Banking Theories & Practices 2014 Edition

8/12/2019 Banking Theories & Practices 2014 Edition

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PART ONEORGANIZATION, MANAGEMENT & ADMINISTRATION

hapter 1ESTABLISHING A BANK

Pursuant to the provisions in the General Banking Act, as well as the rulesand regulations promulgated by the Bangko Sentral Ng Pilipinas, the following arethe guidelines for the establishment of a Commercial Bank

An applicatin !r the penin" ! a ne# $an% hall $e 'le( #ith theBan"% Sentral n" Pilipina, #ith the !ll#in" pertinent in!r)atin*

!a" #he proposed name of the bank$

!b" #he type of bank that is proposed to be established, !that isCommercial Bank or an %&panded Commercial Bank, 'ural Bank, #hrift Bank,

(evelopment Bank or Coop Bank"

!c" #he proposed Capital and Paid)up capital shall be disclosed

!d" #he articles of *ncorporation shall be disclosed showing thenames of the *ncorporators

!e" An alphabetical list of stockholders that shows the numberof stocks and the corresponding percentage of voting stocks that is owned bythem

!f" A Separate list containing the names of persons who owned

voting stocks in banks and who are related to each other within the +rd

degreeof consanguinity or anity, with proper indication of the combinedpercentage of voting stocks held by them in the particular bank

!g" All other information which the -onetary Board shallspeci.cally re/uire

Upon acknowledgment and receipt of the application, the Monetary Boardshall send an examiner to conduct a survey of the economic and nancial conditionof the community where the bank is propose to be established. The rticles of!ncorporation "#or its amendment, can not be registered in the $ecurities and%xchange &ommission without the &erticate of uthority issued by the Monetary

Board of the Bangko $entral ng 'ilipinas.

#he following are the guidelines for the issuance of a Commercial BankingAuthority0

1+ The !ll#in" !actr )t 'rt $e )et in the "rant ! athrit-+

A. -inimum Capital 'e/uirement$


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B. 1inancial 'esources, Past Performance and General Compliance withBanking 2aws and 'egulations$

Applicant bank shall have sucient valuation reserves to coverestimated losses 1or those applying for an e&panded commercial bankingauthority, it shall not have incurred any de.ciency in the re/uired Capital to'isk Assets ratio of ten percent !345" under Section 66 of 'A No ++7, as

amended, for the year preceding the .ling of application *t must showsatisfactory .nancial resources, li/uidity, solvency and pro.tability as a resultof a good performance in the management of the bank8s operation Generalcompliance with banking laws, BSP rules and regulations and policies andinstructions of the -onetary Board, must be adhered to

C Banking 1acilities, -anagerial Capability, Competence, %&perienceand *ntegrity of (irectors, Principal 9cers and :ey Personnel

*n the case of an applicant bank who is applying for an e&pandedcommercial banking authority, managerial reorgani;ation or potential

capacity to provide international banking e&pertise must be provided for, andade/uate stang, e/uipment and other facilities must meet its e&pandedfunctions, including international correspondent bank relationship, whereapplicable

.+ S$)iin ! a /eai$ilit- St(- #ith the !ll#in" in!r)atin*

A+ 0apitaliatin an( O#nerhip+ #he following shall be re/uired0

!3" A schedule showing the computation of the applicant bank8scapital accounts

!6" A list of direct and indirect loans to (9S'* which are unsecured,

indicating the original amount, date granted, outstanding balance andclassi.cation !whether current or past due" of each (9S'* loan!+" A summary of holdings of stockholders classi.ed as to

citi;enship and family" A list of individual stockholders in the applicant bank with e/uityinvestment in other .nancial institutions, indicating the type and number

of shares held in the other institution and the corresponding percentageof holdings to total of each shareholder

B Or"aniatin an( Mana"e)ent #he following shall bedisclosed0

!3" #he names of the members of the board directors and principalocers of the applicant bank

(2) 1or the applicant bank applying for an e&panded commercialbanking authority* the proposed organi;ational chart of the

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department within the applicant bank that will be responsible for theinvestment banking functions, !indicating the designation of ocersand other key positions and the names of persons proposed forappointment to those positions" shall be disclosed

0+ /inancial 0apa$ilit- an( Pre2i -ear3 peratin, i! !eai$le+A brief discussion of the applicant bank8s general .nancial condition,operating performance, solvency and li/uidity position, that are supported byappropriate .nancial ratios as seen from the latest condensed balance sheetand income statement is also re/uired

A+ 0rprate Strate"-+ #he following shall also be re/uired0

!3" #he statement of corporate strategy of the proposedCommercial Bank, its immediate and long)term goals and ob?ectives

!6" #he lending program and special policies lined up for the .rst !>"years including details on guidelines and standards to be established one&posure limits, portfolio diversi.cation, collateral re/uirements,geographical e&pansion, assistance to pioneer and priority areas of

economic activities and relationship with clients!+" #he investment policies and programs to be implemented withinthe .rst .ve !>" years of operation #hese includes broad categories ofundertakings in which the proposed %&panded Commercial Bank willinvest, the portfolio mi& to be observed, the e&tent of control oversubscribed capital stock and voting stock to be e&ercised in .nancialallied undertakings, /uasi)banks and non).nancial allied undertakings

!=" #he fund generation program for the .rst .ve !>" years of operation to support the e&pansion in loans and investment

!>" #he /uarterly underwriting program for one year stating industryof issuer, the volume of underwriting business classi.ed into e/uity anddebt, public o@ering and private placement and other information

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B+ /inancial Pr4ectin #he following data must be made available0

!3" #he detailed statement of underlying assumptions made inpro?ecting the .nancial statements and ratios

!6" #he detailed pro?ected statement of income and e&penses forthe .rst .ve !>" years of operation shall be shown

!+" #he pro?ected operating ratios for the .rst .ve !>" years of operation

!=" #he actual statement of condition of applicant bank at month)end before .ling of application and the pro?ected statement of conditionas of the .rst .ve !>" year)end of operation for those applying for ane&panded commercial bank

!>" #he pro?ected balance sheet ratios as of the .rst .ve !>" years)end of operation

!" #he pro?ected funds ow for the .rst .ve !>" years of operation

5+ P$lic O6erin" an( Litin" ! Ban% Share+ #he applicant bank, shall as acondition to the approval of its application, make a public o@ering of at least tenpercent !345" of such re/uired minimum capital #his condition must be compliedwith, before it can be granted the license for authority to operate as a CommercialBank or an %&panded Commercial Bank, as the case maybe

PDB2*C S#9C:E92(%'S shall refer to all stockholders, but e&cluding thebank8s directors, shareholders owning twenty percent !645" or more of the bank8ssubscribed voting stock together with those of their relatives with the third degreeof consanguinity or anity and corporations controlled by or aliated with them

#he following must be met0

!3" #he shares to be publicly o@ered may be voting or non)votingshares and may come from the bank8s e&isting authori;ed and un)subscribed stock or from an increase in its authori;ed capital stock

!6" #he o@ering bank shall accept o@ers to buy or invest in itspublicly o@ered shares of stock from new investors or from e&istingstockholders whose stockholdings constitute less than twenty percent!645" of the bank8s subscribed capital stock

!+" #he publicly o@ered shares of stock shall be sold to at leasttwenty)one !63" /uali.ed buyers or group of buyers #he total shares ofstock which may be purchased by any /uali.ed buyer or group of buyersshall not e&ceed ten percent !345" of the publicly o@ered shares of stock

!=" #he bank shall .& the price of the shares of stock!>" #he bank shall cause the publication of the public o@ering in a

newspaper of general circulation at least twice within a period of onemonth prior to the o@ering

A bank whose shares of stock are already listed in the Philippine Stock%&change !PS%" at the time of .ling of its application for an %&panded CommercialBank Authority shall be deemed to have complied with the public o@eringre/uirement

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As soon as the Certi.cate of Authority has been issued, the newly openedbank may register its Articles of *ncorporation or its amendments thereto with theSecurity and %&change Commission

E7ER0ISE 1TEST I ESSA8*

(1) (iscuss the procedures or guidelines on how to establish a bankincluding the di@erent agencies to go

TEST II EN9MERATION & IDENTI/I0ATION*

/A0TORS TO BE 0ONSIDERED IN THE GRANT O/ A9THORIT8

!3"

!6"

!+"

IN/ORMATIONS 0ONTAINED IN THE /EASIBILIT8 ST9D8 TO BES9BMITTED BE/ORE ONE IS GRANTED THE A9THORIT8

!="

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!>"!"!7"!F"

!" Hhat is the ratio of Capital to 'isk Assetre/uired under Section 66 of 'A ++7

!34" A document needed before an applicationof an establishment of a bank can beregistered in the S%C

hapter 6

S0OPE O/ A9THORIT8 O/ BANKS

THE DI//ERENT 0LASSI/I0ATION : T8PES O/ BANKS*

() &ommercial Banks *+Bs)) %xpanded &ommercial Banks *%+Bs)-) Thrift Banks *TBs)) /ural Banks */Bs)0) &ooperative Banks *&oop Banks)

1; 0))ercial Ban%


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% By lending money against personal security or against securitiesconsisting of personal property or mortgages on improved real estate &insured improvements thereon

1 -ay accept or create demand deposits sub?ect to withdrawal by check

G -ay o@er !N9H account" Negotiable 9rder of Hithdrawal accounts

E -ay invest to the e&tent allowed under e&isting applicable laws and

regulations in e/uities of allied undertaking, whether .nancial or non).nancial

* -ay ac/uire readily marketable bonds and other debt securities

6" E=pan(e( 0))ercial Ban% < EKB;+ An e&panded commercial bankingauthority shall include, in additional to commercial banking powers enumeratedabove, the following0

A #he authority to e&ercise the powers of investment houses as provided inpertinent laws,

B #he authority to invest in the e/uity of non)allied undertakings and to own

up to 3445 of the e/uity of a .nancial intermediary other than acommercial bank

+" Thri!t Ban% of 'ANo ++7 as amended

: 9@er other banking services as provided in Section 76 of 'A No ++7 asamended with prior approval of the -onetary Board such as0

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!3" 9pen current or checking accounts and N9H accounts

!6" %ngage in trust, /uasi)banking functions and money marketoperations

!+" Act as collection agent for government entities, including butnot limited to, the Bureau of *nternal 'evenue !B*'", SocialSecurity System !SSS" and the Bureau of Customs !B9C"

!=" Act as ocial depository of national agencies and of municipal,city or provincial funds in the municipal, city or province wherethe #B is located

!>" *ssue mortgage and chattel mortgage certi.cates, buy and sellthem for its own account or for the account of others, or acceptand receive them in payment or as amorti;ation of its loan

!" #o invest in the e/uity of allied undertakings

=" Rral Ban% -illion

!6" Accept N9H Accounts

!+" Act as trustee over estates or properties of farmers andmerchants

!=" Act as ocial depository of municipal, city or provincial whereit is located

!>" Sell domestic drafts

!" *nvest in allied undertakings

>" 0perati2e Ban%


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E=panin ! 0))ercial Ban%in" Athrit-

Hith prior approval of the -onetary Board, Commercial Banks, #hrift Banks,'ural Banks and Coop Banks, may operate under an e&panded banking authority

E7ER0ISE .TEST I ESSA8*

!3" (i@erentiate the di@erent classes of banks by giving at least >distinguishing features

(2) Hhat are the similarities in the operation of the di@erent classesof banks

TEST II EN9MERATION & IDENTI/I0ATION*

/nctin ! 0))ercial Ban%*36+=>7F

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/nctin ! Thri!t Ban%*3433363+3=

3>3373F

/nctin ! Rral Ban%*3646366

6+/nctin ! E=pan(e( 0))ercial Ban%*6=6>6676F>hat %in( ! er2ice ( cperati2e $an% 6er?6+4

hapter +

0APITALIZATION

Ban% 0apital+ #he following provisions shall govern the capitalre/uirements for banks #he term capital shall be synonymous to unimpairedcapital and surplus, combined capital accounts and net worth and shall refer to thetotal of the unimpaired paid)in capital, surplus and undivided pro.ts, less0

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!3" Dn)booked valuation reserves and other capital ad?ustments as may bere/uired by the BSP

!6" #otal outstanding unsecured credit accommodations, both direct and indirect,to directors, ocers, stockholders and their related interest !(9S'*"$

!+" (eferred income ta&!=" Appraisal increment reserve !revaluation reserve" as a result of appreciation

or an increase in the book value of bank assets!>" %/uity investment of a bank in another bank or enterprise, whether foreign or

domestic, if the other bank or enterprise has a reciprocal e/uity investment inthe investing bank

!" *n the case of 'Bs Billion each

Commercial Banks ) P64 Billion each

#hrift Banks3 Hith Eead oces within -etro -anila P6>4 -illion each and6 Hith head oces outside -etro -anila P=4 -illion each

'ural Banks

3" An 'B may be established in any city or municipality, e&cept in the citiesof -anila, :alookan, Kue;on, Pasay, -andaluyong I -akati$ in the-unicipalities of -alabon, Navotas, San Juan and Parana/ue and in thecities of Cebu and (avao with minimum capital re/uirements as follows0

(a) P @ Millin for 3st, 6nd and +rd class cities and .rst classmunicipality

(b) P 5 Millinfor =th, >thand si&th class cities and 6nd, +rdand =thclassmunicipality

(c) P . Millinfor >thand thclass municipalities

6" %&isting 'Bs within the e&cepted cities and municipalities shall maintainthe following minimum capital re/uirements0

!a" P 64 -illion each for 'Bs in -anila, :alookan, Kue;on, Pasay,-andaluyong and -akati$ and in the municipality of -alabon,

Navotas, San Juan and Parana/ue!b" P 34 -illion each for 'Bs in the cities of Cebu and (avao

0perati2e Ban%+ Coop Banks that may be established shall have aminimum authori;ed capital of0

3" P 644 million for national Coop Banks divided into such number ofshares with a minimum par value of P3,444 per share, with a privatepaid)in capital of at least P64-

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6" P 64 million for local Coop Banks divided into such number of shares,with a private paid)in capital of at least P36> million e&cept0

!a" P 64 million minimum private paid)in capital for Coop Banks to beestablished in -etro -anila

!b" P 34 million minimum private paid)in capital for Coop Banks to beestablished in the cities of Cebu and (avao$

!c" P > million minimum private paid)in capital for Coop Banks to beestablished in other cities

E7ER0ISE 5

TEST I ESSA8*

!3" Eow do one compute for capital re/uirements for banksLTEST II IDENTI/I0ATION*

3 Hhat is the -inimum Capitalre/uirement for Commercial BanksL

6 Hhat is the -inimum Capitalre/uirement for %&panded CommercialBanksL

+ Hhat is the -inimum Capitalre/uirement for National CooperativeBanksL

= Hhat is the -inimum Capitalre/uirement for 2ocal CooperativeBanksL

> Hhat is the -inimum Capitalre/uirement for 'ural Banks located in-anila L

Hhat is the -inimum Capitalre/uirement for #hrift Banks locatedwithin -etro -anilaL

7 Hhat is the -inimum Capitalre/uirement for #hrift Banks locatedoutside -etro -anilaL

F Hhat is the -inimum Capitalre/uirement for 'ural Banks located inCebuL

Hhat is the -inimum Capital

re/uirement for 'ural Banks in .rst classmunicipalityL34 Hhat is the -inimum Capital

re/uirement for 'ural Banks in > thI th

class municipalitiesL

hapter

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LIBERALIZED ENTR8 AND S0OPE O/ OPERATION O/ /OREIGN BANKS

*n accordance with the -anual of 'egulation for Banks, the following rulesshall govern the liberali;ed entry and scope of operation of foreign banks Hithprior approval of the -onetary Board, foreign banks may operate in the Philippinesthrough any one of the following modes0

3" By ac/uiring, purchasing or owning up to si&ty percent !45" of the votingstock of an e&isting domestic bank !including banks under receivership orli/uidation, provided no .nal court li/uidation order has been issued$

6" By investing in up to si&ty !45" of the voting stock of a new bankingsubsidiary incorporated under the laws of the Philippines$

+" By establishing branches with full banking authority

*nterested foreign banks shall .le with the 9ce of the Governor, BSP, anapplication for authority to operate in the Philippines through any of the modes ofentry mentioned above

#he following are the re/uirements in the establishment of a new bankingsubsidiary or branch with full banking authority*

3" *t must be widely)owned and publicly)listed !listed in any stock e&changeauthori;ed by the government of the country of origin" #he bank isconsidered as widely)owned if it has at least .fty !>45" stockholders withoutany stockholder owning more than .fteen percent !3>5" of its capital stock

6" *t must be among the top 3>4 banks in the world or the top .ve !>" banks inthe country of origin

#he following are the factors in selecting the foreign bank which will beallowed to invest in ma?ority of the voting stock of an e&isting domestic bank or toestablish a subsidiary or branch in the Philippines

3" Geographic representation and complementation 'epresentation from thedi@erent parts of the world and


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=" (emonstrated capacity, global reputation for .nancial innovations andstability in a competitive environment of the applicant

>" 'eciprocity rights en?oyed by Philippine banks in the applicant8s countryPhilippine banks shall en?oy reciprocity rights in the applicant8s country

" Hillingness to fully share technology

0apital Reire)ent !r /rei"n Ban%

a" 1or locally incorporated subsidiaries Capital 'e/uirements for 1oreignBanks is the same as that prescribed by the -onetary Board for domesticbanks of the same category

b" 1or 1oreign bank branches with full banking authority, it shall inwardlyremit and convert into Philippines currency, as permanently assigned capital,the DS (ollar e/uivalent of P634 -illion at the e&change rate prevailing on

June >, 3= ! P67 to DSM 344" #he 1oreign bank shall thereby be

entitled to establish three !+" branches in locations of its choice

#he same foreign bank may open three !+" more additional branches ! butnot to e&ceed " in locations designated by the -onetary Board by inwardlyremitting and converting into Philippine currency, as additional permanentlyassigned capital the DS (ollar e/uivalent of P+> -illion for every additionalbranch

/actr t $e cni(ere( in (eter)inin" the lcatin ! the ne=t three


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STO0K, STO0KHOLDERS AND DICIDENDS

Share ! Stc% ! 0))ercial Ban%

Stockholders aliated to each other through a common interest termed asbusiness group or any corporation or association ma?ority or all of the e/uity ofwhich is owned by a business group may not control more than one !3"C9--%'C*A2 BAN:

Any natural person or a family group, who together, with any corporation,ma?ority or all of the e/uity of which is owned by such person or family group, ownsmore than twenty percent !645" of the voting stock of any Commercial Bank isincluded in this provision in the -anual of regulation for banks #his is so, even ifthe shares of stock are being ac/uired from a natural person in a single transactionand the stockholding is in e&cess of twenty percent !645" of the bank8s votingstock

Stockholders shall be deemed as aliated to each other through common

business interest or a business group in cases where the holdings of suchstockholders altogether constitute a ma?ority or control in one !3" or moreenterprises

Private development banks may also issue ordinary preferred shares of stockto private persons, other than the preferred stock representing governmentcounterpart capital contribution Preferred shares of stock of private developmentbanks !held by (BP< 2BP and sold thereafter to private persons" may at the optionof the purchasers, be retained with the same rights as when such shares of stockwere held by (BP" Amount re/uired to be transferred to Surplus 'eserves 'eservefor #rust Business account

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Recr(in" ! Di2i(en(+#he liability for dividends declared shall be takenup in the books upon receipt of BSP approval (ividends of all kinds, whether oncommon or on preferred shares of stock, should not be treated as interest e&pense,and only irredeemable stock may be issued by banks

E7ER0ISE @

3" (o all commercial banks have the same procedure in the issuance of stocksL6" Eow often do banks distribute dividends to its stockholdersL+" Give e&amples of banks that given the same type of shares of stock=" (o all banks follow the rule on the re/uirements in declaring dividendsL

hapter

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DIRE0TORS, O//I0ERS an( EMPLO8EES

De'nitin ! the ter) Directr+ 8irectors shall include9

!3" (irectors who are named as such in the articles of incorporation

!6" (irectors duly elected in subse/uent meetings of the bank8sstockholders

!+" #hose elected to .ll vacancies in the board of directors

Mini)) ali'catin ! a Directr*

!3" Ee shall be at least twenty .ve !6>" years of age at the time of hiselection or appointment

!6" Ee shall be at least a college graduate or have at least !>" yearse&perience in business, or have undergone training in bankingacceptable to the appropriate supervising and e&amining department ofthe BSP

De'nitin ! Ban% OFcer+ :;cers shall include9!3" President

!6" %&ecutive Oice President

!+" Senior Oice President

!=" Oice President

!>" General -anager

!" Secretary

!7" #reasurer

!F" #rust 9cer and others mentioned as ocers of the bank

!" A person holding a position of Chairman, vice)chairman or anyother position of the board who also performs functions of

managementMini)) ali'catin ! a Ban% OFcer+ #he following are the

minimum /uali.cations of a bank ocer0

3" Ee shall be at least twenty one !63" years of age at the time of his election orappointment

6" Ee shall be at least a college graduate

+" -ust have at least !>" years e&perience in banking or trust operations or relatedactivities or in a .eld related to his position and responsibilities

=" -ust have undergone training in banking or trust operation acceptable to theappropriate supervising and e&amining department of the BSP

Pern (iali'e( t $ec)e Directr+ Persons who have beenconvicted ?udicially or administratively of an o@ense involving moral turpitude or

?udicially declared insolvent, spendthrift or incapacitated to contract3" Persons dis/uali.ed by the -onetary Board

6" Persons refusing to disclose the e&tent of their business interest to theappropriate supervising and e&amining department of the BSP (is/uali.cationshall apply as long as the refusal persists

+" #hose who have been absent for more than >45 of the regular meetings of theboard of directors during their incumbency

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=" #hose who are delin/uent in the payment of obligations

Diali'catin Prce(re+ #he following are the dis/uali.cationprocedure of the bank8s directors and ocers0

a" Dpon establishment of the grounds for dis/uali.cation, the bank shall causethe removal of a dis/uali.ed director or ocer %&cept in the case ofdelin/uency in the payment of an obligation, wherein he shall be given +4days within which to restore the obligation in current status

b" All cases of dis/uali.cation, reported to the board of directors of a bank, shallbe acted by the board not later than the following board meeting Hithinseventy)two !76" hours thereafter, the corporate secretary shall report to theappropriate supervising and e&aminingdepartment of the BSP, the name of the director or ocer involved, theground for his dis/uali.cation and the action taken by the board

Bi(ata ! Directr an( OFcer+ All banks shall submit to theappropriate supervising and e&amining department of the BSP a bio)data of theirdirectors and ocers after their election or appointment *t shall be updated in anyof the following instances0

!a" Change in educational attainment, e&perience or additional /uali.cation inbanking that will enhance his competence or will /ualify him to his present position

!b" Promotion

!c" #ransfer to other banks

#he bio)data shall be submitted only once 1or purposes of updating, onlythe pertinent sections and pages shall be submitted to the BSP

Interlc%in" Directrhip an(:r OFcerhip *n order to safeguardagainst the e&ercise by the same person or group of persons of undue inuenceover the policy)making, and


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36+

-*N*-D- KDA2*1*CA#*9N 91 A (*'%C#9'0=>

#E% (%1*N*#*9N 91 A BAN: 911*C%' SEA22 *NC2D(% #E% 110

7F3433363+3=

-*N*-D- KDA2*1*CA#*9N 91 A BAN: 911*C%'03>337

P%'S9NS (*SKDA2*1*%( #9 B%C9-% (*'%C#9'S0

3F3646366

HEA# A'% #E% #H9 (*SKDA2*1*CA#*9N P'9C%(D'%06+6=

*NS#ANC%S HE%N #E% B*9)(A#A 91 (*'%C#9'S I 911*C%'S A'%DP(A#%(0

6>6

'%GD2A#*9NS G9O%'N*NG *N#%'29C:*NG (*'%C#9'SE*P H*#E*N

1*NANC*A2 SS#%-0676F6+4+3+6

hapter

BANKING O//I0ES, RE0ORDS an( REPORTS

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Eta$lih)ent, Relcatin, Clntar- 0lre ! Branch+ No bank operatingin the Philippines shall establish, open or operate branches or transact businessoutside the premises of its duly authori;ed principal oce without the prior approvalof the BSP An application for authority to establish a branch shall be assigned bythe president of the bank and shall be accompanied by the following information0

a" Certi.ed true copy of the resolution of the bank8s board of directorsauthori;ing the establishment of the additional branch and indicating itsproposed site

b" Banking facilities and services to be o@ered

c" 9rgani;ational set up of the proposed branch showing the proposed branchshowing the proposed stang pattern

d" Certi.cation signed by the President or the e&ecutive vice president that thebank has complied with all the other re/uirements

After a bank8s application to establish a branch has been approved, it mayopen the same sub?ect to the following conditions0

3 Submission of the bio)data of the proposed manager and other ocers of the

branch at least +4 days prior to the intended date of opening6 A certi.cation that installation of the re/uired security device have been

complied with, duly signed by the ocer in charge of the branches with therank of a vice president

#ransfer of branches shall only be allowed within the same city ormunicipality where the branch to be transferred is located Such transfer shall notre/uire prior BSP approval but shall be sub?ect to the following conditions0

a" Notice of transfer to depositors and other creditors shall be sent by registeredmail and posters be placed in conspicuous place in the premises of thebanking oce to be transferred at least three !+" months prior to the transfer

b" Hritten notice to the appropriate supervising and e&amining department ofthe BSSP not later than .ve !>" banking days from the date of such transfer

c" A certi.cation signed by the ocer in charge of the branches with the rank ofa vice president, that the above re/uirements have been complied with #hesame shall be submitted to the BSP

Ooluntary closure of branches may be e@ected only with prior approval of theBSP

Ban%in" Da- an( Hr All banks, including their branches, agencies and

e&tension oce, doing business in the Philippines, shall observe a minimum .ve)day banking week in the conduct of their business #he banking days during whicheach banking unit may be opened will have to be selected by the bank concernedEowever, sub?ect to the compliance with other relevant laws, at their discretion,they may open and transact regular banking business for more than .ve !>" days aweek or even during Saturdays and Sundays

All banks including their branches and other oces doing business in thePhilippines shall transact business for not less that si& !" hours a day, betweenF044 Am and F044 P- with the e&ception of banks located in any internationalairport and any ma?or .sh port like -alabon and Navotas .sh ports

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1or purposes of servicing deposits and withdrawals, banks may, at theirdiscretion, remain open beyond the minimum hours and for as long as they .nd itnecessary, even before F044 A- or after F044 P-

Manal ! Accnt+ Banks shall have a true and accurate account, recordor statement of their daily transactions, particularly those referring to their depositliabilities

Banks shall strictly adopt the -anual of Accounts prescribed by the BSP forrecording daily transactions including reportorial and publication re/uirements

2ocal branches of foreign banks may continue using their parent bank8sgeneral ledger accounts #he mathematical formulas for reconciling such publishedstatements and submitted reports with the general ledger account of the bank areto be submitted to the appropriate supervising and e&amining department of theBSP

State)ent ! /inancial Accntin" Stan(ar(+ Bank shall adopt the

Statements of 1inancial Accounting Standards !S1AS" which are in accordance withthe generally accepted accounting principles in recording transactions and in thepreparation of .nancial statements and reports to the BSP Eowever, in cases wherethere are di@erences between BSP regulations and S1AS as when more than one !3"option are allowed or certain ma&imum or minimum limits are prescribed by BSPregulationsshall be adopted by all banks #he S1AS shall refer to the issuance ofthe Accounting Standards Council and approved by the Professional 'egulationCommission

Recnciliatin ! Hea( OFce an( Branch Tranactin+ Banks shallprepare reconciliation statements covering transactions between the head oceand all its branches within thirty !+4" banking days after the end of each month All

items which are un)responded or out)standing in the reconciliation statement formore than !" months as of reconciliation statement date shall be reported, withe&planations


23/105

hapter INTERNAL 0ONTROL

Internal 0ntrlS-te)

BSP hall pr2i(e !r the )ini)) internal cntrl tan(ar( !r

$an% t help pr)te e6ecti2e cntrl -te)+ /r thi prpe, the!ll#in" recr(:(ata hall $e c)pile( an( )a(e a2aila$le !r theinpectin ! BSP e=a)iner*

a" 'ecords showing compliance with independent balancing procedures #heserecords should indicate the accounts and the periodic balancing proceduresperformed

b" Statements of actual duties of persons assigned to handle cash andsecurities

c" All internal control audit reports or their e/uivalent

d" *nformation


24/105

C -onthly reconciliation of (ue 1rom" 'ack


25/105

!36" (ispatching and delivery of current account statements shall bedone by someone who is not involved in current account operations

Jint 0t(-+ Joint Custody shall mean the processing of transactions in thepresence of and under the direct observation of a second person Both personsshall be e/ually accountable for the physical protection of the items and recordsinvolved Physical protection shall be deemed established through the use of two!6" locks or combinations on a .le chest or vault compartment #wo !6" or morepersons shall be assigned to each half of the control so that operating eciency isnot impaired if one !3" person is not immediately available Persons who are relatedto each other within the third degree of consanguinity or anity shall not be made

?oint custodians

The !ll#in" hall $e n(er 4int ct(-*

1+; Cash in Oault and in A#- Cash dispensers

.+; All accountable forms

5+; Collateral

+; Securities

@+; (ocuments of #itle and


26/105

!d" Oarious supervisory reports!e" Bank (raft -anager8s" %(P batch transmittal slips of documents and!3" (ue #o


27/105

Rtatin ! Dtie #he duties of personnel handling cash, securities andbookkeeping records shall be rotated 'otation assignment shall be irregular,unannounced and long enough to permit disclosure of any irregularities ormanipulations #ellers


28/105

!" Signature cards and deposit ledger sheets shall be accessible only toauthori;ed persons

!7" (eposit tickets shall be occasionally e&amined at irregular intervalsto determine that postings are made on the actual date deposits arereceived

!F" Checks shall be cancelled as soon as they have been paid andposted

!" 'eports on closed accounts and returned checks shall be prepareddaily

!34" All current account statements shall be mailed direct to thedepositors Dndelivered statements shall be retained by an organi;ationalunit not responsible for demand deposit account processing

!33" An ocer shall be designated to attend to customers who reportdi@erence on their statements

!36" Checkbooks shall be issued only against re/uisition forms signed byan authori;ed signatory to the account

!3+" Banks shall adopt a system to establish the identity of theirdepositors

Other Internal 0ntrl Stan(ar( n Micellane Tranactin

1+; 2oan applications and related documents shall be veri.ed to ensuretheir authenticity particularly the name, residence, employment andcurrent reputation of the borrower

.+; #ellers paying checks to strangers shall obtain positive identi.cation ofthe person and the account on which the checks are drawn should beveri.ed

5+; No employee shall be permitted to process transaction a@ecting hisown account #ellers and other employees having contact with customersshall be prohibited from preparing deposit ticket, withdrawal slip or otherforms for the customer

+; All banks shall have a sound recruitment policy

E7ER0ISE

T%$T I %3UM%/T!:3

'%C9'(S

S#A#% #E% -*N*-D- *N(%P%N(%N# BA2ANC*NG P'9C%(D'%S A(9P#%(B BAN:S

7

28


29/105

F

34

*#%-S I '%C9'(S E%2( DN(%' J9*N# CDS#9(33

36

3+

3=

3>

3

37

3F

3

64

63

66

6+

6=

6>

ACC9DN#S < #'ANSAC#*9NS E%2( DN(%' (DA2 C9N#'926

67

6F

6

+4

ACC9DN#S, *NS#'D-%N#S AN( 19'-S #EA# SEA22 B% ND-B%')C9N#'922%(+3

+6

++

+=+>

+

+7

+F

+

=4

=3

=6

=+

==

=>

ACC9DN#S #EA# N%%( ANNDA2 C9N1*'-A#*9N B AN *N#%'NA2 AD(*#S#A11 B (*'%C# O%'*1*CA#*9N H*#E BAN: C2*%N#S=

=7

=F

=

9#E%' *N#%'NA2 C9N#'92 S#AN(A'(S APP2*CAB2% #9 (%P9S*#ACC9DN# #'ANSAC#*9NS>4

>3

>6

29


30/105

>+

>=

>>

>

>7

>F

>

4

PART T>ODEPOSIT AND BORRO>ING OPERATION

hapter DEPOSIT OPERATIONS

De)an(, Sa2in", NO> an( Ti)e Depit

Ban% (epitis de.ned as the sum of money or credit left with a bank to beused according to banking practice #he deposits that are received by the bankcome in di@erent forms such as0

1+; -oney @+; Checks issued by banks.+; #raveler8s Check +; (rafts5+; Promissory Notes +; -oney 9rders+; Proceeds of loan discounts left

on deposit+; *tems for collection from

banks I others

A depositor may come to the bank to open a Savings Account or a Current

Account and entrusts his funds in the form of cash or checks (eposits which ariseout of the deposit of checks or currency at a bank are called Pri)ar- Depit+

#hose deposits which result from a loan or investment by the bank are termed asDeri2ati2e Depit+

#here are .ve channels through which deposit are received by a bank0

3" 'eceiving #ellers 6" #elegraphic #ransfers+" -ail and special messengers =" Bank *nter)(epartment credits>" A#- (eposits

30


31/105

#he general classi.cation of deposits0

A According to the Srce ! (epit*

3 P'*OA#% S%C#9' 6 G9O%'N-%N# S%C#9'

B According to the Ter) ! #ith(ra#al

3 (emand (eposit) 6 #ime (eposit

*t is one in which the customerhas the right to withdrawal atany given time upon demand

*t is one wherein thecustomer could withdrawhis funds sub?ect to acertain speci.ed date

Dpon opening of an account, depositors shall always be re/uired toaccomplish a QSignature CardR for which shall be used always as reference inchecking the genuineness


32/105

6 9ut)of)#own Clearing *tems are out)of town demands presented in a clearingcenter against a bank without any branch in that particular clearing area

+ *nter)'egional Clearing *tems are demand items for clearing consisting of checksandarrant +; 0ahier3, Mana"er3 r 0erti'e(0hec%

32


33/105

a" 1und transfer T credit memos within the same bankrepresenting proceeds of loans granted under e&isting regulations

b" Peso demand deposit accounts maintained by foreigncorrespondent banks with commercial banks shall be not sub?ect to theabove mentioned regulations #he maintenance of non)residentcorrespondent bank8s peso checking accounts and over drawings

therefrom are covered by reciprocal arrangement #emporary overdrawings are covered within .fteen !3>" days from the date overdrawings are incurred Such accounts are credited only throughforeign e&change inward remittance

Dra#in" A"aint 9ncllecte( Depit+ (AD( or drawn againstuncollected deposits means) temporary overdrawing against the current account ofthe depositor where the available balance in the account is not sucient to coverfor the amount drawn possibly caused by check that were deposited to the accountand were not cleared yet %&ample of (AD( is a P3, 444 check drawn from a totalaccount balance of P644, 444 and the available balance is only P 4444 Checksamounting to P3, 34444 deposited to the account are not yet available due to

checks were not yet cleared

(AD(s shall be prohibited e&cept when the drawings are made againstuncollected deposits representing manager8s


34/105

0rrent Accnt ! Ban% Fcer an( E)pl-ee+#he following ocersI employees of banks are prohibited from maintaining demand deposits or currentaccounts with the banking oce in which they are assigned0

a" All ocers

b" %mployees of the bank8s cash department or cash units

c" 9ther employees who have direct and immediate responsibility in thehandling of transactions and" years or sooner

Pa$% : Le("er+ A Savings Account Passbook and a 2edger Card shall beused for savings account #he SA Passbook shall indicate the terms and conditionsgoverning savings account, including the provision for maintaining balance, servicefees and other charges %ach bank oce


35/105

shall be kept under ?oint custody #hese forms shall be kept in a dually)controlledcompartment 1or inventory purposes, a Stock Card shall be maintained for eachform An annual inventory of the main supply of Passbooks and 2edgers shall beconducted by the Audit (epartment and the results veri.ed against the Stock Card(epending on the banks procedure, a 6)week working supply of Passbooks and2edgers to be used for new accounts shall be kept under the control of the NewAccounts Clerk A separate working supply of Passbooks and 2edgers to replace.lled books and ledgers shall be kept by the Cash -anager or Branch Accountant asauthori;ed by the bank in accordance with internal control procedure A SavingsAccount Passbooks *ssued 'egister shall be maintained by the New Accounts Clerk,Accountant and a Supervisor authori;ed for the transaction, where all additions toand


36/105

any withdrawal is allowed Joint Qand


37/105

reviewed for the re/uired authori;ation and approval of movements during themonth !withdrawal, cancellation, transfer"

Accnt #ith Le"al Attach)ent < Garnihe( Accnt;+ Accountsattached under court orders pending .nal disposition of the cases involving thedepositor shall be transferred to a separate subsidiary ledger account ) QSavings(eposits GarnishedR 2edgers of these accounts shall be properly noted as suchto prevent withdrawal there from until .nal disposition of the court case-ovements on these accounts shall re/uire prior approval of an authori;ed bankocer -onthly, outstanding garnished accounts shall be reviewed for the re/uiredauthori;ation and approval of movements during the month !withdrawal,cancellation, transfer"

Ser2icin" Depit Oti(e Ban% Pre)ie+ Banks may be authori;ed bythe BSP to solicit and accept deposits outside their bank premises, sub?ect to thefollowing conditions0

!3" #he .nancial condition of the bank applying for authority to solicit and collectsavings deposits outside its bank premises is Sound & the operations and

/uality of management could assure the safety of funds entrusted to itsdeposit collectors

!6" #he proposed area where applicant bank intends to solicit shall be clearlyde.ned

!+" Solicitation of deposit shall be con.ned within a locality where there are noother banks in operation or with deposit potentials that are still untapped

!=" All deposit solicitors shall be bonded for at least P3,444 sub?ect to increasethereof to appro&imate their daily collections, and must be provided withproper *denti.cation cards with photograph and signature of solicitor andcerti.ed by appropriate bank ocer *ds must be worn at all times whensoliciting deposits

!>" Ade/uate insurance coverage for funds in transit must be secured frominsurance companies not included in the list of companies blacklisted by the*nsurance Commissioner

!" (eposit slips shall be in booklet form, pre)numbered, in triplicate copies andin three !+" colors 9riginal to depositor$ 6 ndcopy for posting$ +rdto be retainedin the booklet

!7" All collections shall be turned over to the cashier at the end of each dayaccompanied by a QCollection Summary 'eportR to be accomplished induplicate which shall contain the following minimum information0

A" (ate of the reportB" Name I addresses of depositorsC" (eposit Slip Numbers(" Amount of deposit%" Savings account and passbook number1" Name and signature of solicitor

F" #he bookkeeper or any ledger clerk, e&cept any bank solicitor, shall record(eposits< withdrawals, in the depositor8s ledger cards and passbook, on thesame day it was accepted for deposit Passbooks shall be returned not laterthan the following business day

37


38/105

" At the end of each month, depositors shall be advised in writing of thebalances of their deposits with the bank #he advise slips should not be hand)carried by the solicitors themselves

34" Places of assignments of bank solicitors shall be rotated at least /uarterly

Rental Depit ! Leae+ #he following guidelines shall govern theopening and handling by banks of deposits made by lessees under Batas Pambansa

Blg 6>, otherwise known as the 'ent Control 2aw0

3 #he deposit made by the lessee shall only be accepted by the bank under aspecial savings account in the name of the lessor$

6 #he bank shall re/uire the lessee to submit a copy of the written notice sentto the lessor for the deposit made, stating the date and amount of thedeposit and the name and address of the lessor$

+ #he bank, at its option, may re/uire the lessee to submit any supportingdocument, such as the lease contract or ocial receipts of previous rentalspaid, which will show the specimen signature of the lessor, or other papers toidentify the lessor$

= #he bank shall segregate from its regular savings deposit accounts andmaintain a separate subsidiary control ledger for deposits made under thiscategory

> Any withdrawal can be only allowed in favor of the lessee concerned beforethe amount deposited under consignation has been accepted by the lessor,or when authori;ed by the lessor$

#he e&penses, which may be incurred by the bank with respect to such rentaldeposits, shall be charged against the lessor

Dr)ant Accnt+ A Savings account is classi.ed as dormant when no

transactions have been received for the past two years Passbook update isconsidered a transaction and will therefore move the date of last transaction(eposit accounts with outstanding hold)outs shall not be considered dormant Areview and segregation of (ormant 2edger and Signature Cards are made semi)annually A list of dormant names and account numbers ! segregated as to thosewith balances falling within and those falling below the re/uired minimum" shall beprepared #he list shall be the basis of the Signature Oeri.er


39/105

the reactivation on the (eposit Slip


40/105

+ (eposits shall be covered by deposit slips, in duplicate *t must be dulyvalidated and initialed by the teller receiving the deposit #he second copywill be furnished to the depositor

= N9H Accounts shall be kept and maintained separately from the regularsavings deposits

> Blank N9H forms shall be pre)numbered and shall be controlled as in thecase of un)issued blank checks

A bank statement shall be sent to each depositor at the end of each monthfor con.rmation of balances

7 Banks must use the form prescribed by present rules for N9H Account

0learin" ! NO>+ Any N9H which may be deposited with a bank other

than the drawee bank may be cleared through the PCEC in -anila and the 'egionalClearing Dnits in regional clearing centers designated by the BSP accordance withthe clearing proceduresTi)e Depit

#ime (eposit Account is an interest bearing accounts with speci.c term ofmaturity #hus a time depositor can not withdraw his money anytime he wants andthe agreed interest that goes with it No #ime (eposit shall be accepted for a termof less than thirty !+4" days

Authority shall be automatically granted to any accredited banking institutionwhich may participate in the supervised credit program to accept special #ime(eposit from the Agrarian 'eform 1und Commission with interest lower than therate allowed on time deposits accepted from the general public Such deposits shallbe e&empted from the legal reserve re/uirements, as an e&ception to the e&istingpolicies on the matter

Commercial Banks and %&panded Commercial Banks may issue NegotiableCerti.cates of #ime (eposits !NC#(" without the approval of the BSP #hrift Banksand Coop Banks may issue NC#( upon the prior approval of the BSP

#he NC#(s shall be insured with the P(*C Banks issuing bearer certi.catesshall imprint on the instrument the following0

Q1or purposes of deposit insurance by the P(*C, the holder shall have hisname registered in the books of the issuing bankR

DE/INITION O/ TERMS*

3 Crossed Check is a check drawn with the purpose of depositing the check to theaccount of the payee named in the check

6 Post (ated Check is a check the date of which is in the future

+ 9n)us Check is a check drawn by a depositor of the same bank the check wasnegotiated

= *nactive or dormant account is an account which has no activity ! no deposit orno withdrawal" for a period of time no less than one year

40


41/105

> Cashier8s check is a check drawn by a bank against itself, signed by its cashieror authori;ed ocer, purchased by a client for some purpose and is always backedby the bank8s fund

(raft is a written order for the payment of money drawn by one person, directinga second person or .nancial institution to pay a third person A draft is called acheck when it is drawn on a bank Hhen money is transferred between institutionsin di@erent countries, a draft is called a bill of e&change Hhereas bills of e&change

are always negotiable, drafts may be nonnegotiable A draft is payable on sight oron demand$ however, in some transactions drafts are often payable at a stateddate in the future

7 #raveler8s Check is a draft note purchased from a bank or directly from a#raveler8s Check issuing company such as American %&press *t could be redeemedfor goods or services in many businesses around the world

F Promissory Notes is a promise to pay that is negotiable by endorsement if it isspeci.cally made payable to the order of a person

-oney 9rder is a draft note purchased from a bank !or in the case of Philippinepostal money order, it is purchased from the Post 9ce" and can be redeemed onlyin banks or post oces, which distinguished them as e&ceptionally reliable

#raveler8s Check < draft notesUor certi.cates negotiable as moneyUfor a variety ofpersonal and business transactions

E7ER0ISE

TEST I EN9MERATION

ITEMS TO BE 9SED AS 0OCER /OR HONORED 0HE0KS36+=

>/ORMS B8 >HI0H DEPOSITS ARE RE0EICED B8 BANKS

7F3433363+3=

0HANNELS THRO9GH >HI0H DEPOSITS ARE RE0EICED B8 BANKS

3>3373F3

GENERAL 0LASSI/I0ATION O/ DEPOSITS6463

0LASSI/I0ATION O/ DEPOSITS A00DG TO SO9R0E O/ DEPOSIT666+

41


42/105


43/105

hapter 1DEPOSITS9BSTIT9TE OPERATION, GOCERNMENT DEPOSITS9BSTIT9E

OPERATION, GOCERNMENT DEPOSITS AND INTEREST

aiBan%in" /nctin

Nn$an% /inancial Intittin per!r)in" ai$an%in" !nctin isa company that is engaged in the borrowing of funds through the issuance,endorsement or assignment with recourse or acceptance of deposit substitutes forthe purpose of re)lending or purchasing of receivables and other obligations

THE ESSENTIAL ELEMENTS O/ 9ASIBANKING*

1+ Borrowing funds for the borrower8s own account

.+ #wenty !64" or more lenders at any one time

5+ -ethods of borrowing are issuance, endorsement, or acceptance of debtinstruments of any kind, other than deposits, such as acceptances,promissory notes, participation, certi.cates of assignments or similarinstruments with recourse, trust certi.cates, repurchase agreements andsuch other instruments as the -onetary Board may determine

4. #he purpose of which is relen(in" r prchain" recei2a$le rther $li"atin+

Tranactin nt cni(ere( aiBan%in" #he following shall notconstitute /uasi)banking0

!3" Borrowing by commercial, industrial and other non).nancial companiesthrough any of the means listed above for the limited purpose of .nancingtheir own needs or the needs of their agents or dealers$

!6" #he mere buying and selling without recourse of instruments, providedthat the institution buying and selling without recourse shall indicate in printthe phrase Qwithout recourseR or QSans 'ecourseR conveying the absence ofliability or guarantee by said institution

!+" #hat any of the following practices is hereby prohibited0

a" *ssuance of postdated checks by a .nancialintermediary whether for its own account or as an agent of the debtinstrument issuer, in payment of the debt)instrument)sold assigned ortransferred without recourse

b" *ssuance by a .nancial intermediary of any formof guaranty on sale transactions or on negotiations or assignment of debtinstruments without recourse

43


44/105

c" Payment with its own funds by a .nancialintermediary which assigned, sold, or transferred the debt instrument withoutrecourse, unless the .nancial intermediary can show that the issuer has withthe said .nancial intermediary funds corresponding to the amount of theobligation

DepitS$titte Intr)ent+ Any deposit substitute transaction by abank performing /uasi)banking functions shall be limited to its own promissorynotes, repurchase agreements, and certi.cates of assignment


45/105

#he Present Oalue, -aturity Oalue, principal amount and interest rate

and other information needed to enable to determine the cost or yield of theborrowing or placement shall be speci.ed

#he date of issuance shall be indicated at the upper right corner of

the instrument and directly below which shall be the maturity period or theword QdemandR, if it is a demand instrument

#he payee as identi.ed by his trust account


46/105

Mne- Mar%et Place)ent+ -oney -arket Placements shall includeinvestments in debt instruments, including purchase of receivables with recourse tothe lending institution, e&cept purchase of government securities on an outrightbasis

G2ern)ent Secritie shall include evidences of indebtedness of the'epublic of the Philippines, the BSP and other evidences of indebtedness orobligations of government entities the servicing and repayment of which are fullyguaranteed by the 'P

Hith out recourse transactions are prohibited unless such receivables, notes,loans, debt instruments and .nancial assets or claims are registered with the S%C

#his prohibition includes transactions between a bank and its trust departmentDnregistered commercial papers may be sold, discounted, assigned or negotiatedby banks to other .nancial intermediaries with /uasi)banking functions

Iance ! Bn(

G2ern)ent Secritie shall refer to evidences of indebtedness of the'epublic of the Philippines or its instrumentalities or of the BSP, and must be freelynegotiable and regularly serviced

Net $% Cale shall refer to the ac/uisition cost of property or accountsplus additions and improvements thereon less valuation reserves, if any

0rrent Mar%et Cale shall refer to the value of the property asestablished by a duly licensed and independent appraiser

Bonds issued by banks shall have the following minimum features0


47/105

" days Banks performing /uasi)bankingfunctions shall continue to consider matured and un)withdrawn deposit substitutesas such and sub?ect to reserves

(isclosure of %@ective 'ates of *nterest Banks are re/uired to disclose todepositors the following information on interest computation and payments ! inaccordance with the #ruth in the 2ending Act "0

1+; #ype


48/105


49/105

E7ER0ISE 1

TEST I EN9MERATION

ESSENTIAL ELEMENTS O/ 9ASIBANKING36+=

TRANSA0TION NOT 0ONSIDERED 9ASIBANKING>

MINIM9M /EAT9RES O/ DEPOSIT S9BSTIT9TE INSTR9MENTS ISS9EDB8 ENTITIES PER/ORMING 9ASIBANKING /9N0TIONS+

7F3433

363+3=3>3

MINIM9M /EAT9RES O/ BONDS ISS9ED B8 BANKS+373F364

hapter 11

S9NDR8 PROCISIONS ON DEPOSIT OPERATIONS

49


50/105

B%in" ! Depit an( >ith(ra#al+As a general rule, all deposits andwithdrawals during regular banking hours shall be credited or debited to depositliability accounts on the date of receipt or payment thereof A bank may set aclearing cut)o@ time for its head oce not earlier than two!6" hours before the startof clearing at the BSP, and not earlier than three and one)half !+ V " hours beforethe start of clearing for all its branches in the Philippines, after which time, depositsreceived shall be booked as hereinafter Banks which are located in areas wherethere are no BSP regional" years or sooner, at the discretion of the the bankBanks, may at their option, re/uire their depositors to submit *( photos togetherwith the specimen signatures

Inrance n Depit+ All banks shall indicate the coverage of the P(*C in

each passbook, certi.cate of time deposit and


51/105


52/105

a; O//SITE A9TOMATED TELLER MA0HINES


53/105

hapter 1.

BORRO>INGS /ROM THE BANGKO SENTRAL

#he Credit e&amination of all borrowing banks shall be undertaken regularly

by the (epartment of 2oans and Credit at which time Promissory Notes used ascollateral for loans with the BSP are e&amined together with the supportingdocuments

a) PreA(it S-te)+ #he amount allowable for each loan application isdetermined after deducting all items that have been found ineligible orunacceptable as collateral

b) Pt A(it


54/105

PART THREELOANS, INCESTMENTS AND SPE0IAL 0REDITS

Len(in" Plicie

*t shall be the responsibility of the board of directors of a bank to formulatewritten policies on the e&tension of credit and risk diversi.cation and to set theguidelines for evaluation of risk assets Hell)de.ned lending policies and soundlending practices are essential if a bank is to perform its lending function e@ectivelyand minimi;e the risk inherent in any e&tension of credit #he responsibility shouldbe approached in a way that will provide assurance to the public, the stockholdersand supervisory authorities that timely and ade/uate action will be taken tomaintain the /uality of the loan portfolio and other risk assets

Lan Prt!li an( ther Ri% Aet Re2ie# S-te)+ %ach bank shallestablish a system of identifying and monitoring e&isting or potential problem loansand other risk assets and of evaluating credit policies vis)avis prevailingcircumstances and emerging portfolio trends #his will ensure that timely andade/uate management action is taken to maintain the /uality of the loan portfolioand other risk assets Ade/uate loss reserves shall be set up and maintained at alevel sucient to absorb the loss inherent in the loan portfolio and other risk assets-anagement must also recogni;e that loss reserve is a stabili;ing factor and thatfailure to account appropriate for losses or make ade/uate provisions for estimatedfuture losses may result in misrepresentation of the bank8s .nancial condition

hapter 15

LOANS IN GENERAL

Lan Li)it t a Sin"le Brr#er+ #he total liabilities of any person,company, corporation or .rm, to a bank for money borrowed, shall at no timee&ceed twenty .ve percent !6>5" of the unimpaired capital and surplus of the bank

#his e&cludes the following0

A 2oans secured by obligations of the BSP or the Philippine Government

B 2oans fully guaranteed by the government as to the payment of principal andinterest

C 2oans to the e&tent covered by the hold)out on or assignment of, depositsmaintained in the lending bank and held in the Philippines

( 2oans and acceptances under letters of credit to the e&tent covered bymargin deposits

% 9ther loans or credit which the -onetary Board may, from time to timespecify as non)risk

1 (iscounted < 'ediscounted papers) #he liabilities of borrowers to the bank,whose papers were discounted and


55/105

BSP or any other institution shall not be deemed as having beene&tinguished by the discount and


56/105

disposal by sale at any time to pay the obligations secured by the said staples andwhich are non)perishable in character, and reasonably sure of maintaining theirvalues as security at least for the duration of the obligation secured by the saidstaples or the use of the draft drawn against them A staple is not consideredreadily marketable, if it is imported not for resale, but for the e&clusive use of thebuyer or the importer such as machinery, e/uipment and construction materialswhich are to be used e&clusively for the construction of the factory or buildingbelonging to the buyer or importer of the said staple

Bill ! E=chan"e (ra#n in "( !aith a"aint actall- e=itin"2ale+ *t shall mean one, which is drawn by a seller on the purchaser for thepurchase price of commodities sold A bill of e&change is a bill drawn againste&isting values only when it is accompanied by shipping documents, warehousereceipts or other papers, securing title to the goods sold

0))ercial r Bine Paper actall- #ne( $- the pernne"tiatin" the a)e+ *t shall mean a paper arising from an actual businesstransaction A trade acceptance or promissory note actually owned by the personnegotiating the same is a commercial or a business paper Past due

Commercial5"

E=clin !r) Lan Li)it+ #he following loans or liabilities shall bee&cluded in determining the Single Borrower 2imit described above0

!a" #he discount of bills of e&change drawn in good faith againstactually e&isting values, and the discount of commercial or business paperwhich are actually owned by the person, company, corporation or associationnegotiating the same$

!b" #he unused portion of letters of credit which is issued for the

purpose of .nancing importation of goods$

!c" #he portion of the special time deposit loans covered by *G21guarantee shall be e&cluded in the determination of the ma&imum aggregateloans which a bank may grant to a person, company, corporation or .rm

!d" #he total liabilities of a commercial paper issuer for commercialpaper held by an e&panded commercial bank as a .rm underwriter shall notbe counted in determining compliance with the SB2 within a period of 3F4days from the ac/uisition of the commercial paper by the %&pandedCommercial Bank

!e" #he portions of the peso loans covered by guarantees of international


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+ #he letter of credit shall specify that importation shall be made withcerti.cation from the National 1ood Authority !N1A", or the consularestablishment of the Philippine government at the source of any suchshipment to the e@ect that the commodity being imported is either riceor corn$ and

= #he related bills of lading shall specify in addition to the name ofthe importer corned, that the N1A shall be the consignee of the

shipment$

Lan Prcee(+ Before granting a loan, banks shall ascertain the purposeof the loan which shall be clearly stated in the contract between the bank and theborrower #he proceeds of a loan shall be utili;ed only for the purpose!s" stated inthe loan contract$ otherwise, the bank may terminate the loan and demandimmediate repayment of the obligation #he proceeds of a loan may be utili;ed bythe borrower, the purpose!s" of which is other than that originally stated in the loancontract$ provided that such purpose!s" is


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Accral ! Interet earne( n Lan+ Banks are allowed to accrueinterest earned on loans, sub?ect to the following guidelines and


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iii+ Bill an( ther ne"tia$le intr)ent prchae(i2+ Lan:Recei2a$le pa-a$le in intall)ent2+ 0re(it car( recei2a$le

2i+ All ite) in liti"atin

Banks shall, in case of non)payment of a demand loan, make a writtendemand within si& !" months following the grant of such loans #he demand shallindicate a period of payment which shall not be later than si& !" months from dateof said demand

No loan shall be renewed or its maturity date e&tended unless thecorresponding accrued interest receivables shall have been paid

'estructured loans whose terms of payments have not been complied with,and with have become past due in accordance with this Section, shall be reverted topast due status and classi.cation

>ritin"6 ! Lan a Ba( De$t+ #he term loans and advances shallinclude all types of credit accommodations granted to, and advances made by the

bank for the account of the borrower including interest thereon recorded in thebooks 9nly loans and advances that have been past due for si& !" months ormore and are ?usti.ed to be uncollectible may be written)o@

#he fre/uency of writing)o@ loans and advances shall be left to the discretionof the board of directors of the bank concerned Charge)o@ are made againstallowance for probable losses !valuation reserves" or against current operations

#he following are the procedural re/uirements in writing o@ loans0

!3" Notice


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E7ER0ISE 1.

#%S# *%ND-%'A#*9N & I(%N#*1*CA#*9N0

%A-P2%S 91 CDS#9-%'8S 2*AB*2*# 9N ('A1#S DN(%' 2%##%'S 91C'%(*#

7

C9N(*#*9NS DN(%' HE*CE *N#%'%S# 9N '%S#'DC#D'%( 29ANS -AB%ACC'D%(

F

#E% -ANN%' A# HE*CE 'A#% 91 *N#%'%S# 9N A 129A#*NG 'A#% 29ANSEA22 B% S#A#%( DP9N AG'%%-%N# B PA'#*%S

60


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34

33

36

P'9C%(D'%S A# HE*CE BAN:S A'% A229H%( #9ACC'D% *N#%'%S#

%A'N%( 9N 29ANS3+

3=

3>

3

37

3F

(%P9S*# ACC9DN#S 91 G9O%'N-%N# 9HN%( 9' C9N#'922%(1*NANC*A2 *NS#*#D#*9NS *N #E*S BAN:S A'% N9# SDBJ%C# #9 #E% S*NG2%2*AB*2*# 2*-*#

3

64

hapter 1

Secre( Lan

Lan Secre( B- Real Etate

Lan a"aint real etate ecrit- shall not e&ceed seventy percent!745" of the appraised value of the respective real estate security plus seventypercent !745" of the appraised value of insured improvements and such loans shallnot be made unless title to the real estate is in the mortgagors8 name

%ligible 'eal %state collateral on 'ural Bank


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a" Security of lands without #orrents #itle where the owner of private property canshow .ve !>" years or more of peaceful, continuous and uninterruptedpossession as owner

b" Portions of friar land estates administered by the Bureau of 2ands covered bysales contracts and the purchasers have paid at least .ve !>" yearsinstallment thereon

c" Portion of estates under the administration of the (epartment of Agrarian'eform !(A'"

d" Eomesteads or free patent lands pending issuance of titles but alreadyapproved Provided that the loan applied for shall be used for developmentand other productive economic activities of same

e" #he appraisal and veri.cation of the status of land is in the responsibility of the'ural Bank < Coop Bank granting said loans

Inrance n Real Etate I)pr2e)ent #he re/uired insurance onimprovements used as collateral for loan should be such as shall be sucient tosecure seventy percent !745" of the appraised value of such improvements or ifinade/uately insured, the loan value shall correspond to the e&tent of insurancetaken on such improvements

/reclre ! Mrt"a"e+ 1oreclosure of mortgages by #hrift Banksvaries from the foreclosure of mortgages by 'ural and Coop Banks Below are itsprocedures0

1) 1oreclosure By #hrift Banks 1oreclosure levied upon by a sheri@ shall bee&empt from the publication re/uirements in newspapers now re/uired by lawwhere amount of loan e&cluding interests due and unpaid does not e&ceed P344thousand or such amount as the -onetary Board prescribed Such notices shall

be posted in the conspicuous area of the #hrift Bank8s premises, municipalbuilding, market, barangay hall where the mortgaged land is situated within aperiod of si&ty !4" days immediately preceding the public auction of e&ecutionof ?udgment

2) 1oreclosure By 'ural < Coop Bank #he above provisions holds true toforeclosure by 'ural < Coop Bank Proof of publication as re/uired herein shall beaccomplished by an adavit of the sheri@ or ocer conducting the foreclosureof sale and shall be attached with the records of the case *n this case, where ahomestead or free patent is foreclosed, the homesteader or free patent holder,as well as his heirs shall have the right to redeem the same within one year fromthe date of foreclosure, in case of land not covered by #orrents #itle and one year

from the date of the registration of the foreclosure in the case of land covered bya #orrents #itle

62


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Re(e)ptin ! /recle( Real Etate Mrt"a"e+ #he mortgagor ordebtor shall within one !3" year after the sale of the real estate as a result of theforeclosure sale, may redeem the property, by paying the amount .&ed by the courtin the order of e&ecution or the amount due under the mortgage deed, with interestand all the costs and ?udicial an other e&penses incurred by the bank less incomereceived from the property Eowever, the purchaser at the auction sale concernedshall have the right to enter upon and take possession of such property immediatelyafter the date of the con.rmation of the auction sale and administer the same inaccordance with the law

Lan Secre( B- 0hattel+ 2oans on the security of chattels shall note&ceed .fty percent !>45" of the appraised value of the security, and such loansshall not be made unless title to the chattels, free from encumbrances, shall be inthe mortgagor

Lan Secre( B- Pernal Prpertie+ 2oans may be secured byunencumbered personal property which may consist of0

a" Bonds and securities issued by the government accepted at face valueb" Stocks and other securities issued by reputable commercial, industrial and other

private companies or entities engaged in non)speculative business up to .ftypercent !>45" of -arket Oalue

c" %&pected harvest from a pro?ect to be .nanced or growing crops up to fortypercent !=45" of the calculated -arket Oalue of the crop for which the loan issought, based on the previous production records

d" Kuedans or warehouse receipts issued by bonded warehouses covering stockdeposited in said warehouses up to eighty percent !F45" of calculatedmarket value

e" Any other personal property, up to .fty percent !>45" of the 1air -arket Oalue

Lan Secre( B- 0erti'cate ! Ti)e Depit+ #he original copy of theC#(s sub?ect to hold)out or assignment shall be surrendered to the lending bank

#he depository bank, other than the lending bank, shall be furnished a copy of the(eed of Assignment or hold)out agreement on the deposit used as collateral *f theterm of the C#(s sub?ect to hold)out or assignment is shorter than the term of theloan, there shall be an agreement in writing that renewal of the time deposit uponmaturity shall be made at least co)terminus with the term of the loan #here shallbe no pre)termination of the time deposit without the consent of the lending bankand unless an acceptable substitute collateral for the loan has been made #helending bank shall keep a complete record of all pertinent loan documents #he

loan documents shall include a waiver on the part of the depositor which shall bemade available for inspection and


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E7ER0ISE 1

TEST I EN9MERATION

HEA# A'% #E% %2*G*B2% '%A2 %S#A#% C922A#%'A2S 9N 'D'A2 BAN:

%A-P2%S 91 DN%-CD-B%'%( P%'S9NA2 P'9P%'#*%S DS%( AS S%CD'*#19' A 29AN

7

F

34

TEST II IDENTI/I0ATION+

3 Hhat 5 of the appraised value is provided forinsurance on real estate improvementsL

6 Hhat is the -a&imum Amount e&cluding the principal,of loans foreclosed by #hrift Banks not re/uiringpublication re/uirement

+ Hhat 5 of the appraised value of the security isprovided for on loans secured by chattelsL

= Hhat 5 of the appraised value of the security isprovided for on loans secured by 'eal %state the title ofwhich must be in the mortgagor8s nameL

> #he redemption period of foreclosed real estatemortgage

64


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hapter 1@

9NSE09RED LOANS

Lan A"aint Pernal Secrit-+ #he following regulations shall governcredit accommodations against personal security granted by banks0

A; Pr! ! /inancial 0apacit- ! Brr#er

*n addition to the usual personal information sheet about the borrower,banks shall re/uire that an application for a credit accommodation againstpersonal security be accompanied by 3" a copy of the latest income ta&returns of the borrower and his co)maker duly stamped as received by the B*'$6" *f the credit accommodation e&ceeds P>44,444, a copy of a borrower8sbalance sheet duly certi.ed by a CPA and in case he is engaged in business,

also a copy of the pro.t and loss statement duly certi.ed by a CPA

B; A)nt an( ter) ! cre(it acc))(atin : Rene#alSi"natrie

Banks shall re/uire that credit accommodations against personal securitybe made under the signature of the principal borrower and at least one !3" co)maker, e&cept in the case of a principal borrower whose responsibility and.nancial capacity are un/uestionable in which case the signature of theborrower shall suce

0; 0llateral reire)ent

Hhen circumstances so warrant, banks may re/uire applicants for creditaccommodations against personal security to furnish collateral, withoutsub?ecting such collateral to the ma&imum loan values

General Gi(eline*

Banks must e&ercise proper caution by ascertaining that borrowers, co)makers, endorsers, sureties and


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67/105

#he authority to approve the restructuring of loans may be delegated by thebank8s board of directors to a committee or ocer!s"

ASSIGNMENT

Assign a group to report on banks and their procedure in the structuring of loans

hapter 1

29ANS AN( 9#E%' C'%(*# ACC9-9(A#*9NS #9 (*'%C#9'S, 911*C%'S,S#9C:E92(%'S AN( #E%*' '%2A#%( *N#%'%S#S !(9S'*"

(ealings of a bank with any of its (9S'* should be in the regular course ofbusiness and upon terms not less favorable to the bank than those o@ered toothers

DE/INITION O/ TERMS*

A. Directr shall refer to the bank directors

B. OFcer shall refer to bank ocers

C. Stc%hl(ershall refer to any stockholder of record in the books ofthe bank, acting personally, or through an atty)in)fact, e&ecutor, asadministrator or guardian of a minor, incompetent and


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e&tent of the total outstanding loans granted from said special


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1+; Spe r relati2e within the .rst degree of consanguinity or anity,or relative by legal adoption of a director, ocer or stockholder of thebank$

.+; Partnership of which a director, ocer, or stockholder or his spouse orrelative within the 3stdegree of consanguinity or anity, or relative bylegal adoption, is a general partner$

5+; Co)owner with the director, ocer, stockholder or his spouse orrelative within the 3stdegree of consanguinity or anity, or relative bylegal adoption, of the property or interest or right mortgaged, pledgedor assigned to secure the loans or credit accommodations, e&ceptwhen the mortgage, pledge or assignment covers only said co)owner8sundivided interest$

+; Corporation, association, or .rm of which a director or ocer of thebank, or his spouse is also a director or ocer of such corporation,association or .rm, e&cept a" where the securities of such corporation,associated or .rm are listed and traded in the big board or commercialand industrial board of domestic stock e&changes and loss than .fty

percent !>45" of the voting stock thereof is owned by any one personor by persons related to each other within the third degree ofconsanguinity or anity$ or b" where the director, ocer orstockholder of the bank sits as a representative of the bank in theboard of directors of such corporation

@+; Corporation, association or .rm of which any or a group of directors,ocers, stockholders of the lending bank and


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a" Participation shall be limited to full)time and permanent ocers andemployees of the bank$

b" 1inancial assistance shall be granted in the form of a loan, advances or creditaccommodation, installment sale, lease with option to purchase or lease)purchase agreement where the lessee is obligated to purchase the real estateor e/uipment$

c" #he amount and maturity of .nancial assistance for each purpose, shall be

determined by the bank in consonance with the normal re/uirements thereof#he ma&imum amount shall be stated as percentage or multiple of the totalmonthly compensation of the ocer or employee and shall be within thepaying capacity of the borrowing ocer or employee !#otal monthlycompensation shall include the basic salary and all .&ed and regular monthlyallowances of the ocer or employee Payments for sickness bene.ts andother special emoluments which are not .&ed or regular in nature, or thecommutation into cash of unused leave credits shall not be included in thecomputation of total monthly compensation"

d" #he amorti;ation payment shall include amounts necessary to covermortgage redemption insurance and .re insurance premiums, ta&es, special

assessment and other related fees and charges$e" Availment of the .nancing plan to construct or ac/uire a residential house

and lot shall be allowed only once during the ocer8s or employee8s tenurewith the bank %&ception is, when the right over the real estate previouslyac/uired or constructed under the .nancing plan is absolutely transferred, orassigned to another ocer or employee of the bank or to a third party$pr2i(e(, that such party shall have fully reimbursed the bank for theoutstanding availment on the .nancing plan before the ocer


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/n(in" B- /rei"n Ban%+ *n the case of local branches of foreign banks,.nancial assistance for their ocers and employees may be funded, through any ofthe following0

3" #hrough a local aliate by special arrangement with the Eead 9ceAbroad in the form of0

!a" *nward remittance from the head oce of the aliate$ or

!b" Assignment to the aliate or e/uivalent amounts of pro.tsotherwise remittable abroad under e&isting regulations$ or

!c" (irect loans by the foreign bank to the aliate$ or

!6" #hrough the 2ocal Branch itself by0

!a" Segregation or transfer of undivided pro.ts normally remitted to theEead oce abroad e/uivalent to the loans to ocer and employeeswhich shall be lodged under Q9ther 2iabilities)Eead 9ceRaccounts

!b" *nward remittance$ or

!+" #hrough the 2ocal Branch from 2ocal Sources without %armarking an%/uivalent amount of undivided pro.ts, Provided that the aggregateceilings on such loans as provided under e&isting regulations shallapply

#he documentation and collection of such loans shall be handled by thebranch for the account of the head oce

ASS*GN-%N#

2et the students interview bank employees who have availed to the (9S'i 2oans2et them get the percentage of availment for each assigned bank

hapter 1MANDATOR8 0REDIT AND SPE0IAL T8PES O/ LOANS

A"rarian Re!r) an( A"ricltral 0re(it

72


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Pursuant to P( No 737, the following guidelines shall govern the grant ofagrarian reform credit and agricultural credit by banks, government or private

De'nitin ! Ter)*

A"rarian Re!r) 0re(itshall refer to production and other types of loansgranted to bene.ciaries of agrarian reform for the following purposes0

1+ Ac/uisition of work animals, farm e/uipment I machinery, seeds,fertili;er, poultry, livestock, feeds and other similar items$

.+ Ac/uisition of lands authori;ed under e&isting laws$5+ Construction andh )a- $rr# : prpe*

All bene.ciaries of agrarian reform credit mentioned under P( No 737 andits implementing regulations which credit shall be used for agricultural production orfor other purposes mentioned therein shall be /uali.ed borrowers under agrarianreform credit

Kuali.ed borrowers under agricultural credit in general are0!3" corporations!6" entities!+" private individuals engaged in 0

!3" agricultural production !="storage!6" processing !>"marketing!+" e&portation of agricultural

products!" importation


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3 *nter)bank 2oan 'eceivables

6 Agrarian 'eform 2oans from multilateral and bilateral sources which are relent by a bankon a wholesale basis to conduit .nancial institutions

S)all Enterprie shall refer to any business activity or enterprisesengaged in industry, agribusiness and -illion and below$

6 (uly registered with the appropriate agencies as presently provided by law$

+ 9ne hundred percent !3445" owned and capitali;ed by 1ilipino citi;ens if a singleproprietorship or partnership *f the enterprise is a corporation, at least

si&ty percent !45" of its capital or outstanding stocks must be owned by1ilipino citi;ens$

= Primarily engaged in manufacturing, processing, and Dn)availed but committed credit lines #he funds set aside which have not beeninvested in any of the above may be held in the form of Cash on Eand and


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Len(in" t Me(i) Enterprie+ 2ending institutions are encouraged tomake available funds for lending to medium enterprises with total assets, of morethan P 3> -illion but not more than P 4

Special T-pe ! Lan

InterBan% Lan+ *nter)bank 2oan #ransactions shall include,among other things$

1+ Inter$an% call lan


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!3" #he resources of the 'ural Bank are inade/uate to meet the legitimatecredit needs of the locality wherein the 'ural Bank is established$

!6" #here is dearth of private capital in said locality$

!+" *t is not possible for the stockholders of the 'ural Bank to increase thepaid)up capital thereof

ali'catin !r Lan+ *n order to /ualify for the .nancial assistanceunder said provision of law, the 'ural Bank shall 3st meet the followingre/uirements0

!3" *ts capital)to)risk assets ratio during the last si& !" months immediatelypreceding the loan application should be at least ten percent !345"$

!6" *ts past due loans are not more than twenty).ve percent !6>5"$!+" *t has no de.ciency in allowance for probable losses on loans and other

risk assets$!=" *t must not have incurred de.ciency in its reserves against deposit

liabilities for the last !" si& months preceding the .ling of theapplication$

!>" *t must have been operating pro.tably for the last three !+" days$!" *ts arrearages with the BSP or other government .nancial institutions, ifany, are being li/uidated through an approved plan of payment, theconditions of which are being complied with$ and

!7" *t is operating substantially in accordance with applicable laws and BSPrules and regulations

E=tenin ! Lan+ #he 2BP, the (BP or any government)owned orcontrolled bank or .nancial institution shall, within si&ty !4" days from issuance bythe -onetary Board of the certi.cation, and sub?ect to their loan and investmentpolicies, e&tend to an 'ural Bank a loan or loans from time to time, repayable in ten!34" years, with concessional rates of interest, against security


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hapter 1STANDB8 LETTERS O/ 0REDIT

A Letter ! 0re(itis a document issued by a bank au

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