.3(b)
conspicuous print on the instrument/s, as well shall be delivered physically to the purchaser,

-----------------------------------------------------------------------------

1
Effective 16 November 2004 under Circular 450 dated 06 September 2004.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 3
§§ 4101Q.4 - 4101Q.5
04.12.31

or to his designated custodian duly (d) Suspension or revocation of the


accredited by the BSP, if certificated, or by authority to engage in trust and other
means of book-entry transfer to the fiduciary business.
appropriate securities account of the
purchaser or his designated BSP accredited § 4101Q.5 Securities custodianship
custodian in a registry for said securities, if operations
immobilized or dematerialized, while the a. Securities sold on a without recourse
confirmation of sale or document of basis shall be delivered to the purchaser, or
conveyance by the seller shall be physically to his designated custodian duly accredited
delivered to the purchaser. The custodian by the BSP: Provided, That a bank/other entity
shall hold the securities in the name of the authorized by the BSP to perform
buyer: Provided, That an NBQB/other entity custodianship function may not be allowed
authorized by the BSP to perform to be custodian of securities issued or sold
custodianship function may not be allowed on a without recourse basis by said NBQB/
to be custodian of securities issued or sold entity, its subsidiaries or affiliates, or of
on a without recourse basis by said NBFI, its securities in bearer form. Existing securities
subsidiaries or affiliates, or of securities in being held under custodianship by NBQBs/
bearer form. other entities under BSP supervision, which
The delivery shall be effected upon are not in accordance with said regulation,
payment and shall be evidenced by a must therefore, be delivered to a BSP
securities delivery receipt duly signed by the accredited third party custodian. However,
authorized officer of the custodian and banks and other financial institutions under
delivered to the purchaser. BSP supervision may maintain custody of
b. Sanctions. Violation of any provision existing securities of their clients who are
of this Subsection shall be subject to the unable or unwilling to take delivery pursuant
following sanctions/penalties: to the provisions of this Subsection but who
(1) Monetary penalties declined to deliver their existing securities
First offense – Fine of P10,000 a day for to a BSP accredited third party custodian
each violation reckoned from the date the subject to the following conditions:
violation was committed up to the date it was (1) the custody arrangements with
corrected. clients have been in existence prior to 05
Subsequent offenses – Fine of P20,000 November 2004 (effectivity date of Circular
a day for each violation reckoned from the 457 dated 14 October 2004);
date the violation was committed up to the (2) the dealing bank/NBFI under BSP
date it was corrected. supervision had been informed in writing by
(2) Other sanctions the client that he is not willing to have his
First offense – Reprimand for the existing securities delivered to a third party
directors/officers responsible for the custodian;
violation. (3) any BSP regulated institution shall not
Subsequent offense – enter into securities transactions with a client
(a) Suspension for ninety (90) days who has outstanding securities not delivered
without pay of directors/officers responsible to a BSP accredited third party custodian; and
for the violation; (4) it shall be the responsibility of any
(b) Suspension or revocation of the BSP regulated institution to satisfy itself that
accreditation to perform custodianship the person purchasing securities from it has
function; no outstanding securities holdings which
(c) Suspension or revocation of the were not delivered to a BSP accredited third
authority to engage in quasi-banking party custodian.
function; and/or

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part I - Page 4
§§ 4101Q.5 - 4102Q
04.12.31

b. Sanctions. Without prejudice to the b. It has generally complied with


penal and administrative sanctions provided applicable laws, rules and regulations, orders
for under Sections 36 and 37, respectively, or instructions of appropriate authority,
of the R.A. No. 7653, violation of any including the Monetary Board and/or BSP
provision of this Subsection shall be subject Management where applicable;
to the following sanctions/penalties: c. Its accounting records, systems and
(1) First Offense – procedures as well as internal control systems
(a) Fine of up to P10,000 a day for the are satisfactorily maintained;
institution for each violation reckoned from d. It does not have float items
the date the violation was committed up to outstanding for more than sixty (60) calendar
the date it was corrected; and days in the “Due From/To Head Office/
(b) Reprimand for the directors/officers Branches/Offices” accounts exceeding one
responsible for the violation. percent (1%) of the total resources as of end
(2) Second Offense - of preceding month;
(a) Fine of up to P20,000 a day for the e. It has no past due obligation with any
institution for each violation reckoned from financial institution as of date of application;
the date the violation was committed up to f. The officers who will be in-charge of
the date it was corrected; and the QB operations have actual experience of
(b) Suspension for ninety (90) days at least two (2) years in a bank or quasi-bank
without pay of directors/officers responsible as in-charge (or at least as assistant in-charge).
for the violation. The directors of the NBFI, officer-in-charge
(3) Subsequent Offenses – of the QB operations and the managerial staff
(a) Fine of up to P30,000 a day for the must comply with the fit and proper rule
institution for each violation from the date prescribed under existing law/rules and
the violation was committed up to the date it regulations;
was corrected; g. The NBFI has elected at least two (2)
(b) Suspension or revocation of the independent directors and all its directors
authority to act as securities custodian and/ have attended the required seminar for
or registry; and directors of banks/quasi-banks conducted or
(c) Suspension for one hundred twenty accredited by the BSP.
(120) days without pay of the directors/ h. It has not engaged in unsafe and
officers responsible for the violation. unsound practices during the past six (6)
months immediately preceding the date of
Sec. 4102Q Preconditions for the Exercise application where applicable;
of Quasi-Banking Functions. No person or i. It must have in place a
entity shall engage in quasi-banking functions comprehensive risk management system
without authority from the BSP. Only a duly approved by its board of directors appropriate
incorporated non-bank financial institution to its operations characterized by a clear
(NBFI) organized as stock corporation may delineation of responsibility for risk
undertake or perform quasi-banking management, adequate risk measurement
functions as defined in Sec. 4101Q. An NBFI systems, appropriately structured risk limits,
securing BSP authority to engage in quasi- effective internal control and complete,
banking functions must meet the following timely and efficient risk reporting systems. In
requirements: this connection, a manual of operations and
a. It must have complied with the other related documents embodying the risk
minimum adjusted capital accounts of at least management system must be submitted to the
P650 million or such amounts as may be appropriate supervising and examining
required by the Monetary Board in the future; department of the BSP at the time of

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 4a
§§ 4102Q - 4104Q
04.12.31

application for authority and within thirty (30) (b) interest rates; and
days from updates. (c) domestic or foreign sources whether
institutional or personal.
Sec. 4103Q Certificate of Authority from NBFI’s authorized to engage and are
the Bangko Sentral. An NBFI securing BSP’s actually performing quasi-banking functions
Certificate of Authority to engage in quasi- but do not meet the new capital requirement
banking functions shall file an application are hereby given a period of two (2) years
with the appropriate supervising and reckoned from 11 November 2004 within
examining department of the BSP. The which to comply with the minimum capital
application shall be signed by the NBFI requirement in Sec. 4102Q(a): Provided,
president or officer of equivalent rank and That this may be substituted by a capital
shall be accompanied by the following build-up program for a period of not more
documents: than five (5) years and which must be
1. Certified true copy of the resolution approved by the Monetary Board. Such
of the NBFI’s board of directors authorizing capital build-up program shall be in equal
the application. annual or diminishing amounts and shall be
a. A certification signed by the president submitted to the appropriate supervising and
or the officer of equivalent rank that the examining department within three (3)
institution has complied with all conditions/ months from 11 November 2004. NBFIs
prerequisites for the grant of authority to which fail to comply with the required
engage in quasi-banking functions; capitalization upon expiration of said two (2)
b. An information sheet; year period given them or those which fail
c. Bio-data signed under oath, of the to comply with approved capital build-up
members of the managerial staff who will program shall liquidate their quasi-banking
undertake quasi-banking operations; and operations within one (1) year and shall be
d. Borrowing-investment program for considered revoked/cancelled.
one (1) year which should include at the
minimum: Sec. 4104Q Bangko Sentral Certificate of
(1) planned distribution of portfolios to – Authority. The BSP shall issue a Certificate
(a) underwriting; of Authority upon proof that the applicant
(b) commercial paper markets; has complied with the requirements of Secs.
(c) stocks and bonds; 4102Q and 4103Q and of pertinent laws and
(d) government securities; regulations.
(e) receivables financing, discounting In the case of a merger or consolidation
and factoring; of two (2) or more NBQBs, the authority
(f) leasing; and shall continue to have full force and effect.
(g) direct loans; For documentation purposes, in the case of
(2) expected sources of funds to support a merger, the Certificate of Authority of the
investment program classified as to – absorbing corporation shall be maintained;
(a) maturity: short, medium and long- and with respect to consolidation, a new
term;

(Next page is Part I - Page 5)

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part I - Page 4b
§§ 4104Q - 4111Q
02.12.31

certificate shall be issued to the new resulting from the revaluation shall form part
corporation. The Certificate of Authority of of capital for purposes of determining single
the absorbed corporation in a merger and the borrower’s limit and capital-to-risk assets
certificates of the consolidated corporations ratio.
in a consolidation shall be surrendered to Any foreign equity shall be registered
the appropriate department of the BSP. with and approved by the Board of
Investments and the appropriate department
Sec. 4105Q Licensing of an Investment of the BSP.
House. Applications for license as an
investment house referred to the BSP by the Sec. 4107Q Minimum Capital of Investment
Securities and Exchange Commission (SEC) House. The minimum paid-in capital
pursuant to P.D. No. 129 shall be evaluated requirement for an investment house shall
in accordance with the Guidelines to be P300 million pursuant to R.A. No. 129,
Evaluate Investment Houses prescribed in as amended by R.A. No. 8366.
Appendix Q-1.
Sec. 4108Q Sanctions. Any or all of the
following sanctions may be imposed on any
B. CAPITALIZATION NBQB which fails to maintain at least the
applicable minimum capital under Secs.
Sec. 4106Q Minimum Capitalization. An 4106Q and 4107Q:
NBQB shall have a minimum combined (1) Suspension of authority to engage
capital accounts of P50 million. in quasi-banking functions;
Combined capital accounts shall mean (2) Suspension of authority to engage
the total of capital stock, retained earnings in trust/investment management activities (in
and profit and loss summary, net of (a) such the case of an investment house);
unbooked valuation reserves and other (3) Cease-and-desist order (in the case
capital adjustments as may be required by of an investment house);
the BSP and (b) total outstanding unsecured (4) No new/renewal/extension of credit
credit accommodations, both direct and accommodations to DOSRI;
indirect, to directors, officers, all stockholders (5) Prohibition against declaration of
and their related interests (DOSRI). With cash dividends;
respect to Item (b) hereof, the provisions of (6) Suspension of the privilege to
Sec. 4356Q shall apply except that in the establish and/or open approved branches,
definition of stockholders in said Section, the agencies, offices, etc.; and
qualification that his stockholdings, (7) Other sanctions as may be imposed
individually and/or together with his related by the Monetary Board.
interests in the lending NBQB, amount to ten
percent (10%) or more of the total subscribed Secs. 4109Q - 4110Q (Reserved)
capital stock of the NBQB, shall not apply for
purposes of this Item. Any appraisal surplus
or appreciation credit as a result of C. MERGER/CONSOLIDATION
appreciation or an increase in book value of
the assets of the NBQB shall be excluded, Sec. 4111Q Merger/Consolidation Involving
except in the case of merger and Quasi-Banks. The merger/ consolidation of
consolidation, where the appraisal increment NBQBs is encouraged to meet minimum

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Part I - Page 5
§§ 4111Q - 4112Q
02.12.31

capital requirements and to develop larger subject to BSP approval, avail themselves of
and stronger financial institutions. NBQBs any or all of the following incentives:
which are investment houses are likewise a. Revaluation of premises, improve-
encouraged to merge with banks to obtain ments and equipment of the institutions:
authority to perform expanded commercial Provided, That such revaluation shall be
banking functions. based on fair valuation of the property
Mergers/consolidations involving conducted by a reputable appraisal company
NBQBs shall comply with the provisions of which shall be subject to review and
applicable law and shall be subject to approval by the BSP;
approval by the BSP. The following rules shall govern the
For purposes of merger and revaluation of assets:
consolidation of NBQBs , the following (1) The revaluation of the NBQB’s
definitions shall apply: premises, improvements and equipment shall
a. Merger is the absorption of one (1) be allowed only to all institutions
or more corporations by another existing participating in a merger/consolidation if all
corporation, which retains its identity and of them belong to the same category, or at
takes over the rights, privileges, franchises, least two (2) of them belong to the highest
and properties, and assumes all the liabilities category among the merging/consolidating
and obligations of the absorbed corpo- institutions.
ration(s) in the same manner as if it had itself (2) In case the merging/consolidating
incurred such liabilities or obligations. The institutions do not belong to the same
absorbing corporation continues its existence category or only one (1) of them falls under
while the life or lives of the other the highest category, all of them may be
corporation(s) is/are terminated. allowed to revalue their premises,
b. Consolidation is the union of two improvements and equipment: Provided,
(2) or more corporations into a single new That the amount of appraisal increment
corporation, called the consolidated resulting from such revaluation shall be
corporation, all the constituent corporations limited to the amount of the total resources
thereby ceasing to exist as separate entities. of the institution belonging to the lower
The consolidated corporation shall thereupon category or categories.
and thereafter possess all the rights, privileges, (3) The appraisal increment resulting
immunities, franchises and properties, and from the revaluation shall form part of capital
assume all the liabilities and obligations of for purposes of determining the single
each of the constituent corporations in the borrower’s limit and capital-to-risk assets
same manner as if it had itself incurred such ratio. The use of appraisal increment for cash
liabilities or obligations. dividend shall be governed by the provisions
of the Corporation Code.
Sec. 4112Q Merger/Consolidation (4) The revaluation of premises,
Incentives. In pursuance of the policy to improvements, and equipment of the
promote mergers and consolidations among institution as well as the recognition of
banks and other financial intermediaries as a goodwill as an incentive to mergers/
means to develop larger and stronger consolidations shall only be allowed if the
financial institutions, constituent entities may, following conditions are met:

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Part I - Page 6
§ 4112Q
02.12.31

(i) The surviving or consolidated entity c. If by reason of merger/


will meet the existing capital requirements consolidation, the resulting NBQB is unable
after all adjustments are taken up in the books to comply fully with the prescribed net worth-
of accounts of the merging/consolidating to-risk assets ratio, the Monetary Board may,
entities but before considering appraisal at its discretion, temporarily relieve the NBQB
increments and goodwill, or there will be from full compliance with this requirement
infusion of fresh capital to meet said existing under such conditions as it may prescribe;
capital requirements; and In the case of purchase or acquisition
(ii) The merger/consolidation will result of majority or all of the outstanding shares of
in a more viable financial institution as a an NBQB by a bank/another NBQB , the
result of cost savings and improve revaluation of assets and the booking of the
competitive position. required valuation reserves based upon
In case of purchase or acquisition of examination by the BSP over a period of five
the majority or all of the outstanding shares (5) years shall be allowed only if such
of stock of an NBQB, the same conditions purchase or acquisition is for the purpose of
must be satisfied. rehabilitating the former NBQB: Provided,
b. Unbooked valuation reserves based That the revaluation of assets and staggered
upon BSP examination and other capital booking of reserves shall be allowed in full
adjustments resulting from the merger/ only if the purchaser is another NBQB and
consolidation may be booked on staggered both the NBQBs belong to the same category.
basis over a maximum period of five (5) years. Otherwise, only the NBQB being acquired/
The following guidelines shall govern rehabilitated shall be allowed to recognize
the staggered booking of valuation reserves: in full the appraisal increment resulting from
(1) The booking on staggered basis revaluation of assets and to book valuation
over a maximum period of five (5) years of reserves on a staggered basis, while in the
unbooked valuation reserves based upon case of the acquiring bank/NBQB , the
examination by the BSP may be allowed to appraisal increment resulting from
all institutions participating in a merger/ revaluation of assets and the privilege of
consolidation if all of them belong to the staggered booking of valuation reserves shall
same category, or at least two (2) of them each be limited to the amount of the total
belong to the highest category among the resources of the NBQB being acquired/
merging/consolidating institutions. rehabilitated.
(2) In case the merging/consolidating d. Conversion or upgrading of the
institutions do not belong to the same existing head offices, branches and/or other
category or only one (1) of them falls under offices of the merged/absorbed institutions
the highest category, all of them may be into branches of the new or surviving
allowed to book the required valuation financial institution;
reserves based upon examination by the BSP e. Amortization of goodwill up to a
on a staggered basis over a maximum period maximum period of forty (40) years if there
of five (5) years: Provided, That the aggregate are compelling reasons to extend for this
amount of the required valuation reserves long, otherwise the amortization shall not be
shall be limited to the amount of the total longer than ten (10) years;
resources of the institution belonging to the The recognition of goodwill as an
lower category or categories. incentive to mergers/consolidations shall

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 7
§§ 4112Q - 4116Q.1
03.12.31

only be allowed subject to the conditions in D. RISK-BASED


Item “a(4)”. CAPITAL ADEQUACY RATIO
f. Relocation of branches/offices may
be allowed within one (1) year from date of Sec. 4116Q Minimum Ratio. The risk-based
merger/consolidation in cases where the capital ratio of a quasi-bank, expressed as a
merger/consolidation resulted in duplication percentage of qualifying capital to risk-
of branches/offices in a service area, or in weighted assets, shall not be less than ten
such other cases/circumstances as the percent (10%) for both solo basis (head of-
Monetary Board may prescribe; fice plus branches) and consolidated basis
g. Outstanding penalties in legal (parent quasi-bank plus subsidiary financial
reserve deficiencies and interest on overdrafts allied undertakings, but excluding insurance
with the BSP as of the date of merger/ companies).
consolidation may be paid in installments The ratio shall be maintained daily. This
over a period of one (1) year; shall be effective January 1, 2004.
h. Restructuring/plan of payment of
past due obligations of the proponents with § 4116Q.1 Qualifying capital. The quali-
the BSP as of the date of merger/consolidation fying capital shall be the sum of –
over a period not exceeding ten (10) years; a. Tier 1 (core) capital -
i. Subject to approval of the Monetary (1) Paid-up common stock;
Board, concurrent officerships between a (2) Paid-up perpetual and non-
merged/consolidated bank/financial cumulative preferred stock;
institution and another bank/financial (3) Common stock dividends
institution may be allowed; and distributable;
j. Any right or privilege granted a (4) Perpetual and non-cumulative
merging bank under a rehabilitation program preferred stock dividends distributable;
previously approved by the Monetary Board (5) Surplus;
or under any special authority previously (6) Surplus reserves;
granted by the Monetary Board shall continue (7) Undivided profits; and
to be in effect. (8) Minority interest in the equity of
The revaluation of assets and staggered subsidiary financial allied undertakings
booking of valuation reserves shall be which are less than wholly-owned: Provided,
available for a period of two (2) years from That a quasi-bank shall not use minority
February 19, 1999 while the rest of the interests in the equity accounts of
incentives enumerated under Sec. 4112Q consolidated subsidiaries as avenue for
shall be available for a period of three (3) introducing into its capital structure elements
years from August 31, 1998. that might not otherwise qualify as Tier 1
The foregoing incentives may also be capital or that would, in effect, result in an
granted in cases of purchases or acquisitions excessive reliance on preferred stock within
of majority or all of the outstanding shares of Tier 1:
stock of an NBQB. Provided, further, That the following
items shall be deducted from the total of Tier
Secs. 4113Q - 4115Q (Reserved) 1 capital:

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Part I - Page 8
§ 4116Q.1
03.12.31

(a) Common stock treasury shares; ii. It must be subordinated in the right
(b) Perpetual and non-cumulative of payment of principal and interest to all
preferred stock treasury shares; creditors of the quasi-bank, except those
(c) Net unrealized losses on creditors expressed to rank equally with, or
underwritten listed equity securities behind holders of the debt. Subordinated
purchased (for IH); creditors must waive their right to set off any
(d) Unbooked valuation reserves and amounts they owe the quasi-bank against
other capital adjustments based on the latest subordinated amounts owed to them by the
report of examination as approved by the quasi-bank. The issue documentation must
Monetary Board; clearly state that the debt is subordinated;
(e) Total outstanding unsecured credit iii. It must be fully paid-up. Only the net
accommodations, both direct and indirect, proceeds actually received from debt issues
to DOSRI; can be included as capital. If the debt is is-
(f) Deferred income tax; and sued at a premium, the premium cannot be
(g) Goodwill; and counted as part of capital;
b. Tier 2 (supplementary) capital which iv. It must not be redeemable at the ini-
shall be the sum of – tiative of the holder;
(1) Upper Tier 2 capital - v. It must not contain any clause which
(a) Paid-up perpetual and cumulative requires acceleration of payment of princi-
preferred stock; pal, except in the event of insolvency;
(b) Perpetual and cumulative preferred vi. It must not be repayable prior to ma-
stock dividends distributable; turity without the prior consent of the BSP:
(c) Appraisal increment reserve – quasi- Provided, That repayment may be allowed
bank premises, as authorized by the in connection with call option only after a
Monetary Board; minimum of five (5) years from issue date
(d) Net unrealized gains on underwritten and only if – (1) the quasi-bank’s capital ra-
listed equity securities purchased: Provided, tio is at least equal to the required minimum
That the amount thereof that may be included capital ratio; and (2) the debt is simulta-
in upper Tier 2 capital shall be subject to a neously replaced with issues of new capital
fifty-five percent (55%) discount (for IH); which is neither smaller in size nor of lower
(e) General loan loss provision: quality than the original issue;
Provided, That the amount thereof that may vii. It may allow a moderate step-up in
be included in upper Tier 2 capital shall be the interest rate in conjunction with a call
limited to a maximum of one and twenty- option, only if the step-up occurs at a mini-
five hundredths percent (1.25%) of gross risk- mum of ten (10) years after the issue date
weighted assets, and any amount in excess and if it results in an increase over the initial
thereof shall be deducted from the total risk- rate that is not more than 100 basis points:
weighted assets in computing the Provided, That only one (1) rate step up shall
denominator of the risk-based capital ratio; be allowed over the life of the instrument;
(f) With prior BSP approval, unsecured viii. It must provide for possible conver-
subordinated debt with a minimum original sion into common shares or preferred shares
maturity of at least ten (10) years, subject to or possible deferral of payment of principal
the following conditions: and interest if the quasi-bank’s capital ratio
i. It must not be secured nor covered becomes less than the required minimum
by a guarantee of the issuer or related party; capital ratio;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 8a
§ 4116Q.1
03.12.31

ix. It must provide for the principal and (h) Deposit for perpetual and non-
interest on the debt to absorb losses where cumulative preferred stock subscription:
the quasi-bank would not otherwise be Provided, That the following items shall
solvent; be deducted from the total of upper Tier 2
x. It must allow deferment of interest capital:
payment on the debt in the event of, and at i. Perpetual and cumulative preferred
the same time as, the elimination of dividends stock treasury shares;
on all outstanding common or preferred stock (2) Lower Tier 2 capital –
of the issuer. It is acceptable for the deferred (a) Paid-up limited life redeemable
interest to bear interest, but the interest rate preferred stock: Provided, That these shall be
payable on deferred interest should not subject to a cumulative discount factor of
exceed market rates; twenty percent (20%) per year during the last
xi. It must be underwritten by a third five (5) years to maturity [i.e., twenty percent
party not related to the issuer quasi-bank nor (20%) if the remaining life is four (4) years to
acting in reciprocity for and in behalf of the less than five (5) years, forty percent (40%) if
issuer quasi-bank; the remaining life is three (3) years to less
xii. It must be issued in minimum than four (4) years, etc.];
denominations of at least P500,000 or its (b) Limited life redeemable preferred
equivalent; and stock dividends distributable;
xiii.It must clearly state on its face that it (c) With prior BSP approval, unsecured
is not a deposit and is not insured by the subordinated debt with a minimum original
Philippine Deposit Insurance Corporation maturity of at least five (5) years, subject to
(PDIC): the following conditions:
Provided, That it shall be subject to a i. It must not be secured nor covered
cumulative discount factor of twenty percent by a guarantee of the issuer or related party;
(20%) per year during the last five (5) years ii. It must be subordinated in the right
to maturity [i.e., twenty percent (20%) if the of payment of principal and interest to all
remaining life is four (4) years to less than creditors of the quasi-bank, except those
five (5) years, forty percent (40%) if the creditors expressed to rank equally with, or
remaining life is three (3) years to less than behind holders of the debt. Subordinated
four (4) years, etc.]: Provided, further, That creditors must waive their right to set off any
where it is denominated in a foreign amounts they owe the quasi-bank against
currency, it shall be revalued periodically (at subordinated amounts owed to them by the
least monthly) in Philippine peso at prevailing quasi-bank. The issue documentation must
exchange rate using the same exchange rate clearly state that the debt is subordinated;
used for revaluation of foreign currency- iii. It must be fully paid-up. Only the net
denominated assets, liabilities and forward proceeds actually received from debt issues
contracts under existing regulations: can be included as capital. If the debt is issued
Provided, furthermore, That, for purposes of at a premium, the premium cannot be
reserve requirement regulation, it shall not counted as part of capital;
be treated as a deposit substitute liability or iv. It must not be redeemable at the
other forms of borrowings; initiative of the holder;
(g) Deposit for common stock v. It must not contain any clause which
subscription; and requires acceleration of payment of principal,
except in the event of insolvency;

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Part I - Page 8b
§ 4116Q.1
03.12.31

vi. It must not be repayable prior to existing regulations: Provided, finally, That,
maturity without the prior consent of the BSP: for purposes of reserve requirement
Provided, That repayment may be allowed regulation, it shall not be treated as equivalent
in connection with call option only after a to a deposit substitute liability or other forms
minimum of five (5) years from issue date and of borrowings; and
only if – (1) the quasi-bank’s capital ratio is (d) Deposit for perpetual and cumulative
at least equal to the required minimum capital preferred stock subscription;
ratio; and (2) the debt is simultaneously Provided, That the following items shall
replaced with issues of new capital which is be deducted from the total of Lower Tier 2
neither smaller in size nor of lower quality capital:
than the original issue; (1) Limited life redeemable preferred
vii. It may allow a moderate step-up in stock treasury shares; and
the interest rate in conjunction with a call (2) Sinking fund for redemption of
option, only if the step-up occurs at a limited life redeemable preferred stock:
minimum of five (5) years after the issue date Provided, That the amount to be deducted
and if it results in an increase over the initial shall be limited to the balance of redeemable
rate that is not more than 100 basis points or preferred stock after applying the cumulative
fifty percent (50%) of the initial credit spread, discount factor:
at the option of the bank: Provided, That only Provided, further, That the total amount
one (1) rate step up shall be allowed over the of lower Tier 2 capital that may be included
life of the instrument; in the Tier 2 capital shall be a maximum of
viii. It must be underwritten by a third fifty percent (50%) of total Tier 1 capital (net
party not related to the issuer quasi-bank nor of deductions therefrom): Provided,
acting in reciprocity for and in behalf of the furthermore, That the total amount of upper
issuer quasi-bank; and lower Tier 2 capital that may be included
ix. It must be issued in minimum in the qualifying capital shall be a maximum
denominations of at least P500,000 or its of 100% of total Tier 1 capital (net of
equivalent; and deductions therefrom);
x. It must clearly state on its face that it c. Less deductions from the total of Tier
is not a deposit and is not insured by the 1 and Tier 2 capital, as follows:
PDIC: (1) Investments in equity of
Provided, That it shall be subject to a unconsolidated subsidiary banks and other
cumulative discount factor of twenty percent subsidiary financial allied undertakings, but
(20%) per year during the last five (5) years excluding insurance companies (for solo
to maturity [i.e., twenty percent (20%) if the basis);
remaining life is four (4) years to less than (2) Investments in debt capital
five (5) years, forty percent (40%) if the instruments of unconsolidated subsidiary
remaining life is three (3) years to less than banks (for solo basis);
four (4) years, etc.]: Provided, further, That (3) Investments in equity of subsidiary
where it is denominated in a foreign insurance companies and subsidiary non-
currency, it shall be revalued periodically (at financial allied undertakings;
least monthly) in Philippine peso using the (4) Reciprocal investments in equity of
same exchange rate used for revaluation of other banks/enterprises; and
foreign currency-denominated assets, (5) Reciprocal investments in unsecured
liabilities and forward contracts under subordinated term debt instruments of other

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Part I - Page 8c
§§ 4116Q.1 - 4116Q.2
03.12.31

banks/quasi-banks in excess of the lower of (d) Portions of loans covered by


(i) an aggregate ceiling of five percent (5%) Industrial Guarantee and Loan Fund (IGLF)
of total Tier 1 capital of the quasi-bank; or (ii) guarantee;
ten percent (10%) of the total outstanding (e) Real estate mortgage loans to the
unsecured subordinated term debt issuance extent guaranteed by the Home Guaranty
of the other bank/quasi-bank: Corporation (HGC);
Provided, That any asset deducted from (f) Loans to the extent guaranteed by the
the qualifying capital in computing the Trade and Investment Development
numerator of the risk-based capital ratio shall Corporation of the Philippines (TIDCORP);
not be included in the risk-weighted assets (g) Residual value of leased equipment
in computing the denominator of the ratio. to the extent covered by deposits on lease
contracts (for FCs);
§ 4116Q.2 Risk-weighted assets. The (h) Lease contract receivables to the
risk-weighted assets shall be determined by extent covered by the excess of deposits on
assigning risk weights to amounts of on- lease contracts over residual value of leased
balance sheet assets and to credit equivalent equipment (for FCs); and
amounts of off-balance sheet items (inclusive (i) Foreign currency notes and coins on
of derivative contracts): Provided, That the hand acceptable as international reserves;
following shall be deducted from the total (2) Twenty percent (20%) risk weight -
risk-weighted assets: (1) general loan loss (a) Checks and other cash items (COCIs);
provision (in excess of the amount permitted (b) Claims on or portions of claims
to be included in upper Tier 2 capital); and guaranteed by or collateralized by securities
(2) unbooked valuation reserves and other issued by non-central government public
capital adjustments affecting asset accounts sector entities of foreign countries with the
based on the latest report of examination as highest credit quality as defined in Subsec.
approved by the Monetary Board. 4116Q.3;
a. On-balance sheet assets. The risk- (c) Claims on or portions of claims
weighted amount shall be the product of the guaranteed by Philippine incorporated banks/
book value of the asset multiplied by the risk quasi-banks with the highest credit quality
weight associated with that asset, as follows: as defined in Subsec. 4116Q.3;
(1) Zero percent (0%) risk weight - (d) Claims on or portions of claims
(a) Cash on hand; guaranteed by foreign incorporated banks
(b) Claims on or portions of claims with the highest credit quality as defined in
guaranteed by or collateralized by securities Subsec. 4116Q.3;
issued by - (e) Claims on or portions of claims
i. Philippine national government and guaranteed by or collateralized by securities
BSP; and issued by multilateral development banks;
ii. Central governments and central (f) Loans to exporters to the extent
banks of foreign countries with the highest guaranteed by Small Business Guarantee and
credit quality as defined in Subsec. 4116Q.3; Finance Corporation (SBGFC); and
(c) Loans to the extent covered by hold- (g) Foreign currency checks and other
out on, or assignment of deposit substitutes cash items denominated in currencies
maintained with the lending quasi-bank; acceptable as international reserves;

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Part I - Page 8d
§ 4116Q.2
03.12.31

(3) Fifty percent (50%) risk weight – (m) Appraisal increment – Quasi-bank
(a) Loans for housing purpose, fully premises, furniture, fixtures and equipment
secured by first mortgage on residential (net);
property that is or will be occupied or leased (n) Real and other properties owned or
out by the borrower; and acquired (net);
(b) Local government unit (LGU) bonds (o) Foreign currency notes and coins on
which are covered by deed of assignment of hand not acceptable as international
Internal Revenue Allotment of the LGU and reserves; and
guaranteed by the LGU Guarantee (p) Foreign currency checks and other
Corporation; cash items not denominated in foreign
(4) One hundred percent (100%) risk currencies acceptable as international
weight – reserves, except those which are deducted
All other assets including, among others, from capital, as follows:
the following: (i) Unsecured credit accommodations,
(a) Claims on central governments and both direct and indirect, to DOSRI;
central banks of foreign countries other than (ii) Deferred income tax;
those with the highest credit quality; (iii) Goodwill;
(b) Claims on Philippine local (iv) Sinking fund for redemption of
government units; limited life redeemable preferred stock;
(c) Claims on non-central government (v) Equity investments in unconsolidated
public sector entities of foreign countries subsidiary banks and other subsidiary
other than those with the highest credit financial allied undertakings, but excluding
quality; insurance companies;
(d) Claims on government-owned or (vi) Investments in debt capital
controlled commercial corporations; instruments of unconsolidated subsidiary
(e) Claims on Philippine incorporated banks;
banks/quasi-banks other than those with the (vii) Equity investments in subsidiary
highest credit quality; insurance companies and subsidiary non-
(f) Claims on foreign incorporated banks financial allied undertakings,
other than those with the highest credit (viii)Reciprocal investments in equity of
quality; other banks/enterprises; and
(g) Loans to companies engaged in (ix) Reciprocal investments in unsecured
speculative residential building or property subordinated term debt instruments of other
development; banks/quasi-banks, in excess of the lower of
(h) Claims on the private sector (except (i) an aggregate ceiling of five percent (5%)
those deducted from capital); of total Tier 1 capital of the quasi-bank; or (ii)
(i) Equity investments (except those ten percent (10%) of the total outstanding
deducted from capital); unsecured subordinated term debt issuance
(j) Equipment and other real estate for of the other bank/quasi-bank;
lease (for FCs); b. Off-balance sheet items. The risk-
(k) Real estate for sale/lease; weighted amount shall be calculated using a
(l) Quasi-bank premises, furniture, two (2)-step process.
fixtures and equipment (net);

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Part I - Page 8e
§ 4116Q.2
03.12.31

First, the credit equivalent amount of an Second, the credit equivalent amount
off-balance sheet item shall be determined shall be treated like any on-balance sheet
by multiplying its notional principal amount asset and shall be assigned the appropriate
by the appropriate credit conversion factor, risk weight, i.e., according to the obligor, or
as follows: if relevant, the qualified guarantor or the
(1) One hundred percent (100%) credit nature of collateral.
conversion factor - c. Derivative contracts. The credit
This shall apply to direct credit substitutes, equivalent amount shall be the sum of the
e.g. general guarantees of indebtedness and current credit exposure (or replacement cost)
acceptances (including endorsements with and an estimate of the potential future credit
the character of acceptances), and shall exposure (or add-on): Provided, That the
include – following shall not be included in the
(a) Outstanding guarantees issued computation:
This shall also apply to sale and (1) Instruments which are traded on
repurchase agreements and asset sales with exchange where they are subject to daily re-
recourse where the credit risk remains with ceipt and payment of cash variation margin;
the quasi-bank (to the extent not included in and
the balance sheet), as well as to forward asset (2) Exchange rate contracts with origi-
purchases, and partly-paid shares and nal maturity of fourteen (14) calendar days
securities, which represent commitments with or less.
certain drawdown: Provided, That these items The current credit exposure shall be the
shall be weighted according to the type of positive mark-to-market value of the contract
asset and not according to the type of (or zero if the mark-to-market value is zero
counterparty with whom the transaction has or negative). The potential future credit
been entered into. exposure shall be the product of the notional
(2) Fifty percent (50%) credit conversion principal amount of the contract multiplied
factor – This shall apply to – by the appropriate potential future credit
(a) Note issuance facilities and revolv- conversion factor, as indicated below:
ing underwriting facilities (for IHs); and
(b) Other commitments, e.g., formal Residual Interest Exchange
Maturity Rate Rate
standby facilities and credit lines with an origi- Contract Contract
nal maturity of more than one (1) year. This
shall include– One (1) 0.0% 1.0%
(i) Underwritten accounts unsold (for year or less
IHs).
(3) Zero percent (0%) credit conversion Over one 0.5% 5.0%
(1) year to
factor – five (5) years
This shall apply to commitments with an
original maturity of up to one (1) year. Over five 1.5% 7.5%
This shall also apply to those not (5) years
involving credit risk, and shall include –
(a) Items held for safekeeping/custodi- Provided, That for contracts with
anship; multiple exchanges of principal, the factors
(b) Trust department accounts; are to be multiplied by the number of
(c) Items held as collaterals; etc. remaining payments in the contract:

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Part I - Page 8f
§§ 4116Q.2 - 4116Q.3
03.12.31

Provided, further, That for contracts that are c. Quasi-bank premises, furniture,
structured to settle outstanding exposure fixtures and equipment net of depreciation.
following specified payment dates and where This refers to the cost of land and
the terms are reset such that the market value improvements used as the quasi-bank
of the contract is zero on these specified premises, and furniture, fixtures and
dates, the residual maturity would be set equipment owned by the quasi-bank.
equal to the time until the next reset date, d. Cash on hand. This refers to total
and in the case of interest rate contracts with cash held by the quasi-bank consisting of
remaining maturities of more than one (1) both notes and coins in Philippine currency.
year that meet these criteria, the potential e. Central government of a foreign
future credit conversion factor is subject to a country. This refers to the central government
floor of five tenths percent (0.5%): Provided, which is regarded as such by a recognized
furthermore, That no potential future credit banking supervisory authority in that country.
exposure shall be calculated for single f. Claims. This refer to loans or debt
currency floating/floating interest rate swaps, obligations of the entity on whom the claim
i.e., the credit exposure on these contracts is held, and shall include, but shall not be
would be evaluated solely on the basis of limited to, the following accounts, inclusive
their mark-to-market value. of accumulated market gains/(losses) and
The credit equivalent amount shall be accumulated bond discount/(premium
treated like any on-balance sheet asset, and amortization), and net of specific allowance
shall be assigned the appropriate risk weight, for probable losses:
i.e., according to the obligor, or if relevant, (1) Due from BSP;
the qualified guarantor or the nature of (2) Due from other banks;
collateral: Provided, That a fifty percent (50%) (3) Interbank loans receivable;
risk weight shall be applied in respect of (4) Loans and discounts, including lease
obligors which would otherwise attract a contract receivables, net of advance leasing
100% risk weight. income received and receivables financed
The extent to which a claim is (for FCs);
guaranteed/collateralized shall be (5) Restructured loans;
determined by the amount of guarantee (6) Trading account securities – loans;
coverage/current market value of securities (7) Underwriting accounts - debt
pledged, in comparison with the book value securities (for IHs);
of the on-balance sheet asset or the notional (8) Underwriting accounts - equity
principal amount of the off-balance sheet securities (for IHs);
exposure, except for derivative contracts for (9) Trading account securities – debt
which determination is generally made in securities;
relation to credit equivalent amount. (10) Trading account securities – equity
securities (for IHs);
§ 4116Q.3 Definitions (11) Available for sale securities;
a. Amount due from the BSP. This refers (12) Investments in bonds and other debt
to all deposits of the reporting quasi-bank instruments; and
with the BSP. (13) Others, e.g., accounts receivable and
b. Appraisal increment reserve. This accrued interest receivable.
shall form part of capital only if authorized Accruals on a claim shall be classified and
by the Monetary Board. risk weighted in the same way as the claim.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 8g
§ 4116Q.3
03.12.31

g. Consolidated basis. This refers to Rating Agency Highest Rating


combined statement of condition of parent
quasi-bank and subsidiary financial allied (1) Moody’s “Aa3” and above
(2) Standard and “AA-” and above
undertakings, but excluding insurance Poor's
companies. (3) Fitch IBCA “AA-” and above
h. Debt capital instruments. This refers (4) Others as may
to unsecured subordinated term debt be approved by
the Monetary
instruments qualifying as capital of banks.
Board
i. Equity investments. This refers to m. Forward asset purchases. This refers
investments in capital stock of companies, to a commitment to purchase a loan, security
firms or enterprises, made for purposes of or other asset at a specified future date,
control, affiliation or other continuing usually on pre-arranged terms.
business advantage. n. Goodwill. This refers to an intangible
j. Exchange rate contracts. This asset that represents the excess of the
includes cross-currency interest rate swaps, purchase price over the fair market value of
forward foreign exchange contracts, currency identifiable assets acquired less liabilities
futures, currency options purchased and assumed in acquisitions accounted for under
similar instruments. the purchase method of accounting.
k. Financial allied undertakings. This o. Interest rate contracts. This includes
refers to enterprises or firms with single-currency interest rate swaps, basis
homogenous or similar activities/business/ swaps, forward rate agreements, interest rate
functions with the financial intermediary and futures, interest rate options purchased and
may include but not limited to leasing similar instruments.
companies, banks, IHs, FCs, credit card p. Loans for housing purpose, fully
companies, FIs catering to small and medium secured by first mortgage on residential
scale industries (including venture capital property that is or will be occupied or leased
corporations), companies engaged in stock out by the borrower. This shall not include
brokerage/securities dealership, companies loans to companies engaged in speculative
engaged in foreign exchange dealership/ residential building or property development.
brokerage, holding companies, and such q. Loans to the extent covered by hold-
other similar activities as the Monetary Board out on, or assignment of deposit substitutes
may declare as appropriate from time to time, maintained in the lending quasi-bank. A loan
but excluding insurance companies. shall be considered as secured by a hold-out
l. Foreign country/foreign incorporated on, or assignment of deposit substitute only
bank and Philippine incorporated bank/ if such deposit substitute account is covered
quasi-bank with the highest credit quality. by a hold-out agreement or deed of
This refers to a foreign country/foreign assignment signed by the investor/placer in
incorporated bank and Philippine favor of the quasi-bank. This shall not include
incorporated bank/quasi-bank given the loans transferred to/carried by the quasi-
highest credit rating of any two (2) of the bank’s trust department secured by deposit
following internationally accepted rating substitute hold-out/assignment.
agencies:

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Part I - Page 8h
§ 4116Q.3
03.12.31

r. Multilateral development banks. future redemption of the issue. Consistent


This refers to International Bank for with these provisions, any perpetual preferred
Reconstruction and Development (IBRD), stock with a feature permitting redemption
Inter-American Development Bank, Asian at the option of the issuer may qualify as
Development Bank (ADB), African capital only if the redemption is subject to
Development Bank, European Investment prior approval of the BSP.
Bank and European Bank for Reconstruction y. Philippine local government units.
and Development. This refers to the Philippine government units
s. Non-central government public below the level of national government, such
sector entity of a foreign country. This refers as city, provincial, and municipal
to entities which are regarded as such by a governments.
recognized banking supervisory authority in z. Philippine national government. This
the country in which they are incorporated. shall refer to the Philippine national
t. Note issuance facilities and revolving government and their agencies such as
underwriting facilities. This refers to an departments, bureaus, offices, and
arrangement whereby a borrower may draw instrumentalities, but excluding government-
down funds up to a prescribed limit over an owned and controlled commercial
extended period by repeated issues to the corporations.
market of promissory notes which the quasi- aa. Private sector. This refers to entities
bank committed to underwrite. other than banks, quasi-banks and
u. Other commitments. This includes governments. This shall also include
undrawn portion of any binding commercial companies owned by the public
arrangements which obligate the quasi-bank sector, such as government-owned or
to provide funds at some future date. controlled commercial corporations.
v. Other commitments with an original bb. Redeemable preferred stock. This
maturity of up to one (1) year. This includes refers to preferred stock which may be
any revolving or undated open-ended redeemed at the specific dates or periods
commitments, e.g., unused credit lines: fixed for redemption.
Provided, That these can be unconditionally cc. Sale and repurchase agreements and
cancelled at any time and are subject to credit asset sales with recourse. This refers to
revision at least annually. arrangements whereby a quasi-bank sells a
w. Partly-paid shares and securities. loan, security or fixed asset to a third party
This arises where only a part of the issue price with a commitment to repurchase the asset
or nominal face value of a security purchased after a certain time, or in the event of a certain
has been subscribed and the issuer may call contingency.
for the outstanding balance (or a further dd. Solo basis. This refers to combined
installment), either on a date predetermined statement of condition of head office and
at the time of issue, or at an unspecified future branches.
date. ee. Subsidiary. This refers to a
x. Perpetual preferred stock . This refers corporation or firm more than fifty percent
to preferred stock that does not have a (50%) of the outstanding voting stock of
maturity date, that cannot be redeemed at which is directly or indirectly owned,
the option of the holder of the instrument, controlled or held with the power to vote by
and that has no provision that will require a quasi-bank.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 8i
§§ 4116Q.3 - 4118Q
03.12.31

ff. Treasury shares. This refers to the been met. The Monetary Board may restrict
quasi-bank’s own shares of stock that have or prohibit the making of new investments
been issued and fully paid for, subsequently of any sort by the quasi-bank, with the
re-acquired through purchase or donations exception of purchases of readily marketable
and have not been cancelled or reissued. evidences of indebtedness issued by the
This also refers to shares of a parent quasi- Philippine national government and BSP
bank held by a subsidiary financial allied included in Item “a(1)(b)i” of Subsec.
undertaking in a consolidated statement of 4116Q.2, until the minimum required capital
condition. ratio has been restored.

§ 4116Q.4 Required reports. Quasi- § 4116Q.6 Temporary relief. In case of


banks shall submit a report of their risk-based quasi-bank merger or consolidation, or when
capital adequacy ratio on a solo basis (head a quasi-bank is under rehabilitation under a
office plus branches) and on a consolidated program approved by the BSP, the Monetary
basis (parent quasi-bank plus subsidiary Board may temporarily relieve the surviving
financial allied undertakings, but excluding quasi-bank, consolidated quasi-bank, or con-
insurance companies) quarterly to the stituent quasi-bank or corporations under
appropriate supervising and examining rehabilitation from full compliance with the
department of the BSP in the prescribed forms required capital ratio for a maximum period
within the deadlines, i.e., fifteen (15) business of one (1) year.
days and thirty (30) business days after the
end of reference quarter, respectively. Only Sec. 4117Q Treatment of Equity Investment
quasi-banks with subsidiary financial allied with Reciprocal Stockholdings. For purposes
undertakings (excluding insurance of computing the prescribed ratio of net
companies) which under existing regulations worth (or combined capital accounts) to risk
are required to prepare consolidated assets, equity investments of an NBQB in
statements of condition on a line-by-line basis another NBQB shall be deducted from its
shall be required to submit report on net worth if the investee NBQB has a
consolidated basis. The above-mentioned reciprocal equity investment in the investing
reports shall be classified as Category A-2 NBQB, in which case the investment of the
reports. NBQB or the reciprocal investment of the
other NBQB, whichever is lower, shall be
§ 4116Q.5 Sanctions. Whenever the deducted from the net worth of the NBQBs.
capital accounts of a quasi-bank are deficient
with respect to the prescribed capital Sec. 4118Q Sanctions on Net Worth
adequacy ratio, the Monetary Board after Deficiency
considering a report of the appropriate a. Any NBQB which is deficient in the
supervising and examining department of the capital requirement under Sec. 4116Q shall
BSP on the state of solvency of the institution be liable to the following sanctions:
concerned, shall limit or prohibit the (1) In case of capital deficiency for five
distribution of the net profits and shall require (5) or more times within a reporting period:
that part or all of net profits be used to (a) For the first offense - a fine of P3,000.
increase the capital accounts of the quasi- (b) For the second consecutive offense -
bank until the minimum requirement has prohibition from extending new loans or

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Part I - Page 8j
§ 4118Q
03.12.31

making new investments for a period of thirty (b) For every consecutive reporting
(30) calendar days. period, the suspension shall extend for
New loans and new investments shall another thirty (30) calendar days.
refer to any loan or investment involving (c) The suspension shall be auto-
disbursement of funds, except government matically lifted if on the final reporting period
securities. of the period of suspension, the entity
(c) For the third consecutive offense - maintains the minimum capital required
extension of the penalty under the preceding under Sec. 4116Q for every day of such
paragraph for another thirty (30) calendar reporting period.
days. (3) In all of the cases above-mentioned,
(d) For the fourth consecutive offense - establishment of branches, agencies,
suspension of the Certificate of Authority to extension offices, etc., shall be suspended.
engage in quasi-banking functions for a b. For improperly accomplished report,
period of thirty (30) calendar days. The NBQBs shall pay P600 per business day for
suspension shall be automatically be lifted every business day the report is not corrected,
if in the final reporting period of the period counted as of the date the error is brought to
of suspension, the entity maintains the its attention until the corrected report is
minimum capital required under Sec. 4116Q submitted.
for every day of such reporting period. c. For willfully making false statements
(2) In case of continuous capital in the report or submitting a false report, the
deficiency: Certificate of Authority for quasi-banking
(a) For two (2) consecutive reporting functions shall be suspended/revoked.
periods - suspension of the Certificate of d. The Monetary Board may impose
Authority to engage in quasi-banking additional sanctions on the entity engaged
functions for a period of thirty (30) calendar in quasi-banking functions by:
days.

(Next page is Part I - Page 9)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 8k
§§ 4118Q - 4126Q.1
04.12.31

(1) Revoking the Certificate of in the process of collection shall be


Authority to engage in quasi-banking considered bad debts within the
functions; and contemplation of this Section.
(2) Such other sanctions as the BSP b. Well secured - A debt shall be
may deem necessary. considered well secured (or fully secured) if
it is covered by collateral in the form of a
Secs. 4119Q - 4120Q (Reserved) duly constituted mortgage, pledge, or lien on
real or personal properties, including
E. (RESERVED) securities. The outstanding debt, accrued
interest and other pertinent fees and
Secs. 4121Q - 4125Q (Reserved) expenses thereon shall not be in excess of
seventy percent (70%) of the appraised value
F. STOCK, STOCKHOLDERS
of real estate, or fifty percent (50%) of the
AND DIVIDENDS
other personal properties offered as lien.
Sec. 4126Q Dividends. Pursuant to Section c. In process of collection - A debt due
57 of R.A. No. 8791, no quasi-bank shall to an NBQB shall be considered in process
declare dividends greater than its of collection when it is the subject of
accumulated net profits then on hand, continuing extrajudicial or judicial
deducting therefrom its losses and bad debts. proceedings aimed towards its full settlement
Neither shall the quasi-bank declare or liquidation, or otherwise to place it in
dividends if, at the time of declaration, it has current status.
not complied with the provisions of Subsec. The extrajudicial proceedings, such as
4126Q.2. the writing of collection or demand letters,
must have been initiated by the NBQB and/
or its lawyers before the interest or
§ 4126Q.1 Definition of terms. For installments or amortizations on the debt
purposes of this Section, the following become past due and unpaid for a period of
definitions shall apply: six (6) months.
a. Bad debts shall include any debt on The debt shall continue to be
which interest is past due for a period of six considered in process of collection for a
(6) months, unless it is well secured and in period of six (6) months counted from date
process of collection. of the first collection or demand letter and if,
A loan payable in installment with an within this period, the debtor fails to make a
automatic acceleration clause shall be payment of at least twenty percent (20%) of
considered a bad debt within the the outstanding balance of the principal on
contemplation of this Section where his account, plus all interests which may
installments or amortizations have become have accrued thereon, the same shall
past due for a period of six (6) months, unless automatically be classified as bad debt unless
the loan is well secured and in process of judicial proceedings are instituted.
collection. For a loan payable in installments The debt shall continue to be
without an acceleration clause, only the considered in process of collection during
installments or amortizations that have the pendency of the judicial proceedings.
become past due for a period of six (6) When judgment against the debtor has been
months and which are not well secured and obtained, the NBQB must be active in

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 9
§§ 4126Q.1 - 4126Q.3
04.12.31

enforcing the judgment for the debt to accounting. Said accumulated profits shall
continue to be considered in process of likewise be deducted for purposes of
collection. computing the amount available for stock
dividends;
§ 4126Q.2 Requirements on the (5) Accrued interest as required to be
declaration of dividends/net amount excluded pursuant to Item “d” of Subsec.
available for dividends 4307Q.7, net of booked valuation reserves
a. Requirements on the declaration of on accrued interest receivable or allowance
dividends. At the time of declaration, quasi- for uncollectible interest on loans; and
banks shall have complied with the (6) Foreign exchange profit arising from
following: revaluation of foreign exchange denominated
(1) Clearing account with the BSP is not accounts.
overdrawn;
(2) Liquidity floor requirement for § 4126Q.3 Reporting and verification
government funds; Declaration of cash dividend shall be
(3) Minimum capitalization requirement reported by the NBQB concerned to the
and risk-based capital ratio; appropriate supervising and examining
(4) Statutory and liquidity reserves department of the BSP within ten (10)
requirement; and business days from date of approval of the
(5) No major violations as may be declaration by the NBQB's board of directors,
determined by the BSP. in the prescribed form.
For purposes of this Subsection, the Pending verification of above-mentioned
prescribed duration of compliance shall be report by the appropriate supervising and
reckoned from the last eight (8) weeks examining department of the
immediately preceding the date of the BSP, the NBQB concerned shall not
dividend declaration up to the record date make any announcement or communication
of said dividends. on the declaration of cash dividends nor shall
b. Amount available. The net amount any payment be made thereon.
available for dividends shall be the amount In any case, the declaration may be
of unrestricted or free retained earnings less: announced and the dividends paid, if, after
(1) Bad debts against which valuation thirty (30) business days from the date the
reserves are not required by the BSP to be report required herein shall have been
set up; received by the BSP, no advice against such
(2) Unbooked valuation reserves, and declaration has been received by the NBQB
other unbooked capital adjustments required concerned, subject to the condition that the
by the BSP, whether or not allowed to be set record date for such dividends cannot be set
up on a staggered basis; earlier than thirty (30) business days after
(3) Deferred income tax as defined declaration.
under Item “i” of Subsection 4116Q.1; NBQBs whose shares are listed with
(4) Accumulated profits not yet received any domestic stock exchange may give
but already recorded by the quasi-bank notice of cash dividend declaration in
representing its share in profits of its accordance with pertinent rules of the SEC:
subsidiaries under the equity method of Provided, That no record date is fixed for

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Part I - Page 10
§§ 4126Q.3 - 4141Q.1
04.12.31

such cash dividend, pending verification of responsibilities and duties of the board of
the report on such declaration by the directors and directors.
appropriate supervising and examining
department of the BSP. § 4141Q.1 Limits on the number of the
members of the board of directors. Pursuant
§ 4126Q.4 Recording of dividends. The to Sections 15 and 17 of R.A. No. 8791, there
liability for cash dividends declared shall be shall be at least five (5), and a maximum of
taken up in the books upon receipt of BSP fifteen (15) members of the board of directors
approval thereof, or if no such approval is of a quasi-bank/trust entity two (2) of whom
received, after thirty (30) business days from shall be independent directors: Provided,
the date required report on cash dividend That in case of a quasi-bank/trust entity
declaration was received by the appropriate merger or consolidation, the number of
supervising and examining department of the directors may be increased up to twenty-one (21).
BSP, whichever comes earlier. A An independent director shall mean a
memorandum entry may be made to record person who –
the dividend declaration on the date of (1) Is not or has not been an officer or
approval by the board of directors and for employee of the quasi-bank/trust entity, its
full disclosure purposes. The cash dividends subsidiaries or affiliates or related interests
may be disclosed in the financial statements during the past three (3) years counted from
by means of a footnote which should include the date of his election;
a statement to the effect that the dividend (2) Is not a director or officer of the
declaration is subject to review by the BSP. related companies of the institution’s majority
Dividends of all kinds, whether on stockholder;
common or on preferred shares of stock, shall (3) Is not a majority stockholder of the
not be treated as interest expense, institution, any of its related companies, or
considering that as a general policy only of its majority shareholders;
irredeemable stock may be issued by (4) Is not a relative within the fourth
NBQBs. degree of consanguinity or affinity, legitimate
or common-law of any director, officer or
§ 4126Q.5 Rules on declaration of stock majority shareholder of the quasi-bank/trust
dividends. The declaration of stock dividends entity or any of its related companies;
shall be subject to the preceding regulations (5) Is not acting as a nominee or
on declaration of cash dividends. Additional representative of any director or substantial
paid-in capital may be included in the shareholder of the quasi-bank/trust entity, any
amount available for stock dividends. of its related companies or any of its
substantial shareholders; and
Secs. 4127Q - 4140Q (Reserved) (6) Is not retained as professional
adviser, consultant, agent or counsel of the
G. DIRECTORS, OFFICERS institution, any of its related companies or
AND EMPLOYEES any of its substantial shareholders, either in
his personal capacity or through his firm; is
Sec. 4141Q Definition; Qualifications; independent of management and free from
Powers; Responsibilities and Duties of Board any business or other relationship, has not
of Directors and Directors. The following engaged and does not engage in any
shall be the definition, qualifications, powers, transaction with the institution or with any

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 11
§ 4141Q.1
04.12.31

of its related companies or with any of its it can be clearly demonstrated that such
substantial shareholders, whether by himself ownership does not constitute control.
or with other persons or through a firm of Control may also exist even when ownership
which he is a partner or a company of which is one-half or less of the voting power of an
he is a director or substantial shareholder, enterprise when there is:
other than transactions which are conducted i. power over more than one-half of the
at arms length and could not materially voting rights by virtue of an agreement with
interfere with or influence the exercise of his other stockholders; or
judgment. ii. power to govern the financial and
An independent director of a quasi-bank/ operating policies of the enterprise under a
trust entity can be elected as an independent statute or an agreement; or
director of its: (a) parent or holding company; iii. power to appoint or remove the
(b) subsidiary or affiliate; (c) substantial majority of the members of the board of
shareholder; or (d) other related companies, directors or equivalent governing body; or
or vice-versa: Provided, That he is not a iv. power to cast the majority votes at
substantial shareholder of the quasi-bank/trust meetings of the board of directors or
entity or any of the said concerned entities. equivalent governing body; or
The terms and phrases used in Items “(1)” v. any other arrangement similar to any
to “(6)” shall have the following meaning: of the above.
(a) Parent is a corporation which has (f) Related company means another
control over another corporation directly or company which is: (a) its parent or holding
indirectly through one (1) or more company; (b) its subsidiary or affiliate; or (c)
intermediaries. a corporation where a quasi-bank/trust entity
(b) Subsidiary means a corporation more or its majority stockholder own such number
than fifty percent (50%) of the voting stock of shares that will allow/enable him to elect
of which is owned or controlled directly or at least one (1) member of the board of
indirectly through one (1) or more directors or a partnership where such
intermediaries by a quasi-bank/trust entity. majority stockholder is a partner.
(c) Affiliate is a juridical person that (g) Substantial or major shareholder
directly or indirectly, through one (1) or more shall mean a person, whether natural or
intermediaries, is controlled by, or is under juridical, owning such number of shares that
common control with the quasi-bank/trust will allow him to elect at least one (1)
entity or its affiliates. member of the board of directors of a quasi-
(d) Related interests as defined under bank/trust entity or who is directly or
Sections 12 and 13 of R.A. No. 8791 shall indirectly the registered or beneficial owner
mean individuals related to each other within of more than ten percent (10%) of any class
the fourth degree of consanguinity or affinity, of its equity security.
legitimate or common law, and two (2) or (h) Majority stockholder or majority
more corporations owned or controlled by a shareholder means a person, whether natural
single individual or by the same family group or juridical, owning more than fifty percent
or the same group of persons. (50%) of the voting stock of a quasi-bank/
(e) Control exists when the parent owns trust entity.
directly or indirectly through subsidiaries Non-Filipino citizens may become
more than one-half of the voting power of an members of the board of directors of a quasi-
enterprise unless, in exceptional circumstance, bank/trust entity to the extent of the foreign

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Part I - Page 12
§§ 4141Q.1 - 4141Q.3
04.12.31

participation in the equity of said quasi-bank/ c. He must have attended a special


trust entity: Provided, That pursuant to seminar for board of directors conducted or
Section 23 of the Corporation Code of the accredited by the BSP: Provided, That
Philippines (BP Blg. 68), a majority of the incumbent directors as well as those elected
directors must be residents of the Philippines. after September 17, 2001 must attend said
The meetings of the board of directors seminar on or before December 31, 2002 or
may be conducted through modern within a period of six (6) months from date
technologies such as, but not limited to, of election for those elected after December
teleconferencing and videoconferencing as 31, 2002, as the case may be; and
long as the director who is taking part in said d. He must be fit and proper for the
meetings can actively participate in the position of a director of the NBQB/trust entity.
deliberations on matters taken up therein: In determining whether a person is fit and
Provided, That every member of the board proper for the position of a director, the
shall participate in at least fifty percent (50%) following matters must be considered:
and shall physically attend at least twenty- integrity/probity, competence, education,
five percent (25%) of all board meetings every diligence and experience/training.
year: Provided further, That in the case of a The foregoing qualifications for directors
director who is unable to physically attend shall be in addition to those required or
or participate in board meetings via prescribed under R.A. No. 8791 and other
teleconferencing or videoconferencing, the existing applicable laws and regulations.
corporate secretary shall execute a notarized
certification attesting that said director was § 4141Q.3 Powers/responsibilities and
given the agenda materials prior to the duties of board of directors and directors
meeting and that his/her comments/decisions a. Powers of the board of directors. The
thereon were submitted for deliberation/ corporate powers of an NBQB/trust entity
discussion and were taken up in the actual shall be exercised, its business conducted and
board meeting, and that the submission of all its property shall be controlled and held
said certification shall be considered by its board of directors. The powers of the
compliance with the required fifty percent board of directors as conferred by law are
(50%) minimum attendance in board original and cannot be revoked by the
meetings. stockholders. The directors hold their office
charged with the duty to act for the NBQB/
§ 4141Q.2 Qualifications of a director trust entity in accordance with their best
A director shall have the following minimum judgment.
qualifications: b. General responsibility of the board
a. He shall be at least twenty-five (25) of directors. The position of an NBQB/trust
years of age at the time of his election or entity director is a position of trust. A director
appointment; assumes certain responsibilities to different
b. He shall be at least a college graduate constituencies or stakeholders, i.e., the
or have at least five (5) years experience in NBQB/trust entity itself, its stockholders, its
business;

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Part I - Page 13
§ 4141Q.3
04.12.31

clients and other creditors, its management business plans should be established to direct
and employees, and the public at large. its on-going activities. The board should
These constituencies or stakeholders have the ensure that performance against plan is
right to expect that the institution is being run regularly reviewed, with corrective action
in a prudent and sound manner. taken as needed.
The board of directors is primarily (3) To conduct the affairs of the
responsible for the corporate governance of institution with high degree of integrity.
the NBQB/trust entity. To ensure good Since reputation is a very valuable asset, it is
governance of the NBQB/trust entity, the in the institution’s best interest that in
board of directors should establish strategic dealings with the public, it observes a high
objectives, policies and procedures that will standard of integrity. The board of directors
guide and direct the activities of the NBQB/ should prescribe corporate values, codes of
trust entity and the means to attain the same conduct and other standards of appropriate
as well as the mechanism for monitoring behaviour for itself, the senior management
management’s performance. While the and other employees. Among others,
management of the day-to-day affairs of the activities and transactions that could result
institution is the responsibility of the or potentially result in conflict of interest,
management team, the board of directors is, personal gain at the expense of the institution,
however, responsible for monitoring and or unethical conduct shall be strictly
overseeing management action. prohibited. It should provide policies that will
c. Specific duties and responsibilities of prevent the use of the facilities of the NBQB/
the board of directors trust entity in furtherance of criminal and
(1) To select and appoint officers who other illegal activities.
are qualified to administer the NBQB’s/trust (4) To establish and ensure compliance
entity’s affairs effectively and soundly and to with sound written policies. The board
establish adequate selection process for all should adopt written policies on all major
personnel. It is the primary responsibility of business activities, i.e., investments, loans,
the board of directors to appoint competent asset and liability management, business
management team at all times. The board of planning and budgeting. A mechanism to
directors should apply fit and proper ensure compliance with said policies shall
standards on key personnel. Integrity, also be provided.
technical expertise and experience in the (5) To prescribe a clear assignment of
institution’s business, either current responsibilities and decision-making
or planned, should be the key considerations authorities, incorporating a hierarchy of
in the selection process. And because mutual required approvals from individuals to the
trust and a close working relationship are board of directors. The board should
important, the board’s choice should share establish in writing the limits of the
its general operating philosophy and vision discretionary powers of each officer,
for the institution. The board of directors shall committee, sub-committee and such other
establish an appropriate compensation group for the purpose of lending, investing
package for all personnel which shall be or committing the NBQB/trust entity to any
consistent with the interest of all stakeholders. financial undertaking or exposure to risk at
(2) To establish objectives and draw up any time. The board should have a schedule
a business strategy for achieving them. of matters and authorities reserved to it for
Consistent with the institution’s objectives, decision, such as: major capital

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§ 4141Q.3
04.12.31

expenditures, equity investments and (c) a clear delineation of lines of


divestments. responsibilities for managing risk;
(6) To effectively supervise the NBQB’s/ (d) an adequate system for measuring
trust entity's affairs. As NBQBs/trust entities risk; and
are entrusted with the handling and (e) effective internal controls and a
investment of public funds, the supervision comprehensive risk-reporting process.
required from the board involves a higher The board may constitute a committee
degree of wisdom, prudence, good business for this purpose.
judgment and competence than that of (9) To constitute the following
directors of ordinary companies. Although committees:1
directors may delegate certain authority to (a) Audit committee. The audit
senior officers, it is their responsibility to committee shall be composed of members
supervise and be responsible for the of the board of directors, at least two (2) of
institution’s sound management, as well as whom shall be independent directors,
its problems. The board of directors should including the chairman, preferably with
establish a system of checks and balances accounting, auditing, or related financial
which applies in the first instance to the board management expertise or experience. The
itself. Among the members of the board, an audit committee provides oversight of the
effective system of checks and balances must institution’s financial reporting and control
exist. The system should also provide a and internal and external audit functions. It
mechanism for effective check and controlby shall be responsible for the setting up of the
the board over the chief executive officer and internal audit department and for the
key managers and by the latter over the line appointment of the internal auditor as well
officers of the NBQB/trust entity. as the independent external auditor who
(7) To monitor, assess and control the shall both report directly to the audit
performance of management. The board committee. It shall monitor and evaluate the
shall put in place an appropriate reporting adequacy and effectiveness of the internal
system so that it is provided with relevant control system.
and timely information to be able to Upon setting up the audit committee, the
effectively assess the performance of board of directors shall draw up a written
management. For this purpose, it may charter or terms of reference which clearly
constitute a governance committee. sets out the audit committee’s authority and
(8) To adopt and maintain adequate risk duties, as well as the reporting relationship
management policy. The board of directors with the board of directors. This charter shall
shall be responsible for the formulation and be approved by the board of directors and
maintenance of written policies and reviewed and updated periodically.
procedures relating to the management of The audit committee shall have explicit
risks throughout the institution. The risk authority to investigate any matter within its
management policy shall include: terms of reference, full access to and
(a) a comprehensive risk management cooperation by management and full
approach; discretion to invite any director or executive
(b) a detailed structure of limits, officer to attend its meetings, and adequate
guidelines and other parameters used to resources to enable it to effectively discharge
govern risk-taking; its functions.
------------------------------------------------------------------------------------

1
Effective 01 January 2005 under Circular 456 dated 04 October 2004.

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§ 4141Q.3
04.12.31

The audit committee shall ensure that a board members and senior officers, and their
review of the effectiveness of the institution’s remuneration commensurate with corporate
internal controls, including financial, and individual performance.
operational and compliance controls, and risk The corporate governance committee
management, is conducted at least annually. shall decide the manner by which the board’s
(b) Corporate governance committee. performance may be evaluated and propose
The corporate governance committee shall an objective performance criteria approved
assist the board of directors in fulfilling its by the board. Such performance indicators
corporate governance responsibilities. It shall shall address how the board has enhanced
review and evaluate the qualifications of all long term shareholders’ value.
persons nominated to the board as well as (c) Risk management committee. The
those nominated to other positions requiring risk management committee shall be
appointment by the board of directors. The responsible for the development and
committee shall be composed of at least three oversight of the institution’s risk management
(3) members of the board of directors, two program. The committee shall be composed
(2) of whom shall be independent directors. of at least three (3) members of the board of
The corporate governance committee directors who shall possess a range of
shall have a written charter that describes the expertise as well as adequate knowledge of
duties and responsibilities of its members. the institution’s risk exposures to be able to
This charter shall be approved by the board develop appropriate strategies for preventing
of directors and reviewed and updated at least losses and minimizing the impact of losses
annually. when they occur. It shall oversee the system
The committee shall be responsible for of limits to discretionary authority that the
ensuring the board’s effectiveness and due board delegates to management, ensure that
observance of corporate governance the system remains effective, that the limits
principles and guidelines. It shall oversee the are observed and that immediate corrective
periodic performance evaluation of the board actions are taken whenever limits are
and its committees and executive breached.
management; and shall also conduct an The risk management committee shall
annual self-evaluation of its performance. The have a written charter that defines the duties
committee shall also decide whether or not and responsibilities of its members. The
a director is able to and has been adequately charter shall be approved by the board of
carrying out his/her duties as director bearing directors and reviewed and refined
in mind the director’s contribution and periodically.
performance (e.g., competence, candor, The core responsibility of the risk
attendance, preparedness and participation). management committee are:
Internal guidelines shall be adopted that (1) Identify and evaluate exposures. The
address the competing time commitments committee shall assess the probability of each
that are faced when directors serve on risk becoming reality and shall estimate its
multiple boards. possible effect and cost. Priority areas of
The committee shall make concern are those risks that are the most likely
recommendations to the board regarding the to occur and are costly when they happen.
continuing education of directors, assignment (2) Develop risk management strategies.
to board committees, succession plan for the The risk management committee shall

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§ 4141Q.3
04.12.31

develop a written plan defining the strategies technologies such as, but not limited to,
for managing and controlling the major risks. teleconferencing and video-conferencing as
It shall identify practical strategies to reduce long as the director who is taking part in said
the chance of harm and failure or minimize meetings can actively participate in the
losses if the risk becomes real. deliberations on matters taken up therein:
(3) Implement the risk management Provided, That every member of the board
plan. The risk management committee shall shall be physically present in at least fifty
communicate the risk management plan and percent (50%) of all board meetings in every
loss control procedures to affected parties. year.
The committee shall conduct regular (11) To keep the individual members of
discussions on the institution’s current risk the board and the shareholders informed. It
exposure based on regular management is the duty of the board to present to all its
reports and direct concerned units or offices members and to the shareholders a balanced
on how to reduce these risks. and understandable assessment of the
(4) Review and revise the plan as NBQB’s/trust entity’s performance and
needed. The committee shall evaluate the financial condition. It should also provide
risk management plan to ensure its continued appropriate information that flows internally
relevancy, comprehensiveness, and and to the public. All members of the board
effectiveness. It shall revisit strategies, look shall have reasonable access to any
for emerging or changing exposures, and stay information about the institution.
abreast of developments that affect the (12) To ensure that the NBQB/trust
likelihood of harm or loss. The committee entity has beneficial influence on the
shall report regularly to the board of directors economy. The board has a continuing
the entity’s over-all risk exposure, actions responsibility to provide those services and
taken to reduce the risks, and recommend facilities which will be supportive of the
further action or plans as necessary. national economy.
(d) Nomination committee. The (13) To assess at least annually its
nomination committee shall be composed performance and effectiveness as a body, as
of at least three (3) members of the board of well as its various committees, the chief
directors, preferably all independent executive officer and the NBQB/trust entity
members. It shall review and evaluate the itself. The composition of the board shall also
qualifications of all persons nominated to the be reviewed regularly with the end in view
board as well as those nominated to other of having a balanced membership. Towards
positions requiring appointment by the board this end, a system and procedure for
of directors. evaluation shall be adopted which may
(10) To meet regularly. To properly include, but not limited to, the setting of
discharge its function, the board of directors benchmark and peer group analysis.
shall meet regularly. Independent views in (14) To keep their authority within the
board meetings shall be given full powers of the institution as prescribed in the
consideration and all such meetings shall be articles of incorporation, charter, by-laws and
duly minuted. in existing laws, rules and regulations. To
The meetings of the board of directors conduct and maintain the affairs of the
may be conducted through modern institution within the scope of its authority

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§ 4141Q.3
04.12.31

as prescribed in its charter and in existing the care which an ordinarily prudent man
laws, rules and regulations, the board shall would exercise under similar circumstances.
appoint a compliance officer who shall be While a director should always strive to
responsible for coordinating, monitoring and promote the interest of all stockholders, he
facilitating compliance with existing laws, should also give due regard to the rights and
rules and regulations. The compliance interests of other stakeholders.
officer shall be vested with appropriate (3) To devote time and attention
authority and provided with appropriate necessary to properly discharge his duties and
support and resources. It may also constitute responsibilities. A director should devote
a compliance committee. sufficient time to familiarize himself with the
If the directors carry the institution into institution’s business. He must be constantly
a transaction outside the scope of the aware of the institution’s condition and be
business agreed upon in the articles, with knowledgeable enough to contribute
resulting loss to the institution, they may be meaningfully to the board’s work. He must
called upon to reimburse the institution for attend and actively participate in board and
that loss. If directors willfully do an act, committee meetings, request and review
which they know or ought to know to be meeting materials, ask questions, and request
unauthorized, they are clearly liable to the explanations and be familiar with audits and
institution for resulting damages. supervisory communications. If a person
d. Specific duties and responsibilities cannot give sufficient time and attention to
of a director the affairs of the institution, he should neither
(1) To conduct fair business transactions accept his nomination nor run for election as
with the NBQB/trust entity and to ensure that member of the board.
personal interest does not bias board (4) To act judiciously. Before deciding
decisions. A director should, whenever on any matter brought before the board of
possible, avoid situations that would give rise directors, every director should thoroughly
to a conflict of interest. If transactions with evaluate the issues, ask questions and seek
the institution cannot be avoided, it should clarifications when necessary.
be done in the regular course of business and (5) To exercise independent judgment.
upon terms not less favorable to the A director should view each problem/
institution than those offered to others. The situation objectively. When a disagreement
basic principle to be observed is that a with others occurs, he should carefully
director should not use his position to make evaluate the situation and state his position.
profit or to acquire benefit or advantage for He should not be afraid to take a position
himself and/or his related interests. He even though it might be unpopular.
should avoid situations that would Corollarily, he should support plans and
compromise his impartiality. ideas that he thinks will be beneficial to the
(2) To act honestly and in good faith, institution.
with loyalty and in the best interest of the (6) To be generally informed of both the
institution, its stockholders, regardless of the NBQB’s/trust entity’s business environment
amount of their stockholdings, and other and legal and regulatory framework
stakeholders such as its investors, borrowers, controlling its activities. A director should
other clients and the general public. A have a working knowledge of the statutory
director must always act in good faith, with and regulatory requirements affecting the

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§§ 4141Q.3 - 4142Q
04.12.31

institution, including the content of its articles The election/appointment of all


of incorporation and by-laws, the incumbent directors and officers of quasi-
requirements of the BSP and where banks/trust entities as of September 17, 2001
applicable, the requirements of other not previously approved/confirmed by the
regulatory agencies and must exercise care Monetary Board shall be submitted to the BSP
to see that these are not violated. He should through the appropriate supervising and
also keep himself informed of the industry examining departments for confirmation.
developments and business trends in order
to safeguard the institution's competitiveness. §§ 4141Q.5 - 4141Q.8 (Reserved)
(7) To observe confidentiality. A director
must observe the confidentiality of non- § 4141Q.9 Reports required. NBQBs/
public information acquired by reason of his trust entities shall furnish all of their directors
position as director. He may not disclose said with a copy of the specific duties and
information to any other person without the responsibilities of the board of directors
authority of the board. prescribed under Items “b” and “c” of Subsec.
4141Q.3 within thirty (30) business days from
§ 4141Q.4 Confirmation of the election/ May 17, 2001 in cases of incumbent directors
appointment of directors and officers. The and at the time of election in cases of directors
election/appointment of directors and elected after such date.
officers of quasi-banks/trust entities shall be The directors concerned shall each be
subject to confirmation by the: required to acknowledge receipt of the copies
of such specific duties and responsibilities
Confirming Position Level and shall certify that they fully understand
Authority the same.
a. Monetary Board Director, President, Copies of the acknowledgment and
Chief Executive Officer, certification herein required shall be
Chief Operating Officer, submitted in accordance with Appendix Q-3.
Senior Vice President or
equivalent rank of quasi-
§ 4141Q.10 Sanctions. Without
banks/trust entities
with total assets of at prejudice to the other sanctions prescribed
least P1 billion. under Section 37 of R.A. No. 7653 and to
the provisions of Section 16 of R.A. No. 8791,
b. A Committee Director, Senior Vice any director of an NBQB/trust entity who
to be composed President and above or
of: equivalent rank of quasi- violates or fails to observe and/or perform any
· The Deputy banks/trust entities of the above responsibilities and duties shall
Governor - SES whose election/ for each violation or offense, be penalized
· Managing Directors appointment is not for P15,000.
of SE I and II subject to confirmation
· Directors of the by the Monetary Board Sec. 4142Q Definition and Qualifications
concerned supervising and
examining of Officers. Officers shall include the
department President, Vice-President, General Manager,
of SES Treasurer, Secretary, and others mentioned
as officers of the NBQB, or those whose
duties as such are defined in the by-laws, or

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


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§§ 4142Q - 4143Q.1
04.12.31

are generally known to be the officers of the Sec. 4143Q Disqualification of Directors
NBQB (or any of its branches and offices and Officers. The following regulations shall
other than the head office) either through govern the disqualification of NBQB/trust
announcement, representation, publication entity directors and officers.
or any kind of communication made by
the financial intermediary: Provided, That a § 4143Q.1 Persons disqualified to
person holding the position of Chairman or become directors. Without prejudice to
Vice-Chairman of the Board or another specific provisions of law prescribing
position in the board shall not be considered disqualifications for directors, the following
as an officer unless the duties of his position are disqualified from becoming directors:
in the board include functions of a. Permanently disqualified
management such as those ordinarily Directors/officers/employees
performed by regular officers: Provided, permanently disqualified by the Monetary
further, That members of a group or Board from holding a director position:
committee, including sub-groups or sub- (1) Persons who have been convicted by
committees, whose duties include functions final judgment of the court for offenses
of management such as those ordinarily involving dishonesty or breach of trust such
performed by regular officers, and are not as estafa, embezzlement, extortion,
purely recommendatory or advisory, shall forgery,malversation, swindling and theft;
likewise be considered as officers. (2) Persons who have been convicted by
An officer shall have the following final judgment of the court for violation of
minimum qualifications: banking laws;
a. He shall be at least twenty-one (21) (3) Persons who have been judicially
years of age; declared insolvent, spendthrift or
b. He shall be at least a college incapacitated to contract; or
graduate, or have at least five (5) years (4) Directors, officers or employees of
creditable experience or training in financial closed NBQBs/trust entities who were
management or related activities, or in a field responsible for such institutions’ closure as
related to his position and responsibilities; determined by the Monetary Board.
and b. Temporarily disqualified
c. He must be fit and proper for the Directors/officers/employees disqualified
position he is being proposed/appointed to. by the Monetary Board from holding a
In determining whether a person is fit and director position for a specific/indefinite
proper for a particular position, the following period of time. Included are:
matters must be considered: integrity/probity, (1) Persons who refuse to fully disclose
competence, education, diligence and the extent of their business interest to the
experience/training. appropriate supervising and examining
The foregoing qualifications for officers department when required pursuant to a
shall be in addition to those required or provision of law or of a circular,
prescribed under R.A. No. 8791 and other memorandum or rule or regulation of the
existing applicable laws and regulations. BSP. This disqualification shall be in effect
as long as the refusal persists;

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§ 4143Q.1
04.12.31

(2) Directors who have been absent or (iv) A partnership of which a director or
who have not participated for whatever officer, or his spouse is the managing partner
reasons in more than fifty percent (50%) of or a general partner owning a controlling
all meetings, both regular and special, of the interest in the partnership; and
board of directors during their incumbency, (v) A corporation, association or firm
or any twelve (12) month period during said wholly-owned or majority of the capital of
incumbency and directors who failed to which is owned by any or a group of persons
physically attend for whatever reasons in at mentioned in the foregoing Items “(i)”, “(ii)”
least twenty-five percent (25%) of all board and “(iv)”;
meetings in any year, except that when a This disqualification shall be in effect as
notarized certification executed by the long as the delinquency persists.
Corporate Secretary has been submitted (4) Persons convicted for offenses
attesting that said directors were given the involving dishonesty, breach of trust or
agenda materials prior to the meeting and violation of banking laws but whose
that their comments/decisions thereon were conviction has not yet become final and
submitted for deliberation/discussion and executory;
were taken up in the actual board meeting, (5) Directors and officers of closed
said directors shall be considered present in NBQBs/trust entities pending their clearance
the board meeting. by the Monetary Board;
(3) Persons who are delinquent in the (6) Directors disqualified for failure to
payment of their obligations as defined observe/discharge their duties and
hereunder: responsibilities prescribed under existing
(a) Delinquency in the payment of regulations. This disqualification applies until
obligations means that an obligation of a the lapse of the specific period of
person with an NBQB/trust entity where he disqualification or upon approval by the
is a director or officer, or at least two (2) Monetary Board on recommendation by the
obligations with other NBQBs/trust entities/ appropriate supervising and examining
financial institutions, under different credit department of such directors’ election/re-
lines or loan contracts, are past due pursuant election;
to Secs. X306, 4308Q, 4306S and 4303P; (7) Directors who failed to attend the
(b) Obligations shall include all special seminar for board of directors
borrowings from an NBQB/trust entity/ required under Item “c” of Subsec. 4141Q.2.
financial institution obtained by: This disqualification applies until the director
(i) A director or officer for his own concerned had attended such seminar;
account or as the representative or agent of (8) Persons dismissed/terminated from
others or where he acts as a guarantor, employment for cause. This disqualification
indorser or surety for loans from such shall be in effect until they have cleared
financial institutions; themselves of involvement in the alleged
(ii) The spouse or child under parental irregularity;
authority of the director or officer; (9) Those under preventive suspension;
(iii) Any person whose borrowings or and
loan proceeds were credited to the account (10) Persons with derogatory records with
of, or used for the benefit of, a director or the NBI, court, police, interpol and monetary
officer; authority (central bank) of other countries (for

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§ 4143Q.1 - 4143Q.4
04.12.31

foreign directors and officers) involving which he/she was elected or appointed.
violation of any law, rule or regulation of the Directors/officers possessing any of the
Government or any of its instrumentalities disqualifications as enumerated herein shall
adversely affecting the integrity and/or ability be subject to the disqualification procedures
to discharge the duties of a bank/NBQB/trust provided under Subsec. 4143Q.4.
entity director/officer. This disqualification
applies until they have cleared themselves § 4143Q.4 Disqualification procedures
of involvement in the alleged irregularity. a. The board of directors and
management of every institution shall be
§ 4143Q.2 Persons disqualified to responsible for determining the existence of
become officers the ground for disqualification of the
a. The disqualifications for directors institution’s director/officer or employee and
mentioned in Subsec. 4143Q.1 shall likewise for reporting the same to the BSP. While the
apply to officers, except those stated in Items concerned institution may conduct its own
“b(2)” and “b(7)”. investigation and impose appropriate
b. Except as may be authorized by the sanction/s as are allowable, this shall be
Monetary Board or the Governor, the spouse without prejudice to the authority of the
or a relative within the second degree of Monetary Board to disqualify a director/
consanguinity or affinity of any person officer/employee from being elected/
holding the position of Chairman, President, appointed as director/officer in any financial
Executive Vice President or any position of institution under the supervision of the BSP.
equivalent rank, General Manager, Treasurer, Grounds for disqualification made known to
Chief Cashier or Chief Accountant is the institution, shall be reported to the
disqualified from holding or being elected appropriate supervising and examining
or appointed to any of said positions in the department of the BSP within seventy-two
same NBQB/trust entity; and the spouse or (72) hours from knowledge thereof.
relative within the second degree of b. On the basis of knowledge and
consanguinity or affinity of any person evidence on the existence of any of the
holding the position of Manager, Cashier, or grounds for disqualification mentioned in
Accountant of a branch or office of an NBQB/ Subsecs. 4143Q.1 and 4143Q.2, the director
trust entity is disqualified from holding or or officer concerned shall be notified through
being appointed to any of said positions in registered mail with registry return receipt
the same branch or office. card at his/her last known address by the
appropriate supervising and examining
§ 4143Q.3 Effect of non-possession of department of the BSP of the existence of the
qualifications or possession of ground for his/her disqualification and shall
disqualifications. Directors/officers elected be allowed to submit within fifteen (15) days
or appointed without possessing the from receipt of such notice an explanation
qualifications mentioned under Subsec. on why he/she should not be disqualified and
4141Q.2 and the last paragraph of Sec. included in the watchlisted file. The head of
4142Q shall not be confirmed by the said department may allow an extension on
confirming authority provided under Subsec. meritorious ground.
4141Q.4 and may be removed from office c. The director/officer concerned shall
even if he/she has assumed the position to thus be afforded the opportunity to defend/

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§§ 4143Q.4 - 4143Q.5
04.12.31

clear himself/herself and to submit evidence approved by the Monetary Board and shall
in support of his/her position to the be directed to act thereon not later than the
appropriate supervising and examining following board meeting. Within seventy-two
department which shall then evaluate the (72) hours thereafter, the corporate secretary
case and submit the recommendations to the shall report to the Governor of the BSP
Monetary Board. through the appropriate supervising and
d. Failure of the director/officer examining department the action taken by
concerned to reply within the prescribed the board on the director/officer involved.
period shall be considered a waiver and the i. Persons who are elected or
supervising and examining department shall appointed as director or officer in any of the
proceed to evaluate the case and submit BSP-supervised institutions for the first time
recommendations to the Monetary Board. but are subject to any of the grounds for
e. If the ground for disqualification is disqualification provided for under Subsecs.
delinquency in the payment of obligation, 4143Q.1 and 4143Q.2 shall be afforded the
the concerned director or officer shall be procedural due process prescribed above.
given a period of thirty (30) days within which j. Whenever a director/officer is
to settle said obligation or, restore it to its cleared in the process mentioned under Item
current status or, to explain why he/she “c” above or, when the ground for
should not be disqualified and included in disqualification ceases to exist, he/she would
the watchlisted file, before the evaluation on be eligible to become director or officer of
his disqualification and watchlisting is any bank, quasi-bank, trust entity or any
elevated to the Monetary Board. institution under the supervision of the BSP
f. If the disqualification is based on any only upon prior approval by the Monetary
of the grounds for permanent disqualification Board. It shall be the responsibility of the
enumerated under Items “(1)” to “(4)” of concerned supervising and examining
Subsec. 4143Q.1(a), the disqualification and department of the BSP to elevate to the
watchlisting of the concerned director/officer Monetary Board the lifting of the
shall be elevated to the Monetary Board for disqualification of the concerned director/
approval subject to the same procedures officer and his/her delisting from the master
provided in Items “a”, “b” and “c” above. list of watchlisted persons.
g. Upon approval by the Monetary
Board, the concerned director/officer shall be § 4143Q.5 Watchlisting. To provide the
informed by the appropriate supervising and BSP with a central information file to be used
examining department through registered as reference in passing upon and reviewing
mail with registry return receipt card, at his/ the qualifications of persons elected or
her last known address of his/her appointed as director or officer of a bank,
disqualification from being elected/appointed quasi-bank or trust entity, the SES shall
as director/officer in any financial institution maintain a watchlist of persons disqualified
under the supervision of BSP and/or of his/ to be a director or officer of such entities
her inclusion in the master list of watchlisted under its supervision under the following
persons so disqualified. procedures:
h. The board of directors of the a. Watchlist categories. Watchlisting
concerned institution shall be immediately shall be categorized as follows:
informed of cases of disqualification (1) Disqualification File “A” (Permanent)

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§§ 4143Q.5 - 4144Q
04.12.31

– Directors/officers/employees permanently Directors/officers/employees delisted


disqualified by the Monetary Board from from the Watchlist – Disqualification File “B”
holding a director/officer position. other than those upgraded to Watchlist –
(2) Disqualification File “B” (Temporary) Disqualification File “A” shall be eligible for
– Directors/officers/employees temporarily re-employment with any bank, quasi-bank or
disqualified by the Monetary Board from trust entity.
holding a director/officer position.
b. Inclusion of directors/ officers/ § 4143Q.6 Prohibition against foreign
employees in the watchlist. Directors/officers/ officers/employees of financing companies
employees disqualified under Subsec. Except in the case of technical personnel
4143Q.4 included in the watchlist whose employment may be specifically
disqualification files “A” or “B”. authorized by the Secretary of Justice,
c. Confidentiality. Watchlist files shall foreigners cannot be officers or employees
be for internal use only of the BSP and may of financing companies.
not be accessed or queried upon by outside
parties including banks, quasi-banks and trust Sec. 4144Q Interlocking Directorships and/
entities except with the authority of the person or Officerships. In order to safeguard against
concerned and with the approval of the the exercise by the same person or group of
Deputy Governor, SES or the Governor or persons of undue influence over the policy-
the Monetary Board. making and/or management functions of
d. Delisting. All delistings shall be similar financial institutions that could have
approved by the Monetary Board upon an adverse effect on competition or which
recommendation of the operating could result in conflict of interest situations
departments of SES except in cases of persons to the detriment of others, the following
known to be dead where delisting shall be regulations shall govern interlocking
automatic upon proof of death and need not directorships and/or officerships within the
be elevated to the Monetary Board. Delisting financial system.
may be approved by the Monetary Board in a. Interlocking directorships
the following cases: (1) Except as may be authorized by the
(1) Watchlist - Disqualification File “B” Monetary Board or as otherwise provided
(Temporary) - hereunder, there shall be no concurrent
(a) After the lapse of the specific period directorships between NBQBs or between an
of disqualification; NBQB and a bank performing quasi-banking
(b) When the conviction by the court for functions; and
crimes involving dishonesty, breach of trust (2) Without the need for prior approval
and/or violation of banking law becomes final of the Monetary Board, concurrent
and executory, in which case the director/ directorships between entities not involving
officer/ employee is relisted to Watchlist – an investment house shall be allowed in the
Disqualification File “A” (Permanent); and following cases:
(c) Upon favorable decision or clearance (a) a bank not performing quasi-banking
by the appropriate body, i.e., court, NBI, BSP, functions and an NBQB; and
bank, quasi-bank, trust entity or such other (b) a bank and its subsidiary NBQBs.
agency/body where the concerned individual For purposes of the foregoing, a husband
had derogatory record. and his wife shall be considered as one (1)
person.

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Part I - Page 24
§§ 4144Q - 4144Q.1
04.12.31

b. Interlocking directorships and Aforementioned concurrent officerships


officerships may be allowed, subject to the following
(1) Except as may be authorized by the conditions:
Monetary Board or as otherwise provided (a) that the positions do not involve any
hereunder, there shall be no concurrent functional conflict of interests;
directorship and officership between NBQBs (b) that the positions of president, chief
or an NBQB and a bank. executive officer, chief operating officer and
(2) Without need for prior approval of chief financial officer or their equivalent may
the Monetary Board, concurrent directorship not be held concurrently;
and officership in a bank and a subsidiary (c) that the officer involved, or his
NBQB, other than an investment house, shall spouse or any of his relatives within the first
be allowed. degree of consanguinity or affinity or by legal
c. Interlocking officerships adoption, or a corporation, association or firm
As a general rule, there shall be no wholly- or majority-owned or controlled by
concurrent officerships between quasi-banks such officer or his relatives enumerated
or between a quasi-bank and non-bank above, does not own in his/its own capacity
financial intermediary, whether or not more than twenty percent (20%) of the
performing quasi-banking functions, except subscribed capital of the entities in which the
as follows: bank has equity investments; and
(1) With prior approval of the Monetary (d) that where any of the positions
Board, concurrent officerships may be involved is held on full-time basis, adequate
allowed: justification shall be submitted to the
(a) Between a quasi-bank and not more Monetary Board.
than two (2) of its subsidiary financial Transitory provision. Officers
institutions; or concurrently holding the positions of
(b) Between two (2) quasi-banks and one president, chief executive officer, chief
(1) of their subsidiary non-bank financial operating officer and chief financial officer
intermediaries. or their equivalent in two (2) or more financial
(2) With prior approval of the Monetary institutions under BSP supervision shall be
Board, concurrent officerships may also be given one (1) year from 02 April 2004 within
allowed between quasi-banks, between a which to comply with the aforementioned
bank and a non-bank financial intermediary regulation.
other than an investment house, or between For purposes of this Section, members of a
a quasi-bank and a non-bank financial group or committee, including sub-groups or
intermediary: Provided, That at least twenty sub-committees, whose duties include
percent (20%) but less than majority of the functions of management such as those
equity of each of the quasi-banks and non- ordinarily performed by regular officers, shall
bank financial intermediaries is owned by a likewise be considered as officers.
holding company or a quasi-bank and the
interlocking arrangement is necessary for the § 4144Q.1 Representatives of
holding company or the bank to provide government. The provisions of this Section
technical expertise or managerial assistance shall not apply to persons appointed to such
to its affiliates. positions as representatives of the government
or government-owned or -controlled entities.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 24a
§ 4145Q - 4147Q
04.12.31

Sec. 4145Q Profit Sharing of Directors, Provided, That in no case shall profit sharing
Officers and Employees. Profit sharing take precedence over any of the items in the
programs adopted in favor of directors, preceding paragraph.
officers and employees shall be reflected in
the by-laws of NBQBs, subject to the Sec. 4146Q Monetary Board Confirmation
following guidelines: of Directors and Senior Officers. The
a. The base in any profit sharing election/appointment of directors and officers
program shall be the net income for the year with the rank of Senior Vice-President and
of the NBQB, as shown in its Consolidated up shall require confirmation by the Monetary
Statement of Income and Expenses for the Board.
year, net of the following: The election/appointment of the
(1) All cumulative dividends accruing to directors and such officers shall be deemed
preferred stock to the extent not covered by to have been confirmed by the Monetary
earned surplus; Board if after sixty (60) business days from
(2) Accrued interest receivable credited receipt of the reports required in Appendix
to income but not yet collected, net of Q-3 by the BSP, no advice against said
reserves already set up for uncollected election/appointment has been received by
interest on loans; the NBQB concerned.
(3) Unbooked valuation reserves on If the Monetary Board finds grounds for
loans or an amount required to update disqualification, the director/officer so
valuation reserves in accordance with the elected/appointed may be removed from
schedule approved by the Monetary Board, office even if he/she has assumed the position
as well as all amortizations due on deferred to which he/she was elected/appointed
charges; pursuant to Section 9-A of R.A. No. 337, as
(4) Provisions for the current year's amended.
taxes;
(5) Income tax deferred for the year: Sec. 4147Q Compensation and Other
Provided, however, That in case of reversal Benefits of Directors and Officers. To protect
of deferred income taxes excluded from net the funds of creditors, the Monetary Board
income in previous years' profit sharings, the may regulate/restrict the payment by the
deferred income tax reversed to expense shall NBQB/trust entity of compensation,
be added back to net income to arrive at the allowances, fees, bonuses, stock options,
basis for profit sharing for the year during profit sharing and fringe benefits to its
which the reversal is made; directors and officers in exceptional cases and
(6) Accumulated profits not yet received when the circumstances warrant, such as, but
but already recorded by an NBQB not limited to, the following:
representing its share in profits of its a. When the NBQB/trust entity is under
subsidiaries under the equity method of controllership, conservatorship or when it has
accounting; and outstanding emergency loans and advances
(7) (Deleted by Cir. 321 dated 2.19.02). and such other forms of credit
b. The NBQB may provide in its by- accommodation from the BSP which are
laws for other priorities in the computation intended to provide it with liquidity in times
of net profits for purposes of profit sharing: of need;

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Part I - Page 24b
§§ 4147Q - 4149Q
04.12.31

b. When the institution is found by the The foregoing provisions founded on


Monetary Board to be conducting business Section 18 of R.A. No. 8791 shall be deemed
in an unsafe or unsound manner; and part of the benefits and compensation
c. When it is found by the Monetary programs of NBQBs/trust entities.
Board to be in an unsatisfactory financial
condition such as, but not limited to, the Sec. 4148Q (Reserved)
following cases:
(1) Its capital is impaired; Sec. 4149Q Conducting Business in an
(2) It has suffered continuous losses from Unsafe/Unsound Manner. Whether a
operations for the past three (3) years; particular activity may be considered as
(3) Its composite CAMEL(S) rating in the conducting business in an unsafe or unsound
latest examination is below “3”; and manner, all relevant facts must be
(4) It is under rehabilitation by the BSP/ considered. An analysis of the impact thereof
PDIC which rehabilitation may include debt- on the NBQB’s/trust entity’s operations and
to-equity conversion, etc. financial conditions must be undertaken,
In the presence of any one (1) or more including evaluation of capital position, asset
of the circumstances mentioned above, the condition, management, earnings posture
Monetary Board may impose the following and liquidity position.
restrictions in the compensation and other In determining whether a particular act
benefits of directors and officers: or omission, which is not otherwise
a. In the case of profit sharing, the prohibited by any law, rule or regulation
provision of Sec. 4145Q shall be observed affecting NBQBs/trust entities, may be
except that for purposes of this Section, the deemed as conducting business in an unsafe
total amount of unbooked valuation reserves or unsound manner, the Monetary Board,
and deferred charges shall be deducted from upon report of the head of the supervising
the net income. or examining department based on findings
b. Except for the financial assistance to in an examination or a complaint, shall
meet expenses for the medical, maternity, consider any of the following circumstances:
education and other emergency needs of the a. The act or omission has resulted or
directors or officers or their immediate family, may result in material loss or damage, or
the other forms of financial assistance may abnormal risk or danger to the safety, stability,
be suspended. liquidity or solvency of the institution;
c. When the total compensation b. The act or omission has resulted or
package including salaries, allowances, fees may result in material loss or damage or
and bonuses of directors and officers are abnormal risk to the institutions, creditors,
significantly excessive as compared with peer investors, stockholders, or to the BSP, or to
group averages, the Monetary Board may the public in general;
order their reduction to reasonable levels: c. The act or omission has caused any
Provided, That even if an NBQB/trust entity undue injury, or has given unwarranted
is in financial trouble, it may nevertheless be benefits, advantage or preference to the
allowed to grant relatively higher salary NBQB/trust entity or any party in the
packages in order to attract competent discharge by the director or officer of his
officers and quality staff as part of its duties and responsibilities through manifest
rehabilitation program. partiality, evident bad faith or gross
inexcusable negligence; or

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 24c
§§ 4149Q - 4151Q.1
04.12.31

d. The act or omission involves entering e. Revocation of quasi-banking license


into any contract or transaction manifestly and/or trust authority; and/or
and grossly disadvantageous to the NBQB/ f. Receivership and liquidation under
trust entity, whether or not the director or Section 30 of R.A. No. 7653.
officer profited or will profit thereby. All other provisions of Sections 30 and
The list of activities which may be 37 of R.A. No. 7653, whenever appropriate,
considered unsafe and unsound is shown in shall also be applicable on the conduct of
Appendix Q-24. business in an unsafe or unsound manner.
The imposition of the above sanctions is
§§ 4149Q.1 - 4149Q.8 (Reserved) without prejudice to the filing of appropriate
criminal charges against culpable persons as
§ 4149Q.9 Sanctions. The Monetary provided in Sections 34, 35 and 36 of R.A.
Board may, at its discretion and based on No. 7653.
the seriousness and materiality of the acts or
omissions, impose any or all of the following Sec. 4150Q (Reserved)
sanctions provided under Section 37 of R.A.
No. 7653 and Section 56 of R.A. No. 8791, H. BRANCHES AND
whenever an NBQB/trust entity conducts OTHER OFFICES
business in an unsafe and unsound manner:
a. Issue an order requiring the quasi- Sec. 4151Q Establishment. Prior BSP
bank/trust entity to cease and desist from authority shall be obtained before
conducting business in an unsafe and operating a branch, extension office or
unsound manner and may further order that agency, including any arrangement whereby
immediate action be taken to correct the another person or entity is authorized to act
conditions resulting from such unsafe or as an agent for solicitation, issuance or
unsound practice; servicing of deposit substitutes for the
b. Fines in amounts as may be NBQB.
determined by the Monetary Board to be Agency arrangements shall refer to all
appropriate, but in no case to exceed or any type of services to be performed by
P30,000 a day on a per transaction basis another party as an agent other than
taking into consideration the attendant collection agency for loans payable in
circumstances, such as the gravity of the act installments/amortization, and paying agency
or omission and the size of the quasi-bank/ under a definite and specific period for
trust entity, to be imposed on the quasi-bank/ purposes of redeeming long-term notes and/
trust entity, their directors and/or responsible or bonds.
officers;
c. Suspension of lending or foreign § 4151Q.1 Evaluation guideposts. The
exchange operations or authority to accept rate at which branches, agencies, extension
new deposit substitutes and/or new trust offices, etc. are to be established shall depend
accounts or to make new investments; upon the ability of the company to conduct
d. Suspension of responsible directors operations from the head office, as well as
and/or officers; correspondent/banking arrangements.

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Part I - Page 24d
§ 4151Q.2
02.12.31

§ 4151Q.2 Additional capital, if BSP, based on criteria which consider


required. An applicant NBQB may be expected growth of risk assets and capital
required to put up additional capital in an accounts and for this purpose, the methods
amount to be determined by the appropriate of computing such additional capital, as
supervising and examining department of the shown in Appendix Q-2, shall be used.

(Next page is Part I - Page 25)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 24e
§§ 4151Q.3 - 4151Q.8
04.12.31

§ 4151Q.3 Other requirements/ d. Services to be offered, as well as


factors to be considered. Other any extension offices, etc. to be opened;
requirements/factors to be considered are the e. Days and hours to be observed;
applicant NBQB's general compliance with f. Areas to be served;
laws, rules, and regulations, and policies of g. Bio-data of the proposed branch
the BSP, such as: manager and organizational chart;
a. Capital adequacy and solvency; h. Business and/or economic
b. Profitability and capacity to absorb justifications (including data) for the
losses; and establishment of the branch; and
c. Reserve and liquidity position. i. Number of financial institutions in
the area (banks, investment houses, finance
§ 4151Q.4 Conditions precluding companies and pawnshops).
processing of applications. The existence
of any of the following conditions shall § 4151Q.6 Filing of applications
preclude/suspend the processing of the Applications for a certificate of authority to
application: operate a branch, an extension office or an
a. The applicant has not complied agency shall be filed with the SEC, which
with the ceilings on credit accommodations office shall refer the same to the appropriate
to DOSRI during the last sixty (60) days supervising and examining department of the
immediately preceding the date of BSP for comments and recommendations. A
application; copy of the application filed with the SEC,
b. The net worth of the applicant is with the pertinent documents, shall
found to be deficient during the last sixty (60) simultaneously be furnished the appropriate
days immediately preceding the date of supervising and examining department of the
application; and BSP for advance verification of the NBQB's
c. The applicant has incurred net compliance with the requirements under the
deficiencies in reserves against deposit provisions of Sec. 4151Q.
substitute liabilities during the last eight (8)
weeks immediately preceding the date of § 4151Q.7 Period within which to
application. submit complete requirements. The
applicant NBQB shall have one (1) month
§ 4151Q.5 Documentary requirements from notice of the receipt of the SEC referral
All applications shall be supported by the by the appropriate supervising and examining
following documents: department of the BSP within which to
a. Ability to conduct operations from submit/complete the requirements under this
the head office as not to be a cause for Section, after which the non-submission of
delayed submission of reports to the BSP and/ complete documents shall cause the return
or recording of transactions in the head office; of the application for the NBQB's lack of
b. Correspondent banking and audit interest to pursue the same.
arrangements between the branch and the
head office to ensure effective and efficient § 4151Q.8 Prohibition against
cash/money transactions; operating without SEC license. No branch,
c. Certified true copy of the board extension office or agency shall start
resolution authorizing the establishment of operations unless the appropriate SEC license,
a branch; which likewise serves as authorization for the

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 25
§§ 4151Q.8 - 4162Q.2
02.12.31

branch/extension office/agency to perform by the SFAS, the option or limit prescribed


quasi-banking functions, has been issued. by BSP regulations shall be adopted by
NBQBs.
Secs. 4152Q - 4155Q (Reserved) For purposes hereof, the SFAS shall refer
to the issuances of the Accounting Standards
I. (RESERVED) Council (ASC) and approved by the
Professional Regulation Commission (PRC).
Secs. 4156Q - 4160Q (Reserved)
Sec. 4162Q Reports. NBQBs shall submit
to the appropriate supervising and examining
J. RECORDS AND REPORTS department of the BSP the reports listed in
Appendix Q-3 in the forms as may be
Sec. 4161Q Records. NBQBs shall have a prescribed by the Deputy Governor,
true and accurate account, record or Supervision and Examination Sector, BSP.
statement of their daily transactions. The Any change in, or amendment to, the
making of any false entry or the willful articles of incorporation, by-laws or material
omission of entries relevant to any transaction documents required to be submitted to the
is a ground for the imposition of BSP shall be reported by submitting copies
administrative sanctions under Section 37 of of the amended articles of incorporation, by-
R.A. No. 7653, without prejudice to the laws, or material documents to the
criminal liability of the director or officer appropriate supervising and examining
responsible therefor under Sections 35 and department of the BSP within fifteen (15) days
36 of R.A. No. 7653 and/or the applicable following such change.
provisions of the Revised Penal Code.
Records shall be up-to-date and shall contain § 4162Q.1 Categories and signatories
sufficient detail so that an audit trail is of reports. Reports required to be submitted
established. to the BSP are classified into Categories A-1,
A-2, A-3 and B reports as indicated in the list
§ 4161Q.1 Uniform System of of reports required to be submitted to the BSP
Accounts. NBQBs shall strictly adopt/ in Appendix Q-3.
implement the Uniform System of Accounts Appendix Q-4 prescribes the signatories
prescribed for NBQBs in the recording of daily for each report category and the requirements
transactions including reportorial and on signatory authorization. Reports
publication requirements. submitted by NBQBs in computer media shall
be subject to the same requirements.
§ 4161Q.2 Adoption of Statements of A report submitted to the BSP under the
Financial Accounting Standards. NBQBs signature of an officer who is not authorized
shall adopt the Statements of Financial in accordance with the requirements in this
Accounting Standards (SFAS) in their financial Subsection shall be considered as not having
statements and reports to the BSP. However, been submitted.
in cases where there are differences between
BSP regulations and SFAS as when more than § 4162Q.2 Manner of filing. The
one (1) option are allowed or certain submission of the reports shall be effected
maximum or minimum limits are prescribed by filing them personally with the appropriate

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Part I - Page 26
§§ 4162Q.2 - 4162Q.3
02.12.31

supervising and examining department of the as fire and other natural calamities and public
BSP or with the BSP Regional Offices/Units, disorders, including strike or lockout affecting
or by sending them by registered mail or an NBQB as defined in the Labor Code or
special delivery through private couriers national emergency affecting operations of
unless otherwise specified in the circular or NBQBs, shall not be considered as willful
memorandum of the BSP. delay.
Where the reports are prescribed by the (3) Examination shall include, but
BSP to be submitted through electronic mail, need not be limited to, the verification,
the original notarized affidavit/last page of review, audit, investigation and inspection
each report, hard copy of the covering control of the books and records, business affairs,
prooflist, or any other related documents administration and financial condition of any
required to be submitted shall be filed in the NBQB including the reproduction of its
manner prescribed in the preceding records, as well as the taking possession of
paragraph. the books and records and keeping them
In line with the policy direction of R.A. under the BSP's custody after giving proper
No. 8792 (E-Commerce Act), the BSP is receipt therefor. It shall also include the
strongly encouraging NBQBs to submit their interview of the directors and personnel of
regular reports to the BSP in electronic form. the NBQB including its Electronic Data
However, the BSP cannot presently Processing (EDP) servicer. Books and records
guarantee the security/confidentiality of data shall include, but not limited to, data and
in the course of transmitting electronic reports information stored in magnetic tapes, disks,
to BSP. BSP recommends that sensitive or printouts, logbooks and manuals kept and
confidential information be provided by maintained by the NBQB or the EDP servicer,
ordinary post or courier. The BSP will accept necessary and incidental to the use of EDP
no responsibility for electronic messages/ systems by the NBQB.
reports/information that may be hacked or (4) Refusal to permit examination
cracked, intercepted, copied or disclosed shall mean any act or omission which
outside BSP’s information system. impedes, delays, or obstructs the duly
authorized BSP officer/examiner/employee
§ 4162Q.3 Sanctions in case of willful from conducting an examination, including
delay in the submission of reports/refusal to the act of refusing to accept or honor a letter
permit examination of authority to examine presented by any
a. Definition of terms. For purposes officer/examiner/employee of the BSP.
of this Subsection, the following definitions b. Fines for willful delay in
shall apply: submission of reports. NBQBs incurring
(1) Report shall refer to any report or willful delay in the submission of required
statement required of an NBQB to be reports shall pay a fine in accordance with
submitted to the BSP periodically or within a the following schedule:
specified period.
(2) Willful delay in the submission of I. For Categories A-1, A-2 and A-3
reports shall refer to the failure of an NBQB reports
to submit a report on time. Failure to submit Per business day of default
a report on time due to fortuitous events, such until the report is filed P600

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 27
§§ 4162Q.3 - 4171Q
02.12.31

II. For Category B reports examination to the head of the


Per business day of default appropriate supervising and examining
until the report is filed P120 department, who shall forthwith make a
written demand upon the NBQB concerned
Delay or default shall start to run on the for such examination. If the NBQB continues
day following the last day required for the to refuse said examination without any
submission of reports. However, should the satisfactory explanation therefor, the BSP
last day of filing fall on a non-working day in officer/examiner/employee concerned shall
the locality where the reporting financial submit a report to that effect to the said
institution is situated, delay or default shall department head.
start to run on the day following the next (b) The fine shall be imposed starting on
working day. The due date/deadline for the day following the receipt by the said
submission of reports to BSP as prescribed department of the written report submitted
under Section 4162Q governing the by the BSP officer/examiner/employee
frequency and deadlines indicated in concerned regarding the continued refusal
Appendix Q-3 shall be automatically moved of the NBQB to permit the desired
to the next business day whenever a half-day examination.
suspension of business operations in d. Manner of payment or collection of
government offices is declared due to an fines - The regulations embodied in Sec.
emergency such as typhoon, floods, etc. 4653Q shall be observed in the collection
For purposes of establishing delay or of the fines from NBQBs.
default, the date of acknowledgment by the e. Other penalties - The imposition of
appropriate supervising and examining the foregoing penalties shall be without
department of the BSP or the BSP Regional prejudice to the imposition of the other
Offices/Units appearing on the copies of such administrative sanctions and to the filing of a
reports filed or submitted, the date of mailing criminal case as provided for in other
postmarked on the envelope/the date of provisions of law.
registry/special delivery receipt, as the case f. Appeal to the Monetary Board - Any
may be, or the date of the acknowledgment aggrieved NBQB may appeal to the Monetary
receipt issued by the appropriate office of the Board a ruling of the appropriate supervising
BSP if the reports were submitted through and examining department of the BSP
electronic mail, shall be considered as the imposing a fine.
date of filing by the NBQB.
Delayed schedules/attachments and Secs. 4163Q - 4170Q (Reserved)
amendments shall be considered late
reporting subject to the above penalties.
c. Fines for refusal to permit K. INTERNAL CONTROL
examination
(1) Amount of fine - Any NBQB which Sec. 4171Q Internal Control Systems. The
shall willfully refuse to permit examination minimum internal control standards
shall pay a fine of P3,000 daily from the day established in Appendix Q-5 shall guide all
of refusal and for as long as such refusal lasts. NBQBs. The following records/data shall be
(2) Procedures in imposing the fine- compiled and made available for the
(a) The BSP officer/examiner/employee inspection of BSP examiners.
shall report the refusal of the NBQB to permit

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Part I - Page 28
§§ 4171Q - 4172Q.2
03.12.31

a. Records showing compliance with show, among other things, the name of the
independent balancing procedures. These directors present and absent, and the action(s)
records should indicate the accounts and the taken on the findings and recommendations.
periodic balancing procedures performed. In consonance with the aforementioned
b. Statements of actual duties of persons regulations, quasi-banks are to be guided with
assigned to handle cash and securities. the checklist of BSP requirements in the
c. All internal control audit reports or submission of AFS and Annual Report as
their equivalent. shown in Appendix Q-33.
d. Information/data on the direct and/ Delayed submission of certification of the
or indirect equity holdings and/or connection external auditor, schedules/ attachments and
with any firm, partnership or corporation amendments in the required reports shall be
organized for profit, of all the institution's considered late reporting, subject to the
directors, officers, and major stockholders, as penalties under Subsec. 4162Q.3bII.
defined under Secs. 4141Q and 4142Q.
e. Information/data pertaining to § 4172Q.1 Posting of audited financial
electronic data processing (EDP) department statements. The audited financial statements
or service bureau of the NBQB particularly of the NBQB shall be posted in a conspicuous
on organization, input control, processing place in the premises of the NBQB and in its
control, output control, software, program branches/other offices. Specifically, the
and documentation standards, logs on the NBQB shall post in its premises the (a)
operations of mainframes and peripherals, audited statement of condition; (b) audited
hardware control and such other EDP control statement of income and expenses; (c) notes
standards prescribed by the BSP in separate to financial statements, which shall include,
rules and regulations. among others, disclosure of the volume of
past due loans as well as loan-loss provisions;
Sec. 4172Q Financial Audit. NBQBs shall and (d) auditor's certificate.
cause an annual financial audit to be
conducted not later than thirty (30) days after § 4172Q.2 Disclosure of external
the close of the calendar year or the fiscal auditor’s adverse findings to the Bangko
year adopted by the NBQBs. Reports of such Sentral; sanction
audits shall be made and submitted to the a. Findings to be disclosed. NBQBs
board of directors and the appropriate shall require their external auditors to report
supervising and examining department of the to the BSP any matter adversely affecting the
BSP not later than ninety (90) days after the condition or soundness of the bank, such as,
start of such audit. but not limited to:
The board of directors, in a regular or (1) Any serious irregularity, including
special meeting, shall consider and act on those involving fraud or dishonesty, that may
the financial audit report and shall submit, jeopardize the interest of creditors;
within thirty (30) days after receipt of the (2) Losses incurred which substantially
report, a copy of its resolution together with reduce the capital funds of the NBQB; and
a copy of the auditor's letter of comments/ (3) Inability of the auditor to confirm that
findings and recommendations to the the claims of creditors are still covered by
appropriate supervising and examining the NBQB’s assets.
department of the BSP. The resolution shall

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 29
§§ 4172Q.2 - 4172Q.3
04.12.31

The disclosure of information by the f. Nature and amount of


external auditor to the BSP shall not be a contingencies and commitments arising from
ground for civil, criminal or disciplinary off-balance sheet items [include direct credit
proceedings against the former. substitutes (e.g., export LCs confirmed,
NBQB management shall be present underwritten accounts unsold), transaction-
during discussions or at least be informed of related contingencies (e.g., performance
the adverse findings in order to preserve the bonds, bid bonds, standby LCs), short-term
concerns of the supervisory authority and self-liquidating trade-related contingencies
external auditors regarding the confidentiality arising from the movement of goods (e.g.,
of information. sight/usance domestic LCs, sight/usance
b. Sanction. The auditing firm(s) shall import LCs), sale and repurchase agreements
be blacklisted by the Monetary Board for a not recognized in the balance sheet; interest
period as the Board may deem appropriate and foreign exchange rate related items; and
for their failure to perform their duty of other commitments];
reporting to the BSP any matter adversely g. Provisions and allowances for losses
affecting the condition or soundness of the and how these are determined;
NBQB. NBQBs shall not be allowed to engage h. Aggregate amount of secured
the services of the blacklisted auditing firm. liabilities and assets pledged as security; and
i. Accounting policies which shall
§ 4172Q.3 Disclosure requirement in include, but shall not be limited to, general
the notes to the audited financial statements accounting principles, changes in accounting
NBQBs shall require their external auditors policies/practices, principles of consolidation,
to include the following additional informa- policies and methods for determining when
tion in the notes to financial statements: assets are impaired, recognizing income on
a. Basic quantitative indicators of impaired assets and losses on non-performing
financial performance such as return on credits, income recognition, valuation
average equity, return on average assets and policies and accounting policies on
net interest margin; securitizations, foreign currency translations,
b. Capital-to-risk assets ratio under Sec. loan fees, premiums and discounts,
4116Q; repurchase agreements, premises/fixed
c. Concentration of credit as to indus- assets, income taxes, derivatives, etc.
try/economic sector where concentration is For purposes of computing the
said to exist when total loan exposures to a indicators in Item “a” above, the following
particular industry/economic sector exceeds formulas shall be used:
thirty percent (30%) of total loan portfolio;
d. Breakdown of total loans as to a. Return on Average = Net Income (or Loss) after
Equity (%) Income Tax x 100
secured and unsecured and breakdown of Average Total Capital Accounts
secured loans as to type of security;
e. Total outstanding loans to NBQB’s Where:
Average Total = Sum of Total Capital Accounts as of
DOSRI, percent of DOSRI loans to total loan Capital Accounts the 12 month-ends in the calendar/
portfolio, percent of unsecured DOSRI loans fiscal year adopted by the NBQB
12
to total DOSRI loans, percent of past due
DOSRI loans to total DOSRI loans and percent b. Return on Average = Net Income (or Loss) after
of non-performing DOSRI loans to total DOSRI Assets (%) Income Tax x 100
Average Total Assets
loans;

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Part I - Page 30
§§ 4172Q.3 - 4180Q
04.12.31

Where: conspicuous place in its head office, all its


Average Total = Sum of Total Assets as of the 12 month-
Assets ends in the calendar/fiscal year adopted branches and other offices.
by the NBQB The deadline for the submission of the
12 annual report to the appropriate supervising
and examining department of the Bangko
c. Net Interest = Net Interest Income x 100
Margin (%) Average Interest Earning Assets Sentral is 180 calendar days after the close
of the calendar or fiscal year adopted by the
Where:
Net Interest
NBQB.
Income = Total Interest Income – Total Interest Expense
Secs. 4173Q - 4179Q (Reserved)
Average Interest = Sum of Total Interest Earning Assets as
Earning Assets of the 12 month-ends in the calendar/
fiscal year adopted by the NBQB Sec. 4180Q Selection, Appointment and
12 Reporting Requirements for External
Auditors; Sanction; Effectivity. Under
§ 4172Q.4 Disclosure requirements in Section 58, R.A. No. 8791, the Monetary
the annual report. NBQBs shall prepare an Board may require a quasi-bank and/or trust
annual report which shall include, in addition entity to engage the services of an
to the audited financial statements and other independent auditor to be chosen by the
usua information contained therein, a quasi-banks and/or trust entities concerned
discussion and/or analysis of the following from a list of certified public accountants
information: acceptable to the Monetary Board.
a. Financial performance; It is the policy of the BSP to promote
b. Financial position and changes high ethical and professional standards in
therein; public accounting practice and to encourage
c. Overall risk management philo- coordination and sharing of information
sophy (a general statement of the risk between external auditors and regulatory
management policy adopted by the NBQB’s authorities of banks, quasi-banks, trust entities
board of directors which serves as the basis and/or NSSLAs to ensure effective audit and
for the establishment of its risk management supervision of these institutions and to avoid
system), risk management system and unnecessary duplication of efforts. In
structure; furtherance of this policy and to ensure that
d. Qualitative and quantitative reliance by regulatory authorities and the
information on risk exposures (credit, market, public on the opinion of external auditors is
liquidity, operational, legal and other risks); well placed, the BSP hereby prescribes the
and rules and regulations that shall govern the
e. Basic business management and selection, appointment, reporting
corporate governance information such as the requirements and delisting for external
NBQB’s organizational structure, incentive auditors of banks, quasi-banks, trust entities
structure including its remuneration policies, and/or NSSLAs, their subsidiaries and
nature and extent of transactions with affiliates engaged in allied activities and other
affiliates and related parties. financial institutions which under special
laws are subject to BSP supervision.
§ 4172Q.5 Posting and submission of The selection of external auditors shall
annual report. A copy of the latest annual be valid for a period of three (3) years. BSP
report shall be posted by the NBQB in a selected external auditors shall apply for the

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 31
§§ 4180Q - 4181Q
04.12.31

renewal of their selection every three (3) violation of any of the provisions of this
years. The provisions of Items “A” and “B” Section and for non-compliance with
of Appendix Q-30 shall likewise apply for the Monetary Board directive under Item “I”
each application for renewal. in Appendix Q-30. Erring external auditors
The Supervision and Examination Sector may also be reported by the BSP to the PRC
(SES) shall make an annual assessment of the for appropriate disciplinary action.
performance of external auditors and will
recommend deletion from the list even prior
to the three (3)-year renewal period, if based L. MISCELLANEOUS PROVISIONS
on assessment, the external auditors’ report
did not comply with BSP requirements. Sec. 4181Q Publication Requirements. The
External auditors who meet quarterly consolidated statement of condition
the requirements specified in this Section of an NBQB/trust entity and its subsidiaries
shall be included in the list of BSP selected and affiliates shall be published side-by-side
external auditors. In case of partnership, with the statement of condition of its head
inclusion in the list of BSP selected external office and its branches/other offices as of such
auditors shall apply to the audit firm only and dates as the BSP may require, within twenty
not to the individual signing partners or (20) working days from receipt of call letter,
auditors under its employment. in any newspaper of general circulation in
The BSP will circularize to all banks, the country in the prescribed format.
quasi banks, trust entities and NSSLAs the list a. The following information shall be
of selected external auditors once a year. disclosed in the Statements of Condition:
The BSP, however, shall not be liable for any (1) Non-performing loans and ratio to
damage or loss that may arise from its total loan portfolio;
selection of the external auditors to (2) Classified loans and other risk
be engaged by banks, quasi-banks, trust assets;
entities or NSSLAs for regular audit or special (3) General loan loss reserve;
engagements. (4) Specific loan loss reserve;
a. Rules and regulations. The rules and (5) Return on equity (ROE);
regulations to govern the selection and (6) DOSRI loans/advances and ratio to
delisting by the BSP of external auditors of total loan portfolio; and
quasi-banks and/or trust entities, their sub- (7) Past due DOSRI loans/advances and
sidiaries and affiliates engaged in allied ratio to total loan portfolio.
activities are shown in Appendix Q-30. For uniform calculation of the additional
b. Sanctions. The applicable sanctions/ information required, the guidelines in Annex
penalties prescribed under Sections 36 Q-3-f of Appendix Q-3 shall be observed.
and 37 of R. A. No. 7653 to the extent b. The names and positions/
applicable shall be imposed on the quasi- designations of:
bank or trust entity, its audit committee and (1) Members of the Board of Directors;
the directors approving the hiring of external and
auditors who are not in the BSP list of selected (2) President and Executive Vice-
auditors for banks, quasi-banks, trust entities Presidents (Senior Vice-Presidents, if there
and NSSLAs or for hiring, and/or retaining are no Executive Vice-Presidents) or
the services of the external auditor in equivalent positions shall be presented in the

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Part I - Page 32
§§ 4181Q - 4191Q.1
04.12.31

right side column of the published statement findings noted to appropriate levels of
of condition as of June of every year. management.
(3) The program shall establish the
Sec. 4182Q Management Contracts. Subject responsibilities and duties of the compliance
to existing laws, all agreements whereby the officer and other personnel (if any) involved
affairs or operations of an NBQB will be in the compliance function.
carried out by another corporation, person (4) A copy of the compliance program
or group of persons, shall be subject to prior and the written approval of the Board of
approval by the BSP. Directors shall be submitted to the
The agreements referred to in the appropriate supervising and examining
preceding paragraph shall not be entered into department of the BSP within twenty (20)
for a period longer than five (5) years. Existing business days from date of approval.
agreements shall be allowed up to the (5) The program shall be updated at
termination date thereof: Provided, however, least annually to incorporate changes in laws
That any renewal or extension upon and regulations. Any changes in the program
termination date shall be subject to approval shall likewise be approved by the NBQB’s
by the BSP. Board of Directors and submitted to BSP
within twenty (20) business days from the
Secs. 4183Q - 4190Q (Reserved) date of approval.
b. A constructive working relationship
Sec. 4191Q Compliance System; with regulatory agencies.
Compliance Officer. NBQBs shall develop The NBQB, through its compliance
and implement a compliance system and officer, may consult the regulatory agencies
appoint/designate a compliance officer to for additional clarification on specific
oversee its implementation. provisions of laws and regulations and/or
discuss compliance findings with the
§ 4191Q.1 Compliance system. The regulatory authorities. A dialogue may also
compliance system shall have the following be initiated with respect to borderline issues.
basic elements. c. A clear and open communication
a. A written compliance program process within the NBQB to educate and
approved by the Board of Directors: address compliance matters.
(1) The compliance program shall Officers and staff shall be trained on the
enable the NBQB to identify the relevant regulatory requirements through regular
Philippine laws and regulations, analyze the meetings, distribution of manuals and
corresponding risks of non-compliance, and dissemination of regulatory issuance.
prioritize the compliance risks (e.g., low, d. Continuous monitoring and
medium, high). assessment of the compliance program.
(2) The program shall provide for The program shall provide for the
periodic compliance testing with applicable periodic review of the compliance function
legal and regulatory requirements.Testing to measure its effectiveness. The review may
frequency shall be commensurate with be carried out by the internal audit
identified risk levels (e.g., annual testing for department of the NBQB.
low-risk, quarterly testing for medium-risk, The compliance program may operate
monthly testing for high-risk). It shall also parallel to or as part of an NBQB’s internal
provide for the reporting of compliance control and auditing program.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 33
§§ 4191Q.2 - 4191Q.5
04.12.31

§ 4191Q.2 Compliance officer mentioned under Subsec. 4141Q.3, the


a. The principal function of the board should oversee the implementation of
compliance officer is to oversee and the compliance policy and ensure that
coordinate the implementation of the compliance issues are resolved
compliance system. His responsibility shall expeditiously. Senior management should be
include the identification, monitoring and responsible for establishing a compliance
controlling of compliance risk. policy, ensuring that it is observed, reporting
b. The appointment/designation of a to the board of directors on its ongoing
compliance officer shall require prior implementation and assessing its
approval of the Monetary Board. The bio-data effectiveness and appropriateness. Senior
of the proposed compliance officer shall be management should, at least once a year,
submitted to the appropriate supervising and report to the board of directors or a
examining department of the BSP. committee of the board on matters relevant
c. The compliance officer shall have the to the compliance policy and its
skills and expertise to provide appropriate implementation, recommending any
guidance and direction to the bank on the required changes to the policy. The report
development, implementation and should assist the board members in making
maintenance of the compliance program. an informed assessment as to whether the
d. An independent full-time compliance institution is managing its compliance risk
officer, who shall have a rank of at least a effectively. However, any material breaches
Vice President, shall be appointed. However, of laws, rules and standards shall be reported
they are allowed on a case-to-case basis, promptly.
upon recommendation of the supervising and
examining department concerned, to § 4191Q.5 Status. The compliance
designate an incumbent officer (including the function should have a formal status within
Internal Auditor) as the NBQB’s compliance the organization established by a charter or
officer: Provided, That such will not give rise other formal document approved by the
to any conflict of interest situation, that the board of directors that defines the
main function of the officer shall be that of a compliance function’s standing, authority
compliance officer and that he is considered and independence, and addresses the
a senior officer in the organizational set-up following issues:
of the NBQB. (1) measures to ensure the
independence of the compliance function
§ 4191Q.3 Compliance risk from the business activities of the quasi-bank;
Compliance risk is the risk of legal or (2) its role and responsibilities;
regulatory sanctions, financial loss, or loss to (3) its relationship with other functions
reputation a quasi-bank may suffer as a result or units within the organization;
of its failure to comply with all applicable (4) its right to obtain access to
laws, regulations, codes of conduct and information necessary to carry out its
standards of good practice. responsibilities;
(5) its right to conduct investigations of
§ 4191Q.4 Responsibilities of the board possible breaches of the compliance policy;
of directors and senior management on (6) its formal reporting relationships to
compliance. Aside from the duties and senior management and the board of
responsibilities of the board of directors directors; and

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Part I - Page 34
§§ 4191Q.5 - 4191Q.9
04.12.31

(7) its right of direct access to the board compliance concerns are satisfactorily
of directors or an appropriate committee of addressed within the framework of the
the board. compliance policy for the organization as a
The compliance charter or other formal whole. As there are significant differences in
document defining the status of the legislative and regulatory frameworks across
compliance function shall be communicated countries or from jurisdiction to jurisdiction,
throughout the organization. compliance issues specific to each
jurisdiction should be coordinated within the
§ 4191Q.6 Independence. The structure of the institution’s group-wide
compliance function should be independent compliance policy. The organization and
from the business activities of the institution. structure of the compliance function and its
It should be able to carry out its responsibilities should be in accordance with
responsibilities on its own initiative in all local legal and regulatory requirements.
units or departments where compliance risk
exists and must be provided with sufficient § 4191Q.9 Outsourcing. Quasi-banks
resources to carry out its responsibilities should establish policies for managing the
effectively. It must be free to report to senior risks associated with outsourcing activities.
management and the board or a committee Outsourcing of services/activities can reduce
of the board on any irregularities or breaches the institution’s risk profile by transferring
of laws, rules and standards discovered, activities to others with the necessary
without fear of retaliation or disfavor from expertise to manage the risks associated with
management or other affected parties. The specialized business activities. However, the
compliance function should have access to use of third parties does not diminish the
all operational areas as well as any records responsibility of the board of directors and
or files necessary to enable it to carry out its senior management to ensure that the
duties and responsibilities. outsourced activity is conducted in a safe and
sound manner and in compliance with
§ 4191Q.7 Role and responsibilities of applicable laws and regulations.
the compliance function. The role and Compliance risk assessment and testing
responsibilities of the compliance function may be outsourced, subject to appropriate
should be clearly defined. If there is a division oversight by the compliance officer:
of duties and responsibilities between Provided, That a copy of the outsourcing
different functions such as legal, compliance, agreement stating the duties and
internal audit or risk management, the responsibilities as well as rights and
allocation of duties and responsibilities to obligations of the contracting parties, which
each function should be properly delineated. agreement shall be approved by the board
There should likewise be formal of directors of the institution concerned, must
arrangements for cooperation between each be submitted to the appropriate supervising
function and for the exchange of relevant and examining department of the BSP at least
information. thirty (30) days prior to its execution to enable
review of its compliance with existing
§ 4191Q.8 Cross-border issues. The regulations on outsourcing of quasi-banking
compliance function for institutions that functions.
conduct business in other jurisdictions The service level agreement shall ensure
should be structured to ensure that local a clear allocation of responsibilities between

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part I - Page 35
§§ 4191Q.9 - 4199Q
04.12.31

the external service providers and the quasi- Secs. 4192Q - 4198Q (Reserved)
bank. Furthermore, the outsourcing quasi-
bank should manage residual risks associated Sec. 4199Q General Provision on Sanctions
with outsourcing arrangements, including Any violation of the provisions of this Part
default, operational failures, and possible shall be subject to Sections 36 and 37 of R.A.
disruption of services. No. 7653.

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Part I - Page 36
§§ 4201Q - 4211Q.3
96.12.31

PART TWO
DEPOSIT AND BORROWING OPERATIONS

A. - D. (RESERVED) interest rate and such other information as


may be necessary to enable the parties to
Secs. 4201Q - 4210Q (Reserved) determine the cost or yield of the borrowing
or placement shall be specified.
E. DEPOSIT SUBSTITUTE b. The date of issuance shall be
OPERATIONS indicated at the upper right corner of the
instrument, and directly below which shall
Section 4211Q Deposit Substitute be the maturity period or the word "demand",
Instruments. Only the following types of if it is a demand instrument.
instruments may be issued by NBQBs as c. The payee may be identified by his
evidence of deposit substitute liabilities: trust account/deposit account number in both
a. Promissory notes; negotiable and non-negotiable instruments.
b. Repurchase agreements; and d. Securities which are the subject of
c. Certificates of assignment/ a repurchase agreement or a certificate of
participation with recourse. assignment/participation with recourse, shall
be particularly described on the face of said
§ 4211Q.1 Prohibition against use of
instruments or on a separate instrument
certain instruments as deposit substitutes
attached and specifically referred to therein
Acceptances, bills of exchange and trust
and made an integral part thereof as to the
certificates shall not be used as evidence of
maker, value, maturity, serial number, and
deposit substitute liabilities. This prohibition
such other particulars as shall clearly identify
shall not apply to the acceptance or
the securities.
negotiation of bills of exchange in connection
e. The instrument shall provide for the
with trade transactions, or to the issuance of
payment of liquidated damages, in addition
trust certificates creating trust relationship.
to stipulated interest, in case of default by
§ 4211Q.2 Negotiations of promissory the maker/issuer, as well as attorney's fees
notes. Negotiable promissory notes acquired and cost of collection in case of suit.
by NBQBs shall not be negotiated by mere f. A conspicuous notice at the lower
indorsement and/or delivery, if they do not center margin of the face of the instrument
conform with the minimum features that the transaction is not insured by the
prescribed under Subsec. 4211Q.3. If these Philippine Deposit Insurance Corporation.
notes do not contain the features in said g. The corporate name of the issuer
Subsection, their negotiation shall be covered shall be printed at the upper center margin
by any of the appropriate deposit substitute of the instrument and directly below which
instruments mentioned in Sec. 4211Q. shall be a designation of the instrument, such
as, "Promissory Note" or "Repurchase
§ 4211Q.3 Minimum features. Deposit Agreement".
substitute instruments issued by NBQBs shall h. The words "duly authorized
have the following minimum features. officer" shall be placed directly below the
a. The present value and maturity signature of the person signing for the maker/
value and/or the principal amount and issuer.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 1
§§ 4211Q.3 - 4211Q.4
04.12.31

i. Each instrument shall be serially of the BSP accredited custodian in a registry


prenumbered. for said securities, if immobilized or
j. The copy delivered to the payee dematerialized while the overlying principal
shall bear the word "Original" and the copies borrowing instrument shall be physically
retained by the issuer shall be identified as delivered to the lender/purchaser. The
"Duplicate," "File Copy" or words of similar custodian shall hold the securities in the
import. name of the borrower/seller, but shall keep
k. Only security paper with adequate said securities segregated from the regular
safeguards against alteration or falsification securities account of the borrower/seller if
shall be used. the borrower/seller has an existing securities
Deposit substitute instruments shall account with the custodian. Provided, That
conform to the language prescribed by the a financial institution (NBFI) authorized by
BSP. the BSP to perform custodianship function
Any substantial deviation therefrom or may not be allowed to be custodian of
any additional stipulation therein shall be securities issued or owned by said institution,
referred to the BSP for prior approval. The its subsidiaries or affiliates, or of securities in
size and appearance of these instruments bearer form.
shall not be similar to the size and appearance The delivery shall be effected upon
of checks. Formats of standardized payment and shall be evidenced by a
instruments in Appendices Q-6 to Q-6-k shall securities delivery receipt duly signed by
be followed. authorized officers of the custodian and
Rubber stamping, typewriting and delivered to both the lender/purchaser and
handwriting some provision shall not be seller/borrower.
considered compliance with said regulations. b. Sanctions. Violation of any provision
Borrowings of NBQBs from the loans of this Subsection shall be subject to the
and discounts window of banks or NBQBs following sanctions/penalties:
shall be exempted from the documentation (1) Monetary penalties
requirements of this Section: Provided, That First Offense – Fine of P10,000 a day for
the exemption from the documentation each violation reckoned from the date the
requirements shall not be construed or violation was committed up to the date it was
interpreted as exemption of said borrowings corrected.
from the other rules on borrowings by NBQBs Subsequent offenses – Fine of P20,000
and from other BSP regulations on deposit a day for each violation reckoned from the
substitutes. date the violation was committed up to the
date it was corrected.
§ 4211Q.4 Delivery of securities.1 (2) Other sanctions
a. Securities, warehouse receipts, First offense – Reprimand for the
quedans and other documents of title which directors/officers responsible for the violation.
are the subject of quasi-banking functions, Subsequent offense –
such as repurchase agreements, shall be (a) Suspension for ninety (90) days
physically delivered, if certificated, to a BSP without pay of directors/officers responsible
accredited custodian that is mutually for the violation;
acceptable to the lender/purchaser and (b) Suspension or revocation of the
borrower/seller, or by means of book-entry accreditation to perform custodianship
transfer to the appropriate securities account function;
-------------------------------------------------------------------------------

1
Effective 16 November 2004 under Circular 450 dated 06 September 2004.

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Part II - Page 2
§§ 4211Q.4 - 4211Q.8
04.12.31

(c) Suspension or revocation of the § 4211Q.7 Call slips/tickets for 24-


authority to engage in quasi-banking function; hour loans. Call slips or tickets may be used
and/or to evidence call loan transactions of not
(d) Suspension or revocation of the authority more than twenty-four (24) hours maturity
to engage in trust and other fiduciary business. or to cover reserve deficiencies. In all other
cases, call loan transactions shall be
§ 4211Q.5 Regulation on additional evidenced by a promissory note containing
stipulation. Stipulations between the maker/ the minimum features prescribed in Subsec.
issuer and the payee which are embodied in 4211Q.3.
separate instruments shall be specifically
referred to in the deposit substitute § 4211Q.8 Requirement to state
instruments and made an integral part thereof. nature of underlying securities. In case of
repurchase agreements and certificates of
§ 4211Q.6 Substitution of underlying assignment/participation with recourse, the
securities. Any agreement allowing the stipulation shall clearly state either (a) that
issuer/maker to substitute the underlying the underlying securities are being delivered
securities shall further provide that the actual to the buyer or assignee as collaterals or (b)
substitution shall be with the prior written that the ownership thereof is being
consent of the payee. transferred to the buyer or assignee.

(Next page is Part II - Page 3)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 2a
§§ 4211Q.9 - 4216Q.1
96.12.31

§ 4211Q.9 Compliance with SEC rules prescribed in Sec. 4376Q shall also apply to
NBQBs shall comply with the new rules on interbank borrowings.
the registration of short-term and long-term
commercial papers appended hereto as Sec. 4215Q Borrowings from Trust De-
Appendices Q-7 and Q-8. partments or Managed Funds of Banks or
Investment Houses. Funds borrowed by
Sec. 4212Q Recording; Payment; Maturity; NBQBs from trust departments or managed
Renewal funds of banks or investment houses are not
a. Deposit substitutes shall be considered as interbank borrowings and,
recorded in the books at their respective therefore, are subject to the :
principal amounts, and reported accordingly, a. reserve requirement on deposit
regardless of whether the interest thereon has substitutes;
been paid in advance or not. b. minimum fifteen (15)-day maturity
b. If there is any stipulation that period; and
payment of the deposit substitute shall be c. minimum trading lot rule.
chargeable against a particular deposit
account, it shall further provide that the Sec. 4216Q Money Market Placements of
liability of the maker/issuer of the instrument Rural Banks. NBQBs shall not accept money
shall not be limited to the outstanding market placements from any rural bank
balance of said amount. unless the latter presents a certification under
c. The minimum maturity of any oath stating: (a) that it has no overdue special
single deposit substitute transaction shall be time deposits; (b) that it has no past due
fifteen (15) days. Interbank borrowings shall obligations with the BSP or other government
not be subject to the limitations in this financial institutions; (c) the amount of its
Section. current obligations, if any, with said
d. Automatic renewal from maturity government financial institutions; and (d) the
of the instrument may be effected only under amount of its total outstanding money market
terms and conditions previously stipulated placements. However, in no case shall such
by the parties. NBQBs sell receivables to rural banks without
recourse.
Sec. 4213Q Minimum Trading Lot. The § 4216Q.1 Definition of terms. As
minimum size of any single deposit substitute used in this Section, the following terms shall
transaction shall be P50,000. have the following meanings:
In connection with the minimum Money market placements shall
trading lot rule above stated, no NBQB shall include investments in debt instruments,
issue deposit substitute instruments in the including purchases of receivables with
name of two (2) or more persons or accounts recourse to the lending institution, except
except those falling under the following purchases of government securities on an
relationships in which cases, commingling outright basis.
may be allowed: (a) husband and wife; (b) Government securities shall include
persons related to each other within the evidences of indebtedness of the Republic
second degree of consanguinity; and (c) in of the Philippines and the BSP and other
trust for (ITF) arrangements. evidences of indebtedness or obligations of
government entities, the servicing and
Sec. 4214Q Interbank Borrowings. The repayment of which are fully guaranteed by
regulations on interbank loan transactions the Republic of the Philippines.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 3
§§ 4216Q.2 - 4217Q.1
96.12.31

§ 4216Q.2 Conditions required on (2) Suspension or revocation of the


accepted placements. Placements accepted authority to engage in quasi-banking
must comply with the following conditions: functions.
a. That the total money market
placements of a rural bank, as stated in the Sec. 4217Q Bond Issues of NBQBs. The
certification, including the placement being following guidelines shall govern the bond
accepted by the entity concerned, shall not issues of NBQBs.
exceed the rural bank's combined capital
accounts or net worth less current obligations § 4217Q.1 Definition of terms. For
with the BSP or other government financial purposes of this Section, the following terms
institutions; shall mean:
b. The maturity of the money market a. Government securities shall refer
placement shall not exceed sixty (60) days; and to the evidences of indebtedness of the
c. That placements shall be evidenced Republic of the Philippines or its
in all cases by promissory notes of accepting instrumentalities, or of the BSP, and must be
entities/repurchase agreements and/or freely negotiable and regularly serviced.
certificates of participation/assignment with b. Net book value shall refer to the
recourse and that underlying instruments acquisition cost of property or accounts, plus
shall be government securities the servicing additions and improvements thereon, less
and repayment of which are guaranteed by valuation reserves, if any.
the Republic of the Philippines. c. Current market value shall refer to
the value of the property as established by a
§ 4216Q.3 Sanctions. Violations of the duly licensed and independent appraiser.
provisions of this Section shall be subject to d. Affiliate shall refer to an entity
the following sanctions/penalties: linked directly or indirectly to an NBQB by
a. Fines means of:
First Offense - Fines of P3,000 a day, (1) Ownership, control or power to
reckoned from the date placement started up vote, of ten percent (10%) or more of the
to the date when said placement was outstanding voting stocks of the entity, or
withdrawn, for each violation shall be vice-versa;
assessed on the bank. (2) Interlocking directorships or
Subsequent Offenses - Fines of P5,000 officerships;
a day, reckoned from the date placement (3) Common stockholders owning ten
started up to the date placement was percent (10%) or more of the outstanding
withdrawn, for each violation shall be voting securities;
assessed on the bank. (4) Management contract or any
b. Other Sanctions arrangement granting power to direct or
First Offense - Reprimand for the cause the direction of management and
directors/officers who approved the policies;
acceptance/placement with a warning that (5) Voting trustee holding ten percent
subsequent violations will be subject to (10%) or more of the outstanding voting
more severe sanctions. securities;
Subsequent Offenses - (6) Permanent proxy or voting trust
(1) Suspension for ninety (90) days constituting ten percent (10%) or more of the
without pay for directors/officers who outstanding voting securities.
approved the placement. e. Subsidiary shall refer to a

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Part II - Page 4
§§ 4217Q.1 - 4217Q.5
99.12.31

corporation or firm more than fifty percent Bonds may be issued at face value, at a
(50%) of the outstanding voting stock of discount, or at a premium. Minimum
which is directly or indirectly owned, denomination shall be P20,000.
controlled, or held with power to vote by b. Term. The minimum maturity of the
another. bonds shall be four (4) years. No optional
redemption before the fourth year shall be
§ 4217Q.2 Underwriting of bonds allowed.
Bond issues may be underwritten by entities c. Interest; manner; form of payment
including those which are affiliates or The bonds shall not be subject to
subsidiaries of the issuer. The investment of interest rate ceilings prescribed by the
affiliates or subsidiaries in said bond issue Monetary Board or Act No. 2655, as
shall be subject to: (a) individual and amended.
aggregate ceilings of ten percent (10%) and Interest paid in advance shall not exceed
thirty percent (30%), respectively, of the bond the interest for one (1) year: Provided, That
issue; and (b) the condition that the investing interest shall not be paid in kind.
affiliate or subsidiary does not have any d. Trust indenture; collaterals; sinking
outstanding loan from the issuer or that it shall fund. A trust indenture shall be executed
not incur any indebtedness from the issuer between the issuer and a qualified trust
during the period that the investment remains corporation as trustee, which shall neither be
outstanding. an affiliate nor a subsidiary of the issuer.
The following shall be deemed as
§ 4217Q.3 Compliance with SEC rules eligible collateral and shall be maintained at
NBQBs issuing or intending to issue bonds respective values indicated in relation to the
shall comply with the new rules on the face value of the bond issue:
registration of long-term commercial papers (1) Government securities - Aggregate current
(Appendix Q-8). market value of
100%
§ 4217Q.4 Notice to Bangko Sentral (2) High-grade private - Aggregate current
Within three (3) days from approval by the securities listed in market value of
SEC of its bond issue, an NBQB shall notify the big board of 150%
the appropriate department of the BSP of the stock exchanges
approval, attaching documents required by
(3) Real estate - Net book value
the SEC for the issuance and registration of of 100%
the bond issue.
(4) Unmatured receivables - Net book value
§ 4217Q.5 Minimum features. Bond acquired with recourse; of 150%
lease contracts recei-
issues by NBQBs shall have the following vable
minimum features:
a. Form; issue price; denomination. (5) Unmatured receivables - Net book value
The trust indenture and the name of the acquired without of 200%
recourse
indenture trustee shall be indicated on the
face of the bond certificate. Government and private securities,
The SEC-assigned bond registration certificates of title and documents evidencing
number and expiry date, if any, shall likewise receivables offered as security shall be
be indicated, stamped on the face of each physically delivered to the indenture trustee.
bond certificate issued.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 5
§§ 4217Q.5 - 4246Q
04.12.31

Substitution of collaterals shall be substitute shall be payable on demand and


allowed: Provided, That in no case shall the shall earn interest or yield from maturity to
collateral fall below the herein-required actual withdrawal or renewal at a rate
ratios. applicable to a deposit substitute with a
The issuer may, at his option, provide maturity of fifteen (15) days.
for the retirement at maturity of the bond
issue through a sinking fund to be deposited Secs. 4237Q - 4245Q (Reserved)
with and managed by the indenture trustee.
e. Bond registry. The bonds shall be H. RESERVES
fully registered as to principal and interest.
The issuer, its trustee, agent or underwriter Sec. 4246Q Reserves Against Deposit
must maintain a bond registry duly approved Substitutes. NBQBs shall maintain a nine
by the SEC for recording, in initial and percent (9%) regular reserves against deposit
subsequent transfers, the names of substitute liabilities as defined in Section 95
transferees, date of transfer, purchase price of R.A. No. 7653, regardless of maturities
and serial numbers of bonds transferred. except: (a) borrowings from the BSP through
the sale of government securities under
§ 4217Q.6 Reserve requirement. A repurchase agreements made in connection
five percent (5%) reserve shall be maintained with the provisions of Sec. 4601Q; (b) deposit
against all bond issues of NBQBs. substitutes arising from special financing
The form/composition of reserves for programs of the Government and/or
bond issues shall be in accordance with the international financial institutions; (c)
applicable rules on reserve against deposit interbank call loan transactions under Sec.
substitute liabilities and borrowings. 4376Q; and (d) bonds under Sec. 4217Q for
which the reserve requirement shall be five
§ 4217Q.7 Inapplicability of certain percent (5%).
regulations. Secs. 4211Q and 4213Q shall On top of the regular reserve
not apply to bonds issued under these requirements, an additional ten percent
guidelines. (10%)3 liquidity reserves against deposit
substitute liabilities (except Items “a” to “d”
Secs. 4218Q - 4230Q (Reserved) above) of quasi-banks shall be imposed
which may be maintained in the form
prescribed in Item “a” of Subsec. 4246Q.1.
F. (RESERVED) Any deficiency shall be in the form
prescribed in Item “b” of Subsec. 4246Q.1.
Secs. 4231Q - 4235Q (Reserved) Provided, That deposit substitutes
evidenced by repurchase agreements
(REPOs) covering government securities up
G. INTEREST to the amount equivalent to the adjusted Tier
1 capital of the quasi-bank shall be subject
Sec. 4236Q Yield/Interest Rates to the statutory reserve of two percent (2%):
a. Deposit substitutes of NBQBs shall Provided, further, That such rate shall apply
not be subject to yield or interest rate ceilings. only to REPOs, the documentation of which
b. A matured and an unclaimed deposit conforms with, and were delivered to a BSP

--------------------------------------------------------------------------------------

3
From 7% to 10% under Cir. 418 dated 05 February 2004 effective 06 February 2004.

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Part II - Page 6
§§ 4246Q - 4246Q.1
04.12.31

accredited third party custodian as required (i) The securities must bear an interest
under existing BSP regulations. rate of not more than four percent (4%) per
annum, must be non-negotiable and shall
§ 4246Q.1 Composition of reserves carry BSP support; and
The composition of the reserves shall be as (ii) The instrument must expressly state
follows: in its face the amount, maturity date and
a. Not more than seven percent (7%)1 interest rate of the obligation.
of the deposit substitute liabilities of NBQBs A list of reserves-eligible and non-eligible
under Sec. 4246Q may be maintained securities may be found in Appendix Q-9.
in the form of: Other government securities being used
(1) short-term market-yielding govern- for reserve purposes shall continue to be
ment securities purchased directly from the eligible as such: Provided, That whenever
BSP-Treasury Department; and said securities shall have matured, they shall
(2) NDC Agri-Agra ERAP Bonds, be replaced by securities carrying the above
regardless of maturity; and features.
(3) Poverty Eradication and Alleviation Securities held as reserves shall be
Certificates (PEACe) bonds only to the extent valued at cost of acquisition, and the NBQB
of the original gross issue proceeds may freely alter its composition: Provided,
determined at the time of the auction, plus That any substitution or acquisition satisfies
capitalized interest on the underlying zero- the eligibility requirements prescribed above:
coupon Treasury Notes as and when the Provided, further, That the NBQB notifies the
corresponding interest is earned over the life BSP of any such change not later than the
of the bonds; and reporting day following the change.
b. The balance shall be as follows: Securities counted as reserves which are
(1) At least ten percent (10%) in the form hypothecated or encumbered in any way or
of deposit balances with the BSP; earmarked for any other purpose shall
(2) A maximum of seventy-five percent automatically lose their eligibility as reserves.
(75%) in the form of government securities; Only the buying/lending NBQB in a
and resale agreement covering eligible
(3) The balance in the form of demand government securities may use such
deposit accounts with banks which are not securities as reserves against deposit
restricted as to withdrawal or use for current substitute liabilities. Conversely, the selling/
operations but not with financial institutions borrowing NBQB in a repurchase agreement
which have been closed and are under covering eligible government securities may
receivership or liquidation. not use such securities as reserves against
For purposes of this Subsection, deposit substitute liabilities.
government securities eligible as reserves The reserve eligibility of government
against deposit substitute liabilities of NBQBs securities under the reverse repurchase
as referred to in Item "b(2)" above shall be operations of the BSP shall be suspended
limited to bonds or other evidences of during the term of the repurchase agreement.
indebtedness representing direct obligations The phrase non-reserve eligible shall be
of the government of the Republic of the stamped on the face of the custodian receipt
Philippines having the following minimum being issued by the BSP to buyer financial
features/conditions: institutions.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 7
§§ 4246Q.2 - 4246Q.3
04.12.31

§ 4246Q.2 Computation of reserve on other days of the same week, and shall
position. The reserve position of any NBQB be required to pay the penalty only on the
and the penalty on reserve deficiency shall average daily net deficiency during the week.
be computed based on a seven (7)-day week, In case of abuse, the NBQB shall
starting Friday and ending Thursday, automatically lose the privilege of offsetting
including Saturdays, Sundays, public special/ reserve deficiency in the aforesaid manner
legal holidays, non-business days, until such time that it maintains its daily
unexpected declared non-business days or reserve position at the required minimum for
declared half-day holidays and days when at least two (2) consecutive weeks.
there is no clearing: Provided, That with As used in this Subsection, abuse in the
reference to public special/legal holidays, privilege of offsetting reserve deficiencies
non-business nexpected declared non- against excess reserves shall mean having
business days, declared half-day holidays reserve deficiencies occurring four (4) or
and days when there is no clearing, the more times during any given week for two
reserve position as calculated at the close of (2) consecutive weeks, whether or not
the business day immediately preceding such resulting in net weekly deficiencies.
public special/legal holidays, non-business b. In cases where the NBQB has
days and unexpected declared non-business chronic reserve deficiency on deposit
day/s and declared half-day holidays and substitute liabilities, the Monetary Board may
days when there is no clearing, shall apply (1) limit or prohibit the making of new loans
thereon. For this purpose, the principal office or investments by the NBQB concerned; (2)
in the Philippines and all other offices located prohibit the declaration of cash dividends;
therein shall be treated as a single unit. and/or (3) impose such other sanctions, as it
The required reserves in the current may deem necessary. The board of directors
period (reference reserve week) shall be of such NBQB shall be notified of such
computed based on the corresponding levels chronic reserve deficiency and the penalties
of deposit substitute liabilities of the prior therefor, and shall be required to immediately
week. correct the reserve position of the NBQB.
As used in this Subsection, the
§ 4246Q.3 Reserve deficiencies; following terms shall have the following
sanctions meanings:
a. Whenever the reserve position of Chronic reserve deficiency shall mean
any NBQB computed in the manner specified having net reserve deficiency for two (2)
in Subsec. 4246Q.2 is below the required consecutive weeks.
minimum, the NBQB concerned shall pay the New loan and new investment shall
BSP one-tenth of one percent (1/10 of 1%) refer to any loan and any investment
per day on the amount of the deficiency or involving disbursement of funds.
the prevailing ninety-one (91)- day Treasury c. Fines on legal reserve deficiencies
Bill rate plus three (3) percentage points, on deposit substitute liabilities shall be paid
whichever is higher: Provided, however, by the NBQB in accordance with Sec. 4653Q:
That the NBQB shall be permitted to offset Provided, That where the credit balance of
any reserve deficiency occurring one (1) or the NBQB's demand deposit account with the
more days of the week covered by the report BSP is insufficient and it fails to settle the
against excess reserves which it may hold assessment within fifteen (15) days from

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Part II - Page 8
§§ 4246Q.3 - 4255Q
04.12.31

receipt, the Monetary Board may limit or § 4246Q.8 Guidelines in calculating and
prohibit the making of new loans or reporting to the BSP the required reserves
investments by the NBQB. on deposit substitutes evidenced by
repurchase agreements covering
§ 4246Q.4 Exemptions. Certificates government securities
of assignment issued with recourse by a. The Supervisory Data Center (SDC)
NBQBs under the IGLF Program are not shall determine the maximum allowable
covered by the reserve requirements. amount of REPOs covering government
securities that will qualify for the reduced
§ 4246Q.5 Matured and unclaimed statutory reserve requirements of two percent
deposit substitutes. Matured and unclaimed (2%). It shall be based on the amount
deposit substitutes shall continue to be reported by quasi-banks in their weekly
subject to reserves. Consolidated Daily Report of Condition. The
adjusted Tier 1 capital reported daily should
§ 4246Q.6 Book entry method for approximate the quarterly adjusted Tier 1
reserve securities. Transactions concerning capital as submitted by banks in compliance
reserve-eligible securities shall be entered in with the provisions of Sec. 4116Q.
the respective securities account of each b. Any material differences that may be
NBQB with the BSP and shall be evidenced noted by the SDC between the daily and the
by securities account debit or credit advices quarterly report shall be considered as
to be promptly furnished the institution/s erroneous reporting and shall be subject to
concerned. No certificates shall be issued the penalties under existing regulations. The
for any purpose. Transactions with third SDC shall also make a re-run of its
parties other than the BSP shall not be computation of the quasi-bank’s reserve
recognized. position and in the event that the reserve
position resulted to a reserve deficiency/ies,
§ 4246Q.7 Interest income on reserve the corresponding penalties on reserve
deposit with Bangko Sentral. Deposits deficiencies shall also apply.
maintained by NBQBs with the BSP up to c. The lagged system in the
forty percent (40%) of their reserve measurement of a quasi-bank’s reserve
requirement (excluding the percentage of requirement, as provided in Subsec.
liquidity reserves required on deposit 4246Q.2, shall also be adopted in the
substitute liabilities of NBQBs under Sec. calculation of the two percent (2%) statutory
4246Q) shall be paid interest at four percent reserve requirements for REPOs covering
(4%) per annum based on the average daily government securities.
balance of said deposits to be credited d. Deposit substitutes evidenced by
quarterly. repurchase agreements covering government
The computation of quarterly interest securities in excess of the adjusted Tier 1
payments credited to the quasi-banks’ capital shall be treated as regular deposit
demand deposit accounts (DDAs) with BSP substitutes and shall be subject to the regular
are shown in Appendix Q-27. statutory and liquidity reserve requirements
Effective July 1, 2003, published interest under existing regulations.
rates that will be applied on BSP’s Regular
DDAs of quasi-banks shall be inclusive of the Secs. 4247Q - 4255Q (Reserved)
ten percent (10%) Value Added Tax (VAT).

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part II - Page 9
§§ 4256Q - 4299Q
04.12.31

I. (RESERVED) moneys of every sort, whether pertaining to


the National Government, province, city,
Secs. 4256Q - 4275Q (Reserved) municipality, or other branch or agency of
the Government, including government-
owned or controlled corporations as defined
herein, and shall comprise "revenue funds",
J. BORROWINGS FROM THE "trust funds", and "depository funds" as these
BANGKO SENTRAL terms are defined in the Revised
Administrative Code of 1987, and deposits
Sec. 4276Q Repurchase Agreements with of, borrowings from, and all other liabilities
the Bangko Sentral. Repurchase agreements to, the Government and government entities.
with the BSP under its open market b. Government-owned or controlled
operations shall be governed by the corporations shall refer to government-
provisions of Sec. 4602Q. owned or controlled corporations which are
created by special laws. It shall exclude
Secs. 4277Q - 4280Q (Reserved) government financial institutions such as the
Development Bank of the Philippines, Land
Bank of the Philippines and Al-Amanah
K. OTHER BORROWINGS Islamic Investment Bank of the Philippines,
corporations which are organized as
Sec. 4281Q Borrowings from the subsidiaries of government-owned or
Government. NBQBs shall not borrow any controlled corporations under the provisions
fund or money from the Government and of the Corporation Law (Act No. 1459, as
government entities, through the issuance or amended) or the Corporation Code (BP Blg.
sale of its acceptances, notes or other 68) and private corporations which are taken
evidence of debt, except as may be over by government-owned or controlled
authorized by existing statutes. corporations.

§ 4281Q.1 Definition of terms. For Secs. 4282Q - 4298Q (Reserved)


purposes of this Section, the following terms
shall have the meaning indicated unless the Sec. 4299Q General Provision on Sanctions
context clearly indicates otherwise: Any violation of the provisions of this Part
a. Fund or money from the Government shall be subject to Sections 36 and 37 of R.A.
and government entities includes public No. 7653.

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Part II - Page 10
§ 4301Q
02.12.31

PART THREE

LOANS, INVESTMENTS AND SPECIAL CREDITS

Section 4301Q Management of Risk Assets/ indorsers, sureties and/or guarantors are
Minimum Guidelines on Lending capable of fulfilling their commitments. For
Operations. It shall be the responsibility of this purpose, credit investigations must be
the board of directors of an NBQB to conducted and appropriate statements of
formulate written policies on the extension assets and liabilities and of income and
of credit and risk diversification and to set expenditures shall be required of credit
the guidelines for evaluation of risk assets. applicants.
Well-defined lending policies and sound d. Amounts, purpose and terms of
lending practices are essential if an NBQB is credit accommodations. Loans/credit
to perform its credit-extension function accommodations shall be granted only in
effectively and minimize the risk inherent in amounts and for periods necessary for the
any extension of credit. The responsibility completion of the operations to be financed,
should be approached in a way that will and for purposes which are attuned to
provide assurance to the public, the government economic policies. The amount
stockholders and supervisory authorities that and period of the loan shall be justified by
timely and adequate action will be taken to the financial statements submitted or by
maintain the quality of the loan portfolio and specific feasibility/project studies for a
other risk assets. particular operation to be financed by the
a. Requirement of lending policies loan applied for.
NBQB s shall have well-defined lending e. Documentation of loans. All loans/
policies which shall ensure that lending shall credit extensions shall be supported by
be upon terms which are in the best interest evidences of indebtedness and/or loan
of the institution and in accordance with agreements which shall contain, among other
existing policy, rules and regulations of the things, a statement of the purpose of the loan
Monetary Board. Such policies shall be in and a program of repayment of the
writing to form part of the institution’s obligation.
permanent records and shall be made f. Credit files. Adequate credit files
available for inspection by the Bangko of borrowers shall be maintained which shall
Sentral. contain documents such as credit
b. Lending operations, definition investigation reports, balance sheets,
Lending operations refer to any credit statements of assets and liabilities, income
accommodation and purchase of receivables and expense statements, income tax returns,
and commercial papers, including purchase bank and trade checkings, and other
of commercial papers in the secondary documents/papers showing information
market. which form the bases for the credit ex-
c. Creditworthiness of borrowers tension.
Before extending credit in any form, the g. Periodic review. A periodic review
NBQB must exercise proper caution to of the loan portfolio and the credit standing
ascertain that the debtors, co-makers, of borrowers shall be made.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 1
§§ 4301Q - 4301Q.6
04.12.31

h. Arm’s length transactions. An diversification strategies. Safeguarding


NBQB shall not relend to or purchase against credit risk concentrations should form
receivables or other obligations of other an important component of a quasi-bank’s
corporations, majority of the voting stock of risk management system.
which is owned by subject corporation, (5) The board of directors of a quasi-
unless the terms of the transactions are not bank shall be responsible for establishing and
more favorable than those of other similar monitoring compliance with policies
transactions. governing large exposures and credit risk
concentrations of the quasi-bank. The board
§§ 4301Q.1 - 4301Q.5 (Reserved) should review these policies regularly (at
least annually) to ensure that they remain
§ 4301Q.6 Large exposures and credit adequate and appropriate for the quasi-bank.
risk concentrations. The following guidelines Subsequent changes to the established
shall govern managing large exposures and policies must be approved by the board.
credit risk concentrations in line with the (6) The policy on large exposures and
objective of strengthening risk management credit risk concentrations shall, at a
in the quasi-banking system. minimum, cover the following:
a. General principles (a) Exposure limits that are reasonable
(1) A quasi-bank can be exposed to in relation to capital and resources for –
various forms of credit risk concentration i. Various types of borrowers/
which if not properly managed may cause counterparties (e.g. government, banks and
significant losses that could threaten its other financial institutions, corporate and
financial strength and undermine public individual borrowers);
confidence in the quasi-bank. ii. A group of related borrowers/
(2) Credit risk concentrations may arise counterparties;
from excessive exposures to individual iii. Individual industry sectors;
counterparties, groups of related iv. Individual countries; and
counterparties and groups of counterparties v. Various types of investments.
with similar characteristics (e.g. (b) The circumstances in which the
counterparties in specific geographical above limits can be exceeded and the party
locations, economic or industry sectors). authorized to approve such excesses, e.g. the
(3) Diversification of risk is essential in quasi-bank’s board of directors or credit
quasi-banking. Many past quasi-bank failures committee with delegated authority from the
have been due to credit risk concentrations board;
of some kind. It is essential for quasi-banks (c) The delegation of credit authority
to prevent undue credit risk concentrations within the quasi-bank for approving large
from excessive exposures to particular exposures;
counterparties, industries, economic sectors, (d) The procedures for identifying,
regions or countries. reviewing, managing and reporting large
(4) While concentration of credit risks exposures of the quasi-bank;
are inherent in quasi-banking and cannot be (e) The definition of exposure. Quasi-
totally eliminated, they can be limited and banks should take into account the nature
reduced by adopting proper risk control and of their business and the complexity of their

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Part III - Page 2
§ 4301Q.6
04.12.31

products. In any case, a quasi-bank’s reporting systems that enable management


exposures to a counterparty should include to identify credit risk concentrations within
its on and off-balance sheet exposures and the asset portfolio of the quasi-bank or of the
indirect exposures; and group (including subsidiaries and overseas
(f) The criteria to be used for identifying branches) on a timely basis. If a concentration
a group of related persons; does exist, quasi-banks should reduce it in
(7) The board and senior management accordance with their prescribed policies.
of a quasi-bank should ensure that: Large exposures shall be subject to more
(a) Adequate systems and controls are intensive monitoring.
in place to identify, measure, monitor and (3) Quasi-banks should ensure that their
report large exposures and credit risk internal or external auditors conduct at least
concentrations of the quasi-bank in a timely an annual review of the quality of large
manner; and exposures and controls to safeguard against
(b) Large exposures of the quasi-bank credit risk concentrations. Their review
are kept under regular review. “Large should ascertain whether:
exposures” shall refer to exposures to a (a) The quasi-bank’s relevant policies,
counterparty or a group of related limits and procedures are complied with; and
counterparties equal or greater than five (b) The existing policies and controls
percent (5%) of quasi-bank’s qualifying remain adequate and appropriate for the
capital as defined under Section 4116Q. quasi-bank’s business.
(8) A quasi-bank should, where (4) Management should take prompt
appropriate, conduct stress testing and corrective action to address concerns and
scenario analysis of its large exposures to exceptions raised.
assess the impact of changes in market (5) There should also be an independent
conditions or key risk factors (e.g. economic compliance function to ensure that all
cycles, interest rate, liquidity conditions or relevant internal and prescribed requirements
other market movements) on its profile and and limits are complied with. Breaches of
earnings. prescribed requirements and deviations from
(9) It is expected that quasi-banks would established policies and limits should be
generally observe a lower internal single reported to senior management in a timely
borrower’s limit than the prescribed limit of manner.
twenty-five percent (25%) as a matter of c. Unsafe and unsound practice
sound practice. Non-observance of the principles and the
b. Monitoring of large exposures/ credit requirements of Items “a” and “b” above may
risk concentrations be a ground for a finding of unsafe and
(1) Quasi-banks should have a central unsound practice under Section 56 of the
liability record (preferably based on General Banking Law of 2000 (Appendix Q-
automated system) for each loan exposure. 24) and may be subject to appropriate
Quasi-banks should be able to monitor such sanction as may be determined by the
exposures against prescribed and internal Monetary Board.
limits on a daily basis. d. Notification requirements
(2) Every quasi-bank should have A quasi-bank must inform BSP
adequate management information and immediately where it has concerns that its

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 2a
§§ 4301Q.6 - 4302Q.2
04.12.31

large exposures or credit risk concentrations § 4302Q.1 Provisions for losses;


have the potential to impact materially upon booking. The board of directors of quasi-
its capital adequacy, along with proposed banks are responsible for ensuring that their
measures to address these concerns. institutions have controls in place to
e. Reporting determine the allowance for probable losses
Quasi-bank’s records on monitoring of on loans, other credit accommodations,
large exposures shall be made available to advances and other assets consistent with the
the BSP examiners for verification at any institutions’ stated policies and procedures,
given time. When warranted, the BSP may generally accepted accounting principles
impose additional reporting requirements on (GAAP), the BSP rules and regulations and
quasi-bank in relation to its large exposures the safe and sound banking practices. The
and credit risk concentrations. board of directors, in fulfilling this
f. Sanction responsibility, shall require management to
Any failure or delay in complying with develop and maintain an appropriate,
the requirements under Items “d” and “e” of systematic and uniformly applied process
this Subsection shall be subject to penalty consistent and in compliance with existing
applicable to those involving major reports. BSP rules and regulations to determine the
amount of reserves for bad debts or doubtful
Sec. 4302Q Loan Portfolio and Other Risk accounts or other contingencies.
Assets Review System. To ensure that timely The specific allowance for probable
and adequate management action is taken losses for classified loans and other risk assets
to maintain the quality of the loan portfolio and the general loan loss provision as
and other risk assets and that adequate loss required in Appendix Q-10 shall be set up
reserves are set up and maintained at a level immediately.
sufficient to absorb the loss inherent in the
loan portfolio and other risk assets, NBQBs § 4302Q.2 Sanctions. Non-compliance
shall establish a system of identifying and with the requirement to book the valuation
monitoring existing or potential problem reserves required under the preceding
loans and other risk assets and of evaluating Subsection shall be a ground for the
credit policies vis-a-vis prevailing imposition of any or all of the following
circumstances and emerging portfolio trends. sanctions:
Management must also recognize that loss a. Denial of requests for authority to
reserve is a stabilizing factor and that failure establish branches/offices; and
to account appropriately for losses or make b. Fine of P5,000 a day, counted as
adequate provisions for estimated future follows:
losses may result in misrepresentation of the (1) from the date the NBQB was
NBQB’s financial condition. informed that the recommendation of the
The system of identifying and appropriate supervising and examining
monitoring problem loans and other risk department of the BSP was confirmed by the
assets and setting up of allowance for Monetary Board up to the date that said
probable losses shall include, but is not recommended valuation reserves were
limited to, the guidelines in actually booked, in case of the allowance
Appendix Q-10. for probable losses for loans and other risk

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Part III - Page 2b
§§ 4302Q.2 - 4305Q
04.12.31

assets classified as Substandard (Unsecured), losses, the twenty-five percent (25%)


Doubtful and Loss as required by the BSP; allowance for probable losses on secured
and loans classified as Substandard, and the five
(2) from the dates prescribed under the percent (5%) allowance for probable losses
preceding Subsection up to the date of the on Loans Especially Mentioned.
actual booking in cases of the two percent
(2%) general provision for probable loan Secs. 4303Q - 4305Q (Reserved)

(Next page is Part III - Page 3)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 2c
§§ 4306Q - 4306Q.3
03.12.31

A. LOANS IN GENERAL include, in the case of liabilities of a


corporation, all liabilities of its subsidiaries:
Sec. 4306Q Loan Limit to a Single Provided, That even in cases where the
Borrower. The total liabilities of any person, p a r e n t corporation, co-partnership or
company, corporation or firm, to a quasi- association has no liability to the NBQB, the
bank for money borrowed, excluding (a) liabilities of subsidiary corporations or
loans secured by obligations of the BSP or of members of the co-partnership or association
the Philippine Government; (b) loans fully shall be combined for purposes of the single
guaranteed by the government as to the borrower’s limit (SBL).
payment of principal and interest; (c) loans
fully secured by US Treasury Notes and other § 4306Q.1 Exclusions from loan limit
securities issued by central governments and In addition to those enumerated in Sec.
central banks of foreign countries with the 4306Q, the total liabilities of a commercial
highest credit quality given by any two (2) paper issuer for commercial papers held by
internationally accepted rating agencies; (d) an NBQB as a firm underwriter shall not be
loans to the extent covered by the hold-out counted in determining compliance with the
on or assignment of, deposits maintained in SBL within a period of 180 days from the
the lending quasi-bank and held in the acquisition of the commercial paper by an
Philippines; (e) loans and acceptances under NBQB: Provided, That in no case shall such
letters of credit to the extent covered by liabilities exceed five percent (5%) of the net
margin deposits; and (f) other loans or credits worth of the selling agent beyond the normal
which the Monetary Board may, from time applicable SBL.
to time, specify as non-risk assets, shall at no
time exceed twenty-five percent (25%) of the § 4306Q.2 Contingent liabilities
combined capital accounts as defined in Sec. included in loan limit. Outstanding foreign
4106Q. and domestic standby and deferred letters of
The total liabilities of any borrower may credit less margin deposits, and outstanding
amount to a further fifteen percent (15%) of guarantees, the nature of which requires the
the combined capital accounts of such NBQB: guarantor to assume the liabilities/obligations
Provided, That the additional liabilities are of third parties in case of their inability to
adequately secured by real estate mortgage, pay, shall be included in determining the SBL
assignment or pledge of readily marketable except those fully secured by cash, hold-out
bonds and other high-grade debt securities, on deposit substitutes, or government
except those issued by the lending entity. securities.
For purposes of this Section, the term
liabilities shall mean the direct liability of the § 4306Q.3 Sanctions. Violations of
maker or acceptor of paper discounted with the provisions of the foregoing rules shall be
or sold to such NBQB and the liability of the subject to the following sanctions/penalties:
indorser, drawer or guarantor who obtains a a. Fines. Fines of one-tenth of one
loan from or discounts paper with or sells percent (1/10 of 1%) of the excess but not to
papers under his guaranty to such NBQB and exceed P30,000 a day for each violation,
shall include in the case of liabilities of a co- reckoned from the date the excess started up
partnership or association, the liabilities of to the date when such excess was eliminated,
the several members thereof and shall shall be assessed on the NBQB.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 3
§§ 4306Q.3 - 4307Q.4
03.12.31

b. Other Sanctions received by such banks, of P100,000 and


First Offense over per transaction account, with maturities
Reprimand for the directors/officers corresponding to the interest periods for
who approved the credit line or availment which such MRRs are being determined.
which resulted in the excess with a warning Such rates and the composition of the sample
that subsequent violations will be subject to commercial banks shall be reviewed and
more severe sanctions. determined at the beginning of every
Subsequent Offenses calendar semester on the basis of the banks’
(1) For the duration of each violation, combined levels of outstanding deposit
imposition of a fine of P500 a day for each substitutes and time deposits as of May 31
of the directors/officers who approved the or November 30, as the case may be.
credit line or availment which resulted in an The rate of interest on floating rate loans
excess. existing and outstanding as of December 23,
(2) Suspension of the NBQB from 1995 shall continue to be determined on the
branching privileges until the excess is basis of the MRRs obtained in accordance
eliminated. with the provisions of the rules existing as of
January 1, 1989: Provided, however, That the
Sec. 4307Q Interest and Other Charges parties to such existing floating rate loan
The following rules shall govern the rates of agreement are not precluded from amending
interest on loans by NBQBs. or modifying their loan agreements by
adopting a floating rate of interest determined
§ 4307Q.1 Rate ceilings. The rate of on the basis of TBR or other market-based
interest, including commissions, premiums, reference rates.
fees and other charges on loan transactions, Where the loan agreement provides for
regardless of maturity and whether secured a floating interest rate, the interest period,
or unsecured, shall not be subject to any which shall be such period of time for which
ceiling. the rate of interest is fixed, shall be such
period as may be agreed upon by the parties.
§ 4307Q.2 Floating rates of interest
The rate of interest on a floating rate loan § 4307Q.3 Effect of prepayment. If
during each interest period shall be stated there is no agreement on the rebate of interest
based on the Manila Reference Rate (MRR), in the event of prepayment of the loan, the
Treasury Bill Rate (TBR) or other market-based NBQB is not under any legal obligation to
reference rates, plus a margin as may be return the interest corresponding to the
agreed upon by the parties. period from date of prepayment to the
The MRRs for various interest periods stipulated maturity date of the loan. Any
shall be determined and announced by the prepayment made by the debtor should not,
BSP every week and shall be based on the therefore, affect computation of the effective
weighted average of the interest rates paid rate stipulated in the loan contract.
during the immediately preceding week by
the ten (10) commercial banks with the § 4307Q.4 Loan prepayment. The
highest combined levels of outstanding borrower of an NBQB shall not be prohibited
deposit substitutes and time deposits, in from prepaying a loan. A stipulation
promissory notes issued and time deposits requiring the consent of the lending NBQB

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Part III - Page 4
§§ 4307Q.4 - 4307Q.5
03.12.31

to such prepayment shall be contrary to this subject to penalty: Provided, That the penalty
provision. In case of prepayment in the loan is not excessive or unconscionable.
contract, such prepayment shall not be
subject to penalty in the absence of any § 4307Q.5 Escalation clause; when
stipulation as to penalty. However, the parties allowable. Parties to an agreement pertaining
may stipulate that prepayment shall be to a loan or forbearance of money, goods or

(Next page is Part III - Page 5)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 4a
§§ 4307Q.5 - 4308Q
99.12.31

credits may stipulate that the rate of interest That there is no previously accrued but
agreed upon may be increased in the event uncollected interest thereon.
that the applicable maximum rate of interest Interest income on restructured loans
is increased by law or by the Monetary Board: (principal plus capitalized interest thereon)
Provided, That such stipulation shall be valid may be accrued: Provided, That these are:
only if there is also a stipulation in the (1) In current status; and
agreement that the rate of interest agreed (2) Fully secured by real estate with
upon shall be reduced in the event that the loan value of up to sixty percent (60%) of
applicable maximum rate of interest is the appraised value of the real estate security
reduced by law or by the Monetary Board: and the insured improvements thereon, and
Provided, further, That the adjustment in the such other first class collaterals as may be
rate of interest agreed upon shall take effect deemed appropriate by the Monetary Board.
on or after the effectivity of the increase or c. Accrued interest earned but not yet
decrease in the maximum rate of interest. collected/received shall not be considered
as profits and/or earnings eligible for
§ 4307Q.6 Rate of interest in the dividend declaration and/or profit sharing.
absence of stipulation. The rate of interest d. A contra account to be designated
for the loan or forbearance of any money, Allowance for Uncollected Interest on Loans
goods or credit and the rate allowed in shall be set up in accordance with Appendix
judgments, in the absence of express contract 10 if accrued interest receivable on loans
as to such rate of interest, shall be twelve or loan installments is still uncollected after
percent (12%) per annum. three (3) months from the date such loans
and loan installments have matured or have
become non-performing.
§ 4307Q.7 Accrual of interest earned e. The amount representing
on loans. NBQBs are allowed to accrue Allowance for Uncollected Interest on Loans
interest earned on loans, subject to the may be chargeable against the excess of
following guidelines and/or procedures. outstanding valuation reserves for loans and
a. No accrual of interest income is other risk assets as appearing in the NBQB’s
allowed if a loan has become non-performing books over those recommended by the
as defined in Sec. 4311Q. Likewise, interest appropriate supervising and examining
income shall not be accrued for unmatured department of the BSP. The balance thereof,
loans/receivables with indications that if any, shall be chargeable against operations.
collectibility thereof has become doubtful. f. For all purposes, the Allowance for
These indications include declaration of Uncollected Interest on Loans shall be consi-
bankruptcy, insolvency, cessation of dered a valuation reserve/allowance against
operations, or such other conditions of the Accrued Interest Receivable account.
financial difficulties or inability to meet
financial obligations as they mature. Separate Sec. 4308Q Past Due Accounts. Past due
appropriate records shall be maintained for accounts of an NBQB shall, as a general rule,
these non-accruing unmatured loans. refer to all accounts in its loan portfolio, all
Interest on non-performing loan receivable components of trading account
accounts shall be taken up as income only securities and other receivables, as defined
when actual payments thereon are received. in the manual of accounts for non-bank
b. Interest earned on an extended or financial institutions, which are not paid at
renewed loans may be accrued: Provided, maturity.

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Part III - Page 5
§§ 4308Q.1 - 4308Q.4
02.12.31

§ 4308Q.1 Accounts considered past Provided, however, That when the total
due. The following shall be considered as amount of arrearages reaches twenty percent
past due: (20%) of the total outstanding balance of the
a. Loans or receivables payable on loan/receivable, the total outstanding balance
demand - if not paid on the date indicated of the loan/receivable shall be considered as
on the demand letter, or within three (3) past due, regardless of the number of
months from date of grant, whichever comes installments in arrears: Provided, further,
earlier; That for modes of payment other than those
b. Bills discounted and time loans, listed above (e.g. daily, weekly or semi-
whether or not representing availments monthly), the entire outstanding balance of
against a credit line - if not paid on the the loan/receivable shall be considered as
respective maturity dates of the promissory past due when the total amount of arrearages
notes; reaches ten percent (10%) of the total loan/
c. Customers’ liability on drafts under receivable balance;
letters of credit/trust receipts: For this purpose, the term “installments”
(1) Sight Bills - if dishonored upon shall refer to principal and/or interest
presentment for payment or not paid within amortizations that are due on several dates
thirty (30) days from date of original entry, as indicated/specified in the loan documents.
whichever comes earlier; f. Credit card receivables - if the
(2) Usance Bills - if dishonored upon amount due is not paid within ten (10) days
presentment for acceptance or not paid on from the deadline indicated in the billing
due date, whichever comes earlier; and statement; and
(3) Trust Receipts - if not paid on due g. (Deleted by Circular No. 202 dated
date. 5.27.99.)
d. Bills and other negotiable For the purpose of determining
instruments purchased - if dishonored upon delinquency in the payment of obligations
presentment for acceptance/payment or not as defined in Subsec. 4143Q.1(e), any due
paid on maturity date, whichever comes and unpaid loan installment or portion
earlier: Provided, however, That an out-of- thereof, from the time the obligor defaults,
town check and a foreign check shall be shall be considered as past due.
considered as past due if outstanding for thirty
(30) days and forty-five (45) days, § 4308Q.2 Renewal/extension. No
respectively, unless earlier dishonored; loan shall be renewed nor its maturity date
e. Loans/receivables payable in extended unless the corresponding accrued
installments - the total outstanding balance interest receivable shall have been paid.
thereof shall be considered past due in
accordance with the following schedule: § 4308Q.3 Restructured loans. A
Minimum Number restructured loan shall be immediately
of Installments classified past due in case of default of any
Mode of Payment in Arrears principal or interest payment.
Monthly 3
Quarterly 1 § 4308Q.4 Demand loans. NBQBs
Semestral 1
shall, in case of non-payment of a demand
Annual 1
loan, make a written demand within three

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Part III - Page 6
§§ 4308Q.4 - 4309Q
04.12.31

(3) months following the grant of such loan. (3) Advances. The term advances shall
The demand shall indicate a period of refer to any advance by means of an
payment which shall not be later than three incidental or temporary overdraft, cash
(3) months from the date of said demand. “vale”, any advance by means of DAUD and
any advances of unearned salary or unearned
§ 4308Q.5 Write-off of loans as bad compensation.
debts (4) Other assets. The term other assets
a. Quasi-banks, upon approval by their shall refer to investments, placements,
board of directors, may write-off loans, other ROPOAs and all other asset accounts that will
credit accommodations, advances and other not fall under loans and other credit
assets against allowance for probable losses accommodations.
(valuation reserves) or current operations as (5) Bad debts. The term bad debts shall
soon as they are satisfied that such loans, refer to the definition under Subsec. 4126Q.1.
other credit accommodations, advances and c. Reporting requirements. Notice of
other assets are worthless as follows: write-off of loans, other credit
(1) In the case of secured loans, quasi- accommodations, advances and other assets
banks may write-off loans, other credit shall be submitted in the prescribed form to
accommodations and other assets in an the supervising and examining department
amount corresponding to the booked concerned at least twenty five (25) banking
valuation reserves: Provided, That the days prior to the intended date of write-off.
balance of the secured loans, other credit The income tax expense deferred
accommodations, advances and other assets corresponding to the amount of loan, other
shall remain in the books. credit accommodation, advances and other
(2) In the case of unsecured loans, other asset written-off considered deductible for
credit accommodations, advances and other income tax purposes shall be recognized and
assets, quasi-banks shall write-off said loans, reversed in quasi-bank’s books.
other credit accommodations, advances and
other assets in full amount outstanding. Sec. 4309Q “Truth in Lending Act”
However, write-off of loans, other credit Disclosure Requirement. NBQBs are
accommodations, advances and other assets required to strictly adhere to the provisions
considered transactions with DOSRI shall be of R.A. No. 3765, otherwise known as the
with prior approval of the Monetary Board. “Truth in Lending Act”, and shall make the
b. Definitions. For purposes of this true and effective cost of borrowing an
Section, the following terms are hereby integral part of every loan contract.
defined as follows: The following regulations shall apply to
(1) Loans. The term loans shall refer to all NBQBs engaged in the following types of
all the accounts under the loan portfolio of a credit transactions:
quasi-bank as enumerated in the Manual of a. Any loan, mortgage, deed of trust,
Accounts for Quasi-Banks. advance and discount;
(2) Other credit accommodations. The b. Any conditional sales contract, any
term other credit accommodations shall refer contract to sell, or sale or contract of sale of
to exposures of quasi-banks other than loans property or services, either for present or
such as sales contract receivables, accounts future delivery, under which part or all of the
receivables, accrued interest receivables, price is payable subsequent to the making of
lease receivables, and rental receivables. such sale or contract;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 7
§§ 4309Q - 4309Q.1
04.12.31

c. Any rental-purchase contract; c. Down payment represents the


d. Any contract or arrangement for the amount paid by the debtor at the time of the
hire, bailment, or leasing of property; transaction in partial payment for the
e. Any option, demand, lien, pledge, property or service purchased.
or other claim against, or for delivery of d. Trade-in represents the value of an
property or money; asset agreed upon by the NBQB and debtor,
f. Any purchase, or other acquisition given at the time of the transaction as partial
of, or any credit upon the security of, any payment for the property or service
obligation or claim arising out of any of the purchased.
foregoing; and e. Non-finance charges correspond to
g. Any transaction or series of trans- the amounts advanced by the NBQB for
actions having a similar purpose or effect. items normally associated with the
The following categories of credit ownership of the property or the availment
transactions are outside the scope of these of the service purchased which are not
regulations: incidental to the extension of credit. For
(1) Credit transactions which do not example, in the case of the purchase of an
in-volve the payment of any finance charge automobile on credit, the NBQB may
by the debtor; and advance the insurance premium as well as
(2) Credit transactions in which the the registration fee for the account of the
debtor is the one specifying a definite and debtor.
fixed set of credit terms such as bank deposits, f. Amount to be financed consists of
insurance contracts, sale of bonds, etc. the cash price plus non-finance charges less
the amount of the down payment and value
§ 4309Q.1 Definition of terms of the trade-in.
a. Person means any individual, g. Finance charge represents the
partnership, corporation, association, or other amount to be paid by the debtor incidental
organized group of persons, or the legal to the extension of credit such as interest or
successor or representative of the foregoing, discount, collection fee, credit investigation
and includes the Philippine Government or fee, attorney’s fee and other service charges.
any agency thereof, or any other government, The total finance charge represents the
or any of its political subdivisions, or any difference between (i) the aggregate
agency of the foregoing. consideration (down payment plus
b. Cash price or delivered price, in case installments) on the part of the debtor, and
of trade transactions, is the amount of money (ii) the sum of the cash price and non-finance
which would constitute full payment upon charges.
delivery of the property (except money) or h. Simple annual rate is the uniform
service purchased at the NBQB’s place of percentage which represents the ratio, on
business. In the case of financial transactions, an annual basis, between the finance
cash price represents the amount of money charges and amount to be financed.
received by the debtor upon consummation In the case of single payment
of the credit transaction, net of finance upon maturity, the simple annual rate (R)
charges collected at the time the credit is in percent is determined by the following
extended, if any. method:

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Part III - Page 8
§§ 4309Q.1 - 4309Q.2
04.12.31

R= finance charge x 12 x 100 charges shall, however, be indicated in the


amount to be maturity period credit contract.
financed in months

In the case of the normal installment § 4309Q.2 Information to be disclosed


type of credit of at least one (1) year in NBQBs shall furnish to each person to whom
duration, where installment payments of credit is extended, prior to the consummation
equal amount are made in regular time of the transaction, a clear statement in writing
periods spaced not more than one (1) year setting forth the following information:
apart, the R in percent is computed by the a. The cash price or delivered price
following method: of the property or service to be acquired;
number of b. The amounts, if any, to be credited
payments as down payment and/or trade-in;
R = 2 x finance charge x in a year x 100
c. The difference between the
amount to be total number
financed of payments amounts set forth under Items "a" and "b";
plus one d. The charges, individually itemized,
which are paid or to be paid by such person
In cases where the credit matures in less in connection with the transaction but which
than one (1) year (e.g., installment payments are not incident to the extension of credit;
are required every month for six (6) months), e. The total amount to be financed;
the same formula will apply except that f. The finance charges expressed in
number of payments in a year would refer terms of pesos and centavos; and
to the number of installment periods, as g. The percentage that the finance
defined in the credit contract, as if the credit charge bears to the total amount to be
matures in one (1) year. For example, financed expressed as a simple annual rate
number of payments in a year would be on the outstanding unpaid balance of the
twelve (12) for this purpose in cases where obligation.
six (6) monthly installment payments are The contract covering the credit
called for in the credit transaction.1 In cases transaction, or any other document to be
where credit terms provide for premium or acknowledged and signed by the debtor,
penalty charges depending on, for instance, shall indicate the above seven (7) items of
the timeliness of the debtor’s payments, information. In addition, the contract or
the annual rate to be disclosed in writing document shall specify additional charges,
shall be the rate for regular payments, if any, which will be collected in case certain
i.e., the premium and penalty need not be stipulations in the contract are not met by
taken into account in the determination of the debtor.
the annual rate. Such premium or penalty

(Next page is Part III - Page 9)

--------------------------------------------------------------------------------

1
This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months
between installment payments.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 8a
§§ 4309Q.2 - 4311Q.4
02.12.31

In case the seven (7) items of b. In the case of loans payable in


information mentioned are not disclosed in monthly installments, the total outstanding
the contract covering the credit transaction, balance thereof shall be considered non-
all of the seven (7) items, to the extent performing when three (3) or more
applicable, shall be disclosed in another installments are in arrears.
document in the form (Appendix Q-11) c. In the case of loans payable in daily,
prescribed by the Monetary Board, to be weekly or semi-monthly installments, the
signed by the debtor and appended to the total outstanding balance thereof shall be
main contract. A copy of such disclosure considered non-performing at the same time
statement shall be furnished the borrower. that they become past due in accordance
with Sec. 4308Q, i.e., the entire outstanding
§ 4309Q.3 Inspection of contracts balance of the loan/receivable shall be
covering credit transactions. NBQBs shall considered as past due when the total
keep in their office or place of business amount of arrearages reaches ten percent
copies of contracts which involve the (10%) of the total loan/receivable balance.
extension of credit and the payment of d. Restructured loans shall be
finance charges therefor. Such copies shall considered non-performing in accordance
be available for inspection or examination with existing rules and regulations.
by the appropriate supervising and e. All items in litigation as defined in
examining department of the BSP. the Manual of Accounts shall be considered
non-performing loans.
§ 4309Q.4 Posters. An abstract of
R.A. No. 3765 (Appendix Q-12) shall be § 4311Q.2 Accrual of interest earned
reproduced in a format sixty (60) cm. wide on loans. No accrual of interest income is
and seventy-five (75) cm. long and posted allowed if a loan has become non-performing
on a conspicuous place in the NBQB’s as defined under Sec. 4351Q.1. Interest on
place(s) of business. non-performing loans shall be taken up as
income only when actual payment thereon
Sec. 4310Q (Reserved) is received.

Sec. 4311Q Non-Performing Loans § 4311Q.3 Allowance for uncollected


interest on loans. A contra account to be
§ 4311Q.1 Accounts considered non- designated Allowance for Uncollected
performing; definitions Interest on Loans shall be set up in
a. Non-performing loans shall, as a accordance with Appendix Q-10 if accrued
general rule, refer to loan accounts whose interest receivable on loans and loan
principal and/or interest is unpaid for thirty installments is still uncollected after three (3)
(30) days or more after due date or after they months from the date such loans have
have become past due in accordance with become non-performing.
existing rules and regulations. This shall
apply to loans payable in lump sum and loans § 4311Q.4 Reporting requirement
payable in quarterly, semi-annual or annual NBQBs shall report the following data at the
installments, in which case, the total end of each month as additional information
outstanding balance thereof shall be in the monthly Consolidated Statement of
considered non-performing. Condition starting with their report as of May
31, 1999.

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Part III - Page 9
§§ 4311Q.4 - 4337Q.1
04.12.31

Total non-performing loans xxx (CPA) and, in case he is engaged in business,


Non -performing regular loans xxx also a copy of the profit and loss statement
Non -performing restructured loans xxx duly certified by a CPA.
The above documents shall be required
Secs. 4312Q - 4320Q (Reserved) to be submitted annually for as long as the
credit accommodation is outstanding.

B. (RESERVED) § 4336Q.3 Signatories. NBQBs shall


require that credit accommodations against
Secs. 4321Q - 4335Q (Reserved) personal security be made under the
signature of the principal borrower and at
least one (1) co-maker, except in the case of
C. UNSECURED LOANS a principal borrower whose responsibility
and financial capacity are unquestionable in
Sec. 4336Q Loans Against Personal which case the signature of the borrower
Security. The following guidelines shall be shall suffice.
observed by NBQBs in the grant, renewal or
extension of unsecured loans. § 4336Q.4 Sanctions. NBQBs violating
the provisions of this Section may be
§ 4336Q.1 General guidelines. Before prohibited from extending additional credit
granting credit accommodations against accommodations against personal security.
personal security, NBQBs must exercise
proper caution by ascertaining that the Sec. 4337Q Credit Card Operations;
borrowers, co-makers, indorsers, sureties General Policy. The BSP shall foster the
and/or guarantors possess good credit development of consumer credit through
standing and are financially capable of innovative products such as credit cards
fulfilling their commitments to the NBQB. For under conditions of fair and sound consumer
this purpose, NBQBs shall keep records credit practices. The BSP likewise
containing information on the credit standing encourages competition and transparency to
and financial capacity of credit applicants. ensure more efficient delivery of services and
fair dealings with customers.
§ 4336Q.2 Proof of financial capacity Towards this end, the following rules and
of borrower. In addition to the usual regulations shall govern the credit card
personal information sheet about the operations of quasi-banks and subsidiary/
borrower, NBQBs shall require that an affiliate credit card companies, aligned with
application for a credit accommodation global best practices.
against personal security be accompanied by:
a. A copy of the latest income tax § 4337Q.1 Definition of terms
returns of the borrower and his co-maker duly a. Credit card. Means any card, plate,
stamped as received by the Bureau of Internal coupon book or other credit device existing
Revenue; and for the purpose of obtaining money,
b. If the credit accommodation property, labor or services on credit.
exceeds P500,000, a copy of the borrower’s b. Credit card receivables. Represents
balance sheet duly certified by an the total outstanding balance of credit
independent Certified Public Accountant cardholders arising from purchases of goods

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Part III - Page 10
§§ 4337Q.1 - 4337Q.2
04.12.31

and services, cash advances, annual (1) Ownership, control or power to vote,
membership/renewal fees as well as interest, whether by permanent or temporary proxy
penalties, insurance fees, processing/service or voting trust, or other similar contracts, by
fees and other charges. a quasi-bank or other financial institution of
c. Minimum amount due or minimum at least ten percent (10%) or more of the
payment required. Means the minimum outstanding voting stock of the entity, or vice-
amount that the credit cardholder needs to versa;
pay on or before the payment due date for a (2) Interlocking directorship or
particular billing period/cycle as defined officership, except in cases involving
under the terms and conditions or reminders independent directors as defined under
stated in the statement of account/billing existing regulations;
statement which may include: (1) total (3) Common stockholders owning at
outstanding balance multiplied by the least ten percent (10%) of the outstanding
required payment percentage or a fixed voting stock of each financial institution and
amount whichever is higher; (2) any amount the entity; or
which is part of any fixed monthly installment (4) Management contract or any
that is charged to the card; (3) any amount arrangement granting power to the quasi-
in excess of the credit line; and (4) all past bank or other financial institution to direct
due amounts, if any. or cause the direction of management and
d. Default or delinquency. Shall mean policies of the entity, or vice-versa.
non-payment of, or payment of any amount
less than, the “Minimum Amount Due” or § 4337Q.2 Risk management system. To
“Minimum Payment Required” within two safeguard their interests, quasi-banks and
(2) cycle dates, in which case, the “Total subsidiary/affiliate credit card companies are
Amount Due” for the particular billing period required to establish an appropriate system
as reflected in the monthly statement of for managing risk exposures from credit card
account may be considered in default or operations which shall be documented in a
delinquent. complete and concise manner. The risk
e. Acceleration clause. Shall mean any management system shall cover the
provision in the contract between the quasi- organizational set-up, records and reports,
bank and the cardholder that gives the quasi- accounting, policies and procedures and
bank the right to demand the obligation in internal control.
full in case of default or non-payment of Written policies, procedures and internal
any amount due or for whatever valid reason. control guidelines shall be established on the
f. Subsidiary refers to a corporation or following aspects of credit card operations:
firm more than fifty percent (50%) of the a. Requirements for application;
outstanding voting stock of which is directly b. Solicitation and application
or indirectly owned, controlled or held with processing;
the power to vote by a quasi-bank or other c. Determination and approval of credit
financial institution. limits;
g. Affiliate refers to an entity linked d. Pre-approved cards;
directly or indirectly to a quasi-bank or other e. Issuance, distribution and activation
financial institution through any one or a of cards;
combination of any of the following: f. Supplementary or extension cards;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 10a
§§ 4337Q.2 - 4337Q.4
04.12.31

g. Cash advances; All credit card applications, especially


h. Billing and payments; those solicited by third party representatives/
i. Deferred payment program or special agents, shall undergo a strict credit risk
installment plans; assessment process and the information
j. Collection of past due accounts; stated thereon validated and verified by
persons other than those handling marketing.
k. Handling of accounts for write-off;
l. Suspension, cancellation and § 4337Q.4 Information to be disclosed
withdrawal or termination of card; Quasi-banks or their subsidiary/affiliate credit
m. Renewal of cards, upgrade or card companies shall disclose to each person
downgrade of credit limit; to whom the credit card privilege is extended
n. Lost or stolen cards and their in the agreement, contract or any equivalent
replacement; document governing the issuance or use of
o. Accounts of DOSRI and employees; the credit card or any amendment thereto or
p. Disposition of errors and/or questions in such other statement furnished the
about the billing statement/statement of cardholder from time to time, prior to the
account and other customers’ complaints; imposition of the charges and to the extent
and applicable, the following information:
q. Dealings with marketing agents/ a. non-finance charges, individually
collection agents. itemized, which are paid or to be paid by
the cardholder in connection with the
§ 4337Q.3 Minimum requirements transaction but which are not incident to the
Before issuing credit cards, quasi-banks and/ extension of credit;
or their subsidiary/affiliate credit card b. the percentage that the interest bears
companies must exercise proper diligence by to the total amount to be financed expressed
ascertaining that applicants possess good as a simple monthly or annual rate, as the
credit standing and are financially capable case may be, on the outstanding balance of
of fulfilling their credit commitments. The net the obligation;
take home pay of applicants who are c. the effective interest rate per annum;
employed, the net monthly receipts of those d. for installment loans, the number of
engaged in trade or business, or the net worth installments, amount and due dates or
or cash flow inferred from deposits of those periods of payment schedules to repay the
who are neither employed nor engaged in indebtedness;
trade or business or the credit behavior e. the default, late payment/penalty fees
exhibited by the applicant from his other or similar delinquency-related charges
existing credit cards, or other lifestyle payable in the event of late payments;
indicators such as but not limited to club f. the conditions under which interest
memberships, ownership and location of may be imposed, including the time period,
residence and motor vehicle ownership shall within which any credit extended may be
be determined and used as basis for setting repaid without interest;
credit limits. The gross monthly income may g. the method of determining the
also be used provided reasonable deductions balance upon which interest and/or
are estimated for income taxes, premium delinquency charges may be imposed;
contributions, loan amortizations and other h. the method of determining the
deductions. amount of interest and/or delinquency

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Part III - Page 10b
§§ 4337Q.4 - 4337Q.9
04.12.31

charges, including any minimum or fixed § 4337Q.7 Deferral charges. The quasi-
amount imposed as interest and/or bank and the cardholder may, prior to the
delinquency charge; consummation of the transaction, agree in
i. where one (1) or more periodic rates writing to a deferral of all or part of one (1)
may be used to compute interest, each such or more unpaid installments and the quasi-
rate, the range of balances to which it is bank may collect a deferral charge which
applicable, and the corresponding simple shall not exceed the rate previously disclosed
annual rate; pursuant to the provisions on disclosure.
j. other fees, such as membership/
renewal fees, processing fees, collection fees, § 4337Q.8 Late payment/penalty fees
credit investigation fees and attorney’s fees; and No late payment or penalty fee shall be
k. for transactions made in foreign collected from cardholders unless the
currencies and/or outside the Philippines, for collection thereof is fully disclosed in the
dual currency accounts (peso and dollar contract between the issuer and the
billings), as well as payments made by credit cardholder: Provided, That late payment or
cardholders in any currency other than the penalty fees shall be based on the unpaid
billing currency: the application of payments; minimum amount due or a prescribed
the manner of conversion from the minimum fixed amount: Provided, further,
transaction currency and payment currency That said late payment or penalty fees may
to Philippine pesos or billing currency; be based on the total outstanding balance of
definition or general description of verifiable the credit card obligation, including amounts
blended exchange/conversion rates (e.g., payable under installment terms or deferred
MASTERCARD and/or VISA International payment schemes, if the contract between
rates on the day the item was processed/ the issuer and the cardholder contains an
posted to the billing statement, plus mark- “acceleration clause” and the total
up, if any) including conversion commission; outstanding balance of the credit card is
and/or other currency conversion charges classified and reported as past due.
and costs arising from the purchase by the
card company of foreign currency to settle § 4337Q.9 Confidentiality of
the customer’s transactions shall also be information. Quasi-banks and subsidiary/
disclosed. affiliate credit card companies shall keep
strictly confidential the data on the
§ 4337Q.5 Accrual of interest earned cardholder or consumer, except under the
Interest accrued and/or booked shall be following circumstances:
reversed and no accrual of interest shall be a. disclosure of information is with the
allowed ninety (90) days after the credit card consent of the cardholder or consumer;
receivable has become past due as defined b. release, submission or exchange of
in Subsec. 4308Q.1. customer information with other financial
institutions, credit information bureaus, credit
§ 4337Q.6 Finance charges. The card issuers, their subsidiaries and affiliates;
amount of finance charges in connection c. upon orders of court of competent
with any credit card transaction shall refer jurisdiction or any government office or
to interest charged to the cardholder. agency authorized by law, or under such

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Part III - Page 10c
§§ 4337Q.9 - 4337Q.13
04.12.31

conditions as may be prescribed by the § 4337Q.12 Offsets. For purposes of


Monetary Board; transparency and adequate disclosure, the
d. disclosure to collection agencies, credit card issuer shall inform/notify the credit
counsels and other agents of the quasi-bank cardholder in the agreement, contract or any
or card company to enforce its rights against equivalent document governing the issuance
the cardholder; or use of the credit card that, pursuant to the
e. disclosure to third party service provisions of Articles 1278 to 1290 of the
providers solely for the purpose of assisting New Civil Code of the Philippines, as
or rendering services to the quasi-bank or amended the use of his credit card will
card company in the administration of its subject his deposit/s with the quasi-bank to
credit card business; and offset against any amount/s due and payable
f. disclosure to third parties such as on his credit card which have not been paid
insurance companies, solely for the purpose in accordance with the terms of the
of insuring the quasi-bank from cardholder agreement/contract.
default or other credit loss, and the
cardholder from fraud or unauthorized § 4337Q.13 Handling of complaints
charges. Quasi-banks or subsidiary/affiliate credit card
companies shall give cardholders at least
§ 4337Q.10 Suspension, termination of twenty (20) calendar days from statement date
effectivity and reactivation. Quasi-banks or to examine charges posted in his/her
their subsidiary/affiliate credit card statement of account and inform the quasi-
companies shall formulate criteria or bank/subsidiary credit card companies in
parameters for suspension, revocation and writing of any billing error or discrepancy.
reactivation of the right to use the card and Within ten (10) calendar days from receipt
shall include in their contract with of such written notice, the quasi-bank/
cardholders a provision authorizing the subsidiary credit card company shall send a
issuer to suspend or terminate its effectivity, written acknowledgement to the cardholder
if circumstances warrant. unless the action required is taken within
such ten (10)-day period.
§ 4337Q.11 Inspection of records Not later than two (2) billing cycles or
covering credit card transactions. Quasi- two (2) months which in no case shall exceed
banks or their subsidiary/affiliate credit card ninety (90) days after receipt of the notice
companies shall make available for and prior to taking any action to collect the
inspection or examination by the appropriate contested amount, or any part thereof, quasi-
supervising and examining department of the banks/subsidiary credit card companies shall
BSP complete and accurate files on card make appropriate corrections in their records
applicant/cardholder to support the and/or send a written explanation or
consideration for approval of the application clarification to the cardholder after
and determination of the credit limit which conducting an investigation. Nothing in this
shall be in accordance with the verified debt Subsection shall be construed to prohibit any
repayment ability and/or net worth of the action by the quasi-bank/subsidiary credit
card applicant/cardholder. card company to collect any amount which

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Part III - Page 10d
§§ 4337Q.13 - 4351Q
04.12.31

has not been indicated by the cardholder to has given express permission or said times
contain a billing error or apply against the are the only reasonable or convenient
credit limit of the cardholder the amount opportunities for contact.
indicated to be in error.
§ 4337Q.15 Sanctions. Violations of the
§ 4337Q.14 Unfair collection practices provisions of this Section shall be subject to
Quasi-banks, subsidiary/ affiliate credit card any or all of the following sanctions
companies, collection agencies, counsels and depending upon their severity:
other agents may resort to all reasonable and a. Disqualification of the quasi-bank
legally permissible means to collect amounts concerned from the credit facilities of the BSP
due them under the credit card agreement: except as may be allowed under Section 84
Provided, That in the exercise of their rights of R.A. No. 7653;
and performance of duties, they must observe b. Prohibition of the quasi-bank
good faith and reasonable conduct and concerned from the extension of additional
refrain from engaging in unscrupulous or credit accommodation against personal
untoward acts. Without limiting the general security; and
application of the foregoing, the following c. Penalties and sanctions provided
conduct is a violation of this Subsection: under Sections 36 and 37 of R.A. No. 7653.
a. the use or threat of violence or other
criminal means to harm the physical person, Secs. 4338Q - 4350Q (Reserved)
reputation, or property of any person;
b. the use of obscenities, insults, or
profane language which amount to a criminal D. RESTRUCTURED LOANS
act or offense under applicable laws;
c. disclosure of the names of credit Sec. 4351Q Restructured Loans; General
cardholders who allegedly refuse to pay Policy. NBQBs shall have full discretion in
debts, except as allowed under Subsec. the restructuring of loans in order to provide
4337Q.9; flexibility in arranging the repayment of such
d. threat to take any action that cannot loans without impairing or endangering the
legally be taken; lending NBQB’s financial interest, except in
e. communicating or threat to special cases approved by the Monetary
communicate to any person credit Board such as loans funded partly or wholly
information which is known to be false, by foreign currency obligations. However,
including failure to communicate that a debt the restructuring of loans granted to DOSRI
is being disputed; shall be upon terms not less favorable to the
f. any false representation or deceptive NBQB than those offered to others. While
means to collect or attempt to collect any debt agreements on loan restructuring should be
or to obtain information concerning a considered as management tools to maintain
cardholder; and or improve the soundness of the NBQB’s
g. making contact at unreasonable/ lending operations, these should be drawn
inconvenient times or hours which shall be mainly to assist borrowers towards the
defined as contact before 6:00 A.M. or after settlement of their loan obligations, taking
10:00 P.M., unless the account is past due into account their capacity to pay.
for more than sixty (60) days or the cardholder

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Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 10e
§§ 4351Q.1 - 4351Q.2
04.12.31

§ 4351Q.1 Definition; when to interest shall mean three (3) consecutive


consider performing/non-performing payments of the required amortizations of
Restructured loans are loans the principal principal and/or interest have been made.
terms and conditions of which have been However, in the case of a restructured loan
modified in accordance with a restructuring with capitalized interest but not fully secured
agreement setting forth a new plan of by real estate with loan value of up to sixty
payment or a schedule of payment on a percent (60%) of the appraised value of the
periodic basis. The modification may real estate security and the insured
include, but is not limited to, change in improvements thereon or other first class
maturity, interest rate, collateral or increase collaterals, six (6) consecutive payments of
in the face amount of the debt resulting from the required amortizations of principal and/
the capitalization of accrued interest/ or interest must have been made.
accumulated charges. Items in litigation and A restructured loan which has been
loans subject of judicially-approved restored to a performing loan status shall be
compromise, as well as those covered by immediately considered non-performing in
petitions for suspension or for new plans of case of default of any principal or interest
payment approved by the court or the SEC, payment in accordance with Sec. 4308Q.
shall not be classified as restructured loans.
A loan which is restructured shall be § 4351Q.2 Procedural requirements
considered non-performing except: a. A loan may be restructured subject
(1) When the loan is current and to the approval of the NBQB’s board of
performing (i.e., with updated principal and directors in a resolution which shall embody,
interest payments) on the date of among other things:
restructuring, in which case, the loan shall (1) the basis of or justification for the
retain its performing status; and approval;
(2) Fully secured by real estate with loan (2) determination of the borrower’s
value of up to sixty percent (60%) of the capacity to pay, such as viability of the
appraised value of the real estate security and business; and
the insured improvements thereon, and such (3) the nature and extent of protection
other first class collaterals as may be deemed of the NBQB’s exposure.
appropriate by the Monetary Board: The authority to approve the restructuring
Provided, That a restructured loan, with or of loans may be delegated by the NBQB’s
without capitalized interest, must be yielding board of directors to a committee or officer(s):
a rate of interest equal to or greater than the Provided, That there are board-prescribed
quasi-bank’s average cost of funds at the date guidelines specifically on restructuring of
of restructuring, otherwise, it shall be loans: Provided, further, That said guidelines
considered non-performing. shall be submitted to the appropriate
The restoration to a performing loan shall supervising and examining department of the
only be effective after a satisfactory track BSP within thirty (30) days following the date
record of payments of the required of approval thereof. However, loans
amortizations of principal and/or interest has previously approved by the executive
been established. committee as well as those granted to DOSRI
For this purpose, a satisfactory track shall be subject to approval by the board as
record of payments of principal and/or provided under existing rules and regulations.

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Part III - Page 11
§§ 4351Q.2 - 4351Q.3
04.12.31

Loans restructured other than those approved (3) Hold-out on and/or assignment of
by the board shall be reported to it for deposit substitutes maintained in the lending
confirmation. institutions;
b. A second restructuring of a loan (4) “Blue chip” shares of stocks, except
shall be allowed only if there are reasonable those issued by the lending entity or by its
justifications: Provided, That it shall be parent company which owns more than fifty
considered a non-performing loan and percent (50%) of its outstanding shares of
classified, at least, “Substandard”. The stocks. For this purpose, the issuer
restoration to a performing loan status and/ corporation must be a listed corporation with
or the upgrading of loan classification, e.g., a net worth of at least P1 billion and with
from “Substandard” to “Loans Especially annual net earnings during the immediately
Mentioned”, if circumstances warrant an preceding five (5) years; and
upgrading in accordance with the criteria (5) Such other collaterals that the
under Appendix Q-10, shall only be allowed Monetary Board may declare as first class
after a satisfactory track record of at least six collaterals from time to time.
(6) consecutive payments of the required It is understood that the loan value to
amortization of principal and/or interest has be assigned the collateral shall be as
been established. prescribed under existing regulations.
c. In the restructuring process, the
NBQB shall encourage the borrower to § 4351Q.3 Classification. The
improve the quality of the loan either by classification of a loan prior to restructuring,
strengthening financial capacity or providing e.g., “Loans Especially Mentioned”,
additional collateral. “Substandard” or “Doubtful” shall be
The real estate security and/or other first retained: Provided, That a loan that is not
class collaterals offered shall be appraised classified but which is non-performing prior
at the time of restructuring to ensure that to restructuring shall be classified, at least,
current market values are being used. Real “Loans Especially Mentioned”: Provided,
estate security shall be appraised by an further, That restructured loans with
independent appraisal company acceptable capitalized interest shall be classified, at
to the BSP and shall be reappraised every least, “Substandard” and the required
year thereafter. valuation reserves shall be set up
The term “first class collaterals” refers accordingly: Provided, finally, That a more
to assets and securities which have relatively adverse classification may be given, i.e.,
stable and clearly definable value and/or “Substandard", "Doubtful" or "Loss”, if the
greater liquidity and are free from lien/ circumstances warrant it as provided under
encumbrance, such as: Appendix Q-10.
(1) Real estate; The upgrading of loan classification, e.g.,
(2) Evidences of indebtedness of the from “Substandard” to “Loans Especially
Republic of the Philippines and of the BSP, Mentioned”, if circumstances warrant an
and other evidences of indebtedness or upgrading in accordance with the criteria in
obligations the servicing and repayment of Appendix Q-10, shall only be effective after
which are fully guaranteed by the Republic a satisfactory track record of payments of
of the Philippines; the required amortizations of principal and/
or interest has been established.

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Part III - Page 12
§§ 4351Q.3 - 4356Q.1
04.12.31

For this purpose, a satisfactory track c. Stockholders shall refer to (i) any
record of payments of principal and/or stockholder of record in the books of the
interest shall mean three (3) consecutive quasi-bank, acting personally, or through an
payments of the required amortizations of attorney-in-fact, executor, administrator or
principal and/or interest have been made. guardian of a minor, incompetent and/or
However, in the case of a restructured loan deceased stockholder or through a trustee
with capitalized interest but not fully secured designated by one (1) or more stockholders
by real estate with loan value of up to sixty pursuant to a voting trust agreement, whose
percent (60%) of the appraised value of the stockholdings in the lending quasi-bank,
real estate security and the insured individually and/or together with his spouse
improvements thereon or other first class or relative within the first degree of
collaterals, six (6) consecutive payments of consanguinity or affinity or relative by legal
the required amortizations of principal and/ adoption; (ii) a partnership in which the
or interest must have been made. stockholder or his spouse or any of his
relatives mentioned above is a general
Secs. 4352Q - 4355Q (Reserved) partner; and (iii) a co-owner with the
stockholder or the stockholder’s spouse or
relative mentioned above of a property/right/
E. LOANS/CREDIT ACCOMMODATIONS interest referred to in Sec. 4359Q(b)(3)
TO DIRECTORS, OFFICERS, amounting to ten percent (10%) or more of
STOCKHOLDERS AND THEIR the total subscribed capital stock of the quasi-
RELATED INTERESTS bank.
d. Outstanding loans to and placements
Sec. 4356Q General Policy. Dealings of a with the quasi-bank shall refer to loans to
quasi-bank with any of its DOSRI shall be in and deposit substitutes of the quasi-bank
the regular course of business and upon which are not subject of an assignment or
terms not less favorable to the quasi-bank hold-out agreement.
than those offered to others. e. Book value of the paid-in capital
No NBQB shall grant, renew or extend contribution shall mean the proportional
any credit accommodation to its DOSRI amount of the quasi-bank’s total capital
whenever its combined capital accounts is accounts (net of such unbooked valuation
deficient relative to risk assets held under reserves and other capital adjustments as may
Sec. 4116Q, or whenever its paid-in capital be required by the BSP) as the corresponding
is deficient relative to the required minimum paid-in capital contribution of each director,
capitalization. Neither shall it grant, renew officer or stockholder concerned bears to the
or extend any credit accommodation to any total paid-in capital of the quasi-bank:
of its DOSRI who has past due credit Provided, That as a basis for determining the
accommodations with the NBQB. individual ceiling referred to in Sec. 4360Q,
corresponding book value of the shares of
§ 4356Q.1 Definitions. For purposes of stock of such director, officer or stockholder
these regulations, the following definitions which are the subject of pledge, assignment
shall apply. or any other encumbrance shall be deducted
a. Directors shall refer to quasi-bank therefrom.
directors as defined in Sec. 4141Q. f. Secured loan, borrowing, or credit
b. Officers shall refer to quasi-bank accommodation shall refer to any loan,
officers as defined in Sec. 4142Q. discount, credit or advance, or portion

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 13
§§ 4356Q.1 - 4357Q
04.12.31

thereof referred to in Sec. 4357Q which is not secured in accordance with Item "f"
secured by real estate mortgage, chattel above.
mortgage on tangible assets, standby letters
of credit issued by foreign banks, Sec. 4357Q Transactions Covered. The
assignments of or hold-out on deposit terms loan, borrow, money borrowed and
substitutes issued by the lending entity, cash credit accommodations as used herein shall
margin deposits, assignment or pledge of refer to transactions which involve the grant,
government securities or readily marketable renewal, extension or increase of any loan,
bonds and other high-grade debt securities discount, credit or advance in any form
except those issued by the lending entity, or whatsoever, and shall include:
by its parent company which owns more a. Outstanding availments under an
than fifty percent (50%) of its outstanding established credit line;
shares of stocks, or receivables arising from b. Drawings against an existing letter
financial leases to the extent of the guaranty of credit;
deposit plus sixty percent (60%) of the c. The acquisition by discount,
remaining value of the leased equipment. For purchase, exchange or otherwise of any note,
this purpose, the remaining value of the draft, bill of exchange or other evidence of
equipment under lease shall be determined indebtedness upon which a director, officer
by dividing the acquisition cost by the or stockholder may be liable as a maker,
original term of the lease and multiplying the drawer, acceptor, indorser, guarantor, or
resulting ratio by the unexpired portion of surety;
the term. d. Any advance of unearned salary or
For investment houses with quasi- unearned compensation for periods in excess
banking functions, a secured loan, borrowing of thirty (30) days;
or credit accommodation shall likewise e. Loans or other credit accommo-
include: dations granted by another financial
(1) Customer’s liability under import institution to such director, officer or
bills outstanding for not more than thirty (30) stockholder from funds of the NBQB
days from date of original entry; invested in the other institution’s trust or
(2) Sales contract receivable arising out other department when there is a clear
of sale of real property on credit wherein title relationship between the transactions;
to the property is retained by the NBQB; and f. The increase of an existing in-
(3) Customer’s liability-import bills debtedness, as well as additional availments
under trust receipts outstanding for not under a credit line or additional drawings
more than thirty (30) days from date of against a letter of credit;
booking: Provided, That the booking g. The sale of assets, such as shares of
under trust receipts shall have been made stock, on credit;
not later than the thirty-first (31st) day from h. Leasing transactions under R.A. No.
the date of original entry referred to in Sub- 5980, as amended; and
item (1) above. i. Any other transaction as a result of
g. Unsecured loan, borrowing or which a director, officer or stockholder
credit accommodation shall refer to any becomes obligated or may become obligated
loan, discount, credit or advance, or portion to the lending NBQB, directly or indirectly,
thereof referred to in Sec. 4357Q which is by any means whatsoever to pay money or
its equivalent.

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Part III - Page 14
§ 4358Q
04.12.31

Sec. 4358Q Transactions Not Covered the account of the NBQB or for utilization of
The terms loan, borrow, money borrowed maternity and other leave credits;
or credit accommodation as used herein b. The increase in the amount of
shall not refer to the following transactions: outstanding credit accommodation as a result
a. Advances against accrued of additional charges or advances made by
compensation, or for the purpose of the NBQB to protect its interests such as
providing payment of authorized travel, taxes, insurance, etc.;
legitimate expenses or other transactions for

(Next page is Part III - Page 15)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part III - Page 14a
§§ 4358Q - 4359Q
02.12.31

c. The discount of bills of exchange related interest concerned reimburses/pays


drawn in good faith against actually existing the NBQB for the billed amount in full on or
values, and the discount of commercial or before the payment due date in the billing or
business paper actually owned by the person statement of account, as set by the NBQB for
negotiating the same, including, but not all other qualified credit cardholders on
limited to, the acquisition of export bills from availments made for the same period on their
any of its DOSRI which are drawn in credit cards. However, the transaction shall
accordance with the terms and conditions of be subject to applicable DOSRI regulations if
the covering letters of credit: Provided, That the director, officer, or stockholder/related
the transaction shall automatically be subject interest concerned:
to the ceiling as herein provided once the i. fails to reimburse/pay the NBQB
DOSRI who is a party to the transaction within the period mentioned herein; or
becomes directly liable to the NBQB; ii. on the outset, opts for deferred
d. Transactions with a foreign bank or payment scheme, and the availment is
other financial institution which has booked by the NBQB.
stockholding in the NBQB where the foreign
bank or other financial institution acts as Sec. 4359Q Direct or Indirect Borrowings
guarantor through the issuance of letters of For purposes of this Section, a credit
credit, guarantee letters or assignment of a accommodation shall be considered a direct
deposit in a currency eligible as part of the or indirect borrowing in accordance with
international reserves and held in a bank in the following criteria.
the Philippines to secure credit accommo- a. Direct borrowing - If the director,
dations granted to another person or entity: officer or stockholder of the lending NBQB
Provided, That the foreign bank stockholder is a party to any of the transactions
shall automatically be subject to the ceilings enumerated in Sec. 4357Q for himself or as
as herein provided in the event that its a representative or agent of others, or if he
contingent liability as guarantor becomes a acts as a guarantor, indorser or surety for
real liability; and loans from the NBQB, or if the loan or credit
e. Deposits of an NBQB with a bank, accommodation to another party is secured
whether domestic or foreign, which has by a property interest or right of the director,
stockholdings in the NBQB. officer or stockholder.
b. Indirect borrowing - If in any of the
§ 4358Q.1 Applicability to credit card transactions in Sec. 4357Q the borrower,
operations. The credit card operations of guarantor, indorser, or surety is a:
NBQBs shall not be subject to these (1) Spouse or relative within the first
regulations where the credit cardholder is a degree of consanguinity or affinity, or relative
director, officer or stockholder of the NBQB by legal adoption of a director, officer or
or their related interests (DOSRI): Provided, stockholder of the NBQB;
That (a) the privilege of becoming a credit (2) Partnership of which a director,
cardholder is open to all qualified persons officer, or stockholder or his spouse or
on the basis of selective criteria which are relative within the first degree of
applied by the NBQB to all applicants thereof; consanguinity or affinity, or relative by legal
and (b) the director, officer or stockholder/ adoption, is a general partner;

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Part III - Page 15
§§ 4359Q - 4361Q
02.12.31

(3) Co-owner with the director, any or a group of related entities mentioned
officer, stockholder or his spouse or relative in Items "b(2)", "b(4)" and "b(5)" of this
within the first degree of consanguinity or Section.
affinity, or relative by legal adoption, of the Other cases of direct/indirect borrowing
property or interest or right mortgaged, shall be resolved on a case-to-case basis.
pledged or assigned to secure the loans or It shall be the responsibility of the NBQB
credit accommodations, except when the concerned to ascertain whether the
mortgage, pledge or assignment covers only borrower, guarantor, representative, indorser
said co-owner’s undivided interest; or surety is related to persons mentioned in
(4) Corporation, association, or firm Item "b(1)" of this Section or connected with
of which a director or officer of the NBQB, any of the directors, officers or stockholders
or his spouse is also a director or officer of of the NBQB in any of the capacities
such corporation, association or firm, except mentioned in Items "b(2)", "b(3)", "b(4)",
(i) where the securities of such corporation, "b(5)" and "b(6)" of this Section.
association or firm are listed and traded in In determining indirect borrowings as
the domestic stock exchange and less than enumerated above, only those cases
fifty percent (50%) of the voting stock thereof involving living relatives shall be considered.
is owned by any one (1) person or by persons
related to each other within the third degree Sec. 4360Q Individual Ceiling; Single-
of consanguinity or affinity; or (ii) where the Borrower Limit. The total outstanding direct
director, officer or stockholder of the lending credit accommodations to each of the NBQB’s
NBQB sits as a representative of the NBQB in directors, officers or stockholders, excluding
the board of directors of such corporation: those granted under officers’ fringe benefit
Provided, That the NBQB representative shall plans, shall not exceed, at any time, an
not have any equity interest in the borrower amount equivalent to the unencumbered
corporation except for the minimum shares portion of his loans to, and placements with,
required by law, rules and regulations, or by the NBQB and the book value of his paid-in
the by-laws of the corporation, to qualify a capital contribution in the lending NBQB:
person as director of the corporation: Provided, That unsecured credit
Provided, further, That the borrowing accommodations to each of the NBQB’s
corporation under (i) or (ii) is not among directors, officers or stockholders shall not
those mentioned in Items "b(5)" and "b(6)" exceed thirty percent (30%) of his total credit
of this Section; accommodations.
(5) Corporation, association or firm of Notwithstanding the provisions of this
which any or a group of directors, officers, Section, credit accommodations of an NBQB
stockholders of the lending NBQB and/or to any one of its directors, officers,
their spouses or relatives within the first stockholders or their related interests shall
degree of consanguinity or affinity or relative not exceed the SBL prescribed for NBQBs.
by legal adoption, hold/own more than
twenty percent (20%) of the subscribed Sec. 4361Q Aggregate Ceiling; Ceiling On
capital of such corporation, or of the equity Unsecured Loans. Except with prior
of such association or firm; or approval of the Monetary Board, the total
(6) Corporation, association or firm outstanding borrowings of directors, officers,
wholly or majority-owned or controlled by or stockholders, whether direct or indirect,

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Part III - Page 16
§§ 4361Q - 4364Q
02.12.31

shall not exceed 100% of combined capital (2) Its shares are listed and traded in the
accounts, net of deferred income tax as domestic stock exchanges;
defined in Item "i" of Subsec. 4116Q.1 and (3) Its stockholdings in the lending
such unbooked valuation reserves and other NBQB do not exceed thirty percent (30%) of
capital adjustments as may be required by the voting stock of the NBQB; and
the BSP: Provided, That in no case shall the (4) No person or group of persons
total unsecured direct and indirect related within the first degree of
borrowings of directors, officers, and consanguinity or affinity holds/owns more
stockholders exceed thirty percent (30%) of than twenty percent (20%) of the subscribed
the aggregate ceiling or the outstanding capital of the corporation; and
direct/indirect loans thereto, whichever is c. Credit accommodations granted
lower. For the purpose of determining under officers’ fringe benefit plans.
compliance with the ceiling on unsecured
loans, NBQBs shall be allowed to average Sec. 4363Q Credit Accommodations Under
their ceiling on unsecured loans and their Officers’ Fringe Benefit Plans. The aggregate
outstanding unsecured loans every week. outstanding liabilities to an NBQB of its
In evaluating requests for extension of officers, extended under officers’ fringe
loans in excess of the aggregate ceiling, the benefit plans for the purpose of house, car,
BSP shall consider the credit standing of the and appliance financing, and meeting
borrower, viability of the projects financed educational, medical, hospital, and other
by such loans in relation to national similar expenses, shall not exceed thirty
objectives, collateral or security and other percent (30%) of the combined capital
pertinent considerations. accounts of the lending entity: Provided, That
NBQBs shall submit, for record purposes,
Sec. 4362Q Exclusions from Aggregate copies of their officers’ fringe benefit plans
Ceiling. The following credit to the appropriate department of the BSP.
accommodations shall be excluded in
determining compliance with the aggregate Sec. 4364Q Procedural Requirements. The
ceiling: following provisions shall apply if a director
a. Credit accommodations to the extent or officer is a party, directly or indirectly, to,
covered by a hold-out on, or assignment of, or acts as the representative or agent of, others
deposit substitutes in the lending NBQB, or in any of the transactions under Sec. 4357Q.
covered by cash margin deposits or secured a. Approval of the board of directors;
by evidences of indebtedness of the Republic when to obtain. Except with the prior written
of the Philippines or of the Bangko Sentral, approval of the majority of the directors,
or by other evidences of indebtedness or excluding the director concerned, no loan
obligations, the servicing and repayment of or other credit accommodation shall be
which are fully guaranteed by the Republic granted nor any of the transactions under Sec.
of the Philippines; 4357Q be entered into.
b. Credit accommodations to a b. Approval by the board; how
corporate stockholder which meets all the manifested. The approval shall be manifested
following conditions: in a resolution passed by the board of directors
(1) The corporation is a non-financial duly assembled during a regular or special
institution; meeting for the purpose and made of record.

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Part III - Page 17
§§ 4364Q - 4365Q
02.12.31

c. Majority of the directors; the BSP within twenty (20) business days from
computation of. The computation of the the date of approval. The copy may be a
majority of the directors, excluding the duplicate of the original, or a reproduction
director concerned, shall be based on the copy showing clearly the signatures of the
total number of directors of the NBQB, as approving directors: Provided, That if a
provided in its articles of incorporation and reproduction copy is to be submitted, it shall
by-laws. contain, on its face or reverse side, a signed
d. Contents of the resolution. The certification by the secretary that it is a
resolution of the board of directors shall reproduction of the original written approval.
contain the following information:
(1) Name of the director or officer Sec. 4365Q Sanctions. Any violation of the
concerned and his relationship as regards the provisions of the foregoing rules shall be
credit accommodation, such as principal, subject to any or all of the following
indorser, spouse of borrower, etc.; sanctions:
(2) Nature of the loan or other credit a. Restriction or prohibition on the
accommodation, purpose, amount, credit NBQB from declaring dividends until the
basis for such loan or credit accommodation, outstanding loans and other credit
security and appraisal thereof, maturity, accommodations have been reduced to
interest rate, schedule of repayment, and within the herein prescribed ceilings;
other terms of the loan or credit b. Disqualification of the directors
accommodation; voting for the approval of the loan or credit
(3) Date of the resolution; in excess of any of the ceilings prescribed in
(4) Names of the directors who were Secs. 4360Q and 4361Q from participating
present and who participated in the in the approval of loans or credit to officers,
deliberations of the meeting; directors, and stockholders of the NBQB:
(5) Names in print and signatures of Provided, however, That the disqualification
the directors approving the resolution: may be lifted by the BSP, as the circumstances
Provided, That the corporate secretary may warrant;
sign, under a power-of-attorney, in behalf of c. Application of (1) the borrowing
a director who was present in the board director’s or officer’s share in the NBQB’s
meeting and who approved such resolution, profit sharing program and (2) the share of
in instances where such signature is the director voting for the approval of the loan
necessary, to indicate that such resolution or credit accommodation against the excess
was approved by a majority of the directors; of such loan or credit accommodation over
and any of the herein prescribed ceilings for such
(6) Such other information as may be period of time as may be approved by the
required by the appropriate supervising and Monetary Board; and
examining department of the BSP. d. For the duration of each violation,
e. Transmittal of copy of board of imposition of a fine of one-tenth of one percent
directors’ approval; contents thereof. A copy (1/10 of 1%) of the excess over the ceilings
of the written approval of the board of per day but not to exceed P30,000 a day on
directors, as herein required, shall be (1) the lending NBQB and the director, officer,
submitted to the appropriate department of or stockholder whose borrowing exceeds his

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Part III - Page 18
§§ 4365Q - 4376Q.3
02.12.31

individual ceiling and (2) each of the directors § 4376Q.1 Systems and procedures
voting for the approval of the loan or credit for interbank call loan transactions. IBCL
accommodation in excess of any of the transactions of NBQBs shall be governed by
ceilings prescribed in Secs. 4360Q and the Agreement for an Interbank Call Loans
4361Q. Funds Transfer System and the Supplemental
The penalty for exceeding the individual Memorandum of Agreement executed
ceiling, aggregate ceiling and ceiling on among the BSP, the Bankers Association of
unsecured loans shall be computed on the the Philippines and the Philippine Clearing
average amount of loans in excess of said House Corporation (Appendix Q-13 and Q-
ceilings during the same week. 13-b).
NBQBs shall generate hard copies of the
Secs. 4366Q - 4370Q (Reserved) formats of the loan and repayment
instructions in the form presented in Annexes
A, B, C and D of the aforesaid agreement to
F. (RESERVED) be kept as documentary evidence of their
matched and processed IBCL transactions.
Secs. 4371Q - 4375Q (Reserved)
§ 4376Q.2 Accounting procedures
a. NBQBs shall immediately pass the
G. SPECIAL TYPES OF LOANS corresponding entries in their books and,
upon receipt of a copy of the transfer
Sec. 4376Q Interbank Loans. Interbank loan instruction reported as matched in the
transactions shall include, among other expanded MultiTransaction Interbank
things, (a) interbank call loan (IBCL) transac- Payment System (MIPS2 Plus), the borrowing
tions; (b) borrowings evidenced by deposit NBQB shall attach the same to the
substitute instruments; and (c) purchases of corresponding ticket debitings its Due from
receivables with recourse: Provided, BSP account in its books and, in the case of
however, That only IBCL transactions which the lending NBQB, to the same ticket passed
are evidenced by interbank loan advices or in its books on the day payment is made.
repayment transfer tickets the settlement of b. IBCL transactions shall be recorded
which is effected by the BSP in the NBQBs’ by the borrowing NBQB as Bills Payable -
respective demand deposit accounts with Interbank Call Loans.
the BSP shall be eligible to one percent (1%) c. NBQBs shall reconcile their demand
reserve: Provided, further, That funds deposit accounts with the BSP against
borrowed by NBQBs from trust departments monthly statements of account to be
of banks/investment houses shall be furnished by the BSP Comptrollership
excluded from the herein definition of Department.
interbank loan transactions.
Interbank loan transactions not § 4376Q.3 Transfer of excess funds
evidenced by interbank loan advice or The prescribed “Authority to Debit Slip” shall
repayment transfer tickets and submitted to be used by NBQBs in the transfer of their
the BSP Comptrollership Department shall be excess funds which are not otherwise lent
reported to the BSP in the prescribed form. out in the interbank loan market from their

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Part III - Page 19
§§ 4376Q.3 - 4391Q.1
02.12.31

BSP reserve accounts to their operating Sec. 4382Q Investments Abroad. Except
accounts with their depository banks. as may be authorized by the Monetary Board,
The “Authority to Debit Slip” shall have the total equity investments in and/or loans
a standard size of 4 3/4" x 8 1/2" and shall to any single enterprise abroad by any NBQB
be orange in color. It shall contain the shall not at any time exceed fifteen percent
minimum data or information as required (15%) of the net worth of the investing NBQB.
and shall be accomplished and submitted to
the BSP Comptrollership Department in Sec. 4383Q Underwriting Exempted. The
duplicate after having been duly signed and/ limitations on equity investments under Sec.
or authenticated by authorized officers of the 4381Q shall not apply to inventories of
NBQB. equity securities arising out of firm
underwriting commitments of investment
§ 4376Q.4 Settlement procedures houses: Provided, That such equity holding
Interbank loan transactions (call and term) shall be disposed of within two (2) years from
among banks and NBQBs shall be settled in acquisition by the investment house.
accordance with the procedures in Appendix
Q-13-a. Secs. 4384Q - 4385Q (Reserved)

Secs. 4377Q - 4380Q (Reserved) I. (RESERVED)

Secs. 4386Q - 4390Q (Reserved)


H. EQUITY INVESTMENTS

Sec. 4381Q Investment in Non-Allied J. OTHER OPERATIONS


Undertakings. In order to avoid undue
concentration of economic power, the total Sec. 4391Q Purchase of Receivables and
equity investments in any single non-allied Other Obligations. The following rules shall
enterprise or industry of NBQBs, expanded govern the purchase of receivables and other
commercial banks and their subsidiaries, obligations.
whether or not the parent financial
intermediaries have equity investments in the § 4391Q.1 Yield on purchase of
enterprise, shall, in any case, remain a receivables. The rate of yield, including
minority in that enterprise, except as may be commissions, premiums, fees and other
otherwise approved by the President of the charges from the purchase of receivables and
Philippines. Non-allied enterprises are those other obligations, regardless of maturity, that
allowed for expanded commercial banks in may be charged or received by NBQBs shall
the Manual of Regulations for Banks. not be subject to any regulatory ceiling.
Equity investments as of April 1, 1980, Receivables and other obligations
which exceed the limitation under this shall include claims collectible in money of
Section, may be retained but shall not be any amount and maturity from domestic and
increased percentage-wise, and whenever foreign sources. The Monetary Board shall
reduced, shall not thereafter be increased determine in doubtful cases whether a
beyond the prescribed limitation. particular claim is included within said phrase.

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Part III - Page 20
§§ 4391Q.2 - 4394Q.1
03.12.31

§ 4391Q.2 Purchase of commercial in debt securities and marketable equity


paper. Before purchasing registered securities shall be in accordance with the
commercial paper, NBQBs shall: guidelines in Appendices Q-20 and Q-20-a.
a. Require the issuing entity to submit Delay or non-submission of the
a duly certified true copy of its Certificate of Operations Manual as required under
Registration and Authority to Issue Appendix Q-20 shall be subject to a penalty
Commercial Paper; and of P500 per business day.
b. Ascertain that the registration
number and expiry date indicated in the Sec. 4392Q Reverse Repurchase
commercial paper are the same as those in Agreements with the Bangko Sentral
the Certificate of Registration submitted. Reverse repurchase agreements may be
No NBQB shall sell, discount, assign, effected with the BSP under its open market
negotiate, in whole or in part such as thru operations, subject to the terms and
syndications, participations and other similar conditions in Subsec. 4602Q.1.
arrangements, any note, receivable, loan,
debt instrument and any type of financial Sec. 4393Q (Reserved)
asset or claim, except government securities,
on a without recourse basis, or be a party in Sec. 4394Q Acquired Assets in Settlement
any capacity in any such transactions on a of Loans. The following rules shall govern
without recourse basis, unless such assets acquired in settlement of loans.
receivable, note, loan, debt instrument and
financial asset or claim is registered with the § 4394Q.1 Booking. The property
SEC. This prohibition includes transactions acquired in settlement of loans through
between an investment house and its trust foreclosure or dation in payment shall be
department. recorded at the balance of the loan (principal
Unregistered commercial papers may plus booked accrued interest receivable for
be sold, discounted, assigned or negotiated time loans, or principal less unamortized
by NBQBs to other financial intermediaries income for bills discounted) or bid/purchase
with quasi-banking functions. price, whichever is lower: Provided, That
Any violation of the above rules and where the booked amount of the Real and
regulations shall be subject to any or all of Other Properties Owned or Acquired
the following sanctions: (ROPOA). exceeds the appraised value of the
a. Suspension of quasi-banking acquired property, an allowance for probable
authority for a period of six (6) months; and losses equivalent to the excess of the amount
b. Monetary penalty of P500 per day booked over the appraised value shall be set
per transaction for each and every officer of up.
the NBQB involved in any capacity in any Non-refundable capital gains tax and
transaction violative of these regulations. documentary stamp tax paid in connection
with foreclosure/purchase of the acquired
§ 4391Q.3 Investments in debt and real estate property may be included in the
marketable equity securities. The book value of the acquired real estate:
classification, accounting procedures, Provided, That the total book value does not
valuation, sales and transfers of investments exceed the appraised value of the acquired

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Part III - Page 21
§§ 4394Q.1 - 4394Q.2
03.12.31

real estate: Provided, further, That if the c. Non-cash payment for interest.
amount to be booked as ROPOA exceeds P5 Quasi-banks which accept non-cash
million, the appraisal of the foreclosed/ payments for interest on their borrowers’
purchased asset shall be conducted by an loans shall defer recognition of income by
independent appraiser acceptable to the BSP. virtue of such payments until such time that
Any excess of loan balance over the the property is sold. The ROPOA account
amount booked shall be debited to shall be debited for the non-cash payment
“Miscellaneous Income/Loss” account. received subject to the rules governing the
Claims arising from deficiency judgments booking of ROPOA. The accrued interest
rendered in connection with the foreclosure already booked shall be reversed but there
of mortgaged properties shall be lodged shall be no reversal of corresponding
under the real account “Deficiency Judgment valuation reserves, if there are any. Pending
Receivable”. While probable claims against the creation of a more appropriate account
the borrower-debtor arising from the in the Manual of Accounts for Non-Banks,
foreclosure of mortgaged properties shall be the account “Other Deferred Credits” may
lodged under the contingent account be credited for non-cash payment
“Deficiency Claims Receivable”. corresponding to interest not yet accrued in
a. Booked valuation reserves while the the books.
account is in the non-performing portfolio.
The amount of allowance for probable losses § 4394Q.2 Sales contract receivable
already booked while the account is still in This represents the balance of the selling
the non-performing portfolio shall be used price of assets owned and/or acquired under
to cover required valuation reserves for other a plan of settlement, whereby the title to said
accounts, if there are any, and if there is none, assets is transferred only to the buyer upon
it may, subject to approval by the appropriate full payment of the agreed selling price.
supervising and examining department of the Sales contract receivables which meet all
BSP, be credited to income: Provided, That the requirements/conditions enumerated
the appraised value of the acquired property below are hereby considered performing
is not lower than the amount booked as assets and therefore, not subject to
ROPOA. classification:
b. Appraisal of properties to be a. That there has been a down-payment
foreclosed or acquired. Before foreclosing or of at least twenty percent (20%) of the agreed
acquiring any property in settlement of loans selling price or in the absence thereof, the
and other advances, it must be properly installment payments on the principal had
appraised to determine its true economic already amounted to at least twenty percent
value. If the total amount to be booked as (20%) of the agreed selling price;
ROPOA exceeds P5 million, the appraisal b. That payment of the principal must
must be conducted by an independent be in equal installments or in diminishing
appraiser acceptable to the BSP. An in-house amounts and with maximum intervals of one
appraisal of such property shall be made at (1) year;
least every other year: Provided, That c. That any grace period in the payment
immediate re-appraisal shall be conducted on of principal shall not be more than two (2)
ROPOAs which materially decline in value. years; and

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Part III - Page 22
§§ 4394Q.2 - 4399Q
04.12.31

d. That there is no installment payment transfer/sale of non-performing assets (NPAs)


in arrear either on principal or interest. to a Special Purpose Vehicle (SPV) or to an
Provided, That a “Sales Contract Receivable” individual that involves a single family
account shall be automatically classified residential unit, or transactions involving
“Substandard” and considered non- dacion en pago by the borrower or third party
performing in case of non-payment of any of a non-performing loan (NPL), for the
amortization due: Provided, further, That a purpose of obtaining the Certificate of
“Sales Contract Receivable” which has been Eligibility (COE) which is required to avail of
classified “Substandard” and considered the incentives provided under R.A. No. 9182
non-performing due to non-payment of any are presented in Appendix Q-28.
amortization due may only be upgraded/ The accounting guidelines on the sale of
restored to unclassified and/or performing NPAs to SPVs and to qualified individuals
status after a satisfactory track record of at for housing under the SPV Act of 2002 are
least three (3) consecutive payments of the presented in Appendix Q-28-a.
required amortization of principal and/or
interest has been established.
Secs. 4397Q - 4398Q (Reserved)
Sec. 4395Q (Reserved)
Sec. 4399Q General Provision on Sanctions
K. MISCELLANEOUS PROVISIONS Unless otherwise provided for, any violation
of the provisions of this Part shall be subject
Sec. 4396Q Transfer/Sale of Non-Performing to Sections 36 and 37 of R.A. No. 7653.
Assets to A Special Purpose Vehicle or to An
Individual. The procedures governing the

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Part III - Page 23
§§ 4401Q - 4403Q
96.12.31

PART FOUR
TRUST, OTHER FIDUCIARY BUSINESS
AND INVESTMENT MANAGEMENT ACTIVITIES

Section 4401Q Statement of Principles terms are defined in Sec. 4403Q) of non-bank
The cardinal principle common to all trust financial institutions (e.g., investment houses
and other fiduciary relationships is fidelity. and trust corporations) allowed by law to
Policies predicated upon this principle are perform such operations.
directed towards confidentiality, scrupulous The regulations are divided into three
care, safety and prudent management of (3) Sub-Parts where:
property including reasonable probability of A. Trust and Other Fiduciary Business
income with proper accounting and shall apply to institutions authorized to
appropriate reporting thereon. Practices are engage in trust and other fiduciary business
designed to promote efficiency in including investment management activities;
administration and operation; to adhere and B. Investment Management Activities
conform with the terms of the instrument or shall apply to institutions without trust
contract; and to maintain absolute separation authority but engaged in investment
of property free from any intrusion of conflict management activities; and
of interest. C. General Provisions shall apply to
An institution incorporated or both.
authorized to engage in trust and fiduciary
business is under no obligation, either legal Sec. 4403Q Definitions. For purposes of
or moral, to accept any such business being regulating the operations of trust and other
offered nor has it the right to accept if the fiduciary business and investment
same is contrary to law, rules, regulations, management activities, unless the context
public order and public policy. It shall clearly connotes otherwise, the following
advertise its services in a dignified manner shall have the meaning indicated.
and enter such business only when demand a. Trust business shall refer to any
for such service is evident, when specially activity resulting from a trustor-trustee
equipped to render such service and upon relationship (trusteeship) involving the
full appreciation of the responsibilities appointment of a trustee by a trustor for the
involved. It shall be ready and willing to give administration, holding, management of
full disclosure of the services being offered funds and/or properties of the trustor by the
and shall conduct its dealing with trustee for the use, benefit or advantage of
transparency. Harmonious relationship shall the trustor or of others called beneficiaries.
likewise be pursued with other professions b. Other fiduciary business shall refer
to achieve the common goal of mutual to any activity of trust-licensed institutions
service to the public and protection of its resulting from a contract or agreement
interest. whereby the institution binds itself to render
services or to act in a representative capacity
Sec. 4402Q Scope of Regulations. These such as in an agency, guardianship,
regulations shall govern the grant of authority administratorship of wills, properties and
to and the management, administration and estates, executorship, receivership and other
conduct of trust, other fiduciary business and similar services which do not create or result
investment management activities (as these in a trusteeship. It shall exclude collecting

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Part IV - Page 1
§ 4403Q
96.12.31

or paying agency arrangements and similar k. Principal shall refer to the person
fiduciary services which are inherent in the who grants authority to another person called
use of the facilities of the other operating an agent, under a contract to enter into
departments of such institution. Investment transactions in his behalf.
management activities, which are considered l. Agent shall refer to a person who
as among other fiduciary business, shall be acts in representation or on behalf of another
separately defined in the succeeding item to person with the latter's authority.
highlight its being a major source of fiduciary m. Trust Department shall refer to the
business. department, office, unit, group, division or
c. Investment management activity any aggrupation which carries out the trust
shall refer to any activity resulting from a and other fiduciary business of an institution.
contract or agreement primarily for financial n. Trust Officer shall refer to the
return whereby the institution (the investment designated head or officer-in-charge of the
manager) binds itself to handle or manage trust department.
investible funds or any investment portfolio o. Trust account shall refer to an
in a representative capacity as financial or account where transactions arising from a
managing agent, adviser, consultant or trusteeship are kept and recorded.
administrator of financial or investment p. Common Trust Fund (CTF) shall
management, advisory, consultancy or any refer to a fund maintained by an institution
similar arrangement which does not create authorized to perform trust functions under
or result in a trusteeship. a written and formally established plan,
d. Trust is a relationship or an exclusively for the collective investment and
arrangement whereby a person called a reinvestment of certain money representing
trustee is appointed by a person called a participations in the plan received by it in its
trustor to administer, hold and manage funds capacity as the trustee.
and/or property of the trustor for the benefit q. Fiduciary account shall refer to an
of a beneficiary. account where transactions arising from any
e. Trust agreement is an instrument of the other fiduciary businesses are kept and
in writing covering the terms and conditions recorded.
of the trust. r. Investment Manager shall refer to
f. Trustee is any person who holds any person or entity engaged in investment
legal title to the funds and/or property of a management activities as herein defined.
trust. s. Investment Management Department
g. Trustor is any person who creates shall refer to the department, unit, group,
a trust. division or any aggrupation which carries out
h. Beneficiary is any person for whose the investment management activities of an
benefit a trust is created. institution that does not have an authority to
i. Fiduciary shall refer to any person engage in trust and other fiduciary business.
or entity engaged in any of the other fiduciary t. Investment Management Officer
business as herein defined where no trustor- shall refer to the designated head or officer-
trustee relation exists. in-charge of the investment management
j. Agency shall refer to a contract department of an institution which does not
whereby a person binds himself to render have the authority to engage in trust and other
some service or to do something in fiduciary business.
representation or on behalf of another, with u. Investment management account
the consent or authority of the latter. shall refer to an account where transactions

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Part IV - Page 2
§§ 4403Q - 4404Q.1
02.12.31

arising from investment management with its business title, the words trust, trust
activities are kept and recorded. corporation, trust company, trust plan or
words of similar import, without having
obtained the required authority to do so.
A. TRUST AND OTHER FIDUCIARY Starting year 2001, investment houses
BUSINESS authorized to engage in trust and other
fiduciary business shall renew their existing
Sec. 4404Q Authority to Perform Trust and licenses yearly, subject to the implementing
Other Fiduciary Business. With prior guidelines to be issued thereon.
approval of the Monetary Board, trust
corporations and investment houses may § 4404Q.1 Prerequisites for engaging
engage in trust and other fiduciary business in trust and other fiduciary business. An
under Chapter IX of R.A. No. 8791, as institution, before it may engage in trust and
amended and Section 7 of P.D. No. 129, as other fiduciary business, shall comply with
amended. the following requirements:
Entities whose articles of incorporation a. The applicant has combined capital
or any amendments thereto, include the accounts of not less than P250 million or such
purpose or power to engage in trust and other amount as may be required by the Monetary
fiduciary business, shall secure the prior Board or other regulatory agency. For this
favorable recommendation of the Monetary purpose, combined capital accounts shall
Board pursuant to Section 17 of the have the same meaning as in Sec. 4106Q;
Corporation Code. b. The applicant has been duly
If an entity is found to be engaged in licensed or incorporated as a financial
unauthorized trust and other fiduciary institution by the appropriate government
business and/or investment management agency or created by special law or charter;
activities, whether as its primary, secondary c. The articles of incorporation or
or incidental business, the Monetary Board charter of the institution shall include among
may impose administrative sanctions against its powers or purposes, acting as trustee or
such entity or its principal officers and/or administering any trust or holding property
majority stockholders or proceed against in trust or on deposit for the use, or in behoof
them in accordance with law. of others;
The Monetary Board may take such d. The by-laws of the institution shall
action as it may deem proper such as, but include, among other things, provisions on
may not be limited to, requiring the transfer the following:
or turnover of any trust and other fiduciary (1) The organization plan or structure
and/or investment management account to of the department, office, or unit which shall
duly incorporated and licensed entities of the conduct the trust and other fiduciary
choice of the trustor, beneficiary or client, as business;
the case may be. (2) The creation of a trust committee,
No entity shall advertise or represent the appointment of a trust officer and subordi-
itself as being engaged in trust and other nate officers of the trust department; and
fiduciary business or in investment (3) A clear definition of the duties and
management activities or represent itself as responsibilities as well as the line and staff
trustee or investment manager or use words functional relationships of the various units,
of similar import and/or use in connection officers and staff within the organization.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 3
§§ 4404Q.1 - 4404Q.2
02.12.31

e. Where the applicant is authorized (9) It has shown substantial compliance


to engage in quasi-banking functions, it shall with other pertinent laws, rules and
also meet the following additional regulations, policies and instructions of the
requirements: BSP and it has not been cited for serious
(1) Its operations during the year violations or exceptions affecting its solvency,
immediately preceding the filing of the liquidity and profitability.
application have been profitable, i.e., its rate Where the applicant is not authorized
of return on equity is at least ten percent to engage in quasi-banking functions:
(10%); (i) The adoption of a formula or criteria
(2) It has continuously complied with for NBQBs in the determination of
its net worth-to-risk assets ratio, liquidity floor compliance with the capital-to-risk assets
and ceilings on DOSRI loans during the last ratio and ceilings on loans to DOSRI; and
six (6) months immediately preceding the (ii) The substitution of the reserve and
date of application; liquidity floor requirements with the cash
(3) It has not incurred net weekly ratio, as follows:
reserve deficiency against deposit substitutes (a) Primary reserves to Bills Payable;
during the last six (6) months immediately and
preceding the date of application; (b) Primary and secondary reserves to
(4) The ratio of its total non-performing Bills Payable;
loans to its gross loan portfolio as of the date where primary reserves consist of cash on
of filing of application does not exceed the hand, cash in vault, checks and other cash
industry average as of the end of the quarter items, due from the BSP and due from banks;
immediately preceding the date of and where secondary reserves consist of BSP-
application; supported government securities, treasury
(5) It does not have any past due bills and other government securities.
obligation with the BSP or with any Compliance with the foregoing, as well
government or non-government financial as with other requirements under existing
institution; regulations, shall be maintained up to the
(6) It has not engaged in unsafe and time the trust license is granted. An
unsound practice/s during the year imme- applicant that fails in this respect shall be
diately preceding the date of application; required to show compliance for another test
(7) It has corrected as of the date of period of the same duration.
application the violations noted in its latest
examination related to the single borrower’s § 4404Q.2 Pre-operating requirements
loan limit and all other ceilings prescribed An institution authorized to engage in trust
by the BSP; and other fiduciary business shall, before
(8) It does not have float items engaging in actual operations, submit to the
outstanding for more than sixty (60) calendar BSP the following:
days in the “Due From/To Head Office/ a. Government securities acceptable
Branches” accounts and the “Due from to the BSP amounting to P500,000 as
Bangko Sentral” account exceeding one minimum basic security deposit for the
percent (1%) of its total resources as of the faithful performance of trust and other
end of the month immediately preceding the fiduciary duties required under Subsec.
date of application; and 4405Q.1;

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Part IV - Page 4
§§ 4404Q.2 - 4405Q.2
02.12.31

b. Organization chart of the trust not utilized for any other purpose: Provided,
department which shall carry out the trust and further, That such securities shall have
other fiduciary business of the institution; and remaining maturities of not more than three
c. Names and positions of individuals (3) years from the date of deposit with the
designated as chairman and members of the BSP;
trust committee, trust officer and other b. NDC Agri-Agra ERAP Bonds,
subordinate officers of the trust department regardless of remaining maturities;
with their respective bio-data and statement c. Five (5)- and Ten (10)-year Special
of duties and responsibilities. Purpose Treasury Bonds (SPTBs) provided
such bonds shall not be hypothecated in any
Sec. 4405Q Security for the Faithful way or earmarked for any other purpose and
Performance of Trust and Other Fiduciary they meet the three (3)-year remaining
Business maturity requirement to ensure that such
bonds are liquid;
§ 4405Q.1 Basic security deposit. An d. Securities backed by the unreleased
institution authorized to engage in trust and Internal Revenue Allotments (IRA) of local
other fiduciary business shall deposit with the government units (issued by a Special
BSP eligible government securities as security Purpose Trust administered by the DBP under
for the faithful performance of its trust and the IRA Monetization Program of the Union
other fiduciary duties equivalent to at least of Local Authorities of the Philippines) the
one percent (1%) of the book value of the release of which IRA on scheduled date of
total volume of trust, other fiduciary and payment has been certified by the DBM as
investment management assets: Provided, not being subject to any conditionalities:
That at no time shall such deposit be less than Provided, That such securities shall be
P500,000. eligible only to the extent of the present value
Scripless securities under Registry of of the bond computed using the original yield
Scripless Securities (RoSS) system of the to maturity (as of auction/issue date):
Bureau of Treasury (BTr) may be used as basic Provided, further, That for reserve for trust
security deposit for trust duties using the and other fiduciary duties, the remaining
guidelines in Appendix Q-21. maturities of the securities shall not exceed
three (3) years; and
§ 4405Q.2 Eligible securities e. Zero Coupon Bond Issue by the
Government securities which shall be HGC of up to P7.0 billion five (5)-year regular
deposited in compliance with the above basic series and up to P3.0 billion seven (7)-year
security deposit shall consist of: special series to finance its guaranty servicing
a. Evidences of indebtedness of the of socialized and low-cost housing projects:
Republic of the Philippines and of the BSP Provided, That they meet the three (3)-year
and any other evidences of indebtedness or remaining maturity requirement to ensure
obligations the servicing and repayment of that such bonds are liquid: Provided, further,
which are fully guaranteed by the Republic That such bonds shall qualify as eligible
of the Philippines; and such other kinds of reserve for trust and other fiduciary duties
securities which may be declared eligible by only to the extent of the present value of the
the Monetary Board: Provided, That such bond computed using the original yield to
securities shall be free, unencumbered, and maturity (as of auction/issue date).

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 5
§§ 4405Q.2 - 4405Q.5
04.12.31

f. Tobacco Excise Tax Receivable a. On the institution:


Monetization Program Investment (1) First offense - Penalty of P5,000 per
Certificates (TEXTR Certificates) backed by business day to be reckoned from thirty (30)
receivables representing the unreleased business days after the end of the reference
portion of the obligation of the National quarter; and
Government to its LGUs for their share of (2) Second and subsequent offenses -
the Tobacco Excise Taxes under R.A. No. Suspension of trust license.
7171 amounting to P1.85 billion and b. On the Head of the Trust and Fund
covering the years 2001 and 2002: Provided, Management Department:
That such securities shall be eligible only to (1) First offense - Reprimand with a
the extent of the present value of the stern warning that subsequent violations will
securities computed using the original yield be subjected to more severe sanctions; and
to maturity as of auction/issue date. (2) Subsequent offenses - Suspension
for ninety (90) days without pay.
§ 4405Q.3 Valuation of securities and
basis of computation of the basic security § 4405Q.5 Reserves against peso-
deposit requirement. For purposes of denominated Common Trust Funds (CTFs)
determining compliance with the basic and Trust and Other Fiduciary Accounts
security deposit under this Section, the (TOFA) - Others
amount of securities so deposited shall be a. Reserves against peso-denominated
based on their book value, that is, cost as CTFs. In addition to the basic security
increased or decreased by the corresponding deposit, an institution authorized to engage
discount or premium amortization. in trust and other fiduciary business shall
The base amount for the basic security maintain reserves on -
deposit shall be the average of the month- (1) peso-denominated CTF; and
end balances of total trust, investment (2) such other managed peso funds
management and other fiduciary assets of the which partake the nature of collective
immediately preceding calendar quarter. investment of a peso-denominated CTF as
may be indicated by the presence of the
§ 4405Q.4 Compliance period; following features :
sanctions. The trustee or fiduciary shall have (a) The funds are composed of
thirty (30) business days after the end of every contributions from two (2) or more investors;
calendar quarter within which to deposit with (b) The funds are managed/administered
the BSP securities required under this as a vehicle for collective investment and
Section. In case an institution fails to comply reinvestment;
with the basic security deposit, the Monetary (c) The trustee/administrator/agent has
Board may require the institution to desist the exclusive management and control over
from accepting new trust and other fiduciary the funds and the sole right at any time to
accounts and from renewing expiring trust sell, convert, invest, exchange, transfer or
and other fiduciary contracts. otherwise change or dispose of the assets
The following sanctions shall be comprising the funds; and
imposed for any deficiency in the basic (d) Investments/contributions to, or
security deposit for the faithful performance withdrawals from, the funds are being allowed
of trust and other fiduciary business: at anytime or as of a fixed date in the future,

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Part IV - Page 6
§§ 4405Q.5 - 4405Q.6
04.12.31

and/or the income, net of all expenses The reserves to be maintained shall be
incurred in the management of the fund plus as follows:
the fee of the trustee/administrator/agent, are (i) Regular reserves 6%
being distributed among the participants of (ii) Liquidity reserves 10%1
the funds, without the need to liquidate all The liquidity reserves may be held in the
assets of the funds. form of:
The reserves to be maintained shall be (i) Short-term market-yielding government
as follows: securities purchased directly from the BSP-
(i) Regular reserves 6% Treasury Department;
(ii) Liquidity reserves 10%1 (ii) NDC Agri-Agra ERAP Bonds,
The liquidity reserves may be held in regardless of maturity; and
the form of: (iii) PEACe bonds only to the extent of
(i) Short-term market-yielding the original gross issue proceeds determined
government securities purchased directly at the time of the auction, plus capitalized
from the BSP-Treasury Department; interest on the underlying zero-coupon
(ii) NDC Agri-Agra ERAP Bonds, Treasury Notes as and when the
regardless of maturity; and corresponding interest is earned over the life
(iii) Poverty Eradication and Alleviation of the bonds.
Certificates (PEACe) bonds only to the extent The reserves on TOFA-Others shall be
of the original gross issue proceeds provided by the institution out of said funds.
determined at the time of the auction, plus
capitalized interest on the underlying zero- § 4405Q.6 Composition of reserves
coupon Treasury Notes as and when the a. The provisions of Subsec. 4246Q.1
corresponding interest is earned over the life shall govern the composition of reserves
of the bonds. against peso-denominated CTFs and such
The reserves on peso-denominated other managed peso funds as well as TOFA-
CTFs and such other managed peso funds Others of institutions authorized to engage
shall be provided by the institution out of in trust and other fiduciary business.
said funds. For purposes of this Subsection, a
b. Reserves against TOFA-Others. In special deposit account shall be maintained
addition to the basic security deposit, an by the institutions with the BSP exclusively
institution authorized to engage in trust and for trust reserves which deposits up to forty
other fiduciary business shall maintain percent (40%) of the required reserves against
reserves on TOFA-Others, except accounts peso-denominated CTFs and such other
held under (1) Administratorship; (2) Bond managed peso funds (less the percentage
Issues/Other Obligations Under Deed of allowed to be maintained in the form of short-
Trust or Mortgage; (3) Custodianship and term market-yielding government securities),
Safekeeping; (4) Depository and as well as the required reserves against TOFA-
Reorganization; (5) Employee Benefit Plans Others (less the percentage allowed to be
Under Trust; (6) Escrow; (7) Personal Trust maintained in the form of short-term market-
(testamentary and living trust); (8) yielding government securities), shall be paid
Executorship; (9) Guardianship; (10) Life interest at four percent (4%) per annum,
Insurance Trust; and (11) Pre-need Plans based on the average daily balance of said
(institutional/ individual). deposits to be credited quarterly.
____________________
1
Under MAB dated 12.29.04, regular reserve and liquidity reserve rates shall be 9% and 10%, respectively, effective the reserve
week starting 07 January 2005.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 7
§§ 4405Q.6 - 4406Q.1
04.12.31

Likewise, institutions may also maintain non-business days and days where there is
a special demand deposit account with local no clearing, shall apply thereon. For the
banks exclusively for trust duties. purpose of computing reserve position, the
Effective July 1, 2003, published interest principal office in the Philippines and all
rates that will be applied on BSP’s Special branches and agencies located therein shall
Deposit Accounts of quasi-banks shall be be treated as a single unit.
inclusive of the ten percent (10%) Value The required reserves in the current
Added Tax (VAT). period (reference reserve week) shall be
b. The portion of reserves that may be computed based on the corresponding levels
maintained in the form of short-term market- of peso-denominated CTFs and such other
yielding government securities refers to managed peso funds, as well as TOFA-
government securities shall be purchased Others of the prior week.
directly from the BSP Treasury Department
at one-half percent (1/2%) below the § 4405Q.8 Reserve deficiencies;
prevailing market rate for an equivalent term sanctions. The provisions of Subsec.
and volume and subject to BSP's firm 4246Q.3 shall govern the computation of
commitment to buy back at any time at reserve deficiencies for peso-denominated
prevailing market rates. Such reserves in the CTFs and such other managed peso funds,
form of short-term market-yielding as well as for TOFA-Others, of institutions
government securities shall be in addition authorized to engage in trust and other
to other forms of eligible reserves such as fiduciary business, including the sanctions
cash in vault or on deposit with the BSP. provided in said Subsection.
All purchases of said government
securities shall be under the RoSS system of § 4405Q.9 Report of compliance
the BTr. Transactions covering said securities Every institution shall make a weekly report
shall be recorded in accordance with the to the BSP of its daily required and available
guidelines in Appendix Q-21. reserves on peso-denominated CTFs and
such other managed peso funds, as well as
§ 4405Q.7 Computation of reserve on TOFA-Others, to be submitted not later
position. An institution authorized to engage than the close of the third business day
in trust and other fiduciary business shall following the reference week.
calculate daily the required and available
reserves on the value per books of its peso- Sec. 4406Q Organization and Management
denominated CTFs and such other managed
peso funds, as well as on TOFA-Others, § 4406Q.1 Organization. An institution
based on the seven-day week, starting Friday authorized to engage in trust and other
and ending Thursday including Saturdays, fiduciary business shall, pursuant to Subsec.
Sundays, holidays, non-business days and 4404Q.1, include in its by-laws, provisions
days when there is no clearing: Provided, on the organization plan or structure of the
That with reference to holidays, non-business department, office or unit which shall
days and days where there is no clearing, conduct such business. The by-laws shall also
the reserve position at the close of business include provisions on the creation of a trust
day immediately preceding such holidays, committee, the appointment of a trust officer

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Part IV - Page 8
§§ 4406Q.1 - 4406Q.2
04.12.31

and other subordinate officers and a clear shall, in turn, be only directly responsible to
definition of their duties and responsibilities the institution's board of directors.
as well as their line and staff functional No director, officer or employee taking
relationships within the organization which part in the management of trust and other
shall be in accordance with the following fiduciary accounts shall perform duties in
guidelines. other departments or the audit committee of
a. Trust and other fiduciary business the institution and vice versa. However,
of an institution shall be carried out branch managers duly authorized by the
through a trust department which shall be board of directors may, for or on behalf of
organizationally, operationally, the officer, sign predrawn trust instruments
administratively and functionally separate such as CTFs.
and distinct from the other departments c. The organization structure and
and/or businesses of the institution. definition of duties and responsibilities of the
An institution which is also engaged in trust committee, officers and employees of
investment management activities shall the trust department shall reflect adherence
conduct the same only through its trust to the minimum internal control standards
department and the responsibilities of the prescribed by the BSP.
board of directors, trust committee and trust d. Provisions shall be made by the
officer shall be construed to include the institution to have legal assistance readily
proper administration and management of available in the review of proposed and/or
investment management activities. existing trust and fiduciary agreements and
No institution shall undertake any of the documents and in the handling of legal and
trust and other fiduciary business and, tax matters related thereto.
whenever applicable, investment
management activities outside the direct § 4406Q.2 Composition of trust
control, authority and management of the committee. The trust committee shall be
trust department or through any department composed of at least five (5) members
or office which is involved in the other including the president, the trust officer and
businesses of the institution, such as the directors who are appointed by the board of
Treasury, Funds Management or any similar directors on a regular rotation basis and who
department; otherwise, any such business are not officers of the institution proper. No
shall be considered part of the institution's member of the audit committee, if the
real liabilities. institution has any, shall be concurrently
The institution proper and the trust designated as a member of the trust
department may share the following committee: Provided, That in the case of a
activities: (1) electronic data processing; (2) trust committee composed of more than five
credit investigation; (3) collateral appraisal; (5) members, the appointment therein of an
and (4) messengerial, janitorial and security operating officer may be allowed only if the
services. required balance in the membership of at
b. The trust department, trust officer least three (3) members of the board for every
and other subordinate officers of the trust operating officer shall be maintained.
department shall only be directly responsible For purposes of this Subsection, the term
to the institution's trust committee which officer shall include the president, executive

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 8a
§§ 4406Q.2 - 4406Q.4
04.12.31

vice president, general manager, corporate for directors and officers of financial
secretary, treasurer and others mentioned as institutions, possess the necessary technical
officers of the institution, or those whose expertise in such business: Provided, That
duties as such are defined in the by-laws, or trust officers who shall be appointed shall
are generally known to be officers of the have at least two (2) years of actual
institution (or any of its branches and offices experience or training in trust operations.
other than the Head Office) either through
announcement, representation, publication § 4406Q.4 Responsibilities of
or any kind of communication made by the administration
institution. a. Board of Directors. The board of
The board of directors shall duly note directors is responsible for the proper
in the minutes the committee members and administration and management of trust and
designate the chairman who shall be one of other fiduciary business. Funds and
the directors referred to above. properties held in trust or in any fiduciary
capacity shall be administered with the skill,
§ 4406Q.3 Qualifications of committee care, prudence and diligence necessary
members, officers and staff. The institution's under the circumstances then prevailing that
trust department shall be staffed by persons a prudent man, acting in like capacity and
of competence, integrity and honesty. familiar with such matters, would exercise
Directors, committee members and officers in the conduct of an enterprise of like
charged with the administration of trust and character and with similar aims.
other fiduciary activities shall, in addition to The responsibilities of the board of
meeting the qualification standards prescribed directors shall include, but need not be

(Next page is Part IV - Page 9)

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Part IV - Page 8b
§§ 4406Q.4
96.12.31

limited to, the following: officers and staff of the institution with
(1) It shall determine and formulate appropriate training programs in the
general policies and guidelines on the: (a) administration and operation of all phases
acceptance, termination, or closure of trust of trust and other fiduciary business.
and other fiduciary accounts; (b) proper The board of directors may, by action
administration and management of each trust duly entered in the minutes, delegate its
and other fiduciary accounts; and (c) authority for the acceptance, termination,
investment, reinvestment and disposition of closure or management of trust and other
funds or property held in its capacity as fiduciary accounts to the trust committee or
trustee or fiduciary; to the trust officer, subject to certain
(2) It shall direct and review the guidelines approved by the board.
actions of the trust committee and all officers b. Trust Committee. The trust
and employees designated to manage the committee duly constituted and authorized
trust and other fiduciary accounts, especially by the board of directors shall act within the
accounts without specific agreements on sphere of authority which may be provided
investments or discretionary accounts; in the by-laws and/or as may be delegated
(3) It shall approve or confirm the by the board, such as, but not limited to, the
acceptance, termination or closure of all trust following:
and other fiduciary accounts and shall record (1) The acceptance and closing of trust
such in its minutes; and other fiduciary accounts;
(4) Upon the acceptance of an (2) The initial review of assets placed
account, it shall immediately review all non- under the trustee's or fiduciary's custody;
cash assets received for management. (3) The investment, reinvestment and
Likewise, it shall make a review of the trust disposition of funds or property;
and/or fiduciary assets at least once every (4) The review and approval of
twelve (12) months to determine the transactions between trust and/or fiduciary
advisability of retaining or disposing of such accounts; and
assets; (5) The review of trust and other
(5) It shall be responsible for taking fiduciary accounts at least once every twelve
appropriate action on the examination (12) months to determine the advisability of
reports of supervisory agencies, internal and/ retaining or disposing of the trust or fiduciary
or external auditors on the institution's trust assets, and/or whether the account is being
and other fiduciary business and recording managed in accordance with the instrument
such actions thereon in the minutes; creating the trust or other fiduciary
(6) It shall designate the members of relationship.
the trust committee, the trust officer and For this purpose, the trust committee
subordinate officers of the trust department shall meet whenever necessary and keep
and shall be responsible for requiring reports minutes of its actions and make periodic
from said committee and officers and reports thereon to the board.
recording its actions thereon in the minutes; c. Trust Officer. The trust officer
and designated by the board of directors as head
(7) It shall establish an appropriate of the Trust Department shall act and
staffing pattern and adopt operating budgets represent the institution in all trust and other
that shall enable the trust department to fiduciary matters within the sphere of his
effectively carry out its functions. It shall authority as may be provided in the by-laws
likewise be responsible for providing the or as may be delegated by the board. His

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 9
§§ 4406Q.4 - 4407Q
96.12.31

responsibilities shall include, but need not b. When the agreement or contract is
be limited to, the following: itself used as a certificate of indebtedness in
(1) The administration of trust and exchange for money placement from clients
other fiduciary accounts; and/or as the medium for confirming
(2) The implementation of policies placements and investment thereof;
and instructions of the board of directors and c. When the agreement or contract of
the trust committee; an account is accepted under the signature(s)
(3) The submission of reports on of those other than the trust officer or
matters which require the attention of the subordinate officer of the trust department
trust committee and the board of directors; or those authorized by the board of directors
(4) The maintenance of adequate to represent the trust officer;
books, records and files for each trust or d. Where there is a fixed rate or
other fiduciary account; and guaranty of interest, income or return in favor
(5) The maintenance of necessary of its client or beneficiary: Provided,
controls and measures to protect assets under however, That where funds are placed in
his custody and held in trust or other fixed income-generating investments, a
fiduciary capacity. quotation of income expectation or like
terms, shall neither be considered as
Sec. 4407Q Non-Trust, Non-Fiduciary and/ arrangements with a fixed rate nor a guaranty
or Non-Investment Management Activities of interest, income or return when the
The basic characteristic of trust, other agreement or indenture categorically states
fiduciary and investment management in bold letters that the quoted income
relationship is the absolute non-existence of expectation or like terms is neither assured
a debtor-creditor relationship, thus, there is nor guaranteed by the trustee or fiduciary and
no obligation on the part of the trustee, it does not, therefore, entitle the client to a
fiduciary or investment manager to fixed interest or return on his investments:
guarantee returns on the funds or properties Provided, further, That any of the following
regardless of the results of the investment. practices or practices similar and/or
The trustee, fiduciary or investment manager tantamount thereto shall be construed as
is entitled to fees/commissions which shall fixing or guaranteeing the rate of interest,
be stipulated and fixed in the contract or income or return:
indenture and the trustor or principal is (1) Issuance of certificates, side
entitled to all the funds or properties and agreements, letters of undertaking, or other
earnings less fees/commissions, losses and similar documents providing for fixed rates
other charges. Any agreement/arrangement or guaranteeing interest, income or return;
that does not conform to these shall not be (2) Paying trust earnings based on
considered as trust, other fiduciary or indicated or expected yield regardless of the
investment management relationship. actual investment results;
The following shall not constitute a (3) Increasing or reducing fees in order
trust, other fiduciary and/or investment to meet a quoted or expected yield; and
management relationship: (4) Entering into any arrangement,
a. When there is a preponderance scheme or practice which results in the
of purpose or of intent that the arrangement payment of fixed rates or yield on trust
creates or establishes a relationship other investments or in the payment of the
than a trust, fiduciary and/or investment indicated or expected yield regardless of the
management; actual investment results; and

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Part IV - Page 10
§§ 4407Q - 4408Q
02.12.31

e. Where the risk or responsibility is b. The act or omission has resulted or


exclusively with the trustee, fiduciary or may result in material loss or damage or
investment manager in case of loss in the abnormal risk to the institution’s depositors,
investment of trust, fiduciary or investment creditors, investors, stockholders, or to the
management funds, when such loss is not due BSP, or to the public in general;
to the failure of the trustee or fiduciary to c. The act or omission has caused any
exercise the skill, care, prudence and undue injury, or has given unwarranted
diligence required by law. benefits, advantage or preference to the
Trust, other fiduciary and investment NBQB /trust entity or any party in the
management activities involving any of the discharge by the director or officer of his
foregoing which are accepted, renewed or duties and responsibilities through manifest
extended after October 16,1990 shall be partiality, evident bad faith or gross
reported as deposit substitutes and shall be inexcusable negligence; or
subject to the reserve requirement for deposit d. The act or omission involves entering
substitutes from the time of inception, without into any contract or transaction manifestly
prejudice to the imposition of the applicable and grossly disadvantageous to the NBQB/
sanctions provided for in Sections 36 and 37 trust entity, whether or not the director or
of R.A. No. 7653, and Sections 12 and 16 of officer profited or will profit thereby.
P.D. No. 129, as amended. The list of activities which may be
considered unsafe and unsound is shown in
Sec. 4408Q Unsafe and Unsound Practices Appendix Q-24.
Whether a particular activity may be In line with the statement of principles
considered as conducting business in an governing trust and other fiduciary business
unsafe or unsound manner, all relevant facts under Sec. 4401Q, the trustee, fiduciary or
must be considered. An analysis of the impact investment manager shall desist from the
thereof on the NBQB’s/trust entity’s operations following unsound practices:
and financial conditions must be undertaken, a. Entering in an arrangement whereby
including evaluation of capital position, asset the client is at the same time the borrower of
condition, management, earnings posture his own fund placement, or whereby the
and liquidity position. trustor or principal is a borrower of other
In determining whether a particular act trust, fiduciary or investment management
or omission, which is not otherwise funds belonging to the same family or
prohibited by any law, rule or regulation business group of such trustor or principal;
affecting NBQBs /trust entities, may be b. Granting loans or accommodations
deemed as conducting business in an unsafe to any trust committee member, officer and
or unsound manner, the Monetary Board, employee of the trust department except
upon report of the head of the supervising or where such loans are obtained by said
examining department based on findings in persons as members of an employee benefit
an examination or a complaint, shall consider fund of the trustee's own institution;
any of the following circumstances: c. Borrowing from, or selling trust, other
a. The act or omission has resulted or fiduciary and/or investment management
may result in material loss or damage, or assets to, the trust corporation or investment
abnormal risk or danger to the safety, stability, house proper to cover portfolio losses and/or
liquidity or solvency of the institution; to guarantee the return of principal or income;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 11
§§ 4408Q - 4409Q.1
04.12.31

d. Granting new loans to any borrower All other provisions of Sections 30 and
who has a past due and/or classified loan 37 of R.A. No. 7653, whenever appropriate,
account with the institution itself or its trust shall also be applicable on the conduct of
department; and business in an unsafe or unsound manner.
e. Requiring clients to sign documents The imposition of the above sanctions is
in blank. without prejudice to the filing of appropriate
criminal charges against culpable persons as
§§ 4408Q.1 - 4408Q.8 (Reserved) provided in Sections 34, 35 and 36 of R.A.
No. 7653.
§ 4408Q.9 Sanctions. The Monetary
Board may, at its discretion and based on Sec. 4409Q Trust and Other Fiduciary
the seriousness and materiality of the acts or Business. The conduct of trust and other
omissions, impose any or all of the following fiduciary business shall be subject to the
sanctions provided under Section 37 of R.A. following regulations.
No. 7653 and Section 56 of R.A. No. 8791,
whenever an NBQB/trust entity conducts § 4409Q.1 Minimum documentary
business in an unsafe and unsound manner: requirements. Each trust or fiduciary account
a. Issue an order requiring the quasi- shall be covered by a written document
bank/trust entity to cease and desist from establishing such account, as follows:
conducting business in an unsafe and a. In the case of accounts created by
unsound manner and may further order that an order of the court or other competent
immediate action be taken to correct the authority, the written order of said court or
conditions resulting from such unsafe or authority.
unsound practice; b. In the case of accounts created by
b. Fines in amounts as may be corporations, business firms, organizations
determined by the Monetary Board to be or institutions, the voluntary written
appropriate, but in no case to exceed agreement or indenture entered into by the
P30,000 a day on a per transaction basis parties, accompanied by a copy of the board
taking into consideration the attendant resolution or other evidence authorizing the
circumstances, such as the gravity of the act establishment of, and designating the
or omission and the size of the quasi-bank/ signatories to, the trust or other fiduciary
trust entity, to be imposed on the quasi-bank/ account.
trust entity, their directors and/or responsible c. In the case of accounts created by
officers; individuals, the voluntary written agreement
c. Suspension of lending or foreign or indenture entered into by the parties.
exchange operations or authority to accept The voluntary written agreement or
new deposit substitutes and/or new trust indenture shall include the following
accounts or to make new investments; minimum provisions:
d. Suspension of responsible directors (1) Title or nature of contractual
and/or officers; agreement in noticeable print;
e. Revocation of quasi-banking license (2) Legal capacities, in noticeable print,
and/or trust authority; and/or of parties sought to be covered;
f. Receivership and liquidation under (3) Purposes and objectives;
Section 30 of R.A. No. 7653. (4) Funds and/or properties subject of
the arrangement;

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part IV - Page 12
§§ 4409Q.1 - 4409Q.3
04.12.31

(5) Distribution of the funds and/or b. Loans fully guaranteed by the


properties; Republic of the Philippines as to the payment
(6) Duties and powers of trustee or of principal and interest;
fiduciary; c. Loans fully secured by a hold-out
(7) Liabilities of the trustee or on, assignment or pledge of deposit
fiduciary; substitutes of the institution or deposits with
(8) Reports to the client; other banks, or mortgage and chattel
(9) Termination of contractual mortgage bonds issued by the trustee or
arrangement and, in appropriate cases, fiduciary; and
provision for successor-trustee or fiduciary; d. Loans fully secured by real estate
(10) The amount or rate of the or chattels in accordance with Section 78 of
compensation of trustee or fiduciary; R.A. No. 337, as amended, and subject to
(11) A statement in noticeable print to the requirements of Sections 75, 76 and 77
the effect that trust and other fiduciary of R.A. No. 337, as amended.
business are not covered by the PDIC and The specific directives required under
that losses, if any, shall be for the account of this Subsection shall consist of the following
the client; and information:
(12) Disclosure requirements for (1) The transaction to be entered into;
transactions requiring prior authority and/or (2) The borrower's name;
specific written investment directive from the (3) Amount involved; and
client, court of competent jurisdiction or (4) Collateral security(ies), if any.
other competent authority.
§ 4409Q.3 Transactions requiring
§ 4409Q.2 Lending and investment prior authority. A trustee or fiduciary shall
disposition. Assets received in trust or in not undertake any of the following
other fiduciary capacity shall be administered transactions for the account of a client, unless
in accordance with the terms of the prior to its execution, such transaction has
instrument creating the trust or other fiduciary been fully disclosed and specifically
relationship. authorized in writing by the client,
When a trustee or fiduciary is granted beneficiary, other party-in-interest, court of
discretionary powers in the investment competent jurisdiction or other competent
disposition of trust or other fiduciary funds authority:
and unless otherwise specifically enumerated a. Lend, sell, transfer or assign money
in the agreement or indenture and directed or property to any of the departments,
in writing by the client, court of competent directors, officers, stockholders or employees
jurisdiction or other competent authority, of the trustee or fiduciary, or relatives within
loans and investments of the fund shall be the first degree of consanguinity or affinity,
limited to: or the related interests of such directors,
a. Evidences of indebtedness of the officers and stockholders; or to any
Republic of the Philippines and of the BSP, corporation where the trustee or fiduciary
and any other evidences of indebtedness or owns at least fifty percent (50%) of the
obligations the servicing and repayment of subscribed capital or voting stock in its own
which are fully guaranteed by the Republic right and not a trustee nor in a representative
of the Philippines or loans against such capacity;
government securities;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 12a
§ 4409Q.3
04.12.31

b. Purchase or acquire property or the first degree of consanguinity or


debt instruments from any of the affinity, or the related interest of such
departments, directors, officers, directors, officers and stockholders; or
stockholders, or employees of the from any corporation where the trustee
trustee or fiduciary, or relatives within or fiduciary owns at least fifty

(Next page is Part IV - Page 13)

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part IV - Page 12b
§§ 4409Q.3 - 4409Q.7
96.12.31

percent (50%) of the subscribed capital or § 4409Q.5 Funds awaiting investment


voting stock in its own right and not as trustee or distribution. Funds held by the trustee or
nor in a representative capacity; fiduciary awaiting investment or distribution
c. Invest in equities of, or in securities shall not be held uninvested or undistributed
underwritten by, the trustee or fiduciary or a any longer than is reasonable for the proper
corporation in which the trustee or fiduciary management of the account.
owns at least fifty percent (50%) of the
subscribed capital or voting stock in its own § 4409Q.6 Other applicable
right and not as trustee nor in a representative regulations on loans and investments. The
capacity; and loans and investments of trust and other
d. Sell, transfer, assign, or lend money fiduciary accounts shall be subject to
or property from one trust or fiduciary pertinent laws, rules and regulations for
account to another trust or fiduciary account banks and NBQBs that shall include, but need
except where the investment is in any of those not be limited to, the following:
enumerated in Items a to d of Subsec. a. Requirements of Sections 76 and
4409Q.2. 77 of R.A. No. 337, as amended;
Directors, officers, stockholders, and b. Provisions of Section 4(e) of the
their related interest covered by this New Rules on Registration of Short-Term
Subsection shall be those considered as such Commercial Papers and Section 7(f) of the
under existing regulations on loans to DOSRI New Rules on the Registration of Long-Term
in Part III - E of this Manual. The procedural Commercial Papers issued by the SEC
and reportorial requirements in said (Appendices Q-7 and Q-8).
regulations shall also apply. c. Criteria for past due accounts; and
The disclosure required under this d. Qualitative appraisal of loans,
Subsection shall consist of the following investments and other assets that may require
minimum information: provisions for probable losses in accordance
(1) The transactions to be entered into; with the criteria set in Appendix Q-10; and
(2) Identities of the parties involved in the corresponding allowance for probable
the transactions and their relationships (shall losses booked in accordance with the Manual
not apply to Item d of this Subsection); of Accounts for Trust and Other Fiduciary
(3) Amount involved; and Business and Investment Management
(4) Collateral security(ies), if any. Activities.
The above information shall be made
known to clients in a separate instrument or § 4409Q.7 Operating and accounting
in the very instrument creating the trust or methodology. Trust and other fiduciary
fiduciary relationship. accounts shall be operated and accounted
for in accordance with the following:
§ 4409Q.4 Ceilings on loans. Loans a. The trustee or fiduciary shall
funded by trust accounts shall be subject to administer, hold or manage the fund or
the single borrower's loan limit and DOSRI property in accordance with the instrument
ceilings imposed on NBQBs under Part III - A creating the trust or other fiduciary
and - E of this Manual. For purposes of relationship; and
determining compliance with said ceilings, b. Funds or property of each client
the total amount of said loans granted by the shall be accounted separately and distinctly
institution and its trust department to the same from those of other clients herein referred to
person, firm or corporation shall be as individual account accounting.
combined.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 13
§§ 4409Q.8 - 4409Q.16
04.12.31

§§ 4409Q.8 - 4409Q.15 (Reserved) quasi-bank or is directly or indirectly the


registered or beneficial owner of more than
§ 4409Q.16 Qualification and ten percent (10%) of any class of its equity
accreditation of quasi-banks acting as trustee security.
on any mortgage or bond issuance by any e. Investment and management of the
municipality, government-owned or funds. A domestic quasi-bank designated as
controlled corporation, or any body politic trustee of a mortgage or bond issuance may
a. Applicability. Quasi-banks duly hold and manage, in accordance with the
accredited by the BSP may act as trustee on provisions of the trust indenture or
any mortgage or bond issued by any agreement, the proceeds of the mortgage or
municipality, government-owned or bond issuance and such assets and funds of
controlled corporation, or any body politic. the issuing municipality, corporation, or
b. Application for accreditation. A body politic as may be required to be
quasi-bank desiring to act as trustee on any delivered to the trustee under the Trust
mortgage or bond issued by any municipality, indenture/agreement, subject to the
government-owned or controlled following conditions/restrictions:
corporation, or any body politic shall file an (1) Pending the utilization of such funds
application for accreditation with the pursuant to the provisions of the trust
appropriate supervising and examining indenture/agreement, the same shall only be
department of SES. The application shall be (i) deposited in a bank authorized to accept
signed by the president or officer of deposits from the Government or
equivalent rank of the quasi-bank and shall government entities: Provided, That the
be accompanied by the following documents: depository bank is not a subsidiary or affiliate
(1) certified true copy of the resolution of the trustee quasi-bank, or (ii) invested in
of the institution’s board of directors peso-denominated treasury bills acquired/
authorizing the application; purchased from any securities dealer/entity,
(2) a certification signed by the president other than the trustee or any of its unit/
or officer of equivalent rank that the institution department, its subsidiary or affiliate.
has complied with all the qualification (2) Investments of funds constituting or
requirements for accreditation. forming part of the sinking fund created as
c. Qualification requirements. A quasi- the primary source for the payment of the
bank applying for accreditation to act as principal and interests due the mortgage or
trustee on any mortgage or bond issued by bonds shall also be limited to deposits in any
any municipality, government-owned or bank authorized to accept deposits from the
controlled corporation, or any body politic Government or government entities and
must comply with the requirements in investments in government securities that are
Appendix Q-31. consistent with such purpose which must be
d. Independence of the trustee. A quasi- acquired/ purchased from any securities
bank is prohibited from acting as trustee of a dealer/ entity, other than the trustee or any
mortgage or bond issuance if any elective or of its unit/department, its subsidiary or
appointive official of the LGU, government- affiliate.
owned or controlled corporation, or body f. Waiver of confidentiality. A quasi-
politic which issued said mortgage or bond bank designated as trustee of any mortgage
and/or his related interests own such number or bond issued by any municipality,
of shares of the quasi-bank that will allow him government-owned or controlled
or his related interests to elect at least one (1) corporation, or any body politic shall submit
member of the board of directors of such to the appropriate supervising and examining

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part IV - Page 14
§§ 4409Q.16 - 4410Q.1
04.12.31

department of SES a waiver of the (c) Revocation of the authority to act as


confidentiality of information under Sections trustees on any mortgage or bond issuance
2 and 3 of R.A. No. 1405, as amended, duly by any municipality, government-owned or
executed by the issuer of the mortgage or controlled corporations, or body politic.
bond in favor of the BSP. (3) Subsequent offense –
g. Reportorial requirements. A quasi- (a) Fine of up to P30,000 a day for the
bank authorized by the BSP to act as trustee institution for each violation reckoned from
of the proceeds of mortgage or bond issuance the date the violation was committed up to
of a municipality, government-owned or the date it was corrected;
controlled corporation, or body politic shall (b) Suspension or revocation of the trust
comply with reportorial requirements that license;
may be prescribed by the BSP. (c) Suspension for one hundred twenty
h. Applicability of the rules and (120) days without pay of the directors/
regulations on Trust, Other Fiduciary officers responsible for the violation.
Business and Investment Management
Activities. The provisions of the Rules and Sec. 4410Q Unit Investment Trust Funds/
Regulations on Trust, Other Fiduciary Common Trust Funds2. The following rules
Business and Investment Management and regulations shall govern the creation,
Activities not inconsistent with the provisions administration and investment/s of Unit
of this Subsection shall form part of these Investment Trust (UIT) Funds.
rules. The rules and regulations on Common
i. Sanctions. Without prejudice to the Trust Funds (CTFs) are in Appendix Q-32.
penal and administrative sanctions provided
for under Sections 36 and 37, respectively, § 4410Q.1 Definition
of the R.A. No. 7653, violation of any a. Unit Investment Trust Funds. Unit
provision of this Subsection shall be subject Investment Trust Funds are open-ended
to the following sanctions/penalties pooled trust funds denominated in pesos or
depending on the gravity of the offense: any acceptable currency, which are operated
(1) First offense – and administered by a trust entity and made
(a) Fine of up to P10,000 a day for the available by participation. The term Unit
institution for each violation reckoned from Investment Trust Fund is synonymous to
the date the violation was committed up to CTFs. As an open-ended fund, participation
the date it was corrected; and or redemption is allowed as often as stated
(b) Reprimand for the directors/ officers in its plan rules.
responsible for the violation. b. Trust entity. Any bank, investment
(2) Second offense – house or a stock corporation duly authorized
(a) Fine of up to P20,000 a day for the by the Monetary Board to engage in trust,
institution for each violation reckoned from investment management and fiduciary
the date the violation was business.
committed up to the date it was corrected; c. Board of directors. For this purpose,
(b) Suspension for ninety (90) days the term shall include a trust entity’s duly
without pay for directors/officers responsible constituted board of directors or its functional
for the violation; and oversight equivalent which shall include the

---------------------------------------------------------------------------

2
The regulations on common trust funds (CTFs) were relocated to Appendix Q-32. UIT Funds regulations took effect on 01
October 2004 (effectivity of Circular 447 dated 03 September 2004).

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 15
§§ 4410Q.1 - 4410Q.6
04.12.31

country head in the case of foreign c. All such participations shall be


institutions. pooled and invested as one (1) account
(referred to as collective investments).
§ 4410Q.2 Establishment of a Unit d. The beneficial interest of each
Investment Trust Fund. Any trust entity participation unit shall be determined under
authorized to perform trust functions may a unitized net asset value per unit (NAVPu)
establish, administer and maintain one (1) valuation methodology defined in the written
or more UIT Funds subject to applicable plan of the UIT Fund, and no participation
provisions under this Section. shall be admitted to, or redeemed from, the
fund except on the basis of such valuation.
§ 4410Q.3 Administration of a Unit To arrive at a fund’s NAVPu, the fund’s total
Investment Trust Fund. The trustee shall Net Assets is divided by the total outstanding
have exclusive management and control of units. Total Net Assets is a summation of the
each UIT Fund under its administration, and market value of each investment less fees,
the sole right at any time to sell, convert, taxes, and other qualified expenses, as
reinvest, exchange, transfer or otherwise defined under the plan rules.
change or dispose of the assets comprising
the fund: Provided, That no participant in a § 4410Q.6 Plan rules. Each UIT Fund
UIT Fund shall have or be deemed to have shall be established, administered and
any ownership or interest in any particular maintained in accordance with a written trust
account or investment in the UIT Fund but agreement drawn by the trustee, referred to
shall have only its proportionate beneficial as the “plan” which shall be approved by
interest in the fund as a whole. the board of directors of the trustee and a
copy of which shall be submitted to the BSP
§ 4410Q.4 Relationship of trustee with for approval prior to its implementation.
Unit Investment Trust Fund. A trustee The plan shall contain the following
administering a UIT Fund shall not have any minimum elements:
other relationship with such fund other than a. Title of the plan. This shall
its capacity as trustee of the UIT Fund: correspond to the product/brand name by
Provided, however, That a trustee which which the UIT Fund is proposed to be known
simultaneously administers other trust, and made available to its clients.
fiduciary or investment management funds b. Manner in which the fund is to be
may invest such funds in the trustee’s UIT operated. A statement of the fund’s
Fund, if allowed under a policy approved investment objectives and policies including
by the board of directors. limitations, if any.
c. Investment powers of the trustee
§ 4410Q.5 Operating and accounting with respect to the fund, including the
methodology. A UIT Fund shall be operated character and kind of investments, which
and accounted for in accordance with the may be purchased, by the fund. There must
following: be an unequivocal statement of the full
a. The total assets and accountabilities discretionary powers of the trustee as far as
of each fund shall be accounted for as a single the fund’s investments are concerned. These
account referred to as pooled-fund powers shall be limited only by the duly
accounting method. stated investment objective and policies of
b. Contributions to each fund by clients the fund.
shall always be through participation in units d. The unitized NAVPu valuation
of the fund and each unit shall have uniform methodology as prescribed under Subsec.
rights or privileges, as any other unit. 4410Q.5.d shall be employed.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part IV - Page 16
§§ 4410Q.6 - 4410Q.7
04.12.31

e. Terms and conditions governing the Such special expense shall be payable to a
admission or redemption of units of third party covered by a separate contract
participation in the fund. If the frequency of and disclosed to participants. No other fees
admission or redemption is other than daily; shall be charged to the fund.
that is, any business day, the same should Marketing or other promotional related
be explicitly stated in the Plan rules: expenses shall be for the account of the
Provided, That the admission and redemption trustee and shall be presumed covered by
prices shall be based on the prevailing market the trust fee.
value of underlying investments at that time. j. Such other matters as may be
f. Aside from the regular audit necessary or proper to define clearly the
requirement applicable to all trust accounts, rights of participants in the UIT Fund. The
an external audit of each UIT Fund shall be provisions of the plan shall govern
conducted annually by an independent participation in the fund including the rights
auditor acceptable to the BSP and the results and benefits of persons having interest in
thereof made available to participants. The such participation, as beneficiaries or
external audit shall be conducted by the same otherwise. The Plan may be amended by a
external auditor engaged for the audit of the resolution of the Board of Directors of the
trust entity. trustee: Provided, however, That participants
g. Basis upon which the fund may be in the fund shall be immediately notified of
terminated. The Plan shall state the rights of such amendments and shall be allowed to
participants in case of termination of the fund. withdraw their participations within a
Termination of the fund shall be duly reasonable time but in no case less than thirty
approved by the trustee’s Board of Directors (30) calendar days after the amendments are
and a copy of the resolution submitted to the approved, if they are not in conformity with
appropriate department of the BSP. the amendments made thereto: Provided
h. Liability clause of the trustee. There further, That amendments to the plan shall
must be clear and prominent statement be submitted to the BSP within ten (10)
adjacent to where a client is required to sign business days from approval of the
that contract is not a deposit account but a amendments by the Board of Directors. The
trust agreement and that any loss/income is amendments shall be deemed approved after
for the account of the participant; that the thirty (30) business days from date of
trustee is not liable for losses unless upon completion of requirements.
willful default; and that the fund is not insured A copy of the Plan shall be available at
by the PDIC; the principal office of the trustee during
i. Amount of fees/commission and regular office hours, for inspection by any
other charges to be deducted from the fund. person having an interest in the fund or by
The amount of fees that shall be charged to a his authorized representative. Upon request,
fund shall cover the fund’s fair and equitable a copy of the plan shall be furnished such
share of the routine administrative expenses interested person.
of the trustee such as salaries and wages,
stationery and supplies, credit investigation, § 4410Q.7 Minimum disclosure
collateral appraisal, security, messengerial requirements
and janitorial services, EDP expenses, BSP a. Disclosure of UIT Fund investments.
supervision fees and internal audit fees. A list of prospective and outstanding
However, the trustee may charge a UIT Fund investment outlets shall be made available
for special expenses if such is necessary to by the trustee for the review of all UIT Fund
preserve or enhance the value of the Fund. clients. Such disclosure shall be substantially

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 17
§ 4410Q.7
04.12.31

in the form as shown in Appendix Q-34. The (iii) Absolute peso or foreign currency
list of investment outlets shall be updated value
quarterly. No indicative rates of return shall be
b. Distribution of investment units. The provided in the trust participating agreement.
trustee may issue such conditions or rules, as Marketing materials may present relevant
may affect the distribution of investment units historical performance purely for reference
subject to the minimum conditions and with clear indication that past results
enumerated hereunder. do not guarantee similar future results.
(1) Marketing materials. All printed (3) A participating trust agreement or
marketing materials related to the sale of a UIT confirmation of contribution/re-demption
Fund shall clearly state: need not be manually signed by the trustee
(a) The designated name of the fund and or his authorized representative if the same
the fund’s trustee. is in the form of an electronic document that
(b) The participation is not a “deposit conforms with the implementing rules and
account” but a trust product; and that any loss/ regulations of R.A. No. 8792, otherwise
income is for the account of the participant; known as the Electronic Commerce Act.
that the Bank is not liable for losses unless c. Regular publication/computation/
proven to be negligent. availability of the fund’s NAVPu. Trust
(c) The participation does not carry any entities managing a UIT Fund shall cause at
guaranteed rate of return and it is not insured least the weekly publication of the NAVPu
by the PDIC. of such fund in one (1) or more newspaper
(d) Minimum information regarding: of national circulation: Provided, That a
(i) The general investment policy and pooled weekly publication of such NAVPu
applicable risk profile. shall be considered as substantial compliance
(ii) Particulars or administrative and with this requirement. The said publication,
marketing details like pricing and cut-off time. at the minimum, shall clearly state the name
(iii)All charges made/to be made against of the fund, its general classification, the
the fund, including trust fees, other related fund’s NAVPu and the moving return on
charges. investment (ROI) of the fund on a year-to-
(iv)The availability of the plan rules date (YTD) and year-on-year (YOY) basis.
governing the Fund, upon the client’s request. NAVPu shall be computed daily and
(v) Customer and product suitability shall be made available to participants and
standards. prospective participants upon request.
(2) Evidence of participation. Every UIT d. Marketing personnel. To ensure the
Fund participant shall be given - competence and integrity of all duly
(a) A participating trust agreement. Such designated UIT marketing personnel, all
agreement shall clearly indicate that the trust personnel involved in the sales of these funds
product does not have any guaranteed rate of shall be required to undergo standardized
return and it is not insured with the PDIC. training program in accordance with the
(b) A confirmation of participation and guidelines of this Subsection. This training
redemption made to /from the Fund that shall program may be conducted by their
contain the following information: respective trust entities in accordance with
(i) NAVPu of the fund on day of purchase the minimum training program guidelines
/redemption; provided by the Trust Officers Association
(ii) Number of units purchased/ of the Philippines (TOAP). Such training
redeemed; and program shall however be regularly validated
by TOAP.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part IV - Page 18
§§ 4410Q.8 - 4410Q.11
04.12.31

§ 4410Q.8 Exposure limit to single policies duly approved by the Trust


person/entity. The combined exposure of the Committee and disclosed to participants.
UIT Fund to any entity and its related parties The use of hedging instruments shall also
shall not exceed fifteen percent (15%) of the be disclosed in the “Plan” as provided in Item
market value of the UIT Fund: Provided, That, “c” of Subsec. 4410Q.6 and specified in the
this limitation shall not apply to non-risk quarterly “list of investment outlets” as
assets as defined by the BSP. provided in Item “a” of Subsec. 4410Q.7.
In case the limit is breached due to the
marking-to-market of certain investment/s or § 4410Q.10 Other related guidelines on
any extraordinary circumstances, e.g. valuation of allowable investments
abnormal redemptions which are beyond the a. In pricing debt securities,
control of the trustee, the trustee shall be interpolated yields shall be used for securities
given thirty (30) days from the time the limit with odd or off-the-run tenors using the
is breached to correct the same. straight-line basis and generally accepted
market convention.
§ 4410Q.9 Allowable investments and b. In case outstanding UIT Fund
valuation. UIT Fund investments shall be investments may deteriorate in quality, i.e.,
limited to bank deposits and the following no longer tradable as defined under Subsec.
financial instruments: 4410Q.9, the trustee shall immediately
(a) Securities issued by or guaranteed by provision to reflect fair value in accordance
the Philippine government, or the BSP; with generally accepted accounting
(b) Tradable securities issued by the principles or as may be prescribed by the
government of a foreign country, any political BSP. If no fair value is available, the
subdivision of a foreign country or any instrument shall be assumed to be of no
supranational entity; market value.
(c) Exchange-listed securities,
(d) Marketable instruments that are § 4410Q.11 Unit Investment Trust
traded in an organized exchange; Fund administration support
(e) Loans traded in an organized market; a. Backroom operations. Administrative
and rules on backroom under Sec. 4421Q shall
(f) such other tradable investments be applicable to UIT Fund. Adequate systems
outlets/categories as the BSP may allow: to support the daily marking-to-market of the
Provided, That a financial instrument is fund’s financial instruments shall be in place
regarded as tradable if quoted two-way prices at all times. In this respect, a daily
are readily and regularly available from an reconcilement of the fund’s resultant marked-
exchange, dealer, broker, industry group, to-market value with the unrealized market
pricing service or regulatory agency, and losses and gains (respective contra asset
those prices represent actual and regularly balance) versus the book value of the fund
occurring market transactions on an arm’s for investments in financial instruments shall
length basis. be done and all differences resolved within
The UIT Fund may avail itself of financial the day.
derivatives instruments solely for the purpose b. Custody of securities. Investments in
of hedging risk exposures of the existing securities of a UIT Fund shall be held for
investments of the Fund, provided these are safekeeping by BSP accredited third party
accounted for in accordance with existing custodians which shall perform independent
BSP hedging guidelines as well as the trust marking-to-market of such securities.
entity’s risk management and hedging

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 19
§§ 4410Q.12 - 4411Q.1
04.12.31

§ 4410Q.12 Counterparties § 4411Q.1 Minimum documentary


a. Dealings with related interests/ requirements. An investment management
NBQB proper/holding company/ account shall be covered by a written
subsidiaries/affiliates and related companies. document establishing such account, as
A trustee of a UIT Fund shall be transparent follows:
at all times and maintain an audit trail for all a. In the case of accounts created by
transactions with related parties or entities. corporations, business firms, organizations or
The trustee shall observe the principle of best institutions, the voluntary written agreement
execution and no purchase/sale shall be or indenture entered into by the parties,
made with related counterparties without accompanied by a copy of the board
considering at least two (2) competitive resolution or other evidence authorizing the
quotes from other sources. establishment of, and designating the
b. Accreditation of counterparties. The signatories, to the investment management
Fund shall only invest with approved account.
counterparties qualified in accordance with b. In the case of accounts created by
the policy duly approved by the Trust individuals, the voluntary written agreement
Committee. Counterparties shall be subject or indenture entered into by the parties.
to appropriate limits in accordance with The voluntary written agreement or
sound risk management principles. contract shall include the following minimum
provisions:
§ 4410Q.13 Foreign currency- (1) Prenumbered contractual
denominated Unit Investment Trust Funds agreement form;
UIT Fund denominated in any acceptable (2) Title or nature of contractual
foreign currency provided under existing BSP agreement in noticeable print;
rules and regulations may be established. (3) Legal capacities, in noticeable
Such fund may only be invested in allowable print, of parties sought to be covered;
investments denominated in pesos or any (4) Purposes and objectives;
acceptable foreign currency as expressly (5) The initial amount of funds and/or
allowed under the fund’s Plan rules and value of securitie ssubject of the arrangement
properly disclosed to fund participants. delivered to the investment manager;
(6) Statement in underlined noticeable
§ 4410Q.14 Exemptions from statutory print that:
and liquidity reserves, single borrowers (a) The agreement is an agency and not
limit, DOSRI. The provisions on reserves, a trust agreement. As such, the client shall at
single borrower’s limit and DOSRI ceilings all times retain legal title to funds and
under Secs. 4360Q and 4361Q, respectively, properties subject of the arrangement;
applicable to trust funds in general shall not (b) The arrangement does not
be made applicable to UIT Funds. guaranty a yield, return or income by the
investment manager. As such, past
Sec. 4411Q Investment Management performance of the account is not a guaranty
Activities. The conduct of investment of future performance and the income of
management activities shall be subject to the investments can fall as well as rise depending
following regulations. on prevailing market conditions; and

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Part IV - Page 20
§§ 4411Q.1 - 4411Q.5
04.12.31

(c) The investment management § 4411Q.4 Lending and investment


agreement is not covered by the PDIC and disposition. Assets received in investment
that losses, if any, shall be for the account of management capacity shall be administered
the client; in accordance with the terms of the
(7) Duties and powers of the instrument creating the investment
investment manager; management relationship.
(8) Liabilities of the investment When an investment manager is granted
manager; discretionary powers in the investment
(9) Reports to the client; disposition of investment management funds
(10) The amount or rate of the and unless otherwise specifically enumerated
compensation of the investment manager; in the agreement or indenture and directed
(11) Terms and conditions governing in writing by the client, loans and
withdrawals from the account; investments of the fund shall be limited to:
(12) Termination of contractual a. Evidences of indebtedness of the
arrangement; and Republic of the Philippines and of the BSP,
(13) Disclosure requirements for and any other evidences of indebtedness or
transactions requiring prior authority and/or obligations the servicing and repayment of
specific written investment directives from the which are fully guaranteed by the Republic
client. of the Philippines or loans against such
A sample investment management government securities;
agreement which conforms to the foregoing b. Loans fully guaranteed by the
requirements is shown as Appendix Q-14. Republic of the Philippines as to the payment
of principal and interest;
§ 4411Q.2 Minimum size of each c. Loans fully secured by a hold-out on,
investment management account. No assignment or pledge of deposit substitutes
investment management account shall be maintained with the institution or deposits
accepted or maintained for an amount less with banks, or mortgage and chattel mortgage
than P1 million. An investment management bonds issued by the investment manager; and
account reduced to less than P1 million due d. Loans fully secured by real estate or
to investment losses shall be exempt from this chattels in accordance with Section 78 of
requirement. R.A. No. 337, as amended, and subject to
the requirements of Sections 75, 76 and 77
§ 4411Q.3 Commingling of funds. Two of R.A. No. 337, as amended.
(2) or more individual investment The specific directives required under
management accounts shall not be this Subsection shall consist of the following
commingled except for the purpose of information:
investing in government securities or in duly (1) The transaction to be entered into;
registered commercial papers: Provided, That (2) Borrower's name;
the participation of each of the (3) Amount involved; and
aforementioned accounts in the commingled (4) Collateral security(ies), if any.
account shall not be less than P1 million:
Provided, further, That such commingling has § 4411Q.5 Transactions requiring prior
been fully disclosed and specifically agreed authority. An investment manager shall not
in writing by the clients. undertake any of the following transactions

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part IV - Page 20a
§§ 4411Q.5 - 4411Q.8
04.12.31

for the account of a client, unless prior to its and reportorial requirements in said
execution, such transaction has been fully regulations shall also apply.
disclosed and specifically authorized in The disclosure required under this
writing by the client: Subsection shall consist of the following
a. Lend, sell, transfer or assign money minimum information:
or property to any of the departments, (1) The transactions to be entered into;
directors, officers, stockholders, or (2) Identities of the parties involved in
employees of the investment manager, or the transaction and their relationships (shall
relatives within the first degree of not apply to Item d of this Subsection);
consanguinity or affinity, or the related (3) Amount involved; and
interests of such directors, officers and (4) Collateral security(ies), if any.
stockholders; or to any corporation where The above information shall be made
the investment manager owns at least fifty known to clients in a separate instrument or
percent (50%) of the subscribed capital or in the very instrument creating the
voting stock in its own right and not as trustee investment management relationship.
nor in a representative capacity;
b. Purchase or acquire property or debt § 4411Q.6 Title to securities and other
instruments from any of the departments, properties. Securities such as promissory
directors, officers, stockholders, or notes, shares of stocks, bonds and other
employees of the investment manager, or properties of the portfolio shall be issued or
relatives within the first degree of registered in the name of the principal or of
consanguinity or affinity, or the related the investment manager: Provided, That in
interests of such directors, officers and case of the latter, the instrument shall indicate
stockholders; or from any corporation where that the investment manager is acting in a
the investment manager owns at least fifty representative capacity and that the
percent (50%) of the subscribed capital or principal's name is disclosed thereat.
voting stock in its own right and not as trustee
nor in a representative capacity; § 4411Q.7 Ceilings on loans. Loans
c. Invest in equities of or in securities funded by investment management accounts
underwritten by the investment manager or shall be subject to the DOSRI ceilings
a corporation in which the investment imposed on NBQBs in Part III - E of this
manager owns at least fifty percent (50%) of Manual. For purposes of determining
the subscribed capital or voting stock in its compliance with said ceilings, the total
own right and not as trustee, nor in a amount of said loans granted by the
representative capacity; and institution and its trust department to the
d. Sell, transfer, assign or lend money same person, firm or corporation shall be
or property from one trust fiduciary or combined.
investment management account to another
trust, fiduciary or investment management § 4411Q.8 Operating and accounting
account except where the investment is in methodology. Investment management
any of those enumerated in Items a to d of accounts shall be operated and accounted
Subsec. 4411Q.4. for in accordance with the following:
Directors, officers, stockholders and their a. The investment manager shall
related interest covered by this Subsection administer, hold or manage the fund or
shall be those considered as such under property in accordance with the instrument
existing regulations on loans to DOSRI under creating the investment management
Part III - E of this Manual. The procedural relationship; and

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Part IV - Page 20b
§§ 4411Q.8 - 4414Q.1
04.12.31

b. Funds or property of each client or incidental business, the Monetary Board


shall be accounted separately and distinctly may impose administrative sanctions against
from those of other clients herein referred to such entity or its principal officers and/or
as individual account accounting. majority stockholders or proceed against
them in accordance with law.
Sec. 4412Q (Reserved) The Monetary Board may take such
action as it may deem proper such as, but
Sec. 4413Q Required Retained Earnings may not be limited to, requiring the transfer
Appropriation. An institution authorized to or turnover of any investment management
engage in trust and other fiduciary business account to duly incorporated and licensed
shall, before the declaration of dividends, entities of the choice of the client.
carry to retained earnings appropriated for An entity not authorized to engage in
trust business at least ten percent (10%) of its investment management activities shall not
net profits realized out of its trust, investment advertise or represent itself as being engaged
management and other fiduciary business in investment management activities or
since the last preceding dividend declaration represent itself as investment manager or use
until the retained earnings shall amount to words of similar import.
twenty percent (20%) of its authorized capital Starting year 2001, investment houses
stock and no part of such retained earnings authorized to engage in investment
shall at any time be paid out in dividends but management activities shall renew their
losses accruing in the course of its business existing licenses yearly, subject to the
may be charged against surplus. implementing guidelines to be issued
thereon.

B. INVESTMENT MANAGEMENT § 4414Q.1 Prerequisites for engaging


ACTIVITIES in investment management activities. An
entity before it may engage in investment
Sec. 4414Q Authority to Perform management activities shall comply with the
Investment Management. An investment following requirements:
house may act as financial consultant, a. It has been duly licensed by the
investment adviser or portfolio manager appropriate government agency or created
under Section 7 of P.D. No. 129, as amended. by special law or charter.
However, this shall not be construed as b. The articles of incorporation or
authority to engage in trust and other fiduciary charter of the institution shall include among
business. its powers or purposes the authority to
Entities whose articles of incorporation engage in investment management activities.
or any amendments thereto, include the c. The by-laws of the institution shall
purpose or power to act as financial include, among other things:
consultant, investment adviser or portfolio (1) The organization plan or structure
manager shall secure the prior favorable of the department, office or unit which shall
recommendation of the Monetary Board conduct the investment management
before the filing of said articles of activities of the institution;
incorporation or amendments thereto with (2) The creation of an investment
the SEC. management committee, the appointment of
If an entity is found to be engaged in an investment management officer and
unauthorized investment management subordinate officers of the investment
activities, whether as its primary, secondary management department; and

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Part IV - Page 20c
§§ 4414Q.1 - 4415Q.1
04.12.31

(3) A clear definition of the duties and time the authority is granted. An applicant
responsibilities, as well as the line and staff that fails in this respect shall be required to
functional relationships, of the various units, show compliance for another test period of
officers and staff within the organization. the same duration.
d. Where the applicant is authorized to
engage in quasi-banking functions, the § 4414Q.2 Pre-operating requirements
applicant shall also meet the following An institution authorized to engage in
additional requirements: investment management activities shall,
(1) It has continuously complied with before engaging in actual operations, submit
the capital-to-risk assets ratio, reserve to the BSP the following:
requirements against deposit substitutes, a. Government securities acceptable to
liquidity floor, and ceilings on DOSRI loans the BSP amounting to P500,000 as minimum
for the last sixty (60) days immediately basic security deposit for the faithful
preceding the date of application; performance of investment management
(2) It has not incurred net weekly reserve duties required under Subsec. 4415Q.1;
deficiencies against deposit substitutes b. Organization chart of the investment
during the last eight (8) weeks immediately management department which shall carry
preceding the date of application; and out the investment management activities of
(3) It has shown substantial com-pliance the institution; and
with other pertinent laws, rules and c. Names and positions of individuals
regulations, policies and instructions of the designated as chairman and members of the
BSP and has not been cited for serious/major investment management committee,
violations or exceptions affecting its investment management officer and other
solvency, liquidity and profitability. subordinate officers of the investment
Where the applicant is not authorized management department.
to engage in quasi-banking functions:
(i) The adoption of a formula/criteria for Sec. 4415Q Security for the Faithful
NBQBs in the determination of compliance Performance of Investment Management
with the capital-to-risk assets ratio and Activities
ceilings on loans to DOSRI; and
(ii) The substitution of the reserve and § 4415Q.1 Basic security deposit. An
liquidity floor requirements with the cash institution authorized to engage in investment
ratio, as follows: management activities shall deposit with the
(a) Primary reserves to Bills Payable; and BSP eligible government securities as security
(b) Primary and secondary reserve to for the faithful performance of its investment
Bills Payable: management activities equivalent to at least
where primary reserves consist of cash on one percent (1%) of the book value of the
hand, cash in vault, checks and other cash total volume of investment management
items, due from the BSP and due from banks; assets: Provided, That at no time shall such
and where secondary reserves consist of BSP- deposit be less than P500,000.
supported government securities, treasury Scripless securities under the RoSS
bills and other government securities. system of the BTr may be used as basic
Compliance with the foregoing, as well security deposit for the faithful performance
as with other requirements under existing of investment management activities using
regulations, shall be maintained up to the the guidelines in Appendix Q-21.

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Part IV - Page 20d
§§ 4415Q.2 - 4416Q
04.12.31

§ 4415Q.2 Eligible securities. Securities The following sanctions shall be


enumerated in Subsec. 4405Q.2 shall be imposed for any deficiency in the basic
eligible as security deposit for faithful security deposit for the faithful performance
performance of investment management of investment management activity:
activities. a. On the institution:
(1) First offense - Penalty of P5,000 per
§ 4415Q.3 Valuation of securities and business day to be reckoned from thirty (30)
basis of computation of the basic security business days after the end of the reference
deposit requirement. For purposes of quarter; and
determining compliance with the basic (2) Second and subsequent offenses -
security deposit under this Section, the Suspension of investment management
amount of securities so deposited shall be license.
based on their book value, that is, cost as b. On the Head of the Fund
increased or decreased by the corresponding Management Department:
discount or premium amortization. (1) First Offense - Reprimand with a
The base amount for the basic security stern warning that subsequent violations will
deposit shall be the average of the month- be subjected to more severe sanctions; and
end balances of the total assets of investment (2) Subsequent offenses - Suspension for
management funds of the immediately ninety (90) days without pay.
preceding calendar quarter.
Sec. 4416Q Organization and
§ 4415Q.4 Compliance period; Management. The provisions under Sec.
sanctions. The investment manager shall 4406Q up to Subsec. 4406Q.4 shall govern
have thirty (30) business days after the end of the organization and management of
every calendar quarter within which to institutions without trust license which are
deposit with the BSP securities required under engaged in investment management
this Section. activities only. The following terms shall,
In case an institution fails to comply with however, be used:
the basic security deposit, the Monetary Board a. Investment management activities
may require the institution to desist from in lieu of trust and other fiduciary business;
accepting new investment management b. Investment management accounts
accounts and from renewing expiring in lieu of trust and other fiduciary accounts;
investment management contracts.

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Part IV - Page 20e
§§ 4416Q - 4422Q
96.12.31

c. Investment management committee management department shall keep books


in lieu of trust committee; and records on trust, other fiduciary and
d. Investment management officer in investment management accounts separate
lieu of trust officer; and and distinct from the books and records of
e. Investment management department its other businesses and shall follow the
in lieu of trust department. Manual of Accounts for Trust and Other
Fiduciary Business and Investment
Sec. 4417Q Non-Investment Management Management Activities prescribed by the BSP.
Activities. The provisions of Sec. 4407Q Each trust, other fiduciary or investment
shall apply in determining non-investment management account shall have a record
management activities except that the terms separate from all other accounts except only
trust, other fiduciary, trustee and fiduciary in the case of CTFs where the trustee can
shall be disregarded. maintain common records utilizing pooled
fund accounting method for each fund:
Sec. 4418Q Unsound Practices. The Provided, That the trustee shall clearly
provisions of Sec. 4408Q shall govern the indicate in the records the trustors owning
unsound practices for investment participation in the CTF and the extent of the
management accounts. interest of such trustors.
Books and records shall contain full
Sec. 4419Q Conduct of Investment information relative to each trust, other
Management Activities. The provisions of fiduciary or investment management account
Sec. 4411Q shall govern the conduct of and shall be supported by duplicate signed
investment management activities of an copies of related documents. Said records
institution without trust license that is and duplicate signed copies or related
engaged in investment management documents shall be compiled and kept as to
activities. allow inspection by BSP examiners and
submission of information or reports as may
Sec. 4420Q Required Retained Earnings be required by competent authorities.
Appropriation. An institution authorized to
engage in investment management activities Sec. 4422Q Custody of Assets. All monies,
shall, before the declaration of dividends, properties or securities received by an
carry to retained earnings appropriated for institution in its capacity as trustee, fiduciary,
trust business at least ten percent (10%) of or investment manager shall be kept
its net profits realized out of its investment physically separate and distinct from the
management activities since the last assets of its other businesses and shall be
preceding dividend declaration until the under the joint custody of at least two (2)
retained earnings shall amount to twenty persons, one of whom shall be an officer of
percent (20%) of its authorized capital stock the trust or investment management
and no part of such retained earnings shall department, designated for that purpose by
at any time be paid out in dividends, but the board of directors.
losses accruing in the course of its business The investment of each trust, other
may be charged against retained earnings. fiduciary or investment management account
shall be kept physically separated from those
C. GENERAL PROVISIONS of other trust, other fiduciary or investment
management accounts, and adequately
Sec. 4421Q Books and Records. The identified as the assets or property of the
institution's trust department or investment relevant account.

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Part IV - Page 21
§§ 4423Q - 4425Q.1
96.12.31

Sec. 4423Q Fees and Commissions. An plans, shall contain provisions regarding the
institution acting as trustee, fiduciary or applicability of regulations governing
investment manager shall be entitled to taxation on the income of trust, other
reasonable fees and commissions which shall fiduciary or investment management
be determined on the basis of the cost of accounts. For this purpose, the trustee,
services rendered and the responsibilities fiduciary or investment manager shall
assumed: Provided, That where the trustee, maintain adequate records and shall include
fiduciary or investment manager is acting as information such as the amount of final
such under appointment by a court, the income tax withheld at source and the
compensation shall be that allowed or amount withheld by the trustee, fiduciary or
approved by the court: Provided, further, investment manager in the periodic reports
That in the case of CTFs, the fee which a submitted to trustors, beneficiaries, principals
trustee may charge each participant shall be and other parties in interest.
fully disclosed by the trustee in the CTF plan,
prospectus, flyers, posters and all forms of Sec. 4425Q Reports Required
advertising materials to market the fund and
in the documents given to clients as proof of § 4425Q.1 To trustor, beneficiary,
participation in the fund. In no case shall principal. Every institution acting as trustee,
such fees and commissions be based on the fiduciary or investment manager shall render
excess of the income of the trust, other reports on the trust, other fiduciary or
fiduciary or investment management funds investment management accounts to the
over a certain amount or percentage. trustor, beneficiary, principal or other party
No trustee, fiduciary or investment in interest or the court concerned or any party
manager shall solicit or receive rebates on duly designated by the court order, as the
commissions, fees and other payments for case may be, under the following guidelines:
the services rendered to the trust, other a. The reports shall be in such forms
fiduciary or investment management account as to apprise the party concerned of the
or beneficiaries of the trust, other fiduciary significant developments in the
or investment management account by administration of the account and shall
stockbrokers, real estate brokers, insurance consist of:
agents and similar persons or entities unless (1) A balance sheet;
the rebates, fees and other payments shall (2) An income statement;
accrue to the benefit of the trust, other (3) A schedule of earning assets of the
fiduciary or investment management account account; and
or the beneficiaries thereof. (4) An investment activity report;
Officers and employees of the trust b. Items (3) and (4) above shall
department or investment management include at least the following:
department of institutions, while serving as (1) Name of issuer or borrower;
such, shall be prohibited from retaining any (2) Type of instrument;
compensation for acting as co-trustee or (3) Collateral, if any;
fiduciary in the administration of a trust, other (4) Amount invested;
fiduciary or investment management (5) Earning rate or yield;
account. (6) Amount of earnings;
(7) Transaction date; and
Sec. 4424Q Taxes. The terms and conditions (8) Maturity date;
of trust, other fiduciary or investment c. The reports shall be prepared in
management agreements, including CTF such frequency as required under the

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Part IV - Page 22
§§ 4425Q.1 - 4427Q
96.12.31

agreement but shall not in any case be longer activities, which shall cover at the minimum
than once every quarter; and a review of the trust/investment management
d. The reports shall be made available operations, practices and policies, including
to clients not later than twenty (20) calendar audit and internal control system, shall be
days from the end of the reference date/ subject to auditing standards to the extent
period in Item c above. necessary to express an opinion on the
financial statements.
§ 4425Q.2 To the Bangko Sentral The audit of the trust/investment
An institution acting as trustee, fiduciary or management department of an institution
investment manager shall submit periodic authorized to engage in trust and other
reports prescribed by the appropriate fiduciary business/investment management
supervising and examining department of the activities shall be covered by a separate
BSP on the institution's trust and other supplemental audit report to be submitted
fiduciary business and investment to the institution's board of directors and to
management activities within the deadline the BSP within the prescribed period
indicated in Appendix Q-3. containing, among other things, the
statements of condition of trust funds and
Sec. 4426Q Audits managed funds and the related statements
§ 4426Q.1 Internal audit. The of earnings of both funds presented
institution's internal auditor shall include separately, as well as the auditor's letter of
among his functions, the conduct of periodic comments/findings and recommendations.
audits of the trust department or investment
management department at least once every § 4426Q.3 Board action. A report of
twelve (12) months. The board of directors, the foregoing audits, together with the actions
in a resolution entered in its minutes, may thereon, shall be noted in the minutes of the
also require the internal auditor to adopt a board of directors of the institution.
suitable continuous audit system to
supplement and/or to replace the periodic Sec. 4427Q Authority Resulting from
audit. In any case, the audit shall ascertain Merger or Consolidation. In merger of
whether the institution's trust and other financial institutions, the authority to engage
fiduciary business and investment in trust and other fiduciary business and in
management activities have been investment management activities shall
administered in accordance with laws, BSP continue to be in effect if the surviving
rules and regulations, and sound trust or institution has such authority and the same
fiduciary principles. has not been withdrawn by the BSP. In case
the surviving institution does not have
§ 4426Q.2 External audit. The trust previous authority but desires to engage in
and other fiduciary business and investment trust and other fiduciary business and in
management activities of an institution shall investment management activities, it shall
be included in the annual financial audit by secure the prior approval of the Monetary
independent external auditors required Board to engage in such business as part of
under Sec. 4172Q. its application for merger to enable it to
The audit of the assets and incorporate such among its powers or
accountabilities of the trust department/ purpose clause in its articles of incorporation,
investment management department of an articles of merger, by-laws and such other
NBFI authorized to engage in trust and other pertinent documents.
fiduciary business/investment management In the consolidation of financial

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Part IV - Page 23
§§ 4427Q - 4441Q.2
04.12.31

institutions where the resulting entity is an management accounts, the Monetary Board,
entirely new one, it shall secure from the on the basis of the recommendation of the
Monetary Board an authority to engage in examining department, shall order the
trust and other fiduciary business or in withdrawal of the institution's authority to
investment management activities before it engage in trust and other fiduciary
may engage in such business. management activities.

Sec. 4428Q Receivership. Whenever a Secs. 4430Q - 4440Q (Reserved)


receiver is appointed by the Monetary Board
for an institution that is authorized to engage Sec. 4441Q Securities Custodianship and
in trust and other fiduciary business or in Securities Registry Operations. The
investment management activities, the following rules and regulations shall govern
receiver shall, pursuant to the instructions of securities custodianship and securities
the Monetary Board, proceed to close the registry operations of quasi-banks/trust
trust, other fiduciary and investment entities.
management accounts promptly and/or
transfer all other accounts to substitute § 4441Q.1 Statement of policy. It is the
trustees, fiduciaries or investment managers policy of the BSP to promote the protection
acceptable to the trustors, beneficiaries, of investors in order to gain their confidence
principals or other parties in interest: and encourage their participation in the
Provided, That where the trustee, fiduciary development of the domestic capital market.
or investment manager is acting as such Therefore, the following rules and regulations
under appointment by a court, the receiver are promulgated to enhance transparency of
shall proceed pursuant to the instructions of securities transactions with the end in view
said court. of protecting investors.

Sec. 4429Q Surrender of Trust or § 4441Q.2 Applicability of this


Investment Management License. Any NBFI regulation. This regulation shall govern
which has been authorized to engage in trust securities custodianship and securities
and other fiduciary business or in investment registry operations of banks and NBFIs under
management activities and which intends to BSP supervision. It shall cover all their
surrender said authority shall file with the BSP transactions in securities as defined in Section
a certified copy of the resolution of its board 3 of the Securities Regulation Code (SRC),
of directors manifesting such intention. The whether exempt or required to be registered
appropriate supervising and examining with the Securities and Exchange
department of the BSP shall then conduct an Commission (SEC), that are sold, borrowed,
examination of the institution's trust, other purchased, traded, held under custody or
fiduciary business and investment otherwise transacted in the Philippines where
management activities. If the institution is at least one (1) of the parties is a bank or an
found to have satisfactorily discharged its NBFI under BSP supervision. However, this
duties and responsibilities as trustee, regulation shall not cover the operations of
fiduciary or investment manager, and has stock and transfer agents duly registered with
provided for the orderly closure or transfer the SEC pursuant to the provisions of SRC
of its trust, fiduciary or investment Rule 36-4.1 and whose only function is to

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Part IV - Page 24
§§ 4441Q.2 - 4441Q.5
04.12.31

maintain the stock and transfer book for (which includes custody and/or registry
shares of stock. operations) and other related documents
embodying the risk management system
§ 4441Q.3 Prior Bangko Sentral must be submitted to the appropriate
approval. Quasi-banks/trust entities may act supervising and examining department at the
as securities custodian and/or registry only time of application for authority and within
upon prior Monetary Board approval. thirty (30) days from updates;
e. It must have adequate technological
§ 4441Q.4 Application for authority. capabilities and the necessary technical
A quasi-bank/trust entity desiring to act as expertise to ensure the protection, safety and
securities custodian and/or registry shall file integrity of client assets, such as:
an application with the appropriate (1) It can maintain an electronic registry
supervising and examining department of the dedicated to recording of accountabilities to
BSP. The application shall be signed by the its clients; and
highest ranking officer of the institution and (2) It has an updated and comprehensive
shall be accompanied by a certified true copy computer security system covering system,
of the resolution of its board of directors network and telecommunication facilities
authorizing the institution to engage in that will:
securities custodianship and/or registry. (a) limit access only to authorized users;
(b) preserve data integrity; and
§ 4441Q.5 Pre-qualification (c) provide for audit trail of transactions.
requirements for a securities custodian/ f. It has complied, during the period
registry immediately preceding the date of
a. It must be a quasi-bank or a trust application, with the following:
entity; (1) ceilings on credit accommodation to
b. It must have complied with the DOSRI; and
minimum capital accounts required under (2) single borrower’s limit.
existing regulations not lower than an g. It has no reserve deficiencies during
adjusted capital of P300 million or such the eight (8) weeks immediately preceding
amounts as may be required by the Monetary the date of application;
Board in the future; h. It has set up the prescribed
c. It must have a CAMELS composite allowances for probable losses, both general
rating of at least “4” (as rounded off) in the and specific, as of date of application;
last regular examination; i. It has not been found engaging in
d. It must have in place a unsafe and unsound practices during the last
comprehensive risk management system six (6) months preceding the date of
approved by its board of directors appropriate application;
to its operations characterized by a clear j. It has generally complied with laws,
delineation of responsibility for risk rules and regulations, orders or instructions
management, adequate risk measurement of the Monetary Board and/or BSP
systems, appropriately structured risk limits, Management;
effective internal control and complete, k. It has submitted additional
timely and efficient risk reporting systems. documents/information which may be
In this connection, a manual of operations requested by the appropriate supervision and

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Part IV - Page 25
§§ 4441Q.5 - 4441Q.8
04.12.31

examination department, such as, but not the custody contract or in a separate
limited to: document or agreement attached thereto:
(1) Standard custody/registry agreement Provided, further, That the custodian shall
and other standard documents; immediately make known to the securities
(2) Organizational structure of the owner all payments made and collections
custody/registry business; received with respect to the securities under
(3) Transaction flow; and custody;
(4) For those already in the custody or j. Securities borrowing and lending
registry business, a historical background for operations as agent.
the past three (3) years;
l. It shall be conducted in a separate § 4441Q.7 Functions and
unit headed by a qualified person with at least responsibilities of a securities registry
two (2) years experience in custody/registry a. Maintains an electronic registry
operations; and book;
m. It can interface with the clearing and b. Delivers confirmation of transactions
settlement system of any recognized and other documents within agreed trading
exchange in the country capable of achieving periods;
a real time gross settlement of trades. c. Issues registry confirmations for
transfers of ownership as it occurs;
§ 4441Q.6 Functions and d. Prepares regular statement of
responsibilities of a securities custodian. A securities balances at such frequency as may
securities custodian shall have the following be required by the owner on record but not
basic functions and responsibilities: less frequent than every quarter; and
a. Safekeeps the securities of the client; e. Follows appropriate legal
b. Holds title to the securities in a documentation to govern its relationship with
nominee capacity; the Issuer.
c. Executes purchase, sale and other
instructions; § 4441Q.8 Protection of securities of
d. Performs at least a monthly the customer. A custodian must incorporate
reconciliation to ensure that all positions are the following procedures in the discharge of
properly recorded and accounted for; its functions in order to protect the securities
e. Confirms tax withheld; of the customer:
f. Represents clients in corporate a. Accounting and recording for
actions in accordance with the direction securities. Custodians must employ
provided by the securities owner; accounting and safekeeping procedures that
g. Conducts mark-to-market valuation fully protect customer securities. It is
and statement rendition; essential that custodians segregate customer
h. Does earmarking of encumbrances or securities from one another and from its
liens such as, but not limited to, Deeds of proprietary holdings to protect the same from
Assignment and court orders; and the claims of its general creditors.
In addition to the above basic functions, All securities held under custodianship
it may perform the following value-added shall be recorded in the books of the
service to clients: custodian at the face value of said securities
i. Acts as a collecting and paying agent: in a separate subsidiary ledger account
Provided, That the management of funds that “Securities Held Under Custodianship” if
may be collected shall be clearly defined in booked in the Bank Proper or the subsidiary

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§§ 4441Q.8 - 4441Q.10
04.12.31

ledger account “Safekeeping and registry must be a third party with no


Custodianship – Securities Held Under subsidiary/affiliate relationship with the issuer
Custodianship”, if booked in the Trust of securities while a BSP-accredited custodian
Department: Provided, That securities held must be a third party with no subsidiary/
under custodianship where the custodian affiliate relationship with the issuer or seller
also performs securities borrowing and of securities. A quasi-bank/trust entity
lending as agent shall be booked in the Trust accredited by BSP as securities custodian
Department. may, however, continue holding securities
b. Documentation. The appropriate it sold under the following cases:
documentation for custodianship shall be a. where the purchaser is a related entity
made and it shall clearly define, among acting in its own behalf and not as agent or
others, the authority, role, responsibilities, representative of another;
fees and provision for succession in the event b. where the purchaser is a non-resident
the custodian can no longer discharge its with existing global custody agreement
functions. It shall be accepted in writing by governed by foreign laws and conventions
the counterparties. wherein the institution is designated as
The governing custodianship agreement custodian or sub-custodian; and
shall be pre-numbered and this number shall c. upon approval by the BSP, where the
be referred to in all amendments and purchaser is an insurance company whose
supplements thereto. custody arrangement is either governed by a
c. Confirmation of custody. The global custody agreement where the quasi-
custodian shall issue a custody confirmation bank/trust entity is designated as custodian
to the purchaser or borrower of securities to or sub-custodian or by a direct custody
evidence receipt or transfer of securities as agreement with features at par with the
they occur. It shall contain, as a minimum, standards set under this Subsection drawn
the following information on the securities or prepared by the parent company owning
under custody: more than fifty percent (50%) of the capital
(1) Owner of securities; stock of the purchaser and executed by the
(2) Issuer; purchaser itself and its custodian.
(3) Securities type; Purchases by non-residents and
(4) Identification or serial numbers; insurance companies that are exempted from
(5) Quantity; the independence requirement of this Section
(6) Face value; and shall, however, be subject to all other
(7) Other information, which may be provisions of this Subsection.
requested by the parties.
d. Periodic reporting. The custodian § 4441Q.10 Registry of scripless
shall prepare at least quarterly (or as frequent securities of the Bureau of the Treasury. The
as the owner of securities will require) Registry of Scripless Securities (RoSS),
securities statements delivered to the operated by the Bureau of the Treasury,
registered owner’s address on record. Said which is acting as a registry for government
statement shall present detailed information securities is deemed to be automatically
such as, but not limited to, inventory of accredited for purposes of this Section and
securities, outstanding balances, and market is likewise exempted from the independence
values. requirement under Subsec. 4441Q.9.
However, securities registered under the
§ 4441Q.9 Independence of the registry RoSS shall only be considered delivered if
and custodian. A BSP-accredited securities said securities were transferred by means of

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Part IV - Page 27
§§ 4441Q.10 - 4441Q.29
04.12.31

book entry to the appropriate securities § 4441Q.13 Basic security deposit


account of the purchaser or his designated Securities held under custodianship whether
custodian. Book entry transfer to a sub- booked in the Trust Department or carried
account for clients under the primary account in the regular books of the quasi-bank/trust
of the seller shall not constitute delivery for entity shall be subject to a security deposit
purposes of this Section and of Subsec. for faithful performance of duties at the rate
4211Q.4. of 1/25 of one percent (1%) of the total face
value or P500,000 whichever is higher.
§ 4441Q.11 Confidentiality. A BSP- However, securities held under
accredited securities custodian/ registry shall custodianship where the custodian also
not disclose to any unauthorized person any performs securities borrowing and lending
information relative to the securities under as agent shall be subject to a higher basic
its custodianship/registry. The management security deposit of one percent (1%) of the
shall likewise ensure the confidentiality of total face value. For this purpose, the
client accounts of the custody or registry unit following subsidiary ledger account shall be
from other units within the same created in the Trust Department Books:
organization. “Safekeeping and Custodianship -
Securities Held Under Custodianship with
§ 4441Q.12 Compliance with anti- Securities Borrowing and Lending As Agent”
money laundering laws/regulations. For Compliance shall be in the form of
purposes of compliance with the government securities deposited with the
requirements of R.A. No. 9160, otherwise BSP eligible pursuant to existing regulations
known as the “Anti-Money Laundering Act governing security for the faithful
of 2001,” as amended, particularly the performance of trust and other fiduciary
provisions regarding customer identification, business.
record keeping and reporting of suspicious
transactions, a BSP-accredited custodian may § 4441Q.14 Reportorial requirements
rely on referral by the seller/issuer of An accredited securities custodian shall
securities: Provided, That it maintains a comply with reportorial requirements that
record of such referral together with the may be prescribed by the BSP, which shall
minimum identification, information/ include as a minimum, the face and market
documents required under the law and its value of securities held under custodianship.
implementing rules and regulations.
A BSP accredited custodian must §§ 4441Q.15 - 4441Q.28 (Reserved)
maintain accounts only in the true and full
name of the owners of the security. § 4441Q.29 Sanctions. Without prejudice
However, said securities owners may be to the penal and administrative sanctions
identified by number or code in reports and provided for under Sections 36 and 37,
correspondences to keep his identity respectively, of the R.A. No. 7653, violation
confidential. of any provision of this Section shall be
Securities subject of pledge and/or deed subject to the following sanctions/penalties:
of assignment as of 14 October 2004 (date a. First offense –
of Circular 457), may be held by a lending (1) Fine of up to P10,000 a day for the
quasi-bank up to the original maturity of the institution for each violation reckoned from
loan or full payment thereof, whichever the date the violation was committed up to
comes earlier. the date it was corrected; and

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§§ 4441Q.29 - 4499Q
04.12.31

(2) Reprimand for the directors/officers (3) Suspension for one hundred twenty
responsible for the violation. (120) days without pay of the directors/
b. Second offense - officers responsible for the violation.
(1) Fine of up to P20,000 a day for the
institution for each violation reckoned from Secs. 4442Q - 4498Q (Reserved)
the date the violation was committed up to
the date it was corrected; and Sec. 4499Q Sanctions. Any violation of the
(2) Suspension for ninety (90) days provisions of this Part shall be subject to
without pay of directors/officers responsible Sections 36 and 37 of R.A. No. 7653, without
for the violation. prejudice to the imposition of other sanctions
c. Subsequent offenses – as the Monetary Board may consider
(1) Fine of up to P30,000 a day for the warranted under the circumstances that may
institution for each violation from the date include the suspension or revocation of an
the violation was committed up to the date institution's authority to engage in trust and
it was corrected; other fiduciary business or in investment
(2) Suspension or revocation of the management activities, and such other
authority to act as securities custodian and/ sanctions as may be provided by law.
or registry; and

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Part IV - Page 29
§§ 4501Q - 4505Q
96.12.31

PART FIVE
FOREIGN EXCHANGE OPERATIONS

Section 4501Q Authority; Coverage. With amount of letters of credit outstanding of an


prior approval of the Monetary Board, and investment house shall not exceed, at any
subject to the provisions of Article III, Chapter given time, twice its net worth, except as may
IV of R.A. No. 7653 and Section 7(13) of P.D. otherwise be specifically authorized by the
No. 129, as amended, an investment house Monetary Board;
may engage in foreign exchange operations c. Holding foreign currency balances
which shall be limited to the servicing of with foreign correspondents in connection
project or program requirements of the with export-related services but in no case
following enterprises: for speculative purposes;
a. BSP-certified export-oriented firms; d. Entering into forward foreign
b. Board of Investments-registered exchange contracts with the BSP in
export-oriented firms; and connection with the foregoing activities; and/
c. Construction or service firms with or
overseas contracts approved by the e. Such other related foreign
Department of Labor and Employment. exchange activities as may be approved by
the Monetary Board.
Sec. 4502Q Specific Foreign Exchange
Activities. The specific foreign exchange Sec. 4503Q Separate Department. Any
operations which investment houses may investment house that may be authorized to
undertake in connection with the preceding engage in foreign exchange operations shall
Section are: set up a separate department/unit to handle
a. Arranging or contracting of foreign such operations.
loans for the account of the client firm, or
contracting of foreign loans for the account Sec. 4504Q Applicability of Pertinent
of the investment house for relending to the Bangko Sentral Rules. The foreign exchange
client firm, subject to pertinent BSP rules and operations of an investment house are subject
regulations; to all applicable BSP rules and regulations
b. Providing import- and export- on foreign exchange operations, including
related services to said firms such as letters modifications thereof, considering the special
of credit and other acceptable modes of nature of investment house operations, and
payment, and the discounting of export drafts: the sanctions in connection therewith.
Provided, That the total amount of foreign
exchange transactions investment houses Sec. 4505Q Aggregate Ceiling on Issuance
may deal in shall not exceed the amount of of Guarantees. Total standby letters of credit,
the financing arranged or provided by the foreign and domestic, including guarantees,
investment house which involves the the nature of which requires the guarantor
importation and exportation of related goods to assume the liabilities/obligations of third
and services: Provided, further, That the parties in case of their inability to pay, that

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Part V - Page 1
§§ 4505Q - 4599Q
96.12.31

may be issued by NBQBs and outstanding at Sec. 4599Q General Provision on Sanctions
any given time, shall not exceed fifty percent Any violation of the provisions of this Part
(50%) of the NBQB’s net worth, except those shall be subject to Sections 36 and 37 of R.A.
fully secured by cash, hold-out on deposits/ No. 7653.
deposit substitutes on government securities.

Secs. 4506Q - 4598Q (Reserved)

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Part V - Page 2
§§ 4601Q - 4602Q
02.12.31

PART SIX
MISCELLANEOUS

A. OTHER OPERATIONS shall immediately become due and payable.


If settlement of the amount due is not made
Section 4601Q Open Market Operations within three (3) days from the date of its
The following rules and regulations shall disqualification, the BSP shall proceed to
govern the buying and selling of government collect said amount in accordance with the
securities in the open market pursuant to preceding paragraph.
Section 91 of R.A. No. 7653: d. Reverse repurchase agreements
a. The BSP may buy and sell in the covering the sale of portion of the security
open market for its own account: holdings of the BSP portfolio may be made
(1) Evidences of indebtedness issued under the terms provided for in Subsec.
directly by the Government of the Philippines 4602Q.1.
or by its political subdivisions; and
(2) Evidences of indebtedness issued § 4601Q.1 Settlement procedures
by government instrumentalities and fully Purchase and sale of government securities
guaranteed by the Government. under repurchase agreements (GS/RP)
The above evidences of indebtedness between and among banks and NBQBs and
must be freely negotiable and regularly BSP in connection with the latter’s open
serviced and must be available to the general market operations shall be settled in
public through banks, NBQBs and accredited accordance with the procedures in Appendix
government securities dealers. Q-13-a and -b.
b. Outright purchases and sales of gov-
ernment securities shall be effected on the Sec. 4602Q Repurchase Agreements with
basis of the lowest price offered or the highest the Bangko Sentral. Repurchase agreements
price bid. may be effected with the BSP subject to the
c. Repurchase agreements shall be following terms and conditions:
open to banks (except rural banks), NBQBs a. Rate. The rates on the repurchase
and accredited government securities dealers facility shall be set by the Treasury
and shall be made under the terms provided Department, with the concurrence of the
for in Sec. 4602Q and the following: Governor, taking into account prevailing
(1) The repurchase agreement may be liquidity/market conditions.
paid at any time before maturity at the option b. Term. At the option of the Treasury
of the issuer of the repurchase agreement; Department, availments may be for a
(2) In the event the securities covered minimum of one (1) day (overnight) and a
by the repurchase agreement are not maximum of ninety-one (91) days.
repurchased by the issuer of such agreement, c. Security. Only obligations of the
they may be sold in the open market or National Government and its instru-
transferred to the BSP Portfolio; and mentalities and political subdivisions, which
(3) Should an issuer of a repurchase are fully guaranteed by the Government, with
agreement become no longer qualified as a remaining maturity of not more than ten
such, its outstanding repurchase agreement (10) years and which are freely negotiable

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 1
§§ 4602Q - 4603Q
03.12.31

and regularly serviced, shall be eligible as e. Reservation. Prepayment may be


underlying instruments for repurchase made by the BSP at its option anytime before
agreements, subject to the collateral maturity.
requirement prescribed by the BSP. To properly monitor transactions
d. Delivery. Delivery of the underlying involving reverse repurchase agreements
instruments shall be made to the BSP at the with the BSP, all investment houses and
prescribed time. For overnight repurchase financing companies with quasi-banking
agreements, delivery of the underlying functions ( IH/FC with QB ) shall record
instruments shall be made not later than properly its Reverse Repurchase Agreements
12:00 noon of the date of transaction. (REPO) with the BSP sold to clients.
Government securities which are held When an IH/FC sells an outstanding
by the issuer of the repurchase agreement reverse REPO agreement with the BSP to a
under the book-entry system with the BSP client, the securities under REPO support two
may be used as underlying instruments only (2) loan transactions – the IH/FC’s claim on
with the conformity of the BSP. the BSP under the original REPO and the
e. Upon termination of the repurchase client’s claim on the IH/FC under the new
agreement, the issuer of such agreement REPO. The IH/FC’s claim on the BSP arising
shall claim and take delivery of the underlying from the reverse REPO should not be offset
instruments at the Treasury Department, BSP. against its loan payable to clients in the
Failure to claim and take delivery of the subsequent sale of the REPO because the
underlying instruments immediately upon counterparties to the two (2) transactions are
such termination shall relieve the BSP of any different. Thus, the IH/FC’s reverse REPO
liability or responsibility for the loss or transaction with the BSP shall remain to be
misplacement of said instruments. recorded as “Government Securities
Purchased under Reverse Repurchase
§ 4602Q.1 Reverse repurchase Agreements with BSP ” under “Trading
agreements with Bangko Sentral. Reverse Account Securities – Loans”. The IH/FC’s
repurchase agreements may be effected with payable to clients arising from the subsequent
the BSP subject to the following terms and sale of the reverse REPO shall be recorded as
conditions: “Reverse Repurchase Agreements with BSP
a. Rate. The rates shall be set by the Sold to Clients” under Bills Payable –
Treasury Department, with the concurrence Others”. The subsequent sale of the reverse
of the Governor, taking into account the REPO agreements is not subject to reserve
prevailing liquidity/market conditions. requirements. The pro-forma accounting
b. Term. At the option of the Treasury entries are in Appendix Q-26.
Department, availments may be for a Effective July 1, 2003, published interest
minimum of one (1) day (overnight) and a rates that will be applied on BSP’s Reverse R/
maximum of 364 days. P agreements of quasi-banks shall be inclu-
c. Security. The collateral shall consist sive of the ten percent (10%) Value Added
of obligations of the National Government Tax (VAT).
and other freely negotiable securities in the
BSP portfolio valued at 100%. Sec. 4603Q Derivatives. NBQBs and/or their
d. Delivery. No delivery of the subsidiaries/affiliates may engage in financial
collateral shall be made, but a custody receipt derivatives activities upon prior approval of
shall be issued instead. the BSP.

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Part VI - Page 2
§ 4603Q.1
04.12.31

§ 4603Q.1 Scope and pre-qualification (iii) Consistent with board-approved risk


requirements. The following provisions shall appetite;
govern the scope and pre-qualification (iv) Consistent with the level and
requirements for the grant of authority to complexity of the institution’s trading
engage in derivatives activities. activities; and
a. For regular derivatives authority (v) Fully documented and independently
(1) Scope. Financial institutions (FIs) validated.
supervised by the BSP may apply for a regular (d) The ability to monitor counterparty
derivatives license. A licensed FI may sell risks on outstanding contracts through a
derivatives products to its customers: methodology that reflects changes in credit
Provided, That the FI shall hedge such exposure as market rates change;
derivatives: Provided, further, That the risk (e) The technical competence of key
being hedged is already existing with the FI officers/traders responsible for the derivatives
itself. products; and
(2) Pre-qualification requirements. An (f) The procedures for evaluating client
application to engage in a regular derivatives suitability.
activities may be granted upon determination (3) Other requirements. BSP shall
by the BSP that the applicant possesses: evaluate quasi-bank’s and other BSP
(a) The ability to account for its currency supervised FI’s financial soundness and track
exposures on a per currency basis through record of compliance with major prudential
its Multi-Currency Subsidiary Ledger; requirements, such as, but not limited to:
(b) The ability to account for swaps and (a) CAMELS composite rating of at least
forwards either through the accrual or net “3” in the last regular examination;
present value basis. Swaps and forwards (b) Minimum applicable capital
designated as hedge only at inception may adequacy ratio;
be accounted for using the accrual method. (c) Minimum reserves against deposit
Forwards designated as trading shall be liabilities/deposit substitutes, CTFs, and
marked-to-market daily using the net present TOFA-Others; and
value methodology; (d) Maximum allowable open foreign
(c) The ability to manage and monitor exchange position.
price risks for the whole derivatives portfolio b. For engaging in derivatives
to ensure continuous assessment of the transactions as end-users
effectiveness of the hedge. While the ideal (1) Scope. FIs may engage in derivatives
method of measuring these risks is through transactions purely as end-users and do not
"value-at-risk” methodology, alternative need a license for such activities.
systems are acceptable: Provided, That these (2) Requirements. The FIs shall show
are: proof of approval by their board of directors
(i) Capable of measuring and to use derivatives. Such approval must
aggregating risks across trading and non- clearly specify the following as minimum
trading activities; guidelines:
(ii) Approved by the FI’s board of (a) Derivatives products to be used and
directors; the type of transactions to be hedged shall
be specified;

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Part VI - Page 3
§§ 4603Q.1 - 4603Q.6
04.12.31

(b) Transactions shall be limited to Failure to submit said written request


hedging purpose only; there shall be no within the prescribed period shall be
speculative activity; presumed not renewing said licenses.
(c) Dealings shall only be with licensed/ b. The license may be renewed subject
authorized counterparties; and to compliance with the following:
(d) Transactions shall be reported (1) BSP standard of financial soundness
regularly to the board of directors. and track record of compliance with major
prudential regulations;
§ 4603Q.2 Transactions between (2) Adequate risk management systems;
parent and subsidiary. All derivatives and
transactions between parent NBQB and (3) Adequate internal control system and
subsidiary (e.g., Forex Corporation) shall be procedures including record keeping for
with prior BSP approval. derivatives activities.

§ 4603Q.3 Renewals. The license to § 4603Q.4 Risk management guidelines


engage in derivatives activities shall be for a NBQBs and/or their subsidiaries/affiliates
period of one (1) year. authorized to engage in derivatives activities
a. The following guidelines shall be shall adopt a policy manual that contains the
observed for the annual renewal of minimum features and principles embodied
derivatives licenses of NBQBs: in the Risk Management Guidelines for
(1) For derivatives granted before Derivatives (Appendix Q-15).
September 17, 2001, the licenses are Risk disclosure statements, which should
operative only until September 17, 2002. at least contain the disclosure statements in
Said licenses shall be renewed on or before Appendix Q-16, shall be provided to the
said date. Subsequently, the licenses shall clients/customers of NBQBs and/or their
be renewed on or before September 17 of subsidiaries/affiliates in order to advise the
each year; former of the risks involved in derivatives
(2) For derivatives granted after activities.
September 17, 2001, the licenses are A detailed statement on the position of
operative for a period of one (1) year the clients/customers must be sent to them
reckoned from the date of approval. The periodically.
licenses therefore, shall be renewed on or
before the end of the one (1)-year period; § 4603Q.5 Accounting guidelines. In
and recording derivatives activities in the books,
(3) NBQBs shall submit a written NBQBs and/or their subsidiaries/affiliates
request to renew their derivatives licenses shall observe the guidelines enumerated in
at least forty-five (45) calendar days before Appendix Q-17.
the expiration of the existing licenses. The
NBQBs will be notified of the BSP action on § 4603Q.6 Reporting requirements
their request. Until such notice is received, Aside from the daily/monthly FX position
NBQBs can continue to enter into new reports, a monthly report on transactions/
derivatives contracts as allowed under their outstanding derivatives transactions shall also
previously approved licenses. be required for NBQBs which enter into
derivatives contracts as end-user.

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Part VI - Page 4
§§ 4603Q.7 - 4603Q.15
03.12.31

§ 4603Q.7 Sanctions. Monetary § 4603Q.15 Definition of terms


penalties prescribed under Sections 35, 36 a. Foreign exchange obligation shall
and 37 of R.A. No. 7653 and/or suspension refer to an actual FX commitment to a non-
of foreign exchange operations, shall be resident or any Authorized Agent Bank (AAB)
imposed on any NBQB , its subsidiaries/ where the amount, payment tenor and party
affiliates (including directors or officers) that have been determined.
engage in derivatives activities without prior b. Foreign exchange exposure shall re-
BSP approval. fer to an FX risk arising from an existing com-
If the NBQB submits an erroneous mitment to or from a non-resident or AAB
written representation or certification, a cease which leads to payment of an FX obligation
and desist order shall be imposed, in addition or receipt of an FX asset based on verifiable
to a monetary penalty of P10,000 per documents on deal date.
transaction. The NBQB ’s derivatives c. Resident shall refer to -
operations may only be resumed after the (1) An individual citizen of the Philip-
appropriate supervising and examining pines residing therein; or
department has made a thorough validation (2) An individual who is not a citizen
of the NBQB ’s compliance with of the Philippines but is permanently resid-
requirements. ing therein; or
(3) A corporation or other juridical
§§ 4603Q.8 - 4603Q.13 (Reserved) person organized under the laws of the
Philippines; or
§ 4603Q.14 Forward and swap (4) A branch, subsidiary, affiliate,
transactions. Quasi-banks and their extension office or any other unit of
customers may hedge through financial corporations or juridical persons which are
derivatives products their foreign exchange organized under the laws of any country and
obligations and/or exposures eligible for operating in the Philippines, except Offshore
servicing by the banking system under Banking Units (OBUs).
Circular No. 1389 dated April 13, 1993, as d. Non-resident shall refer to an
amended. individual, a corporation or other juridical
As a rule, quasi-banks and their person not included in the definition of
subsidiaries/affiliates duly authorized to resident.
engage in derivatives transactions under e. Foreign exchange swap refers to a
Subsec. 4603Q.1 may only enter into transaction involving the actual exchange of
derivatives contracts with their customers two (2) currencies (principal amount only)
where either party to the transaction is on a specific date at a rate agreed on deal
hedging eligible actual FX obligations or date (the first leg), and a reverse exchange of
existing FX exposures. the same two (2) currencies at a date further
To ensure that such financial derivatives in the future (the second leg) at a rate
products are not used for activities that (different from the rate applied to the first leg)
destabilize the FX market, the following agreed on deal date.
guidelines as well as minimum documentary f. Foreign exchange forward refers to
requirements for FX forwards and swaps shall a transaction involving the exchange of two
be strictly adhered to.

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Part VI - Page 4a
§§ 4603Q.15 - 4603Q.18
03.12.31

(2) currencies at a rate agreed on deal date with the maturity of the underlying
for value or delivery (cash settlement) at some obligation. This shall not preclude
time in the future (more than two (2) business pretermination of the contract due to
days later). prepayment provided prior BSP approval is
g. Non-deliverable forward (NDF) obtained.
refers to the forward FX contract where only The FX proceeds of deliverable FX
the net difference between the contracted forward contracts shall be immediately
forward rate and the market rate shall be remitted or paid to the non-resident supplier/
settled at maturity. beneficiary or AAB except for foreign
investments where said FX proceeds are
§ 4603Q.16 Documentation reconverted to Philippine pesos and re-
Minimum documentary requirements for FX invested in eligible peso instruments such as
forward and swap transactions in Appendix those listed in Item A.2.2 of Appendix Q-29.
Q-29 shall be presented on or before deal b. Swaps (purchase of FX at first leg
date to the banks, and their subsidiaries/ and sale of FX at second leg)
affiliates. The tenor/maturity of swap contracts
Unless otherwise indicated, documents shall not be less than thirty (30) calendar days
shall be stamped “deliverable/FX hedged” or but not longer than: (i) the maturity of the
“non-deliverable/FX hedged” upon underlying FX obligation; or (ii) the
presentation/submission indicating the date approximate due date of settlement of the
and amount hedged and signed by FX exposure. In case of prepayments of
authorized officer of the banks and their foreign currency loans covered by swaps,
subsidiaries/affiliates. Copies of all duly banks shall ensure that such prepayments are
marked supporting documents shall be allowed under the covering loan agreement.
retained by the quasi-banks and/or their
subsidiaries/affiliates and shall be made § 4603Q.18 Cancellations, roll-overs
available to the BSP for verification. Said or non-delivery of FX forward contracts
copies shall be marked “documents All cancellations, roll-overs or non-
presented as required” and signed by the delivery of FX forward contracts, whether
servicing entity’s authorized signatory. purchases or sales, shall be subject to the
No double hedging shall be allowed following guidelines to determine the validity
covering the same underlying FX obligation/ thereof:
exposure. a. Eligibility test. Forward contracts
must be supported by documents listed in
§ 4603Q.17 Tenor/maturity of FX for- Appendix Q-29 hereof.
ward or swap b. Frequency test. The reasonableness
a. FX forwards (whether deliverable or of the cancellation, roll-over or non-delivery
non-deliverable) and swaps (sale of FX at first shall be based on the results of the evaluation
leg and purchase of FX at second leg) of the justification/explanation submitted by
The tenor/maturity shall not be longer banks as evidenced by appropriate
than: (i) the maturity of the underlying FX documents.
obligation; or (ii) the approximate due date c. Counterparty test. The cancellation
or settlement of the FX exposure. However, or roll-over of forward contracts must be duly
for foreign currency loans, the tenor of the acknowledged by the counterparty to the
deliverable FX forward shall be co-terminus contract as shown in documents submitted

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Part VI - Page 4b
§§ 4603Q.18 - 4603Q.26
03.12.31

by banks, e.g., there should be conforme of Above-cited reports shall be transmitted


counterparty as evidenced by the to e-mail address iod@bsp.gov.ph.
counterparty signature on pertinent
documents. §§ 4603Q.22 - 4603Q.25 (Reserved)
d. Mark-to-market test. The booking or
recording in the books of accounts of the § 4603Q.26 Sanctions
profit or loss on contracted forward contracts Violations of Subsecs. 4603Q.14 to
and cash flows/settlement to counterparties 4603Q.21 shall be subject to the penalty
must be fully supported by appropriate provisions under R.A. No. 7653 (The New
documents such as authenticated copy of Central Bank Act) and other existing banking
debit/credit tickets, schedules showing laws and regulations.
among others, mark-to-market valuation Failure to comply with Subsec.
computation, etc. 4603Q.18 shall result in the exclusion of the
forward contracts in the computation of the
§ 4603Q.19 Non-deliverable forward quasi-bank’s consolidated daily position
contracts with non-residents. Only banks starting from day one (1), i.e., when the
with expanded derivatives license may enter individual contracts were entered into.
into NDF contracts to sell FX to non-residents. Violations of the prescribed FX position limits
shall be subject to the following sanctions
§ 4603Q.20 Compliance with Anti- provided under Circular Letter dated March
Money Laundering rules. All transactions 13, 1998:
under Subsecs. 4603Q.14 to 4603Q.21 shall
comply with the regulations on anti-money a. Monetary Penalties
laundering under Sec. 4691Q. Per Calendar Month Daily Penalty
1st business day P10,000
§ 4603Q.21 Reporting requirements 2nd business day 20,000
3rd business day of violation, 30,000
Quasi-banks and their subsidiaries/ and onwards, or if the excess
affiliates duly authorized to engage in FX position is 30% or more
derivatives transactions shall continue to be of the allowable limits in any
covered by the BSP’s existing reporting business day, regardless of
whether a quasi-bank
requirements on financial derivatives.
is in the first, second, third or
Cancellations, roll-overs or non-delivery of more days of violation
deliverable forward contracts shall be
reported electronically in excel format to the b. In addition, the following non-
BSP not later than two (2) business days after monetary sanctions shall be imposed on the
reference week as indicated in Appendix Q-3. quasi-bank committing violations considered
Swap contracts with non-bank resident as:
counterparties involving purchase of FX at (1) “chronic”, i.e., when the violation
the initial leg by said quasi-banks and their continues beyond three (3) business days
subsidiaries/affiliates from non-bank within a calendar month, but the excess
counterparties shall likewise be reported position is less than thirty percent (30%) of
electronically in excel format to the BSP not the allowable limit; and
later than two (2) business days after reference (2) “abusive”, i.e., when the violation
week as indicated in Appendix Q-3. continues beyond three (3) business days

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 4c
§§ 4603Q.26 - 4626Q.1
04.12.31

within a calendar month and excess position provisions of P.D. No. 129, as amended
is thirty percent (30%) or more of the (Appendix Q-18).
allowable limit.
Secs. 4605Q - 4625Q (Reserved)
"Chronic" Suspension of the quasi-bank’s cash
violation dividend declaration and branching Sec. 4626Q Asset-Backed Securities. The
privileges until the violation is following regulations shall govern the
corrected but in no case shall such origination, issuance, sale, servicing and
suspension be less than thirty (30) administration of asset-backed securities
calendar days. (ABS) by any NBQB including its subsidiaries
and affiliates engaged in allied activities,
"Abusive" Suspension of the quasi-bank's
which are domiciled in the Philippines.
violation cash dividend declaration and
branching privileges until the
violation is corrected but in no case § 4626Q.1 Definition of terms
shall such suspension be less than a. Assets shall mean loans or
sixty (60) calendar days. receivables existing in the books of the
originator prior to securitization. Such assets
c. The Monetary Board may impose are generated in the ordinary course of
other non-monetary sanctions on a quasi- business of the originator and may include
bank for violations determined by BSP as mortgage loans, consumption loans, trade
“chronic” or “abusive” on a case-to-case ba- receivables, lease receivables, credit card
sis, pursuant to Section 37 of R.A. No. 7653. receivables and other similar financial assets.
d. Quasi-banks shall be duly advised b. Asset-backed securities shall refer
by the BSP of their violations and the corre- to the certificates issued by a special purpose
sponding sanctions imposed for such viola- trust (SPT) representing undivided ownership
tions. interest in the asset pool.
e. A monetary penalty imposed on a c. Asset pool shall mean a group of
quasi-bank shall be paid to the BSP Cash identified, self-amortizing assets that is
Department, within three (3) business days conveyed to the SPT issuing the ABS and
from the receipt of advice of said penalty such other assets acquired as a consequence
imposition. of the securitization.
Furthermore, reports required under d. Clean-up call shall refer to an option
Subsec. 4603Q.21 are considered as granted to the seller to purchase the
Category A report for purposes of imposing remaining assets in the asset pool.
sanctions on delayed, erroneous or e. Credit enhancement shall refer to
amendatory reports as prescribed under Sec. any legally enforceable scheme that is
4162Q. intended to enhance the marketability of the
Counterparties that habitually cancel ABS and increase the probability that
deliverable forwards without proper investors receive payment of amounts due
justification may be subject of a BSP watchlist. them.
f. Guarantor shall refer to an entity
Sec. 4604Q Underwriting by Investment that guarantees the repayment of principal
Houses. Underwriting commitments and fees and interests on loans or receivables included
of investment houses shall be subject to the in the asset pool in the event of default by
rules issued by the SEC to implement the the borrower.

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Part VI - Page 4d
§§ 4626Q.1 - 4626Q.4
03.12.31

g. Investible funds shall refer to the corporate strategic plan. The board of
proceeds of collection of loans or receivables directors shall ensure that the securitization
included in the asset pool which are not yet of assets is consistent with such program.
due for distribution to investors.
h. Issuer shall refer to the SPT that § 4626Q.4 Minimum documents
issues the ABS. required. The application to securitize must
i. Originator shall refer to an NBQB be accompanied by the following documents
and/or its subsidiary or affiliate engaged in as a minimum requirement:
allied activities that grants or purchases loans a. Trust indenture evidencing the
or receivables and assembles them into a conveyance of the assets from the seller to
pool for securitization. the issuer or SPT, the features of which shall
j. Residual certificates shall refer to include the following:
certificates issued representing claims on the (1) Title or nature of the contract in
remaining value of the asset pool after all ABS noticeable print;
holders are paid. (2) The parties involved, indicating in
k. Seller shall refer to the entity which noticeable print, their respective legal
conveys to the SPT the assets that constitute capacities, responsibilities and functions;
the asset pool. (3) Features and amount of ABS;
l. Servicer shall refer to the entity (4) Purposes and objectives;
designated by the issuer primarily to collect (5) Description and amount of assets
and record payments received on the assets, comprising the asset pool;
to remit such collections to the issuer and (6) Representation and warranties;
perform such other services as may be (7) Credit enhancements;
specifically required by the issuer excluding (8) Distribution of funds;
asset management or administration. (9) Authorized investment of investible
m. Special purpose trust shall refer to funds;
a trust administered by a trustee and created (10) Rights of the investor;
solely for the purpose of issuing and (11) Reports to investors; and
administering an ABS. (12) Termination and final settlement.
n. Trustee shall refer to the entity The trust indenture shall include as
designated to administer the SPT. annexes the servicing agreement between the
o. Underwriter shall refer to the entity trustee and the servicer and the underwriting
engaged in the act or process of distributing agreement between the seller and the
and selling of the ABS either on guaranteed underwriter.
or best-efforts basis. b. Prospectus. As a minimum
requirement, it shall contain the following:
§ 4626Q.2 Authority. Any NBQB (1) Summary of the contents of the
including its subsidiaries and affiliates prospectus;
engaged in allied activities, may securitize (2) Description of each class of
its assets upon prior approval of the BSP. certificates, including such matters as
probable yields, payment dates and priority
§ 4626Q.3 Management oversight of payments;
The originator/seller shall have the (3) Description of the assets comprising
securitization program approved by its board the asset pool as well as the representations
of directors. The originator/seller shall and warranties set forth by the originator and/
integrate such securitization program into its or seller;

(Next page is Part VI - Page 5)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 4e
§§ 4626Q.4 - 4626Q.7
98.12.31

(4) Assumptions underlying the cash flow read and understood the disclosures.
projections for each class of certificate;
(5) Description of any credit § 4626Q.7 Conveyance of assets
enhancement; a. The conveyance of the assets
(6) Identity of the servicer; and comprising the asset pool shall be done
(7) Disclosure statements as required within the context of a true sale and, for this
under Subsec. 4626Q.6. purpose, the seller may not retain in its books
c. Specimen of application to purchase the ABS, except the residual certificate, if any.
ABS. It shall include the terms and conditions b. The seller shall have no obligation to
of the purchase and the disclosures required repurchase or substitute an asset or any part
under Subsec. 4626Q.6. of the asset pool at any time, except in cases
d. Specimen of certificate. It shall of a breach of representation or warranty, or
indicate the features of the ABS and the under a revolving structure, to replace
disclosures required under Subsec. 4626Q.6. performing assets which have been paid out
in part or in full.
§ 4626Q.5 Minimum features of ABS c. The seller shall be under no obligation
The ABS shall be pre-numbered and printed to provide additional assets to the SPT to
on security paper. The ABS shall be signed maintain a coverage ratio of collateral to
and authenticated by the trustee. They are outstanding ABS. A breach of this
transferable by endorsement of the certificate. requirement will be considered a credit
The transfer shall be recorded in the books enhancement and should be charged against
of the trustee, indicating the names of the capital. However, this will not apply to an
parties to the transaction, the date of the asset pool conveyed under a revolving
transfer and the number of the certificate structure such as the securitization of credit
transferred. card receivables.
The minimum denomination of any d. Securitized assets shall be considered
ABS shall be P10,000. the subject of a true sale between the seller
and the SPT. Sold assets shall be taken off
§ 4626Q.6 Disclosures. The following the books of the seller and shall be transferred
disclosures must be provided in a to the books of the SPT.
conspicuous manner in any document For accounting purposes, the transfer shall
inviting investment, application to purchase only be considered a true sale if the following
ABS and in the certificate itself: three (3) conditions have been satisfied:
a. The ABS do not represent deposit (1) the transferred assets have been
substitutes or liabilities of the originator, isolated and put beyond the reach of the
servicer or trustee and that they are not seller and its creditor;
insured with PDIC; (2) the SPT has the right to pledge or
b. The investor has investment risks; exchange its interest in the assets; and
c. The trustee does not guarantee the (3) the seller does not effectively maintain
capital value of the ABS or the collectibility control over the transferred assets by any
of the asset pool; and concurrent agreement.
d. The rights of an investor. e. All expenses incidental to
The investors shall be required to sign underwriting, conveyance of the asset pool
an acknowledgment indicating that they have including expenses for credit enhancement

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 5
§§ 4626Q.7 - 4626Q.12
98.12.31

may be paid by the originator/seller: b. The seller or originator shall deliver


Provided, That no further expenses shall be to the trustee all original documents or
borne by the originator/seller after the asset instruments with respect to each asset sold.
pool has been conveyed to the SPT.
§ 4626Q.11 Trustee and issuer
§ 4626Q.8 Representations and a. The trustee shall be the trust
warranties department of a bank licensed to do business
a. Standard representations and in the Philippines.
warranties refer to an existing state of facts b. The trustee shall have the right to
that the originator, seller or servicer can either manage or administer the asset pool. The
control or verify with reasonable due trustee shall see to it that necessary measures
diligence at the time the assets are sold. Any are taken to protect the asset pool.
breach of representation or warranty may c. The trustee shall undertake a
give rise to legal recourse. performance review of the asset pool at least
b. The representations or warranties shall quarterly and shall prepare a report to
be clear and explicit and, in particular, shall investors indicating, among others,
not relate to the future creditworthiness of collections, fees and other expenses as well
the assets in the asset pool or the performance as defaults, which report shall be made
of the SPT or the securities issued. available to the investors at anytime after thirty
c. Any agreement to pay damages as (30) days from end of the reference quarter.
a result of breach of warranties and d. The trustee shall initiate all civil
representations shall hold only where: actions including foreclosure of mortgaged
(1) there is a well-documented negotia- properties to effect collection of receivables
tion of the agreement in good faith; in the asset pool. The servicer or any other
(2) the burden of proof for a breach of party may be designated by the trustee to
representation or warranty rests with the perform such function on a case-by-case
other party; basis.
(3) damages are limited to the loss e. The trustee may invest the investible
incurred as a result of the breach; and funds only in obligations issued and/or fully
(4) there is a written notice of claim guaranteed by the government of the
specifying the basis for the claim. Republic of the Philippines or by the BSP and
The BSP shall be notified of any instance such other high-grade readily marketable
where an NBQB or its subsidiaries/affiliates debt securities as the BSP may approve.
has agreed to pay damages arising out of any f. The trustee shall designate a
breach of representation or warranty. replacement of the servicer if the latter fails
to satisfactorily perform its duties and
§ 4626Q.9 Third party review. A due responsibilities according to the terms and
diligence review by an independent entity conditions of the servicing agreement.
mutually agreed upon by the seller and the
issuer shall be done before the assets are sold. § 4626Q.12 Servicer
a. The servicer shall perform its duties
§ 4626Q.10 Originator and seller according to the terms and conditions of the
a. The seller may itself be the originator, servicing agreement and such other written
and may likewise be designated as the instructions as the trustee may issue on a
servicer. case-by-case basis. Collections made by the

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Part VI - Page 6
§§ 4626Q.12 - 4626Q.15
98.12.31

servicer shall be remitted promptly to the § 4626Q.14 Guarantor


trustee or as may be agreed upon by the a. Only an entity the regular business
parties in the servicing agreement, but in no of which includes the issuance of guarantees
case shall the remittance period be longer or similar undertaking may act as guarantor.
than one (1) month. b. The guarantor must have the
b. The servicer shall prepare periodic financial capacity to perform its
reports as may be required by the trustee. responsibilities in accordance with the terms
c. The servicer shall report to the and conditions of the guarantee agreement.
trustee within thirty (30) days any borrower It shall submit to the trustee at least once in
which fails to pay its debt at maturity date or every six (6) months such financial reports
any adverse development that may affect the as the trustee may require.
collectibility of any loan account or c. The originator or seller may not issue
receivable comprising the asset pool. a counter-guarantee in favor of the guarantor.
d. The servicer shall have no authority
to waive penalties and charges except with § 4626Q.15 Credit enhancement. Credit
a written authority from the trustee. enhancement may be provided in any of the
following manner:
§ 4626Q.13 Underwriter a. Standby letter of credit issued by an
a. An expanded commercial bank EKB/KB other than the originator’s/seller’s
(EKB) or investment house (IH) shall have subsidiary/affiliate, parent bank or the parent
written policies and procedures on bank’s subsidiary/affiliate, and trustee or its
underwriting of ABS. subsidiary/affiliate.
b. The underwriter shall perform its b. Surety bond issued by any
functions according to the terms and insurance company other than the
conditions of the underwriting agreement. originator’s/seller’s subsidiary or affiliate, the
c. An underwriter may deal in ABS, subsidiary or affiliate of the originator’s/
except those administered by its trust seller’s parent bank and the trustee or its
department, the trust departments of its subsidiary/affiliate.
subsidiaries/affiliates, the trust department of c. Guarantee issued by any entity
its parent bank or the trust department of its other than the originator/seller or its
parent bank’s subsidiaries/affiliates. subsidiary/affiliate, its parent bank or the
d. An EKB/IH may act as underwriter, parent bank’s subsidiary/affiliate, and trustee
on a firm basis, of ABS except those or its subsidiary/affiliate.
administered by its trust department, the trust d. Overcollateralization provided by
departments of its subsidiaries/affiliates, the the originator/seller wherein the assets
trust department of its parent bank or the trust conveyed to the SPT exceed the amount of
department of its parent bank’s subsidiaries/ securities to be issued.
affiliates. Losses arising from overcollateralization
e. The underwriter may not extend shall be recognized by the originator/seller
credit for the purpose of purchasing the ABS upfront. Such losses shall be treated as capital
which such EKB/IH underwrites or that which charges.
is underwritten by its subsidiaries/affiliates, e. Spread account wherein the income
its parent bank or its parent bank’s from the underlying pool of receivables is
subsidiaries/affiliates. made available to cover any shortfall in the

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 7
§§ 4626Q.15 - 4626Q.19
98.12.31

repayment of ABS. The spread account shall b. Any director, officer or employee
be handled by the trustee which shall account of the originator, seller or servicer may not
for it separately. If not needed, this “spread” serve as a member of the board of directors
generally reverts to the holder of the residual or trust committee of the trustee or vice versa
certificate. for the duration of the securitization.
f. Subordinated securities that are c. The trust indenture shall not contain
lower ranking, or junior to other obligations any stipulation whereby the seller, its
and are paid after claims to holders of senior subsidiaries/affiliates, its parent bank or the
securities are satisfied. parent bank’s subsidiaries/affiliates shall
g. Other credit enhancements as may commit to extend any credit facility to the
be approved by the Monetary Board. issuer and/or trustee.
To be consistent with the concept of a d. The ABS shall not be eligible as
true sale, subordinated securities shall be sold collateral for a loan extended by an NBQB
to third party investors other than the which originated/sold the underlying assets
originator’s/seller’s parent company or its of such ABS.
subsidiary/affiliate and the trustee or its e. The trust department of a bank that
subsidiary/affiliate or, if held by the seller, has discretion in the management of any trust
capital charges should be booked upfront. or investment management account may not
Otherwise, the subordinated securities shall purchase for said trust/investment
be treated as deposit substitute subject to management account ABS administered by
legal reserves. the trust department of the same bank, the
trust department of such trustee’s
§ 4626Q.16 Clean-up call. A clean- subsidiaries/affiliates, the trust department of
up call may be exercised by the seller once such trustee’s parent bank and the trust
the outstanding principal balance of the department of the parent bank’s subsidiaries/
receivable component of the asset pool falls affiliates.
to ten percent (10%) or less of the original The trustee may not designate its
principal balance of the asset pool. Where subsidiary/affiliate, its parent or the parent’s
the asset pool includes foreclosed and other subsidiaries/affiliates as servicer or vice versa.
assets, such assets shall be included in the
clean-up call and the consideration thereof § 4626Q.18 Amendment. Any
shall be at current market value. Such a amendment to the trust indenture shall
clean-up call shall not be considered require the prior approval of the BSP.
recourse or in violation of Subsec. 4626Q.7
on conveyance of assets. § 4626Q.19 Miscellaneous provision
Without prior approval of the BSP, any entity
§ 4626Q.17 Prohibited activities supervised by the BSP authorized to engage
a. The seller may not, under any in trust and fiduciary business may act as
circumstance, designate its trust department, trustee or servicer in a securitization scheme
the trust department of its subsidiaries/ originated by an entity not supervised by the
affiliates, the trust department of its parent BSP: Provided, That the assets which are the
bank or the trust department of its parent subject of such securitization are existing in
bank’s subsidiaries/affiliates as trustee. the books of the entity prior to securitization:
Provided, further, That such entity acting as

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Part VI - Page 8
§§ 4626Q.19 - 4651Q.9
03.12.31

trustee or servicer is not a subsidiary/affiliate further, That the corresponding appreciation


of the originator/seller, its parent bank or credit shall not form part of the combined
the parent bank’s subsidiaries/affiliates or capital accounts of NBQBs but lodged under
vice versa: Provided, finally, That such entity a Revaluation Reserve account.
acting as trustee may not designate its
subsidiaries/affiliates, its parent or the § 4651Q.2 (Reserved)
parent’s subsidiaries/affiliates as servicer or
vice versa. § 4651Q.3 Reclassification of real and
other properties owned or acquired as
§ 4626Q.20 Report to Bangko Sentral NBQB premises. Real and other properties
The trustee shall submit a report of every owned or acquired (ROPOA) reclassified
securitization scheme in formats to be either as Real Property-Land or Real Property-
prescribed by the BSP. The report shall be Building shall be booked at their ROPOA
submitted to the appropriate supervising and balance, net of any valuation reserve:
examining department of BSP, within fifteen Provided, That only such acquired asset or a
(15) business days after the end of every portion thereof that will be immediately used
reference quarter. Such report shall be or earmarked for future use may be
considered a Category A report for purposes reclassified and booked as Real Property-
of implementing fines in the submission of Land/Building.
required reports pursuant to existing NBQBs, prior to the reclassification of
regulations. their ROPOA accounts to Real Property-Land/
Building, shall first secure prior BSP approval
Secs. 4627Q - 4650Q (Reserved) before effecting the reclassification and shall
submit, in case of future use, justification and
plans for expansion/use.
B. SUNDRY PROVISIONS
§§ 4651Q.4 - 4651Q.8 (Reserved)
Sec. 4651Q NBQB Premises and Other
Fixed Assets. The following rules shall § 4651Q.9 Batas Pambansa Blg. 344 –
govern the premises and other fixed assets An Act To Enhance The Mobility Of Disabled
of NBQBs. Persons By Requiring Certain Buildings,
Institutions, Establishments And Public
§ 4651Q.1 Appreciation or increase Utilities To Install Facilities And Other
in book value of NBQB premises and other Devices. In order to promote the realization
fixed assets. As a general rule, appreciation of the rights of disabled persons to participate
or increase in book value of NBQB premises fully in the social life and the development
and other fixed assets is not allowed. of the societies in which they live and the
However, in cases where the market value enjoyment of the opportunities available to
of the property has greatly increased since other citizens, no license or permit for the
the original purchase, appreciation may be construction, repair or renovation of public
allowed: Provided, That the appropriate and private buildings for public use,
supervising and examining department of the educational institutions, airports, sports and
BSP shall be notified in advance of the recreation centers and complexes, shopping
proposed increase in value: Provided, centers or establishments, public parking

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 9
§§ 4651Q.9 - 4653Q.2
03.12.31

places, workplaces, public utilities, shall be BSP shall bill the NBQB for the full amount
granted or issued unless the owner or of the annual fee or for the balance thereof
operator thereof shall install and incorporate not covered by its deposit account, as the
in such building, establishment or public case may be.
utility, such architectural facilities or Within thirty (30) calendar days from
structural features as shall reasonably receipt of the bill, the NBQB shall make the
enhance the mobility of disabled persons corresponding remittance to the BSP. Failure
such as sidewalks, ramps, railings and the to pay the bill within the prescribed period
like. If feasible, all such existing buildings, shall subject the NBQB to administrative
institutions, establishments, or public utilities sanctions.
may be renovated or altered to enable the
disabled persons to have access to them. Sec. 4653Q Payment of Fines and Other
Charges. The following regulations shall
Sec. 4652Q Annual Fees on Quasi-Banks govern the payment of fines and other
NBQBs shall contribute to the BSP an annual charges by NBQBs.
fee to help defray the cost of maintaining the
appropriate supervising and examining § 4653Q.1 Payment of fines. NBQBs
department. shall, within fifteen (15) calendar days from
For purposes of computing the annual receipt of the statement of account from the
fees chargeable against NBQBs, the term Total BSP, pay the fines for reserve deficiency,
Assessable Assets shall be the amount reportorial delay/deficiency, refusal to permit
referred to as the total assets under Section examination, or failure to comply with, or
28 of R.A. No. 7653 (end-of-quarter total violation of, any law or any order, instruction
assets per balance sheet, after deducting cash or regulation issued by the Monetary Board,
on hand and amounts due from banks, or any order, instruction or ruling by the
including the BSP and banks abroad) plus Governor.
Trust Department accounts. For NBQBs which maintain demand
Average Assessable Assets shall be the deposit accounts with the BSP, fines which
summation of end-of-quarter total assessable are unpaid after the lapse of the fifteen (15)-
assets divided by the number of quarters in day period shall be automatically debited
operation during the particular assessment against the corresponding demand deposit
period. account of the NBQB concerned: Provided,
The annual fees for quasi-banks for the That if the balance of the entity's account is
assessable years 2000, 2001 and 2002 shall insufficient to cover the fines due, such fines
be one twenty-eighth (1/28) of one percent shall be paid not later than the following
(1%) multiplied by their AAAs for 2000, 2001 business day. For the purpose of this Section,
and 2002 respectively. business day means a day on which the BSP
Annual fees to be collected from NBQBs head office and the head office of the NBQB
shall be debited from their respective are open for business.
deposits with the BSP by the BSP Accounting
Department upon receipt of the notice of the § 4653Q.2 Check/demand draft pay-
assessment from the appropriate supervising ments to the Bangko Sentral. NBQBs shall
and examining department of the BSP. make all check and demand draft payments
Where the deposit account is for legal reserve, supervisory fees, fines or
insufficient to cover the assessment fee, the penalties and collections or repayments of

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Part VI - Page 10
§§ 4653Q.2 - 4654Q.1
03.12.31

notes used as collateral for loans, payable b. Affiliate is an entity linked directly
either to the Cash Department, Bangko or indirectly to an NBQB by means of:
Sentral ng Pilipinas, Mabini St., Malate, (1) Ownership, control or power to
Manila or directly to the BSP Regional Cash vote, of ten percent (10%) or more of the
Units. Such payments shall be accompanied outstanding voting stock of the entity, or vice-
by the appropriate form as shown in versa;
Appendix Q-22. Payments not accompanied (2) Interlocking directorship or
by the required payment forms shall be officership;
presumed to be additions to reserves and (3) Common stockholders owning ten
shall be credited to the demand deposit percent (10%) or more of the outstanding
account of the paying NBQB. voting stock of each of the financial
Check payments shall be value-dated intermediary and the entity;
when the check is cleared. (4) Management contract or any
arrangement granting power to the financial
Sec. 4654Q Examination by the Bangko intermediary to direct or cause the direction
Sentral. The BSP shall have supervision over, of management and policies of the entity, or
and conduct periodic or special examinations vice-versa; or
of NBQBs, including their subsidiaries and (5) Permanent proxy or voting trust in
affiliates in allied activities. favor of the financial intermediary
The head and examiners of the constituting ten percent (10%) or more of the
appropriate supervising and examining outstanding voting stock of the entity, or vice-
department of the BSP are authorized to versa.
administer oaths to any director, officer, or c. Financial allied undertakings refer
employee of NBQBs, including their to enterprises or firms with homogeneous or
subsidiaries and affiliates engaged in allied similar activities/business/functions with the
activities, and to compel the presentation of financial intermediary and may include, but
all books, documents, papers or records not limited to, leasing companies, banks,
necessary in their judgment to ascertain the investment houses, financing companies,
facts relative to the true condition of the credit card operations, financial institutions
institution as well as the books and records addressed/catering to small and medium
of persons and entities relative to or in scale industries, and such other similar
connection with the operations, activities or activities as the Monetary Board may declare
transactions of the institution under as appropriate from time to time.
examination, subject to the provision of d. Non-financial allied undertakings
existing laws protecting or safeguarding the may include, but not limited to, warehousing
secrecy or confidentiality of investments of companies, storage companies, safe deposit
private persons, natural or juridical, in debt box companies, companies engaged in the
instruments issued by the Government. management of mutual funds but not in the
mutual funds themselves, management
§ 4654Q.1 Definitions corporations engaged or to be engaged in
a. Subsidiary is a corporation more activities similar to the management of
than fifty percent (50%) of the outstanding mutual funds, insurance agencies, companies
voting stock of which is directly or indirectly engaged in home building and home
owned, controlled, or held with power to development and companies providing
vote by an NBQB. drying and/or including facilities for

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 11
§§ 4654Q.1 - 4657Q.2
03.12.31

agricultural crops such as rice and corn and derecognition of domestic credit rating
such other similar activities as the Monetary agencies (CRAs) for bank supervisory
Board may declare as appropriate from time purposes.
to time.
§ 4657Q.1 Statement of policy. The
introduction in the financial market of new
Sec. 4655Q Applicability of Expanded
and innovative products create increasing
Commercial Banking Rules on NBQBs. In
demand for and reliance on CRAs by the
case of conflict between rules applicable to
industry players and regulators as well. As a
banks with expanded commercial banking
matter of policy, the BSP wants to ensure that
authority and those applicable to NBQBs in
the reliance on credit ratings is not
activities where they perform the same func-
misplaced. The following rules and
tions, the rules governing banks with
regulations that shall govern the recognition/
expanded commercial banking authority
derecognition of domestic CRAs for quasi-
shall prevail.
bank supervisory purposes.

Sec. 4656Q Basic Laws Governing § 4657Q.2 Minimum eligibility criteria


Investment Houses and Financing Only ratings issued by CRAs recognized
Companies. The following are the basic laws by the BSP shall be considered for BSP quasi-
governing investment houses and financing bank supervisory purposes. The BSP, through
companies: the Monetary Board, may officially recognize
a. Investment houses. P.D. No. 129, a credit rating agency upon satisfaction of the
as amended, known as The Investment following requirements:
Houses Law, governs the establishment, a. Organizational structure
operation and regulation of investment (1) A domestic CRA must be a duly
houses. To effectively carry out the provisions registered company under the Securities and
of this Decree, the SEC, pursuant to the Exchange Commission (SEC); and
powers vested in it by said Decree, (2) A domestic CRA must have at least
promulgated basic rules and regulations five (5) years track record in the issuance of
(Appendix Q-18) to implement the provisions reliable and credible ratings. In the case of
of the Decree. new entrants, a probationary status may be
b. Financing companies. R.A. No. granted: Provided, That the CRA employs
8556, known as The Financing Company Act professional analytical staff with experience
of 1998, regulates the organization and in the credit rating business.
operation of financing companies. To b. Resources
effectively carry out the provisions of this Act, (1) Human Resources
the SEC, pursuant to the powers vested in it (a) The size and quality of the CRA’s
under said Act, promulgated basic rules and professional analytical staff must have the
regulations to implement the provisions of capability to thoroughly and competently
the Act (Appendix Q-19). evaluate the assessed/rated entity’s
creditworthiness;
Sec. 4657Q Recognition and Derecognition (b) The size of the CRA’s professional
of Domestic Credit Rating Agencies for Bank analytical staff must be sufficient to allow
Supervisory Purposes. The following substantial on-going contact with senior
regulations shall govern the recognition and management and operational levels of

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part VI - Page 12
§ 4657Q.2
03.12.31

assessed/rated entities as a routine (3) The CRA must use an assessment


component of the surveillance process; methodology that is subject to on-going
(c) The CRA shall establish a Rating review and is responsive to changes in the
Committee composed of adequately operations of assessed/rated entities.
qualified and knowledgeable individuals in d. Independence
the rating business, majority of whom must (1) The CRA must be free from control
have at least five (5) years experience in credit of and undue influence by the entities it
rating business; assesses/rates;
(d) The directors of the CRA must (2) The assessment process must be free
possess a high degree of competency from ownership pressures to allow
equipped with the appropriate education and management to exercise independent
relevant experience in the rating business; professional judgement;
(e) The directors, officers, members of (3) Persons directly involved in the
the rating committee and professional assessment process of the CRA are free from
analytical staff of the CRA have not at any conflicts of interest with assessed/rated
time been convicted of any offense involving entities, and
moral turpitude or violation of the Securities (4) The CRA does not assess/rate an
Regulation Code; and associate entity.
(f) The directors, officers, members of e. Transparency
the rating committee and professional (1) A general statement of the assessment
analytical staff of the CRA are not currently methodology used by the CRA should be
involved as a defendant in any litigation publicly available;
connected with violations of the Securities (2) The CRA shall disseminate to the
Regulation Code nor included in the BSP public thru a well-circularized publication,
watchlist. all assigned ratings disclosing whether the
(2) Financial resources rating issued is solicited or unsolicited;
(a) The CRA must have the financial (3) The rationale of ratings issued and
capability to invest in the necessary risk factors considered in the assessment
technological infrastructure to ensure speedy should be made available to the public;
acquisition and processing of data/ (4) The ratings issued by the CRA should
information and timely release of reliable and be available both to domestic and foreign
credible ratings; and institutions with legitimate interest; and
(b) The CRA must have financial (5) Publication of changes in ratings
independence that will allow it to operate together with the basis for the change should
free from economic and political pressures. be done on a timely basis.
c. Objectivity f. Disclosure requirements
(1) The CRA must use a rigorous and (1) Qualitative disclosures
systematic assessment methodology that has (a) Definition of ratings along with
been established for at least one (1) year; corresponding symbols;
however, a three (3)-year period is preferable; (b) Definition of what constitutes a
(2) The assessment methodology of the default, time horizon within which a default
CRA must be based both on qualitative and is considered and measure of loss given a
quantitative approaches; and default;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 13
§§ 4657Q.2 - 4657Q.3
03.12.31

(c) Material changes within the CRA (b) power to govern the financial and
(i.e., changes in management or operating policies of the enterprise under a
organizational structure, rating personnel, statute or an agreement;
modifications of rating practices, financial (c) power to appoint or remove the
deterioration) that may affect its ability to majority of the members of the board of
provide reliable and credible ratings. directors or equivalent governing body;
(2) Quantitative disclosures (d) power to cast the majority votes at
(a) Actual default rates experienced in meetings of the board of directors or
each rating category; and equivalent governing body; or
(b) Rating transitions of assessed/ rated (e) any other arrangement similar to any
entities over time (i.e., likelihood of an AAA of the above.
credit rating transiting to AA etc. over time). h. Internal compliance procedures
g. Credibility (1) The CRA must have the necessary
(1) The CRA must have a general internal procedures to prevent misuse or
reputation of high standards of integrity and unauthorized disclosure of confidential/ non-
fairness in dealing with its clients and public information; and
conducts its business in an ethical manner; (2) The CRA must have rules and
(2) The CRA is generally accepted by regulations that prevent insider trading and
predominant users in the market (i.e., issuers, other conflict of interest situations.
investors, bankers, financial institutions,
securities traders); and § 4657Q.3 Pre-qualification requirements
(3) The CRA must carry out its rating The application of a domestic CRA for
activities with due diligence to ensure ratings BSP recognition shall be submitted to the
are fair and appropriate. appropriate supervising and examining
For purposes of this Section, a department of the BSP together with the
subsidiary refers to a corporation, more than following information/documents:
fifty percent (50%) of the voting stock of a. An undertaking
which is owned or controlled directly or (1) That the CRA shall comply with
indirectly by the CRA while an affiliate refers regulations, directives and instructions which
to a corporation, not more than fifty percent the BSP or other regulatory agency/body may
(50%) but not less than ten percent (10%) of issue from time to time; and
the voting stock of which is owned or (2) That the CRA shall notify the BSP in
controlled directly or indirectly by the CRA. writing of any material changes within the
“Control” exists when the parent owns organization (i.e., changes in management
directly or indirectly through subsidiaries or organizational structure, rating personnel,
more than one-half of the voting power of modifications of its rating practices, financial
an enterprise unless, in exceptional deterioration) that may affect its ability to
circumstance, it can be clearly demonstrated provide reliable and credible ratings.
that such ownership does not constitute b. Other documents/information:
control. Control may also exist even when (1) Brief history of the CRA, major rating
ownership is one-half or less of the voting activities handled including information on
power of an enterprise when there is: the name of the client, type of instruments
(a) power over more than one-half of the rated, size and year of issue;
voting rights by virtue of an agreement with (2) Audited financial statements for the
other stockholders; past three (3) years and such other

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part VI - Page 14
§§ 4657Q.3 - 4661Q
04.12.31

information as the Monetary Board may (1) Failure to maintain compliance with
consider necessary for selection purposes; the requirements under Subsec. 4657Q.2 or
(3) For new entrants, employment of any willful misrepresentation in the
professional analytical staff with experience information/documents required under
in the credit rating business; Subsec. 4657Q.3;
(4) List of major stockholders/partners (2) Involvement in illegal activities such
(owning at least ten percent (10%) of the as ratings blackmail; creation of a false market
voting stocks of the CRA directly or along or insider trading; divulging any confidential
with relatives within the 1st degree of information about a client without prior
consanguinity or affinity); consent to a third party without legitimate
(5) List of directors, officers, members of interest; indulging in unfair competition (i.e.,
the rating committee and professional luring clients of another rating agency by
analytical staff of the CRA; including their assuring higher ratings etc.); and
qualifications, experience related to rating (3) Any violations of applicable laws,
activities, directorship and shareholdings in rules and regulations.
the CRA and in other companies, if any; b. Procedure for derecognition. A CRA
(6) List of subsidiaries and affiliates shall only be derecognized upon prior notice
including their line of business and the nature and after being given the opportunity to
of interest of the CRA in these companies; defend itself.
(7) Details of the denial of a previous
request for recognition, if any (i.e., § 4657Q.6 Recognition of PhilRatings
application date, date of denial, reason for as domestic credit rating agency for bank
denial etc.); and supervisory purposes. Credit ratings
(8) Details of all settled and pending assigned by Philippine Rating Services
litigations connected with the securities Corporation (PhilRatings) may be used,
market against the CRA, its directors, officers, among others, for determining appropriate
stockholders, members of the rating risk weights in ascertaining compliance with
committee and professional analytical staff, existing rules and regulations on risk-based
if any. capital requirements.

§ 4657Q.4 Inclusion in BSP list Secs. 4658Q - 4660Q (Reserved)


The BSP will regularly circularize to all
banks and non-bank financial institutions an Sec. 4661Q Examination by the BSP. The
updated list of recognized CRAs. The BSP, term “examination” shall, henceforth, refer
however, shall not be liable for any damage to an investigation of an institution under the
or loss that may arise from its recognition of supervisory authority of the BSP to determine
CRAs to be engaged by users. compliance with laws and regulations. It
shall include determination that the
§ 4657Q.5 Derecognition of credit institution is conducting its business on a safe
rating agencies and sound basis. Examination requires full
a. Grounds for derecognition. Credit and comprehensive looking into the
rating agencies may be derecognized from operations and books of institutions, and shall
the list of BSP recognized CRAs under the include, but need not be limited to, the
following circumstances: following:

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Part VI - Page 15
§§ 4661Q - 4699Q
04.12.31

a. Determination of the NBQB’s Secs. 4662Q - 4690Q (Reserved)


solvency and liquidity position;
b. Evaluation of asset quality as well as Sec. 4691Q Anti-Money Laundering
determination of sufficiency of valuation Regulations. Banks, offshore banking
reserves on loans and other risk assets; units(OBUs), quasi-banks (QBs), trust entities,
c. Review of all aspects of NBQB non-stock savings and loan associations
operations; (NSSLAs), pawnshops, and all other
d. Assessment of risk management institutions, including their subsidiaries and
system, including the evaluation of the affiliates supervised and/or regulated by the
effectiveness of the NBQB management’s BSP, otherwise known as “covered
oversight functions, policies, procedures, institutions” shall comply with the provisions
internal control and audit; of R.A. No. 9160, as amended, otherwise
e. Appraisal of overall management of known as the “Anti-Money Laundering Act
the NBQB; of 2001,” and its Implementing Rules and
f. Review of compliance with Regulations (IRRs) in Appendix Q-25 and
applicable laws, rules and regulations; and those in Appendix Q-23.
g. Any other activities relevant to the
above. §§ 4691Q.1 - 4691Q.8 (Reserved)
Regular or periodic examination shall be
done once a year, with an interval of twelve § 4691Q.9 Sanctions and Penalties
(12) months from the last date thereof. a. Whenever a covered institution
Special examination may be conducted violates the provisions of Section 9 of R.A.
earlier, or at a shorter interval, when No. 9160 or of this Section, the officer(s) or
authorized by the Monetary Board by an other persons responsible for such violation
affirmative vote of five (5) members. shall be punished by a fine of not less than
In the full exercise of the supervisory P50,000 nor more than P200,000 or by
powers of the BSP, examination by the BSP imprisonment of not less than two (2) years
of institutions shall be complemented by nor more than ten (10) years, or both, at the
overseeing thereof. In this regard, the term discretion of the court pursuant to Section
“overseeing” shall refer to a limited 36 of R.A. No. 7653, otherwise known as
investigation of an institution, or any “The New Central Bank Act”.
investigation/s that is limited in scope, b. Without prejudice to the criminal
conducted to inquire into a particular area/ sanctions prescribed above against the
aspect of an institution’s operations, for the culpable persons, the Monetary Board may,
purpose of overseeing that laws and at its discretion, impose upon any covered
regulations are complied with, inquiring into institution, its directors and/or officers for any
the solvency and liquidity of the institution, violation of Section 9 of R.A. No. 9160, the
enforcing prompt corrective action, or such administrative sanctions provided under
other matters requiring immediate Section 37 of R.A. No. 7653.
investigation: Provided, That - (i) specific
authorizations be issued by the Deputy Secs. 4692Q - 4698Q (Reserved)
Governor, Supervision and Examination
Sector, and (ii) periodic summary reports on Sec. 4699Q General Provision on Sanctions
overseeings made be submitted to the Unless otherwise provided, any violation of
Monetary Board. the provisions of this Part shall be subject to
Sections 36 and 37 of R.A. No. 7653.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Part VI - Page 16
APP. Q-1
96.12.31

GUIDELINES TO EVALUATE INVESTMENT HOUSES


(Appendix to Sec. 4105Q)

1. Capital - The requirement is a (3) Fund usage. Support of priority


minimum paid-in capital of P200 million for investment areas of the Government and
an investment house to be established in other projects which may be determined by
Metro-Manila and P100 million for all others. the Bangko Sentral shall be emphasized.
Foreign equity, if any, shall be registered with Funds placed on maturities beyond one (1)
and approved by the Board of Investments year shall be preferred.
and the Bangko Sentral.
(4) Planned distribution of portfolio
2. Citizenship - Majority (51%) of the Activities indicating money-market services
voting stock shall be owned by Filipinos. and investment in subsidiaries and affiliates,
while necessary to sustain the investment
3. Directorship/Officership - Majority of house, shall be subordinated to the preferred
the board members shall be Filipinos. activities above-indicated. Other activities
Resident foreign directors and technicians as financial management, counseling,
shall register with the Bureau of Immigration distribution of equity and debentures for
and Deportation. Compliance with the "public" ownership, etc., shall be
prohibition on interlocking directorship/ considered.
officership between banks and investment b. The one (1)-year investment
houses and between NBQB s shall be program of the investment house shall be
observed. related to the government development plan
by indicating the portion of the investment
4. Promotion of Public Interest and and savings targets in the plan which would
Economic Growth - be supported by the investment house
a. Submission of a one (1)-year industry.
investment program indicating: c. A one (1)-year projected income
(1) Underwriting and distribution statement showing major sources of income
activities. These shall show in details the and expense items.
various stages leading to the completion of d. Operational agreement with other
an agreement. Target dates for each stage in financial institutions.
the underwriting process shall be indicated e. A statement justifying the operation
which should serve as reference points in the of the investment house as not in conflict with
event that an investment house is unable to public interest and economic growth, taking
bring the program and its components to into account the existing number of
fruition. Target volume of underwriting investment houses, indicating:
would be set initially at twenty-five percent (1) record of underwriting;
(25%) of paid-in capital. (2) evidence of medium and long-term
(2) Fund mobilization. Emphasis shall loans;
be on maturities beyond one (1) year. (3) evidence of obtaining funds with
Domestic and foreign sources shall be maturity beyond one (1) year; and
indicated and the latter shall be evaluated (4) equity investments which were
in terms of pertinent Bangko Sentral subsequently distributed to the public.
regulations.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-1 - Page 1
APP. Q-1
96.12.31

5. Organization, Direction and c. Absence of administrative or criminal


Administration - The organizational/ conviction; and
functional chart should match the d. Affiliation with professional
organization framework with operational organizations.
objectives. The management of the company,
board of directors and the managerial staff, 7. Branching - The rate at which branch
must be firmly designated before it can be offices are to be established shall depend
granted a license to operate as an investment upon the ability of the company to conduct
house. operations from headquarters/head offices as
well as on correspondent (banking)
6. Integrity, Experience and Expertise of arrangements.
Board and Management Staff Other factors to be considered are the
a. Formal training, academic or others; following:
b. Experience along financial a. Reserve and liquidity position; and
management, securities dealing, fund b. Profitability and capacity to absorb
management, project evaluation and losses.
feasibility studies;

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-1 - Page 2
APP. Q-2
96.12.31

DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL


THE ENTITY MUST PUT UP
(PROJECTION BASE - LATEST AVAILABLE REPORT)
(IN THOUSAND PESOS)
(Appendix to Subsec. 4151Q.2)

(Name of Entity)

A. 1. Estimated Amount of Risk Assets of Present


Office for the Next 12 Months

a. Actual Risk Assets P xxx


b. Add: xx% of (a) xxx
Risk Assets - (Base Period) P xxx
Risk Assets - (Previous Year) xxx
Increase P xxx
Rate of Increase = increase = xx%
actual risk assets
c. Total of (a) and (b) P xxx

2. Maximum Possible Level of Risk Assets Based


on the Base Period Figures:

a. Net worth Less 30% of Paid-in


Capital (Pxxx - xxx) P xxx
b. 100% of Borrowings (Bills Payable) xxx
c. 80% of Unutilized Acceptances or
Credit Line with Foreign Bank(s) xxx P xxx

B. Estimated Risk Assets for the First 12


Months of Operation:

1. Branch Approved but not yet Opened: P xxx

2. Branch Being Applied for: xxx

Add: Lower of A.1 or A.2 xxx

C. Total Estimated Risk Assets for 12 Months P xxx

D. 10% of C (Minimum Paid-in Capital Required) P xxx

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-2 - Page 1
APP. Q-2
96.12.31

E. Less:
Present Combined Capital Accounts P xxx
(Base Period Figures)
Add: xx% of above xxx xxx

Capital Accounts - (Base Period) P xxx


Capital Accounts - (Previous Year) xxx

Increase P xxx

*Rate of Increase = Increase = xx%


Capital Accounts of
Previous Year

F. Estimated Excess of Capital over Minimum Capital


Required or Additional Amount of Capital Applicant
Must Put Up, as the case may be P xxx

*The computation to arrive at the "rate of increase" in capital accounts shall only be considered if there
is sufficient indication or evidence that the NBQB will continue to follow the same amount of increase in
capital accounts for the succeeding year. If no evidence is found that the NBQB will continue to increase
its capital accounts for the same amount for the succeeding year, then computations should consider only
the amount of net profits (after dividends) plowed into the business for the year immediately preceding the
date of application plus the amount of capital that the NBQB promised to put up per its schedule or
program submitted to the Bangko Sentral. If no such schedule or program was submitted, then only the
amount of net profits (after dividends) for the year immediately preceding the date of application should
be considered.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-2 - Page 2
LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INTERMEDIARIES
ENGAGED IN QUASI-BANKING FUNCTIONS
(Appendix to Sec. 4162Q)

Manual of Regulations for Non-Bank Financial Institutions


Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B BSP 7-26-01 Information Sheet Annually January 31 Appropriate BSP SED

B BSP-7-26-01.1 Biographical Data of Directors/Officers Annually January 31 or 15th In case of changes in edu-
and as calendar day follow- cational attainment and
changes ing the creation or fill- experience in financial
occur ing up of a vacancy management and related
in the Board of Direc- fields, only additional
tors and the manage- qualifications that will
rial staff enhance the director's or
officer's competence or
will qualify him to his
present position shall be
reported.

B Unnumbered Notice of Election/Appointment of Members As change 10th day from elec- Original - Appropriate
of Board of Directors and Committees occurs tion/assumption of BSP SED
office

B Unnumbered Change of List of Directors/Officers/ As change Immediately after Original - Appropriate


(no prescribed Employees occurs change BSP SED
form)

A-2 Unnumbered Acknowledgment receipt of copies of specific Annually or 15th business day Appropriate BSP SED
(no prescribed duties and responsibilities of the board of as directors after date of election
form) directors and of a director and certification are elected
that they fully understand the same
Appendix Q-3 - Page 1

B Unnumbered Report on Disqualification of Director/Officer As disquali- Within 72 hours Appropriate BSP SED
(no prescribed fication from receipt of
form) occurs report by board of
directors
Q Regulations

A-2 Unnumbered Computation of the Risk-Based Capital Quarterly Original - Appropriate

04.12.31
APP. Q-3
Adequacy Ratio Covering Credit Risks (for BSP SED
NBQBs only)
Appendix Q-3 - Page 2
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

- solo basis (Head Office and branches) 15th business day


after end of refer-
ence quarter

- consolidated basis (Parent QB plus subsidiary 30th business day


financial allied undertaking excluding after end of refer-
insurance companies) ence quarter

A-2 BSP-7-26-02-A/B Consolidated Statement of Condition Monthly 15th business day Separate report for Head
after end of refer- Office and each Branch;
ence month and a Consolidated Re-
Manual of Regulations for Non-Bank Financial Institutions port for Head office and
Branches; to be submit-
ted via electronic mail

Schedules:

A-2 BSP-7-26-02-A Loans/Receivables,Trading Account Securities


Schedule 1 (TAS) - Loans Underwritten Debt Securities
(IHs only)

A-2 BSP-7-26-02-B Loans/Receivables and Trading Account


Schedule I Securities (TAS)-Loans
(FCs only)

A-2 BSP 7-26-02-A Bills Payable and Bonds Payable


Schedule 5
(For IHs)

A-2 BSP 7-26-02-B Bills Payable and Bonds Payable


Schedule 5
(For FCs)

A-2 BSP-7-26-02-A/B Remaining Maturities of Selected Accounts


Schedule 4 Interest Rate and Maturity Matching

A-2 BSP-7-26-02-A/B Interest Rate and Maturity Matching


Schedule 3
Manual of Regulations for Non-Bank Financial Institutions
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

A-2 BSP-7-26-02-A Underwritten Securities, Trading Account


Schedule 2 Securities - Investments, Available for Sale
(For IHs) Securities and Investments in Bonds & Other
Debt Instruments

A-2 BSP-7-26-02-B Trading Account Securities - Investments,


Schedule 2 Available for Sale Securities and Investments
(For FCs) in Bonds & Other Debt Instruments

A-2 BSP-7-26-02-A Underwritten Securities, Trading Account


Schedule 2.1 Securities - Investments, Available for Sale
(For IHs) Securities and Investments in Bonds & Other
Debt Instruments (Government Issue - Local
Government Units)

A-2 BSP-7-26-02-B Trading Account Securities - Investments,


Schedule 2.1 Available for Sale Securities and Investments
(For FCs) in Bonds & Other Debt Instruments
(Government Issue - Local Government Units)

A-2 BSP-7-26-02-A Loans/Receivables, Trading Account Securities


Schedule 1 - Loans and Underwritten Debt Securities
(For IHs)

A-2 BSP-7-26-02-B Loans/Receivables and Trading Account


Schedule 1 Securities - Loans
(For FCs)
Appendix Q-3 - Page 3

A-2 BSP-7-26-02-A Loans/Receivables, Trading Account Securities


Schedule 1.1 - Loans and Underwritten Debt Securities
(For IHs) (Borrowings of Local Government Units)
Q Regulations

A-2 BSP-7-26-02-B Loans/Receivables and Trading Account

04.12.31
APP. Q-3
Schedule 1.1 Securities - Loans (Borrowings of Local
(For FCs) Government Units)

A-2 BSP-7-26-02-B Data on Firm's Businesses


Schedule 6
(FCs only)
Appendix Q-3 - Page 4
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

A-2 BSP-7-26-03-A/B Consolidated Statement of Income and Monthly 15th business day Separate report for
Expenses following end of Head Office and each
reference month branch; and a
Consolidated Report for
Head Office and
Branches; to be
submitted via electronic
mail

A-2 BSP-7-26-05 Consolidated Report of Required and Available Weekly 4th business day -do-
Reserves Against Deposit Substitutes and following end of
Manual of Regulations for Non-Bank Financial Institutions Special Financing reference week

A-2 BSP-7-26-05.1 Components of Deposit Substitutes With -do- -do- -do-


Original Maturities of 730 Days or Less

A-2 BSB-7-26-05.3 Eligible Philippine Government Securities Weekly 4th business day -do-
Utilized as Reserves Against Deposit following end of
Substitutes reference week

A-2 BSP-7-26-06 Statement of Capital Required and Capital Semi- 7th business day E-mail to SRSO:
Accounts Monthly after 15th and end of srso-nbqb@bsp.gov.ph
month

Control Prooflist duly signed by the authorized Fax to SRSO@523-3461


officer of the institution

B BSP-7-26-10 Information Sheet and "Truth in Lending Act" As needed - Original - Appropriate
Creditor's Certification BSP SED

B BSP-7-26-13 Past Due Receivables, Loans and/or Quarterly 15th calendar day Original - Appropriate
Commercial Papers/Private Securities after end of reference BSP SED
quarter

B BSP-7-26-14 Rolled-Over Loans and/or Commercial Papers -do- -do- -do-


(Above P100,000)
Manual of Regulations for Non-Bank Financial Institutions
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B BSP-7-26-15 Report on Underwriting Activities Quarterly End of month Original - Appropriate


(IH only) following each BSP SED
quarter

A-3 BSP-7-26-18 Consolidated Monthly Report on Credit Monthly 15th calendar day -do-
Accommodations to Directors, Officers, from end of reference
Stockholders and Their Related Interests month

A-3 BSP-7-26-18.1 Credit Accommodations to Directors, Officers, -do- -do- -do-


Stockholders, and Their Related Interests

B BSP-7-26-20 Report on Equity Investments in Non-Allied Semestrally 15th business day -do-
Undertakings following end of
reference semester

B BSP-7-26-21 Borrowing-Investment Program Annually 1st working day of See Annex Q-3-a for
March of reference details of the report
year

B BSP-7-26-22 Annual Underwriting Program Annually 1st working day of Original - Appropriate
(IH only) March of reference BSP SED
year

A-2 BSP-7-26-23TR Report on Trust and Other Fiduciary Business Quarterly 10th business day Original - Appropriate
(IH with Trust and Investment Management Activities with after end of reference BSP SED
only) prescribed schedules quarter Duplicate - SRSO
(Revised per CL
Appendix Q-3 - Page 5

dated 1.27.03)

Schedules:
Q Regulations

Investment in Other Securities and Debt


Instruments (Item 1.A.2)

04.12.31
APP. Q-3
Loans and Discounts (Item 1.A.4)
Appendix Q-3 - Page 6
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

Investment in Common Trust Funds (Item


1.A.5)

Deposits in Banks (Item 1.A.13)

CTF Revaluation Account (Item 1.A.20)

Allowance for Probable Losses (Item 1.A.21)

Accumulated Market Gains/(Losses) (Item


1.A.23)
Manual of Regulations for Non-Bank Financial Institutions
Exposures to Directors, Officers, Stockholders
and Their Related Interest

Government Funds Held in Trust

Tax-Exempt Accountabilities (Items 1.B.1,


1.B.2 and 1.B.3)

B BSP-7-26-23IM Report on Investment Management Activities Quarterly 10th business day Original - Appropriate
(IH with IMA with prescribed schedules after end of reference BSP SED
only) quarter
Schedules:

Investment in Other Securities and Debt


Instruments (Item 1.A.2)

Loans and Discounts (Item 1.A.4)


Investment in Common Trust Funds (Item
1.A.5)

Deposits in Banks (Item 1.A.12)

Allowance for Probable Losses (Item 1.A.17


Manual of Regulations for Non-Bank Financial Institutions
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

Accumulated Market Gains/(Losses) (Item


1.A.19)

Exposures to Directors, Officers, Stockholders


and Their Related Interest

Tax-Exempt Accountabilities (Item 1.B.1)

A-2 BSP-7-26-24 Credit and Equity Exposures to Individuals/ Quarterly 15th business day Electronic submission/
(Revised August Companies/Groups Aggregating P1Million from end of diskette - SRSO
2003 per CL and Above reference quarter
dated 8.6.03)

Notarized Control Prooflist Fax to SRSO

B BSP-7-26-25 Dividends Declared As dividends 10th business day -


are declared from approval of
declaration by the
Board of Directors

B BSP-7-26-26 Statement of Condition for Publication Quarterly 20th business day See Sec. 4181Q for
from receipt of call requirement on pub-
lication of names of
directors/officers

Control Prooflist duly signed by the authorized E-mail to SRSO: srso-


officer of the institution nbqb@bsp.gov.ph
Appendix Q-3 - Page 7

Fax to SRSO@523-3461

A-1 Copy of Published Statement of Condition with Quarterly 5th business day Original - Appropriate
Q Regulations

Publisher's Certificate from publication BSP SED


date

04.12.31
APP. Q-3
Appendix Q-3 - Page 8
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B Unnumbered Daily Report on Interbank Borrowings Not Daily (only Noon of business Original - Appropriate
Effected Through Clearing Account with when there day following date of BSP SED
Bangko Sentral are trans- report
a c t i o n s
covered)

B Unnumbered Securities Brokering Without Recourse Weekly 4th business day after -do-
(IH only) Transactions for P50,000 and Above end of reference
week

For institutions authorized to engage in


Manual of Regulations for Non-Bank Financial Institutions derivatives activities:

A-3 Unnumbered Outstanding Derivatives Contracts Monthly 5th business day -do-
from end of
reference month

A-3 Unnumbered Report on Trading Gains/Losses on Derivatives -do- -do- -do-


Transactions

A-3 Unnumbered Outstanding Peso Derivatives Contracts -do- -do- -do-

A-3 Unnumbered Copy of Written Approval of Board of As 20th business day -


Directors on Credit Accommodations to Approved from date of approval
Directors, Officers, Stockholders, and Their
Related Interests

B Unnumbered Consolidated Annual Financial Statements of Annually 120th calendar day See Annex Q-3-b for the
Financial Intermediaries and Their Allied after end of reference guidelines
Undertakings/Affiliates/Subsidiaries supported year
by Individual Annual Financial Statements of
the Allied Undertakings/Affiliates/Subsidiaries
and their audited financial statements

B Unnumbered (no Quarterly Report on Operations (signed by the Quarterly 30th day after end of Original - Appropriate
prescribed form) President) reference quarter BSP SED
Manual of Regulations for Non-Bank Financial Institutions
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B Unnumbered (no 3 copies of Annual Report of Management to Annually As soon as available Original - Appropriate
prescribed form) Stockholders Covering Results of Operations BSP SED
for the Previous Year

B Unnumbered (no 3 copies of Audited Financial Statements for Annually 90th day after the -do-
prescribed form) Previous Year Prepared by the External Auditor start of audit
and the Corresponding Auditor's Letter of
Comments

B Unnumbered (no Report on Crimes/Losses for Head Office/ As crime or 48th hour from See Annex Q-3-d for list
prescribed form) Branches incident knowledge of crime/ of documentary require-
occurs incident ments

Original - Appropriate
BSP SED

B Unnumbered Report on Outstanding Loans Secured by Monthly 10th business day Original - Appropriate
Shares of Stocks of Other Banks/NBQBs after end of BSP SED
reference month

B Unnumbered Certification under oath for "No transaction" Quarterly 5th business day -do-
(no interbank borrowings) dates during from end of
calendar quarter reference quarter

B Unnumbered (no Amendments to Articles of Incorporation/By- As changes 15th calendar day -do-
prescribed form) Laws/material documents required to be occur following change/
Appendix Q-3 - Page 9

submitted to the Bangko Sentral approval of change


by proper authorities

B Unnumbered Board resolution on NBQB's signatories of As 3rd day from date of -do-
Q Regulations

report submitted to Bangko Sentral authorized resolution

04.12.31
APP. Q-3
Appendix Q-3 - Page 10
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B Unnumbered Documentary requirements on directors/ Continuing - See Annex-Q-3-e for


officers/major individual stockholders owning requirements documentary require-
10% or more of the outstanding voting for any new ments/information
securities director/ required
o f f i c e r
elected/ Original - Appropriate
appointed for BSP SED
the first time
in NBQB
unless such
information is
Manual of Regulations for Non-Bank Financial Institutions on file with
the Bangko
Sentral for not
more than 5
years

B Unnumbered Documentary requirements/information on Upon sub- - -do-


organizational structure and operational mission of
policies application
to engage in
QBF

As changes 15th calendar day -do-


occurs from change/issu-
ance

B Unnumbered Corporate Secretary's Certification under oath As change in Immediately after -do-
(no prescribed on list of stockholders and/or groups of composition change
form) stockholders of stockhold-
ers occurs

B Unnumbered (no Certification under oath that it has not granted In case of 4th business day -do-
prescribed form) any new loan or made any new investment chronic following end of
during the period covered by the suspension reserve reference week
deficiency
Manual of Regulations for Non-Bank Financial Institutions
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

A-2 Unnumbered (no Notice to BSP on SEC's approval of bond issue As 3rd business day Original - Approrpiate
prescribed form) together with the documents required by the approved from approval by BSP SED
SEC for the creation and registration SEC

B Unnumbered (no Report on Required and Available Reserves Weekly 3rd business day To be submitted by
prescribed form) on Peso-Denominated CTFs, Such Other following reference institutions with trust
Managed Peso Funds and TOFA-Others week operations
Original - Appropriate
BSP SED

Control Prooflist duly signed by the authroized E-mail to SRSO: srso-


nbqb@bsp.gov.ph

Fax to SRSO@523-3461

Reconciliation statement on demand deposit Monthly 7th business day Original to be submitted
with BSP from receipt of BSP to BSP Comptrollership
statement of ac- Department; one copy
count to appropriate BSP SED

A-2 Unnumbered Report on Suspicious Transactions As 5th business day To be submitted to the
transaction from date of transac- Anti-Money Laundering
occurs tion/knowledge Council

A-2 Unnumbered Report on Covered Transactions -do- -do- -do-

Certification of compliance with existing anti-


Appendix Q-3 - Page 11

A-2 Unnumbered (no Annually 20th business day To be submitted to the


prescribed form) money laundering regulations after date of election appropriate BSP SED

B Unnumbered Plan of Action to comply with Anti-Money - 30th business day To be submitted to the
Laundering requirements from July 31, 2000 appropriate BSP SED
Q Regulations

or from opening of
the institution

04.12.31
APP. Q-3
B Unnumbered (no Report on Transactions/Outstanding Monthly - -do-
prescribed form) Derivatives Transactions as End-User
Appendix Q-3 - Page 12
Q Regulations

04.12.31
APP. Q-3
Report Submission Submission
Category BSP Form No. Report Title Frequency Deadline Procedure

B Unnumbered Report on Foreign Exchange Swaps with Non- Weekly 2nd banking day after IOD @ e-mail:
Banks where 1st Leg is a Purchase of Foreign end of reference iod@bsp.gov.ph
Exchange Against Pesos (For NBQBs with week
derivatives license)

B Unnumbered Report on Cancellations, Roll-overs and Non- Weekly 2nd banking day IOD @ e-mail:
Delivery of Foreign Exchange Forwards from end of reference iod@bsp.gov.ph
Purchase - Sales Contracts week
(For NBQBs with derivatives license)

Unnumbered Audit Engagement Contract As contract 15th calendar day Appropriate BSP SED
Manual of Regulations for Non-Bank Financial Institutions (no prescribed is signed from date of signing
form) of contract

B SES Form 6H Notice/Application for Write-off of Loans, As write-off 25th business day Original and duplicate -
(CBP-7-16-21), Other Credit Accommodations, Advances and occurs prior to the intended Appropriate BSP SED
revised Other Assets date of write-off

Waiver of the Confidentiality of Information As


under Sections 2 and 3 of R.A. No. 1405, as transaction
amended occurs
ANNEX Q-3-a
96.12.31
INFORMATION ON
ONE-YEAR BORROWING-INVESTMENT PROGRAM
TO BE SUBMITTED BY NBQBs
(Annex to Appendix Q-3)

1. Investment areas indicating industry 2. Borrowing operations to support the


direction of the corporation engaged in investment program indicating among
quasi-banking, indicating as a minimum, the others:
following: (a) Maturity -- short-term: less than a
(a) money market operations; year
(b) investments in stocks and bonds; -- medium-term: one (1)
(c) investments in government year to five (5) years
securities; -- long-term: more than
(d) receivables financing; five (5) years
(e) leasing activities; and (b) Interest rate per annum for the
(f) direct loaning operations. above three types of borrowings (more
Likewise to be disclosed are the other indicatory than fixed).
preferred areas of investment, e.g., real Individual or institutional source of funds;
estate, condominium, and those related to whether domestic or foreign, governmental
the government programs and other projects or private, financial or non-financial.
which may be determined by the Bangko
Sentral. 3. Preference shall be given to fund
For investment houses with quasi- usage and mobilization at terms beyond one
banking functions, the proposed (1) year.
underwriting program, as well as the
previous year's activities, shall also be
submitted identifying debt and equity issues.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3-a
ANNEX Q-3-b
96.12.31

GUIDELINES GOVERNING THE CONSOLIDATION


OF FINANCIAL STATEMENTS OF FINANCIAL
INTERMEDIARIES AND THEIR ALLIED
UNDERTAKINGS/SUBSIDIARIES/AFFILIATES
(Annex to Appendix Q-3)

I. Definitions. The following definitions companies, firms or enterprises, made for


of terms are hereby adopted: purposes of control, affiliation or other
a. Consolidated Financial Statements continuing business advantage.
shall refer to the combined statement of d. Subsidiary and affiliates refer to a
condition/balance sheet and statement of corporation, firm or entity as defined in
income and expenses of two or more Subsection 4654.1.a and b.
corporate entities as they would appear if e. Cost Method refers to the accounting
they were one organization, after method of recording at cost, and
eliminating the effects of inter-company continuously carrying at cost, equity
transactions. investment, regardless of increases or
b. Financial Allied Undertakings refer decreases in the underlying value of the
to enterprises or firms with homogenous or investments resulting from earnings or losses
similar activities/business/functions with the of the allied undertaking/affiliate/subsidiary.
financial intermediary and may include but f. Equity Method refers to the
not limited to leasing companies, banks, accounting method of recording equity
investment houses, financing companies, investments at cost and adjusting the balance
credit card operations, financial institutions of the account to reflect increases or
addressed/ catering to small and medium decreases in the underlying value of the
scale industries, and such other similar investments resulting from earnings or losses
activities as the Monetary Board may declare of the allied undertakings/affiliate/subsidiary.
as appropriate from time to time. Non-
financial allied undertakings may include II. Consolidation Requirements.
but not limited to warehousing companies, a. The financial statements of allied
storage companies, safe deposit box undertakings shall be consolidated with
companies, companies engaged in the those of the investing financial intermediary
management of mutual funds but not in the only when the allied undertaking is a
mutual funds themselves, management subsidiary and a financial allied undertaking
corporations engaged or to be engaged in as defined herein.
activities similar to the management of b. In the case of non-financial allied
mutual funds, insurance agencies, companies undertakings and affiliates, consolidation
engaged in home building and home may be required on a case-to-case basis as
development and companies providing may be determined by the appropriate
drying and/or including facilities for supervising and examining department of
agricultural crops such as rice and corn and the Bangko Sentral.
such other similar activities as the Monetary c. Financial statements of all domestic
Board may declare as appropriate from time and foreign subsidiaries shall be consolidated
to time. with those of the investing financial
c. Equity Investments refer to intermediary (domestic parent), except -
investments in the capital stock of (1) subsidiaries about to be disposed of;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3 -b - Page 1
ANNEX Q-3-b
96.12.31

(2) subsidiaries where control is being (2) The following are eliminated in
exercised on a temporary basis; consolidation:
(3) subsidiaries whose financial (a) All intercompany transactions; for
statements bear a closing date different from instance, rental income of a subsidiary from
that of the investing financial intermediary's its premises should be netted against
financial statements and/or - rent expenses incurred by the investing
(a) the difference in closing dates financial intermediary for occupying said
exceeds three months or more; premises.
(b) the closing dates of all the statements (b) All intercompany accounts/
are not expressly indicated; transactions that reflect the existence of a
(c) the necessity of the difference to debtor- creditor relationship between the
closing date is not explained; and investing financial intermediary and its
(d) changes in accounting periods of the subsidiaries and/or between subsidiaries.
affiliate/constituent companies are not (c) All asset accounts of the investing
disclosed, together with their financial financial intermediary which represent
statements. ownership of investments in subsidiaries
(4) subsidiaries whose business against the capital accounts of the
activities are dissimilar from those of the consolidated subsidiaries.
investing financial intermediary that the (3) All income and expense accounts
presentation of separate financial statement shall be closed to the capital accounts of each
would provide better information; and subsidiary.
(5) foreign subsidiaries located in places (4) All the remaining assets and
where - liabilities of the subsidiaries shall be
(a) there are foreign exchange transferred to appropriate accounts of the
restrictions; investing financial intermediary.
(b) the rates of exchange fluctuate (5) For not wholly-owned subsidiaries,
widely; segregate the share of minority stockholders/
(c) there are unfavorable legislations interest in the capital stock and retained
in force; and earnings of such subsidiaries and lodge the
(d) the foreign government concerned same under "Minority Interest in Subsidiary"
is undergoing a process of change. account which shall be shown as a separate
section between the Liabilities and
III. Consolidation Procedures. Stockholders' Equity sections of the
a. Consolidation of the financial Consolidated Statement of Condition.
statements shall involve the following (6) Other generally accepted
procedures: consolidation principles/procedures not
(1) Consolidation shall be on a line-by- inconsistent herewith maybe adopted.
line basis; i.e., accounts of the investing (7) Consolidating adjustments and
financial intermediary and its subsidiaries to eliminations shall appear only on working
be consolidated are combined by adding papers and shall not be recorded in the books
together like item of assets, liabilities, of the individual entities concerned.
revenue and expenses, except in the case b. For consolidated statement/report
of foreign currency of the host country purposes, the following accounts shall be
where the allied undertaking/subsidiary/ used for the differences, between cost and
affiliate is located which shall be shown book value of equity investments on date of
under "Other Assets"; acquisition:

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Annex Q-3 -b - Page 2
ANNEX Q-3-b
96.12.31

(1) "Excess of Cost Over Book Value (1) Name and nature of business;
of Equity Investments" (2) Original cost of the investment;
For excess of cost of equity outstanding balance, book value and
investment over its book value difference, if any; and accounting treatment
(2) "Excess of Book Value Over Cost of the difference;
of Equity Investments" (3) Percentage of ownership/equity
For the excess of book value of investment;
equity investments over its cost (4) Differences in reporting dates from
The first account shall be shown under that of the reporting financial intermediary;
Other Assets caption while the second (5) Whether or not their financial
account shall be shown under the caption statements have been consolidated; and
Unearned Income And Other Deferred (6) Reasons for not consolidating in the
Credits in the Consolidated Statement of case of the unconsolidated entities.
Condition. b. Where the unconsolidated
c. The investments (which are subsidiaries are, in the aggregate, material
recorded at the cost method) of the investing in relation to the consolidated financial
financial intermediary in allied position or operating results, summarized
undertakings/subsidiaries/affiliates whose information as to their assets, liabilities and
financial statements are not consolidated operating statements should be presented/
shall be adjusted for their share in the indicated, shown in footnotes, or separate
earnings or losses of such entities, with the financial statements should be presented for
use of the equity method as defined in such subsidiaries, either individually or in
Item I above. However, these adjustments groups, where appropriate.
shall appear only in working papers and shall c. Any information on:
not be recorded in the books of the individual (1) Exposure to exceptional risks of
entities concerned. operating in other countries, including the
risk of foreign currency exchange rate
IV. Disclosures. The following schedules/ fluctuations.
disclosures shall be attached to/made in the (2) The extent to which there are
consolidated financial statements: statutory or contractual restrictions on the
a. An appropriate list/schedule of the distribution of the accumulated retained
allied undertakings/subsidiaries/affiliates income of the group.
showing the following information:

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3 -b - Page 3
ANNEX Q-3-c
96.12.31

REPORTING GUIDELINES ON CRIMES/LOSSES


(Annex to Appendix Q-3)

1. NBQBs shall report on the following 2. The following guidelines shall be


matters through the appropriate supervising observed in the preparation and submission
and examining department: of the report.
a. Crimes whether consummated, a. The report shall be prepared in two
frustrated or attempted against property/ (2) copies and shall be submitted within five
facilities (such as robbery, theft, swindling (5) business days from knowledge of the
or estafa, forgery and other deceits) and crime or incident, the original to the
other crimes involving loss/destruction of appropriate supervising department and the
property of the NBQB when the amount duplicate to the BSP Security Coordinator,
involved in each crime is P20,000 or more. thru the Director, Security Investigation and
Crimes involving NBQB personnel, Transport Department.
regardless of whether or not such crimes b. Where a thorough investigation
involve the loss/destruction of property of and evaluation of facts is necessary to
the NBQB, even if the amount involved is complete the report, an initial report
less than those above specified, shall submitted within the five (5)-business day
likewise be reported to the BSP. deadline may be accepted: Provided, That
b. Incidents involving material loss, a complete report is submitted not later than
destruction or damage to the institution's fifteen (15) business days from termination
properties/facilities, other than arising from of investigation.
a crime, when the amount involved per
incident is P100,000 or more.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3-c
ANNEX Q-3-d
96.12.31

DOCUMENTARY REQUIREMENTS ON DIRECTORS/OFFICERS/


MAJOR INDIVIDUAL STOCKHOLDERS
(Annex to Appendix Q-3)

I. Directors and/or major individual (b) Clearances from the Criminal


stockholders owning 10% or more of the Investigation Services of the Philippine
outstanding voting securities: Constabulary, the National Intelligence and
(a) Statement of financial condition as Security Authority, and such other relevant
of latest date under oath or certified by an investigating agency as might be determined
independent CPA. Appropriate disclosures by the appropriate supervising and
shall be made when necessary, specifically examining department; and
on encumbered assets and names of (c) Certification under oath by each
creditors; director/officer to the effect that he/she is not
(b) Income tax return for the preceding disqualified under Sec. 4143Q.
year;
(c) Tax clearance for business purposes; III. Non-resident foreign directors shall be
(d) Information on integrity, credit exempted from the documentary
standing and business experience from requirements enumerated above, except for
banking institutions in Manila/locality where the following:
firm operates and in places of residences or (a) Bio-data sheet in the prescribed form
birth; and accomplished under oath;
(e) Affidavit of two (2) persons of good (b) Clearance from the National Bureau
standing other than the present employer of Investigation (NBI) or the Department of
or relatives within the third degree of affinity Foreign Affairs; and
or consanguinity. For stockholders, (c) Certification under oath that the
information on credit standing is sufficient. foreign director is not disqualified under Sec.
4143Q.
II. Directors/Officers:
(a) Bio-data sheet in the prescribed form
accomplished under oath;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3-d
ANNEX Q-3-e
96.12.31

DOCUMENTS/INFORMATION ON ORGANIZATIONAL
STRUCTURE AND OPERATIONAL POLICIES
(Annex to Appendix Q-3)

I. Documents on organizational structure (c) Number of vacancies in the Board


and operational policies (d) Names of corporations where they
1. Chart of the firm's organizational serve as Chairman of the Board or as
structure or any substitute therefor; President and names of other business
2. Name of departments/units/offices enterprises of which they are proprietors or
with their respective duties and partners
responsibilities; (e) For the Corporate Secretary,
3. Designations of positions in each indicate if he is also a Director
department/unit/office with the respective (f) Date of annual election of directors
duties and responsibilities; per By-Laws
4. Manual of Instructions or the like 6. Executive officers including Auditor:
embodying the operating policies/ (a) Names and titles
procedures of each department/unit/office, (b) Telephone number of each officer
covering such areas as: (office)
(a) Signing/delegated authority; (c) For the Executive Vice-President,
(b) Procedure/flow of paper work; state the names of corporations where he
and serves as Chairman of the Board and names
(c) Other matters. of other business enterprises which he is
5. Memoranda-Circulars or the like proprietor or partner
issued covering organizational and (d) For Vice-Presidents and other
operational and operation policies; officers with non-descriptive titles, indicate
6. Sample copies of each of the forms/ area of responsibility, e.g. Vice-President for
reports used by each office/unit/department Operations or Vice- President, International
other than those submitted to the Bangko Department
Sentral; and (e) Include officers from President to
7. Such other documents/information Vice-President
which may be required from time to time. 7. Branches, agencies and extension
offices:
II. Other Data (a) Name of branch, agency or
1. Name of Institution extension office, e.g. Quiapo Branch or
2. Address Makati Agency
3. P.O. Box number (b) Address
4. Cable address or cable code (c) Names and telephone number of:
5. Board of Directors including (1) Manager
Corporate Secretary: (2) Cashier
(a) Names of Chairman, Vice-Chairman (3) Accountant
and Directors (d) For agencies and extension offices,
(b) Number of directors per By-laws indicate name of mother branch.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3-e
ANNEX Q-3-f
02.12.31

GUIDELINES ON CALCULATING
ADDITIONAL INFORMATION REQUIRED
IN PUBLISHED STATEMENT OF CONDITION
(Annex to Appendix Q-3)

In calculating the additional information required to be disclosed in the Statement of Con-


dition for publication, the following guidelines shall be observed:

1. All amounts and ratios to be reported shall be as of the same call date. However, the basis
for computing the Return on Average Equity shall be the latest quarter immediately
preceding the call date.

2. Return on Average Equity shall be computed as follows:

Return on Average Net Income/(Loss) After


Equity (%) = Income Tax x 100
Average Total Capital Accounts

Where Net Income After Tax and Average Total Capital Accounts shall be:

Average Total Capital


Net Income After Tax Accounts
March Quarter End Net Income Sum of end-month Capital
After Tax Multiplied by 4 Accounts (December -
March) divided by 4.

June Semester End Net Income Sum of end-month Capital


After Tax Multiplied by 2 Accounts (December - June)
divided by 7.

September Nine (9) months Ended Sum of end-month Capital


Net Income After Tax Accounts (December -
multiplied by 1.333333 September) divided by 10.

December Year Ended Net Income Sum of end-month Capital


After Tax Accounts (December -
December) divided by 13.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-3-f
APP. Q-4
96.12.31

GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES


AND SIGNATORY AUTHORIZATION
(Appendix to Subsec. 4162Q.1 )

Category A-1 reports shall be signed by officers in-charge. Likewise, the signing
the chief executive officer, or in his absence, authority in this category shall be contained
by the executive vice president, and by the in a resolution approved by the board of
comptroller, or in his absence, by the chief directors in the format prescribed in Annex
accountant, or by officers holding equivalent Q-4-b.
positions. The designated signatories in this
category, including their specimen Categories A-3 and B reports shall be
signatures, shall be contained in a resolution signed by officers or their alternates, who
approved by the board of directors in the shall be duly designated in a resolution
format prescribed in Annex Q-4-a. approved by the board of directors in the
format as prescribed in Annex Q-4-c.
Category A-2 reports of head offices shall
be signed by the president, executive vice- Copies of the board resolutions on the
presidents, vice-presidents or officers report signatory designations shall be
holding equivalent positions. Such reports submitted to the appropriate supervising and
of other offices/units (such as branches) shall examining department of the BSP within
be signed by their respective managers/ three (3) days from the date of resolution.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-4
ANNEX Q-4-a
96.12.31

FORMAT OF RESOLUTION FOR SIGNATORIES


OF CATEGORY A-1 REPORTS
(Annex to Appendix Q-4)

Resolution No. _____

Whereas, it is required under Subsec. 1. Mr. President


4162Q.1 that Category A-1 reports be Specimen Signature
signed by the chief executive officer, or in or
his absence, by the executive vice-
president, and by the comptroller, or in his Executive
absence, by the chief accountant, or by 2. Mr. Vice-President
Specimen Signature
officers holding equivalent positions.
Whereas, it is also required that aforesaid and
officers of the institution be authorized under
a resolution duly approved by the 3. Mr. Comptroller
institution's Board of Directors; Specimen Signature
Whereas, we, the members of the Board or
of Directors of (Name of Institution) ,
are conscious that, in designating the officials Chief
who would sign said Category A-1 reports, 4. Mr. Accountant
Specimen Signature
we are actually empowering and
authorizing said officers to represent and act are hereby authorized to sign Category A-1
for or in behalf of the Board of Directors in reports of .
particular and (Name of Institution) (Name of Institution)
in general;
Whereas, this Board has full faith and
confidence in the institution's Chief Done in the City of Philippines,
Executive Officer, Executive Vice-President, this day of , 19 .
Comptroller and Chief Accountant, as the
case may be, and, therefore, assumes
responsibility for all the acts which may be
CHAIRMAN OF THE BOARD
performed by aforesaid officers under their
delegated authority;
Now, therefore, we, the members of the DIRECTOR DIRECTOR
Board of Directors, resolve, as it is hereby
DIRECTOR DIRECTOR
resolved that:
DIRECTOR DIRECTOR

ATTESTED BY:

CORPORATE SECRETARY

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-4-a
ANNEX Q-4-b
96.12.31

FORMAT OF RESOLUTION FOR SIGNATORIES


OF CATEGORY A-2 REPORTS
(Annex to Appendix Q-4)

Resolution No. _____

Whereas, it is required under Subsec. Name of Specimen Position Report


4162Q.1 that Category A-2 reports of head Officer Signature Title No.
offices be signed by the president, executive
vice-presidents, vice-presidents or officers
holding equivalent positions, and that such are hereby authorized to sign the Category
reports of other offices be signed by the A-2 reports of .
respective managers/officers-in-charge; (Name of Institution)
Whereas, it is also required that aforesaid
officers of the institution be authorized under Done in the City of ,
a resolution duly approved by the Philippines, this day of ,
institution's Board of Directors; 19 .
Whereas, we, the members of the Board
of Directors of (Name of Institution) ,
are conscious that, in designating the officials CHAIRMAN OF THE BOARD
who would sign said Category A-2 reports,
we are actually empowering and
DIRECTOR DIRECTOR
authorizing said officers to represent and act
for or in behalf of the Board of Directors in DIRECTOR DIRECTOR
particular and (Name of Institution) in
general; DIRECTOR DIRECTOR
Whereas, this Board has full faith and
ATTESTED BY:
confidence in the institution's President (and/
or the Executive Vice-President, etc., as the
case may be) and, therefore, assumes CORPORATE SECRETARY
responsibility for all the acts which may be
performed by aforesaid officers under their
delegated authority;
Now, therefore, we, the members of the
Board of Directors, resolve, as it is hereby
resolved that:

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-4-b
ANNEX Q-4-c
96.12.31

FORMAT OF RESOLUTION FOR SIGNATORIES


OF CATEGORIES A-3 AND B REPORTS
(Annex to Appendix Q-4)

Resolution No. _____

Whereas, it is required under Subsec. Name of


4162Q.1 that Categories A-3 and B reports Authorized
Signatory/ Specimen Position Report
be signed by officers or their alternates; Alternate Signature Title No.
Whereas, it is also required that aforesaid
officers of the institution be authorized under 1. Authorized
a resolution duly approved by the (Alternate)
institution's Board of Directors;
2. Authorized
Whereas, we the members of the Board (Alternate)
of Directors of (Name of Institution) are
conscious that, in designating the officials etc.
who would sign said Categories A-3 and B
reports, we are actually empowering and are hereby authorized to sign the Categories
authorizing said officers to represent and act A-3 and B reports of
(Name of Institution)
for or in behalf of the Board of Directors in
particular and (Name of Institution) in Done in the City of ,
general; Philippines, this day of , 19 .
Whereas, this Board has full faith and
confidence in the institution's authorized
signatories and, therefore, assumes
CHAIRMAN OF THE BOARD
responsibility for all the acts which may be
performed by aforesaid officers under their
delegated authority; DIRECTOR DIRECTOR
Now, therefore, we, the members of the
Board of Directors, resolve, as it is hereby DIRECTOR DIRECTOR
resolved that: DIRECTOR DIRECTOR

ATTESTED BY:

ATTESTED BY:

CORPORATE SECRETARY

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Annex Q-4-c
APP. Q-5
96.12.31

MINIMUM INTERNAL CONTROL STANDARDS


FOR NBQBs
(Appendix to Sec. 4171Q)

I. Proper Accounting Records custodians. Verification should include both


1. NBQBs should maintain proper and the physical inventory of securities and the
adequate accounting records. record checking.
2. These records should be kept currently e. Periodic verification of the accuracy
posted and should contain sufficient detail of the interest credits and payments to deposit
so that an audit trail is established. substitute liabilities accounts.
3. All entries should bear official approval 3. All exceptions in the reconciliation/
and should be initialed by the person verification should be followed up
originating and another person checking immediately until satisfactorily corrected.
them.
III. Division of Duties and Responsibili-
II. Independent Balancing ties
1. Independent balancing shall mean that 1. The duties of all the officers and
records posted by a person or cash held by a employees should be segregated, clearly
cashier shall be balanced or counted by defined, understood, documented and
another person. manualized if possible. No individual shall
2. The minimum independent balancing have complete authority and responsibility for
procedures which should be adopted are the handling all phases of any transaction from
following: beginning to end.
a. Monthly reconcilement of general 2. The physical handling of a transaction
ledger balances against their respective should be separated from its recording and
subsidiary and supporting records and supervision as follows:
documentations by someone other than the a. A person handling cash should not be
bookkeeper, the person handling the records, permitted to post the ledger records nor
or the person directly connected with should posting of the general ledger be
processing the transactions. performed by an employee who posts the
b. Irregular and unannounced count of investor's/creditor's subsidiary ledgers;
cashier's cash and checks and other cash b. A loaning officer should never be
items at least twice a month by the auditor/ allowed to disburse proceeds of notes,
control officer or by an officer not connected accept note payment nor process loan
with the treasurer's/cashier's office or its ledgers;
equivalent. c. The functions of issuing, recording and
c. Monthly reconcilement of cash in signing of checks should be separated;
banks accounts (domestic and foreign) and d. The receipt of statements from
due from/to head office/branches by someone depository bank should be assigned to an
other than the check custodian, the person employee other than the one connected with
posting the general ledger entries or the the preparation, recording and signing of
authorized signatory of the bank account. checks;
d. Periodic verification of securities and e. Custodians of securities should not be
collaterals by someone other than their allowed to handle security transactions;

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-5 - Page 1
A PP. Q-5
96.12.31

f. Collateral appraisals should be done b. All accountable forms


by an employee/officer other than the ones c. Collaterals
approving the loans; d. Securities
g. Incoming checks and other cash items e. Documents of title and/or ownership
should be recorded chronologically in a of properties or fixed assets
register by an employee other than the f. Safekeeping items
bookkeeper; g. Vault doors and safe combinations.
h. Credit reports should be obtained by
someone other than lending officers; V. Signing Authorities
i. Mailing of client's statements and 1. Signing authorities for the different
delinquent notices should be done by an levels of officers to sign for and in behalf of
employee other than the one who granted the institutions should be approved by the
the loan or the one handling the records; board of directors and the extent of each level
and of authority should be clearly defined. These
j. Paid checks/drafts should be signing authorities should include but need
controlled and maintained by an officer/ not be limited to the following:
employee other than the authorized signatory a. Lending;
or the cashier. b. Borrowing;
3. Extensive background checking of c. Investments;
persons intended to be assigned to handle d. Approval of expenses;
cash and securities should be conducted. e. Various supervisory reports; and
Frequent follow-up checking after their f. Checks.
employment should also be made.
VI. Dual Control
IV. Joint Custody 1. Dual control shall mean the work of
1. Joint custody shall mean the processing one (1) person is to be verified by a second
of transactions in the presence of and under person to determine (a) that proper authority
the direct observation of a second person. has been given to handle the transaction, (b)
Both persons shall be equally accountable for that the transaction is properly recorded, and
the physical protection of the items and (c) that proper settlement of the transaction is
records involved. made.
2. Physical protection should be deemed 2. The routine of each transaction should
established through the use of two (2) locks be designed so that at least two (2) or more
or combinations on a file chest or vault individuals are involved in the completion of
compartment. every transaction.
3. Two (2) or more persons should be 3. The following accounts/transactions
assigned to each half of the control so that should be under dual control:
operating efficiency is not impaired if one a. Checks - The signature of at least two
person is not immediately available. (2) officers should be required in the issuance
4. Persons who are related to each of checks.
other within the third degree of b. Borrowing - The signature of at least
consanguinity or affinity should not be made two (2) authorized officers should be
joint custodians. required.
5. The following should be under joint c. All transactions giving rise to "due to"
custody: or "due from" account and all instruments of
a. Cash on hand or in vault remittances evidencing these transactions

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-5 - Page 2
APP. Q-5
02.12.31

particularly those involving substantial X. Direct Verification


amounts, should be approved by two (2) 1. Direct verification shall mean the
authorized officers. confirmation of account or records by direct
correspondence/visits with the institution's
VII. Number Control customers.
1. Sequence number controls should be 2. The following accounts, among others,
incorporated in the accounting systems and should be subject to direct verification by the
should be used in registering notes, in issuing internal auditing staff at least once a year:
official checks and in other similar situations. a. Balances of loans and credit
Number control should be policed by a accommodations of borrowers;
person designated by senior management b. Outstanding balances of borrowings
who should be detached from the particular and other liabilities;
operations involved. c. Outstanding balances of receivables/
2. The following are the forms, payables;
instruments and accounts that should be d. Collaterals securing said accounts.
number-controlled:
a. Checks; XI. Other Internal Control Standards
b. Promissory notes and other 1. Investments
commercial papers; a. Investment limits and a list of
c. Official and provisional receipts; accredited companies as approved by the
d. Certificate of stocks; Board of Directors or by its Credit Committee
e. Loan accounts; and should be established as a guide for investing
f. Expense vouchers. in any financial institution engaged in money
market trading.
VIII. Rotation of Duties b. Investments should be secured by
1. The duties of personnel handling cash, assets approved by the Board of Directors or
securities and bookkeeping records should be by its Credit Committee.
rotated. c. Checks representing placements of
2. Rotation assignment should be investments should be released only upon
irregular, unannounced and long enough to receipt of either the deposit substitute
permit disclosure of any irregularities or instrument or the underlying securities or
manipulations. documents of title.
2. Miscellaneous
IX. Independence of the Internal Auditor a. Loan applications and related
1. The position of internal auditor should documents should be spot-checked to insure
be provided for in the by-laws together with their authenticity, including verification of
the duties and responsibilities, scope and name, residence, employment and current
objectives of internal auditing. reputation of the borrowers.
2. The internal auditor should report b. No employee should be permitted to
directly to the Audit Committee. process transaction affecting his own
3. The internal auditor should not install account.
nor develop procedures, prepare records or c. Cashiers and other employees having
engage in other activities which he normally contact with customers should be prohibited
reviews or appraises. from preparing deposit substitute tickets or
other records for the customers.

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-5 - Page 3
APP. Q-5
02.12.31

d. NBQBs should have a sound (1) Insurance coverage - for losses arising
recruitment policy since internal control from calamities and theft/robberies.
begins from point of hiring. (2) Fidelity bonds - for losses arising from
e. NBQBs should secure adequate dishonest, fraudulent and criminal acts of
insurance coverages, fidelity and other accountable officers/employees.
indemnity protection, viz:

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-5 - Page 4
APP. Q-6
96.12.31

STANDARDIZED DEPOSIT SUBSTITUTE


INSTRUMENTS
(Appendix to Subsec. 4211Q.3)

Serial No.

(Name of NBQB)

PROMISSORY NOTE

Issue Date : , 19
Maturity Date : , 19

FOR PESOS (P )
(Present Value/Principal)

RECEIVED, promises to pay


(Name of Issuer/Maker)

or order, the sum


(Name/Account Number of Payee)

of PESOS (P )
(Maturity Value/Principal & Interest)

subject to the terms and conditions on the reverse side hereof.

(Duly Authorized Officer)

NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE


CORPORATION (PDIC)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-6 - Page 1
APP. Q-6
96.12.31

TERMS AND CONDITIONS OF A PROMISSORY NOTE

1. Computation of Yield
Interest is hereby stipulated/computed at % per annum, compounded ( ) monthly
( ) quarterly ( ) semi-annually ( ) others.

2. No Pretermination
This promissory note shall not be honored or paid by the issuer/maker before the maturity
date indicated on the face hereof.

3. Liquidated Damages
In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated
damages of (Amount or %) , plus attorney's fees of (Amount or %) and costs
of collection in case of suit.

4. Renewal
( ) No automatic renewal.
( ) Automatic renewal under the following terms:

5. Collateral/Delivery
( ) No collateral
( ) Collateral/secured by (describe collateral)
( ) Physically delivered to Payee
( ) Evidenced by Custodian Receipt No. dated
issued by
( ) Collateralized/secured by (fraction or %)
share of (describe collateral) as evidenced
by Custodian Receipt No. dated
issued by .

6. Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to Payee, however, actual substitution shall be with prior written consent
of payee.

7. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of
(describe document) dated
executed by (name of party/ies) and
made an integral part hereof.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-6 - Page 2
APP. Q-6
96.12.31

Serial No.

(Name of NBQB)

REPURCHASE AGREEMENT

Issue Date : , 19
Repurchase Date : , 19

FOR AND IN CONSIDERATION OF PESOS (P )


Vendor, (name of NBQB) hereby sells, transfers and conveys in favor of Vendee,
(name of Vendee) the security(ies) described below, it being mutually
agreed upon that the same shall be resold by Vendee and repurchased by Vendor on the
repurchase date indicated above at the price of PESOS (P ),
subject to the terms and conditions stated on the reverse side hereof.

(Description of Securities)

Issuer Serial Number/s Maturity Date/s Face Value Interest/Yield

P P

TOTAL P P

CONFORME:

(Duly Authorized Officer)

(Signature of Vendee)

NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-6 - Page 3
APP. Q-6
96.12.31

TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT

1. Computation of Yield
Yield is hereby stipulated/computed at % per annum, compounded ( ) monthly ( )
quarterly ( ) semi-annually ( ) others.

2. No Pretermination
Vendor shall not repurchase subject security/ies before the repurchase date stipulated
on the face of this document.

3. Liquidated Damages
In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated
damages of (Amount or %) , plus attorney's fees of (Amount or %) ,
and costs of collection in case of suit.

4. Renewal
( ) No automatic renewal
( ) Automatic renewal under the following terms:

5. Delivery/Custody of Securities
( ) Physically delivered to Payee
( ) Evidenced by Custodian Receipt No. dated,
issued by

6. Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to Payee, however, actual substitution shall be with prior written consent
of payee.

7. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of (describe document)
dated , executed by (name of Party/ies)
and made an integral part hereof.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-6 - Page 4
APP. Q-6
96.12.31

Serial No.

(Name of NBQB)

CERTIFICATE OF ASSIGNMENT WITH RECOURSE

Issue Date: , 19

FOR AND IN CONSIDERATION OF PESOS (P )


(name of Assignor) hereby assigns, conveys, and transfers
with recourse to (name of Assignee) the debt of (name of Principal Debtor) to
the Assignor, specifically described as follows:

(Description of Debt Securities)

Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield

P P

TOTAL P P

and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the
face value of, and the interest/yield on, said debt securities. The assignment shall be subject
to the terms and conditions on the reverse side hereof.

CONFORME:

(Duly Authorized Officer)

(Signature of Assignee)

NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-6 - Page 5
APP. Q-6
96.12.31

TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT


WITH RECOURSE

1. No Pretermination
Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.

2. Liquidated Damages
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (Amount or %) plus attorney's fees of (Amount or %) ,
and costs of collection in case of suit.

3. Delivery/Custody of Securities
( ) Physically delivered to Assignee
( ) Evidenced by Custodian Receipt No. dated ,
issued by .

4. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of ,
dated executed by (name of Party/ies)
and made an integral part hereof.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-6 - Page 6
APP. Q-6
96.12.31

Serial No.

(Name of NBQB)

CERTIFICATE OF ASSIGNMENT WITH RECOURSE

Issue Date: , 19

FOR AND IN CONSIDERATION OF PESOS (Present Value/Principal) (P ),


(name of Assignor) hereby assigns, conveys, and transfers with recourse to
(name of Assignee) the debt of (name of Principal Debtor) to the Assignor, specifically described
as follows:

Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield

P P

TOTAL P P

and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay
the face value of, and the interest/yield on, said debt securities, subject to the terms and
conditions on the reverse side hereof.

CONFORME:

(Duly Authorized Officer)

(Signature of Assignee)

NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

Manual of Regulations for Non-Bank Financial Institutions Q Regulations


Appendix Q-6 - Page 7
APP. Q-6
96.12.31

TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT


WITH RECOURSE

1. No Pretermination
Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.

2. Liquidated Damages
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (Amount or %) plus attorney's fees of (Amount or %) , and costs
of collection in case of suit.

3. Delivery/Custody of Securities
( ) Physically delivered to Assignee
( ) Evidenced by Custodian Receipt No.
dated , issued by

4. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of ,
dated executed by (name of Party/ies)
and made an integral part hereof.

Q Regulations Manual of Regulations for Non-Bank Financial Institutions


Appendix Q-6 - Page 8
APP. Q-6
96.12.31

Serial No:

(Name of NBQB)

CERTIFICATE OF PARTICIPATION WITH RECOURSE

Issue Date: , 19

FOR AND IN CONSIDERATION OF PESOS (P ) , this


certificate of participation is hereby issued to evidence the