Professional Documents
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2014MORB1
2014MORB1
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INSTRUCTIONS TO USERS
(2014 Edition)
The Manual of Regulations for Banks (the “Manual”) is divided into nine (9) Parts.
For provisions common to all types of banks, the sections and subsections of each part is
prefixed by the letter “X”. Special provisions do not contain the prefix “X” but instead, the
section/subsection applicable only to universal/commercial banks (UBs/KBs), thrift banks
(TBs) and rural banks (RBs) and cooperative banks (Coop Banks) are indicated by the first
digit showing the numbers 1, 2, and 3 applicable to said banks, respectively. The second
digit refers to the Part of the Manual. The third and fourth digits refer to the section number
of the Part while the number/s after the decimal point, if any, refer to the subsection.
X 1 4 3 . 1
1 3 8 1
The runners in the upper-right or left hand corners of each page show the sections/
subsections and the cut-off date of the regulatory issuances included in the page of the
Manual where the runner is shown.
MANUAL OF REGULATIONS FOR BANKS
TABLE OF CONTENTS
ix
SECTION X105 Liberalized Entry and Scope of Operations of Foreign Banks
X105.1 Modes of entry of foreign banks
X105.2 Qualification requirements
X105.3 Guidelines for selection
X105.4 Capital requirements of foreign banks
X105.5 Prescribed ratio of "Net Due to" account ( Deleted
by Circular No. 858 dated 21 November 2014 )
X105.6 Risk-based capital for foreign bank branch
X105.7 Head office guarantee
X105.8 Scope of authority for locally incorporated
subsidiaries of foreign banks as well as branches with
full banking authority
X105.9 Control of the resources of the banking system
X105.10 Change from one mode of entry to another
X105.11 Listing of shares with the Philippine Stock Exchange
( Deleted by Circular No. 858 dated 21 November
2014 )
X105.12 Equal treatment
D. CAPITALIZATION
E. RISK-BASED CAPITAL
SECTION X116 Basel I Risk-Based Capital ( Deleted by Circular No. 827 dated
28 February 2014 )
X116.1 Scope ( Deleted by Circular No. 827 dated
28 February 2014 )
X116.2 Qualifying capital ( Deleted by Circular No. 827
dated 28 February 2014 )
X116.3 Risk-weighted assets ( Deleted by Circular No. 827
dated 28 February 2014 )
X116.4 Definitions ( Deleted by Circular No. 827 dated
28 February 2014 )
X116.5 Required reports ( Deleted by Circular No. 827
dated 28 February 2014 )
X116.6 Sanctions ( Deleted by Circular No. 827 dated
28 February 2014 )
X116.7 Temporary relief ( Deleted by Circular No. 827
dated 28 February 2014 )
xi
F. CAPITAL INSTRUMENTS
xii
SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks
3127.1 Moratorium on ownership ceiling
3127.2 Government-held shares
3127.3 Limits on stockholdings in several rural banks
3127.4 Convertibility of preferred stock to common stock
3127.5 Guidelines for selection
xiii
X141.6 - X141.8 (Reserved)
X141.9 Certifications required
X141.10 Sanctions
SECTION X148 Real Estate and Chattel Transactions with DOSRI and Employees
X148.1 Certification on real estate/chattel transactions with
DOSRI and employee(s)
X148.2 - X148.8 (Reserved)
X148.9 Sanctions
xiv
X149.8 Reportorial requirement
X149.9 Sanctions
xv
X154.5 Requirements for opening an office abroad
X154.6 Sanctions
X154.7 - X154.8 (Reserved)
X154.9 Establishment of a foreign subsidiary by a bank
subsidiary
SECTION X155 Mobile Foreign Exchange Booth; Off-Site Automatic Multi-
Currency Money Changers
X155.1 Mobile foreign exchange booths
X155.2 Off-site automatic multi-currency money changers
K. BANKING PREMISES
xvi
X162.1 Governance in all case of outsourcing of banking
functions
X162.2 Prohibition against outsourcing of inherent banking
functions
X162.3 Definition
X162.4 Managing outsourcing-related risks
X162.5 Authority to outsource
X162.6 Documentations
X162.7 Intra-group outsourcing
X162.8 Offshore outsourcing
X162.9 Service providers
X162.10 Transitory provision
X162.11 Penalties
xvii
N. RISK MANAGEMENT
xviii
X178.14 Credit risk management information and reporting
systems
X178.15 Credit monitoring
D. Maintaining an Appropriate Credit Control Process
X178.16 Credit review process
X178.17 Credit classification and provisioning
X178.18 Credit workout and remedial management of
problem credits
X178.19 Writing off problem credits
X178.20 Enforcement actions
X179 (Reserved)
SECTION X180 Compliance System; Compliance Officer
X180.1 Definition of business risk
X180.2 Status of the compliance functions
X180.3 Compliance system
X180.4 Chief Compliance Officer (CCO)
X180.5 Responsibilities of the board of directors and senior
management on compliance
X180.6 Cross-border compliance issues
X180.7 Outsourcing of compliance risk assessment and
testing
xix
X185.8 Rotation of duties
X185.9 Independence of the internal auditor
X185.10 Confirmation of accounts
X185.11 Other internal control standards
X185.12 Internal control procedures for dormant/inactive
accounts
xx
X192.4 Report on crimes/losses
X192.5 Report on real estate/chattel transactions (Deleted
by Circular No. 737 dated 19 September 2011)
X192.6 Reconciliation of head office and branch
transactions
X192.7 List of stockholders and their stockholdings
X192.8 Bangko Sentral offices, where reports are submitted
X192.9 Publication/Posting of balance sheet
X192.10 Consolidated financial statements of banks and their
subsidiaries engaged in financial allied undertakings
X192.11 Reports of other banking offices
X192.12 Reports required of foreign subsidiaries/affiliates/
banking offices or non-bank entities of domestic
banks
X192.13 Report on cross-border financial positions
1192.13 Additional reports from UBs/KBs
2192.13 (Reserved)
3192.13 (Reserved)
X192.14 Reports of strikes and lockouts
X192.15 Report on the Sworn Statement on Real Estate/Chattel
Transactions (Deleted by Circular No. 737 dated
19 September 2011)
X192.16 Notarized contracts/agreements between banks and
their related microfinance (MF) non-governmental
organizations (NGO’s)/foundations.
xxi
SECTION X198 Insolvency or Receivership of Banks
X198.1 Definition of terms
X198.2 Prohibited acts
X198.3 - X198.8 (Reserved)
X198.9 Penalties and sanctions
A. DEMAND DEPOSITS
SECTION X205 Check Clearing Rules for Banks Authorized to Accept Demand
Deposits
SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to Accept
Demand Deposits ( Deleted by Circular No. 825 dated
27 February 2014 )
SECTION 3205 Check Clearing Rules for Rural Banks Who Are Members of the
Philippine Clearing House Corporation ( Deleted by Circular
No. 825 dated 27 February 2014 )
xxii
SECTION X207 Check Clearing Operations During Public Sector Holidays
B. SAVINGS DEPOSITS
D. TIME DEPOSITS
xxiii
SECTION X233 Certificates of Time Deposits
X233.1 Prerequisites to issue negotiable certificates of time
deposits for thrift banks/rural banks/cooperative
banks
X233.2 Requirements for issuing negotiable certificates of
time deposits
X233.3 Minimum features
X233.4 Insurance coverage
X233.5 Desistance from issuing new negotiable certificates
of time deposits
X233.6 Sanctions
X233.7 - X233.8 (Reserved)
X233.9 Long-term negotiable certificates of time deposit
X233.10 (Reserved)
X233.11 Long-term non-negotiable tax-exempt certificates of
time deposit
xxiv
SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitute
F. GOVERNMENT DEPOSITS
xxv
G. INTEREST
xxvi
I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS
xxvii
X268.6 - X268.9 (Reserved)
X268.10 Constitutional prohibition
xxviii
X273.3 Terms of credit
X273.4 Ceiling
xxix
K. OTHER BORROWINGS
SECTION X302 Loan Portfolio and Other Risk Assets Review System ( Deleted
by Circular No. 855 dated 29 October 2014 )
X302.1 Provisions for losses; booking ( Deleted by Circular
No. 855 dated 29 October 2014 )
xxx
X302.2 Sanctions ( Deleted by Circular No. 855 dated
29 October 2014 )
X302.3 Regulatory relief for banks under rehabilitation
program approved by the Bangko Sentral
A. LOANS IN GENERAL
xxxi
X306.3 Renewals/extensions ( Deleted by Circular No. 855
dated 29 October 2014 )
X306.4 Restructured loans ( Deleted by Circular No. 855
dated 29 October 2014 )
X306.5 Write-off of loans, other credit accommodations,
advances and other assets as bad debts ( Deleted by
Circular No. 855 dated 29 October 2014 )
X306.6 Writing-off microfinance loans as bad debts
( Deleted by Circular No. 855 dated
29 October 2014 )
X306.7 Updating of information provided to credit
information bureaus
SECTION X307 “Truth in Lending Act” Disclosure Requirement
X307.1 Definition of terms
X307.2 Information to be disclosed
X307.3 Inspection of contracts covering credit transactions
X307.4 Posters
X307.5 Sanctions and penal provisions
SECTION X308 Amortization on Loans and Other Credit Accommodations
B. SECURED LOANS
xxxii
2311.4 Foreclosure by thrift banks
3311.4 Foreclosure by rural/cooperative banks
X311.5 Redemption of foreclosed real estate mortgage
SECTION X314 Increased Loan Values and Terms of Loans for Home-Building
( Deleted by Circular No. 855 dated 29 October 2014 )
C. UNSECURED LOANS
SECTION X319 Loans Against Personal Security ( Deleted by Circular No. 855
dated 29 October 2014 )
X319.1 General guidelines (Deleted by Circular No. 622 dated
16 September 2008)
X319.2 Proof of financial capacity of borrower (Deleted by
Circular No. 622 dated 16 September 2008)
X319.3 Signatories (Deleted by Circular No. 622 dated
16 September 2008)
SECTION X320 Credit Card Operations; General Policy
X320.1 Definition of terms
X320.2 Risk management system
X320.3 Minimum requirements
X320.4 Information to be disclosed
X320.5 Interest accrual on past due loans
X320.6 Method of computing interest
X320.7 Finance charges
X320.8 Deferral charges
X320.9 Late payment/penalty fees
X320.10 Confidentiality of information
xxxiii
X320.11 Suspension, termination of effectivity and reactivation
X320.12 I n s p e c t i o n o f r e c o r d s c o v e r i n g c r e d i t c a r d
transactions
X320.13 Offsets
X320.14 Handling of complaints
X320.15 Unfair collection practices
X320.16 Sanctions and penal provisions
X320.17 Submission of credit card business activity report
D. RESTRUCTURED LOANS
xxxiv
SECTION X330 Individual Ceilings
X330.1 Exclusions from individual ceiling
F. MANDATORY CREDITS
xxxv
X341.7 Computation of total equity
X341.8 Accreditation of banks as rural financial institutions
X341.9 Syndicated type of agrarian reform credit/agricultural
credit
X341.10 Interest and other charges
X341.11 Submission of reports
X341.12 Consolidated compliance
X341.13 - X341.14 (Reserved)
X341.15 Sanctions
xxxvi
SECTION X347 Standby Letters of Credit
X347.1 Domestic standby letters of credit
X347.2 Ceiling
X347.3 Reports
SECTION X349 Agriculture and Fisheries Projects with Long Gestation Periods
X349.1 Definition of terms
X349.2 Grace period
X349.3 Responsibility of lending banks
X349.4 Past due loans
X349.5 Non-performing loans
xxxvii
X365.3 Amortization of loans to barangay micro business
enterprises
X365.4 Waiver of documentary requirements
X365.5 Incentives to participating financial institutions
X365.6 Credit guarantee
X365.7 Record
X365.8 Reports to Congress
X365.9 Administrative sanctions
H. EQUITY INVESTMENTS
xxxviii
SECTION X382 Investments in Subsidiaries and Affiliates Abroad
X382.1 Application for authority to establish or acquire
subsidiaries and affiliates abroad
X382.2 Requirements for establishing subsidiaries or affiliates
abroad
X382.3 Conditions for approval of application
X382.4 - X382.7 (Reserved)
X382.8 Investment of a bank subsidiary in a foreign subsidiary
I. (RESERVED)
J . OTHER OPERATIONS
xxxix
SECTION 3390 (Reserved)
K. MISCELLANEOUS PROVISIONS
SECTION 1397 Limits on Real Estate Exposures and Other Real Estate Property
of UBs/KBs
SECTION 2397 Limits on Real Estate Exposures and Other Real Estate Property
of TBs
xl
L. GENERAL PROVISION ON SANCTIONS
SECTION X405 Security for the Faithful Performance of Trust and Other Fiduciary
Business
X405.1 Basic security deposit
X405.2 Eligible securities
X405.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X405.4 Compliance period; sanctions
X405.5 Reserves against peso-denominated common trust
funds and trust and other fiduciary accounts - others
xli
X405.6 Composition of reserves
X405.7 Computation of reserve position
X405.8 Reserve deficiencies; sanctions
X405.9 Report of compliance
xlii
X410.3 Administration of a Unit Investment Trust Fund
X410.4 Relationship of trustee with Unit Investment
Trust Fund
X410.5 Operating and accounting methodology
X410.6 Plan rules
X410.7 Minimum disclosure requirements
X410.8 Exposure limit
X410.9 Allowable investments and valuation
X410.10 Other related guidelines on valuation of allowable
investments
X410.11 Unit investment trust fund administration support
X410.12 Counterparties
X410.13 Foreign currency-denominated unit investment trust
funds
X410.14 Exemptions from statutory and liquidity reserves,
s i n g l e b o r r o w e r ' s l i m i t , d i r e c t o r s, officers,
stockholders and their related interests
xliii
X412.3 Applicability of rules and regulations
X412.4 Liquidity requirement for foreign currency deposit
unit/expanded foreign currency deposit unit common
trust funds (Deleted by Circular No. 666 dated 24
September 2009)
C. GENERAL PROVISIONS
xlv
PART FIVE - FOREIGN EXCHANGE TRANSACTIONS
B. FINANCIAL INSTRUMENTS
xlvi
X625.6 Cancellations, roll-overs or non-delivery of FX forward
contracts
X625.7 Non-deliverable forward contracts involving the
Philippine peso
X625.8 Compliance with anti-money laundering rules
X625.9 Reporting requirements
X625.10 - X625.13 (Reserved)
X625.14 Sanctions
xlvii
1636.3 Other conditions
1636.4 Capital treatment of structured products
1636.5 Bangko Sentral approval not required
1636.6 Sanctions
xlviii
X651.16 Clean-up call
X651.17 Prohibited activities
X651.18 Amendment of trust indenture
X651.19 Trustee or servicer in securitization
X651.20 Report to Bangko Sentral
xlix
X705.4 Minimum disclosure requirements (Transferred to
X177.7 pursuant to Circular No. 808 dated 22 August
2013)
X705.5 Complaint resolution (Transferred to X177.7 pursuant
to Circular No. 808 dated 22 August 2013)
X705.6 Applicability (Transferred to X177.7 pursuant to
Circular No. 808 dated 22 August 2013)
A. RISK MANAGEMENT
l
X805.2 Money laundering and terrorist financing
prevention program
X805.2.a. Submission of the revised and updated MLPP;
approval by the board of directors or country
head
X805.3 Monitoring and reporting tools
X805.3.a Electronic monitoring and reporting systems for
money laundering
X805.3.b Manual monitoring
X805.4 Internal audit
li
X806.2.f Private banking/wealth management operations
X806.2.g Politically exposed person
X806.2.h Correspondent banking
X806.2.i Fund/Wire transfer
X806.2.j Buyers of cashier's manager's or certified checks
X806.2.j.1 Buyers of cashier's, manager's or certified checks
other than an existing customer
X806.2.j.2 Buyers of cashier's manager's or certified checks
in blank or payable to cash, bearer or numbered
account
X806.2.k Second-endorsed checks
X806.2.l Foreign exchange dealers/money changers/
remittance agents
X806.2.m High risk customer
X806.2.n Shell company/Shell bank
X806.2.o Numbered accounts
X806.2.p Prohibited accounts
X806.3 On-going monitoring of customers, accounts and
transactions
X806.3.a Enhanced due diligence
lii
E. TRAINING PROGRAM
A. BANKING FEES/CHARGES
liii
X903.8 Fines for delayed reports/remittances of collections
X903.9 Liquidity floor requirement on revenue collections
X903.10 Collection of import duties at the time of opening of
letters of credit
liv
SECTION 1948 Offering in the Philippines of Products by Parent Bank and
Branches Abroad of the Parent Bank
SECTION X954 Service Fee for New/Fit Note Deposits with the Bangko Sentral
lv
X960.6 Grounds for suspension or revocation of qualification/
accreditation of administrator, investment manager
or custodian
X960.7 Penalty
X960.8 Reportorial Requirements
C. Enforcement Actions
SECTION X1003 Enforcement Actions
lvi
POWER OF THE BANGKO SENTRAL TO EXAMINE BANKS
(2008 - X658) Examination by the Bangko e. Any other activity relevant to the
Sentral. The term “examination” shall refer above.
to an investigation of an institution under Regular or periodic examination shall
the supervisory authority of the Bangko be done once a year, with an interval of
Sentral ng Pilipinas to determine whether twelve (12) months from the last date
the institution is operating on a safe and thereof. Special examination may be
sound basis, inquire into its solvency and conducted earlier, or at a shorter interval,
liquidity, and assess the effectiveness of its when authorized by the Monetary Board by
compliance function to ascertain that it is an affirmative vote of five (5) members.
conducting business in accordance with In the full exercise of the supervisory
laws and regulations. Consistent with a risk- powers of the Bangko Sentral, examination
based approach to supervision, the scope by the Bangko Sentral of institutions shall
of examination may include, but need not be complemented by overseeing thereof.
be limited to, the following: In this regard, the term “overseeing” shall
a. Appraisal of the overall quality of refer to a limited investigation of an
corporate governance; institution, or any investigation/s that is
b. Assessment of risk management limited in scope, conducted to inquire into
system, which shall include the evaluation a particular area/aspect of an institution’s
of the effectiveness of management oversight operations, for the purpose of overseeing
and self-assessment functions (e.g. internal that laws and regulations are complied with,
audit, risk management and compliance), inquiring into the solvency and liquidity of
adequacy of policies, procedures, and limits, the institution, enforcing prompt corrective
effectiveness of risk measurement, action, or such other matters requiring
monitoring and management information immediate investigation: Provided, That -
system, and robustness of internal control; (i) specific authorizations be issued by the
c. Review of the institution’s operations Deputy Governor, Supervision and
and overall risk profile; Examination Sector, and (ii) periodic
d. Evaluation of financial performance, summary reports on overseeings made be
capital adequacy, asset quality and liquidity; submitted to the Monetary Board.
and (Circular No. 442 dated 20 July 2004, as amended by Circular
No. 862 dated 17 December 2014)
li
§ X101
14.12.31
PART ONE
or any other bank, including its branches they are not inconsistent or incompatible
and agencies. Said banks shall specify the with the provisions of R.A. No. 6848, an IB
nature of paper deemed acceptable for may perform any or all of the following
rediscount, as well as the rediscount rate to services:
be charged by any of these banks; (a) open savings accounts for
(e) act as collection agent; safekeeping or custody with no participation
(f) offer other banking services as in profit and losses except unless otherwise
provided in Section 53 of R.A. No. 8791; and authorized by the account holders to be
(g) buy and sell foreign exchange. invested;
With prior approval of the Monetary (b) accept investment account
Board, an RB may perform any or all of the placements and invest the same for a term
following services: with the IB’s funds in Islamically permissible
(h) accept current or checking transactions on participation basis;
accounts: Provided, That such RB has net (c) accept foreign currency deposits
assets of at least P5.0 million; from banks, companies, organizations and
(i) accept negotiable order of individuals, including foreign governments;
withdrawal (NOW) accounts; (d) buy and sell foreign exchange;
(j) act as trustee over estates or (e) act as correspondent of banks and
properties of farmers and merchants; institutions to handle remittances or any
(k) act as official depository of fund transfers;
municipal, city or provincial funds in the (f) accept drafts and issue letters of
municipality, city or province where it is credit or letters of guarantee, negotiate
located; notes and bills of exchange and other
(l) sell domestic drafts; and evidence of indebtedness under the
(m) invest in allied undertakings. universally accepted Islamic financial
(5) Coop Banks. A Coop Bank shall instruments;
primarily provide financial, banking and (g) act as collection agent insofar as the
credit services to cooperatives and their payment orders, bills of exchange or other
members, although it may provide the same commercial documents are exclusive of riba
services to non-members or the general or interest prohibitions;
public. (h) provide financing with or without
In addition to the powers granted to collateral by way of leasing, sale and
Coop Banks under existing laws, any Coop leaseback, or cost plus profit sales
Bank may perform any or all of the banking arrangement;
services offered by rural banks under Items (i) handle storage operations for goods
“4.a” to “4.g” above. A Coop Bank may or commodity financing secured by
likewise perform any or all of the banking warehouse receipts presented to the bank;
services offered by rural banks under Items (j) issue shares for the account of
“4.h” to “4.m” as well as any or all of the institutions and companies assisted by the
banking services offered by other types of bank in meeting subscription calls or
banks, subject to prior approval of the augmenting their capital and/or fund
Bangko Sentral. requirements as may be allowed by law;
(6) IBs. In addition to the general (k) undertake various investments in all
powers incident to corporations and those transactions allowed by the Islamic Shari’a in
provided in other laws, as well as in such a way that shall not permit the haram
Circular No. 105 (Appendix 44), insofar as (forbidden), nor forbid the halal (permissible);
(l) act as an official government foreign letters of credit (LCs) and pay/
depository, or its branches, subdivisions accept/negotiate import/export drafts/bills
and instrumentalities and of government- of exchange, subject to compliance with
owned or-controlled corporations, the following conditions (at the time of
particularly those doing business in the application unless otherwise indicated):
Autonomous Region; a. Minimum capital requirement of
(m) issue investment participation P1.0 billion;
certificates, muquaradah (non-interest- b. Ten percent (10%) risk-based capital
bearing bonds), debentures, collaterals and/ adequacy ratio (CAR);
or the renewal and refinancing of the c. CAMELS composite rating not lower
same, with the approval of the Monetary than “3”, with Management component
Board to be used by the IB in its financing score not lower than “3” in the latest
operations for projects that will promote the examination of the bank;
economic development primarily of the d. Risk management system
Autonomous Region; appropriate to its operations,
(n) carry out financing and joint characterized by clear delineation of
investment operations by way of mudarabah responsibility for risk management,
purchasing for others on a cost-plus adequate risk measurement system,
financing arrangement, and invest funds appropriately structured risk limits,
directly in various projects or through the effective internal control system and
use of funds whose owners desire to invest complete, timely and efficient risk
jointly with other resources available to the reporting system;
IB on a joint mudarabah basis; and e. Articles of incorporation which
(o) invest in equities of the following shall include among its powers or purposes,
allied undertakings: the issuance of foreign LCs and payment/
(1) Warehousing companies; acceptance/negotiation of import/export
(2) Leasing companies; drafts/bills of exchange (which may be
(3) Storage companies; submitted any time prior to engaging in said
(4) Companies engaged in the activities);
management of mutual funds but not in the f. Correspondent banking relationship
mutual funds themselves; and or arrangement with reputable foreign
(5) Such other similar activities as the banks (which should be in place prior to
Monetary Board has declared or may engaging in said activities);
declare as appropriate from time to time, g. Appointment of the officer with
subject to existing limitations imposed by actual experience of at least two (2) years
law. as in-charge or at least as assistant in-charge
(As amended by Circular Nos. 865 dated 22 December 2014, of import and export financing operations
682 dated 15 February 2010 and 650 dated 09 March 2009) in a UB/KB who will be in-charge of the
said operations (prior to engaging in said
§ 1101.1 (Reserved) activities);
h. Appointment of bank personnel with
§ 2101.1 Authority of thrift banks to actual experience and/or specific training in
issue foreign letters of credit and pay/ import and export financing operations who
accept/negotiate import/export drafts/bills will handle the said operations (prior to
of exchange. With prior Monetary Board engaging in said activities);
approval, TBs may be authorized to issue
i. No net weekly regular and liquidity to issue foreign LCs and pay/accept/
reserve deficiencies during the twelve (12) negotiate import/export drafts/bills of
week period immediately preceding the date exchange shall be signed by the president
of application; of the bank or officer of equivalent rank
j. No deficiency in asset and liquid and shall be accompanied by a certified
asset cover for FCDU liabilities for true copy of the resolution of the bank’s
three (3) months immediately preceding the board of directors authorizing the
date of application; application.
k. No deficiency in liquidity floor (Circular No. 650 dated 09 March 2009)
requirement for government funds held
during the twelve (12)- week period B. ESTABLISHMENT AND
immediately preceding the date of ORGANIZATION
application;
l. No float items outstanding for more Sec. X102 Basic Guidelines in Establishing
than sixty (60) calendar days in the “Due Banks. In establishing a new banking
From/To Head Office/Branches/Offices” organization and a Coop Bank, the basic
and “Due from BSP” accounts exceeding guidelines shown in Appendices 37 and 38,
one percent (1%) of the total resources as respectively, shall be observed.
of end of month preceding the date of (As amended by Circular Nos. 774 dated 16 November 2012
application; and 682 dated 15 February 2010)
m. No unbooked valuation reserves;
§ X102.1 (2008 - X101.2) Prerequisites
n. Compliant with ceilings on loans,
for the grant of a universal banking authority
other credit accommodations and
a. Compliance with guidelines. A
guarantees to directors, officers,
domestic bank seeking authority to operate
stockholders, and their related interests
as a UB shall submit an application to the
(DOSRI) for the quarter immediately
appropriate department of the SES. The
preceding the date of application;
applicant shall comply with the guidelines
o. Compliant with the single
for the issuance of a UB authority and shall
borrower’s loan limit (SBL);
submit all the documentary requirements
p. Compliant with the limit on real
enumerated in Appendix 1.
estate and improvements, including bank
b. Public offering of bank shares. A
equipment;
domestic bank applying for a UB authority
q. No uncorrected findings of unsafe
shall, as a condition to the approval of its
and unsound banking practices;
application, make a public offering of at
r. Generally compliant with banking
least ten percent (10%) of the required
laws, rules and regulations, orders or
minimum capital and this condition must
instructions of the Monetary Board and/or
be complied with before it can be granted
Bangko Sentral Management; and
the license for authority to operate as a
s. No past due obligations with the
UB.
BSP or with any FI.
The term public offering shall mean the
(Circular No. 650 dated 09 March 2009 as amended by Circular
offer to sell equity shares to the public.
No. 686 dated 20 April 2010)
Public shall refer to all prospective
stockholders, excluding the bank’s directors,
§ 2101.2 Application for authority to
shareholders owning twenty percent (20%)
issue foreign letters of credit and pay/
or more of the bank’s subscribed capital
accept/negotiate import/export drafts/bills
stock, together with those of their relatives
of exchange. An application for authority
within the fourth degree of consanguinity
(b) Majority of the members of the board authority to establish, or convert into a TB
of directors have experience in or RB: Provided, That the concerned officer
microfinancing with at least one (1) member is a college graduate.
having actual banking experience. c. Subject to the standard branching
(c) The proposed bank must have as a requirements, microfinance-oriented banks
minimum, an adequate loan tracking system are also exempted from the general
that allows daily monitoring of loan releases, moratorium on the establishment of bank
collection and arrearages, and any branches, under Sec. X151. After one (1)
restructuring and refinancing. year of profitable operations, a
(5) In addition to the requirements for microfinance-oriented bank may apply for
the establishment of banks in Appendix 37, establishment of a branch but the Monetary
the application for authority to establish a Board may require additional capital to be
microfinance-oriented bank must be infused for every branch in addition to the
accompanied by the following documents: minimum capital of the TB/RB.
(a) A vision and mission statement with
d. Existing microfinance organizations
clear expression of the commitment to reach
applying for authority to establish, or
low-income clients.
convert into a TB or RB may also be
(b) A written manual of operations,
allowed to convert their existing branches/
which shall include the administrative and
offices into branches of the bank proposed
credit program systems and procedures.
to be established by simultaneously
The Manual must be consistent with the
applying for authority for the purpose.
core principles, characteristics and features
However, the standard requirements for
of microfinance indicated in Sec. X361.
the establishment of branches, particularly
(6) At least fifty percent (50%) of the
the capitalization requirement, have to be
bank’s gross loan portfolio shall at all times
complied with. Moreover, there must be
consist of microfinance loans as defined in
a proof that the area is not fully served by
Sec. X361.
any existing RB.
b. The requirement that the president,
(As amended by Circular No. 624 dated 13 October 2008)
chief operating officer or general manager
of a TB or RB must have at least two (2) § X102.4 (2008 - X101.6) Conditions
years experience in banking and/or finance for the grant of authority to convert into a
may be substituted with microfinance lower category
experience in cases of officers of a a. That the bank must have complied
microfinance organization applying for with the end-2000 minimum capital
1
See SEC Circular No. 3 dated 16 February 2006.
2
See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated 24 October 2000, and DTI Administrative Order No. 1008
effective 10 October 2010
.
Part I - Page 8 Manual of Regulations for Banks
§§ X104.1 - X105.2
14.12.31
that shall degrade, deprecate or otherwise the bank officers or directors who caused
prejudice other banking and financial the approval or placement of such
institutions. advertisement.
b. No bank shall publish, issue or
distribute in any form of advertisement (in Sec. X105 (2008 - X121) Liberalized Entry
newspapers, magazines, television, radio, and Scope of Operations of Foreign Banks
billboards, brochures, prospectuses, or any The following rules shall govern the
other medium) or allow itself to be used/ liberalized entry and scope of operation of
mentioned in any form of advertisement foreign banks.
unless such advertisement is in pursuance (As amended by Circular No. 858 dated 21 November 2014)
of its business or investment.
c. No bank shall place or cause to be § X105.1 (2008 - X121.1) Modes of
placed any advertisement tending to mislead entry of foreign banks. With prior approval
a depositor into believing that he will get of the Monetary Board, foreign banks may
more in benefits than what the bank is operate in the Philippines through any one
legally authorized to give. No bank (1) of the following modes:
advertisement shall contain any false claim a. By acquiring, purchasing or owning
or exaggerated representation as to its up to 100% of the voting stock of an existing
liquidity, solvency, resources, deposits and domestic bank (including banks under
banking services. receivership or liquidation, provided no final
d. No bank advertisement shall give the court liquidation order has been issued);
impression that the bank is engaged in a b. By investing in up to 100% of the
business other than banking. voting stock of a new banking subsidiary
e. Banks shall inform their depositors incorporated under the laws of the
and other clients by advertisement or Philippines; or
publication of the termination of benefits c. By establishing a branch and sub-
previously advertised or publicized. branches with full banking authority.
f. Banks shall discontinue any Interested foreign banks shall file with
advertisement whenever the same is the Office of the Governor, Bangko Sentral,
deemed unethical/unwarranted or violative their application for authority to operate in
of the provisions of these regulations. The the Philippines through any of the modes of
client banks and/or their advertising entry mentioned above. The application
agencies shall incorporate in their contract/ requirements are listed in Appendix 2.
agreement for time and space with media (As amended by Circular Nos. 858 dated 21 November 2014
and 774 dated 16 November 2012)
the condition that such contract/agreement
for time and space can be cancelled/ § X105.2 (2008 - X121.2) Qualification
terminated immediately whenever the client requirements. A foreign bank seeking to
bank is directed by the Bangko Sentral to operate in the Philippines through any of
desist or discontinue the particular the modes of entry provided under Items “a”
advertisement in question. to “c” of Subsec. X105.1 must, in addition
g. Responsibility for compliance with to satisfying the criteria prescribed under
the above rules and regulations rests with Subsec. X105.3, be -
(1) Widely-owned and publicly-listed bank to promote trade with, and to bring
in the country of origin, unless the foreign foreign investments into, the Philippines.
bank applicant is owned and controlled by Long standing financial and commercial
the government of its country of origin. relationship with, and assistance extended
(2) Established, reputable and to, the Philippines, shall likewise be taken
financially sound. into account.
The determination of whether a foreign d. Demonstrated capacity, global
bank applicant is widely-owned and reputation for financial innovations and
publicly listed, established, reputable, and stability in a competitive environment of the
financially sound shall be based on the applicant bank.
information derived from submitted e. Reciprocity rights enjoyed by
documents as required under Appendix 2. Philippine banks in the applicant’s country.
Further, if the foreign bank is owned/ Subject to the host country’s rules and
controlled by a holding company, this regulations of general application,
requirement may apply to the holding Philippine banks should have the
company. opportunity to establish operations in the
(As amended by Circular No. 858 dated 21 November 2014) foreign bank applicant’s home country.
f. Willingness to fully share banking
§ X105.3 (2008 - X121.3) Guidelines for technology.
selection. The following factors shall be (As amended by Circular Nos. 858 dated 21 November 2014
considered in selecting the foreign banks and 809 dated 23 August 2013)
which will be allowed to enter the
Philippine banking system through R.A. No. § X105.4 (2008 - X121.4) Capital
7721, as amended by R.A. No. 10641: requirements of foreign banks
a. Geographic representation and a. For locally incorporated subsidiaries.
complementation. Representation from the A foreign bank subsidiary shall comply with
different parts of the world and/or the the minimum capital and prudential capital
international financial centers shall be ratios applicable to domestic banks of the
ensured. same category as prescribed under
b. Strategic trade and investment prevailing regulations.
relationships between the Philippines and b. For foreign bank branches
the home country of the foreign bank. (1) A foreign bank branch shall comply
Consideration shall be given to the countries with the minimum capital and prudential
of origin of applicant foreign banks – capital ratios applicable to domestic banks
(1) With substantial financial assistance of the same category as prescribed under
to, and loans and investments, past and prevailing regulations.
present, in the Philippines; and (2) For purposes of compliance with
(2) With which the Philippines has minimum capital regulations, the term
significant volume of trade especially to “capital of a foreign bank branch” shall refer
those with which the country has substantial to the sum of: (i) permanently assigned
net exports. capital, (ii) undivided profits, and
c. Relationship between the applicant (iii) accumulated net earnings, which is
bank and the Philippines. Consideration composed of unremitted profits not yet
shall be given to the capability of the foreign cleared by the Bangko Sentral for outward
remittance and losses in operations, less § X105.5 Prescribed ratio of “Net Due
capital adjustments as may be required by to” account.
the Bangko Sentral in accordance with (Deleted by Circular No. 858 dated 21 November 2014)
prevailing rules and regulations of general
application. § X105.6 (2008 - X121.6) Risk-based
(3) Permanently assigned capital shall capital for foreign bank branch
be inwardly remitted and converted into a. Foreign bank branches shall comply
Philippine currency at the exchange rate with the same risk-based capital adequacy
prevailing at the time of remittance. ratios applicable to domestic banks of the
(4) Any Net due from head office, same category.
branches, subsidiaries and other offices b. In computing the risk-based capital
outside the Philippines, excluding adequacy ratios, Common Equity Tier 1
accumulated net earnings, shall be a (CET1) capital shall include permanently
deductible adjustment to capital. assigned capital, undivided profits,
(5) For purposes of compliance with the accumulated net earnings and other capital
Single Borrower’s Limit (SBL), the capital of components.
a foreign bank branch, subject to prescribed c. Any Net due from head office,
adjustments, shall be synonymous to its “net branches, subsidiaries and other offices
worth”. outside the Philippines, excluding
Transitory provision. accumulated net earnings shall be deducted
a. Minimum capital of foreign banks. from CET1 capital.
Minimum capital of foreign banks d. The guidelines for computing the risk-
established in the Philippines prior to R.A. based capital adequacy ratios are provided
No. 10641 shall comply with the applicable in Appendix 63b.
(As amended by Circular Nos. 858 dated 21 November 2014
minimum capital level requirement as
and 822 dated 13 December 2013)
prescribed under Subsec. X111.1. Existing
foreign banks that do not meet the minimum § X105.7 (2008 - X121.7) Head Office
capital requirements shall submit an guarantee. The head office of foreign bank
acceptable capital build-up program as branches shall guarantee prompt payment
required under Subsec. X111.1. of all liabilities of its Philippine branches,
b. SBL as well as the observance of the
1. Loans and credit commitments of constitutional rights of the employees of such
foreign bank branches as of 07 August 2014 branches.
may be maintained, but once repaid or
expired, shall no longer be increased in § X105.8 (2008 - X121.8) Scope of
excess of the ceiling allowed under the authority for locally incorporated
suceeding paragraph. subsidiaries of foreign banks as well as
2. Existing foreign bank branches shall branches with full banking authority
be given until 31 December 2019 to use Subsidiaries and branches of foreign banks
twice the level of capital as defined in this established under Subsec. X105.1 shall be
Subsection as net worth, as reference point allowed to perform the same functions and
for purposes of determining the appropriate enjoy the same privileges of, and be subject
SBL. to the same limitations imposed upon, a
(As amended by Circular Nos. 858 dated 21 November 2014, Philippine bank of the same category.
822 dated 13 December 2013 and 696 dated 29 October 2010)
1
The SPRB is a joint undertaking of the Bangko Sentral and the Philippine Deposit Insurance Corporation (PDIC) aimed at
promoting mergers and consolidations as a means to further strengthen the rural banking system through the grant of
financial assistance (FA) by the PDIC and regulatory relief by the Bangko Sentral to eligible strategic third party investors
(STPIs) which shall be RBs, desiring to enter into mergers and consolidations with eligible distressed RBs that may be
considered under the SPRB.
§ X108.4 SPRB Plus1 and Strengthening percent (8%) per annum fixed in the
Program for Cooperative Banks (SPCB) Plus SPCB;
As a supplement to the SPRB, the SPRB Plus, d. Principal of the DL under the
which became effective on 02 August 2012 combination of preferred shares (PS) and
and shall be available up to 31 December DL will be equivalent to such amount that
2014, contains the following enhanced will provide a net interest spread (NIS)
features: over the tenor of the DL to such amount
a. inclusion of TBs, which serve the equal to the PS;
same niche market as the RBs, as among e. Interest rate per annum on DL under
the eligible banks in addition to RBs; the combination of PS and DL will be
b. inclusion of TBs, UBs and KBs, non- equivalent to such rate that will provide the
bank corporations and banking groups as bank with an annual NIS that will
among the eligible STPIs; accumulate over the tenor of the DL to such
c. additional branching and other amount equal to the PS instead of the three
incentives to be provided on top of the percent (3%) less premium rate of
regulatory relief already available under the government securities fixed in the SPCB;
SPRB Module 1; and f. Principal of the DL intended to provide
d. acquisition via purchase of assets and income support to the surviving bank will be
assumption of liabilities, and acquisition of equivalent to such amount that will provide a
control in an eligible bank as additional NIS equal to the capital deficiency to bring
modes of entry of an eligible STPI. Risk-Based Capital Adequacy Ratio (RBCAR)
The SPRB Plus Framework and to zero percent (0%);
guidelines are shown in Appendix 94a. g. Interest rate per annum on DL
The SPCB Plus, which replaced the intended to provide income support to the
SPCB (Strengthening Program for Rural surviving bank will be equivalent to such
Banks [SPRB] Module II) became effective rate that will provide the bank with an
on 16 September 2013 and shall be annual NIS that will accumulate over the
available up to 17 September 2014. It has tenor of the DL to such amount equal to the
generally the same framework as the SPRB capital deficiency to bring RBCAR to zero
Module II, with the following percent (0%); and
enhancements/amendments: h. Conduct of due diligence review by
a. inclusion of KBs, among the eligible PDIC or an external auditor.
Strategic Third Party Investors (STPIs) in Branching and other incentives under
addition to Coop Banks, RBs and TBs; the SPCB Plus are provided for under
b. Financial assistance (FA) to be Appendix 94b - Annex A.
extended by the PDIC and LBP can be in Based on the arrangement agreed upon
the form of direct loan (DL) only (without by the Bangko Sentral, PDIC and LBP, the
the preferred shares) intended to provide eligible STPIs and eligible Coop Banks shall
income support to the surviving bank; submit to the SPCB lane a joint letter,
c. Dividend rate on the preferred shares separately addressed to PDIC, Bangko
shall be equal to the rate per annum of the Sentral and LBP, indicating their intention
prevailing ten (10)-year FXTN available at the to merge or consolidate, or enter into a
time of the release of FA instead of the eight purchase of assets and assumption of
1
The Bangko Sentral and the PDIC signed the Supplemental Agreement to implement the SPRB Plus
aimed at strengthening the thrift and rural banking industry to effectively serve the countryside and
improve the delivery of financial services to rural communities.
liabilities or acquisition of control under the SPCB g. In the case of RBs/Coop Banks, the
Plus, and all the other required documents government counterpart equity, except
shown in Appendix 94b - Annex B. those arising from conversion of arrearages
(M-2012-040 dated 08 August 2012,as amended by M-2014-003 under the Bangko Sentral rehabilitation
dated 27 January 2014 and M-2013-061 dated 23 December program.
2013)
With respect to Item “b” hereof, the
provision in Subsec. X326.1 shall apply
Secs. X109 - X110 (Reserved) except that in the definition of stockholders
in said Subsection, the qualification that his
D. CAPITALIZATION stockholdings, individually and/or together
with his related interest in the lending bank,
Sec. X111 (2008 - X106) Minimum should at least amount to two percent (2%)
Required Capital. The following provisions or more of the total subscribed capital stock
shall govern the capital requirements for of the bank, shall not apply for the purpose
banks. of this Item.
The term capital shall be synonymous (As amended by Circular No. 560 dated 31 January 2007)
to unimpaired capital and surplus,
combined capital accounts and net worth § X111.1 Minimum capitalization. The
and shall refer to the total of the unimpaired minimum capitalization of banks shall be
paid-in capital, surplus and undivided as follows:
profits, less: Required
a. Unbooked valuation reserves and Minimum
other capital adjustments as may be required Bank Category Capitalization
by the Bangko Sentral; UBs
Head Office Only P3.00 billion
b. Total outstanding unsecured credit Up to 10 branches1/ 6.00 billion
accommodations, both direct and indirect, 11 to 100 branches 1/ 15.00 billion
to directors, officers, stockholders, and their More than 100 branches 1/
20.00 billion
related interests (DOSRI) granted by the KBs
Head Office Only P2.00 billion
bank proper; Up to 10 branches1/ 4 .00 billion
c. Unsecured loans, other credit 11 to 100 branches 1/ 10.00 billion
accommodations and guarantees granted to More than 100 branches 1/
15.00 billion
subsidiaries and affiliates; TBs
Head Office in National Capital Region (NCR)
d. Deferred income tax;
Head Office Only P500 million
e. Appraisal increment reserve Up to 10 branches1/ 750 million
(revaluation reserve) as a result of 11 to 50 branches 1/ 1.00 billion
appreciation or an increase in the book More than 50 branches 1/ 2.00 billion
value of bank assets; Head Office in all Other Areas Outside NCR
Head Office Only P200 million
f. Equity investment of a bank in another Up to 10 branches1/ 300 million
bank or enterprise, whether foreign or 11 to 50 branches 1/ 400 million
domestic, if the other bank or enterprise has More than 50 branches 1/ P800 million
a reciprocal equity investment in the RBs and Coop Banks
Head Office in NCR
investing bank, in which case, the Head Office Only P50 million
investment of the bank or the reciprocal Up to 10 branches1/ 75 million
investment of the other bank or enterprises, 11 to 50 branches 1/ 100 million
whichever is lower; and More than 50 branches 1/ 200 million
1/
Branches- inclusive of Head Office
1/
Branches- inclusive of Head Office
§ X111.2 (2008 - X106.2) Capital build- (2) A certified copy of the Escrow
up program. Agreement between the bank, TPI and
(Deleted by Circular No. 696 dated 29 October 2010) escrow agent, and a certificate of escrow
deposit issued by the escrow agent
§ X111.3 (2008 - X106.3) Memorandum equivalent to at least the amount of the
of Understanding; Prompt Corrective proposed investment;
Action Program; Sanctions. (3) Documentary requirements under
(Deleted by Circular No. 696 dated 29 October 2010)
Subsec. X126.2b; and
(4) Other documentary requirements
§ X111.4 Guidelines on proposed
as may be required by the Bangko Sentral.
investment from third party investors
c. The bank shall also comply with the
(TPIs) for purposes of complying with the
requirements under Sec. X128 on the
minimum capital requirements. The
treatment of deposit for stock subscription
following are the guidelines for capital
as part of the equity, if applicable.
deficient banks with proposed investments
d. In case a bank has a pending
from third party investor/s (TPIs) for application with the PDIC under the
purposes of addressing the capital SPRB Plus/SPCB Plus, the bank and the
deficiency: TPI shall submit a joint certification
a. A bank that has already entered into a signed by the president or officer of
final agreement with a TPI to invest in the equivalent rank of the bank and the TPI
bank, which amount of investment shall concerned that there is a pending
cover the full amount of the capital application with the PDIC, together
deficiency, shall immediately submit the with the acknowledgement receipt by
subscription contract/written agreement PDIC of said application.
with the TPI to the Bangko Sentral. It is The investment of the TPI would not
understood that with the submission of such be considered for purposes of addressing
contract, the TPI has already agreed to infuse the capital deficiency if the aforementioned
the needed funds to cover the capital documentary requirements are not
deficiency. complied with. In this regard, it is
b. In case the transaction requires prior understood that mere submission to
Bangko Sentral approval under Subsec. Bangko Sentral of a TPI’s Letter of Intent
X126.2b, the bank shall submit the (LOI) to invest in the bank shall not be
following documentary requirements considered sufficient action to address the
within fifteen (15) banking days from the bank’s capital deficiency.
submission of the aforementioned If the above requirements are not
subscription contract/written agreement submitted within the given period, the
or within the timeline prescribed by appropriate department of the Bangko
Subsec. X126.2b1, whichever is earlier: Sentral may proceeed in recommending
(1) Bank’s request (signed by the appropriate supervisory action/s on the
president or officer of equivalent rank) for bank, if applicable.
Bangko Sentral aproval of the subject (M-2014-002 dated 27 January 2014)
transactions (accompanied by a Board
Resolution of the TPI to that effect, if the TPI Secs. X112 - X114 (Reserved)
is a corporation);
1
sixty (60) calendar days from date of transaction or thirty (30) calendar days from receipt of corporate
secretary of the transaction, whichever comes first.
§ X115.4 Required reports. Banks shall their going-concern loss absorbency and to
submit a report of their risk-based capital reduce the extent or impact of failure of
adequacy ratio on a solo basis (head office DSIBs on the domestic/real economy.
plus branches) and on a consolidated basis The guidelines shall apply on a
(parent bank plus subsidiary financial allied consolidated basis to all UBs and KBs,
undertakings, but excluding insurance including branches of foreign banks
companies) quarterly to the appropriate established under R.A. No. 7721 (An Act
department of the SES in the prescribed Liberalizing the Entry and Scope of
forms within the deadlines, i.e., fifteen (15) Operations of Foreign Banks in the
banking days and thirty (30) banking days Philippines and for Other Purposes).
after the end of reference quarter, The framework for dealing with domestic
respectively. Only banks with subsidiary systemically important banks consists of 3
financial allied undertakings (excluding parts, as follows:
insurance companies) which under existing a. Assessment Methodology
regulations are required to prepare The impact of a DSIB’s failure to the
consolidated statements of condition on a domestic economy shall be assessed based
line-by-line basis shall be required to submit on bank-specific factors, to wit: (a) size;
report on a consolidated basis. The (b) interconnectedness; (c) substitutability/
abovementioned reports shall be classified financial institution infrastructure; and
as Category A-1 reports. (d) complexity. Ten (10) indicators related
All UBs and KBs as well as their to these categories shall be used to identify
subsidiary banks shall be subject to all other DSIBs. These indicators reflect the factors
reporting requirements (i.e., Basel III Capital or criteria which makes a bank significant
Adequacy Summary Report) under the for the stability of the financial system and
Basel III risk-based capital as may be the economy.
prescribed by the Bangko Sentral. b. Higher Loss Absorbency (HLA) and
Late and/or erroneous reporting of all Interaction with Other Elements of
reports in compliance with the Basel III Basel III Framework
requirements shall be subject to penalties Banks that will be identified as DSIBs
provided under Subsec. X192.2. Banks shall be required to have HLA. The HLA
failing to submit the required reports within requirement is aimed at ensuring that DSIBs
the prescribed deadline shall be subject to have a higher share of their balance sheets
monetary penalties applicable for delayed funded by instruments which increase their
reporting under existing regulations. resilience as a going concern, considering
(Circular No. 842 dated 25 July 2014) that the failure of a DSIB is expected to have
a greater impact on the domestic financial
§ X115.5 Domestic systemically system and economy.
important banks (DSIBs) To determine banks' compliance with the
It is the thrust of the Bangko Sentral to additional CET1 requirement for DSIBs, the
ensure that its capital adequacy framework minimum ratio should be complied with by
is consistent with the Basel principles. the parent bank and its subsidiary banks and
Hence, the Bangko Sentral is adopting quasi-banks on both solo and consolidated
policy measures for DSIBs, which are bases.
essentially aligned with the documents c. Intensive Supervisory Approach
issued by BCBS on global systemically Banks identified as DSIBs shall include
important banks (GSIBs) and DSIBs. The in their Internal Capital Adequacy
broad aim of the policies is to reduce the Assessment Process (ICAAP) document
probability of failure of DSIBs by increasing concrete and reasonable recovery plans
§ X116.7 Temporary relief. (VCC) for TBs, and RBs for Coop Banks]
(Deleted by Circular No. 827 dated 28 February quarterly in the prescribed forms within the
2014) deadlines, i.e., fifteen (15) banking days and
thirty (30) banking days after the end of the
Sec. X117 Internal Capital Adequacy reference quarter, respectively. Only banks
Assessment Process and Supervisory with subsidiary financial allied undertakings
Review Process1. The guidelines on banks’ (i.e., RBs and VCCs for TBs, and RBs for
internal capital adequacy assessment process Coop Banks) which under the existing
(ICAAP) and BSP’s supervisory review regulations are required to prepare
process (SRP) are shown in Appendices 90, consolidated financial statements on a line-
90a and 90b, respectively. by-line basis shall be required to submit
The ICAAP guidelines shall apply to all report on consolidated basis. The
UBs and KBs on a group-wide basis. abovementioned reports shall be classified
The guidelines took effect on 01 January as Category A-2 reports.
2011. c. Sanctions
(Circular No. 639 dated 15 January 2009, as amended by Circular
Nos. 731 dated 28 July 2011, 677 dated 29 December 2009) 1. For non-reporting of CAR breaches
(a) It is the responsibility of the President
Sec. X118 Revised Risk-Based Capital or any officer of the bank holding equivalent
Adequacy Framework for Stand-Alone position to cause the immediate reporting
Thrift Banks, Rural Banks and Cooperative of CAR breaches both to its Board of
Banks. The guidelines implementing the Directors (BOD) and to the Bangko Sentral.
revised risk-based capital adequacy It is likewise the responsibility of the
framework for Stand-alone TBs, RBs, and President/or any officer holding equivalent
Coop Banks2 are in Appendix 63c. position to ensure the accuracy of CAR
Capital instruments issued by banks calculations and the integrity of the
starting 01 January 2014 shall be subject to associated monitoring and reporting system.
the criteria for inclusion as qualifying capital Any willful violation of the above will be
provided in Appendix 63b Annexes A to C considered as a serious offense for purposes
and Annexes E to F. of determining the appropriate monetary
a. The risk-based capital adequacy ratio penalty that will be imposed on the
(CAR) of stand-alone TBs, RBs and Coop President/or any officer holding equivalent
Banks, expressed as a percentage of position. In addition, the President/or any
qualifying capital to risk-weighted assets, officer holding equivalent position shall be
shall not be less than ten percent (10%) for subject to the non-monetary sanctions:
both solo basis (head office and branches) (1) First offense – warning
and consolidated basis (parent bank and (2) Second offense – reprimand
subsidiary financial allied undertakings). (3) Third offense – 1 month suspension
Stand-alone TBs, RBs and Coop Banks without pay
shall comply with the provisions of this (4) Further offense – disqualification
Section starting 01 January 2012. 2. For non-compliance with required
b. Required reports. Banks shall submit disclosures
a report of their risk-based capital ratio on a (a) Willful non-disclosure or erroneous
solo basis (head office plus branches) and disclosure of any item required to be
on a consolidated basis (parent bank plus disclosed under this Framework in either
subsidiary financial allied undertakings [i.e., the Annual Report or the Published Balance
RBs and Venture Capital Corporations Sheet shall be considered as a serious
1
All covered UBs and KBs were required to submit the interim ICAAP document until 30 April 2010 and the
final ICAAP document until 31 January 2011.
2
These refer to TBs, RBs and Coop Banks that are not subsidiaries of UBs and KBs.
offense for purposes of determining the temporarily relieve the surviving bank,
appropriate monetary penalty that will be consolidated bank, or constituent bank or
imposed on the bank. In addition, the corporations under rehabilitation from full
President/or any officer holding equivalent compliance with the required capital ratio
position and the BOD shall be subject to under such conditions as it may prescribe.
the following non-monetary sanctions: (c) A bank may also be subject to Prompt
(1) First offense – warning on President/ Corrective Action (PCA) framework when
or any officer holding equivalent position either the total CAR, Tier 1 ratio or leverage
and the BOD ratio falls below ten percent (10%), six
(2) Second offense – reprimand on percent (6%), and five percent (5%),
President/or any officer holding equivalent respectively, or such other minimum levels
position and the BOD that may be prescribed for the said ratios
(3) Third offense – 1 month suspension under relevant regulations, and/or the
of President/or any officer holding combined capital accounts fall below the
equivalent position without pay minimum capital requirement prescribed
(4) Further offense – possible under Subsec. X111.1, pursuant to the
disqualification of the President/or any provisions of Sec. X193.
officer holding equivalent position and/or (Circular No. 688 dated 26 May 2010, as amended by Circular
the BOD Nos. 827 dated 28 February 2014, 781 dated 15 January 2013,
770 dated 28 September 2012, 762 dated 25 July 2012,
3. For non-compliance with the 750 dated 01 March 2012, 717 and 716 both dated 25 March
minimum CAR 2011, 713 dated 14 February 2011 and 709 dated 10 January
(a) In case a bank does not comply with 2011)
the prescribed minimum CAR, the Monetary
Board may limit or prohibit the distribution F. CAPITAL INSTRUMENTS
of net profits by such bank and may require
that part or all of net profits be used to Sec. X119 Unsecured Subordinated Debt
increase the capital accounts of the bank The following are the guidelines for the
until the minimum requirements has been issuance of unsecured subordinated debt
met. The Monetary Board may, furthermore, (UnSD) eligible as Hybrid Tier 1 (HT1) and
restrict or prohibit the acquisition of major Tier 2 capital:
assets and the making of new investments (As amended by Memorandum to All Banks dated 23 March
2006)
by the bank, with the exception of
purchases of readily marketable evidences § X119.1 Minimum features of
of indebtedness of the Republic of the unsecured subordinated debt
Philippines and of the Bangko Sentral a. Form. A UnSD that will be publicly
included in paragraph 2, Item “a.ii” of Part distributed may either be scripless in form
III, Appendix 63c and any other evidences or evidenced by certificates such as:
of indebtedness or obligations the servicing promissory note, debenture or other
and repayment of which are fully guaranteed appropriate certificate of indebtedness. A
by the Republic of the Philippines, until the UnSD in scripless form shall comply with
minimum requirement capital ratio has the provisions of R.A. No. 8792, otherwise
been restored. known as the “Electronic Commerce Act”,
(b) In case of a bank merger, or particularly on the existence of an assurance
consolidation, or when a bank is under on the integrity, reliability and authenticity
rehabilitation program approved by the of the UnSD in electronic form. An
Bangko Sentral, the Monetary Board may independent third party UnSD Registry shall
maintain unissued UnSD certificates and the furnished every buyer/investor in a separate
UnSD Registry Book, which must be written instrument receipt of which must
electronic if the UnSD is scripless in form. be duly acknowledged by him.
A UnSD that will be issued privately or on d. Term. The UnSD qualifying under
a negotiated basis shall be evidenced by HT1 capital shall be perpetual. The
certificates. minimum maturity of a UnSD qualifying
All UnSD shall be registered in the name under UT2 and LT2 capital shall be ten (10)
of individuals or entities and pre-numbered years and five (5) years, respectively.
serially. (As amended by Memorandum to All Banks dated 23 March
2006)
b. Denomination. The UnSD must be
issued in minimum denominations of § X119.2 Prior Bangko Sentral
P500,000 or its equivalent if denominated approval. No UnSD shall be issued without
in a foreign currency. the prior approval of the Bangko Sentral.
c. Mandatory provisions. If the UnSD
is not scripless in form, the following § X119.3 Pre-qualification
provisions must appear in bolder prints on requirements of issuing bank. A bank
the face of every note, debenture or other applying for authority to issue a UnSD
certificate evidencing the same: shall comply with the following
(1) This obligation is not a deposit and requirements:
is not insured by the PDIC; a. It has complied with the minimum
(2) This obligation is neither secured nor amount of capital required under Subsec.
covered by the guarantee of (name of bank) X111.1 or its paid-in capital is at least
or its subsidiaries and affiliates, or other equal to the amount required therein.
arrangement that legally or economically b. It has established a risk management
enhances the priority of the claim of any system appropriate to its operations
holder of the UnSD as against depositors characterized by clear delineation of
and other creditors (for LT2); depositors, responsibility for risk management,
other creditors and holders of LT2 capital adequate risk measurement systems,
instruments (for UT2); and depositors, other appropriately structured risk limits,
creditors and holders of LT2 and UT2 capital effective internal controls and complete,
instruments (for HT1); timely and efficient risk reporting system.
(3) This obligation does not have a c. It is a locally incorporated bank.
priority claim, in respect of principal and
coupon payments in the event of winding § X119.4 Public issuance of unsecured
up of the (name of bank), which is higher subordinated debt. Public issuance of
than or equal with that of depositors and UnSD is an issuance offered to the general
other creditors (for LT2); depositors, other public, which may or may not be qualified
creditors and holders of LT2 capital investors/ buyers as hereinafter defined. The
instruments (for UT2); and depositors, other Issuing Bank must be rated by an
creditors, holders of LT2 and UT2 capital independent credit rating agency recognized
instruments (for HT1); and by the Bangko Sentral and a Public Trustee
(4) The obligation is ineligible as shall be appointed for investor protection.
collateral for a loan granted by (name of a. Application for authority
Bank), its subsidiaries and affiliates. (1) The application shall be signed by
If the UnSD is scripless in form, the the president or officer of equivalent rank
foregoing provisions/information shall be of the applicant bank;
(2) The application for authority on each and affiliates of the Issuing Bank including
UnSD issue/issue program shall be filed their subsidiaries and affiliates;
with the appropriate department of the SES: (f) A written undertaking from the
Provided, That the period of an issue president or officer of equivalent rank of the
program of two (2) or more tranches shall Issuing Bank to update the above-
not exceed one (1) year from date of mentioned list within three (3) banking days
approval; and from the date of change in composition
(3) The application shall be thereof;
accompanied by: (g) Specimen of the UnSD; and
(a) A certified true copy of the resolution (h) A written external legal opinion that
of the Issuing Bank’s board of directors all the conditions/eligibility criteria for UnSD
authorizing the issuance of the UnSD to qualify for capital instruments under
indicating, among others, the issue size, applicable and existing capital adequacy
terms and conditions, offering period, framework and loss absorption (for HT1 and
purpose or intended use of proceeds thereof, UT2) features, have been met; and
the names of the Underwriter/Arranger, (i) A certification signed by the president
UnSD Registry, Selling Agent(s) and Market (or officer of equivalent rank) and chief
Maker(s), and Public Trustee; compliance officer of the issuing bank stating
(b) A certification by the corporate the compliance of all parties to the UnSD
secretary that the issuance of the UnSD transaction with the respective
has been approved by the stockholders prequalification requirements prescribed
owning or representing at least two-thirds under Item “c” of Subsec. X119.4
(2/3) of the outstanding capital stock of b. Additional requirements for the
the Issuing Bank if the UnSD has issuance of UnSD
convertibility feature; After a bank’s application to issue a
(c) A written confirmation from the UnSD has been approved, the applicant
president or officer of equivalent rank of the shall submit the following additional
Issuing Bank stating that all the conditions/ requirements to the appropriate department
eligibility criteria for UnSD to qualify for of the SES:
capital instruments under applicable and (1) At least fifteen (15) banking days
existing capital adequacy framework are before the date of offering:
complied with and that such conditions/ (a) A written confirmation from the
eligibility criteria shall be contained in the president or officer of equivalent rank of the
UnSD Certificates if the UnSD is not in Issuing Bank stating that the bank has been
scripless form, in the Information Disclosure rated by an independent credit rating agency
and Purchase Advice. duly recognized by the Bangko Sentral;
(d) A written undertaking from the (b) Information disclosure of the UnSD
president or officer of equivalent rank of the issuance prepared by the Underwriter
Issuing Bank not to support, directly or Arranger;
indirectly, by extending loans, issuing (c) Promotional materials;
payment guarantees or otherwise, the buyer/ (d) Specimen of the proposed Purchase
holder of the UnSD of the Issuing Bank; Advice and Registry Confirmation; and
(e) A written confirmation from the (e) Copy of the agreements between the
president or officer of equivalent rank of the Issuing Bank and the Underwriter/Arranger/
Issuing Bank stating that the designated UnSD Registry/Selling Agent(s)/Market
Underwriter/Arranger, UnSD Registry, Maker(s), and Public Trustee.
Selling Agent(s) and Market Maker(s) were The Bangko Sentral reserves the right to
provided with a complete list of subsidiaries suspend the date of offering, within the
fifteen (15) banking day period from risk-based CAR prescribed under applicable
submission of the above-mentioned and existing capital adequacy framework
requirements. for the past sixty (60) days immediately
(2) Within ten (10) banking days after preceding the date of application where
issuance of the initial and subsequent applicable.
tranches: (2) UnSD Registry
(a) A written notice of the actual date of (a) It may be a UB, a KB, or such other
issuance/offering of each initial and specialized entity that may be qualified by
subsequent tranches. the Monetary Board.
c. Requirements for other parties (b) It must be a third party that has no
involved subsidiary/affiliate or any other relationship
The issuing bank shall be held with the Issuing Bank that would undermine
accountable for ensuring the continuous its independence.
compliance by its chosen participant-FIs (c) It must not be an Underwriter or a
with the qualification requirements Market Maker of the UnSD.
prescribed by the Bangko Sentral. (d) It must have adequate facilities and
As such, the issuing bank shall make a the organization to do the following:
careful and diligent evaluation of the parties (i) Maintain certificates of unissued
whom it shall engage to act as underwriter/ UnSD and the Registry Book which must
arranger, UnSD registry, selling agent, be electronic if the UnSD is in scripless
market maker and public trustee of its form;
UnSDs. (ii) Deliver transactions within the
The following qualification agreed trading period; and
requirements shall be strictly complied with (iii) Issue Registry Confirmations and
prior to and on a continuing basis by the UnSD Certificates if they are not in scripless
issuing bank and FIs engaged to act as form to buyers/holders of UnSD.
underwriter/arranger, UnSD registry, selling (e) It must have a CAMELS composite
agent, market maker and public trustee while rating of at least “3” in the last regular
the UnSDs of the issuing bank remains examination, where applicable.
outstanding: (3) Selling Agent
(1) Underwriter/Arranger (a) It must be an FI with dealership or
(a) It is either a UB or an IH: Provided, brokering license.
That if an offering is on a best effort basis, (b) It must be a third party that has no
the Arranger may also be a KB: Provided, subsidiary/affiliate or any other relationship
further, That if an offering is denominated with the Issuing Bank that would undermine
in foreign currency, the Underwriter/ its independence.
Arranger may also be any reputable (4) Market Maker
international investment bank. (a) It must be an FI with a dealership or
(b) It must be an independent third party brokering license.
that has no subsidiary/affiliate or any other (b) It must be a third party that has no
relationship with the Issuing Bank that subsidiary/affiliate or any other relationship
would undermine the objective conduct of with the Issuing Bank that would undermine
due diligence. its independence.
(c) If Underwriter, it must have adequate (c) It must have adequate risk
risk management and must be well management and must be well capitalized
capitalized, which for a local Underwriter, as evidenced by compliance with the risk
shall be evidenced by compliance with the based CAR prescribed under applicable and
existing capital adequacy framework for the (b) Prepares the prospectus/information
past sixty (60) days immediately preceding disclosure, including updates for multi-
the date of application where applicable. tranche UnSD issues;
There is no need for a Market Maker if (c) Formulates the distribution/
the UnSD is to be held on to maturity: allocation plan for the initial offering and
Provided, That this condition is properly ensures proper and orderly distribution of
disclosed in the Purchase Advice, Registry the primary offering of the UnSD;
Confirmation and Prospectus/Information (d) Disseminates information to
Disclosure. prospective investors of UnSD on the terms
(5) Public Trustee and conditions of the issue (including
(a) It must be an FI authorized by the information of non pre-termination at the
Bangko Sentral to engage in trust and other initiative of the holder and the liquidity
fiduciary business. mechanism in secondary trading) and the
(b) It must be a third party that has no rights and obligations of the holder, issuer,
subsidiary/affiliate or any other relationship Underwriter/Arranger, UnSD Registry,
with the Issuing Bank that would undermine Selling Agent, Market Maker and Public
its independence. Trustee; and
(c) It must have adequate risk (e) When selling to its clients, it must
management system and must be well perform the functions/responsibilities of
capitalized as evidenced by compliance the Selling Agent under Item “d(3)” hereof.
with the risk-based CAR prescribed under (2) UnSD Registry
applicable and existing capital adequacy (a) Keeps unissued UnSD certificates
framework for the past sixty (60) days and maintains UnSD Registry book, which
immediately preceding the date of must be electronic if UnSD is scripless in
application where applicable. The 60-day form;
compliance period with the risk-based CAR (b) Records initial issuance of the
shall be waived in evaluating a bank’s UnSD and subsequent transfer of
eligibility to act as Public Trustee for another ownership;
bank’s UnSD’s Tier 2 offering, if the former (c) Issues UnSD Certificates for primary
bank has instituted remedial measure to its offerings if UnSD is not scripless in form;
CAR deficiency by issuing Tier 2 capital. (d) Issues Registry Confirmation to
(d) It may also be the UnSD Registry. buyers/holders;
(e) A Public Trustee is mandatory if (e) Functions as paying agent for periodic
UnSD shall be offered to the general public interest and principal payments;
and optional if offering will be limited to (f) Monitors compliance with the
qualified investors/buyers. prohibitions on holdings of UnSD, as
d. Functions/Responsibilities of other prescribed under Subsec. X119.8 hereof; and
parties involved (g) Submits within ten (10) banking days
The respective parties shall have, among from end of reference month, an exception
others, the following functions/ report on Subsec. X119.8 to the appropriate
responsibilities: department of the SES. This report shall be
(1) Underwriter/Arranger classified as a “Category B” report.
(a) Conducts due diligence on the (3) Selling Agent
Issuing Bank and determines the valuation/ (a) Verifies identity of each investor to
pricing of the primary issue; ascertain that Subsec. X119.8 is not violated
and applies appropriate standards to combat and sends a copy thereof to the UnSD
money laundering as required under existing Registry; and
Bangko Sentral regulations; (f) Ensures secondary market transfers
(b) Determines the suitability of the and registration in coordination with the
investor and ensures that he fully UnSD Registry.
understands the features of the UnSD and (5) Public Trustee
the risk involved therein; and (a) Monitors compliance of the Issuing
(c) Issues the Purchase Advice for the Bank with the terms and conditions of the
primary offering of the UnSD to the buyer UnSD;
and sends a copy thereof to the UnSD (b) Monitors compliance of the other
Registry. parties with their functions and
The sale or distribution of UnSD may responsibilities prescribed under this
also be performed by the issuer through its Memorandum;
head office and branches subject to the (c) Reports regularly to UnSD holders
following conditions: non-compliance of the Issuing Bank with
(i) The in-house distribution shall not the terms and conditions of the UnSD and
exceed fifty percent (50%) of the total issue; such other developments that adversely
(ii) The sale/distribution must be done affect their interest and advise them of the
under the supervision of an officer of the course of action they should take to protect
Issuing Bank who is capable of determining their interest; and
the suitability of the investor and ensuring (d) Act on behalf of the UnSD holders
that he fully understands the risk in UnSD; in case of bankruptcy of the Issuing Bank.
(iii) All personnel assigned to distribute e. Change of underwriter/arranger,
sell UnSD must be capable of determining UnSD registry, selling agent(s), market
the suitability of the investor and ensuring maker(s). After an application for authority
that he fully understands the risk in UnSD; to issue a UnSD has been approved by the
and Bangko Sentral, the Issuing Bank cannot
(iv) It must also perform the functions/ change its Underwriter/Arranger, UnSD
responsibilities of the Selling Agent. Registry, Selling Agent(s), Market Maker(s)
(4) Market Maker and Public Trustee without prior Bangko
(a) Sets an independent pricing for the Sentral approval.
secondary trading of UnSD; f. Agreements between issuing bank
(b) Posts daily the bid and offer prices and other parties involved. The
for the UnSD on the screen of at least one agreements between the Issuing Bank and
(1) of the information providers until the the UnSD Registry/Selling Agent(s)/Market
operation of a fixed income exchange for Maker(s)/ Public Trustee shall comply
UnSD; with the provisions of Subsec. X162.1 on
(c) Verifies identity of each investor to bank service contracts. The Issuing Bank
ascertain that Subsec. X119.8 is not violated shall be liable to investors for any damages
and applies appropriate standards to combat caused by actions of the UnSD Registry,
money laundering as required under existing Selling Agent(s) and Market Maker(s),
Bangko Sentral regulations; which are contrary to the agreements
(d) Determines the suitability of the entered into.
buyer and ensures that he fully understands g. Purchase advice and registry
the risk involved in a UnSD; confirmation. The Purchase Advice and
(e) Issues the Purchase Advice for the Registry Confirmation shall contain all the
secondary trading of the UnSD to the buyer terms and conditions on the issuance of
UnSD and shall conspicuously state the This UnSD cannot be terminated by the
following caveat: holder (for HT1). This UnSD cannot be
(1) This UnSD is not a deposit and is terminated by the holder before (maturity
not insured by the PDIC. date) (for UT2 and LT2).
(2) This UnSD is neither secured nor However, it may be pre-terminated at
covered by a guarantee of the Issuer/ the instance of the Issuing Bank upon:
Underwriter/Arranger or related party of the (a) Prior approval of the Bangko Sentral
Issuer/Underwriter/Arranger or other subject to the following conditions:
arrangement that legally or economically (i) The repayment is in connection with
enhances the priority of the claim of any call option after a minimum of five (5) years
holder of the UnSD as against depositors from issue date, or even within the first five
and other creditors (for LT2); depositors, (5) years from issue date when:
other creditors and holders of LT2 capital (aa)The UnSD was issued for the
instruments (for UT2); and depositors, other purpose of a merger with or acquisition by
creditors and holders of LT2 and UT2 capital the Issuing Bank and the merger or
instruments (for HT1); acquisition is aborted;
(3) This UnSD does not have a priority (bb) There is a change in tax status of
claim, in respect of principal and coupon the UnSD due to changes in the tax laws
payments in the event of winding-up of the and/or regulations; or
Issuing Bank, which is higher than or equal (cc) The UnSD does not qualify as HT1,
with that of depositors and other creditors UT2 or LT2 capital, as the case may be, as
(for LT2); depositors, other creditors and determined by the Bangko Sentral; and
holders of LT2 capital instruments (for UT2); (ii) The debt is simultaneously replaced
and depositors, other creditors, holders of with the issues of new capital which is
LT2 and UT2 capital instruments (for HT1); neither smaller in size nor of lower quality
(4) This UnSD is ineligible as collateral than the original issue, unless the Issuing
for a loan granted by the Issuing Bank, its Bank’s capital adequacy ratio remains more
subsidiaries or affiliates; than adequate after redemption; and
(5) This UnSD cannot be terminated by (b) Prior notice to holders on record.
the holder nor by the Issuing Bank (for HT1). Negotiations/transfers from one (1)
This UnSD cannot be terminated by the holder to another do not constitute pre-
holder nor by the Issuing Bank before termination.
(maturity date) (for UT2 and LT2). However, for tax purposes, negotiations/
However, negotiations/ transfers from transfers from one (1) holder to another shall
one (1) holder to another do not constitute be subject to the pertinent provisions of the
pre-termination. National Internal Revenue Code of 1997,
For tax purposes, negotiations/transfers as amended, and BIR regulations.
from one (1) holder to another shall be In case there is a feature allowing one-
subject to the pertinent provisions of the time step-up in the coupon rate in
National Internal Revenue Code of 1997, conjunction with a call option, the step-up
as amended, and BIR regulations. shall be after a minimum of ten (10) years
However, negotiations/transfers from for HT1 and UT2 and five (5) years for LT2
one (1) holder to another do not constitute after the issue date, and shall not result in
pre-termination. an increase over the initial rate that is more
(Item “g(5)” above shall apply if the than:
Issuing Bank commits no pre-termination (i) 100 basis points less the swap spread
of the UnSD. Otherwise, it shall read as between the initial index basis and the
follows): stepped-up index basis; or
(ii) Fifty percent (50%) of the initial credit (c) Upon appointment of receiver for
spread less the swap spread between the initial the Issuing Bank.
index basis and the stepped-up index basis. The rate of conversion shall be fixed
The swap spread shall be fixed at the at the time of the subscription of this
pricing date and reflect the differential in UnSD.
pricing on that date between the initial (12) The amount and timing of
reference security or rate and the stepped- coupons on this UnSD shall be
up reference security or rate; discretionary on the Issuing Bank where
(6) The holders/owners of this UnSD the Issuing Bank has not paid or declared
cannot set off any amount they owe to the a dividend on its common shares in the
Issuing Bank against this UnSD. preceding financial year, or determines
(7) All negotiations/transfers of this that no dividend is to be paid on such
UnSD prior to maturity must be coursed shares in the current financial year; and
through a Market Maker until the operation the Issuing Bank shall have full control
of a fixed income exchange. and access to waived payments (for HT1).
(8) The payment of principal may be The coupon payment on this UnSD shall
accelerated on this UnSD only in the event be deferred where the Issuing Bank has
of insolvency of the Issuing Bank. not paid or declared a dividend on its
(9) The coupon rate, or the formulation common shares in the preceding financial
for calculating coupon payments shall be year, or determines that no dividend is to
fixed at the time of the issuance of the UnSD be paid on such shares in the current
and may not be linked to the credit standing financial year (for UT2);
of the Issuing Bank; (13)The coupon on this UnSD shall be
(10) The payment of principal and non-cumulative. In case there is a feature
coupon due on this UnSD shall not be made allowing withheld cash coupon to be
to the extent that such payment will cause payable in scrip or shares of stock, the
the Issuing Bank to become insolvent (for shares of stock to be issued shall not be of
HT1 and UT2); lower quality capital than the UnSD (for
(11) The holders of the UnSD shall be HT1); and
treated as if they were holders of a specified (14)The coupon to be paid on this UnSD
class of share capital in any proceedings shall be paid only to the extent that the
commenced for the winding-up of the Issuing Bank has profit distributable
Issuing Bank (for HT1 and UT2); determined in accordance with existing
(Item “g(11)” above shall apply if such Bangko Sentral regulations (for HT1).
is the manner by which the UnSD is to be N.B.: The last five (5) items (i.e., 10, 11,
treated in loss situation. Otherwise, it shall 12, 13 and 14) are applicable only to UnSD
read as follows): qualifying under HT1 and UT2 capital, as
This UnSD shall be automatically the case may be. The foregoing information
converted into common shares or perpetual shall also be shown in the Prospectus/
and non-cumulative preferred shares (for Information Disclosure.
HT1) or into common shares or perpetual h. Pre-termination by the Issuer
and non-cumulative preferred shares or (1) The Issuing Bank may pre-terminate
perpetual and cumulative preferred shares the UnSD subject to the following
(for UT2) upon occurrence of certain trigger conditions:
events as follows: (a) The Information Disclosure, Purchase
(a) Breach of minimum capital ratio; Advice and Registry Confirmation shall
(b) Commencement of proceedings for include the information that the Issuing Bank
winding-up of the Issuing Bank; or has the option to pre-terminate the UnSD;
(b) Compliance with Items “a(2)(a)vii”, Confirmation to the buyer, in the case of
“b(1)(h)v” or “b(2)(c)iv” as may be secondary trading.
applicable; (As amended by Circular Nos. 834 dated 26 May 2014, 827
(c) Prior notification of thirty (30) dated 28 February 2014, 778 dated 14 December 2012, 716
dated 25 March 2011, 709 dated 10 January 2011, Memorandum
banking days or more to holders of record; to All Banks dated 23 March 2006)
and
(d) Notwithstanding any agreement to § X119.5 Private or negotiated issuance
the contrary, the Issuer shall shoulder the of unsecured subordinated debt
tax due, if any, on the interest income a. Private or negotiated issuance of
already earned by the holders. UnSD is the issuance of UnSD to qualified
(2) Within ten (10) banking days after investors/buyers, whether individuals or
the completion of the pre-termination institutions as defined under Subsec.
transaction, the Issuing Bank must submit a X119.7. There is no limit on the number of
written notice to the appropriate department qualified investors/buyers and on the sale
of the SES of the following: or negotiation of the UnSD: Provided, That
(a) Actual pre-termination date; and such sale or negotiation shall only be made
(b) New capital composition. to another qualified investor/buyer.
i. Primary offering/secondary trading b. Application for authority of the
(1) The primary offering of a UnSD shall Issuing Bank
be executed through an Underwriter under (1) The application shall be signed by
a firm commitment or through an Arranger the president or officer of equivalent ran of
on a best effort basis. Initial sale/distribution the Issuing Bank.
of UnSD shall be made by a Selling Agent, (2) The application for authority on each
the Underwriter/Arranger or, to a limited negotiated UnSD issue shall be filed with
extent, the Issuing Bank itself. Subsequent the appropriate department of the SES.
negotiations in secondary trading must be (3) The application shall be
executed through authorized Market accompanied by:
Maker(s) until the operation of a fixed income (a) A certified true copy of the resolution
exchange. of the Issuing Bank’s board of directors
The primary offering as well as the authorizing the private/negotiated issuance
secondary trading of a UnSD must be of UnSD indicating, among others, the
supported by Purchase Advice to be issued amount, duration/maturity, interest rate,
by the Selling Agent or the Market Maker, purpose or intended use of proceeds of the
as the case may be, with the original given UnSD;
to the buyer and a second copy to the UnSD (b) A Certification by the corporate
Registry. Upon presentation by the buyer secretary that the issuance of the UnSD has
of the original copy of Purchase Advice, the been approved by the stockholders owning
UnSD Registry shall: or representing at least two-thirds (2/3) of
(a) record the primary issuance in the the outstanding capital stock of the Issuing
Registry Book and issue a Registry Bank if the UnSD has convertibility feature;
Confirmation and the corresponding UnSD (c) A written confirmation from the
certificate to the buyer if it is not scripless president or officer of equivalent rank of the
in form; and Issuing Bank stating that all the conditions/
(b) register the transfer of ownership in eligibility criteria for UnSD to qualify for
the UnSD Registry Book and issue a Registry capital instruments under applicable and
existing capital adequacy framework are (2) A copy of each of the duly signed
complied with and that such conditions/ Debt Agreements/Contracts between the
eligibility criteria shall be contained in the Issuing Bank and the investor/buyer as
UnSD Certificates, Prospectus/Information specified in the application for authority to
Disclosure and Debt Agreement/Contract. issue negotiated UnSD; and
(d) An undertaking from the president (3) A copy of the income tax return of
or officer of equivalent rank of the Issuing the investor/buyer in case of a natural
Bank that the UnSD shall be issued only to person.
qualified investors/buyers; d. Debt agreement/contract
(e) A certification from the president or The Debt Agreement/Contract shall
officer of equivalent rank of the Issuing Bank contain all the terms and conditions on the
that the investor/buyer shall not be among issuance of UnSD and shall conspicuously
those prohibited to hold UnSD under state the following caveat:
Subsec. X119.8 and that the Issuing Bank (1) This UnSD is not a deposit and is
has applied appropriate standards to combat not insured by the PDIC.
money laundering as required under existing (2) This UnSD is neither secured nor
Bangko Sentral regulations; covered by a guarantee of the Issuer or
(f) A written undertaking from the related party of the Issuer or other
president or officer of equivalent rank of the arrangement that legally or economically
Issuing Bank not to support, directly nor enhances the priority of the claim of any
indirectly, by extending loans, issuing holder of the UnSD as against depositors
payment guarantees or otherwise, the buyer/ and other creditors (for LT2); depositors,
holder of the UnSD of the Issuing Bank; and other creditors and holders of LT2 capital
(g) Specimen of the proposed Debt instruments (for UT2); and depositors, other
Agreement/Contract containing the terms creditors and holders of LT2 and UT2 capital
and conditions of the UnSD issuance instruments (for HT1).
(h) A written external legal opinion that (3) This UnSD does not have a priority
all the conditions for UnSD under claim, in respect of principal and coupon
applicable and existing capital adequacy payments in the event of winding-up of
framework including the subordination the Issuing Bank, which is higher than or
(for HT1, UT2 and LT2) and loss equal with that of depositors and other
absorption (for HT1 and UT2) features, creditors (for LT2); depositors, other
have been met. creditors and holders of LT2 capital
c. Additional requirements for the instruments (for UT2); and depositors,
private issuance of UnSD. Within ten (10) other creditors, holders of LT2 and UT2
banking days after issuance of the UnSD, capital instruments (for HT1);
the Issuing Bank shall submit the following (4) This UnSD is ineligible as collateral
additional requirements to the appropriate for a loan made by the Issuing Bank, its
department of the SES: subsidiaries or affiliates.
(1) A written notice of the actual date of (5) This UnSD cannot be terminated
full receipt of proceeds, accompanied by a by the holder nor by the Issuing Bank (for
certification from the president or officer of HT1). This UnSD cannot be terminated
equivalent rank of the Issuing Bank stating by the holder nor by the Issuing Bank
that the pre-qualification requirements under before (maturity date) (for UT2 and LT2).
Subsec. X119.3 have been complied with Item “d(5)” above shall apply if the
up to the time of full receipt of proceeds; Issuing Bank commits no pre-termination
of the UnSD. Otherwise, it shall read as pricing date and reflect the differential in
follows: pricing on that date between the initial
This UnSD cannot be terminated by the reference security or rate and the stepped-
holder (for HT1). This UnSD cannot be up reference security or rate;
terminated by the holder before (maturity (6) This UnSD may only be sold,
date) (for UT2 and LT2). transferred or negotiated to another qualified
However, it may be pre-terminated at investor/buyer;
the instance of the Issuing Bank upon: (7) The holders/owners of this UnSD
(a) Prior approval of the Bangko Sentral cannot set off any amount they owe to the
subject to the following conditions: Issuing Bank against this UnSD.
(i) The repayment is in connection with (8) The payment of principal may be
call option after a minimum of five (5) years accelerated on this UnSD only in the event
from issue date, or even within the first five of insolvency of the Issuing Bank.
(5) years from issue date when: (9) The coupon rate, or the formulation
(aa)The UnSD was issued for the for calculating coupon payments shall be
purpose of a merger with or acquisition by fixed at the time of the issuance of the UnSD
the Issuing Bank and the merger or and may not be linked to the credit standing
acquisition is aborted; of the Issuing Bank;
(bb) There is a change in tax status of (10) The payment of principal and
the UnSD due to changes in the tax laws coupon due on this UnSD shall not be made
and/or regulations; or to the extent that such payment will cause
(cc) The UnSD does not qualify as HT1, the Issuing Bank to become insolvent (for
UT2 or LT2 capital, as the case may be, as HT1 and UT2);
determined by the Bangko Sentral; and (11) The holders of the UnSD shall be
(ii) The debt is simultaneously replaced treated as if they were holders of a specified
with the issues of new capital which is class of share capital in any proceedings
neither smaller in size nor of lower quality commenced for the winding up of the
than the original issue, unless the Issuing Issuing Bank (for HT1 and UT2);
Bank’s capital adequacy ratio remains more (Item “d(11)” above shall apply if such
than adequate after redemption; and is the manner by which the UnSD is to be
(b) Prior notice to investors/buyers. treated in loss situation. Otherwise it shall
In case there is a feature allowing one- read as follows):
time step-up in the coupon rate in This UnSD shall be automatically
conjunction with a call option, the step-up converted into common shares or perpetual
shall be after a minimum of ten (10) years and non-cumulative preferred shares (for
(for HT1 and UT2) and five (5) years (for HT1), or into common shares or perpetual
LT2) after the issue date, and shall not result and non-cumulative preferred shares or
in an increase over the initial rate that is perpetual and cumulative preferred shares
more than: (for UT2) upon occurrence of certain trigger
(i) 100 basis points less the swap spread events as follows:
between the initial index basis and the (a) Breach of minimum capital ratio;
stepped-up index basis; or (b) Commencement of proceedings for
(ii) Fifty percent (50%) of the initial credit winding up of the Issuing Bank; or
spread less the swap spread between the (c) Upon appointment of receiver for the
initial index basis and the stepped-up index Issuing Bank.
basis. The rate of conversion shall be fixed at
The swap spread shall be fixed at the the time of the subscription of this UnSD.
(12) The amount and timing of coupons (2) Within ten (10) banking days after
on this UnSD shall be discretionary on the the completion of the pre-termination
Issuing Bank where the Issuing Bank has not transaction, the Issuing Bank must submit a
paid or declared a dividend on its common written notice to the appropriate department
shares in the preceding financial year, or of the SES of the following:
determines that no dividend is to be paid (a) Actual pre-termination date; and
on such shares in the current financial year; (b) New capital composition.
and the Issuing Bank shall have full control f. Functions/Responsibilities of the
and access to waived payments (for HT1). Issuing Bank
The coupon payment on this UnSD shall (1) Prepares the Prospectus/Information
be deferred where the Issuing Bank has not Disclosure on the UnSD issues;
paid or declared a dividend on its common (2) Disseminates to prospective
shares in the preceding financial year, or investors/buyers information on the terms
determines that no dividend is to be paid and conditions of the UnSD (including
on such shares in the current financial year information on no pre-termination at the
(for UT2); initiative of the holder, and where
(13) The coupon on this UnSD shall be applicable, the liquidity mechanism in
non-cumulative. In case there is a feature secondary trading) and the rights and
allowing withheld cash coupon to be obligations of the holder and the issuer;
payable in scrip or shares of stock, the (3) Keeps unissued UnSD certificates
shares of stock to be issued shall not be of and maintains UnSD Register;
lower quality capital than the UnSD (for (4) Records initial issuance of UnSD and
HT1); and subsequent transfer of ownership;
(14) The coupon to be paid on this UnSD (5) Issues UnSD Certificates and Registry
shall be paid only to the extent tha the Issuing Confirmation to original investors/buyers;
Bank has profit distributable determined in (6) Issues Registry Confirmation to
accordance with existing Bangko Sentral subsequent buyers/holders where applicable;
regulations (for HT1). (7) Ensures compliance with Subsec.
N.B.: The last five (5) items (i.e., 10, 11, X119.8 and applies appropriate standards to
12, 13 and 14) are applicable only to UnSD combat money laundering as required under
qualifying under HT1 and UT2 capital, as existing Bangko Sentral regulations; and
the case may be. (8) Determines suitability of the
e. Pre-termination by the Issuer investors/buyers (original or subsequent)
(1) The Issuing Bank may preterminate and assures that he fully understands the
the negotiated UnSD subject to the risk involved in a UnSD.
following conditions: (As amended by Circular No. 827 dated 28 February 2014 and
(a) The Debt Agreement/Contract shall Memorandum to All Banks dated 23 March 2006)
include the information that the Issuing Bank
has the option to pre-terminate the UnSD; § X119.6 Issuance abroad of unsecured
(b) Compliance with call options as subordinated debt. The overseas issuance
provided in applicable and existing capital of UnSD shall also be subject to the
adequacy framework; provisions of Sec. X119 except for the
(c) Prior notification of thirty (30) following:
banking days or more to lender/investor; and a. Overseas issuance of UnSD may be
(d) Notwithstanding any agreement to allowed to be governed by the laws and
the contrary, the Issuer shall shoulder the applicable rules and regulations of the
tax due, if any, on the interest income already country where the UnSD is to be issued
earned by the holders. with respect to form, qualified investors/
However, only the proceeds actually with the provisions of this Section and for
received from the UnSD issues, (i.e., net of non-disclosure or misrepresentation of
discounts, if any, and transaction costs) shall information, as follows:
be considered as HT1, UT2 or LT2 capital. a. On the issuing bank
The proceeds actually received from the (1) Suspension of its authority to issue
UnSD issues, (i.e., net of discounts, if any, remaining tranches, if any;
and transaction costs) eligible as UT2 or LT2 (2) Disqualification from future issuance
capital shall be considered in the of UnSD;
computation of loanable funds for purposes (3) Disqualification of all outstanding
of determining compliance with the issues as eligible Tier 2 capital; and
mandatory allocation of funds for agri-agra (4) Monetary penalty of P30,000 for
credit required under P.D. No. 717, as each violation.
amended. b. On the underwriter/arranger
A UnSD eligible as HT1, UT2 or LT2 (1) Disqualification from being
capital shall be accounted for in accordance underwriter/arranger for three (3) years; and
with PAS 32 and PAS 39. (2) Monetary penalty of P30,000 for
A UnSD denominated in foreign each violation.
currency eligible as HT1, UT2 or LT2 may c. On the UnSD registry
be recorded in the regular banking unit
(1) Disqualification from being
(RBU) or foreign currency deposit unit
appointed as UnSD Registry for three (3)
(FCDU/EFCDU) of the issuing bank:
years; and
Provided, That if booked in the FCDU/
(2) Monetary penalty of P30,000 for
EFCDU, the following conditions shall be
each violation.
strictly observed:
d. On the selling agent/market maker
a. The issuing bank shall indicate in its
(1) Disqualification from being
application that the UnSD shall be booked
appointed as selling agent or market maker
in its FCDU/EFCDU;
b. The UnSD shall remain in the FCDU/ for three (3) years; and
EFCDU books until full settlement; and (2) Monetary penalty of P30,000 for
c. The UnSD shall be issued only to each violation.
non-residents and offshore banking units e. On the public trustee
(OBUs) in accordance with Section 72.2.e (1) Disqualification from being
of CB Circular No. 1389, as amended. appointed as public trustee for three (3)
A UnSD eligible as HT1, UT2 or LT2 years; and
capital shall be accounted for in accordance (2) Monetary penalty of P30,000 for
with PAS 32 and PAS 39. each violation.
(As amended by Circular No. 827 dated 28 February 2014 and f. On the certifying officer - A fine of
Memorandum to All Banks dated 23 March 2006) P5,000 per day from the time of required
disclosure up to the time disclosure was
§§ X119.10 - X119.12 (Reserved)
made, or from the time misrepresentation
was made up to the time the information
§ X119.13 Sanctions. Without prejudice
was corrected, and a possible
to the other sanctions prescribed under
disqualification if warranted by the gravity
Sections 36 and 37 of R.A. No. 7653 and
the provisions of Section 16 of R.A. No. of the offense committed.
8791, sanctions shall be imposed g. On the responsible officer - A fine of
on BSP-supervised FIs for failure to comply P30,000 for participating in or tolerating the
convert, upon prior notice to the Bangko distributable determined in accordance with
Sentral, the interim Tier 1 capital notes into existing Bangko Sentral regulations. The
perpetual and non-cumulative preferred coupon rate, or the formulation for
shares convertible into common shares calculating coupon payments must be fixed
which may be sold to new investors: at the time of issuance of the interim Tier 1
Provided, That the rate of conversion shall capital notes and must not be linked to the
be fixed at the time of subscription of the credit standing of the bank;
interim Tier 1 capital notes; (10) It must not have step-up provisions
(7) The coupons must be non- in the coupon rate in conjunction with the
cumulative; call option;
(8) The bank must have full discretion (11) All other transactions involving the
over the amount and timing of coupon capital notes shall require prior Bangko
payments and it must have full control and Sentral approval.
access to waived payments; c. The bank must submit a written
(9) Any coupon to be paid must be paid opinion from its external auditor that the
only to the extent that the bank has profits features of the interim Tier 1 capital notes
transaction/s shall result in the ownership accompanied by, in the case of transferee-
and control by an individual or corporation stockholder, the same papers/documents
of voting shares of stock in excess of any of required of incorporators/stockholders of
the prescribed limits of stockholdings in a newly established banks as provided in
bank. Appendix 37. The corporate secretary shall
(2) Any act, contract, agreement or hold in abeyance the registration of the
arrangement, such as voting trust agreement transaction until the required prior Bangko
or proxy, which vests in any person, whether Sentral approval is submitted as provided
natural or juridical, the right to vote or the in Subsec. X126.2.c.
control of the voting shares of stock of a bank, (3) In the case of additional subscription,
if such arrangement in itself, or in relation the bank shall not recognize the fund infused
with other/previous transaction/s, shall by the subscriber in its book as asset and
result in the acquisition of the right to vote liability or equity unless prior Monetary
or the control of voting shares of stock of Board approval is obtained. Pending
the bank, in excess of the prescribed approval by the Monetary Board, the fund
ceilings. infused by the subscriber shall be placed in
b. Transactions requiring prior Monetary an escrow in another bank.
Board approval (4) Sanctions. Any willful delay in the
(1) Prior approval of the Monetary Board submission by the transferor and transferee
shall be required on transaction involving of the request for prior Monetary Board
voting shares of stock of a bank, if such approval, together with the required
transaction, in itself or in relation with other/ supporting papers/documents, within sixty
previous transactions will: (60) calendar days from date of transaction
(a) result in ownership or control of more or thirty (30) calendar days from receipt by
than twenty percent (20%) of voting shares corporate secretary of request for
of stock of a bank by any person whether registration of the transaction, whichever is
natural or juridical or which will enable earlier, shall subject the transferor, the
such person to elect, or be elected as, a transferee, or both to the sanctions
director of such bank; or prescribed under Section 35 of R.A. No.
(b) effect a change in the majority 7653, without prejudice to the appropriate
ownership or control of the voting shares legal actions for the rescission and
of stock of the bank from one (1) group of invalidation of the transaction.
persons to another group: Provided, That in Moreover, any director and/or officer of
no case shall such transaction be approved a bank found to be acting in the interest of
unless the bank concerned shall an unregistered stockholder shall be subject
immediately comply with the prescribed to the applicable administrative sanctions
minimum capital requirement for new under Section 37 of R.A. No. 7653, without
banks, notwithstanding any approved prejudice to the filing of appropriate criminal
capital build-up program. charges as provided under Section 36 of R.A.
(2) The request for prior Monetary Board No. 7653.
approval shall be submitted jointly by the Furthermore, any violation of the
transferor-stockholder (or the bank in the provisions of Subsec. X126.2.b(3) hereof
case of additional subscription or shall subject the bank and/or its directors
conversion of preferred shares or debt and/or officers to the applicable
instruments) and the transferee-stockholder administrative sanctions under Section 37
thru the bank to the appropriate department of R.A. No. 7653, without prejudice to the
of the SES. The request shall be filing of appropriate criminal charges as
provided under Section 36 of R.A. No. 7653. with the right to vote has controlling interest,
c. Duties of a corporate secretary. In all and the extent thereof;
transactions, which may lawfully come to (3) require the subscriber, purchaser,
the knowledge of the corporate secretary transferee or recipient of voting shares of
involving voting shares of stock of a bank stock to execute an affidavit (sample format
such as but not limited to subscription/ shown in Appendix 4) stating, among other
issuance, purchase/sale, transfer, conversion things, that the subscriber, transferee or
of preferred shares or debt instruments into recipient of voting shares of stock is a
voting shares of stock, or registration of bonafide owner of the said shares of stock,
voting trust agreements, or any form of that he/she is not an agent, assignee, proxy,
agreement vesting the right to vote or the nominee or a dummy of any person,
control of the voting shares of stock of the whether natural or juridical, and that he/
bank, the corporate secretary shall, before she acknowledges full awareness of:
registering the transaction or agreement in (a) the prohibitions against ownership
the stock and transfer book of the bank: of voting shares of stock in excess of the
(1) ascertain the identity and citizenship ceilings prescribed by laws/Bangko Sentral
of the subscriber, purchaser, transferee or regulations as provided in Subsec. X126.2.a;
recipient of voting shares of stock, voting and/or
trustee, proxy or person vested with the right (b) the requirement for prior Monetary
to vote, and for this purpose, he should Board approval for transactions resulting to
require the subscriber, transferee or significant ownership of voting shares of
recipient of voting shares of stock, voting stock of a bank by any person, whether
trustee, proxy or the person vested with the natural or juridical, or by one (1) group of
right to vote to submit proof of citizenship, persons, as provided in Subsec. X126.2.b.
which may consist, in case of a corporation, If the request for registration of
of a certified true copy of the articles of transaction will patently cause the voting
incorporation, accompanied by the affidavit shares of stocks of an individual or a
of the corporate secretary of the corporation, corporation to exceed the ceilings
certifying to the correctness and accuracy prescribed by laws/Bangko Sentral
of the list of stockholders, their citizenship regulations, the corporate secretary shall
and the percentage of shares owned by deny the registration of the transaction and
them; forthwith inform the parties to the
(2) require the subscriber, purchaser, transaction in writing.
transferee or recipient of voting shares of If the request for registration of
stock, voting trustee, proxy or person vested transaction would result to the significant
with the right to vote, at the time of the ownership of the voting shares of stock of a
receipt of the request for registration of bank by any person, whether natural or
transaction, to disclose all information with juridical, or by one (1) group of persons,
respect to persons related to the subscriber, requiring prior Monetary Board approval as
transferee or recipient of voting shares of provided in Subsec. X126.2.b, and no such
stock, voting trustee, proxy or person vested prior Monetary Board approval is submitted,
with the right to vote, within the fourth the corporate secretary shall hold in
degree of consanguinity or affinity, whether abeyance the registration of the transaction
legitimate, illegitimate or common-law, as and forthwith inform the parties to the
well as corporations, where the subscriber, transaction in writing.
transferee or recipient of voting shares of In the event the corporate secretary has
stock, voting trustee, proxy or person vested reason to doubt the legality of the transaction
sought to be registered, he/she may (2) A separate list containing the names
commence an action before the appropriate of stockholders who own voting shares of
body; stock in the bank and who are related to
(4) promptly inform stockholders each other within the fourth degree of
(a) who have reached any of the ceilings consanguinity or affinity, whether legitimate,
prescribed by laws/Bangko Sentral illegitimate or common-law (in the case of
regulations of their ineligibility to own or individuals) as well as corporations which
control more than the applicable ceiling or are wholly-owned or a majority of the stock
(b) who would own voting shares of stock of which is owned by any of such
requiring prior Monetary Board approval; stockholders, including their subsidiaries;
and and
(5) disclose the ultimate beneficial (3) An affidavit under oath (sample
owners of bank shares held in the name of format shown in Appendix 4) from each of
Philippine Central Depository (PCD) the stockholders attesting, among other
Nominee Corporation in the annual (or things, that he/she/it is the bonafide owner
quarterly whenever changes occur) report of the voting shares of stock of the bank in
on Consolidated List of Stockholders and his/her/its own right, and not as an agent,
Their Stockholdings (BSP 7-16-11), which assignee, proxy, nominee or a dummy of
report shall be made under oath by the any other person, natural or juridical.
corporate secretary. Any willful delay in the (As amended by Circular Nos. 858 dated 21 November 2014,
submission of said report, a Category A-2 809 dated 23 August 2013 and 718 dated 26 April 2011)
report, shall subject the bank to the
corresponding fines for delayed reports in § X126.3 Other foreign equity
accordance with the provisions of Subsec. investment in domestic banks. Except as
X192.2 to be reckoned on the day following otherwise covered under Sec. X105 and
the due date of submission until the correct Subsec. X126.1, the following guidelines
report is submitted to the Bangko Sentral. shall be observed on equity investments of
Sanctions. The corporate secretary found foreigners in domestic banks:
to have willfully falsely certified/submitted a. The prior authority of the Monetary
misleading statements and/or violated any Board shall be obtained by foreign banks,
of the provisions of Subsec. X126.2.c shall including their subsidiaries and their holding
be subject to the applicable administrative companies having majority holdings in such
sanctions under Section 37 of R.A. No. foreign banks, whenever acquiring more
7653. The imposition of the said than forty percent (40%) of the voting stock
administrative actions is without prejudice of a domestic bank, including foreign-owned
to the filing of appropriate criminal charges shares outstanding and foreign-held as of 27
as provided under Section 35 of R.A. No. April 1973 and which continued to be held
7653 for the willful making of false or by the foreign stockholder up to the date of
misleading statement. the acquisition by the foreign banks.
d. Requirement for newly established b. (Deleted by Cir. No. 256 dated 15
banks. Entities which may hereinafter apply August 2000)
for a license to engage in banking business c. The prior authority of the Monetary
shall, before being allowed to operate, Board is not required if the foreign investor
submit - is (1) an individual, (2) a non-financial entity,
(1) An alphabetical list of stockholders or (3) a non-bank financial entity which is
with the number and percentage of voting not owned or controlled by a bank, its
shares of stock owned by them; subsidiary or holding company, and the
investor is acquiring foreign-owned shares cumulative feature are not satisfied by the
in existing domestic banks: Provided, That bank within a period of three (3) years from
said shares were outstanding and foreign date of issue.
held as of 27 April 1973 and which d. Conversion of preferred shares of
continued to be foreign-held up to the date stock into voting/common shares of stock,
of acquisition by the foreign investor. regardless of convertibility features and
d. The maximum stockholdings notwithstanding any provision of existing
foreigners may own in domestic banks shall Bangko Sentral regulations to the contrary,
continue to be governed by existing shall be:
provisions of law. (1) effected only to the extent of the
e. Only foreign-owned shares directly prescribed ceilings under existing laws; and
funded by inward remittance of foreign (2) subject to prior Monetary Board
exchange sold to the local banking system approval whenever said conversion will
are qualified for registration with the Bangko result to significant ownership of the voting/
Sentral through its appropriate department common shares of stock of a bank by any
for capital repatriation and remittance of person, whether natural or juridical, or by
profits/dividends privileges, in accordance one group of persons, as provided in Subsec.
with existing Bangko Sentral rules and X126.2.b.
regulations. The foregoing provision must be
specifically stated in the certificates of
§ X126.4 Convertibility of preferred preferred shares of stock.
stock to common stock. Out of the (As amended by Circular No. 718 dated 26 April 2011)
convertible preferred shares of stock which
KBs/TBs may henceforth be authorized to § X126.5 Issuance of redeemable
issue, at least fifty percent (50%) of each such shares: conditions; certification and report;
issue, shall be convertible into common sanctions
stock at the option of the holders thereof a. Conditions. Banks may issue
after five (5) years from date of issue: redeemable shares subject to the following
Provided, however, That : conditions:
a. The bank concerned may allow the (1) The applicant bank prior to the
conversion of such preferred stock into approval of the amendment of articles of
common stock even before the lapse of five incorporation to issue redeemable preferred
(5) years from date of issue; shares, has complied with the requirements
b. At the time of the sale of the preferred under Items “B1” to “B6”, Appendix 5.
stock, both classes thereof (one with The articles of incorporation of an
convertibility feature and the other without applicant bank shall incorporate the
convertibility feature) shall be offered to the conditions in Items “a (3)(a)”, “a(3)(b)”,
purchasers, with the purchasers having the “a(3)(c)” and “a(3)(d)” of this Subsection.
option to acquire either or both classes of (2) The applicant bank prior to the
preferred stock; and issuance of redeemable shares shall comply
c. Preferred shares of stock with a with, in addition to the conditions in Item
cumulative feature issued by banks shall “(1)” above, the requirements under Items
automatically be convertible into common “B7”, “B8”, and “B12” to “B16”, Appendix 5.
shares of stock at the option of the holders (3) The applicant bank after the issuance
thereof whenever the right as may be of redeemable shares shall comply with the
acquired by the holders by virtue of such following:
agreements with the BIR, SSS, etc. the time the certification was made up to
(b) For failure to infuse capital in an the time the certification was found to be
amount at least equivalent to amount of false, shall be imposed against the certifying
redeemed shares as required in Item officer.
“a(3)(a)”: (As amended by Circular Nos. 827 dated 28 February 2014 and
i. Sanctions in Item “(a)” above; 585 dated 15 October 2007)
ii. No new loans and investments,
§ X126.6 Stock options/warrants. A
except in government securities;
bank may grant options/warrants to
iii. P1,000 fine per day until the required
subscribe at par to its capital stock: Provided,
infusion is made.
That:
(c) If the certification submitted by the
a. Provisions authorizing such options
bank required in these guidelines is found
warrants shall be embodied in its articles
to be false, suspension of authority to issue
of incorporation and in its by-laws; and
preferred shares for one (1) year.
b. Such options/warrants may be
(d) For failure to submit report of
granted for a maximum period of three (3)
issuance of redeemable preferred shares, a
years from the date such options/warrants
fine of P1,200 for UBs/KBs; P600 for TBs;
become effective.
and P180 for RBs/Coop Banks per day of
default until the report is submitted.
§§ X126.7 - X126.9 (Reserved)
(2) On the directors and officers:
(a) For violation of any of the terms of
§ X126.10 Dealings with stockholders
the Deed of Undertaking, the following shall
and their related interests. Dealings of a
be imposed against the officers and directors
bank with any of its stockholders and their
of the bank who signed the deed: related interests shall be upon terms not
i. First offense - A fine of P500 per day less favorable to the bank than those
for each violation from the time the violation offered to others. Towards this end, every
was committed or up to the time the natural person acquiring shares
violation is corrected; cumulatively amounting to at least two
ii. Second and subsequent offenses - percent (2%) of the total subscribed
A fine of P5,000 per day from the time the capital of a domestic bank must disclose
violation was committed up to the time the all relevant information on all persons
violation is corrected. related to him within the fourth degree of
(b) If the certification submitted by the consanguinity or affinity, whether
bank as required in these guidelines is found legitimate, illegitimate or common law as
to be false, a fine of P5,000 per day from well as corporations, partnership or
1
Stockholdings in a TB were exempted from the ownership ceilings prescribed under Subsec. X126.1 until
16 March 2005.
Manual of Regulations for Banks Part I - Page 55
§§ 2127.2 - 3127.3
13.12.31
shares or to ordinary preferred shares of liquidation; and (c) preferred stock with
the class issued to private shareholders. such rights, voting powers, preferences and
restrictions, as may be approved by the
§§ 2127.3 - 2127.5 (Reserved) Monetary Board. Preferred and common
stocks shall have a minimum par value of
Sec. 3127 Shares of Stock of Rural Banks one peso (P1.00) per share: Provided, That
and Cooperative Banks. The following starting 2 July 2009, RBs which have a par
rules shall govern stockholdings in RBs and value per share higher than P1.00 and
Coop Banks: choose to lower the par value of their shares
of stock will be required to undertake the
§ 3127.1 Moratorium on ownership necessary steps and secure attendant
ceiling. Individual stockholdings in RBs in approvals from the BOD and stockholders
excess of the forty percent (40%) ceiling of the banks involved as well as from
as of 02 April 2002 and as provided in relevant regulatory agencies to ensure that
Section 11 of R.A. No. 8791 may be the reduction in par value shall not result
retained: Provided, That such excess to a dilution in the percentage holdings of
stockholdings were approved by the stockholders and that its effect shall not
Monetary Board: Provided, further, That prejudice the rights of creditor. An RB may
such stockholdings shall not be further not issue no-par value stock.
increased, but may be reduced and once In the case of an acquisition plan of an
reduced, shall not thereafter be increased RB already approved-in-principle by the
beyond the forty percent (40%) ceiling Monetary Board where the shares of stock
prescribed under said Section 11. of the target RB are at a par value per share
Any request for exemption from the higher than P1.00, the acquiring bank may
prescribed ownership ceilings of individual/ request from the Bangko Sentral the
non-bank/corporate stockholdings shall be incentive to value the shares of stock of the
submitted to the Monetary Board for to-be-acquired RB at the minimum par value
approval through the appropriate of P1.00: Provided, That the acquiring bank
department of the SES and the exemption will be responsible for securing the
shall be reflected in the required report on necessary approvals from its BOD and
stock transactions. In cases where stockholders as well as from the Bangko
unsubscribed shares of stock are sold to any Sentral and the SEC pursuant to Section 14
person other than the existing stockholders, of R.A. No. 8791 and Section 38 of the
the bank’s corporate secretary shall execute Corporation Code of the Philippines.
a certificate under oath that all the pertinent The LBP, the DBP, or any government-
requirements of the Corporation Code on a owned or-controlled bank or financial
valid stock transfer/subscriptions have been institution, on representation of the said
complied with. private shareholders but subject to the
investment guidelines, policies and
§ 3127.2 Government-held shares procedures of the bank or financial
The articles of incorporation of RBs or the institution and upon approval by the
articles of cooperation of Coop Banks Monetary Board of the Bangko Sentral, shall
shall provide for: (a) common stock with the subscribe to the capital stock of any RB,
power to vote; (b) preferred stock to which shall be paid in full at the time of
represent the counterpart capital of the LBP, subscription, in an amount equal to the fully
DBP or any government-owned or paid subscribed and unimpaired capital of
controlled bank or FI, which shall be the private stockholders or such amount as
non-voting and preferred as to assets upon the Monetary Board may prescribe as may
be necessary to promote and expand rural the conversion, if any, of the preferred shares
economic development. of stock into common stock.
(As amended by Circular Nos. 809 dated 23 August 2013 and For this purpose, a certificate that all
663 dated 10 September 2009) preferred shares have been sold and
transferred to private shareholders shall be
§ 3127.3 Limits on stockholdings in issued, duly signed by the president, the
several rural banks. Individuals, banks and corporate secretary, and a majority of the
non-bank corporations may, subject to board of directors. The bank shall submit
applicable ownership ceilings, own voting copies of such certificate and the amended
shares in such number of RBs as may be articles of incorporation to the Bangko
authorized by the Monetary Board. Sentral for the issuance of a certificate of
(As amended by Circular No. 809 dated 23 August 2013)
authority for the purpose of registering the
§ 3127.4 Convertibility of preferred amended articles with the SEC.
(As amended by Circular No. 809 dated 23 August 2013)
stock to common stock. RBs may convert
their unissued preferred shares into common
§ 3127.5 Guidelines for selection. In
stock.
determining the fitness and propriety of the
In the case of sale by the DBP, LBP or
non-Filipino citizen, excluding foreign banks
any government-owned or controlled bank
that will be allowed to invest in the voting
or financial institution of preferred stock to
stock of an RB, criteria, such as, but not
private persons, such stock may be
limited to the following, shall be considered:
converted into common stock: Provided,
a. strategic objectives in investing in an
That such shares may be sold at any time at
RB;
adjusted book value: Provided further, That
b. demonstrated capacity;
pending amendment of the bank’s articles
c. good reputation and integrity; and
of incorporation, if necessary for the purpose
d. business model that is credible,
of reflecting the conversion, the transfer shall
innovative and consistent with the policy
be recorded by the bank in its stock and
objectives of R.A. No. 10574.
transfer book and such shareholders shall
A foreign bank seeking to own, acquire
thereafter enjoy all the rights and privileges
or purchase up to 100% of the voting stock
appurtenant to the converted stock. The
in an RB shall meet the qualification
certificates for the government preferred
requirements and selection criteria under
stocks so transferred shall be surrendered
Subsecs. X105.2 and X105.3, respectively.
and cancelled and the corresponding
(Circular No. 809 dated 23 August 2013, as amended by Circular
common stock certificates shall be issued. No. 858 dated 21 November 2014)
The corporate secretary of the bank shall
submit to the appropriate department of the Sec. X128 Deposits for Stock Subscription
SES and the SEC a report of every transfer of Deposits for stock subscription refer to
preferred stock from the LBP, DBP or any payments made by existing stockholders or
government-owned or controlled bank or new subscribers of the bank on subscription
financial institution to private shareholders to the increase in the authorized capital,
within five (5) banking days from the date which may be recognized either as a liability
of such transfer. or equity.
When all the preferred shares of stocks Deposits for stock subscription shall be
held by the LBP, DBP or any government- recognized as part of equity for prudential
owned or controlled bank or financial reporting purposes when all of the following
institution have been sold to private conditions are met:
shareholders, the bank’s articles of a. The deposit for stock subscription
incorporation shall be amended to reflect meets the definition of an equity instrument
shall earn interest at the rate computed as non-member patrons only upon request and
follows: presentation of evidence of the amount of
its patronage. The amount so allocated shall
Rate of Interest = X (Net Surplus less be credited to such patron toward payment
Statutory Reserves) ÷ of the minimum capital contribution for
(Total Average Share Month)
where:
membership. When a sum equal to this
(i) “X“ shall be a percentage to be amount has accumulated at any time within
determined by the board of directors a period specified in the by-laws, such patron
allocated for interest on share capital; shall be deemed and become a member of
and
the Coop Bank if it so agrees or requests
(ii) “Statutory Reserves” shall refer to Article
87 of R.A. No. 6938. and complies with the provisions of the by
laws for admission to membership; and
No allocation of interest on share capital (iv) If within any period of time specified
shall be made without the approval of the in the by-laws, any subscriber who has not
general assembly which may increase or fully paid his subscribed share capital or any
decrease any or both. non-member patron which has accumulated
(2) Patronage refund - the sum necessary for membership but does
(a) The amount allocated for patronage not request nor agree to become a member
refund shall not be less than thirty percent or fails to comply with the provision of the
(30%) of the net surplus after deducting the by-laws for admission to membership, the
statutory reserves based on the principle of amount so accumulated or credited to their
equity; account together with any part of the general
(b) The rate of patronage refund shall fund for non-member patrons shall be
not be more than twice the rate of interest credited to the reserve fund or to the
on share capital; education and training fund of the Coop
(c) The sum allocated for patronage Bank.
refunds shall be made available at the same
rate to all cooperative patrons of the Coop § 3137.1 Dividends on government
Bank in proportion to their individual shares
patronage: Provided, That - a. Held prior to 09 June 1992. Whenever
(i) In the case of a cooperative member dividends of not less than fourteen percent
patron with paid-up share capital (14%) are declared on common stock,
contribution, its proportionate amount of government preferred stock shall be entitled
patronage refund shall be paid unless it to a cash dividend not to exceed two percent
agrees to credit the amount to its account (2%) of total outstanding preferred stock.
as additional share capital contribution; Should the dividends declared on common
(ii) In the case of a cooperative member stock be less than fourteen percent (14%),
patron with unpaid share capital the dividend on preferred stock shall be
contribution, its proportionate amount of proportionately reduced.
patronage refund shall be credited to its b. Held on or after 09 June 1992. Shares
share capital contribution; held by the LBP, DBP, or by any
(iii) In the case of a non-member patron, government-owned or-controlled bank or FI
its proportionate amount of patronage shall share in dividend distributions from
refund shall be set aside in a general fund the date of issuance in the amount of four
for such patrons and shall be allocated to percent (4%) on the first and second years;
six percent (6%) on the third and fourth systems of the head office as well as meet
years; eight percent (8%) on the fifth and the applicable standards, principles and
sixth years; ten percent (10%) on the seventh requirements set forth under Secs. X141,
and eighth years; and twelve percent (12%) X142, and X174, except the reportorial
on the ninth to the fifteenth years, which requirements under Subsec. X141.3c(9) on
shall be cumulative: Provided, That the RB group structures.
and the government-owned or controlled Reports of assessment of the risk
bank are not precluded from entering into management, compliance function and
an agreement providing for rates of internal audit group of branches of foreign
dividends other than those prescribed by banks shall be made available to the Bangko
law. Sentral, during on-site examination or any
c. Held on or after the effectivity of the time upon request.
implementing rules and regulations of R.A. (Circular No. 749 dated 27 February 2012)
No. 10574. Shares held by the LBP, DBP,
or by any government-owned or-controlled Sec. X141 Definition; Qualifications;
bank or FI shall share in dividend Powers/Responsibilities and Duties of
distributions from the date of issuance in Board of Directors; Confirmation of the
an amount based on the lending benchmark Election/Appointments of Directors and
approved by the Bangko Sentral plus the Officers; Place of Board of Directors’
prevailing non-prime spread of the Meeting; Reports Required; Sanctions
government FI: Provided, That the RB and This Section shall also apply to Coop
the government-owned or -controlled bank Banks.
are not precluded from entering into an (As amended by Circular No. 682 dated 15 February 2010)
agreement providing for rates of dividends
other than those prescribed by law. § X141.1 Definition/limits
(As amended by Circular No. 809 dated 23 August 2013) a. Definition of directors. Directors shall
include:
Secs. X138 - X140 (Reserved) (1) directors who are named as such in
the articles of incorporation;
H. DIRECTORS, OFFICERS AND (2) directors duly elected in subsequent
EMPLOYEES meetings of the stockholders or those
appointed by virtue of the charter of
Strengthening Corporate Governance. It is government-owned banks; and
the thrust of the Bangko Sentral to continuously (3) those elected to fill vacancies in the
strengthen corporate governance in its board of directors.
supervised financial institutions cognizant that b. Limits on the number of the
this is central in sustaining the resiliency and members of the board of directors.
stability of the financial system. In this light, Pursuant to Sections 15 and 17 of R.A. No.
the Bangko Sentral is aligning its existing 8791, there shall be at least five (5), and a
regulations with international best practices maximum of fifteen (15) members of the
that promote good corporate governance such board of directors of a bank: Provided, That
as the “Principles for Enhancing Corporate in case of a bank/QB/trust entity merger or
Governance” issued by the Basel Committee consolidation, the number of directors may
on Banking Supervision. be increased up to the total number of the
Applicability to branches of foreign banks. members of board of directors of the
Branches of foreign banks shall comply with merging or consolidating bank/QB/trust
the governance policies, practices and entity as provided for in their respective
1
The required number of independent directors in the board and the definition of “independent director” shall
apply prospectively effective 17 March 2012 or in the succeeding election of the members of the board of
directors.
any of its substantial shareholders, either in same family group or the same group of
his personal capacity or through his firm; is persons.
independent of management and free from (e) Control exists when the parent
any business or other relationship, has not owns directly or indirectly through
engaged and does not engage in any subsidiaries more than one-half (1/2) of the
transaction with the institution or with any voting power of an enterprise unless, in
of its related companies or with any of its exceptional circumstance, it can be clearly
substantial shareholders, whether by demonstrated that such ownership does not
himself or with other persons or through a constitute control. Control may also exist
firm of which he is a partner or a company
even when ownership is one-half (1/2) or
of which he is a director or substantial
less of the voting power of an enterprise
shareholder, other than transactions which
when there is:
are conducted at arm’s length and could not
i. Power over more than one-half
materially interfere with or influence the
(1/2) of the voting rights by virtue of an
exercise of his judgment.
agreement with other stockholders; or
An independent director of a bank may
ii. Power to govern the financial and
only serve as such for a total of five (5)
operating policies of the enterprise under a
consecutive years: Provided, That the
statute or an agreement; or
maximum term and any “cooling off” period iii. Power to appoint or remove the
prescribed by the SEC for public and listed majority of the members of the board of
companies shall apply to all types of banks. directors or equivalent governing body; or
The foregoing terms and phrases used iv. Power to cast the majority votes at
in Items “(1) to (6)” of this Subsection shall meetings of the board of directors or
have the following meaning: equivalent governing body; or
(a) Parent is a corporation which has v. Any other arrangement similar to
control over another corporation directly or any of the above.
indirectly through one (1) or more (f) Related company means another
intermediaries; company which is:
(b) Subsidiary means a corporation i. Its parent or holding company;
more than fifty percent (50%) of the voting ii. Its subsidiary or affiliate; or
stock of which is owned or controlled iii. A corporation where a bank or its
directly or indirectly through one (1) or more majority stockholder own such number of
intermediaries by a bank; shares that will allow/enable him to elect at
(c) Affiliate is a juridical person that least one (1) member of the board of
directly or indirectly, through one (1) or directors or a partnership where such
more intermediaries, is controlled by, or is majority stockholder is a partner.
(g) Substantial or major shareholder
under common control with the bank or its
shall mean a person, whether natural or
affiliates.
juridical, owning such number of shares
(d) Related interests as defined under
that will allow him to elect at least one (1)
Sections 12 and 13 of R.A. No. 8791 shall
member of the board of directors of a bank
mean individuals, related to each other or who is directly or indirectly the
within the fourth degree of consanguinity registered or beneficial owner of more than
or affinity, legitimate or common law, and ten percent (10%) of any class of its equity
two (2) or more corporations owned or security.
controlled by a single individual or by the
including its trust operations. The risk board of directors shall ensure that a robust
management policy shall include: internal reporting system is in place that shall
(a) a comprehensive risk management enable each employee to contribute to the
approach; appreciation of the bank’s overall risk
(b) a detailed structure of limits, exposures.
guidelines and other parameters used to The board of directors shall ensure that
govern risk-taking;
the risk management function is
(c) a clear delineation of lines of
given adequate resources to enable it to
responsibilities for managing risk;
(d) an adequate system for measuring effectively perform its functions. The risk
risk; and management function shall be afforded with
(e) effective internal controls and a adequate personnel, access to information
comprehensive risk-reporting process. The technology systems and systems
development resources, and support and complexity of operations and risk profile of
access to internal information. the bank.
(4) To oversee selection and (d) The board of directors shall
performance of senior management. It is the regularly review policies, internal controls
primary responsibility of the board of and self-assessment functions (e.g.,
directors to appoint competent management internal audit, risk management and
team at all times, monitor and assess the compliance) with senior management to
performance of the management team based determine areas for improvement as well as
on established performance standards that to promptly identify and address
are consistent with the bank’s significant risks and issues. The board of
strategic objectives, and conduct directors shall set the frequency of review
regular review of bank’s policies with the taking into account the size, complexity of
management team. operations and risk profile of the bank.
(a) The board of directors shall apply fit The board of directors shall ensure that
and proper standards on key personnel. senior management’s expertise and
Integrity, technical expertise and knowledge shall remain relevant given the
experience in the institution’s business, bank’s strategic objectives, complexity of
either current or planned, shall be the key operations and risk profile.
considerations in the selection process. (5) To consistently conduct the affairs of
And because mutual trust and a close the institution with a high degree of
working relationship are important, the integrity. Since reputation is a very valuable
members of senior management shall asset, it is in the institution’s best interest
uphold the general operating philosophy, that in dealings with the public, it observes
vision and core values of the institution. The a high standard of integrity. The board of
board of directors shall replace members directors shall lead in establishing the tone
of senior management, when of good governance from the top and in
necessary, and have in place an setting corporate values, codes of conduct
appropriate plan of succession. and other standards of appropriate
(b) The board of directors shall regularly behavior for itself, the senior management
monitor the actions of senior management and other employees. The board of
and ensure that these are consistent with directors shall:
the policies that it has approved. It shall (a) Articulate clear policies on the
put in place formal performance standards handling of any transaction with DOSRI and
to be able to effectively assess the other related parties ensuring that there is
performance of senior management. The effective compliance with existing laws,
performance standards shall be consistent rules and regulations at all times and no
with the bank’s strategic objectives and stakeholder is unduly disadvantaged. In this
business plans, taking into account the regard, the board of directors shall define
bank’s long-term financial interests. “related party transaction”, which is
(c) The board of directors shall regularly expected to cover a wider definition than
meet with senior management to engage in DOSRI under existing regulations and a
discussions, question and critically review broader spectrum of transactions (i.e., not
the reports and information provided by the limited to credit exposures), such that
latter. The board of directors shall set the relevant transactions that could pose
frequency of meeting with senior material risk or potential abuse to the bank
management taking into account the size, and its stakeholders are captured.
(b) Require the bank’s stockholders to questionable practices directly to the board
confirm by majority vote, in the annual of directors or to any independent unit.
stockholders’ meeting, the bank’s significant Policies shall likewise be set on how such
transactions with its DOSRI and other concerns shall be investigated and
related parties. addressed, for example, by an internal
(c) Articulate acceptable and control function, an objective external party,
unacceptable activities, transactions and senior management and/or the board itself; and
behaviors that could result or potentially (h) Articulate policies in
result in conflict of interest, personal gain communicating corporate values, codes of
at the expense of the institution, or conduct and other standards in the bank as
unethical conduct. well as the means to confidentially report
(d) Articulate policies that will prevent concerns or violations to an appropriate
the use of the facilities of the bank in body.
furtherance of criminal and other improper (6) To define appropriate governance
or illegal activities, such as but not limited policies and practices for the bank and for
to financial misreporting, money its own work and to establish means to
laundering, fraud, bribery or corruption. ensure that such are followed and
(e) Explicitly discourage the taking of periodically reviewed for ongoing
excessive risks as defined by internal improvement 1. The board of directors,
policies and establish an employees’ through policies and its own practices, shall
compensation scheme effectively aligned establish and actively promote,
with prudent risk taking. The communicate and recognize sound
compensation scheme shall be adjusted for governance principles and practices to
all types of risk and sensitive to the time reflect a culture of strong governance in the
horizon of risk. Further, the grant of bank as seen by both internal and external
compensation in forms other than cash shall stakeholders.
be consistent with the overall risk alignment (a) The board of directors shall ensure
of the bank. The board of directors shall that the bank’s organizational structure
regularly monitor and review the facilitates effective decision making and
compensation scheme to ensure that it good governance. This includes clear
operates and achieves the objectives as definition and delineation of the lines of
intended. responsibility and accountability, especially
(f) Ensure that employee pension funds between the roles of the chairman of the
are fully funded or the corresponding board of directors and chief executive
liability appropriately recognized in the officer/president.
books of the bank at all times. Further, the (b) The board of directors shall main-
board of directors shall ensure that all tain, and periodically update, organizational
transactions involving the pension fund are rules, by-laws, or other similar documents
conducted at arm’s length terms. setting out its organization, rights, respon-
(g) Allow employees to communicate, sibilities and key activities.
with protection from reprisal, legitimate (c) The board of directors shall
concerns about illegal, unethical or structure itself in a way, including in terms
1
Banks shall submit the following to the appropriate department of the SES on or before 15 June 2012:
(1) A Secretary’s Certificate attesting the approval of the board of directors to changes in the bank’s
policies aligning the same with the provisions of Subsecs. X141.1 to X141.3, X142.3 and X142.4 and Secs.
X175 to X176; and
(2) Acknowledgement receipt of copies of specific duties and responsibilities of the board of directors
and of a director and certification that they fully understand the same.
of size, frequency of meetings and the use external facilitators. The composition of
of committees, so as to promote efficiency, the board shall also be reviewed regularly
critical discussion of issues and thorough with the end in view of having a balanced
review of matters. It shall meet regularly to membership. Towards this end, a system
properly discharge its functions. It shall also and procedure for evaluation shall be
ensure that independent views in board adopted which shall include, but not
meetings shall be given full consideration limited to, the setting of benchmark and
and all such meetings shall be duly peer group analysis.
minuted. (g) The board shall ensure that individual
(d) The board shall conduct and members of the board and the
maintain the affairs of the institution within shareholders are accurately and timely
the scope of its authority as prescribed in informed. It shall provide all its members
its charter and in existing laws, rules and and to the shareholders a comprehensive
regulations. It shall ensure effective and understandable assessment of the
compliance with the latter, which include banks’s performance, financial condition
prudential reporting obligations. Serious and risk exposures. All members of the
weaknesses in adhering to these duties and board shall have reasonable access to any
responsibilities may be considered as information about the institution at all times.
unsafe and unsound banking practice. The It shall also provide appropriate
board shall appoint a compliance officer information that flows internally and to the
who shall be responsible for coordinating, public.
monitoring and facilitating compliance with (7) To constitute committees to increase
existing laws, rules and regulations. The efficiency and allow deeper focus in
compliance officer shall be vested with specific areas. The board of directors shall
appropriate authority and provided with create committees, the number and nature
appropriate support and resources. of which would depend on the size of the
(e) The board of directors shall bank and the board, the complexity of
establish a system of checks and balances operations, long-term strategies and risk
which applies in the first instance to the tolerance level of the bank.
board itself. Among the members of the (a) The board of directors shall approve,
board, an effective system of checks and review and update at least annually or
balances must exist. The system shall also whenever there are significant changes
provide a mechanism for effective check and therein, the respective charters of each
control by the board over the chief committee or other documents that set out
executive officer and key managers and by its mandate, scope and working procedures.
the latter over the line officers of the bank. (b) The board of directors shall appoint
Checks and balances in the board shall be members of the committees taking into
enhanced by appointing a chairperson who account the optimal mix of skills and
is a non-executive, whenever possible. experience to allow the members to fully
(f) The board of directors shall assess understand, be critical and objectively
at least annually its performance and evaluate the issues. In order to promote
effectiveness as a body, as well as its objectivity, the board of directors, shall
various committees, the chief executive appoint independent directors and non-
officer, the individual directors, and the executive members of the board to the
bank itself, which may be facilitated by greatest extent possible while ensuring that
the corporate governance committee or such mix will not impair the collective skills,
experience, and effectiveness of the audit department and for the appointment
committees. Towards this end, an of the internal auditor as well as the
independent director who is a member of independent external auditor who shall both
any committee that exercises executive or report directly to the audit committee. In
management functions that can potentially cases of appointment or dismissal of
impair such director’s independence external auditors, it is encouraged that the
cannot accept membership in committees decision be made only by independent and
that perform independent oversight/control non-executive audit committee members. It
functions such as the Audit, Risk shall monitor and evaluate the adequacy and
Oversight and Corporate Governance effectiveness of the internal control system.
committees, without prior approval of the The audit committee shall review and
Monetary Board. approve the audit scope and frequency. It
(c) The board of directors shall ensure shall receive key audit reports, and ensure
that each committee shall maintain that senior management is taking necessary
appropriate records (e.g., minutes of corrective actions in a timely manner to
meetings or summary of matters reviewed address the weaknesses, non-compliance
and decisions taken) of their deliberations with policies, laws and regulations and
and decisions. Such records shall document other issues identified by auditors.
the committee’s fulfillment of its The audit committee shall have explicit
responsibilities and facilitate the assessment authority to investigate any matter within
of the effective performance of its functions. its terms of reference, full access to and
(d) The board of directors shall cooperation by management and full
constitute, at a minimum, the following discretion to invite any director or
committees: executive officer to attend its meetings, and
(i) Audit committee. The audit adequate resources to enable it to effectively
committee shall be composed of at least discharge its functions. The audit
three (3) members of the board of directors, committee shall ensure that a review of the
wherein two (2) of whom shall be effectiveness of the institution’s internal
independent directors, including the controls, including financial, operational
chairperson, preferably with accounting, and compliance controls, and risk
auditing, or related financial management management, is conducted at least
expertise or experience commensurate with annually.
the size, complexity of operations and risk The audit committee shall establish and
profile of the bank. To the greatest extent maintain mechanisms by which officers and
possible, the audit committee shall be staff shall, in confidence, raise concerns
composed of a sufficient number of about possible improprieties or malpractices
independent and non-executive board in matters of financial reporting, internal
members. Further, the chief executive control, auditing or other issues to persons
officer, chief financial officer and/or or entities that have the power to take
treasurer, or officers holding equivalent corrective action. It shall ensure that
positions, shall not be appointed as arrangements are in place for the
members of the audit committee. independent investigation, appropriate
The audit committee provides oversight follow-up action, and subsequent resolution
over the institution’s financial reporting of complaints.
policies, practices and control and internal (ii) Risk oversight committee. The risk
and external audit functions. It shall be oversight committee shall be responsible for
responsible for the setting up of the internal the development and oversight of the risk
management program for the bank and its committee shall conduct regular discussion
trust unit. The committee shall be composed on the institution’s current risk exposure
of at least three (3) members of the board of based on regular management reports and
directors including at least one (1) assess how the concerned units or offices
independent director, and a chairperson reduced these risks.
who is a non-executive member. The d. Review and revise the plan as
members of the risk oversight committee needed. The committee shall evaluate the
shall possess a range of expertise as well as risk management plan to ensure its
adequate knowledge of the institution’s risk continued relevance, comprehensiveness,
exposures to be able to develop and effectiveness. It shall revisit strategies,
appropriate strategies for preventing losses look for emerging or changing exposures,
and minimizing the impact of losses when and stay abreast of developments that
they occur. It shall oversee the system of affect the likelihood of harm or loss. The
limits to discretionary authority that the committee shall report regularly to the board
board delegates to management, ensure that of directors the entity’s overall risk exposure,
the system remains effective, that the limits actions taken to reduce the risks, and
are observed and that immediate corrective recommend further action or plans as
actions are taken whenever limits are necessary.
breached. The bank’s risk management unit (iii) Corporate governance committee.
and the chief risk officer shall communicate The corporate governance committee shall
formally and informally to the risk oversight assist the board of directors in fulfilling its
committee any material information relative corporate governance responsibilities. It
to the discharge of its function. The risk shall review and evaluate the qualifications
oversight committee, shall, where of all persons nominated to the board as
appropriate, have access to external expert well as those nominated to other positions
advice, particularly in relation to proposed requiring appointment by the board of
strategic transactions, such as mergers and directors. The committee shall be composed
acquisitions. of at least three (3) members of the board of
The core responsibilities of the risk directors, two (2) of whom shall be
oversight committee are to: independent directors, including the
a. Identify and evaluate exposures. The chairperson.
committee shall assess the probability of The committee shall be responsible for
each risk becoming reality and shall ensuring the board’s effectiveness and due
estimate its possible effect and cost. observance of corporate governance
Priority areas of concern are those risks that principles and guidelines. It shall oversee
are most likely to occur and are costly when the periodic performance evaluation of the
they happen. board and its committees and executive
b. Develop risk management management; and shall also conduct an
strategies. The risk oversight committee annual self-evaluation of its performance.
shall develop a written plan defining the The corporate governance committee may
strategies for managing and controlling the coordinate with external facilitators in
major risks. It shall identify practical carrying out board assessment, within the
strategies to reduce the chance of harm and frequency approved by the entire board. The
failure or minimize losses if the risk becomes corporate governance committee shall also
real. decide whether or not a director is able to
c. Oversee the implementation of the and has been adequately carrying out his/
risk management plan. The risk oversight her duties as director based on its own
assessment or the assessment of external Any TB, RB and Coop Bank having at
facilitators, bearing in mind the director’s least (3) of the following characteristics shall
contribution and performance (e.g., be deemed a complex bank:
competence, candor, attendance, a. Total assets of at least P6 billion;
preparedness and participation). Internal b. Extensive branch network;
guidelines shall be adopted that address the c. Non-traditional financial products
competing time commitments that are faced and services by virtue of special authorities
when directors serve on multiple boards. (e.g. trust, quasi-banking, derivatives
The committee shall make licenses), as well as distinctive products like
recommendations to the board regarding the credit cards, remittance, trade-related
continuing education of directors, services, contract-to-sell (CTS) financing,
assignment to board committees, succession among other financial services;
plan for the board members and senior d. Use of non-conventional business
officers, and their remuneration model, such as those using non-traditional
commensurate with corporate and individual delivery platform such as electronic
performance. platforms; and
The corporate governance committee e. Business strategy characterized by
shall decide the manner by which the risk appetite that is aggressive and risk
board’s performance shall be evaluated and exposures which are increasing, such as
propose an objective performance criteria those with robust branch expansion
approved by the board. Such performance programs or acquisition plans.
indicators shall address how the board has TBs, RBs and Coop Banks classified as
enhanced long term shareholders’ value. “complex” banks shall designate a full-time
Provided, That in case of simple or chief compliance officer, and establish
non-complex banks, the board of directors audit, risk oversight and corporate
may, at a minimum, constitute only the governance committee.
audit committee: Provided, further, That the Non-complex bank that shall adopt
board shall discuss risk management and the reduced minimum requirement under
corporate governance matters in their board this Subsection on the creation of only an
meetings, with the views of the independent audit committee shall submit the
directors duly noted and minuted. following to the appropriate department
For this purpose, a bank’s business of the SES:
model is deemed simple if a bank is (1) A secretary’s certificate attesting the
primarily engaged in the business of approval of the board of directors to create
deposit-taking and lending: Provided, That only the audit committee/dissolve the other
a UB or KB shall be deemed a complex board-level committees if and when
bank while a TB, RB or Coop Bank shall approved by the Bangko Sentral; and
be deemed a simple bank. Nonetheless, a (2) A letter signed by the president/chief
UB or KB may apply with the Bangko executive officer requesting for approval for
Sentral for a reclassification as simple bank creating/maintaining only the audit
in order to avail of the reduced minimum committee.
requirement on the constitution of board (8) To effectively utilize the work
committees. The Bangko Sentral may conducted by the internal audit, risk
likewise declare a TB, RB or Coop Bank management and compliance functions and
as complex, and therefore necessitating the external auditors. The board of
complete compliance with the directors shall recognize and acknowledge
aforementioned requirements. the importance of the assessment of the
Sentral regulated entity in accordance with entities owned directly or indirectly by the
Appendix 6. For this purpose, significant parent company and/or its subsidiaries/
shall refer to transactions that would require affiliates including special purpose entities
board approval based on the bank’s internal (SPEs), and other entities that the bank
policies or as provided under existing exerts control over or those that are related
regulations: Provided, That the bank shall to the bank and/or its subsidiaries/affiliates
continue to submit any report required either through common ownership/
under existing regulations covering directorship/officership) as well as all
transactions between companies within the significant transactions between entities in
group. the group involving any BSP-regulated
In cases where the bank is a subsidiary/ entity in accordance with Appendix 6. For
affiliate of a non-BSP regulated parent this purpose, significant shall refer to
company, its board of directors shall transactions that would require board
carry out the following duties and approval based on the bank’s internal
responsibilities: policies or as provided under existing
(a) To ensure that the bank complies regulations. Provided, That the bank shall
with the governance policies, practices and continue to submit any report required
systems of the parent company as well as under existing regulations covering
transactions between companies within the
meets the standards and requirements set
group.
forth under existing laws, rules and
d. Specific duties and responsibilities of
regulations.
a director
(b) To define and approve policies and
(1) To remain fit and proper for the
clear strategies for the establishment of new
position for the duration of his term. A
structures (e.g., subsidiaries/affiliate of the
director is expected to remain fit and proper
bank). The board of directors shall also
for the position for the duration of his term.
report to the Bangko Sentral any plan to
He should possess unquestionable
create additional group structures. credibility to make decisions objectively and
(c) To understand the roles, resist undue influence. He shall treat board
relationships or interactions of each entity in directorship as a profession and shall have
the group with one another and with the a clear understanding of his duties and
parent company. The board of directors shall responsibilities as well as his role in
understand the legal and operational promoting good governance. Hence, he
implications of the group structure and how shall maintain his professional integrity and
the various types of risk exposures affect the continuously seek to enhance his skills,
bank’s capital, risk profile and funding under knowledge and understanding of the
normal and contingent circumstances. activities that the bank is engaged in or
(d) To require the risk management, intends to pursue as well as the
compliance function and internal audit developments in the banking industry
group of the bank to conduct a periodic including regulatory changes through
formal review of the group structure, their continuing education or training.
controls and activities to assess consistency (2) To conduct fair business transactions
with the board approved policies, practices with the bank and to ensure that personal
and strategies and to require said groups to interest does not bias board decisions.
report the results of their assessment directly Directors should, whenever possible, avoid
to the board. situations that would give rise to a conflict
(e) To disclose to the Bangko Sentral all of interest. If transactions with the
entities in the group (e.g., parent company, institution cannot be avoided, it should be
done in the regular course of business and Directors should actively participate and
upon terms not less favorable to the exercise objective independent judgment
institution than those offered to others. The on corporate affairs requiring the decision
basic principle to be observed is that a or approval of such board.
director should not use his position to make (7) To exercise independent judgment. A
profit or to acquire benefit or advantage for director should view each problem/situation
himself and/or his related interests. He objectively. When a disagreement with others
should avoid situations that would occurs, he should carefully evaluate the
compromise his impartiality. situation and state his position. He should not
(3) To act honestly and in good faith, be afraid to take a position even though it might
with loyalty and in the best interest of the be unpopular. Corollarily, he should support
institution, its stockholders, regardless of the plans and ideas that he thinks will be beneficial
amount of their stockholdings, and other to the institution.
stakeholders such as its depositors, (8) To have a working knowledge of the
investors, borrowers, other clients and statutory and regulatory requirements
general public. A director must always act affecting the institution, including the
in good faith, with the care which an content of its articles of incorporation and
ordinarily prudent man would exercise by-laws, the requirements of the Bangko
under similar circumstances. While a
Sentral and where applicable, the
director should always strive to promote the
requirements of other regulatory agencies.
interest of all stockholders, he should also
A director should also keep himself
give due regard to the rights and interests of
informed of the industry developments and
other stakeholders.
business trends in order to safeguard the
(4) To devote time and attention
institution’s competitiveness.
necessary to properly discharge their duties
(9) To observe confidentiality.
and responsibilities. Directors should
Directors must observe the confidentiality
devote sufficient time to familiarize
of non-public information acquired by
themselves with the institution’s business.
reason of their position as directors. They
They must be constantly aware of the
institution’s condition and be may not disclose said information to any
knowledgeable enough to contribute other person without the authority of the
meaningfully to the board’s work. They must board.
attend and actively participate in board and e. Duties and responsibilities of the
committee meetings, request and review chairperson of the board of directors:
meeting materials, ask questions, and (1) To provide leadership in the board
request explanations. If a person cannot give of directors. The chairperson of the board
sufficient time and attention to the affairs of shall ensure effective functioning of the
the institution, he should neither accept his board, including maintaining a relationship
nomination nor run for election as member of trust with board members.
of the board. (2) To ensure that the board takes an
(5) To act judiciously. Before deciding informed decision. The chairperson of the
on any matter brought before the BOD, board shall ensure a sound decision
every director should thoroughly evaluate making process and he should encourage
the issues, ask questions and seek and promote critical discussion and ensure
clarifications when necessary. that dissenting views can be expressed and
(6) To contribute significantly to the discussed within the decision-making
decision-making process of the board. process.
(As amended by M-2013-035 dated 30 July 2013, Circular Nos.757 minimum qualifications, or (iii) a different
dated 08 May 2012 and 749 dated 27 February 2012) level of confirming authority as provided
in the first paragraph hereof, in the same
§ X141.4 Confirmation of the election/
bank or appointment/transfer to another
appointment of directors/officers. The
bank, QB, trust entities other than stand-
election/appointment of directors/officers of
alone or trust corporation within a banking
banks shall be subject to confirmation by the
group:
following:
Confirming Authority Position Level
Provided, That the director/officer
a. Monetary Board Directors and senior concerned has been previously confirmed
vice president and above or in the case of compliance officer or trust
(or equivalent ranks) of
UBs and KBs, and of officer who will be promoted to the rank
Islamic Banks, TBs, RBs of senior vice president or above (or
and Coop Banks with equivalent rank), previously approved/
total assets of at least
P1.0 billion confirmed by the Monetary Board, or if
b. An SES Committee to be Directors and senior vice previously confirmed by the SES
composed of: president and above (or
- Deputy Governor, SES equivalent ranks) of
Committee, his/her re-election/ promotion/
- Assistant Governors/Managing Islamic Banks, TBs, transfer requires the same level of
Directors, SE I/II/III/CSSS RBs and Coop Banks confirming authority as provided in the first
with total assets of less
paragraph hereof: Provided, further, That
than P1.0 billion
said director/officer has had continuous
The election/appointment of service within the same bank or banking
abovementioned directors/officers shall be group. This exemption shall apply to
deemed to have been confirmed by the Bangko directors/officers confirmed by the
Sentral, if after sixty (60) banking days from Monetary Board/SES Committee starting 01
receipt of the required reports, no advice January 2011.
against said election/appointment has been The appointment of officers below the
received by the bank concerned. rank of SVP shall be subject neither to
However, the confirmation by the Monetary Board approval nor Bangko
Monetary Board/SES Committee of the Sentral confirmation.
election/appointment to above-mentioned The appointment of compliance
position levels shall not be required in the officers and trust officers regardless of rank
following cases: shall be subject to prior Monetary Board
a. Re-election of a director (as a approval/confirmation as provided in
director) in the same bank or election of the Subsecs. X180.4 and X406.10, respectively.
same director in another bank, QB, trust For purposes of this Subsection, the
entities other than stand-alone or trust term banking group shall refer to the parent
corporation within a banking group; bank and its subsidiary banks, QBs, trust
b. Re-election of an independent entities other than stand-alone and trust
director (as an independent director or not) corporations as well as other banks, QBs,
in the same bank or election of the same trust entities other than stand-alone and
director (as an independent director or not) trust corporations over which the parent
in another bank, QB, trust entities other than bank has the power to exercise “control”
stand-alone or trust corporation within a as defined in Subsec. X141.2.
banking group; and The documentary requirements for the
c. Promotion of an officer, other than confirmation of the election/appointment
to that which requires (i) prior Monetary of directors/officers/trust officer, and
Board approval, or (ii) a different set of approval of the appointment of compliance
prescribed under Items “b”, “c” and “d” of shall include the president, executive vice
Subsec. X141.3 upon election. president, senior vice-president, vice president,
The bank must submit to the general manager, treasurer, secretary, trust
appropriate department of the SES, within ten officer and others mentioned as officers of the
(10) banking days from date of election, a bank, or those whose duties as such are
certification under oath of the directors defined in the by-laws, or are generally known
concerned that they have received copies of to be the officers of the bank (or any of its
such general responsibility and specific duties branches and offices other than the head office)
and responsibilities and that they fully either through announcement, representation,
understand and accept the same, in publication or any kind of communication
accordance with Appendix 6. made by the bank: Provided, That a person
The bank must submit to the holding the position of chairman or vice-
appropriate department of the SES a chairman of the board or another position in
certification under oath of the director/ officer the board shall not be considered as an officer
with rank of senior vice president and above, unless the duties of his position in the board
and officer whose appointment requires prior include functions of management such as
Monetary Board approval that he/she has all those ordinarily performed by regular officers:
the prescribed qualifications and none of the Provided, further, That members of a group or
committee, including sub-groups or sub-
disqualifications within ten (10) banking days
committees, whose duties include functions
from the date of election/re-election of the
of management such as those ordinarily
directors/meeting of the board of directors in
performed by regular officers, and are not
which the officers are appointed/promoted,
purely recommendatory or advisory, shall
in accordance with Appendix 6.
likewise be considered as officers.
(As amended by Circular No. 758 dated 11 May 2012)
(As amended by Circular No. 562 dated 13 March 2007)
Actual experience refers to exposures in trust operations either as officer of a trust entity or members
1
of trust committee
Manual of Regulations for Banks Part I - Page 77
§ X142.2 - X143.1
12.12.31
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§§ X143.1 - X143.3
13.12.31
1
In the case of RB, appointive and elective public officials currently holding officership positions shall continue
holding such position until the end of their current terms effective 13 September 2013.
dismissal from employment for cause, the the board on the director/officer involved.
appropriate department of the SES shall, as k. Persons who are elected or
much as practicable, endeavor to establish appointed as director or officer in any of
the specific acts or omissions constituting the BSP-supervised institutions for the first
the offense or the ultimate facts which time but are subject to any of the grounds
resulted in the dismissal to be able to for disqualification provided for under
determine if the disqualification of the Subsecs. X143.1 and X143.2, shall be
director/officer concerned is warranted or afforded the procedural due process
not. The evaluation of the case shall be prescribed above.
made for the purpose of determining if l. Whenever a director/officer is
disqualification would be appropriate and cleared in the process mentioned under
not for the purpose of passing judgment on Item “c” above or, when the ground for
the findings and decision of the entity disqualification ceases to exist, he/she
concerned. The appropriate department of the would be eligible to become director or
SES may decide to recommend to the officer of any bank, QB, trust entity or any
Monetary Board a penalty lower than institution under the supervision of the
disqualification (e.g., reprimand, suspension, Bangko Sentral only upon prior approval
etc.) if, in its judgment the act committed or by the Monetary Board. It shall be the
omitted by the director/officer concerned does responsibility of the appropriate
not warrant disqualification. department of the SES to elevate to the
h. All other cases of disqualification, Monetary Board the lifting of the
whether permanent or temporary shall be disqualification of the concerned director/
elevated to the Monetary Board for approval officer and his/her delisting from the
and shall be subject to the procedures masterlist of watchlisted persons.
provided in Items “a”,”b”,”c” and “d” above. (As amended by Circular No. 584 dated 28 September 2007)
i. Upon approval by the Monetary
Board, the concerned director/officer shall § X143.5 Watchlisting. To provide the
be informed by the appropriate department Bangko Sentral with a central information file
of the SES in writing either by personal to be used as reference in passing upon and
service or through registered mail with reviewing the qualifications of persons elected
registry return receipt card, at his/her last or appointed as director or officer of a bank,
known address of his/her disqualification QB or trust entity, the SES shall maintain a
from being elected/appointed as director/ watchlist of persons disqualified to be a
officer in any FI under the supervision of director or officer of such entities under its
Bangko Sentral and/or of his/her inclusion supervision under the following procedures:
in the masterlist of watchlisted persons so a. Watchlist categories. Watchlisting
disqualified. shall be categorized as follows:
j. The board of directors of the (1) Disqualification File “A”
concerned institution shall be immediately (Permanent) - Directors/officers/employees
informed of cases of disqualification permanently disqualified by the Monetary
approved by the Monetary Board and shall Board from holding a director/officer
be directed to act thereon not later than the position.
following board meeting. Within seventy- (2) Disqualification File “B”
two (72) hours thereafter, the corporate (Temporary) - Directors/officers/employees
secretary shall report to the Governor of the temporarily disqualified by the Monetary
Bangko Sentral through the appropriate Board from holding a director/officer
department of the SES the action taken by position.
Appendix 76, within ten (10) banking days that all the information thereby supplied are
from the date of election/re-election of the true and correct, and that he/she:
directors/meeting of the board of directors (1) Is not or has not been an officer or
in which the officers are appointed/ employee of the bank, its subsidiaries or
promoted, in accordance with Appendix 6. affiliates or related interests during the past
The bio-data shall be updated and three (3) years counted from the date of his
submitted (i) in case of change of name due election;
to change in civil status, within ten (10) (2) Is not a director or officer of the
banking days from the date the change related companies of the institution’s
occurred, and (ii) in cases of requests for majority stockholder;
prior Monetary Board approval of (3) Is not a majority stockholder of the
interlocks. institution, any of its related companies, or
For other officers below the rank of SVP, of its majority shareholders;
the bank shall not be required to submit their (4) is not a relative, legitimate or
bio-data to the Bangko Sentral. common law of any director, officer or
b. The bank shall, however, keep a stockholder holding shares of stock
complete record of the bio-data of all its sufficient to elect one seat in the board of
directors and officers and shall maintain a the bank or any of its related companies.
system of updating said records which shall For this purpose, relatives refer to the spouse,
be made available during on-site parent, child, brother, sister, parent-in-law,
examination or when required by the son-/daughter-in-law, and brother-/sister-in-
Bangko Sentral for submission for off-site law;
verification. (5) Is not acting as a nominee or
c. Banks shall also submit to the representative of any director or substantial
appropriate department of the SES, a duly shareholder of the bank, any of its related
notarized list of the incumbent members of companies or any of its substantial
the board of directors and officers (President shareholders;
or equivalent rank, down the line, format (6) Is not retained as professional
attached as Appendix 98b), within ten (10) adviser, consultant, agent or counsel of the
banking days from the annual election of institution, any of its related companies or
the board of directors as provided in the any of its substantial shareholders, either in
bank’s by-laws, in accordance with his personal capacity or through his firm;
Appendix 6. is independent of management and free
d. If after evaluation, the appropriate from any business or other relationship, has
department of the SES shall find grounds for not engaged and does not engage in any
disqualification, the director/officer so transaction with the institution or with any
elected/re-elected/appointed/promoted may of its related companies or with any of its
be recommended for removal from office substantial shareholders, whether by himself
even if he/she has assumed the position to or with other persons or through a firm of
which he/she was elected/re-elected/ which he is a partner or a company of which
appointed/promoted pursuant to Section 16 he is a director or substantial shareholder,
of R.A. No. 8791. other than transactions which are conducted
In the case of the independent directors, at arms length and could not materially
the bio-data shall be accompanied by a interfere with or influence the exercise of
certification under oath from the director his judgment; and
concerned that he/she is an independent (7) Complies with all the qualifications
director as defined under Subsec. X141.1 required of an independent director and
does not possess any of the disqualifications relationship cited in this Section to the
therefor; and has not withheld nor interests of the FIs involved, certain
suppressed any information material to his measures are still necessary to safeguard
or her qualification or disqualification as an against the disadvantages that could result
independent director. from indiscriminate concurrent directorship.
(As amended by Circular Nos. 793 dated 05 July 2013 and (1) Except as may be authorized by the
758 dated 11 May 2012)
Monetary Board or as otherwise provided
Sec. X145 Interlocking Directorships and/ hereunder, there shall be no concurrent
or Officerships. In order to safeguard directorships between banks or between a
against the excessive concentration of bank and a QB or an NBFI.
economic power, unfair competitive (2) Without the need for prior approval
advantage or conflict of interest situations of the Monetary Board, concurrent
to the detriment of others through the directorships between entities not involving
exercise by the same person or group of an investment house shall be allowed in the
persons of undue influence over the policy- following cases:
making and/or management functions of (a) Banks not belonging to the same
similar FIs while at the same time allowing category: Provided, That not more than one
banks, QBs and non-bank financial (1) bank shall have quasi-banking functions;
institutions (NBFIs) without quasi-banking (b) A bank and an NBFI;
functions to benefit from organizational (c) A bank without quasi-banking
synergy or economies of scale and effective functions and a QB; and
sharing of managerial and technical (d) A bank and one (1) or more of its
expertise, the following regulations shall subsidiary bank/s, QB/s and NBFI/s.
govern interlocking directorships and/or For purposes of the foregoing, a
officerships within the financial system husband and his wife shall be considered
consisting of banks, QBs and NBFIs. as one (1) person.
For purposes of this Section, QBs shall b. Interlocking directorships and
refer to investment houses, finance officerships
companies, trust entities and all other NBFIs In order to prevent any conflict of
with quasi-banking functions while NBFIs interest resulting from the exercise of
shall refer to investment houses, finance directorship coupled with the reinforcing
companies, trust entities, insurance influence of an officer’s decision-making
companies, securities dealers/brokers, credit and implementing powers, the following
card companies, non-stock savings and loan rules shall be observed:
associations (NSSLAs), holding companies, (1) Except as may be authorized by the
investment companies, government NBFIs, Monetary Board or as otherwise provided
asset management companies, insurance hereunder, there shall be no concurrent
agencies/brokers, venture capital directorship and officership between banks
corporations, FX dealers, money changers, or between a bank and a QB or an NBFI;
lending investors, pawnshops, fund and
managers, mutual building and loan (2) Without the need for prior approval
associations, remittance agents and all other of the Monetary Board, concurrent
NBFIs without quasi-banking functions. directorship and officership between a bank
a. Interlocking directorships and one (1) or more of its subsidiary
While concurrent directorship may be bank/s, QB/s and NBFI/s, other than
the least prejudicial of the various investment house/s, shall be allowed.
1
Bank officers, who concurrently held officership position or other positions that caused them to be
involved in the daily microfinance operations of related NGOs/ foundations, were given up to 30
September 2011 to relinquish such officer position.
(5) Concurrent officership positions as reflected in the by-laws of the bank, subject
corporate secretary or assistant corporate to the following guidelines:
secretary between bank/s, QB/s and NBFI/s, a. The base in any profit sharing program
other than investment house/s, outside of those shall be the net income for the year of the
covered under Item “c(4)” of this Section: bank as shown in its Consolidated Statement
Provided, That proof of disclosure to and of Income and Expenses for the year, net of
consent from all of the involved FIs, on the the following:
concurrent officership positions, shall be (1) All cumulative dividends accruing
submitted to the Bangko Sentral. to preferred stock to the extent not covered
For purposes of this Section, members by earned surplus;
of a group or committee, including sub- (2) Accrued interest receivable credited
groups or sub-committees, whose duties to income but not yet collected, net of
include functions of management such as reserves already set up for uncollected
those ordinarily performed by regular interest on loans;
officers, shall likewise be considered as (3) Unbooked valuation reserves on
officers. loans or the amount required to update
It shall be the responsibility of the valuation reserves in accordance with the
Corporate Governance Committee to schedule approved by the Monetary Board,
conduct an annual performance evaluation as well as all amortizations due on deferred
of the board of directors and senior charges;
management. When a director or officer has (4) Provisions for current year’s taxes;
multiple positions, the Committee should (5) Income tax deferred for the year.
determine whether or not said director or Provided, however, That in case of
officer is able to and has been adequately reversal of deferred income taxes which
carrying out his/her duties and, if necessary, were deducted from net income in
recommend changes to the board based computing for profit sharing of previous
upon said performance/review. years, the deferred income tax reversed
The general principles and standards to expense shall be added back to net
that will govern the business relationships income to arrive at the base for profit
between banks and their related NGOs/ sharing for the year during which the
foundations engaged in retail microfinance reversal is made;
are found in Appendix 27. (6) Accumulated profits not yet received
(As amended by Circular Nos. 851 dated 30 September 2014 but already recorded by a bank representing
and 725 dated 26 June 2011, M-2011-033 dated 15 June 2011, its share in profits of its subsidiaries under
Circular Nos. 646 dated 23 February 2009 and 592 dated 28
December 2007) the equity method of accounting; and
b. The bank may provide in its by-laws
§ X145.1 Representatives of for other priorities in the computation of
government. The provisions of this Section net profits for purposes of profit sharing:
shall apply to persons appointed to such Provided, That in no case shall profit
positions as representatives of the government sharing take precedence over any of the
or government-owned or controlled entities items in the preceding paragraph; and
unless otherwise provided under existing laws. c. Prior approval of the Monetary
(As amended by Circular No. 592 dated 28 December 2007) Board shall be necessary before a bank
which has received financial assistance
Sec. X146 Profit Sharing Programs. Profit from the Bangko Sentral may implement
sharing programs adopted in favor of its profit sharing program.
directors, officers and employees shall be Financial assistance shall refer to
emergency loans and advances and such total amount of unbooked valuation reserves
other forms of credit accommodations and deferred charges shall be deducted from
which are intended to provide banks with the net income.
liquidity in times of need. b. Except for the financial assistance to
meet expenses for the medical, maternity,
Sec. X147 Compensation and Other education and other emergency needs of the
Benefits of Directors and Officers. To directors or officers or their immediate
protect the funds of depositors and family, the other forms of financial
creditors, the Monetary Board may regulate/ assistance may be suspended.
restrict the payment by the bank of c. When the total compensation
compensation, allowances, fees, bonuses, package including salaries, allowances, fees
stock options, profit sharing and fringe and bonuses of directors and officers are
benefits to its directors and officers in significantly excessive as compared with
exceptional cases and when the peer group averages, the Monetary Board
circumstances warrant, such as, but not may order their reduction to reasonable
limited to, the following: levels: Provided, That even if a bank is in
a. When the bank is under financial trouble, it may nevertheless be
controllership, conservatorship or when it allowed to grant relatively higher salary
has outstanding emergency loans and packages in order to attract competent
advances and such other forms of credit officers and quality staff as part of its
accommodation from the BSP which are rehabilitation program.
intended to provide it with liquidity in times The foregoing provisions founded on
of need; Section 18 of R.A. No. 8791 shall be
b. When the institution is found by the deemed part of the benefits and
Monetary Board to be conducting business compensation programs of banks.
in an unsafe or unsound manner;
c. When it is found by the Monetary Sec. 1147 (Reserved)
Board to be in an unsatisfactory financial
condition such as, but not limited to, the Sec. 2147 (Reserved)
following cases:
(1) Its capital is impaired; Sec. 3147 Bonding/Training of Directors,
(2) It has suffered continuous losses Officers and Employees. Officers and
from operations for the past three (3) years; employees handling funds or securities
(3) Its composite CAMEL(S) rating in the amounting to P5,000 or more in any one
latest examination is below “3”; and (1) year shall be bonded in an amount
(4) It is under rehabilitation by the BSP/ determined by the Monetary Board.
PDIC which rehabilitation may include Directors, officers and other personnel
debt-to-equity conversion, etc. of RBs/Coop Banks shall undergo such
In the presence of any one (1) or more training in banking as may be required by
of the circumstances mentioned above, the the BSP.
Monetary Board may impose the following
restrictions in the compensation and other Sec. X148 Real Estate and Chattel
benefits of directors and officers: Transactions with DOSRI and Employees
a. In the case of profit sharing, the The following regulations shall govern all
provision of Sec. X146 shall be observed real estate/chattel transactions (such as, but
except that for purposes of this Section, the not limited to, rentals or leases, purchases
and sales, of the bank’s owned property, approved by the bank’s board of directors
including foreclosed assets) entered and by the BSP.
between the bank and its director(s), The Certification on Real Estate/Chattel
officer(s), stockholder(s) or related Transactions with DOSRI and Employee(s)
interest(s), as defined under Items “a”, “b”, shall be accompanied by a certified true
“c”, and “e”, respectively, of Subsec. X326.1 copy of the resolution of the board of directors
or between the bank and its employee(s). authorizing said transaction(s) and shall be
Real estate/chattel transactions with signed by at least the majority members of
DOSRI and employee(s) shall require the the bank’s board of directors (excluding the
prior written approval of the majority director(s) concerned in the case of
members of the board of directors, with the transactions involving the director(s) or his
exclusion of the director(s) concerned in related interest(s)) who shall be required to
cases where the transaction involves the certify therein, that:
director or his related interest(s): (a) The transactions were approved by
Provided, however, That real estate/chattel a majority of the bank’s board of directors,
transactions with a bank’s officer(s)/ excluding the director(s) concerned (in the
employee(s) that are availed in strict case of transactions involving the director
conformity with the terms and conditions or his related interest(s)), in a meeting held
of a BSP-approved fringe benefit program for such purpose;
shall require the prior written approval of (b) A certified true copy of said approval
the bank’s duly authorized committee/ as manifested in a resolution passed by the
officer(s). board of directors is attached as an annex
Real estate/chattel transactions with to the certification;
DOSRI and/or employee(s) shall, at all times, (c) The reported transactions have been
be entered into in the best interest of the thoroughly reviewed and verified as having
bank. Records and supporting documents been entered into in the best interest of the
on such real estate/ chattel transactions shall bank; and
be adequately maintained and made (d)The records and underlying
available for inspection and/or submitted documents (e.g. contracts/agreements, etc.)
upon request of the BSP. supporting such transactions are adequately
(Circular No. 737 dated 19 September 2011) maintained and shall be made available for
inspection by BSP examiners and
§ X148.1 Certification on real estate/ submitted upon request of the appropriate
chattel transactions with DOSRI and department of the SES.
employee(s). Banks shall, within ten (10) Said Certification on Real Estate/
banking days from approval by a majority Chattel Transactions with DOSRI and
of its board of directors, submit to the Employee(s) shall, at a minimum, disclose
appropriate department of the SES, the the following information:
Certification on Real Estate/Chattel (a) Board resolution No. and date;
Transactions with DOSRI and Employee(s) (b) Name of DOSRI/employee;
(see prescribed format in Appendix 99), (c) Transaction date;
covering real estate/chattel transactions (d) Type of transaction (i.e., sale, lease,
between the bank and its director(s), etc.);
officer(s), stockholder(s), related interest(s) (e) Description of real estate or chattel
and employee(s), except those that are property (e.g., TCT No. or CCT No.,
availed of in strict conformity with the terms location and area in square meters in case
and of conditions of a fringe benefit program of real property, and certificate of
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013).
Provided, That account opening approval (7) Collect premiums/pay out benefits
and actual opening of deposit accounts shall from/to members of social security
be done only at the head office/branches/ institutions such as the Government Service
extension offices; and Insurance System (GSIS), Social Security
f. Such other non-transactional banking System (SSS), Philippine Health Insurance
related activities as may be authorized by Corporation (Philhealth), Employees’
the Bangko Sentral. Compensation Commission (ECC), and
An OBO may also be recognized as other government authorized pension and
“microfinance-oriented”. A microfinance- benefit systems;
oriented OBO (MF-OBO)/micro-banking (8) Pay out benefits under government
office (MBO) shall refer to an OBO that sponsored conditional cash transfer
primarily caters to the banking needs and schemes;
services of microfinance clients and overseas (9) Accept utilities payment; and
Filipinos (OFs) and their beneficiaries. As (10)Purchase foreign currencies up to
contemplated under Appendix 45, the maximum equivalent of USD300 per
“microfinance clients” are micro-credit client per day for credit to micro-deposit
borrowers and/or micro-depositors. accounts;
In addition to the non-transactional subject to the following conditions:
banking-related activities and services (a) An MF-OBO/MBO shall only perform
allowable for regular OBOs, MF-OBO/ the transactional activities it has specifically
MBOs may also engage in any or all of the applied for and had been authorized by the
following limited transactional banking Bangko Sentral to perform. Subsequent
activities and services that enable and enhancements are likewise subject to prior
facilitate financial inclusion and broader Bangko Sentral approval;
access to financial services: (b) The bank shall ensure the timely
(1) Accept micro-deposits including accounting and proper recording of all
initial deposit and service withdrawals financial transactions of its OBOs and
thereof; observe adequate internal control
(2) Accept check deposits of procedures to ensure the safety of funds and
microfinance clients for collection and credit reliability of financial records and reports
to own deposit accounts; emanating from all transactions; and
(3) Disburse/release proceeds of micro- (c) The bank president shall submit
loans and collect loan amortization within thirty (30) calendar days from the end
payments and related charges. The collection of a financial year a comprehensive
includes the microfinance borrower’s statement under oath that all the bank’s
embedded deposits that are part of the loan OBOs and their activities are duly
amortization payments; authorized by the Bangko Sentral.
(4) Present, market, sell and service (As amended by M-2011-032 dated 06 June 2011, Circular Nos.
micro-insurance products in accordance 694 dated 14 October 2010, 669 dated 22 October 2009 and
624 dated 13 October 2008)
with existing regulations;
(5) Receive/pay-out funds in connection § X151.1 Prior Monetary Board
with authorized remittance transactions; approval. No bank operating in the
(6) Act as a cash/money in and cash/ Philippines shall establish branches,
money out for electronic money (e-money) extension offices or other banking offices
transactions; or transact business outside the premises
a. The Coop Bank of the province may exceed the total number determined by the
set up branches/extension offices/other Monetary Board to be optimal over the
banking offices (OBOs) anywhere within Phase 1 period, each qualifying applicant
the province subject to compliance with bank shall be granted a pro-rata share based
the applicable branching rules and on the total number of branches applied for.
regulations as provided in Sec. X151; e. The Monetary Board may decide to
b. Coop Banks from other provinces disapprove an otherwise qualified branch
may set up branches/extension offices/ application if in its determination such
OBOs in cities or municipalities where branch application will lead to an
there are no other Coop Bank head office/ overbanking situation in the specific market.
branch/extension office; (As amended by Circular No. 759 dated 30 May 2012, CL-2011-
c. The establishment of branches/ 052 dated 27 July 2011, Circular Nos. 727 and 728 both dated
23 June 2011, 696 dated 29 October 2010, 692 dated 23 July
extension offices mentioned in Items “1” and 2010, 682 dated 15 February 2010 and 624 dated 13 October
“2” above shall be subject to the following 2008)
minimum combined capital requirement:
i. At least P10.0 million to establish § X151.5 Branch processing and special
branches/extension offices anywhere within licensing fee
the province where its head office is located; a. Branch processing fee
ii. At least P50.0 million to establish The bank shall be immediately charged
branches/extension offices in any island with the total processing fee computed for
group (i.e., Luzon, Visayas, Mindanao) all branches approved, in accordance with
where the head office is located, except the following:
in Metro Manila; and
iii. At least P100.0 million to establish Bank Branch Processing Fees
branches/extension offices anywhere in the Category Metro Manila, 3rd to 6th
Cities of Cebu Class Muni -
country except in Metro Manila unless the
and Davao, nicipalities
Coop Bank is qualified to establish a All Other
branch/extension office in Metro Manila Cities, 1st to
and/or restricted areas as provided in Items 2nd Class
“d.1” and “d.2” of Subsec. X151.4 on the Municipalities
a. UBs/KBs/ P200,000 P100,000
branching guidelines; Affiliated TBs
iv. Other relevant branching rules and b. Non-affiliated P100,000 P50,000
regulations which are not inconsistent with TBs
the above provisions shall continue to be c. RBs/Coop P25,000 P25,000
Banks
governed by Sec. X151; and
d. Microfinance P5,000 5,000
v. For branches to be established in the -oriented banks
restricted areas, the maximum number of or microfinance
branches that may be established by -oriented branches
qualified banks under Phase 1 shall be of banks
subject to final adjustment by the Monetary Provided, That branches of TBs, RBs and
Board based on the total number of Coop Banks to be established within the
applications received. Should the total region where the head office is located shall
number of branch applications received by be free from assessment.
the Bangko Sentral under Item “d” above In no case shall staggered payment for
the total branch processing fee be allowed. f. Additional requirement for the
Moreover, failure to open an approved establishment of MF-OBOs/MBOs:
branch within the prescribed period shall 1) At least fifty percent (50%) of total
result in the forfeiture of the branch transactions generated are with
processing fee paid. microfinance clients;
b. Special licensing fee 2) It shall have a maximum on-site cash
For branch applications in the restricted limit not exceeding P500,000 per day,
areas, the applicant bank shall upon commensurate to its level of banking
acceptance of branch application pay a activities;
special licensing fee per branch depending 3) It shall have adequate physical
on the bank’s category, as follows: facilities and security arrangements as well
as information and transaction support
Bank Category Licensing Fee Per Branch systems appropriate to the level of banking
UB/KB P20 million activities undertaken and services offered;
TB 15 million
4) It shall be managed by a responsible
Relocation of approved but unopened officer with adequate experience or training
branches/OBOs under Subsec. X151.7, in microfinancing activities; and
branches/OBOs under Subsec. X151.9, and 5) It shall have a manual of operations
relocation of head offices under Sec. X152, appropriate to its authorized activities that
shall be subject, in the manner therein is periodically reviewed and updated and
provided, to the special licensing fees. duly approved by the bank’s board of
(As amended by Circular Nos. 847 dated 28 August 2014, 759 directors.
dated 30 May 2012, 728 dated 23 June 2011 and 624 dated The application to establish other
13 October 2008) banking offices shall be signed by the
president of the bank or officer of equivalent
§ X151.6 Establishment of other rank and submitted to the appropriate
banking offices. Other banking offices may department of the SES together with the
be established with prior Monetary Board following documents:
approval, and subject to compliance with 1. Certified true copy of the resolution
the following: of the bank’s board of directors authorizing
a. Minimum capital requirement under the establishment of the other banking office
Subsec. X111.1 but not lower than P10.0 and indicating its proposed site;
million in the case of RBs and Coop Banks; 2. Purpose statement indicating the
b. Ten percent (10%) risk-based CAR; bank’s objective or reason for establishing
c. CAMELS composite rating not lower the other banking office; and
than “3”, with Management component 3. Undertaking signed by the president
score not lower than “3” in the latest of the bank or officer of equivalent rank that
examination of the bank; said other banking office shall not accept
d. Not under Prompt Corrective Action deposits and/or service withdrawals thru
(PCA) or under conditions subject to PCA; tellers or other authorized personnel.
e. No major supervisory concerns on OBOs may be established only in areas
safety and soundness such as those where the bank is allowed to establish
enumerated under Item “e” of Subsec. branches as provided under Subsec. X151.4
X151.2 as of the date of application; and on branching guidelines.
case-to-case basis provided there are under Subsec. X181.4 and accessibility to
meritorious grounds: Provided, That disabled persons under Subsec. X160.10;
approved branches of banks that have (2) Posting in conspicuous places in the
executed an undertaking to build up the branch premises of the required notices,
required capital shall not be allowed to be schedules and other relevant information
opened until the capital requirement is met: pertaining to the branch’s lending and
Provided, further, That approved branches deposit operations;
of banks under PCA shall not be allowed to (3) Availability of efficient means of
be opened until the PCA status is lifted: reporting/communication facilities (to be
Provided, finally, That the approved specified) between the head office, branches
branching shall be suspended should PCA and extension office; and
be initiated on an applicant bank or any of (4) The requirements enumerated under
its subsidiary banks. Subsecs. X151.2/X151.6 as of the time of
Failure to open a branch within the actual opening of the branch/other banking
period authorized by the Monetary Board office.
may result in forfeiture of the branch A bank that fails to comply with any
licensing fee and the right to open such one (1) of the requirements in
branch. Subsecs.X151.2/X151.6 on the prerequisites
Approved branches with unexpired for the grant of authority to establish a
period to open as of 17 June 2012, shall be branch/establishment of OBOs as of the date
given three (3) years to open, reckoned from of the intended opening of the branch/OBO
their original dates of Monetary Board shall refrain from opening the branch/OBO
approval and shall not be subject to any on such date until it has complied with all
extension. of the requirements under Subsecs. X151.2/
(As amended by Circular Nos. 847 dated 28 August 2014, X151.6: Provided, That the provisions of
777 dated 13 December 2012, 759 dated 30 May 2012, Subsec. X151.7 on the date of opening of
728 dated 23 June 2011, 697 dated 29 October 2010 and
624 dated 13 October 2008)
banks shall be observed.
(As amended by Circular Nos. 759 dated 30 May 2012, 697
dated 29 October 2010 and 624 dated 13 October 2008)
§ X151.8 Requirements for opening a
branch/other banking office. Not later than § X151.9 Relocation of branches/other
five (5) banking days from the date of banking offices1. Relocation of existing
opening, the bank shall submit to the branches/OBOs, whether to be opened at
appropriate department of the SES of the the new site on the next banking day or
following information/documents: within one (1) year from the date of closure
a. A written notice of the actual date of of the branch/OBO, shall be allowed in
opening of its branch/OBO; and accordance with the following procedures:
b. A certification signed by the chief a. Notice of relocation of branch/OBO
compliance officer and the head of the signed by the president of the bank or officer
branches department with the rank of a vice of equivalent rank, together with a certified
president, or its equivalent or by a higher true copy of the resolution of the bank’s
ranking officer on compliance with the board of directors authorizing said
following: relocation, and an undertaking that the bank
(1) Adequacy of banking facilities shall comply with the notification
including installation of security devices requirement under Item “b” below, shall be
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013).
submitted by the bank to the appropriate closure shall be submitted to the appropriate
department of the SES. The notice shall department of the SES;
include information as to the new relocation d. Within five (5) banking days from the
site, the timetable for said relocation, date date of opening of the relocated branch/
and manner of payment of special licensing OBO, a notice of such opening, together
fee under Subsec. X151.5, as may be with a certification signed by the CCO and
applicable, and the branch/OBO that will the head of the branches department with
handle the transactions of the branch/OBO the rank of a vice president or its equivalent
to be relocated, as may be applicable. rank or by a higher ranking officer that the
b. If no reply is received by the bank bank has complied with Items “b.1” to “b.4”
from the Bangko Sentral within thirty (30) of Subsec. X151.8 on the requirements for
calendar days from date of receipt by the opening a branch/OBO shall be submitted
Bangko Sentral of the said notification, to the appropriate department of the SES.
notice of relocation shall be sent by the bank Information as to the site of the branch/OBO
to the depositors’ and other creditors’ last that was closed and the date of such closure,
known addresses by registered mail service as well as the site of the branch/OBO that
of the Philippine Postal Corporation was opened and the date of such opening
(Philpost) or delivery service of other mail shall be indicated in the said notice;
couriers or electronic mail, and posters shall e. Branches/OBO may be relocated
also be displayed in conspicuous places in anywhere, subject to the branching
the premises of the branch/OBO to be guidelines under Subsec. X151.4: Provided,
relocated at least forty-five (45) calendar days That branches/OBOs located outside the
prior to the closure of the branch/OBO to restricted areas which will be relocated to
be relocated. Information as to the new restricted areas shall be subject to the special
relocation site, the date of the opening at licensing fee under Subsec. X151.5; and
the new site, and the address of the branch/ f. Relocation of branches/OBOs beyond
OBO that will handle the transactions of the one (1) year shall be deemed as permanent
branch/OBO to be relocated, as may be closure and surrender of license of the
applicable, shall be indicated in the said branch/OBO at the old site, and the opening
notice/posters. Proofs of receipt of notice by of a branch/OBO at the new site shall be
the depositors and the creditors shall be kept deemed as an establishment of a new
on file and made available upon request of branch/OBO, subject to the provisions of
the Bangko Sentral; Subsecs. X151.2/X151.6 on the
c. Within five (5) banking days from the prerequisites for the grant of authority to
date of closure of the branch/OBO to be establish a branch/establishment of OBOs.
relocated, a notice of such closure signed (As amended by Circular Nos. 847 dated 28 August 2014,
by the Chief Compliance Officer (CCO) and 783 dated 21 January 2013, 697 dated 29 October 2010 and
624 dated 13 October 2008)
the head of the branches department with
the rank of a vice president or equivalent § X151.10 Temporary closure 1 ,
rank or by a higher ranking officer, together permanent closure and surrender of
with a certification that the notification branch/other banking office license, and
requirement in Item “b” above has been sale/acquisition of branches/other banking
complied with and, for branches/OBOs that offices
will be opened at the new site beyond the a. Temporary closure of existing
next banking day, an undertaking that the branches/OBOs. Temporary closure of
branch/OBO shall be opened at the new site existing branches/OBOs for the purpose of
within one (1) year from the date of such undertaking renovations/major repairs of
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013)
office premises/facilities and for other valid officer, together with a certification that the
reasons may be allowed: Provided, That the notification requirement in Item “(2)” above
branch/OBO shall be reopened within a has been complied with and an undertaking
period of one (1) year from the date of that the branch/OBO shall be reopened
temporary closure in accordance with the within one (1) year from the date of such
following procedures: closure shall be submitted to the appropriate
(1) Notice of temporary closure signed department of the SES; and
by the president of the bank or officer of (4) Within five (5) banking days from the
equivalent rank, together with a certified date of reopening of the branch/OBO, a
true copy of the resolution of the bank’s notice of such reopening together with a
board of directors authorizing said certification signed by the CCO and the head
temporary closure and stating the of the branches department with the rank
justifications/reasons therefor; and an of vice president or its equivalent or by a
undertaking that the bank shall comply with higher ranking officer that the bank has
the notification requirement under Item “2” complied with Items “b.1” to “b.4” of
below, shall be submitted to the appropriate Subsec. X151.8 on the requirements for
department of the SES. The notice shall opening a branch/OBO shall be submitted
include information as to the timetable for to the appropriate department of the SES.
the said temporary closure and the branch/ Temporary closure of branches/OBOs
OBO that will handle the transactions of beyond one (1) year shall be deemed as
the branch/OBO to be temporarily closed; permanent closure and surrender of license
(2) If no reply is received by the bank from of the branch/OBO, and re-opening thereof
the Bangko Sentral within thirty (30) calendar shall be deemed as an establishment of a
days from the date of receipt by the Bangko new branch/OBO, subject to the provisions
Sentral of the said notification, notice of of Subsecs. X151.2/ X151.6 on the
temporary closure shall be sent by the bank prerequisites for the grant of authority to
to the depositors’ and other creditors’ last establish a branch/establishment of OBOs.
known addresses by registered mail service b. Permanent closure and surrender of
of the PhilPost or delivery service of other mail branch/other banking office license.
couriers or electronic mail, and posters shall Permanent closure and surrender of branch/
also be displayed in conspicuous places in OBO license may be effected only with prior
the premises of the branch/OBO at least forty- approval of the Monetary Board in
five (45) calendar days prior to the temporary accordance with the following procedures:
closure. Information as to the date of the (1) Request for Monetary Board approval
reopening and the address of the branch/OBO to the closure of the branch/OBO signed by
that will handle the transactions of the branch/ the president of the bank or officer of
OBO to be temporarily closed shall be equivalent rank, together with a certified
indicated in the said notice/posters. Proofs of true copy of the resolution of the bank’s
receipts of notice by the depositors and other board of directors authorizing said closure
creditors shall be kept on file and made and stating the justifications/reasons therefor,
available upon request of the Bangko Sentral; shall be submitted by the bank to the
(3) Within five (5) banking days from appropriate department of the SES;
the date of temporary closure of the branch/ (2) Upon receipt of the notice of
OBO, a notice of such closure, signed by Monetary Board approval but at least forty-
the CCO and the head of the branches five (45) calendar days prior to the closure,
department with the rank of a vice president notice of closure shall be sent by the bank
or equivalent rank or by a higher ranking to the depositors’ and other creditors’ last
known addresses by registered mail service electronic mail, and posters shall also be
of the PhilPost or delivery service of other displayed in conspicuous places in the
mail couriers or electronic mail, and posters premises of the branch/OBO to be sold. Proofs
shall also be displayed in conspicuous places of receipt of notice by the depositors and other
in the premises of the branch/OBO to be creditors shall be kept on file and made
closed. Proofs of receipt of notice by the available upon request of the Bangko Sentral;
depositors and other creditors shall be kept (4) Within five (5) banking days from
on file and made available upon request of the date of closure of the branch/OBO, a
the Bangko Sentral; notice of such closure signed by the CCO
(3) Within five (5) banking days from the and the head of the branches department
date of closure of the branch/OBO, a notice with the rank of a vice president or equivalent
of such closure signed by the CCO and the rank or by a higher ranking officer, together
head of the branches department with the with a certification that the notification
rank of a vice president or equivalent rank, requirement under Item “3” above has been
or by a higher ranking officer, together with complied with, shall be submitted to the
a certification that the notification appropriate department of the SES;
requirement in Item “2” above has been (5) Request for Monetary Board
complied with, shall be submitted to the approval to acquire the branch/other
appropriate department of the SES; banking office signed by the president of
c. Sale/acquisition of branches/OBOs. the bank or officer of equivalent rank,
Sale/acquisition of existing/operating together with a certified true copy of the
branches/ OBOs may be allowed with prior resolution of the bank’s board of directors
approval of the Monetary Board in authorizing the acquisition shall be
accordance with the following procedures: submitted by the acquiring bank to the
(1) Prior written consent of the PDIC in appropriate department of the SES. The
the transfer of assets and assumption of acquiring bank shall likewise comply with
liabilities as provided under Section 21 of the following:
the PDIC Charter (R.A. No. 3591), as (a) Minimum capital requirement under
amended by R.A. No. 9302 shall be Subsec. X111.1 but not lower than ten P10.0
obtained by both the selling bank and the million in the case of of RBs and Coop
acquiring bank; Banks;
(2) Request for Monetary Board approval (b) Ten percent (10%) risk-based CAR;
to close the branch/OBO to be sold signed (c) CAMELS composite rating not lower
by the president of the bank or officer of than “3” with Management component
equivalent rank, together with a certified score not lower than “3” in the latest
true copy of the resolution of the bank’s examination of the bank; and
board of directors authorizing the sale shall (d) Ceiling on total investments of a
be submitted by the selling bank to the bank in real estate and improvements
appropriate department of the SES; thereon, including bank equipment.
(3) Upon receipt of the notice of Monetary A UB, KB or TB may purchase/acquire
Board approval but at least forty-five (45) branches/OBOs anywhere, including in
calendar days prior to the closure, notice of Metro Manila and in the restricted areas:
closure shall be sent to the depositors’ and Provided, That a TB may purchase/acquire
other creditors’ last known addresses by branches/OBOs in Metro Manila, including
registered mail service of the PhilPost or in the restricted areas, if it has combined
delivery service of other mail courier or capital accounts of at least P1.0 billion, and
public, shall not require prior Monetary b. Proposed business plan for the sub-
Board approval: Provided, however, That branch/es.
within five (5) banking days from date of (As amended by Circular No. 858 dated 21 November 2014)
relocation, a notice of relocation signed by
a vice president or officer of equivalent rank § X153.2 Requirements for
or by a higher ranking officer, together with establishment of sub-branches. In addition
a certified true copy of the resolution of the to the standard pre-qualification requirement
bank’s board of directors authorizing the for the grant of banking authorities in
relocation, shall be submitted to the Appendix 5, the applicant foreign bank shall
appropriate department of the SES. be subject to the branch processing fee
(As amended by Circular Nos. 847 dated 28 August 2014, provided in Subsec. X151.5: Provided, That
697 dated 29 October 2010 and 624 dated 13 October 2008) sub-branch applications in the cities of
Makati, Mandaluyong, Manila, Paranaque,
§ X152.1 Sanctions. If any part of the
Pasay, Pasig, Quezon and San Juan in Metro
certification submitted by the bank as
Manila shall also be subject to the special
required in this Section is found to be false,
licensing fee under Subsec. X151.5, as
the sanctions under Subsec. X151.12 shall
applicable.
be imposed. (As amended by Circular Nos. 858 dated 21 November 2014
and 822 dated 13 December 2013)
Sec. X153 Establishment of Sub-branches
of Foreign Bank Branches. Authority to § X153.3 Date of opening. The opening
establish sub-branches of foreign banks may of approved sub-branches shall be subject
be granted subject to Monetary Board to the provisions of Subsec. X151.7.
approval. The following guidelines shall (As amended by Circular Nos. 858 dated 21 November 2014
and 783 dated 21 January 2013)
govern the establishment of sub-branches
of foreign banks in the Philippines pursuant § X153.4 Requirements for opening a
to R.A. No. 7721, as amended by R.A. sub-branch. After a foreign bank’s
No. 10641. application to establish a sub-branch has
(As amended by Circular No. 858 dated 21 November 2014)
been approved, it may open the same
subject to the following conditions:
§ X153.1 Application for authority to
a. Submission by the applicant foreign
establish sub-branches. An application for
bank of a written notice at least thirty (30)
authority to establish sub-branches shall be
days prior to the intended date of opening,
signed by the Country Manager or the
accompanied by the following:
highest ranking officer in the Philippines of
(1) Proof or evidence of inward
the applicant foreign bank, and shall be
remittance needed to meet the additional
accompanied by the following information/
capital requirements under Subsec. X111.1,
documents:
as applicable;
a. Certified true copy of the resolution of
(2) List of principal and junior officers of
the foreign bank’s board of directors
the proposed sub-branch/es and their
authorizing the foreign bank’s Country
respective designations and salaries;
Manager or highest ranking officer in the
(3) Personal information sheet (bio-data)
Philippines to apply for authority to
for each of the officers to enable the Bangko
establish sub-branch/es and represent the
Sentral to evaluate their qualifications as
bank in connection therewith; and
officers; and
b) The notice of the bank’s closure and to open its head office and/or branch/es and/
the reason thereof shall be posted or extension offices, shall submit to the
conspicuously in the bank’s premises; and appropriate department of the SES at least
c) For branches of banks, the closure has two (2) working days before the intended
the prior approval of their respective head date of opening of the bank’s head office
offices. and/or branches and/or extension offices, a
The copy of the resolution of the local notice signed by its president or officer of
bankers association and in the case of bank equivalent rank, of its intention to open
branches, their respective head offices, during the holidays, together with a copy
approving said closure shall be filed in the of the board resolution approving the same:
premises of the banking unit concerned, Provided, further, That the notice shall
which resolution shall be made available specify which office (head office and/or
during on-site examination or when required branch/es and/or extension offices) will
by the Bangko Sentral for submission for off- open on what dates and their schedule of
site verification. banking hours.
In cases of closure of the bank and/or Subject to submission of a notice signed
their branches/EOs/OBOs due to approved by the bank president or officer of
local holidays covered by a Presidential equivalent rank, authorized agent banks of
Proclamation, no notice of temporary the BIR (BIR-AABs), and/or its branch/es
closure to the Bangko Sentral shall be and/or extension offices, are allowed to
required. open for two (2) Saturdays prior to April 15
(As amended by Circular Nos. 802 dated 21 June 2013, of every year, and daily from April 1 to
634 dated 05 December 2008 and 624 dated 13 October 2008) income tax payment deadline, to extend
banking hours from 3:00 PM to 5:00 PM to
§ X156.1 Banking hours beyond the
receive internal revenue tax payments. The
minimum; banking services during
notice, which shall specify which office
holidays. Banks may, at their discretion,
(head office and/or branch/es and/or
remain open beyond the minimum six (6)
extension offices) will open or extend
hours and for as long as they find it
banking hours on what dates, shall be
necessary, even before 8:00 AM or after
submitted to the appropriate department of
8:00 PM, subject to the submission of prior
the SES on or before the last banking day of
written notice required under
March of every year.
Subsec. X156.2 on report of, and changes
(As amended by Circular Nos. 835 dated 05 June 2014 and
in, banking days and hours, and compliance 634 dated 5 December 2008)
with the provisions of Subsecs. X156.3 on
posting of schedule of banking days and § X156.2 Report of, and changes in,
hours, and X181.4 on minimum security banking days and hours. The banking days
measures. and hours selected for each of the offices of
Banks and/or their branch/es and/or banks shall be reported in writing to the
extension offices may opt to remain open appropriate department of the SES. Banks
during any or all of their regular banking may change the banking days and hours
days that were covered by holidays for the previously reported to the Bangko Sentral
purpose of servicing deposits and by giving prior written notice: Provided, That
withdrawals: Provided, That a bank opting changes in banking days or hours shall not
be made oftener than once every thirty (30) shall govern the premises and other fixed
days, except during emergencies. assets of banks.
Emergency shall mean (a) condition of an
area or locality proclaimed by the President § X160.1 (2008 - X606.1) Appreciation
of the Philippines as in a state of emergency; or increase in book value. Bank premises,
or (b) an event or occasion or a combination furniture, fixtures and equipment shall be
of circumstances equivalent to a public accounted for using the cost model under
calamity resulting from fire, flood, or like PAS 16 “Property, Plant and Equipment.”1
disaster, or through some unusual Outstanding appraisal increment as of
occurrence or pressing necessity not 13 October 2005 arising from mergers and
reasonably subject to anticipation calling for consolidation and other cases approved by
immediate action or remedy. the Monetary Board, shall be deemed part
The prior written notice to the Bangko of the cost of the assets. However, appraisal
Sentral on changes in banking days and increment previously allowed to be booked
hours shall be given through the fastest shall be reversed.
means of communication, at least seven (7) Accordingly, the booking of
banking days before the intended effectivity appreciation or increase in the book value
of the change in banking hours or days. In of bank premises and other fixed assets in
case a bank, due to an emergency, has to cases where the market value of the property
open outside, or close during, the banking has greatly increased since the original
hours or days reported to the Bangko Sentral, purchase is no longer allowed.
a written report submitted within twenty- (As amended by Circular No. 520 dated 20 March 2006)
four (24) hours from opening or closing, as
the case may be, will suffice. The report shall § X160.2 (2008 - X606.2) Ceiling on
state the specific nature of the emergency total investments. The total investment of a
and the period the bank opened or closed bank in real estate and improvements
or shall open or close by reason of thereon, including bank equipment, shall not
emergency. exceed fifty percent (50%) of the bank’s net
worth. In determining compliance with
§ X156.3 Posting of schedule of such ceiling, the following rules shall apply:
banking days and hours. The schedule of a. The investment shall include all real
banking days and hours reported to the estate and equipment necessary for the
Bangko Sentral shall be posted bank’s immediate use in the transaction of
conspicuously at all times in the bank’s its business, such as:
premises. (1) Bank Premises - Land and Buildings,
Buildings under Construction, Leasehold Rights
Secs. X157 - X159 (Reserved) and Improvements and Furniture, Fixtures and
Equipment (as defined in the Manual of
K. BANKING PREMISES Accounts for All Banks), owned and used by
the bank in the conduct of its business, including
Sec. X160 (2008 - X606) Bank Premises and staff houses, recreational facilities and
Other Fixed Assets. The following rules landscaping costs, net of accumulated
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013).
together with the supporting records and A bank which fails to comply with the
documents involving the ROPA account; provisions of this Subsection shall be subject
and to monetary penalties under Appendix 67.
(b) Only such acquired asset, or a 1) For non-submission of the required
portion thereof, that will be (i) immediately certification
used, or (ii) ready and available for use A bank which fails to submit the
within a two (2)-year period from date of required Certification on Compliance with
reclassification (in case of ROPA earmarked Regulations on the ROPA to Bank Premises,
for future use) may be reclassified to bank Furniture, Fixture and Equipment or the
premises, furniture, fixture and equipment; certified true copy of the resolution of the
(c) ROPA reclassified to bank board of directors authorizing said
premises, furniture, fixture and equipment reclassification within the prescribed
shall be recorded at its net carrying amount deadline shall be subject to monetary
where the amounts booked as cost, penalties applicable to minor offenses under
accumulated depreciation and allowances Appendix 67 which shall be reckoned on a
for losses for bank premises, furniture, daily basis from the day following the due
fixture and equipment shall correspond to date of submission until the required
the balance of these accounts under ROPA certification on compliance or the certified
at the time of reclassification. As such, the true copy of the resolution of the board of
reclassification shall not give rise to any directors is filed with the BSP.
gains/(losses) being recognized in the bank 2) For false/misleading statements
books; and A bank which has been found to have
(d) Said reclassification shall not willfully made a false or misleading
cause the bank to exceed the prescribed statement in the required Certification on
ceiling on investment in real estate and Compliance with Rules and Regulations on
improvements thereon, including bank the ROPA to Bank Premises, Furniture,
equipment, provided under Subsec. Fixture and Equipment or in the certified true
X160.2. copy of the resolution of the bank board of
Within five (5) banking days from date directors shall be subject to the monetary
of reclassification, the bank shall submit penalties applicable to minor offenses under
the Certification on Compliance with Appendix 67 for the willful making of a false
Regulations on the Reclassification of or misleading statement which shall be
ROPA to Bank Premises, Furniture, reckoned on a daily basis from the day
Fixture and Equipment (Appendix 96) following the due date of the said
signed by the president of the bank or certification until such time that an amended
officer of equivalent rank, to the or corrected certification on compliance or
appropriate department of the SES. Said certified true copy of the resolution of the
certification shall be accompanied by the board of directors has been submitted to the
certified true copy of the resolution of the BSP.
bank’s board of directors authorizing the 2. On the concerned directors/officers
reclassification. of the bank.
Sanctions. The following sanctions a. For willful non-compliance
shall be imposed for violations noted: Directors/officers of the bank who
1. On the bank willfully fail/refuse to comply with the
a. Monetary fines provisions of this Subsection shall be subject
without prejudice to such person being a functions. No bank shall outsource inherent
nominee of a management corporation: banking functions such as:
Provided, That the responsibility and/or a Services normally associated with
accountability of anyone elected or placement of deposits and withdrawals
appointed to an officer position shall be including the recognition based on
personal in nature and cannot be delegated recording of movements in the deposit
to a corporation; and accounts;
c. Any bank that enters into contracts b. Granting of loans and extension of
contrary to this policy shall be denied the other credit exposures;
credit facilities of the Bangko Sentral. c. Position-taking and market risk-taking
activities;
Sec. X162 Statement of Principle on d. Managing of risk exposures; and
Outsourcing. An institution may outsource e. Strategic decision-making.
banking support and marketing activities (As amended by Circular No. 765 dated 03 August 2012)
subject to the provisions set forth below.
Accordingly, an institution is exposed to § X162.3 Definition. Outsourcing shall
operational risks as a result of outsourcing. refer to any contractual arrangement
As such, an institution that avails of between a bank and a qualified service
outsourcing should have in place provider for the latter to perform designated
appropriate mechanisms to ensure the activities on a continuing basis on behalf of
effective management of attendant risks. the bank.
(As amended by Circular No. 765 dated 03 August 2012) (Circular No. 765 dated 03 August 2012)
The Bangko Sentral examiners shall be the requirements provided herein upon
given access to the service provider and renewal of the agreements.
those relating to the outsourced domestic (Circular No. 765 dated 03 August 2012)
operations of the bank. Such access may be
fulfilled by on-site examination through § X162.11 (2008 - X169.19) Penalties
coordination with host authorities, if Violation of this Section shall be subject
necessary. The domestic branch of foreign to Sections 34, 35, 36 and 37 of R.A. No.
bank shall be principally liable in cases 7653, the New Central Bank Act. If the
where the clients are prejudiced due to offender is a director or officer or a bank,
errors, omissions and frauds of the service the Monetary Board may also suspend or
provider located offshore.
remove such director or officer.
The Bangko Sentral may require the bank
(As amended by Circular No. 765 dated 03 August 2012)
to terminate, modify, make alternative
outsourcing arrangement or re-integrate the
outsourced activity into the bank, as may Secs. X163 - X171 (Reserved)
be necessary, if confidentiality of customer
information, effective customer redress M. BANK OFFICES AS OUTLET OF
mechanisms or the ability of the Bangko FINANCIAL PRODUCTS OF ALLIED
Sentral to carry out its supervision functions UNDERTAKINGS/INVESTMENT
cannot be assured. HOUSE
(Circular No. 765 dated 03 August 2012)
Sec. X1721 (2008 - 1631.1; 2012 - 1172.1)
§ X162.9 Service providers. The bank Statement of Principles. The Bangko Sentral
shall carry out due diligence in selecting recognizes that bank premises may serve
service providers. It must ensure the as the point for the presentation and
integrity, technical expertise, operational distribution of a range of financial products.
capability, financial capacity and suitability However, this distribution mechanism can
of the service provider to perform the give an understanding that these financial
outsourced activity. In cases where the products are created by the bank and thus
clients are prejudiced due to errors, could lead to an impression that the bank
omissions and frauds by the service ultimately bears the responsibility for their
provider, the bank shall be liable in performance. The Bangko Sentral, therefore,
providing the appropriate remedies as may provides an enabling environment for cross-
be allowed by laws or regulations, without selling activities which defines the
prejudice to recourse by the bank to the responsibilities of banks for managing the
service provider. attendant risks and upholding consumer
(Circular No. 765 dated 03 August 2012) protection.
(As amended by Circular Nos. 844 dated 11 August 2014 and
801 dated 27 June 2013)
§ X162.10 Transitory provision. All
outsourcing agreements must be aligned § X172.1 Definition. The following
with the provisions of Sec. X162. Existing terms as used in this Section are governed
outsourcing agreements which are not in by the following definition-
accordance with this Section will not be a. Cross-selling means the presentation
unwound. However, it must comply with and/or sale of a financial product, other than
1
Within thirty (30) calendar days from 30 August 2014, the bank shall review all its existing cross-selling
arrangements and determine its compliance with the revised rules. All deviations shall be reported to the
Bangko Sentral within the same period. If the bank is fully compliant, it shall issue a certification to the Bangko
Sentral to this effect. All financial products that had been allowed and/or approved for cross-selling prior to
30 August 2014 shall be given up to 31 August 2015 within which to comply with the requirements as set forth
under this Section.
bank’s own financial product, to a bank Simple retailed financial products which
client inside bank premises through written do not create exposure to investment risks
or verbal communications. may be cross-sold inside bank premises.
b. Financial conglomerate refers to a These include:
group of interrelated entities providing a. Retail lending or loan products such
significant services in at least two (2) as credit cards, home mortgage loans,
different financial sectors (banking, personal loans, auto loans and other related
securities and insurance). A banking group retail loan products;
is subsumed within the context of a financial b. Other retail financial products such
conglomerate. A financial product provider as cash cards, debit cards and other related
must have been disclosed and reported as products; and
part of the group structure pursuant to c. Other similar financial products as
Subsec. X141.3. may be authorized by the Monetary Board.
c. Financial product of an allied Simple insurance products such as
undertaking under Section 20 of the General traditional life (whole life, term,
Banking Law refers to financial products endowment), non-life (marine, fire, casualty,
created by a financial product provider suretyship), and other similar protection-
belonging to the same financial type insurance products, except variable
conglomerate. insurance contracts, as governed by the
d. Financial product provider means a Insurance Code are considered as simple
financial entity which creates the financial retail financial products. These may be
product. The financial product provider cross-sold inside bank premises regardless
should be regulated or supervised by either of whether the financial product provider
the Bangko Sentral, the Securities and belongs to the same financial conglomerate
Exchange Commission (SEC) or the or not.
Insurance Commission (IC). Collective investment schemes (CIS) of
e. Bank premises refer to the physical financial product providers belonging to the
area occupied by the bank’s head office, same financial conglomerate may be cross-
branches and other offices. sold inside bank premises. These refer to:
f. Investment risk refers to the potential a. Mutual funds registered with the
loss of the principal amount (either full or SEC;
partial) invested by the investor. It also refers b. UITFs as authorized by the Bangko
to the possibility of not achieving targeted Sentral;
rate of returns for a given investment c. Variable unit-linked life insurance
transaction. policy (VULs) as governed by the Insurance
(Circular No. 801 dated 27 June 2013, as amended by Circular Code or under the relevant rules and
No. 844 dated 11 August 2014) regulations as may be issued by the IC.
(As amended by Circular Nos.844 dated 11 August 2014 and
§ X172.2 (2008 - 1631; 2012 – 1172) 801 dated 27 June 2013)
Financial products. Unless otherwise
provided, financial products should be § X172.3 Governance. The board of
created by a financial product provider directors of the bank (or its equivalent in
belonging to the same financial the case of foreign bank branches) shall
conglomerate. Moreover, such financial oversee the implementation of its policies
products should have been duly approved relating to cross-selling arrangements.
by the respective regulator, as provided The bank shall exercise due care and
under its rules, before these can be presented diligence in carrying out cross-selling
and/or sold inside bank premises. activities. This process shall extend to both
the financial products and financial product Bank employees authorized to market and/
providers. The bank shall put in place a or sell CIS shall be clearly identified.
formal written policy to assess the nature of c. The presentation and/or sale of CIS
the financial product and its suitability for shall be conducted in an area distinct from
target customer segments. This written areas where own bank products are sold.
policy should, at the very least, enable the (Circular No. 801 dated 27 June 2013, as amended by Circular
bank to reach an objective assessment of No. 844 dated 11 August 2014)
the suitability of the financial product to be
§ X172.4 (2008 - 1631.1; 2012 –
cross-sold.
1172.3) Minimum documentary
The bank shall recognize the customers’
requirements. The bank should maintain
right to product choice, to refuse bundled
necessary documentation to support that
or tiered financial products or services under
cross-selling arrangements are properly
cross-selling arrangements, and to substitute
reviewed and appropriate due diligence has
equivalent financial products by reputable
been undertaken.
competitors.
This shall, at a minimum, include the
The bank shall ensure that a mechanism
following:
is in place to address any complaints that
a. Approval of the board of directors
may arise from cross-selling transactions.
of both the bank and the financial product
This mechanism shall form part of the
provider to use the former’s bank premises
agreement between the bank and the
for the presentation and sale of the latter’s
financial product provider.
financial products;
The bank shall periodically review all
b. Audited financial statements of the
of its cross-selling arrangements. In
financial product provider for the last three
particular, the bank shall take into account
(3) years;
operational and reputational risks that may
c. Detailed description of the financial
arise in the arrangement. The results of the
product and proof of regulatory approval, if
continuing review shall be reported to the
any;
board of directors of the bank. The bank shall
d. Registration and/or accreditation of
likewise maintain a register of its cross-
the financial product provider from the
selling arrangements particularly on the list
respective regulator;
of financial products and financial product
e. Contract between the bank and the
providers.
financial product provider;
To avoid any impression that the
f. Sample of contracts between the
fulfillment of promises of the CIS products
financial product provider and its clients;
cross-sold within bank premises are
g. Promotional materials; and
guaranteed by the bank, the following shall
h. Training profile and necessary
be observed, at all times:
license, if required, of representatives who
a. Unless specifically trained and
will be handling the cross-selling activity.
qualified for the purpose, the role of bank
These documents shall be made
employees in cross-selling CIS shall be
available when requested by Bangko
limited to the referral of bank clients to the
Sentral examiners.
representatives of financial product (As amended by Circular No. 801 dated 27 June 2013)
providers. Clients should give prior consent
before any such referral. § 1172.4 (2008 - 1631.4) Financial
b. There shall be clear distinction ratios and other related requirements
between representatives of financial product (Deleted by Circular No. 801 dated 27 June 2013)
providers who sell CIS and bank employees.
(5) How can you exit from this X172.5. The text should be in bold with a
investment and what are the risks and costs minimum font size of 12.
in doing so? The cross-selling bank shall maintain
(6) How do you contact us? adequate documentation, available for
(7) What other important information inspection by the Bangko Sentral examiners,
should you know before you invest? to evidence that above requisites are
b. Client Suitability Assessment (CSA) properly undertaken.
A CSA of each client shall be undertaken (Circular No. 844 dated 11 August 2014)
prior to the acquisition of an investment
product by the client. The CSA should § X172.7 Financial product providers
determine the client’s understanding of, The bank shall exercise due care and
tolerance for and capacity in managing diligence in selecting financial product
various risks. providers. The bank shall consider the
c. Investment Policy Statement (IPS). As integrity, operational capability, financial
a complement to a CSA, an IPS must have capacity and track record of the financial
been generated for a bank client. The IPS product provider. In particular, the bank
formalizes the investment philosophy of the shall ensure that the financial product
client as well as any investment directive of provider has in place a mechanism to resolve
the client with respect to the handling of all queries, problems and other concerns
his investible funds. arising from cross-selling activities.
d. Disclosure of conflict of interest. It is the responsibility of the financial
Financial product providers should disclose product provider to assess its
any material information which can give rise representatives in terms of sufficient
to an actual or potential conflict of interest knowledge of the financial product,
to the client. Financial product providers adequate training and necessary license,
should take all reasonable steps to ensure when required.
fair dealings with client. The Bangko Sentral should be satisfied
e. Standard disclosure statement. All that the bank and the financial product
promotional materials, product highlights provider belong to the same financial
sheet and contracts of collective investment conglomerate, as applicable, before cross-
schemes should contain a standard selling arrangements may be allowed.
disclosure statement which reads as: When the financial product provider is
“This is not a deposit product. Earnings under the supervision of the Bangko Sentral,
are not assured and principal amount the financial product provider must have a
invested is exposed to risk of loss. This CAMELS composite rating of at least “3” or
product cannot be sold to you unless its its equivalent.
(Circular No. 801 dated 27 June 2013, as amended by Circular
benefits and risks have been thoroughly No. 844 dated 11 August 2014)
explained. If you do not fully understand
this product, do not purchase or invest in § 1172.7 (2008 - 1631.7) Training
it.” (Deleted by Circular No. 801 dated 27 June 2013)
This disclosure statement shall be
placed in the front cover of any material used § X172.8 (2012 – 1172.2; 2008 -
within bank premises for cross-selling 1631.2) Authority to cross-sell. Banks with
purposes. This is in addition to the CAMELS composite rating of at least “3”
minimum information provided in Subsec. or its equivalent and without major
supervisory concerns may be given
1
Dated 25 October 2006
2
Dated 29 January 2010
1
To act as a microinsurance agent of an authorized insurance provider, a bank needs to acquire the appropriate
license from the lC. The requirements for such application consist of: (i) attendance in prescribed microinsurance
training course and passing the qualifying examination at the end of the course; and (ii) amending a bank’s
articles of incorporation (AOl). In view of the latter requirement, applicant banks shall amend their AOI by
including a secondary purpose of acting as a microinsurance agent, and shall submit simultaneously the
amended AOI to the appropriate BSP office and the lC. (See lC Memo Circular No. 6-2011 dated 15 February
2011)
6. Certification from the bank president 8. Such other information that may be
that he/she ascertained and will ensure required by the Bangko Sentral.
continuing compliance with the following: (Circular No. 683 dated 23 February 2010, M-2011-015 dated
a. The product is authorized for cross 18 March 2011)
selling under existing Bangko Sentral rules
and regulations; Sec. 3172 Marketing, Sale and Servicing of
b. The microinsurance product is Microinsurance Products by Rural and
approved by the Insurance Commission and Cooperative Banks. The marketing, sale and
issued by an entity duly licensed and held servicing of microinsurance products by
in good standing by the Insurance RBs and Coop Banks shall comply with the
Commission; guidelines in Sec. 2172.
c. The bank conducted product due (Circular No. 683 dated 23 February 2010)
diligence to be suitable to its customers;
d. The organic, informational and N. RISK MANAGEMENT
promotional materials for the
Sec. X173 Supervision by Risks. The
microinsurance products comply with
guidelines on supervision by risk to provide
Bangko Sentral requirements; and guidance on how many banks should
e. The bank personnel concerned has identify, measure, monitor and control risks
undertaken the necessary training and are shown in Appendix 72.
passed the qualifying examination for the
presentation and sale of microinsurance The guidelines set forth the expectations
products, in compliance with the of the Bangko Sentral with respect to the
requirements set forth by the Insurance management of risks and are intended to
Commission on marketing personnel for provide more consistency in how the risk-
insurance products. focused supervision function is applied to
7. A letter of undertaking from the bank these risks. The Bangko Sentral will review
president that he/she will ensure the the risks to ensure that a bank’s internal risk
retention of the following: management processes are integrated and
a. Copies of the latest Certificate of comprehensive. All banks should follow the
Authority from the Insurance Commission guidelines in their risk management efforts.
Applicability to branches of foreign
covering all insurance companies whose
banks. Branches of foreign banks shall
microinsurance products are being
comply with the governance policies,
marketed or sold by the bank; practices and systems of the head office as
b. Copies of the letters of approval from well as meet the applicable standards,
the Insurance Commission covering all the principles and requirements set forth under
microinsurance products to be marketed or Secs. X141, X142, X174, except the
sold; reportorial requirements under Subsec.
c. Bank’s license from the Insurance X141.3c(9) on group structures.
Commission as a microinsurance agent or Reports of assessment of the risk
broker or in lieu of a bank’s license as a management, compliance function and
microinsurance agent or broker, copies of internal audit group of branches of foreign
the license from the Insurance Commission banks shall be made available to the Bangko
covering all its marketing personnel for Sentral, during on-site examination or any
microinsurance products; and time upon request.
(As amended by Circular Nos. 749 dated 27 February 2012 and
510 dated 19 January 2006)
Sec. X174 Risk Management Function. The The CRO shall have sufficient stature,
risk management function is generally authority and seniority within the bank. This
responsible for: will be assessed based on the ability of the
a. identifying the key risk exposures and CRO to influence decisions that affect the
assessing and measuring the extent of risk bank’s exposure to risk. The CRO shall have
exposures of the bank and its trust the ability, without compromising his
operations; independence, to engage in discussion with
b. monitoring the risk exposures and the board of directors, chief executive officer
determining the corresponding capital and other senior management on key risk
requirement in accordance with the Basel issues and to access such information as he
capital adequacy framework and based on deems necessary to form his or her
the bank’s internal capital adequacy judgment. The CRO shall meet with the
assessment on an on-going basis; board of directors/risk oversight committee
c. monitoring and assessing decisions on a regular basis and such meetings shall
to accept particular risks whether these are be duly minuted and adequately
consistent with board approved policies on documented.
risk tolerance and the effectiveness of the CROs shall be appointed and replaced
corresponding risk mitigation measures; and with prior approval of the board of
d. reporting on a regular basis to senior directors. In cases, when the CRO will be
management and to the board of directors replaced, the bank shall report the same to
of the results of assessment and monitoring. the appropriate department of the SES within
Risk management personnel shall five (5) days from the time it has been
possess sufficient experience and approved by the board of directors. TBs, RBs
qualifications, including knowledge on the and Coop Banks, may appoint a CRO, or
banking business, the developments in the any equivalent position, who shall be
market, industry and product lines, as well subject to the independence and
as mastery of risk disciplines. They shall qualification requirements applicable to
have the ability and willingness to challenge CROs for UBs and KBs.
business lines regarding all aspects of risk (Circular Nos. 757 dated 08 May 2012 and 749 dated
arising from the bank’s activities. 27 February 2012)
managing market risk are continuously to address risks associated with emerging
evolving. As such, the guidelines are trends in technology and growing concerns
intended for general application; specific on cyber security.
application will depend to some extent on (Circular No. 511 dated 03 February 2006, as amended by Circular
Nos. 808 dated 22 August 2013, 757 dated 08 May 2012 and
the size, complexity and range of activities
749 dated 27 February 2012)
undertaken by individual banks.
The guidelines on risk management for § X177.1 Declaration of policy. A
derivatives are shown in Appendix 25. growing number of Bangko Sentral
(Circular No. 544 dated 15 September 2006, as amended by
supervised institutions (BSIs) employ the
Circular Nos.757 dated 08 May 2012, and 749 dated 27 February
2012) advances in technology as leverage to offer
innovative products, deliver fast and efficient
Sec. X176 (2011 - X175) Liquidity Risk service at affordable prices, and venture to
Management. The guidelines on liquidity risk new markets. Moreover, technology drives
management in Appendix 74 set forth the the efficiency of operations and financial
expectations of the Bangko Sentral with accounting of these institutions, and
respect to the management of liquidity risk improves their decision-making process. As
and are intended to provide more consistency technology becomes an integral part of the
in how the risk-focused supervision function business and operations of BSIs, such
is applied to this risk. Banks are expected to technology usage and dependence, if not
have an integrated approach to risk properly managed, may heighten technology
management to identify, measure, monitor and risks. The Bangko Sentral expects BSIs to
control risks. Liquidity risk should be reviewed have the knowledge and skills necessary to
together with other risks to determine overall understand and effectively manage
risk profile. technology risks. These institutions are
The guidelines are intended for general required to have an integrated approach to
application; specific application will depend risk management to identify, measure,
on the size and sophistication of a particular monitor and control risks.
(Circular No. 808 dated 22 August 2013)
bank and the nature and complexity of its
activities. § X177.2 Purpose and scope. The
The guidelines on risk management for enhanced guidelines aim to provide
derivatives are shown in Appendix 25. guidance in managing risks associated with
(Circular No. 545 dated 15 September 2006, as amended by
Circular Nos. 757 dated 08 May 2012 and 749 dated 27 February use of technology. The guidelines outlined
2012) are based on international standards and
recognized principles of international
Sec. X177 Information Technology Risk practice for ITRM and shall serve as Bangko
Management (ITRM). The enhanced Sentral’s baseline requirement for all BSIs.
guidelines on ITRM keep abreast with the The guidelines shall apply to BSIs which
aggressive and widespread adoption of include banks, non-banks with quasi-
technology in the financial service industry banking function (NBQB), non-bank
and consequently strengthen existing electronic money issuers and other non-bank
Bangko Sentral framework for IT risk institutions which under existing Bangko
supervision. ITRM should be considered a Sentral rules and regulations and special
component and integrated with the laws are subject to Bangko Sentral
institutions’ risk management program. The supervision and/or regulation. Moreover,
guidelines likewise provide practical plans subject guidelines shall also apply to BSIs
officer who oversees the business user of executive management with direct
groups. The head of control groups should involvement in key decisions for the BSI and
participate in ITSC meetings in advisory usually reports directly to the President or
capacity only. Chief Executive Officer.
A charter should be ratified by the Board A clear description of roles and
to clearly define the roles and responsibilities for individual IT functions
responsibilities of the ITSC. Formal minutes should be documented and approved by the
of meeting should be maintained to Board. Proper segregation of duties within
document its discussions and decisions. The and among the various IT functions should
ITSC should regularly provide adequate be implemented to reduce the possibility
information to the Board regarding IT for an individual to compromise a critical
performance, status of major IT projects or process. A mechanism should be in place
other significant issues to enable the Board to ensure that personnel are performing only
to make well-informed decisions about the the functions relevant to their respective jobs
BSIs’ IT operations. and positions. In the event that an institution
BSIs should develop an IT strategic plan finds it difficult to segregate certain IT control
that is aligned with the institution’s business responsibilities, it should put in place
strategy. This should be undertaken to adequate compensating controls (e.g. peer
manage and direct all IT resources in line reviews) to mitigate the associated risks.
with the business strategy and priorities. IT b. IT policies, procedures and
strategic plan should focus on long term standards. IT controls, policies, and
goals covering three (3) to five (5) year procedures are the foundation of IT
horizon and should be sufficiently governance structure. It helps articulate the
supplemented by tactical IT plans which rules and procedures for making IT
specify concise objectives, action plans and decisions, and helps to set, attain, and
tasks that are understood and accepted by monitor IT objectives.
both business and IT. The IT strategic plan BSIs should adopt and enforce IT-related
should be formally documented, endorsed policies and procedures that are well-
by the Board and communicated to all defined and frequently communicated to
stakeholders. It should be reviewed and establish and delineate duties and
updated regularly for new risks or responsibilities of personnel for better
opportunities to maximize the value of IT to coordination, effective and consistent
the institution. performance of tasks, and quicker training
BSIs should also create an organization of new employees. Management should
of IT functions that will effectively deliver ensure that policies, procedures, and
IT services to business units. For “Complex” systems are current and well-documented.
BSIs, a full-time IT Head or equivalent rank The ITSC should review IT policies,
should be designated to take the lead in key procedures, and standards at least on an
IT initiatives and oversee the effectiveness annual basis. Any updates and changes
of the IT organization. In addition to should be clearly documented and properly
managing the delivery of day-to-day IT approved. IT policies and procedures
services, the IT Head should also oversee should include at least the following areas:
the IT budget and maintain responsibility for • IT Governance/ Management;
performance management, IT acquisition • Development and Acquisition;
oversight, professional development and • IT Operations;
training. The IT Head should be a member • Communication networks;
is not properly managed, the potential for ITRM processes should be integrated
inaccurate reporting and flawed decision into the enterprise-wide risk management
making increases. Because report processes to allow BSIs to make well-
generation systems can rely on manual data informed decisions involving business plans
entry or extract data from many different and strategies, risk responses, risk tolerance
financial and transaction systems, levels and capital management, among
management should establish appropriate others.
control procedures to ensure information is 2. Risk identification and assessment.
correct, relevant, and adequately protected. BSIs should maintain a risk assessment
Since MIS can originate from multiple process that drives response selection and
equipment platforms and systems, the controls implementation. An effective IT
controls should ensure all information assessment process begins with the
systems have sufficient and appropriate identification of the current and prospective
controls to maintain the integrity of the IT risk exposures arising from the
information and the processing institution’s IT environment and related
environment. Sound fundamental principles processes. The assessments should identify
for MIS review include proper internal all information assets, any foreseeable
controls, operating procedures, safeguards, internal and external threats to these assets,
and audit coverage. the likelihood of the threats, and the
f. IT risk management function. adequacy of existing controls to mitigate the
Management of risk is a cornerstone of IT identified risks. Management should
Governance. BSIs should have a policy continually compare its risk exposure to the
requiring the conduct of identification, value of its business activities to determine
measurement, monitoring and controlling of acceptable risk levels.
IT risks for each business function/service Once management understands the
on a periodic basis. BSIs should define and institution’s IT environment and analyzes
assign these critical roles to a risk the risk, it should rank the risks and prioritize
management unit or to a group of persons its response. The probability of occurrence
from different units collectively performing and the magnitude of impact provide the
the tasks defined for this function. foundation for reducing risk exposures or
The function should have a formal establishing mitigating controls for safe,
technology risk acknowledgement and sound, and efficient IT operations
acceptance process by the owner of risk to appropriate to the complexity of the
help facilitate the process of reviewing, organization. Periodic risk assessment
evaluating and approving any major process should be done at the enterprise-
incidents of non-compliance with IT control wide level and an effective monitoring
policies. The process can be supported by program for the risk mitigation activities
the following: should be manifested through mitigation or
• a description of risk being corrective action plans, assignment of
considered for acknowledgement by owner responsibilities and accountability and
of risk and an assessment of the risk that is management reporting.
being accepted; 3. IT controls implementation. Controls
• identification of mitigating controls; comprise of policies, procedures, practices
• formulation of a remedial plan to and organizational structures designed to
reduce risk; and provide reasonable assurance that business
objectives will be achieved and undesired
• approval of risk acknowledgement
events will be mitigated. Management
from the owner of the risk and senior
should establish an adequate and effective
management.
1
All BSIs shall support migration to EMV standards. Consequently, all cards issued and card-accepting devices
should be EMV-compliant by 1 January 2017.
SLA with business units and IT department channels, processes and other relevant
should be established to provide a baseline information regarding the use of technology,
to measure IT performance. BSIs are required to submit the following:
c. Quality assurance/quality control. a. Annual IT Profile, electronically to the
BSI should establish quality assurance (QA) Bangko Sentral Supervisory Data Center
and quality control (QC) procedures for all (SDC) within twenty five (25) days from the
significant activities, both internal and end of reference year (Guidelines to be
external, to ensure that IT is delivering value observed in the preparation and submission
to business in a cost effective manner and of this report was issued under Bangko
promotes continuous improvement through Sentral Memorandum to All Banks No.
ongoing monitoring. QA activities ensure M-2012-011 dated 17 February 2012);
that product conforms to specification and b. Report on breach in information
is fit for use while QC procedures identify security, especially incidents involving the
weaknesses in work products and to avoid use of electronic channels, pursuant to the
the resource drain and expense of redoing provisions of Items “a” or “b” of Subsec.
a task. The personnel performing QA and X192.4 following the guidelines provided
QC reviews should be independent of the in Item “d” of the same Subsection
product/process being reviewed and use Depending on the nature and seriousness
quantifiable indicators to ensure objective of the incident, Bangko Sentral may require
assessment of the effectiveness of IT the BSI to provide further information or
activities in delivering IT capabilities and updates on the reported incident until the
services. matter is finally resolved; and
d. Policy compliance. BSIs should c. Notification letter to the Core
develop, implement, and monitor processes Information Technology Specialist Group
to measure IT compliance with their (CITSG) of the Bangko Sentral of disruption
established policies and standards as well of IT services/operations that resulted to the
as regulatory requirements. In addition to activation of disaster recovery and business
the traditional reliance on internal and third continuity plan immediately upon activation
party audit functions, BSIs should perform of the plan.
self-assessments on a periodic basis to gauge (Circular No. 808 dated 22 August 2013)
performance which often lead to early
§ X177.9 Sanctions and penalties. BSIs
identification of emerging or changing risks
should make available IT policies and
requiring policy changes and updates.
procedures on the foregoing and other related
e. External assessment program.
documents during the on-site examination as
Complex BSIs may also seek regular
well as provide a copy thereof when written
assurance that IT assets are appropriately
request was made to determine their
secured and that their IT security risk
compliance with this Section.
management framework is effective. This
Any violation of the provisions of this
may be executed through a formal external
Section, its appendices and annexes, shall be
assessment program that facilitates a
subject to the monetary and non-monetary
systematic assessment of the IT security risk
sanctions provided under Section 37 of
and control environment over time.
(Circular No. 808 dated 22 August 2013, as amended by Circular
R.A. No. 7653. Enforcement actions shall be
Nos. 859 dated 24 November 2014 and 833 dated 28 May 2014) imposed on the basis of the overall assessment
of BSIs’ ITRMS. Whenever a BSI’s ITRMS is
§ X177.8 Reports. To enable the Bangko rated “1” pursuant to Subsec. X177.4, the
Sentral to regularly monitor IT risk profile following additional sanctions may be
and electronic products, services, delivery imposed:
1
FIs shall be given six (6) months from 19 November 2014 to: (1) perform a gap analysis of their current
practices vis-à-vis this Section and (2) propose an action plan duly approved by the board of directors to
achieve full compliance within a reasonable period of time but in no case longer than two (2) years from
19 November 2014.
All action plans shall be subject to acceptance by the Bangko Sentral through the Deputy Governor,
Supervision and Examination Sector. All requests for regulatory relief shall be subject to prior Monetary Board
approval.
Any FI that fails to comply with the obligations prescribed during this transition period shall be subject to
the imposition of appropriate monetary and/or non-monetary sanctions.
for loan losses. In the case of simple FIs, § X178.4 Credit risk strategy. The credit
such independent credit review function risk strategy must reflect the FI’s profitability
may be concurrently performed by and portfolio growth targets, and must be
qualified personnel fulfilling other consistent with the credit risk tolerance and
independent control oversight functions overall corporate strategy and business
(e.g. compliance, internal audit). goals of the FI.
g. The workout or problem loan a. In formulating the credit risk strategy,
management is another function within the the FI shall articulate the desired market
middle office that is independent from the segments and types of credit exposures
credit originating function to ensure that (e.g., commercial credits, retail credits, real
problem loans are managed effectively to estate, investments, trading products, credit
minimize potential losses. For simple FIs, commitments and/or guarantees); specific
however, the function may still be characteristics of clients, economic sector,
performed by the credit originating function geographical location; the portfolio mix that
and/or unit responsible for monitoring the reflects the acceptable level of diversification
quality of such credit. and concentration; and consider the risk/
h. The structure shall likewise provide reward trade-off by factoring in, to the
for independent audits, i.e., internal audit greatest extent possible, price and non-price
and compliance, to conduct independent (e.g. collateral, restrictive covenants, etc.)
credit and compliance audits of the credit terms as well as likely downside scenarios
risk management system of the FI. The scope and their possible impact on the obligors.
of internal audit shall include the evaluation The FI shall likewise define acceptable
of the independence and overall and unacceptable types of credits, clients,
effectiveness of the credit review function. activities, transactions and behaviors that
i. Regardless of the organizational could result or potentially result in conflict
structure that an FI adopts, the board shall of interest, personal gain at the expense of
ensure that the aforementioned key the FI, or unethical conduct.
functions are considered and independence b. The credit risk strategy shall consider
and control oversight functions are effective the cyclical aspects of the economy and the
to avoid or address any potential conflict of varying effects of the economic cycle on the
interest. credit portfolio of the FI.
j. Personnel or staff involved in all (Circular No. 855 dated 29 October 2014)
phases of the credit risk management
§ X178.5 Credit policies, processes and
process shall be qualified, competent and
procedures. FIs shall have in place a sound,
have the necessary training and experience
comprehensive and clearly defined credit
to exercise prudent judgment in assessing,
policies, processes and procedures
managing and/or controlling credit risk, and
consistent with prudent standards, practices,
a solid understanding of an FI’s strategic
and relevant regulatory requirements
direction, policies, procedures, risk
adequate for the size, complexity and scope
tolerance and limits. Their qualification
of an FI’s operations. The board-approved
standards, roles and responsibilities shall
policies, processes and procedures shall
be clearly defined in the credit operating
cover all phases of the credit risk
policies and procedures manual of the FI.
management system.
The board and senior management shall
a. FIs shall establish appropriate
ensure that adequate resources and
processes and procedures to implement the
appropriate level of staffing are allocated to
credit policy and strategy. These processes
execute all kinds of credit activities.
(Circular No. 855 dated 29 October 2014) and procedures, as well as the credit policy,
its financial strength and undermine public trading books and off-balance sheet
confidence in the FI. Concentration risk can transactions.
arise from excessive exposures to c. Defining limit structure on each of
individual obligors, groups of connected the foregoing categories. Limits shall
counterparties and groups of meaningfully aggregate credit exposures,
counterparties with similar characteristics both in the banking, trading book and on
(e.g., counterparties in specific geographical and off the balance sheet and shall be
locations, economic or industry sectors) or reasonable in relation to the FI’s level of risk
entities in a foreign country or a group of tolerance, historical loss experience, capital
countries with strongly interrelated and resources. Such limits can be based in
economies. part on the internal risk rating assigned to
While concentration of credit risks is the obligor or counterparty.
inherent in banking and cannot be totally d. Procedures shall ensure that limits
eliminated, this can be mitigated by adopting are not exceeded and are clearly
policies and processes that would limit and communicated, periodically reviewed and
control credit exposures and employing modified, as appropriate. Should exceptions
portfolio diversification strategies. Policies to policy be allowed, the circumstances
and procedures may include, but are not under which limits may be exceeded and
limited to the following: the party authorized to approve such
a. Policies and procedures for excesses shall be clearly articulated in the
identifying, reviewing, managing and credit policy.
reporting large exposures and concentration (Circular No. 855 dated 29 October 2014)
risks of the FI.
b. Segmenting its portfolio into the § X178.10 Country and transfer risks
following diverse categories or such other Country risk refers to uncertainties arising
segmentations consistent with the FI’s credit from economic, social and political
strategy. conditions of a country which may cause
(1) Various types of borrowers/ obligors in that country to be unable or
counterparties or loan category (e.g., unwilling to fulfill their obligations. Transfer
government, banks and other FIs, corporate risk exists when an obligor is unable to
and individual borrowers, including secure foreign exchange to service external
exchanges, electronic communication obligations due to restrictions imposed by
networks or ECNs and clearing houses); the country on foreign exchange remittance
(2) A group of connected borrowers/ or repayment on foreign-currency
counterparties (includes aggregating denominated assets to a foreign lender. FIs
exposures to groups of accounts exhibiting that have cross-border credit risk exposures
financial or economic interdependence, shall have adequate internal capacity for
including corporate or non-corporate, identifying, measuring, monitoring and
where they are under common ownership controlling country and transfer risks in its
or control or with strong connecting links, international lending and investment
e.g. common management, familial ties); activities, and shall not place undue reliance
(3) Individual industry sectors; on external ratings. An FI shall consider the
(4) Geographic regions or countries; following:
(5) Loan structure, collateral, and tenor; a. Establishing credit-granting criteria
and taking into consideration country risk factors
(6) Various types of investments, that shall include the potential for default of
including other credit instruments in the foreign private sector obligors arising from
country-specific economic, social and affiliates, and other related parties, ensuring
political factors, the enforceability of loan that there is effective compliance with existing
agreements, and the timing and ability to laws, rules, and regulations at all times and
realize collateral under the national legal that no stakeholder is unduly disadvantaged.
framework. The results of the country risk a. All extensions of credit must be made
analysis shall be integrated into the internal on an arm’s-length basis, in accordance with
credit risk rating of the obligor. These the FI’s credit-granting criteria and in the
country risk factors shall be regularly regular course of business, and upon terms
monitored. An FI shall also assess an not less favorable to the FI than those offered
obligor’s ability to obtain foreign exchange to non-related borrowers.
to service cross-currency debt and honor b. FI policies shall cover standards that
contracts across jurisdictions. require directors and/or officers to avoid
b. Country risk limits shall be put in placing themselves in a position that creates
place and regularly reviewed to determine conflict of interest or the appearance of
that approved limits still reflect the FI’s conflict of interest. The board and
business strategy in line with the changing management shall likewise establish and
market conditions. FIs shall ensure that implement policies that require full
country exposures are reported and disclosure of personal interests that they
monitored against these limits. Significant may have in credit transactions. Directors
country risks shall be assessed and and officers with personal interest in a
highlighted in credit proposals submitted to transaction shall not participate in any
management for approval. deliberation, approval, or voting on the
c. Credit policy shall clearly articulate
matter.
appropriate countermeasures that an FI shall
(Circular No. 855 dated 29 October 2014)
take in the event of an adverse development
in a particular country where it has
C. Maintaining an Appropriate Credit
exposures. These measures shall include
Administration, Measurement, and
closer analysis of the obligor’s capacity to
Monitoring Process
repay, provisioning and preparation of
contingency plans if country risk continues
§ X178.12 Credit administration. FIs
to deteriorate. It shall consider in its monitoring
shall have in place a system for the ongoing
and evaluation of country and transfer risks,
administration of their various credit
the internal and external country risk rating
portfolios. Credit administration refers to
transitions and economic social and political
the back office activities that support and
developments of the relevant countries. Any
significant changes to the conditions of a control extension and maintenance of
country shall also be elevated to the BOD credit. FIs shall ensure the efficiency and
promptly particularly if the FI has substantial effectiveness of the following credit
exposure to that country. administration functions:
(Circular No. 855 dated 29 October 2014) a. Credit documentation. Procedures
shall be put in place to ensure completeness
§ X178.11 Credits granted to related of documentation in accordance with policy
parties. Consistent with sound corporate including a file documentation tickler
governance practices, the board and senior system;
management shall articulate and implement b. Disbursement. Proper approval shall
clear policies in handling transactions with be obtained and complete documentation
directors, officers, stockholders, their related ensured prior to disbursement. Exceptions,
interests (DOSRI), the FI’s subsidiaries and if any, shall be duly approved;
c. Billing and repayment. Payments integral part of the process of evaluation and
received shall be properly recorded. review of prospective and existing
Measures shall be in place to ensure that exposures. Credit underwriting criteria shall
late payments are tracked and collected; and become progressively more stringent as
d. Maintenance of credit files. Credit credit rating declines;
files shall include sufficient and updated (2) It must be fully documented and
information necessary to ascertain the shall address topics such as coverage, rating
financial condition of the obligor or criteria, responsibilities of parties involved
counterparty and include documents in the ratings process, definition of what
covering the history of an FI’s relationship constitutes a rating exception, parties that
with the obligor. All loan and collateral have authority to approve exceptions,
documents shall be kept in a secured area frequency of rating reviews, and
under joint custody. management oversight of the rating process.
(Circular No. 855 dated 29 October 2014) In addition, FIs must document the rationale
for its choice of rating criteria and must be
§ X178.13 Credit risk measurement,
able to provide analyses demonstrating that
validation and stress testing. FIs shall adopt
the rating criteria and procedures are likely
sound and appropriate risk measurement
to result in ratings that meaningfully
methodologies which shall provide a
differentiate risk;
framework to control and monitor the
(3) All credit exposures shall be rated
quality of credit as well as total loan
for risk. Where individual credit risk ratings
portfolio.
are not assigned, e.g., small-denomination
a. Internal credit risk rating system. FIs performing loans, FIs shall assign the
shall develop and utilize an internal risk portfolio of such exposures a composite
rating system appropriate to the nature, size credit risk rating that adequately defines its
and complexity of the FI’s activities in order risk, i.e., repayment capacity and/or loss
to help the board and senior management potential;
differentiate risks across the individual (4) The board shall receive sufficient
credits and groups and to facilitate informed information to oversee management’s
decision making. implementation of the process. Migration
FIs shall have sophisticated rating analysis/transition matrix of ratings shall be
systems involving sufficiently granular regularly reported to show the actual
rating grades. Simple FIs may adopt simpler performance of the rating system over time;
systems. In all cases, however, FIs shall (5) The risk rating system shall
demonstrate the influence of the internal risk encompass an adequate number of ratings.
rating system in the following important FIs shall ensure that “pass” credits are
functions: i) credit approval and sufficiently differentiated and more precisely
underwriting; ii) loan pricing; defined. There shall be a proper process to
iii) relationship management and credit map the internal rating system to regulatory
administration; iv) allowance for credit classification. The FI shall readjust the
losses and capital adequacy; and v) portfolio mapping after every review of its internal
management and board reporting. risk rating methodology. For FIs whose
Internal risk rating systems shall internal rating systems have several pass
generally observe the following standards: grades, special mention loans may pertain
(1) It must be operationally integrated to several risk ratings while substandard,
into the FI’s internal credit risk management doubtful and loss generally correspond to
process. Its output shall accordingly be an the lowest three risk ratings;
(6) Risk ratings must be reasonable, migration in order to eventually track the
timely and dynamic. Ratings shall be predictive power of the risk rating system.
reviewed at least annually and shall be As used in these standards, a default is
modified whenever the borrower’s considered to have occurred in the following
creditworthiness changes; cases:
(7) The rating criteria shall reflect an (a) If a credit obligation is considered
established blend of qualitative (e.g., the non-performing under existing rules and
quality of management, willingness to regulations;
repay, etc.) and quantitative (e.g., cash flow, (b) If a borrower/obligor has sought or
profitability, and leverage) factors. The has been placed in bankruptcy, has been
criteria for assigning each rating shall be found insolvent, or has ceased operations
clearly defined; in the case of businesses;
(8) The rating policy shall indicate a time (c) If the bank sells a credit obligation
horizon for the risk rating. Generally, the at a material credit-related loss 1 ,
time horizon used for probability of default i.e., excluding gains and losses due to
estimation is one year. However, FIs may interest rate movements. Banks’ board-
use a different time horizon to cover one approved internal policies that govern the
business cycle; use of their internal rating systems must
(9) Ratings shall reflect the risks posed specifically define when a material credit-
by both the borrower’s expected related loss1 occurs; and
performance and the transaction’s structure. (d) If a credit obligation of a borrower/
The ratings output of internal credit risk obligor is considered to be in default, all
rating systems must contain both a borrower credit obligations of the borrower/obligor
and a facility dimension. The borrower with the same bank shall also be considered
dimension shall focus on factors that affect to be in default.
the inherent credit quality of each borrower. b. Credit scoring model. FIs may use a
The facility dimension, on the other hand, credit scoring model in measuring credit risk
shall focus on security/collateral for pools of loans that are similar in
arrangements and other similar risk purpose,risk characteristics and/or general
influencing factors of each transaction; exposure to groups, industries or
(10) The rating assigned to a credit shall geographical locations granted in small
be well supported and documented in the denomination; Provided, That the FI ensures
credit file; and that the credit scoring model sufficiently
(11) Rating histories on individual captures the credit behavior and other
accounts shall be maintained, which shall characteristics of the targeted borrowers.
include the ratings of the account, the dates These loans include retail loans, loans to
the ratings were assigned, the methodology micro and small enterprises, microfinance
and key data used to derive the ratings and loans and unsecured small business loans,
the analyst who gave the ratings. The identity and consumer loans (i.e., housing loans, car
of borrowers and facilities that default, and or auto loans, loans for the purchase of
the timing and circumstances of such appliance and furniture and fixtures, loans
defaults, must be retained. FIs must also for payment of educational and hospital
retain data on the realized default rates bills, salary loans and loans for personal
associated with rating grades and ratings consumption, including credit card loans).
1
This refers to economic loss, thus shall include discount effects, as well as direct and indirect costs associated
with collecting on the credit obligation. The FIs’ board-approved internal policies that govern the use of their
internal rating systems must include specific policies and procedures that shall be followed in the determination
of economic loss.
Risks for these types of portfolio are impact of market dislocations and changes
generally measured at portfolio level. in economic conditions or key risk factors
c. Other credit risk measurement/ on its profile and earnings.
methodologies. FIs may likewise adopt (1) Whether stress tests are performed
other appropriate credit risk measurement manually, or through automated modeling
methodologies/models to estimate expected techniques, FIs shall ensure that:
losses from credit portfolio. (a) Policies and processes –
d. Validation of internal rating systems. (i) Are adequate and clearly
Validation is a process to assess the documented, rational, easily understood and
performance of risk component approved by the board and senior
measurement systems consistently and management; and
meaningfully, to ensure that the realized risk (ii) Includes methodology for
measures are within an expected range. It constructing appropriate and plausible
not only increases the reliability of a model, single and multi-factor stress tests, and
but also promotes improvements and a possible events, scenarios, or future changes
clearer understanding of a model’s strengths in economic conditions that could have
and weaknesses among management and adverse impact on credit exposures, and
user groups. assess the FI’s ability to withstand such
FIs shall establish comprehensive changes;
policies and procedures on effective (b) The inputs are reliable and relate
validation of the rating system (e.g. review directly to the subject portfolios;
of model design/developmental evidence, (c) The process includes frequency of test
backtesting, benchmarking and assessment and procedures for convening periodic
of the discriminatory power of the ratings) meetings to identify the principal risk factors
and rating process (e.g. review of data affecting the portfolio, setting loss limits and
quality, internal reporting, problem handling the authority for setting these limits, and
and how the rating system is used by the monitoring stress loss limits;
credit officers). This shall be adequately (d) Assumptions are well documented
documented and results reported to and conservative;
appropriate levels of the FI. The process shall (e) Models (if any) are subject to a
likewise be subject to periodic review by comprehensive validation process;
qualified, independent individuals. (f) Exceptions to limits and stress testing
Moreover, FIs shall periodically conduct results are reported to the senior
back-testing in evaluating the quality of their management and board of directors for
credit risk assessment models and establish appropriate remedial actions; and
internal tolerance limits for differences (g) Results are discussed and actions and
between expected and actual outcomes and resolutions are made arising from the
processes for updating limits as conditions discussion.
warrant. The policy shall also include (2) The linkages between different
remedial actions to be taken when risk categories of risk that are likely to emerge
tolerances are exceeded. in times of crisis shall be fully identified. In
e. Stress testing. When appropriate, an case of adverse circumstances, there may
FI shall conduct stress testing and scenario be a substantial correlation of various risks,
analysis of its credit portfolio including off- especially credit, liquidity, and market risk.
balance sheet exposures, both at an f. FIs shall develop a contingency plan
individual and group levels to assess the for scenarios and outcomes that involve
credit risk in excess of the FI’s established (4) Aggregate credit exposures to
risk tolerances. This plan may include individual borrowers and counterparties as
increasing monitoring, limiting portfolio well as to a group of accounts under
growth, and hedging or exit strategies for common ownership or control;
both significant individual transactions and (5) Permit additional analysis of the
key portfolio segments. credit portfolio, including stress testing; and
(Circular No. 855 dated 29 October 2014) (6) Maintain a database for research and
use of analytical techniques, report
§ X178.14 Credit risk management exposures, track quality and account
information and reporting systems. FIs performances, and maintain limits.
shall render accurate, reliable and timely b. The credit policy shall clearly define
information and reports. Thus, adequate the types of information and reports to be
management information and reporting generated, frequency of reporting, deadline
systems shall be in place to identify and of submission, and the users/ recipients of
measure credit risk inherent in all on- and and personnel responsible for the
off-balance sheet activities and ensure the preparation of such information and reports.
overall effectiveness of the risk management c. FIs shall provide sufficient controls
process. The information generated from to ensure integrity of the MIS. Reports shall
such systems shall enable the board and all be periodically reviewed to ensure
levels of management to fulfill their adequacy of scope and reliability and
respective oversight roles, including accuracy of the information generated.
determining the level of capital Internal audit shall also periodically assess
commensurate to the credit risk exposure the controls over MIS.
of the FI. (Circular No. 855 dated 29 October 2014)
a. At a minimum, an effective
management information system (MIS) shall § X178.15 Credit monitoring. FIs shall
enable FIs to: develop and implement comprehensive
(1) Provide adequate information on the processes, procedures and information
quality and composition of the credit systems to effectively monitor the condition
portfolio (including off-balance sheet and quality of individual credits and group
accounts); of credits across the FIs’ various portfolios.
(2) Determine accurately the level of These shall include criteria that identify and
credit risk exposures of an FI through its report problem credits to reasonably assure
various activities (e.g. renewal and that they are appropriately monitored as
extension of loans, collection process, status well as administered and provided for.
of delinquent accounts, write-offs, a. The system shall be able to, among
provisioning, among others); others, provide measures to ensure that the
(3) Timely identify and monitor credit board and management are kept informed
risk concentrations, exposures approaching of the current financial condition of the
risk limits, exceptions to credit risk limits borrower and the various credit portfolios;
and overrides to ensure that policy and loan covenants are consistently adhered to;
underwriting deviations as well as breaches cash flow projections meet repayment
and other potential problems are promptly requirements; prudential and internal limits
reported to the board and management for are not exceeded; portfolios are stress-
appropriate corrective action; tested; and potential problem credits and
1
Other credit accommodations include other credits such as accounts receivables, sales contract receivables,
accrued interest receivables and advances.
offered as collateral have been found with category for loans and other credit
defects as to ownership or with other accommodations which have been
adverse information; identified as requiring write-off during the
(iii) Breach of any key financial current reporting period even though partial
covenants/agreements that will adversely recovery may be obtained in the future.
affect the capacity to pay of the borrower; or Their basic characteristics include any of the
(iv) Classified “Especially Mentioned” as following:
of the last credit review without adequate (i) When the borrower’s and co-makers’/
corrective action. guarantors’ whereabouts are unknown, or
(d) Doubtful. These are loans and other they are insolvent, or their earning power is
credit accommodations that exhibit more permanently impaired; or
severe weaknesses than those classified as (ii) Where the collaterals securing the
“Substandard”, whose characteristics on the loans are without recoverable values.
basis of currently known facts, conditions (2) Split classification may apply for non-
and values make collection or liquidation performing secured loans and other credit
highly improbable, however the exact accommodations, depending on the
amount remains undeterminable as yet. recoverability and liquidity of the collateral.
Classification as “Loss” is deferred because The secured portion may be classified as
of specific pending factors which may
“substandard” or “doubtful”, as appropriate,
strengthen the assets. Some basic
while the unsecured portion shall be
characteristics include any of the following:
classified “loss” if there is no other source
(i) Secured loans and other credit
of payment other than the collateral.
accommodations where properties offered
(3) In the case of syndicated loans, each
as collateral are either subject to an adverse
participating FI shall maintain credit
claim rendering settlement of the loan
information on the borrower, and grade and
through foreclosure doubtful or whose
make provision for its portion of the
values have materially declined without the
borrower offering additional collateral for syndicated loan in accordance with the
the loan/s to cover the deficiency; or requirements of these guidelines. The lead
(ii) Loans and other credit FI shall provide participating FIs with the
accommodations wherein the possibility of credit information on the borrower upon
loss is extremely high but because of certain request by the participating FI and inform
important and reasonable pending factors the latter if the loan will be classified so as
(i.e., merger, acquisition, or liquidation to achieve uniform classification of the
procedures, capital infusion, perfecting liens syndicated loan.
on additional collateral, and refinancing (4) FIs may upgrade a classified loan or
plans) that may work to the advantage and restore it to a pass rating provided that it
strengthening of the asset, its classification does so on the basis of a written policy on
as an estimated loss is deferred until the next the upgrading of classification or rating and
credit review. the credit review function is reliable and
(e) Loss. These are loans and other effective. Such policy shall include a
credit accommodations which are comprehensive analysis of the repayment
considered uncollectible or worthless and capability/financial strength of the borrower
of such little value that their continuance as and the corrective actions made on the
bankable assets is not warranted although weaknesses noted to support the upgrade
the loans may have some recovery or salvage in classification. Upgrading may be
value. This shall be viewed as a transitional supported by the following developments:
(a) When all arrears or missed (a) Written policies and procedures for
payments on principal and interests the credit risk systems and controls
including penalties have been cleared inherent in the methodology, including roles
rendering the account to be fully and responsibilities of the FI’s board of
compliant with the original terms of the directors and senior management;
loan; (b) A detailed analysis of the entire loan
(b) Upon establishing that the portfolio, including off-balance sheet
weaknesses were substantially addressed facilities, performed on a regular basis;
and that the borrower has exhibited a (c) A realistic view of its lending
sustained trend of improvement and activities and adequately consider
willingness and capability to fully pay its uncertainty and risks inherent in those
loans and advances in a timely manner to activities in preparing accounting
justify the upgrade; information. Loan accounting policies and
(c)Offering of new or additional practices shall be selected and applied in
collateral security; or a consistent way that reasonably assures
(d) In the case of restructured loans, that loan and loan loss provision
the classification shall only be upgraded information is reliable and verifiable;
after establishing a satisfactory track (d) Identification of loans to be
record of at least six (6) consecutive evaluated individually and segmentation of
payments of the required amortization of the remaining portfolio into groups of loans
principal and interest, or until the with similar credit risk characteristics for
borrower has sufficiently exhibited that collective assessment.
the loan will be fully repaid (continued (i) Individually assessed loans. FIs
collection in accordance with the terms shall establish a materiality threshold for
of the loans is expected) and the loan significant credit exposures that will
meets the criteria of lower loan warrant an individual assessment, which
classification. threshold shall be regularly reviewed.
b. Loan Loss Estimation Methodology, The loan loss estimates shall reflect
Provisioning and Allowance for Credit consideration of the facts and circumstances
Losses that affect the repayment of each individual
(1) All FIs shall develop and document loan as of the evaluation date. The following
a sound loan loss methodology that can factors are relevant in estimating loan losses
reasonably estimate provisions for loans for individually assessed loans:
and other credit accommodations and risk (aa) Significant financial difficulty of the
assets in a timely manner, using their borrower;
experience and research and this guidance (bb) Probable bankruptcy or other
to ensure that the specific and collective financial reorganization of the borrower;
allowance for credit losses 1 (ACL) are (cc) Breach of contract, such as a default
adequate and approximates the expected or delinquency in interest or principal
losses in their credit portfolio. payments; or
An FI’s loan loss methodology shall (dd) Concession granted by the FI, for
consider the following: economic or legal reasons relating to the
1
ACL represents the aggregate amount of individual and collectively assessed probable credit losses.
borrower’s financial difficulty, which would (h) The analyses, estimates, reviews and
not otherwise be considered. other provisioning methodology functions
The methodology shall include shall be performed by competent and well-
procedures describing the determination trained personnel and be well documented,
and measurement of the amount of any with clear explanations of the supporting
impairment, the impairment measurement analyses and rationale; and
techniques available and steps performed (i) Use experienced credit judgment.
to determine which technique is most Assessment of expected losses shall not be
appropriate in a given situation. based solely on prescriptive rules or formula
(ii) Collectively assessed loans. FIs but must be enhanced with experienced
may use different methods to group loans credit judgment by the appropriate levels of
for the purpose of assessing credit risk and management2 in as much as historical loss
valuation. More sophisticated credit risk experience or observable data may be
assessment models or methodologies for limited or not fully relevant to current
estimating expected future cash flows, circumstances. However, the scope for
including credit risk grading processes, may actual discretion shall be prudently within
combine several of the following the following constraints:
characteristics: loan type, product type, (i) Experienced credit judgments shall
market segment, estimated default be subject to established policies and
probabilities or credit risk grading and procedures;
classification, collateral type, geographical (ii) With approved and documented
location and past-due status. analytical framework for assessing loan
Estimated credit losses shall reflect quality applied consistently over time;
consideration of the FI’s historical net (iii) Estimates shall be based on
charge-off rate1 of the groups, adjusted for reasonable and verifiable assumptions and
changes in trends, conditions and other supported by adequate documentation; and
relevant factors that affect repayment of the (iv) Assumptions concerning the impact
loans in these groups as of the evaluation on borrowers of changes in general
date, and applied consistently over time; economic activity, both favorable and
(e) Methods used to determine whether unfavorable, shall be made with sufficient
and how loans individually evaluated, but prudence.
not considered to be individually impaired, The method of determining loan loss
shall be grouped with other loan (excluding provisions shall reasonably assure the timely
individually assessed loans that are recognition of loan losses. While historical
impaired) that share similar credit risk loss experience and recent economic
characteristics for collective impairment conditions are a reasonable starting point
evaluation; for the institution’s analysis, these factors
(f) The quality and net realizable values are not, by themselves, sufficient basis to
of physical collateral and other financial determine the appropriate level of aggregate
guarantees and credit risk mitigants loan loss provisions. Management shall also
incorporated in the loan agreement, where consider any current factors that are likely
applicable; to cause loan losses to differ from historical
(g) Address the methods used to loss experience, including changes in the
validate models for credit risk assessment; following:
1
The historical net charge-off rate is generally based on the annualized historical gross loan charge-offs, less
recoveries, recorded by the FI.
2
There may be instances when no adjustments are needed to the data in the recognition and measurement of
loan losses because the data are consistent with current conditions.
• Lending policies and procedures, (2) FIs with credit operations that may
including underwriting standards and not economically justify a more
collection, charge-off, and recovery sophisticated loan loss estimation
practices; methodology or whose practices fell short
• International, national and local of expected standards shall, at a minimum,
economic and business conditions and be subject to the regulatory guidelines in
developments, including the condition of setting up allowance for credit losses
various market segments; prescribed in Appendix 18: Provided, That
• Trend, volume and severity of past the FIs notify the Bangko Sentral, through
due loans and loans graded as low quality, their respective Central Points of Contact,
as well as trends in the volume of impaired of this preference. Nevertheless, such FIs
loans, troubled debt restructurings and other shall still use experienced credit judgment,
loan modifications; subject to the criteria prescribed in this
• The experience, ability, and depth of Subsection, in determining the ACL.
lending management and staff; (3) FIs shall set up general loan loss
• Changes related to new market provision equivalent to one percent (1%) of
segments and products; the outstanding balance of individually and
• Quality of the FI’s loan review system collectively assessed loans for which no
and the degree of oversight by senior specific provisions are made and/or for
management and board of directors; which the estimated loan losses are less than
• The existence and effect of any one percent (<1%), less loans which are
concentrations of credit, and changes in the considered non-risk under existing laws,
level of such concentrations; and rules and regulations.
• Credit risk profile of the loan portfolio (4) FIs shall ensure the adequacy of the
as a whole as well as the effect of external individual and collective ACL for the entire
factors such as competition and legal and loan portfolio. They shall have a policy for
regulatory requirements on the level of the regular review of the ACL, which shall
estimated credit losses in the FI’s current be conducted at least semi-annually after
portfolio. considering results of the credit review, level
Experienced credit judgment shall also of classified loans, delinquency reports,
be used to determine an acceptable period historical losses and market conditions.
that will yield reliable historical loss rates Failure to make adequate provisions for
as loss rate periods shall not be restricted to estimated future losses results in material
a fixed time period to determine the average misrepresentation of an FI’s financial
historical loss experience for any group of condition.
loans with similar credit risk characteristics. (Circular No. 855 dated 29 October 2014)
An FI shall maintain sufficient historical loss
data over a full credit cycle to provide robust § X178.18 Credit workout and remedial
and meaningful statistical loan loss estimates management of problem credits. FIs shall
for establishing the level of collective develop and maintain a disciplined and
impairment losses for each group of loans vigorous process for the early identification
with similar credit risk characteristics. and intervention for potential or existing
When applying experienced credit problem credits. The process shall ensure
judgment, an FI shall provide a sound that timely and adequate management
rationale for excluding any historical loss action is taken to maintain the quality of
data that is deemed not representative of the the credit portfolio, prevent further
performance of the portfolio. deterioration, and minimize the likelihood
subsidiary or an affiliate of the FI) acceptable reasonable period of time within which to
to the Bangko Sentral at the time of write off loans already classified as “Loss”.
restructuring and every year thereafter to There shall be no undue delay in
ensure that current market values are being implementing write-offs. Notice of write-
used. A credit exposure benchmark of P1.0 off of problem credits shall be submitted in
million for simple FIs and P5.0 million for the prescribed form to the Bangko Sentral
all other FIs shall be observed, such that through the appropriate Central Point of
physical collaterals for credit exposures Contact within thirty (30) business days after
beyond this amount will require an every write-off with a sworn statement
independent appraisal. signed by the President of the FI or officer
e. Problem credits, including of equivalent rank that write-off did not
restructured accounts, shall be subjected to include transactions with DOSRI and was
more frequent review and monitoring. undertaken in accordance with board-
Regular reports on the status of loan approved internal credit policy.
accounts and progress of any remedial plan An effective monitoring and reporting
shall be submitted to senior management system shall be in place to monitor debts
to facilitate an informed decision whether written off and future recoveries. Progress
escalated remedial actions are called for. on recovery shall be periodically reported
(Circular No. 855 dated 29 October 2014) to the board and senior management. A
database of loan accounts written off shall
§ X178.19 Writing off problem credits be maintained and must be periodically
Policies for writing off problem credits must reviewed for updates on individual loan
be approved by the board of directors in obligor’s information.
accordance with defined policies, and shall (Circular No. 855 dated 29 October 2014)
incorporate, at a minimum, well-defined
criteria (i.e., circumstances, conditions and § X178.20 Enforcement actions. The
historical write-off experience) under which Bangko Sentral reserves the right to deploy
credit exposures may be written off. its range of supervisory tools to promote
Procedures shall explicitly narrate and adherence to standards and principles set
document the necessary operational steps forth in these guidelines, bring about timely
and processes to execute the policies. corrective actions and compliance with
Policies and procedures shall be Bangko Sentral directives and ensure that
periodically reviewed and if necessary, FIs continuously observe the said standards.
revised in a timely manner to address Persistent non-observance of the provisions
material internal changes (e.g., change in of Sec. X178 and its subsections, which may
business focus) or external circumstances lead to material misstatement of the
(e.g., changes in economic conditions). financial condition or illiquidity of the FI,
FIs shall write off problem credits, may be a ground for declaration of unsafe
regardless of amount, against ACL or current or unsound practices under Section 56 of
operations within a reasonable period as R. A. No. 8791 and subject the FI to
soon as such problem credits are appropriate sanctions.
determined to be worthless as defined in Enforcement actions shall be based on
the FIs’ written policies. However, problem a holistic assessment to determine if FIs
credits to DOSRI shall be written off only adopt appropriate risk management
upon prior approval of the Monetary Board. practices and maintain capital
Policies shall define and establish the commensurate with the risk assumed based
1
Except for Subsec. X180.6 on cross border compliance issues, all provisions of this Section shall be complied
with on or before 01 July 2012.
b. Risks to reputation that arise from The charter or other formal document
internal decisions and practices that defining the status of the compliance
ultimately impinge on the public’s trust of a function shall be communicated
bank; throughout the organization.
c. Risks from the actions of a bank that (As amended by Circular No. 747 dated 06 February 2012)
are contrary to existing regulations and
identified best practices and reflect weaknesses § X180.3 (2011 - X180.1) Compliance
in the implementation of codes of conduct and system. The compliance system shall have
standards of good practice; and the following basic elements.
d. Legal risks to the extent that changes a. A formal written document (i.e.,
in the interpretation or provisions of compliance manual) that reflects the
regulations directly affect a bank’s business compliance program approved by the board
model. of directors:
(As amended by Circular No. 747 dated 06 February 2012) 1. The compliance program shall be
distinguished from the risk program and the
§ X180.2 (2011 - X180.5) Status of the
internal audit program. While compliance
compliance function. The compliance
mitigates business risks as defined in Subsec.
function shall have a formal status within
X180.1, the risk program covers financial
the organization. It shall be established by
risks that arise from the balance sheet
a charter or other formal document
exposures of the institution. The internal
approved by the board of directors that
audit program, on the other hand, shall
defines the compliance function’s standing,
review on an ex-post basis whether
authority and independence, and addresses
prescribed guidelines of the bank were
the following issues:
followed in administering transactions,
a. measures to ensure the independence
handling procedures, making decisions and
of the compliance function from the undertaking related activities.
business activities of the bank; 2. The compliance program shall take
b. the organizational structure and into account the size and complexity of
responsibilities of the unit or department operations of the banks. It must clearly
administering the compliance program; identify the avenues through which business
c. the relationship of the compliance risks may occur for the bank.
unit/department with other functions or Correspondingly, compliance measures
units of the organization, including the effectively suited to the operations of the
delineation of responsibilities and lines of bank in order to mitigate said business risks
cooperation; shall be institutionalized in the bank through
d. its right to obtain access to the compliance program.
information necessary to carry out its 3. An appropriate organizational
responsibilities; structure must be in place to manage the
e. its right to conduct investigations of compliance function and execute the
possible breaches of the compliance policy; approved compliance program. The
f. its formal reporting relationships to compliance function shall be manned by
senior management, the board of directors, full-time officers/staff either embedded in
and the appropriate board-level committee; operating departments, or in a department
and operating on its own. Coordination with the
g. its right of direct access to the board respective department heads shall be the
of directors and to the appropriate responsibility of the CCO.
board-level committee.
model deemed “simple” by the Bangko by the board of directors. However, any
Sentral by virtue of its scale and complexity material breaches of the compliance
of activities may designate a non-executive program shall be reported to and promptly
director to serve as the CCO in a concurrent addressed by the CCO within the
capacity. A non-executive director is a mechanisms defined by the compliance
member of the board of directors who is manual.
not part of the executive committee or day- A compliance system found to be
to-day management of banking operations. materially inadequate shall be construed as
For this purpose, a bank’s business unsafe and unsound banking practice.
model is deemed simple if a bank is (As amended by Circular No. 747 dated 06 February 2012)
primarily engaged in the business of deposit-
taking and lending: Provided, That a UB or § X180.6 (2008 - X 170.8; 2011 -
KB shall be deemed a complex bank while X180.8) Cross-border compliance issues
a TB, RB or Coop Bank shall be deemed a The compliance function for institutions that
simple bank. Nonetheless, a UB or KB may conduct business in other jurisdictions
apply with the Bangko Sentral for a should be structured to ensure that local
reclassification as a simple bank. The Bangko compliance concerns are satisfactorily
Sentral may likewise declare a TB, RB or addressed within the framework of the
Coop Bank as complex. compliance policy for the organization as a
(As amended by Circular Nos. 758 dated 11 May 2012, 747 whole. As there are significant differences
dated 06 February 2012, CL-2011-045 dated 01 July 2011 and in legislative and regulatory frameworks
Circular No. 598 dated 11 January 2008) across countries or from jurisdiction to
jurisdiction, compliance issues specific to
§ X180.5 (2011 - X180.4) each jurisdiction should be coordinated
Responsibilities of the board of directors within the structure of the institution’s
and senior management on compliance group-wide compliance policy. The
Aside from the duties and responsibilities organization and structure of the
of the board of directors mentioned under compliance function and its responsibilities
Subsec. X141.3, the board shall ensure that should be in accordance with local legal
a compliance program is defined for the and regulatory requirements.
bank and that compliance issues are resolved (As amended by Circular No. 747 dated 06 February 2012)
expeditiously. For this purpose, a board-level
committee, chaired by a non-executive § X180.7 (2011 - X180.9) Outsourcing
director, shall oversee the compliance of compliance risk assessment and testing
program. The review, assessment and testing of the
Ensuring that bank personnel and compliance program may be outsourced to
affiliated parties adhere to the pre-defined qualified third parties. The handling and
compliance standards of the banks rests management of this outsourcing arrangement
collectively with senior management, of shall be governed by Sec. X162.
which the CCO is the lead operating officer (As amended by Circular No. 747 dated 06 February 2012)
on compliance. Senior management,
through the CCO, should periodically report Sec. X181 (2008 - X171) Bank Protection
to the board of directors or its designated Each bank shall adopt an adequate security
committee matters that affect the design and program commensurate to its operations,
implementation of the compliance program. taking into consideration its size, location,
Any changes, updates and amendments to number of offices and business operations.
(As amended by Circular No. 620 dated 03 September 2008)
the compliance program must be approved
1
Banks were given three (3) months from 03 February 2014 to submit a certification to the appropriate
department of the SES whether or not they are compliant with subsections X181.2 and X183.3. Within the
same period, non-compliant banks where required to submit an acceptable plan of action to achieve compliance
within six (6) months from 03 February 2014.
(4) Investigating bank robberies/ hold-ups, and defining responsibility for their
recommending the filing of appropriate implementation;
charges in court as the evidence may v. Provision for the training and periodic
warrant and assisting in the prosecution of re-training of employees in their respective
the perpetrator(s) thereof; areas of responsibility under the security
(5)Establishing an effective working program, including the proper use of security
relationship with the Bangko Sentral, PNP devices and proper employee conduct
and other law enforcement agencies in the during and after an emergency situation;
prevention of bank crimes and other natural vi. Contingency measures for security
and man-made hazards; and rescue operations in emergency
(6)Implementing new techniques, situations;
methods and equipment to enhance bank vii. Provision for the posting of adequate
protection measures in a cost effective number of security personnel in all vital and/
manner. or critical areas in the bank’s premises, and
(As amended by Circular Nos. 823 dated 10 January 2014 and the minimum number of hours when each
620 dated 03 September 2008) personnel shall be on duty; and
viii. Such other provisions/measures as
§ X181.4 (2008 - X171.3) Security
the president of the bank or country head
program. The security program of each bank
in the case of a foreign bank branch may, in
shall be in writing, duly approved by its
consultation with its security officer, deem
board of directors or the country head in
appropriate.
the case of a foreign bank branch. In
(As renumbered by Circular No. 823 dated 10 January 2014,
addition, the security program shall define amended by Circular No. 620 dated 03 September 2008)
measures and procedures to detect and
prevent the commission of bank crimes, as § X181.5 (2008 - X171.4) Minimum
well as provide contingency plans in case security measures
of calamities, terrorist attacks and other a. Guard system. All banking offices
emergency situations. The security program shall be manned by an adequate number of
shall include the following: security personnel to be determined by the
i. Installation of the prescribed minimum bank, taking into consideration its size,
security devices; location, costs and overall bank protection
ii. A schedule for the periodic requirement: Provided, That cash centers
inspection, testing and servicing of all shall be manned by an adequate number of
security devices installed in each of the security guards as may be necessary during
bank’s offices, designation of an officer or banking hours. For this purpose, cash
employee responsible for ensuring that such centers shall refer to branches which also
devices are inspected, tested, serviced and handle the cash requirements of other
kept in good working order, and requiring branches of the same bank.
record of such inspections, testing and servicing; b. Security devices. Within 120 calendar
iii. Standard operating procedures for the days from 23 September 2008 in the case
safekeeping of all currencies, negotiable of existing offices and before opening for
securities and similar valuables in vaults or business in the case of offices to be opened
safes; after 23 September 2008, banks shall effect
iv. Provision for other security measures the installation, operation and maintenance,
and procedures aimed at giving added as individually appropriate, of the following
protection to the bank, e.g., procedures for security devices in each banking office;
the transport of funds and other cash items, (1) A time delay device in the cash vault/
Steel grills, where applicable, shall provided with at least two (2) armed guards
support exterior glass doors and windows and its operations must be supervised by at
of all banking offices for protection against least two (2) officers of the bank.
any forcible entry. Access to the back door All canvass bags that contain cash and
shall be limited to authorized bank other items of value shall be provided with
personnel. Opening and closing thereof padlocks for security and control purposes.
before and after banking hours shall be Armored cars shall not be operated a mobile
recorded in a registry. bank.
Firearms and other deadly weapons shall (As renumbered by Circular No. 823 dated 10 January 2014,
not be allowed inside bank premises except amended by Circular No. 620 dated 03 September 2008)
when so authorized by the bank. A signage
for this purpose shall be conspicuously § X181.6 (2008 - X171.5) Reports
placed near the main entrance door of the Banks shall conduct a review and self-
bank. Specific guidelines as to when to allow assessment of their security program to
firearms and other deadly weapons inside ensure their compliance with prescribed
bank premises should be incorporated in the security requirements. Any substantive
security program. amendment thereto shall be approved by
A bank shall maintain within its the bank’s board of directors or country
premises a record of the addresses and head in the case of branches of foreign
telephone numbers of the nearest law banks. The self-assessment of compliance
enforcement agencies, hospitals, rescue with prescribed security requirements
agencies and fire departments. together with the updated security program
The security officer of each bank shall (if amended during the year) shall be
conduct, at least annually, a security survey submitted annually to the appropriate
of bank premises and make available the department of the SES on or before 30
inspection report to Bangko Sentral January of the following year in accordance
examiners during regular examination. with the format shown in Appendix 10. The
The bank shall conduct fire, earthquake self-assessment together with the updated
and bomb threat drill at least once a year. security program shall be considered
e. ATM. ATM sites shall be provided Category A-2 reports.
with adequate security. Where there are no (As renumbered by Circular No. 823 dated 10 January 2014,
security personnel assigned to secure the amended by Circular No. 620 dated 03 September 2008)
ATM, an anti-tampering device shall be
§ X181.7 (2008 - X171.6) Bangko
installed or the ATM and its immediate
Sentral inspection. During regular
surroundings shall be regularly inspected to
examination, the Bangko Sentral reserves the
promptly detect any attempt to rob or
right to perform a compliance assessment
destroy the same.
of the adequacy of a bank’s security
f. Armored Car Operation. To ensure
arrangements. The Bangko Sentral, with
the protection of crew members and
approval of the Governor, may also conduct
valuables, all armored vehicles shall be built
at any time a targeted inspection of the
with bullet-resistant materials capable of
bank’s implementation of its security
withstanding the firepower of high-powered
program to determine compliance with
firearms, e.g., M16 and M14 rifles.
regulations. For this purpose, the Bangko
Moreover, armored vehicles shall be
Sentral may avail of the services of experts
equipped with a vault or safe or a partition
as resource persons.
wall with a combination lock designed to
(As renumbered by Circular No. 823 dated 10 January 2014,
prevent retrieval of the cargo while in transit. amended by Circular No. 620 dated 03 September 2008)
When in use the armored vehicles shall be
(2) Irregular and unannounced count (4) Checks and other cash items
of teller’s cash and checks and other cash shall be maintained either by an
items at least twice a month and vault cash employee not handling cash or by the
including Automated Tellering Machine’s Rack/Distributing Department provided
(ATM) cash dispensers at least once a that adequate control as to custody and
month by the auditor/control officer or by disposition of funds are properly
an officer not connected with cash maintained;
department; (5) The receipt of statements from
(3) Monthly reconciliation of due from depository bank shall be assigned to an
banks, cash in bank accounts (domestic employee other than the one connected
and foreign) and due from/to head office/ with the preparation, recording and signing
branches by someone other than the of bank drafts;
person handling the records or posting the (6) Custodians of securities shall not
general ledger entries; be allowed to handle security transactions;
(4) Periodic verification of securities (7) Collateral appraisal shall be done
and collaterals by someone other than their by an employee/officer who does not
custodian; and approve loans;
(5) Periodic verification of the (8) Incoming checks and other cash
accuracy of the interest credits to deposit items shall be recorded chronologically
liabilities accounts. in a register by an employee other than
the bookkeeper before they are
§ X185.3 (2008 - X163.3) Division of forwarded for posting purposes;
duties and responsibilities (9) Credit reports shall be obtained by
a. The duties of all the officers and someone other than lending officers;
employees shall be segregated, clearly (10) Mailing of customers’ statements
defined, understood, documented and and delinquent notices shall be done by
manualized. No individual shall have an employee other than the one who
complete authority and responsibility for granted the loan or the one handling the
handling all phases of any transaction from records; and
beginning to end, without some check or (11) Dispatching and delivery of
balance from some other part of the current account statements shall be done
organization. by someone who is not involved in current
b. The physical handling of a account operations.
transaction shall be separated from its c. Extensive background checking of
recording and supervision as follows: persons intended to be assigned to handle
(1) A person handling cash shall not cash and securities shall be conducted.
be permitted to post the ledger records nor Frequent follow-up checking after their
should posting the general ledger be employment shall also be made.
performed by an employee who posts the
depositor’s subsidiary ledgers; § X185.4 (2008 - X163.4) Joint custody
(2) A lending officer shall never be a. Joint custody shall mean the
allowed to disburse proceeds of notes, processing of transactions in the presence
accept note payment nor post loan of and under the direct observation of a
ledgers; second person. Both persons shall be
(3) The functions of issuing, equally accountable for the physical
recording and signing of drafts/checks protection of the items and records
shall be separated; involved.
(6) In the case of TBs, all accountable (4) Signature cards for dormant
officers and employees shall be bonded. accounts shall also be segregated from
active files and held under joint custody.
§ X185.12 (2008 - X163.12) Internal (5) Entries to dormant account ledgers
control procedures for dormant/inactive shall be verified and approved by a
accounts designated officer. His initials shall be placed
a. Definition of dormant or inactive next to the entry on the ledger sheet.
accounts (6) All inquiries on dormant accounts
(1) Current or checking accounts shall be coursed to one officer who
showing no activity (deposit or should obtain sufficient identification
withdrawals) for a period of one (1) year. from the inquirer to assure that he is
(2) Savings account showing no entitled to the information.
activity (deposit or withdrawals) for a (7) A trial balance of dormant account
period of two (2) years. ledgers shall be taken periodically and
b. Procedures for classification. Banks balances with the general control account by
shall review and segregate dormant an employee other than the bookkeeper.
accounts as herein defined at least once in (8) Dormant or inactive accounts shall
every semester. be verified directly with depositors.
c. Internal control measures (9) All transactions affecting dormant
(1) As a matter of policy, banks shall accounts shall be subject to audit by the
exert all efforts to prevent checking and internal auditor.
savings accounts from becoming dormant. (10) A semestral report on deposit
When it becomes apparent that an account accounts transferred to dormant shall be
is inactive, a short letter should be sent to rendered to bank management.
the depositor encouraging him to use his
account. Sec. X186 (2008 - X164) Internal Audit
In case of checking accounts, the banks Function. Internal audit is an independent,
shall ensure that the monthly statement of objective assurance and consulting function
accounts reach the depositors. If the established to examine, evaluate and
depositors cannot be located, the following improve the effectiveness of risk
steps should be undertaken: management, internal control, and
(a) Check any significant changes or governance processes of an organization.
fluctuations in the depositors’ account
balances over a period of time with emphasis § X186.1 (2008 - X164.1) Independence
on accounts with decreasing balances; of internal audit function. The internal
(b) Verify apparent reactivation audit function must be independent of the
entries, represented either by deposit or activities audited and from day-to-day
withdrawal, that appears to have internal control process. It must be free to
prevented the account from being report audit results, findings, opinions,
classified as dormant; and appraisals and other information to the
(c) Investigate any obvious alteration appropriate level of management. It shall
of the ledger records. have authority to directly access and
(2) Segregated dormant accounts shall communicate with any officer or
be placed under joint custody of two (2) employee, to examine any activity or
responsible officers/employees. entity of the institution, as well as to access
(3) A separate ledger control for any records, files or data whenever
dormant accounts shall be maintained. relevant to the exercise of its assignment.
the fiscal year adopted by the bank. Report financial audit report. If no material
of such audit shall be submitted to the board weakness or breach is noted to warrant the
of directors or country head, in the case of issuance of an LOC, a certification under
foreign bank branches, and the appropriate oath stating that no material weakness or
department of the SES not later than 120 breach in the internal control and risk
calendar days after the close of the calendar management systems was noted in the
year or the fiscal year adopted by the bank. course of the audit of the bank shall be
The report to the BSP shall be accompanied submitted in its stead, together with the
by the: (1) certification by the external financial audit report.
auditor on the: (a) dates of start and Material weakness shall be defined as
termination of audit; (b) date of submission a significant control deficiency, or
of the financial audit report and certification combination of deficiencies, that results
under oath stating that no material weakness in more than a remote likelihood that a
or breach in the internal control and risk material misstatement of the financial
management systems was noted in the statements will not be detected or
course of the audit of the bank to the board prevented by the entity’s internal control.
of directors or country head; and (c) the A material weakness does not mean that
absence of any direct or indirect financial a material misstatement has occurred or
interest and other circumstances that may will occur, but that it could occur. A
impair the independence of the external control deficiency exists when the design
auditor; (2) Reconciliation Statement or operation of a control does not allow
between the AFS and the balance sheet and management or employees, in the normal
income statement for bank proper (regular course of performing their assigned
and FCDU) and trust department submitted functions, to prevent or detect
to the BSP including copies of adjusting misstatements on a timely basis. A
entries on the reconciling items; and significant deficiency is a control
(3) other information that may be required deficiency, or combination of control
by the BSP. deficiencies, that adversely affects the
In addition, the external auditor shall be entity’s ability to initiate, authorize,
required by the bank to submit to the board record, process, or report financial data
of directors or country head, a LOC reliably in accordance with generally
indicating any material weakness or breach accepted accounting principles. The
in the institution’s internal control and risk phrase more than remote likelihood shall
management systems within thirty (30) mean that future events are likely to occur
calendar days after submission of the or are reasonably possible to occur.
(3) Net Interest = Net Interest Income x 100 i. Accounting policies which shall
Margin (%) Average Interest Earning Assets
include, but shall not be limited to, general
Where: accounting principles, changes in
Net = Total Interest Income – Total Interest Expense
accounting policies/practices, principles of
Interest
Income consolidation, policies and methods for
Average = Sum of Total Interest Earning Assets as of the determining when assets are impaired,
Interest 12 month-ends in the calendar/fiscal year
Earning adopted by the Bank
recognizing income on impaired assets and
Assets 12 losses on non-performing credits, income
recognition, valuation policies and
b. Risk-based capital adequacy ratio accounting policies on securitizations,
under Section 34 of R.A. No. 8791 and foreign currency translations, loan fees,
applicable and existing capital adequacy premiums and discounts, repurchase
framework; agreements, premises/fixed assets, income
c. Concentration of credit as to taxes and derivatives.
(As amended by Circular No. 827 dated 28 February 2014)
industry/economic sector where
concentration is said to exist when total loan
§ X190.5 (2008 - X166.5) Disclosure
exposures to a particular industry/economic
requirements in the annual report. UBs,
sector exceeds thirty percent (30%) of total
KBs, and TBs with at least P1.0 billion
loan portfolio;
resources shall prepare an annual report
d. Breakdown of total loans as to
which shall include, in addition to the
secured and unsecured and breakdown of
audited financial statements and other usual
secured loans as to type of security;
information contained therein, a discussion
e. Total outstanding loans to bank’s
and/or analysis of the following information:
DOSRI, percent of DOSRI loans to total loan
a. Financial performance;
portfolio, percent of unsecured DOSRI loans
b. Financial position and changes
to total DOSRI loans, percent of past due
therein;
DOSRI loans to total DOSRI loans and
c. Overall risk management philosophy
percent of non-performing DOSRI loans to
(i.e., a general statement of the risk management
total DOSRI loans;
policy adopted by the bank's board of
f. Nature and amount of
directors which serves as the basis for the
contingencies and commitments arising
establishment of its risk management system),
from off-balance sheet items [include direct
risk management system and structure;
credit substitutes (e.g., export LCs
d. Qualitative and quantitative
confirmed, underwritten accounts unsold),
information on risk exposures (credit,
transaction-related contingencies (e.g.,
market, liquidity, operational, legal and
performance bonds, bid bonds, standby
other risks); and
LCs), short-term self-liquidating trade-related
e. Basic business management and
contingencies arising from the movement of
corporate governance information such as
goods (e.g., sight/usance domestic LCs,
the bank’s organizational structure, incentive
sight/usance import LCs), sale and
structure including its remuneration policies,
repurchase agreements not recognized in the
nature and extent of transactions with
balance sheet; interest and foreign exchange
affiliates and related parties.
rate related items; and other commitments];
Additional disclosure requirements are
g. Provisions and allowances for
found under Parts IX and V of Appendices
losses and how these are determined;
63b and 63c, respectively.
h. Aggregate amount of secured
(Circular No. 781 dated 15 January 2013)
liabilities and assets pledged as security; and
§ X190.6 (2008 - X166.6) Posting and Bangko Sentral follow the account
submission of annual report. A copy of the definitions in the Bangko Sentral-prescribed
latest annual report shall be posted by the Manual of Accounts: Provided, further, That
bank in a conspicuous place in its head the mathematical formulas for reconciling
office, all its branches and other offices. such published statements and submitted
Covered banks shall submit the Annual reports with the general ledger accounts of
Report Assessment Checklist (ARAC) 1 the bank are submitted to the appropriate
together with the Annual Report. The ARAC department of the SES: Provided, finally, That
identifies the pages and sections of the said banks prepare for Bangko Sentral use,
Annual Report corresponding to the reconciliations of their ledger accounts with
disclosures. the Bangko Sentral prescribed Manual of
The deadline for the submission of the Accounts during regular or special bank
annual report and ARAC to the appropriate examinations.
department of the SES is 180 calendar days Any bank which fails or refuses to adopt
after the close of the calendar or fiscal year the prescribed Manual of Accounts, or any
adopted by the bank. of the applicable accounts contained
(As amended by M-2014-007 dated 04 March 2014) therein, or adopts any general ledger
account not specified in the said Manual of
Sec. X191 (2008 - X161) Records. Banks Accounts without prior written approval of
shall have a true and accurate account, the Governor of the Bangko Sentral, shall
record or statement of their daily be penalized by revocation or suspension
transactions, particularly those referring to of its authority to engage in quasi-banking
their deposit liabilities. The making of any function.
false entry or the willful omission of entries
relevant to any transaction, is a ground for § X191.2 (2008 - X162.16) Financial
the imposition of administrative sanctions Reporting Package. In line with the
under Section 37 of R.A. No. 7653 and the adoption of the Philippine Financial
disqualification from office of any director Reporting Standards (PFRS) and Philippine
or officer responsible therefor under Section Accounting Standards (PAS) effective the
9-A of R.A. No. 337, as amended. This is annual financial reporting period beginning
without prejudice to their criminal liability 01 January 2005, the Manual of Accounts
under Sections 35 and 36 of R.A. No. 7653 and the Bangko Sentral reportorial
and/or the applicable provisions of the requirements consisting of the Consolidated
Revised Penal Code. Statement of Condition (CSOC),
Consolidated Statement of Income and
§ X191.1 (2008 - X161.1) Adoption of Expense (CSIE) and their supporting
the Manual of Accounts. Banks shall strictly schedules are amended through the issuance
adopt the Manual of Accounts prescribed of the new Financial Reporting Package
by the Bangko Sentral for recording daily (FRP) for banks.
transactions including reportorial and The general features as well as the
publication requirements. implementing guidelines of the FRP is
Local branches of foreign banks may provided in Appendix 77.
continue using their parent bank’s general (Circular No. 512 dated 03 February 2006, as amended by
ledger accounts: Provided, That published Circular No. 837 dated 18 June 2014, M-2014-009 dated
17 March 2014, Circular No. 691 dated 23 June 2010,
statements and reports submitted to the M-2010-016 dated 16 June 2010 and Circular No. 568 dated
08 May 2007)
1
Effective 01 January 2014.
1
See Appendix 89
(10) Outsider - persons involved other (1) The Branch or Head Office unit’s
than an insider. Report on Crimes and Losses shall be
(11) Perpetrator - a person, whether an submitted to the BSP through the bank’s
insider or outsider, who is responsible for head office unit and shall be certified
the commission of crime either by direct correct by the compliance officer. The
participation, inducement or cooperation, report shall be assigned a prescribed
including accomplices and accessories as reference number by the bank using the
defined under Articles 18 and 19 of the format mm-yyyy-xxx with mm and yyyy
Revised Penal Code, as amended. as numeric code for the month and year
(12) Victim - an insider or outsider other of reporting respectively and xxx as
than the perpetrator, who is the aggrieved sequence no. (e.g. 01-2007-001) which
party to the crime and may as a result of the shall be a continuing series until the end
incident, suffered the loss. of the year.
(13) Attempted crime - a crime is The report shall be prepared using the
attempted when the perpetrator commences new format in two (2) copies and shall be
the commission of the crime directly by submitted to the SDC and to the BSP
overt acts but does not perform all of the Security Coordinator, thru the Director,
acts of execution which constitute the crime Security, Investigation and Transport
by reason of some cause or act other than Department (SITD) within ten (10)
his own voluntary desistance under Article calendar days from knowledge of the
6 of the Revised Penal Code, as amended. crime/incident;
(14) Frustrated crime - a crime is (2) Where a thorough investigation and
classified as frustrated, when the perpetrator evaluation of facts is necessary to complete
performs all the acts of execution which the report, an initial report submitted within
should produce the crime as a consequence deadline may be accepted: Provided, That
but which, nevertheless, do not produce it a complete report is submitted not later than
by reason of causes independent of the will twenty (20) calendar days from termination
of the perpetrator under Article 6 of the of investigation.
Revised Penal Code, as amended. Moreover, final reports on crimes and
(15) Consummated crime - a crime is losses with incomplete information as
consummated when all the acts of execution required under SES Form 6G shall be
which constitute the crime was performed. considered erroneous reports and the
As a result, the bank may have suffered a concerned bank shall be required to submit
loss, the recoverable portion of which amended reports subject to penalties on late
should be deducted to arrive at the probable reporting for Category B reports under
loss incurred by the bank. Subsec. X192.2; and
(16) Termination of the investigation - an (3) Proof of submission of the report
investigation is said to be terminated when shall be determined by the date of postmark,
all the material facts/information which are if the report was sent by mail or by the date
sufficient to support a conclusion relative received, if handcarried to the SDC and
to the matters involved have already been SITD.
gathered and a finding/conclusion may be (As amended by Circular No. 587 dated 26 October 2007)
made based on the gathered information.
d. The following guidelines shall be § X192.5 (2008 - X162.5) Report on real
observed in the preparation and submission estate/chattel transactions.
of the report: (Deleted by Circular No. 737 dated 19 September 2011)
subsidiaries, except subsidiary insurance the SES of the Bangko Sentral, in a newspaper
companies, shall be consolidated on a of general circulation as in Item “a(3)” above
line-by-line basis, while non-financial or post the same in the most conspicuous
allied subsidiaries including subsidiary area of its premises, in the municipal
insurance companies shall be accounted building, municipal public market, barangay
for using the equity method. hall and barangay public market where the
(3) Such BS, and CBS where head office and all its branches are located.
applicable, shall be published in a The posting shall be printed on 12”x18”
newspaper of general circulation in the white paper, preferably white buff paper
city/province where the principal office, (cartolina) and shall be made within twenty
in the case of a domestic bank, or the (20) banking days from the end of the
principal branch/office, in the case of a reference quarter and for a period of thirty
foreign bank, is located, but if no (30) successive calendar days.
newspaper is published in the same (2) (a) A TB, RB and Coop Bank that
province, then in a newspaper published shall publish/post its quarterly BS shall
in Metro Manila or in the nearest city/ submit a soft copy of the same to the SDC
province. within twenty (20) banking days after the
(4) The names and position/ end of the reference quarter.
designation of the members of the board (b) Banks that are incapable of
of directors, president and executive vice submitting the BS in electronic form shall
presidents (senior vice presidents, if there submit the same in hard copy to the SDC
are no executive vice presidents), shall be within the said deadline.
published and shown in the right side (c) In either case, an affidavit executed
column of the published BS as of June of by the president, or in his absence, the vice-
every year. president or manager, as the case may be,
(5) (a) Before publication, a soft copy shall likewise be submitted to the SDC
of the BS shall be submitted to the SDC within the said deadline.
within twelve (12) banking days from the c. Additional information required
date of the call letter. Banks shall disclose the following information
Further, a hard copy of the control proof in the quarterly published/posted BS:
list for the said report shall likewise be (1) Solo BS (Head Office and Branches/
submitted to the SDC within the said Other Offices)
deadline. (a) Gross total loan portfolio (TLP);
(b) B a n k s t h a t a r e i n c a p a b l e o f (b) Specific allowance for credit losses
submitting the BS in electronic form on the TLP ;
shall submit the same in hard copy to (c) Non-performing loans (NPLs);
the SDC within the said deadline. (i) Gross NPLs;
(c) The published BS with the (ii) Ratio of gross NPLs to gross TLP (%);
publisher’s certificate shall be submitted (iii) Net NPLs;
within twenty (20) banking days after the (iv) Ratio of net NPLs to gross TLP (%);
date of said call letter to the SDC. (d) Classified loans and other risk assets,
b. TBs/RBs/Coop Banks with gross of allowance for credit losses;
resources of less than P1 billion (e) DOSRI loans and receivables, gross
(1) A TB, RB and Coop Bank of allowance for credit losses ;
belonging to this category shall either (f) Ratio of DOSRI loans and receivables,
publish its quarterly BS as of the cut-off gross of allowance for credit losses, to gross
date indicated in the call letter issued by TLP (%);
PART TWO
A fine of P5,000 per day from the time of funds shall be returned not later than 7:30
the certification was made up to the time a.m. on the clearing day immediately
the certification was found to be false. following the original date of presentation
of the COCI to PCHC or RCC.1
Sec. X202 Temporary Overdrawings; Peso DDAs maintained by foreign
Drawings Against Uncollected Deposits correspondent banks with UBs/KBs shall not
The following regulations shall govern be subject to the above-mentioned
temporary overdrawings and drawings regulations: Provided, That:
against uncollected deposits (DAUDs). (a) The maintenance of non-resident
a. Temporary overdrawings. correspondent bank’s peso DDAs and
Temporary overdrawings against demand overdrawings therefrom are covered by
deposit account (DDA) shall not be reciprocal arrangement;
allowed, unless caused by normal bank (b) Temporary overdrawings are
charges and other fees incidental to covered within fifteen (15) banking days
handling such accounts. from the date overdrawings are incurred;
Banks which violate these regulations and
shall be subject to a fine of one-tenth of one (c) Such accounts are credited only
percent (1/10 of 1%) per day of violation, through foreign exchange inward
computed on the basis of the amount of remittance.
overdrawing or fines in amounts as may be b. DAUDs. DAUDs shall be
determined by the Monetary Board, but not prohibited except when the drawings are
to exceed P30,000 a day for each violation. made against uncollected deposits
Technical overdrawings arising from representing manager’s/cashier’s/treasurer’s
“force posting” in-clearing checks shall be checks, treasury warrants, postal money
debited by banks under “Returned Checks orders and duly funded “on us” checks
and Other Cash Items (RCOCI)” which is which may be permitted at the discretion
part of “Other Assets” in the Balance Sheet. of each bank.
Items to be lodged under this account shall (As amended by Circular Nos. 705 dated 29 December 2010
consist only of in-clearing checks which and 681 dated 08 February 2010)
may result in “technical overdrawn”
Sec. X203 Returned Checks
accounts and shall be immediately reversed
a. Checks without sufficient funds/
the following day, value dated on date of
with stop payment orders. To complement
original presentation of Checks and Other
the provisions of Batas Pambansa Blg. 22,
Cash Item (COCI) to PCHC for Integrated
(An Act Penalizing the Making or Drawing
Greater Manila local exchanges (Integrated
and Issuance of a Check Without Sufficient
GM LX) or to Regional Clearing Center
Funds or Credit), the following regulations
(RCC) for regional local exchanges (RLX). 1
shall govern checks drawn against
The checks lodged under “RCOCI”
insufficient funds and checks drawn against
which were dishonored due to insufficiency
closed accounts:
______________________
1
The revised clearing and settlement process shall become effective as follows:
Provided, That for RLX, the extended deferral from 24 January 2011 to 01 July 2011 shall refer only to the provision on
the mandatory return of checks drawn against insufficient funds or credit, checks drawn against closed accounts and/or
checks with stop payment orders, (i.e., not later than 7:30 AM of the next clearing day following the original presentation
to PCHC or RCC), subject to the condition that checks returned due to insufficiency of funds or credit shall no longer be
allowed to be covered or funded after the day they were presented to PCHC or RCC.
1. The drawee bank shall affix to the original date of presentation of the COCI to
check a return stamp, indicating therein the PCHC or RCC. 1
date when the check is returned and the (1) For Local Exchanges
reason for the refusal to pay the same to the There shall only be one (1) clearing
holder thereof. windows for COCIs returned due to
2. For checks which shall be insufficient funds or credit, closed account
dishonored or returned by reason of and/or stop payment order in the Integrated
insufficiency of funds or credit, the drawee GM LX and RLX.1
bank shall indicate the remark or notation The settlement of interbank transactions
“Drawn Against Insufficient Funds”, “No vis-à-vis covering reserve requirement/
Funds” or “Insufficient Funds” on the return deficiency of banks’ DDA is shown in
stamp. For checks which shall be Appendix 39.
dishonored or returned for the reason that The AM returned COCI clearing
such is drawn against a closed account, the window for COCIs dishonored due to
drawee bank shall indicate the remark or insufficiency of funds or credit, closed
notation “Account Closed”. account and/or stop payment order in the
3. Notwithstanding receipt of an order Integrated GM LX and in the RLX shall be
to stop payment, the drawee bank shall conducted from 2:00 AM to 7:30 AM on
likewise indicate in the return stamp, the the clearing 1 day immediately following the
remarks or notations mentioned in Item “2” original date of presentation of the COCI to
hereof indicating that there were no PCHC or RCC.
sufficient funds in or credit with such bank Returned COCI in the AM clearing
for the payment in full of such check or the windows shall be given value on the same
account is closed, if such be the fact. The date as the date of original presentation of
bank shall also indicate receipt of a stop the COCI to PCHC or RCC. The amount of
payment order. debits and credits on the date of original
For checks which shall be dishonored presentation shall be reversed to the extent
for the reason that payment has been of the amount of credits and debits arising
stopped, the following shall be observed: from the returned COCI. The process
(a) The drawee bank shall affix to the restores the balances of the demand deposits
check a return stamp indicating therein the of banks with the Bangko Sentral to their
date when the check is returned and the position prior to the settlement of the
reason for the refusal to pay the same to the clearing results affected by the COCI later
holder thereof. returned due to insufficient funds or credit,
(b) The drawee bank shall indicate the closed account and/or stop payment order.
remark or notation “Payment Stopped” or (2) For Integrated GM Outward to
“With Stop Payment Order” on the return Region, Integrated GM Inward From Region
stamp. and Region to Region Clearing Operations
A COCI dishonored for the reason that A COCI dishonored by reason of
such is drawn against insufficient funds or insufficiency of funds or credit, drawn
credit, or is drawn against a closed account, against a closed account and/or stop
or payment thereof has been stopped shall payment order shall continue to be covered
be returned by the drawee bank to the by regulations issued by Bangko Sentral and
negotiating bank not later than 7:30 AM on relevant PCHC Clearing House Rules and
the clearing day immediately following the Regulations.1
1
See schedule of revised clearing and settlement process shown as footnote of Section X202
(3) COCI not coursed through the presentation shall be reversed to the extent
Clearing System of the amount of credits and debits arising
A COCI dishonored by reason of from the returned COCI. The process
insufficiency of funds or credit, drawn restores the balances of the demand deposits
against a closed account and/or stop of banks with the Bangko Sentral to their
payment order which was not coursed position prior to the settlement of the
through the clearing system shall be clearing results affected by the COCI later
returned by the drawee bank to the holder returned due to technical reasons.
or the negotiating bank, as the case may be, (b) PM Returned COCI Clearing – The
not later than the banking day following the PM returned COCI clearing window for
date the COCI is presented for payment with COCIs dishonored due to technical reasons
the drawee bank. shall coincide with the afternoon regular
The negotiating bank shall, in turn, clearing. Such returned COCI shall be given
return a COCI dishonored by reason of value on the date the returned COCI was
insufficiency of funds or credit, drawn presented to PCHC for the Integrated GM
against a closed account and/or stop LX or to RCC for the RLX.
payment order to the holder not later than (2) For Integrated GM Outward to
the banking day following its receipt of the Region, Integrated GM Inward from Region
dishonored COCI from the drawee bank. and Region to Region Clearing Operations
b. Checks dishonored due to technical A COCI dishonored due to technical
reasons. A COCI dishonored due to reasons continues to be covered by circulars
technical reasons shall be returned by the issued by Bangko Sentral and relevant
drawee bank to the negotiating bank not later PCHC Clearing House Rules and
than the afternoon regular clearing. Regulations1.
(1) For Local Exchanges (3) COCI not Coursed Through the
There shall be two (2) separate clearing Clearing System
windows for COCIs returned due to A COCI dishonored due to technical
technical reasons in the Integrated GM LX reasons which was not coursed through the
and RLX. clearing system shall be returned by the
The settlement of interbank transactions drawee bank to the holder or the negotiating
vis-àvis covering reserve requirement/ bank, as the case may be, not later than the
deficiency of banks’ DDA is shown in banking day following the date the COCI is
Appendix 39. presented for payment with the drawee
(a) AM Returned COCI Clearing – The bank.
AM returned COCI clearing window for The negotiating bank shall, in turn,
COCIs dishonored due to technical reasons return a COCI dishonored due to technical
in the Integrated GM LX and in the RLX shall reasons to the holder not later than the
be conducted from 2:00 AM to 7:30 AM banking day following its receipt of the
on the clearing day immediately following dishonored COCI from the drawee bank.
the original date of presentation of the COCI (As amended by Circular Nos. 705 dated 29 December 2010
to PCHC or RCC. 1 and 681 dated 08 February 2010)
Returned COCI in the AM clearing
window shall be given value on the same Sec. X204 Current Accounts of Bank
date as the date of original presentation of Officers and Employees. As a general rule,
the COCI to PCHC or RCC. The amount of officers and employees of banks, their
debits and credits on the date of original spouses and relatives within the second
1
See schedule of revised clearing and settlement process shown as footnote of Section X202
1
See schedule of revised clearing and settlement process shown as footnote of Section X202
arrangements with UBs/KBs. Other banks month, two (2) months prior to the date of
may indirectly participate through application with the DLC; otherwise, its
maintenance of DDAs with UBs/KBs as outward clearing items shall be subject to
settlement account for demand deposit or second day value dating.
NOW accounts of TBs/RBs. Other banks may also apply for
b. Banks authorized to participate collateralized OCL in any amount.
directly in the clearing in PCHC shall be (3) Provided the overdraft does not
subject to the following measures to manage exceed the ceiling as defined in Item “2”
the settlement risks: hereof, the bank may avail of the clean/
(1) Settlement of both inward and collateralized OCL. The availments against
outward items shall be value dated on the the approved clean/collateralized OCL shall
day the checks are originally presented to bear interest at a rate equivalent to one-tenth
PCHC or RCC, net of AM returns. For this of one percent (1/10 of 1%) per day or the
purpose, the value date or settlement date ninety-one (91)-day T-Bill rate of the last
referred to herein shall be defined uniformly auction immediately preceding the
as the date of original presentation of the availment, plus three percentage (3%)
COCI to PCHC for the Integrated GM LX points, whichever is higher.
and to the RCC for the RLX. For the (4) The availment shall be for a
Integrated GM Outward to Region, maximum period of five (5) consecutive
Integrated GM Inward from Region and clearing days or five (5) clearing days within
Region to Region clearing, the value date or any thirty (30)-day rolling calendar period,
settlement date shall be on the day the after which the OCL shall be suspended.
COCIs are received and processed at (5) Should the overdraft exceed the
PCHC. ceiling, as defined in Item “2” hereof, no
(2) A ceiling shall be set on the amount availment of the clean/collateralized OCL
of overdraft a bank may incur due to failure shall be allowed.
to cover clearing losses through interbank (i) In the case of end-of-day overdraft,
borrowings and/or repurchase agreements the Payments and Settlements Office (PSO)
with the Bangko Sentral. The ceiling is shall advise the PCHC of the amount
defined as the sum of clean Overdraft Credit available for settlement of the drawee bank’s
Line (OCL) equivalent to fifteen percent net clearing loss, beyond which amount
(15%) of rediscounting line with the Bangko inward clearing items will be unwound in
Sentral, and the collateralized OCL that will accordance with the PCHC Clearing House
be extended by Bangko Sentral. A bank not Rules and Regulations.
meeting the following criteria: (ii) In the case of final overdraft, i.e.,
(i) CAMELS composite rating of at after AM returns, where unwinding is no
least “3”; longer possible, the bank shall be excluded
(ii) CAR of at least ten percent (10%); from next clearing. The PSO shall advise
or the PCHC of such exclusion upon prior
(iii) No chronic reserve deficiencies for Monetary Board approval.
the immediately preceding one (1) year, or (6) The collateralized OCL may be
other measures as may be defined by the converted into an emergency loan provided
Bangko Sentral for this purpose, should the bank complies with the guidelines
apply for collateralized OCL in an amount governing the grant of emergency loans
equivalent to at least five percent (5%) of under Subsec. X272.2 or may be subject to
their demand deposit liabilities as of end of foreclosure of collateral.
The guidelines implementing Item “b” Sec. X207 Check Clearing Operations
of this Section are in Appendix 31. During Public Sector Holidays. The
c. In indirect participation through guidelines on check clearing operations
conduit arrangement, where the clearing during public sector holidays are shown in
results of participating TBs/RBs are Appendix 84.
consolidated with those of the conduit UBs/ (M-2008-025 dated 13 August 2008)
KBs, caps shall be set on the net clearing
losses to be passed on to the conduit UB/ Secs. X208 - X212 (Reserved)
KB by the TB/RB.
The cap is defined as the combined value B. SAVINGS DEPOSITS
of the following amounts:
(1) the TB/RB’s DDA with the Bangko Sec. X213 Servicing Deposits Outside Bank
Sentral; and Premises. Banks may be authorized by the
(2) the value of clean/collateralized Bangko Sentral to solicit and accept deposits
overdraft credit line that may be extended outside their bank premises, subject to the
by the conduit UB/KB to the TB/RB. following conditions:
The conduit arrangement should include a. Minimum capital requirement is met;
provisions setting aforementioned cap on the b. No major supervisory concerns
net clearing losses. affecting safety and soundness;
(As amended by Circular Nos. 705 dated 29 December 2010 and
681 dated 08 February 2010)
c. The area of operations shall be within
one (1)-hour normal travel time by land/sea
Secs. 1205 (Reserved) from any head office or branch, except in
remote areas where more than one (1)- hour
Sec. 2205 Check Clearing Rules for Thrift normal travel time may be allowed; and
Banks Authorized to Accept Demand d. Applicant bank shall institute and
Deposits maintain the following minimum
(Deleted by Circular No. 825 dated 07 February 2014) safeguards:
(1) All deposit solicitors shall be initially
Sec. 3205 Check Clearing Rules for Rural bonded for at least P1,000 subject to the
Banks Who Are Members of the Philippine increase thereof to approximate their daily
Clearing House Corporation collections;
(Deleted by Circular No. 825 dated 07 February 2014) (2) Deposit solicitors shall be provided
with proper identification cards with
Sec. X206 (2008 - X603) Clearing photograph and signature of each respective
Operations. Banks shall observe the clearing solicitor, certified to by the appropriate
procedures in accordance with the PCHC officer of the bank. Said identification cards
Clearing House Rules and Regulations for shall be worn by each solicitor at all times
the clearing of checks1. at the upper breast of his outer garment
(As amended by Circular Nos. 705 dated 29 December 2010 when soliciting deposits; and
and 681 dated 08 February 2010)
1
See schedule of revised clearing and settlement process shown as footnote of Section X202
is offered to the public not later than ten Nothing herein shall be construed as
(10) banking days from such offering of the precluding a TB, RB or Coop Bank from
service. applying for authority to accept both
demand deposits and NOW accounts.
§ X223.3 Sanctions. If any part of the
certification submitted by the bank as Sec. X225 Minimum Features. The order of
required in these guidelines is found to be withdrawal form shall have a size of three
false, the following sanctions shall be (3) inches by seven (7) inches, and shall be
imposed, without prejudice to the sanctions printed on security/check paper. It shall
under Section 35 of R.A. No. 7653: contain, as a minimum, the features of the
a. On the bank pro-forma order of withdrawal shown in
Suspension of its authority to accept or Appendix 11.
create NOW accounts for one (1) year.
b. On the certifying officer Sec. X226 Clearing of Negotiable Order
A fine of P5,000 per day from the time of Withdrawal Accounts. Any NOW
the certification was made up to the time account which may be deposited with a
the certification was found to be false. bank other than the drawee bank may be
cleared through the PCHC in accordance
Sec. X224 Rules on Servicing Negotiable with the PCHC Clearing House Rules and
Order of Withdrawal Accounts. The Regulations1. Nothing in this Section shall
following rules shall be observed in prevent direct settlement between the
servicing NOW accounts: parties concerned. The provision of Sec.
a. Prior to or simultaneous with the X202 shall also apply for withdrawals on
opening of a NOW account, the bank shall NOW accounts.
inform the depositor of its terms and (As amended by Circular Nos. 705 dated 29 December 2010
conditions; and 681 dated 08 February 2010)
b. The bank shall be responsible for
the proper identification of its depositors; it Secs. X227 - X230 (Reserved)
shall require, among other things, two (2)
specimen signatures and such other D. TIME DEPOSITS
pertinent information;
c. Deposits shall be covered by Sec. X231 Term of Time Deposits. Time
deposit slips in duplicate duly validated and deposits shall be issued for a specific period
initialed by the teller receiving the deposit. of term.
A copy of the deposit slip shall be furnished
the depositor; Sec. X232 Special Time Deposits
d. NOW accounts shall be kept and Authority shall be automatically granted
maintained separately from the regular to any accredited banking institution
savings deposits; which may participate in the supervised
e. Blank NOW forms shall be credit program to accept special time
prenumbered and shall be controlled as in deposits from the Agrarian Reform Fund
the case of unissued blank checks; Commission with interest lower than the
f. A bank statement shall be sent to rate allowed on time deposits accepted
each depositor at the end of each month for from the general public. Such deposits
confirmation of balances; and shall be exempt from the legal reserve
g. Banks must use the form prescribed requirements, as an exception to the
by present rules for NOW accounts. existing policies on the matter.
1
see schedule of revised clearing and settlement process shown as footnote of Section X202
Sec. X233 Certificates of Time Deposit SES of the actual date when the NCTDs are
a. Negotiable Certificates of Time actually issued to the public not later than
Deposit (NCTDs) ten (10) banking days from such issuance.
(1) UBs/KBs may issue NCTDs without
approval of the Bangko Sentral. § X233.3 Minimum features
(2) TBs/RBs/Coop Banks may issue a. Form; denomination - NCTDs may
NCTDs upon the prior approval of the be issued in bearer or other form denoting
Bangko Sentral. negotiability and shall have a standard
b. Non-Negotiable Certificates of Time format to be prescribed by the Bangko
Deposit Sentral which shall be prenumbered serially
Banks may issue long-term non- and predenominated. The minimum
negotiable tax-exempt certificates of time denomination shall be at the discretion of
deposit without approval of the Bangko the issuing bank. No certificate payable to
Sentral. bearer shall contain words prohibiting its
negotiation.
§ X233.1 Prerequisites to issue b. Term - The minimum maturity of the
negotiable certificates of time deposits for certificates shall be 731 days.
thrift banks/rural banks/cooperative banks c. Manner of issuance - The certificates
In addition to the Standard Pre-qualification shall be issued only upon receipt of funds
Requirements for the Grant of Banking equivalent to their face value.
Authorities enumerated in Appendix 5, a TB/ d. Manner of printing - NCTDs shall
RB/Coop Bank applying for authority to be printed on security paper by the Security
issue NCTDs shall also comply with the Plant Complex (SPC) of the Bangko Sentral.
following requirements: Orders for the printing of the desired
a. Applicant’s capital must be at least forms shall not exceed a total value
P150.0 million. For this purpose, capital shall equivalent to twenty percent (20%) of the
have the same meaning as in Sec. X111; and issuing bank’s capital accounts (based on
b. It has neither assessment due nor the quarter immediately preceding the
past due obligations with the PDIC. request for printing) at any one time.
(As amended by Circular No. 674 dated 10 December 2009) Additional orders for printing which shall
result in an excess over the prescribed
§ X233.2 Requirements for issuing benchmark shall require prior Bangko
negotiable certificates of time deposits Sentral approval.
After a TB’s/RB’s/Coop Bank’s application
to issue NCTDs has been approved, it may § X233.4 Insurance coverage. The
actually issue the same subject to the NCTDs shall be insured with the PDIC.
following conditions: Banks issuing bearer certificates shall
a. Submission of a certification signed imprint on the instrument the following:
by the president/chairman of the board of “For purposes of deposit insurance by
the bank stating that the requirements the PDIC, the holder shall have his name
enumerated under Subsec. X233.1 have been registered in the books of the issuing bank.”
complied with up to the day before the NCTDs
are actually issued to the public; and § X233.5 Desistance from issuing new
b. That it has complied with all other negotiable certificates of time deposits
conditions that the Bangko Sentral may Unless authorized by the Bangko Sentral,
impose. TBs/RBs/Coop Banks with outstanding
The applicant bank shall submit a written NCTDs shall immediately desist from
notice to the appropriate department of the issuing new NCTDs.
All outstanding NCTDs shall be valid and proceeds thereof, registry bank, underwriter/
negotiable up to their maturity dates and arranger, selling agent(s) and market maker(s).
shall not be subject to renewal. c. Pre-qualification requirements
The issuing bank shall be held
§ X233.6 Sanctions. If any part of the accountable for ensuring the continuous
certification submitted by the bank as compliance by its chosen participant-FIs
required in these guidelines is found to be with the qualification requirements
false, the following sanctions shall be prescribed by the Bangko Sentral.
imposed, without prejudice to the sanctions As such, the issuing bank shall make a
under Section 35 of R.A. No. 7653. careful and diligent evaluation of the parties
a. On the bank whom it shall engage to act as underwriter/
Suspension of its authority to issue arranger, registry bank, selling agent and
NCTDs for one (1) year. market maker of its LTNCTDs.
b. On the certifying officer The following qualification requirements
A fine of P5,000 per day from the time shall be strictly complied with prior to and
the certification was made up to the time on a continuing basis by the issuing bank
the certification was found to be false. and FIs engaged to act as underwriter/
arranger, registry bank, selling agent and
§§ X233.7 - X233.8 (Reserved) market maker while the LTNCTD of the
issuing bank remains outstanding.
§ X233.9 Long-term negotiable (1) Issuing bank
certificates of time deposit. The following A bank applying for authority to issue
guidelines shall govern the issuance of an LTNCTD shall comply with the following
longterm negotiable certificates of time requirements:
deposit (LTNCTDs) with a minimum (a) It has complied with the following
maturity of five (5) years: capital adequacy requirements:
a. Prior Bangko Sentral approval. No (i) Minimum capitalization as defined
LTNCTD shall be issued without the prior under Sec. X111; and
approval of the Bangko Sentral. (ii) Risk-based capital adequacy ratio
b. Application for authority of the under Sec. X115 within the sixty (60) days
issuing bank. An application for authority immediately preceding the date of
on each issue/issue program of LTNCTD application;
shall be filed with the appropriate (b) It has not incurred net weekly reserve
department of the SES: Provided, That any deficiencies within eight (8) weeks
portion of an approved LTNCTD that is not immediately preceding the date of
issued within six (6) months of the approval application;
of the Monetary Board will be deemed (c) It has generally complied with
forfeited1. banking laws, rules and regulations, orders
The application shall be signed by the or instructions of the Monetary Board and/
president/country manager (branch of a or Bangko Sentral Management in the last
foreign bank) of the bank. It shall be two (2) preceding examinations prior to the
accompanied by a certified true copy of the date of application, more particularly:
resolution of the bank’s board of directors (i) The ceilings on credit
authorizing the issuance of LTNCTD accommodations to DOSRI;
indicating, among others, the issue size, (ii) Liquidity floor requirements for
offering period, purpose or intended use of government deposits;
1
Approved applications and outstanding LTNCTDs as of 22 February 2014 shall not be covered by the new
requirements.
(iii) Single borrower’s loan limit; and (bb) Deliver transactions within the
(iv) Investment in bank premises and agreed trading period; and
other fixed assets; (cc) Issue registry confirmations to
(d) It maintains adequate provisions for holders of LTNCTDs.
probable losses commensurate to the quality (iii) It must have a CAMELS Composite
of its asset portfolio but not lower than the Rating of at least “3” in the last regular
required valuation reserves as determined examination.
by the Bangko Sentral; (3) Underwriter/Arranger
(e) It does not have float items (a) It is either a UB or an IH: Provided,
outstanding for more than sixty (60) calendar That if an offering is on a best-efforts basis,
days in the “Due From/To Head Office/ such arranger may also be a KB;
Branches/Offices” accounts and the “Due (b) It must be a third party, such that:
From Bangko Sentral“ account exceeding (i) it has no subsidiary/affiliate
one percent (1%) of the total resources as relationship with the issuing bank; and
of date of application; (ii) it is not related in any manner that
(f) It has no past due obligations with would undermine the objective conduct of
the Bangko Sentral or with any government due diligence.
FI; (c) Underwriters must be well
(g) It has established a risk management capitalized and must have adequate risk
system appropriate to its operations management as evidenced by compliance
characterized by clear delineation of with Items “c(1)(a), (d), (g) and (h)” as may
responsibility for risk management, adequate be applicable.
risk measurement systems, appropriately (4) Selling agent
structured risk limits, effective internal It must be an FI with dealership or
controls and complete, timely and efficient brokering license.
risk reporting system; (5) Market maker
(h) It has a CAMELS Composite Rating (a) It must not be the issuing bank;
of at least “3” in the last regular examination; (b) It must be a third party which is not
and related to the issuing bank in any manner
(i) It has neither unpaid assessment due that would undermine its independence;
nor past due obligations with the PDIC. (c) It must be an FI, with dealership or
(2) Registry bank brokering license; and
(d) It must be well-capitalized and must
(a) It may be a UB, a KB, or such other
have adequate risk management as
specialized entity that may be qualified by
evidenced by compliance with Items
the Monetary Board;
“c(1)(a), (d), (g) and (h)” as may be
(b) In the case of a UB or a KB:
applicable.
(i) It must be a third party:
d. Additional requirements for the
(aa) with no subsidiary/affiliate
issuance of LTNCTD. After a bank’s
relationship with the issuing bank; and
application to issue an LTNCTD has been
(bb) which is not related to the issuing
approved, it may issue the same, subject
bank in any manner that would undermine
to the submission of the following
its independence.
additional requirements to the appropriate
(ii) It must have adequate facilities and department of the SES within ten (10)
the organization to do the following: calendar days after issuance of the initial
(aa) Maintain the Electronic Registry offering/tranche:
Book (ERB);
1
Approved applications and outstanding LTNCTDs as of 22 February 2014 shall not be covered by the new
requirements.
2
A bank shall be allowed to issue LTNCTDs subject to the condition that the bank shall submit a deed of
undertaking to the Bangko Sentral that all LTNCTDs issued after 22 February 2014 shall be applied for listing
on an accredited exchange within one (1) day after the LTNCTD platform commences operation.
The platform for the listing of the LTNCTDs will be available on 01 September 2014. In this regard, banks that
issued LTNCTDs after 22 February 2014 shall apply for listing by 02 September 2014.
(d) Issues the purchase advice for the provisions of Sec. X162 on bank service
secondary sale of the LTNCTDs; and contracts. The issuing bank shall be liable
(e) Ensures secondary market transfers for any damages to investors/depositors
and registration in coordination with the caused by actions of said registry bank,
registry bank. selling agent(s)/market maker(s) contrary to
g. Change of underwriter/arranger, the agreements entered into.
registry bank, selling agent(s)/market k. Minimum features
maker(s). (1) Form; denomination - An LTNCTD
The issuing bank shall notify the shall be in scripless form with a third party
appropriate department of the SES in writing registry bank maintaining the ERB. To have
of any change in the identity of its registry legal effect, it shall comply with the
bank, underwriter/arranger, selling agent provisions of R.A. No. 8792 (Electronic
and/or market maker within ten (10) Commerce Act) particularly on the existence
calendar days from date of such change. of an assurance on the integrity, reliability
Said written notice shall state the and authenticity of the LTNCTD in electronic
(i) reasons for the change, (ii) identity of the form. LTNCTDs shall be registered in the
newly-designated FI(s), and (iii) effectivity of name of individuals or corporations,
the engagement. negotiable and prenumbered serially. The
h. Waiver of the secrecy of deposits for minimum denomination shall be at the
market makers. A market maker who holds discretion of the issuing bank.
an LTNCTD for its own account must issue (2) Currency - Denomination shall be
a waiver of the secrecy of deposits in favor in Philippine pesos.
of the Bangko Sentral for examination (3) Term - The minimum maturity of the
purposes. Any information obtained from LTNCTDs shall be five (5) years.
an examination of said LTNCTD shall be (4) Primary Offering/Secondary Trading
held strictly confidential. - The initial offering shall be executed
i. Prohibition on holdings of LTNCTDs. through an underwriter or an arranger.
The issuing bank including its related Subsequent negotiations in secondary
companies (subsidiaries and affiliates and trading must be executed through
wholly or majority-owned or -controlled authorized market maker(s).
entities of such subsidiaries and affiliates) l. Purchase Advice and Registry
cannot be a holder of the LTNCTDs of the Confirmation
issuing bank. (1) The Purchase Advice and Registry
The issuing bank shall provide the Confirmation shall conspicuously contain
registry bank with an updated list of all the following caveat:
related companies. This report shall be a (a) “This LTNCTD cannot be
“Category B” report. terminated by the holder nor the Issuing
For purposes of this Subsection, an Bank before (maturity date). However,
affiliate is an entity, at least twenty percent negotiations/ transfers from one (1) holder
(20%) but not exceeding fifty percent (50%) to another do not constitute
of the outstanding voting stock of which is, pretermination.”
owned by the issuing bank. For tax purposes, negotiations/transfers
j. Agreements between issuing bank and from one (1) holder to another shall be
registry bank/selling agent(s)/market subject to the pertinent provisions of the
maker(s). The agreements between the National Internal Revenue Code of 1997,
issuing bank and the registry bank/market as amended and Bureau of Internal
makers/selling agents shall comply with the Revenue (BIR) regulations.
The caveat shall apply if the issuing bank (4) Notwithstanding any agreement to
commits no pretermination. Otherwise, it the contrary, the issuer shall shoulder the
shall read as follows: tax due on the interest income already
“This LTNCTD cannot be terminated by earned by the holders; and
the holder before (maturity date). However, (5) The issuing bank’s reserve
it may be preterminated at the instance of positions shall be recomputed
the Issuing Bank upon prior notice to the retroactively based on the applicable
holder on record. Negotiations/transfers reserve rate(s) for regular time deposits
from one (1) holder to another do not during the affected periods.
constitute pretermination” If the recomputed amounts result in a
For tax purposes, negotiations/transfers reserve deficiency, the issuing bank shall
from one (1) holder to another shall be be fined with the corresponding monetary
subject to the pertinent provisions of the penalties. The preceding monetary
National Internal Revenue Code of 1997, penalty, however, shall not be imposed if
as amended and Bureau of Internal Revenue pretermination by the issuer is due to a
(BIR) regulations”; and change in law or regulation that will
(b) “All negotiations/transfers of this increase the cost of maintaining the
LTNCTD prior to maturity must be coursed LTNCTDs.
through a Market Maker”. o. Non-pretermination by the holder.
(2) The selling agent/market maker shall Presentation of the LTNCTD to the issuing
issue a Purchase Advice to evidence initial bank for payment before the maturity date
purchase/secondary trading of LTNCTD is not allowed. However, negotiation or
with the original copy given to the holder. transfer from one (1) holder to another
(3) The registry bank shall issue a shall not constitute pretermination of the
Registry Confirmation to evidence LTNCTD.
ownership of the LTNCTD, with the original For tax purposes, negotiations/
copy given to the holder. transfers from one (1) holder to another
m. Deposit insurance coverage. The shall be subject to the pertinent provisions
LTNCTDs shall be insured with the PDIC, of the National Internal Revenue Code of
subject to applicable rules and regulations, 1997, as amended and Bureau of Internal
among others, on maximum insurance Revenue (BIR) regulations.
coverage. p. Sanctions. Without prejudice to the
n. Pretermination by the issuer. other sanctions prescribed under Sections
LTNCTDs may be preterminated by the 36 and 37 of R.A. No. 7653 and the
issuing bank, subject to the following provisions of Section 16 of R.A. No. 8791,
conditions: the following sanctions will be imposed
(1) The Information Disclosure, on Bangko Sentral-supervised FIs for
Purchase Advice and Registry Confirmation failure to comply with the provisions of
shall include the information that the this Subsection and for non-disclosure or
LTNCTD may be preterminated by the misrepresentation of information:
issuing bank; (1) On the issuing bank - Suspension
(2) 30- day prior notification must be of its authority to issue LTNCTDs,
given to the appropriate department of the disqualification from future issuance of
SES together with the justification for the LTNCTDs and a monetary penalty of
pretermination; P30,000 for each violation.
(3) 30- day prior notification to holders (2) On the registry bank -
of record; Disqualification to be a registry bank for
one (1) year and a monetary penalty of shall be issued only upon receipt of funds
P30,000 for each violation. equivalent to their face value.
(3) On the selling agents/market makers (4) Manner of printing - The certificate
- Disqualification to be appointed as selling shall be printed on security paper.
agent/market maker for one (1) year and a (5) Pre-termination - In case of pre-
monetary penalty of P30,000 for each termination, the deposit shall be subject to
violation. income tax as provided under Section
(4) On the certifying officer - A fine of 24(B)(1) of the Tax Reform Act of 1997
P5,000 per day from the time of required which states that “xxx a final tax shall be
disclosure up to the time disclosure was imposed on the entire income and shall be
made; or from the time misrepresentation deducted and withheld by the depository
was made up to the time the information bank from the proceeds of the long-term
was corrected. deposit or investment certificate based on
(5) On the responsible officer - A fine of the remaining maturity thereof:
P30,000 for participating or confirming in (a) Four (4) years to less than
the non-disclosure or misrepresentation of five (5) years 5%
information. (b) Three (3) years to less than
FIs not supervised by the Bangko Sentral four (4) years 12%
acting as selling agent and/or market maker (c) Less than three (3) years 20%
of LTNCTDs and/or its concerned directors/ xxx”
officers that are found to violate rules and b. Insurance coverage. The deposits
regulations in the performance of their shall be insured with the PDIC, subject to
functions/responsibilities shall be subject to applicable rules and regulations, among
the provisions of Section 36 of R.A. No. others, on maximum insurance coverage.
c. Reserves against long-term non-
7653 and shall, likewise, be referred to the
negotiable certificates of time deposit. The
SEC for appropriate action.
(As amended by M-2014-034 dated 27 August 2014, Circular
rate and form of required reserves on regular
No. 834 dated 26 May 2014, M-2014-023 dated 23 May 2014, time deposit shall also apply to the required
Circular Nos. 824 dated 30 January 2014, 822 dated 13 December reserves on long-term non-negotiable tax-
2013, 810 dated 30 August 2013, 674 dated 10 December 2009 exempt certificates of time deposit.
and 585 dated 15 October 2007)
E. DEPOSIT SUBSTITUTE OPERATIONS
§ X233.10 (Reserved) (QUASI-BANKING FUNCTIONS)
phrase without recourse, sans recourse or once the Monetary Board has granted the
words of similar import that will convey quasi-banking license.
the absence of liability or guarantee by said In addition to the Standard
institution; and Pre-qualification Requirements for the
(2) In the absence of the phrase Grant of Bank Authorities enumerated in
“without recourse”, “sans recourse” or Appendix 5, a TB securing BSP authority
words of similar import, the instrument so to engage in quasi-banking functions must
issued, endorsed or accepted, shall meet the following requirements:
automatically be considered as falling a. The bank must have a networth or
within the purview of these regulations: combined capital of at least P650.0 million
Provided, further, That any of the following computed in accordance with Sec. X111;
practices or practices similar and/or b. The bank is well capitalized with
tantamount thereto in connection with a risk-based capital adequacy ratio of not
without recourse transaction is hereby lower than twelve percent (12%) at the
prohibited: time of filing the application;
(a) Issuance of postdated checks by a c. The bank’s operation during the
financial intermediary, whether for its own preceding calendar year and for the period
account or as an agent of the debt immediately preceding the date of
instrument issuer, in payment of the debt application has been profitable;
instrument, sold, assigned or transferred d. The bank has elected at least two
without recourse; or (2) independent directors and all its
(b) Issuance by a financial intermediary directors have attended the required
of any form of guaranty on sale transactions seminar for directors of banks conducted
or on negotiations or assignment of debt or accredited by the BSP;
instruments without recourse; and e. The bank has established a risk
(c) Payment with its own funds by a management system appropriate to its
financial intermediary which assigned, sold operations characterized by clear
or transferred the debt instrument without delineation of responsibility for risk
recourse, unless the financial intermediary management, adequate risk measurement
can show that the issuer has with the said systems, appropriately structured risk
financial intermediary funds corresponding limits, effective internal controls, and
to the amount of the obligation. complete, timely and efficient risk
reporting system; and
§ X234.4 Pre-conditions for the f. The bank has a CAMELS
exercise of quasi-banking functions. No Composite Rating of at least “3” in the last
bank shall engage in quasi-banking regular examination with management
functions without authority from the BSP: rating of not lower than “3”.
Provided, however, That banks authorized
by the BSP to perform universal or § X234.5 Certificate of Authority from
commercial banking functions shall the Bangko Sentral. A bank securing BSP’s
automatically have the authority to engage Certificate of Authority to engage in
in quasi-banking functions: Provided, quasi-banking functions shall file an
further, That the authority to obtain funds application with the appropriate
from the public, which shall mean twenty department of the SES. The application
(20) or more persons under Section 8.2 of shall be signed by the bank president or
R.A. 8791, is not a condition but an officer of equivalent rank and shall be
authorization for the bank or quasi-bank, accompanied by the following documents:
a. Certified true copy of the resolution That in case, the TB has no approved
of the bank’s board of directors authorizing capital build-up program, the minimum
the application; capital requirement may be substituted by
b. A certification signed by the a capital build-up program for a period of
president or the officer of equivalent rank not more than five (5) years from
that the institution has complied with all 11 November 2004 and which must be
conditions/prerequisites for the grant of approved by the Monetary Board. Such
authority to engage in quasi-banking capital build-up program shall be in equal
functions; annual or diminishing amounts and shall
c. An information sheet; be submitted to the appropriate
d. Bio-data signed under oath, of the department of the SES within three (3)
members of the managerial staff who will months from 11 November 2004.
undertake quasi-banking operations; TBs which fail to comply with the
e. Borrowing-investment program for required capitalization upon expiration of
one (1) year which should include at the said two (2) year period given them or
minimum: those which fail to comply with approved
(1) planned distribution of portfolios capital build-up program shall liquidate
as to - their quasi-banking operations within one
(a) underwriting; (1) year and shall be considered revoked/
(b) commercial paper markets; cancelled. The license of a TB with
(c) stocks and bonds; authority to engage in quasi-banking
(d) government securities; functions but has not actually engaged in
(e) receivables financing, discounting quasi-banking functions and has not
and factoring; complied with the above minimum capital
(f) leasing; and requirements as of 11 November 2004,
(g) direct loans; shall automatically be revoked.
(2) expected sources of funds to
support investment program classified § X234.6 Sale, discounting, assignment
as to - or negotiation by banks of their credit
(a) maturity: short, medium and rights arising from claims against the
long-term; BSP. Pursuant to the policy of the BSP to
(b) interest rates; and promote investor protection and
(c) domestic or foreign sources transparency in securities transactions as
whether institutional or personal. important components of capital markets
TBs authorized to engage and are development, credit rights in Special
actually performing quasi-banking functions Deposit Account (SDA) placements and
but do not meet the new capital reverse repo agreements with the BSP,
requirement are hereby given a period of shall not be subject of sale, discounting,
two (2) years reckoned from 11 November assignment or negotiation on a with or
2004 within which to comply with the without recourse basis.
minimum capital requirement in Subsec. Any violation of the provisions of this
X234.4 (a): Provided, That in case the TB Subsection shall be considered a less
has an approved capital build-up program serious offense and shall subject the bank
under Subsec. X501.2, for its FDCU and the director/s and/or officer/s
license, the approved capital build-up concerned to the sanctions provided under
program, may be considered compliance Section X299.
with this requirement: Provided, further, (Circular No. 636 dated 17 December 2008)
Sec. X235 Deposit Substitute Instruments instrument, and directly below which
Any deposit substitute transaction by a shall be the maturity period or the word
bank performing quasi-banking functions “demand”, if it is a demand instrument.
shall be limited to its own promissory c. The payee may be identified by his
notes, repurchase agreements, and trust account/deposit account number in
certificates of assignment/participation both negotiable and non-negotiable
with recourse. instruments.
d. Securities which are the subject of
§ X235.1 Prohibition against use of a repurchase agreement or a certificate of
acceptances, bills of exchange and trust assignment/participation with recourse,
certificates. Acceptances, bills of shall be particularly described on the face
exchange, and trust certificates shall not of said instruments or on a separate
be used by banks as evidence of deposit instrument attached and specifically
substitute liabilities in connection with referred to therein and made an integral
their quasi-banking functions. This part thereof as to the maker, value,
prohibition shall not apply to the maturity, serial number, and such other
acceptance or negotiation of bills of particulars as shall clearly identify the
exchange in connection with trade securities.
transactions, or to the issuance of trust e. The instrument shall provide for the
certificates creating trust relationships. payment of liquidated damages, in addition
to stipulated interest, in case of default by
§ X235.2 Negotiation of promissory the maker or issuer, as well as attorney’s
notes. Negotiable promissory notes fees and costs of collection in case of suit.
acquired by banks in connection with f. A conspicuous notice at the lower
their quasi-banking functions shall not be center margin of the face of the instrument
negotiated by mere indorsements and/or that the transaction is not insured by the
delivery, if they do not conform with the PDIC shall be indicated.
minimum features prescribed under g. The corporate name of the issuer
Subsec. X235.3. If these notes do not shall be printed at the upper center margin
contain the features, their negotiation of the instrument and directly below
shall be covered by any of the appropriate which shall be a designation of the
deposit substitute instruments above- instrument, such as “Promissory Note”
mentioned. or “Repurchase Agreement”.
h. The words “duly authorized
§ X235.3 Minimum features. Deposit officer“ shall be placed directly below the
substitute instruments issued by entities signature of the person signing for the
performing quasi-banking functions shall maker or issuer.
have the following minimum features: i. Each instrument shall be serially
a. The present value and maturity pre-numbered.
value and/or the principal amount and j. The copy delivered to the payee shall
interest rate and such other information bear the word “Original” and the copies
as may be necessary to enable the parties retained by the issuer shall be identified
to determine the cost or yield of the as “Duplicate”, “File Copy” or words of
borrowing or placement shall be similar import.
specified. k. Only security paper with adequate
b. The date of issuance shall be safeguards against alteration or
indicated at the upper right corner of the falsification shall be used.
Borrowings of banks from the loans and custodian in a registry for said securities, if
discounts window of other banks or immobilized or dematerialized while the
non-bank financial intermediaries shall be overlying principal borrowing instrument
exempted from the documentation shall be physically delivered to the lender/
requirements prescribed in this Subsection: purchaser. The custodian shall hold the
Provided, That the exemption from the securities in the name of the borrower/
documentation requirements prescribed in seller, but shall keep said securities
this Subsection shall not be construed or segregated from the regular securities
interpreted as exempting said borrowings account of the borrower/seller if the
from other regulations standardizing deposit borrower/seller has an existing securities
substitute instruments and from other account with the custodian: Provided, That
BSP regulations on deposit substitutes. a bank/other entity authorized by the BSP
Deposit substitute instruments shall to perform custodianship function may not
conform to the language prescribed by the be allowed to be custodian of securities
BSP. Any substantial deviation there from issued or owned by said bank/entity, its
or any additional stipulation therein shall subsidiaries or affiliates, or of securities in
be referred to the BSP for prior approval. bearer form.
The size and appearance of these The delivery shall be effected upon
instruments, shall not be similar to the size payment and shall be evidenced by a
and appearance of checks. Rubber securities delivery receipt duly signed
stamping, typewriting or handwriting some by authorized officers of the custodian
provisions shall not be considered and delivered to both the lender/
compliance with said regulations. (Shown purchaser and seller/borrower.
in Appendix 12 are the samples of Sanctions. Violation of any provision
standardized instruments as evidence of of Item “a” shall be subject to the following
deposit substitute liabilities.) sanctions/penalties:
(1) Monetary penalties
§ X235.4 Interbank loan transactions First offense - Fine of P10,000 a day for
Except for interbank borrowings which are each violation reckoned from the date the
settled through the banks’ respective DDAs violation was committed up to the date it
with the BSP via PhilPaSS, all interbank was corrected.
borrowings shall be evidenced by deposit Subsequent offenses - Fine of P20,000
substitute instruments containing the minimum a day for each violation reckoned from the
features prescribed in Subsec. X235.3. date the violation was committed up to the
(As amended by Circular No. 703 dated 23 December 2010) date it was corrected.
(2) Other sanctions
§ X235.5 Delivery of securities First offense - Reprimand for the
a. Securities, warehouse receipts, directors/officers responsible for the violation.
quedans and other documents of title Subsequent offense -
which are the subject of quasi-banking (a) Suspension for ninety (90) days
functions, such as repurchase agreements, without pay of directors/officers responsible
shall be physically delivered, if certificated, for the violation;
to a BSP accredited custodian that is (b) Suspension or revocation of the
mutually acceptable to the lender/ accreditation to perform custodianship
purchaser and borrower/seller, or by means function;
of book-entry transfer to the appropriate (c) Suspension or revocation of the
securities account of the BSP-accredited authority to engage in quasi-banking
complied with the minimum capital required c. In case of the National Government,
under Subsec. X111.1; its unincorporated branches, agencies and
b. It has neither unpaid assessment due instrumentalities, a written authority to open
nor past due obligations with the PDIC; and deposit accounts and/or deposit government
c. The bank’s CAMELS composite rating funds signed by the duly authorized official
in its latest examination is not lower than of the Department of Finance/Bureau of the
three (3) with Management component Treasury (DOF/BTr) and of the department,
score of not lower than three (3). bureau, agency, or office making the
(As amended by Circular Nos. 696 dated 29 October 2010, deposit.
674 dated 10 December 2009 and 526 dated 10 April 2006) The resolution or authority should state
the name and location of the depository
§ X240.4 Application for authority. An
bank, type and terms of the deposit, and
application for authority to accept
that the amount to be deposited represents
government deposits shall be signed by the
working balances.
president of the bank and shall be filed with (As amended by Circular No. 811 dated 13 September 2013)
the appropriate department of the SES. The
application shall be accompanied by a § X240.5 Limits on funds of the
certification by the bank president or Government and government entities that
executive vice-president that the bank has may be deposited with banks
complied with all the requirements a. Funds of the Government, its
enumerated under Subsec. X240.3. subdivisions and instrumentalities and
Banks authorized to accept government government-owned or-controlled
funds as depository shall continuously corporation, deposited with banks
comply with the conditions enumerated authorized to receive deposits shall be
under Subsec. X240.3 even after the limited to the minimum working balance
authority to accept government deposits has of the depositor.
been granted and during the period while With prior Monetary Board approval,
the banks actually hold government deposits, government or private banks may be
otherwise, any violation may be a basis for authorized to accept amounts in excess of
the imposition of sanctions against the bank, minimum working balances if the
its directors and officers, or revocation of Government or government entity making
the authority to accept government deposits. the deposit has outstanding loan obligations
Deposits maintained by the to the depository bank but such amounts
Government, its subdivisions and shall not exceed the amount of its
instrumentalities and government -owned outstanding loan obligations to the
or -controlled corporations shall be depository bank. The amount of non-
supported by the following documents transferable and non-negotiable government
whenever applicable: securities with market or below market
a. A copy of the resolution of the interest rate at the time of issue, issued by
barangay, municipal or city council the National Government to the depository
(Sangguniang Bayan/Panglunsod) or the bank shall be considered as “outstanding
provincial board (Sangguniang loans” of the National Government to said
Panlalawigan) authorizing the deposit of bank within the meaning of Section 113 of
municipal, city or provincial funds; R.A. No. 7653.
b. A copy of the resolution of the board b. The aggregate amount of government
of directors of the government-owned or- funds which a private bank can hold at any
controlled corporations authorizing the given time shall not exceed 200% of the
deposit of funds of said corporations; or bank’s net worth.
c. Where any director, officer or a. The free portion of the “Due from
stockholder of a private bank, as defined Bangko Sentral - Local Currency” after
under Subsec. X326.1, is also an elective satisfying the legal and other reserve
or appointive official of a municipality, city requirements;
or province, said bank is prohibited from b. NDC Agri-Agra ERAP Bonds, which
accepting deposits from said municipality, are not being used as alternative
city or province unless it is the only bank compliance with PD 717. Such bonds shall
existing therein: Provided, That this not in any way be encumbered or be
provision shall not be construed as a grant subject to any transaction without prior
of authority to such elective or appointive approval of the BSP;
public official to act as director or officer of c. Securities backed by the
a private bank. unreleased Internal Revenue Allotments
(IRA) of local government units (issued by
§ X240.6 Liquidity floor. Unless a Special Purpose Trust administered by
otherwise prescribed by the Monetary the DBP under the IRA Monetization
Board, authorized government depository Program of the Union of Local Authorities
banks other than the BSP, and authorized of the Philippines) the release of which IRA
private banks shall, inclusive of the on scheduled date of payment has been
required reserves against deposits and/or certified by the Department of Budget
deposit substitutes, maintain a fifty percent Management (DBM) as not being subject
(50%) liquidity floor with respect to to any conditionalities: Provided, That such
deposits of, borrowings from, and all other securities shall be eligible only to the extent
liabilities to, the Government and of the present value of the bond computed
government entities, in the form of using the original yield to maturity (as of
transferable government securities which auction/issue date);
represent direct obligations of the National d. Tobacco Excise Tax Receivables
Government. Monetization Program Investment
Government securities representing Certificates (TEXTR Certificates) backed
direct obligations of the National by receivables representing the
Government regardless of maturity, issued unreleased portion of the obligation of the
pursuant to the provisions of R.A. No. 245, National Government to its LGU for their
as amended by P.D. No. 142, which are share of the Tobacco Excise Taxes under
not otherwise earmarked or used as part R.A. No. 7171 amounting to P1.85 billion
of other reserve requirements of the BSP, and covering the years 2001 and 2002:
shall be eligible as liquidity reserves. Provided, That such securities shall be
Securities received pursuant to the eligible only to the extent of the present
Domestic Debt Exchange Offer of the value of the securities computed using the
Republic of the Philippines in exchange original yield to maturity as of auction/issue
for securities that are eligible reserves for date; and
liquidity floor requirement shall, likewise e. Placement of banks in their SDA
be eligible as liquidity reserves. with the BSP, effective 10 May 2007.
Eligible securities being used as such For purposes of computing the fifty
reserve shall not in any way be encumbered percent (50%) liquidity floor requirement
or be subject to any transaction without prior on all government funds held by
approval of the BSP. authorized banks, banks shall adopt a
Also eligible for liquidity floor are the one (1)-week lag system, effective
following: 04 May 2001.
1
As of 22 February 2014 the required reserves for LTNCTD shall be increased from three percent (3%) to
six percent (6%). However, approved applications & outstanding LTNCTDs as of 22 February 2014 shall
not be covered by the new requirements.
2
For reserve week starting 11 April 2014, the required reserves for UBs/KBs and TBs shall be as follows:
Item “g” refers to deposit substitutes (As amended by Circular Nos. 832 dated 27 May 2014,
evidenced by repo agreements covering 830 dated 03 April 2014, 824 dated 30 January 2014, 753 dated
government securities up to the amount 29 March 2012, 732 dated 03 August 2011, 726 dated 27 June
equivalent to the adjusted Tier 1 capital 2011 and 632 dated 19 November 2008)
of the bank: Provided, That such rate
shall apply only to repo agreements, the § X253.2 Liquidity reserves
(Deleted by Circular No. 753 dated 29 March 2012)
documentation of which conforms with,
and were delivered to a BSP-accredited
Sec. X254 Composition of Reserves
third party custodian as required under
a. Composition of required reserves. The
existing Bangko Sentral regulations. required reserves shall be kept in the form of
Items “k” and “l” refer to peso deposits, deposits placed in banks’ demand deposit
except those utilized as capital of foreign accounts (DDAs) with the Bangko Sentral.
banks (incuding Head Office/Branches/ b. Transitory provisions. Banks may
Agencies abroad of local branches of continue to utilize the following as eligible
foreign banks) booked under the “Due to forms of compliance with the reserve
Foreign Banks” and “Due to Head Office/ requirement in accordance with the following
Branches/Agencies Abroad” accounts as guidelines:
provided under Subsec. X191.1, as i. Government securities. Government
amended. securities which are used as compliance with
the regular and/or liquidity reserve
of Bangko Sentral checks for drawings b. STDs from the Agrarian Reform Fund
against reserve deposits shall be limited to Commission and special savings deposits
(a) settlement of obligations with the Bangko from farmer-borrowers; and
Sentral, and (b) withdrawals to meet cash c. Unclaimed balances of deposit
requirements. liabilities already reported to the Treasurer
of the Philippines in accordance with the
§ X254.2 Exclusion of uncleared checks Unclaimed Balances Act (Act No. 3936, as
and other cash items. COCIs which have amended) and transferred/reclassified from
not been cleared yet through the Clearing the deposit liability/other credit accounts to
Office should not be debited to the account the liability account “Due to the Treasurer
Due from the Bangko Sentral and should not of the Philippines”.
be considered as available reserves against Local banks may deduct from the
deposit/deposit substitute liabilities. Such amount of their gross demand deposits, the
items shall be debited to the COCIs account. total of their Due from Local Banks -
Only after the COCIs have been cleared Demand and Due from PNB - Clearing in
through the Clearing Office can the bank an amount not exceeding the total of their
debit the Due from the Bangko Sentral Demand Deposits-Banks and Due to Local
account for said items. Banks. As used herein, the term gross
demand deposits shall mean the sum of all
§ X254.3 Interest income on reserve individual deposits, including deposits
deposits. Deposits maintained by banks with made by other local banks, the Philippine
the Bangko Sentral in compliance with the Government, its political subdivisions and
reserve requirement shall no longer be paid instrumentalities, and GOCCs.
interest effective 06 April 2012.
(As amended by Circular No. 753 dated 29 March 2012) Sec. X256 Computation of Reserve
Position. The reserve position of any bank
§ X254.4 Book entry method for and the penalty on reserve deficiency shall
reserve securities. In the implementation of be computed based on a seven (7)-day
the book entry system for transactions in week, starting Friday and ending Thursday,
government securities eligible for reserves, including Saturdays, Sundays, public
transactions concerning reserve-eligible special/legal holidays, non-banking days or
securities shall be entered in the respective declared half-day holidays and days when
securities account of each bank with the there is no clearing: Provided, That with
Bangko Sentral and shall be evidenced by reference to public special/legal holidays,
securities account debit or credit advices to non-banking days, unexpected declared
be promptly furnished the institution/s non-banking days, declared half day
concerned. No certificate shall be issued for holidays and days when there is no clearing,
any purpose. Transactions with third parties the reserve position as calculated at the close
other than the Bangko Sentral shall not be of the business day immediately preceding
recognized. such public special/legal holidays, non-
banking days and unexpected declared non-
Sec. X255 Exemptions from Reserve banking days and declared half-day holidays
Requirements. The following shall be and days when there is no clearing, shall
exempt from reserve requirements: apply thereon. For this purpose, the principal
a. All collections credited to the special office in the Philippines and all other
account “Due to BSP - Internal Revenue banking offices located therein shall be
Account (Other Cities and Municipalities)”; treated as a single unit.
1
See Appendix 89
M-2013-001 dated 14 January 2013, M-2012-060 dated least five (5) consecutive banking days. If
27 December 2012, M-2012-051 dated 09 November 2012, its clearing account is overdrawn for five
M-2012-044 dated 24 August 2012, M-2012 042 dated 17 August
2012, M-2012-001 dated 03 January 2012, M-2011-056 dated (5) consecutive banking days, it shall be
10 November 2011, M-2011-055 dated 17 October 2011, prohibited from (a) making new loans or
M-2011-043 dated 12 August 2011, M 2011-007 dated 04 February investments, except investment in
2011, M-2010-039 dated 03 November 2010, M-2010-007 dated government securities with Bangko Sentral
23 April 2010, M-2009-040 dated 30 October 2009, M-2009-037
support; (b) declaring cash dividends until
dated 15 October 2009,M-2009-38 dated 08 October 2009, and
M-2009-036 dated 07 October 2009) it has maintained credit balances in its
Bangko Sentral clearing account for at least
§ X257.1 Chronic reserve deficiency; fifteen (15) consecutive banking days; and
penalties. In cases where the bank has (c) establishing branches. The denial from
chronic reserve deficiency in deposit/ availment of credit facilities of the Bangko
deposit substitute liabilities, the bank shall Sentral shall continue for as long as the
be denied the credit facilities of the Bangko bank has not maintained credit balances
Sentral; and the Monetary Board may: with the Bangko Sentral for at least fifteen
(a) limit or prohibit the making of new (15) consecutive banking days.
loans or investments by the bank; and For purposes of computing the total
(b) prohibit the declaration of cash available reserves against deposit/deposit
dividends. The board of directors of said substitute liabilities, the total amount of
bank shall be notified of such chronic overdrawing in the clearing account with
reserve deficiency and the penalties therefor, the Bangko Sentral shall be deducted from
and be required to immediately correct the available reserves after the required
reserve position of the bank. reserves against deposit/deposit substitute
As used in this Subsection, “chronic liabilities shall have been satisfied.
reserve deficiency” shall mean having net (As amended by Circular Nos. 705 dated 29 December 2010
and 681 dated 08 February 2010)
reserve deficiencies for two (2) consecutive
weeks.
§ X257.3 Payment of penalties on
§ X257.2 Failure to cover overdrawings reserve deficiencies. Penalties if unpaid
with the Bangko Sentral. Any bank which within fifteen (15) days from receipt of the
incurs an overdrawing in its deposit assessment, shall be charged against the
account with the Bangko Sentral shall fully demand deposit accounts of banks with the
cover said overdraft not later than the next Bangko Sentral: Provided, That where the
clearing day including interest thereon bank’s credit balance is insufficient and it
equivalent to one-tenth of one percent (1/ fails to settle the assessment, the Monetary
10 of 1%) per day or the prevailing ninety- Board may limit or prohibit the making of
one (91) day T-Bill plus three (3) new loans or investments by the bank.
percentage points, whichever is higher. In
case a bank fails to cover its overdrawings, Sec. X258 Report on Compliance. Every
it shall be excluded from clearing on such bank shall make a weekly report to the
day and it shall also be denied the credit Bangko Sentral of its daily required and
facilities of the Bangko Sentral. Such available reserves on deposit/deposit
exclusion from clearing shall continue for substitute liabilities in the prescribed forms.
as long as it has not maintained credit
balances with the Bangko Sentral for at Secs. X259 - X260 (Reserved)
indicating the name of the letter carrier, his other alternative modes of communication
signature and date signed. Said POD and on the depositor’s last known address at
Delivery/Monitoring Report may be system least sixty (60) days prior to implementation
generated by the bank so as not to rely on shall be considered sufficient notice:
the manual inscription of the required Provided, further, That failure of the
information by the PhilPost and/or other depositor to manifest or register his
mail courier personnel. objection to the new service charges and
Regardless of the forms adopted by the maintenance fees or any change in their terms
PhilPost and/or other mail couriers, the and conditions in writing within thirty (30)
proper implementation of the POD service days from receipt of written notice of
requires as a minimum, that the following amendment shall be deemed to constitute
information be stated clearly: acceptance of such changes, for purposes of
(1) name and address of the addressee/ this Subsection.
depositor; Banks shall likewise post said
(2) actual date of delivery/receipt; information on their respective websites,
(3) name and address of sender/bank; Automated Teller Machine on-screen
and messages, and in conspicuous places within
(4) name of recipient and relationship the bank premises and other places near the
to the addressee/depositor. bank’s own Automated Teller Machine at
Banks which erroneously charged service least sixty (60) days prior to implementation.
or maintenance fees shall reverse or credit
back the amount of such charges to the Sec. X264 Unclaimed Balances. All
respective deposit accounts that meet the unclaimed balances, which include credits or
required monthly ADB, within three (3) deposits of money, bullion, securities or other
months from 03 June 2011. Depositors evidences of indebtedness of any kind, and
whose accounts were erroneously charged interest thereon already reported to the
with these fees since 23 June 2005 but whose Treasurer of the Philippines in accordance
deposit accounts have since been closed shall with the Unclaimed Balances Act (Act No.
likewise be given appropriate notices sent to 3936, as amended) shall be transferred/
their last known mailing address. Notices on reclassified from the deposit liability/other
the proper interpretation of the regulations on credit accounts to the liability account, “Due
the imposition of service charges and to the Treasurer of the Philippines,” until
maintenance fees on deposit accounts shall they are deposited with or turned over to
likewise be posted in conspicuous places the Treasurer of the Philippines upon order
within the premises of all banks. of the court that the same have been escheated
(As amended by M-2011-030 dated 03 June 2011) in favor of the Government of the Republic of
the Philippines and as such, the unclaimed
§ X263.1 Amendments to terms and deposit liabilities shall no longer be covered
conditions for the imposition of service by reserves required of deposit liabilities.
charges/fees. Any change in the terms and
conditions for the imposition of service Sec. X265 Acceptance, Encashment or
charges and/or maintenance fees, e.g., Negotiation of Checks Drawn in Favor of
increase in the amount of such charges and Commissioner/Collector of Customs. All
fees or increase in the required minimum checks payable to the Commissioner/
monthly average daily balance of deposits, Collector of Customs shall be accepted for
shall take effect only after due notice to the deposit only to the account of the
depositor: Provided, That information by Commissioner/Collector of Customs. Banks
regular mail, statement of account messages, where the Commissioner/Collector of
electronic mail, courier delivery and/or Customs has no account shall not encash,
accept nor negotiate checks payable to the vehicles in the following cases/
Commissioner/Collector of Customs. circumstances:
Any attempt to defraud the government (a) On an unscheduled request;
or the bank through the irregular or Provided, That:
unauthorized encashment or deposit of (i) all armored vehicles have already
these checks to accounts other than that of been fielded and the request has to be served
the Commissioner/Collector of Customs immediately; and
shall be reported immediately by the head (ii) it is within a five (5) kilometer radius
of the banking office to the BOC, copy of a servicing banking office.
furnished the BSP. (b) In rugged terrain/mountainous
roads or roads not suitable for heavy
Sec. X266 Deposit Pick-up/Cash Delivery armored vehicles;
Services. The following are the guidelines (c) In critical or rebel-infested areas
on the deposit pick-up/cash delivery where there are peace and order problems as
services of banks; certified by the local police authorities; and
a. As a general rule, deposit pick-up/ (d) In island provinces where the
cash delivery services shall be limited to the transport of cash to a branch or office may be
following: made only with the use of a ferry boat:
(1) To service the need of valued clients Provided, That the non-armored vehicles
whose daily average deposit amounts to: are equipped with dual control safe and
P500 thousand – for Metro Manila and supported with adequate security back-up.
Metro Cebu clients/depositors Their movements may be coordinated with
P300 thousand – for outside Metro law enforcement authorities.
Manila and Metro Cebu clients/depositors (3) The risk of loss involved in the pick-
(2) To be serviced during regular banking up of deposits/cash delivery shall be
hours and days only, unless the nature of the adequately covered by insurance, and the
business and the volume of the deposits/cash armored car/non-armored car to be used
would warrant servicing beyond regular shall be provided, with at least two (2) armed
banking hours and days, in which case guards and supervised by at least two (2)
justification therefore should be submitted to officers of the bank;
the satisfaction of the appropriate department (4) The deposit/cash delivery
of the SES (Central Point of Contact transactions shall be booked in accordance
Department (CPCD) I, CPCD II, Integrated with existing regulation;
Supervision Department (ISD) I, and ISD II). (5) The strictest measure of safeguards,
b. Prior BSP authority is not required control and confidentiality will be adopted
before banks can engage in deposit pick-up/ in implementing the services;
cash delivery services: Provided, That the (6) A separate record/log book for each
following conditions are complied with: armored car/non-armored car shall be
(1) Pick-up of deposits/cash delivery shall maintained by the bank which shall contain
be made with the use of armored cars, which the information on the deposit pick-up/cash
shall not be operated as a mobile bank used delivery activities of the armored car/non-
in soliciting deposits from the general public, armored car to be supported by “trip tickets”
or in any manner in carrying out banking signed by a responsible officer of the bank;
transactions/services other than to afford and
security of deposit/cash items in transit; (7) Records and/or such other reports
(2) Pick-up of deposits/cash delivery that may be required of the bank from time
may be made with the use of non-armored to time shall be made available for
(1) Banks shall submit a report to the total credit score under the Credit
appropriate department of the SES on ATMs Information System (CRIS). The scoring
which they establish; system under the CRIS shall consider the
(2) The off-site ATMs shall be installed only following factors:
in centers of activity like shopping centers, a. Management and risk management
supermarkets, hospitals, university campuses: system;
Provided, That adequate internal control and (1) Management; and
security measures shall be adopted and (2) Risk management system;
submitted to the Bangko Sentral; and b. Financial indicators;
(3) Only banks which have shown (1) Capital adequacy;
general compliance with laws, rules and (2) Asset quality;
regulations shall be allowed to open off-site (3) Profitability; and
ATMs. (4) Liquidity;
b. Mobile ATMs. Banks may also c. Credit experience;
establish mobile ATMs, subject to the (1) Compliance with the terms and
following conditions: conditions of the loan and other Bangko
(1) The mobile ATMs should be Sentral regulations; and
allowed to visit only centers of activity as (2) Credit experience with other FIs.
mentioned in Item “a(2)” above; The CRIS guidelines shall be reviewed on
(2) The bank shall secure insurance a regular basis by a Credit Committee created
coverage or adopt a self-insurance scheme under MB Resolution No. 832 dated 02 July
to protect itself against losses of whatever 2008, to maximize its effectiveness in managing
nature in its mobile ATM operations; and the credit risk of the Bangko Sentral.
(3) The bank shall notify the appropriate (Circular No. 515 dated 06 March 2006 as amended by Circular
department of the SES of the actual date a No. 630 dated 11 November 2008)
mobile ATM becomes operational and when
§ X268.2 Application Procedures
no longer in operation.
Banks applying for a rediscounting line shall
(As amended by Circular No. 735 dated 16 August 2011)
submit their application in the prescribed
J. BORROWINGS FROM THE form (RL Form No. 1) to the Department of
BANGKO SENTRAL Loans and Credit (DLC), Bangko Sentral-
Manila, together with the following
Sec. X268 Rediscounting Line. The following documents:
guidelines shall govern the operations of the a. Board resolution duly signed by the
BSP’s rediscounting line by banking board of directors of the applicant bank,
institutions. authorizing the bank to apply for a
Coop Banks shall be given the same rediscounting line with the Bangko Sentral and
privileges and incentives granted to RBs, designating the officer/s of the bank to sign
TBs, UBs and KBs to rediscount notes with and endorse documents pertaining
the Bangko Sentral, the Land Bank of the thereto, together with their specimen
Philippines, and other government banks. signature/s;
(Circular No. 515 dated 06 March 2006 as amended by Circular b. Articles of incorporation (for new
No. 682 dated 15 February 2010) applicants only) and amendments, if any;
c. Organizational chart (for new
§ X268.1 Credit Information System applicants only);
The rediscounting availments of all eligible d. List of board of directors and principal
banks shall be drawn against their officers (top three (3) executive officers) and
rediscounting line which is based on their their education/training and work
1
These conditions shall not limit the Monetary Board from granting rediscounting line incentives to merged/
consolidated banks pursuant to Subsec. X108.3.
1
By 15 November 2023, all banks shall access only RW I.
2
From 15 November 2013, TBs are given a sunset period of five (5) years (i.e., until 15 November 2018) to
access RW II, while RBs and Coop Banks are given ten (10) years (i.e., until 15 November 2023)
Type of Collateral Collateral Value not more than ten (10) years from date of
(SBC) and the national their rediscount, discount or acquisition of
government
(5) Credit guarantees/ Shall equal or the Bangko Sentral. Dollar-term loans to
sureties issued by exceed 80% of finance capital expenditures (plant
the Credit Surety the outstanding
Fund (CSF) jointly balance of the PN
expansion/modernization) by exporters are
established by also considered eligible papers for
cooperatives and rediscounting under the EDYRF provided
local government
units they are booked in the regular banking units.
(6) Marketable debt Current market Credit instruments acquired under other
instruments issued by the value shall equal credit shall be secured by:
NG and all its or exceed the Type of Collateral Collateral Value
instrumentalities, including outstanding balance (1) Duly registered 70% of the appraised
Republic of the Philippines of the PN mortgage on real value shall equal or
US$ denominated bonds or property exceed the
ROPs outstanding balance
of the PN
The outstanding National Food (2) Duly notarized Shall equal or
Authority papers that a bank can rediscount assignment of exceed the
shall not exceed the rediscounting bank’s receivables from outstanding
service contract balance of the PN
SBL (twenty five percent [25%] of its net (3) Credit guarantees/ Shall equal or
worth) or P3.0 billion, whichever is lower. sureties issued by the exceed the
IGLF, the SBC and the outstanding
Dollar-denominated trust receipts national government balance of the PN
covering importation of goods and raw (4) Credit guarantees Shall equal or
materials are also considered eligible papers sureties issued by the exceed 80% of
CSF jointly established the outstanding
for rediscounting under the Exporters’ Dollar by cooperatives and balance of the PN
and Yen Rediscount Facility (EDYRF). LGUs
b. Production credits - Bills, (5) Marketable debt Current market
instruments issued by value shall equal
acceptances, PNs and other credit
the NG and all its or exceed the
instruments having maturities of not more instrumentalities, outstanding balance
than 360 days from the date of their including Republic of the PN
rediscount, discount or acquisition by the of the Philippines
Bangko Sentral and resulting from US$ denominated
bonds or ROPs
transactions related to the production or
processing of agricultural, animal, mineral, For housing loans, the lien or mortgage
industrial and other products. shall cover the property being financed.
Credit instruments acquired under An Original Certificate of Title issued
production credits shall be secured by a duly by virtue of Free Patent, covering
registered mortgage on real property, agricultural lands, may be accepted as
seventy percent (70%) of the appraised value underlying collateral for loans offered for
of which equals or exceeds the outstanding rediscounting with the Bangko Sentral after
balance of the PN. the expiry of the prescription period of five
c. Other credits - Special credit years from date of the approval of the order
instruments not otherwise rediscountable to issue the patent. The 5-year restriction is
under the immediately preceding Items “a” not applicable for residential lands acquired
and “b” such as, but not limited to, under free patent as provided under Section
microfinance, housing, services, agricultural 9 of R.A No. 10023.
loans with long gestation period and other A Land Title, with P.D. No. 1271 1
eligible economic activities with maturity of annotation, may be accepted as underlying
1
An act nullifying decrees of registration and certificates of title covering lands within the Baguio Townsite
Reservation issued in Civil Reservation Case No. 1, GLRO Record No. 211 pursuant to R.A. No. 931, as
amended, but considering as valid certain titles of such lands that are alienable and disposable under certain
conditions and for other purposes.
Part II - Page 48 Manual of Regulations for Banks
§§ X269.2 - X269.5
13.12.31
collateral for loans offered for rediscounting § X269.3 Loan availment procedures
with the Bangko Sentral subject to the Banks availing of the rediscounting facility
following conditions: shall submit their loan applications
1. The land titles submitted specify that electronically to the Bangko Sentral using
the original registration date was on or their eRS registered computers.
before 31 July 1973; and Upon receipt of the confirmation of loan
2. The lands covered by titles are not approval:
within any government, public or quasi- a. Banks shall execute the PNs with
public reservation, forest, military or Trust Receipt Agreement and Deed of
otherwise, as certified by appropriate Assignment (PNTRADA) in favor of the
government agencies. Bangko Sentral (RL Form No. 7 for peso and
Unsecured loans may be accepted for RL Form No. 8 for dollar and yen), signed
rediscounting provided they are: by the authorized officer/s of the bank.
a. Microfinance loans; or b. Banks authorized to hold-in trust the
b. Loans secured by a duly registered rediscounted credit instruments and
mortgage on real property of the bank, underlying collaterals shall segregate and
seventy percent (70%) of the appraised value keep the same together with the PNTRADA
of which equals or exceeds the outstanding at a secured place within their premises
balance of the unsecured PN and other under the custody of the accountable officer.
collaterals acceptable to the Bangko Sentral, c. Banks with custodianship agreements
e.g., marketable debt instruments issued by shall deposit with their respective
the NG and all its instrumentalities, depositary/custodian bank the rediscounted
including Republic of the Philippines US$ credit instruments, underlying collaterals
denominated bonds or ROPs. and the PNTRADA not later than the next
For real estate properties covered by banking day from date of loan grant, receipt
Section 7 of R.A. No. 26 offered as collateral, of which shall be acknowledged by the
the following conditions must be met: depositary bank in the List of Rediscounted
1. The 2-year period from date of entry Loans.
of the notation has already expired; (Circular No. 515 dated 06 March 2006, as amended by Circular
2. The bank has already filed the petition No. 630 dated 11 November 2008)
with the court for the cancellation thereof; and
§ X269.4 Loan value. The loan value of
3. The bank shall submit prior to the
all eligible papers shall be eighty percent
release of the loan a surety bond issued by an
(80%) of the outstanding balance of the
insurance/surety company which is acceptable
borrower’s credit instrument but not higher
to the Bangko Sentral and is not affiliated with
than seventy percent (70%) of the appraised
the bank or its subsidiaries, or their
value of the underlying collateral.
stockholder, directors or officers, equivalent (Circular No. 515 dated 06 March 2006, as amended by Circular
to the loan value of the property plus interest Nos. 684 dated 15 March 2010, 648 dated 02 March 2009 and
and other charges that may fall due, to answer 630 dated 11 November 2008)
for the payment of the obligations in the event
that the petition for cancellation is denied or § X269.5 Maturities. The maturities of
the notation is not cancelled on or before the Bangko Sentral rediscounts are, as follows:
maturity of the loan.
Type of Credit Maturity Date
(Circular No. 515 dated 06 March 2006, as amended by Circular
RW I RW II
Nos. 807 and 806 both dated 15 August 2013, M-2011-036 dated a. Commercial Credits 180 days from 180 days from
05 July 2011, M-2011-017 dated 18 March 2011, Circular Nos. (1) Export Packing date of rediscount date of rediscount
648 dated 02 March 2009 and 630 dated 11 November 2008) (2) Trading but shall not go but shall not go
(3) Transport beyond the beyond the
(4) Quedan maturity date of maturity date of
RW I RW II b. Dollar/Yen Rediscounts
the credit the credit
instrument instrument Based on the 90-day London Inter-bank
(5) Export Bills (EBs) Offered Rate (LIBOR) plus 200 bps plus term
At sight Fifteen (15) days Fifteen (15) days premia for longer maturities, as follows:
from date of from date of
Term Premium
purchase purchase
1-90 days 90-day LIBOR + 200 bps
Usance EB Term of draft Term of draft
91-180 days 90-day LIBOR + 200 bps + 6.25 bps
but not to but not to
181-360 days 90-day LIBOR + 200 bps + 12.50 bps
exceed sixty (60) exceed sixty (60)
days from days from The lending rates of banks on their
shipment date shipment date rediscounted papers shall not be subject to
b. Production Credits 180 days from 360 days from
date of date of
any ceiling but the spreads of the banks on
rediscount but rediscount but these papers shall be closely monitored by
shall not go shall not go the Bangko Sentral to ensure that these are
beyond the beyond the
maturity date maturity date consistent with the prevailing market rates.
of the PN. of the PN. Past due Bangko Sentral loans and
Renewable, not unpaid matured notes shall be levied
to exceed
180 days. liquidated damages equivalent to
c. Other Credits 180 days from 360 days from five percent (5%) per annum1.
date of date of (Circular No. 515 dated 06 March 2006, M-2014-039 dated
rediscount but rediscount but
01 October 2014, M-2014-031 dated 08 August 2014,
shall not go shall not go
beyond the beyond the
M-2014-006 dated 12 February 2014, Circular Nos. 807 and 806
maturity date maturity date both dated 15 August 2013, M-2013-050 dated 15 November
of the PN. of the PN 2013, M-2013-046 dated 30 October 2013, M-2013-045 dated
(renewable (renewable 23 October 2013, M-2013-040 dated 03 September 2013,
depending on depending on M-2013-001 dated 14 January 2013, M-2011-056 dated
the type of the type of 10 November 2011, M-2011-055 dated 17 October 2011,
credit). credit). M-2011-043 dated 12 August 2011, M-2011-007 dated
(Circular No. 515 dated 06 March 2006, as amended by Circular 04 February 2011, M-2010-039 dated 03 November 2010,
Nos. 806 dated 15 August 2013 and 630 dated 11 November M-2010-007 dated 23 April 2010, Circular No. 679 dated
2008) 01 February 2010, M-2009-040 dated 30 October 2009,
M-2009-037 dated 15 October 2009, M-2009-38 dated
§ X269.6 Rediscount/Lending rates and 08 October 2009, and M-2009-036 dated 07 October 2009,
liquidated damages. The rediscount rates for Circular Nos.648 dated 02 March 2009 and 630 dated
peso, dollar and yen loans shall be, as 11 November 2008)
follows:
a. Peso Rediscounts § X269.7 Release of proceeds. The
RW I RW II
proceeds of the rediscounting availment
Interest Rate Bangko Sentral one (1)- Bangko Sentral shall be released, as follows:
month repurchase overnight a. Peso rediscounts - automatically
(R/P) rate plus reverse
term premium: repurchase
credited to the borrowing bank’s DDA or
(O/N RRP) its depository bank’s DDA with the Bangko
rate plus term Sentral on the same day for loan application
premium)
30 days Bangko Sentral one (1)- submitted to the Bangko Sentral before 4:30
month R/P rate pm during banking days.
90 days Bangko Sentral one (1)- Bangko Sentral b. Dollar/Yen rediscounts - released
month R/P rate+0.0625 O/N RRP rate
180 days Bangko Sentral one (1)- Bangko Sentral through the Treasury Department, Bangko
month R/P rate +0.1250 O/N RRP rate Sentral, for credit to the designated foreign
+ 0.0625
360 days n/a Bangko Sentral
correspondent bank of the borrowing bank,
O/N RRP rate as follows:
+ 0.1250 (1) Same banking day credit for dollar
loan application submitted to the Bangko
1
See Appendix 89
Sentral before 11:00 am, during banking corresponding to the remittance instruction
days; and to its designated correspondent bank. The
(2) Following banking day credit for yen payment shall cover total collections or
loan application submitted to the Bangko payment of maturing loans plus interest due
Sentral before 11:00 am, during banking thereon. In case of short payment, the bank’s
days. DDA with the Bangko Sentral shall
(Circular No. 515 dated 06 March 2006, as amended by Circular automatically be debited for the peso
No. 630 dated 11 November 2008) equivalent of the shortage.
If the foreign currency denominated
§ X269.8 Repayments/ Remittance of
loans are not settled on maturity date, the
collections/ arrearages1 . The following shall
borrowing bank’s DDA with the Bangko
govern repayments, remittance of
Sentral shall be debited automatically for the
collections, and arrearages:
peso equivalent of the matured obligation
a. Repayments -
plus accrued interest due thereon. The
(1) Peso rediscounts
foreign exchange (FX) rate at the time of the
(a) The loan value of the rediscounted
loan repayment shall not be lower than the
credit instruments or the amortization plus
FX rate at the time of loan availment and
interest due thereon shall automatically be
any FX loss arising from default or
debited against the borrower bank’s DDA
repayment shall be for the account of the
with the Bangko Sentral at maturity/
borrower and not for the Bangko Sentral.
amortization due date.
b. Remittance of collections -
(b) For microfinance loans, the DDA of
(1) Total collections received by the
the borrower bank shall automatically be
borrowing bank before the maturity date of
debited on the amortization due date for the
the rediscounted credit instruments shall be
loan value of the amortization plus interest
remitted not later than five (5) banking days
due thereon. For loans with daily, weekly
following the date of receipt of collections
or semi-monthly amortizations, the
to the following:
borrower bank’s DDA shall automatically
Peso Rediscounts - Bangko Sentral
be debited on the last amortization due date Dollar Rediscounts - Federal Reserve Bank of
of said month for the total loan value of the New York for the
amortizations for the month plus interest account of Bangko
due thereon. Sentral
(c) The loan value of unremitted Yen Rediscounts - Bank of Tokyo for the
collections and of the rediscounted credit account of Bangko Sentral
instruments and/or underlying collaterals (i) Total collections shall refer to the loan
found to be missing, ineligible or with value of the principal amount collected from
exceptions not corrected within fifteen (15) rediscounted credit instruments plus
days from receipt of notice plus interest due accrued interest due on the outstanding
thereon shall automatically be debited balance of subject credit instruments.
against the borrowers bank’s DDA with the (ii) For banks with Bangko Sentral loans
Bangko Sentral. under past due status, total collections shall
(2) Dollar/Yen rediscounts include all collections on principal, interest
Dollar and yen loans shall be repaid in and penalty.
the same currency under which they were (iii) In the case of negotiated EBs, the
released. For this purpose, the bank shall receipt by the borrowing bank of payment
submit online to the Bangko Sentral its from its correspondent bank either through
payment instruction one (1) day before the actual remittance or credit advice; or
payment date or the maturity date of the loan through book entries made by the
1
See Appendix 89
(2) Serious offense – This refers to acts aggregate amount of the following under the
or omissions constituting violation of the current examination:
terms and conditions of the loans granted (a) Under serious offense:
to the bank and of the applicable laws, rules Total loan value of the following:
and regulations that constitute unsafe and (i) Rediscounted ineligible papers with
unsound banking practices; and the serious offense, fictitious loans or spurious
misrepresentation of facts and warranties loan documents as determined by the
committed by the bank/ individual(s) that Bangko Sentral or Office of Special
influenced the approval and amount of the Investigation;
rediscounting loan/line granted, such as: (ii) Undeposited vital loan documents
(a) Rediscounting of ineligible papers, and underlying collaterals as of examination
fictitious borrowers/loans/titles or date; and
submission of spurious documents; (iii) Collections on principal of
(b) Absence of or failure to execute vital rediscounted loans which were not remitted
loan documents; to the Bangko Sentral within the prescribed
(c) Failure or delay in the deposit of period of five (5) banking days from date of
rediscounted loan documents with the receipt of collections.
custodian bank, except those caused by (b) Under less serious offense:
fortuitous events; and Total loan value of rediscounted
(d) Failure to remit to the Bangko Sentral ineligible papers with less serious offense
collections on principal of the rediscounted as determined by the Bangko Sentral.
loans within the prescribed period of five (c) Under minor offense:
(5) banking days from date of actual receipt Total loan value of rediscounted
of collections except collections from ineligible papers with minor offense as
microfinance loans. determined by the Bangko Sentral.
(3) Less serious offense – This refers to (6) Minimum penalty – refers to the
acts or omissions constituting violation of range of penalties to be imposed if the
the terms and conditions of the loans mitigating factor(s) outweighs the
granted to the bank and of the applicable aggravating circumstances, to wit:
laws, rules and regulations that constitute (a) The act or omission is not intentional
unsafe and unsound banking practices but or the bank acted in “good faith” when the
not falling under the serious offense error, deficiency, violation or the absence/
category; however, the deficiencies noted lack of the required action were committed.
should be addressed immediately to mitigate (b) The bank is willing to take immediate
the credit risk of the Bangko Sentral. action or has started to rectify the
(4) Minor offense – This includes acts deficiencies/violations noted or undertakes
or omissions which are procedural in to correct the deficiencies within fifteen (15)
nature, not intentional, may not result in any days from receipt of notice.
loss or damage to or any significant increase (c) The bank has voluntarily disclosed
in the risk of the creditor Bangko Sentral the offense/violation committed before it is
and can be resolved immediately during the discovered by the Bangko Sentral or has
normal course of business. For purposes of remitted to the Bangko Sentral the total
classifying the nature of the offense, this amount due plus accrued interest.
includes all other acts or omissions which (7) Maximum penalty – refers to the
cannot be classified under serious or less
range of penalties to be imposed if the
serious offenses.
aggravating circumstances outweigh the
(5) Aggregate amount - shall refer to the
mitigating factor(s), to wit:
(a) The act or omission carries with it Bangko Sentral and/or administrative and
the intention to commit or cover up a criminal sanctions that may be charged
violation or to defraud the Bangko Sentral. against its culpable officers.
(b) Commission or omission of a specific (Circular No. 515 dated 06 March 2006 as amended by Circular
No. 630 dated 11 November 2008)
offense corrected in the past but found
repeated in another transaction in § X269.12 Interlocking directorship/
subsequent examination. officership. Banks owned or managed by
(c) Additional interest charges on unpaid the same owners, stockholders, directors,
penalty. officers or family/business group may also
An additional interest of twelve percent be suspended from availment of the
(12%) per annum shall be assessed on rediscounting facility by the Credit
nonpayment of the penalties, from date of Committee once the rediscounting line of
demand until full settlement thereof. any of the banks belonging to the same group
The foregoing monetary penalties shall is suspended, until such time that the
be without prejudice to the cancellation of suspension of the erring bank is lifted.
the bank’s rediscounting line with the (Circular No. 515 dated 06 March 2006 as amended by Circular
No. 630 dated 11 November 2008)
Sec. X270 Repurchase Agreements with § X271.3 Limit. Availment by any bank
the Bangko Sentral. Repo agreements with under this facility shall not exceed ten
the BSP shall be governed by Sec. X601. percent (10%) of its net worth, as defined
under Sec. X111 as of the end of the quarter
Sec. X271 Bangko Sentral Liquidity preceding the date of application. In the
Window. The following guidelines shall case of branches of foreign banks, the quota
govern the grant by the BSP of credit shall be ten percent (10%) of the assigned
accommodations through a liquidity capital as of the date of application.
window to banks. Additionally, a bank or a branch of a foreign
bank may avail itself of this facility to the
§ X271.1 Nature of liquidity window extent equivalent to a further five percent
The window shall meet the liquidity needs (5%) of its net worth, as defined under
of the financial system under normal Sec. X111 or assigned capital, as the case
conditions and shall be distinct from may be, as of the end of the quarter
overdrafts and emergency advances. preceding the date of availment. Any
availment of the liquidity window shall
§ X271.2 Terms of credit fall within the unavailed basic rediscount
a. Interest rate. The rate of interest ceiling of the bank or the branch of a
chargeable on availments under the foreign bank as the case may be.
liquidity window shall be the rate
equivalent to the reference rate for ninety Sec. X272 Emergency Loans or Advances
(90) days determined and announced by to Banking Institutions. The emergency
the BSP for floating rate loans, plus or loan or advance to banking institutions is
minus a rate to be determined by the BSP governed by the provisions of Sections 84
on the basis of the prevailing monetary to 88 of R.A. No. 7653, otherwise known
situation. as The New Central Bank Act. The
The additional or discount rate following guidelines shall govern the BSP’s
established for any given time shall be made emergency loans and advances.
public by the BSP and applied uniformly to (Circular No. 517 dated 06 March 2006)
all borrowers during that period.
The additional rate to be imposed over § X272.1 Nature of emergency loans
and above the reference rate shall not be or advances. An emergency loan or
less than two (2) percentage points, with advance is a credit facility that is intended
the applicable additional rate to be to assist a bank experiencing serious
determined by the BSP on the basis of the liquidity problems arising from causes not
prevailing monetary situation. attributable to, or beyond the control of,
b. Security. Any paper, irrespective the bank management. The grant of such
of maturity, eligible under Section 82 of facility is discretionary upon the
R.A. No. 7653. Monetary Board, and is intended only as
c. Loan values. The loan values of the a temporary remedial measure to help a
paper offered as collateral should be eighty solvent bank overcome serious liquidity
percent (80%) of the amount still due problems. As provided under Sections 84
outstanding on the paper offered as to 88 of R.A. No. 7653, no emergency
collateral. loan or advance may be granted except
d. Repayment period. The term of the on a fully secured basis and the Monetary
credit accommodation shall not exceed Board may prescribe additional
seven (7) days. conditions, which the borrowing banks
and deposit substitutes as determined by loan or advance under Subsec. X272.2, the
the appropriate department of the SES. appropriate department of the SES shall
(Circular No. 517 dated 06 March 2006) prepare a memorandum to the Monetary
Board stating among others, the following:
§ X272.4 Application procedures a. Validation of the eligibility of
Banks applying for an emergency loan applicant bank.
or advance shall submit an application b. Financial condition of applicant bank.
(EL Form No. 1) with the appropriate c. Volume of deposits and expected
department of the SES, copy furnished the withdrawals of deposits.
DLC. During normal periods, the d. Amount and terms of the loan.
applicant-bank shall state the reasons for e. Whenever applicable, circumstances
the proposed loan availment and other that warrant the grant of the first tranche
details showing the precarious financial greater than twenty-five percent (25%) of
condition or the serious financial pressures the total deposits and deposit substitutes
being experienced by the bank. as provided by law.
The bank shall submit together with the The applicant bank shall submit to the
application, the following documents: DLC, prior to the release of the first tranche,
a. Certified Statement of Condition the following documents together with the
(under oath) as of the last banking day of copy of the application:
the month preceding the date of a. Listing of assets that are good and
emergency loan application. available for collateral purposes as certified
b. A duly notarized secretary’s by the bank’s duly appointed external
certificate (EL Form No. 2) together with a auditor (EL Form No. 3).
resolution of the board of directors of the bank: b. Listing of collaterals in the
(1) Authorizing the availment by the prescribed formats (EL Form Nos. 4/4a/
bank of an emergency loan or advance 4b) as well as a 3.5” diskette containing
from the BSP. the database, (in MS Excel format),
(2) Signifying the bank’s commitment together with the documents of title and/
to comply with the guidelines set forth or evidences of ownership of the
herein and the terms and conditions that collaterals offered including the following
may be imposed by the Monetary Board. documents:
(3) Designating the chairman and the (1) Appraisal reports of not more than
president or in their absence, any of the next one (1) year conducted by an independent
two (2) highest officers, as duly authorized appraiser acceptable to the BSP in
signatories for the emergency loan or accordance with BSP’s terms of reference.
advance application, promissory notes, and (2) Latest tax declarations.
all undertakings. Designated authorized (3) Current tax receipts, tax clearances
officers not lower than senior vice president, and other documents needed for
or equivalent position, may be authorized to registration of mortgages and deeds of
execute all accessory documents for the assignment.
emergency loan or advance. (4) Current insurance policies covering
(4) Authorizing the Bangko Sentral to improvements and official receipts of
evaluate other assets of the bank certified premium payments.
by its auditors to be good and available (5) Department of Agrarian Reform
for collateral purposes should the grant (DAR) certification that agricultural
of subsequent tranches be applied for. properties offered as collaterals are not
After determining the eligibility of the covered by the Comprehensive Agrarian
applicant bank to avail of the emergency Reform Program (CARP).
documents of title and/or evidences of in Favor of the BSP (EL Form No. 11/11a),
ownership of the collaterals, together with Notarized Deed of Real Estate Mortgage
the other documents referred to in Item “b” (EL Form No. 12-Bank Assets/12a-Stockholder/
of the immediately preceding paragraph of Third Party Assets), Notarized Deed of Pledge
this Subsection for the amount being applied (EL Form No.13- Individual/Corporation/13a-
for release and, where necessary, such other Stockholders’/Third Party Assets), Notarized
acceptable security which, in the judgment Deed of Assignment of Mortgages (EL Form
of the Monetary Board, would be adequate No. 14), Hold-out on Foreign Currency
to supplement the assets tendered to Deposits with BSP (EL Form No. 15) and
collateralize the subsequent tranche. Joint Affidavit executed by the bank’s
Banks availing of emergency loan or chairman and president and the Individual
advance may decline to submit either item Mortgagor (EL Form No. 16- Individual) or
“f” or “g” or both, but the loan values the Corporate-Mortgagor’s chairman and
specified in Items “b” and “d” of Subsec. president (EL Form 16a- Corporation).
X272.6 shall be reduced. (Circular No. 517 dated 06 March 2006)
(Circular No. 517 dated 06 March 2006)
§ X272.6 Acceptable collaterals and
§ X272.5 Other documentary their corresponding loan values. All
requirements. Before release of any availments of the emergency loan or
emergency loan or advance, the applicant advance shall be secured by first class
bank shall, aside from the documentary collaterals, i.e., assets and securities which
requirements already mentioned above, have relatively stable and clearly definable
submit such other requirements/ value and/or greater liquidity and free from
documentation as may be required by the lien and encumbrances, to the extent of
DLC, e.g., duly Notarized Promissory Note their applicable loan values, as follows:
Assets of stockholders and of other third parties, the latter acceptable only in instances
provided under the last paragraph of Subsec. X272.8, are acceptable as collaterals for
emergency loan with corresponding loan values, as follows:
been incurred by the bank in its demand shall be photographed as well as recorded
deposit with the BSP. in video tape.
e. The bank shall submit to the DLC (Circular No. 517 dated 06 March 2006)
a board resolution confirming every receipt
of proceeds of emergency loan or § X272.9 General terms and
advance. Likewise, the bank shall submit conditions. A bank with an outstanding
a board resolution confirming the emergency loan or advance shall comply
undertakings executed by the officers with the following conditions:
under Subsec. X272.4. a. The bank shall not, without the
(Circular No. 517 dated 06 March 2006) prior authorization of the Monetary Board,
expand its outstanding loans or
§ X272.8 Interest rates, liquidated investments as of the date of application
damages, and penalties. The interest rate for emergency loan, except for investment
that shall be charged on emergency loan in government securities.
or advance shall be based on the BSP b. The bank shall not declare cash
lending rate plus two percent (2%) per dividends.
annum. Interest shall be collected in c. The bank shall not grant new
advance from the borrowing bank. loans to DOSRI or to affiliates and
An additional five percent (5%) per subsidiaries.
annum shall be imposed as liquidated d. The bank shall accept the BSP
damages on the past due emergency loan designated Comptroller to be assisted by
or advance. examiners recommended by the
A penalty of one-tenth of one percent appropriate department of the SES and the
(1/10th of 1%) per day of delay on DLC to monitor the operations of the bank
unremitted/delayed remittance of under the Terms of Reference as
collections received by the bank from determined by the Monetary Board.
promissory notes covering the assigned e. The bank shall not be allowed to
mortgage credits or the proceeds of sale avail of the BSP rediscounting facility.
from assigned/mortgaged real estate f. The bank shall comply with any
properties commencing on the day other terms and conditions that may be
following the deadline prescribed in imposed by the Monetary Board.
Subsec. X272.11 shall be imposed on the (Circular No. 517 dated 06 March 2006)
erring bank.
Any shortfall in collateral due to unpaid § X272.10 Maturity/Conditions for
accrued interest, liquidated damages, renewals. The term of any emergency loan
reduction in loan value of existing or advance shall not exceed 180 days
collaterals and conversion of overdraft into including renewals.
emergency loan may be covered by third Any request for renewal of an
party assets after the assets of the bank emergency loan or advance shall be
have been exhausted. treated as a new loan and shall be
A Joint Affidavit (EL Form No. 16/ considered only upon the bank’s
16a) between the bank’s chairman and compliance with the following:
president and the corporate-mortgagor’s a. All the requirements of the
chairman and president or the individual previous tranche/s;
mortgagor to be signed and notarized in b. Remittance of collections/proceeds
the BSP shall be submitted in support of of sales under Subsec. X272.11;
the mortgage documents. The signing c. Payment of advance interest;
Sec. X276 Rediscounting Window for Low- (4) The BSP will automatically debit
Cost Housing as Defined by the Housing the demand deposit account of the UB/KB
and Urban Development Coordinating upon maturity of the rediscounting loan.
Council (HUDCC). The rules and (5) The chief executive officer of the
regulations governing the rediscounting of bank or his equivalent must certify that the
housing loan papers of qualified banks rediscounted commercial paper is still
under the low-cost housing program of the outstanding as of the time of assignment.
HUDCC are shown in Appendix 40. (6) The UBs/KBs shall comply with the
documentary requirements of the DLC.
Sec. X277 (Reserved) c. Duration
Qualified UBs/KBs may avail of this
Sec. 1277 Rediscounting Window facility until December 2000.
Available to All Universal and
Commercial Banks for the Purpose of Sec. 2277 Rediscounting Window
Providing Liquidity Assistance to Available to TBs for the Purpose of
Investment Houses. The following Providing Liquidity Assistance to Support
implementing guidelines shall govern the and Promote Microfinance Programs. TBs
new rediscount window available to all availing of rediscounting facility for purposes
UBs and KBs under Section 82(c) of R.A. of providing liquidity assistance to support
No. 7653, for the purpose of providing and promote microfinance programs shall
liquidity assistance to IH: comply with the guidelines under Sec.
a. Criteria for eligibility 3277, except for the requirement of a
(1) Eligible papers custodian bank under Subsec. 3277.4a(6).
Promissory note of the UB/KB
executed in favor of the BSP and secured Sec. 3277 Rediscounting Window
by a Deed of Pledge or Assignment of Available to Rural and Cooperative Banks
unencumbered/unhypothecated for the Purpose of Providing Liquidity
commercial papers with a rating of triple Assistance to Support and Promote
“A” and double “A”. Microfinance Programs. The following
(2) Loan limit guidelines shall govern the rediscounting
Availments against this facility shall be facility available to RBs and Coop Banks
charged against the rediscount ceiling of for the purpose of providing liquidity
the borrowing bank (100% of net worth) as assistance to support and promote
of the end of the quarter immediately microfinance programs.
preceding the date of application.
b. Terms and conditions § 3277.1 Eligibility requirements
(1) The loan shall be assessed an a. Eligible borrowers . RBs and Coop
annual interest rate equivalent to one Banks with at least one (1) year track record
percent (1%) below the weighted average in microfinance and at least 500 active
of the ninety-one (91)-day Treasury Bill rate borrowers, ratio of past due microfinance
for the last auction of the immediately loans to total outstanding microfinance
preceding month. loans of not more than five percent (5%)
(2) The loan shall have a term of 180 as of end of the month preceding loan
days from date of availment. application and collection ratio of not less
(3) The loan value shall be ninety than ninety-five percent (95%) based on
percent (90%) of the face value of the ratio of total collections (excluding
commercial paper. prepayments) during the preceding twelve
(12)-month period to the sum of past due experience of one (1) year and have
microfinance loans at the beginning of said completed a training course in
period and amount of matured loans microlending activities.
including principal amortizations during f. Prescribed financial ratios and
the same twelve (12) - month period. regulations. Applicant bank must comply
b. Eligible papers. Promissory Note with the following financial ratios and
(PN) of the RB or Coop Bank executed in regulations:
favor of the BSP and secured by duly (1) Minimum capital prescribed under
endorsed PN of microcredit borrowers. Subsec. X111.1;
c. Manual of operations. Written (2) Risk-based capital ratio of not less
policies on microfinance operations must than ten percent (10%);
be set forth and documented in a policy (3) Reserves against deposit liabilities
manual duly approved by the bank’s board prescribed under existing regulations;
of directors. The manual should include the (4) Ratio of past due direct and indirect
following minimum features: loans to DOSRI to the bank’s aggregate past
(1) Scope of microfinance activities due loans of not more than ten percent
and the types of services or products offered (10%);
to clients; (5) Loans-to-deposits ratio of at least
(2) Authorities and responsibilities of: seventy-five percent (75%);
(a) Board of directors; (6) Reports required to be submitted
(b) Management; to the various departments and/or offices
(c) Chief executive officer or its of the BSP;
equivalent; (7) CAMELS rating of “3” or better; and
(d) Credit officers; and (8) Ratio of past due loans to total loan
(e) Other officers involved in the portfolio of not more than the industry
microfinance operations; average for RBs as of the preceding quarter.
(3) Policies and procedures covering
microfinance program/project; § 3277. 2 Microcredit line
(4) Client evaluation process which a. Application for MCR Line shall be
should involve at least: client orientation, filed with the DLC, BSP at its head office
pre-application, credit investigation, and in Manila or the appropriate BSP Regional
loan application process; Loans and Credit Unit (BSPRLCU). The
(5) Loan processing, documentation term of the MCR line shall not exceed one
and release of proceeds; (1) year from the date it is granted. The line
(6) Accounts monitoring system; may be renewed for another year upon
(7) Accounts delinquency management; submission of an application at least two
(8) Management Information System; (2) months before expiry, subject to full
(9) Accounting policies, systems and compliance with the prescribed eligibility
procedures; and requirements and the credit review by the
(10) Internal controls and audit policies, DLC.
systems and procedures. b. Total availments against the facility,
d. A copy of System of Reviewing which shall be charged against the
Asset Accounts and Setting Up of Adequate approved MCR line, shall form part of the
Valuation Reserves submitted. total authorized rediscount ceiling of the
e. Staff training and experience. Key borrowing bank. The rediscount ceiling for
officers and staff responsible for microcredit microfinance shall be equivalent to one
operations must have a minimum hundred percent (100%) of the bank’s net
worth, net of valuation reserves and other within Metro Manila and not later than four
capital adjustments as recommended by (4) banking days following the date of
the appropriate department of the SES as receipt of collections by the Head Office/
of the last regular examination of the bank. branches located outside Metro Manila as
c. The proceeds of availment or provided under Subsec. 3277.5.
drawdown against the approved MCR line g. A penalty of five percent (5%) per
shall be credited to the account of the RB annum shall be imposed on matured and
or Coop Bank maintained with the unpaid bank PNs in favor of the BSP.
depository bank or with BSP. The RB or Full compliance at all times with the
Coop Bank shall be notified in writing/ eligibility requirements as prescribed
electronically of the credit of such account under Subsec. 3277.1.
on the same banking day that the proceeds
are released. § 3277.4 Documentary requirements
a. Application for MCR Line. RBs or
§ 3277. 3 Terms and conditions Coop Banks applying for an MCR line shall
a. The loan value shall be equivalent submit a letter of application to DLC or the
to eighty percent (80%) of the outstanding appropriate BSPRLCU accompanied by the
balance of the microfinance borrower’s PN. following documents:
b. The RB or Coop Bank’s loan from (1) Certificate of the Secretary (original)
the BSP shall have a term of not more than and copy of the resolution duly signed by
360 days. The maturity date of the the board of directors of the applicant bank,
microfinance borrower’s PN shall in no authorizing the bank to apply for an MCR
case be beyond the maturity date of the line with the BSP and designating the
RB or Coop Bank’s PN. officer authorized under Subsec. 3277.3(e)
c. The loan shall be assessed an to endorse the PNs and sign all papers
annual interest rate equivalent to the 91- pertaining to the rediscounting line in the
day Treasury Bill rate for the last auction prescribed format.
date of the preceding month. (2) Certification of the applicant bank
d. The demand deposit account of the that it has complied with the financial and
RB or Coop Bank will be automatically regulatory ratios, conditions, and reportorial
debited at the maturity date of the BSP loan requirements prescribed under the
for the full amount due excluding collections eligibility requirements for rediscounting
from microfinance borrowers which were as provided under Subsec. 3277.1.
credited to the Special Savings Account of (3) Consolidated Financial Statements.
the BSP with the borrowing bank. Statement of Condition as of the end of the
e. Any responsible officer who is month immediately preceding the date of
holding a position that is not lower than application together with the
manager or equivalent rank must, upon corresponding Statement of Income and
approval by the bank’s Board, endorse the Expenses covering the results of
rediscounted PNs and certify that the same operations for the last three (3) years.
are still outstanding as of the time of (4) Report on required and available
application. reserves covering the past two (2)
f. Collections made on amortizations consecutive weeks immediately
due and maturing PNs shall be remitted to preceding the date of application.
the DLC not later than two (2) banking days (5) Rediscounting Line Agreement
following the date of receipt of collections executed by the CEO of the RB or Coop
by the Head Office/branches located Bank.
(6) Notarized custodian agreement demand deposit account with BSP. Check
executed among the CEO of the RB or payments and demand drafts shall be given
Coop Bank, the third party custodian and value when cleared.
the BSP.
b. Availment of MCR Line. For § 3277.6 Reports required. A monthly
availment of MCR line, the RB or Coop report on microfinance transactions shall
Bank shall submit the following be submitted to DLC or the appropriate
documents: BSPRLCU within the deadline set in
(1) Application for MCR Line Appendix 6.
Availment - original and one (1) copy in
prescribed form duly accomplished and § 3277.7 Accounts verification. The
signed by the CEO of the applicant bank; microcredit accounts rediscounted shall be
(2) Rediscount Schedule (RS); and subject to verification and confirmation by
(3) Notarized PNs in favor of the BSP - authorized DLC or the appropriate
original and two (2) copies. BSPRLCU representatives to determine
their eligibility and acceptability for
§ 3277.5 Remittance of collections/ rediscounting.
payments/repayments. Collections made
on amortizations due and maturing PNs § 3277.8 Sanctions. Any misrepresentation
shall be remitted to the DLC not later and/or violation of the provisions of this
than two (2) banking days following the Section shall subject the RB or Coop Bank
date of receipt of collections by the Head and/or the erring directors/officers to any
Office/branches located within Metro of the following sanctions:
Manila and not later than four (4) banking a. Erring RB or Coop Bank
days following the date of receipt of (1) Fines in amounts as may be
collections by the Head Office/branches determined by the Monetary Board to be
located outside Metro Manila. As an appropriate, but in no case to exceed Thirty
alternative, collections may be deposited thousand pesos (P30,000) a day for each
in a Special Savings Deposit Account violation;
(SSDA) which shall be maintained by the (2) Suspension of rediscounting
BSP with the borrower-bank and remitted privileges or access to BSP credit facilities;
to DLC or the appropriate BSPRLCU on and/or
the last banking day of every month. The (3) Reduction of rediscounting line.
SSDA shall earn interest of one percent b. Erring directors/officers
(1%) lower than the 91-day Treasury Bill For violation of any of the provisions
rate for the last auction date of the of this Section the following shall be
preceding month. imposed against the directors and
On due date of the PN, the RB or Coop officers of the bank:
Bank shall remit to the BSP the unpaid (1) 1st offense - a warning that a
balance of such PN: Provided, That any repetition of the same or similar offense
amount credited to the SSDA shall be shall subject the erring director/officer to
applied as payment of the PN in favor of monetary penalties and/or sanctions;
BSP. The remittance shall be reported (2) 2nd offense - a fine of P500 per day
under DLC Form No. 5. The remittance to for each violation from the time the
BSP shall be in the form of cash, demand violation was committed up to the time it
draft, manager’s check or based on is corrected without prejudice, however,
authority issued by the bank to debit its to the imposition of higher penalties; and
(3) 3rd and subsequent offenses - a fine a. STDs and deposit substitutes of
of P5,000 per day from the time the violation specialized government banks and private
was committed up to the time it is corrected banks arising from their lending operations
without prejudice, however, to the under the special financing programs of the
imposition of higher penalties. Government and/or international FIs; and
If any of the documentary requirements b. Funds held by participating financial
submitted by the bank as required under institutions (PFIs) under the GSIS Housing
Subsec. 3277.4 is found to be false, a fine Loan Programs: Provided, That the
of P5,000 per day, from the time the agreement between the GSIS and the
certification was made up to the time the conduit banks specify that such funds may
certification was found to be false, shall be be held by the conduit banks for a period
imposed against the certifying officer. of not more than seven (7) calendar days
prior to their release to the borrower and
Sec. X278 Enhanced Intraday Liquidity prior to the remittance by the conduit
Facility. The ILF is a smoothening banks of payments to the GSIS.
mechanism which is available to eligible c. Borrowings by accredited FIs under
participant banks in the Philippine the Wholesale Lending Program for SMEs
Payments and Settlements System of the SBGFC.
(PhilPaSS) to support their liquidity
requirements and avoid payment gridlocks Sec. X282 Borrowings from Trust
in PhilPaSS. The revised features of the Departments or Investment Houses
enhanced intraday liquidity facility are in Funds borrowed by banks from trust
Appendix 21-B. departments or managed funds of banks or
(As superseded by the MOA between the BSP, BTr, BAP and IHs are not considered as interbank
Money Market Association of the Philippines dated 25 March borrowings and therefore are subject to the:
2008) a. Reserve requirement on deposit
substitutes; and
Secs. X279 - X280 (Reserved) b. Minimum trading lot rule.
(As amended by Circular No. 703 dated 23 December 2010)
K. OTHER BORROWINGS
Sec. X283 (Reserved)
Sec. X281 Borrowings from the
Government. Except as may be authorized Sec. 1283 (Reserved)
by existing statutes, no private bank shall,
whether or not performing quasi-banking Sec. 2283 Mortgage/CHM Certificates of
functions, borrow any fund or money from Thrift Banks. With prior approval of the
the Government and government entities, Monetary Board, TBs may issue and deal
through the issuance or sale of its in mortgage and CHM certificates. The
acceptances, notes or other evidences of rules and regulations governing the
debt. issuance of said certificates is shown in
Appendix 17.
§ X281.1 Exemption from reserve
requirement. The following borrowings Sec. 3283 (Reserved)
shall not be subject to the reserve
requirements: Sec. X284 (Reserved)
PART THREE
on the FI in relation to its large exposures bank. The basis for determining compliance
and credit risk concentrations. with the single borrower’s limit (SBL) is the
f. Sanction. Any failure or delay in total credit commitment of the bank to or
complying with the requirements under on behalf of the borrower.
Items “d” and “e” of this Subsection shall be b. The total amount of loans, credit
subject to penalty applicable to those accommodations and guarantees prescribed
involving major reports. in the first paragraph may be increased for
(As amended by Circular Nos. 855 dated 29 October 2014 and each of the following circumstances:
827 dated 28 February 2014) 1. By an additional ten percent (10%)
of the net worth of such bank: Provided,
Sec. X302 Loan Portfolio and Other Risk
That the additional liabilities are adequately
Assets Review System.
(Deleted by Circular No. 855 dated 29 October 2014)
secured by trust receipts, shipping
documents, warehouse receipts or other
§ X302.1 Provisions for losses; booking similar documents transferring or securing
(Deleted by Circular No. 855 dated 29 October 2014) title covering readily marketable, non-
perishable goods which must be fully
§ X302.2 Sanctions. covered by insurance;
(Deleted by Circular No. 855 dated 29 October 2014)
2. By an additional twenty-five percent
§ X302.3 Regulatory relief for banks (25%) of the net worth of such bank:
under rehabilitation program approved by Provided, That the additional loans, credit
the Bangko Sentral. Banks may be allowed accommodations and guarantees are for the
to charge their outstanding unbooked purpose of undertaking infrastructure and/
allowance for probable losses directly to or development projects under the Public-
retained earnings, on one-time basis, subject Private Partnership (PPP) Program of the
to the following conditions: government duly certified by the Secretary
a. That this is in connection with a of Socio-Economic Planning: Provided,
comprehensive rehabilitation program further, That the total exposures of the bank
approved by the Bangko Sentral; and to any borrower pertaining to such
b. The effects thereof, if these had been infrastructure and/or development projects
charged to profit and loss, shall be fully under the PPP Program shall not exceed
disclosed in the audited financial twenty-five percent (25%) of the net worth
statements, annual reports and published of such bank: Provided, furthermore, That
statement of condition. the additional twenty-five percent (25%)
(Circular No. 763 dated 03 August 2012) shall only be allowed for a period of six (6)
years from 28 December 2010: Provided,
A. LOANS IN GENERAL finally, That the credit risk concentration
arising from total exposures to all borrowers
Sec. X303 Credit Exposure Limits to a pertaining to such infrastructure and/or
Single Borrower development projects under the PPP
a. Consistent with national interest, the Program shall be considered by the bank in
total amount of loans, credit its internal assessment of capital adequacy
accommodations and guarantees that may relative to its overall risk profile and
be extended by a bank to any person, operating environment. Said loans, credit
partnership, association, corporation or accommodations and guarantees based on
other entity shall at no time exceed twenty the contracted amount as of the end of the
five percent (25%) of the net worth of such six (6)-year period shall not be increased but
may be reduced and once reduced, said who owns or controls a majority interest in
exposures shall not be increased thereafter; a corporation, partnership, association or
and any other entity, the liabilities of said entities
3. By an additional fifteen percent (15%) to such bank; (3) in the case of a corporation,
of the net worth of such bank: Provided, all liabilities to such bank of all subsidiaries
That the additional loans, credit in which such corporation owns or controls
accommodations and guarantees are granted a majority interest; and(4) in the case of a
to finance oil importation of oil companies, partnership, association or other entity, the
which are not affiliates of the lending bank, liabilities of the members thereof to such
engaged in energy and power generation: bank.
Provided, further, That the oil companies d. Even if a parent corporation,
qualify under the credit underwriting partnership, association, entity or an
standards of the lending bank and the individual who owns or controls a majority
lending bank shall comply with Subsec. interest in such entities has no liability to
X301.6 on the guidelines in managing large the bank, the liabilities of subsidiary
exposures and credit risk concentration: corporations or members of the partnership,
Provided, furthermore, That the credit risk association, entity or such individual shall
concentration arising from total exposures be combined under certain circumstances,
to all oil companies shall be considered by including but not limited to any of the
the bank in its internal assessment of capital following situations: (1) the parent
adequacy relative to its overall risk profile corporation, partnership, association, entity
and operating environment and shall be or individual guarantees the repayment of
incorporated in the Internal Capital the liabilities; (2) the liabilities were incurred
Adequacy Assessment Process (ICAAP) for the accommodation of the parent
document required to be submitted under corporation or another subsidiary or of the
Sec. X117: Provided, finally, That the partnership or association or entity or such
additional fifteen percent (15%) shall only individual; or (3) the subsidiaries though
be allowed for a period of three (3) years separate entities operate merely as
from 03 March 2011 or, until 03 March departments or divisions of a single entity.
2014. Said additional loans, credit e. For purposes of this Section, loans,
accommodations and guarantees other credit accommodations and
outstanding as of the end of the three (3)- guarantees shall exclude: (1) loans and other
year period and in excess of twenty five credit accommodations secured by
percent (25%) of the lending bank’s net obligations of the Bangko Sentral or of the
worth shall not be increased but shall be Philippine Government; (2) loans and other
reduced and once reduced, said exposures credit accommodations fully guaranteed by
shall not be increased thereafter. the government as to the payment of
c. The above prescribed ceilings shall principal and interest; (3) loans and other
include: (1) the direct liability of the maker credit accommodations secured by U.S.
or acceptor of paper discounted with or sold Treasury Notes and other securities issued
to such bank and the liability of a general by central governments and central banks
endorser, drawer or guarantor who obtains of foreign countries with the highest credit
a loan or other credit accommodation from quality given by any two (2) internationally
or discounts paper with or sells papers to accepted rating agencies; (4) loans and other
such bank; (2) in the case of an individual credit accommodations to the extent covered
by the hold-out on or assignment of, institutions like the LBP and the DBP shall
deposits maintained in the lending bank and not be covered by the SBL imposed under
held in the Philippines; (5) loans, credit R.A. No. 8791.
accommodations and acceptances under In municipalities and cities where
letters of credit to the extent covered by there are no government banks, the
margin deposits; and (6) other loans or credit deposits of RBs/Coop Banks in private
accommodations which the Monetary Board banks in said areas shall not be subject to
may from time to time specify as non-risk the SBL imposed under R.A. No. 8791.
items. Deposits in private banks located in
f. The wholesale lending activities of municipalities/cities where there are
government banks to participating financial government banks shall be subject to the
institutions (PFIs) for relending to end-user limits as prescribed in the second
borrowers shall at no time exceed a separate paragraph above.
limit of thirty-five percent (35%) of net worth, The outstanding balance of the demand
subject to the following guidelines: (1) it deposit account in a private depository bank
shall apply only to loans granted to PFIs on being used by the TBs/RBs/Coop Banks with
a wholesale basis for on-lending to end-user authority to accept/create demand or current
borrowers; (2) it shall apply only to loan deposits, to fund checks cleared through
programs funded by multilateral, the said private depository bank shall also
international or local development agencies, be exempt from the SBL imposed under R.A.
organizations or institutions especially No. 8791 even if there is a government-
designed for wholesale lending activities of owned or controlled financial institution in
government banks; (3) the end-user the area.
borrowers of the PFIs shall be subject to the h. Loans, credit accommodations and
twenty-five percent (25%) SBL, not the guarantees to any person, partnership,
increased ceiling of thirty-five percent association, corporation or other entity or
(35%); and (4) government banks shall group of companies in excess of the
observe appropriate criteria for accrediting applicable SBL arising from acquisition,
PFIs and for the grant/renewal of credit lines merger or consolidation of borrower-
to accredited PFIs. corporations, which loans, credit
g. Loans and other credit accommodations and guarantees were
accommodations and usual guarantees by granted prior to and are outstanding as of
a bank to any non-bank entity, whether date of acquisition, merger or consolidation
locally or abroad, shall be subject to the of borrower-corporations shall not be
limits as herein prescribed. increased, but shall be reduced and once
Loans and other credit accommodations reduced, shall not be increased beyond the
as well as deposits and usual guarantees by applicable SBL.
a bank to any other bank, whether locally It is expected that FIs would generally
or abroad, shall be subject to the limits as observe a lower internal single borrower’s
herein prescribed or P100.0 million, limit than the prescribed limit of twenty-five
whichever is higher: Provided, That the percent (25%) as a matter of sound practice.
lending bank shall exercise proper due (As amended by Circular Nos. 855 dated 29 October 2014,
diligence in selecting a depository bank and 803 dated 05 July 2013, 779 dated 9 January 2013, 734 dated
16 August 2011, 712 dated 9 February 2011 and 700 dated
shall formulate appropriate policies to 06 December 2010)
address the corresponding risks involved in
the transactions. § X303.1 Definition of terms. For
Deposits of RBs/Coop Banks with purposes of this Section, the following
government-owned or controlled financial definitions shall apply:
a. Total credit commitment shall include (1) Power over more than one-half of
outstanding loans and other credit the voting rights by virtue of an agreement
accommodations, deferred letters of credit with other investors; or
less margin deposits, and guarantees. Except (2) Power to govern the financial and
as specifically provided, total credit operating policies of the enterprise under a
commitment shall be reckoned on credit statute or an agreement; or
risk-weighted basis consistent with existing (3) Power to appoint or remove the
regulations. majority members of the board of directors
b. Loans shall refer to all the accounts or equivalent governing body; or
under the loan portfolio of a bank as (4) Power to cast the majority votes at
enumerated in the Manual of Accounts for meetings of the board of directors or
Banks. equivalent governing body; or
c. Other credit accommodations shall (5) Any other arrangement similar to any
refer to credit and specific market risk of the above.
exposures of banks arising from h. Subsidiary shall refer to a corporation
accommodations other than loans such as or firm more than fifty percent (50%) of the
receivables (sales contract receivables, outstanding voting stock of which is directly
accounts receivables and other receivables), or indirectly owned, controlled or held with
and debt securities booked as investments. power to vote by its parent corporation.
d. Bank guarantee. A bank guarantee is i. Credit risk transfer shall refer to any
an irrevocable commitment of a bank arrangement that allows the bank to transfer
binding itself to pay a sum of money in the the credit risk associated with its loan or
event of non-performance of a contract by other credit accommodation to a third party.
a third party. The guarantee is a commitment j. Readily marketable goods shall mean
separate and distinct from the principal debt articles of commerce, agriculture or industry
or contract. of such uses as to make them the subject of
e. Net worth shall mean the total of the constant dealings in ready markets with such
unimpaired paid-in capital including paid- frequent quotations as to make their prices
in surplus, retained earnings and undivided easily and definitely ascertainable, or which
profit, net of unbooked valuation reserves lend themselves easily to disposal by sale
and other adjustments as may be required at any time to pay the obligations secured
by the Bangko Sentral. by the said goods.
f. Qualifying capital shall mean capital k. Bill of exchange drawn in good faith
under applicable and existing capital against actually existing values shall mean
adequacy framework. one (1) which is drawn by a seller on the
g. The term “control of majority interest” purchaser for the purchase price of
shall be synonymous to “controlling commodities sold. A bill of exchange,
interest” and exists when the parent owns whether drawn against goods for exports or
directly or indirectly through subsidiaries against goods to be sold locally, which is
more than one half of the voting power of discounted or purchased by a bank is a bill
an enterprise unless, in exceptional drawn against existing values only when it
circumstance, it can be clearly demonstrated is accompanied by shipping documents,
that such ownership does not constitute warehouse receipts or other papers,
control. Control of majority interest may also securing title to the goods sold. However,
exist even when the parent owns one-half bills of exchange drawn in good faith against
or less of the voting power of an enterprise actually existing values as defined in this
when there is: paragraph, which are past due or the
maturities of which have been extended, the SBL until such papers are paid by the
shall be considered as additional loans borrowers.
authorized under the second paragraph of
this section and shall be subject to the ten § X303.3 Credit risk transfer. Subject
percent (10%) limitation provided therein. to prior approval of the Bangko Sentral,
l. Commercial or business paper actually loans and other credit accommodations
owned by the person negotiating the same covered by a legally effective credit risk
shall mean a paper arising from an actual transfer arrangement such as guarantee,
business transaction. A trade acceptance or letter of indemnity, standby letter of credit
promissory note actually owned by the or credit derivative, may be excluded from
person negotiating the same is a commercial the total credit commitment of the bank to a
or a business paper. However, if a bill is borrower in reckoning compliance with the
drawn against an agent or fictitious drawee, SBL.
or if a promissory note is executed by an
agent or fictitious drawee, neither is a § X303.4 Exclusions from loan limit
commercial nor a business paper. a. The discount of bills of exchange
Commercial or business papers actually drawn in good faith against actually existing
owned and discounted by the person values, and the discount of commercial or
negotiating the same, which are past due or business paper which are actually owned
the maturity of which have been extended, by the person, company, corporation or
shall be considered as money borrowed and association negotiating the same;
shall be subject to the limitation of twenty- b. Credit accommodations to finance
five percent (25%) provided in the first the importation of rice and corn to the extent
paragraph of this Section: Provided, That of 100% of the net worth of the bank
commercial or business papers purchased concerned shall be excluded in determining
by banks from SMEs which became past due the SBL prescribed herein, subject to the
or the maturities of which have been following conditions:
extended, shall be considered additional (1) The importation shall be made in
loan by the bank to the purchaser of goods pursuance of a national policy duly
or services from the SME and shall be enunciated by the National Government;
entitled to an increased SBL equivalent to (2) The importation shall have been
ten percent (10%) of the net worth of the approved by the National Economic
concerned bank if the purchasers are Development Authority (NEDA);
companies with credit ratings of at least (3) The letter of credit shall specify that
“AA-” or equivalent from a Bangko Sentral- importation shall be made with certification
recognized rating agency. from the National Food Authority (NFA),
(As amended by Circular Nos. 827 dated 28 February 2014) or the consular establishment of the
Philippine government at the source of any
§ X303.2 Rediscounted papers included such establishment of the Philippine
in loan limit. The liabilities to the bank of government at the source of any such
borrowers whose papers were rediscounted shipment to the effect that the commodity
by banks with the Bangko Sentral shall not be being imported is either rice or corn; and
deemed as having been extinguished by the (4) The related bills of lading shall
rediscount, but shall be considered as still specify in addition to the name of the
existing and shall be included in determining importer concerned, that the NFA shall be
1
It shall cover all new underwritten debt and equity securities issued from 15 February 2013.
1
It shall cover all new underwritten debt and equity securities issued from 15 February 2013.
2
Outstanding credit commitments of a bank as of 02 May 2004 which are within the ceiling prescribed under
the regulations existing prior to said date but will exceed the limitations prescribed in this Section shall not be
subject to penalty for a period of one (1) year or until said credit commitments become past due or are
extended, renewed or restructured whichever comes later. Said credit commitments shall, however, be re-
ported to the Bangko Sentral within fifteen (15) banking days from 02 May 2004.
Sec. X304 Grant of Loans and Other Credit (2) Those whose income has been
Accommodations. In addition to the subjected to final withholding tax;
principles and standards provided under (3) Senior citizens not required to file a
Section X178, the following regulations return pursuant to R.A. No. 7432, as
shall be observed in the grant of loans and amended by R.A. No. 9257, in relation to
other credit accommodations. the provisions of the National Internal
(As amended by Circular No. 855 dated 29 October 2014) Revenue Code (NIRC) or the Tax Reform
Act of 1997; and
§X304.1 Additional requirements. FIs (4) An individual who is exempt from
shall require submission and maintain on income tax pursuant to the provisions of the
file updated ITRs of the borrower, and his NIRC and other laws, general or special; and
co-maker, if applicable, duly stamped as f. Loans to borrowers, whose only
received by the BIR together with supporting source of income is compensation and the
financial statements, as applicable. FIs shall corresponding taxes on which has been
likewise require borrowers to execute a withheld at source: Provided, That the
waiver of confidentiality of client borrowers submitted, in lieu of the ITR, a
information and/or an authority of the FI to copy of their Employer’s Certificate of
conduct random verification with the BIR Compensation Payment/Tax Withheld (BIR
in order to establish authenticity of these Form 2316) or their payslips for at least three
documents. (3) months immediately preceding the date
Should the document(s) submitted of loan application.
prove to be incorrect in any material detail, g. Loans and other credit
the FI may terminate any loan or other credit accommodations not exceeding P3.0
accommodation granted on the basis of said million; or
document(s) and shall have the right to h. Loans to start up enterprise
demand immediate repayment or borrowers during the first three (3) years
liquidation of the obligation. of their operations or banking
The required submission of such relationship.
documents shall not cover the following (As amended by Circular Nos. 855 dated 29 October 2014,
credit exposures: 746 dated 03 February 2012, 694 dated 14 October 2010,
a. Microfinance loans as defined under 622 dated 16 September 2008, 607 dated 30 April 2008 and
Subsec. X361.1 (a); 549 dated 09 October 2006)
b. Loans to registered Barangay Micro-
§ X304.2 Purpose of loans and other
Business Enterprises (BMBEs); credit accommodations.
c. Interbank loans; (Deleted by Circular No. 855 dated 29 October 2014)
d. Loans secured by hold-outs on or
assignment of deposits or other assets § X304.3 Prohibited use of loan
considered non-risk by the Monetary Board; proceeds. Banks are prohibited from
e. Loans to individuals who are not requiring their borrowers to acquire shares
required to file ITRs under BIR regulations, of stock of the lending bank out of the loan
as follows: or other credit accommodation proceeds
(1) Individuals whose gross from the same bank.
compensation income does not exceed their
total personal and additional exemptions, § X304.4 Signatories. Banks shall
or whose compensation income derived require that loans and other credit
from one (1) employer does not exceed accommodations be made under the
P60,000 and the income tax on which has signature of the principal borrower and, in
been correctly withheld; the case of unsecured loans and other credit
1
Banks were given a period of 120 days from 06 January 2011 or up to 06 May 2011 to fully implement the
required disclosure requirements.
of insuring the bank from borrower default pertaining to a loan or forbearance of money,
or other credit loss, and the borrower from goods or credits may stipulate that the rate
fraud or unauthorized charges. of interest agreed upon may be increased in
(Circular No. 702 dated 15 December 2010) the event that the applicable maximum rate
of interest is increased by the Monetary
§§ X304.13 - X304.14 (Reserved) Board: Provided, That such stipulation shall
be valid only if there is also a stipulation in
§ X304.15 Sanctions.Violations of the the agreement that the rate of interest agreed
provisions of Subsecs. X304.10 to X304.12 upon shall be reduced in the event that the
shall be subject to any or all of the applicable maximum rate of interest is
following sanctions depending upon their reduced by law or by the Monetary Board:
severity: Provided, further, That the adjustment in the
a. First offense. Reprimand for the rate of interest agreed upon shall take effect
directors/officers responsible for the on or after the effectivity of the increase or
violation; decrease in the maximum rate of interest.
b. Second offense. Disqualification of
the bank concerned from the credit facilities § X305.3 Floating rates of interest. The
of the Bangko Sentral except as may be rate of interest on a floating rate loan during
allowed under Section 84 of R. A. No. 7653; each interest period shall be stated on the
c. Subsequent offense/s: basis of Manila Reference Rates (MRRs),
i. Prohibition on the bank concerned T-Bill Rates or other market based reference
from the extension of additional credit rates plus a margin as may be agreed upon
accommodation against personal security; by the parties.
and The MRRs for various interest periods
ii. Penalties and sanctions provided shall be determined and announced by the
under Sections 36 and 37 of R. A. No. 7653. Bangko Sentral every week and shall be
(Circular No. 702 dated 15 December 2010) based on the weighted average of the
interest rates paid during the immediately
Sec. X305 Interest and Other Charges. The preceding week by the ten (10) KBs with
rate of interest, including commissions, the highest combined levels of outstanding
premiums, fees and other charges, on any deposit substitutes and time deposits, on
loan, or forbearance of any money, goods promissory notes issued and time deposits
or credits regardless of maturity and received by such banks, of P100,000 and
whether secured or unsecured shall not be over per transaction account, with maturities
subject to any regulatory ceiling. corresponding to the interest periods for
which such MRRs are being determined.
§ X305.1 Rate of interest in the absence Such rates and the composition of the
of stipulation. The rate of interest for the sample KBs shall be reviewed and
loan or forbearance of any money, goods determined at the beginning of every
or credits and the rate allowed in judgments, calendar semester on the basis of the banks’
in the absence of expressed contract as to combined levels of outstanding deposit
such rate of interest, shall be six percent substitutes and time deposits as of 31 May
(6%) per annum. or 30 November, as the case may be.
(As amended by Circular No. 799 dated 21 June 2013) The rate of interest on floating rate loans
existing and outstanding as of
§ X305.2 Escalation clause; when 23 December 1995 shall continue to be
allowable. Parties to an agreement determined on the basis of the MRRs
obtained in accordance with the provisions documents shall show repayment schedules
of the rules existing as of 01 January 1989: in a manner consistent with this provision.
Provided, however, That the parties to such Marketing materials and presentations shall
existing floating rate loan agreements are likewise be consistent with this provision.
not precluded from amending or modifying To enhance loan transaction
their loan agreements by adopting a floating transparency, Effective Interest Rate (EIR)
rate of interest determined on the basis of calculation models illustrative of common
the TBR or other market based reference loan features are presented in Appendix 91
rates. for guidance. It is understood, however, that
Where the loan agreement provides for an EIR calculation model, founded on
a floating interest rate, the interest period, established principles of discounted cash
which shall be such period of time for flow analysis, for a loan should be based
which the rate of interest is fixed, shall be on the actual features thereof. A bank shall
such period as may be agreed upon by the be solely responsible for the propriety and
parties. accuracy of its EIR calculation model.
For the purpose of computing the MRRs, However, for purposes of determining
banks shall accomplish the report forms, compliance with this Section, the Bangko
RS Form 2D and Form 2E (BSP 5-17-34A). Sentral’s determination of the
reasonableness and accuracy of an EIR
§ X305.4 Accrual of interest earned on calculation model prevails.
loans. Accrual of interest earned on loans (Circular No. 730 dated 20 July 2011 and M-2011-040 dated 28
shall only be allowed if the loans and other July 2011)
credit accommodations are current and
performing (i.e., no condition of financial Sec. X306 Past Due Accounts. Past due
difficulties or inability to meet financial accounts of a bank shall, as a general rule,
obligations as they mature). However, refer to all accounts in its loan portfolio, all
interest income on past due loans arising receivable components of trading account
from discount amortization (not from the securities and other receivables, as defined
contractual interest of the accounts) shall in the Manual of Accounts for Banks, which
be accrued in accordance with PAS 39. are not paid at maturity1.
(M-2014-039 dated 01 October 2014, M-2014-031 dated 08
Accrued interest receivable shall be August 2014, M-2014-006 dated 12 February 2014, M-2013-050
classified in accordance with their dated 15 November 2013, M-2013-046 dated 30 October 2013,
respective loan accounts and provided with M-2013-045 dated 23 October 2013, M-2013-042 dated
Allowance for Uncollected Interest on 25 September 2013, M-2013-040 dated 03 September 2013,
Loans. M-2013-001 dated 14 January 2013, M-2012-060 dated
27 December 2012, M-2012-051 dated 09 November 2012,
(As amended by Circular No. 855 dated 29 October 2014) M-2012-044 dated 24 August 2012, M-2012- 042 dated 17 August
2012, M–2012–001 dated 03 January 2012 M-2011-056 dated
§ X305.5 Method of computing interest 10 November 2011, M-2011-055 dated 17 October 2011,
Banks may only charge interest based on M-2011-043 dated 12 August 2011, M-2011-007 dated
04 February 2011, M-2010-039 dated 03 November 2010,
the outstanding balance of a loan at the M-2010-007 dated 23 April 2010, M-2009-040 dated 30 October
beginning of an interest period. 2009, M- 2009-037 dated 15 October 2009, M-2009-038 dated
For a loan where principal is payable 08 October 2009 and M-2009-036 dated 07 October 2009)
in installments, interest per installment
period shall be calculated based on the § X306.1 Accounts considered past due
outstanding balance of the loan at the The following shall be considered as
beginning of each installment period. past due:
Towards this end, all loan-related a. Loans or receivables payable on
1
See Appendix 89
demand - If not paid on the date indicated number of installments in arrears: Provided,
on the demand letter, or within three (3) further, That for modes of payment other
months from date of grant, whichever than those listed above (e.g., daily, weekly
comes earlier; or semi-monthly), the entire outstanding
b. Bills discounted and time loans, balance of the loan/receivable shall be
whether or not representing availments considered as past due when the total
against a credit line - If not paid on the amount of arrearages reaches ten percent
respective maturity dates of the promissory (10%) of the total loan/receivable balance;
notes; For this purpose, the term “installments”
c. Customers’ liability on drafts under shall refer to principal and/or interest
letters of credit/trust receipts: amortizations that are due on several dates as
(1) Sight Bills - If dishonored upon indicated/specified in the loan documents.
presentment for payment or not paid within f. Credit card receivables - If the
thirty (30) days from date of original entry, minimum amount due or minimum
whichever comes earlier; payment required is not paid within two (2)
(2) Usance Bills - If dishonored upon cycle dates, the total amount due stated in
presentment for acceptance or not paid on the monthly billing statement: Provided,
due date, whichever comes earlier; and however, That the total outstanding balance
(3) Trust receipts - If not paid on due which includes amortization/s of any fixed
date. monthly installment plan or deferred
d. Bills and other negotiable instruments payment scheme shall be considered and
purchased - If dishonored upon presentment reported past due when the number of
for acceptance/payment or not paid on monthly installments in arrears is three (3)
maturity date, whichever comes earlier: or more: Provided, further, That the bank
Provided, however, That an out-of-town shall have the right to demand the obligation
check and a foreign check shall be in full in case of default in any installment
considered as past due if outstanding for thereon if the contract between the bank and
thirty (30) days and forty-five (45) days, the cardholder contains an “acceleration
respectively, unless earlier dishonored; clause”; and
e. Loans/receivables payable in g. (Deleted by Circular No. 202 dated
installments - The total outstanding balance 27 May 1999)
thereof shall be considered past due in h. Microfinance loans - Past Due/
accordance with the following schedule: Portfolio-at-Risk (PAR) is the outstanding
Minimum No. principal amount of all loans that have at
of Installments least one (1) installment past due for one (1)
Mode of Payment In Arrears or more days. The amount includes the
Monthly 3 unpaid principal balance but excludes
Quarterly 1 accrued interest. Under PAR, loans are
Semestral 1 considered past due if a payment has fallen
Annual 1 due and remained unpaid. Loan payments
are applied first to any interest due, then to
Provided, however, That when the total any installment of principal that is due but
amount of arrearages reaches twenty percent unpaid, beginning with the earliest
(20%) of the total outstanding balance of installment. The number of days of lateness
the loan/receivable, the total outstanding delinquency is based on the due date of the
balance of the loan/receivable shall be earliest loan installment that has not been
considered as past due, regardless of the fully paid.
e. Any option, demand, lien, pledge, or transaction, net of finance charges collected
other claim against, or for delivery of, at the time the credit is extended (if any).
property or money; c. Down Payment represents the
f. Any purchase, or other acquisition of, amount paid by the debtor at the time of the
or any credit upon security of any obligation transaction in partial payment for the
or claim arising out of any of the foregoing; property or service purchased.
and d. Trade-in represents the value of an
g. Any transaction or series of asset agreed upon by the bank and debtor,
transactions having a similar purpose or given at the time of the transaction in partial
effect. payment for the property or service
The following categories of credit purchased.
transactions are outside the scope of these e. Non-finance charges correspond to
regulations: the amounts advanced by the bank for items
(1) Credit transactions which do not normally associated with the ownership of
involve the payment of any finance charge the property or of the availment of the
by the debtor; and service purchased which are not incident
(2) Credit transactions in which the to the extension of credit. For example, in
debtor is the one specifying a definite and the case of the purchase of an automobile
fixed set of credit terms such as bank on credit, the creditor may advance the
deposits, insurance contracts, sale of bonds, insurance premium as well as the
etc. registration fee for the account of the debtor.
f. Amounts to be financed consist of the
§ X307.1 Definition of terms cash price plus non-finance charges less the
a. Person means any individual, amount of the down payment and value of
partnership, corporation, association or other the trade-in.
organized group of persons, or the legal g. Finance charge includes interest, fees,
successor or representative of the foregoing, service charges, discounts, and such other
and includes the Philippine Government or charges incident to the extension of credit.
any agency thereof or any other government, h. Simple annual rate is the uniform
or any of its political subdivisions, or any percentage which represents the ratio
agency of the foregoing. between the finance charge and the amount
b. Cash price or delivered price, in case to be financed under the assumption that
of trade transactions, is the amount of money the loan is payable in one (1) year with single
which would constitute full payment upon payment upon maturity and there are no
delivery of property (except money) or service upfront deductions to principal.
purchased at the bank’s place of business. In For loans with terms different from the
the case of financial transactions, cash price above assumptions, the EIR shall be
represents the amount of money received by calculated and disclosed to the borrower as
the debtor upon consummation of the credit the relevant true cost of the loan
the borrowed funds are to be used for with Sec. X306, i.e., the entire outstanding
purposes which do not initially produce balance of the loan/receivable shall be
revenues adequate for regular considered as past due when the total
amortization payments, the bank may amount of arrearages reaches ten percent
permit the initial amortization payment to (10%) of the total loan/receivable balance.
be deferred until such time as said d. Restructured loans shall be
revenues are sufficient for such purpose, considered non-performing except when as
but in no case shall the initial amortization of restructuring date: (i) the principal and
date be later than five (5) years from the interest payments have been updated and
date on which the loan or other credit (ii) the loan is yielding a rate of interest that
accommodation is granted: Provided, fully compensates the FI for its cost of funds
further, That in the case of agriculture and and credit risk.
fisheries projects with long gestation The restoration to a performing loan
periods, the initial amortization payment shall only be effective after a satisfactory
may be deferred for a longer period based record of at least three (3) consecutive
on the economic life of the project as payments of the required amortizations of
provided under Section 24 of R.A. No. principal and/or interest.
8435 and implemented under Sec. X349. A restructured loan which has been
restored to a performing loan status shall
Sec. X309 Non-Performing Loans be immediately considered non-performing
in case of default of any principal or interest
§ X309.1 Accounts considered payment.
non-performing; definitions e. All items in litigation as defined in
The following accounts shall comprise the Manual of Accounts for Banks shall be
a bank’s gross non-performing loans (NPLs): considered non-performing.
a. Non-performing loans shall, as a f. In the case of microfinance loans, past
general rule, refer to loan accounts whose due/portfolio-at-risk (PAR) accounts as
principal and/or interest is unpaid for thirty defined in Subsec. X361.1(b) shall be
(30) days or more after due date or after they considered NPL.
have become past due in accordance with Effective 01 January 2013, as a
existing rules and regulations. This shall complementary measure to computing gross
apply to loans payable in lump sum and NPLs, banks shall likewise compute their
loans payable in quarterly, semi-annual or net NPLs, which shall refer to gross NPLs
annual installments, in which case, the less specific allowance for credit losses on
total outstanding balance thereof shall be the total loan portfolio: Provided, That such
considered non-performing. specific allowance for credit losses on the
b. In the case of loans payable in total loan portfolio shall not be deducted
monthly installments, the total outstanding from the total loan portfolio for purposes of
balance thereof shall be considered computing the net NPL ratio.
non-performing when three (3) or more (As amended by Circular Nos. 855 dated 29 October 2014,
installments are in arrears. 772 dated 16 October 2012 and 607 dated 30 April 2008)
c. In the case of loans payable in daily,
weekly or semi-monthly installments, the § X309.2 - X309.3 (Reserved)
total outstanding balance thereof shall be
considered non-performing at the same time § X309.4 Reporting requirement
that they become past due in accordance (Deleted by Circular No. 772 dated 16 October 2012)
Sec. X311 Secured Loans and Other Credit § X311.4 Participation in foreclosure
Accommodations. A loan may be proceedings. Foreign banks which are
considered secured by collateral to the authorized to do banking business in the
extent the estimated value of net proceeds Philippines through any of the modes of
at disposition of such collateral can be used entry under Subsec. X105.1 shall be
without legal impediment to settle the allowed to bid and take part in foreclosure
principal and accrued interest of such loan: sales of real property mortgaged to them,
Provided, That such collateral must have an as well as to avail of enforcement and
established market and the valuation other proceedings, and accordingly take
methodology used is sound, and: Provided possession of the mortgaged property, for
further, That in the case of real estate a period not exceeding five (5) years from
collateral, the maximum collateral value actual possession which excludes the
shall be sixty percent (60%) of its value as redemption period, as defined under
appraised by an appraiser acceptable to the Subsec. X311.5, unless actual possession
Bangko Sentral. was acquired earlier: Provided, That in no
A loan may also be considered as event shall title to the property be
secured to the extent covered by a third transferred to such foreign bank.
party financial guarantee or surety In case said bank is the winning
arrangement where the credit enhancement bidder, it shall, during the said five (5)-year
provider is itself considered to be of high period, transfer its rights to a qualified
credit quality (credit rating of at least AA or Philippine national, without prejudice to
equivalent) or is considered to be such by a borrower’s rights under applicable laws.
the Bangko Sentral. Should the bank fail to transfer such
Finally, a loan may be secured by a property within the five (5)-year period, it
combination of acceptable collateral and shall be penalized one half (1/2) of one
guarantee arrangements as defined above, percent (1%) per annum of the price at
provided such arrangements are which the property was foreclosed until it
independent of one another for credit is able to transfer the property to a qualified
enhancement purposes. Philippine national.
(As amended by Circular No. 855 dated 29 October 2014) To enable the Bangko Sentral to
of the Coop Banks. It shall be sufficient borrower’s right under applicable laws.
publication in such cases if the notices of Should said unqualified RB fail to transfer
foreclosure and execution of judgment are such property within the five (5) year period,
posted in conspicuous areas in the bank’s it shall be penalized at one-half (1/2) of one
premises, municipal hall, the municipal percent (1%) per annum of the price at
public market, the barangay hall and the which the property was foreclosed until the
barangay public market, if any, where the property is transferred to a qualified
property mortgaged is situated during the Philippine national.
period of sixty (60) days immediately To enable the Bangko Sentral to
preceding the public auction or execution determine compliance with the foregoing,
of judgment. Proof of publication as RBs not qualified to acquire or hold land in
required herein shall be accomplished by the Philippines shall maintain, and make
an affidavit of the sheriff or officer readily available for inspection, information
conducting the foreclosure sale or execution pertaining to individual mortgaged properties
of judgment and shall be attached to the foreclosed.
records of the case. Transitory provisions. An RB
An RB/Coop Bank shall be allowed to established and operating prior to the
foreclose lands mortgaged to it including effectivity of R.A. No. 10574, and which is
lands covered by R.A. No. 6657 (The considered as an RB not qualified to acquire
Comprehensive Agrarian Reform Law of or hold land in the Philippines starting
1988), as amended: Provided, That said 13 September 2013, shall:
lands shall be subject to the retention limits a. submit to the appropriate
provided under R.A. No. 6657: Provided, department of the SES a divestment plan for
further, That a rural bank’s power to the disposal of its title/interest in all land
foreclose lands mortgaged to it shall be properties held by it; and
subject to the limitations in the succeeding b. transfer for a period of five (5) years
paragraph. existing owned or acquired properties to
RBs which are not qualified to acquire qualified Philippine nationals; Provided, That
or hold land in the Philippines pursuant to upon the expiry of the said five (5)-year period,
existing laws shall be allowed to bid and RBs not qualified to acquire or hold land in
take part in foreclosure sales of real property the Philippines which fail to transfer their
mortgaged to them, as well as to avail of properties to qualified Philippine nationals
enforcement and other proceedings, and shall be subject to the penalties under
accordingly to take possession of the Subsec. 3311.4.
mortgaged property, for a period not (As amended by Circular Nos. 858 dated 21 November 2014,
exceeding five (5) years from actual 809 dated 23 August 2013 and 682 dated 15 February 2010)
possession which excludes the redemption
period, as defined under Subsec. X311.5, § X311.5 Redemption of foreclosed real
unless actual possession was acquired estate mortgage. In the event of foreclosure,
earlier: Provided, That in no event shall title whether judicially or extrajudicially, of any
to the property be transferred to such RB. mortgage on real estate, the mortgagor or
In case the RB, which is not qualified debtor shall have the right within one (1)
to acquire or hold land in the Philippines, year after the sale of the real estate, to
is the winning bidder, it shall, during the redeem the property by paying the amount
said five (5) year period, transfer its rights due under the mortgage deed, with interest
to a qualified Philippine national as defined thereon at the rate specified in the mortgage,
under existing laws without prejudice to a and all costs and expenses incurred by the
bank or institution from the sale and foreclosure sale with the applicable Register
custody of said property less the income of Deeds which in no case shall be more
derived therefrom. However, the than three (3) months after foreclosure,
purchaser at the auction sale concerned whichever is earlier.
shall have the right to enter upon and take
possession of such property immediately Sec. X312 Loans and Other Credit
after the date of the confirmation of the Accommodations Secured By Chattels
auction sale and administer the same in and Intangible Properties.
accordance with the law. (Deleted by Circular No. 855 dated 29 October 2014)
Juridical persons whose property is
being sold pursuant to an extra-judicial Sec. X313 Loans and Other Credit
foreclosure, shall have the right to redeem Accommodations Secured By Personal
the property in accordance with this Properties.
provision until, but not after, the (Deleted by Circular No. 855 dated 29 October 2014)
registration of the certificate of
Sec. X314 Increased Loan Values and and services, cash advances, annual
Terms of Loans for Home Building. membership/renewal fees as well as interest,
(Deleted by Circular No. 855 dated 29 October 2014) penalties, insurance fees, processing/service
fees and other charges.
Sec. X315 Loans Secured by Certificates c. Minimum amount due or minimum
of Time Deposit. payment required. Means the minimum
(Deleted by Circular No. 855 dated 29 October 2014)
amount that the credit cardholder needs to
Secs. X316 - X318 (Reserved) pay on or before the payment due date for
a particular billing period/cycle as defined
C. UNSECURED LOANS under the terms and conditions or reminders
stated in the statement of account billing
Sec. X319 Loans Against Personal Security statement which may include: (1) total
(Deleted by Circular No. 855 dated 29 October 2014) outstanding balance multiplied by the
required payment percentage or a fixed
§ X319.1 General guidelines. amount whichever is higher; (2) any amount
(Deleted by Circular No. 622 dated 16 September 2008) which is part of any fixed monthly
installment that is charged to the card;
§ X319.2 Proof of financial capacity of (3) any amount in excess of the credit line;
borrower. and (4) all past due amounts, if any.
(Deleted by Circular No. 622 dated 16 September 2008)
d. Default or delinquency. Shall mean
§ X319.3 Signatories. non-payment of, or payment of any amount
(Deleted by Circular No. 622 dated 16 September 2008) less than, the “Minimum Amount Due” or
“Minimum Payment Required” within two
Sec. X320 Credit Card Operations; General (2) cycle dates, in which case, the “Total
Policy. The Bangko Sentral shall foster the Amount Due” for the particular billing
development of consumer credit through period as reflected in the monthly statement
innovative products such as credit cards of account may be considered in default or
under conditions of fair and sound delinquent.
consumer credit practices. The Bangko e. Acceleration clause. Shall mean any
Sentral likewise encourages competition provision in the contract between the bank
and transparency to ensure more efficient and the cardholder that gives the bank the
delivery of services and fair dealings with right to demand the obligation in full in case
customers. of default or non-payment of any amount
Towards this end, the following rules due or for whatever valid reason.
and regulations shall govern the credit card f. Subsidiary refers to a corporation or
operations of banks and subsidiary/affiliate firm more than fifty percent (50%) of the
credit card companies, aligned with global outstanding voting stock of which is directly
best practices. or indirectly owned, controlled or held with
the power to vote by a bank or other FI.
§ X320.1 Definition of terms g. Affiliate refers to an entity linked
a. Credit card. Means any card, plate, directly or indirectly to a bank or other FI
coupon book or other credit device existing through any one or a combination of any of
for the purpose of obtaining money, the following:
property, labor or services on credit. (1) Ownership, control or power to vote,
b. Credit card receivables. Represents whether by permanent or temporary proxy
the total outstanding balance of credit or voting trust, or other similar contracts,
cardholders arising from purchases of goods by a bank or other financial institution of at
least ten percent (10%) or more of the k. Credit card business activity report -
outstanding voting stock of the entity, or report which contains the quantitative data
vice-versa; on credit card industry.
(2) Interlocking directorship or l. Credit card issuer- refers to a bank or
officership, except in cases involving a corporation that offers the use of its credit
independent directors as defined under card.
existing regulations; m. Pre-approved credit cards are
(3) Common stockholders owning at unsolicited credit cards issued by credit card
least ten percent (10%) of the outstanding issuers to consumers who have not applied
voting stock of each FI and the entity; or for such credit cards. Acts described under
(4) Management contract or any Appendix 103 and other similar acts are
arrangement granting power to the bank or deemed tantamount to the act of issuing pre-
other FI to direct or cause the direction of approved credit cards, notwithstanding any
management and policies of the entity, or contrary stipulations in the contract.
vice-versa. n. Application is a documented request
h. Simple annual rate is the uniform of the credit card applicant to a credit card
percentage which represents the ratio issuer for the availment of a credit card. The
between the finance charge and the amount intention and consent for the availment of
to be financed under the assumption that the credit card must be clear and explicit.
the loan is payable in one (1) year with single (As amended by Circular Nos. 845 dated 15 August 2014,
812 dated 23 September 2013 and 754 dated 17 April 2012)
payment upon maturity and there are no
upfront deductions to principal. § X320.2 Risk management system. To
For loans with terms different from the safeguard their interests, banks and
above assumptions, the effective annual subsidiary/affiliate credit card companies
interest rate shall be calculated and disclosed are required to establish an appropriate
to the borrower as the relevant true cost of system for managing risk exposures from
the loan comparable to the concept of credit card operations which shall be
simple annual rate. documented in a complete and concise
For loans with contractual interest rates manner. The risk management system shall
stated on monthly basis, the effective interest cover the organizational set-up, records and
rate may be expressed as a monthly rate. reports, accounting, policies and procedures
In accordance with the PAS definition, and internal control.
effective interest rate is the rate that exactly Written policies, procedures and
discounts estimated future cash flows internal control guidelines shall be
through the life of the loan to the net amount established on the following aspects of credit
of loan proceeds. For consistency, card operations:
methodology and standards for discounted a. Requirements for application;
cash flow models shall be prescribed to be b. Solicitation and application
used for the purpose. processing;
i. Credit card acquirer- refers to the c. Determination and approval of credit
institution that accepts and facilitates the limits;
processing of the credit card transaction d. Issuance, distribution and activation
which is initially accepted by the merchant. of cards;
j. Credit cardholder- refers to a person e. Supplementary or extension cards;
who owns and benefits from the use of a f. Cash advances;
credit card. g. Billing and payments;
currency to Philippine pesos or billing and using the minimum Arial 12 theme font
currency; definition or general description and size, or its equivalent in readability, and
of verifiable blended exchange conversion on the first page, if applicable document has
rates (e.g., MASTERCARD and/or VISA more than one page.
International rates on the day the item was Transitory provisions. Banks and their
processed/posted to the billing statement, subsidiary or affiliate credit card companies
plus mark-up, if any) including conversion shall be given a period of 120 days from 06
January 2011 to fully implement the
commission; and/or other currency
required disclosure requirements.
conversion charges and costs arising from (As amended by Circular No. 754 dated 17 April 2012 and
the purchase by the card company of foreign Circular No. 702 dated 15 December 2010)
currency to settle the customer’s transactions
shall also be disclosed. § X320.5 Interest accrual on past due
Banks and their subsidiary or affiliate loans. Interest income on past due loans
credit card companies shall also provide the arising from discount amortization (and not
following information to their cardholders: from the contractual interest of the accounts)
1. A table of the applicable fees, shall be accrued as provided in PAS 39.
penalties and interest rates on credit card
transactions, including the period covered § X320.6 Method of computing interest
by and the manner of and reason for the Banks and/or subsidiaries/affiliate credit
imposition of such penalties, fees and card companies shall only charge interest
interests; fees and applicable conversion based on the outstanding balance of a loan
reference rates for third currency at the beginning of an interest period.
For a loan where the principal is payable
transactions, in plain sight and language, on
in installments, interest per installment
materials for marketing credit cards, such
period shall be calculated based on the
as brochures, flyers, primers and advertising outstanding balance of the loan at the
materials, on credit card application forms, beginning of each installment period.
and on credit card billing statements: Towards this end, all loan-related
Provided, That these disclosures are in documents shall show repayment schedules
addition to the full disclosure of the fees, in a manner consistent with this provision.
charges and interest rates in the terms and Marketing materials and presentations shall
conditions of the credit card agreement likewise be consistent with this provision.
found elsewhere on the application form (As amended by Circular No. 754 dated 17April 2012)
and billing statement; and
2. A reminder to the cardholder in the § X320.7 (2011- X320.6) Finance
monthly billing statement, or its equivalent charges. The amount of finance charges in
document, that payment of only the connection with any credit card transaction
minimum amount due or any amount less charged to the cardholder includes interest,
than the total amount due for the billing fees, service charges, discounts, and such
other charges incident to the extension of
cycle/period, would mean the imposition
credit.
of interest and/or other charges: (As amended by Circular No. 754 dated 17 April 2012)
Provided, That such table of fees, penalties
and interest rates and reminder shall be § X320.8 (2011- X320.7) Deferral
printed in plain language and in bold black charges. The bank and the cardholder may,
letters against a light or white background, prior to the consummation of the
disclosure, the credit card issuer shall billing error or apply against the credit limit
inform/notify the credit cardholder in the of the cardholder the amount indicated to
agreement, contract or any equivalent be in error.
document governing the issuance or use of (As amended by Circular No. 754 dated 17 April 2012)
the credit card that, pursuant to the
provisions of Articles 1278 to 1290 of the § X320.15 (2011-X320.14) Unfair
New Civil Code of the Philippines, as collection practices. Banks, subsidiary/
amended, the use of his credit card will affiliate credit card companies, collection
subject his deposit/s with the bank to offset agencies, counsels and other agents may
against any amount/s due and payable on resort to all reasonable and legally
his credit card which have not been paid in permissible means to collect amounts due
accordance with the terms of the agreement/ them under the credit card agreement:
contract. Provided, That in the exercise of their rights
(As amended by Circular No. 754 dated 17 April 2012) and performance of duties, they must
observe good faith and reasonable conduct
§ X320.14 (2011- X320.13) Handling of and refrain from engaging in unscrupulous
complaints. Banks or subsidiary affiliate credit or untoward acts. Without limiting the
card companies shall give cardholders at least general application of the foregoing, the
twenty (20) calendar days from statement following conduct is a violation of this
date to examine charges posted in his/her Subsection:
statement of account and inform the bank/ a. the use or threat of violence or other
subsidiary credit card companies in writing criminal means to harm the physical person,
of any billing error or discrepancy. Within reputation, or property of any person;
ten (10) calendar days from receipt of such b. the use of obscenities, insults, or profane
written notice, the bank/subsidiary credit language which amount to a criminal act or
card company shall send a written offense under applicable laws;
acknowledgment to the cardholder unless c. disclosure of the names of credit
the action required is taken within such ten cardholders who allegedly refuse to pay debts,
(10)-day period. except as allowed under Subsec. X320.9;
Not later than two (2) billing cycles or d. threat to take any action that cannot
two (2) months which in no case shall legally be taken;
exceed ninety (90) days after receipt of the e. communicating or threat to
notice and prior to taking any action to communicate to any person credit information
collect the contested amount, or any part which is known to be false, including failure
thereof, banks/subsidiary credit card to communicate that a debt is being disputed;
companies shall make appropriate f. any false representation or deceptive
corrections in their records and/or send a means to collect or attempt to collect any
written explanation or clarification to the debt or to obtain information concerning a
cardholder after conducting an cardholder; and
investigation. Nothing in this Subsection g. making contact at unreasonable/
shall be construed to prohibit any action by inconvenient times or hours which shall be
the bank/subsidiary credit card company to defined as contact before 6:00 A.M. or after
collect any amount which has not been 10:00 P.M., unless the account is past due for
indicated by the cardholder to contain a more than sixty (60) days or the cardholder
has given express permission or said times are R.A. No. 3765, the following sanctions
the only reasonable or convenient may be imposed:
opportunities for contact. a. First offense. Reprimand on the
Banks and their subsidiary/affiliate erring officer/s;
credit card companies shall inform their b. Second offense. Reprimand on the
cardholder in writing of the endorsement entire board of directors; and
of the collection of their account to a c. Subsequent offense/s:
collection agency/agent, or the endorsement i. Suspension of the erring officer/s
of their account from one (1) collection
and/or entire board of directors; and
agency/agent to another, at least seven (7)
ii. Restriction on lending activities.
days prior to the actual endorsement. The
notification shall include the full name of This is without prejudice to other
the collection agency and its contact details: penalties and sanctions provided under
Provided, That the required notification in Sections 36 and 37 of R.A. No. 7653.
(As amended by Circular Nos. 754 dated 17 April 2012 and 702
writing shall be included in the terms and
dated 15 December 2010)
conditions of the credit card agreement.
Banks and their subsidiary/affiliate credit § X320.17 Submission of credit card
card companies shall adopt policies and business activity report. For purposes of
procedures to ensure that personnel
transparency and availability of data on
handling the collection of accounts, whether
credit card operations and in the light of
these are in-house collectors, or third-party
collection agents, shall disclose his/her full ensuring consumer protection, as well as
name/true identity to the cardholder. managing risks involved in credit
(As amended by Circular No. 754 dated 17 April 2012) transactions, banks including their
subsidiaries and affiliates, shall submit a
§ X320.16 (2011- X320.15) Sanctions monthly quantitative report to Bangko
and penal provisions. Violations of the Sentral covering the following data on credit
provisions of Subsecs. X320.1, X320.5, and card issuers/acquirers, cardholders, credit
X320.7 to X320.14 shall be subject to any card complaints, and usage location:
or all of the following sanctions depending
upon their severity: Credit Card Unit of
a. Disqualification of the bank Issuance Expression
concerned from the credit facilities of the I. Cards-in-force per Number
Bangko Sentral except as may be allowed network/brand
II.Cards-in-force per card Number
under Section 84 of R.A. No. 7653; type
b. Prohibition of the bank concerned from III. Approved credit card Number
the extension of additional credit applications
accommodation against personal security; and IV. Cards issued by status Number
c. Penalties and sanctions provided V. Cards issued per credit Peso amount
under Sections 36 and 37 of R.A. No. 7653. limit
VI. Billings per mode of Peso amount
Non-compliance with the provisions of transactions
Subsecs. X320.2 to X320.4, and X320.6 and VII. Billings per network/ Peso amount
X320.15 shall be regarded at least as a brand
less serious offense, depending on the VIII. Billed fees/charges Peso amount
IX. Gross payment Peso amount
severity of non-disclosure, number of X. Receivables Peso amount
loans and amount involved in the XI. Rates/charges per Peso amount/
violation. In addition to sanctions under cardholder percentage
j. Total loan portfolio shall refer to the property is retained by the bank; and
the sum of all loan accounts outstanding, (8) Customer’s liability-import bills
gross of valuation reserves, as reflected under trust receipts outstanding for not more
in the bank’s consolidated statement of than thirty (30) days from date of booking:
condition, excluding outstanding loans Provided, That the booking under trust
financed by special/specific funds from receipts shall have been made not later than
the government FIs. the thirty-first day from the date of original
k. Secured loan, borrowing or other entry referred to in Item “(6)” above.
credit accommodation shall refer to any l. Unsecured loan, borrowing or other
loan, or credit accommodation or portion credit accommodation shall refer to any
thereof referred to in Sec. X327 which is loan, or other credit accommodation or
secured by: portion thereof referred in Sec. X327 which
(1) Real estate mortgage, chattel is not secured in accordance with Item “k”
mortgage on tangible assets, and pledge of above.
jewelry, precious stones and other valuable (M-2012-016 dated 27 March 2012, As amended by Circular
articles1; Nos. 725 dated 16 June 2011, M-2011-33 dated 15 June 2011,
(2) Assignment of intangible assets such Circular No. 695 dated 22 October 2010 and 560 dated 31
January 2007)
as patents, trademarks, trade names and
copyrights;
(3) Unconditional payment guarantees Sec. X327 Transactions Covered. The terms
such as standby letters of credit and letter loans, other credit accommodations and
of indemnity issued by banks/multilateral FIs; guarantees as used herein shall refer to
(4) Assignment of, or hold-out on, transactions of the bank which involve the
deposits or deposit substitutes maintained grant of any loan, advance or other credit
in the lending bank; accommodation in any form whatsoever,
(5) Cash margin deposits; or whether renewal, extension or increase, and
assignment or pledge of government shall include:
securities or readily marketable bonds and a. Any advance by means of an
other high-grade debt securities and incidental or temporary overdraft, cash item,
“blue-chip” stocks, except those issued by “vale”, etc.;
the lending entity, or by its parent b. Any advance of unearned salary or
company which owns more than fifty other unearned compensation for periods
percent (50%) of its outstanding shares of in excess of thirty (30) days;
stocks, subject to the additional provision c. Any advance by means of DAUDs;
that the issuer corporation has a net worth d. Outstanding availments under an
of at least P1.0 billion and with annual established credit line;
net earnings during the immediately e. Drawings against an existing letter
preceding five (5) years; of credit;
(6) Customer’s liability under import f. The acquisition of any note, draft,
bills outstanding for not more than thirty bill of exchange or other evidence of
(30) days from date of original entry; indebtedness upon which the bank’s
(7) Sales contract receivables arising from DOSRIs may be liable as makers, drawers,
sale of real property on credit where title to acceptors, endorsers, guarantors or sureties;
1
The “real estate mortgage” must be registered with the Registry of Deeds and the “chattel mortgage
on tangible assets” must be registered with the Registry of Deeds or other appropriate registry (e.g.,
Land Transportation Office, in case of motor vehicles, or Maritime Industry Authority, in case of
vesssels) in order for the loan, borrowing or other credit accommodation to be considered secured
under the said regulation.
interest as defined in Item “e”, Subsec. (4) Debt securities issued by the U.S.
X326.1. government;
Other cases of direct/indirect (5) Debt securities issued by central
borrowing shall be resolved on a case-to- governments, central banks of foreign
case basis. countries and multilateral financial
It shall be the responsibility of the institutions such as International Finance
bank concerned to ascertain whether the Corporation, Asian Development Bank and
borrower, guarantor, endorser or surety World Bank, with the highest credit quality
is related or connected with the bank or given by any two (2) internationally accepted
with any of the directors, officers or rating agencies; and
stockholders of the bank in any of the (6) Deposits of clients of related non-
capacities mentioned in Item “e” of governmental organizations (NGOs)/
Subsec. X326.1. foundations, that are engaged in retail
In determining indirect borrowings, as microfinance operations, and are
enumerated above, only those cases maintained with the related lending bank
involving living relatives shall be and held in the Philippines: Provided, That
considered. all of the following conditions are met:
(i) existing regulations on the opening
Sec. X330 Individual Ceilings. The total of deposit accounts and other deposit
outstanding loans, other credit transactions shall apply except when
accommodations and guarantees to each of specifically stated otherwise;
the bank’s DOSRI shall be limited to an (ii) depositors shall issue waivers of
amount equivalent to their respective confidentiality of their deposits and enter
unencumbered deposits and book value of hold-out agreements with the lending bank;
their paid-in capital contribution in the bank: (iii) interest rates on such deposits shall
Provided, however, That unsecured loans, not be more than those of similar type of
other credit accommodations and deposit accounts;
guarantees to each of the bank’s DOSRI shall (iv) collected but undeposited capital
not exceed thirty percent (30%) of their build-up funds from clients shall be recorded
respective total loans, other credit in a temporary liability account in the books
accommodations and guarantees. of related NGOs/foundations and shall be
deposited with the related bank not later
§ X330.1 Exclusions from individual than fifteen (15) calendar days from date of
ceiling. The following loans, other credit collection;
accommodations and guarantees shall be (v) total loans, other credit
excluded in determining compliance with accommodations and guarantees granted to
the individual ceiling. the related NGO/foundation shall not
a. Loans, other credit exceed, at any time, the total deposits
accommodations and guarantees secured by owned by its clients; and
assets considered as non-risk by the (vi) That the NGO/foundation shall
Monetary Board; consider as payments to the clients’
Assets considered as non-risk shall refer obligations any deposits used by the
to the following: lending bank to settle any unpaid
(1) Cash; obligation(s) of the NGO/foundation.
(2) Debt securities issued by the Bangko b. Loans, other credit accommodations
Sentral or the Philippine government; and advances to officers in the form of
(3) Deposits maintained in the lending fringe benefits granted in accordance with
bank and held in the Philippines; existing regulations; and
or agents of others in, any of the transactions of the said director to sign the resolution.
enumerated under Sec. X327: e. Transmittal of copy of board
a. Approval of the board, when to approval; contents thereof. A copy of the
obtain. Except with prior written approval written approval of the board of directors,
of the majority of the directors, excluding as herein required, shall be submitted to
the director concerned, no loan, other the appropriate department of the SES
credit accommodation and guarantee shall within twenty (20) banking days from the
be granted nor shall any of the date of approval. The copy may be a
transactions enumerated under Sec. X327 duplicate of the original, or a reproduction
be entered into. copy showing clearly the signatures of the
b. Approval by the board, how approving directors: Provided, That if a
manifested. The approval shall be reproduction copy is to be submitted, it
manifested in a resolution passed by the shall contain on its face or reverse side a
board of directors during a meeting and signed certification by the secretary that
made of record. it is a reproduction of the original written
c. Determination of majority of the approval: Provided, further, That such
directors. The determination of the majority written approval shall not be required for
of the directors, excluding the director loans, other credit accommodations
concerned, shall be based on the total and advances granted to officers
number of directors of the bank as provided under a fringe benefit plan approved by
in its articles of incorporation and by-laws. the Bangko Sentral.
d. Contents of the resolution. The
resolution of the board of directors shall Sec. X335 Reportorial Requirements. Each
contain the following information: bank shall maintain a record of loans, other
(1) Name of the director or officer credit accommodations and guarantees
concerned and his involvement as regards covered by these regulations in a manner and
the credit accommodation, such as form that will facilitate verification of such
principal, endorser, spouse of borrower, transactions by Bangko Sentral examiners.
etc.; The appropriate department of the SES
(2) Nature of the loan or other credit may require banks to furnish such data or
accommodation, purpose, amount, credit information as may be necessary for
basis for such loan or other credit purposes of implementing the provisions of
accommodation, security and appraisal the foregoing rules.
thereof, maturity, interest rate, schedule of
repayment and other terms of the loan or Sec. X336 Sanctions. Any violation of the
other credit accommodation; provisions of the foregoing rules shall be
(3) Date of resolution; subject to any or all of the following
(4) Names of the directors who sanctions:
participated in the deliberations of the a. Restriction or prohibition on the
meeting; and bank from declaring dividends for
(5) Names in print and signatures of non-compliance with the prescribed ceiling
the directors approving the resolution: on DOSRI until the outstanding loans and
Provided, That in instances where a other credit accommodations have been
director who participated in the board reduced to within the herein prescribed
meeting and who approved such ceilings;
resolution failed to sign, the corporate b. After due notice to the board of
secretary may issue a certification to this directors of the bank, the office of any bank
effect indicating the reason for the failure director or officer who violates the
provisions of this Section may be declared law, whichever is lower, shall be required
vacant and the director or officer shall be by the lending bank to waive the secrecy of
subject to the penal provisions of the New his deposits of whatever nature in all banks
Central Bank Act; in the Philippines. Any information obtained
c. Application of (1) the borrowing from an examination of his deposits
director’s or officer’s share in the bank’s shall be held strictly confidential and may
profit sharing program; and (2) the share of be used by the examiners only in
the director voting for the approval of the connection with their supervisory and
loan or other credit accommodation, against examination responsibility or by the
the excess of such loan or other credit Bangko Sentral in an appropriate legal
accommodation over any of the herein action it has initiated involving the deposit
prescribed ceilings; and account.
d. For the duration of each violation,
imposition of a fine of one-tenth of one Sec. X338 Financial Assistance to Officers
percent (1/10 of 1%) of the excess over the and Employees. Banks may provide financial
ceilings per day but not to exceed P30,000 assistance to their officers and employees, as
a day on the following: part of their fringe benefits program, to meet
(1) The lending bank; the housing, transportation, household and
(2) The director, officer or stockholder personal needs of their officers and employees.
whose borrowing exceeds his individual Financing plans and amendments thereto,
ceiling; and shall be with prior approval of the Bangko
(3) Each of the directors voting for the Sentral1.
approval of the loan or other credit (M-2014-039 dated 01 October 2014, M-2014-031 dated
accommodation in excess of any of the 08 August 2014, M-2014-006 dated 12 February 2014,
M-2013-050 dated 15 November 2013, M-2013-046 dated
ceilings prescribed in Secs. X330 and X331. 30 October 2013, M-2013-045 dated 23 October 2013,
The penalty for exceeding the individual M-2013-040 dated 03 September 2013, M-2013-001 dated
ceiling, aggregate ceiling and ceiling on 14 January 2013, M-2012-060 dated 27 December 2012,
unsecured loans shall be computed on the M-2012-051 dated 09 November 2012, M-2012-044 dated
average amount of loans in excess of said 24 August 2012, M-2012- 042 dated 17 August 2012,
M–2012–001 dated 03 January 2012, M-2011-056 dated
ceilings during the same week. 10 November 2011, M-2011-055 dated 17 October 2011,
M-2011-043 dated 12 August 2011, M-2011- 007 dated 04 February
Sec. X337 Waiver of Secrecy of Deposit 2011, M-2010-039 dated 03 November 2010, M-2010-007 dated
Any director, officer or stockholder who, 23 April 2010, M-2009-040 dated 30 October 2009, M-2009-037
dated 15 October 2009, M-2009-038 dated 08 October 2009
together with his related interest, contracts and M-2009-036 dated 07 October 2009)
a loan or any form of financial
accommodation from: § X338.1 Mechanics. The mechanics of
a. his bank; or such financing plan shall have the following
b. from a bank minimum features:
(1) which is a subsidiary of a bank a. Participation shall be limited to
holding company of which both his bank fulltime and permanent officers and
and the lending bank are subsidiaries; or employees of the bank;
(2) in which a controlling proportion of b. Financial assistance shall only be for
the shares is owned by the same interest the following purposes:
that owns a controlling proportion of the (1) The acquisition of a residential house
shares of his bank, in excess of five percent and lot, or the construction, renovation or
(5%) of the capital and surplus of the bank, repair of a residential house on a lot owned
or in the maximum amount permitted by and to be occupied by the officer or
1
See Appendix 89
maternity, education, emergency and other on the financing plan before the officer/
personal needs of the officer or employee employee is allowed to re-avail him self of
or his immediate family; the same financing plan.
c. Financial assistance for purposes An officer or employee (or his spouse)
mentioned in Items “b(1)” and “b(2)” of this who already owns a residential house and
Subsection shall be granted in the form of a lot shall not be qualified to avail himself of
loan, advance or other credit financial assistance for purposes of
accommodation, installment sale, lease with acquiring a residential house and/or lot.
option to purchase or lease-purchase These prohibitions notwithstanding,
arrangement where the lessee is obliged to financial assistance for the repair or
purchase the real estate or equipment; renovation of a residential house may be
d. The amount and maturity of allowed subject to such limitation as may
financial assistance for each purpose shall be prescribed by the bank pursuant to Item
be determined by the bank in consonance “d “ of this Subsection;
with the normal requirements thereof: g. Availment of the financing plan for
Provided, That the maximum amount shall the acquisition of a specific type of
be stated as percentage or multiple of the equipment or appliance shall be allowed
total monthly compensation of the officer not oftener than once every three (3) years:
or employee and shall be within the paying Provided, That re-availment shall be
capacity of the borrowing officer or allowed only after previous obligations in
employee. connection with the acquisition of the same
Total monthly compensation shall type of equipment or appliances have been
include the basic salary and all fixed and fully liquidated; and
regular monthly allowances of the officer h. The bank shall adopt measures to
or employee. Payments for sickness benefits protect itself from losses such as by
and other special emoluments which are incorporating in the plan or contract
not fixed or regular in nature, or the provisions requiring co-makers or co-signor,
commutation into cash of unused leave chattel, or real estate mortgages, fire
credits shall not be included in the insurance, mortgage redemption insurance,
computation of total monthly compensation; assignment of money value of leave credits,
e. The amortization payment shall pension or retirement benefits.
include amounts necessary to cover
mortgage redemption insurance and fire § X338.2 (Reserved)
insurance premiums, taxes, special
assessments, and other related fees and § 1338.2 Funding by foreign banks. In
charges; the case of local branches of foreign banks,
f. Availment of the financing plan to financial assistance for their officers and
construct or acquire a residential house and employees may be funded, through any of
lot shall be allowed only once during the the following means:
officer’s or employee’s tenure with the a. Through a local affiliate by special
bank, except where the right over the real arrangement with the head office abroad in
estate previously acquired or constructed any of the following forms:
under the financing plan is absolutely (1) Inward remittance from the head
transferred or assigned to another officer or office of the affiliate; or
employee of the bank or to a third party: (2) Assignment to the affiliate of
Provided, That the bank must be fully paid equivalent amounts of profits otherwise
or reimbursed for the outstanding availment remittable abroad under existing
of providing (i) wholesale and retail loans not be excluded in the deliberation as well
to the agricultural sector and micro, small as in the determination of majority of the
and medium enterprises (MSMEs); and/or directors in cases of loans, other credit
(ii) rediscounting and guarantee facilities for accommodations, and guarantees to the
loans granted to the said sector or Republic of the Philippines and/or its
enterprises; agencies/departments/bureaus; and
c. Loans, other credit accommodations, h. A director of the lending institution
and/or guarantees granted to state shall be excluded in the deliberation as well
universities and colleges (SUCs) shall be as in the determination of majority of the
excluded from the thirty percent (30%) directors in cases of loans, other credit
ceiling on unsecured loans under accommodations, and guarantees to the
Secs. X330 and X331. borrowing government entity other than the
d. In view of the fiscal autonomy Republic of the Philippines, its agencies,
granted under R.A. No. 7653 and the departments or bureaus where said director
independence prescribed under the is also a director, officer or stockholder
Constitution, the BSP shall be considered under existing DOSRI regulations.
an independent entity, hence, not a related (Circular No. 514 dated 06 March 2006 as amended by M-2011
-020 dated 30 March 2011, Circular Nos. 635 dated
interest of the Republic of the Philippines
10 November 2008, 616 dated 30 July 2008, 580 dated
and/or its agencies/departments/bureaus. 09 September 2007, and 547 dated 21 September 2006)
Loans, other credit accommodations and
guarantees of the BSP shall be considered: F. MANDATORY CREDITS
(1) non-risk; and (2) not subject to any
ceiling; Sec. X341 Agriculture and Agrarian Reform
e. LGUs shall be considered separate Credit. Pursuant to R.A. No. 10000, The
from the Republic of the Philippines, other Agri- Agra Reform Credit Act of 2009, the
government entities, and from one another following guidelines shall govern the grant
due to the full autonomy in the exercise of of agrarian reform credit by banks,
their proprietary functions and in the government or private.
management of their economic enterprises (As amended by Circular No. 736 dated 20 July 2011)
granted to them under the Local
Government Code of the Philippines, § X341.1 Definition of terms. For
subject to certain limitations provided by purposes of this Section, the following
law, hence, not a related interest of the definitions shall apply:
Republic of the Philippines and/or its a. Accredited rural financial institutions
agencies/departments/bureaus; (Fls) shall refer to Fls like RBs, Coop Banks,
f. Local Water Districts (LWDs), farmer’s cooperatives and farmer’s
although GOCCs, shall be considered cooperative insurance or mutual benefit
separate from the Republic of the associations whose portfolios are
Philippines, other government entities, and substantially agri-agra related and have been
from one another due to their fiscal certified as such either by the BSP, in the
independence from the national case of banks, or by the DA, or by an agency
government, hence, not a related interest of duly-authorized by the DA, in the case of
the Republic of the Philippines and/or its NBFIs.
agencies/department/bureaus, for purposes b. Agrarian reform beneficiaries shall
of these regulations; refer to farmers who were granted lands
g. A director who acts as a government under P.D. No. 27 or the “Emancipation of
representative in the lending institution shall Tenants from the Bondage of the Soil,
Transferring to Them the Ownership of the (iii) acquisition of work animals, farm
Land They Till and Providing the lnstruments and fishery equipment and machinery;
and Mechanism Therefor”, R.A. No. 6657 (iv) acquisition of seeds, fertilizers,
or the “Comprehensive Agrarian Reform poultry, livestock, feeds and other similar
Law” and R.A. No. 9700 or the items;
“Comprehensive Agrarian Reform Extension (v) acquisition of lands authorized under
with Reforms” and regular farmworkers the Agrarian Reform Code of the Philippines
who are landless, irrespective of tenurial and its amendments;
arrangement, who benefited from the (vi) construction, acquisition and repair
redistribution of lands, regardless of crops of facilities for production, processing,
or fruits produced, to include the totality of storage, and marketing and such other
factors and support services designed to lift facilities in support of agriculture and
the economic status of the beneficiaries and fisheries;
all other alternative arrangements to the (vii) efficient and effective merchandising
physical distribution of lands, such as of agricultural and fishery commodities
production or profit-sharing, labor stored and/or processed by the facilities
administration, and the distribution of shares aforecited in domestic and foreign
of stock under the stock distribution option commerce; and
scheme, which will allow beneficiaries to (viii) other activities identified in
receive a just share of the fruits of the lands Section 23 of R.A. No. 8435, otherwise
they work, which farmers and farmworkers known as the “Agriculture and Fisheries
shall be endorsed by the nearest office of Modernization Act of 1997”, as follows:
the DAR. (a) Agriculture and fisheries production
The term shall, likewise, include including processing of fisheries and
registered agrarian reform beneficiaries’ agri-based products and farm inputs;
cooperatives/associations/other farm groups (b) Acquisition of work animals, farm
respectively endorsed as comprising of and fishery equipment and machinery;
agrarian reform beneficiaries by the nearest (c) Acquisition of seeds, fertilizer,
office of the DAR. poultry, livestock, feeds and other similar
c. Agrarian reform credit shall refer to items;
loans granted to agrarian reform (d) Procurement of agriculture and
beneficiaries for agricultural and agrarian fisheries products for storage, trading,
reform purposes. processing and distribution;
d. Agricultural credit shall refer to loans (e) Acquisition of water pumps and
granted to borrowers for agricultural installation of tube wells for irrigation;
purposes. (f) Construction, acquisition and repair
e. Agricultural lessee shall refer to any of facilities for production, processing,
person who, with or without help from his/ storage, transportation, communication,
her immediate farm household, cultivates marketing and such other facilities in
the land owned by another for a certain price support of agriculture and fisheries;
in money, in produce or in both. (g) Working capital for agriculture and
f. Agriculture and agrarian reform credit fisheries graduates to enable them to engage
shall refer to loans granted for the following in agriculture and fisheries-related economic
activities and purposes: activities;
(i) agricultural production; (h) Agribusiness activities which support
(ii) promotion of agribusiness and soil and water conservation and
exports; ecology-enhancing activities;
percent (25%) of their total loanable funds recourse” basis from other banks and Fls.
for agriculture and agrarian reform credit b. Ten percent (10%) mandatory
in general, of which at least ten percent agrarian reform credit allocation through
(10%) of the total loanable funds shall be the following modes of compliance that
made available for agrarian reform are undertaken after 20 April 2010:
beneficiaries. (1) Actual extension of loans to agrarian
Excess compliance in the ten percent reform beneficiaries (gross of allowance
(10%) agrarian reform credit may be used for probable losses), for purposes of
to offset a deficiency, if any, in the fifteen financing agriculture and agrarian reform
percent (15%) other agricultural credit, in activities under Item no. “f” of Subsec.
general, but not vice versa. X341.1, other than (a) loans rediscounted
(As amended by Circular No. 736 dated 20 July 2011) with UBs/KBs, or (b) loans to the extent
funded by proceeds from bonds, in the case
§ X341.4 Direct compliance. Total of DBP/LBP, and/or SDAs and/or wholesale
loanable funds as computed under Subsec. lending of other banks, in the case of BSP-
X341.6 shall be made available by banks accredited rural Fls listed under Item nos.
for agriculture and agrarian reform credit. “a(1)(a)” to “a(1)(c)” above, or
a. Twenty five percent (25%) mandatory (2) Purchase of eligible loans listed in
agriculture and agrarian reform credit Item no. “b(1)” above on a “without
allocation through the following modes of recourse” basis from other banks and Fls.
compliance that are undertaken after (As amended by Circular No. 736 dated 20 July 2011)
20 April 2010:
(1) Actual extension of loans to qualified § X341.5 Allowable alternative
borrowers (gross of allowance for probable compliance. The following alternative
losses), for purposes of financing agriculture modes of compliance to the mandatory
and agrarian reform activities under Item agriculture and agrarian reform credit shall
no.“f” of Subsec. X341.1, other than (1) loans be allowed:
rediscounted with UBs/KBs, or (2) loans to a. Twenty five percent (25%) mandatory
the extent funded by proceeds from any of agriculture and agrarian reform credit
the following: (1) Eligible securities (gross of allowance
(a) Bond issues for the exclusive purpose for probable losses but net of unamortized
of on-lending to the agriculture and agrarian premium or discount) that are issued after
reform sector that have been expressly 20 April 2010:
declared as eligible by the DA, or by an (a) Investment in bonds issued by the
agency duly authorized by the DA, in the DBP and the LBP that have been expressly
case of the DBP/LBP, declared as eligible by the DA, or by an
(b) SDAs maintained for the exclusive agency duly-authorized by the DA, the
purpose of on-lending to the agriculture and proceeds of which shall be used exclusively
agrarian reform sector, in the case of for on-lending to the agriculture and
BSP-accredited rural Fls, or agrarian reform sector;
(c) Wholesale lending of other banks for (b) Investments in other debt securities
the exclusive purpose of on-lending to the that have been declared as eligible by the
agriculture, fisheries and agrarian reform DA, or by an agency duly-authorized by
sector, in the case of BSP-accredited rural the DA, the proceeds of which shall be used
Fls, or to finance activities identified under
(2) Purchase of eligible loans listed in Section 23 of R.A. No. 8435, as defined under
Item no. “(1)” above on a “without Item no. “f(viii)” of Subsec. X341.1; or
(c) Paid subscription of shares of stock (d) Actual extension of loans intended
in the following institutions, subject to for the construction and upgrading of
existing rules and regulations governing infrastructure, including, but not limited to,
equity investments of banks: farm-to-market roads, as well as the
(i) Accredited rural Fls (preferred shares provision of post harvest facilities and other
only); public infrastructure as defined under
(ii) Quedan and Rural Credit Guarantee Subsec. X341.1, for the benefit of the
Corporation (Quedancor); or agriculture and agrarian reform sector;
(iii) Philippine Crop Insurance (e) Actual extension of loans to
Corporation (PCIC). borrowers for purposes of financing
The eligibility of securities under Item activities identified under Section 23 of R.A
“a(1)” shall be subject to the following No. 8435, as defined under Item no.
conditions: “f(viii)” of Subsec. X341.1;
(i) Such securities shall neither be (f) Extension of loans to:
hypothecated, encumbered, earmarked for (i) NFA-registered warehousemen/
any other purposes, sold/lent in repurchase millers/wholesalers for purposes of
agreement/securities lending transactions, financing activities identified under Section
used as additional collateral in repurchase 23 of R.A. No. 8435, as defined under Item
agreements, nor used as collateral by the no. “f(viii)” of Subsec. X341.1; or
borrowing bank in securities borrowing (ii) The NFA: Provided, That the NFA
transactions; shall not use the proceeds of said loans for
(ii) Such securities shall be segregated relending; or
from the bank’s investment portfolio; and (g) Purchase of eligible loans listed
(iii) The securities under ltem nos. under Item nos. “a(2)(b)” to “a(2)(f)” on a
“a(1)(a)” to “a(1)(c)” above shall not be “without recourse” basis from other banks
funded by proceeds from the issuance of and Fls:
bonds under Item no. “a(1)(a)”, in the case Provided, That the loans under Item nos.
of DBP/LBP, and/or SDAs under Item no. “a(2)(d)” to “a(2)(g)” are not rediscounted
”a(2)(a)” and/or wholesale lending of other with UBs/KBs: Provided, further, That the
banks under Item no. “a(2)(b)”, in the case activities identified under Item nos.
of BSP-accredited rural Fls. “a(2)(a)” to “a(2)(g)” shall not be funded by
(2) Loans and other credit (gross of proceeds from the issuance of bonds under
allowance for probable losses) that are Item no. “a(1)(a)”, in the case of DBP/LBP,
granted after 20 April 2010: and/or the acceptance of SDAs under Item
(a) Investments in SDAs of BSP- no. “a(2)(a)” and/or wholesale lending of
accredited rural Fls, the proceeds of which other banks under Item no. “a(2)(b)”, in the
shall be used exclusively for on-lending to case of BSP-accredited rural Fls.
the agriculture and agrarian reform sector; b. Ten percent (10%) mandatory
(b) Wholesale lending granted to agrarian reform credit
accredited rural Fls for the exclusive purpose (1) Eligible securities (gross of allowance
of on-lending to the agriculture and agrarian for probable losses but net of unamortized
reform sector; premium or discount) that are issued after
(c) Rediscounting facility granted by 20 April 2010:
UBs/KBs to other banks covering eligible (a) Investments in bonds issued by the
agricultural and agrarian reform credits, DBP and the LBP that have been expressly
including loans covered by guarantees of declared as eligible by the DA, or by an
the Quedancor or the PCIC; agency duly-authorized by the DA, upon
due consultation and timely coordination Provided, That the loans under Item nos.
with DAR, the proceeds of which shall be “b(2)(d)” to “b(2)(e)”, are not rediscounted
used exclusively for on-lending to agrarian with UBs/KBs: Provided, further, That the
reform beneficiaries; or activities identified under Item nos.
(b) Investment in other debt securities “b(2)(a)” to “ b(2)(e)” shall not be funded
that have been declared as eligible by the by proceeds from the issuance of bonds
DA, or by an agency duly-authorized by the under Item no. “b(1)(a)”, in the case of
DA, upon due consultation and timely DBP/LBP, and/or the acceptance of SDAs
coordination with DAR, the proceeds of under Item no. “b(2)(a)” and/or
which shall be used to finance activities wholesale lending of other banks under
identified under Sec. 23 of R.A No. 8435, Item no. “b(2)(b)”, in the case of BSP-
as defined under Item no. “f(viii)” of accredited rural Fls.
Subsec. X341.1: Provided, That said For purposes of implementing the
activities shall generally benefit agrarian provisions of this Section, the DA, or its
reform beneficiaries. duly-authorized agency, shall furnish the
The eligibility of securities under Item BSP with information on the debt securities
no. “b(1)” shall be subject to the same eligible as alternative compliance with the
conditions required for securities under Item mandatory agri-agra credit.
no. “a(1)”. (As amended by Circular Nos. 736 dated 20 July 2011, 678
(2) Loans and other credits (gross of dated 06 January 2010 and M-2008-015 dated 19 March 2008)
allowance for probable losses) that are
granted after 20 April 2010: § X341.6 Computation of loanable
(a) Investments in SDAs of BSP- funds. Loanable funds shall be computed,
accredited rural Fls, the proceeds of which as follows:
shall be used exclusively for on-lending to a. The net increase from 20 April 2010
agrarian reform beneficiaries; to date of the report of the individual
(b) Wholesale lending granted to accounts booked under the Regular Banking
accredited rural Fls for the exclusive Unit which represent the following:
purpose of on-lending to agrarian reform (1) Total peso deposit (demand, savings,
beneficiaries; now, time and negotiable CTD accounts)
(c) Rediscounting facility granted by excluding:
UBs/KBs to other banks covering eligible (a) Deposits of banks,
agrarian reform credits, including loans (b) Deposits of the National
covered by guarantees of the Quedancor or Government, including its political
the PCIC; subdivisions and instrumentalities, such as,
(d) Actual extension of loans to but not limited to, the BIR, BOC, and LGUs,
borrowers, for purposes of financing and
activities identified under Section 23 of R.A (c) Deposits of government-owned
No. 8435, as defined under Item no. “f(viii)” and-controlled corporations,
of Subsec. X341.1: Provided, That said (2) Bills payable excluding:
activities shall generally benefit agrarian (a) Borrowings from the BSP in the form
reform beneficiaries; or of the following:
(e) Purchase of eligible loans listed (i) rediscounting,
under Item nos. “b(2)(b)” to “b(2)(d)” on a (ii) emergency advances,
“without recourse” basis from other banks (iii) availment of overdraft facilities, or
and Fls: (iv) other obligations,
(a) Net Unrealized Gains/Losses xxx equivalent, that the bank shall comply with
on Available for Sale Financial the regulations, directives and instructions
Assets
(b) Gains/Losses on Fair Value xxx of the BSP; and
Adjustment of Hedging (2) A notarized certification, signed by
Instruments the president and compliance officer or
(c) Cumulative Foreign xxx equivalent, that the bank’s loan portfolio
Currency Translation
(d) Others xxx (xxx)
is substantially agri-agra related.
Total Equity, net of exclusions xxx b. Qualification requirements. A
certificate of accreditation will be issued
In the case of foreign bank branches, the by the appropriate supervising department
total equity for purposes of computing total of the SES to the rural Fl should the rural Fl
loanable funds under Subsec. X341.6 shall satisfy the following criteria based on the
be, as follows: last four (4) quarters prior to application:
Total Equity, exclusive of Due (1) Total loan portfolio is greater than
From/To Head Office/Branches its total investments; and
Agencies Abroad, under RBU xxx
Less: (2) Average credit exposure to agri-
(1)Retained Earnings - agra is greater than any exposure to the
Reserves other economic sectors as reported in
(a) Trust Business xxx Schedule 11.d of the FRP.
(b) Self-Insurance xxx
(c) Contingencies, and xxx
c. Certificate of accreditation. The
(d) Others. xxx (xxx) certificate of accreditation issued to the
(2) Other Comprehensive qualified rural Fl will include an
Income accreditation reference number specific to
(a) Net Unrealized Gains/ xxx the rural Fl, the date of accreditation and a
Losses on Available for Sale
Financial Assets statement that the rural Fl has satisfied the
(b) Gains/Losses on Fair Value xxx above criteria and has sworn to comply
Adjustments Of Hedging with the regulations, directives and
Instruments instructions of the BSP.
(c) Cumulative Foreign xxx
Currency Translation
(1) The rural Fl, once accredited and
(d) Others xxx (xxx) issued with the certificate of accreditation,
(3) Due from Head Office/ (xxx) is required to comply with the following:
Branches/ Agencies Abroad (a) Provide the lending bank with a copy
Add: Due to Head Office/ of the certificate of accreditation with the
Branches/ Agencies Abroad xxx
Total Equity, net of exclusions xxx relevant accompanying details (i.e.,
accreditation reference number and date
(Circular No. 736 dated 20 July 2011) of accreditation); and
(b) Submit on an annual basis to the
§ X341.8 Accreditation of banks as appropriate department of the SES a
rural financial institutions notarized certification, signed by its
a. Application for accreditation. A rural president and compliance officer or
Fl applying for accreditation shall submit equivalent, that its loan portfolio remains
to the appropriate department of the SES a substantially agri-agra related. Such
letter stating its intent to apply for such notarized certification for annual
accreditation together with the following submission by the rural Fl shall be
information/documents: reckoned from the original date of
(1) A notarized undertaking, signed by accreditation and should be received by
the president and compliance officer or the appropriate department of the SES
within ten (10) banking days before the regulations applicable both to the lead
lapse of one (1) year. Non-compliance bank and other participating bank(s).
with the required submission of the Accordingly, the booking of loans shall
annual certification will serve as basis for only be for the amount of actual
the BSP to revoke accreditation of the participation of each syndicate bank
rural Fl. concerned. Memorandum entries,
(2) The lending bank, as part of its references or notations shall be made for
disclosure to the BSP, is required to the other participating bank(s).
include the following in its Agri-Agra (As amended by Circular No. 736 dated 20 July 2011)
report in compliance with the reportorial
requirements of the BSP: § X341.10 Interest and other charges
(a) Name of rural Fl/s and Interest, service fees and other charges shall
corresponding aggregate amount of be governed by existing rules and
exposure to each rural Fl; and regulations.
(As amended by Circular No. 736 dated 20 July 2011)
(b) For each rural Fl in Item “C(2)(a)”,
the accreditation reference number date of § X341.11 Submission of reports. A
accreditation. quarterly report on the compliance with
(3) The exposure of the lending bank to the mandated credit allocation for agri-
the rural Fl shall be eligible for purposes of agra credit under R.A. No. 10000, which
determining compliance with the shall be considered a Category A-3 report,
mandatory agri-agra credit allocation for as shall be submitted to the Supervisory Data
long as the rural Fl remains accredited with Center (SDC) of the SES within fifteen (15)
the BSP. banking days from the end of the
d. Purpose of accreditation. The reference quarter.
accreditation is solely for the purpose of Banks shall submit the revised
ascertaining that the portfolio of the rural Fl reportorial starting with the reporting
is substantially agri-agra related pursuant to period ending 31 December 2011.
R.A. No. 10000 and should not serve as an (M-2011-064 dated 15 December 2011, Circular No. 736 dated
endorsement by the BSP on the soundness 20 July 2011)
of the rural Fl. The accreditation is not
intended to take the place of the conduct of § X341.12 Consolidated compliance
due diligence and prudent credit The compliance with agri-agra mandatory
underwriting standards required from the allocation of funds under R.A. No. 10000
lending bank in determining the credit shall be allowed on a groupwide basis
worthiness of the rural Fl. (i.e., consolidation of parent/foreign bank
(As amended by Circular No. 736 dated 20 July 2011) branch and subsidiary bank/s) so that
excess compliance of any bank in the
§ X341.9 Syndicated type of group can be used as compliance for any
agrarian reform credit/agricultural deficient bank in the group: Provided,
credit. Banks may grant a syndicated That the subsidiary bank/s is/are at least
type of loan for agrarian reform credit/ directly or indirectly majority owned by
agricultural credit in general, either the parent bank and/or head office, in the
between or among themselves. The case of foreign bank branches: Provided,
mechanics, including the recording of further, That the parent bank/foreign bank
such syndicated type of loan transactions, branch shall be held responsible for the
shall follow existing practices and compliance of the group.
The consolidated report shall be agra credit under R.A. No. 10000 in
submitted by the parent bank/foreign bank accordance with the provisions of Subsec.
branch in the prescribed form and shall be X192.2, to be reckoned on the day following
supported by the individual reports of the the due date of submission until the proper
parent bank/foreign bank branch within the report is filed with the BSP: Provided, That
group and subsidiary bank/s duly signed by a bank which fails to submit its agri-agra
each bank’s authorized signatory. quarter-end report up to the submission
(As amended by Circular No. 736 dated 20 July 2011) deadline of the succeeding quarter-end
report, shall be subject to the monetary
§§ X341.13 – X341.14 (Reserved)
penalties applicable to less serious offenses
for willful delay in the submission of the
§ X341.15 Sanctions. The following
agri-agra report under Appendix 67, which
sanctions shall be applicable for any
shall be reckoned on a daily basis from the
violation of this Section:
day following the due date of submission
a. Penalties/sanctions applicable to
of the report until the report is filed with
banks:
the BSP.
(1) Monetary fines
(c) For false/misleading statements
(a) For non-compliance/under-
A bank which has been found to have
compliance
made a false or misleading statement in its
Annual penalty of one-half of one
required report on compliance with the
percent (0.5%) of amount of non-
mandated credit allocation for agri-agra
compliance/undercompliance shall be
credit shall be subject to the monetary
computed on a quarterly basis following this
penalties applicable to less serious offenses
formula:
for willful making of a false or misleading
Penalty = 0.00125 x amount of
statement under Appendix 67, which shall
non-compliance/under-compliance as of the
be reckoned on a daily basis from the day
end of the reference quarter
following the due date of submission of the
Amount of non-compliance/under-
affected report until an amended report has
compliance =
been submitted to the BSP.
(i) ten percent (10%) of total loanable
(2) Non-monetary fines
funds less reported amount of compliance
In addition to the above daily
with the mandatory agrarian reform credit,
monetary fines, any or all of the
plus
administrative sanctions, as provided
(ii) fifteen percent (15%) of total loanable
under Section 37 of R.A. No. 7653, may
funds less reported amount of compliance
be imposed upon any bank for willful
with the mandatory other agricultural credit
delay or refusal to submit reports or willful
in general:
making of a false or misleading statement
Provided, That excess compliance in the
to the BSP, without prejudice to criminal
ten percent (10%) agrarian reform credit may
sanctions against culpable persons
be used to offset a deficiency, if any, in the
provided under Sections 34, 35 and 36 of
fifteen percent (15%) other agricultural
R.A. No. 7653.
credit, in general, but not vice versa.
b. Penalties/sanctions applicable to
(b) For delayed/amended reports
directors/officers concerned of the bank
A bank shall be subject to the fines for
Directors/officers of a bank which have
delayed/amended reports on compliance
been found to have willfully falsely
with the mandated credit allocation for agri-
certified/submitted misleading statements
this purpose refers to any business activity office, plant and equipment are situated,
involving the manufacturing, processing, must have a value falling under the
and/or production of agricultural produce, following categories:
whether single proprietorship, cooperative,
partnership or corporation: Micro : not more than P 3,000,000
Small : more than P 3,000,000 to P 15,000,000
(1) whose total assets, inclusive of those Medium : more than P 15,000,000 to P 100,000,000
arising from loans but exclusive of the land
on which the particular business entity’s and
issuance by the Monetary Board of the reimburse the bank on the same condition
certification, and subject to their loan and as the bank has paid.
investment policies, extend to an RB a loan (As amended by Circular No. 536 dated 18 July 2006)
or loans from time to time, repayable in
ten (10) years, with concessional rates of § X347.2 Ceiling
interest, against security/ies which the (Deleted by Circular No. 773 dated 13 November 2012)
stockholder or stockholders of the RB may
offer. § X347.3 Reports
(Deleted by Circular No. 773 dated 13 November 2012)
Secs. X345 - X346 (Reserved)
Sec. X348 Committed Credit Line for
Sec. X347 Standby Letters of Credit. The Commercial Paper Issues. The following
following shall govern the issuance of guidelines shall govern committed credit
standby letters of credit. line agreements as a prerequisite for
corporations proposing to issue
§ X347.1 Domestic standby letters of commercial paper, pursuant to the New
credit. Domestic standby letters of credit Rules on the Registration of Short-Term
may be issued or used in transactions Commercial Papers (Appendix 14).
other than those involving movement of
goods under the following guidelines: § X348.1 Who may grant line facility
a. The bank’s obligation to pay shall A bank with a net worth of at least P1.0
be either unconditional (as against billion as defined in Sec. X111, may
presentation of a clean draft) or provide a committed credit line facility to
conditional only upon the presentation of a commercial paper issuer.
documents and not upon actual existence The bank shall exercise proper caution
or non-existence of facts, i.e., the bank in ascertaining that the party, in whose
must not be called upon to determine favor the credit line shall be granted, is
disputed questions of facts or law; capable of fulfilling his commitments to
b. The bank’s obligation shall be the bank under the credit line agreement.
limited to a fixed maximum amount; A bank or a group of banks may enter
c. The bank’s obligation shall have into a committed credit line agreement
an expressed expiration date; with any corporation proposing to issue
d. The standby letters of credit commercial paper. Where a group of
accommodation shall not violate any law banks is involved, a lead bank shall be
or existing Bangko Sentral directives, rules designated from among themselves.
and regulations, such as the SBL and
DOSRI ceilings; § X348.2 Ceilings. The aggregate
e. The party who opened the standby commitments under committed credit line
letters of credit or the ultimate borrower agreements entered into by each bank
shall not have any past due obligation with pursuant to this Section shall not exceed
the issuing bank for the ninety (90)-day an amount equivalent to thirty percent
period preceding the date of issuance of (30%) of its net worth, reckoned as of the
the letter of credit; and date of execution of the latest agreement:
f. The party who opened the letter Provided, That in no case shall a bank
of credit (borrower or principal obligor) extend commitments to a single issuer for
must have an unqualified obligation to more than twenty-five percent (25%) of its
net worth exclusive of other exposures to resolution shall also provide for the
the said issuer. designation of the alternate signatories
who shall likewise be a member of the
§ X348.3 Terms; conditions; board of directors and a senior financial
restrictions. The committed credit line officer of the corporation;
agreement shall incorporate the following f. That the extent of the commitment
terms, conditions and restrictions: of each participant in a group of banks
a. That the credit line agreement is under a credit line agreement shall be
executed pursuant to the provisions of this stipulated in the agreement; and
Section; g. That the commitment of the bank
b. That the bank or banks are under the credit line agreement shall be a
committed to make available to the issuer net risk to the bank and the practice of
funds equivalent to at least twenty percent requiring the commercial paper issuer to
(20%) of the aggregate of the commercial maintain a compensating deposit with the
paper issued and outstanding at any time; bank shall be prohibited.
c. That the commitment of the bank
or banks shall be firm and irrevocable and § X348.4 Reports to the Bangko
effective for as long as the issues under a Sentral. The bank or the lead bank, as the
particular permit are outstanding, subject case may be, shall report to the Bangko
to renewal by the bank; Sentral:
d. That availments pursuant to the a. All commitments entered into with
credit line agreement shall be for the commercial paper issuers within ten (10)
exclusive purpose of meeting obligations banking days after the issuer shall have
arising from commercial paper issues in been authorized by the SEC; and
accordance with the provisions of the b. Any availment under the
Rules on Registration of Commercial committed credit line agreement within
Papers, which availments shall be three (3) banking days from date of
honored not earlier than three (3) banking drawdown.
days prior to the date of payment of
obligation arising from outstanding § X348.5 Loan limit. The liabilities of a
commercial paper; commercial paper issuer to a bank arising
e. That the request to avail of the from the availment by the issuer of the credit
credit line agreement shall be addressed line agreement shall not be counted in
to the bank or to the lead bank acting for determining compliance by the bank with
a group of banks, which request shall be the SBL for a period of ninety (90) calendar
duly signed by a member of the board of days from each availment of the credit line1:
directors and a senior ranking officer of Provided, That in no case shall they exceed
the commercial paper issuer duly five percent (5%) of the net worth of the
authorized for the purpose through an bank beyond the normal applicable SBL.
appropriate board resolution, which (As amended by Circular No. 784 dated 25 January 2013)
1
This shall cover all new underwritten debt and equity securities issued from 15 February 2013.
Sec. X349 Agriculture and Fisheries Projects § X349.5 Non-performing loans. The
with Long Gestation Periods. Pursuant to rule on non-performing loans under Sec.
Section 24 of R.A. No. 8435 (Agriculture and X309 shall apply except that the reckoning
Fisheries Modernization Act of 1997), date shall be the grace period and not the
agriculture and fisheries projects with long original maturity of the loan.
gestation periods shall be entitled to longer
grace periods in repaying the loan based on Secs. X350 - X360 (Reserved)
the economic life of the project. For purposes
of this Section, the following definitions and Sec. X361 Microfinance Loans. Pursuant to
guidelines shall govern the grant of loans for Sections 40, 43 and 44 of R.A. No. 8791
long-gestating agriculture and fisheries the following rules, regulations and
projects. standards shall govern microfinancing
operations of banks.
§ X349.1 Definition of terms In the implementation of this Section,
a. Gestation period shall refer to the banks should be guided by the Notes on
span of time from the commencement of Microfinance in Appendix 45.
the project to the time that it is (As amended by Circular Nos. 841 dated 04 July 2014,
economically productive and producing 782 dated 21 January 2013,744 dated 28 December 2011,694
dated 14 October 2010 and 607 dated 30 April 2008)
revenues; and
b. Grace period under this Section
§ X361.1 Definition
shall refer to the period that the initial
a. Microfinance loans refer to the
amortization payment on the loan is
amortized cost of loans granted under the
deferred. All payments, however, must be
bank’s microfinance loan products that meet
made on or before the maturity of the loan.
the general features provided under
Appendix 45, Item “e”.
§ X349.2 Grace period. Banks are
b. Past Due/Portfolio-at-Risk (PAR) is
allowed to extend loans/guarantees with a
the outstanding principal amount of all loans
grace period of up to seven (7) years to
that have at least one (1) installment past
viable long-gestating agriculture and
due for one (1) or more days. The amount
fisheries projects.
includes the unpaid principal balance but
Suggested gestation and grace periods
excludes accrued interest. Under PAR, loans
for some of the long-gestating projects are
are considered past due if a payment has
in Appendix 36.
fallen due and remained unpaid. Loan
payments are applied first to any interest
§ X349.3 Responsibility of lending
due, then to any installment of principal that
banks. Lending banks shall institute the
is due but unpaid, beginning with the earliest
necessary safeguards and precautions to
installment. The number of days of lateness
ascertain the viability of the projects financed
is based on the due date of the earliest loan
and the capability of the borrower in
installment that has not been fully paid.
fulfilling his commitments.
c. Restructured loans are loans that have
been renegotiated or modified to either
§ X349.4 Past due loans. The rule on
lengthen or postpone the original scheduled
past due accounts under Sec.X306 shall
installment payments or substantially alter the
apply except that the reckoning date shall
original terms of the loans. Any increase in
be the grace period and not the original
the face amount of the debt resulting from
maturity of the loan.
accrued interest and accumulated charges
which have been capitalized or made part of be reversed and no accrual of interest shall
the principal of restructured loans shall be be allowed after the microfinance loan has
recorded in the unearned income/deferred become past due as defined in
credit account “Capitalized Interest and Other Subsec. X306.1(h).
Charges - Restructured Loans”. Upon receipt
of payment, the realized portion shall be § X361.3 Credit information exemption
amortized/credited to income. In cases of microfinancing loans which meet
d. Refinanced loans are loans that have the criteria in Subsec X361.2, a bank may
been disbursed to enable repayment of prior not require from its credit applicants, a
loans that would not have been paid in statement of assets and liabilities, and of
accordance with the original installment their income and expenditures and such
schedule. Loans granted within a week or information as may be prescribed by law
less from the date an original loan with more or by rules and regulations of the Monetary
than thirty percent (30%) of the original Board to enable the bank to properly
principal still outstanding had been paid in evaluate the credit application which
advance shall be considered as refinanced includes the corresponding financial
loans. Refinanced loans shall be classified statements submitted for taxation purposes
and reported as restructured loans. to the BIR, as prescribed under Section 40
(Circular No. 272 dated 30 January 2001, as amended by Circular of R.A. No. 8791.
Nos. 836 dated 13 June 2014, 694 dated 14 October 2010,
607 dated 30 April 2008, and 409 dated 14 October 2003) § X361.4 Exemptions from rules on
unsecured loans. In view of the unique
§ X361.2 Loan limit; amortization; characteristics of microfinance loans, i.e.,
interest small unsecured and based on cash flow of
a. The maximum principal amount of borrowers, these loans may be exempted
microfinance loans shall not exceed from rules and regulations which may be
P150,000. This is equivalent to the issued by the Monetary Board with respect
maximum capitalization of a to unsecured loans under Section 41 of the
microenterprise under R.A. No. 8425. General Banking Law of 2000: Provided,
b. The schedule of loan amortization That the bank has:
shall take into consideration the projected a. well-defined standards, credit policies
cash flow of the borrowers which is and procedures for microfinance loans
adopted into the terms and conditions which are in conformity with microfinance
formulated. Hence, microfinance loans may international best practices;
be amortized on a daily, weekly, bi-monthly b. specific measures to be undertaken
or monthly basis, depending on the cash to ensure collection such as close
flow conditions of the borrowers. supervision of borrowers’ projects and
c. Interest on such microfinancing operations; and
loans shall be reasonable and just as may c. Loan Portfolio and Other Risk Assets
be determined by management to be Review System required under Sec. X302
consistent with its credit policies. which would serve as:
The interest rate shall not be lower than the (1) An adequate loan tracking system
prevailing market rates to enable the lending that allows daily monitoring of the status of
institution to recover the financial and loan releases, collection and arrearages, any
operational costs incidental to this type of restructuring or refinancing; and
microfinance lending. (2) A regular monitoring of past due
d. Interest accrued and/or booked shall loans and portfolio at risk.
management system compensates for the after the lapse of one examination cycle,
additional risks involved. the granting of micro-agri loan shall be
E. Regulatory treatment. The micro-agri deemed suspended effective on the day
loan product will be considered as after the exit conference, during which the
microfinance loan and will have the same management shall be informed of its
regulatory treatment as provided by existing failure to make proper corrective actions
microfinance regulations. within the prescribed period. While the
F. Reportorial requirement. Notarized suspension is in effect, the bank’s
certificate of compliance. The bank transactions shall be limited to the
president or officer of equivalent rank and collections of outstanding micro-agri loan
the compliance officer shall submit a receivables.
notarized certificate of compliance, For the purpose of this provision, one
attesting that the bank meets the minimum examination-cycle is defined as the period
prudential requirements and that the commencing from the date the bank is
micro-agri loan complies with the formally informed of the findings/exceptions
prescribed product characteristics/ of the last general examination up to the date
features. (Appendix 102) of the exit conference of the immediately
The notarized certificate shall be succeeding general examination.
submitted within fifteen (15) banking days 4. Other sanctions. The imposition of
from the date of meeting of the board of the foregoing sanctions shall be without
directors approving the micro-agri loan prejudice to the imposition of other
product. administrative sanctions, as provided in
G. Sanctions. In case of non- other regulations in this Manual.
compliance, the bank shall be subject to the (Circular No. 680 dated 03 February 2010, as amended by
following: Circular Nos. 817 dated 06 November 2013 and 748 dated 13
1. In case the submitted certificate of February 2012)
compliance is found later, during on-site
examination, to be erroneous and/or untrue, § X361.8 (Reserved)
the bank may be sanctioned under Sec. 37
of R.A. No. 7653 for willful making of a § 1361.8 (Reserved)
false or misleading statement.
2. In addition to the above-mentioned § 2361.8 Marketing, sale and servicing
penalty, subject bank shall not be allowed of microinsurance products by thrift
to grant any new micro-agri loan and its banks. A TB including its authorized branch/
transaction shall be limited only to the es, extension office/s and OBOs shall
collection of outstanding micro-agri loan comply with Sec. 2172 for the presentation,
receivables. This prohibition shall remain marketing and sale of micro insurance
until bank’s compliance with the prescribed products.
regulations are verified to be in order by (Circular No. 683 dated 23 February 2010)
the appropriate department/group of the SES.
3. Banks, with certificates of compliance, § 3361.8 Marketing, sale and servicing
found to be in order shall continue to comply of microinsurance products by rural and
with the prescribed prudential requirements. cooperative banks. An RB/Coop banks
If found later on that the bank is non-compliant including its authorized branch/es, extension
with any or all of the requirements, it shall be office/s and OBOs shall comply with Sec.
given one examination cycle to correct any 3172 for the presentation, marketing and
deficiency. If the bank remains non-compliant sale of micro insurance products.
(Circular No. 683 dated 23 February 2010)
Quedancor shall report annually to the e. It has exceeded the individual and
appropriate Committees of both Houses of aggregate ceilings as well as the ceiling on
Congress, the status of their implementation unsecured credit accommodations to
of the provisions of Section 9 of R.A. No. DOSRI; and
9178. f. Its ratio of past due loans to total loan
portfolio exceeds twenty percent (20%).
§ X365.9 Administrative sanctions
Any violation by the concerned government §§ X376.2 - X376.4 (Reserved)
FI of the provisions of Section 9 of R.A. No.
9178 shall be subject to a fine of not less § X376.5 Guidelines for major
than P500 thousand to be imposed by the investments. The following are the
Bangko Sentral and which shall be payable guidelines for major acquisitions or
to the BMBE Development Fund. In case of investments by a bank including corporate
a banking institution, the foregoing fine shall affiliations or structures to implement
be without prejudice to the administrative Section 50 of R.A. No. 8791.
sanctions provided for under Section 37 of a. Definition. Major investments are those
R.A. No. 7653. investments in allied or non-allied
undertakings including corporate affiliations
Secs. X366 - X375 (Reserved) or structures that give the bank significant
interest and/or control, such as stockholdings
H. EQUITY INVESTMENTS sufficient to elect one (1) member to the
acquired entity’s board of directors.
Sec. X376 Scope of Authority. The following b. Criteria for major investments.
rules shall govern the investment of banks Any major investment by a bank should be
in the equities of allied undertakings, approved by the bank’s board of directors.
whether financial or non-financial, and non-
In acting on such investments the Board
allied undertakings, as well as the
shall consider the following:
establishment/acquisition of subsidiaries
(1) Such investment must be in
and affiliates abroad.
accordance with the bank’s business plan
and management objectives, taking into
§ X376.1 Conditions for investment in
consideration the economic developments
equities. A bank shall not invest in the equity
and future prospects. The interests of the
of any enterprise, if the investing bank is in
different stakeholders of the bank -
any of the following situations:
shareholders, depositors and creditors -
a. Its capital is impaired, whether by
should always be considered before any
actual losses or unbooked valuation reserves
required by the Bangko Sentral; investment is made.
b. Its lending operations had been (2) Such investments will complement/
suspended on account of reserve or capital support the main business of the banks.
deficiency, until such suspension shall have Extra caution should be taken when
been lifted for at least one (1) year and investing in activities where the bank has
sufficient reserves or capital shall have been no managerial or technical expertise, or
maintained; businesses/industries, which are high-risk.
c. It incurred losses from its operations (3) Bank management shall provide for
during the preceding year; an efficient and effective “exit
d. It has not fully booked the valuation mechanism” or contingency plan in case
reserves and other capital adjustments the investee’s operations fail or do not
required by the Bangko Sentral; prosper.
c. Prior Bangko Sentral approval; The Bangko Sentral shall have the
information/ documents required. Subject to authority to seek corrective action, to issue
prior approval of the Bangko Sentral, banks orders to terminate activities with or divest
may invest in allied or non-allied undertakings, an interest in an investee company, if it
including corporate affiliations or structures. believes that such action is necessary to
A bank intending to make such investment prevent or redress unsafe or unsound
shall submit the following information/ practice by such company that poses a
documents to the appropriate department material risk to the financial safety,
of the SES for evaluation: soundness or stability of a bank.
(1) Name of the company; (As amended by Circular No. 671 dated 27 November 2009)
(2) Type of business activities;
(3) Board of directors’ approval on such Sec. X377 Financial Allied Undertakings
investments; With prior Bangko Sentral approval, banks
(4) Certification from the bank’s board may invest in equities of the following
of directors that the criteria enumerated in financial allied undertakings, subject to the
Item “b” are complied with; limits prescribed under Sec. X378:
(5) Management contract; a. Leasing companies including
(6) Financial information and other leasing of stalls and spaces in a
information about financial strengths, e.g., commercial establishment: Provided, That
projected balance sheet and income bank investment in/acquisition of shares
statements for the first three (3) years; of such leasing company shall be limited/
(7) Members of the board and senior applicable only in cases of conversion of
management; outstanding loan obligations into equity;
(8) Interest to be held by the bank and the b. Banks;
manner in which such interest will be held; and c. IHs;
(9) Conformity of the investee company d. Financing companies;
for Bangko Sentral to examine its books. e. Credit card companies;
The Bangko Sentral may impose f. FIs catering to small and medium
conditions on any approval, including scale industries including venture capital
conditions to address financial, managerial, corporation (VCC), subject to the
safety and soundness, compliance, or other provisions of Sec. X379 and its
concerns. Further, the Bangko Sentral may
subsections;
disapprove a proposed investment if it finds
g. Companies engaged in stock
that the proposal would constitute an unsafe
brokerage/securities dealership; and
and unsound practice, or would violate any
h. Companies engaged in foreign
law, regulation, Monetary Board directive,
exchange dealership/brokerage.
or any condition imposed by, or written
In addition, UBs may invest in the
agreement with, the Bangko Sentral.
following as financial allied undertakings:
The Bangko Sentral may prescribe other
guidelines/regulations as it may consider (1) Insurance companies; and
necessary to ensure that banks’ major (2) Holding company: Provided, That
investments do not expose the banks to the investments of such holding company
undue risks or hinder effective supervision. are confined to the equities of allied
d. Examination and inspection. undertakings and/or non-allied
Whenever deemed necessary, Bangko undertakings of UBs allowed under
Sentral shall have the authority to examine Bangko Sentral regulations.
investee companies or to verify information The Monetary Board may declare such
provided by other supervisory authorities other activities as financial allied
such as the SEC. undertakings of banks.
ACTIVITIES INVESTOR
Allied Enterprises UB KB TB RB Coop Banks
Financial Allied Publicly- Not Publicly- Not
Undertaking listed listed listed listed
exceeded P4.0 million, may be maintained (3) Safe deposit box companies;
but shall not be increased. (4) Companies primarily engaged in
the management of mutual funds but not in
§ X379.3 Business name of venture the mutual funds themselves;
capital corporations. A VCC shall be (5) Management corporations engaged
known by any name not otherwise or to be engaged in an activity similar to the
appropriated: Provided, however, That the management of mutual funds;
words “venture capital corporation” are (6) Companies engaged in providing
made a part thereof. computer services;
(7) Insurance agencies/brokerages;
§ X379.4 Reportorial requirements; (8) Companies engaged in home
examination by Bangko Sentral. A VCC in building and home development;
which a bank owns equity shall be (9) Companies providing drying and/
subject to BSP reportorial requirements or milling facilities for agricultural crops
prescribed for non-bank financial such as rice and corn;
intermediaries and may be subject to (10) Service bureaus, organized to
examination by the BSP. perform for and in behalf of banks and NBFIs
the services allowed to be outsourced
§ X379.5 Interlocking directorships enumerated in Sec. X162: Provided, That
and/or officerships. Subject to prior data processing companies may be allowed
approval of the Monetary Board, a person to invest up to forty percent (40%) in the
may concurrently hold the position of a equity of service bureaus;
director or officer in a bank and a VCC. (11) Philippine Clearing House
Corporation (PCHC), Philippine Central
Sec. X380 Non-Financial Allied Undertakings Depository, Inc. and Fixed Income
A bank may acquire up to 100% of the Exchange; and
equity of a non-financial allied undertaking: (12) Such other similar activities as the
Provided, That the equity investment of a Monetary Board may declare as
TB/RB in any single enterprise shall remain non-financial allied undertakings of banks.
less than fifty percent (50%) of the voting UBs may further invest in health
shares in that enterprise: Provided, further, maintenance organizations (HMOs).
That prior Monetary Board approval is In addition, TBs may also invest in the
required if the investment is in excess of forty equities of companies enumerated in Item
percent (40%) of the total voting stock of “b” of this Section.
such allied undertaking. b. RBs/Coop Banks
The determination of whether the RBs/Coop Banks may invest, as a non-
corporation is engaged in a non-financial financial undertaking, in the equities of
allied undertaking shall be based on the companies engaged in the following:
primary purpose as stated in its articles of (1) Warehousing and other postharvest
incorporation and the volume of its principal facilities;
business. (2) Fertilizer and agricultural chemical
a. UBs/KBs/TBs and pesticides distribution;
UBs/KBs and TBs may invest in equities (3) Farm equipment distribution;
of the following non-financial allied (4) Trucking and transportation of
undertakings: agricultural products;
(1) Warehousing companies; (5) Marketing of agricultural products;
(2) Storage companies; (6) Leasing;
than sixty (60) days after the date of reserves and other capital adjustments, if
payment. For purposes of this Subsection, any; and
re-investment of said dividend proceeds or (3) Its operations in the preceding
deposits/placements thereof in accounts of three (3) years were profitable; otherwise,
the investor banks with foreign the feasibility study on the proposed
correspondent banks abroad shall be subsidiary should show profits in the first
deemed compliance with the requirements two (2) years of operations.
of this Subsection; c. The application for authority of a
e. The proposed subsidiary or bank subsidiary shall be accompanied by
affiliate shall submit the reports required the following:
by the Bangko Sentral; (1) Certified true copy of the resolution
f. The proposed subsidiary or authorizing the investment by the board of
affiliate shall not carry any of the business directors of the parent bank and the bank
of a bank contemplated within the context subsidiary;
of the Philippine banking system; (2) Feasibility studies on the proposed
g. The proposed subsidiary or affiliate subsidiary indicating, among others, the
shall not engage in stock trading activity; economic justification, the type of industry
h. The applicant shall submit a and organizational expenses to be incurred,
certification from the host country that the duly including the capital expenditures; and
authorized personnel/examiners of the Bangko (3) Proposed organizational structures,
Sentral will be authorized to examine the including the proposed officers and their
proposed subsidiary or affiliate; and qualifications.
i. The applicant shall defray the d. The applicant parent subsidiary
necessary cost and expenses to be shall comply with the licensing
incurred by the appropriate department requirements of the host country and the
of the SES in the examination of the necessary license to operate shall be
foreign subsidiary. secured from the appropriate government
(As amended by Circular No. 692 dated 23 July 2010) agency of the host country;
e. The proposed subsidiary may
§§ X382.4 - X382.7 (Reserved) invest in another subsidiary with prior
approval of the Bangko Sentral;
§ X382.8 Investment of a bank subsidiary f. Any outward investment
in a foreign subsidiary. The following representing initial capital and other
guidelines shall govern the investment in a outlays shall be subject to existing
foreign subsidiary by a bank subsidiary: regulations;
a. The investment of a bank g. At least fifty percent (50%) of the
subsidiary in the equity of a subsidiary yearly net profits of the proposed
located abroad shall be subject to prior subsidiary shall be declared and paid as
Bangko Sentral approval; cash dividends to the parent subsidiary;
b. The bank subsidiary may invest in h. The proposed subsidiary shall be
a subsidiary if it meets the following subject to -
pre-qualification requirements: (1) the applicable reportorial
(1) It has complied with the minimum requirements such as the submission of
capital requirement of the host country; quarterly SOC and SIE; and
(2) It has booked the required valuation (2) the supervision and examination
by the Bangko Sentral and the cost of such such acquisition not later than ninety (90)
examination shall be charged against the banking days from 20 December 2009:
grandparent bank; and Provided, That said confirmation shall be
i. Any additional funding or advances subject, among others, to the condition
of the parent bank in the Philippines to its that such shares of stock shall be disposed
subsidiaries abroad or the subsidiary will of within a reasonable period not to
require prior Bangko Sentral approval. exceed five (5) years from the date of
acquisition thereof.
Sec. X383 Other Limitations and (As amended by Circular Nos. 822 dated 13 December 2013,
784 dated 25 January 2013, 671 dated 27 November 2009 and
Restrictions. The following limitations and 581 dated 14 September 2007)
restrictions shall also apply regarding equity
investments of banks. Sec. X384 (Reserved)
a. In any single enterprise. The equity
investments of UBs and KBs in any single Sec. X385 Sanctions. The following
enterprise shall not exceed at any time sanctions shall be imposed for equity
twenty-five percent (25%) of the net worth investments made without prior Monetary
of the investing banks as defined in Sec. Board approval:
X111 and Subsec. X105.4.b. a. First offense - If the investment
b. A g g r e g a t e l i m i t s . T h e t o t a l is not allowable under existing
amount of investments in equities in all regulations, divestment of the
enterprises shall not exceed the investment and reprimand on officer/
following ratios in relation to the net director who recommended/approved
worth of the investing bank: the investment.
UB KB TB RB Coop Bank
b. Subsequent offense -
LIMIT: 50% 35% 25% 25% 25% On the Bank. If the investment is not
allowable under existing regulations,
c. Exclusion of underwriting exposure divestment of the investment.
from ceiling. The exposure of a bank with On the director/officer. Fine of P20,000
UB authority arising from the firm for each investment to be imposed on the
underwriting of equity securities of members of the board and the executive
enterprises shall not be counted in officers who recommended/approved the
determining compliance with the ceilings investment per investment and to be
prescribed in this Section and Subsec. shouldered personally by the officer/
1381.2 for a period of ninety (90) calendar director: Provided, That if the subsequent
days from the issuance of such equity offense is an investment in a non-allied
securities1. enterprise, the fine shall be P40,000.
d. The guidelines in determining
compliance with the other limitations and I. (RESERVED)
restrictions on equity investments of
banks are shown in Appendix 79. Secs. X386 - X387 (Reserved)
Banks with acquired shares of stock
in excess of limits provided in this Section J . OTHER OPERATIONS
which have not been previously confirmed
by the Monetary Board shall seek Sec. X388 Purchase of Receivables and
confirmation of the Monetary Board of Other Obligations. The following
1
It shall cover all new underwritten debt and equity securities issued from from 15 February 2013.
regulations shall govern the purchase of promissory notes resulting from the
receivables and other obligations. purchase of receivables on a without
recourse basis shall be subject to the SBL
§ X388.1 Yield on purchase of of the bank: Provided, That the bank shall
receivables. The rate of yield, including evaluate the credit worthiness of the maker
commissions, premiums, fees and other of such promissory notes.
charges, from the purchase of receivables
and other obligations, regardless of § X388.3 Purchase of commercial
maturity, that may be charged or received paper. Before purchasing registered
by banks shall not be subject to any commercial paper, banks authorized to
regulatory ceiling. engage in quasi-banking functions shall -
a. Require the issuing entity to
§ X388.2 Purchase of receivables on submit a duly certified true copy of its
a “without recourse” basis. The total Certificate of Registration and Authority
exposure of a bank to a maker of to Issue Commercial Paper; and
1
The Penalties and Sanctions provided shall be imposed on FIs and officers concerned found to have violated
any of the provisions of Secs. 3 and 4 of App. 97
07 January 2011, 670 dated 18 November 2009, 628 dated 31 Deposit Account (SDA) Facility. The SDA
October 2008, 626 dated 23 October 2008 and 585 dated 15 facility is a monetary policy instrument
October 2007, M-2007-006 dated 28 February 2007; Circular
Nos. 558 dated 22 January 2007, 546 dated 17 November 2006
deployed by the Bangko Sentral for the
and 509 dated 01 February 2006) purpose of managing excess domestic
liquidity in the financial system. It should
Sec. X389 (Reserved) not be made available for opportunistic
investment activities funded from non-
Sec. 1389 Guidelines on the Investment resident sources. Further, placement in
of Universal Banks and Commercial SDA facility is contractual in nature and
Banks in Credit-Linked Notes, Structured thus shall be governed by the intent of the
Products and Securities Overlying contracting parties. In keeping with the
Securitization Structures. In line with the nature of this facility, all banks and trust
policy of encouraging banks to diversify departments, which are counterparties of
their investment portfolios and to foster the Bangko Sentral, shall comply with the
the development of a market for new Guidelines on the Prohibition Against
financial products, the Bangko Sentral has Non-Residents from Investing in the SDA
issued guidelines on the investment of Facility shown in Appendix 78b.
UBs and KBs in (1) CLNs and similar (M-2012-034 dated 13 July 2012)
products (Sec. 1628), (2) foreign currency
denominated structured products (Secs. Sec. 2390 Prohibition Against Non-
1635 and 1636) and (3) securities overlying Residents from Investing in the SDA
securitization structures (Sec. 1648). Facility. The SDA facility is a monetary
No prior Bangko Sentral approval is policy instrument deployed by the Bangko
required to enter into authorized Sentral for the purpose of managing excess
transactions. However, it shall be the domestic liquidity in the financial system.
responsibility of UBs/KBs to fully comply It should not be made available for
with appropriate risk management opportunistic investment activities funded
standards including, as a minimum, those from non-resident sources. Further,
prescribed under relevant Sections. The placement in SDA facility is contractual
regulatory requirements enumerated in in nature and thus shall be governed by
Appendix 66 shall be fully complied with the intent of the contracting parties. In
by UBs/KBs investing in products allowed keeping with the nature of this facility, all
under Secs./Subsec. 1628, 1635 and banks and trust departments, which are
X115.3. counterparties of the Bangko Sentral, shall
The guidelines on the accounting for comply with the Guidelines on the
investments in CLNs and other SPs, in Prohibition Against Non-Residents from
addition to those prescribed under PAS 39, Investing in the SDA Facility shown in
Appendix 78b.
is provided in Appendix 66a.
(M-2012-034 dated 13 July 2012)
(As amended by Circular No. 708 dated 01 January 2011 and
M-2008-010 dated 07 March 2008) Sec. 3390 (Reserved)
Sec. 2389 - 3389 (Reserved) Secs. X391 - X392 (Reserved)
Sec. X390 (Reserved) K. MISCELLANEOUS PROVISIONS
Sec. 1390 Prohibition Against Non- Sec. X393 Loans-to-Deposits Ratio. The
Residents from Investing in the Special following policies and guidelines shall
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013)
Manual of Regulations for Banks Part III - Page 75
§§ X394.2 - X394.3
13.12.31
f. Claims arising from deficiency testing, which shall be reckoned from the
judgments rendered in connection with the time of acquisition.
foreclosure of mortgaged properties shall be (As amended by Circular Nos. 555 dated 12 January 2007 and
lodged under the real account “Deficiency 520 dated 20 March 2006)
Judgment Receivable”; while probable
claims against the borrower arising from the § X394.3 Sales contract receivable
foreclosure of mortgaged properties shall be a. Sales Contract Receivable (SCR)
lodged under the contingent account shall be recorded based on the present
“Deficiency Claims Receivable”. value of the installments receivables
g. Appraisal of properties. Before discounted at the imputed rate of interest.
foreclosing or acquiring any property in Discount shall be accreted over the life of
settlement of loans, it must be properly the SCR by crediting interest income using
appraised to determine its true economic the effective interest method. Any
value. If the amount of ROPA to be booked difference between the present value of
exceeds P5.0 million, the appraisal must the SCR and the derecognized assets shall
be conducted by an independent appraiser be recognized in profit or loss at the date
acceptable to the Bangko Sentral. An in- of sale in accordance with the provisions
house appraisal of all ROPAs shall be made of PAS 18 “Revenue”: Provided,
at least every other year: Provided, That furthermore, That SCR shall be subject to
immediate re-appraisal shall be conducted impairment provision of PAS 39.
on ROPAs which materially decline in value. The provisions of this Subsection shall
h. Non-cash payment for interest. FIs be applied retroactively to all outstanding
that accept non-cash payments for interest ROPAs and SCRs: Provided: That for
on their borrowers’ loans shall book the properties acquired before 01 January
acquired assets as ROPA. The amount to be 2005, the carrying amount of the acquired
booked as ROPA shall be the booked properties when initially booked under
accrued interest less allowance for credit ROPA shall be the cost subject to
losses (computed based on PAS 39 depreciation and impairment testing,
provisioning requirements): Provided, That which shall be reckoned from the time of
if the carrying amount of ROPA exceeds P5.0 acquisition.
million, the appraisal of the foreclosed/ b. SCRs which meet all the
purchased asset shall be conducted by an requirements/conditions enumerated below
independent appraiser acceptable to the are hereby considered performing assets and
Bangko Sentral. The carrying amount of therefore, not subject to classification:
ROPA shall be allocated in accordance with (1) That there has been a downpayment
Item “b” and shall be subsequently of at least twenty percent (20%) of the
accounted for in accordance with Item “c” agreed selling price or in the absence
of this Subsection. thereof, the installment payments on the
The provisions of this Subsection shall principal had already amounted to at least
be applied retroactively to all outstanding twenty percent (20%) of the agreed selling
ROPAs and sales contract receivables: price;
Provided: That for properties acquired (2) That payment of the principal must
before 01 January 2005, the carrying be in equal installments or in diminishing
amount of the acquired properties when amounts and with maximum intervals of
initially booked under ROPA shall be the one (1) year;
cost subject to depreciation and impairment
(3) That any grace period in the payment §§ X394.11 - X394.14 (Reserved)
of principal shall not be more than two (2)
years; and §§ X394.15 Joint venture of banks with
(4) That there is no installment payment real estate development companies
in arrear either on principal or interest: a. Statement of policy. It is the policy
Provided, That an SCR account shall be of the Bangko Sentral to encourage banks
automatically classified “Substandard” and to dispose of their ROPAs in settlement of
considered non-performing in case of loans and other advances either through
non-payment of any amortization due: foreclosure or dacion en pago as well as
Provided, further, That an SCR which has other properties acquired as a consequence
been classified “Substandard” and considered of a merger/consolidation which are no
non-performing due to non-payment of any longer necessary for their banking
amortization due may only be upgraded operations. Towards this end, banks are
restored to unclassified and/or performing hereby authorized to enter into Joint Venture
status after a satisfactory track record of at Agreements (JVA) with real estate
least three (3) consecutive payments of the development companies for the
required amortization of principal and/or development of said properties, subject to
interest has been established. the requirements prescribed under this
(As amended by Circular No. 520 dated 20 March 2006) Subsection.
b. For purposes of this Subsection,
§§ X394.4 - X394.9 (Reserved) joint venture shall refer to a contractual
arrangement/undertaking between a
§ X394.10 Transfer/sale of non- bank and a duly registered real estate
performing assets to a special purpose development company (developer) for
vehicle or to an individual. The procedures the purpose of developing the
governing the transfer/sale of non-performing abovementioned properties of the bank.
assets (NPAs) to a Special Purpose Vehicle The bank contributes said properties to the
(SPV) or to an individual that involves a single undertaking while the developer
family residential unit, or transactions contributes all the development funds,
involving dacion en pago by the borrower resources, technical expertise, equipment,
or third party of an NPL, for the purpose of personnel and all other requirements
obtaining the Certificate of Eligibility (COE) desired or needed for the implementation
which is required to avail of the incentives and completion of the undertaking
provided under R.A. No. 9182 are including marketing, where applicable.
presented in Appendix 56. The bank and the developer shall be bound
The accounting guidelines on the sale by the contract that establishes joint control
of NPAs to SPVs and to qualified of the undertaking. Although the developer
individuals for housing under the SPV Act may be designated as operator or manager
of 2002 are presented in Appendix 56a. of the undertaking, it does not, however,
The significant timelines related to the absolutely control the undertaking but only
implementation of R.A. No. 9182, also acts in accordance with the authorities
known as the “Special Purpose Vehicle granted to him under the JVA.
Act” as amended by R.A. No. 9343 are c. Forms of a joint venture. A bank
presented in Appendix 56b. and a developer may undertake a joint
(As amended by M-2012-036 dated 24 July 2012, M-2008-014 venture under the following forms:
dated 17 March 2008, M-2008-005 dated 04 February 2008, (1) A jointly-controlled operation/
M-2007-013 dated 11 May 2007 and M-2006-001 dated 11 May 2006) undertaking, which does not involve the
establishment of a corporation, partnership (3) The bank shall not recognize income
or other entity, or a financial structure that out of its contribution to the joint venture,
is separate from the bank and the regardless of the agreed valuation of said
developer themselves. Under this form of properties.
joint venture, the rights and obligations of (4) The bank shall not provide funds
the bank and the developer shall be to the joint venture either as a loan or
governed primarily by their contract that capital contribution.
must clearly specify the following: (5) The JVA or contractual
(a) authority of the developer to arrangement shall clearly stipulate the
develop/subdivide the property and rights and obligations of the bank and the
subsequently, to sell the individual lots developer.
under a special power of attorney; (6) The bank shall secure prior
(b) sharing in the sales proceeds of the Monetary Board approval of the JVA.
developed ROPAs or in the developed lots; e. Application for authority to enter
(c) sharing in taxes; into JVA. A bank desiring to enter into a
(d) sharing in the assets of the joint JVA with a developer for the purpose of
venture particularly in the developed/ developing its ROPAs and other properties
subdivided lots should there still be unsold acquired as a consequence of its merger/
lots at the time of termination of the joint consolidation with another bank/FI shall
venture; and secure prior Monetary Board approval of
(e) name under which the subdivided said agreement. For that purpose, the
lots shall be registered pending their sale. concerned bank shall submit an application
(2) A jointly-controlled entity, which for Monetary Board approval to the
involves the establishment of a new appropriate department of the SES. The
juridical entity, preferably a corporation application shall be signed by the bank’s
that is separate and distinct from the bank president or officer of equivalent rank and
and the developer. A jointly controlled shall be accompanied by the following
corporation may be established either for documents/information:
the purpose of developing properties of (1) The name of the developer;
banks for immediate sale or converting (2) Name of the principal stockholders
them into earning assets such as hotels and and officers as well as members of the
shopping malls. board of directors of said company;
d. Requirements and limitations in a (3) Relationship of the bank with the
joint venture. A bank desiring to enter into developer, if any;
a JVA with a developer for the purpose of (4) List and brief description of the
developing its ROPAs and/or other properties to be contributed by the bank
properties acquired as a consequence of including their market values, book values
merger/consolidation shall comply with the and the valuation agreed upon under the
following: proposed JVA;
(1) The JVA shall be approved by the (5) Certification by the bank’s
board of directors of the bank. president or officer of equivalent rank that
(2) The bank’s contribution to the joint the JVA is strictly in compliance or will
venture, in whatever form undertaken, strictly comply with the requirements of
shall be limited to ROPAs and properties this Subsection; and
acquired as a consequence of the bank’s (6) Such other documents/information
merger/consolidation with another bank/ that the concerned department of the SES
financial institution. may require.
f. Non-financial allied undertaking. All excess of the value of the capital stock
types of banks are hereby authorized to received by the bank over the book value of
invest in the equities of companies engaged the contributed properties shall be credited
in real estate development as a non- to the account “Deferred Credits”.
financial allied undertaking, subject to the (3) Properties invested in equities of
following conditions: developers shall be booked in accordance
(1) Investments shall be limited to with the PAS: Provided, That the bank shall
ROPAs and other properties acquired as a not recognize income out of the properties
consequence of a bank’s merger/ invested if there is already an existing
consolidation with another bank/FI; subsidiary or affiliate relationship between
(2) Investments shall be subject to the bank and the investee corporation prior
existing Bangko Sentral requirements to the investment, regardless of the agreed
applicable to investments in non-financial valuation of said properties. The excess of
allied undertakings; and the agreed valuation of said properties over
(3) If there is already an existing their book value shall be booked as
subsidiary or affiliate relationship between “Deferred Credits”.
the bank and the investee corporation prior h. Coverage. The provisions of this
to the investment, the bank shall not Subsection shall apply to ROPAs
recognize income out of its invested existing, as well as those which may be
properties. The excess of the value of the acquired by banks in settlement of non-
capital stock received by the bank over the performing o r p a s t d u e l o a n s a n d
book value of its invested properties shall advances outstanding, as of 09 March
be booked as “Deferred Credits”. 2006 and to properties acquired as a
g. Accounting treatment. Accounting consequence of merger or consolidation
treatment of the properties contributed by a which are outstanding in the books of
bank to a joint venture or invested in the banks as of said date.
equities of developers. i. Sanctions. Any violation of the
(1) In a joint venture in the form of a provisions of this Subsection and/or any
jointly controlled operations/undertaking, misrepresentation in the certification and
which does not involve the establishment information required to be submitted to the
of a corporation or other entity, the bank Bangko Sentral under this Subsection shall
shall continue to recognize in its books the subject the bank and the officer or officers
properties contributed to the undertaking. responsible therefore, to the penalties
However, the regular provisioning against provided under Sections 35, 36 and 37 of
probable losses required under existing R. A. No. 7653.
regulations may be discontinued upon (Circular No. 518 dated 09 March 2006)
execution and implementation of the JVA.
(2) In a joint venture in which a Sec. X395 Credit Policies of Government-
corporation is created, the bank shall book Owned Corporations. Government-owned
the properties contributed to the corporations which perform banking or
undertaking as investment pursuant to the credit functions shall coordinate their
provisions of PAS 31. It shall also recognize general credit policies with the Schedule of
its interest in the corporation using the Credit Priorities embodied in Appendix 23.
proportionate consolidation method or the Within the provision of their respective
equity method as long as it continues to have charters, these corporations shall limit their
joint control over the corporation: Provided, credits to the economic activities falling
That the bank shall not recognize income out under Priority II of said schedule to fifty percent
of its contribution to the joint venture. The (50%) of their outstanding loans at any time.
Sec. X396 Parcellary Plans on Crop Loans acquisition and development of land and/or
Banks shall require the submission of construction of buildings and structures,
parcellary plans a requisite for granting crop including housing units for sale/lease and/
loans to sugarcane planters. or for use in retail/wholesale, manufacturing
or other income-generating purposes,
Sec. X397 (Reserved) including loans for the land development
and construction of residential properties.
Sec. 1397 Limits on Real Estate Exposures It shall not include loans for
and Other Real Estate Property of UBs/KBs construction of highways, streets, bridges,
1. Real Estate Loan Limit. Total real tunnels, railways, and other infrastructure
estate loans of UB/KBs, excluding Items “a” for public use.
to “d” below, shall not exceed twenty Purchase by banks of receivables under
percent (20%) of the total loan portfolio, net Contract to Sell (CTS) executed between the
of interbank loans: real estate developers and home buyers on
a. Loans extended to individual a with recourse basis shall be considered
households for purposes of financing the loans to real estate developers and shall be
acquisition, construction, and/or classified as commercial real estate loans.
improvement of housing units and Trust departments of UBs/KBs shall be
acquisition of any associated land that is or exempted from the prescribed limit on real
will be occupied by the borrower, regardless estate loans.
of amount; Under existing HUDCC guidelines,
b. Loans extended to land developers/ socialized and low-cost housing loans are
construction companies for the purpose of defined as follows:
development and/or construction of Housing Loan Ceiling
socialized and low-cost residential Package
properties as defined under existing
guidelines of the HUDCC for the Low-cost
implementation of government housing Level 1-A 400,000 and below
(Socialized)
programs, which are intended for sale to
individual households; Level 1-B Above P400,000
to P500,000
c. Loans to the extent guaranteed by
the HGC; and Level 2 Above P500,000
d. Loans to the extent collateralized by to P1,250,000
non-risk assets under existing regulations.
Level 3 Above P1,250,000
For this purpose, real estate loans shall
to P3,000,000
refer to loans granted to:
(1) individual households for the 2. Real Estate Stress Test (REST) Limits
acquisition, construction and/or improvement A prudential limit is set for real estate
of housing units and acquisition of any exposures and other real estate property of
associated land that is or will be occupied by UBs/KBs. Real estate exposures shall refer to:
the borrower, including loans granted to bank a. Real estate loans (RELs), which shall
officers and employees for the same purpose consist of:
which are covered by bank’s fringe benefit (1) Residential real estate loans to
plan and which plan was approved by the individual households for occupancy; and
Monetary Board; and (2) Commercial real estate loans,
(2) land developers/construction which shall refer to loans granted to the
companies and other borrowers for the following:
The prudential REST limits which shall operation on monetary aggregates, the price
be complied with at all times by TBs are: level and the balance of payments, pursuant
a. six percent (6%) of Common Equity to Section 123 of R.A. No. 7653. The
Tier I capital, for TBs that are subsidiaries guidelines that will govern the domestic
of UBs/KBs; borrowings of LGUs in line with R.A. No.
b. six percent (6%) of Tier I capital, for 7653 (The New Central Bank Act), as well
stand-alone TBs1; and as other pertinent laws/regulations is shown
c. ten percent (10%) of risk-based in Appendix 57.
capital adequacy ratio for all TBs. (Circular No.769 dated 26 September 2012, as amended by
Circular No. 819 dated 12 November 2013)
A TB which does not meet either or both
the REST limits shall be directed to explain § X398.2 Debt service limit on local
why its exposures do not warrant government borrowings. To ensure the
immediate remedial action. The Monetary effective implementation of the debt service
Board, upon the report of the appropriate limit on local government borrowings as
supervising department of the SES, shall stipulated in Section 324 (b) of the Local
determine whether the TB has been able to Government Code of 1991, all banks shall
render sufficient explanation, otherwise, the require each borrowing LGU to present a
TB shall be directed to submit an action plan, certificate of its debt service and borrowing
within thirty (30) calendar days from date capacity, duly certified by the Bureau of
of notification, to meet the REST limits within Local Government Finance – Department
a reasonable time frame. of Finance (BLGF DOF).
A TB which fails to submit an action (CL-2012-030 dated 29 April 2012, Circular No. 769 dated
plan or persistently breaches the REST limits 26 September 2012)
due to non-compliance with the
commitments in its submitted action plan §X398.3 - §X398.4 (Reserved)
may be considered to be engaging in unsafe
and unsound practice, to be determined in §X398.5 Enforcement actions. Banks
accordance with Section 56 of R.A. No. which will release, in full or partial
8791, as implemented by Section X149, and amounts, borrowings within the Philippines
shall subject the TB to appropriate sanctions. of the Government or any of its political
(Circular No. 839 dated 27 June 2014) subdivisions or instrumentalities, without
the submission by the borrower of the
Sec. 3397 (Reserved) Monetary Board opinion on the probable
effects of the proposed borrowings on
Sec. X398 Monetary Board Opinion on monetary aggregates, the price level and the
Domestic Borrowings of Government balance of payments as required under
Section 123 of R.A. No. 7653:
§ X398.1 Domestic borrowings by local a. First offense – Monetary penalty
government units pursuant to Section 123 computed in accordance with Appendix 67,
of R.A. No. 7653. This Section shall govern with stern warning to the bank that
the borrowings of LGUs within the subsequent offenses shall be dealt with
Philippines, the procedures to be observed, stiffer non-monetary sanctions;
as well as documentary requirements, for b. Second offense – Suspension of the
requests for Monetary Board opinion on the lending operations of the erring bank to the
probable effects of the proposed credit Government or any of its political
1
TBs that are not subsidiaries of UBs and KBs
PART FOUR
Section X401 Statement of Principles proprietary assets and from one (1) fiduciary/
The cardinal principle common to all trust trust/investment management account to
and other fiduciary relationships is fidelity. another.
Policies predicated upon this principle shall e. Keeping and rendering accounts. A
be directed towards observance of the true and accurate account or record of
following: transactions entered into shall be kept.
a. Prudent administration. The trust, Reports on the trust, investment management
investment management and other fiduciary and other fiduciary accounts shall be
accounts shall be administered in rendered to the trustor, principal, beneficiary,
conformity with the intention and purpose or other party in interest, or the court
of the client as manifested in the terms of concerned, or any party duly designated by
the agreement, and with the skill, care, a court order, as the case may be, in accordance
prudence and diligence necessary under the with Secs. X421 and X425. Likewise, all
circumstance then prevailing that a prudent material facts within the knowledge or
man acting in like capacity and familiar with reasonably discoverable by the TE, particularly
such matters would exercise in the conduct information that would enable clients to
of an enterprise of like character and with make well-informed decisions, shall be
similar aims. promptly transmitted/relayed to clients for
b. Undivided loyalty and utmost care. them to protect their interests.
In the discharge of fiduciary responsibility, Furthermore, practices shall be carried
the interests of clients shall be placed above out in accordance with the basic standards
those of the bank. Clear policies and (Appendix 83) and Risk Management
procedures shall be developed in dealing Guidelines (Appendix 83a) for trust, other
with conflict of interest situations. The fiduciary and investment management
fiduciary assets shall be objectively and accounts.
fairly administered, invested and distributed A bank authorized to engage in trust
giving due regard to the beneficiaries’ and fiduciary business is under no
respective interests. obligation, either legal or moral, to accept
c. Non-delegation of responsibilities. any such business being offered nor has it
The administration of the trust, investment the right to accept if the same is contrary to
management, or fiduciary responsibilities or law, rules, regulations, public order and
the performance of acts that should be public policy. It shall advertise its services
personally performed shall not be delegated in a dignified manner and enter such
as the client’s confidence is reposed on the business only when demand for such service
trust entity (TE). is evident, when specially equipped to
d. Preserving and protecting property. render such service and upon full
Reasonable care and diligence shall be appreciation of the responsibilities involved.
observed to preserve and protect the It shall be ready and willing to give full
property entrusted. Fiduciary assets shall be disclosure of the services being offered and
kept legally separate and distinct from shall conduct its dealing with transparency.
transactions arising from investment with the appropriate department of the SES.
management activities are kept and The application shall be signed by the bank’s
recorded. president or officer of equivalent rank and
(As amended by Circular No.766 dated 17 August 2012) shall be accompanied by the following
documents:
a. Certified true copy of the resolution
A. TRUST AND OTHER of the institution’s board of directors
FIDUCIARY BUSINESS authorizing the application; and
b. A certification signed by the
Sec. X404 Authority to Perform Trust and president or the officer of equivalent rank
Other Fiduciary Business. With prior that the institution has complied with all
approval of the Monetary Board, banks may conditions/prerequisites for the grant of
engage in trust and other fiduciary business authority to perform trust and other
under Chapter VII of R.A. No. 337, as fiduciary business.
amended.
If a bank is found to engage in § X404.2 Required capital. Banks
unauthorized trust and other fiduciary applying for authority to perform trust and
business and/or investment management other fiduciary business must have
activities, whether as its primary, secondary minimum capital accounts as follows:
or incidental business, the Monetary Board UBs/KBs. The amount required under
may impose administrative sanctions against Sec. X111 or such amount as may be
such bank or its principal officers and/or required by the Monetary Board in the
majority stockholders or proceed against future.
them in accordance with law. Branches of foreign banks. The amount
The Monetary Board may take such action required under Sec. X105 or such amount
as it may deem proper such as, but may not as may be required by the Monetary Board
be limited to, requiring the transfer or in the future.
turnover of any trust and other fiduciary and/ TBs. P650.0 million or such amounts
or investment management account (IMA) as may be required by the Monetary Board
to duly incorporated and licensed entities in the future.
of the choice of the trustor, beneficiary or Banks authorized to perform and are
client, as the case may be. actually performing trust and other fiduciary
No bank shall advertise or represent business prior to 20 August 2002 whose
itself as being engaged in trust and other capital accounts are lower than the
fiduciary business or in investment management above-prescribed minimum capital
activities or represent itself as trustee or accounts shall, before declaring any
investment manager or use words of similar dividend, carry to surplus at least fifty
import; and/or use in connection with its percent (50%) of their net income from all
business title the words trust, trust corporation, operations since the last preceding dividend
trust company, trust plan or words of similar until such time that their capital accounts
import, without having obtained the meet the above requirement.
required authority to do so.
§ X404.3 Prerequisites for engaging in
§ X404.1 Application for authority to trust and other fiduciary business. Before
perform trust and other fiduciary business it may engage in trust and other fiduciary
Banks desiring to perform trust and other business, a bank shall comply with the
fiduciary business shall file an application following requirements:
a. The applicant has been duly licensed (2) attendance by every member of the
or incorporated as a bank or created as such board of directors in a special seminar for
by special law or charter; board of directors conducted or accredited
b. The articles of incorporation or by the Bangko Sentral;
governing charter of the institution shall (3) the ceilings on credit
include among its powers or purposes, accommodations to DOSRI;
acting as trustee or administering any trust (4) liquidity floor requirements for
or holding property in trust or on deposit government deposits;
for the use, or in behalf of others; (5) single borrower’s limit; and
c. The by-laws of the institution shall (6) investment in bank premises and
include among other things, provisions on other fixed assets;
the following; h. It maintains adequate provisions for
(1) The organization plan or structure probable losses commensurate to the
of the department, office or unit which shall quality of its asset portfolio but not lower
conduct the trust and other fiduciary than the required valuation reserves as
business of the institution; determined by the Bangko Sentral;
(2) The creation of a trust committee, i. It does not have float items
the appointment of a trust officer and outstanding for more than sixty (60)
subordinate officers of the trust department; calendar days in the “Due From/To Head
and Office/Branches/Other Offices” accounts
(3) A clear definition of the duties and and the “Due from Bangko Sentral” account
responsibilities as well as the line and exceeding one percent (1%) of the total
staff functional relationships of the various resources as of date of application;
units, officers and staff within the j. It has no past due obligations with the
organization; Bangko Sentral or with any government
d. The bank’s operation during the financial institution;
preceding calendar year and for the period k. It has established a risk management
immediately preceding the date of system appropriate to its operations
application has been profitable; characterized by clear delineation of
e. The bank is well capitalized whose responsibility for risk management,
risk-based capital adequacy ratio is not adequate risk measurement systems,
lower than twelve percent (12%) at the time appropriately structured risk limits,
of filing the application; effective internal controls and complete,
f. It has not incurred net weekly reserve timely and efficient risk reporting system;
deficiencies during the eight (8)-week l. It has a CAMELS composite rating of
period immediately preceding the date of at least “3” in the last regular examination
application; with management rating of not lower than
g. It has generally complied with “3”; and
banking laws, rules and regulations, orders m. It has neither unpaid assessment due
or instructions of the Monetary Board and/ nor past due obligations with the PDIC.
or Bangko Sentral Management in the last Compliance with the foregoing as well
two (2) preceding examinations prior to the as with other requirements under existing
date of application, particularly on the regulations shall be maintained up to the
following: time the trust license is granted. A bank that
(1) election of at least two (2) fails in this respect shall be required to show
independent directors; compliance for another test period of the
banking laws, rules and regulations, orders f. Requirements for engaging in limited
or instructions of the Monetary Board and/ trust business. An RB authorized to engage
or Bangko Sentral Management in the last in limited trust business shall comply with
two (2) preceding examinations prior to the the following requirements:
date of application, more particularly: (1) The articles of incorporation of the
(a) election of at least two (2) bank shall include among its powers or
independent directors; purposes, acting as trustee or administering
(b) attendance by every member of the trust or holding property in trust or on
board of directors in a special seminar for deposit for the use, or in behalf of others;
board of directors conducted or accredited (2) The by-laws of the bank shall include
by the Bangko Sentral; among others, provisions on the following:
(c) the ceilings on credit (a) The organization plan or structure of
accommodations to DOSRI; the department, office or unit which shall
(d) liquidity floor requirements for conduct the trust and other fiduciary
government deposits; business of the bank;
(e) SBL; and (b) The creation of a trust committee, to
(f) investment in bank premises and be composed of at least three (3) members
other fixed assets; who are all members of the board of
(5) It maintains adequate provisions for directors and who are not operating officers
probable losses commensurate to the quality of the bank, and at least two (2) of whom
of its asset portfolio but not lower than the are independent directors: Provided, That if
required valuation reserves as determined the bank decides to have a trust committee
by the Bangko Sentral; composed of at least five (5) members, the
(6) It does not have float items provisions of Subsec. X406.2 shall apply;
outstanding for more than sixty (60) calendar (c) The appointment of a trust officer and
days in the “Due From/To Head Office/ subordinate officers of the trust department,
Branches/Offices” accounts and the “Due office or unit: Provided, That the trust officer
From Bangko Sentral” account exceeding shall have the following:
one percent (1%) of the total resources as (i) At least two (2) years of actual
of date of application; experience in trust operations; or
(7) It has no past due obligations with (ii) At least one (1) year of actual
the Bangko Sentral or with any government FI; experience in trust operations and:
(8) It has established a risk management 1) completion of a training program in
system appropriate to its operations trust, other fiduciary business, or investment
characterized by clear delineation of management activities acceptable to the
responsibility for risk management, adequate Bangko Sentral;or
risk measurement systems, appropriately 2) completion of a relevant global or
structured risk limits, effective internal local professional certification program; or
controls and complete, timely and efficient (iii) At least two (2) years of actual
risk reporting system; experience as officer of a bank/NBFI or
(9) It has a CAMELS composite rating of related activities and:
at least “3” in the last regular examination 1) completion of a training program in
with Management rating not lower than trust, other fiduciary business, or investment
“3”; and management activities acceptable to the
(10) It has neither unpaid assessment Bangko Sentral; or
due nor past due obligations with the PDIC. 2) completion of a relevant global or
original yield to maturity (as of auction/ The base amount for the basic security
issue date): Provided, further, That for deposit shall be the average of the month-
reserve for trust and other fiduciary duties, end balances of total trust, investment
the remaining maturities of the securities management and other fiduciary assets of
shall not exceed three (3) years; and the immediately preceding calendar quarter.
e. Zero Coupon Bond Issue by the HGC
of up to P7.0 billion five (5)-year regular § X405.4 Compliance period; sanctions
series and up to P3.0 billion seven (7)-year The trustee or fiduciary shall have thirty (30)
special series to finance its guaranty calendar days after the end of every calendar
servicing of socialized and low-cost quarter within which to deposit with the
housing projects: Provided, That they meet Bangko Sentral the securities required under
the three (3)-year remaining maturity this Section.
requirement to ensure that such bonds are The following sanctions shall be
liquid: Provided, further, That such bonds imposed for any deficiency in the basic
shall qualify as eligible reserve for trust and security deposit for the faithful
other fiduciary duties only to the extent of performance of trust, investment
the present value of the bond computed management and other fiduciary duties:
using the original yield to maturity (as of a. On the bank:
auction/issue date). i. Monetary penalty/ies:
f. Tobacco Excise Tax Receivable
Monetization Program Investment Offense Third and
Certificates (TEXTR Certificates) backed by Trust First Second subsequent
receivables representing the unreleased portion Asset Size offense(s)
of the obligation of the National Government TBs/RBs with
to its LGUs for their share of the Tobacco Limited Trust P300.00 P400.00 P500.00
Excise Taxes under R.A. No. 7171 amounting Authority
to P1.85 billion and covering the years 2001 Up to
and 2002: Provided, That such securities P500 P600.00 P700.00 P800.00
shall be eligible only to the extent of the million
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
1
Reserve week starting 11 April 2014, the required reserves shall be as follows:
For reserves against peso –denominated CTFs
UBs/KBs 19%
TBs 8%
For reserves against TOFA-Others
UBs/KBs 16%
TBs 8%
Increase in reserve requirements shall take effect on the reserve week starting 30 May 2014.
Increase in reserve requirements shall take effect on the reserve week starting 30 May 2014.
TOFA-Others, of banks authorized to engage No bank shall undertake any of the trust
in trust and other fiduciary business, including and other fiduciary business and, whenever
the sanctions provided in said Section. applicable, investment management
activities outside the direct control, authority
§ X405.9 Report of compliance. Every and management of the trust department or
bank shall submit a report to the Bangko through any department or office which is
Sentral of its daily required and available involved in the other businesses of the bank,
reserves on peso-denominated CTFs and such as the Treasury, Funds Management
such other managed peso funds, as well as or any similar department, otherwise, any
TOFA- Others, in such frequency and within such business shall be considered part of
the deadline stated in Appendix 6. the bank’s real liabilities.
The bank proper and the trust
Sec. X406 Organization and Management department may share the following
activities: (1) electronic data processing;
§ X406.1 Organization. A bank (2) credit investigation; (3) collateral
authorized to engage in trust and other appraisal; and (4) messengerial, janitorial
fiduciary business shall, pursuant to Subsec. and security services.
X404.1, include in its by-laws, provisions b. The trust department, trust officer and
on the organization plan or structure of other subordinate officers of the trust
the department, office or unit which shall department shall only be directly
conduct such business. The by-laws shall responsible to the bank’s trust committee
also include provisions on the creation of which shall, in turn, be only directly
a trust committee, the appointment of a responsible to the bank’s board of directors.
trust officer and other subordinate officers No director, officer or employee
and a clear definition of their duties and taking part in the management of trust and
responsibilities as well as their line and other fiduciary accounts shall perform
staff functional relationships within the duties in other departments or the audit
organization which shall be in accordance committee of the bank and vice versa.
with the following guidelines. However, branch managers duly
a. Trust and other fiduciary business authorized by the board of directors may,
of a bank shall be carried out through a for or on behalf of the trust officer, sign
trust department which shall be predrawn trust instruments such as CTFs.
organizationally, operationally, c. The organization structure and
administratively and functionally separate definition of duties and responsibilities of
and distinct from the other departments the trust committee, officers and
and/or businesses of the institution. employees of the trust department shall
A bank which is also engaged in reflect adherence to the minimum internal
investment management activities, shall control standards prescribed by the
conduct the same only through its trust Bangko Sentral.
department and the responsibilities of the d. Provisions shall be made by the
board of directors, trust committee and bank to have legal assistance readily
trust officer shall be construed to include available in the review of proposed and/
the proper administration and or existing trust and fiduciary agreements
management of investment management and documents and in the handling of
activities. legal and tax matters related thereto.
1
As defined under Subsec. X141.1
2
As defined under Subsec. X141.2
(1) completed at least ninety (90) training (5) oversee and evaluate performance
hours in trust, other fiduciary business, or of the trust officer;
investment management activities (6) conduct regular meetings at least
acceptable to the Bangko Sentral; or once every quarter, or more frequently as
(2) completed a relevant global or local necessary, depending on the size and
professional certification program. complexity of the fiduciary business; and
For the purpose of this Subsection, actual (7) report regularly to the BOD on
experience refers to exposures in trust matters arising from fiduciary activities.
operations either as officer of a trust entity c. Trust Officer
or member of trust committee. The management of day-to-day fiduciary
(As amended by Circular Nos. 766 dated 17 August 2012 and activities shall be vested in the trust officer.
665 dated 04 September 2009) In this regard, the trust officer shall:
(1) ensure adherence to the basic
§ X406.4 Responsibilities of
standards in the administration of trust,
administration
other fiduciary and investment management
a. Board of Directors (BOD)
accounts pursuant to Appendix 83;
The responsibilities of the BOD in
(2) develop and implement relevant
relation to trust activities of a bank shall be
policies and procedures on fiduciary
those set forth under Subsec. X141.3. The
activities;
BOD shall ensure an appropriate degree of
(3) observe sound risk management
independence between the activities of the
practices and maintain necessary controls
bank proper and its trust department.
to protect assets under custody and held in
b. Trust Committee
trust or other fiduciary capacity;
The trust committee is a special
(4) carry out investment and other
committee which reports directly to the
fiduciary activities in accordance with
board of directors and is primarily
agreements with clients and parameters set
responsible for overseeing the fiduciary
by the trust committee as approved by the
activities of the bank. In discharging its
board of directors;
function, it shall:
(5) report regularly to the trust committee
(1) ensure that fiduciary activities are
on business performance and other matters
conducted in accordance with applicable
requiring its attention;
laws, rules and regulations, and prudent
(6) maintain adequate books, records
practices;
and files for each trust or other fiduciary
(2) ensure that policies and procedures
account and provide timely and regular
that translate the board’s objectives and risk
disclosure to clients on the status of their
tolerance into prudent operating standards
accounts; and
are in place and continue to be relevant,
(7) submit periodic reports to regulatory
comprehensive and effective;
agencies on the conduct of the trust
(3) oversee the implementation of the
operations.
risk management framework and ensure that
(As amended by Circular No. 766 dated 17 August 2012)
internal controls are in place relative to the
fiduciary activities; §§ X406.5 - X406.8 (Reserved)
(4) adopt an appropriate organizational
structure/staffing pattern and operating § X406.9 Outsourcing services in trust
budgets that shall enable the trust departments
department to effectively carry out its (Deleted by Circular No. 765 dated 03 August 2012)
functions;
or fiduciary and it does not, therefore, entitle unsafe or unsound manner all relevant facts
the client to a fixed interest or return on his must be considered. An analysis of the
investments: Provided, further, That any of impact thereof on the bank’s operations and
the following practices or practices similar financial conditions must be undertaken,
and/or tantamount thereto shall be including evaluation of capital position,
construed as fixing or guaranteeing the rate asset condition, management, earnings
of interest, income or return: posture and liquidity position.
(1) Issuance of certificates, side In determining whether a particular act
agreements, letters of undertaking or other or omission, which is not otherwise
similar documents providing for fixed rates prohibited by any law, rule or regulation
or guaranteeing interest, income or return; affecting banks, may be deemed as
(2) Paying trust earnings based on conducting business in an unsafe or
indicated or expected yield regardless of the unsound manner, the Monetary Board,
actual investment results; upon report of the head of the supervising
(3) Increasing or reducing fees in order or examining department based on findings
to meet a quoted or expected yield; in an examination or a complaint, shall
(4) Entering into any arrangement, consider any of the following
scheme or practice which results in the circumstances:
payment of fixed rates or yield on trust a. The act or omission has resulted or
investments or in the payment of the may result in material loss or damage, or
indicated or expected yield regardless of the abnormal risk or danger to the safety,
actual investment results; and stability, liquidity or solvency of the bank;
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 bank’s depositors,
investment of trust, fiduciary or investment creditors, investors, stockholders or to the
management funds, when such loss is not Bangko Sentral or to the public in general;
due to the failure of the trustee or fiduciary c. The act or omission has caused any
to exercise the skill, care, prudence and undue injury, or has given unwarranted
diligence required by law. benefits, advantage or preference to the bank
Trust, other fiduciary and investment or any party in the discharge by the director
management activities involving any of the or officer of his duties and responsibilities
foregoing which are accepted, renewed or through manifest partiality, evident bad faith
extended after 16 October 1990 shall be or gross inexcusable negligence; or
reported as deposit substitutes and shall be d. The act or omission involves entering
subject to the reserve requirement for into any contract or transaction manifestly
deposit substitutes from the time of and grossly disadvantageous to the bank,
inception, without prejudice to the whether or not the director or officer
imposition of the applicable sanctions profited or will profit thereby.
provided for in Sections 36 and 37 of R.A. The list of activities which may be
No. 7653. considered unsafe and unsound is shown
in Appendix 48.
Sec. X408 Unsafe and Unsound Practices In line with the statement of principles
Whether a particular activity may be governing trust and other fiduciary business
considered as conducting business in an under Sec. X401, the trustee, fiduciary or
investment manager shall desist from the determined by the Monetary Board to be
following unsound practices: appropriate, but in no case to exceed
a. Entering in an arrangement whereby P30,000 a day on a per transaction basis
the client is at the same time the borrower taking into consideration the attendant
of his own fund placement, or whereby the circumstances, such as the gravity of the act
trustor or principal is a borrower of other or omission and the size of the bank, to be
trust, fiduciary or investment management imposed on the bank, their directors and/or
funds belonging to the same family or responsible officers;
business group of such trustor or principal; c. Suspension of interbank clearing
b. Granting loans or accommodations privileges/immediate exclusion from
to any trust committee member, officer and clearing;
employee of the trust department except d. Suspension of rediscounting
where such loans are obtained by said privileges or access to Bangko Sentral credit
persons as members of an employee benefit facilities;
fund of the trustee’s own institution; e. Suspension of lending or foreign
c. Borrowing from, or selling trust, other exchange operations or authority to accept
fiduciary and/or investment management new deposits or make new investments;
assets to, the bank proper to cover portfolio f. Suspension of responsible directors
losses and/or to guarantee the return of and/or officers;
principal or income; g. Revocation of quasi-banking license;
d. Granting new loans to any borrower and/or
who has a past due and/or classified loan h. Receivership and liquidation under
account with the bank proper or the trust Section 30 of R.A. No. 7653.
department; and All other provisions of Sections 30 and
e. Requiring clients to sign documents 37 of R.A. No. 7653, whenever appropriate,
in blank. shall also be applicable on the conduct of
(As amended by Circular No. 640 dated 16 January 2009) business in an unsafe or unsound manner.
The imposition of the above sanctions
§§ X408.1 - X408.8 (Reserved) is without prejudice to the filing of
appropriate criminal charges against
§ X408.9 Sanctions. The Monetary culpable persons as provided in Sections 34,
Board may, at its discretion and based on 35 and 36 of R.A. No. 7653.
the seriousness and materiality of the acts
or omissions, impose any or all of the Sec. X409 Trust and Other Fiduciary
following sanctions provided under Section Business. The conduct of trust and other
37 of R.A. No. 7653 and Section 56 of R.A. fiduciary business shall be subject to the
No. 8791, whenever a bank conducts following regulations.
business in an unsafe and unsound manner:
a. Issue an order requiring the bank to § X409.1 Minimum documentary
cease and desist from conducting business requirements. Each trust or fiduciary
in an unsafe and unsound manner and may account shall be covered by a written
further order that immediate action be taken document establishing such account, as
to correct the conditions resulting from such follows:
unsafe or unsound practice; a. In the case of accounts created by an
b. Fines in amounts as may be order of the court or other competent
authority, the written order of said court or § X409.2 Lending and investment
authority. disposition. Assets received in trust or in
b. In the case of accounts created by other fiduciary capacity shall be
corporations, business firms, organizations administered in accordance with the terms
or institutions, the voluntary written of the instrument creating the trust or other
agreement or indenture entered into by the fiduciary relationship.
parties, accompanied by a copy of the board When a trustee or fiduciary is granted
resolution or other evidence authorizing the discretionary powers in the investment
establishment of, and designating the disposition of trust or other fiduciary funds
signatories to, the trust or other fiduciary and unless otherwise specifically
account. enumerated in the agreement or indenture
c. In the case of accounts created by and directed in writing by the client, court
individuals, the voluntary written agreement of competent jurisdiction or other
or indenture entered into by the parties. competent authority, loans and investments
The voluntary written agreement or of the fund shall be limited to:
indenture shall include the following a. Evidences of indebtedness of the
minimum provisions: Republic of the Philippines and of the
(1) Title or nature of contractual Bangko Sentral, and any other evidences of
agreement in noticeable print; indebtedness or obligations the servicing
(2) Legal capacities, in noticeable print, and repayment of which are fully guaranteed
of parties sought to be covered; by the Republic of the Philippines or loans
(3) Purposes and objectives; against such government securities;
(4) Funds and/or properties subject of b. Loans fully guaranteed by the
the arrangement; Republic of the Philippines as to the
(5) Distribution of the funds and/or payment of principal and interest;
properties; c. Loans fully secured by a hold-out on,
(6) Duties and powers of trustee or assignment or pledge of deposits maintained
fiduciary; either with the bank proper or other banks,
(7) Liabilities of the trustee or fiduciary; or of deposit substitutes of the bank, or of
(8) Reports to the client; mortgage and chattel mortgage bonds issued
(9) Termination of contractual by the trustee or fiduciary;
arrangement and, in appropriate cases, d. Loans fully secured by real estate or
provision for successor-trustee or fiduciary; chattels in accordance with Section 78 of
(10) The amount or rate of the R.A. No. 337, as amended, and subject to
compensation of trustee or fiduciary; the requirements of Sections 75, 76, and
(11) A statement in noticeable print to 77 of R.A. No. 337, as amended; and
the effect that trust and other fiduciary e. Investment in the Bangko Sentral
business are not covered by the PDIC and special deposit account (SDA) facility made
that losses, if any, shall be for the account in accordance with the guidelines in
of the client; and Appendix 78 and subject to the provisions
(12) Disclosure requirements for of Sec. 1390 for UBs/KBs and Sec. 2390
transactions requiring prior authority and/ for TBs and Appendices 78a to 78c.
or specific written investment directive from The specific directives required under
the client, court of competent jurisdiction this Subsection shall consist of the following
or other competent authority. information:
Part III - E of this Manual. The procedural b. Provisions of Section 4(e) of the New
and reportorial requirements in said Rules on Registration of Short-Term
regulations shall also apply. Commercial Papers and Section 7(f) of the
The disclosure required under this New Rules on Registration of Long-Term
Subsection shall consist of the following Commercial Papers issued by the SEC
minimum information: (Appendices 13 and 14).
(1) The transactions to be entered into; c. Criteria for past due accounts; and
(2) Identities of the parties involved in d. Qualitative appraisal of loans,
the transactions and their relationships (shall investments and other assets that may require
not apply to Item “d” of this Subsection); provision for probable losses which shall be
(3) Amount involved; and booked in accordance with the Financial
(4) Collateral security(ies), if any. Reporting Package for Trust Institutions
The above information shall be made (FRPTI);
known to clients in a separate instrument e. Requirements of Sections 3 and 8
or in the very instrument creating the trust of the Securities and Regulation Code (SRC);
or fiduciary relationship. and
f. Provisions of Section 44 - Investments
§ X409.4 Ceilings on loans. Loans by Philippine residents - of the BSP Manual
funded by trust accounts shall be subject of Regulations on Foreign Exchange
to the SBL and DOSRI ceilings imposed Transactions (MORFXT), such that the
on banks under Secs. X303, X330 and cross-currency investments of peso trust and
X331. For purposes of determining other fiduciary accounts, including peso unit
compliance with said ceilings, the total investment trust (UIT) funds, shall be subject
amount of said loans granted by the trust to the following conditions:
department and the bank to the same (1) All cash flows of the trustee or
person, firm or corporation shall be fiduciary shall only be in pesos. In case the
combined. foreign exchange acquired or received by
the trustee or fiduciary as dividends/earnings
§ X409.5 Funds awaiting investment or divestment proceeds on such investment
or distribution. Funds held by the trustee are intended for reinvestment abroad, the
or fiduciary awaiting investment or same proceeds are not required to be
distribution shall not be held uninvested inwardly remitted and sold for pesos
or undistributed any longer than is through authorized agent banks: Provided,
reasonable for the proper management of That such proceeds are reinvested abroad
the account. within two (2) banking days from receipt of
the funds abroad;
§ X409.6 Other applicable regulations (2) The trustee or fiduciary shall
on loans and investments. The loans and purchase, invest, reinvest, sell, transfer or
investments of trust and other fiduciary dispose foreign currency-denominated
accounts shall be subject to pertinent laws, financial instruments, including securities as
rules and regulations for banks that shall defined in Section 3 of the SRC, through a
include but need not be limited to the distributor or underwriter duly authorized
following: or licensed by the government of the issuer
a. Requirements of Sections 39 and 40 of such instruments, or a counterparty FI
of R.A. No. 8791 (The General Banking (seller or buyer) accredited by the trustee or
Law of 2000; fiduciary: Provided, That, the conduct,
documentation, and settlement of any of twenty percent (20%) final tax under Section
these transactions shall be outside 24(B)(1) of R.A. No. 8424 (The Tax Reform
Philippine jurisdiction; Act of 1997):
(3) The trustee of fiduciary shall record a. The tax exemption shall apply to
cross-currency investment transactions in trust indentures/agreements contracted on
the peso regular books at their foreign or after 03 January 2000;
currency amounts and their local currency b. The trust indenture/agreement shall
equivalent using the Philippine Dealing only be between individuals who are
System peso/US dollar closing rate and the Filipino citizens or resident aliens and
New York US dollar/third currencies closing banks acting as trustee. The trust indenture/
rate; and agreement shall be non-negotiable and
(4) The trustee or fiduciary shall comply non-transferable;
with the reportorial requirements that may be c. The trust indenture/agreement shall
prescribed by the BSP, which shall include as indicate that pursuant to Section 24(B)(1)
a minimum, the foreign currency amount and of R.A. No. 8424, interest income of the
the local currency equivalent of the total cross trust fund derived from investments in
currency investments with details on: (a) type interest-bearing instruments (e.g., time
of investments; and (b) amount of cash flow deposits, government securities, loans and
converted. other debt instruments) which are
For purposes of this Subsection, otherwise subject to the twenty percent
“resident”, as defined under Section 1 of the (20%) final tax shall be exempt from said
FX Manual, shall refer to the (a) trustee or final tax provided the fund was held by
fiduciary that administers the assets received the trustee-bank for at least five (5) years.
in trust or in other fiduciary capacity; or (b) If said fund was held for a period less than
principal that engages the services of the five (5) years, interest income shall be
investment manager under an investment subject to a final tax based on the following
management agreement. schedule –
(As amended by Circular No. 676 dated 29 December 2009)
Holding Period Rate of Tax
§ X409.7 Operating and accounting
Four (4) years to less than five (5) years 5%
methodology. Trust and other fiduciary Three (3) years to less than four (4) years 12%
accounts shall be operated and accounted Less than three (3) years 20%
for in accordance with the following:
a. The trustee or fiduciary shall Necessarily, the trust indenture/
administer, hold or manage the fund or agreement shall clearly indicate the date
property in accordance with the instrument when the trustee-bank actually received the
creating the trust or other fiduciary trust funds which shall serve as basis for
relationship; and determining the holding period of the
b. Funds or property of each client funds.
shall be accounted separately and distinctly d. A trustee may accept additional
from those of other clients herein referred funds for inclusion in trust accounts which
to as individual account accounting. have been established as tax-exempt under
R.A. No. 8424. However, the receipt of
§ X409.8 Tax-exempt individual trust additional funds shall be properly
accounts. The following shall be the documented by indicating that they are part
features/requirements of individual trust of existing tax-exempt trust accounts and
accounts which may be exempted from the that the interest income of the additional
funds derived from investments in interest- (1) the purpose or intention of the trust;
bearing instruments shall be exempt from (2) the nature and value of the property
the twenty percent (20%) final tax under or sum of money that comprise the trust;
the same conditions mentioned in the (3) the trustee’s investment powers;
preceding item. The document shall also (4) the name(s) of the beneficiaries; and
indicate the date when the funds were (5) the terms and conditions under
received by the trustee-bank to serve as which the income and/or principal of the
basis for determining the minimum five trust is to be paid or to be disposed of during
(5)- year holding period for tax exemption the lifetime and ultimately, upon the death
purposes of the additional funds; and of the trustor or upon the occurrence of a
e. Tax-exempt individual trust accounts specified event(s).
established under this Subsection shall be A living trust may either be revocable
subject to the provisions of Subsecs. X409.1(c) or irrevocable.
and X409.2 up to X409.7. b. Minimum criteria. In line with such
definition, transactions considered as living
§ X409.9 Living trust accounts. The trust accounts should meet the following
guidelines on living trust accounts are as minimum criteria:
follows: (1) Minimum entry amount and
a. Definition. Living trust is defined under maintaining balance shall at least be
the Manual of Accounts for Trust, as a personal P100,000: Provided, That living trust accounts
trust created by agreement.It becomes with balances of up to P500,000 shall only
operational during the lifetime of the trustor as be invested in deposits and government
soon as the agreement is accomplished. securities;
Under a living trust, the trustor (also (2) Living trust accounts shall be
known as settlor) conveys property or a sum maintained for a minimum period of six
of money to be managed by the trustee, as (6) months. The termination of the living
the agreement dictates, for the benefit of trust agreement, for any cause, within the
the trustor and third person(s) or third minimum holding period shall render the
person(s) only. However, the trustor/s cannot trustor ineligible from opening a new living
create a trust with himself/themselves as the trust account within a period of one (1) year
sole beneficiary/(ies). The functions and from termination date;
authorities of the trustee as defined in the (3) Reversion of any part of the
agreement shall include: principal to the trustor, except in cases
provided under the dispositive portion, shall consideration the frequency of redemption;
be allowed only upon termination of the the respective interests of each beneficiary;
living trust agreement: Provided, That in and to whom the proceeds shall be payable.
no case can there be a complete or Redemption of funds shall strictly be in
substantial reversion of the principal accordance with the said terms and
pursuant to the dispositive portion within conditions; and
the minimum holding period nor can the (6) A living trust account may be
principal fall below P100,000; opened jointly under one (1) living trust
(4) Any living trust account that does agreement by related individuals up to the
not meet the requirement on the minimum second degree of consanguinity or affinity;
entry and minimum maintaining balance Provided, That the requirements under Item
or is not invested in qualified outlets shall “5” above are fully complied with.
be considered as other fiduciary accounts Unrelated individuals or those beyond the
subject to applicable reserve and other second degree of consanguinity or affinity
requirements; may likewise open a joint living trust
(5) Pre-printed living trust agreements account under one (1) living trust
may be allowed for expediency: Provided, agreement: Provided, That the minimum
That the sections for the trust purpose and contribution of each individual is at least
the dispositive provision are left blank and P100,000: Provided further, That the trust
shall only be filled-up upon the client’s is for a common purpose and: Provided
signing thereof. The purpose shall finally, That the requirements under Item
categorically state the real intention of the “5” are fully complied with.
trustor, which may include, but need not c. Marketing. Officers and personnel
be limited to: of the bank proper, including branch
(a) providing his/her and beneficiary/ managers, shall not be allowed to market
(ies) present and/or future financial support; living trust products and sign pre-printed
(b) protecting his/her beneficiary/(ies) living trust agreements. However, branch
against his/her inexperience in business managers/officers may be allowed to refer
matters; clients to the Trust Department and give
(c) preventing him/her from making short introduction on the living trust
imprudent expenditures; products to prospective clients.
(d) prevent the beneficiary/(ies) from d. Transitory provision. Outstanding
living beyond their means in case of living trust accounts that do not meet the
outright disposition of assets in their favor; foregoing additional requirements shall be
(e) protecting the beneficiary/(ies) given twelve (12)1 months from 11 April
against unforeseen contingencies such as 2006 to comply with the aforestated
incompetency, incapacity, physical requirements; otherwise, such accounts
disability or similar misfortune; and shall be considered as Other Fiduciary
(f) setting aside and segregating Accounts subject to applicable reserve
particular assets, proceeds or payments for requirements.
administration and distribution pursuant to e. Sanctions. Any violation of the
a court decree or by agreement. provisions of this Subsection shall be
The dispositive provision should clearly subject to the sanctions provided under
and specifically define the terms and Section 37 of R.A. No. 7653 (The New
conditions under which the principal and/or Central Bank Act).
income shall be distributed in order to (Circular Nos. 553 dated 22 December 2006 and 521 dated
accomplish such purpose/(s), by taking into 21 March 2006)
1
Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553
§§ X409.10 - X409.15 (Reserved) of more than ten percent (10%) of any class
of its equity security.
§ X409.16 Qualification and e. Investment and management of
accreditation of private banks acting as the funds. A domestic bank designated as
trustee on any mortgage or bond issuance trustee of a mortgage or bond issuance may
by any municipality, government-owned or hold and manage, in accordance with the
controlled corporation, or any body politic provisions of the trust indenture or
a. Applicability. Private banks duly agreement, the proceeds of the mortgage
accredited by the BSP may act as trustee or bond issuance and such assets and funds
on any mortgage or bond issued by any of the issuing municipality, corporation, or
municipality, GOCC, or any body politic. body politic as may be required to be
b. Application for accreditation. A delivered to the trustee under the trust
private bank desiring to act as trustee on indenture/agreement, subject to the
any mortgage or bond issued by any following conditions/restrictions:
municipality, GOCC, or any body politic (1) Pending the utilization of such funds
shall file an application for accreditation pursuant to the provisions of the trust
with the appropriate supervising and indenture/agreement, the same shall only be
examining department of SES. The deposited in any bank, other than the trustee/
application shall be signed by the president bank proper, its subsidiary or affiliate
or officer of equivalent rank of the bank authorized to accept deposits from the
and shall be accompanied by the following Government or government entities, or
documents: invested in peso-denominated treasury bills
(1) certified true copy of the resolution acquired/purchased from any securities
of the institution’s board of directors dealer/entity, other than the trustee or any of
authorizing the application; its unit/department, its subsidiary or affiliate.
(2) a certification signed by the (2) Investments of funds constituting or
president or officer of equivalent rank that forming part of the sinking fund created as
the institution has complied with all the the primary source for the payment of the
qualification requirements for accreditation. principal and interests due the mortgage
c. Qualification requirements. A bank or bonds shall also be limited to deposits
applying for accreditation to act as trustee in any bank, other than the trustee/bank
on any mortgage or bond issued by any proper, its subsidiary or affiliate, authorized
municipality, government-owned or to accept deposits from the Government
controlled corporation, or any body politic or government entities and investments in
must comply with the requirements in government securities that are consistent
Appendix 5b. with such purpose which must be acquired/
d. Independence of the trustee. A purchased from any securities dealer/entity,
bank is prohibited from acting as trustee of other than the trustee or any of its unit/
a mortgage or bond issuance if any elective department, its subsidiary or affiliate.
or appointive official of the LGU, GOCC, f. Waiver of confidentiality. A bank
or body politic which issued said mortgage designated as trustee of any mortgage or
or bond and/or his related interests own bond issued by any municipality, GOCC,
such number of shares of the bank that will or any body politic shall submit to the
allow him or his related interests to elect appropriate supervising and examining
at least one (1) member of the board of department of SES a waiver of the
directors of such bank or is directly or confidentiality of information under
indirectly the registered or beneficial owner Sections 2 and 3 of R.A. No. 1405, as
amended, duly executed by the issuer of the date the violation was committed up to
the mortgage or bond in favor of the BSP. the date it was corrected;
g. Reportorial requirements. A bank (b) Suspension or revocation of the
authorized by the BSP to act as trustee of trust license;
the proceeds of mortgage or bond issuance (c) Suspension for one hundred twenty
of a municipality, GOCC or controlled (120) days without pay of the directors/
corporation, or body politic shall comply officers responsible for the violation.
with reportorial requirements that may be
prescribed by the BSP. § X409.17 Trust fund of pre-need
h. Applicability of the rules and companies. The following rules and
Regulations on Trust, Other Fiduciary regulations shall govern the acceptance,
Business and Investment Management management and administration of the trust
Activities. The provisions of the Rules and funds of pre-need companies by banks and
Regulations on Trust, Other Fiduciary other entities authorized to perform trust
Business and Investment Management and other fiduciary functions.
Activities not inconsistent with the a. Administration of trust fund. In line
provisions of this Subsection shall form part with the policy of providing greater
of these rules. protection to pre-need planholders,
i. Sanctions. Without prejudice to the prudential measures are hereby laid out in
penal and administrative sanctions the administration of trust funds of preneed
provided for under Sections 36 and 37, companies. The trust fund, inclusive of
respectively, of the R.A. No. 7653, violation earnings, shall be administered and
of any provision of this Subsection shall be managed by the trustee with the skill, care,
subject to the following sanctions/penalties prudence and diligence necessary under
depending on the gravity of the offense: the circumstances then prevailing that a
(1) First offense – prudent man, acting in the same capacity
(a) Fine of up to P10,000 a day for the and familiar with such matters, would
institution for each violation reckoned from exercise in the conduct of an enterprise of
the date the violation was committed up a like character and similar aims.
to the date it was corrected; and The trustee shall have exclusive
(b) Reprimand for the directors/officers management and control over the trust
responsible for the violation. fund and the right at any time to sell,
(2) Second offense – convert, invest, change, transfer or
(a) Fine of up to P20,000 a day for the otherwise dispose of the assets comprising
institution for each violation reckoned from the funds.
the date the violation was committed up b. Trustee. No trust entity shall act as a
to the date it was corrected; trustee or administer or hold a trust fund
(b) Suspension for ninety (90) days established by a pre-need company, which
without pay for directors/officers is a subsidiary or affiliate, as defined under
responsible for the violation; and existing BSP regulations, of such trust entity.
(c) Revocation of the authority to act Trust entities currently holding or
as trustees on any mortgage or bond administering trust funds of an affiliate
issuance by any municipality, GOCCs, or pre-need company may continue to act as
body politic. trustee of such funds after the transition
(3) Subsequent offense – period provided under Item “g” only upon
(a) Fine of up to P30,000 a day for the prior approval of the Monetary Board on
institution for each violation reckoned from the basis of a clear showing that no potential
conflict of interest will arise. An absence of purchase or acquire property from, or sell,
any exception or finding on conflicts of transfer, assign or lend money or property
interest during an examination of the trust to, or purchase debt instruments of, any of
entity shall be deemed as prima facie the departments, directors, officers,
evidence that no potential conflict of interest stockholders, employees, subsidiaries and
will arise. affiliates of the trustee and/or the trustor,
c. Investment of the trust fund. Unless and relatives within the first degree of
otherwise allowed under existing laws or consanguinity or affinity, or the related
regulations issued by the agency having interests, of such directors, officers and
jurisdiction and supervision over pre-need stockholders, without prejudice to any rule
companies, or with prior written approval that may be issued by the agency having
by said agency, loans and investments of jurisdiction and supervision over such
the trust funds shall be limited to: preneed company allowing such transaction
(1) Evidences of indebtedness of the with the prior written approval of such
Republic of the Philippines and of the BSP, agency. Such written approval shall clearly
and any other evidences of indebtedness specify the amount of the loan and/or
or obligations wherein the servicing and investment including the name of the
repayment of which are fully guaranteed concerned director, officer, stockholder and
by the Republic of the Philippines or loans their related interests.
against such government securities; e. Applicability of the Rules and
(2) Commercial papers duly registered Regulations on Trust, Other Fiduciary
with the SEC with a credit rating of one (1) Business and Investment Management
for short term and “AAA” for long-term or Activities (Trust Rules). The provisions of the
their equivalent; Trust Rules consistent with the provisions of
(3) Loans fully guaranteed by the this Subsection shall supplementarily apply
Republic of the Philippines, as to the to trust funds of pre-need companies.
payment of principal and interest; f. Penalties and sanctions. Any
(4) Loans fully secured by a hold-out violation of the provisions of this Subsection
on, assignment or pledge of deposits shall be a ground for prohibiting the
maintained either with the bank proper or concerned entity from accepting, managing
other banks, and/or of deposit substitutes and administering trust funds of pre-need
or of mortgage and chattel mortgage bonds companies without prejudice to the
issued by the trustee/fiduciary or by other imposition of the applicable sanctions
banks; prescribed or allowed under the Trust Rules.
(5) Loans fully secured by real estate g. Transitory provisions. Banks which
in accordance with Section 37 and subject are presently administering and managing
to the requirements of Sections 39 and 40 trust funds of pre-need companies are
of R.A. No. 8791 and their implementing hereby given a period of one (1) year from
regulations; and 25 April 2006 to comply with the
(6) Loans fully secured by requirements hereof.
unconditional payment guarantees (such as (Memorandum to All Banks and NBFIs dated 28 March 2006)
standby letters of credit and letter of
indemnity) issued by banks/multilateral Sec. X410 Unit Investment Trust Funds/
financial institutions. Common Trust Funds.1 The following rules
d. Transactions with DOSRI. The and regulations shall govern the creation,
trustee shall not, for the account of the administration and investment/s of Unit
trustor or the beneficiary of the trust, Investment Trust (UIT) Funds.
1
The regulations on common trust funds (CTFs) were relocated to Appendix 60. UIT Funds regulations took effect on
01 October 2004 (effectivity of Circular 447 dated 03 September 2004).
The rules and regulations on Common h. Investor fund. A UIT Fund created
Trust Funds (CTFs) are in Appendix 60. to take the form of a feeder fund or a fund-
of-funds and is approved by the Bangko
§ X410.1 Definitions Sentral under existing Bangko Sentral
a. Unit Investment Trust Funds. Unit regulations.
Investment Trust Funds are open-ended i. Multi-class fund. A UIT fund structure
pooled trust funds denominated in pesos which has more than one (1) class of units
or any acceptable currency, which are in the fund and is invested in the same pool
operated and administered by a trust entity of securities and the same portfolio,
investment objectives and policies.
and made available by participation. The
j. Related party/company. For the
term Unit Investment Trust Funds is
purpose of this Section, the term refers to
synonymous to CTFs. As an open-ended
another entity which is the trust entity’s
fund, participation or redemption is allowed
(a) parent or holding company or
as often as stated in its plan rules. (b) subsidiary or affiliate, and wholly or
UIT Funds shall not include long term majority-owned or controlled-entities of
funds designed for the primary purpose of such subsidiaries.
availing the tax incentives/exemption under (As amended by Circular Nos. 853 dated 21 October 2014 and
Section 24(B)(1) of R.A. No. 8424 (The Tax 767 dated 21 September 2012)
Reform Act of 1997).
b. Trust entity. Trust entity as defined § X410.2 Establishment of a Unit
under Section X403. Investment Trust Fund. Any trust entity
c. Board of directors. For this purpose, authorized to perform trust functions may
the term shall include a trust entity’s duly establish, administer and maintain one (1)
or more UIT Funds subject to applicable
constituted board of directors or its
provisions under this Section. A UIT Fund
functional oversight equivalent which shall
may be allowed to operate as a 1) feeder
include the country head in the case of
fund, 2) fund-of-funds and/or 3) multi-class
foreign banks.
fund: Provided, That the plan rules and
d. Collective investment scheme. An related documents shall state that the UIT
investment vehicle where funds are solicited Fund is a feeder fund or a fund-of-funds,
from investors for collective investment and and/or multi-class fund, and provide an
which are managed for the account of such explanation or illustration of such
investors. structures.
e. Feeder fund. A UIT Fund structure (As amended by Circular Nos. 853 dated 21 October 2014 and
that mandates the fund to invest at least 767 dated 21 September 2012)
ninety percent (90%) of its assets in a single
collective investment scheme. § X410.3 Administration of a Unit
f. Fund-of-funds. A UIT Fund structure Investment Trust Fund. The trustee shall
have exclusive management and control
that mandates the fund to invest at least
of each UIT Fund under its
ninety percent (90%) of its assets in more
administration, and the sole right at any
than one (1) collective investment scheme.
time to sell, convert, reinvest, exchange,
g. Target fund. A local or foreign
transfer or otherwise change or dispose
collective investment scheme in which the of the assets comprising the fund:
UIT Fund invests all or a portion of its Provided, That no participant in a UIT
assets. Fund shall have or be deemed to have any
ownership or interest in any particular Net Assets is divided by the total outstanding
account or investment in the UIT Fund but units. Total Net Assets is a summation of
shall have only its proportionate beneficial the market value of each investment less
interest in the fund as a whole. fees, taxes, and other qualified expenses,
as defined under the plan rules.
§ X410.4 Relationship of trustee with When there is a different fee structure
Unit Investment Trust Fund. A trustee for each class, the NAVPu of each class shall
administering a UIT Fund shall not have any be computed by dividing total net assets of
other relationship with such fund other a class by the total outstanding units of such
than its capacity as trustee of the UIT Fund: class; where the net assets of each class shall
Provided, however, That a trustee which represent its proportionate share on the net
simultaneously administers other trust, assets of the multi-class fund less the trustee
fiduciary or investment management funds fee and expenses attributable to that class.
may invest such funds in the trustee’s UIT The net assets of the multi-class fund is the
Fund, if allowed under a policy approved summation of the market value of each
by the board of directors. investment less fees, taxes, and other
qualified expenses, but gross of trustee fees
§ X410.5 Operating and accounting and expenses attributable to a particular
methodology. A UIT Fund shall be class, as defined under the plan rules.
operated and accounted for in accordance (As amended by Circular No. 853 dated 21 October 2014)
with the following:
a. The total assets and accountabilities § X410.6 Plan rules. Each UIT Fund
of each fund shall be accounted for as a shall be established, administered and
single account referred to as pooled-fund maintained in accordance with a written
accounting method. The investments of a trust agreement drawn by the trustee,
multi-class fund shall remain as one (1) pool referred to as the “Plan” which shall be
and are not separately allocated to classes. approved by the board of directors of the
b. Contributions to each fund by clients trustee and a copy of which shall be
shall always be through participation in units submitted to the Bangko Sentral for
of the fund and each unit shall have uniform processing and approval prior to its
rights and privileges, as any other unit; in the implementation. Each new UIT Fund Plan
case of multi-class fund, units shall be filed for approval shall be charged a
processing fee of P10,000.00.
issued as units in a class of a fund.
The Plan shall contain the following
c. All such participations shall be
minimum elements:
pooled and invested as one (1) account
a. Title of the Plan. This shall
(referred to as collective investments).
correspond to the product/brand name by
d. The beneficial interest of each
which the UIT Fund is proposed to be
participation unit shall be determined under
known and made available to its clients.
a unitized net asset value per unit (NAVPu)
The Plan rules shall state the classification
valuation methodology defined in the
of the UIT Fund (e. g., money market fund,
written plan of the UIT Fund, and no
bond fund, balanced fund and equity fund).
participation shall be admitted to, or
b. Manner by which the fund is to be
redeemed from, the fund or class of a fund, operated. A statement of the fund’s
except on the basis of such valuation. To investment objectives and policies and
arrive at a fund’s NAVPu, the fund’s total limitations and, if applicable, the distinctive
features of the different classes of units such g. Aside from the regular audit
as the level of trustee fees and expenses for requirement applicable to all trust accounts,
each class and other peculiarities which the an external audit of each UIT Fund shall be
Bangko Sentral may allow. conducted annually by an independent
c. Risk disclosure. The Plan rules shall auditor acceptable to the Bangko Sentral and
state both the general risks and risks specific the results thereof made available to
to the type of fund. participants. The external audit shall be
d. Investment powers of the trustee conducted by the same external auditor
with respect to the fund, including the engaged for the audit of the trust entity.
character and kind of investments, which h. Basis upon which the fund may be
may be purchased, by the fund. There must terminated. The Plan rules shall state the
be an unequivocal statement of the full rights of participants in case of termination
discretionary powers of the trustee as far as of the fund. Termination of the fund shall
the fund’s investments are concerned. These be duly approved by the trustee’s board of
powers shall be limited only by the duly directors and a copy of the resolution
stated investment objective and policies of submitted to the appropriate department of
the fund. the Bangko Sentral.
e. The unitized NAVPu valuation i. Liability clause of the trustee. There
methodology as prescribed under Subsec. must be a clear and prominent statement
X410.5.d shall be employed. The plan rules adjacent to where a client is required to
shall also provide the method of sign the participating trust agreement that
determining the proportionate share of the (1) the UIT Fund is a trust product and
classes of units to the value of the assets of not a deposit account or an obligation of,
the fund. or guaranteed, or insured by the trust
f. Terms and conditions governing the entity or its affiliates or subsidiaries;
admission or redemption of units of (2) the UIT Fund is not insured or governed
participation in the fund. The Plan rules shall by the PDIC; (3) due to the nature of the
state that the trustee, prior to admission of investment, yields and potential yields
a client’s initial participation in the UIT cannot be guaranteed; (4) any loss/income
Fund, shall conduct a client suitability arising from market fluctuations and price
assessment to profile the risk-return volatility of the securities held by the UIT
orientation and suitability of the client to Fund, even if invested in government
the specific type of fund. If the frequency securities, is for the account of the client/
of admission or redemption is other than participant; (5) as such, the units of
daily; that is, any business day, the same participation of the investor in the UIT Fund,
should be explicitly stated in the Plan rules: when redeemed, may be worth more or be
Provided, That the admission and
worth less than his/her initial investment/
redemption prices shall be based on the end
contributions; (6) historical performance,
of day NAVPu of the fund or of the class of
when presented, is purely for reference
a fund, if applicable, computed after the cut-
purposes and is not a guarantee of similar
off time for fund participation and
future result; and (7) the trustee is not liable
redemption for that reference day, in
for losses unless upon willful default, bad
accordance with existing Bangko Sentral
faith or gross negligence.
regulations on mark to market valuation of
j. Amount of fees/commission and other
investment securities.
charges to be deducted from the fund. The
1
Example: "Fixed income securities" does not really mean a guarantee of fixed earnings on the investor's participation; "Risk-
free" government securities which may be sovereign "risk-free" but not interest rate "risk-free"
In addition to the agreement, every UIT conforms with the implementing rules and
Fund participant shall be provided with - regulations of R.A. No. 8792, otherwise
(1) CSA form to be accomplished during known as the E-Commerce Act.
the profiling process required under the c. Regular computation and
general principles on CSA. This is designed availability of NAVPu and other
to ensure that based on relevant information information. The trustee managing a UIT
about the client, his investment profile is fund shall:
matched against the investment parameters (1) Compute the NAVPu daily;
of the UIT Fund. At the minimum, client (2) Publish at least weekly the NAVPu
information shall include personal or in one (1) or more newspapers of national
institutional data, investment objective, circulation: Provided, That a pooled weekly
investment horizon, investment experience, publication of such NAVPu shall be
and risk tolerance; and considered as substantial compliance with
(2) Risk disclosure statement, which in this requirement. The said publication, at
reference to Subsec. X410.6c, shall describe the minimum, shall clearly state the name
the attendant general and specific risks that of the fund, its general classification, the
may arise from investing in the UIT Fund. fund’s NAVPu and the moving return on
This statement shall be accomplished by the investment (ROI) of the fund on a year-to-
client every time he participates in a different date (YTD) and year-on-year (YOY) basis;
fund and shall be substantially in the form and
as shown in Annex A of Appendix 62a. (3) Make available the historical net asset
Both documents shall be signed by the value per unit, declaration of trust or its
client/participant and the UIT marketing equivalent document, disclosure
personnel who assessed and explained to documents, and other pertinent information
the concerned client his/her ability to bear about a UIT Fund via its website or the Trust
the risks and potential losses. Officers Association of the Philippines
(b) A confirmation of participation and (TOAP)-administered website.
redemption made to/from the fund that shall d. Marketing personnel. The trustee
contain the following information: shall ensure that there are board-approved
(i) NAVPu of the fund on day of policies and procedures covering the
purchase/redemption; following:
(ii) Number of units purchased/ (1) Duties and responsibilities of all UIT
redeemed; and marketing personnel;
(iii) Absolute peso or foreign currency (2) Conduct of due diligence check on
value. the fitness and propriety of all UIT marketing
No indicative rates of return shall be personnel which includes monitoring and
provided in the trust participating agreement. reviewing on an ongoing basis their
Marketing materials may present relevant performance; and
historical performance purely for reference (3) Conduct of continuing training and
and with clear indication that past results education especially on updates relative to
do not guarantee similar future results. the fund products.
(3) A participating trust agreement or For purposes of this Subsection, a UIT
confirmation of contribution/redemption Fund may be sold by a bank employee
need not be manually signed by the trustee belonging to the same financial
or his authorized representative if the same conglomerate as the trustee, subject to the
is in the form of an electronic document that provision of the cross-selling framework.
(3) The target fund has no investment in shall be in place at all times. In this
other collective investment schemes; and respect, a daily reconcilement of the
(4) The target fund is supervised by a fund’s resultant marked-to-market value
regulatory authority, as follows: with the unrealized market losses and
(a) a local target fund shall either be gains (respective contra asset balance)
approved by the Bangko Sentral or registered versus the book value of the fund for
with the SEC. investments in financial instruments shall
(b) a target fund constituted in another be done and all differences resolved
jurisdiction shall be registered/authorized/ within the day.
approved, as the case may be, and is b. Custody of securities. Investments
recognized as a collective investment in securities of a UIT Fund shall be held
scheme in its home jurisdiction by a for safekeeping by Bangko Sentral
regulatory authority that is a member of the accredited third party custodians which
International Organization of Securities shall perform independent marking-to-
Commissions (IOSCO); or any regulatory market of such securities.
authority acceptable to the Bangko Sentral Investments in target funds of a UIT
to supervise the CIS. Fund structured as an investor fund shall
(As amended by Circular Nos. 852 dated 21 October 2014 and be held for safekeeping by an institution
767 dated 21 September 2012 , M-2010-033 dated 04 October registered/authorized/approved by a
2010, Circular Nos. 676 dated 29 December 2009 and 675 dated
22 December 2009) relevant regulatory authority in its home
jurisdiction to act as third party custodian.
§ X410.10 Other related guidelines on (As amended by Circular No. 767 dated 21 September 2012)
valuation of allowable investments
§ X410.12 Counterparties
a. In pricing debt securities, the
a. Dealings with related interests/bank
provision of Appendix 33a under the “Other
proper/holding company/subsidiaries/
Guidelines” section shall apply for non-
affiliates and related companies. A trustee
benchmark securities.
of a UIT Fund shall be transparent at all
b. In case outstanding UIT Fund
times and maintain an audit trail for all
investments may deteriorate in quality, i.e.,
transactions with related parties or entities.
no longer tradable as defined under Subsec.
The trustee shall observe the principle of
X410.9, the trustee shall immediately
best execution and no purchase/sale shall
provision to reflect fair value in accordance
be made with related counterparties
with generally accepted accounting
without considering at least two (2)
principles or as may be prescribed by the
competitive quotes from other sources.
Bangko Sentral. If no fair value is available,
Consistent with the provisions of
the instrument shall be assumed to be of no
Subsec. X410.4, a trustee may invest the
market value.
(As amended by Circular No. 813 dated 27 September 2013) funds of a UIT Fund structured as an
investor fund in a target fund that is
§ X410.11 Unit Investment Trust Fund administered by the trustee or its related
administration support party/company: Provided, That:
a. Backroom operations. Administrative (i) there shall be no cross-holding
rules on backroom under Sec. X421 shall between the investor fund and the target
be applicable to UIT Fund. Adequate fund, where cross-holding refers to the
systems to support the daily marking-to- holding of shares/units of participation in
market of the fund’s financial instruments one another by two (2) or more funds;
(ii) all initial charges on the target fund Secs. X303, X330 and X331, respectively,
are waived; and applicable to trust funds in general shall not
(iii) the trust/management fee shall be be made applicable to UIT Funds.
charged only once, either at the level of the
investor fund or at level of the target fund. Sec. X411 Investment Management
b. Accreditation of counterparties. The Activities. The conduct of investment
Fund shall only invest with approved management activities shall be subject to the
counterparties qualified in accordance with following regulations.
the policy duly approved by the Trust
Committee. Counterparties shall be subject § X411.1 Minimum documentary
to appropriate limits in accordance with requirements. An investment management
sound risk management principles. account shall be covered by a written
(As amended by Circular No. 767 dated 21 September 2012) document establishing such account, as
follows:
§ X410.13 Foreign currency- a. In the case of accounts created by
denominated unit investment trust funds corporations, business firms,
UIT Fund denominated in any acceptable organizations or institutions, the voluntary
foreign currency provided under existing written agreement or indenture entered
Bangko Sentral rules and regulations may into by the parties, accompanied by a
be established. Such fund may only be copy of the board resolution or other
invested in allowable investments evidence authorizing the establishment of
denominated in pesos or any acceptable and designating the signatories to, the
foreign currency as expressly allowed under investment management account.
the fund’s plan rules and properly disclosed b. In the case of accounts created by
to fund participants. individuals, the voluntary written
agreement or indenture entered into by the
§ X410.14 Exemptions from statutory parties.
and liquidity reserves, single borrower’s The voluntary written agreement or
limit, director, officers, stockholders and contract shall include the following
their related interests. The provisions on minimum provisions:
reserves, single borrower’s limit and DOSRI (1) Pre-numbered contractual agreement
ceilings under Subsec. X405.5, and form;
a. Lend, sell, transfer or assign money (1) The transaction to be entered into;
or property to any of the departments, (2) Identities of the parties involved in
directors, officers, stockholders, or the transaction and their relationships
employees of the investment manager, or (shall not apply to Item “d” of this
relatives within the first degree of 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
percent (50%) of the subscribed capital or or in the very instrument creating the
voting stock in its own right and not as investment management relationship.
trustee nor in a representative capacity;
b. Purchase or acquire property or debt § X411.6 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
relatives within the first degree of or registered in the name of the principal
consanguinity or affinity, or the related or of the investment manager: Provided,
interests of such directors, officers and That in case of the latter, the instrument
stockholders; or from any corporation shall indicate that the investment manager
where the investment manager owns at least is acting in a representative capacity and
fifty percent (50%) of the subscribed capital that the principal’s name is disclosed
or voting stock in its own right and not as thereat.
trustee nor in a representative capacity;
c. Invest in equities of, or in securities § X411.7 Ceilings on loans. Loans
underwritten by, the investment manager funded by IMAs shall be subject to the
or a corporation in which the investment DOSRI ceilings imposed on banks and IHs
manager owns at least fifty percent (50%) under Secs. X330 and X331. For purposes
of the subscribed capital or voting stock in of determining compliance with said
its own right and not as trustee nor in a ceilings, the total amount of said loans
representative capacity; and granted by the trust department and the bank
d. Sell, transfer, assign or lend money proper to the same person, firm or
or property from one trust, fiduciary or corporation shall be combined.
investment management account to
another trust, fiduciary or IMA except where § X411.8 Other applicable regulations
the investment is in any of those enumerated on loans and investments. The loans and
in Items “a” to “d” of Subsec. X411.4. investments of IMAs shall be subject to
Directors, officers, stockholders, and pertinent laws, rules and regulations for
their related interests covered by this banks that shall include, but need not be
Subsection shall be those considered as limited to, the following:
such under existing regulations on loans a. Requirements of Sections 39 and 40
to DOSRI in Part III-E of this Manual. The of R.A. No. 8791 (The General Banking
procedural and reportorial requirements in Law of 2000);
said regulations shall also apply. b. Provisions of Section 4(e) of the New
The disclosure required under this Rules on Registration of Short-Term
Subsection shall consist of the following Commercial Papers and Section 7(f) of the
minimum information: New Rules on Registration of Long-Term
Commercial Papers issued by the SEC closing rate and the New York US dollar/
(Appendices 13 and 14); third currencies closing rate; and
c. Criteria for past due accounts; (4) The investment manager shall
d. Qualitative appraisal of loans, comply with the reportorial requirements
investments and other assets that may that may be prescribed by the BSP, which
require provision for probable losses which shall include as a minimum, the foreign
shall be booked in accordance with the currency amount and the local currency
FRPTI; equivalent of the total cross currency
e. Requirements of Sections 3 and 8 investments with details on: (a) type of
of the SRC; and investments; and (b) amount of cash flow
f. Provisions of Section 44 – converted.
Investments by Philippine Residents – of the For purposes of this Subsection,
FX Manual, such that the cross-currency “resident”, as defined under Section 1 of the
investments of peso IMAs, shall be subject FX Manual, shall refer to the principal that
to the following conditions: engages the services of the investment
(1) All cash flows of the investment manager under an investment management
manager shall only be in pesos. In case the agreement.
foreign exchange acquired or received by (Circular No. 676 dated 29 December 2009)
the principal as dividends/earnings or
divestment proceeds on such investment are § X411.9 Operating and accounting
intended for reinvestment abroad, the same methodology. IMAs shall be operated and
proceeds are not required to be inwardly accounted for in accordance with the
remitted and sold for pesos through following:
authorized agent banks: Provided, That such a. The investment manager shall
proceeds are reinvested abroad within two administer, hold, or manage the fund or
(2) banking days from receipt of the funds property in accordance with the instrument
abroad; creating the investment management
(2) The investment manager shall relationship; and
purchase, invest, reinvest, sell, transfer or b. Funds or property of each client
dispose foreign currency-denominated shall be accounted separately and distinctly
financial instruments, including securities from those of other clients herein referred
as defined in Section 3 of the SRC, through to as individual account accounting.
a distributor or underwriter duly (As amended by Circular No. 676 dated 29 December 2009)
authorized or licensed by the government
of the issuer of such instruments, or a § X411.10 Tax-exempt individual
counterparty financial institution (seller or investment management accounts. The
buyer) authorized in writing by the following shall be the features/requirements
principal and/or accredited by the of IMAs of individuals which may be
investment manager: Provided, That, the exempted from the twenty percent (20%)
conduct, documentation, and settlement final tax under Section 24(B)(1) of R.A. No.
of any of these transactions shall be 8424 (The Tax Reform Act of 1997):
outside Philippine jurisdiction; a. The tax exemption shall apply to
(3) The investment manager shall investment management agreements
record cross-currency investment contracted on or after 03 January 2000;
transactions in the peso regular books at b. The investment management
their foreign currency amounts and their agreement shall only be between individuals
local currency equivalent using the who are Filipino citizens or resident aliens
Philippine Dealing System peso/US dollar and investment manager-banks. The
agreement shall be non-negotiable and date when the additional funds were
non-transferable; received by the investment manager-bank
c. The minimum amount of investment to serve as basis for determining the
for an IMA shall be P1.0 million; minimum five (5)-year holding period for tax
d. The investment management exemption purposes of the additional funds;
agreement shall indicate that pursuant to and
Section 24(B)(1) of R.A. No. 8424, interest f. Tax-exempt individual IMAs
income of the investment management established under this Subsection shall be
funds derived from investments in subject to the provisions of Subsecs.
interest-bearing instruments (e.g., time X411.1(b) and X411.2 up to X411.8.
deposits, government securities, loans (As amended by Circular No. 676 dated 29 December 2009)
and other debt instruments) which are
otherwise subject to the twenty percent Sec. X412 Foreign Currency Deposit Unit/
(20%) final tax, shall be exempt from said Expanded Foreign Currency Deposit Unit
final tax provided the funds are held under Trust Accounts; Other Fiduciary or
investment management by the investment Investment Management Accounts. Only a
manager for at least five (5) years. If said bank with authority to operate a foreign
funds are held by the investment manager currency deposit unit (FCDU) or an
for a period less than five (5) years, interest expanded foreign currency deposit unit
income shall be subject to a final tax which (EFCDU) under R.A. No. 6426, as amended,
shall be deducted and withheld from the may accept foreign currency-denominated
proceeds of the IMA based on the trust, other fiduciary or IMAs.
following schedule– (As amended by Circular No. 666 dated 24 September 2009)
or IMAs shall deposit with the Bangko capital stock and no part of such surplus
Sentral additional eligible government shall at any time be paid out in dividends
securities under Subsec. X405.2 as security but losses accruing in the course of its
for the faithful performance of trust duties business may be charged against surplus.
or investment management activities
equivalent to at least one percent (1%) of B. INVESTMENT MANAGEMENT
the value of the FCDU/EFCDU trust or ACTIVITIES
investment management assets based on the
average of the month-end balances of such Sec. X414 Authority to Perform
assets during the immediately preceding Investment Management. Banks may be
quarter as converted in the local currency authorized by the Monetary Board to act as
at the prevailing foreign exchange rate. Such managing agent, adviser, consultant or
securities shall be deposited within thirty administrator of investment management/
(30) banking days after the end of every advisory/consultancy account under Section
calendar quarter. 53.4 of R.A. No. 8791. However, such
(As amended by Circular No. 666 dated 24 September 2009) authority shall not be construed to include
the authority to engage in trust and other
§ X412.3 Applicability of rules and fiduciary business under Chapter IX of R.A.
regulations. Unless otherwise revised by the No. 8791.
provisions of this Section, the rules and If a bank is found to engage in
regulations governing the administration of unauthorized investment management
trust, other fiduciary or IMAs, including activities, the Monetary Board may impose
UITFs, shall be observed. Also applicable administrative sanctions against such bank
are rules and regulations on the operations or its principal officers and/or majority
of FCDUs/EFCDUs that include, among stockholders or proceed against them in
other things, regulations on acceptable accordance with law.
foreign currencies, eligible and ineligible The Monetary Board may take such
foreign currency sources; foreign currency action as it may deem proper such as, but
cover requirements; and allowable loans and may not be limited to, requiring the transfer
investments. or turnover of any IMA to duly incorporated
(As amended by Circular No. 666 dated 24 September 2009) and licensed entities of the choice of the
client.
§ X412.4 Liquidity requirement for A bank not authorized to engage in
foreign currency deposit unit/expanded investment management activities shall not
foreign currency deposit unit common advertise or represent itself as being
trust funds engaged in investment management
(Deleted by Circular No. 666 dated 24 September 2009) activities or represent itself as investment
manager or use words of similar import.
Sec. X413 Required Surplus. A bank
authorized to engage in trust and other fiduciary § X414.1 Required capital. Banks
business shall, before the declaration of applying for authority to perform investment
dividends, carry to surplus at least ten percent management activities must have minimum
(10%) of its net profits realized out of its trust, capital accounts of not less than P300
investment management and other fiduciary million or such amount as may be required
business since the last preceding dividend by the Monetary Board or other regulatory
declaration until the surplus shall amount to agency.
twenty percent (20%) of its authorized (As amended by Circular No. 756 dated 24 April 2012)
based on their book value, that is, cost as ii. Non-monetary penalty beginning
increased or decreased by the corresponding with the third offense (all banks) -
discount or premium amortization. Prohibition against the acceptance of new
The base amount for the basic security IMAs and from renewing expiring
deposit shall be the average of the month- investment management contracts up to the
end balances of the total assets of investment time the violation is corrected.
management funds of the immediately b. On the Head of the Investment
preceding calendar quarter. Management Department and/or other
officers responsible for the deficiency/
§ X415.4 Compliance period; sanctions non-compliance:
The investment manager shall have thirty (1) First offense - warning that
(30) calendar days after the end of every subsequent violations shall be dealt with
calendar quarter within which to deposit more severely;
with the Bangko Sentral securities required (2) Second offense - written reprimand
under this Section. with a stern warning that subsequent
The following sanctions shall be violations shall be subject to suspension;
imposed for any deficiency in the basic (3) Third offense - thirty (30) calendar
security deposit for the faithful performance day-suspension without pay; and
of investment management activity: (4) Subsequent offense(s) - sixty (60)
a. On the bank: calendar day-suspension without pay.
i. Monetary penalty/ies: For purposes of determining the
Offense Third and frequency of the violation, the bank’s
Trust First Second subsequent compliance profile for the immediately
Asset Size offense(s) preceding three (3) years or twelve (12)
TBs/RBs with quarters will be reviewed: Provided, That
Limited Trust P300.00 P400.00 P500.00 for purposes of determining appropriate
Authority penalty on the head of the Investment
Up to Management Department and/or other
P500 P600.00 P700.00 P800.00 responsible officer(s), any offense
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
Sec. X416 Organization and Management but losses accruing in the course of its
The provisions of Sec. X406 up to Subsec. business may be charged against surplus.
X406.9 shall govern the organization and
management of banks without trust license C. GENERAL PROVISIONS
which are engaged in investment
management activities only. The following Sec. X421 Books and Records. The bank’s
terms shall, however, be used: trust department or investment management
a. Investment management activities, department shall keep books and records
in lieu of trust and other fiduciary business; on trust, other fiduciary and IMAs separate
b. Investment management accounts, and distinct from the books and records of
in lieu of trust and other fiduciary accounts; its other businesses and shall follow the
c. Investment management committee, FRPTI prescribed by the BSP.
in lieu of trust committee; Each trust, other fiduciary or IMA shall
d. Investment management officer, in have a record separate from all other
lieu of trust officer; and accounts except only in the case of CTFs
e. Investment management department, where the trustee can maintain common
in lieu of trust department. records utilizing pooled fund accounting
(As amended by M-2007-009 dated 22 March 2007) method for each fund: Provided, That the
trustee shall clearly indicate in the records
Sec. X417 Non-Investment Management the trustors owning participation in the
Activities. The provisions of Sec. X407 shall CTF and the extent of the interest of such
apply in determining non-investment trustors.
management activities except that the terms Books and records shall contain full
trust, other fiduciary, trustee and fiduciary information relative to each trust, other
shall be disregarded. fiduciary or IMA and shall be supported by
duplicate signed copies of related
Sec. X418 Unsound Practices. The documents. Said records and duplicate
provisions of Sec. X408 shall govern the signed copies of related documents shall be
unsound practices for IMAs. compiled and kept as to allow inspection
by BSP examiners and submission of
Sec. X419 Conduct of Investment information or reports as may be required
Management Activities. The provisions of by competent authorities.
Secs. X411 and X412 shall govern the The bank’s trust department or
conduct of investment management investment management department shall
activities of a bank without a trust license. maintain separate general ledger accounts
(As amended by Circular No. 666 dated 24 September 2009) and other relevant sub-accounts for tax-
exempt individual trust accounts, CTFs and
Sec. X420 Required Surplus. A bank individual management accounts
authorized to engage in investment established under Section 24(B)(1) of
management activities shall, before the R.A. No. 8424 and Subsecs. X409.8,
declaration of dividends, carry to surplus at X411.9, and Item “8” of Appendix 60. The
least ten percent (10%) of its net profits bank’s trust department or investment
realized out of its investment management management department shall also adopt
activities since the last preceding dividend appropriate systems, internal control
declaration until the surplus shall amount procedures and audit trail mechanisms to
to twenty percent (20%) of its authorized ensure that the correct amount of final tax
capital stock and no part of such surplus is withheld or exempted from such accounts.
shall at any time be paid out in dividends, (As amended by Circular No. 653 dated 05 May 2009)
Sec. X422 Custody of Assets. All moneys, persons or entities unless the rebates, fees
properties or securities received by a bank and other payments shall accrue to the
in its capacity as trustee, fiduciary, or benefit of the trust, other fiduciary or IMA
investment manager shall be kept physically or the beneficiaries thereof.
separate and distinct from the assets of its Officers and employees of the trust
other businesses and shall be under the joint department or investment management
custody of at least two (2) persons, one of department of banks, while serving as such,
whom shall be an officer of the trust or shall be prohibited from retaining any
investment management department, compensation for acting as co-trustee or
designated for that purpose by the board of fiduciary in the administration of a trust,
directors. other fiduciary or IMA.
The investment of each trust, other No bank shall collect, for its own
fiduciary or investment management account, referral and/or arrangement fees,
account shall be kept physically separated or any other fees that take the nature of
from those of other trust, other fiduciary or payment to the bank from whatever source,
IMAs, and adequately identified as the assets in connection with loans sourced from trust
or property of the relevant account. funds managed by its trust department:
Provided, That if such fees are collected, the
Sec. X423 Fees and Commissions. A bank same shall be properly disclosed to the
acting as trustee, fiduciary or investment trustor, and shall accrue to the benefit of
manager shall be entitled to reasonable fees the trust, in accordance with the provisions
and commissions which shall be of Secs. X401 and X407.
determined on the basis of the cost of (As amended by Circular No. 541 dated 30 August 2006)
services rendered and the responsibilities
assumed: Provided, That where the trustee, Sec. X424 Taxes. The terms and conditions
fiduciary or investment manager is acting of trust, other fiduciary or investment
as such under appointment by a court, the management agreements including CTF
compensation shall be that allowed or plans shall contain provisions regarding the
approved by the court: Provided, further, applicability of regulations governing
That in the case of CTFs, the fee which a taxation on the income of trust, other
trustee may charge each participant shall be fiduciary or IMAs. For this purpose, the
fully disclosed by the trustee in the CTF plan, trustee, fiduciary or investment manager
prospectus, flyers, posters and in all forms shall maintain adequate records and shall
of advertising materials to market the funds include information such as the amount of
and in the documents given to clients as final income tax withheld at source and the
proof of participation in the fund. In no case amount withheld by the trustee, fiduciary
shall such fees and commissions be based or investment manager in the periodic
on the excess of the income of the trust, reports submitted to trustors, beneficiaries,
other fiduciary or investment management principals and other parties in interest.
funds over a certain amount or percentage. With respect to tax-exempt CTFs,
No trustee, fiduciary or investment individual trust and IMAs established under
manager shall solicit or receive rebates on Section 24(B)(1) of R.A. No. 8424, the
commissions, fees and other payments for bank’s trust department or investment
the services rendered to the trust, other management department shall be
fiduciary or IMA or beneficiaries of the trust, responsible for obtaining the tax-exemption
other fiduciary or IMA by stockbrokers, real certifications which may be required by the
estate brokers, insurance agents and similar BIR for the interest-bearing instruments
where the CTFs, individual trust funds and c. The reports shall be prepared in
investment management funds will be such frequency as required under the
invested. Likewise, the banks shall ensure agreement but shall not in any case be longer
that the correct amount of final tax on the than once every quarter; and
interest income on the interest-bearing d. The reports shall be made available
instruments is withheld/deducted from the to clients not later than twenty (20) calendar
proceeds from the CTF participation, trust days from the end of the reference date/
or IMA and remitted to the BIR in the event period in Item “c” above.
said tax becomes due such as when funds
are withdrawn before the required five (5)- § X425.2 To the Bangko Sentral. A bank
year holding period or when corporations acting as trustee, fiduciary or investment
happen to invest in the tax-exempt trust manager shall submit periodic reports
instruments created within the purview of prescribed by the appropriate department
R.A. No. 8424. of the SES on the bank’s trust and other
fiduciary business and investment
Sec. X425 Reports Required management activities within the deadlines
indicated in Appendix 6.
§ X425.1 To trustor, beneficiary,
principal. A bank acting as trustee, fiduciary § X425.3 Audited financial statements
or investment manager shall render reports The trust/investment management
on the trust, other fiduciary or IMAs to the department shall adopt the provisions of
trustor, beneficiary, principal or other party the Philippine Financial Reporting
in interest or the court concerned or any Standards (PFRS)/Philippine Accounting
party duly designated by the court order, as Standards (PAS) in all respect, for purposes
the case may be, under the following of preparing the AFS of its trust and other
guidelines: fiduciary and investment management
a. The reports shall be in such forms activities. The following guidelines shall
as to apprise the party concerned of the likewise be observed in the preparation
significant developments in the of the AFS:
administration of the account and shall (a) The provisions of PFRS/PAS shall
consist of: be adopted effective the annual financial
(1) A balance sheet; statements beginning 01 January 2008;
(2) An income statement; (b) A complete set of financial
(3) A schedule of earning assets of the statements shall comprise of the following:
account; and (1) Balance sheet as of the end of the
(4) An investment activity report. period;
b. Items (3) and (4) above shall include (2) Income statement for the period;
at least the following: (3) Statement of changes in
(1) Name of issuer or borrower; accountabilities, which shall show a
(2) Type of instrument; reconciliation of the net carrying amount at
(3) Collateral, if any; the beginning and end of the period of the
(4) Amount invested; following accounts:
(5) Earning rate or yield; (i) principal;
(6) Amount of earnings; (ii) accumulated income; and
(7) Transaction date; and (iii) net unrealized gains/(losses) on
(8) Maturity date; available for sale financial assets, separately
disclosing the changes in each of the bank with its clients prepared based on
foregoing accounts; the Generally Accepted Accounting
(4) Notes, which shall comprise of a Principles (GAAP) previously applied,
summary of significant accounting shall be presented in the notes to financial
policies and other disclosure requirements statements: Provided, further, That
provided under PFRS/PAS: Provided, That comparative periods shall be presented in
for purposes of complying with the the AFS for the financial reporting period
disclosure of the nature and extent of risks beginning 01 January 2009 and
arising from financial instruments as thereafter.
required under PFRS 7, disclosure (e) The following transitory rules and
statements may be made based on the regulations shall govern the accounting
general categories of contractual treatment of specific items for purposes
relationships (i.e., UITF-trust, institutional- of preparing the AFS for the financial
trust, and individual-trust; other fiduciary; reporting period beginning 01 January
institutional-agency, and individual- 2008:
agency; and special purpose trust) of the (1) The provisions of PFRS/PAS shall
trust/investment management department only be applied to accounts outstanding
of a bank with its clients; and as of end-December 2008;
(5) Balance sheet as at the beginning (2) Reclassification of previously
of the earliest comparative period when a recognized financial instruments shall no
trust/investment management department longer be allowed except as allowed
applies an accounting policy under existing regulations;
retrospectively or when it makes a (3) The fair value of ROPA and
retrospective restatement of items in the Investment Properties as of the date of
financial statements, or when it transition to PFRS/PAS may be used as the
reclassifies items in the financial deemed cost of said properties as of that
statements. date: Provided, That said ROPA and
(c) The balance sheet, income Investment Properties shall be
statement and statement of changes in subsequently accounted for in accordance
accountabilities shall be presented for with the provisions of the FRPTI.
each of the general categories of (Circular No. 653 dated 05 May 2009)
contractual relationships (i.e., UITF-trust,
institutional-trust, and individual-trust; § X425.4 Post-bond flotation report
other fiduciary; institutional-agency, and (Superseded by Circular No.769 dated 26
individual-agency; and special purpose September 2012)
trust) of the trust/investment management
department of a bank with its clients; Sec. X426 Audits
(d) Comparative information for
periods before 01 January 2008 need not § X426.1 Internal audit. The bank’s
be presented in the AFS for the financial internal auditor shall include among his
reporting period beginning 01 January functions, the conduct of periodic audits of
2008: Provided, That disclosure the trust department or investment
statements on the end-2007 balances of management department at least once every
total assets of the general categories of twelve (12) months. The board of directors,
contractual relationships of the trust/ in a resolution entered in its minutes, may
investment management department of a also require the internal auditor to adopt a
suitable continuous audit system to
and examining department of the Bangko operations) and other related documents
Sentral. The application shall be signed by embodying the risk management system
the highest ranking officer of the bank and must be submitted to the appropriate
shall be accompanied by a certified true supervising and examining department at
copy of the resolution of the bank’s board the time of application for authority and
of directors authorizing the bank to engage within thirty (30) days from updates;
in securities custodianship and/or registry f. It must have adequate technological
and, in the case of a branch of a foreign capabilities and the necessary technical
bank, approval by its highest ranking expertise to ensure the protection, safety and
regional officer with proof of delegated integrity of client assets, such as:
authority from the bank’s board of directors. (1) It can maintain an electronic registry
dedicated to recording of accountabilities
§ X441.5 Pre-qualification requirements to its clients; and
for a securities custodian/registry (2) It has an updated and
a. The securities custodian must be a comprehensive computer security system
bank that is authorized to engage in covering system, network and
investment management or trust business. telecommunication facilities that will:
The securities registry must be a bank. (a) limit access only to authorized
b. It must have complied with the users;
minimum capital accounts required under (b) preserve data integrity; and
existing regulations, as follows: (c) provide for audit trail of
(1) Domestic banks. The minimum transactions.
capital required under Subsec. X111.1 or the g. It has complied, during the period
minimum capital required for TBs operating immediately preceding the date of
in Metro Manila, whichever is higher. application, with the following:
(2) Branches of foreign banks. The (1) ceilings on credit accommodation
minimum capital required under Subsec. to DOSRI; and
X105.4.b. (2) single borrower’s limit.
c. Its risk-based capital adequacy ratio h. It has no reserve deficiencies during
is not lower than twelve percent (12%) at the eight (8) weeks immediately preceding
the time of filing the application; the date of application;
d. It must have a CAMELS composite i. It has set up the prescribed
rating of at least “4” (as rounded off) in the allowances for probable losses, both general
last regular examination; and specific, as of date of application;
e. It must have in place a j. It has not been found engaging in
comprehensive risk management system unsafe and unsound practices during the last
approved by its board of directors (or six (6) months preceding the date of
equivalent management committee in the application;
case of foreign bank branches) appropriate k. It has generally complied with laws,
to its operations characterized by a clear rules and regulations, orders or instructions
delineation of responsibility for risk of the Monetary Board and/or Bangko
management, adequate risk measurement Sentral Management;
systems, appropriately structured risk limits, l. It has submitted additional
effective internal control and complete, documents/information which may be
timely and efficient risk reporting systems. requested by the appropriate supervision
In this connection, a manual of operations and examination department, such as, but
(which includes custody and/or registry not limited to:
1
Existing BSP-accredited custodian banks which intend to administer their securities custodianship business in the bank
proper shall be given thirty (30) banking days from 01 April 2011 to comply with the provisions of this Subsection.
________________
1
Trust entities of banks that do not meet the requirements shall be given twelve (12) months from
10 September 2012 to comply.
MANUAL OF REGULATIONS ON
FOREIGN EXCHANGE TRANSACTIONS
For the updated version of the Manual of Regulations on Foreign Exchange Transactions,
please refer to http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT.pdf
PART SIX
for repo agreements subject to the collateral sanctions to a bank and/or its director/s or
requirement prescribed by the BSP. officer/s found to be responsible for
(4) Delivery. Delivery of the underlying violation of the provisions on the terms and
instruments shall be made to the BSP at the conditions of the USD denominated repo
prescribed time. For overnight repo agreement with the BSP:
agreements, delivery of the underlying (1) Termination of eligibility and
instruments shall be made not later than pre-termination of any outstanding balance
12:00 noon of the date of transaction. through repayment and/or sale of the
Government securities which are held collateral;
by the issuer of the repo agreement under (2) Fine of up to P30,000 per
the book-entry system with the BSP may transaction per day of violation reckoned
be used as underlying instruments only from the time the violation was committed
with the conformity of the BSP. up to the date it is corrected;
(5) Upon termination of the repo (3) Suspension of interbank clearing
agreement, the issuer of such agreement privileges/immediate exclusion from
shall claim and take delivery of the clearing;
underlying instruments at the Treasury (4) Suspension of access to BSP
Department, BSP. Failure to claim and take rediscounting facilities;
delivery of the underlying instruments (5) Suspension of lending or foreign
immediately upon such termination shall exchange operations or authority to accept
relieve the BSP of any liability or new deposits or make new investments;
responsibility for the loss or misplacement (6) Revocation of authority to perform
of said instruments. trust operations;
b. US dollar (USD) denominated repo (7) Revocation of quasi-banking
agreement facility may likewise be effected license;
with the BSP, subject to the following terms (8) Suspension for 120 days without
and conditions, and as may be provided pay of the officers and/or directors
under the repo agreement facility: responsible for the violation; and
(1) Eligible borrowers. The USD (9) Other sanctions as may be
denominated repo agreement facility shall provided by law.
only be available to banks with legitimate (As amended by Circular Nos. 631 dated 12 November 2008,
foreign currency denominated funding 627 dated 23 October 2008, M-2008-034 dated 12 November
needs as may be provided under the repo 2008 and M-2008-031 dated 23 October 2008)
agreement facility: Provided, That the
borrowing shall be for the account of the § X601.2 Reverse repurchase
applicant bank and shall not be used to fund agreements with Bangko Sentral. Reverse
liquidity requirements of foreign branches, repo agreements may be effected with the
affiliates, or subsidiaries. BSP subject to the following terms and
(2) Collateral. Only USD denominated conditions:
obligations of the National Government of a. Rate. The rates shall be set by the
the Republic of the Philippines shall be Treasury Department, with the concurrence
eligible as collateral. of the Governor, taking into account the
(3) The guidelines on the availment of prevailing liquidity/market conditions.
USD denominated repo agreement with b. Term. At the option of the Treasury
the BSP are shown in Appendix 86. Department, availments may be for a
The Monetary Board may, at its minimum of one (1) day (overnight) and a
discretion, impose any or all of the following maximum of 364 days.
c. Security. The collateral shall consist the last on or before 03 April 2009: Provided,
of obligations of the National Government further, That payments due shall be deducted
and other freely negotiable securities in the from the Regular Demand Deposit Account
BSP portfolio valued at 100%. (RDDA) of concerned banks. The BSP shall
d. Delivery. No delivery of the issue the certificate of final withholding tax
collateral shall be made, but a custody reflecting the amount of the FWT paid; and
receipt shall be issued instead. (3) Concerned banks shall issue the
e. Reservation. Prepayment may be corresponding debit authority to the BSP to
made by the BSP at its option anytime before cover the twenty percent (20%) FWT on
maturity. their overnight reverse repo agreements with
Effective 01 July 2003, published the BSP as mentioned in Item “2” above.
interest rates that will be applied on BSP’s (As amended by Circular Nos. 647 dated 03 March 2009 and
reverse repo agreements with banks shall 619 dated 22 August 2008)
be inclusive of Value Added Tax (VAT).
Reverse repo agreements entered into § X601.3 Settlement procedures on the
by the BSP with any AAB are included in purchase and sale of government securities
the definition of the term “deposit under repurchase agreements with the
substitutes” under Sec. 22 (y) Chapter 1 of Bangko Sentral. Purchase and sale of
the National Internal Revenue Code of 1997. government securities under repo
The BSP shall withhold twenty percent agreements (GS/repo agreements) between
(20%) Final Withholding Tax (FWT) on its and among banks and QBs and BSP in
overnight reverse repo agreements starting connection with the latter’s open market
01 January 2008, under the following operations shall be settled in accordance
guidelines: with the provisions of the agreement for the
(1) All overnight reverse repo PhilPaSS executed on 12 December 2002
agreements with the BSP shall be subject between the BSP and BAP/CTB/RBAP and
to the twenty percent (20%) FWT in the any subsequent amendments thereto.
same manner as term reverse repo (As superseded by the agreement between the BSP and BAP/
agreements, which tax is deducted on each CTB/RBAP dated 12 December 2002)
maturity date and remitted to the BIR;
(2) With respect to the overnight RRPs §§ X601.4 - X601.5 (Reserved)
from 01 January 2008 to 22 August 20081,
the concerned banks shall reimburse the BSP § X601.6 Bangko Sentral trading
the amount equivalent to forty percent (40%) windows and services during public sector
of the twenty percent (20%) FWT due holidays. The guidelines on BSP’s trading
thereon. However, banks which choose to windows and services during public sector
pay the whole twenty percent (20%) FWT holidays are shown in Appendix 84.
shall remit the amount equivalent to the sixty (M-2008-025 dated 13 August 2008)
percent (60%) balance thereof to the BIR,
through the BSP as withholding agent. In Secs. X602 - X610 (Reserved)
both cases, payment of the FWT to the BSP
shall be made on or before 03 April 2009, B. FINANCIAL INSTRUMENTS
either in full or in three (3) installments:
Provided, That a bank which intends to Sec. X611 (2008 - X602) Derivatives. A
pay in installments shall remit the first bank may engage in authorized derivatives
payment on or before 06 March 2009, the activities: Provided, That the bank:
second on or before 20 March 2009 and a. Understands, measures, monitors
1
Interest income payments from 01 January 2008 to 26 August 2008.
and controls the risks assumed from its Financial derivatives activities shall
derivatives activities; also include transactions in cash
b. Adopts effective risk management instruments with embedded derivatives
practices whose sophistication are that reshape the risk-return profile of the
commensurate to the risks being monitored host instrument, such as credit-linked
and controlled; and notes (“CLNs”) and other structured
c. Maintains capital commensurate products (“SPs”).
with the risk exposures assumed. A market participant may take any of
Further, a bank may likewise engage in the following roles in a derivatives
financial derivatives activities in accordance transaction:
with these guidelines. The transacting bank a. A n end-user is defined as a
shall have the responsibility to comply with financial market participant that enters,
the guidelines set out in this Section, for its own account, in a derivatives
including the relevant appendices, and other transaction for legitimate economic
applicable laws, rules and regulations purposes. These purposes may include,
governing derivatives transaction. In case of but are not limited to, the following:
derivatives instruments involving foreign hedging, proprietary trading, managing
currencies and/or other foreign currency- capital or funding costs, obtaining
denominated assets, the transacting indirect exposures to desired market
bank shall observe the pertinent FX factors, investment, yield-enhancement,
rules and regulations. For purposes of and/or altering the risk-reward profile
these guidelines, a bank that transacts of a particular item or an entire balance
(i.e., transacting bank) whether as end-user, sheet.
broker or dealer, in derivatives instruments An end-user may be classified according
is considered to be engaging in a derivatives to its financial sophistication:
activity. (1) Market counterparty - refers to any
Derivative is broadly defined as a UB or KB, only with respect to the
financial instrument that primarily derives instruments for which it is authorized to
its value from the performance of an engage in as a dealer.
underlying variable. For purposes of these (2) Institutional counterparty - refers to
guidelines, a financial derivative is any an institution which is not a market
financial instrument or contract with all of counterparty and has the level of net worth,
the following characteristics: knowledge, expertise, and experience to
a. Its value changes in response to a deal with financial derivatives.
change in a specified interest rate, financial (3) Sophisticated individual end-user -
instrument price, commodity price, FX rate, refers to an individual who has
index of prices or rates, credit spread, credit demonstrated to the bank as having the
rating or credit index or other variables not level of net worth, knowledge and
prohibited under existing laws, rules and experience in dealing with financial
regulations (the “underlying”); products, including financial derivatives.
b. It requires either no initial net An individual may register as a
investment or an initial net investment that sophisticated individual end-user with the
is smaller than would be required for other Centralized Applications and Licensing
types of contracts that would be expected Group of the BSP.
to have a similar response to changes in (4) Other end-user - This refers to all
market factors; and other institutional or individual clients not
c. It is settled at a future date. categorized as market counterparty,
its own derivatives products, including hedging its own risks: Provided, That it
those of others. A dealer can also act as observes all the requirements for hedging
broker and/or end-user of derivatives transactions under PAS.
instruments. (b) A UB or KB may trade with
(As amended by Circular No. 594 dated 08 January 2008) counterparties in order to take positions for
its own account in “organized market” -
§ X611.1 (2008 - X602.1) Generally traded financial instruments enumerated
authorized derivatives activities. A bank under Item “1” above. It can also take long
may engage in the following derivatives positions in naked FX options with a tenor
activities without need of prior Bangko of three (3) years or less.
Sentral approval: Provided, That it observes (c) RBU and EFCDU of UBs and KBs,
the provisions of Appendix 25 and meets including its trust departments, may invest,
the following conditions: for their own account, in the following SPs:
a. UBs and KBs may transact in the (i) Principal-protected foreign currency-
following derivatives in the capacities denominated SPs, the revenue streams of
specified: which are linked to interest rate indices,
(1) As a dealer. A UB or KB may interest rate instruments, listed equity shares
originate and distribute the following or indices, FX rates, credit rating or index,
“organized market”-traded financial or gold: Provided, That the maximum
derivatives: contractual maturity shall be five (5) years;
(a) FX forwards, FX swaps, currency (ii) Plain vanilla single-name CLNs where
swaps and analogous financial futures with the reference asset is an obligation issued or
a tenor of three (3) years or less; and guaranteed by the Republic of
(b) Interest rate swaps, forward rate the Philippines.
agreements and analogous financial futures Provided, That the bank or trust entity
with a tenor of ten (10) years or less: shall comply with the following conditions:
Provided, That the issuance of sub- (aa) Total carrying value of all
participation in any derivatives held as an investments in SPs shall not exceed 100%
end-user shall be deemed as undertaking of the bank’s qualifying Tier 1 capital or fifty
the role of a dealer: Provided, further, That percent (50%) of a trust entity’s trust
the dealer UB or KB observes the provisions assets; and
of Appendix 26 and other pertinent (bb) For investments in SPs under the
securities laws, rules and regulations. EFCDU, total carrying value of SPs as
For purposes of this Subsection, an defined herein shall also not exceed
organized market refers to an exchange or twenty percent (20%) of the total FCDU
a BSP-recognized over-the-counter market assets: Provided, That SPs which are not
governed by transparent and binding market booked in an investment account (e.g.,
conventions on price transparency, trade booked as inter-bank loans), for this purpose,
reporting, market surveillance and orderly shall be considered as part of the EFCDU
conduct/operations of the market. assets.
(2) As end-user1. An SP is considered principal-protected
(a) A UB or KB, including its trust if the minimum all-in return for such
department, may enter in any financial investment is at least zero and such
derivatives transaction for the purpose of minimum all-in return is guaranteed by an
1
All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered
as among the generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks)
may engage in as end-user, without need for additional derivatives authority required under this Subsection:
Provided, That banks holding such instruments shall comply with the requirements of Appendix 25,
where applicable.
entity (i.e., issuer or a third party) rated at derivatives transactions under Subsec.
least “A” or its equivalent by an international X611.1(a)(2). Any trust entity may also apply
rating agency acceptable to the Bangko for Type 3 authority in order to transact as
Sentral or fully collateralized by an asset end-user on behalf of its trustor/principal/s
with equivalent credit quality. with derivatives instrument outside those
(3) As a broker. A UB or KB may enumerated under Subsec. X611.1(a)(2).
facilitate derivatives transactions between (As amended by Circular Nos. 605 dated 05 March 2008 and
dealers and market and/or institutional 594 dated 08 January 2008)
counterparties and/or sophisticated
individual end-users: Provided, That the UB/ § X611.2(2008 - X602.2) Activities
KB, acting as broker, ensures that its client requiring additional derivatives authority
fully understands its limited responsibility A bank shall apply for prior Bangko Sentral
as a broker: Provided further, That the approval of additional derivatives authority
bank adheres to procedures for evaluating to engage in all other financial derivatives
client suitability, including risk activities not expressly allowed in Subsec.
disclosures, as prescribed in Appendix 26: X611.1. A bank may apply for two (2) or
Provided finally, That the bank complies more additional authorities. A bank applying
with other pertinent securities laws, rules for additional derivatives authority/ies must
and regulations. have and maintain a risk management
b. TBs, RBs and Coop Banks may enter system commensurate to the additional
in derivatives transactions as end-user with authority/ies being applied for, in
Bangko Sentral - authorized dealers and accordance with the provisions of
brokers solely for hedging purposes: Appendix 25 and meet other conditions
Provided, That they observe all the specified under this Subsection.
requirements for hedging transactions under a. Classification of additional
PAS1. A TB, RB or Coop Bank may apply derivatives authority
for a Type 3 authority to enter into (1) Type 1 - Expanded dealer authority
derivatives transactions as end-user for
A UB or KB may apply for a Type 1
purposes other than hedging: Provided, That
authority. A bank with Type 1 authority may
the applicant bank agrees to be covered by
transact in any financial derivatives as a
all regulations prescribing capital for market
dealer: Provided, That a bank with Type 1
risk, notwithstanding any provision to the
authority shall comply with the sales and
contrary; and
marketing guidelines prescribed in
c. A trust department of a UB or KB may
Appendix 26. A bank with Type 1 authority
transact, as an institutional counterparty,
may likewise transact in any financial
with financial derivatives instruments
derivatives as a broker and an end-user.
enumerated under Subsec. X611.1(a)(2) on
The Bangko Sentral expects banks
behalf of its trustor/principal/s as may be
applying for Type 1 authority to institutionalize
authorized by such trustor/principal/s:
Provided, That the trust department observes a (a) comprehensive and integrated risk
the relevant provisions of Appendices 25 management system; and (b) sales and
and 26. Trust entities other than that within marketing practices that are deemed
a UB or KB may apply for a Type 3 authority appropriate and adequate for the different
to enter on behalf of its trustor/principal/s in derivatives activities it expects to engage
1
All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered
as among the generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks)
may engage in as end-user, without need for additional derivatives authority required under this Subsection:
Provided, That banks holding such instruments shall comply with the requirements of Appendix 25,
where applicable.
in. It must be rated at least CAMELS (or than that within a UB or KB, a Type 3
ROCA for branches of foreign banks) of “4” authority will enable said bank/entity to
or better over-all, notwithstanding any transact as end-user of a derivative
provision to the contrary. instrument as may be applied for by the
(2) Type 2 - Limited dealer authority bank/entity.
A UB or KB may apply for a Type 2 (4) Type 4 - Special broker authority
authority. A bank with Type 2 authority may A bank, other than a UB or KB, may
operate as a dealer in specific types of apply for a Type 4 authority. A bank with
derivatives products with specific Type 4 authority may facilitate a derivatives
underlying reference, as applied for by the transaction between a UB or KB, as dealer,
bank, outside those financial derivatives and market and institutional counterparties
instruments under Subsec. X611.1(a)(1): and sophisticated individual end-users:
Provided, That a bank with Type 2 authority Provided, That the bank, acting as broker,
shall comply with the sales and marketing ensures that its client fully understands its
guidelines prescribed in Appendix 26. The limited responsibility as a broker and
Type 2 authority also carries authority to observes the provisions of Appendix 26.
transact as broker and end-user of the said A UB or KB may likewise apply for a
specific derivatives instruments. Type 4 authority to enable itself to broker a
A TB with an existing authority to issue derivatives transaction for or with other
foreign letters of credit and pay/accept/ end-users.
negotiate import/export drafts/ bills of A bank with additional Type 1, 2 or 4
exchange under Subsec. 2101.1 may apply authorities shall be responsible for
for a Type 2 authority to operate as a dealer complying with pertinent securities laws,
of deliverable FX forwards in order to rules and regulations.
service the trade-related hedging For purposes of this Subsection, the
requirements of its clients: Provided, That types of derivatives are classified as follows:
the tenor of the FX forwards dealt shall forwards, swaps and options. Underlying
match the term of the underlying trade reference pertains to the following: interest,
transaction: Provided, further, That the FX, equity, credit and commodity.
applicant bank shall be covered by all b. Qualification requirements. A bank
regulations prescribing capital for market applying for additional authority to engage
risk, notwithstanding any provision to the in expanded derivatives activities shall:
contrary: Provided, furthermore, That the TB (1) Demonstrate adequate competence
shall comply with the sales and marketing in its general operations as evidenced by:
guidelines prescribed in Appendix 26. The (a) CAMELS (or ROCA for branches of
Type 2 authority also carries the authority foreign banks) composite rating of at least
to transact as a broker and an end-user of “3” with a similar rating for Management;
deliverable FX forwards. (b) No unresolved major safety and
(3) Type 3 - Limited user authority soundness issues that threaten liquidity or
Any bank may apply for a Type 3 solvency; and
authority. A bank with Type 3 authority may (c) Substantial compliance with
transact, as an end-user, in specific types of regulations on anti-money laundering,
derivatives products, with specific corporate governance and risk management.
underlying reference, as applied for by the (2) Hold capital commensurate to the
bank, outside of those instruments under risks assumed or to be assumed from the
Subsec. X611.1(a)(2). However, as regards derivatives activities. The Bangko Sentral
a TB, RB or Coop Bank and trust entity other expects a bank applying for or holding
by the BSP in any on-site evaluation and customers may, thru FX forwards, hedge
confirmed by the Monetary Board. their market risks arising from FX
(3) The Monetary Board has confirmed obligations and/or exposures: Provided,
an SES finding that the bank has conducted That forward sale of FX (deliverable and
business in an unsafe and unsound manner. non-deliverable) may only be used when
An erring bank may apply for the underlying transaction is eligible for
reinstatement of its derivatives authority servicing by the banking system under
only after six (6) months from lapse of the Circular No. 1389 dated 13 April 1993, as
implementation of the sanction: Provided, amended. Customers may, likewise, cover
That the bank has satisfactorily addressed their funding requirements thru FX swaps.
all BSP concerns. Banks may only engage in FX forwards
Transitory provisions. Expanded or any and swap transactions with customers if the
other derivatives authority granted prior to latter is hedging market risk or covering
30 January 2008 shall be operative for one funding requirements. There shall be no
(1) year from the said date: Provided, That a double/multiple hedging such that at any
bank undertaking any derivatives activities given point in time, the total notional
pursuant thereto shall immediately comply amount of the FX derivatives transaction/s
with the pertinent provisions of Appendices shall not exceed the amount of the
25 and 26. A bank which intends to continue underlying FX obligation/exposure.
its existing derivatives authority not covered The customer shall no longer be
by those generally authorized under Subsec. allowed to buy FX from the banking
X611.1, must submit an application for the system for FX obligations/exposures that
appropriate additional derivatives authority are fully covered by deliverable FX
within the one (1) - year transitory period. forwards and FX swaps.
After the lapse of the one (1) - year transitory The following guidelines, as well as
period, a bank can only perform those minimum documentary requirements, shall
activities which are permissible under cover FX forward and swap transactions
Sec. X611 and its Subsections. involving the Philippine peso between
A bank whose SPs, as of 30 January 2008, authorized dealer banks and their customers.
exceed the prudential limits prescribed (As amended by Circular No. 591 dated 27 December 2007)
under Subsec. X611.1(a)(3) may maintain
existing positions but cannot increase its § X625.2 (2008 - X602.15) Definition
exposures or invest in additional SPs until of terms
such time when its exposure levels are a. Credit default swaps (CDS) - refers
within the prescribed limits. to a financial contract between two (2)
(As amended by Circular No. 594 dated 08 January 2008) parties, the protection buyer and protection
seller, with reference to a certain notional
Secs. X612 - X624 (Reserved) value of a reference credit or a basket of
reference credits, whereby the former
Sec. X625 (2008 - X602.14) Forward and pays a premium to the latter, and in return
Swap Transactions. The following the latter agrees to make certain protection
guidelines shall govern the forward and payments to the former contingent upon
swap transactions in Philippine peso the occurrence of a credit event with
respect to the reference entity(ies)/asset(s).
§ X625.1 (2008 - X602.14) Statement b. Credit-linked note (CLN) - refers to
of policy. It is the policy of the BSP to a pre-funded credit derivative instrument
support the deepening of the Philippine under which the note holder effectively
financial markets. In line with this policy, accepts the transfer of credit risk pertaining
n. Structured product (SP) - refers to a than: (i) the maturity of the underlying FX
financial instrument where the total return obligation; or (ii) the approximate due date
is a function of one (1) or more underlying or settlement of the FX exposure. For
indices, such as interest rates, equities and deliverable FX forward contracts, the tenor/
exchange rates. It is composed of a host maturity shall be co-terminus with the
contract (e.g., plain vanilla debt or equity maturity of the underlying obligation or the
securities) and an embedded derivative approximate due date or settlement of the
(e.g., swaps, forwards or options) that FX exposure. This shall not preclude
re-shape the risk-return pattern of the pretermination of the contract due to
hybrid instrument. For purposes of prepayment of the underlying obligation
guidelines under Sec. X611, the term SP or exposure: Provided, That for foreign
does not include asset-backed securities. currency loans, prior Bangko Sentral
Provisions under Sec. 1648 shall continue approval has been obtained for the
to apply for securities overlying prepayment and a copy of such approval is
securitization structures. presented to the bank counterparty.
(As amended by Circular Nos. 594 dated 08 January 2008 and b. FX Swaps - No restriction on tenor.
591 dated 27 December 2007) c. Settlement of NDFs - All NDF
contracts with residents shall be settled in
§ X625.3 (2008 - X602.16) Documentation pesos.
Minimum documentary requirements for d. Remittance of FX proceeds of
FX forward and swap transactions in deliverable forward and swap contracts
Appendix 58 shall be presented on or FX proceeds of deliverable forward and
before deal date to the banks unless swap contracts shall be delivered by the
otherwise indicated. bank counterparty directly to the
FX selling banks shall stamp the beneficiaries concerned except for foreign
supporting documents upon presentation investments where said FX proceeds are
by customers as follows: reconverted to Philippine pesos and
a. For hedging transactions: “FX reinvested in eligible peso instrument
hedged/deliverable” or “FX hedged/ such as those listed in Item “A.2.2” of
non-deliverable"; Appendix 58. For this purpose,
b. For funding transactions: “FX sold”, beneficiaries shall refer to the FCDU of a
indicating the contract date and amount bank or a nonresident entity (e.g., creditor,
involved, and signed by the bank’s supplier, investor) to whom the customer
authorized officer. Copies of all duly is committed to pay/remit FX.
marked supporting documents shall be (As amended by Circular No. 591 dated 27 December 2007)
retained by the banks and made available
to the Bangko Sentral for verification. The § X625.5 (Reserved)
retained copies shall also be marked
“Documents Presented as Required” and § 1625.5 (2008 - 1602) Forward
signed by the bank’s authorized officer. contracts with non-residents.
(As amended by Circular No. 591 dated 27 December 2007) (Deleted by Circular No. 790 dated 06 March 2013)
roll overs or non-delivery of FX forward ii. Banks in breach of the limits shall be
contracts. All cancellations, roll-overs or required to submit remedial plan to comply
non-delivery of all FX deliverable forward with the limits.
contracts and the forward leg of swap b. Subsequent Offense- Bank will be
contracts shall be subject to the following subject to any or all of the following, as may
guidelines to determine the validity thereof: be recommended by the SES to the
a. Eligibility test - Contracts must be Monetary Board:
supported by documents listed in i. Restriction or prohibition on the bank
Appendix 58 hereof. from requesting new authority and/or
b. Frequency test - the reasonableness licenses of any sort;
of the cancellation, roll-over or non-delivery ii. Restriction or prohibition on the bank
shall be based on the results of the evaluation from declaring dividends; and
of the justification/explanation submitted by iii. Issuance of an order requiring the
banks as evidenced by appropriate bank to cease and desist from conducting
documents. business in an unsafe and unsound manner
c. Counterparty test - the cancellation and may further order that immediate action
or roll-over of contracts must be duly be taken to correct the conditions resulting
acknowledged by the counterparty to the from such unsafe or unsound practice.
contract as shown in documents submitted (As amended by Circular No. 790 dated 06 March 2013)
by banks, e.g., there should be conforme of
counterparty as evidenced by the § X625.8 (2008 - X602.20) Compliance
counterparty signature on pertinent with anti-money laundering rules. All
documents. transactions under Sec. X625 and Subsecs.
d. Mark-to-Market test - the booking or X625.1 to X625.9 shall comply with existing
recording in the books of accounts of the profit regulations on anti-money laundering under
or loss on contracts and cash flows/settlement Sec. X801.
to counterparties must be fully supported by (As amended by Circular No. 591 dated 27 December 2007)
appropriate documents such as
authenticated copy of debit/credit tickets, § X625.9 (2008 - X602.21) Reporting
schedules showing among others, mark-to- requirements. Banks duly authorized to
market valuation computation, etc. engage in derivatives transactions shall
(As amended by Circular No. 591 dated 27 December 2007) continue to be covered by the Bangko
Sentral’s existing reporting requirements
§ X625.7 (2008 - X602.19) Non- on financial derivatives. Cancellations,
deliverable forward contracts involving the roll-overs or non-delivery of deliverable
Philippine peso. NDF contracts involving FX forward contracts and under the
the Philippines peso shall be covered by the forward leg of swap contracts shall be
provisions of Appendix 101. reported electronically in Excel format to
Any violation of the provisions of the Bangko Sentral not later than five (5)
Appendix 101 shall constitute grounds for banking days after reference month as
the imposition on the bank/director(s)/ indicated in Appendix 6.
officer(s) of the following: Swap contracts with counterparties
a. First Offense involving purchase of FX by banks at the
i. Reprimand for the directors/officers initial leg shall likewise be reported
responsible for the violation with a warning electronically in Excel format to the
that subsequent violations will be subject Bangko Sentral not later than five (5)
to more severe sanctions. banking days after reference month as
Counterparties that habitually cancel defined above on the principle that such
deliverable forwards without proper banks have already demonstrated a more
justification may be subject of a Bangko sophisticated ability to manage risks. Subject
Sentral watchlist. to the provisions in Sec. 1648, they may also
(As amended by Circular No. 591 dated 27 December 2007) invest in SPV-issued CLNs that co-exist with
other CLNs of different seniority of claims
Secs. X626 - X628 (Reserved) against the reference asset pool. As an
exception to the general rule, a UB/KB
Sec. 1628 (2008 - 1633) Credit-linked Notes without expanded derivatives authority may
and Similar Credit Derivative Products. The invest in single name CLNs where the
following are the guidelines for the capital reference asset is a direct ROP obligation or
treatment of investments in credit-linked an obligation fully guaranteed by the ROP.
notes and similar credit derivative products
such as credit-linked deposits and credit § 1628. 3 (2008 - 1633) Capital
linked loans. treatment of investments in CLNs
(1) Banking book. Positions in CLNs in
§ 1628.1(2008 - 1633) Definitions the banking book shall be reported in the
(1) A credit-linked note (CLN) pertains computation of the risk-based capital
to a pre-funded credit derivative instrument adequacy ratio covering credit risks under
under which the note holder effectively applicable and existing capital adequacy
accepts the transfer of credit risk pertaining framework.
to a reference asset or basket of assets issued Through holding a CLN, a bank
by a reference entity/ies. The repayment of acquires credit exposure on two (2) fronts
the principal to the note holder is contingent - to the reference entity of the note and also
upon the occurrence of a defined credit to the note issuer. The on-balance sheet
event. In consideration, the note holder exposure arising from the CLN should be
receives an economic return reflecting the weighted by the higher of the risk weight of
underlying credit risk of the reference asset/s. the reference entity or the risk weight of the
All references to CLNs in this Section note issuer. The amount of exposure is the
shall be taken to generically include similar book value of the note. If the CLN principal
instruments, such as Credit-Linked Deposits is fully collateralized by securities that are
(CLDs) and Credit-Linked Loans (CLLs). acceptable as credit risk mitigant under
(2) An SPV, for purposes of this Section,
applicable and existing capital adequacy
refers to an entity specifically established
framework and provided such collateral is
to issue CLNs of a single, homogeneous risk
constituted in a legally effective manner as
class that are fully collateralized as to
to give priority to the note holders’ interest
principal by high-grade securities purchased
in the event of bankruptcy of the note issuer,
out of the proceeds of the note issuance.
the risk weight of the note issuer is substituted
Collateral shall be limited to securities with
with the risk weight associated with the
an assignable risk weight of not more than
relevant security.
twenty percent (20%) under existing
When the CLN is referenced to a basket
regulations.
of reference entities and the contract
§ 1628.2 (2008 - 1633) Qualified banks terminates and pays out on the first entity to
In general, only banks with expanded default in the basket, capital should be held
derivatives authority may invest in CLNs as to consider the cumulative risk of all the
reference entities in the basket. This means A CLN which is referenced to entities
that the risk weights of all the reference in the basket proportionately should be
entities are added up and the sum compared risk-weighted according to each reference
with the risk weight of the note issuer. If the entity’s share of protection under the
sum of the risk weights of all the reference contract. Thus, if there are two (2)
entities in the basket is higher than the risk reference entities in a P100.0 million
weight of the note issuer, then this sum is contract, one (1) with a 100% risk weight
adopted. The resultant risk-weighted and a twenty percent (20%) share and the
exposure to the basket is, however, capped other with a twenty percent (20%) risk
at ten (10) times the book value of the note. weight and an eighty percent (80%) share,
Accordingly, the maximum capital charge the risk weighted exposure is P36.0
is 100% of the book value of the note. The million, i.e., P100.0 million x 20%
multiplier ten (10) is the reciprocal of the x 100% + P100.0 million x 80% x 20%.
BSP-required minimum capital adequacy The corresponding capital charge is
ratio of ten percent (10%). P3.6 million (P36.0 million x 10%).
If, on the other hand, the risk weight of (2) Trading book. Positions in CLNs
the note issuer is still higher than the sum taken up in the trading book should be
of the risk weights of all the reference reported in the computation of the adjusted
entities in the basket, then the risk weightof risk-based capital adequacy ratio covering
the note issuer is adopted. combined credit risk and market risk under
When the contract terminates and pays Appendix 46.
out on the nth (other than the first) entity to (a) Standardized approach
default in the basket, the treatment above The following describes the positions
shall apply except that in aggregating the risk to be reported for investments in CLNs for
weights of reference entities, the risk purposes of calculating specific risk and
weight/s of n–1 entity/ies is/are excluded general market risk charges under the
from the computation. The bank may choose standardized approach.
which entity/ies to exclude. A CLN investment is treated as a
If a CLN that pays out on the nth entity position in the note itself, with an
to default is rated such that it meets the embedded credit default product. The
criteria of a security with the “highest credit CLN is subject to the specific risk
quality” as defined under Appendix 46, only associated with the issuer or the collateral
the highest risk weight in the basket of when the issuer is an SPV. In addition, it
reference entities is compared with the risk is subject to general market risk that is a
weight of the note issuer. function of the maturity and coupon or
If the CLN is issued by an SPV, the bank interest rate of the note. The embedded
is exposed to both the reference entity and credit default product creates a notional
the collateral held by the SPV. Thus, the risk position in the specific risk of the
weight/s of the reference entity/ies should reference obligation (with no additional
be compared with the risk weight of the general market risk position created).
riskiest eligible collateral for purposes of Specific risk
computing the risk-weighted exposure of the A CLN investment should be reported
note and the corresponding capital charge. as a long position on the reference
Subject to prior Bangko Sentral clearance, obligation and a long position on the note
a bank may disapply the additive rule when a itself.
very strong correlation among the reference When a CLN is referenced to multiple
entities in the basket can be demonstrated. obligations in a basket, the positions
reported shall depend on the structure of While some banks may not be able to
the contract. When the contract terminates run full internal models to calculate market
and pays out on the first obligation to default risk capital charges, they may, with the
in the basket, the note should be reported necessary expertise and systems, use
as long positions in each of the reference preprocessing techniques to calculate
obligations in the basket, with the total capital charge for CLNs. Banks wishing to
capital charge for the product capped at the adopt these techniques should seek Bangko
book value of the note. Sentral’s prior consent. The preprocessing
When the contract terminates and pays models are subject to verification by the
out on the nth (other than the first) entity to Bangko Sentral.
default in the basket, the treatment above (As amended by Circular No. 827 dated 28 February 2014)
shall apply except that in aggregating the
risk weights of the reference obligations, the § 1628.4 (2008 - 1633) Risk management
risk weight/s of n-1 obligations is/are CLN structures are considered to be
excluded from the computation. The bank exposed to greater risks than comparable
may choose which obligations to exclude. investments in direct obligations. In
Subject to prior Bangko Sentral particular, investing banks should be
clearance, a bank may disapply the additive aware of the potential legal risk arising
rule when a very strong correlation among from an unenforceable contract. They
the reference obligations in the basket can should consult their legal advisors about
be demonstrated. these and related legal issues before
The additive treatment may also be engaging in such transactions. In addition,
disapplied when an nth-to-default CLN is all investments in CLNs must be duly
rated such that it meets the criteria of a approved by a bank’s board of directors
security with the “highest credit quality” as and subjected to appropriate risk
defined under Appendix 46. Positions in the management procedures.
reference obligations can be reported as a
single long position in a debt security with § 1628.5 (2008 - 1633) Transitional
the “highest credit quality”. A long position arrangements. Banks which have
on the note should also be reported whether outstanding investments in CLNs, but
or not the CLN meets the criteria of a which have not been authorized under
security with the “highest credit quality”. this Section to invest in such, shall be
When the CLN is referenced to multiple given a period of ninety (90) calendar days
obligations under a proportionate structure, from 25 February 2004 (effectivity of
positions in the reference obligations should Circular No. 417) to divest themselves of
be reported according to their respective such investments.
proportions in the contract.
General market risk § 1628.6 (2008 - 1633) Bangko Sentral
A CLN investment creates a long approval not required. No prior Bangko
position in the note itself. Sentral approval is required to invest in CLNs
(b) Internal models approach and similar products. However, it shall be the
Banks may seek the Bangko Sentral’s responsibility of UBs/KBs to fully comply with
approval to include CLNs in their appropriate risk management standards
recognized models for calculating capital including, as a minimum, those prescribed
charges. The detailed requirements relating under this Section. The regulatory
to the use of internal models are set out in requirements enumerated in Appendix 66
Annex A of Appendix 46. shall be fully complied with by UBs/KBs
investing in products allowed under this capital commensurate to the risks inherent
Section. in these products.
Investment in credit-linked notes (CLNs)
and similar structured products with § 1635.2 Definition. A structured product
embedded credit derivatives, as defined refers to a financial instrument where the
under Section 1628.1, including those that return is a function of one (1) or more
were reclassified from HFT to Available for underlying indices, such as interest rates,
Sale (AFS)/Held to Maturity (HTM)/ equities and exchange rates. There may also
Unquoted Debt Securities Classified as be embedded derivatives such as swaps,
Loans (UDSCL) or from AFS to HTM/UDSCL forwards, options, caps, and floors that
in accordance with the reclassification rules reshape the risk-return pattern. For purposes
under Circular No. 626 dated 23 October of this Subsection, structured products do
2008 and Circular No. 628 dated 31 not include asset-backed securities, credit-
October 2008, shall be classified and linked notes and other similar instruments.
measured at FVPL upon initial application
of PRFS 9. § 1635.3 Qualified banks. As a general
The accounting treatment for rule, only UBs and KBs with expanded
investments in CLNs and other structured derivatives license may obtain exposures in
products under BSP Memorandum structured products. Banks without
M-2008-10 dated 07 March 2008 and the expanded derivatives license may only
guidelines on reclassification of CLNs and invest in structured products duly approved
other similar instruments that are linked to by the Bangko Sentral.
the ROP under Memorandum M-2009-12
dated 16 April 2009 shall no longer apply § 1635.4 Capital treatment of banks’
to financial assets that are accounted for in exposures to structured products
accordance with FPRS 9. a. Banking book
(As amended by Circular Nos. 733 dated 05 August 2011 and (1) Risk weights. Capital charge for
708 dated 10 January 2011) structured products held in the banking
book shall depend on the rating of the
Sec. 2628 (Reserved)
issuing entity, or rating of the collateral in
case of structured products issued by
Sec. 3628 (Reserved)
special purpose vehicles (SPVs), given by
the following BSP-recognized international
Secs. X629 - X635 (Reserved)
credit rating agencies:
(a) Moody’s;
Sec. 1635 Banks’ Exposures to Structured
(b) Standard & Poor’s;
Products. The following rules and
(c) Fitch Ratings; and
regulations shall govern the capital treatment
(d) Such other international rating
of banks’ exposures to structured products.
agencies as may be approved by the
Monetary Board.
§ 1635.1 Statement of policy. The
In cases where there are two (2) or more
Bangko Sentral aims to foster the
types of collateral, capital charge shall
development of a market for new financial
depend on the lowest rated collateral.
products in the country, while at the same
The mapping of ratings to the
time ensure that banks hold sufficient
corresponding risk weights shall be a follows:
Risk weight Moody’s Standard Fitch cases where there are two (2) or more
& Poor's Ratings
50% Aaa to Aa3 AAA to AA- AAA to AA-
ratings which map into different risk
100% A1 to A3 A+ to A- A+ to A- weights, the higher of the lowest two (2)
150% Baa1 to Baa3 BBB+ to BBB+ to
BBB- BBB-
risk weights should be used.
Deduction b. Trading book. Capital charge for
from total structured products held in the trading book
of Tier 1 and Below Baa3 Below BBB- Below BBB-
Tier 2 capital Unrated
shall be determined in accordance with
Appendix 46.
(2) Use of ratings. If an issuer of a § 1635.5 Bangko Sentral approval not
structured product has only one (1) rating required. No prior BSP approval is required
by any of the BSP-recognized international to enter into authorized transactions.
rating agencies, that rating shall be used to However, it shall be the responsibility of
determine the risk weight of the product; in UBs/KBs to fully comply with appropriate
prices from the issuers of the investment § 1648.1 Statement of policy. The BSP
instruments on a monthly basis. aims to foster the development of a market
(5) Management should ensure that the for new financial products in the country
risks of the investments are accurately and provide banks with expanded
aggregated in risk reports on a timely basis. opportunities for investment diversification,
while at the same time ensure that they
§ 1636.4 Capital treatment of hold sufficient capital commensurate to the
structured products. The capital treatment risks inherent in these products.
shall be in accordance with existing rules
and regulations as modified for structured § 1648.2 Definition. Securitization
instruments. structures refer to:
a. structures where the cash flow from
§ 1636.5 Bangko Sentral approval not an underlying pool of exposures is used to
required. No prior BSP approval is required service at least two (2) different stratified
to enter into authorized transactions. risk positions or tranches reflecting
However, it shall be the responsibility of different degrees of credit risk (also known
UBs/KBs to fully comply with appropriate as traditional securitization); or
risk management standards including, as b. structures with at least two (2)
a minimum, those prescribed under this different stratified risk positions or tranches
Section. The regulatory requirements that reflect different degrees of credit risk,
enumerated in Appendix 66 shall be fully where credit risk of an underlying pool of
complied with by UBs/KBs investing in exposures is transferred, in whole or in
products allowed under this Section. part, through the use of credit derivatives
or guarantees that serve to hedge the credit
§ 1636.6 Sanctions. Non-compliance risk of the portfolio (also known as
with the provisions of this Section shall synthetic securitization).
subject the bank to a fine of one-tenth of one
percent (1/10 of 1%) of the outstanding § 1648.3 Qualified banks. UBs/KBs with
investment per day, but not to exceed expanded derivatives authority may invest
P30,000 per day, to be reckoned from the in securities overlying any tranches of
day the bank is deemed in violation of securitization structures. UBs/KBs without
regulations, until the day the bank has expanded derivatives authority may also
complied with the requirements. Banks may invest but only in securities overlying
also be temporarily or permanently tranches of securitization structures that are
prohibited from such investments as rated at least “A”, or its equivalent, by a BSP-
circumstances may warrant. recognized credit rating agency.
d. Clean-up call shall refer to an and selling of the ABS either on guaranteed
option granted to the seller to purchase the or best effort basis.
remaining assets in the asset pool.
e. Credit enhancement shall refer to § X651.2 Prior Bangko Sentral approval
any legally enforceable scheme that is Any bank including its subsidiaries and
intended to enhance the marketability of affiliates engaged in allied activities, may
the ABS and increase the probability that securitize its assets upon prior approval of
investors receive payment of amounts due the BSP.
them.
f. Guarantor shall refer to an entity § X651.3 Board approval requirement
that guarantees the repayment of principal The originator/seller shall have the
and interest on loans or receivables securitization program approved by its
included in the asset pool in the event of board of directors. The originator/seller
default by the borrower. shall integrate such securitization program
g. Investible funds shall refer to the into its corporate strategic plan. The board
proceeds of collection of loans or of directors shall ensure that the
receivables included in the asset pool which securitization of assets is consistent with
are not yet due for distribution to investors. such program.
h. Issuer shall refer to the SPT that
issues the ABS. § X651.4 Minimum documents required
i. Originator shall refer to a bank The application to securitize must be
and/or its subsidiary or affiliate engaged in accompanied by the following documents
allied activities that grants or purchases as a minimum requirement:
loans or receivables and assembles them a. Trust indenture evidencing the
into a pool for securitization. conveyance of the assets from the seller
j. Residual certificates shall refer to to the Issuer or SPT, the features of which
certificates issued representing claims on shall include the following:
the remaining value of the asset pool after (1) Title or nature of the contract in
all ABS holders are paid. noticeable print;
k. Seller shall refer to the entity which (2) The parties involved, indicating in
conveys to the SPT the assets that constitute noticeable print, their respective legal
the asset pool. capacities, responsibilities and functions;
l. Servicer shall refer to the entity (3) Features and amount of ABS;
designated by the Issuer primarily to collect (4) Purposes and objectives;
and record payment received on the Assets, (5) Description and amount of assets
to remit such collections to the Issuer and comprising the asset pool;
perform such other services as may be (6) Representations and warranties;
specifically required by the issuer excluding (7) Credit enhancements;
asset management or administration. (8) Distribution of funds;
m. Special Purpose Trust shall refer to (9) Authorized investment of
a trust administered by a trustee and investible funds;
created solely for the purpose of issuing (10) Rights of the investor;
and administering an ABS. (11) Reports to investors; and
n. Trustee shall refer to the entity (12) Termination and final settlement.
designated to administer the SPT. The trust indenture shall include as
o. Underwriter shall refer to the entity annexes the servicing agreement
engaged in the act or process of distributing between the trustee and the servicer and
following three (3) conditions have been affiliates has agreed to pay damages arising
satisfied: out of any breach of representation or
(1) the transferred assets have been warranty.
isolated and put beyond the reach of the
seller and its creditor; § X651.9 Third party review. A due
(2) the SPT has the right to pledge or diligence review by an independent entity
exchange its interest in the assets; and mutually agreed upon by the seller and the
(3) the seller does not effectively Issuer shall be done before the assets are
maintain control over the transferred assets sold.
by any concurrent agreement.
e. All expenses incidental to § X651.10 Originator and seller
underwriting, conveyance of the asset pool a. The seller may itself be the
including expenses for credit enhancement originator, and may likewise be designated
may be paid by the originator/seller: as the servicer.
Provided, That no further expenses shall b. The seller or originator shall deliver
be borne by the originator/seller after the to the trustee all original documents or
asset pool has been conveyed to the SPT. instruments with respect to each asset sold.
BSP and such other high-grade readily administered by its trust department, the
marketable debt securities as the BSP may trust departments of its subsidiaries/
approve. affiliates, the trust department of its parent
f. The trustee shall designate a bank or the trust department of its parent
replacement of the servicer if the latter fails bank’s subsidiaries/affiliates.
to satisfactorily perform its duties and e. The underwriter may not extend
responsibilities according to the terms and credit for the purpose of purchasing the
conditions of the servicing agreement. ABS which such UB/IH underwrites or that
which is underwritten by its subsidiaries/
§ X651.12 Servicer affiliates, its parent bank or its parent bank’s
a. The servicer shall perform its duties subsidiaries/affiliates.
according to the terms and conditions of
the servicing agreement and such other § X651.14 Guarantor
written instructions as the trustee may issue a. Only an entity the regular business
on a case-by-case basis. Collections made of which includes the issuance of
by the servicer shall be remitted promptly guarantees or similar undertaking may act
to the trustee or as may be agreed upon by as guarantor.
the parties in the servicing agreement, but b. The guarantor must have the
in no case shall the remittance period be financial capacity to perform its
longer than one (1) month. responsibilities in accordance with the
b. The servicer shall prepare periodic terms and conditions of the guarantee
reports as may be required by the trustee. agreement. It shall submit to the trustee at
c. The servicer shall report to the trustee least once in every six (6) months such
within thirty (30) days, any borrower which financial reports as the trustee may require.
fails to pay its debt at maturity date or any c. The originator or seller may not
adverse development that may affect the issue a counter-guarantee in favor of the
collectibility of any loan account or guarantor.
receivable comprising the asset pool.
d. The servicer shall have no authority § X651.15 Credit enhancement. Credit
to waive penalties and charges except with enhancement may be provided in any of
a written authority from the trustee. the following manner:
a. Standby letter of credit issued by a
§ X651.13 Underwriter UB/KB other than the originator/seller or
a. A UB or IH shall have written its subsidiary/affiliate, its parent bank or the
policies and procedures on underwriting parent bank’s subsidiary/affiliate, and
of ABS. trustee or its 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,
c. An underwriter may deal in ABS, the 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 c. Guarantee issued by any entity
of its parent bank or the trust department other than the originator/seller or its
of its parent bank’s subsidiaries/affiliates. subsidiary/ affiliate, its parent bank or the
d. A UB/IH may act as underwriter, parent bank’s subsidiary/affiliate, and
on a firm basis, of ABS except those trustee or its subsidiary/affiliate;
Sec. X660 Global Peso Notes. The Secs. X661 - X698 (Reserved)
following are the guidelines on the
regulatory treatment of investments of banks Sec. X699 General Provision on Sanctions
in Global Peso Notes (GPNs) issued by the Any violation of the provisions of this Part
Republic of the Philippines: shall be subject to Sections 36 and 37 of
a. Investments in GPNs shall be R.A. No. 7653.
recorded in the RBU books of a bank as a The guidelines for the imposition of
foreign currency-denominated asset in monetary penalty for violations/offenses
accordance with the provisions of the with sanctions falling under Section 37 of
Philippine Financial Reporting Standards/ R. A. No. 7653 on banks, their directors
Philippine Accounting Standards at their and/or officers are shown in Appendix 67.
PART SEVEN
Section X701 (2008 - X621) Electronic (4) Integrity - assures that data have not
Banking Services. The following are the been altered; and
guidelines concerning electronic (5) Confidentiality - assures that no one
banking activities. except the sender and the receiver of the
data can actually understand the data.
§ X701.1 (2008 - X621.1) Application c. The system had been tested prior
Banks wishing to provide and/or enhance to its implementation and that the test
existing electronic banking services shall results are satisfactory. As a minimum
submit to the BSP an application describing standard, appropriate systems testing and
the services to be offered/enhanced and user acceptance testing should have been
how it fits the bank’s overall strategy. This conducted; and
shall be accompanied by a certification d. A business continuity planning
signed by its president or any officer of process and manuals have been adopted
equivalent rank and function to the effect which should include a section on
that the bank has complied with the electronic banking channels and systems.
following minimum pre-conditions:
a. An adequate risk management § X701.2 (2008 - X621.2) Pre-screening
process is in place to assess, control, of applicants
monitor and respond to potential risks a. The BSP, thru the Technical
arising from the proposed electronic Working Group on Electronic Banking,
banking activities; shall pre-screen the overall financial
b. A manual on corporate security condition as well as the applicant-bank’s
policy and procedures exists that shall compliance with BSP rules and regulations
address all security issues affecting its based on the latest available Bank
electronic banking system, particularly the Performance Rating (BPR) and Report of
following: Examination (ROE) including CAMELS
(1) Authentication - establishes the Rating.
identity of both the sender and the b. The Working Group shall ensure
receiver; uses trusted third parties that that the applicant bank’s overall financial
verify identities in cyberspace; condition can adequately support its
(2) Non-repudiation - ensures that electronic banking activities and that it shall
transactions can not be repudiated or have complied with certain comprehensive
presents undeniable proof of participation prudential requirements such as, but not
by both the sender and the receiver in a limited to, the following:
transaction; (1) Minimum capital requirement and
(3) Authorization - establishes and net worth to risk assets ratio;
enforces the access rights of entities (both (2) Satisfactory solvency, liquidity and
persons and/or devices) to specified profitability positions;
computing resources and application (3) CAMELS composite rating of at
functions; also locks out unauthorized least 3, (this number, however can be
entities from physical and logical access flexible depending on other circumstances
to the secured systems; prevailing), and with at least a moderate
risk assessment system (RAS) based on the (3) A list of software and hardware
latest regular examination. components indicating the purpose of the
(4) There are no uncorrected major software and hardware in the electronic
findings/exceptions noted in the latest BSP banking infrastructure;
examination. (4) A description of the security policies
and procedures manual containing:
§ X701.3 (2008 - X621.3) Approval in (i) description of the bank’s security
principle organization;
a. Based on the recommendation of (ii) definition of responsibilities for
the Technical Working Group on Electronic designing, implementing, and monitoring
Banking, the Deputy Governor, SES, shall information security measures; and
approve in principle the application so that (iii) established procedures for
banks may immediately launch and/or evaluating policy compliance, enforcing
enhance their existing electronic banking disciplinary measures and reporting
services. security violations;
b. Banks shall be informed of the (5) A brief description of the
conditional approval of the DG, SES and contingency and disaster recovery plans
they shall in turn notify the BSP on the actual for electronic banking facilities and event
date of its launching/enhancement. scenario/problem management plan/
program to resolve or address problems,
§ X701.4 (2008 - X621.4) Documentary such as complaints, errors and intrusions
requirements and the availability of back-up facilities;
a. Within thirty (30) calendar days (6) Copy of contract with the
from such launching/enhancement, banks communications carrier, arrangements for
shall submit to the BSP thru the SDC for any liability arising from breaches in the
evaluation, the following documentary security of the system or from
requirements: unauthorized/fraudulent transactions;
(1) A discussion on the banking (7) Copy of the maintenance
services to be offered/enhanced, the agreements with the software/hardware
business objectives for such services and provider/s; and
the corresponding procedures, both (8) Latest report on the periodic
automated and manual, offered through the review of the system, if applicable.
electronic banking channels; b. If after the evaluation of the
(2) A description or diagram of the submitted documents, the Working Group
configuration of the bank’s electronic banking has still some unresolved issues and gray
system and its capabilities showing: areas, the bank may be required to make
(i) how the electronic banking system a presentation of its electronic banking
is linked to other host systems or the transactions to BSP.
network infrastructure in the bank;
(ii) how transaction and data flow § X701.5 (2008 - X621.5) Conditions
through the network; for Monetary Board approval. Upon
(iii) what types of telecommunications completion of evaluation, the appropriate
channels and remote access capabilities recommendation shall be made to the
(e.g., direct modem dial-in, internet access, Monetary Board. The following shall be
or both) exist; and the standard conditions for approval:
(iv) what security controls/measures are a. Existence at all times of appropriate
installed; top-level risk management oversight;
persons or entities other than the issuer; b. EMIs shall put in place a system to
d. withdrawable in cash or cash maintain accurate and complete record of
equivalent; and e-money instruments issued, the identity
e. issued in accordance with this of e-money holders, and the individual
Section. and consolidated balances thereof. The
Electronic money issuer (EMI) shall be system must have the capability to monitor
classified as follows: the movement of e-money transactions and
a. Banks (hereinafter called EMI-Bank);
link e-money instruments issued to
b. NBFI supervised by the Bangko
common e-money holders. The
Sentral (hereinafter called EMI-NBFI); and
susceptibility of a system to intentional or
c. Non-bank institutions registered with
the Bangko Sentral as a monetary transfer unintentional misreporting of transactions
agent under Sec. 4511N of the MORNBFI and balances shall be sufficient ground for
(hereinafter called EMI-Others). imposition by the Bangko Sentral of
For purposes of this Section: sanctions, as may be applicable.
a. Electronic instruments or devices c. E-money may only be redeemed at
shall mean cash cards, e-wallets accessible face value. It shall not earn interest nor
via mobile phones or other access device, rewards and other similar incentives
stored value cards, and other similar convertible to cash, nor be purchased at a
products. discount. E-money is not considered a
b. E-money issued by banks shall not deposit, hence, it is not insured with the
be considered as deposits. PDIC.
(Circular No. 649 dated 09 March 2009) d. EMIs shall ensure that e-money
§ X780.3 Prior Bangko Sentral approval instruments clearly identify the issuer who
Banks planning to be an EMI-Bank shall is ultimately responsible to the e-money
apply in accordance with Sec. X701 relating holders. This shall be communicated to the
to the guidelines on electronic banking client who shall acknowledge the same in
services and with Sec. X162 on outsourcing writing.
of banking functions, when applicable. e. It is the responsibility of EMIs to
(Circular No. 649 dated 09 March 2009) ensure that their distributors/e-money agents
comply with all applicable requirements of
§ X780.4 Common provisions. The the Anti-Money Laundering Law, rules and
following provisions are applicable to all regulations.
EMIs: f. EMIs shall provide an acceptable
a. E-money instrument issued shall be redress mechanism to address the
subject to aggregate monthly load limit of complaints of its customers.
P100,000 unless a higher amount has
g. EMIs shall disclose in writing and
been approved by the Bangko Sentral. In
its customers shall signify agreement to the
case an EMI issues several e-money
information embodied in Item “c” above
instruments to a person (e-money holder),
the total amount loaded in all the e-money upon their participation in the e-money
instruments shall be consolidated in system. In addition, it shall provide clear
determining compliance with the guidance in English and Filipino on
aggregate monthly load limit; consumers’ right of redemption, including
(No pages 6 to 8)
(Next page is Part VII page 9)
conditions and fees for redemption, if any. in addition to merchant Point of Sale
Information on available redress procedures terminals);
for complaints together with the address and (2) Change in technology service
contact information of the issuer shall also providers and other major partners in the
be provided. e-money business (excluding partner
h. Prior to the issuance of e-money, merchants), if any; and
EMIs should ensure that the following (3) Other changes or enhancements.
minimum systems and controls are in (Circular No. 649 dated 09 March 2009)
place:
(1) Sound and prudent management, § X780.5 (Reserved)
administrative and accounting procedures
and adequate internal control mechanisms; § X780.6 Sanctions. Monetary penalties
(2) Properly-designed computer and other sanctions for the following
systems which are thoroughly tested prior violations committed by EMI-Banks shall be
to implementation; imposed:
(3) Appropriate security policies and
measures intended to safeguard the integrity, Nature of Violation/ Sanction/Penalties
authenticity and confidentiality of data and Exception
operating processes; 1. Issuing e-money Applicable penalties
(4) Adequate business continuity and without prior BSP under Sections 36 &
approval 37 of R.A. No. 7653;
disaster recovery plan; and
Watchlisting of
(5) Effective audit function to provide owners/partners/
periodic review of the security control principal officers
environment and critical systems. 2. Violation of any Applicable penalties
i. EMIs shall provide the SDC of the provisions of prescribed under the
quarterly statements containing, among R.A. No. 9160 (Anti- Act
others, information on investments, volume Money Laundering
of transactions, total outstanding e-money Law of 2001 as
balances, and liquid assets in such forms amended by R.A.No.
as may be prescribed later on. 9194) and its
implementing rules
j. EMIs shall notify the BSP in writing
and regulations
of any change or enhancement in the 3. Violation/s of Penalties and sanctions
e-money facility thirty (30) days prior to this Section under the
implementation. If said change or abovementioned laws
enhancement requires prior BSP approval, and other applicable
the same shall be evaluated accordingly. laws rules and
Any change or enhancement that shall regulations
expand the scope or change the nature of
the e-money instrument shall be subject to In addition, the susceptibility of a
prior approval of the Deputy Governor, SES. system to intentional or unintentional
These changes or enhancements may misreporting of transactions and balances
include the following: shall be sufficient ground for appropriate
(1) Additional capabilities of the BSP action or imposition of sanctions,
e-money instrument/s, like access to new whenever applicable.
channels (e.g. inclusion of internet channel (Circular No. 649 dated 09 March 2009)
PART EIGHT
Sec. X801 Declaration of Policy conducted in the head office. A bank and
The BSP adopts the policy of the State to its branches and offices shall be treated as
protect the integrity and confidentiality of one (1) unit.
bank accounts and to ensure that the Whenever local applicable laws and
Philippines in general and the covered regulations of a branch, office, subsidiary
institutions herein described in particular or affiliate based outside the Philippines
shall not be used respectively as a money prohibit the implementation of this Part or
laundering site and conduit for the proceeds any of the provisions of the AMLA, as
of an unlawful activity as hereto defined. amended, its RIRR, and the supervising
(Circular No. 706 dated 05 January 2011) authority in that foreign country issues a
directive forbidding said branch, office,
Sec. X802 Scope of Regulations. These subsidiary or affiliate, the covered
regulations shall apply to all covered institution shall notify the BSP of this
institutions supervised and regulated by the situation and furnish a copy of the
BSP. The term “covered institution” shall supervising authority’s directive.
refer to banks, OBUs, QBs, trust entities, (Circular No. 706 dated 05 January 2011)
NSSLAs, pawnshops, FX dealers, money
changers, remittance agents, electronic Sec. X803 Definitions of Terms. Except as
money issuers and other FIs which under otherwise defined herein, all terms used
special laws are subject to BSP supervision shall have the same meaning as those terms
and/or regulation, including their that are defined in the AMLA, as amended,
subsidiaries and affiliates as herein defined and its RIRR.
wherever they may be located: a. Money laundering is a crime
a. A subsidiary means an entity more whereby the proceeds of an unlawful
than fifty percent (50%) of the outstanding activity as herein defined are transacted,
voting stock of which is owned by a bank, thereby making them appear to have
QB, trust entity or any other institution originated from legitimate sources. It is
supervised and/or regulated by the BSP. committed by the following:
b. An affiliate means an entity the voting (1) Any person knowing that any
stock of which, to the extent of fifty percent monetary instrument or property represents,
(50%) or less, is owned by a bank, QB, trust involves, or relates to, the proceeds of any
entity, or any other institution supervised unlawful activity, transacts or attempts to
and/or regulated by the BSP. transact said monetary instrument or
Pursuant to Section 20 of the General property;
Banking Law of 2000, a bank authorized (2) Any person knowing that any
by BSP to establish branches or other monetary instrument or property involves
offices within or outside the Philippines the proceeds of any unlawful activity,
shall be responsible for all business performs or fails to perform any act as a
conducted in such branches and offices to result of which he facilitates the offense of
the same extent and in the same manner as money laundering referred to in paragraph
though such business had all been “(1)” above; and
(3) Any person knowing that any trading orders, transaction tickets and
monetary instrument or property is required confirmations of sale or investments and
under the act to be disclosed and filed with money market instruments;
the Anti-Money Laundering Council, fails to (4) Contracts or policies of insurance,
do so. life or non-life, and contracts of suretyship;
b. Covered transaction (CT) is a and
transaction in cash or other equivalent (5) Other similar instruments where
monetary instrument involving a total title thereto passes to another by
amount in excess of P500,000 within one endorsement, assignment or delivery.
(1) banking day. e. Transaction refers to any act
c. Suspicious transactions (ST) are establishing any right or obligation or
transactions with covered institutions, giving rise to any contractual or legal
regardless of the amount involved, where relationship between the parties thereto. It
any of the following circumstances exist: also includes any movement of funds by any
(1) There is no underlying legal or means with a covered institution.
trade obligation, purpose or economic f. Unlawful activity refers to any act
justification; or omission or series or combination thereof
(2) The client is not properly identified; involving or having direct relation to the
(3) The amount involved is not following:
commensurate with the business or (1) Kidnapping for ransom under
financial capacity of the client; Article 267 of Act No. 3815, otherwise
(4) Taking into account all known known as the Revised Penal Code (RPC),
circumstances, it may be perceived that the as amended;
client’s transaction is structured in order to (2) Sections 4, 5, 6, 8, 9, 10, 12, 13,
avoid being the subject of reporting 14, 15 and 16 of R.A. No. 9165, otherwise
requirements under the AMLA, as amended; known as the Comprehensive Dangerous
(5) Any circumstance relating to the Drug Act of 2002;
transaction which is observed to deviate (3) Section 3 paragraphs “B”, “C”, “E”,
from the profile of the client and/or client’s “G”, “H” and “I” of R.A. No. 3019, as
past transactions with the covered amended, otherwise known as the
institutions; Anti-Graft and Corrupt Practices Act;
(6) The transaction is in any way related (4) Plunder under R.A. No. 7080, as
to an unlawful activity or any money amended;
laundering activity or offense under the (5) Robbery and extortion under
AMLA, as amended, that is about to be, is Articles 294, 295, 296, 299, 300, 301 and
being or has been committed; or 302 of the RPC, as amended;
(7) Any transaction that is similar or (6) Jueteng and Masiao punished as
analogous to any of the foregoing. illegal gambling under P.D. No. 1602;
d. Monetary instrument refers to: (7) Piracy on the high seas under the
(1) Coins or currency of legal tender of RPC, as amended, and P.D. No. 532;
the Philippines, or of any other country; (8) Qualified theft under Article 310 of
(2) Drafts, checks and notes; the RPC, as amended;
(3) Securities or negotiable instruments, (9) Swindling under Article 315 of the
bonds, commercial papers, deposit RPC, as amended;
certificates, trust certificates, custodial (10) Smuggling under R.A. Nos. 455
receipts or deposit substitute instruments, and 1937;
(11) Violations under R.A. No. 8792 , (4) Is not subject to inspection by the
otherwise known as the Electronic authority that licensed it to conduct
Commerce Act of 2000; banking activities.
(12) Hijacking and other violations j. Beneficial owner refers to natural
under R.A. No. 6235; destructive arson and person(s) who ultimately owns or controls
murder, as defined under the RPC, as a customer and/or the person on whose
amended, including those perpetrated by behalf a transaction is being conducted.
terrorists against non-combatant persons It also incorporates those persons who
and similar targets; exercise ultimate effective control over a
(13) Fraudulent practices and other legal person or arrangement.
violations under R.A. No. 8799, otherwise k. Politically Exposed Person or PEP
known as the Securities Regulation Code refers to an individual who is or has been
of 2000; and entrusted with prominent public positions
(14) Felonies or offenses of a similar in the Philippines or in a foreign state,
nature that are punishable under the penal including heads of state or of government,
laws of other countries. senior politicians, senior national or local
g. Customer refers to any person or government, judicial or military officials,
entity that keeps an account, or otherwise senior executives of government or state
transacts business, with a covered -owned or -controlled corporations and
institution and any person or entity on important political party officials.
whose behalf an account is maintained or l. Correspondent banking refers to
a transaction is conducted, as well as the activities of one bank (the correspondent
beneficiary of said transactions. A customer bank) having direct connection or friendly
also includes the beneficiary of a trust, an service relations with another bank (the
investment fund, a pension fund or a respondent bank).
company or person whose assets are m. Fund/wire transfer refers to any
managed by an asset manager, or a grantor transaction carried out on behalf of an
of a trust. originator (both natural and juridical)
h. Shell company refers to a legal entity through an FI (Originating Institution) by
which has no business substance in its own electronic means with a view to making an
right but through which financial amount of money available to a beneficiary
transactions may be conducted. at another FI (Beneficiary Institution). The
i. Shell bank refers to a shell company originator person and the beneficiary person
incorporated as a bank or made to appear may be the same person.
to be incorporated as a bank but has no n. Cross border transfers refers to
physical presence and no affiliation with a any wire transfer where the originating and
regulated financial group. It can also be a beneficiary institutions are located in
bank that: different countries. It shall also refer to any
(1) Does not conduct business at a chain of wire transfer that has at least one
fixed address in a jurisdiction in which cross border element.
the shell bank is authorized to engage; o. Domestic transfer refers to any wire
(2) Does not employ one or more transfer where the originating and
individuals on a full time basis at this fixed beneficiary institutions are located in the
address; same country. It shall refer to any chain of
(3) Does not maintain operating wire transfer that takes place entirely within
records at this address; and the borders of a single country, even though
the system used to effect the fund/wire Sec. X804 Basic Principles and Policies
transfer may be located in another to Combat Money Laundering. In line
country. with the declaration of policy, covered
p. Originating institution refers to the institutions shall apply the following
entity utilized by the originator to transfer principles:
funds to the beneficiary and can either a. Conduct business in conformity
be: with high ethical standards in order to
(1) A covered institution as specially protect its safety and soundness as well as
defined by this Part and as generally the integrity of the national banking and
defined by the AMLA, as amended, and its financial system;
RIRR; or b. Know sufficiently your customer at
(2) An FI operating outside the all times and ensure that the financially or
Philippines that is other than covered socially disadvantaged are not denied
institutions referred to in Item “(1)” but access to financial services while at the
conducts business operations and activities same time prevent suspicious individuals
similar to them. or entities from opening or maintaining an
q. Beneficiary institution refers to the account or transacting with the covered
entity that will pay out the money to the institution by himself or otherwise;
beneficiary and can either be: c. Adopt and effectively implement a
(1) A covered institution as specifically sound AML and terrorist financing risk
defined by this Part and as generally management system that identifies,
defined by the AMLA, as amended, and its assesses, monitors and controls risks
RIRR; or associated with money laundering and
(2) An FI operating outside the terrorist financing;
Philippines that is other than covered d. Comply fully with this Part and
institutions referred to in Item “(1)” but existing laws aimed at combating money
conducts business operations and activities laundering and terrorist financing by
similar to them. making sure that officers and employees are
r. Intermediary institution refers to the aware of their respective responsibilities and
entity utilized by the originating and carry them out in accordance with superior
beneficiary institutions where both have no and principled culture of compliance; and
correspondent banking relationship with e. Fully cooperate with Anti-Money
each other but have established relationship Laundering Council (AMLC) for the
with the intermediary institution. It can effective implementation and enforcement
either be: of the AMLA, as amended, and its RIRR.
(1) A covered institution as specifically (Circular No. 706 dated 05 January 2011)
defined by this Part and as generally
defined by the AMLA, as amended, and its A. RISK MANAGEMENT
RIRR; or
(2) An FI operating outside the Sec. X805 Risk Management. All covered
Philippines that is other than covered institutions shall develop sound risk
institutions referred to in Item “(1)” but management policies and practices to ensure
conducts business operations and activities that risks associated with money-laundering
similar to them. such as counterparty, reputational,
(Circular No. 706 dated 05 January 2011) operational, and compliance risks are
unintentionally, for money laundering and transactions to the AMLC when their
terrorism financing. The MLPP shall be aggregated amounts breach the threshold.
consistent with the AMLA, as amended, and The ST reporting shall include a reporting
the provisions set out in this Part and chain under which a suspicious transaction
designed according to the covered will be processed and the designation of a
institution’s corporate structure and risk board-level or approved committee who
profile. It shall be in writing, approved by will ultimately decide whether or not the
the board of directors or by the country/ covered institution should file a report to
regional head or its equivalent for local the AMLC. If the resources of the covered
branches of foreign banks, and well institution do not permit the designation of
disseminated to all officers and staff who a committee, it may designate the
are obligated by law and by their program compliance officer to perform this function
to implement the same. Where a covered instead: Provided, That the board of directors
institution has branches, subsidiaries, is informed of his decision.
affiliates or offices located within and/or b. An effective and continuous
outside the Philippines, it shall adopt an anti-money laundering and countering
institution-wide MLPP that shall be of terrorist financing training program for
implemented on a consolidated basis. all directors, and responsible officers and
The MLPP shall also be readily available employees, to enable them to fully comply
in user-friendly form, whether in hard or soft with their obligations and responsibilities
copy. The covered institution must put up a under this Part, the AMLA, as amended, its
procedure to ensure an audit trail evidencing RIRR and their internal policies and
dissemination process for new and amended procedures as embodied in the MLPP. The
policies and procedures. The program shall training program shall also include refresher
embody the following at a minimum: trainings to remind these individuals of their
a. Detailed procedures of the covered obligations and responsibilities as well as
institution's compliance and implementation update them of any changes in AML laws,
of the following major requirements of the rules and internal policies and procedures.
AMLA, as amended, its RIRR, and this Part, c. An adequate screening and
to wit: recruitment process to ensure that only
(1) Customer identification process qualified personnel who have no criminal
including acceptance policies and on-going record/s are employed to assume sensitive
monitoring processes; banking functions;
(2) Record keeping and retention; d. An internal audit system in
(3) Covered transaction reporting; and accordance with Subsec. X805.4;
(4) Suspicious transaction reporting e. An independent audit program with
including the adoption of a system, written scope of audit that will ensure the
electronic or manual, of flagging, completeness and accuracy of the
monitoring and reporting of transactions that information and identification documents
qualify as suspicious transactions, obtained from clients, the covered and
regardless of amount or that will raise a “red suspicious transactions reports submitted to
flag” for purposes of conducting further the AMLC, and the records retained in
verification or investigation, or transactions compliance with this Part as well as
involving amounts below the threshold to adequacy and effectiveness of the training
facilitate the process of aggregating them for program on the prevention of money
purposes of future reporting of such laundering and terrorism financing;
1
RBs are given a three (3) months extension or up to 26 October 2011, within which to submit to the AMLSG
the Sworn Certification.
(3) Contacting the customer by phone, covered institution may open an account
email or letter (such as sending of “thank under the official name of these entities with
you letters”); and only no. 4 of those required under Subsec.
(4) Determining the authenticity of the X806.2.b (board resolution duly certified by
identification documents through validation the corporate secretary authorizing the
of its issuance by requesting a certification signatory to sign on behalf of the entity)
from the issuing authority or by any other obtained at the time of account opening.
means. (Circular No. 706 dated 05 January 2011)
For corporate or juridical entities,
validation procedures shall include, but not § X806.1.e Face-to-face contact. No
limited to, the following: new accounts shall be opened and created
(1) Requiring the submission of audited without face-to-face contact and personal
financial statements conducted by a interview between the covered institution’s
reputable accounting/auditing firm; duly authorized personnel and the
(2) Inquiring from the supervising potential customer except under Subsecs.
authority the status of the entity; X806.1.e.1 to e.3.
(3) Obtaining bank references; (Circular No. 706 dated 05 January 2011)
(4) On-site visitation of the company;
and § X806.1.e.1 Account opened through
(5) Contacting the entity by phone, a trustee, agent, nominee, or intermediary
email or letter (such as “thank you letters”). Where the account is opened through a
(Circular No. 706 dated 05 January 2011) trustee, agent, nominee or intermediary, the
covered institution shall establish and
§ X806.1.d Reduced due diligence record the true and full identity and
Whenever reduced due diligence is applied existence of both the (a) trustee, nominee,
in accordance with the covered institution’s agent or intermediary and (b) trustor,
customer acceptance policy, the following principal, beneficial owner, or person on
rules shall apply: whose behalf the account is being opened.
(1) For individual customers, a covered The covered institution shall determine the
institution may open an account under the true nature of the parties’ capacities and
true and full name of the account owner or duties by obtaining a copy of the written
owners and defer acceptance of the document evidencing their relationship and
minimum information. Deferred acceptance apply the same criteria for assessing the risk
of minimum information shall mean profile and determining the standard of due
obtaining information numbers 1 to 7 of diligence to be applied to both.
Subsec. X806.2.a at the time of account In cases of several trustors, principals,
opening while the rest, numbers 8 to 11, beneficial owners, or persons on whose
may be obtained within a reasonable time behalf the account is being opened where
but not exceeding ninety (90) days from the trustee, nominee, agent or intermediary
account opening. opens a single account but keeps therein
(2) For corporate, partnership, and sole sub-accounts that may be attributable to
proprietorship entities, and other entities each trustor, principal, beneficial owner, or
such as banking institutions, trust entities person on whose behalf the account is
and QBs authorized by the BSP to operate being opened, the covered institution shall,
as such, publicly listed companies subject at the minimum, obtain the true and full
to regulatory disclosure requirements, name, place and date of birth or date of
government agencies including GOCCs, a registration, as the case may be, present
address, nature of work or business, and Subsec. X806.2.e.1 has already conducted
source of funds as if the account was opened the requisite face-to-face contact on its own
by them separately. Where the covered customer who was referred to a covered
institution is required to report a CT or the institution, the latter may rely on the
circumstances warrant the filing of an ST, it representation of the third party that it has
shall obtain such other information on every already conducted face-to-face contact:
trustor, principal, beneficial owner, or Provided, That the pertinent requirements
person on whose behalf the account is in Subsec. X806.2.e.1 are also met.
being opened in order that a complete and (Circular No. 706 dated 05 January 2011)
accurate report may be filed with the AMLC.
In case a covered institution entertains § X806.2 Customer identification
doubts that the trustee, nominee, agent or Covered institutions shall establish and
intermediary is being used as a dummy in record the true identity of its customers
circumvention of existing laws, it shall apply based on valid identification1 document/s
enhanced due diligence in accordance with specified in Subsec. X806.2.c2.
(Circular No. 706 dated 05 January 2011, as amended by
Subsec. X806.1.b. M-2013-052 dated 22 November 2013)
(Circular No. 706 dated 05 January 2011)
§ X806.2.a New individual customers
§ X806.1.e.2 Outsourcing Covered institutions shall develop a
arrangement. Subject to existing rules on systematic procedure for establishing the
outsourcing of specified banking activities, true and full identity of new individual
a covered institution, without prior customers and shall open and maintain the
Monetary Board approval, may outsource account only in the true and full name of
to a counterparty the conduct of the the account owner or owners.
requisite face-to-face contact: Provided, That Unless otherwise stated in this Part,
such arrangement is formally documented average due diligence requires that the
and: Provided, further, That the conditions covered institution obtain, at the time of
under Subsec. X806.2.d are met. account opening, all the following
If the counterparty is an entity other than minimum information and confirming these
a covered institution as herein defined, information with the valid identification
covered institutions shall ensure that the documents stated in Subsec. X806.2.c from
employees or representatives of the individual customers and authorized
counterparty conducting the face-to-face signatory/ies of corporate and juridical entities:
contact undergo equivalent training (1) Name;
program as that of its frontliners undertaking (2) Present address;
a similar activity. Covered institutions shall (3) Date and place of birth;
likewise monitor and review annually the (4) Nature of work, name of employer
performance of the counterparty to assist or nature of self-employment/business;
them in determining whether or not to (5) Contact details;
continue with the arrangement. (6) Specimen signature;
(Circular No. 706 dated 05 January 2011) (7) Source of funds;
(8) Permanent address;
§ X806.1.e.3 Third party reliance
(9) Nationality;
Where a third party as defined under
(10) Tax identification number (TIN),
1
Temporarily relaxed until 31 December 2013 for the victims of Super Typhoon Yolanda for transactions
P50,000 and below and subject to conditions prescribed under Memorandum No. 2013-052 dated
22 November 2013.
2
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013).
SSS number or GSIS number, if any; and (7) Source of funds and nature of
(11) Name, present address, date and business;
place of birth, nature of work and source of (8) Name, present address, date and
funds of beneficial owner or beneficiary, place of birth, nature of work and source of
whenever applicable. funds of beneficial owner or beneficiary, if
(Circular No. 706 dated 05 January 2011) applicable; and
(9) For entities registered outside the
§ X806.2.b New corporate and juridical Philippines, similar documents and/or
entities. Covered institutions shall develop information shall be obtained, duly
a systematic procedure for identifying authenticated by the Philippine Consulate
corporate, partnership and sole where said entities are registered.
proprietorship entities as well as the (Circular No. 706 dated 05 January 2011)
stockholders/partners/owners, directors,
officers and authorized signatories of these § X806.2.c Valid identification
entities. It shall open and maintain accounts documents. The following guidelines govern
only in the true and full name of the entity the acceptance of valid ID cards for all types
and shall have primary responsibility to of financial transaction by a customer and
ensure that the entity has not been, or is not the authorized signatory/ies of a corporate
in the process of being dissolved, struck-off, or juridical entity, including financial
wound-up, terminated, or otherwise placed transactions involving Overseas Filipino
under receivership or liquidation. Workers (OFWs), in order to promote
Unless otherwise stated in this Part, access of Filipinos to services offered by
average due diligence requires that the formal FIs, particularly those residing in the
covered institution obtain the following remote areas, as well as to encourage and
minimum information and/or documents facilitate remittances of OFWs through the
before establishing business relationships: banking system:
(1) Certificates of Registration issued by (1) Customers and the authorized
the Department of Trade and Industry for signatory/ies of a corporate or juridical
single proprietors, or by the SEC for entity who engage in a financial transaction
corporations and partnerships, and by the with covered institutions for the first time
Bangko Sentral for money changers/foreign shall be required to present the original and
exchange dealers and remittance agents; submit a clear copy of at least one (1) valid
(2) Articles of Incorporation or photo bearing ID document issued by an
Association and By-Laws; official authority.
(3) Principal business address; For this purpose, the term official
(4) Board or Partners’ Resolution duly authority shall refer to any of the following:
certified by the Corporate/Partners’ Secretary (a) Government of the Republic of the
authorizing the signatory to sign on behalf Philippines;
of the entity; (b) Its political subdivisions and
(5) Latest General Information Sheet instrumentalities;
which lists the names of directors/trustees/ (c) GOCCs; and
partners, principal, stockholders owning at (d) Private entities or institutions
least twenty percent (20%) of the outstanding registered with or supervised or regulated
capital stock and primary officers such as either by the Bangko Sentral, SEC or IC.
the President and Treasurer; Valid IDs include the following:
(6) Contact numbers of the entity and 1. Passport including those issued by
authorized signatory/ies; foreign governments;
the nature of the respondent’s business and same person, the beneficiary institution may
to determine from publicly available rely on the customer due diligence
information the reputation of the institution conducted by the originating institution
and the quality of supervision, including provided the rules on third party reliance
whether it has been subject to money under Subsec. X806.2.e.1 are met, treating
laundering or terrorist financing the originating institution as third party as
investigation or regulatory action. therein defined.
(2) Assess the respondent institution’s (2) The originating institution shall not
anti-money laundering and terrorist accept instructions to fund/wire transfer
financing controls. from a non-customer originator, unless it
(3) Obtain approval from senior has conducted the necessary customer due
management before establishing diligence to establish the true and full
correspondent relationships. identity and existence of said originator.
(4) Document the respective (3) In cross border transfers, if the
responsibilities of each institution. originator is a high risk customer as herein
(5) With respect to “payable-through described, the beneficiary institution shall
accounts”, be satisfied that the respondent conduct enhanced due diligence on the
bank has verified the identity of, and beneficiary and the originator. Where
performed on-going due diligence on, the additional information cannot be obtained, or
customers having direct access accounts of any information or document provided is false
the correspondent and that it is able to or falsified, or result of the validation process
provide relevant customer identification data is unsatisfactory, the beneficiary institution
upon request by the correspondent bank. shall refuse to effect the fund/wire transfer or
Correspondent banking customers the pay-out of funds without prejudice to the
presenting greater risk, including shell reporting of a suspicious transaction to the
companies, shall be subject to enhanced due AMLC when circumstances warrant.
diligence. (4) Whenever possible, manually
(Circular No. 706 dated 05 January 2011) initiated fund transfer (MIFT) instructions
should not be the primary delivery method.
§ X806.2.i Fund/Wire transfer Every effort shall be made to provide client
Because of the risk associated with dealing with an electronic banking solution.
with fund/wire transfers, where a covered However, where MIFT is utilized, the
institution may unknowingly transmit following validation procedures shall apply:
proceeds of unlawful activities or funds (i) Prior to the bank accepting from a
intended to finance terrorist activities, it customer a manually initiated funds
shall establish policies and procedures transfer request, the customer must
designed to prevent it from being utilized execute and sign an agreement which
for that purpose which shall include, but preferably is part of the account opening
not limited to, the following: documentation, wherein are outlined the
(1) The beneficiary institution shall not manual instruction procedures with
accept instructions to pay-out fund transfers related security procedures including
to non-customer beneficiary, unless it has customer agreement to accept
conducted the necessary customer due responsibility for fraudulent or erroneous
diligence to establish the true and full instructions provided the bank has
identity and existence of said beneficiary. complied with the stated security
Should the originator and beneficiary be the procedures.
(ii) It is mandatory that written MIFT designated by the customer in the MIFT
instructions are signature verified. In agreement. The party called is to be
addition, one (1) of the following primary documented on the instructions. The callback
security procedures must be applied: a must be made by someone other than (a) the
recorded callback to the customer to confirm person receiving the original instructions and
the transaction instructions, or testword (b) effecting the signature verification.
arrangement/ verification. The callback or (5)1 Cross border and domestic fund/
test word requirement may be substituted wire transfers and related message
by any of the following validity checks: use amounting to P50,000 or more or its
of a controlled PIN or other pre-established equivalent shall include accurate and
code; sequential numbering control of meaningful originator information. The
messages; pre-established verifiable forms; following are the originator information that
same as prior transmissions; standing/pre- shall remain with the transfer or related
defined instructions; or value for value message through the payment chain:
transactions. (a) Name of the originator;
(iii) It is mandatory that faxed MIFT (b) Address or in its absence the national
instructions are signature verified and the identity number or date and place of birth
fax machine be located in a secured of the originator; and
environment with limited and controlled (c) Account number of the originator or
staff access which permits visual in its absence, a unique reference number
monitoring. If monitoring is not possible, must be included.
the equipment must be secured or (6) Should any wire transfer amounting
programmed to receive messages into a to P50,000 or more or its equivalent be
password protected memory. unaccompanied by the required originator
Faxed MIFT transactions below a certain information, the beneficiary institution shall
threshold (approved by the President/ exert all efforts to establish the true and full
Country Manager (for branches of foreign identity and existence of the originator by
banks) or Business Risk Manager) may be requiring additional information from the
processed with the mandatory procedure originating institution or intermediary
described above and an enhanced security institution. It shall likewise apply enhanced
procedure such as (a) a recorded callback due diligence to establish the true and full
to the customer to confirm the transaction identity and existence of the beneficiary.
instructions and/or (b) test word Where additional information cannot be
arrangement/verification, and/or (c) obtained, or any information or document
utilization of secured forms that incorporate provided is false or falsified, or result of the
verifiable security procedures such as validation process is unsatisfactory, the
watermarks or codes, and/or (d) beneficiary institution shall refuse to effect
transmission encryption. the fund/wire transfer or the pay-out of funds
(iv) Telephone callback numbers and without prejudice to the reporting of a
contacts must be securely controlled. The suspicious transaction to the AMLC when
confirmation callback is to be recorded and circumstances warrant.
made to the signatory/(ies) of the customer’s (Circular No. 706 dated 05 January 2011)
individual account(s). For commercial and
company accounts the callback will be § X806.2.j Buyers of cashier’s,
made to the signatory/(ies) of the account manager’s or certified checks. A covered
or, if so authorized, another person institution may sell cashier’s, manager’s or
1
The implementation of the originator information requirement is deferred for one (1) year, or until 26 July 2012
(M-2011-049 dated 07 September 2011)
certified checks only to its existing acceptance and identification policies and
customers and shall maintain a register of as required under Subsecs. X806.2.j and
said checks indicating the following X806.2.j.1 of this Part;
information: (3) A register of said checks indicating
(1) True and full name of the buyer or all the information required under Subsec.
the applicant if buying on behalf of an X806.2.j shall be maintained;
entity; (4) A covered institution which issues
(2) Account number; as well as those which accepts as deposits,
(3) Date of issuance and the number of said cashier’s, manager’s or certified checks
the check; or other similar instruments issued in blank
(4) Name of the payee; or payable to cash, bearer or numbered
(5) Amount; and account shall take such measure(s) as may
(6) Purpose of such transaction. be necessary to ensure that said instruments
(Circular No. 706 dated 05 January 2011) are not being used/resorted to by the buyer
or depositor in furtherance of a money
§ X806.2.j.1 Buyers of cashier’s, laundering activity;
manager’s or certified checks other than (5) The deposit of said instruments shall
an existing customer. Where an be subject to the same requirements of
individual or an entity other than an scrutiny applicable to cash deposits; and
existing customer applies for the issuance (6) Transactions involving said
of cashier’s, manager’s or certified checks, instruments should be accordingly reported
the covered institution shall, in addition to to the AMLC if there is reasonable ground
the information required in Subsec. to suspect that said transactions are being
X806.2.j, obtain all the identification used to launder funds of illegitimate origin.
documents and minimum information (Circular No. 706 dated 05 January 2011)
required by this Part to establish the true
and full identity and existence of the § X806.2.k Second-endorsed checks. A
applicant. In no case shall reduced due covered institution shall enforce stricter
diligence be applied to the applicant and, guidelines in the acceptance of second
where circumstances warrant, enhanced -endorsed checks including the application
due diligence should be applied. of enhanced due diligence to ensure that
(Circular No. 706 dated 05 January 2011)
they are not being used as instruments for
§ X806.2.j.2 Buyers of cashier’s, money laundering or other illegal activities.
manager’s or certified checks in blank or For this purpose, a covered institution shall
payable to cash, bearer or numbered limit the acceptance of second-endorsed
account. A covered institution may issue checks from properly identified customers
cashier’s, manager’s or certified checks or and only after establishing that the nature
other similar instruments in blank or payable of the business of said customer justifies, or
to cash, bearer or numbered account subject at least makes practical, the deposit of second-
to the following conditions: endorsed checks. In case of isolated
(1) The amount of each check shall not transactions involving deposits of second-
exceed P10,000; endorsed checks by customers who are not
(2) The buyer of the check is properly engaged in trade or business, the true and full
identified in accordance with its customer identity of the first endorser shall be established
and the record of the identification shall also the Financial Action Task Force (FATF)
be kept for five (5) years. recommendations, or presents greater risk
(Circular No. 706 dated 05 January 2011) for crime, corruption or terrorist financing
is considered a high risk customer.
§ X806.2.l Foreign exchange dealers/ Information relative to these are publicly
money changers/remittance agents available such as in the websites of FATF,
A covered institution shall require their FATF Style Regional Bodies (FSRB) like the
customers, who are foreign exchange Asia Pacific Group on Money Laundering
dealers, money changers and remittance and the Egmont Group, national authorities
agents, to submit a copy of the certificate of like the OFAC of the U.S. Department of
registration issued to them by the Bangko the Treasury, or other reliable third parties
Sentral as part of their customer such as regulators or exchanges, which shall
identification document. The certificate of be a component of a covered institution’s
registration shall be for each head office, customer identification process.
branch agent, sub-agent, extension office or When dealing with high risk customers,
business outlet of foreign exchange dealers, a covered institution should take extreme
money changers and remittance agents. caution and vigilance. In no case shall
Foreign exchange dealers, money reduced diligence be applied to high risk
changers and remittance agents customers customers. On the other hand, in case the
presenting greater risk, such as shell covered institution determines, based on its
companies shall be subject to enhanced due standards, that dealing with the high risk
diligence. customer calls for, or this Part requires, the
(Circular No. 706 dated 05 January 2011)
application of enhanced due diligence, it
§ X806.2.m High risk customer shall apply the minimum requirements for
A customer from a country that is enhanced due diligence in accordance with
recognized as having inadequate Subsec. X806.1.b. In all instances of
internationally accepted anti-money acceptance of a high risk customer, approval
laundering standards, or does not of the covered institution’s senior officer
sufficiently apply regulatory supervision or shall be necessary.
(Circular No. 706 dated 05 January 2011)
(b) Transacting an amount that is not 18 March 2009, the following are
commensurate with the business or financial considered as “non-cash, no/low risk
capacity of the customer or deviates from covered transactions” the reporting of
his profile; which to the AMLC are deferred:
(c) Structuring of transactions in order a. Transactions between banks and the
to avoid being the subject of covered Bangko Sentral;
transaction reporting; or b. Transactions between banks
(d) Knowing that a customer was or is operating in the Philippines;
engaged or engaging in any unlawful activity c. Internal operating expenses of banks;
as herein defined. d. Transactions involving transfer of
Where additional information cannot be funds from one deposit account to another
obtained, or any information or document deposit account of the same person within
provided is false or falsified, or result of the the same bank;
validation process is unsatisfactory, the e. Roll-overs of placements of time
covered institution shall immediately close deposit; and
the account and refrain from further f. Loan/Interest principal payment
conducting business relationship with the debited against borrower’s deposit account
customer without prejudice to the reporting maintained with the lending bank.
of a suspicious transaction to the AMLC In addition, pursuant to AMLC
when circumstances warrant. Resolution No. 292 dated 24 October
(Circular No. 706 dated 05 January 2011) 2003, covered institutions, other than
banks, shall file CTRs on transactions in
C. Covered and Suspicious
cash or foreign currency or other monetary
Transaction Reporting
instruments (other than checks) or
properties. Due to the nature of the
Sec. X807 Covered and Suspicious
transactions in the stock exchange, only the
Transaction Reporting 1 . Covered
brokers-dealers shall be required to file
institutions shall report to the AMLC all
CTRs and STRs2.
covered and suspicious transactions within
The Philippine Stock Exchange,
ten (10) working days from occurrence
Philippine Central Depository (PCD),
thereof.
Securities Clearing Corporation of the
Should a transaction be determined to
Philippines (SCCP) and transfer agents are
be both a covered and suspicious
exempt from filing CTRs. They are however
transaction, the covered institution shall be
required to file STRs when the transactions
required to report the same as a suspicious
that pass through them are deemed
transaction.
suspicious.
(Circular No. 706 dated 05 January 2011)
The Bangko Sentral may consider other
§ X807.1 Deferred reporting of certain transactions as “no/low risk covered
covered transactions. Pursuant to AMLC transactions” and propose to the AMLC that
Resolution No. 58 dated 25 June 2005 as they be likewise subject to deferred
amended by AMLC Resolution No. 24 dated reporting by covered institutions.
(Circular No. 706 dated 05 January 2011; CL-2011-035 dated
25 May 2011)
1
Submission of the hard copies of the STRs to the AMLC is deferred until further advice.
2
The filing of a CTR by a broker is deferred when the mode of payment is by checks or if the settlement between
brokers/dealers and their customers is made through fund transfers or “debiting and crediting” of their respective
accounts.
PART NINE
1
With additional special regulatory relief in areas affected by Tropical Depression “Yolanda” as provided
under Appendix 89a (Circular No. 820 dated 06 December 2013).
for reconsideration on the monetary (15) days will be debited against the bank’s
penalty approved by the Governor/ corresponding demand deposit account with
Monetary Board shall be elevated to the the BSP. A debit advice showing invoices
Monetary Board for resolution/decision. paid shall be sent to the head office of the
The running of the penalty period in case bank concerned.
of continuing penalty and/or the period (As amended by Circular No. 585 dated 15 October 2007)
for computing additional charge shall be
interrupted from the time the appeal or § X902.4 (2008 - X609.4) Check/
request for reconsideration was received by demand draft payments to the Bangko
the appropriate department of the SES up to Sentral of thrift, cooperative and rural
the time that the notice of the Monetary banks. TBs, Coop Banks and RBs shall make
Board decision was received by the bank/ all check and demand draft payments for
individual concerned. transactions other than those required to be
(As amended by Circular Nos. 662 dated 09 September 2009 paid through the banks DDA either to the
and 585 dated 15 October 2007) BSP Cash Department or to BSP Regional
Offices and Branches. Such payments shall
§ X902.2 (2008 - X609.2) Payment of be accompanied by appropriate payment
fines by banks. Banks shall pay the fines form as shown in Appendix 35. Payments
within fifteen (15) calendar days from receipt not accompanied by the required payment
of the statement of account from the BSP. forms shall be presumed to be additions to
For banks which maintain demand reserves and shall be credited to the demand
deposit account with the BSP, fines which deposit account of the paying bank.
are unpaid after the lapse of the fifteen (15)- Check payments shall be value dated
day period shall be automatically debited when the check is cleared.
against the corresponding demand deposit (As amended by Circular Nos. 662 dated 09 September 2009
account of the bank concerned: Provided, and 585 dated 15 October 2007)
That if the balance of the bank’s account is
insufficient to cover the fines due, such fines B. BANK AS COLLECTION/
shall be paid not later than the following REMITTANCE AGENTS
banking day. For the purpose of this
Subsection, banking day means a day on Sec. X903 (2008 - X604) Collection of
which the BSP head office and the head Customs Duties/Taxes/Levies and Other
office of the bank are open for business. Revenues. The following regulations shall
For uniform implementation of the govern the collection and reporting of
above regulations, the procedural guidelines customs duties, taxes, levies and other
embodied in Appendix 29 shall be revenues through the banking system.
observed.
(As amended by Circular Nos. 662 dated 09 September 2009 § X903.1 (2008 - X604.1) Coverage
and 585 dated 15 October 2007) All presently accredited agent banks with
demand deposit accounts with the BSP and
§ X902.3 (2008 - X609.3) Cost of checks government banks are authorized to collect
and documentary stamps. Banks are given (a) customs duties, taxes and other levies,
fifteen (15) days from receipt of invoice to (b) import processing fees, and (c) export/
settle their accounts with the BSP Security premium duties: Provided, however, That
Printing Plant for transactions representing the collection of taxes from GOCCs shall
the cost of printed checks and documentary be made only through banking offices of
stamps. Accounts not settled within fifteen government banks.
d. The branch/extension office/agency on the 10th calendar day from the date of
shall: collection (based on either forms RC 82-005,
(1) Report by telephone, telex or other RC 82-007 or RC 82-011). Said Department
means to its Head Office, at the end of each shall also credit on the same day the account
day, total collections for the day and the of the Treasurer of the Philippines for all
inclusive serial numbers of ORs issued, to such remittances of tax collections, duties,
be used as basis for the preparation by the fees and other levies.
Head Office of the Consolidated Report on Copies of debit/credit advices to AABs
Daily Collections of Export/Premium Duty shall be furnished by the Comptrollership
(RC 82-007); and Department, BSP.
(2) A c c o m p l i s h t h e A b s t r a c t o f
Daily Collections of Export/Premium § X903.6 (2008 - X604.6) Reconciliation
Duty (RC 82-008) and submit the same, of revenue collections. The Bureau of
duly supported with copies of OPs and Customs shall report to the appropriate
ORs, within ten (10) calendar days from department of the SES, BSP, Manila, any
date of collection to the offices indicated unreported collection or other discrepancies
in the form. discovered for proper examination. The BSP
e. The Head Office of the collecting shall take appropriate action, through the
bank shall: Comptrollership Department, either by
(1) Consolidate its report of collection debiting or crediting the DDA of the bank
with those of its branches/extension offices/ concerned, upon advice by the appropriate
agencies and submit to the Bureau of department of the SES on the results of the
Customs the Consolidated Report of Daily investigation.
Collections of Export/Premium Duty
(RC 82-009) on the day following the date § X903.7 (2008 - X604.7) Penalty for
of collection; and willful delay on the reporting of
(2) Consolidate the Abstract of Daily collections/remittances. In the event
Collections of Export/Premium Duty the Bureau of Customs shall discover,
(RC 82-010) with those received from in the course of its verification, any
branches/extension offices/agencies. The willful delay in the reporting of collections
original of the Consolidated Abstract of and remittances by banks, said Bureau
Collection of Export/Premium Duty shall advise the Comptrollership
(RC 82-011) shall be submitted to the Department of the BSP to debit the DDA
Comptrollership Department, BSP, Manila, of the bank concerned with the
on the 10th calendar day following the date corresponding penalty therefor, in
of collection. accordance with Subsec. X903.8.
Simultaneously, the remaining
copies, with the supporting OPs and § X903.8 (2008 - X604.8) Fines for
ORs, shall be submitted to the Bureau delayed reports/remittances of collections
of Customs. Any bank authorized to collect customs
duties, taxes and other levies and export/
§ X903.5 (2008 - X604.5) Remittances premium duty, which shall willfully delay
thru debit/credit advices. The the submission of reports and remittance
Comptrollership Department, BSP, of its collection to the BSP within the
Manila, shall debit the DDAs of the period prescribed thereon, shall pay fines
banks concerned for the total daily in accordance with the following
collection, which is due for remittance schedule:
due on the importation covered by such statement to the effect that it is duty-
LC. The deposit which shall be effected exempt and citing the specific basis/
through an electronic Import Entry authority of such exemption, supported by
Declaration (IED) lodged thru a Value a copy of the applicable certification/
Added Service Provider (VASP), shall not approval/letter of authority of the
be withdrawable and shall be utilized government agency concerned.
only by crediting the same to the import d. Transmittal of the ADPI to the
duties due on the importation. AABs. The ADPI shall be transmitted by
b. Amount of advance deposit. The the BOC to the PCHC Payment Gateway
import duties due shall be computed by the which shall have responsibility for
Electronic to Mobile (e2m) system based on forwarding the same to the AAB
the applicant's declared descriptions, concerned.
ASEAN Harmonized Tariff Nomenclature e. Collection by debit from
(AHTN), quantities and values in the IED. designated bank account. The collection
The LC applicant must ensure that the of the advance deposit as well as of the
particulars of the LC application and the final duties, taxes and other charges
supporting pro-forma invoice correspond to payable on the importation shall be by
those declared in the IED and any debit from the applicant’s bank account
undervaluation, misclassification and designated in the ADPI or in the Final
misdeclaration in the IED shall subject the Payment Instruction (FPI) and credited to
LC applicant to the penalties prescribed the BOC’s account.
under Section 2503 of the Tariff and f. Validation of advance deposits.
Customs Code, as amended. The amount Payment of advance deposits shall be
payable to the AAB, which shall be the full validated by official receipts, such as
advance duty payable on the importation electronic Advance Payment
taking into account exemptions obtained, Confirmations (APC) prepared and
shall be notified to the AAB thru an transmitted by the AAB using the payment
electronic Advance Deposit Payment subsystem of the e2m system via the
Instruction (ADPI). PCHC Payment Gateway.
The net amount payable must be paid g. Other payment arrangements. The
within the IED validity period which is requirement of a deposit as stated in Item
reckoned as seven (7) calendar days from “a” hereof shall likewise apply even if the
date the payment instruction is generated importation is effected under other types
by the e2m system. Beyond the validity of payment arrangements or on a deferred
period, the IED status will be indicated payment basis. The deposit should be
as expired. For expired lEDs, AABs shall made upon presentation of the import
not accept payment. Importers will have documents to the AAB.
to file a new IED. h. Confirmation of advance duties
c. Duty exempt imports. If the collected. The e2m system shall provide
importer/applicant declares in the IED that the importer’s VASP the APC. The VASP
the importation is exempt from duties, shall in turn notify the importer by e-mail
such claim shall be taken at face value in of its receipt of the APC and provide the
the determination by the Bureau of importer a printed copy thereof upon
Customs (BOC) of the amount of advance request.
deposit. However, AABs shall, as a i. Collection of final duties and tax
requirement for the opening of the LC, payable. The final duties and tax payable as
require from the applicant a sworn computed by the e2m system shall be
notified to the AAB concerned thru an The funds collected by banks shall be
electronic FPI. After collecting the amount handled by the bank proper and not the trust
in the FPI, the AAP shall transmit to BOC department: Provided, however, That such
via the PCHC Payment Gateway a Final deposits shall be subject to the reserve
Payment Confirmation (FPC). requirements and the liquidity floor
j. Statement of duties and taxes requirements on government deposits.
availment (SDTA). Upon receipt of the FPC (As amended by Circular Nos. 831 dated 02 May 2014 and
from the AAB, the BOC shall provide the 722 dated 17 May 2011)
importer electronically an SDTA which shall
Sec. X905 (2008 - X605.3) Collection
be his proof of having settled all duties,
Agents of PhilHealth. Banks are authorized
taxes, and other charges on the importation.
to act as collecting agents of the Philippine
k. Phased implementation. The e2m
Health Insurance Corporation (PhilHealth)
system shall be rolled out nationwide in
phases. Importations to be cleared thru under which agency:
Customs Collection Districts already a. PhilHealth members may pay their
operating the e2m system shall be paid thru premium contributions to PhilHealth
payment system prescribed under this through the said banks and the funds thus
Section. However, importations to be collected shall be remitted to PhilHealth in
cleared thru non-e2m customs ports shall accordance with PhilHealth’s agreed
follow the old payment system during the remittance schedule which in no case shall
migration period. exceed thirty (30) days from receipt thereof;
Violations. Any violation of the b. During the period that such premium
provisions of this Subsection shall be contributions are in the custody of banks,
penalized under the pertinent provisions of such funds shall not earn interest; and
the Tariff and Customs Code of the c. The banks shall not collect from
Philippines, as amended, and/or under PhilHealth any service charge for such
Section 37 of Republic Act No. 7653. agency.
(As amended by Circular No.638 dated 09 January 2009) The funds collected by the banks shall
be handled by the operating departments
Sec. X904 Collection Agents of the Social (cash departments) of the banks concerned
Security System. Banks duly accredited by and not their trust operations: Provided,
the SSS are authorized to act as collection however, That such funds shall be subject
agents under which agency, members of the to the reserve requirement on deposits and
SSS may pay their contributions for social to the liquidity floor on government
security and employees compensation to the deposits.
SSS through the said banks. Such banks are
also authorized to receive from SSS members Sec. X906 (2008 - X660) Disclosure of
amortization payments for loans granted by Remittance Charges and Other Relevant
the SSS and such other payments due to SSS. Information. It is the policy of the Bangko
The funds thus collected shall be Sentral to promote the efficient delivery of
remitted to the SSS within the period competitively-priced remittance services
prescribed by the SSS. Any form of business/ by banks and other remittance service
compensation arrangement to the collection providers by promoting competition and the
agents shall be in accordance with the terms use of innovative payment systems,
and conditions agreed upon by the parties. strengthening the financial infrastructure,
the technical capability, experience and (d) The directors of the MIRA must
organization to provide microfinance ratings possess a high degree of competency
that are objective, credible and transparent. equipped with the appropriate education
Based on the above principles, the BSP, and relevant experience in the rating
through the Monetary Board, may officially business;
recognize a MIRA upon satisfaction of the (e) The directors, officers, members of
following requirements. The official the Rating Committee and professional
recognition shall be valid for a period of analytical staff of the MIRA have not at any
three (3) years and may be renewed upon time been convicted of any offense involving
assessment that the following requirements moral turpitude or violation of the Securities
are satisfied. Regulation Code; and
a. Organizational structure ( f ) The directors, officers, members of
1. A MIRA must be duly registered the Rating Committee and professional
with the SEC and have the necessary permits analytical staff of the MIRA are not currently
to operate; involved as a defendant in any litigation
2. A MIRA must have at least five (5) connected with violations of the Securities
years track record in the issuance of reliable Regulation Code nor included in the BSP
and credible ratings with particular watchlist.
experience in microfinance; and 2. Financial resources
3. An international MIRA that will (a) The MIRA must have financial
undertake local ratings shall have a capability to support viable operations such
representative office in the Philippines. as, but not limited to, the necessary
b. Resources technology and infrastructure to ensure the
1. Human resources effective processing of data/information and
(a) A MIRA must be staffed by full-time the timely release of reliable and credible
analysts who have the demonstrated ratings; and
capability to competently assess the credit- (b) The MIRA must have financial
worthiness of a microfinance institution independence that will allow it to operate
(MFI). The analysts referred herein preclude free from economic and political pressures.
support staff engaged in other functions such c. Objectivity
as, but not limited to, marketing and 1. The MIRA must employ an
administration; assessment methodology which is accepted
(b) A MIRA must have a sufficient as a global standard. Where the MIRA uses
number of analyst so as to allow substantive its own proprietary framework, said
interaction with the senior management and methodology must have been in market use
operating units of the assessed/rated entities for at least three (3) years with demonstrable
as a routine component of the surveillance credibility;
process; 2. The assessment methodology used
(c) The MIRA shall establish a Rating by the MIRA must be based both on
Committee, independent of its analysts, qualitative and quantitative approaches; and
whose members have unquestionable 3. Said assessment methodology must
expertise in the rating business, majority of be subjected to periodic review to ensure
whom must have at least five (5) years direct that it is responsive to changes in the
professional experience in rating operations of assessed/rated entities.
institutions; d. Independence
1. The MIRA must be free from control v. any other arrangement similar to
of and undue influence by the entities it any of the above.
assesses/rates; e. Transparency
2. The assessment process must be 1. A general statement of the
free from ownership pressures to allow the assessment methodology used by the MIRA
management of the MIRA to exercise should be publicly available;
independent professional judgment; 2. The rationale of ratings issued and
3. Persons directly involved in the risk factors considered in the assessment
assessment process of the MIRA are free should be made available to the public; and
from conflicts of interest with assessed/rated 3. The ratings issued by the MIRA
entities; and should be available both to domestic and
4. The MIRA cannot assess/rate its foreign institutions with legitimate interest.
affiliate or subsidy or any other entity in f. Disclosure Requirements
which the MIRA has control. 1. Qualitative Disclosures
For purposes of this section, a subsidiary (a) Definition of ratings along with
refers to a corporation, more than fifty corresponding symbols; and
percent (50%) of the voting stock of which (b) Material changes within the MIRA
is owned or controlled directly or indirectly (such as but not limited to changes in
by the MIRA, while an affiliate refers to a management or organizational structure,
corporation, not more than fifty percent rating personnel, modification of rating
(50%) but not less than ten percent (10%) practices, financial deterioration) that may
of the voting stock of which is owned or affect its ability to provide reliable and
controlled directly or indirectly by the MIRA. credible ratings.
“Control” exists when the parent owns 2. Quantitative Disclosures. Rating
directly or indirectly through subsidiaries transitions of assessed/rated entities over
more than one half (1/2) of the voting power time, i.e., the likelihood that the current
of an enterprise unless, in exceptional rating of an entity will change to another
circumstance,; It can be clearly rating (either higher or lower) over time.
demonstrated that such ownership does not g. Credibility
constitute control. Control may also exist 1. The MIRA must have a general
even when ownership is one half(1/2) or less reputation of high standards of integrity and
of the voting power of an enterprise when fairness in dealing with its clients and
there is: conducts its business in ethical manner;
i. power over more than one half 2. The MIRA is generally accepted by
(1/2) of the voting rights by virtue of an predominant users in the market (i.e.,
agreement with other stockholders; issuers, investors, bankers, FIs, securities
ii. power to govern the financial and traders); and
operating policies of the enterprise under a 3. The MIRA must carry out its rating
statute or an agreement; activities with due diligence to ensure
iii. power to appoint or remove the ratings are fair and appropriate.
majority of the members of the board of h. Internal compliance procedures
directors or equivalent governing body; 1. The MIRA must have the necessary
iv. power to cast the majority votes at internal procedures to prevent misuse or
meeting of the board of directors or unauthorized disclosure of confidential/non-
equivalent governing body; or public information; and
2. The MIRA must have rules and branches as outlets and/or selling such
regulations that prevent insider trading and financial products without prior Bangko
other conflict of interest situations. Sentral approval.
(Circular No. 685 dated 07 April 2010)
Sec. 1948 (2008 - 1650) Offering in the
§ X934.4 Derecognition of MIRA Philippines of Products by Parent Bank and
a. Grounds for derecognition. MIRAs Branches Abroad of the Parent Bank
may be derecognized, upon evaluation of Philippine branches and subsidiaries of
the appropriate department of the SES, under foreign banks shall:
the following circumstances: a. Inform/notify the Bangko Sentral if
1. Any willful misrepresentation and/ their parent bank and/or branches abroad
or falsification of information/documents of their parent bank offer or market products
required under this Section. in the Philippines, either through electronic
2. Failure to maintain compliance with means (website) or through its local desks
the requirements under this Section. (within bank premises); and
3. Involvement in illegal activities such b. In cases when there are products
as ratings blackmail; creation of a false being offered, to submit to the appropriate
market or insider trading; divulging any department of the SES within ten (10)
confidential information about a client banking days from receipt of Circular Letter
without prior consent to a third party dated 12 April 2005, the list of products
without legitimate interest; indulging in offered/marketed, the corresponding
unfair competition (such as luring clients of manuals containing the policies and
another rating agency by assuring higher procedures, the flow chart of transaction and
ratings, etc.) the risk management system for each
4. Failure to deliver credible, objective particular product.
and transparent ratings as prescribed in this
Section; and Sec. 2948 (Reserved)
5. Any violation of applicable laws,
rules and regulations. Sec. 3948 (Reserved)
b. Procedure for derecognition. A
MIRA shall only be derecognized upon prior Sec. X949 (Reserved)
notice and after being given the opportunity
to defend itself. D. PHILIPPINE & FOREIGN
(Circular No. 685 dated 07 April 2010)
CURRENCY NOTES & COINS
Secs. X935 - X946 (Reserved) Sec. X950 (2008 - X610) Philippine and
Foreign Currency Notes and Coins. The
Sec. X947 (2008 - X632) Prohibition on the following rules and regulations shall govern
Sale of Foreign-Based Mutual Funds by the treatment and disposition of counterfeit
Banks. Criminal and administrative Philippine and foreign currency notes and
sanctions prescribed under Sections 36 and coins, the reproduction and/or use of
37, respectively, of R.A. No. 7653 (The facsimiles of legal tender Philippine
New Central Bank Act) shall be imposed currency notes and coins, the replacement
on banks marketing/selling foreign-based and redemption of legal tender Philippine
mutual funds using any or all of their currency notes and coins considered
mutilated or unfit for circulation, and the § X950.2 (2008 - X610.2) Treatment
treatment and disposition of Philippine and disposition of counterfeit Philippine
currency notes and coins called in for and foreign currency notes and coins
replacement. Any person or entity, public or private,
The guidelines and procedures governing who receives or takes hold of a note or
currency deposits and withdrawals of banks coin which is counterfeit or whose
for credit to and debit from their DDAs with genuineness is questionable, whether
the Bangko Sentral is provided in Appendix 80. Philippine or foreign currency, shall issue
(As amended by Circular No. 829 dated 13 March 2014, a temporary receipt to its owner/holder
M-2009-021 dated 16 June 2009) and must indicate therein his name,
address and community tax certificate
§ X950.1 (2008 - X610.1) Definition number or a reference number sourced
of terms. For purposes of this Section, the from any Philippine government-issued ID
following terms are defined: or passport number, or in case of a
a. Legal Tender Philippine Currency foreigner, the date of receipt, the
- Notes and coins issued and circulating denomination, serial number of the note
in accordance with R.A No. 265, as or the coin series as the case may be. The
amended, and/or R.A. No. 7653, which owner/holder shall be required to
when offered for the payment of public countersign the receipt and in case of
or private debt must be accepted. refusal, the reason shall be stated in the
b. Counterfeit Note - An imitation of receipt.
a legal and genuine note intended to Any person or entity, public or private,
deceive or to be taken for that which is who receives, takes hold or has in his
original, legal and genuine. possession a note or a coin which is
c. Counterfeit Coin - An imitation or counterfeit or whose genuineness is
forged design of a genuine and legal coin questionable, whether Philippine or
regardless of its intrinsic value or metallic foreign currency, shall forward the same
composition, intended to deceive or pass within five (5) working days from date
for the genuine coin. of receipt/possession thereof, together
d. Unauthorized Reproduction of with a copy of the temporary receipt
Legal Tender Philippine Note - A required herein for examination to:
reproduction of a facsimile or any
illustration or object bearing the likeness THE CURRENCY ISSUE AND
or similitude of legal tender Philippine INTEGRITY OFFICE
currency note or any part thereof, without Security Plant Complex
prior authority from the Governor of Bangko Sentral ng Pilipinas
Bangko Sentral or his duly authorized East Avenue, Diliman
1101 Quezon City
representative.
e. Unauthorized Reproduction of
In cases where personal delivery to
Legal Tender Philippine Coin - A
the Currency Issue and Integrity Office
reproduction of a facsimile or any object
(CIIO), Bangko Sentral ng Pilipinas,
in metal form bearing the likeness or
Quezon City, is not feasible, delivery of
similitude of legal tender Philippine
the aforestated notes or coins may be
currency coin or any part thereof, without
made through any of the following
prior authority from the Governor of
agencies:
Bangko Sentral or his duly authorized
(1) The Bangko Sentral Regional
representative.
Offices/Branches; or
(As amended by Circular No. 829 dated 13 March 2014)
(2) Any banking institution under the The Bangko Sentral shall extend
supervision of the Bangko Sentral. assistance as may be requested of it in the
Any law enforcement agency which investigation, apprehension and/or
conducted any seizure of notes and coins, prosecution of person/s responsible for
whether Philippine or foreign, which are counterfeiting of notes and coins, both
counterfeits or suspected to be counterfeit Philippine or foreign.
currency, shall within five (5) working days (As amended by Circular No. 829 dated 13 March 2014)
from date of seizure, advise in writing the
CIIO, Bangko Sentral ng Pilipinas, Quezon § X950.3 (2008 - X610.3) Reproduction
City of said seizure enclosing therewith a and/or use of facsimiles of legal tender
copy of the receipt and inventory taken on Philippine currency notes. No person or
the seized items. All seized notes or coins entity, public or private, shall design,
which are not or no longer needed as engrave, print, make or execute in any other
evidence in any investigation/legal manner, or utter, issue, distribute, circulate
proceedings shall be immediately turned or use any handbill, advertisement, placard,
over to the CIIO, Bangko Sentral ng circular, card, or any other object
Pilipinas, for proper disposition. whatsoever bearing the facsimile, likeness
The CIIO, Bangko Sentral ng Pilipinas, or similitude of any legal tender Philippine
after examining all notes and coins, whether currency note, or any part thereof, whether
Philippine or foreign, submitted to it for in black and white or any color or
examination and/or determination as to its combination of colors, without prior
genuineness, shall: authority therefor having been secured from
(a) Issue a corresponding certification the Governor, Bangko Sentral or his duly
for the currency examined, if needed; authorized representative.
(b) Stamp the word “COUNTERFEIT” on The reproduction and/or use of
both the front and the back of each note facsimiles or any illustration bearing the
found to be counterfeit; and likeness or similitude of legal tender
(c) Return to the owner/holder, and/or Philippine currency notes referred to above
sender the Philippine or foreign currency may be authorized by the Governor, Bangko
notes or coins found to be genuine in Sentral, or his duly authorized
accordance with existing accounting and representative, for printed illustrations in
auditing regulations. articles, books, journals, newspapers, or
All notes and coins, whether Philippine other similar materials and strictly for
or foreign, determined by the CIIO, Bangko numismatic, educational, historical,
Sentral ng Pilipinas, to be counterfeit newsworthy or other purposes which will
currency, shall not be returned to the maintain, promote or enhance the integrity
owner/holder, but shall be retained and later and dignity of said note: Provided, however,
disposed of in accordance with such That any such facsimile or illustration shall
guidelines as may be adopted by the Bangko be of a size less than three-fifths (3/5) or
Sentral, except those which will be used as more than one and one-half (1-1/2) times in
evidence in an investigation or legal size of the currency note being illustrated
proceedings, in which case, the same shall and that there will be no deviation from the
be retained and preserved by the Bangko purpose for which the notes will be used.
Sentral for evidentiary purposes. (As amended by Circular No. 829 dated 13 March 2014)
c. Each bag of coins shall contain the design and size of the note; or
following standard number of pieces and (2) The original size of the note has been
amount per denomination: reduced/lost through wear and tear or has
been otherwise torn, damaged, defaced or
Denomination Pieces Amount perforated through action of insects,
Per Bag Per Bag chemicals or other causes; or
10-piso 1,200 12,000.00
5-piso 1,500 7,500.00 (3) It is scorched or burned to such an
1-piso 2,000 2,000.00 extent that although recognizable as such,
25-sentimo 3,000 750.00 it has become frail and brittle as to render
10-sentimo 4,500 450.00 further handling thereof impossible without
5-sentimo 5,000 250.00
disintegration or breaking; or
1-sentimo 5,000 50.00
(4) It is split edgewise; or
Provided, however, That in the case of unfit (5) It has lost all the signatures inscribed
or mutilated coins, these could be packed thereon; or
in amounts of One Thousand Pesos (6) The Embedded Security Thread or
(P1,000.00) for denomination 10-,5-, and Windowed Security Thread placed on the
1-piso; and fifty pesos (P50.00) for 25-, banknote is lost.
10-, 5-, and 1-sentimo. c. Unfit currency coin. A currency coin
The CD and the Regional Offices/ shall be considered unfit for circulation
Branches of Bangko Sentral may refuse when:
acceptance of cash deposits that do not (1) It is bent or twisted out of shape or
conform to these guidelines and procedures. defaced, but its genuineness and/or
(As amended by Circular No. 829 dated 13 March 2014) denomination can still be readily and clearly
determined/identified; or
§ X950.6 (2008 - X610.6) Replacement (2) It has been considerably reduced in
and redemption of legal tender Philippine weight by natural abrasion/wear and tear.
currency notes and coins considered d. Mutilated currency coin. A currency
mutilated or unfit for circulation coin shall be considered mutilated when:
a. Unfit currency note. A currency note (1) It shows signs of filing, clipping or
shall be considered unfit for circulation perforation; or
when: (2) It shows signs of having been burned
(1) It contains heavy creases which or has been so defaced, that its genuineness
break the fiber of the paper and indicate that and/or denomination cannot be readily and
disintegration has begun; or clearly identified.
(2) It is badly soiled/contaminated and/ e. Currency notes and coins considered
or with writings even if it has proper life or unfit for circulation shall not be re-
sizing; or circulated, but may be presented for
(3) It presents a limp or raglike exchange to or deposited with any bank.
appearance and/or it can not sustain its f. Banks shall accept from the public
upright position when held at the mid mutilated notes and coins for referral/
portion of one of the shorter borders. transmittal to CIIO, Bangko Sentral –
b. Mutilated currency note. A currency Quezon City or any of the Bangko Sentral
note shall be considered mutilated when: Regional Offices/Branches for determination
(1) Torn parts of banknote are joined of redemption value. Banks may charge
together with adhesive tape aimed at reasonable handling fees from clients and/
preserving as nearly as possible the original or the general public relative to the handling/
1
Trust entity shall refer to a (a) bank or non-bank financial institution, through its specifically designated
business unit to perform trust functions, or (b) trust corporation, authorized by the Bangko Sentral ng Pilipinas
(BSP) to engage in trust and other fiduciary business under Section 79 of R.A. No. 8791 (the General Banking
Law of 2000) or to perform investment management services under Section 53 of R.A. No. 8791.
(2) Debt-instruments such as, but not in capital, surplus and undivided profits, less:
limited to, long term negotiable certificate (a) The one percent (1%) of the book
of deposits and unsecured subordinated debt; value of the total volume of PERA assets
(3) Deposits; and administered and other capital adjustments
(4) Government-issued securities.
as may be required by the Bangko Sentral;
In the case of UITF, the existing approval
process shall be observed. The Bangko (b) Total outstanding unsecured credit
Sentral may allow other category of accommodations, both direct and indirect,
investment products or outlets for PERA extended by the Administrator to DOSRI; and
purposes: Provided, That the product is non- (c) Appraisal surplus or appreciation
speculative, readily marketable, and with a credit as a result of appreciation or an
track record of regular income payments to increase in the book value of the assets of
investors.
the Administrator.
b. PERA market participants
PERA Market Eligible Entities
DOSRI cited in Item "1(b)" above shall
Participants refer to that provided in Subsec. X326.1:
Administrator Banks, trust entities and Provided, That for purposes of this
other entities as may be provision, references to a bank as an entity
determined by the Bangko
shall be understood to include references
Sentral as eligible to act
as PERA to any other type of entity acting as
Administrator Administrator.
Investment Trust entities and other (2) It has adopted a Manual of
Manager entities as may be Corporate Governance approved by the
determined by the Bangko
Sentral as having the
Bangko Sentral, and is in full compliance
qualifications to be therewith.
accredited as PERA (3) It has a clear and sufficient
Investment Manager organization plan or structure of its
Cash Custodian Banks personnel who will perform the PERA
Securities Banks and trust entities
administration functions, stating the
Custodian
Investment Any Bangko Sentral- definition of the duties and responsibilities
Product Provider supervised entity that as well as the line and staff functional
wishes to offer relationships.
PERA Investment Product (4) It possesses adequate systems and
to Contributors
technological capabilities, and the
(Circular No. 860 dated 28 November 2014) necessary technical expertise and personnel
to administer all types of PERA investment
§X960.3 Qualification/Accreditation
products, ensure the proper recording and
requirements
tracking of a contributor’s PERA, and
a. As an Administrator. The Bangko
perform the other required functions of an
Sentral shall issue a Qualification Certificate
Administrator.
as Administrator to an entity upon
(5) It has sufficient personnel who
compliance with the following
have undergone the requisite training
requirements:
prescribed by the Bangko Sentral to educate
(1) The applicant maintains a net worth
the contributor on:
of at least Php100 million at all times.
Net worth shall refer to the combined (a) The nature of a PERA;
capital accounts of the Administrator which (b) Privileges, conditions and
shall mean the total of the unimpaired paid- requirements of a PERA;
and 37 of R.A. No. 7653 also known as the under the PERA Rules, these guidelines or
New Central Bank Act without prejudice has failed to maintain compliance with any
to the imposition of other sanctions as the of them;
Monetary Board may consider warranted e. Failed to carry on and manage its
under the circumstances that may include PERA-related business and activities in a
the suspension or revocation of the entity’s proper, diligent and efficient manner to the
authority to engage in PERA administration, prejudice of the Contributor;
and such other sanctions as may be provided f. Been subject to regulatory sanctions
by law. for (a) violations, which the Bangko Sentral
(Circular No. 860 dated 28 November 2014) determines to affect its operating conditions
and ability as a PERA Market Participant,
§X960.6 Grounds for suspension or such as but not limited to violations affecting
revocation of qualification/accreditation of required capitalization and/or solvency, or
Administrator, Investment Manager or (b) any act or behavior prejudicial to the
Custodian. The qualification of an PERA Contributors;
Administrator, and the accreditation of an g. Been enjoined or restrained by a
Investment Manager and Custodian may be competent body from engaging in securities,
refused, restricted, suspended or revoked banking or insurance activities;
by the Bangko Sentral if, after due notice h. Failed to enforce or monitor PERA
and hearing, the Bangko Sentral determines contribution limits entitled to tax incentives; or
that the applicant or licensee has: i. Failed to manage or adequately
a. Willfully violated any provision of address conflicts of interest in the
the PERA Act, the PERA Rules or any performance of its functions, which may be
regulations and issuances by the Bangko identified by the Bangko Sentral as
Sentral made pursuant thereto, or any other prejudicial to the interests of the PERA
law administered by the Bangko Sentral Contributor.
relevant to its function as a PERA Market For purposes of this subsection, the term
Participant, or providing prudential “competent body” shall include a foreign
standards for asset management or has court of competent jurisdiction and a foreign
aided, abetted, counseled, commanded, financial regulator.
induced or procured such violation; (Circular No. 860 dated 28 November 2014)
b. Failed to supervise, with a view to
preventing such violation, a person §X960.7 Penalty. A fine of not less than
associated to the applicant or licensee by Php50 thousand nor more than Php200
virtue of an agreement or other types of thousand or imprisonment of not less than
arrangement and who commits such violation; six (6) years and one (1) day to not more
c. Willfully made or caused to be made than twelve (12) years or both, such fine and
a materially false or misleading statement in imprisonment at the discretion of the court,
the application for qualification/ accreditation shall be imposed upon any person,
or report filed with the Bangko Sentral, or association, partnership or corporation, its
has willfully omitted to state any material officer, employee or agent, who, acting
fact that is required to be stated therein or alone or in connivance with others, shall:
necessary to make the statement therein not a. Act as Administrator, Custodian or
misleading; Investment Manager without being properly
d. Failed to maintain the qualifications
qualified or without being granted prior
or requirements for accreditation prescribed
accreditation by the Bangko Sentral;
PART TEN
the board and senior management regarding d. Internal audit function. Independent
the BSFI's CPRMS are especially important for of the compliance function, the BSFI’s audit
assessing the program's effectiveness. The function should review its consumer
board and senior management must also protection practices, adherence to internal
ensure that sufficient resources have been policies and procedures, and compliance
devoted to the program. The ability to achieve with existing laws, rules and regulations.
the consumer protection objectives depends, The BSFI’s internal audit of the different
in large part, on the authority and business units/functions should include the
independence of the individuals directly consumer protection audit program. A
responsible for implementing the CPRMS and well-designed and implemented consumer
for performing audit/review activities, and the protection audit program ensures that the
support provided by the board and senior board or its designated committee shall be
management. The board and senior able to make an assessment on the
management must also make certain that effectiveness of implementation as well as
CPRMS weaknesses are addressed and adequacy of approved policies and
corrective actions are taken in a timely manner. standards in meeting the established
b. Compliance program. A Consumer consumer protection objectives.
Protection Program is an essential e. Training. Continuing education of
component of the CPRMS. The BSFIs should personnel about consumer protection laws,
establish a formal, written Consumer rules and regulations as well as related bank
Protection Compliance Program that is part policies and procedures is essential to
of the over-all Compliance System and maintaining a sound consumer protection
should be in accordance with the Revised compliance program. BSFIs should ensure
Compliance Framework for Banks under that all relevant personnel specifically those
Sec. X180. A well planned, implemented, whose roles and responsibilities have
and maintained Consumer Protection customer interface, receive specific and
Compliance Program should prevent or comprehensive training that reinforces and
reduce regulatory violations and protect helps implement written policies and
consumers from non-compliance and procedures on consumer protection. The
associated harms and loss. BSFI should institute a consumer protection
c. Policies and procedures. An effective training program that is appropriate to its
CPRMS should have consumer protection organization structure and the activities it
policies and procedures in place, approved engages. The training program should be
by the Board. A comprehensive and fully able to address changes in consumer
implemented policies help to communicate protection laws, rules and regulations and
the board’s and senior management’s to policies and procedures and should be
commitment to compliance as well as provided in a timely manner.
expectations. Overall, policies and procedures (Circular No. 857 dated 21 November 2014)
should a) be consistent with consumer
protection policies approved by the board; B. CONSUMER PROTECTION
b) ensure that consumer protection practices STANDARDS OF CONDUCT FOR BSFIs
are embedded in the BSFI’s business
operations; 3) address compliance with Sec. X1002 Consumer Protection
consumer protection laws, rules, and Standards. The following consumer
regulations; and 4) reviewed periodically protection standards reflect the core
and kept-to-date as it serve as reference for principles, which BSFIs are expected to
employees in their day-to-day activities. observe at all times in their dealings with
the terms of the contract, their rights and customers. Communication channels
obligations. Staff should communicate with employed for such targeted marketing
techniques that address literacy limitations initiatives may be accordingly calibrated.
(e.g., materials are available in local (11) Offers enhanced disclosure for
language). more complex products, highlighting the
(5) Provides customers adequate time to costs and risks involved for the customer.
review the T&C of the product or service, For structured investment products, a
asks questions and receives additional Product Highlight Sheet (PHS) is required.
information prior to signing contracts or The PHS should be clear, concise, and
executing the transaction. The staff of the easily understandable by individual
BSFI should be available to answer the customers. It should contain information
questions and clarifications from the that empowers the customer to appreciate
financial customer. the key features of the product and its
(6) Ensures that staff assigned to deal risks. It is prepared in a format that
directly with customers, or who prepare facilitates comparison with other
advertisement materials (or other material products. The PHS should be available
of the BSFI for external distribution) or who at no cost to the public and made available
markets any product or service should be to consumers upon request. Before
fully knowledgeable about these products signing any contract, the BSFI should
and services, including statutory and ensure that the customer has freely signed
regulatory requirements, and are able to a statement to the effect that the customer
explain the nuances to the consumer. has duly received, read, and understood
(7)Uses a variety of communication the PHS.
channels to disclose clear and accurate (12) Notifies the customer in writing of
information. Such communication channels any change in:
should be available to the public without (a) Interest rate to be paid or charged
need for special access requirements, which on any account of the customer as soon as
may entail additional expense. possible; and
Communication channels should be (b) A non-interest charge on any account
sufficiently responsive to address the literacy of the customer within a number of days as
limitations of the financial consumer. Said provided under existing regulations prior to
channels may be written and/or verbal as the effective date of the change.
may be warranted. If the revised terms are not acceptable
(8) Discloses pricing information in to the customer, he or she should have
public domains (e.g., websites). the right to exit the contract without
(9) Updates customers with relevant penalty, provided such right is exercised
information, free of charge in a clear, within a reasonable period. The customer
understandable, comprehensive, and should be informed of this right whenever
transparent manner, for the duration of the a notice of change is made.
contract. Such information covers the (13) Provides customers with a proof
characteristics and the risks of the products of the transaction immediately after the
sold by the BSFI and their authorized transaction has been completed. The
agents. customer should be given a hard copy of
(10) Imparts targeted information to the each of the documents signed by the
specific groups of clients to whom specific clients (including, but not limited to the
products are being marketed, with a contract) with all terms and conditions.
particular consideration for vulnerable The BSFI ensures that documents signed
by the customer are completely filled and the BSFI or its staff has an interest in a
that there are no blank terms. direct/cross transaction with a consumer.
(14) Regularly provides customers with (2) Discloses the limited availability
clear and accurate information regarding of products to consumers when the BSFI
their accounts (e.g., Statement of accounts only recommends products which are
that includes, among others, covering issued by their related companies,
period, opening balance/value of particularly when commissions or rebates
transactions, all kinds of interest, fees and are the primary basis for recommending
charges, closing balance, inquiries for the particular product to consumers.
outstanding balances, proof of payments for (3) Discloses the basis on which the
loans). BSFI is remunerated at the pre-contractual
(15) Informs customers of their rights stage.
and responsibilities including their right to (4) Ensures that adequate systems and
complain and the manner of its submission. controls are in place to promptly identify
b. Advertising and promotional issues and matters that may be detrimental
materials to a customer’s interest (e.g., cases in
(1) Ensures that advertising and which advice may have been given merely
marketing materials do not make false, to meet sales targets, or may be driven by
misleading, or deceptive statements that financial or other incentives).
may materially and/or adversely affect the (Circular No. 857 dated 21 November 2014)
decision of the customer to avail of a service
or acquire a product. § X1002.2 Protection of client
(2) Ensures that advertising and information. Financial consumers have
promotional materials are easily readable the right to expect that their financial
and understandable by the general public. transactions, as well as relevant personal
It should disclose clear, accurate, updated, information disclosed in the course of a
and relevant information about the product transaction, are kept confidential.
or service. It should be balanced/ Towards this end, BSFIs must ensure that
proportional (reflecting both advantages and they have well-articulated information
risks of the product or service); visible/ security guidelines, well-defined
audible; key information is prominent and protocols, a secure database, and
not obscured; print is of sufficient size and periodically re-validated procedures in
clearly legible. handling the personal information of their
(3) Ensures that promotional materials financial consumers. This should be an
are targeted according to the specific groups end-to-end process that should cover,
of consumers to whom products are among others, the array of information that
marketed and the communication channels will be pre-identified and collected, the
employed for marketing financial services. purpose of gathering each information,
(4) Ensures that all advertising and how these will be sourced from the client,
promotional materials disclose the fact that it the IT-security infrastructure of the BSFI,
is a regulated entity and that the name and and the protocols for disclosure, both
contact details of the regulator are indicated. within the BSFI and especially to third
c. Conflict of interest parties.
(1) Discloses properly to the consumer The BSFI demonstrates the ability to
prior to the execution of the transaction that protect client information if it is able to:
or services with a long-term savings (4) Ensure that the customer’s suitability
component or those subject to high pressure and affordability are assessed against
sales contracts. specific risks of the investment products:
(2) Permit the customer to cancel or treat (a) Financial Needs Analysis (FNA) and
the agreement as null and void without penalty Client Suitability - to assess the customer’s
to the customer of any kind on his or her risk profile and suitability of the product.
written notice to the BSFI during the cooling- (b) Customer’s Declaration Form - to
off period. The BSFI may however collect or confirm his acceptance and understanding
recover reasonable amount of processing fees. of the highlighted features of the product.
It is further recognized that there may be a (c) FNA, Client Suitability and
need for some qualification to an automatic Declaration Form should be duly
right of cooling off. For example, the right completed to make sure that the product
should not apply where there has been a sold is suitable and affordable for the
drawdown of a credit facility and a BSFI customer.
should be able to recover any loss arising e. Institutional culture of fair and
from an early withdrawal of a fixed rate term responsible treatment of clients
deposit which loss arises because of a (1) There should be a Code of Conduct
difference in interest rates. This would be in (Code) applicable to all staff, spelling out
addition to any reasonable administrative fees the organizational values and standards of
associated with closure of the term deposit. professional conduct that uphold protection
d. Objectivity of customers. This Code should be reviewed
(1) Deal fairly, honestly, and in good and approved by the Board. The staff signs
faith with customers and avoid making a document by which they acknowledge that
statements that are untrue or omitting they will abide by the Code and not engage
information which are necessary to prevent in the behaviors prohibited as provided for
the statement from being false or misleading. in the Code . To ensure adherence to the
(2) Present a balanced view when Code, the BSFI is required to implement
selling a product or service. While the BSFI measures to determine whether the
highlights the advantages of a product/ principles of consumer protection are
service, the customer’s attention should also observed, the clients’ concerns are
be drawn to its disadvantages and downside appropriately addressed and problems are
risks. resolved in a timely manner. These may
(3) Ensure that recommendations made include among others, the regular conduct
to customer are clearly justified and of customer satisfaction survey.
explained to the customer and are properly (2) Ensure that recruitment and training
documented. If the requested products are policies are aligned around fair and
of higher risk rating than a customer’s risk responsible treatment of clients.
tolerance assessment results, the BSFI should (3) Ensure that staff, specifically those who
draw to the customer’s attention that the interact directly with customers, receive
product may not be suitable for him in view adequate training suitable for the complexity
of the risk mismatch. In such instances, of the products or services they sell.
there should be a written disclosure of (4) Ensure that collection practices are
consequences which is accepted by the covered during the initial training of all staff
client. involved in collections (loan officers,
(4) Details of any other relevant relationship with clients. Dedicated and
correspondence or records; adequate resources should be provided for
(5) The action taken to resolve each the financial education initiatives.
complaint; and b. Develop financial education and
(6) The date the complaint was resolved. awareness programs, either on their own
d. Ensure that information on how to or in partnership or collaboration with
make a complaint is clearly visible in the industry associations, which contribute to
bank’s premises and on their websites. the improvement of their clients’ knowledge
e. Undertake an analysis of the patterns and understanding of their rights and
of complaints from customers on a regular responsibilities, basic information and risks
basis including investigating whether of financial products and services, and
complaints indicate an isolated issue or a ability to make informed financial decisions
more widespread issue for consumers. This and participate in economic activities.
analysis of consumer complaints must be Financial education programs should be
escalated to the BSFI’s compliance/risk designed to meet the needs and financial
management function and senior literacy level of target audiences, as well as
management. those that will reflect how target audience
f. Provide for adequate resources to prefers to receive financial information.
handle financial consumer complaints These may include:
efficiently and effectively. Staff handling (1) Delivering public awareness
complaints should have appropriate campaigns and information resources that
experience, knowledge, and expertise. would teach consumers on certain aspects
Depending on the BSFI’s size and of their financial lives particularly, budgeting,
complexity of operation, a senior staff financial planning, saving, investing,
member should be appointed to be in borrowing, retirement planning, and self-
charge of the complaint handling process. protection against fraud.
(Circular No. 857 dated 21 November 2014) (2) Developing financial education
tools or information materials that are
§ X1002.5 Financial education and updated and readily understood and
awareness. Financial education initiatives transparent such as customized advice
give consumers the knowledge, skills, and and guidance (face to face training);
confidence to understand and evaluate the printed brochures, flyers, posters, training
information they receive and empower them videos (e.g., about money management,
to make informed financial decisions. debt management, saving), and
Because BSFIs deal directly with financial newsletters; websites, and interactive
consumers, they have the reach, expertise, calculators that deliver key messages and
and established relationships necessary to “call to action” concerning better money
deliver financial education. Financial management (e.g., protect your money,
education should be integral to the good know your product, read and understand
governance of the BSFIs. the T&C, check your statements, pay credit
The BSFI demonstrates this principle card bills on time, safeguard your Personal
through various means and in particular: Identification Number, understand fees
a. Have a clear and defined financial and charges) and consumer responsibility
education and awareness program as part to ask the right questions.
of a wider financial consumer protection (3) Distributing to customers, at the point
and education strategy and corporate of sale, a pamphlet on questions, which
governance. It is an integral component of customers need to ask before accepting a
the BSFI’s ongoing interaction and financial product or service.
Composite Rating
Numerical 4 3 2 1
Rating
Adjectival Strong Acceptable Marginal Poor
Rating
Supervisory No cause for Minimal More than Immediate and
Approach supervisory supervisory normal close supervisory
concern concern supervisory attention and
concern monitoring
Enforcement None Written Written Action Written action plan
Action reminder plan
suspension of
introduction of
new products and
services or
suspension of
existing
products/services
that poses a
consumer
protection concern
or suspension of
further
distribution or
issuance of
consumer products
and services
Table No. 2. Enforcement Actions for Consumer Protection Ratings