MANUAL OF REGULATIONS - Bangko Sentral Ng Pilipinas · The 2008 Manual of Regulations for Banks...

MANUAL OF REGULATIONS

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FOREWORD

The 2008 Manual of Regulations for Banks (MORB) is an updated compilationof banking regulations and policy issuances of the Bangko Sentral ng Pilipinas (BSP).Available in hard and soft copies, it is a convenient reference and guide for banks inthe conduct of their operations.

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

In providing banks and the banking public easy access to this information, theupdated MORB seeks to facilitate compliance with the BSP’s supervisory and regulatoryrequirements that will contribute to the enhancement of the partnership between BSPand the banking sector, and ultimately to the strengthening of the Philippine BankingSystem and the economy.

AMANDO M. TETANGCO, JR. Governor

PREFACE(2008 Revised Edition)

The 2008 Manual of Regulations for Banks (MORB) is the latest updated edition fromthe initial issuance in 1996 . The updates consist of the significant policy developments andchanges in statutory laws. It shall serve as the principal source of banking regulations issuedby the Monetary Board and the Governor of the BSP and shall be cited as the authority forenjoining compliance with the rules and regulations embodied therein.

To accomplish the work of proposing revision to the Old Manual, the Monetary Boardof the BSP, in its Resolution No. 1203 dated December 7, 1994, directed the creation of amulti-departmental Ad Hoc Review Committee. The Committee was officially constitutedunder Office Order No. 2 Series of 1995 and was reconstituted several times thereafter.Under the aforesaid office order, the Committee is tasked to update the Manuals on acontinuing basis (i) to incorporate relevant issuances (ii) propose revision/deletion of provisionswhich have become obsolete, redundant, irrelevant or inconsistent with laws/regulations(iii) reformulate provisions as the need arises and (iv) oversee printing of the Manuals/Updates in coordination with the Corporate Affairs Office.

The present Committee, as reconstituted under Office Order No. 430, Series of2007 dated 08 June 2007, is composed of: Mr. Alberto A. Reyes, Director, Central Pointof Contact Department (CPCD) II, Chairman; Atty. Magdalena D. Imperio, DeputyDirector, Office of the General Counsel and Legal Services (OGCLS), Vice Chairman;Ms. Ma. Corazon T. Alva, Acting Deputy Director, Examination Department (ED) I;Ms. Ma. Belinda G. Caraan, Acting Deputy Director/Head, Financial Consumer AffairsGroup (FCAG); Atty. Lord Eileen S. Tagle, Legal Officer III, OGCLS; Ms. Maria CynthiaM. Sison, Bank Officer IV, Office of the Supervisory Policy Development (OSPD);Ms. Concepcion A. Garcia, Bank Officer IV, OSPD; Atty. Florabelle S. Madrid, Manager,CPCD I, members; and Mr. Nestor A. Espenilla, Jr., Deputy Governor, Supervisionand Examination Sector, Adviser.

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager,CPCD II, Head; Ms. Ma. Corazon B. Bilgera, Bank Officer II, OSPD; Ms. Ma. Cecilia U. Contreras,Supervision and Examination Specialist I, CPCD II, members.

The Bangko Sentral ng Pilipinas

INSTRUCTIONS TO USERS(2008 Revised 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 isprefixed by the letter “X”. Special provisions do not contain the prefix “X” but instead, thesection/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 firstdigit showing the numbers 1, 2, and 3 applicable to said banks, respectively. The seconddigit refers to the Part of the Manual. The third and fourth digits refer to the section numberof the Part while the number/s after the decimal point, if any, refer to the subsection.

Thus, to illustrate, Subsection X143.1 and Section 1381 would indicate

Main Section - “Disqualification of Directors/Trustees and Officers”

Subsection - “Persons disqualified to become officers”

X 1 4 3 . 1

Part One on “Organization, Management and Administration”

Manual of Regulations for Banks (Common provision)

Main Section - “Investment in Non-Allied Undertakings”

1 3 8 1

Part Three - “Loans, Investments and Special Credits”

Manual of Regulations for Banks (special provision for UBs/KBs)

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 theManual where the runner is shown.

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MANUAL OF REGULATIONS FOR BANKS

TABLE OF CONTENTS

POWER OF THE BANGKO SENTRAL TO EXAMINE BANKS

Examination by the Bangko Sentral

PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. CLASSIFICATIONS AND POWERS OF BANKS

SECTION X101 Classifications, Powers and Scope of Authorities of Banks

B. ESTABLISHMENT AND ORGANIZATION

SECTION X102 Basic Guidelines in Establishing BanksX102.1 Prerequisites for the grant of a universal banking

authorityX102.2 Suspension of the grant of new banking licenses on

the establishment of new banksX102.3 Partial lifting of general moratorium on the licensing

of new thrift banks and rural banksX102.4 Conditions for the grant of authority to convert into

a lower categoryX102.5 Conversion of microfinance-oriented thrift banks/

rural banks

SECTION X103 Certificate of Authority to Register

SECTION X104 Business NameX104.1 Bank advertisement

SECTION X105 Liberalized Entry and Scope of Operations of Foreign BanksX105.1 Modes of entry of foreign banksX105.2 Qualification requirementsX105.3 Guidelines for selectionX105.4 Capital requirementsX105.5 Composition of capital accounts; compliance with

capital ratiosX105.6 Prescribed ratio of net due to and permanently

assigned capital

x

X105.7 Head office guaranteeX105.8 Scope of authority for locally incorporated

subsidiaries of foreign banks as well as branches withfull banking authority

X105.9 LimitationsX105.10 Change from one mode of entry to anotherX105.11 Listing of shares with the Philippine Stock ExchangeX105.12 Applicability to Philippine corporations

SECTIONS X106 - X107 (Reserved)

C. MERGER AND CONSOLIDATION

SECTION X108 Merger or Consolidation to Meet Minimum CapitalX108.1 Requirement of Bangko Sentral approvalX108.2 Rules on exchange of sharesX108.3 Merger or consolidation incentives


D. CAPITALIZATION

SECTION X111 Minimum Required CapitalX111.1 Minimum capitalizationX111.2 Capital build-up programX111.3 Memorandum of understanding; prompt corrective

action program; sanctions


E. RISK BASED CAPITAL

SECTION X115 Basel II Risk-Based CapitalX115.1 ScopeX115.2 (Reserved)1115.2 Market risk capital requirement2115.2 (Reserved)3115.2 (Reserved)X115.3 Capital trearment of exposures/investments in

certain products

SECTION X116 Basel I Risk-Based CapitalX116.1 Scope

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X116.2 Qualifying capitalX116.3 Risk-weighted assetsX116.4 DefinitionsX116.5 Required reportsX116.6 SanctionsX116.7 Temporary relief


F. CAPITAL INSTRUMENTS

SECTION X119 Unsecured Subordinated DebtX119.1 Minimum features of unsecured subordinated debtX119.2 Prior Bangko Sentral approvalX119.3 Pre-qualification requirements of issuing bankX119.4 Public issuance of unsecured subordinated debtX119.5 Private or negotiated issuance of unsecured

subordinated debtX119.6 Issuance abroad of unsecured subordinated debtX119.7 Qualified investors/buyersX119.8 Prohibitions on holdings of unsecured subordinated

debtX119.9 Accounting treatmentX119.10 - X119.12 (Reserved)X119.13 Sanctions

SECTION X120 Interim Tier 1 Capital for Banks Under Rehabilitation


G. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION X126 Shares of Stock of BanksX126.1 Limits of stockholdings in a single bankX126.2 Transfer of sharesX126.3 Other foreign equity investment in domestic banksX126.4 Convertibility of preferred stock common stockX126.5 Issuance of redeemable shares: conditions;

certification and report; sanctionsX126.6 Stock options/warrantsX126.7 - X126.9 (Reserved)X126.10 Dealings with stockholders and their related interests

SECTION X127 (Reserved)

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SECTION 1127 Shares of Stock of Universal/Commercial Banks1127.1 Limits on stockholdings in several banks1127.2 - 1127.5 (Reserved)

SECTION 2127 Shares of Stock of Thrift Banks2127.1 Moratorium on ownership ceilings2127.2 Preferred shares2127.3 - 2127.5 (Reserved)

SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks3127.1 Moratorium on ownership ceiling3127.2 Government-held shares3127.3 Limits on stockholdings in several rural banks3127.4 Convertibility of preferred stock to common stock3127.5 Equity investment by holding corporations


SECTION X136 DividendsX136.1 DefinitionsX136.2 Requirements on the declaration of dividendsX136.3 Net amount available for dividendsX136.4 Reporting and verificationX136.5 Recording of dividendsX136.6 Issuance of fractional shares


SECTION 1137 (Reserved)


SECTION 3137 Limitations/Amount Available on Dividends Declared by RuralBanks and Cooperative Banks3137.1 Dividends on government shares


H. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION X141 Definition and Qualifications of Directors; Responsibilities andDuties of Board of DirectorsX141.1 Definition/limitsX141.2 Qualifications of a director

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X141.3 Powers/responsibilities and duties of directorsX141.4 Confirmation of the election/appointments of

directors and officersX141.5 Place of board of directors’ meetingX141.6 - X141.8 (Reserved)X141.9 Reports requiredX141.10 Sanctions

SECTION X142 Definition and Qualifications of OfficersX142.1 Definition of officersX142.2 Qualifications of an officerX142.3 Appointment of officers

SECTION X143 Disqualification of Directors and OfficersX143.1 Persons disqualified to become directorsX143.2 Persons disqualified to become officersX143.3 Effect of non-possession of qualifications or

possession of disqualificationsX143.4 Disqualification proceduresX143.5 Watchlisting

SECTION X144 Bio-data of Directors and Officers

SECTION X145 Interlocking Directorships and/or OfficershipsX145.1 Representatives of government

SECTION X146 Profit Sharing Programs

SECTION X147 Compensation and Other Benefits of Directors and Officers



SECTION 3147 Bonding/Training of Directors, Officers and Employees


SECTION X149 Conducting Business in an Unsafe/Unsound MannerX149.1 - X149.8 (Reserved)X149.9 Sanctions

SECTION X150 Rules of Procedure on Administrative Cases Involving Directorsand Officers of Banks

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I. BANKING OFFICES

SECTION X151 Establishment/Relocation/Voluntary Closure/Sale of BranchesX151.1 Prior Monetary Board approvalX151.2 Prerequisites for the grant of authority to establish a

branchX151.3 Application for authority to establish branchesX151.4 Branching guidelinesX151.5 Branch processing feeX151.6 Establishment of other banking officesX151.7 Date of openingX151.8 Requirements for opening a branch/other banking

officeX151.9 Relocation of branches/other banking officesX151.10 Voluntary closure/sale of branches/other banking

officesX151.11 Relocation/transfer of branch licenses of closed banksX151.12 SanctionsX151.13 - X151.18 (Reserved)X151.19 Tellering booths

SECTION X152 Relocation of Head OfficesX152.1 Sanctions

SECTION X153 Establishment of Additional Branches of Foreign BanksX153.1 Application for authority to establish additional

branchX153.2 Requirements for establishment of additional branchX153.3 Date of openingX153.4 Requirements for opening a branchX153.5 Choice of locations for establishment of branchesX153.6 Sanctions

SECTION X154 Establishment of Offices AbroadX154.1 Application for authority to establish an office abroadX154.2 Requirements for establishing an office abroadX154.3 Conditions attached to the approved applicationX154.4 Date of openingX154.5 Requirements for opening an office abroadX154.6 SanctionsX154.7 - X154.8 (Reserved)X154.9 Establishment of a foreign subsidiary by a bank

subsidiary

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J. BANKING DAYS AND HOURS

SECTION X156 Banking Days and HoursX156.1 Banking hours beyond the minimum; banking

services during holidaysX156.2 Report of, and changes in, banking days and hoursX156.3 Posting of schedule of banking days and hours


K. BANKING PREMISES

SECTION X160 Bank Premises and Other Fixed AssetsX160.1 Appreciation or increase in book valueX160.2 Ceiling on total investmentsX160.3 Reclassification of real and other properties acquired

as bank premisesX160.4 - X160.9 (Reserved)X160.10 Batas Pambansa Blg. 344 - An Act to Enhance the

Mobility of Disabled Persons by Requiring CertainBuildings, Institutions, Establishments and PublicUtilities to Install Facilities and Other Devices

L. MANAGEMENT CONTRACTS AND OUTSOURCING OF BANKINGFUNCTIONS

SECTION X161 Management Contracts

SECTION X162 Duties and Responsibilities of Banks and their Directors/Officersin All Cases of Outsourcing of Banking FunctionsX162.1 Prohibition against outsourcing certain banking

functionsX162.2 Outsourcing of information technology systems/

processesX162.3 Outsourcing of other banking functionsX162.4 Service providersX162.5 Review of subsisting outsourcing contractsX162.6 - X162.10 (Reserved)X162.11 Other banking services for subsidiaries, affiliates and

related companies

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X162.12 Other banking services to other entitiesX162.13 - X162.18 (Reserved)X162.19 Penalties


M. BANK OFFICES AS OUTLET OF FINANCIAL PRODUCTS OF ALLIEDUNDERTAKINGS/INVESTMENT HOUSE


SECTION 1172 Financial Products of Allied Undertakings or Investment HouseUnits of Banks1172.1 Statement of principles1172.2 Prior Monetary Board approval1172.3 Minimum documentary requirements1172.4 Financial ratios and other related requirements1172.5 Promotional materials; stationeries and other

paraphernalia1172.6 Contracts/Information to be disclosed1172.7 Training1172.8 Other requirements1172.9 - 1172.10 (Reserved)1172.11 Sanctions

N. RISK MANAGEMENT

SECTION X173 Supervision by Risks

SECTION X174 Market Risk Management

SECTION X175 Liquidity Risk Management

SECTION X176 Technology Risk Management


SECTION X180 Compliance System; Compliance OfficerX180.1 Compliance systemX180.2 Compliance officerX180.3 Compliance riskX180.4 Responsibilities of the board of directors and senior

management on compliance

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X180.5 StatusX180.6 IndependenceX180.7 Role and responsibilities of the compliance functionX180.8 Cross-border compliance issuesX180.9 Outsourcing of compliance risk assessment and

testing

SECTION X181 Bank ProtectionX181.1 ObjectivesX181.2 Designation of security officerX181.3 Security programX181.4 Minimum security measuresX181.5 ReportsX181.6 Bangko Sentral inspectionX181.7 Common security service provisionX181.8 Sanctions


SECTION X185 Internal Control SystemX185.1 Proper accounting recordsX185.2 Independent balancingX185.3 Division of duties and responsibilitiesX185.4 Joint custodyX185.5 Signing authoritiesX185.6 Dual controlX185.7 Number controlX185.8 Rotation of dutiesX185.9 Independence of the internal auditorX185.10 Confirmation of accountsX185.11 Other internal control standardsX185.12 Internal control procedures for dormant/inactive

accounts

SECTION X186 Internal Audit FunctionX186.1 Independence of internal audit functionX186.2 ScopeX186.3 Qualification standards of the internal auditorX186.4 Code of Ethics and Internal Auditing Standards


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SECTION X189 Selection, Appointment and Reporting Requirements for ExternalAuditors; Sanction; Effectivity

SECTION X190 Audited Financial Statements of BanksX190.1 Financial auditX190.2 Posting of audited financial statementsX190.3 Disclosure of external auditor's adverse findings to

the Bangko Sentral; sanctionX190.4 Disclosure requirement in the notes to the audited

financial statementsX190.5 Disclosure requirenments in the annual reportX190.6 Posting and submission of annual report

SECTION X191 RecordsX191.1 Adoption of the manual of accountsX191.2 Financial reporting packageX191.3 Philippine Financial Reporting Standards/Philippine

Accounting StandardsX191.4 - X191.9 (Reserved)1191.9 (Reserved)2191.9 (Reserved)3191.9 Retention and disposal of records of rural/cooperative

banks

SECTION X192 ReportsX192.1 Categories and signatories of bank reportsX192.2 Sanctions in case of willful delay in the submission

of reports/refusal to permit examinationX192.3 Submission of certain required informationX192.4 Report on crimes/lossesX192.5 Report on real estate/chattel transactionsX192.6 Reconciliation of head office branch transactionsX192.7 List of stockholders and their stockholdingsX192.8 Bangko Sentral offices, where reports are submittedX192.9 Publication/Posting of balance sheetX192.10 Consolidated financial statements of banks and their

subsidiaries engaged in financial allied undertakingsX192.11 Reports of other banking officesX192.12 Reports required of foreign subsidiaries/affiliates/

banking offices or non-bank entities of domesticbanks

X192.13 (Reserved)1192.13 Additional reports from universal banks and

commercial banks

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2192.13 (Reserved)3192.13 (Reserved)X192.14 Reports of strikes and lockoutsX192.15 Report on the sworn statement on real estate/chattel

transactionsX192.16 - X192.20 (Reserved)

O. PROMPT CORRECTIVE ACTION

SECTION X193 Prompt Corrective Action Framework

SECTION X194 - X195 (Reserved)

P. LIQUIDATION AND RECEIVERSHIP

SECTION X196 Voluntary LiquidationX196.1 Prior Monetary Board approvalX196.2 Liquidation planX196.3 - X196.7 (Reserved)X196.8 Final liquidation report


SECTION X198 Insolvency or Receivership of BanksX198.1 Definition of termsX198.2 Prohibited actsX198.3 - X198.8 (Reserved)X198.9 Penalties and sanctions

Q. GENERAL PROVISION ON SANCTIONS

SECTION X199 General Provision on Sanctions

PART TWO - DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS

SECTION X201 Authority to Accept or Create Demand DepositsX201.1 Prerequisites to accept or create demand deposits

for thrift banks/rural banks/cooperative banksX201.2 Requirements for accepting demand depositsX201.3 Sanctions

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SECTION X202 Temporary Overdrawings; Drawings Against UncollectedDeposits

SECTION X203 Checks Without Sufficient Funds

SECTION X204 Current Accounts of Bank Officers and Employees

SECTION X205 Clearing Operations


SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to AcceptDemand Deposits

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

SECTIONS X206 (Reserved)

SECTION X207 Check Clearing Operations During Public Sector Holidays


B. SAVINGS DEPOSITS

SECTION X213 Servicing Deposits Outside Bank Premises

SECTION X214 Withdrawals

SECTION X215 Rental Deposits of Lessees


SECTION X221 Peso Savings Deposit Accounts of Embassy Officials


C. NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS

SECTION X223 Authority to Accept Negotiable Order of Withdrawal AccountsX223.1 Prerequisites to accept negotiable order of withdrawal

accounts for thrift banks/rural banks/cooperativebanks

xxi

X223.2 Requirements for accepting negotiable order ofwithdrawal accounts

X223.3 Sanctions

SECTION X224 Rules on Servicing Negotiable Order of Withdrawal Accounts

SECTION X225 Minimum Features

SECTION X226 Clearing of Negotiable Order of Withdrawal Accounts


D. TIME DEPOSITS

SECTION X231 Term of Time Deposits

SECTION X232 Special Time Deposits

SECTION X233 Certificates of Time DepositsX233.1 Prerequisites to issue negotiable certificates of time

deposits for thrift banks/rural banks/cooperativebanks

X233.2 Requirements for issuing negotiable certificates oftime deposits

X233.3 Minimum featuresX233.4 Insurance coverageX233.5 Desistance from issuing new negotiable certificates

of time depositsX233.6 SanctionsX233.7 - X233.8 (Reserved)X233.9 Long-term negotiable certificates of time depositsX233.10 (Reserved)X233.11 Long-term non-negotiable tax-exempt certificates of

time deposit

E. DEPOSIT SUBSTITUTE OPERATIONS (QUASI-BANKING FUNCTIONS)

SECTION X234 Scope of Quasi-Banking FunctionsX234.1 Elements of quasi-bankingX234.2 Definition of terms and phrasesX234.3 Transactions not considered quasi-bankingX234.4 Pre-conditions for the exercise of quasi-banking

functions

xxii

X234.5 Certificate of authority from the Bangko SentralX234.6 Sale, discounting, assignment or negotiation by

banks of their credit rights arising from claims againstthe Bangko Sentral

SECTION X235 Deposit Substitute InstrumentsX235.1 Prohibition against use of acceptances, bills of

exchange and trust certificatesX235.2 Negotiation of promissory notesX235.3 Minimum featuresX235.4 Interbank loan transactionsX235.5 Delivery of securitiesX235.6 Other rules and regulations governing the issuance

and treatment of deposit substitute instrumentsX235.7 - X235.11 (Reserved)X235.12 Repurchase agreements covering government

securities, commercial papers and other negotiableand non-negotiable securities or instruments

SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitute

SECTION X237 Money Market Placements of Rural BanksX237.1 Definition of termsX237.2 Conditions required on accepted placements not

covered by prohibitionX237.3 Sanctions

SECTION X238 Without Recourse TransactionsX238.1 Delivery of securitiesX238.2 SanctionsX238.3 Securities custodianship operations

SECTION X239 Issuance of BondsX239.1 Definition of termsX239.2 Compliance with Securities and Exchange

Commission rules on registration of bond issuesX239.3 Notice to Bangko Sentral ng PilipinasX239.4 Minimum featuresX239.5 Issuance of commercial papers

F. GOVERNMENT DEPOSITS

SECTION X240 Statement of PolicyX240.1 Prior Monetary Board approval

xxiii

X240.2 Banks which may accept government fundsX240.3 Prerequisites for the grant of authority to accept

deposits from the government and governmententities

X240.4 Application for authorityX240.5 Limits on funds of the government and government

entities that may be deposited with banksX240.6 Liquidity floorX240.7 Exempt transactionsX240.8 ReportsX240.9 SanctionsX240.10 - X240.14 (Reserved)X240.15 Acceptance by banks with internet banking facility

of payment of fees for account of government entities


G. INTEREST

SECTION X242 Interest on Deposits/Deposit SubstitutesX242.1 Time of payment of interest on time deposits/deposit

substitutesX242.2 Treatment of matured time deposits/deposit

substitutes

SECTION X243 Disclosure of Effective Rates of Interest


H. RESERVES AGAINST DEPOSIT AND DEPOSIT SUBSTITUTE LIABILITIES

SECTION X253 Accounts Subject to Reserves; Amounts RequiredX253.1 Regular reserves against deposit and deposit

substitute liabilitiesX253.2 Liquidity reserves

SECTION X254 Composition of ReservesX254.1 Allowable drawings against reservesX254.2 Exclusion of uncleared checks and other cash itemsX254.3 Interest income on reserve depositsX254.4 Book entry method for reserve securities

SECTION X255 Exemptions from Reserve Requirements

xxiv

SECTION X256 Computation of Reserve PositionX256.1 Measurement of reserve requirementX256.2 - X256.4 (Reserved)X256.5 Guidelines in calculating and reporting to the Bangko

Sentral the required reserves on deposit substitutesevidenced by repurchase agreements coveringgovernment securities

SECTION X257 Reserve Deficiencies; SanctionsX257.1 Chronic reserve deficiency; penaltiesX257.2 Failure to cover overdrawings with the Bangko SentralX257.3 Payment of penalties on reserve deficiencies

SECTION X258 Report on Compliance


I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS

SECTION X261 Booking of Deposits and WithdrawalsX261.1 Clearing cut-off timeX261.2 DefinitionsX261.3 Booking of cash depositsX261.4 Booking of non-cash depositsX261.5 Booking of deposits after regular banking hoursX261.6 Other records requiredX261.7 Notice required

SECTION X262 Miscellaneous Rules on DepositsX262.1 Specimen signatures, identification photosX262.2 Insurance on depositsX262.3 Certification of compliance with Subsection 55.4 of

R.A. No. 8791

SECTION X263 Service and Maintenance FeesX263.1 Amendments to terms and conditions for the

imposition of service charges/fees

SECTION X264 Unclaimed Balances

SECTION X265 Acceptance, Encashment or Negotiation of Checks Drawn inFavor of Commissioner/Collector of Customs

xxv

SECTION X266 Deposit Pick-up/Cash Delivery ServicesX266.1 Operation of armored cars



SECTION 3266 Qualifying Criteria Before a Rural/Cooperative Bank Engages inDeposit Pick-up Services

SECTION X267 Automated Teller Machines

J. BORROWINGS FROM THE BANGKO SENTRAL

SECTION X268 Rediscounting LineX268.1 Credit Information SystemX268.2 Application proceduresX268.3 Approval/Renewal of the lineX268.4 Amount of lineX268.5 Term of the lineX268.6 - X268.9 (Reserved)X268.10 Constitutional prohibition

SECTION X269 Rediscounting AvailmentsX269.1 Eligibility requirements at the time of availmentX269.2 Eligible papers and collateralsX269.3 Loan availment proceduresX269.4 Loan valueX269.5 MaturitiesX269.6 Rediscount/Lending rates and liquidated damagesX269.7 Release of proceedsX269.8 Repayments/remittance of collections/arrearagesX269.9 Prohibited transactionsX269.10 Monitoring and credit examination of borrowing

banksX269.11 Penalties/sanctionsX269.12 Interlocking directorship/officership

SECTION X270 Repurchase Agreements with the Bangko Sentral

SECTION X271 Bangko Sentral Liquidity WindowX271.1 Nature of liquidity windowX271.2 Terms of creditX271.3 Limit

xxvi

SECTION X272 Emergency Loans or Advances to Banking InstitutionsX272.1 Nature of emergency loans or advancesX272.2 When an emergency loan or advance may be

availed ofX272.3 Allowable amount of emergency loan or advanceX272.4 Application proceduresX272.5 Other documentary requirementsX272.6 Acceptable collaterals and their corresponding loan

valuesX272.7 Manner and conditions of releaseX272.8 Interest rates, liquidated damages, and penaltiesX272.9 General terms and conditionsX272.10 Maturity/Conditions for renewalsX272.11 Remittance of collections/repayments/arrearagesX272.12 Default

SECTION X273 Facility to Committed Credit Line IssuersX273.1 Nature of special credit accommodationsX273.2 Conditions to accessX273.3 Terms of creditX273.4 Ceiling



SECTION 2274 Countryside Financial Institutions Enhancement Program forThrift Banks

SECTION 3274 Countryside Financial Institutions Enhancement Program forRural and Cooperative Banks

SECTION X275 Recording and Reporting of Borrowings

SECTION X276 Rediscounting Window for Low-Cost Housing as Defined by theHousing and Urban Development Coordinating Council


SECTION 1277 Rediscounting Window Available to All Universal andCommercial Banks for the Purpose of Providing LiquidityAssistance to Investment Houses

xxvii

SECTION 2277 Rediscounting Window Available to Thrift Banks for the Purposeof Providing Liquidity Assistance to Support and PromoteMicrofinance Programs

SECTION 3277 Rediscounting Window Available to Rural and CooperativeBanks for the Purpose of Providing Liquidity Assistance to Supportand Promote Microfinance Programs3277. 1 Eligibility requirements3277. 2 Microcredit line3277. 3 Terms and conditions3277. 4 Documentary requirements3277. 5 Remittance of collections/payments/repayments3277. 6 Reports required3277. 7 Accounts verification3277. 8 Sanctions

SECTION X278 Enhanced Intraday Liquidity Facility


K. OTHER BORROWINGS

SECTION X281 Borrowings from the GovernmentX281.1 Exemption from reserve requirement

SECTION X282 Borrowings from Trust Departments or Investment Houses



SECTION 2283 Mortgage/Chattel Mortgage Certificates of Thrift Banks





SECTION 3284 Borrowings of Rural Banks/Cooperative Banks


xxviii

L. GENERAL PROVISION ON SANCTIONS


PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS

SECTION X301 Lending PoliciesX301.1 (Reserved)1301.1 Rules and regulations to govern the development and

implementation of banks’ internal credit risk ratingsystems

2301.1 (Reserved)3301.1 (Reserved)X301.2 - X301.5 (Reserved)X301.6 Large exposures and credit risk concentrations

SECTION X302 Loan Portfolio and Other Risk Assets Review SystemX302.1 Provisions for losses; bookingX302.2 Sanctions

A. LOANS IN GENERAL

SECTION X303 Credit Exposure Limits to a Single BorrowerX303.1 Definition of termsX303.2 Rediscounted papers included in loan limitX303.3 Credit risk transferX303.4 Exclusions from loan limitX303.5 SanctionsX303.6 - X303.7 (Reserved)X303.8 Limit for wholesale lending activities of government

banks

SECTION X304 Grant of Loans and Other Credit AccommodationsX304.1 General guidelinesX304.2 Purpose of loans and other credit accommodationsX304.3 Prohibited use of loan proceedsX304.4 SignatoriesX304.5 - X304.8 (Reserved)X304.9 Policies on loans to non-immigrants and embassy

officials

xxix

SECTION X305 Interest and Other ChargesX305.1 Rate of interest in the absence of stipulationX305.2 Escalation clause; when allowableX305.3 Floating rates of interestX305.4 Accrual of interest earned on loans

SECTION X306 Past Due AccountsX306.1 Accounts considered past dueX306.2 Demand loansX306.3 Renewals/extensionsX306.4 Restructured loansX306.5 Write-off of loans as bad debtsX306.6 Writing-off microfinance loans as bad debtsX306.7 Updating of information provided to credit

information bureaus

SECTION X307 “Truth in Lending Act” Disclosure RequirementX307.1 Definition of termsX307.2 Information to be disclosedX307.3 Inspection of contracts covering credit transactionsX307.4 Posters

SECTION X308 Amortization on Loans and Other Credit Accommodations

SECTION X309 Non-Performing LoansX309.1 Accounts considered non-performing; definitionsX309.2 - X309.3 (Reserved)X309.4 Reporting requirement


B. SECURED LOANS

SECTION X311 Loans Secured by Real Estate MortgagesX311.1 Loans secured by junior mortgage on real estateX311.2 (Reserved)1311.2 (Reserved)2311.2 (Reserved)3311.2 Eligible real estate collaterals on rural/cooperative

bank loansX311.3 Insurance on real estate improvementsX311.4 (Reserved)1311.4 (Reserved)

xxx

2311.4 Foreclosure by thrift banks3311.4 Foreclosure by rural/cooperative banksX311.5 Redemption of foreclosed real estate mortgage

SECTION X312 Loans and Other Credit Accommodations Secured By Chattelsand Intangible Properties

SECTION X313 Loans and Other Credit Accommodations Secured By PersonalProperties

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

SECTION X315 Loans Secured by Certificates of Time Deposit


C. UNSECURED LOANS

SECTION X319 Loans Against Personal SecurityX319.1 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 PolicyX320.1 Definition of termsX320.2 Risk management systemX320.3 Minimum requirementsX320.4 Information to be disclosedX320.5 Interest accrual on past due loansX320.6 Finance chargesX320.7 Deferral chargesX320.8 Late payment/penalty feesX320.9 Confidentiality of informationX320.10 Suspension, termination of effectivity and reactivationX320.11 Inspection of records covering credit card transactionsX320.12 OffsetsX320.13 Handling of complaintsX320.14 Unfair collection practicesX320.15 Sanctions


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D. RESTRUCTURED LOANS

SECTION X322 Restructured Loans; General PolicyX322.1 Definition; when to consider performing/

non-performingX322.2 Procedural requirementsX322.3 Restructured loans considered past dueX322.4 Classification


E. LOANS AND OTHER CREDIT ACCOMMODATIONS TO DIRECTORS,OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS

SECTION X326 General PolicyX326.1 Definitions

SECTION X327 Transactions Covered

SECTION X328 Transactions Not CoveredX328.1 Applicability to credit card operationsX328.2 - X328.4 (Reserved)X328.5 Loans, other credit accommodations and guarantees

granted to subsidiaries and/or affiliates

SECTION X329 Direct or Indirect Borrowings

SECTION X330 Individual CeilingsX330.1 Exclusions from individual ceiling

SECTION X331 Aggregate Ceiling; Ceiling on Unsecured Loans, Other CreditAccommodations and Guarantees

SECTION X332 Exclusions from Aggregate Ceiling

SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks

SECTION X334 Procedural Requirements

SECTION X335 Reportorial Requirements

SECTION X336 Sanctions

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SECTION X337 Waiver of Secrecy of Deposit

SECTION X338 Financial Assistance to Officers and EmployeesX338.1 MechanicsX338.2 (Reserved)1338.2 Funding by foreign banks2338.2 (Reserved)3338.2 (Reserved)X338.3 Other conditions/limitations

SECTION X339 Transitory ProvisionsX339.1 - X339.3 (Reserved)X339.4 Reportorial requirements

SECTION X340 Applicability of Directors, Officers, Stockholders and theirRelated Interest Rules and Regulations to GovernmentBorrowings in Govenment-Owned or -Controlled Banks

F. MANDATORY CREDITS

SECTION X341 Agrarian Reform and Agricultural CreditX341.1 Definition of termsX341.2 Who may borrow; purposesX341.3 Required allocation for agrarian reform and

agricultural credit in generalX341.4 Computation of loanable fundsX341.5 Allowable alternative complianceX341.6 Syndicated type of agrarian reform credit/agricultural

creditX341.7 Interest and other chargesX341.8 Unused agri-agra funds to be utilized for socialized

and low-cost housingX341.9 Submission of reportsX341.10 - X341.11 (Reserved)X341.12 Consolidated complianceX341.13 - X341.14 (Reserved)X341.15 Sanctions

G. SPECIAL TYPE OF LOANS

SECTION X342 Mandatory Allocation of Credit Resources to Micro, Small andMedium EnterprisesX342.1 Definition of terms

xxxiii

X342.2 Period covered; prescribed portions of loan portfolioto be allocated

X342.3 Eligible credit exposuresX342.4 Ineligible credit instrumentsX342.5 Rights/remedies available to lending institutions not

qualified to acquire or hold lands of public domainX342.6 Submission of reportsX342.7 SanctionsX342.8 Disposition of penalties collectedX342.9 - X342.14 (Reserved)X342.15 Accreditation guidelines for rural and thrift banks

under the Small and Medium Enterprise UnifiedLending Opportunities for National Growth

SECTION X343 Interbank LoansX343.1 Systems and procedures for interbank call loan

transactionsX343.2 Accounting proceduresX343.3 Settlement procedures for interbank loan transactions

SECTION X344 Loans to Thrift/Rural/Cooperative BanksX344.1 Loans under Section 12 of R.A. No. 7353, Section 10

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


SECTION X347 Standby Letters of CreditX347.1 Domestic standby letters of creditX347.2 CeilingX347.3 Reports

SECTION X348 Committed Credit Line for Commercial Paper IssuesX348.1 Who may grant line facilityX348.2 CeilingsX348.3 Terms; conditions; restrictionsX348.4 Reports to the Bangko SentralX348.5 Loan limit

SECTION X349 Agriculture and Fisheries Projects with Long Gestation PeriodsX349.1 Definition of termsX349.2 Grace period

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X349.3 Responsibility of lending banksX349.4 Past due loansX349.5 Non-performing loans


SECTION X361 Microfinancing LoansX361.1 DefinitionX361.2 Loan limit; amortization; interestX361.3 Credit information exemptionX361.4 Exemptions from rules on unsecured loansX361.5 Housing microfinance loanX361.6 - X361.9 (Reserved)

X361.10 Sanctions


SECTION X365 Loans to Barangay Micro Business EnterprisesX365.1 Credit deliveryX365.2 Interest on loans to Barangay Micro Business

EnterprisesX365.3 Amortization of loans to Barangay Micro Business

EnterprisesX365.4 Waiver of documentary requirementsX365.5 Incentives to participating financial institutionsX365.6 Credit guaranteeX365.7 RecordX365.8 Reports to CongressX365.9 Administrative sanctions


H. EQUITY INVESTMENTS

SECTION X376 Scope of AuthorityX376.1 Conditions for investment in equitiesX376.2 - X376.4 (Reserved)X376.5 Guidelines for major investments

SECTION X377 Financial Allied Undertakings

SECTION X378 Limits on Investment in the Equities of Financial AlliedUndertakings

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SECTION X379 Investments in Venture Capital CorporationsX379.1 Requirements for investorsX379.2 Equity investments of venture capital corporationsX379.3 Business name of venture capital corporationsX379.4 Reportorial requirements; examination by Bangko

SentralX379.5 Interlocking directorships and/or officerships

SECTION X380 Non-Financial Allied Undertakings


SECTION 1381 Investments in Non-Allied or Non-Related Undertakings1381.1 Non-allied undertakings eligible for investment by

universal banks1381.2 Limits on investments in non-allied enterprises1381.3 Report on outstanding equity investments in and

outstanding loans to non-allied enterprises

SECTION X382 Investments in Subsidiaries and Affiliates AbroadX382.1 Application for authority to establish or acquire

subsidiaries and affiliates abroadX382.2 Requirements for establishing subsidiaries or affiliates

abroadX382.3 Conditions for approval of applicationX382.4 - X382.7 (Reserved)X382.8 Investment of a bank subsidiary in a foreign subsidiary

SECTION X383 Other Limitations and Restrictions



I. (RESERVED)


J . OTHER OPERATIONS

SECTION X388 Purchase of Receivables and Other ObligationsX388.1 Yield on purchase of receivablesX388.2 Purchase of receivables on a “without recourse” basis

xxxvi

X388.3 Purchase of commercial paperX388.4 Reverse repurchase agreements with Bangko SentralX388.5 Investment in debt and readily marketable equity

securities


SECTION 1389 Guidelines on the Investment of Universal Banks andCommercial Banks in Credit-Linked Notes, Structured Productsand Securities Overlying Securitization Structures




K. MISCELLANEOUS PROVISIONS

SECTION X393 Loans-to-Deposits RatioX393.1 Statement of policyX393.2 Regional loans to deposits ratioX393.3 Computation of the regional loans to deposits ratio

SECTION X394 Acquired Assets in Settlement of LoansX394.1 PostingX394.2 BookingX394.3 Sales contract receivableX394.4 - X394.9 (Reserved)X394.10 Transfer/sale of non-performing assets to a special

purpose vehicle or to an individualX394.11 - X394.14 (Reserved)X394.15 Joint venture of banks with real estate development

companies

SECTION X395 Credit Policies of Government-Owned Corporations

SECTION X396 Parcellary Plans on Crop Loans


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

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SECTION X398 Debt Service Limit on Local Government Borrowings

L. GENERAL PROVISION ON SANCTIONS


PART FOUR - TRUST, OTHER FIDUCIARY BUSINESS ANDINVESTMENT MANAGEMENT ACTIVITIES

SECTION X401 Statement of Principles

SECTION X402 Scope of Regulations

SECTION X403 Definitions

A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION X404 Authority to Perform Trust and Other Fiduciary BusinessX404.1 Application for authority to perform trust and other

fiduciary businessX404.2 Required capitalX404.3 Prerequisites for engaging in trust and other fiduciary

businessX404.4 Pre-operating requirements


SECTION 2404 Grant of Authority to Engage in Limited Trust Business to ThriftBanks

SECTION 3404 Grant of Authority to Engage in Limited Trust Business to RuralBanks

SECTION X405 Security for the Faithful Performance of Trust and Other FiduciaryBusinessX405.1 Basic security depositX405.2 Eligible securities

xxxviii

X405.3 Valuation of securities and basis of computation ofthe basic security deposit requirement

X405.4 Compliance period; sanctionsX405.5 Reserves against peso-denominated common trust

funds and trust and other fiduciary accounts - othersX405.6 Composition of reservesX405.7 Computation of reserve positionX405.8 Reserve deficiencies; sanctionsX405.9 Report of compliance

SECTION X406 Organization and ManagementX406.1 OrganizationX406.2 Composition of trust committeeX406.3 Qualifications of committee members, officers and

staffX406.4 Responsibilities of administrationX406.5 - X406.8 (Reserved)X406.9 Outsourcing services in trust departments

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

SECTION X408 Unsafe and Unsound PracticesX408.1 - X408.8 (Reserved)X408.9 Sanctions

SECTION X409 Trust and Other Fiduciary BusinessX409.1 Minimum documentary requirementsX409.2 Lending and investment dispositionX409.3 Transactions requiring prior authorityX409.4 Ceilings on loansX409.5 Funds awaiting investment or distributionX409.6 Other applicable regulations on loans and

investmentsX409.7 Operating and accounting methodologyX409.8 Tax-exempt individual trust accountsX409.9 Living trust accountsX409.10 - X409.15 (Reserved)X409.16 Qualification and accreditation of private banks acting

as trustee on any mortgage or bond issuance by anymunicipality, government-owned or controlledcorporation, or any body politic

X409.17 Trust fund of pre-need companies

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SECTION X410 Unit Investment Trust Funds/Common Trust FundsX410.1 DefinitionsX410.2 Establishment of a unit investment trust fundX410.3 Administration of a unit investment trust fundX410.4 Relationship of trustee with unit investment trust fundX410.5 Operating and accounting methodologyX410.6 Plan rulesX410.7 Minimum disclosure requirementsX410.8 Exposure limit to single person/entityX410.9 Allowable investments and valuationX410.10 Other related guidelines on valuation of allowable

investmentsX410.11 Unit investment trust fund administration supportX410.12 CounterpartiesX410.13 Foreign currency-denominated unit investment trust

fundsX410.14 Exemptions from statutory and liquidity reserves,

single borrower's limit, director, officers, stockholdersand their related interests

SECTION X411 Investment Management ActivitiesX411.1 Minimum documentary requirementsX411.2 Minimum size of each investment management

accountX411.3 Commingling of fundsX411.4 Lending and investment dispositionX411.5 Transactions requiring prior authorityX411.6 Title to securities and other propertiesX411.7 Ceilings on loansX411.8 Operating and accounting methodologyX411.9 Tax-exempt individual investment management accounts

SECTION X412 Foreign Currency Deposit Unit/Expanded Foreign CurrencyDeposit Unit Trust Accounts

X412.1 Banks with trust authorityX412.2 Banks without trust authorityX412.3 Additional deposit for the faithful performance of trust

dutiesX412.4 Liquidity requirement for foreign currency deposit

unit/expanded foreign currency deposit unit commontrust funds

X412.5 Applicability of rules and regulations

SECTION X413 Required Surplus

xl

B. INVESTMENT MANAGEMENT ACTIVITIES

SECTION X414 Authority to Perform Investment ManagementX414.1 Prerequisites for engaging in investment management

activitiesX414.2 Pre-operating requirements

SECTION X415 Security for the Faithful Performance of Investment ManagementActivitiesX415.1 Basic security depositX415.2 Eligible securitiesX415.3 Valuation of securities and basis of computation of

the basic security deposit requirementX415.4 Compliance period; sanctions

SECTION X416 Organization and Management

SECTION X417 Non-Investment Management Activities

SECTION X418 Unsound Practices

SECTION X419 Conduct of Investment Management Activities

SECTION X420 Required Surplus

C. GENERAL PROVISIONS

SECTION X421 Books and Records

SECTION X422 Custody of Assets

SECTION X423 Fees and Commissions

SECTION X424 Taxes

SECTION X425 Reports RequiredX425.1 To trustor, beneficiary, principalX425.2 To the Bangko SentralX425.3 Post-Bond flotation report

SECTION X426 AuditsX426.1 Internal auditX426.2 External auditX426.3 Board action

xli

SECTION X427 Authority Resulting from Merger or Consolidation

SECTION X428 Receivership

SECTION X429 Surrender of Trust or Investment Management License


SECTION X441 Securities Custodianship and Securities Registry OperationsX441.1 Statement of policyX441.2 Applicability of this regulationX441.3 Prior Bangko Sentral approvalX441.4 Application for authorityX441.5 Pre-qualification requirements for a securities

custodian/registryX441.6 Functions and responsibilities of a securities custodianX441.7 Functions and responsibilities of a securities registryX441.8 Protection of securities of the customerX441.9 Independence of the registry and custodianX441.10 Registry of scripless securities of the Bureau of the

TreasuryX441.11 ConfidentialityX441.12 Compliance with anti-money laundering laws/

regulationsX441.13 Basic security depositX441.14 Reportorial requirementsX441.15 – X441.28 (Reserved)X441.29 Sanctions


C. GENERAL PROVISIONS ON SANCTIONS


PART FIVE - FOREIGN CURRENCY DEPOSIT SYSTEM ANDOTHER OPERATIONS IN FOREIGN CURRENCY

SECTION X501 Foreign Currency Deposit SystemX501.1 Definition of termsX501.2 Qualification requirementsX501.3 Authorized transactionsX501.4 Foreign currency cover requirements

xlii

X501.5 Foreign currency deposit with the Bangko SentralX501.6 Currency composition of the coverX501.7 Secrecy of depositsX501.8 Numbered accountsX501.9 Withdrawability and transferability of depositsX501.10 Insurance coverageX501.11 Rates of interestX501.12 Eligibility as collateralX501.13 TaxesX501.14 Exemption from court order or processX501.15 Inapplicability of the Usury LawX501.16 AccountingX501.17 SupervisionX501.18 Sanctions

SECTION X502 Other Transactions in Foreign CurrencyX502.1 Mobile foreign exchange boothsX502.2 Off-site automatic multi-currency money changers

SECTION X503 Recognition of Positions Arising from Banks’ Foreign CurrencyOptions in the Computation of Net Open Foreign Exchange-Position


SECTION X531 Securities Lending

SECTION X532 Repurchase Agreements Involving Foreign Currency-Denominated Government Securities


SECTION X564 Transfer of Undivided Profits/(Losses) from Foreign CurrencyDeposit Unit/Expanded Foreign Currency Deposit Unit toRegular Banking Unit Books

SECTION X565 Conversion to Peso Loans/Real and other Properties Acquiredand Transfer to Regular Banking Unit of Foreign CurrencyDeposit Unit/Expanded Foreign Currency Deposit Unit Loans/Real and other Properties Acquired



xliii

PART SIX - TREASURY AND MONEY MARKET OPERATIONS

A. OPEN MARKET OPERATIONS

SECTION X601 Open Market OperationsX601.1 Repurchase agreements with Bangko SentralX601.2 Reverse repurchase agreements with Bangko SentralX601.3 Settlement procedures on the purchase and sale of

government securities under repurchase agreementswith the Bangko Sentral

X601.4 - X601.5 (Reserved)X601.6 Bangko Sentral trading windows and services during

public sector holidays


B. FINANCIAL INSTRUMENTS

SECTIONS X611 DerivativesX611.1 Generally authorized derivatives activitiesX611.2 Activities requiring additional derivatives authorityX611.3 Intra-group transactionsX611.4 Accounting guidelinesX611.5 Reporting requirementsX611.6 Sanctions


SECTION X625 Forward and Swap TransactionsX625.1 Statement of policyX625.2 Definition of termsX625.3 DocumentationX625.4 Tenor/maturity and settlementX625.5 (Reserved)1625.5 Forward contracts with non-residents2625.5 (Reserved)3625.5 (Reserved)X625.6 Cancellations, roll-overs or non-delivery of foreign

exchange forward contractsX625.7 Non-deliverable forward contracts with non-residentsX625.8 Compliance with anti-money laundering rulesX625.9 Reporting requirementsX625.10 - X625.13 (Reserved)X625.14 Sanctions

xliv



SECTION 1628 Credit-Linked Notes and Similar Credit Derivative Products 1628.1 Definitions1628.2 Qualified banks1628.3 Capital treatment of investments in credit-linked notes1628.4 Risk Management1628.5 Transitional arrangements1628.6 Bangko Sentral approval not required




SECTION 1635 Bank's Exposures to Structured Products1635.1 Statement of policy1635.2 Definition1635.3 Qualified banks1635.4 Capital treatment of banks' exposures to structured

products1635.5 Bangko Sentral approval not required




SECTION 1636 Expanded Foreign Currency Deposit Units Investments in ForeignCurrency Denominated Structured Products1636.1 Statement of policy1636.2 Scope1636.3 Other conditions1636.4 Capital treatment of structured products1636.5 Bangko Sentral approval not required1636.6 Sanctions



xlv


SECTION 1648 Investments in Securities Overlying Securization Structures1648.1 Statement of policy1648.2 Definition1648.3 Qualified banks1648.4 Capital treatment of investments in securities

overlying securitization structures1648.5 Bangko Sentral approval not required




SECTION X651 Asset-Backed SecuritiesX651.1 Definition of termsX651.2 Prior Bangko Sentral approvalX651.3 Board approval requirementX651.4 Minimum documents requiredX651.5 Minimum features of asset-backed securitiesX651.6 Disclosure requirementsX651.7 Conveyance of assetsX651.8 Representations and warrantiesX651.9 Third party reviewX651.10 Originator and sellerX651.11 Trustee and issuerX651.12 ServicerX651.13 UnderwriterX651.14 GuarantorX651.15 Credit enhancementX651.16 Clean-up callX651.17 Prohibited activitiesX651.18 Amendment of trust indentureX651.19 Trustee or servicer in securitizationX651.20 Report to Bangko Sentral


C. GENERAL PROVISION ON SANCTIONS


xlvi

PART SEVEN - ELECTRONIC BANKING SERVICES ANDOPERATIONS

SECTION X701 Electronic Banking ServicesX701.1 ApplicationX701.2 Pre-screening of applicantsX701.3 Approval in principleX701.4 Documentary requirementsX701.5 Conditions of Monetary Board approvalX701.6 Requirements for banks with pending applicationsX701.7 ExemptionX701.8 Transitory provisionX701.9 - X701.11 (Reserved)X701.12 SanctionsX701.13 Outsourcing of internet and mobile banking services


SECTION X705 Consumer Protection for Electronic BankingX705.1 E-Banking oversight functionX705.2 E-Banking risk management and internal controlX705.3 Compliance with consumer awareness programX705.4 Minimum disclosure requirementsX705.5 Complaint resolutionX705.6 Applicability



PART EIGHT - ANTI-MONEY LAUNDERING REGULATIONS

SECTION X801 Prevention of Money Laundering, Customer IdentificationRequirements and Record KeepingX801.1 Customer identificationX801.2 Issuance of cashier's, manager's or certified checksX801.3 Programs against money launderingX801.4 Submission of plans of actionX801.5 Required reporting of certain transactionsX801.6 Certification of compliance with anti-money

laundering regulationsX801.7 Acceptance of second-endorsed checks

xlvii


SECTION X804 Minimum Guidelines for Fund Transfers and CorrespondentBanking Account Opening and Customer IdentificationX804.1 Nature of fund transfersX804.2 Responsibility and oversightX804.3 Risk-based due diligenceX804.4 ValidationX804.5 Exception processingX804.6 Control and administration policies for incoming fund/

wire transfersX804.7 Integration with anti-money laundering program

SECTION X805 Banking Account Opening and Customer IdentificationX805.1 Nature of correspondent banking activitiesX805.2 Responsibility and oversightX805.3 Risk-based due diligenceX805.4 Due diligence standardsX805.5 Enhanced due diligenceX805.6 Shell banksX805.7 Branches, subsidiaries and affiliatesX805.8 Updating client filesX805.9 Monitoring and reporting of suspicious activitiesX805.10 Integration with anti-money laundering program


SECTION 1881 Electronic monitoring system for money laundering



SECTION X882 Sanctions and Penalties


SECTION X895 Valid Identification Cards for Financial Transactions



xlviii

PART NINE - OTHER BANKING REGULATIONS

A. BANKING FEES/CHARGES

SECTION X901 Assessment Fees on BanksX901.1 Annual fees on bank

SECTION X902 Collection of Fines and Other Charges from BanksX902.1 Guidelines on the imposition of monetary penaltiesX902.2 Payment of fines by banksX902.3 Cost of checks and documentary stampsX902.4 Check/demand payments to the Bangko Sentral of

thrift, cooperative and rural banks

B. BANKS AS COLLECTION/REMITTANCE AGENTS

SECTION X903 Collection of Customs Duties/Taxes/Levies and Other RevenuesX903.1 CoverageX903.2 Collection and reporting of internal revenue taxesX903.3 Collection and reporting of customs duties and import

processing feesX903.4 Collection and reporting of export/premium dutiesX903.5 Remittances thru debit/credit advicesX903.6 Reconciliation of revenue collectionsX903.7 Penalty for willful delay on the reporting of

collections/remittancesX903.8 Fines for delayed reports/remittances of collectionsX903.9 Liquidity floor requirement on revenue collectionsX903.10 Collection of import duties at the time of opening of

letters of credit

SECTION X904 Collection and paying agents of th Social Security System

SECTION X905 Collection agents of PhilHealth

SECTION X906 Disclosure of Remittance Charges and Other RelevantInformation


xlix

C. CREDIT RATING AGENCIES

SECTION X931 Recognition and Derecognition of Domestic Credit RatingAgencies for Bank Supervisory PurposesX931.1 Statement of policyX931.2 Minimum eligibility criteriaX931.3 Pre-qualification requirementsX931.4 Inclusion in Bangko Sentral listX931.5 Derecognition of credit rating agenciesX931.6 Recognition of PhilRatings as domestic credit

rating agency for bank supervisory purposes

SECTION X932 Internationally Accepted Credit Rating Agencies

SECTION X933 Recognition of Fitch Singapore Pte., Ltd as internationalcredit rating agency for bank supervisory purposes


SECTION X947 Prohibition on the Sale of Foreign-Based Mutual Funds byBanks


SECTION 1948 Offering in the Philippines of Products by Parent Bank andBranches Abroad of the Parent Bank




D. PHILIPPINE & FOREIGN EXCHANGE CURRENCY NOTES & COINS

SECTION X950 Philippine and Foreign Currency Notes and CoinsX950.1 Definition of termsX950.2 Treatment and disposition of counterfeit Philippine

and foreign currency notes and coinsX950.3 Reproduction and/or use of facsimiles of legal tender

Philippine currency notesX950.4 Reproduction and/or use of facsimiles of legal tender

Philippine currency coinsX950.5 Clean note policy

l

X950.6 Replacement and redemption of mutilated or unfitlegal tender Philippine currency notes and coins

X950.7 Treatment of Philippine currency notes and coinscalled in for replacement

X950.8 Sanctions


E. GENERAL PROVISION ON SANCTIONS


li

(2008 - X658) Examination by the BangkoSentral. Effective 14 August 2004 the term“examination” shall, henceforth, refer to aninvestigation of an institution under thesupervisory authority of the BSP todetermine compliance with laws andregulations. It shall include determinationthat the institution is conducting its businesson a safe and sound basis. Examinationrequires full and comprehensive looking intothe operations and books of institutions, andshall include, but need not be limited to,the following:

a. Determination of the bank’ssolvency and liquidity position;

b. Evaluation of asset quality as wellas determination of suff iciency ofvaluation reserves on loans and other riskassets;

c. Review of all aspects of bankoperations;

d. Assessment of risk managementsystem, including the evaluation of theeffectiveness of the bank management’soversight functions, policies, procedures,internal control and audit;

e. Appraisal of overall management ofthe bank;

f. Review of compliance withapplicable laws, rules and regulations; and

g. Any other activities relevant to theabove.

Regular or periodic examination shallbe done once a year, with an interval oftwelve (12) months from the last datethereof. Special examination may beconducted earlier, or at a shorter interval,when authorized by the Monetary Board byan affirmative vote of five (5) members.

In the full exercise of the supervisorypowers of the BSP, examination by the BSPof institutions shall be complemented byoverseeing thereof. In this regard, the term“overseeing” shall refer to a limitedinvestigation of an institution, or anyinvestigation/s that is limited in scope,conducted to inquire into a particular area/aspect of an institution’s operations, for thepurpose of overseeing that laws andregulations are complied with, inquiringinto the solvency and liquidity of theinstitution, enforcing prompt correctiveaction, or such other matters requiringimmediate investigation: Provided, That -(i) specific authorizations be issued by theDeputy Governor, Supervision andExamination Sector, and (ii) periodicsummary reports on overseeings made besubmitted to the Monetary Board.(Circular No. 442 dated 20 July 2004)

POWER OF THE BANGKO SENTRAL TO EXAMINE BANKS

PART ONE

ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. CLASSIFICATIONS AND POWERSOF BANKS

Section X101 Classifications, Powers andScope of Authorities of Banks. Thefollowing are the classifications, powersand scope of authorities of banks, as wellas the prerequisites for the grant of bankingauthorities.

a. Classifications of banks. Banks areclassified into the following subject to thepower of the Monetary Board to create otherclasses or kinds of banks:

(1) Universal banks (UBs); (2) Commercial banks (KBs);(3) Thrift banks (TBs), as defined in

Republic Act (R.A.) No. 7906, which shallbe composed of: (a) savings and mortgagebanks, (b) stock savings and loan associations,and (c) private development banks;

(4) Rural banks (RBs), as defined inR. A. No. 7353;

(5) Cooperative banks (Coop Banks), asdefined in R. A. No. 6938; and

(6) Islamic banks (IBs), as defined inR.A. No. 6848.

b. Powers and scope of authoritiesThe following are the powers and scope ofauthorities of banks.

(1) UBs. A UB shall have the authorityto exercise, in addition to the powers andservices authorized for a KB as enumeratedin Item “b(2)” and those provided by otherlaws, the following:

(a) the powers of an investment house(IH) as provided under existing laws;

(b) the power to invest in non-alliedenterprises;

(c) the power to own up to onehundred percent (100%) of the equity in aTB, an RB, a financial allied enterprise, or anon-financial allied enterprise; and

(d) in case of publicly-listed UBs, thepower to own up to one hundred percent(100%) of the voting stock of only one(1) other UB or KB.

A UB may perform the functions of anIH either directly or indirectly through asubsidiary IH; in either case, theunderwriting of equity securities andsecurities dealing shall be subject topertinent laws and regulations of theSecurities and Exchange Commission(SEC): Provided, That if the IH functions areperformed directly by the UB, suchfunctions shall be undertaken by a separateand distinct department or other similar unitin the UB: Provided, further, That a UBcannot perform such functions both directlyand indirectly through a subsidiary.

(2) KBs. In addition to the generalpowers incident to corporations and thoseprovided in other laws, a KB shall havethe authority to exercise all such powersas may be necessary to carry on thebusiness of commercial banking, such asaccepting drafts and issuing letters ofcredit; discounting and negotiatingpromissory notes, drafts, bil ls ofexchange, and other evidences of debt;accepting or creating demand deposits;receiving other types of deposits anddeposit substitutes; buying and sellingforeign exchange and gold or silverbullion; acquiring marketable bonds andother debt securities; and extendingcredit, subject to such rules as theMonetary Board may promulgate. Theserules may include the determination ofbonds and other debt securities eligiblefor investment, the maturit ies andaggregate amount of such investment.

It may also exercise or perform any orall of the following:

§ X10108.12.31

Manual of Regulations for Banks Part I - Page 1

(a) invest in the equities of alliedenterprises as provided in Sections 31 and32 of R.A. No. 8791;

(b) purchase, hold and convey realestate as specified under Sections 51 and52 of R.A. No. 8791;

(c) receive in custody funds, documentsand valuable objects;

(d) act as financial agent and buy andsell, by order of and for the account of theircustomers, shares, evidences of indebtednessand all types of securities;

(e) make collections and payments forthe account of others and perform such otherservices for their customers as are notincompatible with banking business;

(f) upon prior approval of the MonetaryBoard, act as managing agent, adviser,consultant or administrator of investmentmanagement /advisory /consul tancyaccounts;

(g) rent out safety deposit boxes; and (h) engage in quasi-banking functions. (3) TBs. In addition to the powers

provided in other laws, a TB may performany or all of the following services:

(a) grant loans, whether secured orunsecured;

(b) invest in readily marketable bondsand other debt securities, commercialpapers and accounts receivable, drafts, billsof exchange, acceptances or notes arisingout of commercial transactions;

(c) issue domestic letters of credit; (d) extend credit facilities to private and

government employees; (e) extend credit against the security of

jewelry, precious stones and articles of similarnature, subject to such rules and regulationsas the Monetary Board may prescribe;

(f) accept savings and time deposits; (g) rediscount paper with the Land

Bank of the Philippines (LBP), DevelopmentBank of the Philippines (DBP), and othergovernment-owned or-controlled corporations;

(h) accept foreign currency deposits asprovided under R.A. No. 6426, as amended;

(i) act as correspondent for otherfinancial institutions;

(j) purchase, hold and convey realestate as specified under Sections 51 and52 of R.A. No. 8791; and

(k) offer other banking services asprovided in Section 53 of R.A. No. 8791.

With prior approval of the MonetaryBoard, and subject to such guidelines asmay be established by it, TBs may alsoperform the following services:

(l) open current or checking accounts;(m) engage in trust, quasi-banking

functions and money market operations; (n) act as collection agent for

government entities, including but notlimited to, the Bureau of Internal Revenue(BIR), Social Security System (SSS) and theBureau of Customs (BOC);

(o) act as official depository of nationalagencies and of municipal, city or provincialfunds in the municipality, city or provincewhere the TB is located;

(p) issue mortgage and chattelmortgage certificates, buy and sell them forits own account or for the account of others,or accept and receive them in payment oras amortization of its loan; and

(q) invest in the equity of alliedundertakings.

(4) RBs. In addition to the powersprovided in other laws, an RB may performany or all of the following services:

(a) extend loans and advancesprimarily for the purpose of meeting thenormal credit needs of farmers, fishermenor farm families as well as cooperatives,merchants, private and public employees;

(b) accept savings and time deposits;(c) act as correspondent of other

financial institutions;(d) rediscount paper with the LBP, DBP

or any other bank, including its branchesand agencies. Said banks shall specify thenature of paper deemed acceptable forrediscount, as well as the rediscount rate tobe charged by any of these banks;

§ X10108.12.31

Part I - Page 2 Manual of Regulations for Banks

(e) act as collection agent;(f) offer other banking services as

provided in Section 53 of R.A. No. 8791.With prior approval of the Monetary

Board, an RB may perform any or all of thefollowing services:

(g) accept current or checkingaccounts: Provided, That such RB has netassets of at least P5.0 million;

(h) accept NOW accounts; (i) act as trustee over estates or

properties of farmers and merchants;(j) act as official depository of

municipal, city or provincial funds in themunicipality, city or province where it islocated;

(k) sell domestic drafts; and(l) invest in allied undertakings. (5) Coop Banks. A Coop Bank shall be

organized primarily to provide financialand credit services to cooperatives andmay perform any or all of the servicesoffered by RBs.

(6) IBs. In addition to the generalpowers incident to corporations and thoseprovided in other laws, as well as in CircularNo. 105 (Appendix 44), insofar as they arenot inconsistent or incompatible with theprovisions of R.A. No. 6848, an IB mayperform any or all of the followingservices:

(a) open savings accounts forsafekeeping or custody with noparticipation in profit and losses exceptunless otherwise authorized by the accountholders to be invested;

(b) accept investment accountplacements and invest the same for a termwith the IB’s funds in Islamically permissibletransactions on participation basis;

(c) accept foreign currency depositsfrom banks, companies, organizations andindividuals, including foreign governments;

(d) buy and sell foreign exchange; (e) act as correspondent of banks and

institutions to handle remittances or anyfund transfers;

(f) accept drafts and issue letters ofcredit or letters of guarantee, negotiate notesand bills of exchange and other evidenceof indebtedness under the universallyaccepted Islamic financial instruments;

(g) act as collection agent insofar as thepayment orders, bills of exchange or othercommercial documents are exclusive of ribaor interest prohibitions;

(h) provide financing with or withoutcollateral by way of leasing, sale andleaseback, or cost plus profit salesarrangement;

(i) handle storage operations for goodsor commodity financing secured bywarehouse receipts presented to the bank;

(j) issue shares for the account ofinstitutions and companies assisted by thebank in meeting subscription calls oraugmenting their capital and/or fundrequirements as may be allowed by law;

(k) undertake various investments in alltransactions allowed by the Islamic Shari’ain such a way that shall not permit theharam (forbidden), nor forbid the halal(permissible);

(l) act as an official governmentdepository, or its branches, subdivisionsand instrumentalities and of government-owned or-controlled corporations,particularly those doing business in theautonomous region;

(m) issue investment participationcertificates, muquaradah (non-interest-bearing bonds), debentures, collaterals and/or the renewal and refinancing of the same, with the approval of the MonetaryBoard to be used by the IB in its financingoperations for projects that will promote theeconomic development primarily of theAutonomous Region;

(n) carry out financing and jointinvestment operations by way of mudarabahpurchasing for others on a cost-plusfinancing arrangement, and invest fundsdirectly in various projects or through theuse of funds whose owners desire to invest

§ X101 08.12.31


jointly with other resources available to theIB on a joint mudarabah basis; and

(o) invest in equities of the followingallied undertakings:

(1) Warehousing companies;(2) Leasing companies;(3) Storage companies;(4) Companies engaged in the

management of mutual funds but not in themutual funds themselves; and

(5) Such other similar activities as theMonetary Board has declared or maydeclare as appropriate from time to time,subject to existing limitations imposed by law.

B. ESTABLISHMENT ANDORGANIZATION

Sec. X102 Basic Guidelines in EstablishingBanks. In establishing a new bankingorganization and a Coop Bank, the basicguidelines shown in Appendix 37 andAppendix 38, respectively, shall be observed.

§ X102.1 (2008 - X101.2) Prerequisitesfor the grant of a universal bankingauthority

a. Compliance with guidelines. Adomestic bank seeking authority to operateas a UB shall submit an application to theappropriate department of the SES. Theapplicant shall comply with the guidelinesfor the issuance of a UB authority and shallsubmit all the documentary requirementsenumerated in Appendix 1.

b. Public offering of bank shares. Adomestic bank applying for a UB authorityshall, as a condition to the approval of itsapplication, make a public offering of atleast ten percent (10%) of the requiredminimum capital and this condition mustbe complied with before it can be grantedthe license for authority to operate as a UB.

The term public offering shall mean theoffer to sell equity shares to the public.

Public shall refer to all prospectivestockholders, excluding the bank’s

directors, shareholders owning twentypercent (20%) or more of the bank’ssubscribed capital stock, together withthose of their relatives within the fourthdegree of consanguinity or affinity, andcorporations controlled or affiliated withthem.

A bank whose shares of stock arealready listed in the Philippine StockExchange (PSE) at the time of filing of itsapplication for UB authority shall bedeemed to have complied with the publicoffering requirement. Likewise, an applicantbank may opt to have its shares listed inthe PSE directly instead of passing throughthe process of public offering. In either case,at least ten percent (10%) of the applicantbank’s capital stock should be held bypublic stockholders before it can be grantedthe license for authority to operate as a UB.

c. Listing of bank shares in the stockexchange. Domestic banks granted a UBlicense, existing or new, must list theirshares in the PSE within three (3) years:Provided, That in the case of new UBs, thethree (3) year period shall be reckoned fromthe date the license to operate as a UB wasgranted. In the case of existing UBs whichhave not listed their shares in the exchange,the three (3) year period lapsed on 27December 1998.

The guidelines on public offering andlisting of bank shares are enumerated inAppendix 1.

§ X102.2 (2008 - X102.1) Suspensionof the grant of new banking licenses onthe establishment of new banks. Pendingcompletion of a study, there shall be anindefinite moratorium on the establishmentof new banks, except in cities andmunicipalities where there are no existingbanking offices.

The moratorium shall apply to allapplications for establishment of newbanks, including pending ones receivedprior to 16 August 1999.

§§ X101 - X102.208.12.31


§§ X102.2 - X102.308.12.31

However, approved but not yetopened banks shall be exempted fromthe moratorium. Requests for extensionof the period within which to openapproved but not yet opened banks shall,however, be evaluated on a case-to-casebasis depending, among others, on thebank’s substantial compliance with thepre-operating requirements.

In the case of KBs, the following rulesshall govern:

a. No new KB shall be establishedwithin three (3) years from 13 June 2000which is the date of effectivity of R.A.No. 8791 or until 12 June 2003.The moratorium as mandated by said lawcovers only KBs classified and defined assuch under Sections 3.2(b) and 29 ofR. A. No. 8791 as well as in Item “b.2” ofSec. X101 without prejudice, however, toexisting or future moratoriums on othertypes of bank as has been or may bedeclared by the Monetary Board.

b. The moratorium under Section 8of R.A. No. 8791 shall cover allapplications for issuance of newcommercial banking licenses as well asupgrading or conversion of old bankinglicenses into commercial banking licenses,the organization and incorporation byforeign banks of new commercial bankingsubsidiaries and any and all othertransactions that may result in the issuanceof new commercial banking licenses.

c. All such pending applications as of13 June 2000, including those which havealready been decided but with any incidentthereto still unresolved or are onreconsideration or appeal, shall not befurther acted upon by the BSP and shall bereturned to the applicant banks withoutprejudice to the resubmission or re-filingthereof upon expiration of the moratoriumat the option of the applicant banks. Nosuch application shall be considered asautomatically re-submitted or re-filedupon expiration of the moratorium.

d. The moratorium under Section 8 ofR. A. No. 8791 shall not be applicable to:

(1) acquisition or purchase by foreignbanks of up to 100% of the voting stockof existing domestic KBs;

(2) the transfer of license of an existingKB to another corporation, subject to priorapproval of the Monetary Board;

(3) new KBs resulting out of mergers orconsolidations where at least one (1) of thebanks involved in such merger orconsolidation is a KB; and

(4) downgrading or refocusing of UBsinto KBs.

§ X102.3 (2008 - X102.2) Partiallifting of general moratorium on thelicensing of new thrift banks and ruralbanks. The general moratorium on thelicensing of new TBs and RBs is partiallylifted to allow the entry of microfinance-oriented banks.

For this purpose, a microfinance-oriented bank is a bank that providesfinancial services and caters primarily tothe credit needs of the basic ordisadvantaged sectors such as farmer-peasants, artisanal fisherfolk, workers inthe formal sector and migrant workers,workers in the informal sectors, indigenouspeoples and cultural communities,women, differently-abled persons, seniorcitizens, victims of calamities and disasters,youth and students, children, urban poorand low income households for theirmicroenterprises and small businesses soas to enable them to raise their incomelevels and improve their living standards.Microfinance loans are granted on the basisof the borrower’s cash flow and aretypically unsecured.

The guidelines on the establishmentof a microfinance-oriented bank are asfollows:

a. Microfinance-oriented banks maybe established on a very selective basis,preferably in places not fully served by


§§ X102.3 - X102.408.12.31

existing RBs or in areas not fully servicedby microfinance-oriented banks, subject tothe following additional criteria (in additionto standard licensing requirements):

(1) That the microfinance-orientedbank to be established shall either be a TBor an RB;

(2) That the capital of the microfinance-oriented banks to be established shouldbe owned by private persons, multilateralentities or a combination thereof;

(3) That in the case of an RB to beestablished as a microfinance bank, theminimum paid-in capital shall be P5.0million or the applicable existingcapitalization requirement for a new RB,whichever is higher. The capitalizationrequirement under existing regulationsshall apply to TBs;

(4) That the organizers must have thecapacity to engage in microfinancing,which may be indicated by the following:

(a) At least twenty percent (20%) of thepaid-in capital of the proposed bank mustbe owned by persons or entities with trackrecord in microfinancing.

(b) Majority of the members of theboard of directors have experience inmicrofinancing with at least one (1)member having actual bankingexperience.

(c) The proposed bank must have as aminimum, an adequate loan trackingsystem that allows daily monitoring of loanreleases, collection and arrearages, and anyrestructuring and refinancing.

(5) In addition to the requirements forthe establishment of banks in Appendix 37,the application for authority to establish amicrofinance-oriented bank must beaccompanied by the following documents:

(a) A vision and mission statementwith clear expression of the commitmentto reach low-income clients.

(b) A written manual of operations,which shall include the administrative andcredit program systems and procedures.

The Manual must be consistent with thecore principles, characteristics and featuresof microfinance indicated in Sec. X361.

(6) At least fifty percent (50%) of thebank’s gross loan portfolio shall at all timesconsist of microfinance loans as defined inSec. X361.

b. The requirement that the president,chief operating officer or general managerof a TB or RB must have at least two (2)years experience in banking and/orfinance may be substituted withmicrofinance experience in cases ofofficers of a microfinance organizationapplying for authority to establish, orconvert into a TB or RB: Provided, That theconcerned officer is a college graduate.

c. Subject to the standard branchingrequirements, microfinance-orientedbanks are also exempted from the generalmoratorium on the establishment of bankbranches, under Sec. X151. After one (1)year of profitable operations, amicrofinance-oriented bank may apply forestablishment of a branch but the MonetaryBoard may require additional capital to beinfused for every branch in addition to theminimum capital of the TB/RB.

d. Existing microfinance organizationsapplying for authority to establish, or convertinto a TB or RB may also be allowed toconvert their existing branches/offices intobranches of the bank proposed to beestablished by simultaneously applying forauthority for the purpose. However, thestandard requirements for the establishmentof branches, particularly the capitalizationrequirement, have to be complied with.Moreover, there must be a proof that the areais not fully served by any existing RB. (As amended by Circular No. 624 dated 13 October 2008)

§ X102.4 (2008 - X101.6) Conditionsfor the grant of authority to convert intoa lower category

a. That the bank must have compliedwith the end-2000 minimum capital


§ X102.408.12.31

requirement and other laws/regulationsapplicable to the lower bank category intowhich it is converting. For this purpose,the term “capital” shall be as defined underSec. X111;

b. That the bank immediately uponreceipt of notice of approval of conversionshall not engage in nor renew transactionsunder authorities not associated with thoseallowed for the lower bank category intowhich it is converting and within six (6)months from date of receipt of notice ofapproval of its application forconversion,the bank shall phase-out allinherent powers and activities underspecial authorities not normally associatedto the lower bank category into which itis converting: Provided, That a TB(previously authorized by the MonetaryBoard to accept demand deposits) may beallowed to retain such authority whenconverting into an RB but may clearchecks only through a correspondent bankand shall not be allowed to participatedirectly in the Philippine Clearing HouseCorporation (PCHC) and the BSP checkclearing operations: Provided, further, Thatfor failure to comply with theserequirements, the following monetary andnon-monetary penalties shall be imposedreckoned from the set deadline until thebank has fully complied with the saidrequirements

(1) Monetary penaltiesFrom UB to KB P30,000/dayFrom KB to TB 15,000/dayFrom TB to RB

Within Metro Manila P 5,000/day Outside Metro Manila 500/day

(2) Non-monetary penalties(a) Suspension of branching

privileges;(b) Suspension of declaration of cash

dividends;(c) Restriction on lending to affiliates;(d) Denial of access to BSP

rediscounting facilities;

(e) Suspension of authority to acceptor handle government deposits;

(f) Suspension of authority to engagein derivatives activities (for a UBconverting into a KB); and

(g) Suspension of authority to invest inallied undertakings.

c. That a bank which has notcorrected as of date of application the majorfindings/violations noted in its latestexamination shall submit upon applicationa Memorandum of Understanding that itshall correct the same within a period ofsix (6) months from date of receipt of noticeof approval of its application, otherwise, thesame monetary and non-monetarypenalties mentioned in Item “b” aboveshall be imposed;

d. That the bank shall submit thepertinent amended Articles ofIncorporation and By-Laws dulyregistered with the SEC within six (6)months from date of receipt of notice ofapproval of its application;

e. That the bank shall fully disclose itsnew status in its signage, financialstatements and stationeries; and

f. That the bank shall start operationin the lower category into which it isconverting after approval by the SEC ofthe bank’s amended Articles ofIncorporation and By-Laws, i tscompliance with all the conditions ofapproval of the conversion and theissuance by the BSP of a certificate ofauthority to operate.

The same conditions and sanctionsmentioned in Items “a” to “f” above shallapply to all banks which havedowngraded or with approveddowngrading prior to 13 March 2000:Provided, That the penalties mentionedin Items “b” and “c” above shall bereckoned from their respectiveprescribed deadlines or within six (6)months from 13 March 2000, if no suchdeadline is prescribed.


§§ X102.5 - X104.108.12.31

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.

§ X102.5 (2008 - X102.3) Conversionof microfinance-oriented thrift banks/rural banks

a. Microfinance-oriented TBs and RBsare disallowed from converting to regularTBs and RBs.

b. Microfinance-oriented branches ofregular TBs and RBs may convert intoregular branches, five (5) years after thestart of the branch’s operations, subject tothe submission of the following:

(1) Certi f ication signed by thepresident or officer of equivalent rank that:

(a) At least seventy percent (70%) ofdeposits generated by the branch to beestablished shall be actually lent out tomicrofinance borrowers; and

(b) The microfinance loans of saidbranch shall at all times be fifty percent(50%) of its gross loan portfolioare no longer feasible due to changes inmarket condition in the locality where it islocated. The certification shall be supportedby a market study citing, among others,changes in demographic, social, andeconomic factors; and

(2) Certified true copy of the resolutionof the bank’s board of directors authorizingthe conversion of the microfinance-orientedbranch into a regular branch.(CL-2008-075 dated 28 November 2008)

Sec. X103 Certificate of Authority toRegister1. The SEC shall not register thearticles of incorporation of any bank, or anyamendment thereto, unless accompanied bya certificate of authority issued by theMonetary Board, under its seal. The certificateshall not be issued unless the Monetary Boardis satisfied from the evidence submitted that:

a. All requirements of existing lawsand regulations to engage in the businessfor which the applicant is proposed to beincorporated have been complied with;

b. The public interest and economicconditions, both general and local, justifythe authorization; and

c. The amount of capital, thefinancing, organization, direction andadministration, as well as the integrity andresponsibility of the organizers andadministrators reasonably assure the safetyof deposits and the public interest.

Likewise, the SEC shall not register theby-laws of any bank, or any amendmentthereto, unless accompanied by a certificateof authority from the BSP.(As amended by CL-2008-078 dated 15 December 2008)

Sec. X104 (2008 - X167) Business Name2

a. UBs/KBs. Only a bank that isgranted universal/commercial bankingauthority may represent itself to the publicas such in connection with its businessname.

b. TBs. TBs may be allowed to adoptand use any name: Provided, That thewords A Thrift Bank, A Savings Bank, APrivate Development Bank or A StockSavings and Loan Association, as the casemay be, are affixed after its business name.

c. RBs/Coop Banks. RBs/Coop Banksmay adopt a corporate name or use abusiness name/style with the word Ruralor Coop, as the case may be. Said banksmay also adopt a name without such words:Provided, That the identifying phrase, ACooperative Bank or A Rural Bank, as thecase may be, is affixed after its businessname: Provided, further, That where thename of the bank is shown on letterheads,billboards and other advertising materials,the size of the letters of such phrase shallbe at least one-half (½) the size of thebusiness name.(As amended by CL Nos. 2008-053 dated 21 August 2008

and 2008-007 dated 21 January 2008)

§ X104.1 (2008-X607) BankAdvertisements. The following rules andregulations shall govern bankadvertisements.

a. No bank shall publish, issue ordistribute in any form, any advertisement

Manual of Regulations for BanksPart I - Page 8

that shall degrade, deprecate or otherwiseprejudice other banking and financialinstitutions.

b. No bank shall publish, issue ordistribute in any form of advertisement (innewspapers, magazines, television, radio,billboards, brochures, prospectuses, or anyother medium) or allow itself to be used/mentioned in any form of advertisementunless such advertisement is in pursuanceof its business or investment.

c. No bank shall place or cause to beplaced any advertisement tending tomislead a depositor into believing that hewill get more in benefits than what the bankis legally authorized to give. No bankadvertisement shall contain any false claimor exaggerated representation as to itsliquidity, solvency, resources, deposits andbanking services.

d. No bank advertisement shallgive the impression that the bank isengaged in a business other thanbanking.

e. Banks shall inform theirdepositors and other clients byadvertisement or publication of thetermination of benefits previouslyadvertised or publicized.

f. Banks shall discontinue anyadvertisement whenever the same isdeemed unethical/unwarranted or violativeof the provisions of these regulations. Theclient banks and/or their advertisingagencies shall incorporate in their contract/agreement for time and space with mediathe condition that such contract/agreementfor time and space can be cancelled/terminated immediately whenever theclient bank is directed by the BSP to desistor discontinue the particular advertisementin question.

g. Responsibility for compliance withthe above rules and regulations rests withthe bank officers or directors who causedthe approval or placement of suchadvertisement.

Sec. X105 (2008 - X121) Liberalized Entryand Scope of Operations of ForeignBanks. The following rules shall governthe l iberalized entry and scope ofoperation of foreign banks.

§ X105.1 (2008 - X121.1) Modes ofentry of foreign banks. With prior approvalof the Monetary Board, foreign banks mayoperate in the Philippines through anyone (1) of the following modes:

a. By acquir ing, purchasing orowning up to sixty percent (60%) of thevoting stock of an existing domesticbank ( inc luding banks underreceivership or liquidation, providedno final court liquidation order hasbeen issued);

b. By investing in up to sixty percent(60%) of the voting stock of a new bankingsubsidiary incorporated under the laws ofthe Philippines; or

c. By establishing branches with fullbanking authority.

Interested foreign banks shall file withthe Office of the Governor, BSP, theirapplication for authority to operate in thePhilippines through any of the modes ofentry mentioned above. The applicationmust be submitted in the prescribed formsshown in Appendix 2.

§ X105.2 (2008 - X121.2) Qualificationrequirements

a. Investment in an existing domesticbank. A foreign bank seeking to acquire,purchase or own up to sixty percent (60%)of the voting stock of an existing domesticbank needs only to meet the selectioncriteria under Subsec. X105.3.

b. Establishment of subsidiary orbranch. Any foreign bank seeking toestablish a new banking subsidiary orto establish branches with full bankingauthority, in addition to satisfying thecriteria prescribed Subsec. X105.3,must be -

§§ X104.1 - X105.208.12.31

Part I - Page 9Manual of Regulations for Banks

(1) Widely-owned and publicly-listed(listed in any stock exchange authorizedby the government of the country oforigin), unless more than fifty percent(50%) of the capital stock of said foreignbank applicant is owned by thegovernment of its country of origin. Thebank is considered as widely-owned if ithas at least fifty (50) stockholders withoutany stockholder owning more thanfifteen percent (15%) of its capital stock:Provided, That if the bank is owned/controlled by a holding company, thisrequirement shall apply to the holdingcompany; and

(2) Among the top 150 banks in theworld or the top five (5) banks in itscountry of origin.

The determination of the top 150banks in the world may be based on listsprepared and published by reputableorganizations/publications.

The determination of the top five (5)banks in the country of origin shall bebased on information supplied by thebank supervisory authorities in whichcountry of origin as to the ranking ofbanks based on net worth. However, theMonetary Board may also use total assetsas a criterion: Provided, That the sameshall be based on book accounts only andon the consolidated balance sheet of thehead office and all branches, excludingsubsidiaries and affiliates.

In addition to the foregoingrequirements, the foreign bank applicantmust be in compliance with capitalrequirements as prescribed by the laws andregulations of its country of origin.

§ X105.3 (2008 - X121.3) Guidelinesfor selection. The following factors shallbe considered in selecting the foreignbank which will be allowed to invest inmajority of the voting stock of an existingdomestic bank or to establish a subsidiaryor branch in the Philippines.

a. Geographic representation andcomplementation. Representation fromthe different parts of the world and/or theinternational financial centers shall beensured.

b. Strategic trade and investmentrelationships between the Philippines andthe country of incorporation of the foreignbank. Consideration shall be given to thecountries of origin of applicant foreignbanks -

(1) With substantial financial assistanceto, and loans and investments, past andpresent, in the Philippines; and

(2) With which the Philippines hassignificant volume of trade especially tothose with which the country has substantialnet exports.

c. Relationship between the applicantbank and the Philippines. Considerationshall be given to the capability of the foreignbank to promote trade with, and to bringforeign investments into, the Philippines.Long standing financial and commercialrelationship with, and assistance extendedto, the Philippines, shall likewise be takeninto account.

d. Demonstrated capacity, globalreputation for financial innovations andstability in a competitive environment ofthe applicant. Demonstrated capacity andstability may be indicated by the fact thatthe applicant ranks among the top 150in the world or top five (5) in its countryof origin. Global reputation may bemeasured by international presence,e.g., number of branches with fullbanking authority outside of its countryof origin.

e. Reciprocity rights enjoyed byPhilippine banks in the applicant’s country.Philippine banks shall enjoy reciprocityrights in the applicant's country.

f. Willingness to fully sharetechnology. The applicant bank shallsubmit an undertaking to this effecttogether with its application.

§§ X105.2 - X105.308.12.31


§ X105.4 (2008 - X121.4) Capitalrequirements

a. For locally incorporated subsidiaries- The minimum capital required for locallyincorporated subsidiaries of foreign banksshall be the same as that prescribed by theMonetary Board for domestic banks of thesame category.

b. For foreign bank branches with fullbanking authority - A foreign bankauthorized to establish branches with fullbanking authority in the Philippines shallinwardly remit and convert into Philippinecurrency, as permanently assigned capital,the U.S. Dollar equivalent of P210.0million at the exchange rate prevailing on05 June 1994 (the date of effectivity ofR.A. No. 7721), i.e., P26.979 to US$1. Theforeign bank shall thereby be entitled toestablish three (3) branches in locations ofits choice.

For purposes of this Subsection, thesame foreign bank may open three (3)additional branches in locations designatedby the Monetary Board by inwardlyremitting and converting into Philippinecurrency, as additional permanentlyassigned capital the U.S. Dollar equivalentof P35.0 million for every additionalbranch, computed at the same exchangerate of P26.979 to US$1. The MonetaryBoard, in determining the location of thenext three (3) branches establishedpursuant to the provisions of R.A. No. 7721,shall consider, among other things,development requirements of a region andthe contribution of a bank branch maymake to regional development, expansionof basic financial services and enhancedaccess to credit by small and medium-scaleenterprises: Provided, That the totalnumber of branches for each new foreignbank entrant shall not exceed six (6).

c. For foreign banks with existingbranches in the Philippines -

(1) A foreign bank with existing branchor branches in the Philippines upon the

effectivity of R.A. No. 7721 shall complywith the required permanently assignedcapital by inwardly remitting andconverting into Philippine currency theU.S. Dollar equivalent of P210.0 millioncomputed at the same exchange rate ofP26.979 to US$1, within a period of oneand one-half (1½) years from 05 June1994.

The said foreign bank may establish upto six (6) branches in addition to its branchor branches existing as 05 June1994, thefirst three (3) additional branches inlocations of its choice, and the next three(3) additional branches in locationsdesignated by the Monetary Board:Provided, That upon establishing anyadditional branch, the bank shall complyimmediately with the permanentlyassigned capital mentioned in the nextpreceding paragraph: Provided, further,That the said permanently assignedcapital shall be the capital for the bank’sf irst three (3) additional branches,including its existing branch or branches,and for each branch established in additionthereto, the U.S. Dollar equivalent ofP35 million computed at the sameexchange rate of P26.979 to US$1,sha l l be inward ly remi t ted andconverted into Philippine currency.

If the permanently assigned capital ofthe existing branch/es of said foreign bankthat has been converted to Philippinecurrency is sufficient to cover the above-mentioned amount of assigned capitalrequired for the additional branches, noadditional assigned capital shall berequired; otherwise, the foreign bank shallcomply immediately with the capitalrequirements under the above paragraphs.

(2) Foreign banks with existingbranches in the Philippines on 5 June1994shall have a period of one and one-half (1½)years from said date within which to complywith the ratio between the assigned capitaland the Net due to head office, branches,subsidiaries and offices outside the

§ X105.408.12.31


Philippines prescribed in Subsec. X105.6:Provided, That upon establishing anyadditional branch pursuant to theprovisions of this Section, the bank shallcomply immediately with the aforesaidratio.

d. Capital of Foreign Bank BranchAuthorized to Operate as ExpandedCommercial Bank - The capital of aPhilippine branch of a foreign bank whichis authorized to operate as a UB mayconsist of its permanently assigned capitalplus the Net due to account: Provided, Thatat no time shall the aggregate of saidaccounts fall below the amount requiredfor UB authority under Subsecs. X111.1and X111.2: Provided, further, That theamount of the Net due to which may beadded to permanently assigned capitalshall not exceed the equivalent of three(3) times the amount of the permanentlyassigned capital.

The Net due to as described in thepreceding paragraph shall be net of the itemsenumerated in Subsec. X105.5d.

e. Applicable Exchange Rate - It isunderstood that the exchange rate ofP26.979 to US$1 mentioned hereinaboveis applicable only to the minimum capitalrequirements provided in Items b and c ofthis Subsection. For other purposes, theexchange rate prevailing at the time ofremittance shall be applicable.

§ X105.5 (2008 - X121.5) Compositionof capital accounts; compliance withcapital ratios

a. Foreign bank branches shall complywith the same capital ratios applicable todomestic banks of the same category.

b. For Philippine branches of foreignbanks, the term capital shall includepermanently assigned capital which shallbe inwardly remitted and converted toPhilippine currency and Net due to upto an amount prescribed underSubsec. X105.6. Should there be any Net

due from head office, branches,subsidiaries and other offices outside thePhilippines, the same shall be deductedfrom the capital accounts for purposes ofdetermining compliance with the requiredcapital ratios.

c. Earnings not remitted to the headoffice shall constitute part of the Net dueto of the local branch of a foreign bank:Provided, That said bank may elect toconsider such earnings as part of the assignedcapital, in which case said earnings mayno longer be remittable to the head office.

d. The term Net due to shall be netof: (1) unbooked valuation reserves andother capital adjustments as may berequired by the BSP; (2) total outstandingunsecured credit accommodations, bothdirect and indirect, to DOSRI; and(3) deferred income tax.

e. Where a foreign bank has morethan one (1) branch or banking office inthe Philippines, all its branches andbanking offices shall be treated as a unitfor purpose of determining compliancewith the legal reserve requirement andwith capital requirement prescribed inlaws/regulations.

§ X105.6 (2008 - X121.6) Prescribedratio of net due to and permanentlyassigned capital. The amount of Net dueto which may be added to permanentlyassigned capital for purposes ofdetermining compliance with capital ratiosprescribed in laws/regulations shall notexceed the equivalent of four (4) times theamount of permanently assigned capital:Provided, That for the purpose of a foreignbank branch seeking to operate as a UB,the ratio shall not exceed three (3) timesas provided in Item "d" of Subsec. X105.4.

At least fifteen percent (15%) of the Netdue to required to comply with theprescribed capital ratio shall be inwardlyremitted and converted into Philippinecurrency: Provided, That amounts invested

§§ X105.4 - X105.608.12.31


in productive enterprises or utilized byPhilippine companies for exportactivities, including foreign currencydenominated loans granted to Philippineexporters and loans for productivepurposes such as the following:agriculture, f isheries and forestry;manufacturing; mining; public utilities;construction; and home building, neednot be subject to conversion intoPhilippine currency.

If there is non-compliance with theprescribed fifteen percent (15%) of Net dueto required to be inwardly remitted andconverted to pesos, the bank shallimmediately inwardly remit and convertto Philippine currency the amount of thedeficiency.

Branches of foreign banks shallsubmit the reports prescribed inAppendix 6 to show compliance withthe requirement that at least fifteenpercent (15%) of its Net due to shall beinwardly remitted and converted intoPhilippine currency.

§ X105.7 (2008 - X121.7) Headoffice guarantee. The head office offoreign bank branches shall guaranteeprompt payment of all liabilities of itsPhilippine branches, as well as theobservance of the constitutional rights ofthe employees of such branches.

§ X105.8 (2008 - X121.8) Scope ofauthority for locally incorporatedsubsidiaries of foreign banks as wellas branches wi th fu l l bankingauthority. Subsidiaries and branches offo re ign banks es tab l i shed underSubsec. X105.1 shall be allowed toperform the same functions and enjoythe same privileges of, and be subjectto the same limitations imposed upon,a Phi l ipp ine bank o f the samecategory. Privileges shall include thee l ig ib i l i ty to opera te under an

expanded commerc ia l bankingauthority subject to compliance withexisting rules and regulations and theguidelines enumerated in Appendix 3on the matter: Provided, That foreignbank branches authorized to operateunder an expanded commerc ia lbanking authority shall be exemptedf rom the requi rement o f publ ic lyoffering at least ten percent (10%) ofits shares. The limitations include,among o ther th ings , the s ing leborrower's limit, the capital-to-riskassets ratio, and the capitalization andother requirements under R.A. No. 337,as amended, and other related laws.

§ X105. 9 (2008 - X121.9) Limitationsa. Limit on mode of entry for each

foreign bank - A foreign bank may availitself of only one (1) mode of entryprovided under Items "a" to "c" ofSubsec. X105.1: Provided, That entrypursuant thereto shall not precludeinvestment in the equity of a domestic bankpursuant to the provisions of R.A. No. 337,as amended. A foreign bank that comesin via the establishment of branches underR.A. No. 7721 may still invest in the equityof a domestic bank subject to the provisionsof R.A. No. 337, as amended.

b. Limit on the number of foreignbanks which may be allowed to establishbranches. The Monetary Board mayauthorize up to six (6) new foreign banksto establish branches. However, uponrecommendation of the Monetary Board,the President of the Republic of thePhilippines may approve, as the nationalinterest may require, four (4) additionalnew foreign banks to establish branches,subject to compliance with provisions ofthis Section.

c. Limit on the period for entrythrough establishment of branches.Foreign banks shall be allowed entry underItem “c” of Subsec. X105.1 by establishing

§§ X105.6 - X105.908.12.31


branches with full banking authoritywithin five (5) years from 05 June 1994.The entry of foreign banks through theestablishment of a new bankingsubsidiary and through investment inexisting domestic banks shall not besubject to any time limitation.

d. Control of the resources of thebanking system. The Monetary Board shalladopt such measures as may be necessaryto ensure that at all times the control ofseventy percent (70%) of the resources orassets of the entire banking system is heldby domestic banks more than fifty percent(50%) of the subscribed capital of which isowned by Filipinos. Said measures mayinclude review of, among other things, theexisting policies on -

(i) the granting of authority to establishadditional subsidiaries and branches;

(ii) the granting of authority to(aa) engage in expanded commercialbanking and trust activities; (bb) open anFCDU; (cc) collect taxes and customsduties; and (dd) invest in the equity ofother entities; and

(iii) access to rediscounting facilities.

§ X105.10 (2008 - X121.10) Changefrom one mode of entry to another

a. As a general rule, a foreign bankwhich has been authorized to operate inthe Philippines through any one (1) of theallowable modes of entry may change toanother mode by giving up the first modeit availed of.

b. A foreign bank which pursuant toItems “a” and “b” of Subsec. X105.1, hasestablished or acquired a bankingsubsidiary may sell its stockholdingstherein and may apply for authority toestablish a branch subject to theprovisions of Subsec. X105.9c and to thefollowing conditions:

(i) that the disposition/sale of itsstockholdings in the subsidiary is donewithin five (5) years from 05 June 1994;

(ii) that the foreign bank qualifiesunder the prov i s ions o f Subsec .X105.2b; and

(iii) that the limit of ten (10) foreignbanks establishing branches as a modeof entry has not yet been reached.

c. Foreign banks with exist ingbranches in the Philippines, as well asthose that may be allowed to establishbranches under R.A. No. 7721, mayincorporate under Philippine laws, inwhich case said foreign banks may ownup to sixty percent (60%) of the votingstock of the new bank.

§ X105.11 (2008 - X121.11) Listingof shares with the Philippine StockExchange. At least ten percent (10%) ofthe capital of banks in which foreign bankshave invested under Subsec. X105.1a andb, shall be listed in the PSE within areasonable period of time after theinvestment is made as may be determinedby the Monetary Board.

§ X105.12 (2008-X121.12)Applicability to Philippine corporations

a. Any right, privilege or incentivegranted to fore ign banks or thei rsubs id ia r ies o r a f f i l i a tes underR.A. No. 7721 shall be equally enjoyedby, and extended under the sameconditions to, domestic banks.

b. Philippine corporations, whoseshares of stocks are listed in the PSE, orwhich are of long standing for at leastten (10) years, as determined by theMonetary Board, shall have the right toacquire, purchase or own up to sixtypercent (60%) of the voting stock ofa domestic bank: Provided, That saidcorporations, as well as foreign banksmay own up to sixty percent (60%)of the voting stock of only one (1)domestic bank.

Secs. X106 - X107 (Reserved)

§§ X105.9 - X10708.12.31


C. MERGER AND CONSOLIDATION

Sec. X108 (2008 - X111) Merger orConsolidation to Meet Minimum CapitalThe merger or consolidation of banks andother financial intermediary(ies) to meetminimum capital requirements shall beallowed subject to the followingregulations.

For purposes of merger andconsolidation, the following definitionsshall apply:

a. Merger - is the absorption ofone (1 ) o r more corpora t ions byanother existing corporation, whichretains its identity and takes over ther ights , pr iv i leges , f ranchises , andproper t ies , and assumes a l l thel iab i l i t ies and obl iga t ions o f theabsorbed corporation(s) in the samemanner as if it had itself incurred suchliabilities or obligations. The absorbingcorporation continues its existencewhile the life or lives of the othercorporation(s) is/are terminated.

b. Consolidation - is the union oftwo (2) or more corporations into asingle new corporation, called theconsol ida ted corporation, all theconstituent corporations thereby ceasingto exist as separate enti t ies. Theconsolidated corporation shall thereuponand thereafter possess all the rights,privileges, immunities, franchises andproperties, and assume all the liabilitiesand obligations of each of the constituentcorporations in the same manner as ifit had itself incurred such liabilitiesor obligations.

§ X108.1 (2008 - X111.1) Requirementof Bangko Sentral approval. Mergers andconsolidations including the terms andconditions thereof shall comply with theprovisions of applicable law and are subjectto approval by the BSP.

§ X108.2 (2008 - X111.2) Rules onexchange of shares. As a general rule,the ratio of exchange of shares betweenor among the participants in a bank mergeror consolidation shall be based on mutualagreement of the parties concerned.However, any appraisal increment reserve(revaluation reserve) arising from therevaluation of the fixed assets, as may beagreed upon by the parties shall be limitedto premises, improvement, and equipmentwhich are necessary for its immediateaccommodation in the transaction of thebank’s business. Such revaluation shouldbe based on fair valuation of the propertywhich shall be subject to review andapproval by the BSP.

§ X108.3 (2008 - X112) Merger orConsolidation Incentives. In pursuance ofthe policy to promote mergers andconsolidations among banks and otherfinancial intermediaries as a means todevelop larger and stronger FIs, constituententities may, subject to BSP approval, availthemselves of any or all of the followingincentives:

a. Revaluation of premises,improvements and equipment of theinstitutions: Provided, That such revaluationshall be based on fair valuation of theproperty conducted by a reputable appraisalcompany which shall be subject to reviewand approval by the BSP.

The following rules shall govern therevaluation of assets:

(1) The revaluation of the premises,improvements and equipment shall beallowed only to all institutions participatingin a merger or consolidation if all of thembelong to the same category, or at least two(2) of them belong to the highest categoryamong the merging or consolidatinginstitutions;

(2) In case the merging or consolidatinginstitutions do not belong to the same

§§ X108 - X108.308.12.31


category or only one (1) of them falls underthe highest category, all of them may beallowed to revalue their premises,improvements and equipment: Provided,That the amount of appraisal incrementresulting from such revaluation shall belimited to the amount of the total resourcesof the institution belonging to the lowercategory or categories.

(3) The appraisal increment resultingfrom the revaluation shall form part ofcapital for purposes of determining thesingle borrower’s limit and capital-to-riskassets ratio. The use of appraisal incrementfor cash dividend shall be governed by theprovisions of the Corporation Code.

(4) The revaluation of premises,improvements, and equipment of theinstitution as well as the recognition ofgoodwill as an incentive to mergers orconsolidations as provided in Item "e"hereof shall only be allowed if the followingconditions are met:

(i) The surviving or consolidated entitywill meet the existing capital requirementsafter all adjustments are taken up in thebooks of accounts of the merging orconsolidating entities but beforeconsidering appraisal increments andgoodwill, or there will be infusion of freshcapital to meet said existing capitalrequirements; and

(ii) The merger or consolidation willresult in a more viable FI as a result of costsavings and improved competitive position.

In case of purchase or acquisition of themajority or all of the outstanding shares ofstocks of a bank, the same conditions mustbe satisfied.

b. Unbooked valuation reserves basedupon the BSP examination and other capitaladjustments resulting from the merger orconsolidation may be booked on staggeredbasis over a maximum period of five (5)years.

The following guidelines shall governthe staggered booking of valuation reserves:

(1) The booking on staggered basisover a maximum period of five (5) yearsof unbooked valuation reserves basedupon examination by the BSP may beallowed to all institutions participating in amerger or consolidation if all of thembelong to the same category, or at leasttwo (2) of them belong to the highestcategory among the merging orconsolidating institutions.

(2) In case the merging orconsolidating institutions do not belongto the same category or only one (1) ofthem falls under the highest category, allof them may be allowed to book therequired valuation reserves based uponexamination by the BSP on a staggeredbasis over a maximum of five (5) years:Provided, That the aggregate amount ofthe required valuation reserves shall belimited to the amount of the totalresources of the institution belonging tothe lower category or categories.

c. Exemption from the forty percent(40%) and sixty percent (60%) ownershiplimits prescribed in Subsec. X126.1 in thenew or surviving institution of any Filipinoindividual or domestic non-bankcorporation: Provided, That this shall beallowed only if the bank that is beingmerged is distressed as may be determinedby the Monetary Board and such merger isfor the purpose of rehabilitating the bank:Provided, further, That whenever any ofsaid stockholders exceed the prescribedlimits, his holdings shall not beincreased, but may be reduced and oncereduced, shall not thereafter be increasedbeyond such limits.

In the case of purchase or acquisitionof majority or all of the outstanding sharesof a bank/QB by another bank/QB, therevaluation of the assets and the bookingof the required valuation reserves basedupon examination by the BSP over aperiod of five (5) years shall be allowedonly if such purchase or acquisition is for

§ X108.308.12.31


the purpose of rehabilitating the formerbank/QB: Provided, That the revaluationof assets and staggered booking ofvaluation reserves shall be allowed in fullonly if both banks/QBs belong to the samecategory. Otherwise, only the bank/QBbeing acquired/rehabilitated shall beallowed to recognize in full the appraisalincrement resulting from revaluation ofassets and to book valuation reserves on astaggered basis, while in the case of theacquiring bank/QB, the appraisalincrement resulting from revaluation ofassets and the privilege of staggeredbooking of valuation reserves shall eachbe limited to the amount of the totalresources of the bank/QB being acquired/rehabilitated.

The exemption from the ownershiplimits prescribed in Subsec. X126.1 onexisting stockholdings of any Filipinoindividual or domestic non-bankcorporation in a banking institution, as anincentive to purchase or acquisition ofmajority or all of the outstanding sharesof stock of bank/QB shall be allowed onlyif the bank being purchased or acquiredis distressed as may be determined by theMonetary Board and such merger is forthe purpose of rehabilitating the bank/QB.

d. If by reason of merger orconsolidation, the resulting bank is unableto comply fully with the prescribed networth-to-risk assets ratio, the MonetaryBoard may, at its discretion, temporarilyrelieve the bank from full compliance withthis requirement under such conditions asit may prescribe;

The recognition of goodwill as anincentive to mergers or consolidations shallonly be allowed subject to the conditionsin Item “a (4)”.

e. Conversion or upgrading of theexisting head offices, branches and/or otheroffices of the merged or absorbedinstitutions into branches of the new orsurviving FIs;

f. Condonation of liquidated damagesand/or penalties on loan arrearages to theBSP of RBs which are parties to the mergeror consolidation: Provided, That loanarrearages of RBs to the BSP are paid infull or covered by a plan of paymentpayable on an equal monthly amortizationschedule over a period not exceedingten (10) years;

g. Relocation of branches/offices maybe allowed within one (1) year from date ofmerger or consolidation in cases where themerger or consolidation resulted induplication of branches/offices in a servicearea, or in such other cases/circumstances asmay be prescribed by the Monetary Board;

h. Outstanding penalties in legalreserve deficiencies and interest onoverdrafts with the BSP as of the date of themerger or consolidation may be paid ininstallments over a period of one (1) year;

i. Rediscount ceiling of 150% ofadjusted capital accounts for a periodof one (1) year, reckoned from the dateof merger or consolidation: Provided,That the merged/consolidated bankmeets the required net worth-to-riskassets ratio and all of the otherrequirements for rediscounting;

j. UBs/KBs whose total outstandingreal estate loans exceed twenty percent(20%) of total loan portfolio may be givena period of one (1) year within which tocomply with the prescribed twenty percent(20%) ratio reckoned from the date ofmerger or consolidation;

k. Restructuring/plan of payment ofpast due obligations of the proponents withthe BSP as of the date of merger/consolidation over a period not exceedingten (10) years;

l. In the case of RBs, grant of accessto the rediscounting window of the BSPfor a period of two (2) years from the dateof merger or consolidation even if its pastdue ratio exceeds twenty five percent(25%) of loan portfolio but not exceeding

§ X108.308.12.31


thirty percent (30%): Provided, That themerged/consolidated bank meets all theother requirements. During said period oftwo (2) years, its rediscounting limit perapplication may also be increased to anamount equivalent to the total of therediscounting limit per application of eachof the constituent banks before merger orconsolidation;

m. Subject to approval of theMonetary Board concurrent officershipsbetween a merged or consolidated bank/FI and another bank/FI may be allowed;

Likewise, with prior approval of theMonetary Board, concurrent directorshipsmay be allowed in cases where a bankacquires shares of stock of anotherbank for the purpose of merging orconsolidating the two (2) banksregardless of whether the banks belongto the same category or both have quasi-banking functions;

n. Subject to other requirements onthe establishment of branches, themerged/consolidated RBs may beallowed to establish a branch each inCebu City and Davao City if it has put upthe minimum capital requirement forthese places;

o. Grant of automatic extension off ive (5 ) years fo r re t i rement o fgovernment preferred shares to bereckoned from the date of merger orconsolidation;

p. Training of officers and staff ofthe merging or consolidating RBs bythe BSP; and

q. Any right or privilege granted amerging bank under a rehabilitationprogram previously approved by theMonetary Board or under any specialauthority granted by the Monetary Boardshall continue to be in effect.

The revaluation of assets and staggeredbooking of valuation reserves shall beavailable for a period of two (2) years from19 February1999 while the rest of the

incentives enumerated under thisSubsection shall be available for a periodof three (3) years from 31 August 1998.

The foregoing incentives may also begranted in cases of purchases oracquisitions of majority or all of theoutstanding shares of stock of a bank/QB.(As amended by Circular 494 dated 20 September 2005)


D. CAPITALIZATION

Sec. X111 (2008 - X106) MinimumRequired Capital. The followingprovisions shall govern the capitalrequirements for banks.

The term capital shall be synonymousto unimpaired capital and surplus,combined capital accounts and net worthand shall refer to the total of the unimpairedpaid-in capital, surplus and undividedprofits, less:

a. Unbooked valuation reserves andother capital adjustments as may berequired by the BSP;

b. Total outstanding unsecured creditaccommodations, both direct and indirect,to directors, officers, stockholders, andtheir related interests (DOSRI) granted bythe bank proper;

c. Unsecured loans, other creditaccommodations and guarantees grantedto subsidiaries and affiliates;

d. Deferred income tax;e. Appraisal increment reserve

(revaluation reserve) as a result ofappreciation or an increase in the bookvalue of bank assets;

f. Equity investment of a bank inanother bank or enterprise, whetherforeign or domestic, if the other bank orenterprise has a reciprocal equityinvestment in the investing bank, in whichcase, the investment of the bank or thereciprocal investment of the other bank orenterprises, whichever is lower; and

§§ X108.3 - X11108.12.31


g. In the case of RBs/Coop Banks,the government counterpart equity,except those arising from conversion ofarrearages under the BSP rehabilitationprogram.

With respect to Item “b” hereof, theprovision in Subsec. X326.1 shall applyexcept that in the definit ion ofstockholders in said Subsection, thequalification that his stockholdings,individually and/or together with hisrelated interest in the lending bankshould at least amount to two percent(2%) or more of the total subscribedcapital stock of the bank shall not applyfor the purpose of this Item.(As amended by Circular No. 560 dated 31 January 2007)

§ X111.1 (2008 - X106.1) Minimumcapitalization. The minimum capital ofbanks shall be as follows:

a. UBs - P5.4 billion eachb. KBs - P2.8 billion eachc. TBs -(1) With head offices within Metro

Manila - P400.0 million each; and(2) With head offices outside Metro

Manila - P64.0 million each.d. RBs -(1) An RB may be established in any

city or municipality, except in the cities ofManila, Kalookan, Quezon, Pasay,Mandaluyong, Makati, Parañaque,Malabon, Navotas and San Juan; and in thecities of Cebu and Davao, with minimumcapital requirements as follows:

(a) In first, second and third class citiesand in first class municipalities - P8.0 millioneach;

(b) In fourth, fifth and sixth class citiesand in second, third, and fourth classmunicipalities - P4.8 million each; and

(c) In fifth and sixth class municipalities- P3.2 million each.

(2) Existing RBs within the exceptedcities and municipalities shall maintain thefollowing minimum capital requirements:

(a) In the cities of Manila, Kalookan,Quezon, Pasay, Mandaluyong, Makati,Parañaque, Malabon, Navotas and San Juan- P32.0 million each; and

(b) In the cities of Cebu and Davao -P16 million each.

e. Coop Banks -Coop Banks tha t may be

established shall have a minimumauthorized capital of:

(1) P200.0 million for national CoopBanks divided into such number of shareswith a minimum par value of P1,000 pershare, with a private paid-in capital of atleast P20.0 million; and

(2) P20.0 million for local Coop Banksdivided into such number of shares, with aprivate paid-in capital of at least P1.25million, except as follows:

(a) P20.0 million minimum privatepaid-in capital for Coop Banks to beestablished in Metro Manila;

(b) P10.0 million minimum privatepaid-in capital for Coop Banks to beestablished in the cities of Cebu andDavao; and

(c) P5.0 million minimum private paid-in capital for Coop Banks to be establishedin other cities: Provided, however, That forthe first Coop Bank organized in theprovince, although it will be located in acity, the minimum private paid-in capitalshall be P1.25 million.

The foregoing minimum capitalrequirements for UBs, KBs, TBs, and RBsshall immediately apply to applicationsfiled after 12 March 1998.

§ X111.2 (2008 - X106.2) Capital build-up program

a. UBs and KBs which are existing,or which are newly authorized but not yetoperating, or banks from which completedapplications to operate under an UB/KBauthority have been received as of12 March 1998 but pending action by theBSP, are hereby allowed the following

§§ X111 - X111.208.12.31


time frame within which to meet the aboveminimum capital requirement:

(1) P4.5 billion for UBs and P2.0 billionfor KBs on or before 24 December 1998;

(2) P4.95 billion for UBs andP2.4 billion for KBs on or before31 December 1999; and

(3) P5.4 billion for UBs andP2.8 billion for KBs on or before31 December 2000: 1 Provided, That for theP 4.95 billion/P2.4 billion and P5.4 billion/P2.8 billion minimum capital, UBs/KBsshall submit to the BSP a capital build-upprogram for this purpose within three (3)months from 12 March 1998.

b. TBs which are existing, or which arenewly authorized but not yet operating,or persons from whom completedapplications to establish TBs have beenreceived as of 12 March 1998 but pendingaction by the BSP, are allowed thefollowing time frame within which to meetthe above minimum capital requirement:

(1) With head office within Metro Manila:- P250 million on or before 24 December 1998;

- P325 million on or before 31 December 1999; and

- P400 million on or before 31 December 2000;1

and

(2) With head office outside Metro Manila:- P52 million on or before 31 December 1999; and

- P64 million on or before 31 December 2000:1

Provided, That for the P325.0 million,P400.0 million, P52.0 million andP64.0 million minimum capital, TBs shallsubmit to the BSP a capital build-upprogram for this purpose within three (3)months from 12 March 1998.

c. RBs which are existing, or whichare newly authorized but not yet operating,or persons from whom completedapplications to establish RBs have beenreceived as of 12 March 1998 but pendingaction by the BSP, are allowed thefollowing time frame within which to meetthe above minimum capital requirement:

(1) In the cities of Manila, Kalookan,Quezon, Pasay, Mandaluyong, Makatiand Parañaque and in the municipalitiesof Malabon, Navotas and San Juan:- P26 million on or before 31 December 1999; and


(2) In the cities of Cebu and Davao:- P13 million on or before 31 December 1999; and


(3) In first, second and third class citiesand first class municipalities:- P6.5 million on or before 31 December 1999; and

- P8.0 million on or before 31 December 2000;1

(4) In fourth, fifth and sixth class citiesand second, third and fourth classmunicipalities:- P3.9 million on or before 31 December 1999; and

- P4.8 million on or before 31 December 2000;1

(5) In fifth and sixth classmunicipalities:- P2.6 million on or before 31 December 1999; and

- P3.2 million on or before 31 December 2000:1

Provided, That RBs shall submit to theBSP a capital build-up program for thispurpose within three (3) months from12 March 1998: Provided, further, Thati f the prescribed minimum capitalnecessitates an increase in theauthorized capital stock, the RB shallcause the corresponding amendments toits articles of incorporation and submitthe same to the BSP together with itscapital build-up program.

The deadline of the second phase(1st phase for TBs outside Metro Manilaand RBs) of the capital build-upprogram of banks is extended from31 December 1999 to 31 January 2000.

1

For banks that have executed aMemorandum of Understanding (MOU)with the BSP, in compliance with Subsec.X111.3, the following guidelines shallapply:

(a) For banks with capital deficiencybut with capital-to-risk assets ratio withinthe minimum prescribed and with no

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

§§ X111.208.12.31


weaknesses (i.e., high past due loans,DOSRI violations, etc.), the MOU may beset aside: Provided, That the bank will beable to comply with the minimum capitalrequirements as herein prescribed; and

(b) For banks with capital deficiencybut with signif icant weaknesses(i.e., deficiency in capital-to-risk assetsratio, liquidity problems, high past dueloans, etc.), the MOU, as executed, shallcontinue to be in full force and in effectuntil such time that it shall be amendedby mutual consent of the parties; waivedand/or terminated by the BSP.

Non-compliance with the above capitalrequirements shall subject the bank tosanctions/penalties provided under existingbanking laws and BSP rules and regulations.

§ X111.3 (2008 -X106.3) Memorandumof Understanding; Prompt CorrectiveAction Program; sanctions. The followingare the policy guidelines and thecorresponding sanctions for banks failingto comply with the minimum capitalrequirements and the correspondingsanctions:

a. Memorandum of Understanding;Prompt Corrective Action Program

(1) The adoption of the Memorandumof Understanding (format shown inAppendix 30) between the bank and theBSP; and

(2) The implementation of the PromptCorrective Action Program as detailed below:

(a) For undercapitalized banks of upto twenty percent (20%) -

(i) Require the bank to execute aMemorandum of Understanding (MOU)with the BSP, binding itself, among others,to implement a viable capital restorationplan acceptable to the BSP within thirty (30)days from date of notice;

(ii) Require the intensified monitoringby BSP of bank’s financial condition; and

(iii) BSP to conduct a specialexamination of the bank.

(b) For significantly undercapitalizedbanks of up to sixty percent (60%) -

(i) BSP to call a meeting with bankdirectors/principal officers to discuss andagree on remedial measures to be takenand the timetable for implementation;

(ii) Intensify monitoring by theSupervision and Examination Sector (SES)of the bank’s financial condition;

(iii) BSP to conduct immediately anextensive on-site examination;

(iv) Require the bank to execute anMOU with the BSP, binding itself, amongothers, to implement a viable capitalrestoration plan acceptable to the BSPwithin thirty (30) days from date ofdiscussion. Among the options to beconsidered are:

- disposition of a majorityshareholder’s interest;

- sale of assets;- issuance of additional stock/capital

infusion;- sale of bank to highest bidder

subject to terms set by BSP; and- merger (assisted or unassisted) or

consolidation with a stronger bank;(v) Require the creation of a separate

unit in the bank - remedial asset managementgroup which will take care of bank’s badassets and make progress reports to the BSP;

(vi) Appoint an external auditor at theexpense of the bank to perform a financialor operational audit under the terms ofreference provided by BSP; and

(vii) If necessary, appoint a consultantspecialist to diagnose the problem and torecommend the appropriate remedialmeasures (i.e., introduce new profitopportunities, improve internal andaccounting controls, etc.) to restore bank’sviability.

(c) For critically undercapitalizedbanks of more than sixty percent (60%) -

(i) Place the bank under PromptCorrective Action Unit since this requiresmore than normal bank supervision;

§§ X111.2 - X111.308.12.31


(ii) BSP to call a meeting with bank’sprincipal shareholders/directors;

(iii) BSP to conduct immediately anextensive on-site examination;

(iv) BSP to conduct an intensivemonitoring of bank’s financial condition;

(v) Require the bank to execute anMOU with the BSP, binding itself, amongothers, to implement a viable capitalrestoration plan acceptable to the BSPwithin thirty (30) days from date of meeting.Among the options to be considered are:

- disposition of a majorityshareholder’s interest;

- sale of assets;- issuance of additional stock/capital

infusion;- sale of bank to highest bidder

subject to terms set by BSP; and- merger (assisted or unassisted) or

consolidation with a stronger bank;(vi) Create a BSP Ad Hoc Committee

to oversee the implementation of theaction plan;

(vii) Require the creation of a separateunit in the bank - remedial assetmanagement group to take care of bank’sbad assets and make progress reports tothe BSP;

(viii) Appoint an external auditor at theexpense of the bank to perform financialor operational audit under the terms ofreference of the BSP;

(ix) If bank’s condition furtherdeteriorates to the extent that depositorsand creditors protection is at stake and itscapital base is already deficient by morethan eighty percent (80%), appoint/assist aresident examiner/comptroller orconservator, if legally feasible, to oversee/take over management of the bank; and

(x) If necessary, appoint a consultantspecialist to diagnose the problem and torecommend the appropriate remedialmeasures (i.e., introduce new profitopportunities, improve internal and accountingcontrols, etc.) to restore bank’s viability.

b. Sanctions. The following sanctionsfor non-compliance with the minimum capitalrequirements are hereby prescribed:

(1) Monetary penaltyFor delayed or non-submission of the

capital build-up program reckoned fromthe time bank was notified in writing up tothe time the program has been submitted,per banking day of delay, a monetarypenalty of:

Type of Bank Amount of Penalty(a) UBs/ KBs P 10,000.00(b) TBs 5,000.00(c) RBs 1,000.00

(2) Non-monetary penaltyNon-monetary penalties shall depend

on the degree of capital deficiency incurredby the bank as follows:

RBs/ UBs/ Coop

Penalty KBs TBs Banks

(a) Up to twenty percent (20%) - - Suspension of authority to NA NA

invest in non-allied under-takings (for UBs only)

- Suspension of authority to NA NAinvest in allied undertakings

- Suspension of securities NA NAand dealership functions(for UBs only)

- Suspension of branchingprivileges

- Suspension of declarationof cash dividends

(b) Up to forty percent (40%) - - Suspension of authority NA NA

to invest in non-allied under-takings (for UBs only)

- Suspension of authority to NA NAinvest in allied undertakings

- Suspension of securities NA NA and dealership functions(for UBs only)

- Restrictions on lending NAto affiliates


- Suspension of declara-tion of cash dividends

- Restrictions on overallloan growth/investments(new loans to the extentof collections only)

- Denial of access to BSPrediscounting facilities

§§ X111.308.12.31


- Suspension of authority NAto accept or create demanddeposits or operateNOW accounts

- Suspension of authority toaccept or handle govern-ment deposits

(c) Up to sixty percent (60%) - - Suspension of authority to NA NA


- Suspension of authority toinvest in allied undertaking




- Restrictions on overallloan growth/investments(new loans to the extent ofcollections only)

- Restrictions on lending to NAaffiliates


- Suspension of authority toaccept or handle govern-ment deposits

- Suspension of authority to NAengage in quasi-bankingactivities

- Suspension of authority to NA NAengage in derivativesactivities

- Suspension of FCDU/ NAEFCDU activities

- Suspension of trust operations NA - Suspension of authority to NA

accept or create demanddeposits or operateNOW accounts

(d) Up to eighty percent (80%) - - Suspension of authority to NA NA


- Suspension of authorityto invest in allied undertakings





- Suspension of authority to NA accept or create demand

deposits or operate NOWaccounts

- Suspension of authority to

accept or handle govern-ment deposits

- Suspension of authority to NAengage in quasi-bankingactivities

- Suspension of authority to NA NAengage in derivativesactivities

- Suspension of FCDU/ NAEFCDU activities

- Suspension of trust operations NA - Suspension of international NA NA

banking activities - Suspension of lending

activities - Suspension of issuance NA NA

of domestic L/Cs(e) More than eighty percent (80%) - - Suspension of clearing

privileges - Suspension of granting

of bonuses/profit-sharingnot covered by existingcontracts or By-Laws

- Cease and desist

(As amended by Circular No. 585 dated 15 October 2007)

§§ X112 - X114 (Reserved)

E. RISK BASED CAPITAL

Sec. X115 Basel II Risk-Based CapitalThe guidelines implementing the

revised risk-based capital adequacyframework for the Philippine bankingsys tem to conform to Base l I Irecommendat ions i s p rov ided inAppendix 63b.

The risk-based capital ratio of abank, expressed as a percentage ofqualifying capital to risk weightedasse ts , sha l l not be less than tenpercent (10%) for both solo basis (headoffice plus branches) and consolidatedbasis (parent bank plus subsidiaryf inancia l a l l ied under tak ings , butexcluding insurance companies).

(The BSP’s implementation plans forthe new international capital standards orBasel 2 contained in the Basel Committeeon Banking Supervision document“International Convergence of CapitalMeasurement and Capital Standards:

§§ X111.3 - X11508.12.31


A Revised Framework”, are shown inAppendix 63)(Circular No. 538 dated 04 August 2006, as amended by

M-2008-015 dated 19 March 2008, Circular Nos. 605 dated

05 March 2008, 588 dated 11 December 2007, M-2007-019 dated

21 June 2007, Circular No. 560 dated 31 January 2007 and

M-2006-022 dated 24 Novemebr 2006)

§ X115.1 ScopeThe Basel II guidelines apply to all UBs and

KBs, as well as their subsidiary banks and QBs.

§ X115.2 (Reserved)

§ 1115.2 (2008 - 1116.5) Market riskcapital requirement. UBs/KBs shall alsomeasure and apply capital charges for marketrisk, in addition to the credit risk capitalrequirement in this Section, in accordancewith the Guidelines to Incorporate MarketRisk in the Risk-Based Capital AdequacyFramework in Appendix 46.

The capital treatment of market riskexposures arising from the holdings ofDollar-Linked Peso Notes (DLPNs) isindicated in Appendix 46a.

The instructions for accomplishing thereport on computation of the Adjusted Risk-Based Capital Adequacy Ratio coveringcombined credit risk and market risk areshown in Appendices 46b (for UBs and KBswith expanded derivatives authority), 46c(for UBs and KBs with expandedderivatives authority but without optionstransactions) and 46d (for UBs and KBswithout expanded derivatives authority).

§ 2115.2 (Reserved)


§ X115.3 (2008 - X116.8) Capitaltreatment of exposures/investments incertain products. The guidelines on thecapital treatment of bank’s exposures/investments in the following products arein Part VI:

a. Credit-linked notes in Sec. 1628and its Subsections.

b. S t ruc tured products inSubsec. 1635.4.

c. EFCDU inves tments inSubsec. 1636.4.

d. Inves tment in secur i t iesoverlying securitization structures inSubsec. 1648.4

Sec. X116 Basel I Risk-Based Capital. Therisk-based capital ratio of a bank, expressedas a percentage of qualifying capital to riskweighted assets, shall not be less than tenpercent (10%) for both solo basis (headoffice plus branches) and consolidated basis(parent bank plus subsidiary financial alliedundertakings, but excluding insurancecompanies).

The ratio shall be maintained daily.

§ X116.1 Scope. TBs, RBs, as well asQBs that are not subsidiaries of UBs andKBs shall continue to be subject to the risk-based capital adequacy framework, asprovided under Sec. X116, as well asSubsecs. X115.3 and X116.2 to X116.7.

§ X116.2 (2008 - X116.1) Qualifyingcapital. The composition of qualifyingcapital is shown in Appendix 63a.(As amended by Circular Nos. 560 dated 31 January 2007,

528 dated 03 May 2006 and Memorandum to All Banks dated

23 March 2006)

§ X116.3 (2008 - X116.2) Risk-weightedassets. The risk-weighted assets shall bedetermined by assigning risk weights toamounts of on-balance sheet assets and tocredit equivalent amounts of off-balancesheet items (inclusive of derivativescontracts): Provided, That the followingshall be deducted from the total risk-weighted assets: (1) general loan lossprovision (in excess of the amountpermitted to be included in upper Tier 2capital) and unbooked valuation reserves;

§§ X115 - X116.308.12.31


and (2) other capital adjustments affectingasset accounts based on the latest reportof examination as approved by theMonetary Board.

a. On-balance sheet assets. The risk-weighted amount shall be the product of thebook value of asset multiplied by the riskweight associated with that asset, as follows:

(1) Zero percent (0%) risk weight -(a) Cash on hand;(b) Claims on or portions of claims

guaranteed by or collateralized by securitiesissued by -

i. Philippine National Governmentand BSP; and

ii. Central governments and centralbanks of foreign countries with thehighest credit quality as defined inSubsec. X116.4;

(c) Claims on or portions of claimsguaranteed by or collateralized bysecurities issued by multilateraldevelopment banks (MDBs);

(d) Loans to the extent covered byhold-out on, or assignment of, deposits/deposit substitutes maintained with thelending bank;

(e) Loans or acceptances under lettersof credit to the extent covered by margindeposits;

(f) Portions of special time depositloans covered by Industrial Guarantee andLoan Fund (IGLF) guarantee;

(g) Real estate mortgage loans to theextent guaranteed by the Home GuarantyCorporation (HGC);

(h) Housing microfinance loans asprovided under Subsec. X361.5 to theextent guaranteed by the HGC;

(i) Loans to the extent guaranteed bythe Trade and Investment DevelopmentCorporation of the Philippines (TIDCORP);

(j) Foreign currency notes and coinson hand acceptable as internationalreserves; and

(k) Gold bullion held either in ownvaults, or in another’s vaults on an allocated

basis, to the extent it is offset by gold bullionliabilities;

(2) Twenty percent (20%) risk weight -(a) Checks and other cash items

(COCIs);(b) Claims on or portions of claims

guaranteed by or collateralized bysecurities issued by non-centralgovernment public sector entities offoreign countries with the highest creditquality as defined in Subsec. X116.4;

(c) Claims on or portions of claimsguaranteed by Philippine incorporatedbanks/QBs with the highest credit qualityas defined in Subsec. X116.4;

(d) Claims on or portions of claimsguaranteed by foreign incorporated bankswith the highest credit quality as definedin Subsec. X116.4;

(e) Claims on Philippine incorporatedprivate enterprises with the highest creditquality as defined in Subsec. X116.4;

(f) Claims on foreign incorporatedprivate enterprises with the highest creditquality as defined in Subsec. X116.4;

(g) Loans to exporters to the extentguaranteed by Small Business Guaranteeand Finance Corporation (SBGFC):Provided, That loans to exporters to theextent guaranteed by the Guarantee Fundfor Small and Medium Enterprises (GFSME)outstanding as of the date of the effectivityof the merger of the SBGFC and GFSMEshall continue to have a zero percent (0%)risk weight: Provided, further, That thezero percent (0%) risk weight shall notapply to loans renewed after the mergerof the SBGFC and the GFSME; and

(h) Foreign currency checks and othercash items denominated in currenciesacceptable as international reserves.

(3) Fifty percent (50%) risk weight -(a) Loans for housing purpose, fully

secured by first mortgage on residentialproperty that is or will be occupied orleased out by the borrower, which are notclassified as non-performing;

§ X116.308.12.31


(b) Local government unit (LGU)bonds which are covered by Deed ofAssignment of Internal Revenue Allotmentof the LGU and guaranteed by the LGUGuarantee Corporation; and

(c) Housing microfinance loans underSubsec. X361.5 other than thoseguaranteed by the HGC.

(4) Seventy five percent (75%)risk weight

(a) Defined small and mediumenterprise (SME) and microfinance loanportfolio that meets the following criteria:

(i) For individual claims that mayform part of the SME and microfinanceloan portfolio

(aa) Claim must be on a small ormedium business enterprise as definedunder existing BSP regulations; and

(bb) Claims must be in the form of:- Direct loans; or- Unavailed portion of committed

credit lines and other business facilitiessuch as outstanding guarantees issued andunused letters of credit: Provided, That thecredit equivalent amounts thereof shallbe determined in accordance withSubsec. X116.3.b.

(ii) For the SME and microfinanceportfolio -

(aa) It must be a highly diversifiedportfolio, i.e., it has at least 500 borrowersthat are distributed over a number ofindustries; and

(bb) The past due ratios of the definedSME and microfinance loan portfolio foreach of the immediately preceding three(3) years do not exceed five percent (5%).

(iii) For the bank -(aa) I t must have adequate risk

management process approved by theboard of directors, including as aminimum, a rigorous credit approvalprocess and an adequate loan trackingsystem that allows timely monitoring ofloan releases, collection and arrearages,and any restructuring and refinancing; and

(bb) The bank must be financially soundand in compliance with major prudentialrequirements, particularly the following:

- CAMELS composite rating of atleast “3” and management score of at least“3” in its latest BSP examination; and

- Minimum applicable capitaladequacy ratio.

(b) Non-performing loans (NPLs) forhousing purpose, fully secured by firstmortgage on residential property that isor will be occupied or leased out by theborrower; Provided, That risk weightingfor such loans shall be increased to100% in 2007;

(5) One hundred percent (100%) riskweight –

All other assets including, amongothers, the following:

(a) Claims on central governmentsand central banks of foreign countries otherthan those with the highest credit quality;

(b) Claims on Philippine localgovernment units;

(c) Claims on non-central governmentpublic sector entities of foreign countriesother than those with the highest creditquality;

(d) Claims on government-owned or-controlled commercial corporations;

(e) Claims on Philippine incorporatedbanks/QBs other than those with thehighest credit quality;

(f) Claims on foreign incorporatedbanks other than those with the highestcredit quality;

(g) Claims on Philippine incorporatedprivate enterprises and claims on foreignincorporated private enterprises other thanthose with the highest credit quality;

(h) Loans to companies engaged inspeculative residential building orproperty development;

(i) Equity investments (except thosededucted from capital);

(j) Bank premises, furniture, fixturesand equipment (net);

§ X116.308.12.31


(k) Appraisal increment - bankpremises, furniture, fixtures and equipment(net);

(l) Real and other properties ownedor acquired (net);

(m) Foreign currency notes andcoins on hand not acceptable asinternational reserves;

(n) Gold bullion held in either ownvaults, or in another’s vaults on anallocated basis, that is not offset by goldbullion liabilities;

(o) Foreign currency COCIs notdenominated in foreign currenciesacceptable as international reserves;except those which are deducted fromcapital, as follows:

(i) Unsecured credit accommodations,both direct and indirect, to DOSRI;

(ii) Unsecured loans, other creditaccommodations and guarantees grantedto subsidiaries and affiliates;

(iii) Deferred income tax;(iv) Goodwill;(v) Sinking fund for redemption of

limited life redeemable preferred stockwith the replacement requirement uponredemption;

(vi) Sinking fund for redemption ofl imi ted l i fe redeemable pre fer reds tock wi thout the rep lacementrequirement upon redemption (limitedto the balance of redeemable preferredstock after applying the cumulativediscount factor);

(vii) Equity investments inunconsolidated subsidiary banks andother financial allied undertakings, butexcluding insurance companies;

(viii) Investments in debt capitalinstruments of unconsolidated subsidiarybanks;

(ix) Equi ty inves tments insubsidiary insurance companies andnon-financial allied undertakings;

(x) Reciprocal investments in equityof other banks/enterprises;

(xi) Reciprocal investments inunsecured subordinated term debtinstruments of other banks/QBs in excessof the lower of:

(aa) an aggregate ceil ing of f ivepercent (5%) of total Tier 1 capital ofthe bank; or

(bb) ten percent (10%) of the totaloutstanding unsecured subordinated termdebt issuance of the other bank/QB; and

(xii) Net due “from” head office,branches, subsidiaries and other officesoutside the Philippines, if any (for foreignbank branches); and

(p) Starting 2007, NPLs for housingpurpose, fully secured by first mortgageon residential property that is or will beoccupied or leased out by the borrower.

(6) One hundred twenty five percent(125%) risk weight -

All NPLs (except NPLs for housingpurpose, fully secured by first mortgageon residential property that is or will beoccupied or leased out by the borrower)and all non-performing debt securities:Provided, That risk weighting for suchexposures shall be increased to 150% in2007.

NPLs, which are secured by eligiblecollaterals or guaranteed by eligibleguarantors below, shall be assigned the riskweight of the collateral or guarantor:Provided, That in cases of guarantees, thebank is able to pursue the guarantor ofany monies outstanding within the periodof time stipulated in the guaranteecontract. Otherwise, the loan in questionshall be assigned the risk weightapplicable for NPLs.

(a) List of eligible collaterals(i) Securities issued by the Philippine

national government and BSP, and centralgovernments and central banks of foreigncountries with the highest credit quality asdefined in Subsec. X116.4;

(ii) Securities issued by multilateraldevelopment banks listed under Sec. X116.4;

§ X116.308.12.31


(iii) Cash in the form of hold out onor assignment of deposits/depositsubstitutes maintained with the lendingbank, and margin deposits for loans oracceptances under letters of credit; and

(iv) Securities issued by non-centralgovernment public sector entities offoreign countries with the highest qualityas defined in Subsec. X116.4.

(b) List of eligible guarantors(i) Philippine national government

and BSP, and central governments andcentral banks of foreign countries withthe highest credit quality as defined inSubsec. X116.4;

(ii) Multilateral development bankslisted under Sec. X116.4;

(iii) IGLF;(iv) HGC;(v) TIDCORP;(vi) Non-central government public

sector entities of foreign countries withthe highest credit quality as defined inSubsec. X116.4;

(vii) Philippine incorporated banks/QBswith the highest credit quality as definedin Subsec. X116.4;

(viii) Foreign incorporated banks withthe highest credit quality as defined inSubsec. X116.4;

(ix) SBGFC; and(x) LGU Guarantee Corporation

(LGUGC), but only those guaranteed loanscovered by Deed of Assignment of InternalRevenue Allotment of the LGU.

b. Off-balance sheet items. Therisk-weighted amount shall be calculatedusing a two (2)-step process.

First, the credit equivalent amountof an off-balance sheet item shall bedetermined by multiplying its notionalprincipal amount by the appropriatecredit conversion factor, as follows:

(1) One hundred percent (100%)credit conversion factor -

This shall apply to direct creditsubstitutes, e.g., general guarantees of

indebtedness (including standby letters ofcredit serving as financial guarantees forloans and securities) and acceptances(including endorsements with the characterof acceptances), and shall include -

(a) Outstanding guarantees issued -foreign loans;

(b) Outstanding guarantees issued -other than foreign loans and shipside bonds/airway bills; and

(c) Export letters of credit - confirmed.This shall also apply to sale and repo

agreements and asset sales with recoursewhere the credit risk remains with the bank(to the extent not included in the balancesheet), as well as to forward asset purchases,forward forward deposits and partly-paidshares and securities which representcommitments with certain drawdown:Provided, That these items shall be weightedaccording to the type of asset and notaccording to the type of counterparty withwhom the transaction has been entered into.

(2) Fifty percent (50%) creditconversion factor -

This shall apply to certain transaction-related contingent items, e.g., performancebonds, bid bonds, warranties and standbyletters of credit related to particulartransactions, and shall include -

(a) Standby letters of credit -domestic (net of margin deposit)established as a guarantee that a businesstransaction will be performed; and

(b) Standby letters of credit - foreign(net of margin deposit).

This shall also apply to -(c) Note issuance facilities and

revolving underwriting facilities; and(d) Other commitments, e.g., formal

standby facilities and credit lines with anoriginal maturity of more than one (1) year. Thisshall include underwritten accounts unsold.

(3) Twenty percent (20%) creditconversion factor -

This shall apply to short-term, self-liquidating trade-related contingencies,

§ X116.308.12.31


e.g., documentary credits collateralized bythe underlying shipments, and shall include -

(a) Outstanding guarantees issued -shipside bonds/airway bills;

(b) Domestic letters of creditoutstanding (net of margin deposit);

(c) Sight import letters of creditoutstanding (net of margin deposit);

(d) Usance import letters of creditoutstanding (net of margin deposit);

(e) Deferred letters of credit (net ofmargin deposit); and

(f) Revolving letters of credit (net ofmargin deposit) arising from movementof goods and/or services.

(4) Zero percent (0%) creditconversion factor –

This shall apply to commitments withan original maturity of up to one (1) year,or which can be unconditionally cancelledat any time, and shall include committedcredit line for commercial paper issues.

This shall also apply to those notinvolving credit risk, and shall include -

(a) Inward bills for collection;(b) Outward bills for collection;(c) Items held for safekeeping/

custodianship;(d) Trust department accounts;(e) Late deposits/payments received;(f) Items held as collaterals; and(g) Travelers’ checks; etc.Second, the credit equivalent amount

shall be treated like any on-balance sheetasset and shall be assigned the appropriaterisk weight, i.e., according to the obligor,or if relevant, the qualified guarantor or thenature of collateral.

c. Derivatives contracts. The creditequivalent amount shall be the sum of thecurrent credit exposure (or replacementcost) and an estimate of the potential futurecredit exposure (or add-on): Provided, Thatthe following shall not be included in thecomputation:

(1) Instruments which are traded onexchange where they are subject to daily

receipt and payment of cash variationmargin; and

(2) Exchange rate contracts withoriginal maturity of fourteen (14) calendardays or less.

The current credit exposure shall be thepositive mark-to-market value of thecontract (or zero if the mark-to-marketvalue is zero or negative). The potentialfuture credit exposure shall be the productof the notional principal amount of thecontract multiplied by the appropriatepotential future credit conversion factor, asindicated below:

Interest Exchange

Residual Maturity Rate Contract Rate Contract

One (1) year or less 0.0% 1.0 %

Over one (1) year to

five (5) years 0.5% 5.0 %

Over five (5) years 1.5% 7.5 %

Provided, That for contracts withmultiple exchanges of principal, the factorsare to be multiplied by the number ofremaining payments in the contract:Provided, further, That for contracts that arestructured to settle outstanding exposurefollowing specified payment dates andwhere the terms are reset such that themarket value of the contract is zero (0) onthese specified dates, the residual maturitywould be set equal to the time until thenext reset date, and in the case of interestrate contracts with remaining maturities ofmore than one (1) year that meet thesecriteria, the potential future creditconversion factor is subject to a floor offive tenths percent (0.5%): Provided,furthermore, That no potential future creditexposure shall be calculated for singlecurrency floating/floating interest rateswaps, i.e., the credit exposure on thesecontracts would be evaluated solely on thebasis of their mark-to-market value.

The credit equivalent amount shall betreated like any on-balance sheet asset, and

§ X116.308.12.31


shall be assigned the appropriate riskweight, i.e., according to the obligor, or ifrelevant, the qualified guarantor or thenature of collateral: Provided, That a fiftypercent (50%) risk weight shall be appliedin respect of obligors which wouldotherwise attract a 100% risk weight.

The extent to which a claim isguaranteed/collateralized shall bedetermined by the amount of guaranteecoverage/current market value of securitiespledged, in comparison with the bookvalue of the on-balance sheet asset or thenotional principal amount of the off-balancesheet exposure, except for derivativescontracts for which determination isgenerally made in relation to creditequivalent amount.

The capital treatment of investments incredit-linked notes (CLNs) and similarcredit derivative products such as credit-linked deposits (CLDs) and credit-linkedloans (CLLs) shall comply with theguidelines in Sec. 1628 and its Subsections.(As amended by M-2008-015 dated 19 March 2008 and

Circular No. 560 dated 31 January 2007)

§ X116.4 (2008 - X116.3) Definitionsa. Amount due from the BSP. This

refers to all deposits of the reporting bankwith the BSP.

b. Appraisal increment reserve. Thisshall form part of capital only if authorizedby the Monetary Board.

c. Bank premises, furniture, fixturesand equipment net of depreciation. Thisrefers to the cost of land and improvementsused as bank premises, and furniture,fixtures and equipment owned by the bank.

d. Cash on hand. This refers to totalcash held by the bank consisting of bothnotes and coins in Philippine currency.

e. Central government of a foreigncountry. This refers to the centralgovernment which is regarded as such bya recognized banking supervisoryauthority in that country.

f. Claims. This refer to loans or debtobligations of the entity on whom the claimis held, and shall include, but shall not belimited to, the following accounts,inclusive of accumulated market gains/(losses) and accumulated bond discount/(premium amortization), and net of specificallowance for probable losses:

(1) Due from BSP;(2) Due from other banks;(3) Interbank loans receivable;(4) Loans and discounts;(5) Agrarian reform and other

agricultural credit loans - P.D. 717;(6) Development incentive loans;(7) Bills purchased;(8) Customers’ liability on bills/drafts

under LCs/TRs;(9) Customers’ liability for this bank’s

acceptances outstanding;(10) Restructured loans;(11) Trading account securities - loans;(12) Underwriting accounts - debt

securities (for UBs);(13) Underwriting accounts - equity

securities (for UBs);(14) Trading account securities -

investments;(15) Trading account securities -

equity (for UBs);(16) Available for sale securities;(17) Investments in bonds and other

debt instruments (IBODI); and(18) Others, e.g., accounts receivable

and accrued interest receivable.Accruals on a claim shall be classified

and risk weighted in the same way as theclaim. Bills purchased shall be classifiedas claims on the drawee banks.

g. Consolidated basis. This refersto combined statement of condition ofparent bank and subsidiary financial alliedundertakings, but excluding insurancecompanies.

h. Debt capital instruments. Thisrefers to unsecured subordinated term debtinstruments qualifying as capital of banks.

§§ X116.3 - X116.408.12.31


i. Equity investments. This refers toinvestments in capital stock of companies,firms or enterprises, made for purposes ofcontrol, affiliation or other continuingbusiness advantage.

j. Exchange rate contracts. Thisincludes cross-currency interest rate swaps,forward foreign exchange contracts,currency futures, currency optionspurchased and similar instruments.

k. Financial allied undertakings. Thisrefers to enterprises or firms withhomogenous or similar activities/business/functions with the financial intermediaryand may include but not limited toleasing companies, banks, IHs, financingcompanies, credit card companies, FIscatering to small and medium scaleindustries (including venture capitalcorporations), companies engaged instock brokerage/securities dealership,companies engaged in foreign exchangedealership/brokerage, holding companies(for UBs), and such other similar activitiesas the Monetary Board may declare asappropriate from time to time, butexcluding insurance companies.

l. Claims on foreign country andforeign incorporated bank/privateenterprise and Philippine incorporatedbank/quasi bank/private enterprise withthe highest credit quality. This refers toclaims on a country, bank or privateenterprise given the highest credit ratingsby any of the following BSP-recognizedcredit rating agencies:

(1) International rating agencies: Rating Agency Highest Rating

(1) Moody’s “Aa3” and above(2) Standard and Poor’s “AA-” and above(3) FitchRatings “AA-” and above(4) And such other as may be approved by

the Monetary Board

(2) Domestic rating agencies:Rating Agency Highest Rating

(1) PhilRatings “PRS Aa” and above(2) And such other rating agencies as may be

approved by the Monetary Board

Provided, That for purposes of thisSubsection:

(i) Any reference to credit rating shallrefer to issue-specific rating; the issuerrating may be used only if the claim beingrisk-weighted is a senior obligation of theissuer and is of the same denominationapplicable to the issuer rating (e.g., localcurrency issuer rating may be used for riskweighting local currency denominatedsenior claims), or in cases of guarantees;

(ii) For loans, risk weighting shalldepend on either the rating of the borroweror the rating of the unsecured seniorobligation of the borrower: Provided, Thatthe loan is of the same denominationapplicable to the borrower rating or ratingof the unsecured senior obligation;

Domestic debt issuances may be ratedby BSP-recognized domestic or internationalcredit rating agencies who may use a nationalrating scale acceptable to the BSP, whileinternational debt issuances should be ratedby BSP-recognized international credit ratingagencies only; and

If a claim has only one (1) rating by anyof the BSP recognized rating agencies, thatrating shall be used to determine the riskweight of the claim; in cases where thereare two (2) or more ratings which map intodifferent risk weights, the higher of the two(2) lowest risk weights should be used.

m. Forward asset purchases. Thisrefers to a commitment to purchase a loan,security or other asset at a specified futuredate, usually on prearranged terms.

n. Forward forward deposits. Thisrefers to an agreement between two (2)parties whereby one (1) will pay and theother will receive an agreed rate of intereston a deposit to be placed by one (1) partywith the other at some predetermined datein the future.

o. Gold bullion held in another’s vaulton an allocated basis. This refers to goldbullion held by others to the order of thebank, and which is separately ascertainable.

§ X116.408.12.31


p. Goodwill. This refers to anintangible asset that represents the excessof the purchase price over the fair marketvalue of identifiable assets acquired lessliabilities assumed in acquisitionsaccounted for under the purchase methodof accounting.

q. Interest rate contracts. This includessingle-currency interest rate swaps, basisswaps, forward rate agreements, interestrate futures, interest rate options purchasedand similar instruments.

r. Loans for housing purpose, fullysecured by first mortgage on residentialproperty that is or will be occupied orleased out by the borrower. This shall notinclude loans to companies engaged inspeculative residential building or propertydevelopment.

s. Loans or acceptances under lettersof credit to the extent covered by margindeposits. This shall not include theunnegotiated letters of credit or theunutilized portion thereof, or other itemsbooked under contingent accounts. Thisshall also not include margin depositsagainst loans or acceptance accounts whichare fully liquidated.

t. Loans to the extent covered byhold-out on, or assignment of, deposits ordeposit substitutes maintained in thelending bank. A loan shall be consideredas secured by a hold-out on, or assignmentof deposit or deposit substitute only if suchdeposit or deposit substitute account iscovered by a hold-out agreement or deedof assignment signed by the depositor orinvestor/placer in favor of the bank. Thisshall not include loans transferred to/carriedby the bank’s trust department secured bydeposit hold-out/assignment.

u. Multilateral development banksThese refer to the World Bank Groupcomprised of the International Bank forReconstruction and Development (IBRD)and the International Finance Corporation(IFC), the Asian Development Bank (ADB),

the African Development Bank (AfDB), theEuropean Bank for Reconstruction andDevelopment (EBRD), the Inter-AmericanDevelopment Bank (IADB), the EuropeanInvestment Bank (EIB); the NordicInvestment Bank (NIB); the CaribbeanDevelopment Bank (CDB), the Council ofEurope Development Bank (CEDB) and suchothers as may be recognized by the BSP.

v. Non-central government publicsector entity of a foreign country. Thisrefers to entities which are regarded assuch by a recognized banking supervisoryauthority in the country in which they areincorporated.

w. Note issuance facilities andrevolving underwriting facilities. Thisrefers to an arrangement whereby aborrower may draw down funds up to aprescribed limit over an extended periodby repeated issues to the market ofpromissory notes which the bankcommitted to underwrite.

x. Other commitments. This includesundrawn portion of any bindingarrangements which obligate the bank toprovide funds at some future date.

y. Other commitments with anoriginal maturity of up to one (1) year. Thisincludes any revolving or undated open-ended commitments, e.g., overdrafts orunused credit lines, providing that they canbe unconditionally cancelled at any time andsubject to credit revision at least annually.

z. Partly-paid shares and securitiesThis arises where only a part of the issueprice or nominal face value of a securitypurchased has been subscribed and theissuer may call for the outstanding balance(or a further installment), either on a datepredetermined at the time of issue, or atan unspecified future date.

aa. Perpetual preferred stock. Thisrefers to preferred stock that does not havea maturity date, that cannot be redeemedat the option of the holder of the instrument,and that has no provision that will require

§ X116.408.12.31


future redemption of the issue. Consistentwith these provisions, any perpetualpreferred stock with a feature permittingredemption at the option of the issuer mayqualify as capital only if the redemption issubject to prior approval of the BSP.

bb. Philippine local government unitsThis refers to the Philippine governmentunits below the level of nationalgovernment, such as city, provincial, andmunicipal governments.

cc. Philippine national government.This shall refer to the Philippine nationalgovernment and their agencies such asdepartments, bureaus, offices, andinstrumentalities, but excludinggovernment-owned and controlledcommercial corporations.

dd. Private sector. This refers toentities other than banks and governments.This shall also include commercialcompanies owned by the public sector,such as government-owned or controlledcommercial corporations.

ee. Redeemable preferred stock. Thisrefers to preferred stock which may beredeemed at the specific dates or periodsfixed for redemption, only upon priorapproval of the BSP and, where theconditions of the issuance specifically state,only if the shares redeemed or replacedwith at least an equivalent amount ofnewly paid-in shares so that the totalpaid-in capital stock is maintained at thesame level immediately prior toredemption: Provided, That redemptionshall not be earlier than five (5) years afterthe date of issuance: Provided, further, Thatsuch redemption may not be made wherethe bank is insolvent or if such redemptionwill cause insolvency, impairment ofcapital or inability of the bank to meet itsdebts as they mature.

Banks which have issues of limited liferedeemable preferred shares compliantwith Subsec. X126.5 and outstanding priorto 01 July 2001 shall be allowed to redeem

the same prior to the set redemption date,without the need for replacement with atleast an equivalent amount of newly paid-in shares within one (1) year from26 September 2003 (effectivity of CircularNo. 397) upon prior BSP approval: Provided,That:

(i) The redeemable preferredshareholders will give consent;

(ii) The bank meets the requiredminimum risk-based CAR and minimumcapital level for the bank category aftersuch redemption; and

(iii) Such redemption will not cause theinability of the bank to meet its obligationsas they mature.

ff. Sale and repurchase agreementsand asset sales with recourse. This refersto arrangements whereby a bank sells aloan, security or fixed asset to a third partywith a commitment to repurchase the assetafter a certain time, or in the event to acertain contingency.

gg. Solo basis. This refers to combinedstatement of condition of head office andbranches.

hh. Subsidiary. This refers to acorporation or firm more than fifty percent(50%) of the outstanding voting stock ofwhich is directly or indirectly owned,controlled or held with the power to voteby a bank.

ii. Treasury shares. This refers toshares of the parent bank held by asubsidiary financial allied undertaking in aconsolidated statement of condition.

jj. Private enterprises. This refers toall commercial companies whetherorganized in the form of a corporation,partnership, or sole proprietorship.

kk. Non-performing debt securities.This refers to debt securities as describedbelow:

(i) For zero-coupon debt securities,and debt securities with quarterly, semi-annual, or annual coupon payments, theyshall be considered non-performing when

§ X116.408.12.31


principal and or coupon payment is unpaidfor thirty (30) days or more after due date.

(ii) For debt securities with monthlycoupon payments, they shall beconsidered non-performing when three (3)or more coupon payments are in arrears:Provided, however, That when the totalamount of arrearages reaches twentypercent (20%) of the total outstandingbalance of the debt security, the totaloutstanding balance of the debt securityshall be considered as non-performing.

§ X116.5 (2008 - X116.4) Requiredreports. Banks shall submit a report of theirrisk-based capital adequacy ratio on a solobasis (head office plus branches) and on aconsolidated basis (parent bank plussubsidiary financial allied undertakings, butexcluding insurance companies) quarterlyto the appropriate department of the SESin the prescribed forms within thedeadlines, i.e., fifteen (15) banking daysand thirty (30) banking days after the endof reference quarter, respectively. Onlybanks with subsidiary financial alliedundertakings (excluding insurancecompanies) which under existingregulations are required to prepareconsolidated statements of condition on aline-by-line basis shall be required tosubmit report on a consolidated basis. Theabovementioned reports shall be classifiedas Category A-2 reports.

§ X116.6 Sanctions. Whenever thecapital accounts of a bank are deficient withrespect to the prescribed risk-based capitaladequacy ratio (which for UBs/KBs shallpertain to adjusted capital adequacy ratiocovering combined credit risk and marketrisk), the Monetary Board, after consideringa report of the appropriate department ofthe SES on the state of solvency of theinstitution concerned, shall limit or prohibitthe distribution of the net profits and shallrequire that part or all of net profits be used

to increase the capital accounts of the bankuntil the minimum requirement has beenmet. The Monetary Board may restrict orprohibit the making of new investmentsof any sort by the bank, with the exceptionof purchases of readily marketableevidences of indebtedness issued by thePhilippine National Government and BSPincluded in Item “a(1)(b)i” of Subsec.X116.3, until the minimum requiredcapital ratio has been restored.

§ X116.7 Temporary relief. In case ofa bank merger, or consolidation, or whena bank is under rehabilitation under aprogram approved by the BSP, theMonetary Board may temporarily relievethe surviving bank, consolidated bank, orconstituent bank or corporations underrehabilitation from full compliance with therequired capital ratio for a maximum periodof one (1) year.


F. CAPITAL INSTRUMENTS

Sec. X119 Unsecured Subordinated DebtThe guidelines for the issuance ofunsecured subordinated debt (UnSD)eligible as Hybrid Tier 1 (HT1) and Tier 2capital are as follows:(As amended by Memorandum to All Banks dated

23 March 2006)

§ X119.1 Minimum features ofunsecured subordinated debt

a. Form. A UnSD that will be publiclydistributed may either be scripless in formor evidenced by certificates such as:promissory note, debenture or otherappropriate certificate of indebtedness.A UnSD in scripless form shall complywith the provisions of R.A. No. 8792,otherwise known as the “ElectronicCommerce Act”, particularly on theexistence of an assurance on the integrity,

§§ X116.4 - X119.108.12.31


reliability and authenticity of the UnSD inelectronic form. An independent third partyUnSD Registry shall maintain unissuedUnSD certificates and the UnSD RegistryBook, which must be electronic if theUnSD is scripless in form. A UnSD thatwill be issued privately or on a negotiatedbasis shall be evidenced by certificates.

All UnSD shall be registered in thename of individuals or entities andpre-numbered serially.

b. Denomination. The UnSD must beissued in minimum denominations ofP500,000 or its equivalent if denominatedin a foreign currency.

c. Mandatory provisions. If the UnSDis not scripless in form, the followingprovisions must appear in bolder prints onthe face of every note, debenture or othercertificate evidencing the same:

(1) This obligation is not a deposit andis not insured by the Philippine DepositInsurance Corporation (PDIC);

(2) This obligation is neither securednor covered by the guarantee of (name ofbank) or its subsidiaries and affiliates, orother arrangement that legally oreconomically enhances the priority of theclaim of any holder of the UnSD as againstdepositors and other creditors (for LT2);depositors, other creditors and holders ofLT2 capital instruments (for UT2); anddepositors, other creditors and holders ofLT2 and UT2 capital instruments (for HT1);

(3) This obligation does not have apriority claim, in respect of principal andcoupon payments in the event of winding-up of the (name of bank), which is higherthan or equal with that of depositors andother creditors (for LT2); depositors, othercreditors and holders of LT2 capitalinstruments (for UT2); and depositors, othercreditors, holders of LT2 and UT2 capitalinstruments (for HT1); and

(4) The obligation is ineligible ascollateral for a loan granted by (name ofBank), its subsidiaries and affiliates.

If the UnSD is scripless in form, theforegoing provisions/information shall befurnished every buyer/investor in aseparate written instrument receipt ofwhich must be duly acknowledged byhim.

d. Term. The UnSD qualifying underHT1 capital shall be perpetual. Theminimum maturity of a UnSD qualifyingunder UT2 and LT2 capital shall be ten (10)years and five (5) years, respectively.(As amended by Memorandum to Al l Banks dated

23 March 2006)

§ X119.2 Prior Bangko Sentralapproval. No UnSD shall be issued withoutthe prior approval of the BSP.

§ X119.3 Pre-qualification requirementsof issuing bank. A bank applying forauthority to issue a UnSD shall comply withthe following requirements:

a. It has complied with the minimumamount of capital required under Subsec.X111.1 or its paid-in capital is at least equalto the amount required therein.

b. It has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls andcomplete, timely and efficient riskreporting system.

c. It is a locally incorporated bank.

§ X119.4 Public issuance of unsecuredsubordinated debt. Public issuance ofUnSD is an issuance offered to thegeneral public, which may or may notbe quali f ied investors/buyers ashereinafter defined. The Issuing Bankmust be rated by an independent creditrating agency recognized by the BSP anda Public Trustee shall be appointed forinvestor protection.

§§ X119.1 - X119.408.12.31


a. Application for authority(1) The application shall be signed by

the president or officer of equivalent rankof the applicant bank;

(2) The application for authority oneach UnSD issue/issue program shall befiled with the appropriate department of theSES: Provided, That the period of an issueprogram of two (2) or more tranches shallnot exceed one (1) year from date ofapproval; and

(3) The application shall beaccompanied by:

(a) A certified true copy of theresolution of the Issuing Bank’s board ofdirectors authorizing the issuance of theUnSD indicating, among others, theissue size, terms and conditions, offeringperiod, purpose or intended use ofproceeds thereof, the names of theUnderwriter/Arranger, UnSD Registry,Selling Agent(s) and Market Maker(s),and Public Trustee;

(b) A certification by the corporatesecretary that the issuance of the UnSDhas been approved by the stockholdersowning or representing at least two-thirds(2/3) of the outstanding capital stock of theIssuing Bank if the UnSD has convertibilityfeature;

(c) A written confirmation from thepresident or officer of equivalent rank ofthe Issuing Bank stating that all theconditions for UnSD under Item “a(2)(a)”,Item “b(1)(h)” or Item “b(2)(c)”, of Appendix63a are complied with and that suchconditions shall be contained in the UnSDCertificates if the UnSD is not in scriplessform, in the Information Disclosure andPurchase Advice.

(d) A written undertaking from thepresident or officer of equivalent rank ofthe Issuing Bank not to support, directly orindirectly, by extending loans, issuingpayment guarantees or otherwise, thebuyer/holder of the UnSD of the IssuingBank;

(e) A written confirmation from thepresident or officer of equivalent rank ofthe Issuing Bank stating that the designatedUnderwriter/Arranger, UnSD Registry,Selling Agent(s) and Market Maker(s) wereprovided with a complete list ofsubsidiaries and affiliates of the IssuingBank including their subsidiaries andaffiliates;

(f) A written undertaking from thepresident or officer of equivalent rank ofthe Issuing Bank to update the above-mentioned list within three (3) bankingdays from the date of change incomposition thereof;

(g) Specimen of the UnSD; and(h) A written external legal opinion

that all the conditions for UnSD under Item“a(2)(a)”, Item “b(1)(h)” or Item “b(2)(c)”,of Appendix 63a, including thesubordination (for HT1, UT2 and LT2) andloss absorption (for HT1 and UT2) features,have been met.

b. Additional requirements for theissuance of UnSD

After a bank’s application to issue aUnSD has been approved, the applicantshall submit the following additionalrequirements to the appropriatedepartment of the SES:

(1) At least fifteen (15) banking daysbefore the date of offering:

(a) A written confirmation from thepresident or officer of equivalent rank ofthe Issuing Bank stating that the bank hasbeen rated by an independent creditrating agency duly recognized by theBSP;

(b) Information disclosure of theUnSD issuance prepared by theUnderwriter/Arranger;

(c) Promotional materials; (d) Specimen of the proposed

Purchase Advice and RegistryConfirmation; and

(e) Copy of the agreements betweenthe Issuing Bank and the Underwriter/

§ X119.408.12.31


Arranger/UnSD Registry/Selling Agent(s)/Market Maker(s), and Public Trustee.

The BSP reserves the right to suspendthe date of offering, within the fifteen (15)banking day period from submission of theabove-mentioned requirements.

(2) Within ten (10) banking days afterissuance of the initial and subsequenttranches:

(a) A written notice of the actual dateof issuance/offering of each initial andsubsequent tranches.

c. Requirements for other partiesinvolved

(1) Underwriter/Arranger(a) It is either a UB or an IH: Provided,

That if an offering is on a best effort basis,the Arranger may also be a KB: Provided,further, That if an offering is denominatedin foreign currency, the Underwriter/Arranger may also be any reputableinternational investment bank.

(b) It must be an independent thirdparty that has no subsidiary/affiliate or anyother relationship with the Issuing Bank thatwould undermine the objective conductof due diligence.

(c) If Underwriter, it must haveadequate risk management and must bewell capitalized, which for a localUnderwriter, shall be evidenced bycompliance with the risk-based CARprescribed under Sec. X116 for the pastsixty (60) days immediately preceding thedate of application where applicable.

(2) UnSD Registry(a) It may be a UB, a KB, or such other

specialized entity that may be qualified bythe Monetary Board.

(b) It must be a third party that has nosubsidiary/affiliate or any other relationshipwith the Issuing Bank that wouldundermine its independence.

(c) It must not be an Underwriter or aMarket Maker of the UnSD.

(d) It must have adequate facilitiesand the organization to do the following:

(i) Maintain certificates of unissuedUnSD and the Registry Book which mustbe electronic if the UnSD is in scriplessform;

(ii) Deliver transactions within theagreed trading period; and

(iii) Issue Registry Confirmations andUnSD Certificates if they are not inscripless form to buyers/holders of UnSD.

(e) It must have a CAMELS compositerating of at least “3” in the last regularexamination, where applicable.

(3) Selling Agent(a) It may be any FI with dealership or

brokering license and is under thesupervision of the BSP.


(4) Market Maker(a) It must be a FI with a dealership or

brokering license and is under thesupervision of the BSP.


(c) It must have adequate riskmanagement and must be well capitalizedas evidenced by compliance with the riskbased CAR prescribed under Sec. X116 forthe past sixty (60) days immediatelypreceding the date of application whereapplicable.

There is no need for a Market Maker ifthe UnSD is to be held on to maturity:Provided, That this condition is properlydisclosed in the Purchase Advice, RegistryConfirmation and Prospectus/InformationDisclosure.

(5) Public Trustee(a) It must be a FI authorized by the

BSP to engage in trust and other fiduciarybusiness.

(b) It must be a third party that has nosubsidiary/affiliate or any other relationship

§ X119.408.12.31


with the Issuing Bank that wouldundermine its independence.

(c) It must have adequate riskmanagement system and must be wellcapitalized as evidenced by compliancewith the risk-based CAR prescribed underSec. X116 for the past sixty (60) daysimmediately preceding the date ofapplication where applicable. The sixty(60)-day compliance period with the risk-based CAR shall be waived in evaluatinga bank’s eligibility to act as Public Trusteefor another bank’s UnSD’s Tier 2 offering,if the former bank has instituted remedialmeasure to its CAR deficiency by issuingTier 2 capital.

(d) It may also be the UnSD Registry.(e) A Public Trustee is mandatory if

UnSD shall be offered to the general publicand optional if offering will be limited toqualified investors/buyers.

d. Functions/Responsibilities of otherparties involved

The respective parties shall have,among others, the following functions/responsibilities:

(1) Underwriter/Arranger(a) Conducts due diligence on the

Issuing Bank and determines the valuation/pricing of the primary issue;

(b) Prepares the prospectus/information disclosure, including updatesfor multi-tranche UnSD issues;

(c) Formulates the distribution/allocation plan for the initial offering andensures proper and orderly distribution ofthe primary offering of the UnSD;

(d) Disseminates information toprospective investors of UnSD on theterms and conditions of the issue (includinginformation of non pre-termination at theinitiative of the holder and the liquiditymechanism in secondary trading) and therights and obligations of the holder, issuer,Underwriter/Arranger, UnSD Registry,Selling Agent, Market Maker and PublicTrustee; and

(e) When selling to its clients, it mustperform the functions/responsibilities of theSelling Agent under Item “d(3)” hereof.

(2) UnSD Registry(a) Keeps unissued UnSD certificates

and maintains UnSD Registry book, whichmust be electronic if UnSD is scripless inform;

(b) Records initial issuance of the UnSDand subsequent transfer of ownership;

(c) Issues UnSD Certificates for primaryofferings if UnSD is not scripless in form;

(d) Issues Registry Confirmation tobuyers/holders;

(e) Functions as paying agent forperiodic interest and principal payments;

(f) Monitors compliance with theprohibitions on holdings of UnSD, asprescr ibed under Subsec. X119.8hereof; and

(g) Submits within ten (10) bankingdays from end of reference month, anexception report on Subsec. X119.8 tothe appropriate department of the SES.This report shall be classified as a“Category B” report.

(3) Selling Agent(a) Verifies identity of each investor to

ascertain that Subsec. X119.8 is notviolated and applies appropriate standardsto combat money laundering as requiredunder existing BSP regulations;

(b) Determines the suitability of theinvestor and ensures that he fullyunderstands the features of the UnSD andthe risk involved therein; and

(c) Issues the Purchase Advice for theprimary offering of the UnSD to the buyerand sends a copy thereof to the UnSDRegistry.

The sale or distribution of UnSD mayalso be performed by the issuer throughits head office and branches subject to thefollowing conditions:

(i) The in-house distribution shall notexceed fifty percent (50%) of the totalissue;

§ X119.408.12.31


(ii) The sale/distribution must be doneunder the supervision of an officer of theIssuing Bank who is capable ofdetermining the suitability of the investorand ensuring that he fully understands therisk in UnSD;

(iii) All personnel assigned todistribute/sell UnSD must be capable ofdetermining the suitability of the investorand ensuring that he fully understands therisk in UnSD; and

(iv) It must also perform the functions/responsibilities of the Selling Agent.

(4) Market Maker(a) Sets an independent pricing for the

secondary trading of UnSD;(b) Posts daily the bid and offer prices

for the UnSD on the screen of at least one(1) of the information providers until theoperation of a fixed income exchange forUnSD;

(c) Verifies identity of each investor toascertain that Subsec. X119.8 is notviolated and applies appropriate standardsto combat money laundering as requiredunder existing BSP regulations;

(d) Determines the suitability of thebuyer and ensures that he fullyunderstands the risk involved in a UnSD;

(e) Issues the Purchase Advice for thesecondary trading of the UnSD to thebuyer and sends a copy thereof to theUnSD Registry; and

(f) Ensures secondary markettransfers and registration in coordinationwith the UnSD Registry.

(5) Public Trustee(a) Monitors compliance of the Issuing

Bank with the terms and conditions of theUnSD;

(b) Monitors compliance of the otherparties with their functions andresponsibilities prescribed under thisMemorandum;

(c) Reports regularly to UnSDholders non-compliance of the IssuingBank with the terms and conditions of

the UnSD and such other developmentsthat adversely affect their interest andadvise them of the course of action theyshould take to protect their interest; and

(d) Act on behalf of the UnSD holdersin case of bankruptcy of the Issuing Bank.

e. Change of Underwriter/Arranger,UnSD Registry, Selling Agent(s), MarketMaker(s). After an application for authorityto issue a UnSD has been approved by theBSP, the Issuing Bank cannot change itsUnderwriter/Arranger, UnSD Registry,Selling Agent(s), Market Maker(s) andPublic Trustee without prior BSP approval.

f. Agreements Between Issuing Bankand other parties involved. The agreementsbetween the Issuing Bank and the UnSDRegistry/Selling Agent(s)/Market Maker(s)/Public Trustee shall comply with theprovisions of Sec. X162 on bank servicecontracts. The Issuing Bank shall be liableto investors for any damages caused byactions of the UnSD Registry, SellingAgent(s) and Market Maker(s), which arecontrary to the agreements entered into.

g. Purchase Advice and RegistryConfirmation. The Purchase Advice andRegistry Confirmation shall contain all theterms and conditions on the issuance ofUnSD and shall conspicuously state thefollowing caveat:

(1) This UnSD is not a deposit and isnot insured by the PDIC.

(2) This UnSD is neither secured norcovered by a guarantee of the Issuer/Underwriter/Arranger or related party ofthe Issuer/Underwriter/Arranger or otherarrangement that legally or economicallyenhances the priority of the claim of anyholder of the UnSD as against depositorsand other creditors (for LT2); depositors,other creditors and holders of LT2 capitalinstruments (for UT2); and depositors, othercreditors and holders of LT2 and UT2 capitalinstruments (for HT1);

(3) This UnSD does not have a priorityclaim, in respect of principal and coupon

§ X119.408.12.31


payments in the event of winding-up of theIssuing Bank, which is higher than or equalwith that of depositors and other creditors(for LT2); depositors, other creditors andholders of LT2 capital instruments (forUT2); and depositors, other creditors,holders of LT2 and UT2 capital instruments(for HT1);

(4) This UnSD is ineligible as collateralfor a loan granted by the Issuing Bank, itssubsidiaries or affiliates;

(5) This UnSD cannot be terminatedby the holder nor by the Issuing Bank (forHT1). This UnSD cannot be terminated bythe holder nor by the Issuing Bank before(maturity date) (for UT2 and LT2).

However, negotiations/transfers fromone (1) holder to another do not constitutepre-termination.

(Item “g(5)” above shall apply if theIssuing Bank commits no pre-terminationof the UnSD. Otherwise, it shall read asfollows):

This UnSD cannot be terminated by theholder (for HT1). This UnSD cannot beterminated by the holder before (maturitydate) (for UT2 and LT2).

However, it may be pre-terminated atthe instance of the Issuing Bank upon:

(a) Prior approval of the BSP subjectto the following conditions:

(i) The repayment is in connectionwith call option after a minimum of five(5) years from issue date, or even withinthe first five (5) years from issue date when:

(aa) The UnSD was issued for thepurpose of a merger with or acquisition bythe Issuing Bank and the merger oracquisition is aborted;

(bb)There is a change in tax status ofthe UnSD due to changes in the tax lawsand/or regulations; or

(cc) The UnSD does not qualify as HT1,UT2 or LT2 capital, as the case may be, asdetermined by the BSP; and

(ii) The debt is simultaneouslyreplaced with the issues of new capital

which is neither smaller in size nor oflower quality than the original issue, unlessthe Issuing Bank’s capital adequacy ratioremains more than adequate afterredemption; and

(b) Prior notice to holders on record.Negotiations/transfers from one (1)

holder to another do not constitutepre-termination.

In case there is a feature allowingone-time step-up in the coupon rate inconjunction with a call option, the step-up shall be after a minimum of ten (10)years for HT1 and UT2 and five (5) yearsfor LT2 after the issue date, and shall notresult in an increase over the initial ratethat is more than:

(i) 100 basis points less the swapspread between the initial index basis andthe stepped-up index basis; or

(ii) Fifty percent (50%) of the initialcredit spread less the swap spreadbetween the initial index basis and thestepped-up index basis.

The swap spread shall be fixed at thepricing date and reflect the differential inpricing on that date between the initialreference security or rate and the stepped-up reference security or rate;

(6) The holders/owners of this UnSDcannot set off any amount they owe to theIssuing Bank against this UnSD.

(7) All negotiations/transfers of thisUnSD prior to maturity must be coursedthrough a Market Maker until the operationof a fixed income exchange.

(8) The payment of principal may beaccelerated on this UnSD only in the eventof insolvency of the Issuing Bank.

(9) The coupon rate, or the formulationfor calculating coupon payments shall befixed at the time of the issuance of theUnSD and may not be linked to the creditstanding of the Issuing Bank;

(10)The payment of principal andcoupon due on this UnSD shall not be madeto the extent that such payment will cause

§ X119.408.12.31


the Issuing Bank to become insolvent (forHT1 and UT2);

(11)The holders of the UnSD shall betreated as if they were holders of a specifiedclass of share capital in any proceedingscommenced for the winding-up of theIssuing Bank (for HT1 and UT2);

(Item “g(11)” above shall apply if suchis the manner by which the UnSD is tobe treated in loss situation. Otherwise,it shall read as follows):

This UnSD shall be automaticallyconverted into common shares orperpetual and non-cumulative preferredshares (for HT1) or into common sharesor perpetual and non-cumulative preferredshares or perpetual and cumulativepreferred shares (for UT2) upon occurrenceof certain trigger events as follows:

(a) Breach of minimum capital ratio;(b) Commencement of proceedings

for winding-up of the Issuing Bank; or(c) Upon appointment of receiver for

the Issuing Bank.The rate of conversion shall be fixed

at the time of the subscription of this UnSD.(12)The amount and timing of coupons

on this UnSD shall be discretionary on theIssuing Bank where the Issuing Bank hasnot paid or declared a dividend on itscommon shares in the precedingfinancial year, or determines that nodividend is to be paid on such shares inthe current financial year; and the IssuingBank shall have full control and accessto waived payments (for HT1). Thecoupon payment on this UnSD shall bedeferred where the Issuing Bank has notpaid or declared a dividend on itscommon shares in the precedingfinancial year, or determines that nodividend is to be paid on such shares inthe current financial year (for UT2);

(13) The coupon on this UnSD shall benon-cumulative. In case there is a featureallowing withheld cash coupon to bepayable in scrip or shares of stock, the

shares of stock to be issued shall not beof lower quality capital than the UnSD(for HT1); and

(14) The coupon to be paid on this UnSDshall be paid only to the extent that theIssuing Bank has profit distributabledetermined in accordance with existingBSP regulations (for HT1).

N.B.: The last five (5) items (i.e., 10,11, 12, 13 and 14) are applicable only toUnSD qualifying under HT1 and UT2capital, as the case may be. The foregoinginformation shall also be shown in theProspectus/Information Disclosure.

h. Pre-termination by the Issuer (1) The Issuing Bank may pre-

terminate the UnSD subject to thefollowing conditions:

(a) The Information Disclosure,Purchase Advice and Registry Confirmationshall include the information that theIssuing Bank has the option to pre-terminate the UnSD;

(b) Compliance with Items “a(2)(a)vii”,“b(1)(h)v” or “b(2)(c)iv” as may beapplicable, of Appendix 63a;

(c) Prior notification of thirty (30) bankingdays or more to holders of record; and

(d) Notwithstanding any agreement tothe contrary, the Issuer shall shoulder thetax due, if any, on the interest incomealready earned by the holders.

(2) Within ten (10) banking days afterthe completion of the pre-terminationtransaction, the Issuing Bank must submita written notice to the appropriatedepartment of the SES of the following:

(a) Actual pre-termination date; and(b) New capital composition.i. Primary offering/secondary trading(1) The primary offering of a UnSD

shall be executed through an Underwriterunder a firm commitment or through anArranger on a best effort basis. Initial sale/distribution of UnSD shall be made by aSelling Agent, the Underwriter/Arrangeror, to a limited extent, the Issuing Bank

§ X119.408.12.31


itself. Subsequent negotiations in secondarytrading must be executed throughauthorized Market Maker(s) until theoperation of a fixed income exchange.

The primary offering as well as thesecondary trading of a UnSD must besupported by Purchase Advice to be issuedby the Selling Agent or the Market Maker,as the case may be, with the original givento the buyer and a second copy to theUnSD Registry. Upon presentation by thebuyer of the original copy of PurchaseAdvice, the UnSD Registry shall:

(a) record the primary issuance in theRegistry Book and issue a RegistryConfirmation and the corresponding UnSDcertificate to the buyer if it is not scriplessin form; and

(b) register the transfer of ownershipin the UnSD Registry Book and issue aRegistry Confirmation to the buyer, in thecase of secondary trading.(As amended by Memorandum to All Banks dated 23 March 2006)

§ X119.5 Private or negotiatedissuance of unsecured subordinated debt

a. Private or negotiated issuance ofUnSD is the issuance of UnSD to qualifiedinvestors/buyers, whether individuals orinstitutions as defined under Subsec.X119.7. There is no limit on the numberof qualified investors/buyers and on thesale or negotiation of the UnSD: Provided,That such sale or negotiation shall only bemade to another qualified investor/buyer.

b. Application for authority of theIssuing Bank

(1) The application shall be signed bythe president or officer of equivalent rankof the Issuing Bank.

(2) The application for authority on eachnegotiated UnSD issue shall be filed withthe appropriate department of the SES.

(3) The application shall beaccompanied by:

(a) A certified true copy of theresolution of the Issuing Bank’s board of

directors authorizing the private/negotiatedissuance of UnSD indicating, amongothers, the amount, duration/maturity,interest rate, purpose or intended use ofproceeds of the UnSD;

(b) A Certification by the corporatesecretary that the issuance of the UnSDhas been approved by the stockholdersowning or representing at least two-thirds(2/3) of the outstanding capital stock of theIssuing Bank if the UnSD has convertibilityfeature;

(c) A written confirmation from thepresident or officer of equivalent rank ofthe Issuing Bank stating that all theconditions for UnSD under Item “a(2)(a)”excluding Item “(xiii)” on underwritingprovision or Item “b(1)(h)” excluding Item“(xi)” on underwriting provision or Item“b(2)(c)” excluding Item “(ix)” onunderwriting provision of Appendix 63aare complied with and that such conditionsshall be contained in the UnSD Certificates,Prospectus/Information Disclosure andDebt Agreement/Contract.

(d) An undertaking from the presidentor officer of equivalent rank of the IssuingBank that the UnSD shall be issued onlyto qualified investors/buyers;

(e) A certification from the presidentor officer of equivalent rank of the IssuingBank that the investor/buyer shall not beamong those prohibited to hold UnSDunder Subsec. X119.8 and that the IssuingBank has applied appropriate standardsto combat money laundering as requiredunder existing BSP regulations;

(f) A written undertaking from thepresident or officer of equivalent rank ofthe Issuing Bank not to support, directlynor indirectly, by extending loans, issuingpayment guarantees or otherwise, thebuyer/holder of the UnSD of the IssuingBank; and

(g) Specimen of the proposed DebtAgreement/Contract containing the termsand conditions of the UnSD issuance.

§§ X119.4 - X 119.508.12.31


(h) A written external legal opinionthat all the conditions for UnSD underItem “a(2)(a)”, Item “b(1)(h)” or Item“b(2)(c)”, of Appendix 63a including thesubordination (for HT1, UT2 and LT2) andloss absorption (for HT1 and UT2)features, have been met.

c. Additional Requirements for thePrivate Issuance of UnSD. Within ten (10)banking days after issuance of the UnSD,the Issuing Bank shall submit the followingadditional requirements to the appropriatedepartment of the SES:

(1) A written notice of the actual dateof full receipt of proceeds, accompaniedby a certification from the president orofficer of equivalent rank of the IssuingBank stating that the pre-qualificationrequirements under Subsec. X119.3 havebeen complied with up to the time of fullreceipt of proceeds;

(2) A copy of each of the duly signedDebt Agreements/Contracts between theIssuing Bank and the investor/buyer asspecified in the application for authority toissue negotiated UnSD; and

(3) A copy of the income tax return ofthe investor/buyer in case of a naturalperson.

d. Debt agreement/contractThe Debt Agreement/Contract shall

contain all the terms and conditions on theissuance of UnSD and shall conspicuouslystate the following caveat:

(1) This UnSD is not a deposit and isnot insured by the PDIC.

(2) This UnSD is neither secured norcovered by a guarantee of the Issuer orrelated party of the Issuer or otherarrangement that legally or economicallyenhances the priority of the claim of anyholder of the UnSD as against depositorsand other creditors (for LT2); depositors,other creditors and holders of LT2 capitalinstruments (for UT2); and depositors, othercreditors and holders of LT2 and UT2capital instruments (for HT1).

(3) This UnSD does not have a priorityclaim, in respect of principal and couponpayments in the event of winding-up of theIssuing Bank, which is higher than or equalwith that of depositors and other creditors(for LT2); depositors, other creditors andholders of LT2 capital instruments (forUT2); and depositors, other creditors,holders of LT2 and UT2 capital instruments(for HT1);

(4) This UnSD is ineligible as collateralfor a loan made by the Issuing Bank, itssubsidiaries or affiliates.

(5) This UnSD cannot be terminatedby the holder nor by the Issuing Bank (forHT1). This UnSD cannot be terminated bythe holder nor by the Issuing Bank before(maturity date) (for UT2 and LT2).

Item “d(5)” above shall apply if theIssuing Bank commits no pre-terminationof the UnSD. Otherwise, it shall read asfollows:

This UnSD cannot be terminated by theholder (for HT1). This UnSD cannot beterminated by the holder before (maturitydate) (for UT2 and LT2).

However, it may be pre-terminated atthe instance of the Issuing Bank upon:

(a) Prior approval of the BSP subjectto the following conditions:

(i) The repayment is in connectionwith call option after a minimum of five(5) years from issue date, or even withinthe first five (5) years from issue date when:

(aa)The UnSD was issued for thepurpose of a merger with or acquisition bythe Issuing Bank and the merger oracquisition is aborted;

(bb)There is a change in tax status ofthe UnSD due to changes in the tax lawsand/or regulations; or

(cc) The UnSD does not qualify as HT1,UT2 or LT2 capital, as the case may be, asdetermined by the BSP; and

(ii) The debt is simultaneouslyreplaced with the issues of new capitalwhich is neither smaller in size nor of

§ X119.508.12.31


lower quality than the original issue, unlessthe Issuing Bank’s capital adequacy ratioremains more than adequate afterredemption; and

(b) Prior notice to investors/buyers.In case there is a feature allowing one-

time step-up in the coupon rate inconjunction with a call option, the step-upshall be after a minimum of ten (10) years(for HT1 and UT2) and five (5) years (forLT2) after the issue date, and shall not resultin an increase over the initial rate that ismore than:

(i) 100 basis points less the swapspread between the initial index basis andthe stepped-up index basis; or

(ii) Fifty percent (50%) of the initialcredit spread less the swap spread betweenthe initial index basis and the stepped-upindex basis.

The swap spread shall be fixed at thepricing date and reflect the differential inpricing on that date between the initialreference security or rate and the stepped-up reference security or rate;

(6) This UnSD may only be sold,transferred or negotiated to anotherqualified investor/buyer;

(7) The holders/owners of this UnSDcannot set off any amount they owe to theIssuing Bank against this UnSD.

(8) The payment of principal may beaccelerated on this UnSD only in the eventof insolvency of the Issuing Bank.

(9) The coupon rate, or the formulationfor calculating coupon payments shall befixed at the time of the issuance of theUnSD and may not be linked to the creditstanding of the Issuing Bank;

(10)The payment of principal andcoupon due on this UnSD shall not be madeto the extent that such payment will causethe Issuing Bank to become insolvent (forHT1 and UT2);

(11)The holders of the UnSD shall betreated as if they were holders of a specified class of share capital in any

proceedings commenced for the winding-up of the Issuing Bank (for HT1 and UT2);

(Item “d(11)” above shall apply if suchis the manner by which the UnSD is to betreated in loss situation. Otherwise it shallread as follows):

This UnSD shall be automaticallyconverted into common shares orperpetual and non-cumulative preferredshares (for HT1), or into common sharesor perpetual and non-cumulative preferredshares or perpetual and cumulativepreferred shares (for UT2) upon occurrenceof certain trigger events as follows:

(a) Breach of minimum capital ratio;(b) Commencement of proceedings

for winding up of the Issuing Bank; or(c) Upon appointment of receiver for

the Issuing Bank.The rate of conversion shall be fixed

at the time of the subscription of thisUnSD.

(12)The amount and timing of couponson this UnSD shall be discretionary on theIssuing Bank where the Issuing Bank hasnot paid or declared a dividend on itscommon shares in the preceding financialyear, or determines that no dividend is tobe paid on such shares in the currentfinancial year; and the Issuing Bank shallhave full control and access to waivedpayments (for HT1). The coupon paymenton this UnSD shall be deferred where theIssuing Bank has not paid or declared adividend on its common shares in thepreceding financial year, or determines thatno dividend is to be paid on such shares inthe current financial year (for UT2);

(13)The coupon on this UnSD shall benon-cumulative. In case there is a featureallowing withheld cash coupon to bepayable in scrip or shares of stock, theshares of stock to be issued shall not be oflower quality capital than the UnSD (forHT1); and

(14)The coupon to be paid on thisUnSD shall be paid only to the extent that

§ X119.508.12.31


the Issuing Bank has profit distributabledetermined in accordance with existingBSP regulations (for HT1).

N.B.: The last five (5) items (i.e., 10,11, 12, 13 and 14) are applicable only toUnSD qualifying under HT1 and UT2capital, as the case may be.

e. Pre-termination by the Issuer(1) The Issuing Bank may pre-

terminate the negotiated UnSD subject tothe following conditions:

(a) The Debt Agreement/Contract shallinclude the information that the IssuingBank has the option to pre-terminate theUnSD;

(b) Compliance with Item “a(2)(a)vii”,Item “b(1)(h)v” or Item “b(2)(c)iv”, as maybe applicable, of Appendix 63a;

(c) Prior notification of thirty (30) bankingdays or more to lender/investor; and

(d) Notwithstanding any agreement tothe contrary, the Issuer shall shoulder thetax due, if any, on the interest incomealready earned by the holders.

(2) Within ten (10) banking days afterthe completion of the pre-terminationtransaction, the Issuing Bank must submita written notice to the appropriatedepartment of the SES of the following:

(a) Actual pre-termination date; and(b) New capital composition.f. Functions/Responsibilities of the

Issuing Bank(1) Prepares the Prospectus/Information

Disclosure on the UnSD issues;(2) Disseminates to prospective

investors/buyers information on the termsand conditions of the UnSD (includinginformation on no pre-termination at theinitiative of the holder, and whereapplicable, the liquidity mechanism insecondary trading) and the rights andobligations of the holder and the issuer;

(3) Keeps unissued UnSD certificatesand maintains UnSD Register;

(4) Records initial issuance of UnSDand subsequent transfer of ownership;

(5) Issues UnSD Certificates andRegistry Confirmation to original investors/buyers;

(6) Issues Registry Confirmation tosubsequent buyers/holders whereapplicable;

(7) Ensures compliance with Subsec.X119.8 and applies appropriate standardsto combat money laundering as requiredunder existing BSP regulations; and

(8) Determines suitability of theinvestors/buyers (original or subsequent)and assures that he fully understands therisk involved in a UnSD.(As amended by Memorandum to All Banks dated 23 March 2006)

§ X119.6 Issuance abroad of unsecuredsubordinated debt. The overseas issuanceof UnSD shall also be subject to theprovisions of Sec. X119 except for thefollowing:

a. Overseas issuance of UnSD maybe allowed to be governed by the laws andapplicable rules and regulations of thecountry where the UnSD is to be issuedwith respect to form, qualified investors/buyers and subsequent sale or negotiation;

b. The requirements under Subsecs.X119.1 c(1), X119.4 g(1), and X119.5 d(1)and d(6) may be allowed to be dispensedwith in cases of overseas issuance ofUnSD; and

c. The subsequent sale/negotiation inthe Philippines of the UnSDs originallyissued overseas shall not be allowed unlessall the requirements for domestic issuanceare complied with.

It is however understood that theapplicant/issuer shall also secure theapproval of the International Department(ID) of the BSP for the overseas issuanceof foreign currency denominated UnSD.(As amended by Memorandum to All Banks dated 23 March 2006)

§ X119.7 Qualified investors/buyersQualified buyers of, or suitable investorsin, a UnSD can be any of the following:

§§ X119.5 - X119.708.12.31


a. Banks;b. Investment house (IH);c. Insurance company;d. Pension or retirement fund of other

entities which have no subsidiary/affiliateor any other relationship with the IssuingBank;

e. Investment company;f. Funds managed by another bank or

other entities duly authorized to engagein trust or other fiduciary business;

g. Domestic corporate or institutionalinvestors with total assets of at least P100.0million;

h. Foreign multilateral organizationssuch as, the ADB and IFC;

i. High net-worth individual investor/buyer who is sophisticated enough tounderstand and appreciate the significanceof and the risk involved in UnSD as maybe indicated by his/her educationalbackground and/or employment/businessexperience; and

j. Stockholder, director or officerwith the rank of at least a vice-president ofthe Issuing Bank.

§ X119.8 Prohibitions on holdings ofunsecured subordinated debt. Thefollowing persons and entities areprohibited from purchasing/holding UnSDof the Issuing Bank:

a. Subsidiaries and affiliates of theIssuing Bank including their subsidiariesand affiliates; and

b. Common trust funds (CTFs)managed by the Trust Department of theIssuing Bank, its subsidiaries and affiliatesor other related entities: Provided, Thatother funds being managed by the TrustDepartment of the Issuing Bank, itssubsidiaries and affiliates or other relatedentities are allowed to purchase or investin UnSD of the Issuing Bank subject to thefollowing conditions:

(1) That the fund owners give priorauthority/instruction to the Trust

Department to purchase or invest in theUnSD of the Issuing Bank; and

(2) That the authority/instruction of thefund owner and his understanding of therisk involved in purchasing or investing inUnSD are fully documented.

For purposes of this Section, an affiliaterefers to a related entity linked by meansof ownership of at least twenty percent(20%) to not more than fifty percent (50%)of its outstanding voting stock.

§ X119.9 Accounting treatmentObligations arising from the issuance ofUnSD (including the portion exceedingthe allowable ceiling for purposes ofdetermining the qualifying capital asprovided in Appendix 63a) shall be bookedunder the following General Ledgeraccount titles:

a. “Other Equity Instruments -Others” for HT1 capital which shall bepresented in the equity accounts sectionof the Balance Sheet which shall beaccounted for in accordance with theprovisions of PAS 32; and

b. “Unsecured Subordinated Debt”for UT2 and LT2 capital, which shall bepresented in the liability accounts sectionof the balance sheet.

However, only the proceeds actuallyreceived from the UnSD issues, (i.e., netof discounts, if any, and transaction costs)shall be considered as HT1, UT2 or LT2capital.

The proceeds actually received fromthe UnSD issues, (i.e., net of discounts, ifany, and transaction costs) eligible as UT2or LT2 capital shall be considered in thecomputation of loanable funds for purposesof determining compliance with themandatory allocation of funds for agri-agracredit required under P.D. No. 717, asamended.

A UnSD eligible as HT1, UT2 or LT2capital shall be accounted for in accordancewith PAS 32 and PAS 39.

§§ X119.7 - X119.908.12.31


A UnSD denominated in foreigncurrency eligible as HT1, UT2 or LT2 maybe recorded in the regular banking unit(RBU) or foreign currency deposit unit(FCDU/EFCDU) of the issuing bank:Provided, That if booked in the FCDU/EFCDU, the following conditions shall bestrictly observed:

a. The issuing bank shall indicate inits application that the UnSD shall bebooked in its FCDU/EFCDU;

b. The UnSD shall remain in the FCDU/EFCDU books until full settlement; and

c. The UnSD shall be issued only tonon-residents and offshore banking units(OBUs) in accordance with Section 72.2.eof CB Circular No. 1389, as amended. (As amended by Memorandum to Al l Banks dated

23 March 2006)

§§ X119.10 - X119.12 (Reserved)

§ X119.13 Sanctions. Withoutprejudice to the other sanctions prescribedunder Section 37 of R.A. No. 7653 and theprovisions of Section 16 of R.A. No. 8791,sanctions shall be imposed on the IssuingBank, UnSD Registry and other partiesinvolved in the transaction for failure toperform their respective functions/responsibilities and for non-disclosure ormisrepresentation of information, asfollows:

a. On the issuing bank(1) Suspension of its authority to issue

remaining tranches, if any;(2) Disqualification from future

issuance of UnSD;(3) Disqualification of all outstanding

issues as eligible Tier 2 capital; and(4) Monetary penalty of P30,000 for

each violation.b. On the underwriter/arranger(1) Disqualification from being

underwriter/arranger for three (3) years; and(2) Monetary penalty of P30,000 for

each violation.

c. On the UnSD registry(1) Disqualification from being

appointed as UnSD Registry for three (3)years; and

(2) Monetary penalty of P30,000 foreach violation.

d. On the selling agent/market maker(1) Disqual i f ica t ion f rom being

appointed as selling agent or marketmaker for three (3) years; and


e. On the public trustee(1) Disqualification from being

appointed as public trustee for three (3)years; and


f. On the certifying officer - A fineof P5,000 per day from the time ofrequired disclosure up to the timedisclosure was made, or from the timemisrepresentation was made up to thetime the information was corrected, anda possible disqualification if warranted bythe gravity of the offense committed.

g. On the responsible officer - A fineof P30,000 for participating in or toleratingthe non-disclosure or misrepresentation ofinformation, and a possible disqualificationif warranted by the gravity of the offensecommitted.(As amended by Circular No. 585 dated 15 October 2007)

Sec. X120 Interim Tier 1 Capital for BanksUnder Rehabilitation. The following arethe guidelines on the issuance of capitalnotes that will qualify as interim Tier 1capital for banks under rehabilitation:

a. Banks under rehabilitation shall beallowed, upon prior BSP approval, to issuecapital notes that shall qualify as interimTier 1 capital: Provided, That the PDIC shallbe the holder of the said capital notes:Provided, further, That any transter fromPDIC of said capital notes shall requireprior BSP approval.

§§ X119.9 - X12008.12.31


b. The interim Tier 1 capital notes shallhave the following minimum features:

(1) It must be perpetual, unsecuredand subordinated;

(2) It must be issued and fully paid-up.Only the net proceeds received from theissuance shall be included as Tier 1 capital.The proceeds of the issuance must beimmediately available without limitationto the bank;

(3) It must neither be secured norcovered by a guarantee of the issuer orrelated party or other arrangement thatlegally or economically enhances thepriority of the claim of the PDIC as againstdepositors, other creditors of the bank andholders of LT2 and UT2 capital instruments;

(4) The PDIC, as holder of the interimcapital notes must not have a priority claim,in respect of its principal and couponpayments of the interim Tier 1 capital notesin the event of winding up of the bank,which is higher than or equal with that ofdepositors, other creditors of the bank andholders of LT2 (e.g. limited life redeemablepreferred stock) and UT2 (e.g. perpetualand cumulative preferred stock) capitalinstruments. The PDIC must waive its rightto set-off any amount it owes the bankagainst any subordinated amount owed toit due to the interim Tier 1 capital notes;

(5) It must not be repayable withoutthe prior approval of the BSP: Provided, Thatrepayment may be allowed only inconnection with a call option after aminimum of five (5) years from issue date:Provided, however, That a call option maybe exercised within the first five (5) yearsfrom issue date upon entry of newinvestors: Provided, further, That suchrepayment prior to maturity shall beapproved by the BSP only if it issimultaneously replaced with issues of newcapital which is neither smaller in size norof lower quality than the original issue,unless the bank’s capital ratio remainsmore than adequate after redemption.

It must not contain any clause, whichrequires acceleration of payment ofprincipal, except in the event ofinsolvency. The agreement governing itsissuance must not contain any provisionthat mandates or creates an incentive forthe bank to repay the outstanding principalof the interim Tier 1 capital notes, e.g., across-default or negative pledge or arestrictive covenant, other than a calloption, which may be exercised by thebank;

(6) The PDIC, as holder of the interimTier 1 capital notes, shall have the right toconvert, upon prior notice to the BSP, theinterim Tier 1 capital notes into perpetualand non-cumulative preferred sharesconvertible into common shares whichmay be sold to new investors: Provided,That the rate of conversion shall be fixedat the time of subscription of the interimTier 1 capital notes;

(7) The coupons must benon-cumulative;

(8) The bank must have full discretionover the amount and timing of couponpayments and it must have full control andaccess to waived payments;

(9) Any coupon to be paid must bepaid only to the extent that the bank hasprofits distributable determined inaccordance with exist ing BSPregulations. The coupon rate, or theformulation for calculating couponpayments must be fixed at the time ofissuance of the interim Tier 1 capital notesand must not be linked to the creditstanding of the bank;

(10) It must not have step-up provisionsin the coupon rate in conjunction with thecall option;

(11)All other transactions involving thecapital notes shall require prior BSPapproval.

c. The bank must submit a writtenopinion from its external auditor that thefeatures of the interim Tier 1 capital notes

§ X12008.12.31


shall be accounted for as equityinstruments in accordance with PAS 32.(Circular No. 595 dated 11 January 2008)

Secs. X121- X125 (Reserved)

G. STOCK, STOCKHOLDERS AND DIVIDENDS

Sec. X126 Shares of Stock of Banks. Thefollowing shall govern transactionsaffecting shares of stock of banks and thelimits on stockholdings in a single bank orin several banks.

§ X126.1 Limits of stockholdings in asingle bank. The stockholdings of anindividual, family, corporate or businessgroup in any bank shall be subject to thelimits prescribed in Sections 11, 12, 13 and14 of R.A. No. 8791.

a. Foreign individuals and non-bankcorporations may own or control up to fortypercent (40%) of the voting stock of adomestic bank: Provided, That theaggregate foreign-owned voting stockowned by foreign individuals and non-bankcorporations in a domestic bank shall notexceed forty percent (40%) of theoutstanding voting stock of the bank. Thepercentage of foreign-owned voting stockin a bank shall be determined by thecitizenship of the individual stockholdersin that bank.

b. A Filipino individual and adomestic non-bank corporation may eachown up to forty percent (40%) of the votingstock of a domestic bank. There shall beno ceiling on the aggregate ownership bysuch individuals and corporations in adomestic bank.

c. A natural person and a corporationor corporations which are wholly-owned,or a majority of the voting stock of whichis owned, by him may own only up to acombined forty-percent (40%) of the votingstock of a domestic bank.

d. The right of Philippine corporations,however, under Section 8 of R.A. No,7721, as implemented under Subsec.X105.12 shall continue to be in force andeffect.

e. Stockholdings of family groups orrelated interests. Individuals related toeach other within the fourth degree ofconsanguinity or affinity, whetherlegitimate, illegitimate or common-law,shall be considered family groups or relatedinterests but may each own up to fortypercent (40%) of the voting stock of adomestic bank: Provided, That saidrelationship must be fully disclosed in alltransactions by such corporations or relatedgroups or persons with the bank.

f. Two (2) or more corporationsowned or controlled by the same familygroup of same group of persons shall beconsidered related interests but may eachown up to forty percent (40%) of the votingstock of a domestic bank: Provided, Thatsaid relationship must be fully disclosed inall transactions by such corporations orrelated groups of persons with the bank.

g. Ceiling on stockholdings in a CoopBank. The equity investment of anycooperative in any Coop Bank shall notexceed forty percent (40%) of the subscribedcapital stock of such Coop Bank.

h. Stockholdings in excess of ceilings.Unless otherwise allowed under existinglaws, rules or regulations, any or all, as thecase may be, of the above-mentionedstockholders owning more than fortypercent (40%) of the voting stock of a KBor a UB shall comply with said ceilingwithin thirty (30) days from 13 May 2002.

i. Determination of foreign-ownedvoting stock and citizenship of corporatestockholders in a bank as well as therelationship of stockholders of a bank.

(1) The percentage of foreign-ownedvoting stocks in a bank shall be determinedby the citizenship of all the stockholdersin that bank.

§§ X120 - X126.108.12.31


(2) The citizenship of the corporation,which is a stockholder of a bank shall followthe citizenship of the controlling stockholdersof the corporation, irrespective of the placeof incorporation. For purposes hereof, theterm “controlling stockholders” shall refer tostockholders holding more than fifty percent(50%) of the voting stock of the corporatestockholders of the bank.

(3) The relationship of individuals whoare stockholders of a bank shall bedetermined in accordance with theprovisions of Articles 963 to 966 of the CivilCode of the Philippines.

§ X126.2 Transfer of shares. Thefollowing regulations shall govern transferof voting shares of stocks in banks:

a. Unlawful and void transactionsinvolving voting stocks in banks. Thefollowing transactions, to the extent of theexcess over any of the prescribed ceilingsare hereby declared unlawful.

(1) The sale or transfer of voting stockof a UB, a KB or an RB1 to any individual, ifsuch sale or transfer, in itself, or in relationwith another previous sale or transfer shallresult in the ownership by an individual inexcess of forty percent (40%) of the votingstock of the bank.

(2) The sale or transfer of voting stockof banks to any individual or entity, if suchsale or transfer, in itself, or in relation withanother previous sale or transfer shall resultin the ownership by foreign persons and/or foreign non-bank corporations in excessof forty percent (40%) of the voting stockin a UB or a KB and sixty percent (60%) incase of a TB.

(3) The sale or transfer of voting stocksof UB or KB to any corporation, if such saleor transfer, in itself, or in relation withanother previous sale or transfer shall resultin the ownership by such corporation inexcess of forty percent (40%) of the votingstock of the bank, unless allowed underR.A. No. 7721 and R.A. No. 8791.

(4) The sale or transfer of voting sharesof stocks of UBs or KBs or RBs1 to (a) anynatural person; and (b) any corporation orcorporations which are wholly-owned ora majority of the voting stock of which isowned by such natural person if such saleof transfer in itself, or in relation withanother previous sale or transfer, shallresult in the combined ownership by suchnatural person and such corporations inexcess of forty percent (40%) of the votingstock of the bank, unless allowed underR.A. No. 7721 and R.A. No. 8791.

(5) Any arrangement, such as votingtrust agreement or proxy, which vests inany person or corporation the right to voteor control voting stocks in banks, if suchagreement in itself, or in relation withanother previous similar agreement orprevious sale or transfer shall result in theacquisition of control, in excess of theprescribed limitations.

b. Duties of a corporate secretary. Inall transactions, which may lawfully cometo the knowledge of the corporate secretaryinvolving transfer of voting shares of stockor registration of voting trust agreements,or any form of agreement vesting the rightto vote the voting shares of stock of thebank, the corporate secretary shall:

(1) ascertain the identity andcitizenship of the transferee, voting trustee,proxy or person vested with the right tovote, and for this purpose, he shouldrequire the transferee, voting trustee,proxy or the person vested with the rightto vote to submit proof of citizenship,which may consist, in case of a corporation,of a certified true copy of the articles ofincorporation, accompanied by the affidavitof the corporate secretary of thecorporation, certifying to the correctnessand accuracy of the list of stockholders andthe percentage of shares owned by them;

(2) require the transferee, votingtrustee, proxy or person vested with theright to vote, at the time of the receipt of

§§ X126.1 - X126.208.12.31

1 Effective 03 April 2002


the request for transfer or registration, orat any time thereafter, to disclose allinformation with respect to persons relatedto the transferee, voting trustee, proxy orperson vested with the right to vote, withinthe fourth degree of consanguinity oraffinity, whether legitimate, illegitimate orcommon-law, as well as corporations,partnerships or associations where thetransferee, voting trustee, proxy or personvested with the right to vote has controllinginterest, and the extent thereof;

(3) require the transferee to executean affidavit (sample format shown inAppendix 4) stating, among other things,that the transferee is a bona fide owner ofshares of stock and that he acknowledgesfull awareness of the requirements of thelaw and the prohibitions against exceedingownership of voting stocks beyond theprescribed limitations.

If the request for transfer or thearrangement sought to be registered willpatently cause the voting stocks of a personor a corporation, to exceed the limitsprescribed by law, the corporate secretaryshall deny the transfer or registration andforthwith inform the parties to thetransaction in writing. Simultaneous withthe notice to the parties, the corporatesecretary shall submit a written report tothe Governor of the BSP of the attemptedillegal transfer or arrangements, togetherwith the names, addresses of parties andother pertinent data with respect to theparticular stock transaction.

In the event the corporate secretaryhas reason to doubt the legality of thetransfer or of the arrangement sought tobe registered, he may commence anaction before the appropriate body;

(4) promptly inform stockholders whohave reached any of the ceilings imposedby law, of their ineligibility to own or controlmore than the applicable ceiling; and

(5) disclose the ultimate beneficialowners of bank shares held in the name of

Philippine Central Depository (PCD)Nominee Corporation in the quarterlyreport on Consolidated List of Stockholdersand Their Stockholdings which report shallbe made under oath by the authorizedbank officers/signatories. Any violation ofthe provision of this Subsection shall besubject to a penalty of P30,000 per day untilthe correct report is submitted to the BSP.

c. Transfers requiring prior MonetaryBoard approval

(1) Prior approval of the MonetaryBoard shall be required on the following:

(a) Any sale or transfer or series of salesor transfers which will result in ownershipor control of more than twenty percent(20%) of the voting stock of a bank by anyperson whether natural or juridical orwhich will enable such person to elect, orbe elected as, a director of such bank; and

(b) Any sale or transfer or series of salesor transfers which will effect a change inthe majority ownership or control of thevoting stock of the bank from one (1) groupof persons to another group: Provided, Thatin no case shall such sale or transfer beapproved unless the bank concerned shallimmediately comply with the prescribedminimum capital requirement for newbanks, notwithstanding any approvedcapital build-up program.

(2) For purposes of these regulations,the sale or transfer of voting stock shall referto sales or transfers of voting stock whichare allowed under existing laws or BSPrules and regulations and which have notbeen registered/recorded in the transferbook/stock ledger or other records ofbanks.

(3) Sanctions. Any violation of theprovisions under Items “c(1)(a)” and “(b)”above shall be subject to the sanctionsprescribed under Sections 36 and 37 ofR.A. No. 7653, without prejudice to theappropriate legal actions for therescission and invalidation of the sale ortransfer.

§ X126.208.12.31


d. Requirement for newly establishedbanks. Entities which may hereinafterapply for a license to engage in bankingbusiness shall, before being allowed tooperate, submit -

(1) An alphabetical list of stockholderswith the number and percentage of votingstock owned by them; and

(2) A separate list containing thenames of persons who own voting stocksin banks and who are related to each otherwithin the fourth degree of consanguinityor affinity, whether legitimate, illegitimateor common-law, with proper indication ofthe combined percentage of voting stocksheld by them in the particular bank, as wellas corporations which are wholly-ownedor a majority of the stock of which is ownedby any of such persons, including theirsubsidiaries.

§ X126.3 Other foreign equityinvestment in domestic banks. Except asotherwise covered under Sec. X105 andSubsec. X126.1, the following guidelinesshall be observed on equity investmentsof foreigners in domestic banks:

a. The prior authority of the MonetaryBoard shall be obtained by foreign banks,including their subsidiaries and theirholding companies having majorityholdings in such foreign banks, wheneveracquiring more than forty percent (40%)of the voting stock of a domestic bank,including foreign-owned sharesoutstanding and foreign-held as of 27 April1973 and which continued to be held bythe foreign stockholder up to the date ofthe acquisition by the foreign banks.

b. (Deleted by Cir. No. 256 dated15 August 2000)

c. The prior authority of the MonetaryBoard is not required if the foreign investoris (1) an individual, (2) a non-financialentity, or (3) a non-bank financial entitywhich is not owned or controlled by abank, its subsidiary or holding company,

and the investor is acquiring foreign-owned shares in existing domesticbanks: Provided, That said shares wereoutstanding and foreign-held as of27 April 1973 and which continued tobe foreign-held up to the date ofacquisition by the foreign investor.

d. The maximum stockholdingsforeigners may own in domestic banksshall continue to be governed by existingprovisions of law.

e. Only foreign-owned shares directlyfunded by inward remittance of foreignexchange sold to the local banking systemare qualified for registration with the BSPthrough its appropriate department forcapital repatriation and remittance ofprofits/dividends privileges, in accordancewith existing BSP rules and regulations.

§ X126.4 Convertibility of preferredstock to common stock. Out of theconvertible preferred shares of stock whichKBs/TBs may henceforth be authorized toissue, at least fifty percent (50%) of eachsuch issue, shall be convertible intocommon stock at the option of the holdersthereof after five (5) years from date ofissue: Provided, however, That :

a. The bank concerned may allow theconversion of such preferred stock intocommon stock even before the lapse offive (5) years from date of issue;

b. At the time of the sale of thepreferred stock, both classes thereof (onewith convertibility feature and the otherwithout convertibility feature) shall beoffered to the purchasers, with thepurchasers having the option to acquireeither or both classes of preferredstock; and

c. Preferred shares of stock with acumulative feature issued by banks shallautomatically be convertible intocommon shares of stock at the option ofthe holders thereof whenever the rightas may be acquired by the holders by

§§ X126.2 - X126.408.12.31


virtue of such cumulative feature are notsatisfied by the bank within a period ofthree (3) years from date of issue.

§ X126.5 Issuance of redeemableshares: conditions; certification andreport; sanctions

a. Conditions. Banks may issueredeemable shares subject to the followingconditions:

(1) The applicant bank prior to theapproval of the amendment of articles ofincorporation to issue redeemablepreferred shares, has complied with therequirements under Items “B1” to “B6”,Appendix 5.

The articles of incorporation of anapplicant bank shall incorporate theconditions in Items “a (3)(a)”, “a(3)(b)”,“a(3)(c)” and “a(3)(d)” of this Subsection.

(2) The applicant bank prior to theissuance of redeemable shares shallcomply with, in addition to the conditionsin Item “(1)” above, the requirementsunder Items “B7”, “B8”, and “B12” to“B16”, Appendix 5.

(3) The applicant bank after theissuance of redeemable shares shallcomply with the following:

(a) Redemption of shares shall beallowed at the specific dates or periodsfixed for redemption only upon priorapproval of the BSP and, where theconditions of the issuance specifically state,only if the shares redeemed are replacedwith at least an equivalent amount ofnewly paid-in shares so that the total paid-in capital stock is maintained at the samelevel immediately prior to redemption:Provided, That the redemption shall not beearlier than five (5) years after the date ofissuance: Provided, further, That suchredemption may not be made where thebank is insolvent or if such redemption willcause insolvency, impairment of capital orinability of the bank to meet its debts asthey mature;

(b) A sinking fund for the redemptionof preferred shares is to be created upontheir issuance. This is to be effected bythe transfer of free surplus to a restrictedsurplus account. The fund shall not beavailable for dividends. The guidelines forthe establishment and administration/management of sinking fund for theredemption of redeemable privatepreferred shares are shown in Appendix 47.

(c) The issuing bank shall not treat inany way redeemable preferred shares astime deposit, deposit substitute or otherform of borrowings;

(d) No dividend shall be declared orpaid on redeemable shares in the absenceof sufficient undivided profits, free surplusand approval of the BSP;

(e) The issuing bank shall executewithin ten (10) days after the first issuancea Deed of Undertaking (see Appendix 42),to be signed by its directors and principalofficers, binding them to comply with therequisites and conditions set forth in Items“(a)” to “(d)” above; and

(f) The conditions in Items “(3)(a)”,“(3)(b)”, “(3)(c)” and “(3)(d)” above shall beincorporated in the certificates of stock.

(g) Shares issued with the replacementrequirement upon redemption shall beeligible as Upper Tier 2 capital forpurposes of computing qualifying capitalas provided in Subsec. X116.2. Sharesissued without such condition shall beeligible as Lower Tier 2 capital.

b. Certification and report. The bankshall submit within fifteen (15) days afterevery issuance of at least twenty percent(20%) of the redeemable shares whetherissued in series or at one (1) time, acertification signed by its President/Chairmanunder oath, stating that the requirementsunder Items “a(1)” and “a(2)” above,including all other conditions that the BSPmay impose, have been complied with.

The applicant bank shall, not later thanten (10) days from the end of reference

§§ X126.4 - X126.508.12.31


year, submit a yearly report of issuancesof preferred shares to the appropriatedepartment of the SES indicating thereinthe name/s of the subscriber/s, the date theshares were issued and the number/amount of shares issued.

c. Sanctions. Any violation of theforegoing provisions shall be subject to thefollowing sanctions:

(1) On the bank:(a) For failure to comply with Items

“a(3)(a)” to “a(3)(d)” above:i. Suspension of branching privilege;ii. Prohibition against granting of new

unsecured loans to DOSRI;iii. Prohibition against declaration of

dividends;iv. Denial of access to BSP

rediscounting facilities;v. Revocation of authority to accept

government deposits and to handlegovernment funds as a result of agencyagreements with the BIR, SSS, etc.

(b) For failure to infuse capital in anamount at least equivalent to amount ofredeemed shares as required inItem “a(3)(a)”:

i. Sanctions in Item “(a)” above;ii. No new loans and investments,

except in government securities;iii. P1,000 fine per day until the

required infusion is made.(c) If the certification submitted by the

bank required in these guidelines is foundto be false, suspension of authority to issuepreferred shares for one (1) year.

(d) For failure to submit report ofissuance of redeemable preferred shares,a fine of P1,200 for UBs/KBs; P600 for TBs;and P180 for RBs/Coop Banks per day ofdefault until the report is submitted.

(2) On the directors and officers:(a) For violation of any of the terms

of the Deed of Undertaking, thefollowing shall be imposed against theofficers and directors of the bank whosigned the deed:

i. First offense - A fine of P500 perday for each violation from the time theviolation was committed or up to the timethe violation is corrected;

ii. Second and subsequent offenses -A fine of P5,000 per day from the time theviolation was committed up to the timethe violation is corrected.

(b) If the certification submitted bythe bank as required in these guidelinesis found to be false, a fine of P5,000 perday from the time the certification wasmade up to the time the certification wasfound to be false, shall be imposedagainst the certifying officer.(As amended by Circular No. 585 dated 15 October 2007)

§ X126.6 Stock options/warrants. Abank may grant options/warrants tosubscribe at par to its capital stock:Provided, That:

a. Provisions authorizing suchoptions/warrants shall be embodied in itsarticles of incorporation and in itsby-laws; and

b. Such options/warrants may begranted for a maximum period of three (3)years from the date such options/warrantsbecome effective.

§§ X126.7 - X126.9 (Reserved)

§ X126.10 Dealings with stockholdersand their related interests. Dealings of abank with any of its stockholders and theirrelated interests shall be upon terms notless favorable to the bank than thoseoffered to others. Towards this end, everynatural person acquiring sharescumulatively amounting to at least twopercent (2%) of the total subscribed capitalof a domestic bank must disclose allrelevant information on all persons relatedto him within the fourth degree ofconsanguinity or affinity, whetherlegitimate, illegitimate or common law aswell as corporations, partnership or

§§ X126.5 - X126.1008.12.31


associations where he has controllinginterests. A corporation acquiring sharesamounting to at least two percent (2%) ofthe total subscribed capital of a domesticbank must disclose its controllingstockholders or group of stockholders aswell as the corporations, partnerships orassociation where such controllingstockholders or group of stockholders havecontrolling interest.

The foregoing information shall also bedisclosed in cases of the followingtransactions: availment of credit facilityfrom the bank; purchase or sale of assetfrom/to the bank; leasing property from orto the bank; providing janitorial,messengerial, security and other servicesto the bank; and such other transactions asmay be required to be disclosed by theMonetary Board. Where the stockholdingsof such individual/organization togetherwith his/its related interests amount to atleast two percent (2%) of the totalsubscribed capital stock of the bank, theforegoing transactions shall be subject tothe procedural requirements and thereportorial requirements prescribed underSecs. X334 and X335, respectively.

Sec. X127 (Reserved)

Sec. 1127 Shares of Stock of Universal/Commercial Banks. The followingguidelines shall also govern shares of stockin UBs and KBs.

§ 1127.1 Limits on stockholdings inseveral banks. Stockholders affiliated toeach other through a common interestherein termed a business group or anycorporation or association majority or allof the equity of which is owned by abusiness group may not control more thanone (1) KB nor more than one (1) UB orboth.

Any natural person or a family group,who, together, with any corporation

majority or all of the equity of which isowned by such person or family group,owns more than forty percent (40%) of thevoting stock of any UB or KB may notacquire more than forty percent (40%) ofthe voting stock in any other UB or KB,even if the shares of stock are beingacquired from a natural person in a singletransaction and the stockholding is inexcess of forty percent (40%) of the bank’svoting stock.

For purposes of determiningapplicability of the limitations providedin this Section, stockholders shall bedeemed as aff i l iated to each otherthrough common business interest or abusiness group in cases where theholdings of such stockholders altogetherconstitute a majority or control in one (1)or more enterprises.

§§ 1127.2 - 1127.5 (Reserved)

Sec. 2127 Shares of Stock of Thrift BanksThe following regulations shall also governshares of stock in TBs.

§ 2127.1 Moratorium on ownershipceilings. Stockholdings in a TB shall beexempt from the ownership ceilingsprescribed under Subsec. X126.1 until16 March 2005.

§ 2127.2 Preferred shares. Privatedevelopment banks may also issueordinary preferred shares of stock to privatepersons, other than the preferred stockrepresenting government counterpartcapital contribution: Provided, That saidpreferred stock sold to private persons shallbe governed by the pertinent BSPregulations for preferred stock issued toprivate investors.

Preferred shares of stock of privatedevelopment banks held by DBP/LBP andsold thereafter to private persons may, atthe option of the purchasers, be retained

§§ X126.10 - 2127.208.12.31


with the same rights as when such sharesof stock were held by DBP/LBP, orconverted at not less than par to commonshares or to ordinary preferred shares ofthe class issued to private shareholders.

§§ 2127.3 - 2127.5 (Reserved)

Sec. 3127 Shares of Stock of Rural Banksand Cooperative Banks. The followingrules shall govern stockholdings in RBs andCoop Banks.

§ 3127.1 Moratorium on ownershipceiling. Individual stockholdings in RBs inexcess of the forty percent (40%) ceilingas of 02 April 2002 and as provided inSection 11 of R.A. No. 8791 may beretained: Provided, That such excessstockholdings were approved by theMonetary Board: Provided, further, Thatsuch stockholdings shall not be furtherincreased, but may be reduced and oncereduced, shall not thereafter be increasedbeyond the forty percent (40%) ceilingprescribed under said Section 11.

Any request for exemption from theprescribed ownership ceilings ofi n d i v i d u a l / n o n - b a n k / c o r p o r a t estockholdings shall be submitted to theMonetary Board for approval through theappropriate department of the SES and theexemption shall be reflected in the requiredreport on stock transactions. In caseswhere unsubscribed shares of stock aresold to any person other than the existingstockholders, the bank’s corporatesecretary shall execute a certificate underoath that all the pertinent requirementsof the Corporation Code on a valid stocktransfer/subscriptions have beencomplied with.

§ 3127.2 Government-held sharesThe articles of incorporation of RBs or thearticles of cooperation of Coop Banks shallprovide for: (a) common stock with the

power to vote; (b) preferred stock torepresent the counterpart capital of the LBP,DBP or any government-owned orcontrolled bank or financial institution,which shall be non-voting and preferredas to assets upon liquidation; and(c) preferred stock with such rights, votingpowers, preferences and restrictions, asmay be approved by the Monetary Board.Preferred and common stocks shall havea minimum par value of ten pesos (P10)per share: Provided, That this requirementshall not apply to existing RBs whose parvalue per share of stock is less thanten pesos (P10). An RB may not issueno-par value stock.

For Coop Banks, preferred andcommon shares shall have a minimum parvalue of P1,000 per share for nationalCoop Banks; and P100 per share for localCoop Banks: Provided, That a Coop Bankmay not issue no-par value shares.

The LBP, the DBP, or any government-owned or controlled bank or financialinstitution, on representation of the saidprivate shareholders but subject to theinvestment guidelines, policies andprocedures of the bank or financialinstitution and upon approval of theMonetary Board, shall subscribe to thecapital stock of any RB/Coop Bank, whichshall be paid in full at the time ofsubscription in an amount equal to the fullypaid subscribed and unimpaired capital ofthe private shareholders or such amountas the Monetary Board may prescribe asmay be necessary to promote and expandrural economic development and/orcooperative movement.

§ 3127.3 Limits on stockholdings inseveral rural banks. Any individualand/or his wholly or majority-ownedcorporation or non-bank corporations mayown up to 100% of the voting stock in three(3) RBs: Provided, That the individualand/or its subsidiary/ies, may thereafter

§§ 2127.2 - X3127.308.12.31


own shares in any number of other RBsonly to such an extent as would not enablethis group of investors to elect by virtue ofits shareholdings a director of eachadditional RB.

§ 3127.4 Convertibility of preferredstock to common stock. RBs may converttheir unissued preferred shares intocommon stock.

In the case of sale by the DBP, LBP orany government-owned or controlled bankor financial institution of preferred stock toprivate persons, such stock may beconverted into common stock: Provided,That pending amendment of the bank’sarticles of incorporation, if necessary forthe purpose of reflecting the conversion,the transfer shall be recorded by the bankin its stock and transfer book and suchshareholders shall thereafter enjoy all therights and privileges appurtenant to theconverted stock. The certificates for thegovernment preferred stocks sotransferred shall be surrendered andcancelled and the corresponding commonstock certificates shall be issued.

The corporate secretary of the bankshall submit to the appropriate departmentof the SES and the SEC a report of everytransfer of preferred stock from the LBP,DBP or any government-owned orcontrolled bank or financial institution toprivate shareholders within five (5)banking days from the date of suchtransfer.

When all the preferred shares of stocksheld by the LBP, DBP or any government-owned or controlled bank or financialinstitution have been sold to privateshareholders, the bank’s articles ofincorporation shall be amended to reflectthe conversion, if any, of the preferredshares of stock into common stock.

For this purpose, a certificate that allpreferred shares have been sold andtransferred to private shareholders shall be

issued, duly signed by the president, thecorporate secretary, and a majority of theboard of directors. The bank shall submitcopies of such certificate and the amendedarticles of incorporation to the BSP for theissuance of a certificate of authority for thepurpose of registering the amendedarticles with the SEC.

§ 3127.5 Equity investment by holdingcorporations. With the exception ofshareholdings of non-bank corporations in theequities in RBs as provided for under Section11 of R.A. No. 8791, and of Filipino-controlled domestic banks, the capital stockof any RB shall be fully owned and helddirectly or indirectly by citizens of thePhilippines or corporations, associations orcooperatives qualified under Philippine lawsto own and hold such capital stock.

The equity investment of anynon-bank corporation in any RB shall notexceed forty percent (40%) of the votingstock of such RB.

A holding corporation for purposes ofthis Subsection shall refer to a corporationprimarily organized to hold equities in RBs.


Sec. X136 Dividends. Pursuant to Section57 of R.A. No. 8791, no bank shalldeclare dividends greater than i tsaccumulated net profits then on hand,deducting therefrom its losses and baddebts. Neither shall the bank declaredividends if, at the time of declaration,it has not complied with the provisionsof Subsec. X136.2.

§ X136.1 Definitions. For purposes ofthis Section, the following definitions shallapply:

a. Bad debts - shall include any debton which interest is past due for a periodof six (6) months, unless it is well securedand in process of collection.

§§ 3127.3 - X136.108.12.31


A loan payable in installments with anautomatic acceleration clause shall beconsidered a bad debt within thecontemplation of this Subsection whereinstallments or amortizations havebecome past due for a period of six (6)months, unless the loan is well secured andin process of collection. For a loan payablein installment without an accelerationclause, only the installments oramortizations that have become past duefor a period of six (6) months and whichare not well secured and in the process ofcollection shall be considered bad debtswithin the contemplation of this Section.

b. Well secured - A debt shall beconsidered well secured (or fully secured),if it is covered by collateral in the form of aduly constituted mortgage, pledge, or lienon real or personal properties, includingsecurities, having a loan value sufficient todischarge the debt in full, including accruedinterest and other pertinent fees andexpenses.

c. In process of collection - A debt dueto a bank shall be considered in process ofcollection when it is the subject ofcontinuing extrajudicial or judicialproceedings aimed towards its fullsettlement or liquidation or otherwise toplace it in current status.

The extrajudicial proceedings, such asthe writing of collection or demand letters,must have been initiated by the bank and/or its lawyers before the interest orinstallments or amortizations on the debthave become past due and unpaid for aperiod of six (6) months.

The debt shall continue to be consideredin process of collection for a period of six (6)months counted from date of the firstcollection or demand letter and if, within thisperiod, the debtor fails to make a paymentof at least twenty percent (20%) of theoutstanding balance of the principal on hisaccount, plus all interest which may haveaccrued thereon, the same shall

automatically be classified as bad debtsunless judicial proceedings are instituted.

The debt shall continue to beconsidered in process of collection duringthe pendency of the judicial proceedings.When judgment against the debtor hasbeen obtained, the bank must be active inenforcing the judgment for the debt tocontinue to be considered in process ofcollection.

§ X136.2 Requirements on thedeclaration of dividends. At the time ofdeclaration, banks shall have compliedwith the following:

a. Clearing account with the BSP isnot overdrawn;

b. Liquidity floor requirement forgovernment funds;

c. Minimum capitalization requirementand risk-based capital ratio;

d. Prescribed EFCDU/FCDU coverconsisting of:

(1) Thirty percent (30%) liquiditycover; and

(2) 100% asset cover.e. Statutory and liquidity reserves

requirement;f. No past due loans or

accommodations with the BSP or with anyinstitution;

g. No net losses from operations in anyone (1) of the two (2) fiscal yearsimmediately preceding the date ofdividend declaration;

h. Has not committed any of thefollowing major violations:

(1) Loans and other creditaccommodations and guarantees grantedin excess of the single borrower’s limit;

(2) Loans and other creditaccommodations granted/extended inexcess of the ceilings on accommodationsto DOSRI;

(3) Unsafe and unsound bankingpractice as defined under existing BSPregulations;

§§ X136.1 - X136.208.12.31


(4) Equity investments in excess of theprescribed ceilings;

(5) Investments in real estate, bankpremises and equipment in excess ofprescribed ceilings;

(6) Major violations/exceptions citedin the previous examination not duly actedupon or not yet corrected;

(7) Transactions or activities withoutprior approval or necessary license fromthe BSP such as, but not limited to,derivatives, trust and e-banking;

(8) Refusal to permit examination intothe affairs of the institution or any willfulmaking of a false or misleading statementto the Monetary Board or to the appropriatedepartment of the SES; and

(9) Failure to comply with the capitalbuild-up program approved by theMonetary Board.

On the other hand, banks which havecommitted any of the major violationsunder Item “h” above may only beallowed to declare dividends by theMonetary Board upon recommendation ofthe appropriate department of the SES thatthe bank has corrected the major violation/s that it has committed. (As amended by Circular No. 571 dated 21 June 2007)

§ X136.3 Net amount available fordividends. The net amount available fordividends shall be the amount ofunrestricted or free earned surplus andundivided profits less:

a. Bad debts against which valuationreserves are not required by the BSP to beset up;

b. Unbooked valuation reserves, andother unbooked capital adjustmentsrequired by the BSP, whether or notallowed to be set up on a staggered basis;

c. Deferred income tax;d. Accumulated profits not yet received

but already recorded by a bank representingits share in profits of its subsidiaries underthe equity method of accounting;

e. Accrued interest as required to beexcluded pursuant to Item “d” of Subsec.X305.4, net of booked valuation reserveson accrued interest receivable orallowance for uncollectible interest onloans; and

f. Foreign exchange profit arisingfrom revaluation of foreign exchangedenominated accounts.

For purposes of this Subsec., anybalance of Paid-in Surplus account maybe included in the amount available forstock dividends.

§ X136.4 Reporting and verificationDeclaration of dividends shall be reportedby the bank concerned to the appropriatedepartment of the SES in the prescribedform within ten (10) business days afterdate of declaration.

Pending verification of abovementionedreport by the appropriate department of theSES, the bank concerned shall not makeany announcement or communication onthe declaration of dividends nor shall anypayment be made thereon.

Banks, however, whose shares arelisted with any domestic stock exchangemay declare dividends and give immediatenotice of such declaration to the SEC andthe stock exchanges, in compliance withpertinent rules of SEC: Provided, That norecord date is fixed for such dividendpending verification of the report on suchdeclaration by the appropriate departmentof the SES.

In any case, the declaration may beannounced and the dividends paid, if afterthirty (30) banking days from the date thereport required herein shall have beenreceived by the BSP, no advice against suchdeclaration has been received by the bankconcerned.

§ X136.5 Recording of dividends. Theliability for dividends declared shall betaken up in the books upon receipt of

§§ X136.2 - X136.508.12.31


BSP approval thereof, or if no such approvalis received, after thirty (30) banking/business days from the date the requiredreport on dividend declaration wasreceived by the appropriate department ofthe SES , whichever comes earlier. Amemorandum entry may be made torecord the dividend declaration on the dateof approval by the board of directors andfor full disclosure purposes, the dividendsdeclared may be disclosed in the financialstatements by means of a footnote whichshould include a statement to the effect thatthe dividend declaration is subject toreview by the BSP.

Dividends of all kinds, whether oncommon or on preferred shares of stock,should not be treated as interest expense,considering that as a general policy, onlyirredeemable stock may be issued by banks.

§ X136.6 Issuance of fractional sharesWhenever the declaration of stockdividend results in the issuance of fractionalshares, banks may observe the followingguidelines:

a. The amount corresponding to thefraction should be given in the form of cashdividend; and

b. The certificate of stock issuedshould be in whole numbers, and thefractional shares shall be issued in the formof scrip certificates. In no case shall thecertificate of stock be issued including suchfractional share. The scrip certificate istemporary in nature and should beredeemed in cash when the bank is in aposition to do so, or stockholders holdingsuch scrip certificates may negotiate withother stockholders for the purchase or saleof such shares to convert them into fullshares, subject to the limitations onstockholdings as provided by law.


Sec. 1137 (Reserved)


Sec. 3137 Limitations/Amount Availableon Dividends Declared by Rural Banksand Cooperative Banks. The followingrules shall also govern the declaration ofdividends by RBs and Coop Banks.

a. RBs. In addition to therequirements prescribed in Sec. X136,an RB may declare cash dividends onlyif the amount of its reserve for retirementof government preferred stock is at leastequal to the amount which should havebeen accumulated had the banktransferred annually to the reserveaccount from its undivided profits anamount equal to at least an average ofone-tenth (1/10) of the total amount ofpreferred stock.

In no case shall cash dividends bedeclared whenever any of the followingcircumstances is present:

(i) Arrearages in its obligations withthe BSP amount to P1.0 million or moreunless covered by an approved plan ofpayment which is being fully compliedwith: Provided, however, That cashdividends shall not exceed ten percent(10%) per annum; or

(ii) Past due loans comprise twenty-fivepercent (25%) or more of the total loanportfolio at any time during the last six (6)months prior to the dividend declaration.

b. Coop Banks(1) Interest on share capital -(a) Interest on share capital shall be

declared only upon compliance with therequirements prescribed underItem “a” above.

(b) Government preferred shares shallbe entitled to interest as enumerated inSubsec. 3137.1: Provided, That nocumulative interest shall be allowed for anykind or class of share issued by the CoopBank.

Unless otherwise provided for in theby-laws of the Coop Bank, the share capital

§§ X136.5 - 313708.12.31


shall earn interest at the rate computed asfollows:

Rate of Interest = X (Net Surplus lessStatutory Reserves) ÷(Total Average Share Month)

where:(i) “X“ shall be a percentage to be

determined by the board of directors allocated for interest on share capital;

and(ii) “Statutory Reserves” shall refer to Article

87 of R.A. No. 6938.

No allocation of interest on sharecapital shall be made without the approvalof the general assembly which mayincrease or decrease any or both.

(2) Patronage refund -(a) The amount allocated for

patronage refund shall not be less thanthirty percent (30%) of the net surplusafter deducting the statutory reservesbased on the principle of equity;

(b) The rate of patronage refund shallnot be more than twice the rate of intereston share capital;

(c) The sum allocated for patronagerefunds shall be made available at thesame rate to all cooperative patrons of theCoop Bank in proportion to theirindividual patronage: Provided, That -

(i) In the case of a cooperativemember patron with paid-up share capitalcontribution, its proportionate amount ofpatronage refund shall be paid unless itagrees to credit the amount to its accountas additional share capital contribution;

(ii) In the case of a cooperativemember patron with unpaid share capitalcontribution, its proportionate amount ofpatronage refund shall be credited to itsshare capital contribution;

(iii) In the case of a non-memberpatron, its proportionate amount ofpatronage refund shall be set aside in ageneral fund for such patrons and shall be

allocated to non-member patrons onlyupon request and presentation of evidenceof the amount of its patronage. The amountso allocated shall be credited to such patrontoward payment of the minimum capitalcontribution for membership. When a sumequal to this amount has accumulated atany time within a period specified in theby-laws, such patron shall be deemed andbecome a member of the Coop Bank if itso agrees or requests and complies withthe provisions of the by-laws for admissionto membership; and

(iv) If within any period of timespecified in the by-laws, any subscriberwho has not fully paid his subscribed sharecapital or any non-member patron whichhas accumulated the sum necessary formembership but does not request noragree to become a member or fails tocomply with the provision of the by-lawsfor admission to membership, the amountso accumulated or credited to their accounttogether with any part of the general fundfor non-member patrons shall be creditedto the reserve fund or to the educationand training fund of the Coop Bank.

§ 3137.1 Dividends on governmentshares

a. Held prior to 09 June 1992.Whenever dividends of not less thanfourteen percent (14%) are declared oncommon stock, government preferredstock shall be entitled to a cash dividendnot to exceed two percent (2%) of totaloutstanding preferred stock. Should thedividends declared on common stock beless than fourteen percent (14%), thedividend on preferred stock shall beproportionately reduced.

b. Held on or after 09 June 1992.Shares held by the LBP, DBP, or by anygovernment-owned or-controlled bank orFI shall share in dividend distributionsfrom the date of issuance in the amountof four percent (4%) on the first and

§§ 3137 - 3137.108.12.31


second years; six percent (6%) on the thirdand fourth years; eight percent (8%) on thefifth and sixth years; ten percent (10%) onthe seventh and eighth years; and twelvepercent (12%) on the ninth to the fifteenthyears, which shall be cumulative: Provided,That the RB and the government-ownedor-controlled bank are not precluded fromentering into an agreement providing forrates of dividends other than thoseprescribed by law.


H. DIRECTORS, OFFICERS ANDEMPLOYEES

Sec. X141 Definition and Qualificationsof Directors; Responsibilities and Dutiesof Board of Directors. For purposes of thisSection, the following shall be the definitionand qualifications, responsibilities andduties of directors and board of directors,respectively.

§ X141.1 Definition/limitsa. Definition of directors. Directors

shall include:(1) directors who are named as such

in the articles of incorporation;(2) directors duly elected in subsequent

meetings of the stockholders; and(3) those elected to fill vacancies in

the board of directors.b. Limits on the number of the

members of the board of directors.Pursuant to Sections 15 and 17 of R.A. No.8791, there shall be at least five (5), and amaximum of fifteen (15) members of theboard of directors of a bank at least two (2)of whom shall be independent directors:Provided, That in case of a bank/QB/trust entity merger or consolidation, thenumber of directors may be increased upto twenty-one (21).

An independent director shall mean aperson who -

(1) Is not or has not been an officer oremployee of the bank, its subsidiaries oraffiliates or related interests during the pastthree (3) years counted from the date ofhis election;

(2) Is not a director or officer of therelated companies of the institution’smajority stockholder;

(3) Is not a majority stockholder of theinstitution, any of its related companies,or of its majority shareholders;

(4) Is not a relative within the fourthdegree of consanguinity or affinity,legitimate or common-law of any director,officer or majority shareholder of the bankor any of its related companies;

(5) Is not acting as a nominee orrepresentative of any director or substantialshareholder of the bank, any of its relatedcompanies or any of its substantialshareholders; and

(6) Is not retained as professionaladviser, consultant, agent or counsel of theinstitution, any of its related companies orany of its substantial shareholders, eitherin his personal capacity or through his firm;is independent of management and freefrom any business or other relationship, hasnot engaged and does not engage in anytransaction with the institution or with anyof its related companies or with any of itssubstantial shareholders, whether byhimself or with other persons or through afirm of which he is a partner or a companyof which he is a director or substantialshareholder, other than transactions whichare conducted at arms length and couldnot materially interfere with or influencethe exercise of his judgment.

An independent director of a bank canbe elected as an independent director ofits: (a) parent or holding company;(b) subsidiary or affiliate; (c) substantialshareholder; or (d) other relatedcompanies, or vice-versa: Provided, Thathe is not a substantial shareholder of thebank or any of the said concerned entities.

§§ 3137.1 - X141.108.12.31


The foregoing terms and phrases usedin Items “(1) to (6)” of this Section shall havethe following meaning:

(a) Parent is a corporation which hascontrol over another corporation directlyor indirectly through one (1) or moreintermediaries.

(b) Subsidiary means a corporationmore than fifty percent (50%) of the votingstock of which is owned or controlleddirectly or indirectly through one (1) ormore intermediaries by a bank.

(c) Affiliate is a juridical person thatdirectly or indirectly, through one (1) or moreintermediaries, is controlled by, or is undercommon control with the bank or its affiliates.

(d) Related interests as defined underSections 12 and 13 of R.A. No. 8791 shallmean individuals related to each otherwithin the fourth degree of consanguinityor affinity, legitimate or common law, andtwo (2) or more corporations owned orcontrolled by a single individual or by thesame family group or the same group ofpersons.

(e) Control exists when the parentowns directly or indirectly throughsubsidiaries more than one-half of thevoting power of an enterprise unless, inexceptional circumstance, it can be clearlydemonstrated that such ownership doesnot constitute control. Control may alsoexist even when ownership is one-half orless of the voting power of an enterprisewhen there is:

i. power over more than one-half ofthe voting rights by virtue of anagreement with other stockholders; or

ii. power to govern the financial andoperating policies of the enterprise undera statute or an agreement; or

iii. power to appoint or remove themajority of the members of the board ofdirectors or equivalent governing body; or

iv. power to cast the majority votesat meetings of the board of directors orequivalent governing body; or

v. any other arrangement similar toany of the above.

(f) Related company means anothercompany which is: (a) its parent or holdingcompany; (b) its subsidiary or affiliate; or(c) a corporation where a bank or itsmajority stockholder own such number ofshares that will allow/enable him to electat least one (1) member of the board ofdirectors or a partnership where suchmajority stockholder is a partner.

(g) Substantial or major shareholdershall mean a person, whether natural orjuridical, owning such number of sharesthat will allow him to elect at least one(1) member of the board of directors of abank or who is directly or indirectly theregistered or beneficial owner of morethan ten percent (10%) of any class of itsequity security.

(h) Majority stockholder or majorityshareholder means a person, whethernatural or juridical, owning more than fiftypercent (50%) of the voting stock of a bank.

Non-Filipino citizens may becomemembers of the board of directors of abank to the extent of the foreignparticipation in the equity of said bank:Provided, That pursuant to Section 23 ofthe Corporation Code of the Philippines(BP Blg. 68), a majority of the directorsmust be residents of the Philippines.

The meetings of the board of directorsmay be conducted through moderntechnologies such as, but not limited to,teleconferencing and videoconferencing aslong as the director who is taking part insaid meetings can actively participate inthe deliberations on matters taken uptherein: Provided, That every member ofthe board shall participate in at least fiftypercent (50%) and shall physically attendat least twenty-five percent (25%) of allboard meetings every year: Provided,further, That in the case of a director whois unable to physically attend or participatein board meetings via teleconferencing or

§ X141.108.12.31


videoconferencing, the corporate secretaryshall execute a notarized certification attestingthat said director was given the agendamaterials prior to the meeting and that his/her comments/decisions thereon weresubmitted for deliberation/discussion andwere taken up in the actual board meeting,and that the submission of said certificationshall be considered compliance with therequired fifty percent (50%) minimumattendance in board meetings.

§ X141.2 Qualifications of a director A director shall have the followingminimum qualifications:

a. He shall be at least twenty-five (25)years of age at the time of his election orappointment;

b. He shall be at least a collegegraduate or have at least five (5) yearsexperience in business;

c. He must have attended a specialseminar on corporate governance for boardof directors conducted or accredited by theBSP: Provided, That incumbent directors aswell as those elected after 17 September2001 must attend said seminar on or before30 June 2003 or within a period of six (6)months from date of election for those electedafter 30 June 2003, as the case may be; and

d. He must be fit and proper for theposition of a director of the bank. Indetermining whether a person is fit andproper for the position of a director, thefollowing matters must be considered:integrity/probity, competence, education,diligence and experience/training.

The foregoing qualifications fordirectors shall be in addition to thoserequired or prescribed under R.A. No. 8791and other existing applicable laws andregulations.

§ X141.3 Powers/responsibilities andduties of directors

a. Powers of the board of directors.The corporate powers of a bank shall be

exercised, its business conducted and allits property shall be controlled and heldby its board of directors. The powers ofthe board of directors as conferred by laware original and cannot be revoked by thestockholders. The directors hold their officecharged with the duty to act for the bankin accordance with their best judgment.

b. General responsibility of the boardof directors. The position of a bank directoris a position of trust. A director assumescertain responsibilities to differentconstituencies or stakeholders, i.e., thebank itself, its stockholders, its depositorsand other creditors, its management andemployees, and the public at large. Theseconstituencies or stakeholders have theright to expect that the institution is beingrun in a prudent and sound manner.

The board of directors is primarilyresponsible for the corporate governance ofthe bank. To ensure good governance of thebank, the board of directors should establishstrategic objectives, policies and proceduresthat will guide and direct the activities of thebank and the means to attain the same aswell as the mechanism for monitoringmanagement’s performance. While themanagement of the day-to-day affairs of theinstitution is the responsibility of themanagement team, the board of directors is,however, responsible for monitoring andoverseeing management action.

c. Specific duties and responsibilitiesof the board of directors

(1) To select and appoint officers whoare qualified to administer the bank’saffairs effectively and soundly and toestablish adequate selection process forall personnel. It is the primaryresponsibility of the board of directors toappoint competent management team atall times. The board of directors shouldapply fit and proper standards on keypersonnel. Integrity, technical expertiseand experience in the institution’sbusiness, either current or planned, should

§§ X141.1 - X141.308.12.31


be the key considerations in theselection process. And because mutualtrust and a close working relationship areimportant, the board’s choice shouldshare its general operating philosophyand vision for the institution. The boardof directors shall establish an appropriatecompensation package for all personnelwhich shall be consistent with theinterest of all stakeholders.

(2) To establish objectives and drawup a business strategy for achievingthem. Consistent with the institution’sobjectives, business plans should beestablished to direct i ts on-goingactivities. The board should ensure thatperformance against plan is regularlyreviewed, with corrective action takenas needed.

(3) To conduct the affairs of theinstitution with high degree of integrity.Since reputation is a very valuable asset,it is in the institution’s best interest that indealings with the public, it observes a highstandard of integrity. The board of directorsshould prescribe corporate values, codesof conduct and other standards ofappropriate behaviour for itself, the seniormanagement and other employees.Among others, activities and transactionsthat could result or potentially result inconflict of interest, personal gain at theexpense of the institution, or unethicalconduct shall be strictly prohibited. Itshould provide policies that will preventthe use of the facilities of the bank infurtherance of criminal and other illegalactivities.

(4) To establish and ensurecompliance with sound written policies.The board should adopt written policies onall major business activities, i.e.,investments, loans, asset and liabilitymanagement, business planning andbudgeting. A mechanism to ensurecompliance with said policies shall also beprovided.

(5) To prescribe a clear assignment ofresponsibilities and decision-makingauthorities, incorporating a hierarchy ofrequired approvals from individuals to theboard of directors. The board should establishin writing the limits of the discretionarypowers of each officer, committee,sub-committee and such other group for thepurpose of lending, investing or committingthe bank to any financial undertaking orexposure to risk at any time. The boardshould have a schedule of matters andauthorities reserved to it for decision, suchas: major capital expenditures, equityinvestments and divestments.

(6) To effectively supervise the bank’saffairs. The board of directors shouldestablish a system of checks and balanceswhich applies in the first instance to theboard itself. Among the members of theboard, an effective system of checks andbalances must exist. The system should alsoprovide a mechanism for effective checkand control by the board over the chiefexecutive officer and key managers and bythe latter over the line officers of the bank.

(7) To monitor, assess and control theperformance of management. The boardshall put in place an appropriate reportingsystem so that it is provided with relevantand timely information to be able toeffectively assess the performance ofmanagement. For this purpose, it mayconstitute a governance committee.

(8) To adopt and maintain adequaterisk management policy. The board ofdirectors shall be responsible for theformulation and maintenance of writtenpolicies and procedures relating to themanagement of risks throughout theinstitution. The risk management policyshall include:

(a) a comprehensive risk managementapproach;

(b) a detailed structure of limits,guidelines and other parameters used togovern risk-taking;

§ X141.308.12.31


(c) a clear delineation of lines ofresponsibilities for managing risk;

(d) an adequate system for measuringrisk; and

(e) effective internal controls and acomprehensive risk-reporting process.

The board may constitute a committeefor this purpose.

(9) To constitute the followingcommittees:1

(a) Audit committee. The auditcommittee shall be composed of membersof the board of directors, at least two (2) ofwhom shall be independent directors,including the chairman, preferably withaccounting, auditing, or related financialmanagement expertise or experience. Theaudit committee provides oversight of theinstitution’s financial reporting and controland internal and external audit functions.It shall be responsible for the setting up ofthe internal audit department and for theappointment of the internal auditor as wellas the independent external auditor whoshall both report directly to the auditcommittee. It shall monitor and evaluatethe adequacy and effectiveness of theinternal control system.

Upon setting up the audit committee,the board of directors shall draw up awritten charter or terms of reference whichclearly sets out the audit committee’sauthority and duties, as well as the reportingrelationship with the board of directors.This charter shall be approved by the boardof directors and reviewed and updatedperiodically.

The audit committee shall have explicitauthority to investigate any matter withinits terms of reference, full access to andcooperation by management and fulldiscretion to invite any director orexecutive officer to attend its meetings,and adequate resources to enable it toeffectively discharge its functions.

The audit committee shall ensure thata review of the effectiveness of the

institution’s internal controls, includingfinancial, operational and compliancecontrols, and risk management, isconducted at least annually.

The audit committee shall establish andmaintain mechanisms by which officersand staff may, in confidence, raise concernsabout possible improprieties ormalpractices in matters of financialreporting, internal control, auditing or otherissues to persons or entities that have thepower to take corrective action. It shallensure that arrangements are in place forthe independent investigation, appropriatefollow-up action, and subsequentresolution of complaints.

(b) Corporate governance committee.The corporate governance committeeshall assist the board of directors infulf i l l ing i ts corporate governanceresponsibilities. It shall review andevaluate the qualifications of all personsnominated to the board as well as thosenominated to other positions requiringappointment by the board of directors.The committee shall be composed of atleast three (3) members of the board ofdirectors, two (2) of whom shall beindependent directors.

The corporate governance committeeshall have a written charter that describesthe duties and responsibilities of itsmembers. This charter shall be approvedby the board of directors and reviewedand updated at least annually.

The committee shall be responsiblefor ensuring the board’s effectiveness anddue observance of corporate governanceprinciples and guidelines. It shall overseethe periodic performance evaluation ofthe board and its committees andexecutive management; and shall alsoconduct an annual self-evaluation of itsperformance. The committee shall alsodecide whether or not a director is ableto and has been adequately carrying outhis/her duties as director bearing in mind

§ X141.308.12.31

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


the director’s contribution and performance(e.g., competence, candor, attendance,preparedness and participation). Internalguidelines shall be adopted that addressthe competing time commitments that arefaced when directors serve on multipleboards.

The committee shall makerecommendations to the board regardingthe continuing education of directors,assignment to board committees,succession plan for the board members andsenior officers, and their remunerationcommensurate with corporate andindividual performance.

The corporate governance committeeshall decide the manner by which theboard’s performance may be evaluatedand propose an objective performancecriteria approved by the board. Suchperformance indicators shall address howthe board has enhanced long termshareholders’ value.

(c) Risk management committee.The risk management committee shallbe responsible for the development andoversight of the insti tution’s r iskmanagement program. The committeeshall be composed of at least three (3)members of the board of directors whoshall possess a range of expertise as wellas adequate knowledge of theinstitution’s risk exposures to be able todevelop appropriate strategies forpreventing losses and minimizing theimpact of losses when they occur. It shalloversee the system of l imits todiscretionary authority that the boarddelegates to management, ensure thatthe system remains effective, that thelimits are observed and that immediatecorrective actions are taken wheneverlimits are breached.

The risk management committee shallhave a written charter that defines theduties and responsibilities of its members.The charter shall be approved by the board

of directors and reviewed and refinedperiodically.

The core responsibility of the riskmanagement committee are:

(i) Identify and evaluate exposures.The committee shall assess the probabilityof each risk becoming reality and shallestimate its possible effect and cost. Priorityareas of concern are those risks that arethe most likely to occur and are costly whenthey happen.

(ii) Develop risk managementstrategies. The risk managementcommittee shall develop a written plandefining the strategies for managing andcontrolling the major risks. It shall identifypractical strategies to reduce the chanceof harm and failure or minimize losses ifthe risk becomes real.

(iii) Implement the risk managementplan. The risk management committeeshall communicate the risk managementplan and loss control procedures toaffected parties. The committee shallconduct regular discussions on theinstitution’s current risk exposure basedon regular management reports anddirect concerned units or offices on howto reduce these risks.

(iv) Review and revise the plan asneeded. The committee shall evaluate therisk management plan to ensure itscontinued relevancy, comprehensiveness,and effectiveness. It shall revisit strategies,look for emerging or changing exposures,and stay abreast of developments that affectthe likelihood of harm or loss. Thecommittee shall report regularly to theboard of directors the entity’s over-all riskexposure, actions taken to reduce the risks,and recommend further action or plans asnecessary.

(d) (Deleted by Cir. 456 dated04 October 2004)

(10)To meet regularly. To properlydischarge its function, the board of directorsshall meet regularly. Independent views

§ X141.308.12.31


in board meetings shall be given fullconsideration and all such meetings shallbe duly minuted.

(11) To keep the individual membersof the board and the shareholdersinformed. It is the duty of the boardto present to all its members and tothe shareholders a balanced andunderstandable assessment of the bank’sperformance and financial condition. Itshould also provide appropriateinformation that flows internally and to thepublic. All members of the board shallhave reasonable access to any informationabout the institution.

(12) To ensure that the bank hasbeneficial influence on the economy. Theboard has a continuing responsibility toprovide those services and facilitieswhich will be supportive of the nationaleconomy.

(13) To assess at least annually itsperformance and effectiveness as abody, as well as its various committees,the chief executive officer and the bankitself. The composition of the board shallalso be reviewed regularly with the endin view of having a balancedmembership. Towards this end, a systemand procedure for evaluation shall beadopted which may include, but notlimited to, the setting of benchmark andpeer group analysis.

(14) To keep their authority within thepowers of the institution as prescribed inthe articles of incorporation, charter, by-laws and in existing laws, rules andregulations. To conduct and maintain theaffairs of the institution within the scopeof its authority as prescribed in its charterand in exist ing laws, rules andregulations, the board shall appoint acompliance off icer who shall beresponsible for coordinating, monitoringand facilitating compliance with existinglaws, rules and regulations. Thecompliance officer shall be vested with

appropriate authority and provided withappropriate support and resources. Itmay also consti tute a compliancecommittee.

d. Specific duties and responsibilitiesof a director

(1) To conduct fair businesstransactions with the bank and to ensurethat personal interest does not bias boarddecisions. Directors should, wheneverpossible, avoid situations that would giverise to a conflict of interest. If transactionswith the institution cannot be avoided, itshould be done in the regular course ofbusiness and upon terms not less favorableto the institution than those offered toothers. The basic principle to be observedis that a director should not use his positionto make profit or to acquire benefit oradvantage for himself and/or his relatedinterests. He should avoid situations thatwould compromise his impartiality.

(2) To act honestly and in good faith,with loyalty and in the best interest of theinstitution, its stockholders, regardless ofthe amount of their stockholdings, andother stakeholders such as its depositors,investors, borrowers, other clients and thegeneral public. A director must alwaysact in good faith, with the care which anordinarily prudent man would exerciseunder similar circumstances. While adirector should always strive to promotethe interest of all stockholders, he shouldalso give due regard to the rights andinterests of other stakeholders.

(3) To devote time and attentionnecessary to properly discharge theirduties and responsibilities. Directorsshould devote sufficient time to familiarizethemselves with the institution’sbusiness. They must be constantly awareof the institution’s condition and beknowledgeable enough to contributemeaningfully to the board’s work. Theymust attend and actively participate inboard and committee meetings, request

§ X141.308.12.31


and review meeting materials, askquestions, and request explanations.If a person cannot give sufficient timeand at tention to the af fairs of theinstitution, he should neither accepthis nomination nor run for election asmember of the board.

(4) To act judiciously. Beforedeciding on any matter brought before theboard of directors, every director shouldthoroughly evaluate the issues, askquestions and seek clarifications whennecessary.

(5) To exercise independentjudgment. A director should view eachproblem/situation objectively. When adisagreement with others occurs, heshould carefully evaluate the situation andstate his position. He should not be afraidto take a position even though it might beunpopular. Corollarily, he should supportplans and ideas that he thinks will bebeneficial to the institution.

(6) To have a working knowledge ofthe statutory and regulatory requirementsaffecting the institution, including thecontent of its articles of incorporation andby-laws, the requirements of the BSP andwhere applicable, the requirements ofother regulatory agencies. A directorshould also keep himself informed of theindustry developments and business trendsin order to safeguard the institution’scompetitiveness.

(7) To observe confidentiality.Directors must observe the confidentialityof non-public information acquired byreason of their position as directors. Theymay not disclose said information to anyother person without the authority of theboard.

§ X141.4 Confirmation of the election/appointments of directors and officersThe election/appointment of directors andofficers of banks shall be subject toconfirmation by the:

Confirming Authority Position Level a. Monetary Board Directors, Senior Vice President and above of UBs and KBs, as

well as the Directors,President, Chief

Executive Officer,Chief Operating

Officer, Senior VicePresident or quivalentrank of TBs, IBs, RBsand Coop Bankswith total assets of atleast P1.0 billion.

b. A Committee to Directors, Senior be composed of: Vice President and · The Deputy above orequivalent Governor - SES rank of TBs, IBs, RBs · Managing and Coop Banks Directors of SE I whose election and II appointment is not · Directors of the subject to confirmation concerned by the Monetary department Board.

of the SES

The election/appointment of allincumbent directors and officers of all typesof banks as of 17 September 2001 notpreviously approved/confirmed by theMonetary Board shall be submitted to theBSP through the appropriate department ofthe SES for confirmation.

§ X141.5 Place of board of directors'meeting. Banks shall include in theirby-laws a provision that meetings of theirboard of directors shall be held only withinthe Philippines.

§§ X141.6 - X141.8 (Reserved)

§ X141.9 Reports required. Banks shallfurnish all of their directors with a copy ofthe specific duties and responsibilities ofthe board of directors prescribed underItems “b” and “c” of Subsec. X141.3 withinthirty (30) banking days from 17 May 2001in cases of incumbent directors and at thetime of election in cases of directors electedafter such date.

§§ X141.3 - X141.908.12.31


The directors concerned shall each berequired to acknowledge receipt of thecopies of such specific duties andresponsibilities and shall certify that theyfully understand the same.

Copies of the acknowledgment andcertification herein required shall besubmitted in accordance with Appendix 6.

§ X141.10 Sanctions. Withoutprejudice to the other sanctions prescribedunder Section 37 of R.A. No. 7653 and tothe provisions of Section 16 of R.A. No.8791, any director of a bank who violatesor fails to observe and/or perform any ofthe above responsibilities and duties shallfor each violation or offense, be penalizedas follows:

For directors of AmountUBs/KBs P 30,000TBs/IBs 15,000RBs/Coop Banks (national) 5,000Coop Banks (local) 1,000

Sec. X142 Definition and Qualificationsof Officers. For purposes of this Section,the following shall be the definition andqualification of officers.

§ X142.1 Definition of officers. Officersshall include the president, executive vicepresident, senior vice-president, vicepresident, general manager, treasurer,secretary, trust officer and others mentionedas officers of the bank, or those whoseduties as such are defined in the by-laws,or are generally known to be the officersof the bank (or any of its branches andoffices other than the head office) eitherthrough announcement, representation,publication or any kind of communicationmade by the bank: Provided, That a personholding the position of chairman or vice-chairman of the board or another positionin the board shall not be considered as anofficer unless the duties of his position in

the board include functions of managementsuch as those ordinarily performed byregular officers: Provided, further, Thatmembers of a group or committee,including sub-groups or sub-committees,whose duties include functions ofmanagement such as those ordinarilyperformed by regular officers, and are notpurely recommendatory or advisory, shalllikewise be considered as officers.(As amended by Circular No. 562 dated 13 March 2007)

§ X142.2 Qualifications of an officerAn officer shall have the followingminimum qualifications:

a. He shall be at least twenty-one (21)years of age; and

b. He shall be at least a collegegraduate, or have at least five (5) yearsexperience in banking or trust operationsor related activities or in a field related tohis position and responsibilities, or haveundergone training in banking or trustoperations acceptable to the appropriatedepartment of the SES: Provided, however,That trust officers shall have at least two(2) years of actual experience or trainingin trust operations or fund management orother related fields; and

c. He must be fit and proper for theposition he is being proposed/appointedto. In determining whether a person is fitand proper for a particular position, thefollowing matters must be considered:integrity/probity, competence, education,diligence and experience/training.

The foregoing qualifications for officersshall be in addition to those required orprescribed under R.A. No. 8791 and otherexisting applicable laws and regulations.

§ X142.3 Appointment of officersThe appointment of officers of UBs/

KBs/TBs with the rank of senior vicepresident (SVP) and above, whetherincumbent or proposed, shall not besubject to Monetary Board approval but

§§ X141.9- X 142.308.12.31


rather to Monetary Board confirmation.Appointment of officers below the rank ofSVP shall be subject neither to MonetaryBoard approval nor Monetary Boardconfirmation.

The appointment of abovementionedofficers shall be deemed to have beenconfirmed by the BSP, if after sixty (60)banking days from receipt of therequired reports, no advice against saidappointment has been received by thebank concerned.

b. (As amended by Cir. 434 dated04 October 2004)

Sec. X143 Disqualification of Directorsand Officers. The following regulationsshall govern the disqualification of bankdirectors and officers.

§ X143.1 Persons disqualified tobecome directors. Without prejudice tospecific provisions of law prescribingdisquali f ications for directors, thefollowing are disqualified from becomingdirectors:

a. Permanently disqualified D i r e c t o r s / o f f i c e r s / e m p l o y e e s

permanently disqualified by the MonetaryBoard from holding a director position:

(1) Persons who have beenconvicted by final judgment of a courtfor offenses involving dishonesty orbreach of trust such as, but not limitedto, estafa, embezzlement, extortion,forgery, malversation, swindling, theft,robbery, falsification, bribery, violationof B.P. Blg. 22, violation of Anti-Graft andCorrupt Practices Act and prohibited actsand transactions under Section 7 ofR.A. No. 6713 (Code of Conduct andEthical Standards for Public Officials andEmployees);

(2) Persons who have been convictedby final judgment of a court sentencingthem to serve a maximum term ofimprisonment of more than six (6) years;

(3) Persons who have been convictedby final judgment of the court for violationof banking laws, rules and regulations;

(4) Persons who have been judiciallydeclared insolvent, spendthrift orincapacitated to contract;

(5) Directors, officers or employees ofclosed banks who were found to beculpable for such institution’s closure asdetermined by the Monetary Board;

(6) Directors and officers of banksfound by the Monetary Board asadministratively liable for violation ofbanking laws, rules and regulations wherea penalty of removal from office isimposed, and which finding of theMonetary Board has become final andexecutory; or

(7) Directors and officers of banks orany person found by the Monetary Boardto be unfit for the position of directors orofficers because they were foundadministratively liable by anothergovernment agency for violation ofbanking laws, rules and regulations or anyoffense/violation involving dishonesty orbreach of trust, and which finding of saidgovernment agency has become final andexecutory.

b. Temporarily disqualified D i r e c t o r s / o f f i c e r s / e m p l o y e e s

disqualified by the Monetary Board fromholding a director position for a specific/indefinite period of time. Included are:

(1) Persons who refuse to fullydisclose the extent of their business interestor any material information to theappropriate department of the SES whenrequired pursuant to a provision of law orof a circular, memorandum, rule orregulation of the BSP. This disqualificationshall be in effect as long as the refusalpersists;

(2) Directors who have been absent orwho have not participated for whateverreasons in more than fifty percent (50%) ofall meetings, both regular and special, of

§§ X142.3 - X143.108.12.31


the board of directors during theirincumbency, and directors who failed tophysically attend for whatever reasons inat least twenty-five percent (25%) of allboard meetings in any year, except thatwhen a notarized certification executedby the corporate secretary has beensubmitted attesting that said directorswere given the agenda materials prior tothe meeting and that their comments/decisions thereon were submitted fordeliberation/discussion and were taken up inthe actual board meeting, said directors shallbe considered present in the board meeting.This disqualification applies only for purposesof the immediately succeeding election;

(3) Persons who are delinquent in thepayment of their obligations as definedhereunder:

(a) Delinquency in the payment ofobligations means that an obligation of aperson with a bank where he/she is adirector or officer, or at least two (2)obligations with other banks/FIs, underdifferent credit lines or loan contracts, arepast due pursuant to Sec. X306;

(b) Obligations shall include allborrowings from a bank obtained by:

(i) A director or officer for his ownaccount or as the representative or agentof others or where he/she acts as aguarantor, endorser or surety for loans fromsuch FIs;

(ii) The spouse or child under theparental authority of the director or officer;

(iii) Any person whose borrowings orloan proceeds were credited to the accountof, or used for the benefit of a director orofficer;

(iv) A partnership of which a directoror officer, or his/her spouse is themanaging partner or a general partnerowning a controlling interest in thepartnership; and

(v) A corporation, association or firmwholly-owned or majority of the capital ofwhich is owned by any or a group of

persons mentioned in the foregoing Items“(i)”, “(ii)” and “(iv)”;

This disqualification shall be in effectas long as the delinquency persists.

(4) Persons who have been convictedby a court for offenses involving dishonestyor breach of trust such as, but not limitedto, estafa, embezzlement, extortion,forgery, malversation, swindling, theft,robbery, falsification, bribery, violation ofB.P. Blg. 22, violation of Anti-Graft andCorrupt Practices Act and prohibited actsand transactions under Section 7 of R.A.No. 6713, violation of banking laws, rulesand regulations or those sentenced to servea maximum term of imprisonment of morethan six (6) years but whose conviction hasnot yet become final and executory;

(5) Directors and officers of closedbanks pending their clearance by theMonetary Board;

(6) Directors disqualified for failure toobserve/discharge their duties andresponsibilities prescribed under existingregulations. This disqualification appliesuntil the lapse of the specific period ofdisqualification or upon approval by theMonetary Board on recommendation bythe appropriate department of the SES ofsuch directors’ election/reelection;

(7) Directors who failed to attend thespecial seminar for board of directorsrequired under Item “c” of Subsec. X141.2.This disqualification applies until thedirector concerned had attended suchseminar;

(8) Persons dismissed/terminatedfrom employment for cause. Thisdisqualification shall be in effect until theyhave cleared themselves of involvementin the alleged irregularity or uponclearance, on their request, from theMonetary Board after showing good andjustifiable reasons, or after the lapse of five(5) years from the time they were officiallyadvised by the appropriate department ofthe SES of their disqualification;

§ X143.108.12.31


(9) Those under preventive suspension;(10) Persons with derogatory records as

certified by, or on the official files of, thejudiciary, NBI, Philippine National Police(PNP), quasi-judicial bodies, othergovernment agencies, international police,monetary authorities and similar agenciesor authorities of foreign countries forirregularities or violations of any law, rulesand regulations that would adversely affectthe integrity of the director/officer or theability to effectively discharge his duties.This disqualification applies until they havecleared themselves of the allegedirregularities/violations or after a lapse offive (5) years from the time the complaint,which was the basis of the derogatoryrecord, was initiated;

(11) Directors and officers of banksfound by the Monetary Board asadministratively liable for violation ofbanking laws, rules and regulations wherea penalty of removal from office isimposed, and which finding of theMonetary Board is pending appeal beforethe appellate court, unless execution orenforcement thereof is restrained by thecourt;

(12) Directors and officers of banks orany person found by the Monetary Board tobe unfit for the position of director or officerbecause they were found administrativelyliable by another government agency forviolation of banking laws, rules andregulations or any offense/violationinvolving dishonesty or breach of trust,and which finding of said governmentagency is pending appeal before theappellate court, unless execution orenforcement thereof is restrained by thecourt; and

(13) Directors and officers of banksfound by the Monetary Board asadministratively liable for violation ofbanking laws, rules and regulations wherea penalty of suspension from office or fineis imposed, regardless whether the finding

of the Monetary Board is final andexecutory or pending appeal before theappellate court, unless execution orenforcement thereof is restrained by thecourt. The disqualification shall be in effectduring the period of suspension or so longas the fine is not fully paid.(As amended by Circular Nos.584 dated 28 September 2007

and 513 dated 10 February 2006)

§ X143.2 Persons disqualified tobecome officers

a. The disqualifications for directorsmentioned in Subsec. X143.1 shalllikewise apply to officers, except thosestated in Items “b(2)” and “b(7)”.

b. Except as may be authorized by theMonetary Board or the Governor, thespouse or a relative within the seconddegree of consanguinity or affinity of anyperson holding the position of chairman,president, executive vice president or anyposition of equivalent rank, generalmanager, treasurer, chief cashier or chiefaccountant is disqualified from holding orbeing elected or appointed to any of saidpositions in the same bank; and the spouseor relative within the second degree ofconsanguinity or affinity of any personholding the position of manager, cashier,or accountant of a branch or office of a bankis disqualified from holding or beingappointed to any of said positions in thesame branch or office.

c. In the case of UBs, KBs, and TBs,any appointive or elective official, whetherfull time or part time, except in caseswhere such service is incident to financialassistance provided by the government orgovernment-owned or -controlledcorporations (GOCCs) or in cases allowedunder existing law.

d. In the case of Coop Banks, anyofficer or employee of CDA or any electivepublic official, except a barangay official.

e. Except as may otherwise be allowedunder Commonwealth Act No. 108,

§§ X143.1 - X143.208.12.31


otherwise known as “The Anti-DummyLaw”, as amended, foreigners cannot beofficers or employees of banks.

§ X143.3 Effect of non-possession ofqualifications or possession ofdisqualifications. A director/officer electedor appointed who does not possess all thequalifications mentioned under Subsecs.X141.2 and X142.2 and/or has any of thedisqualifications mentioned under Subsecs.X143.1 and X143.2 shall not be confirmedby the confirming authority under Subsec.X141.4 and shall be removed from officeeven if he/she assumed the position towhich he/she was elected or appointed. Aconfirmed director/officer or officer notrequiring confirmation possessing any ofthe disqualifications, enumerated in theabovementioned subsections shall besubject to the disqualification proceduresprovided under Subsec. X143.4. A director/officer, prior to assuming the position towhich he/she was elected/appointed, mustsubmit to the appropriate department of theSES a verified statement that he/she has allthe aforesaid qualifications and none of thedisqualifications. The submission of verifiedstatement will apply to directors/officerselected/appointed after 14 March 2006.(As amended by Circular No. 513 dated 10 February 2006)

§ X143.4 Disqualification proceduresa. The board of directors and

management of every institution shall beresponsible for determining the existenceof the ground for disqualification of theinstitution’s director/officer or employeeand for reporting the same to the BSP.While the concerned institution mayconduct its own investigation and imposeappropriate sanction/s as are allowable, thisshall be without prejudice to the authorityof the Monetary Board to disqualify adirector/officer/employee from beingelected/appointed as director/officer in anyFI under the supervision of the BSP.

Grounds for disqualification made knownto the institution, shall be reported to theappropriate department of the SES withinseventy-two (72) hours from knowledgethereof.

b. On the basis of knowledge andevidence on the existence of any of thegrounds for disqualification mentioned inSubsecs. X143.1 and X143.2, the directoror officer concerned shall be notified inwriting either by personal service orthrough registered mail with registry returnreceipt card at his/her last known addressby the appropriate department of the SESof the existence of the ground for his/herdisqualification and shall be allowed tosubmit within fifteen (15) calendar daysfrom receipt of such notice an explanationon why he/she should not be disqualifiedand included in the watchlisted file,together with the evidence in support ofhis/her position. The head of saiddepartment may allow an extension onmeritorious ground.

c. Upon receipt of the replyexplanation of the director/officerconcerned, the appropriate department ofthe SES shall proceed to evaluate the case.The director/officer concerned shall beafforded the opportunity to defend/clearhimself/herself.

d. If no reply has been received fromthe director/officer concerned upon theexpiration of the period prescribed underItem “b” above, said failure to reply shallbe deemed a waiver and the appropriatedepartment of the SES shall proceed toevaluate the case based on availablerecords/evidence.

e. If the ground for disqualification isdelinquency in the payment of obligation,the concerned director or officer shall begiven a period of thirty (30) calendar dayswithin which to settle said obligation or,restore it to its current status or, to explainwhy he/she should not be disqualified andincluded in the watchlisted file, before the

§§ X143.2 - X143.408.12.31


evaluation on his disqualification andwatchlisting is elevated to the MonetaryBoard.

f. For directors/officers of closedbanks, the concerned department ofthe SES shall make appropriaterecommendation to the Monetary Boardclearing said directors/officers when thereis no pending case/complaint or evidenceagainst them. When there is evidence thata director/officer has committedirregularity, the appropriate department ofthe SES shall make recommendation to theMonetary Board that his/her case bereferred to the Office of SpecialInvestigation (OSI) for further investigationand that he/she be included in the masterlistof temporarily disqualified persons until thefinal resolution of his/her case. Directors/officers with pending cases/complaints shallalso be included in said masterlist oftemporarily disqualified persons uponapproval by the Monetary Board until thefinal resolution of their cases. If the director/officer is cleared from involvement in anyirregularity, the appropriate department ofthe SES shall recommend to the MonetaryBoard his/her delisting. On the other hand,if the director/officer concerned is found tobe responsible for the closure of theinstitution, the concerned department ofthe SES shall recommend to the MonetaryBoard his/her delisting from the masterlistof temporarily disqualified persons and his/her inclusion in the masterlist ofpermanently disqualified persons.

g. If the disqualification is based on dismissal from employment for cause, theappropriate department of the SES shall,as much as practicable, endeavor toestablish the specific acts or omissionsconstituting the offense or the ultimate factswhich resulted in the dismissal to be ableto determine if the disqualification of thedirector/officer concerned is warranted ornot. The evaluation of the case shall bemade for the purpose of determining if

disqualification would be appropriate andnot for the purpose of passing judgment onthe findings and decision of the entityconcerned. The appropriate department ofthe SES may decide to recommend to theMonetary Board a penalty lower thandisqualification (e.g., reprimand,suspension, etc.) if, in its judgment the actcommitted or omitted by the director/officer concerned does not warrantdisqualification.

h. All other cases of disqualification,whether permanent or temporary shall beelevated to the Monetary Board forapproval and shall be subject to theprocedures provided in Items “a”,”b”,”c”and “d” above.

i. Upon approval by the MonetaryBoard, the concerned director/officer shallbe informed by the appropriate departmentof the SES in writing either by personalservice or through registered mail withregistry return receipt card, at his/her lastknown address of his/her disqualificationfrom being elected/appointed as director/officer in any FI under the supervision ofBSP and/or of his/her inclusion in themasterlist of watchlisted persons sodisqualified.

j. The board of directors of theconcerned institution shall be immediatelyinformed of cases of disqualificationapproved by the Monetary Board and shallbe directed to act thereon not later thanthe following board meeting. Withinseventy-two (72) hours thereafter, thecorporate secretary shall report to theGovernor of the BSP through theappropriate department of the SES theaction taken by the board on the director/officer involved.

k. Persons who are elected orappointed as director or officer in any ofthe BSP-supervised institutions for the firsttime but are subject to any of the groundsfor disqualification provided for underSubsecs. X143.1 and X143.2, shall be

§ X143.408.12.31


afforded the procedural due processprescribed above.

l. Whenever a director/officer iscleared in the process mentioned underItem “c” above or, when the ground fordisqualification ceases to exist, he/shewould be eligible to become director orofficer of any bank, QB, trust entity or anyinstitution under the supervision of the BSPonly upon prior approval by the MonetaryBoard. It shall be the responsibility of theappropriate department of the SES toelevate to the Monetary Board the liftingof the disqualification of the concerneddirector/officer and his/her delisting fromthe masterlist of watchlisted persons.(As amended by Circular No. 584 dated 28 September 2007)

§ X143.5 Watchlisting. To provide theBSP with a central information file to beused as reference in passing upon andreviewing the qualifications of personselected or appointed as director or officerof a bank, QB or trust entity, the SES shallmaintain a watchlist of persons disqualifiedto be a director or officer of such entitiesunder its supervision under the followingprocedures:

a. Watchlist categories. Watchlistingshall be categorized as follows:

(1) Disqualification File “A”(Permanent) - Directors/officers/employeespermanently disqualified by the MonetaryBoard from holding a director/officerposition.

(2) Disqualification File “B”(Temporary) - Directors/officers/employeestemporarily disqualified by the MonetaryBoard from holding a director/officerposition.

b. Inclusion of directors/officers/employees in the watchlist. Directors/officers/employees disqualified underSubsec. X143.4 shall be included in thewatchlist disqualification files “A” or “B”.

c. Confidentiality. Watchlist files shallbe for internal use only of the BSP and may

not be accessed or queried upon by outsideparties including banks, QBs and trustentities except with the authority of theperson concerned and with the approvalof the Deputy Governor, SES or theGovernor or the Monetary Board.

BSP will disclose information on itswatchlist files only upon submission of aduly accomplished and notarizedauthorization from the concerned personand approval of such request by theDeputy Governor, SES or the Governoror the Monetary Board. The prescribedauthorization form to be submitted to theconcerned department of SES is inAppendix 76.

Banks can gain access to informationin the said watchlist for the sole purposeof screening their applicants for hiring and/or confirming their elected directors andappointed officers. Banks must obtain thesaid authorization on an individual basis.

d. Delisting. All delistings shall beapproved by the Monetary Board uponrecommendation of the operatingdepartments of SES except in cases ofpersons known to be dead where delistingshall be automatic upon proof of death andneed not be elevated to the MonetaryBoard. Delisting may be approved by theMonetary Board in the following cases:

(1) Watchlist - Disqualification File “B”(Temporary) -

(a) After the lapse of the specificperiod of disqualification;

(b) When the conviction by the courtfor crimes involving dishonesty, breach oftrust and/or violation of banking lawbecomes final and executory, in whichcase the director/officer/employee isrelisted to Watchlist - Disqualification File“A” (Permanent); and

(c) Upon favorable decision orclearance by the appropriate body, i.e.,court, NBI, BSP, bank, QB, trust entity orsuch other agency/body where theconcerned individual had derogatory record.

§§ X143.4 - X143.508.12.31


Directors/officers/employees delistedfrom the Watchlist - Disqualification File“B” other than those upgraded to Watchlist- Disqualification File “A” shall be eligiblefor re-employment with any bank, QB ortrust entity.(As amended by CL-2007-001 dated 04 January 2007 and

CL-2006-046 dated 21 December 2006)

Sec. X144 Bio-data of Directors andOfficers

a. Banks shall submit to theappropriate department of the SES abio-data of their directors and officers aftertheir election or appointment, in aprescribed form and within the deadlineindicated in Appendix 6.

The bio-data shall be updated in any ofthe following instances:

(1) Change in educational attainment,experience or additional qualifications inbanking that will enhance the director’s orofficer’s competence or will qualify himto his present position;

(2) Promotion; and(3) Transfer to other banks.The bio-data shall be submitted only

once. For purposes of updating, only thepertinent sections and pages shall besubmitted to the BSP.

b. Banks shall submit to the appropriatedepartment of the SES for evaluation, a listof the incumbent members of the board ofdirectors and officers (chief executive officersdown the line) after the annual election ofthe board of directors as provided in thebank’s by-laws. Any change in thecomposition of the board of directors shallalso be reported to the BSP after the electionor appointment of a member.

c. If after evaluation, the MonetaryBoard shall find grounds for disqualification,the director/officer so elected/appointedmay be removed from office even if he/she has assumed the position to which he/she was elected/appointed pursuant toSection 9-A of R.A. No. 337, as amended.

In the case of the independentdirectors, the bio-data shall beaccompanied by a certification under oathfrom the director concerned that he/she isan independent director as defined underSubsec. X141.1 that all the informationthereby supplied are true and correct, andthat he/she:

(1) Is not or has not been an officeror employee of the bank, its subsidiariesor affiliates or related interests during thepast three (3) years counted from the dateof his election;

(2) Is not a director or officer of therelated companies of the institution’smajority stockholder;

(3) Is not a majority stockholder of theinstitution, any of its related companies, orof its majority shareholders;

(4) Is not a relative within the fourthdegree of consanguinity or affinity,legitimate or common-law of any director,officer or majority shareholder of the bankor any of its related companies;

(5) Is not acting as a nominee orrepresentative of any director orsubstantial shareholder of the bank, anyof its related companies or any of itssubstantial shareholders;

(6) Is not retained as professionaladviser, consultant, agent or counsel of theinstitution, any of its related companies orany of its substantial shareholders, eitherin his personal capacity or through his firm;is independent of management and freefrom any business or other relationship, hasnot engaged and does not engage in anytransaction with the institution or with anyof its related companies or with any of itssubstantial shareholders, whether byhimself or with other persons or through afirm of which he is a partner or a companyof which he is a director or substantialshareholder, other than transactions whichare conducted at arms length and could notmaterially interfere with or influence theexercise of his judgment; and

§§ X143.5 - X14408.12.31


(7) Complies with all thequalifications required of an independentdirector and does not possess any of thedisqualifications therefor; and has notwithheld nor suppressed any informationmaterial to his or her qualification ordisqualif ication as an independentdirector.

Sec. X145 Interlocking Directorships and/or Officerships. In order to safeguardagainst the excessive concentration ofeconomic power, unfair competitiveadvantage or conflict of interest situationsto the detriment of others through theexercise by the same person or group ofpersons of undue influence over thepolicy-making and/or managementfunctions of similar FIs while at the sametime allowing banks, QBs and non-bankfinancial institutions (NBFIs) withoutquasi-banking functions to benefit fromorganizational synergy or economies ofscale and effective sharing of managerialand technical expertise, the followingregulations shall govern interlockingdirectorships and/or officerships withinthe financial system consisting of banks,QBs and NBFIs.

For purposes of this Section, QBs shallrefer to investment houses, financecompanies, trust entities and all otherNBFIs with quasi-banking functions whileNBFIs shall refer to investment houses,finance companies, trust entities, insurancecompanies, securities dealers/brokers,credit card companies, non-stock savingsand loan associations (NSSLAs), holdingcompanies, investment companies,government NBFIs, asset managementcompanies, insurance agencies/brokers,venture capital corporations, FX dealers,money changers, lending investors,pawnshops, fund managers, mutualbuilding and loan associations, remittanceagents and all other NBFIs without quasi-banking functions.

a. Interlocking directorshipsWhile concurrent directorship may be

the least prejudicial of the variousrelationship cited in this Section to theinterests of the FIs involved, certainmeasures a re s t i l l necessa ry tosafeguard against the disadvantagesthat could result from indiscriminateconcurrent directorship.

(1) Except as may be authorized bythe Monetary Board or as otherwiseprovided hereunder, there shall be noconcurrent directorships between banksor between a bank and a QB.

(2) Without the need for prior approvalof the Monetary Board, concurrentdirectorships between entities notinvolving an investment house shall beallowed in the following cases:

(a) Banks not belonging to the samecategory: Provided, That not more than one(1) Bank shall have quasi-banking functions;

(b) A bank and an NBFI;(c) A bank without quasi-banking

functions and a QB; and(d) A bank and one (1) or more of its

subsidiary bank/s, QB/s and NBFI/s.For purposes of the foregoing, a

husband and his wife shall be consideredas one (1) person.

b. Interlocking directorships andofficerships

In order to prevent any conflict ofinterest resulting from the exercise ofdirectorship coupled with the reinforcinginfluence of an officer’s decision-makingand implementing powers, the followingrules shall be observed:

(1) Except as may be authorized bythe Monetary Board or as otherwiseprovided hereunder, there shall be noconcurrent directorship and officershipbetween banks or between a bank anda QB or an NBFI; and

(2) Without the need for prior approvalof the Monetary Board, concurrentdirectorship and officership between a

§§ X144 - X14508.12.31


bank and one (1) or more of its subsidiarybank/s, QB/s and NBFI/s, other thaninvestment house/s, shall be allowed.

c. Interlocking officershipsA concurrent officership in different

FIs may present more serious problemsof self-dealing and conflict of interest. Multiple positions may result in poorgovernance or unfair competit iveadvantage. Considering the full-timenature of officer positions, the difficultiesof serving two (2) offices at the sametime, and the need for effective andefficient management, the followingrules shall be observed:

As a general rule, there shall be noconcurrent officerships, includingsecondments, between banks or, betweena bank and a QB or an NBFI. For thispurpose, secondment shall refer to thetransfer/detachment of a person from hisregular organization for temporaryassignment elsewhere where theseconded employee remains theemployee of the home employer althoughhis salaries and other remuneration maybe borne by the host organization.

However, subject to prior approvalof the Monetary Board, concurrentofficerships, including secondments,may be allowed in the following cases:

(1) Between a bank and not more thantwo (2) of its subsidiary bank/s, QB/s, andNBFI/s, other than investment house/s; or

(2) Between a bank and not morethan two (2) of its subsidiary QB/s andNBFI/s; or

(3) Between two (2) banks, or betweena bank and a QB or an NBFI, other than aninvestment house: Provided, That at leasttwenty percent (20%) of the equity of eachof the banks, QBs or NBFIs is owned by aholding company or a bank/QB and theinterlocking arrangement is necessary forthe holding company or the bank/QB toprovide technical expertise or managerialassistance to its subsidiaries/affiliates.

Aforementioned concurrentofficerships may be allowed, subject to thefollowing conditions:

(a) that the positions do not involveany functional conflict of interests;

(b) that any officer holding thepositions of president, chief executiveofficer, chief operating officer or chief financial officer or their equivalent may notbe concurrently appointed to any of saidpositions or their equivalent;

(c) that the officer involved, or his spouseor any of his relatives within the first degreeof consanguinity or affinity or by legaladoption, or a corporation, association or firmwholly- or majority-owned or controlled bysuch officer or his relatives enumeratedabove, does not own in his/its own capacitymore than twenty percent (20%) of thesubscribed capital stock of the entities inwhich the bank has equity investments; and

(d) that where any of the positionsinvolved is held on full-time basis, adequatejustification shall be submitted to theMonetary Board; or

(4) Concurrent officership positions inthe same capacity which do not involvemanagement functions, i.e., internalauditor, corporate secretary, assistantcorporate secretary and security officer,between a bank and one or more of itssubsidiary QB/s and NBFI/s, or betweenbank/s, QB/s and NBFI/s, other thaninvestment house/s: Provided, That at leasttwenty percent (20%) of the equity of eachof the banks, QBs and NBFIs is owned bya holding company or by any of the banks/QBs within the group.

For purposes of this Section, membersof a group or committee, including sub-groups or sub-committees, whose dutiesinclude functions of management such asthose ordinarily performed by regularofficers, shall likewise be considered asofficers.

It shall be the responsibility of theCorporate Governance Committee to

§ X14508.12.31


conduct an annual performance evaluationof the board of directors and seniormanagement. When a director or officerhas multiple positions, the Committeeshould determine whether or not saiddirector or officer is able to and has beenadequately carrying out his/her duties and,if necessary, recommend changes to theboard based upon said performance/review.(As amended by Circular No. 592 dated 28 December 2007)

§ X145.1 Representatives ofgovernment. The provisions of this Sectionshall apply to persons appointed to suchpositions as representatives of thegovernment or government-owned orcontrolled entities unless otherwiseprovided under existing laws.(As amended by Circular No. 592 dated 28 December 2007)

Sec. X146 Profit Sharing Programs. Profitsharing programs adopted in favor ofdirectors, officers and employees shall bereflected in the by-laws of the bank,subject to the following guidelines:

a. The base in any profit sharingprogram shall be the net income for theyear of the bank as shown in itsConsolidated Statement of Income andExpenses for the year, net of the following:

(1) All cumulative dividends accruingto preferred stock to the extent not coveredby earned surplus;

(2) Accrued interest receivablecredited to income but not yet collected,net of reserves already set up foruncollected interest on loans;

(3) Unbooked valuation reserves onloans or the amount required to updatevaluation reserves in accordance withthe schedule approved by the MonetaryBoard, as well as all amortizations dueon deferred charges;

(4) Provisions for current year’s taxes;(5) Income tax deferred for the year.

Provided, however, That in case of reversal

of deferred income taxes which werededucted from net income in computingfor profit sharing of previous years, thedeferred income tax reversed to expenseshall be added back to net income to arriveat the base for profit sharing for the yearduring which the reversal is made;

(6) Accumulated profits not yetreceived but already recorded by a bankrepresenting its share in profits of itssubsidiaries under the equity method ofaccounting; and

b. The bank may provide in itsby-laws for other priori t ies in thecomputation of net profits for purposesof profit sharing: Provided, That in nocase shall profit sharing take precedenceover any of the items in the precedingparagraph; and

c. Prior approval of the MonetaryBoard shall be necessary before a bankwhich has received financial assistancefrom the BSP may implement its profitsharing program. Financial assistance shallrefer to emergency loans and advances andsuch other forms of credit accommodationswhich are intended to provide banks withliquidity in times of need.

Sec. X147 Compensation and OtherBenefits of Directors and Officers. Toprotect the funds of depositors andcreditors, the Monetary Board mayregulate/restrict the payment by the bankof compensation, allowances, fees,bonuses, stock options, profit sharing andfringe benefits to its directors and officersin exceptional cases and when thecircumstances warrant, such as, but notlimited to, the following:

a. When the bank is undercontrollership, conservatorship or when ithas outstanding emergency loans andadvances and such other forms of creditaccommodation from the BSP which areintended to provide it with liquidity intimes of need;

§§ X145 - X14708.12.31


b. When the institution is found by theMonetary Board to be conducting businessin an unsafe or unsound manner;

c. When it is found by the MonetaryBoard to be in an unsatisfactory financialcondition such as, but not limited to, thefollowing cases:

(1) Its capital is impaired;(2) It has suffered continuous losses

from operations for the past three (3)years;

(3) Its composite CAMEL(S) rating inthe latest examination is below “3”; and

(4) It is under rehabilitation by the BSP/PDIC which rehabilitation may includedebt-to-equity conversion, etc.

In the presence of any one (1) or moreof the circumstances mentioned above,the Monetary Board may impose thefollowing restrictions in the compensationand other benefits of directors and officers:

a. In the case of profit sharing, theprovision of Sec. X146 shall be observedexcept that for purposes of this Section, thetotal amount of unbooked valuationreserves and deferred charges shall bededucted from the net income.

b. Except for the financial assistanceto meet expenses for the medical,maternity, education and other emergencyneeds of the directors or officers or theirimmediate family, the other forms offinancial assistance may be suspended.

c. When the total compensationpackage including salaries, allowances,fees and bonuses of directors and officersare significantly excessive as comparedwith peer group averages, the MonetaryBoard may order their reduction toreasonable levels: Provided, That even ifa bank is in financial trouble, it maynevertheless be allowed to grant relativelyhigher salary packages in order to attractcompetent officers and quality staff as partof its rehabilitation program.

The foregoing provisions founded onSection 18 of R.A. No. 8791 shall be

deemed part of the benefits andcompensation programs of banks.



Sec. 3147 Bonding/Training of Directors,Officers and Employees. Officers andemployees handling funds or securitiesamounting to P5,000 or more in any one(1) year shall be bonded in an amountdetermined by the Monetary Board.

Directors, officers and other personnel ofRBs/Coop Banks shall undergo such trainingin banking as may be required by the BSP.


Sec. X149 Conducting Business in anUnsafe/Unsound Manner. Whether aparticular activity may be considered asconducting business in an unsafe orunsound manner, all relevant facts must beconsidered. An analysis of the impactthereof on the bank’s operations andfinancial conditions must be undertaken,including evaluation of capital position,asset condition, management, earningsposture and liquidity position.

In determining whether a particular actor omission, which is not otherwiseprohibited by any law, rule or regulationaffecting banks, may be deemed asconducting business in an unsafe or unsoundmanner, the Monetary Board, upon report ofthe head of the supervising or examiningdepartment based on findings in anexamination or a complaint, shall considerany of the following circumstances:

a. The act or omission has resultedor may result in material loss or damage,or abnormal risk or danger to the safety,stability, liquidity or solvency of theinstitution;

b. The act or omission has resultedor may result in material loss or damage

§§ X147 - X14908.12.31


or abnormal risk to the institution’sdepositors, creditors, investors,stockholders, or to the BSP, or to the publicin general;

c. The act or omission has caused anyundue injury, or has given unwarrantedbenefits, advantage or preference to thebank or any party in the discharge by thedirector or officer of his duties andresponsibilities through manifest partiality,evident bad faith or gross inexcusablenegligence; or

d. The act or omission involvesentering into any contract or transactionmanifestly and grossly disadvantageous tothe bank, whether or not the director orofficer profited or will profit thereby.

The list of activities which may beconsidered unsafe and unsound is shownin Appendix 48.

§§ X149.1 – X149.8 (Reserved)

§ X149.9 Sanctions. The MonetaryBoard may, at its discretion and based onthe seriousness and materiality of the actsor omissions, impose any or all of thefollowing sanctions provided under Section37 of R.A. No. 7653 and Section 56 of R.A.No. 8791, whenever a bank conductsbusiness in an unsafe and unsound manner:

a. Issue an order requiring the bankto cease and desist from conductingbusiness in an unsafe and unsound mannerand may further order that immediateaction be taken to correct the conditionsresulting from such unsafe or unsoundpractice;

b. Fines in amounts as may bedetermined by the Monetary Board to beappropriate, but in no case to exceedP30,000 a day on a per transaction basistaking into consideration the attendantcircumstances, such as the gravity of theact or omission and the size of the bank, tobe imposed on the bank, their directorsand/or responsible officers;

c. Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

d. Suspension of rediscountingprivi leges or access to BSP creditfacilities;

e . Suspens ion o f lending orfore ign exchange opera t ions orauthority to accept new deposits ormake new investments;

f. Suspension of responsible directorsand/or officers;

g. Revocation of quasi-bankinglicense; and/or

h. Receivership and liquidation underSection 30 of R.A. No. 7653.

All other provisions of Sections 30 and37 of R.A. No. 7653, wheneverappropriate, shall also be applicable on theconduct of business in an unsafe orunsound manner.

The imposit ion of the abovesanctions is without prejudice to thefiling of appropriate criminal chargesagainst culpable persons as provided inSections 34, 35 and 36 of R.A. No. 7653.

Sec. X150 Rules of Procedure onAdministrative Cases Involving Directorsand Officers of Banks. The rules ofprocedure on administrative casesinvolving directors and officers of banksare shown in Appendix 64.

I. BANKING OFFICES

Sec. X151 Establishment/Relocation/Voluntary Closure/Sale of Branches. TheBSP shall promote healthy competition inthe banking system and maximize thedelivery of efficient banking servicesespecially in underserved areas. Towardthis end, the following are the rules andregulations that shall govern theestablishment, relocation, voluntaryclosure and sale of local branches ofdomestic banks, including locally-

§§ X149 - X15108.12.31


incorporated subsidiaries of foreign banksand the establishment of branches offoreign banks in the Philippines shallcontinue to be governed by the provisionsof Secs. X105 and X153.

For purposes of this Section and itsSubsections, the following definitions shallapply:

Branch shall refer to any permanentoffice or place of business in the Philippinesother than the head office where depositsare accepted and/or withdrawals areserviced by tellers or other authorizedpersonnel. It maintains a complete set ofbooks of accounts.

Extension office shall refer to anypermanent office or place of business inthe Philippines other than the head officeor a branch, where deposits are acceptedand/or withdrawals are serviced bytellers or other authorized personnel. Itdoes not maintain a complete set ofbooks of accounts as its transactions aretaken-up directly in the books of the headoffice or a branch to which it is attached. I t shall be treated as a branch forpurposes of this Section and itsSubsections.

Other banking office shall refer to anyoffice or place of business in the Philippinesother than the head office, branch orextension office, which primarily engagesin banking activities other than theacceptance of deposits and/or servicing ofwithdrawals thru tellers or other authorizedpersonnel. It shall include loan collectionand disbursement points (LCDPs) ofmicrofinance-oriented banks andmicrofinance/barangay micro businessenterprise (BMBE)-oriented branches ofbanks which may accept deposits solelyfrom existing microfinance/BMBEborrowers: Provided, That accountopenings and other banking transactionsof said microfinance/ BMBE borrowersshall be done only at the head office/branches/ extension offices or thru

automated teller machines (ATMs), as maybe applicable.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.1 Prior Monetary Boardapproval. No bank operating in thePhilippines shall establish branches,extension offices or other banking officesor transact business outside the premisesof its duly authorized principal office orhead office without the prior approval ofthe Monetary Board.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.2 Prerequisites for the grantof authority to establish a branch. Withprior approval of the Monetary Board,banks may establish branches subjectto the fo l lowing pre -qual i f ica t ionrequirements:

a. The bank has complied with theminimum capital requirement underSubsec. X111.1, but not lower thanP10 million, in the case of RBs and LocalCoop Banks.

b. The bank’s risk-based CAR at thetime of filing the application is not lowerthan twelve percent (12%);

c. The bank’s CAMELS compositerating in the latest examination is at least“3”, with management component scorenot lower than “3”;

d. The bank has established a riskmanagement system appropriate to itsoperations, characterized by cleardelineation of responsibility for riskmanagement, adequate riskmeasurement system, appropriatelystructured risk limits, effective internalcontrol system and complete, timely andefficient risk reporting system;

e. The bank has no major supervisoryconcerns outstanding on safety andsoundness as indicated by the followingduring the period immediately precedingthe date of application or as of the date ofapplication:

§§ X151 - X151.208.12.31


(1) No unbooked as of date ofvaluation reserves application

(2) No deficiency in 12 weeksregular and liquidityreserve requirementson deposits and depositsubstitutes

(3) No deficiency in 3 monthsasset and liquid asset

cover for EFCDU/FCDU liabilities

(4) Compliant with 12 weeksceilings on loansto DOSRI

(5) No deficiency in 3 monthsliquidity floor ongovernment deposits

(6) Compliant with as of date ofthe single borrower’s applicationloan limit and limit ontotal investment in realestate and improvementsincluding bank equipment

(7) No past due obligation as of date ofwith the BSP or with applicationany FI

(8) No float items outstanding 3 monthsin the “Due From/To HeadOffice/Branches/Offices”and “Due from BSP”accounts exceedingone percent (1%) of thetotal resources as of endof the month

(9) No uncorrected findings as of date ofof unsafe and unsound applicationbanking practices

(10) Has adequate accounting as of date ofrecords, systems, applicationprocedures and internalcontrol

(11) Has generally complied as of date ofwith banking laws, rules applicationand regulations, ordersor instructions of theMonetary Board and/orBSP Management

(12) Member in good as of date of standing of the PDIC application

f. For purposes of evaluating branchapplications, theoretical capital shall be

assigned to each branch to be established,including approved but unopenedbranches, as follows:

(In millions)

LOCATION/ UB/KB TB/ RB/ TYPE OF BANK NATIONAL LOCAL

COOP COOP

1) NCR and theCities of Cebu and P 50 P 15 P 5.0

Davao 2) 1st to 3rd class P 25 P 5.0 P 2.5

cities3) 4th to 6th class P 25 P 5.0 P 1.5

cities4) 1st to 3rd class P 20 P 5.0 P 1.0

municipalities5) 4th to 6th class P 15 P 2.5 P 0.5

municipalities

The assigned theoretical capitalsha l l be deducted f rom ex i s t ingqualifying capital as defined underSubsec . X116.2 fo r purposes o fdetermining compliance with the tenpercent (10%) risk-based CAR.

If the applicant bank’s risk-based CARafter deducting the assigned capital for theproposed branch from the existingqualifying capital would be less than tenpercent (10%), its application shall not beprocessed unless it infused such amountas may be necessary to maintain its risk-based CAR to at least ten percent (10%);

g. The bank has been operatingprofitably for the year immediatelypreceding the date of application, or in thecase of newly-established banks, thesubmitted projection showed thatprofitability will be attained on the thirdyear of operations, at the latest; and

h. Additional requirements for theestablishment of microfinance/BMBE-oriented branches of banks which are notmicrofinance/BMBE-oriented are as follows:

(1) The branch shall have a manual ofoperations on microfinancing dulyapproved by the bank’s board of directors;

§ X151.208.12.31


(2) The branch shall have an adequateloan tracking system that allows dailymonitoring of loan releases, collections andarrearages, and any restructuring andrefinancing arrangements;

(3) The proposed branch shall bemanaged by a person with adequateexperience or training in microfinancingactivities; and

(4) At least seventy percent (70%) ofthe deposits generated by the branch to beestablished shall be actually lent out toqualified microfinance/BMBE borrowersand the microfinance/BMBE loans of saidbranch shall at all times be at least fiftypercent (50%) of its gross loan portfolio.

A microfinance-oriented branch is abranch that provides financial services andcaters primarily to the credit needs of basicor disadvantaged sectors such as thosespecified under the second paragraph ofSubsec. X102.3, so as to enable them toraise their income levels and improve theirliving standards. Microfinance loans aregranted on the basis of the borrower’s cashflow and are typically unsecured.

A BMBE-oriented branch of a bank isa branch that caters primarily to the creditneeds of BMBEs duly registered underR.A. No. 9178.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.3 Application for authority toestablish branches. An application forauthority to establish a branch shall besigned by the president of the bank orofficer of equivalent rank and shall beaccompanied by the following information/documents:

a. Business plan detailing the primarybanking activities/products and services tobe offered; competition analysis to showthat its application will not lead to overbanking in the target market; and financialprojections for the first three (3) years ofoperations showing sustained viability, asmay be required by the appropriate

department of the SES: Provided, Thatnormally operating UBs, KBs, and TBs withtotal resources of P1 billion or more shall beexempt from the foregoing requirements, abank is not considered normally operating ifit is under PCA or is non-compliant withsupervisory directives duly confirmed by theMonetary Board. In the evaluation of thebusiness plan, due consideration shall begiven to banks that are able or are committedto invest or deploy branch resources in theirarea of operations;

b. Certified true copy of theresolution of the bank’s board of directorsauthorizing the establishment of the branchand indicating its proposed site;

c. Organizational set up of theproposed branch showing the proposedstaffing pattern; and

d. Certification/Undertaking signedby the president of the bank or officer ofequivalent rank that the bank hascomplied or will comply, as the casemaybe, with the prerequisites for thegrant of authority to establish a branchunder Subsec. X151.2.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.4 Branching guidelinesBranches may be established, subject tothe following guidelines:

a. Only one (1) branch application maybe submitted at any time except for bankswith at least P100.0 million combinedcapital accounts, as defined under Sec.X111, which may be allowed a maximumof five (5) including approved butunopened branch applications, at any time;

b. Only applications submitted withcomplete documentary requirementsenumerated in Subsec. X151.3 shall beaccepted. Processing shall be on a firstcome, first-served basis;

c. Industry/market notice ofapplication for authority to establish abranch shall be posted at the BSP websiteupon receipt thereof;

§§ X151.2 - X151.408.12.31


d. As a general rule, banks shall beallowed to establish branches anywherein the Philippines, except in the cities ofMakati, Mandaluyong, Manila, Parañaque,Pasay, Pasig, Quezon and San Juan(restricted areas): Provided, however, ThatRBs/local Coop Banks shall not be allowedto establish branches in Metro Manila:Provided, further, That -

(1) Branches of microfinance-oriented banks, microfinance/BMBE-oriented branches of banks whichare not microfinance/BMBE-orientedmay be established anywhere, subjectto compliance with, among otherrequirements, the minimum capitalrequirement under I tem “a” ofSubsec. X151.2 and the followingconditions:

(a) A microfinance-oriented TB or RBmay be allowed to establish a branch inMetro Manila, including in the restrictedareas, if it has combined capital accounts ofat least P325.0 million in case of a TB, or atleast P100.0 million in case of an RB; and

(b) A TB or RB/local Coop Bank maybe allowed to establish a microfinance/BMBE-oriented branch in Metro Manila,including in the restricted areas, if it hascombined capital accounts of at leastP325.0 million in case of a TB, or at leastP100.0 million in case of an RB/localCoop Bank.

(2) Subject to the submission of thespecific business purpose for establishingthe branch, among other justifications:

(a) A TB or RB with head office locatedoutside the restricted areas with combinedcapital accounts of at least P500.0 millionmay be allowed to establish one (1) branchanywhere within the restricted areas if ithas no existing branch/es in said areas; and

(b) An RB with head office locatedoutside Metro Manila with combinedcapital accounts of at least P500.0 millionmay be allowed to establish one (1) branchanywhere in Metro Manila, including in

the restricted areas, if it has no existingbranch/es in Metro Manila.

(3) A TB with combined capitalaccounts of at least P325.0 million mayestablish branches in Metro Manila, exceptin the restricted areas.

(4) Subject to the restrictions in Items“5”, “6”, “7” and “8” hereof, an RB withcombined capital accounts of at leastP10.0 million, may establish branches incit ies/ municipali t ies of higherclassification and with correspondinghigher capitalization requirements,except in Metro Manila: Provided, Thatwhere the majority of the RB’s total assetsand/or majority of its total depositliabilities are regularly accounted for bybranches located in such cit ies/municipalities of higher classification, theRB shall comply with the capitalizationrequirement of that city/municipalitywithin one (1) year from the BSP finding.

(5) An RB or a local Coop Bank shallonly be allowed to establish branch/es ifits combined capital accounts is at leastP10.0 million;

(6) An RB or local Coop Bank withcombined capital accounts of at leastP10.0 million but less than P50.0 millionmay establish branch/es anywhere withintwo (2) - hour normal travel time by land/sea public transport from the head office,except in Metro Manila; and

(7) An RB with combined capitalaccounts of at least P50.0 million but lessthan P100.0 million may establish branch/es in any island group (Luzon, Visayasor Mindanao) where the head office islocated, except in Metro Manila;

(8) An RB with at least P100.0 millioncapital accounts may establish branch/esanywhere in the Philippines, except inMetro Manila unless qualified underItems “d(1)” and “d(2)” above.

e. A maximum of two (2) branchesshall be allowed in each of the 4th, 5th or6th class municipalities; and

§ X151.408.12.31


f. The Monetary Board may decideto disapprove an otherwise qualifiedbranch application if in its determinationsuch branch application will lead to anoverbanking situation in the specific market.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.5 Branch processing feeBranch processing fee shall be as follows:

a. UBs/KBs/Affiliated TBs - P 200,000

b. Non-affiliated TBs/National Coop Banks - P 100,000

c. RBs/Local Coop Bank - P 25,000 d. Microfinance-oriented

banks or microfinance/BMBE-oriented branchesof banks - P 5,000

Provided, That branches of TBs, RBsand local Coop Banks to be establishedwithin the region where the head officeis located shall be free from assessment.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.6 Establishment of otherbanking offices. Other banking officesmay be established with prior MonetaryBoard approval, and subject to compliancewith the following:

a. Minimum capital requirementunder Subsec. X111.1 but not lower thanP10.0 million in the case of RBs and localCoop Banks;

b. Ten percent (10%) risk-based CAR;c. CAMELS composite rating not

lower than “3”, with managementcomponent score not lower than “3” in thelatest examination of the bank; and

d. Ceiling on total investments of abank in real estate and improvementsthereon, including bank equipment.

The application to establish otherbanking offices shall be signed by thepresident of the bank or officer ofequivalent rank and submitted to theappropriate department of the SEStogether with the following documents:

1. Cer t i f ied t rue copy o f theresolut ion of the bank’s board ofdirectors authorizing the establishmento f the o ther banking o f f ice andindicating its proposed site;

2. Purpose statement indicating thebank’s objective or reason for establishingthe other banking office; and

3. Undertaking signed by thepresident of the bank or officer ofequivalent rank that said other bankingoffice shall not accept deposits and/orservice withdrawals thru tellers or otherauthorized personnel. In the case of LCDPsof microfinance-oriented banks andmicrofinance/BMBE-oriented branches ofbanks, the undertaking shall state that theLCDP shall accept deposits thru tellers orother authorized personnel solely fromexisting microfinance/BMBE borrowers.

Other banking offices may beestablished only in areas where the bankis allowed to establish branches asprovided under Subsec. X151.4.

Transitory provision. Other bankingoffices existing as of 01 November 2008,which are manned by less than three (3)off icers/employees at any t ime,accepting deposits through tellers orother authorized personnel, and arelocated in areas where the banksconcerned are allowed to establishbranches under the guidelines prescribedin this Section may apply for theconversion of these other banking officesto branches or extension offices subjectto compliance with the guidelines on theestablishment of branches, otherwise,these other banking offices shall phase-out their deposit operations within one(1) year from 01 November 2008.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.7 Date of opening. Approvedbranches/other banking offices shall beopened within six (6) months from the dateof approval thereof: Provided, That an

§§ X151.4 - X151.708.12.31


applicant bank may be given a finalextension of another six (6) months bythe Deputy Governor, SES, subject to thepresentation of justification and validreason for the failure to open the branch/other banking office within the originalsix (6) - month period and proof that saidbranch/other banking office can beopened within the succeeding six (6) -month period.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.8 Requirements for opening a

branch/other banking office. After abank’s application to establish a branch/other banking office has been approved, itmay open the same subject to itssubmission to the appropriate departmentof the SES of the following:

a. Within thirty (30) calendar daysprior to the intended date of opening,personal information sheet (bio-data) of theproposed manager and other officers of thebranch/other banking office; and

b. Within ten (10) banking days priorto the intended date of opening, acertification signed by the head of theBranches Department with the rank of avice president, or its equivalent or by ahigher ranking officer that the installationof the required security devices underItem “b” of Subsec. X181.4 has beencomplied with.

The bank shall likewise submit awritten notice to the appropriatedepartment of the SES of the actual date ofopening of its branch/other banking officenot later than five (5) banking days fromsuch opening, together with a certificationsigned by the head of the branchesdepartment with the rank of a vicepresident, or its equivalent or by a higherranking officer that the requirementsenumerated under Subsecs. X151.2/X151.6have been complied with as of the time ofactual opening of the branch/other bankingoffice.

A bank that fails to comply with anyone (1) of the requirements in Subsecs.X151.2/X151.6 as of the date of theintended opening of the branch/otherbanking office shall refrain from openingthe branch/other banking office on suchdate until it has complied with all of therequirements under Subsecs. X151.2/X151.6: Provided, That if the branch/other banking office, cannot open withinsix (6) months from the date of theoriginal approval of the establishment ofsuch branch/other banking office, theprovisions of Subsec. X151.7 on the finalextension to open the branch/otherbanking office shall be observed.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.9 Relocation of branches/otherbanking offices. Relocation of existing/operating branches/other banking officesshall be allowed without prior MonetaryBoard approval in accordance with thefollowing procedures:

a. Notice of relocation shall be sentto depositors and other creditors, whereapplicable, by registered mail or proof ofdelivery (POD) service of the PhilippinePostal Corporation (PhilPost) or other mailcouriers and posters shall be displayed inconspicuous places in the premises of thebranch/other banking office to be relocatedat least three (3) months prior to therelocation: Provided, That said notificationperiod may be reduced to forty-five (45)calendar days under any of the followingcircumstances:

(1) as an incentive to merger orconsolidation of banks;

(2) as an incentive to the purchase oracquisition of majority or all of theoutstanding shares of stock of a distressedbank for the purpose of rehabilitating thesame; or

(3) the proposed relocation site iswithin the same barangay of the branch/other banking office to be relocated.

§§ X151.7 - X151.908.12.31


b. Within five (5) banking days fromthe date of relocation, a notice of relocationtogether with a certification signed by thehead of the Branches Department with therank of vice president or its equivalent rankor by a higher ranking officer that thenotification requirement under Item “a”above has been complied with shall besubmitted to the appropriate departmentof the SES. The certification shall beaccompanied by a certified true copy ofthe resolution of the bank’s board ofdirectors authorizing the relocation;

c. Branches located in the restrictedareas may be relocated anywhere;

d. Branches located in other areasmay be relocated anywhere except in therestricted areas: Provided, That branchesof TBs may be relocated in Metro Manilabut outside the restricted areas if they havecomplied with the minimum capitalrequirement for TBs with head offices inMetro: Provided further, That branches ofRBs and local Coop Banks may betransferred only in areas where they areallowed to establish branches: Providedfinally, That existing branches of RBs andlocal Coop Banks in cities andmunicipalities of Metro Manila other thanin the restricted areas may be relocatedanywhere, except in the restricted areas; and

e. Other banking offices may berelocated only in areas where the bank’sbranches are allowed to be relocated asindicated in Items “c” and “d” above.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.10 Voluntary closure/sale ofbranches/other banking offices

a. Voluntary closure of branches/other banking offices. Voluntary closure ofbranches/other banking offices may beeffected only with prior approval of theMonetary Board in accordance with thefollowing procedures:

(1) Request for Monetary Boardapproval of the closure of branches/other

banking offices signed by the president ofthe bank or officer of equivalent rank,together with a certified true copy of theresolution of the bank’s board of directorsauthorizing the closure and stating thejustification/reasons therefor, shall besubmitted to the appropriate departmentof the SES;

(2) Upon receipt of the notice ofMonetary Board approval but at least three(3) months prior to the closure, notice ofclosure shall be sent to depositors and othercreditors by registered mail or PODservice of the PhilPost or other mailcouriers and posters shall be displayed inconspicuous places in the premises of thebranch/banking office to be closed:Provided that said notification period maybe reduced to forty five (45) calendar daysunder any of the following circumstances:

(a) As an incentive to merger orconsolidation of banks;

(b) As an incentive to the purchase oracquisition of majority or all of theoutstanding shares of stock of a distressedbank for the purpose of rehabilitating thesame; or

(c) The proposed relocation site iswithin the same barangay of the branch/other banking office to be relocated; and

(3) Within five (5) banking days fromdate of closure, a notice of closure, togetherwith a certification signed by the presidentof the bank or officer of equivalent rank,that the notification requirement in Item“2” above has been complied with, shallbe submitted to the appropriatedepartment of the SES.

Temporary closure of branches/otherbanking offices. Temporary closure ofbranches/other banking offices for thepurpose of undertaking renovations/majorrepairs of branch/office premises/facilitiesmay be allowed for a period not exceedingsix (6) months subject to the prior approvalof the Deputy Governor, SES, andcompliance with the following conditions:

§§ X151.9 - X151.1008.12.31


(1) Request for approval of thetemporary closure of the branch/otherbanking office signed by the president ofthe bank or officer of equivalent rank shallbe submitted to the appropriatedepartment of the SES, together with acertified true copy of the resolution of thebank’s board of directors authorizing saidclosure stating the justifications/reasonstherefor. The request shall includeinformation as to the timetable for saidclosure and the branch/other banking officethat will handle the transactions of thebranch/other banking office to be closed;

(2) Upon receipt of notice of approvalby the Deputy Governor, SES, but at leastthree (3) months prior to the intended dateof closure, notice of temporary closureshall be sent to depositors and othercreditors, where applicable, by registeredmail or POD service of the Philpost orother mail couriers, and posters shall bedisplayed in conspicuous places in thepremises of the branch/other banking officeto be closed. Information as to the durationof said closure and the address of thebranch/other banking office that willhandle the transactions of the branch/otherbanking office to be closed shall beindicated in the said notice/posters;

(3) The transactions of the branch/other banking office to be closed shall behandled by the branch/other banking officenearest to the branch/other banking officeto be closed;

(4) Within five (5) banking days afterthe date of closure, a notice of such closuresigned by the head of the branchesdepartment with the rank of a vicepresident, or its equivalent or by a higherranking officer together with a certificationthat the notification requirement under Item“2” above has been complied with shallbe submitted to the appropriatedepartment of the SES.

(5) Within five (5) banking days afterre-opening of the branch/other banking office,

notice of such re-opening signed by the headof the branches department with the rank ofa vice president, or its equivalent or by ahigher ranking officer shall be submitted tothe appropriate department of the SES.

b. Sale of branches/other bankingoffices. Sale of branches/other bankingoffices may be allowed with prior approvalof the Monetary Board in accordance withthe following procedures:

(1) In the case of sale of branches, theselling and acquiring banks shall secure theprior written consent of the PDIC in thetransfer of assets and assumption ofliabilities as provided under Section 21 ofthe PDIC Charter (R.A. No. 3591), asamended by R.A. No. 9302;

(2) Request for Monetary Boardapproval to close the branches/otherbanking offices to be sold signed by thepresident of the bank or officer ofequivalent rank, together with a certifiedtrue copy of the resolution of the bank’sboard of directors authorizing the saleshall be submitted by the selling bank tothe appropriate department of the SES;

(3) Upon receipt of the notice ofMonetary Board approval but at leastthree (3) months prior to the closure,notice of sale shall be sent to depositorsand other creditors, where applicable, byregistered mail or POD service of thePhilpost or other mail couriers, andposters shall be displayed in conspicuousplaces in the premises of the branch/other banking office to be sold: Provided,That said notification period may bereduced to forty-five (45) calendar dayswhen there is no actual closure ordisruption of operations. Depositors shalllikewise be informed of their option towithdraw their deposits or to maintain thesame with the acquiring bank;

(4) Within five (5) banking days fromthe date of closure, a notice of suchclosure, together with a certification signedby the president of the bank or officer of

§ X151.1008.12.31


equivalent rank that the notificationrequirement under Item “3” above hasbeen complied with, shall be submitted tothe appropriate department of the SES;

(5) Request for Monetary Boardapproval to acquire the branch/other bankingoffice signed by the president of the bank orofficer of equivalent rank, together with acertified true copy of the resolution of thebank’s board of directors authorizing theacquisition shall be submitted by theacquiring bank to the appropriatedepartment of the SES. The acquiring bankshall likewise comply with the following:

(a) Minimum capital requirementunder Subsec. X111.1 but not lower thanten (P10) million in the case of of RBs andlocal Coop Banks;

(b) Ten percent (10%) risk-based CAR;(c) CAMELS composite rating not

lower than “3” with managementcomponent score not lower than “3” in thelatest examination of the bank; and

(d) Ceiling on total investments of abank in real estate and improvementsthereon, including bank equipment.

A UB, KB or TB may purchase/acquirebranches/other banking offices anywhere,including in Metro Manila and in therestricted areas: Provided, That a TB maypurchase/acquire branches/other bankingoffices in Metro Manila, including in therestricted areas, if it has combined capitalaccounts of at least P325 million: Provided,further, That an RB/local Coop Bank maypurchase/acquire branches/other bankingoffices only in areas where it is allowed toestablish branches/other banking offices asprovided under Subsec. X151.4;

(6) The acquiring bank shall pay alicensing fee per branch/other bankingoffice acquired, as follows:

Location of Branch/Other Banking Office to be Acquired

Type of Within OutsideAcquiring Metro Manila Metro Manila BankUBs and KBs P 1.0 million P 0.5 millionTBs P 0.5 million P 0.25 million

(7) Within thirty (30) calendar daysprior to the intended date of openingof the acquired branch/other bankingoffice, the personal information sheet(bio-data) of the proposed manager andother of f icers of the branch/otherbanking office shall be submitted bythe acquiring bank to the appropriatedepartment of the SES; and

(8) Within five (5) banking daysf rom the da te o f opening o f theacquired branch/other banking office,a written notice of such opening signedby the head of branches departmentwith the rank of vice president or itsequivalent rank or by a higher rankingof f icer shal l be submit ted by theacquir ing bank to the appropriatedepartment of the SES.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.11 Relocation/Transfer ofbranch licenses of closed banks. Buyersof closed banks shall be allowed torelocate/transfer acquired branches subjectto the conditions stated under Items “c” and“d” of Subsec. X151.9.(As amended by Circular No. 624 dated 13 October 2008)

§ X151.12 Sanctions1. Any violation of the provisions of

Subsecs. X151.1 - X151.11 shall be aground for the cancellation of the franchiseand closure of any branch/other bankingoffice established hereunder withoutprejudice to the imposition of theapplicable criminal and administrativesanctions prescribed under Sections 36 and37, respectively, of R.A. No. 7653; and

2. If any part of any certificationsubmitted by the bank as required in thisSection is found to be false, the followingsanctions shall be imposed:

a. On the bank. Suspension forone (1) year of the privilege to establishand/or open approved branches/otherbanking offices, and/or relocate branches/other banking offices.

§§ X151.10 - X151.1208.12.31


b. On the certifying officer. A fine ofP5,000 per day (P200 per day for RBs/CoopBanks) from the time the certification wasmade up to the time the certification wasfound to be false for each branch/otherbanking office opened, relocated, closedor sold without prejudice to the sanctionsunder Section 35 of R.A. No. 7653.(As amended by Circular No. 624 dated 13 October 2008)

§§ X151.13 - X151.18 (Reserved)

§ X151.19 (2008 - X155) TelleringBooths. The following rules shall governthe establishment of tellering booths in BIRoffices:

a. As a general policy, theestablishment of tellering booths in BIRoffices are not authorized. However, incases where tellering booths in officesare needed as determined by the BIR,banks shall secure prior Monetary Boardapproval;

b. A bank’s application shall beaccompanied by a letter from the BIRCommissioner or Deputy Commissioneror other officer specifically authorized bythe Commissioner to sign such letter,stating that the BIR has agreed to allow theapplicant bank to establish a tellering boothin the specified BIR office;

c. The applicant bank has compliedwith the standard prequalificationrequirements prescribed in Appendix 5;and

d. Tax collections received shall besubject to rules on government deposits.

Sec. X152 Relocation of Head OfficesRelocation of a bank’s head office shallrequire prior approval of the MonetaryBoard in accordance with the followingprocedures:

a. Request for Monetary Boardapproval of the relocation of the bank’shead office signed by the president of thebank or officer of equivalent rank shall be

submitted to the appropriate departmentof the SES together with the followingdocumentary requirements:

(1) A certified true copy of theresolution of the bank’s board of directorsauthorizing the proposed relocation/transfer of the head office, and stating thejustification/reasons therefor;

(2) A certified true copy ofstockholders’ resolution authorizing theamendment of the articles of incorporationof the bank;

(3) Description of the building and/orplace of relocation, manner of occupancy,i.e., whether lease or purchase, estimateof the total costs to be incurred inconnection with the transfer, and theproposed timetable for such relocation; and

(4) Plan for the disposition of theoriginal site.

b. Upon receipt of the notice ofMonetary Board approval but at least three(3) months prior to the relocation, noticeof relocation shall be sent to depositors andother creditors by registered mail or PODservice of the Philpost or other mailcouriers, and poster shall be displayed inconspicuous places in the premises of thehead office to be relocated: Provided, Thatsaid notification period may be reduced toforty-five (45) calendar days under any ofthe following circumstances:

(1) As an incentive to merger orconsolidation of banks;

(2) As an incentive to the purchaseor acquisition of majority or all of theoutstanding shares of stock of a distressedbank for the purpose of rehabilitating thesame; or

(3) The proposed relocation site iswithin the same municipality/city of thehead office to be relocated.

c. Within five (5) banking days fromthe date of relocation, a notice of relocation,together with a certification signed by thepresident of the bank or officer ofequivalent rank that the notification

§§ X151.12 - X15208.12.31


requirement under Item “b” above hasbeen complied with shall be submitted tothe appropriate department of the SES.

A bank’s head office may be relocatedonly in areas where the bank may beauthorized to establish branches as providein Subsec. X151.4.

The executive offices of the bank shallnot be separated from the head office,i.e., these shall be located where thebank’s head office is located.

Relocation of any other department/unit of the bank not performing front-officeoperation, i.e., not dealing with the bankingpublic, shall not require prior MonetaryBoard approval: Provided however, Thatwithin five (5) banking days from date ofrelocation, a notice of relocation signed bya vice president or officer of equivalentrank or by a higher ranking officer,together with a certified true copy of theresolution of the bank’s board of directorsauthorizing the relocation, shall besubmitted to the appropriate departmentof the SES.(As amended by Circular No. 624 dated 13 October 2008)

§ X152.1 Sanctions. If any part of thecertification submitted by the bank asrequired in this Section is found to be false,the sanctions under Subsec. X151.12 shallbe imposed.

Sec. X153 Establishment of AdditionalBranches of Foreign Banks. Thefollowing guidelines shall govern theestablishment of additional branches offoreign banks in the Philippines pursuantto R.A. No. 7721.

For purposes of this Section, the termbank shall refer to the existing branchesof the applicant bank in the Philippinesreckoned as a single unit.

In the case of a foreign bank which hasmore than one (1) branch and/or otheroffice in the Philippines, all such branches/offices shall be treated as one (1) unit and

all references to the Philippine branches/offices of such foreign bank shall be heldto refer to such unit pursuant to Section 74of the R.A. No. 8791.

§ X153.1 Application for authority toestablish additional branch. An applicationfor authority to establish additional branchor branches shall be signed by the CountryManager or the highest ranking officer inthe Philippines of the applicant foreignbank, and shall be accompanied by thefollowing information/documents:

a. Certi f ied true copy of theresolution of the bank’s board of directorsauthorizing the establishment of theadditional branch/es and indicating itsproposed site/s and/or authority of thebank’s Country Manager or highestranking officer in the Philippines to applyfor authority to establish additionalbranch/es and represent the bank inconnection therewith;

b. Banking facilities and services to beoffered;

c. Organizational set up of theproposed branch showing the proposedstaffing pattern; and

d. Certification signed by the bank’sCountry Manager that the bank’s existingbranches in the Philippines reckoned as asingle unit, have complied with all therequirements enumerated under Subsec.X153.2.

§ X153.2 Requirements forestablishment of additional branch. Inaddition to the standard pre-qualificationrequirement for the grant of bankingauthorities in Appendix 5, the applicantbank shall comply with requirementsprescribed in Subsecs. X105.4 b and c,and X105.6.

§ X153.3 Date of opening. Theopening of approved branches shall besubject to the provisions of Subsec. X151.6.

§§ X152 - X153.308.12.31


§ X153.4 Requirements for openinga branch. After a bank’s application toestablish a branch has been approved, itmay open the same subject to thefollowing conditions:

a. Submission by the applicant bankof a written notice at least thirty (30) daysprior to the intended date of opening,accompanied by the following:

(1) Proof or evidence of inwardremittance needed to meet therequirements prescribed in Subsecs.X105.4 b and c, and X105.6;

(2) List of principal and junior officersof the proposed branch/es and theirrespective designations and salaries;

(3) Personal information sheet (bio-data) for each of the officers to enable theBSP to evaluate their qualifications asofficers; and

(4) A certification signed by the bank’sPhilippine Country Manager that therequirements enumerated underSubsec. X153.2 has been complied withup to the date of the aforementionedwritten notice.

A bank that fails to continuouslycomply with the requirements underSubsec. X153.2 shall be given anextension of time to open such branch afterit has shown compliance for another testperiod of the same duration required ofeach requirement in Subsec. X153.2:Provided, That the provisions of Subsec.X153.3 shall be observed if the branchcannot open within six (6) months from thedate of approval thereof: Provided, further,That before such branch opens for business,the bank shall submit to the BSP therequirements under Subsec. X153.4a withthe certification to the effect that the bankhas complied with requirements ofSubsec. X153.2 up to the date of thewritten notice within the period prescribedtherein;

b. The foreign bank branch hasadequate staff, equipment, and other

facilities to meet the needs of itscommercial banking operations: Provided,That the bank’s premises, vault and officeequipment, after inspection by therepresentatives of the SES shall have beenfound to be substantially in compliance withspecifications on security standards andready for use by the bank; and

c. Issuance by the Governor of thepermit to open and operate the approvedbranch/es.

Banks shall submit a written notice tothe appropriate department of the SES ofthe actual date of opening of their branchesnot later than ten (10) banking days fromsuch opening.

§ X153.5 Choice of locations forestablishment of branches

a. A foreign bank authorized toestablish branches in the Philippinespursuant to the provisions of R.A. No. 7721,may open its first three (3) branches inlocations of its choice.

b. The same foreign bank may openits next three (3) additional branches onlyin locations designated by the MonetaryBoard to ensure balanced economicdevelopment in all the regions.

§ X153.6 Sanctions. If a bank fails tosubmit any certification as required inthis Section, or any part of thecertification submitted by the bank asrequired in this Section is found to befalse, the sanctions under Subsec.X151.10 shall be imposed.

Sec. X154 Establishment of OfficesAbroad. The following rules shall governthe establishment by domestic banks ofbranches and other offices abroad.

For purposes of this Section, the termoffices shall include branches, agencies,representative off ices, remittancecenters, remittance desk offices andother offices.

§§ X153.4 - X15408.12.31


§ X154.1 Application for authority toestablish an office abroad. An applicationfor authority to establish an office abroadshall be signed by the president of the bankand shall be accompanied by the followinginformation/documents:

a. Certi f ied true copy of theresolution of the bank’s board of directorsauthorizing the establishment of thatoffice indicating its proposed site;

b. Economic justification for suchestablishment, indicating among otherthings, the services to be offered, theminimum outlay such as capitalrequirement of the host country, outlayfor furniture, fixture and equipment,rental and other expenses;

c. Organizational set up of theproposed office showing the proposedpositions and the names, qualificationsand experience of the proposed managerand other officers;

d. Certification signed by thepresident or the executive vice presidentthat the bank has complied with thestandard pre-qualification requirements forthe grant of banking authoritiesenumerated in Appendix 5; and

e. Certification from the host countrythat the duly authorized personnel/examiners of the BSP will be authorizedto examine the proposed office.

§ X154.2 Requirements for establishingan office abroad. In addition to thestandard prequalification requirements ofAppendix 5, the applicant bank shallcomply with the following:

a. The citizenship requirements,ownership ceilings and other limitationson voting stockholdings in banks underexisting law and regulations;

b. Experience and expertise ininternational banking operations as shown by:

(1) Its international banking operationsfor at least three (3) years prior to the dateof application;

(2) Substantial income derived frominternational banking operations; and

(3) Established correspondentrelationship with reputable banks.

§ X154.3 Conditions attached to theapproved application. An approvedapplication to establish a banking officeabroad shall be subject to the followingconditions:

a. Without prejudice to thequalification requirements in the countrywhere the office is to be established, theproposed officer(s), at the time ofappointment must be at least:

(1) Twenty-five (25) years of age;(2) A college graduate, preferably with

training and experience abroad;(3) With three (3) years experience in

international banking operations; and(4) Must not possess any of the

disqualification of an officer as providedfor under existing regulations;

b. The applicant bank shall complywith the licensing requirements of the hostcountry and the necessary license tooperate shall be secured from theappropriate government agency of thehost country;

c. The outward investmentrepresenting initial capital outlay and otheroutlays shall be subject to existingregulations;

d. The proposed office shall submitperiodic reports on its financial conditionand profitability and such other reports thatmay be required by the BSP;

e. An office not authorized to performbanking business (e.g., representative andliaison offices) shall not carry any of thebusiness of a bank as contemplated withinthe context of the Philippine bankingsystem; and

f. The applicant shall defray thenecessary cost and expenses to beincurred by the appropriate departmentof the SES.

§§ X154.1 - X154.308.12.31


§ X154.4 Date of opening. Theopening of any office abroad shall besubject to the provisions of Subsec. X151.6.

§ X154.5 Requirements for openingan office abroad. After a bank’sapplication to establish a branch has beenapproved, it may open the same subjectto the following conditions:

a. Submission by the applicant bankof a written notice at least thirty (30) daysprior to the intended date of opening,accompanied by the following:

(1) Proof or evidence of outwardremittance needed to meet the capitalrequirements prescribed by the hostcountry;

(2) List of principal and junior officersof the proposed branch/es and theirrespective designations and salaries; and

(3) Personal information sheet(Bio-data) for each of the officers to enablethe BSP to evaluate their qualifications asofficers; and

b. A certification signed by the bank’spresident or executive vice president thatthe standard prequalification requirementsenumerated in Appendix 5 have beencomplied with up to the date of theaforementioned written notice.

A bank that fails to continuously complywith the requirements shall be given anextension of time to open such office after ithas shown compliance for another test periodof the same duration required of eachrequirement: Provided, That the provisionsof Subsec. X151.6 shall be observed if thebranch cannot open within six (6) monthsfrom the date of approval thereof: Provided,further, That before such branch opens forbusiness, the bank shall submit to the BSPthe requirements under Subsec. X154.5atogether with a certification stating that thebank has complied with the standardprequalification requirements in Appendix 5up to the date of the written notice withinthe period prescribed therein.

§ X154.6 Sanctions. If any part of thecertification submitted by the bank asrequired in this Section is found to be false,the sanctions under Subsec. X151.12 shallbe imposed.

§§ X154.7 - X154.8 (Reserved)

§ X154.9 Establishment of a foreignsubsidiary by a bank subsidiary. Theestablishment of a foreign subsidiary by abank subsidiary are subject to theguidelines in Subsec. X382.8.


J. BANKING DAYS AND HOURS

Sec. X156 Banking Days and HoursBanks, including their branches and offices,doing business in the Philippines, shallobserve for the conduct of their business aregular banking week of five (5) days,except when such days are holidays. Theregular banking week should fall onMondays to Fridays unless otherwiseauthorized by the BSP in the interest of thebanking public. On these days, saidinstitution shall transact business for at leastsix (6) hours each day.

Subject to compliance with otherrelevant laws, banks, including theirbranches and offices, may opt to observe abanking week in excess of the five (5) daysafter reporting to the BSP the additionaldays during which such banks or theirbranches or offices shall transact businessfor at least three (3) hours each day.

Without the need for prior approval ofthe BSP, and even in the absence of anapproved local holiday, banks and/or theirbranches or other offices are allowed toclose on certain days in celebration ofimportant historical and/or religious eventsin the locality where these banks operate:Provided, That said closure has the priorapproval of the bankers’ association in the

§§ X154.4 - X15608.12.31


locality and in the case of bank branches,their respective head offices: Provided,further, That said closure will only beallowed in the municipality or city wherethe festivities are centered.

Banks and/or their branches or otheroffices shall submit, either individually orthrough their head offices, to theappropriate department of the SES a priornotice of their intended closure on accountof a specific local festivity, together with acopy of the resolution of the local bankersassociation approving said closure, at leasttwo (2) working days before the intendeddate of closure.

The required notice shall be supportedby a certification that:

a. On the date of the temporaryclosure, the bank and/or branch willmaintain a skeletal force to handle “out-of-town” clearing items in line with theprovisions of Section X205;

b. The notice of the bank’s closure andthe reason thereof shall be postedconspicuously in the bank’s premises; and

c. For branches of banks, the closurehas the prior approval of their respectivehead offices.(As amended by Circular Nos. 634 dated 05 December 2008

and 624 dated 13 October 2008)

§ X156.1 Banking hours beyond theminimum; banking services duringholidays. For purposes of servicing depositsand withdrawals, banks may, at theirdiscretion, remain open beyond theminimum six (6) hours and for as long asthey find it necessary, even before 8:00AM or after 8:00 PM. Banks may, afterprior written notice to the approriatedepartment of the SES, also remain openbeyond the minimum six (6) hours forbanking services other than the servicingof deposits and withdrawals but in no caseshall such banking hours start earlier than8:00 AM nor extend beyond 8:00 PM:Provided, however, That branches of banks

at any international airport or major fishport are allowed to operate on flexiblebanking hours within a twenty-four (24)-hour period, subject to the condition thatthe individual bank’s management willinform the BSP of the schedule of its bankinghours which shall in no case be less thansix (6) hours a day.

Banks and/or their branch/es and/orextension offices may opt to remain openduring any or all of their regular bankingdays that were covered by holidays for thepurpose of servicing deposits andwithdrawals: Provided, That a bank optingto open its head office and/or branch/esand/or extension offices, shall submit to theappropriate department of the SES at leasttwo (2) working days before the intendeddate of opening of the bank’s head officeand/or branches and/or extension offices,a notice signed by its president or officerof equivalent rank, of its intention to openduring the holidays, together with a copyof the board resolution approving thesame: Provided further, That the noticeshall specify which office (head officeand/or branch/es and/or extension offices)will open on what dates and their scheduleof banking hours.

Subject to submission of a noticesigned by the bank president or officer ofequivalent rank, authorized agent banksof the BIR (BIR-AABs), and/or its branch/esand/or extension offices, are allowed toopen for two (2) Saturdays prior to April15 of every year, and daily from April 1 toincome tax payment deadline, to extendbanking hours from 3:00 PM to 5:00 PM toreceive internal revenue tax payments.The notice, which shall specify whichoffice (head office and/or branch/es and/orextension offices) will open or extendbanking hours on what dates, shall besubmitted to the appropriate departmentof the SES on or before the last bankingday of March of every year.(As amended by Circular No. 634 dated 5 December 2008)

§§ X156 - X156.108.12.31


§ X156.2 Report of, and changes in,banking days and hours. The banking daysand hours selected for each of the officesof banks shall be reported in writing tothe appropriate department of the SES.Banks may change the banking days andhours previously reported to the BSP bygiving prior written notice: Provided,That changes in banking days or hoursshall not be made oftener than onceevery thirty (30) days, except duringemergencies. Emergency shall mean(a) condition of an area or localityproclaimed by the President of thePhilippines as in a state of emergency;or (b) an event or occasion or acombination of circumstances equivalentto a public calamity resulting from fire,flood, or like disaster, or through someunusual occurrence or pressing necessitynot reasonably subject to anticipationcalling for immediate action or remedy.

The prior written notice to the BSPon changes in banking days and hoursshall be given through the fastest meansof communication, at least seven (7)banking days before the intendedeffectivity of the change in banking hoursor days. In case a bank, due to anemergency, has to open outside, or closeduring, the banking hours or daysreported to the BSP, a written reportsubmitted within twenty-four (24) hoursfrom opening or closing, as the case maybe, will suffice. The report shall state thespecific nature of the emergency and theperiod the bank opened or closed orshall open or close by reason ofemergency.

§ X156.3 Posting of schedule ofbanking days and hours. The scheduleof banking days and hours reported tothe BSP shall be posted conspicuously atall times in the bank’s premises.


K. BANKING PREMISES

Sec. X160 (2008 - X606) Bank Premisesand Other Fixed Assets. The followingrules shall govern the premises and otherfixed assets of banks.

§ X160.1 (2008 - X606.1) Appreciationor increase in book value. Bank premises,furniture, fixtures and equipment shall beaccounted for using the cost model underPAS 16 “Property, Plant and Equipment.”

Outstanding appraisal increment as of13 October 2005 arising from mergers andconsolidation and other cases approved bythe Monetary Board, shall be deemed partof the cost of the assets. However, appraisalincrement previously allowed to bebooked shall be reversed.

Accordingly, the booking ofappreciation or increase in the book valueof bank premises and other fixed assets incases where the market value of theproperty has greatly increased since theoriginal purchase is no longer allowed.(As amended by Circular No. 520 dated 20 March 2006)

§ X160.2 (2008 - X606.2) Ceiling ontotal investments. The total investment ofa bank in real estate and improvementsthereon, including bank equipment, shallnot exceed fifty percent (50%) of the bank’snet worth. In determining compliance withsuch ceiling, the following rules shall apply:

a. The investment shall include all realestate and equipment necessary for thebank’s immediate use in the transaction ofits business, such as:

(1) Bank Premises - Land andBuildings, Buildings under Construction,Leasehold Rights and Improvements andFurniture, Fixtures and Equipment (asdefined in the Manual of Accounts for AllBanks), owned and used by the bank inthe conduct of its business, including staffhouses, recreational facilities andlandscaping costs, net of accumulated

§§ X156.2 - X160.208.12.31


depreciation: Provided, however, Thatappraisal increment on bank premisesshall not be included in the total investmentin real estate and improvements forpurposes of these guidelines; and

(2) Real properties, equipment or otherchattels purchased by the bank in its namefor the benefit of its officers and employees,net of depreciation and in the case of landor other non-depreciable property, net ofpayments already made to the bank by theofficers and employees for whose benefitsthe property was bought, where suchproperty has not yet been fully paid andownership has not yet been transferred tothem.

b. The following shall be included inthe computation of a bank’s totalinvestment in bank premises:

(1) (a) The cost of real estate leased inwhole or in part by the bank from acorporation, other than a corporationprimarily engaged in real estate in whichthe bank has equity, equivalent to theamount obtained by applying thepercentage of the equity of the bank in thelessor to the cost of that portion of theproperty being leased, or

(b) the amount of equity in the lessor,whichever is lower, plus the amountobtained by applying the percentage of theequity of the bank in the lessor to anyoutstanding loans of the lessor with thebank, the proceeds of which were used topurchase, construct or develop the realestate used for the bank’s purposes.

(2) The lower of -(a) the cost of real estate leased in

whole or in part by the bank from acorporation in which any or a group ofstockholders owning ten percent (10%) ormore of the voting stock of the bank,directors and/or officers of the bank, holdor own more than fifteen percent (15%) ofthe subscribed capital stock of the lessor,equivalent to the amount obtained byapplying the percentage of the equity of

said stockholders/directors/officers in thelessor to the cost of that portion of theproperty being leased by the bank, or

(b) the amount obtained by applyingthe percentage of the equity of thestockholders/directors/officers in the lessorto any outstanding loans of the corporationwith the bank, the proceeds of which wereused to purchase, construct or develop thereal estate used for the bank’s purposes.

The equity investment of a bank in acorporation engaged primarily in realestate shall be included in the computationof the bank’s total investment in real estate,unless otherwise provided by theMonetary Board.

§ X160.3(2008 -X606.3) Reclassificationof real and other properties acquired asbank premises. ROPA reclassified as bankpremises shall be booked at their ROPAbalance, net of any valuation reserves:Provided, That only such acquired asset ora portion thereof that will be immediatelyused or earmarked for future use may bereclassified and booked as bank premises.

Banks, prior to the reclassification oftheir ROPA accounts to bank premises,shall first secure prior BSP approval beforeeffecting the reclassification and shallsubmit, in case of future use, justificationand plans for expansion/use.

L. MANAGEMENT CONTRACTS ANDOUTSOURCING OF BANKING

FUNCTIONS

Sec. X161 (2008 - X168) ManagementContracts

a. Management contracts of bankswith management firms shall be limitedto consultancy and advisory services;

b. Only a natural person may beelected or appointed as an officer of a bank,without prejudice to such person being anominee of a management corporation:Provided, That the responsibility and/or

§§ X160.2 - X 16108.12.31


accountability of anyone elected orappointed to an officer position shall bepersonal in nature and cannot be delegatedto a corporation; and

c. Any bank that enters into contractscontrary to this policy shall be denied thecredit facilities of the BSP.

Sec. X162 (2008 - X169) Duties andResponsibilities of Banks and theirDirectors/Officers in All Cases ofOutsourcing of Banking Functions. Whenoutsourcing of banking functions isallowed by law, banks shall:

a. Carry out the same in accordancewith proper standards, ensuring theintegrity of the data, systems and controlsof the banks and subject to the supervisory,regulatory and administrative authority ofthe BSP over the banks and their directors/officers;

b. Be responsible for the performancethereof in the same manner and to thesame extent as i t was before theoutsourcing;

c. Comply with all laws andregulations governing the bankingactivities/services performed by thequalified service providers in its behalfsuch as, but not limited to, keeping ofrecords and preparation of reports, signingauthorities, internal control and clearingregulations; and

d. Manage, monitor and review on anongoing basis the performance by thequalified service providers of theoutsourced banking activities/services.

§ X162.1 (2008 - X169.1) Prohibitionagainst outsourcing certain bankingfunctions. No bank or any director, officer,employee, or agent thereof shall outsourceinherent banking functions.

For purposes of this Section,outsourcing of inherent bankingfunctions shall refer to any contractbetween the bank and a service provider

for the latter to supply, or any act wherebythe latter supplies, the manpower to servicethe deposit transactions of the former.

Banks cannot outsource managementfunctions except as may be authorized bythe Monetary Board when circumstancesjustify.

§ X162.2 (2008 - X169.2) Outsourcingof information technology systems/processes. Subject to prior approval of theMonetary Board, banks may outsource allinformation technology systems andprocesses except for certain functionsaffecting the ability of the bank to ensurethe fit of technology services deployed tomeet its strategic and business objectivesand to comply with all pertinent bankinglaws and regulations, such as, but notlimited to, strategic planning for the use ofinformation technology; determination ofsystem functionalities; change managementinclusive of quality assurance and testing;service level and contract management; andsecurity policy and administration.

However, subject to prior approval ofthe Monetary Board and submission of thedocumentary requirements referred to inItem “a” hereof, consultants and/or serviceproviders may be engaged to provideassistance/support to the bank personnelassigned to perform these exceptedfunctions.

A bank intending to outsourceinformation technology systems andprocesses shall submit the followingdocuments to BSP which shall treat thesame as strictly confidential:

(1) Proposed contract between the bankand the service provider which should, at aminimum, include all the following:

(a) Complete description of the workto be performed or services to be provided;

(b) Fee structure;(c) Provisions regarding on-line

communication availability, transmissionline security, and transaction authentication;

§§ X161 - X 162.208.12.31


(d) Responsibilities regarding hardware,software and infrastructure upgrades;

(e) Provisions governing amendmentand pretermination of contract;

(f) Mandatory notification by theservice provider of all systems changes thatwill affect the bank;

(g) Details of all security proceduresand standards;

(h) Responsibility, fines, penalties andaccountability of the service provider forerrors, omissions and frauds;

(i) Confidentiality clause covering alldata and information; solidary liability ofservice provider and bank for any violationof R.A. No. 1405 (the Bank DepositsSecrecy Law) actions that the bank maytake against the service provider for breachof confidentiality or any form of disclosureof confidential information; and theapplicable penalties;

(j) Segregation of the data of the bankfrom that of the service provider and itsother clients;

(k) Disaster recovery/businesscontinuity contingency plans and procedures;

(l) Adequate insurance for fidelity andfire liability;

(m) Ownership/maintenance of thecomputer hardware, software (program sourcecode), user and system documentation,master and transaction data files;

(n) Guarantee that the service providerwill provide necessary levels of transitionassistance if the bank decides to convertto other service providers or otherarrangements;

(o) Access to the financial informationof the service provider;

(p) Access of internal and externalauditors to information regarding theoutsourced activities/services which theyneed to fulfill their respective responsibilities;

(q) Access of BSP to the operations ofthe service provider in order to review thesame in relation to the outsourcedactivities/services;

(r) Provision which requires theservice provider to immediately take thenecessary corrective measures to satisfythe findings and recommendations of BSPexaminers and those of the internal and/orexternal auditors of the bank and/or theservice provider; and

(s) Remedies for the bank in the eventof change of ownership, assignment,attachment of assets, insolvency, orreceivership of the service provider.

(2) Minutes of meetings of the boardof directors of the bank concerned signedby majority thereof, certified by thesecretary and attested by the presidentdocumenting their discussions on thefollowing:

(a) The benefits and advantages ofoutsourcing with respect to, among others,its role and contribution to theaccomplishment of the strategic andbusiness plans of the bank as well as theeconomy, efficiency and quality of itsover-all operations;

(b) The careful and diligent evaluation,prior to selecting the service provider withwhich it is entering into an outsourcingcontract, by the bank of various serviceproviders and their proposals, includingtheir reputation, financial condition, costfor development, maintenance andsupport, internal controls, recoveryprocesses, service level agreements,availability of competent, technicallyqualified and experienced personnel,strategic or convenient location of supportservices and such similar otherconsiderations;

(c) The creation, organization andmembership of a senior managementoversight committee to handle andoversee the efficient implementation andmonitoring of the applications/operationsof the service provider to ensure that thesame is in accordance with the existinginformation technology initiatives, policiesand guidelines of the bank; the list of the

§ X162.208.12.31


members of such committee, itsorganizational chart, and a detaileddescription of the roles and responsibilitiesof its members must be included in theminutes of the meeting or submitted asattachments thereto;

(d) The creation, organization andmembership of a help desk to resolve allqueries, problems and other concernsarising from the applications/operationsrendered by the service provider; and

(e) The systems and user acceptancetests that will be conducted by the serviceprovider before full implementation of theoutsourced systems/processes and theunsatisfactory results of which shall bevalid ground to rescind the contract withthe service provider.

(3) Profile of the selected serviceprovider or the non-bank partner, in caseof joint ventures and other similararrangements, which should include:

(a) Most recent and complete financialand operational information;

(b) Track record;(c) List of clientele, particularly banks

and the services provided thereto by theservice provider; and

(d) At the option of the serviceprovider or non-bank partner, otherdocuments demonstrative of itscompetence and reputation in the field ofinformation technology as applied tobanking operations.

The following are considered asextension of the banks’ informationtechnology processes and are outsourcingactivities that need prior Monetary Boardapproval under this Subsection:

(1) Connection of the bank’s ATM hostand/or CASA systems to an ATMconsortium or an Affiliate Switch Network(ASN). However, no prior Monetary Boardapproval shall be required for a bankconnected or seeking to connect withBancnet and/or Megalink or with ASN ofeither ATM consortium: Provided, That it

passed/es the BSP-approved accreditationprocess of either Bancnet or Megalink.

(2) Sponsoring bank arrangement. Asponsoring bank arrangement is onewhere a TB/RB or Coop Bank, which is nota member of any ATM networkconsortium, but wishes to provide ATMservices and terminals is “sponsored” by amember-bank of any of the existing ATMconsortium.

For purposes of these regulations, anATM network consortium is an entity thatoperates and maintains an ATM switchnetwork connecting member institutionswhile an Affiliate Switch Network (ASN)is an aggregator/service provider thatconnects its ATM switch with BancNetand/or Megalink and extends thatconnection to its subscribers and/ormembers. ASN has to pass its accreditationrequirements of BancNet and Megalinkwhich includes service level standards,BSP access, and minimum paid-up capitalof P300 mill ion. ASNs alreadyinterconnected with BancNet and/orMegalink are required to comply with theminimum paid-up capital on staggeredbasis of: P100 million by 31 December2008; P200 million by 31 December 2009;and P300 million by 31 December 2010.

A bank that intends to outsource itsinternet and/or mobile banking servicesto BancNet and/or Megalink shall nolonger require prior MB approval:Provided, That the applicant bank hadpassed the BSP-approved accreditationprocess for membership in BancNetand/or Megalink, which requires, amongothers, a “no objection” notice from theappropriate department of the SES.Provided further, That banks whichintend to provide electronic bankingservices via other arrangements orservice providers will sti l l have tocomply with the existing regulations onoutsourcing in this Subsection and underSec. X701 on e-banking.

§ X162.208.12.31


To ensure that it remains effective andadaptive to the changing environment, theaccreditation process of BancNet andMegalink for availment of the ATMinterconnection, internet and mobilebanking services, shall be subject toperiodic BSP review and examination.(As amended by M-2008-030 dated 12 September 2008)

§ X162.3 (2008 - X169.3) Outsourcingof other banking functions

a. Subject to prior approval of theMonetary Board, banks may outsource thefollowing functions, services or activities:

(1) data imaging, storage, retrieval andother related systems;

(2) clearing and processing of checksnot included in the Philippine ClearingHouse System;

(3) printing of bank deposit statements;(4) credit card services;(5) credit investigation and collection;(6) processing of export, import and

other trading transactions;(7) property appraisal;(8) property management services;(9) Internal audit, subject to the

following conditions:(a) the board of directors and senior

management of the regulated entityremain responsible for maintaining aneffective system of internal control and forproviding active oversight of theoutsourced internal audit activities/functions;

(b) the external service provider shallbe an independent external auditorincluded in the list of BSP-selected externalauditors or a parent company which ownsor controls more than fifty percent (50%)of the subscribed capital stock of theoutsourcing entity: Provided, That Item“A2” of the general requirements underAppendix 43 shall apply to the parentcompany while Items “A2”, “A4”, “A5”,and “A6” shall apply to the independentexternal auditor;

(c) the contract/service agreementwith the external service provider shall notbe entered into for a period longer thanfive (5) years;

(d) there shall be a contingency planto mitigate any significant disruption,discontinuity or gap in audit coverage,particularly for high-risk areas;

(e) the written engagement contract orservice agreement with the externalservice provider shall, as a minimum:

(i) define the rights, expectations andresponsibilities of both parties;

(ii) set the scope and frequency of, andthe fees to be paid for, the work to beperformed by the external service provider;

(iii) state that the outsourced internalaudit services are subject to regulatoryreview and that BSP examiners shall begranted full and timely access to internalaudit reports and related working papers;

(iv) state that the external serviceprovider will not perform managementfunctions, make management decisions, oract or appear to act in a capacity equivalentto that of a member of management or anemployee of the institution, and will complywith professional and regulatoryindependence guidelines;

(v) specify that the external serviceprovider must maintain the audit reportsand related working papers/files for at leastfive (5) years;

(vi) state that internal audit reports are theproperty of the institution, that the institutionwill be provided with copies of relatedworking papers/files it deems necessary, andany information pertaining to the institutionmust be kept confidential; and

(vii) establish a protocol for changingthe terms of the service contract andstipulations for default and termination ofthe contract;

(10)marketing loans, deposits andother bank products and services, providedit does not involve the actual opening ofdeposit accounts;

§§ X162.2 - X162.308.12.31


(11) general bookkeeping andaccounting services: Provided, That theseactivities do not include servicing bankdeposits or other inherent banking functions;

(12) offsite records storage services;(13) front/back office functions, i.e.,

trade support services and downstreamprocessing activities, by parent to asubsidiary or vice-versa, subject to thefollowing conditions:

(a) The bank intending to outsourcethe aforementioned functions shall certifythat the front office functions to be doneby its parent/subsidiary (service provider)shall be limited to trade support services;

(b) The bank shall remain a parent/subsidiary of its subsidiary/parent (serviceprovider) and such service provider shallservice only entities belonging to itsbusiness group;

(c) The bank shall certify that noinherent banking functions involvingdeposit transactions shall be outsourced toits parent/subsidiary (service provider);

(d) The bank shall submit a ServiceLevel Agreement duly signed by theconcerned parties and any amendmentsthereto, detailing the functions to beoutsourced, the respective responsibilitiesof the bank and its parent/subsidiary(service provider), and a confidentialityclause; and

(e) Any breach in any of the aboveconditions shall subject the outsourcing ofthe aforementioned banking functions toall the requirements of this Section;

(14) Back-up and data recoveryoperations;

(15) Call center operations for creditcard and bank services: Provided, That suchbank services do not involve inherentbanking functions; and

(16) Loans processing, creditadministration and documentation servicesin favor of subsidiaries, affiliates and othercompanies related to it by at least fivepercent (5%) common ownership;

(17) Loan documentation services(such as mortgage registration); and

(18) Such other activities as may bedetermined by the Monetary Board.

The bank concerned must submit thesame documentary requirements listed inSubsec. X162.2a, except where theyexclusively pertain to informationtechnology operations.

b. Without need of prior MonetaryBoard approval, banks may outsource thefollowing functions, services or activities:

(1) printing of bank loan statementsand other non-deposit records, bank formsand promotional materials;

(2) transfer agent services for debtand equity securities;

(3) messenger, courier and postalservices;

(4) security guard services;(5) vehicle service contracts;(6) janitorial services;(7) public relations services,

procurement services, and temporarystaffing: Provided, That these activities donot include servicing bank deposits or otherinherent banking functions;

(8) sorting and bagging of notes andcoins;

(9) maintenance of computerhardware, e.g., disk drives, printers,monitors, UPS, network cabling systems;

(10) payroll of bank employees;(11) telephone operator/receptionist

services;(12) sale/disposal of acquired assets

(ROPA);(13) personnel training and development;(14) buildings, ground and other

facilities maintenance;(15) legal services from local legal

counsel;(16) compliance risk assessment and

testing;(17) tax compliance services:

Provided, That the service provider is notalso the external auditor of the bank; and

§ X162.308.12.31


(18) ATM card plastic embossingservice, subject to the following conditions:

a. Only the ATM card number andthe name of the depositor are printed/indicated on the plastic card and stored inthe magstripe; and

b. Account/transaction validation isdone at the host level,i.e., the bank’scomputer, as the card number stored in themagstripe is linked to the deposit accountnumber residing at the same hostcomputer;

(19) ATM incident management service:Provided, That the messages transmittedby the ATM machines to the serviceprovider’s monitoring system are purelyATM statuses and in no way shall client ortransaction information be sent; and

(20) Such other activities as may bedetermined by the Monetary Board.(As amended by Circular Nos.623 dated 09 October 2008,

621 dated 16 September 2008, 610 dated 26 May 2008,

596 dated 11 January 2008, 548 dated 25 September 2006

and 543 dated 08 September 2006)

§ X162.4 (2008 - X169.4) Serviceproviders. When allowed by law, banksmay enter into outsourcing contracts onlywith service providers with demonstrabletechnical and financial capabilitycommensurate to the services to berendered.

§ X162.5 (2008 - X169.5) Review ofsubsisting outsourcing contracts. Withinsix (6) months from 05 December 2000 -

a. Banks should submit a list of alltheir existing contracts with serviceproviders, detailing the:

(1) Services/activities beingoutsourced;

(2) Terms of the contracts;(3) Measures, if any, undertaken by

the bank and/or service provider to ensurethe secrecy of bank deposits andconfidentiality of all other data andinformation; and

(4) Such other information as may benecessary to show compliance with thepertinent provisions of this Section or berequired by the Monetary Board; and

b. For outsourcing contracts not inaccordance with this Section, the followingalternative courses of action are availableto the bank concerned:

(1) preterminate said contracts;(2) renegotiate or remedy the same

and submit the amendments thereto ornew contracts to the BSP; or

(3) submit a program of complianceto the BSP.

§§ X162.6 - X162.10 (Reserved)

§ X162.11 (2008 - X169.11) Otherbanking services for subsidiaries,affiliates and related companies. A bankmay be authorized, upon prior MonetaryBoard approval, to render the followingservices in favor of subsidiaries, affiliatesand companies related to it by at leastfive percent (5%) common ownership:

a. Credit card, bank and loansreconciliation;

b. Credit card billing;c. Time deposit processing;d. Merchant settlement;e. Collections which may involve

legal action;f. Credit application processing;g. Call center support;h. Telemarketing of bank, credit card

and insurance (life and non-life) products;i. Human resource-related service;j. Finance/accounting functions;k. Documentation;l. Cashiering;m. Reports preparation;n. Procurement;o. Records coordination;p. Mailroom and general services;q. Internal audit services;r. Credit administration services,

such as, l imit administration, loan

§§ X162.3 - X162.1108.12.31


documentation, loan administration, andcredit reporting, compliance and control;

s. Legal and compliance services;t. Production of credit cards and

preparation of statement of accounts; andu. Check writing services

subject to the condition that, as serviceprovider, the following shall be upheld bythe bank:

(a) Confidentiality of bank depositsand investment in government bonds(R.A. No. 1405);

(b) Prohibition against outsourcing ofinherent banking functions; and

(c) Prohibit ion on cross-sell ingexcept as allowed under applicableregulations.(As amended by Circular Nos. 606 dated 26 March 2008,

604 dated 03 March 2008, 597 dated 11 January 2008,

586 dated 16 October 2007, 569 dated 21 May 2007,

567 dated 04 May 2007 and 556 dated 12 January 2007)

§ X162.12 (2008 - X169.12) Otherbanking services to other entities. A bankmay render the following services to otherentities (including non-related companies):

a. Collections and payments;b. Safekeeping of securities;c. Act as correspondent of other FIs;d. Payroll service;e. Enter into a conduit clearing

arrangement with indirect clearingparticipants;

f. ATM cash loading service todepositors;

g. Enter into an arrangement withother banks to enable such other banks toavail the service of an ATM networkconsortium, and

h. Subject to prior Monetary Boardapproval, such other services which arenot incompatible with banking business asmay be determined by the MonetaryBoard: Provided, That the bank shallperform said services as depositary or asan agent, subject to the followingconditions:

(1) The bank (or if the counterpartyis also a bank, both the bank providingthe service and the outsourcing bankjointly) shall inform the appropriatedepartment of the SES at least thirty (30)calendar days prior to undertaking theabovementioned services. The bank mayundertake said activities if no objectionhas been received from said departmentwithin said thirty (30)-calendar dayperiod.

(2) The proposed contract orMemorandum of Agreement (MOA)indicating, among others, the particulartype of service to be rendered (and if thecounterparty is also a bank, to beoutsourced) by the bank/s shall be kept onfile and be made available for inspectionduring BSP examination;

(3) As a service provider, thefollowing shall be upheld by the bank:

(a) Confidentiality of bank depositsand investment in government bonds(R.A. No. 1405);

(b) Prohibition against outsourcing ofinherent banking functions; and

(c) Prohibition on cross-selling exceptas allowed under applicable regulations.(Circular No. 606 dated 26 March 2008)

§§ X162.13 - X162.18 (Reserved)

§ X162.19 (2008 - X169.19) PenaltiesViolation of this Section shall be subject toSections 34, 35, 36 and 37 of R.A. No. 7653,the New Central Bank Act. If the offenderis a director or officer or a bank, theMonetary Board may also suspend orremove such director or officer.

Sec. X163 - X171 (Reserved)

M. BANK OFFICES AS OUTLET OFFINANCIAL PRODUCTS OF ALLIED

UNDERTAKINGS/IH


§§ X162.11 - X17208.12.31


Sec. 1172 (2008 - 1631) Financial Productsof Allied Undertakings or InvestmentHouse Units of Banks. The followingguidelines shall govern the use of the headoffice and/or any or all branches of UBs andKBs as outlets for the presentation and saleof financial products of their alliedundertakings (subsidiaries and affiliates asdefined hereafter) or of their investmenthouse (IH) units. In case of sale of insuranceproducts of insurance company affiliates,said affiliates must be accredited or pre-cleared by the Insurance Commission (IC)to ensure that only stable and reputableinsurance companies can sell their productsthrough banks.

a. Financial products covered by thisSection are the following:

(1) Credit cards;(2) Insurance products limited to:(a) Life insurance products;(i) Term insurance (including

mortgage redemption insurance);(ii) Whole life insurance;(iii) Endowment;(iv) Health and accident policies;(v) Variable life insurance contracts; and(vi) Life annuities.(b) Non-life insurance;(i) Fire insurance;(ii) Marine cargo policies;(iii) Homeowners’ policies;(iv) Directors/officers liability insurance;

and(v) Motor vehicle insurance;(3) Such other products as may be

authorized by the Monetary Board.b. For purposes of this Section, a

“subsidiary” means a corporation morethan fifty percent (50%) of the voting stockof which is directly or indirectly owned,controlled or held with power to vote by abank while an “affiliate” means acorporation at least five percent (5%) butnot exceeding fifty percent (50%) of thevoting stock of which is directly orindirectly owned, controlled or held with

the power to vote by a bank. A domesticsubsidiary or affiliate is any subsidiary oraffiliate domiciled in the Philippines andincorporated under the laws of thePhilippines, while a foreign subsidiary oraffiliate is a subsidiary or affiliateincorporated and organized under the lawsof the foreign country.

§ 1172.1 (2008 - 1631.1) Statement ofprinciples. The use of a bank’s head officeand/or any or all of its branches in thepresentation and sale of f inancialproducts of allied undertakings or IH unitscould give the banking public theimpression that these products arecovered by the deposit insurance systemor guaranteed by the parent bank. Toenable the public to understand fully theattendant r isks involved in thesetransactions, a clear and explicitdistinction between financial productsoffered by a bank and those of its alliedundertakings or IH units must be madein the presentation and sale of theseproducts, whether through written orverbal communications.

§ 1172.2 (2008 - 1631.2) Prior MonetaryBoard approval. The presentation and saleof financial products shall be made by thebank in its head office and/or any or all ofits branches only upon prior approval ofthe Monetary Board.

The bank’s proposal on saidpresentation and sale shall provideinformation on the location of the officewhere financial products will besold. Where possible, the office shall notbe located in the main lobby of the bank’shead office and/or its branches and shouldbe clearly distinguishable by the public asa separate entity from the parent bank. Theproposal shall likewise cover particularson: (a) personnel who will be involved inthe marketing of the financial products; and(b) promotional matters including

§§ 1172 - 1172.208.12.31


safeguards that would ensure that thepublic will be able to differentiate readilythe bank products from the non-bankproducts. The public should also be ableto distinguish personnel marketingnon-bank products from regular bankpersonnel. In case of sale of insuranceproducts, the staff selling insurance policiesmust be duly licensed by the IC.

§ 1172.3 (2008 - 1631.3) Minimumdocumentary requirements. Thefollowing documents shall be submittedas basis for the evaluation of a bankintending to sell financial products of itsallied undertakings or its IH units:

a. Latest information on the alliedundertaking or IH unit:

(1) Annual report; (2) List of directors and senior officers;

and (3) Income and expense statement for

the last three (3) years; b. Copy of the approval of the Board

of Directors of both the parent bank andallied undertakings or IH units on thepresentation and sale of f inancialproducts;

c. Justification of the presentation andsale of financial products;

d. Detailed information on thefinancial products to be offered, includingpromotional materials which will beused;

e. Outline of the content of thetraining materials for bank’s staff andofficers who will be involved in thehandling of the sale of financial products;

f. Sample contracts; and g. Such other information that may be

required by the BSP.

§ 1172.4 (2008 - 1631.4) Financialratios and other related requirementsA bank intending to use its head officeand any/or all its branches as outlets forthe presentation and sale of financial

products of its allied undertakings or IHunits must comply with the followingrequirements to ensure that onlyfinancially viable institutions complyingwith BSP rules and regulations areallowed to undertake cross-sell ingactivities:

a. The bank during the last ninety (90)days immediately preceding the date ofapplication has complied with thefollowing:

(1) Ceilings on credit accommodationsto DOSRI;

(2) Liquidity floor on governmentdeposits;

(3) Minimum capitalization as definedunder Sec. X111;

(4) Risk-based capital adequacy ratiounder Sec. X116 or as may be required bythe Monetary Board in the future;

(5) Single borrower’s limit; (6) Investment in bank premises and

other fixed assets; (7) Open foreign exchange position;

and(8) Foreign exchange asset cover on

FCDU/EFCDU foreign currency liabilities.b. It does not have float items

outstanding for more than sixty (60)calendar days in the “Due from/to HeadOffice/Branches/Offices” accounts and the“Due from Bangko Sentral” accountexceeding one percent (1%) of the totalresources as of end of preceding month;

c. It has no weekly reservedeficiency against deposit liabilities,deposit substitutes and CTFs during the last twelve (12) weeks immediately precedingthe date of application;

d. It maintains adequate provisions forprobable losses commensurate to thequality of its asset portfolio but not lowerthan the required valuation reserves asdetermined by the BSP; and

e. It has a CAMELS Composite Ratingof at least “3” in the last regular examinationby the BSP.

§§ 1172.2 - 1172.408.12.31


§ 1172.5 (2008 - 1631.5) Promotionalmaterials; stationeries and otherparaphernalia

a. The promotional materials used inthe sale of these financial products,especially posters displayed in bankpremises, shall contain the following:

(1) The logo of the allied undertakingor IH unit promoting the financial productaccompanied by the words “A subsidiary(or affiliate, as the case may be) of (nameof parent bank)"; and

(2) The words “financial product/s of(name of allied undertaking/investmenthouse unit) is/are not insured by thePhilippine Deposit Insurance Corporationand is/are not guaranteed by the (name ofparent bank)” shall be printed in capitalletters, black letters against lightbackground/white letters against darkbackground with the following print size:

Size of Promotional Material Print Size1

Legal/letter size 1215"X20" 2419"X25" 36

1 For other measurements of promotionalmaterials, use of print size closest to indicated size ofpromotional material.

b. Stationeries and other paraphernaliaused in the sale of aforementionedproducts shall bear the logo of the alliedundertaking or IH unit promoting thefinancial product and the words “asubsidiary (or affiliate, as the case may be)of (name of parent bank)” should appearvisibly under the logo.

§ 1172.6 (2008 - 1631.6) Contracts/Information to be disclosed

a. The following paragraph shall beprinted at the end of the contract in the printsize as the rest of the contract, or font size12 whichever is bigger, in capital lettersand in bold font:

“This contract is between (name ofclient) and (name of allied undertaking orinvestment house unit), a subsidiary (oraffiliate, as the case may be) of (name ofparent bank). All transactions arising outof or related to this contract shall bebinding only between these two (2)contracting parties. It is understood thatthis transaction is neither insured by thePhilippine Deposit Insurance Corporation(PDIC) nor guaranteed by the parentbank.”

b. All other limitations that mayaffect the interest of the client shallalso be disclosed in the contract.

§ 1172.7 (2008 - 1631.7) Training. Thebank shall conduct training for the officersand staff who will be involved in thehandling of the sale of non-bank productsto ensure that they do not unwittinglyguarantee or give the impression that thefinancial products being offered are thoseof the parent bank.

§ 1172.8 (2008 - 1631.8) Otherrequirements

a. Record-keeping and accounting forthe financial products of the bank’s alliedundertaking or IH unit shall be separatefrom those of the parent bank.

b. The bank, in coordination with itsallied undertaking/IH unit, shall formulatethe guidelines and establish clearprocedures for evaluating client suitability.

§§ 1172.9 - 1172.10 (Reserved)

§ 1172.11 (2008 - 1631.11) Sanctions a. Violations of the provisions of this

Section shall constitute grounds for theimposition on the bank of the following:

(1) Monetary fine - Any amount as maybe authorized by the Monetary Board notto exceed P30,000 a day for each violationfrom the time the violation was committeduntil it is corrected;

§§ 1172.5 - 1172.1108.12.31


(2) Non-monetary penalties (a) Suspension of rediscounting

privileges or access to BSP creditfacilities; and

(b) Other sanctions as the MonetaryBoard may impose depending on thegravity of the offense.



N. RISK MANAGEMENT

Sec. X173 Supervision by Risks. Theguidelines on supervision by risk to provideguidance on how banks should identify,measure, monitor and control risks areshown in Appendix 72.

The guidelines set forth theexpectations of the BSP with respect to themanagement of risks and are intended toprovide more consistency in how the risk-focused supervision function is applied tothese risks. The BSP will review the risksto ensure that a bank’s internal riskmanagement processes are integrated andcomprehensive. All banks should followthe guidelines in their risk managementefforts.(Circular No. 510 dated 19 January 2006)

Sec. X174 Market Risk Management. Theguidelines on market risk management inAppendix 73 set forth the expectations ofthe BSP with respect to the managementof market risk and are intended to providemore consistency in how the risk-focusedsupervision function is applied to this risk.Banks are expected to have an integratedapproach to risk management to identify,measure, monitor and control risks. Marketrisk should be reviewed together withother risks to determine overall riskprofile.

The BSP is aware of the increasingdiversity of financial products and that

industry techniques for measuring andmanaging market risk are continuouslyevolving. As such, the guidelines areintended for general application; specificapplication will depend to some extent onthe size, complexity and range of activitiesundertaken by individual banks.

The guidelines on risk management forderivatives are shown in Appendix 25.(Circular No. 544 dated 15 September 2006)

Sec. X175 Liquidity Risk ManagementThe guidelines on liquidity riskmanagement in Appendix 74 set forththe expectations of the BSP with respectto the management of liquidity risk and areintended to provide more consistency inhow the risk-focused supervision functionis applied to this risk. Banks are expectedto have an integrated approach to riskmanagement to identify, measure, monitorand control risks. Liquidity risk should bereviewed together with other risks todetermine overall risk profile.

The guidelines are intended for generalapplication; specific application willdepend on the size and sophistication of aparticular bank and the nature andcomplexity of its activities.

The guidelines on risk management forderivatives are shown in Appendix 25.(Circular No. 545 dated 15 September 2006)

Sec. X176 Technology Risk ManagementThe guidelines on technology riskmanagement to ensure that banks have theknowledge and skills necessary tounderstand and effectively manage theirtechnology-related risks are inAppendix 75.

The guidelines contain two (2) mainparts. The first outlines the primary riskrelated to the bank’s use of technology andthe second describes a risk managementprocess on how banks should managethese risks. Key points include thefollowing:

§§ 1172.11 - X17608.12.31


a. The use of technology-relatedproducts, services, delivery channels andprocesses exposes a bank to various risks,particularly Operational, Reputation,Compliance and Strategic risk.

b. Banks are expected to have anintegrated approach to risk managementto identify, measure, monitor, andcontrol risks. Technology-related risksshould be reviewed together with otherbank risks to determine the bank’soverall risk profile.

c. In using technology, bankmanagement should engage a rigorousanalytic process to identify and quantifyrisks, to the extent possible, and to establishrisk controls to manage risk exposures.

d. Technology - re la ted r i skmanagement process involves three (3)essential elements:

(1) Planning(2) Implementing(3) Measuring and monitoring

performanceThese elements are critical to an

effective technology-related riskmanagement process of a well-managedbank, regardless of size.

The guidelines on risk managementand internal control are shown in Subsec.X705.2.(Circular No. 511 dated 03 February 2006)


Sec. X180 (2008 - X170) ComplianceSystem; Compliance Officer. Banks shalldevelop and implement a compliancesystem and appoint/designate acompliance officer to oversee itsimplementation.

§ X180.1 (2008 - X170.1) Compliancesystem. The compliance system shall havethe following basic elements.

a. A written compliance programapproved by the board of directors:

(1) The compliance program shallenable the bank to identify the relevantPhilippine laws and regulations, analyzethe corresponding risks of non-compliance,and prioritize the compliance risks (e.g.,low, medium, high).

(2) The program shall provide forperiodic compliance testing withapplicable legal and regulatoryrequirements. Testing frequency shall becommensurate with identified risk levels(e.g., annual testing for low-risk, quarterlytesting for medium-risk, monthly testingfor high-risk). It shall also provide for thereporting of compliance findings noted toappropriate levels of management.

(3) The program shall establish theresponsibil i t ies and duties of thecompliance officer and other personnel(if any) involved in the compliancefunction.

(4) A copy of the compliance programand the written approval of the board ofdirectors shall be submitted to theappropriate department of the SES withintwenty (20) banking days from date ofapproval.

(5) The program shall be updated atleast annually to incorporate changes inlaws and regulations. Any changes in theprogram shall likewise be approved by thebank’s board of directors and submitted toBSP within twenty (20) banking days fromthe date of approval.

b. A constructive workingrelationship with regulatory agencies.

The bank, through its complianceofficer, may consult the regulatoryagencies for additional clarification onspecif ic provisions of laws andregulations and/or discuss compliancefindings with the regulatory authorities.A dialogue may also be initiated withrespect to borderline issues.

c. A clear and open communicationprocess within the bank to educate andaddress compliance matters.

§§ X176 - X180.108.12.31


Officers and staff shall be trained onthe regulatory requirements throughregular meetings, distribution of manualsand dissemination of regulatory issuance.

d. Continuous monitoring andassessment of the compliance program.

The program shall provide for theperiodic review of the compliancefunction to measure its effectiveness. Thereview may be carried out by the internalaudit department of the bank.

The compliance program mayoperate parallel to or as part of a bank’sinternal control and auditing program.

§ X180.2 (2008 - X170.2) Complianceofficer

a. The principal function of thecompliance officer is to oversee andcoordinate the implementation of thecompliance system. His responsibility shallinclude the identification, monitoring andcontrolling of compliance risk.

b. The appointment/designation of acompliance officer shall require priorapproval of the Monetary Board. Thebio-data of the proposed compliance officershall be submitted to the appropriatedepartment of the SES.

c. The compliance officer shall havethe skills and expertise to provideappropriate guidance and direction tothe bank on the development,implementation and maintenance of thecompliance program.

d. All UBs/KBs, as well as TBs andRBs/Coop Banks with total resources ofP500 million and above, shall appoint anindependent full-time compliance officer,who shall have the rank of at least a vicepresident or its equivalent.

e. For TBs and RBs/Coop Banks withtotal resources of below P500 million, anincumbent senior officer may bedesignated concurrently as the bank’scompliance officer: Provided, That suchdesignation will not give rise to any conflict

of interest situation and that themain function of the senior officer shall bethat of a compliance officer.

The internal auditor of a bank may alsobe designated as its compliance officersubject to the condition that his mainfunction shall be that of a complianceofficer.

Transitory Provision. Complianceofficers concurrently holding the positionof Head of Internal Audit or Internal Auditorshall be given one (1) year from02 February 2008 within which to complywith this Subsection.(As amended by Circular No. 598 dated 11 January 2008)

§ X180.3 (2008 - X170.3) Compliancerisk. Compliance risk is the risk of legal orregulatory sanctions, financial loss, or lossto reputation a bank may suffer as a resultof its failure to comply with all applicablelaws, regulations, codes of conduct andstandards of good practice.

§ X180.4 (2008 - X170.4) Responsibilitiesof the board of directors and seniormanagement on compliance. Aside fromthe duties and responsibilities of the boardof directors mentioned under Subsec.X141.3, the board should oversee theimplementation of the compliance policyand ensure that compliance issues areresolved expeditiously. Seniormanagement should be responsible forestablishing a compliance policy, ensuringthat it is observed, reporting to the boardof directors on its ongoing implementationand assessing its effectiveness andappropriateness. Senior managementshould, at least once a year, report to theboard of directors or a committee of theboard on matters relevant to thecompliance policy and its implementation,recommending any required changes tothe policy. The report should assist theboard members in making an informedassessment as to whether the institution is

§§ X180.1 - X180.408.12.31


managing its compliance risk effectively.However, any material breaches of laws,rules and standards shall be reportedpromptly.

§ X180.5 (2008 - X170.5) Status. Thecompliance function should have a formalstatus within the organization establishedby a charter or other formal documentapproved by the board of directors thatdefines the compliance function’s standing,authority and independence, andaddresses the following issues:

(1) measures to ensure theindependence of the compliance functionfrom the business activities of the bank;

(2) its role and responsibilities;(3) i ts relationship with other

functions or units within the organization;(4) i ts r ight to obtain access to

information necessary to carry out itsresponsibilities;

(5) its right to conduct investigationsof possible breaches of the compliancepolicy;

(6) its formal reporting relationshipsto senior management and the board ofdirectors; and

(7) its right of direct access to theboard of directors or an appropriatecommittee of the board.

The compliance charter or other formaldocument defining the status of thecompliance function shall be communicatedthroughout the organization.

§ X180.6 (2008 - X170.6) IndependenceThe compliance function should beindependent from the business activitiesof the institution. It should be able to carryout its responsibilities on its own initiativein all units or departments wherecompliance risk exists and must beprovided with sufficient resources to carryout its responsibilities effectively. It mustbe free to report to senior managementand the board or a committee of the board

on any irregularities or breaches of laws,rules and standards discovered, withoutfear of retaliation or disfavor frommanagement or other affected parties. Thecompliance function should have access toall operational areas as well as any recordsor files necessary to enable it to carry outits duties and responsibilities.

§ X180.7 (2008 - X170.7) Role andresponsibilities of the compliancefunction. The role and responsibilities ofthe compliance function should be clearlydefined. If there is a division of duties andresponsibilities between different functionssuch as legal, compliance, internal auditor risk management, the allocation ofduties and responsibilities to each functionshould be properly delineated. Thereshould likewise be formal arrangementsfor cooperation between each function andfor the exchange of relevant information.

§ X180.8 (2008 - X170.8) Cross-bordercompliance issues. The compliancefunction for institutions that conductbusiness in other jurisdictions should bestructured to ensure that local complianceconcerns are satisfactorily addressedwithin the framework of the compliancepolicy for the organization as a whole. Asthere are significant differences inlegislative and regulatory frameworksacross countries or from jurisdiction tojurisdiction, compliance issues specific toeach jurisdiction should be coordinatedwithin the structure of the institution’sgroup-wide compliance policy. Theorganization and structure of thecompliance function and its responsibilitiesshould be in accordance with local legaland regulatory requirements.

§ X180.9 (2008 - X170.9) Outsourcingof compliance risk assessment and testingBanks should establish policies formanaging the risks associated with

§§ X180.4 - X180.908.12.31


outsourcing activities. Outsourcing ofservices/activities can reduce theinstitution’s risk profile by transferringactivities to others with the necessaryexpertise to manage the risks associatedwith specialized business activities.However, the use of third parties does notdiminish the responsibility of the board ofdirectors and senior management to ensurethat the outsourced activity is conductedin a safe and sound manner and incompliance with applicable laws andregulations.

Compliance risk assessment andtesting may be outsourced, subject toappropriate oversight by the complianceofficer: Provided, That a copy of theoutsourcing agreement stating the dutiesand responsibilities as well as rights andobligations of the contracting parties, whichagreement shall be approved by the boardof directors of the institution concerned,must be submitted to the appropriatedepartment of the SES at least thirty (30)days prior to its execution to enable reviewof its compliance with existing regulationson outsourcing of banking functions.

The service level agreement shallensure a clear allocation of responsibilitiesbetween the external service providers andthe bank. Furthermore, the outsourcingbank should manage residual risksassociated with outsourcing arrangements,including default, operational failures, andpossible disruption of services.

Sec. X181 (2008 - X171) Bank ProtectionEach bank shall adopt an adequate securityprogram commensurate to its operations,taking into consideration its size, location,number of offices and business operations.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.1 (2008 - X171.1) ObjectivesThese regulations are designed to:

a. Promote maximum protection oflife and property against crimes

(e.g. robbery, hold-up, theft, etc.) andother destructive causes;

b. Prevent and discourageperpetration of crimes against bank; and

c. Assist law enforcement agenciesin the identification, apprehension andprosecution of the perpetrators of crimescommitted against banks.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.2 (2008 - X171.2) Designationof security officer. The board of directorsof each bank or the country head in thecase of a foreign bank branch, shall appointor designate a qualified security officerwho shall hold office under the directauthority and supervision of the presidentof the bank or the country head in the caseof a foreign bank branch. Subject to priorBSP approval, banks with limited securityrisk exposure due to the nature of theiroperations such as single unit foreign bankbranch operating in a highly securedenvironment or TBs or RBs/Coop Bankswith total assets of less than P100 millionmay appoint one of their senior officers assecurity officer in a concurrent capacity:Provided, That if the senior officer soappointed does not possess the necessaryqualifications, he shall be supported by acompetent consultant/adviser until suchtime that he acquires the necessarycompetency on security matters: Provided,further, That such appointment shall notresult to a conflict of interest situation.

The security officer must be: (a) at leastthirty (30) years of age; (b) be a collegegraduate; (c) have at least five (5) years ofsupervisory experience in the field of lawenforcement and/or security operations;and (d) possess all the qualifications andnone of the disqualifications provided forunder Sections X142 and X143.

The security officer shall beresponsible for:

a. The development and administrationof a security program acceptable to BSP;

§§ X180.9 - X181.208.12.31


b. The conduct of continuing securityawareness program among all bankemployees to highlight that security is acommon concern;

c. Investigation of bank robberies/hold-ups, recommending the filing ofappropriate charges in court as theevidence may warrant and assisting in theprosecution of the perpetrator(s) thereof;

d. The establishment of an effectiveworking relationship with the BSP, PNP,and other law enforcement agencies in theprevention of bank crimes and other naturaland man-made hazards; and

e. The conduct of continuing researchand studies on new techniques, methodsand equipment to enhance bank protectionmeasures.

For purposes of the foregoing, asecurity management team headed by thesecurity officer may be constituted ifwarranted.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.3 (2008 - X171.3) Securityprogram. The security program of eachbank shall be in writing, duly approved byits board of directors or the country headin the case of a foreign bank branch. Inaddition, the security program shall definemeasures and procedures to detect andprevent the commission of bank crimes,as well as provide contingency plans incase of calamities, terrorist attacks andother emergency situations. The securityprogram shall include the following:

i. Installation of the prescribedminimum security devices;

ii. A schedule for the periodicinspection, testing and servicing of allsecurity devices installed in each of thebank’s offices, designation of an officer oremployee responsible for ensuring thatsuch devices are inspected, tested,serviced and kept in good working order,and requiring record of such inspections,testing and servicing;

iii. Standard operating procedures forthe safekeeping of all currencies,negotiable securit ies and similarvaluables in vaults or safes;

iv. Provision for other securitymeasures and procedures aimed atgiving added protection to the bank,e.g., procedures for the transport of fundsand other cash items, and definingresponsibility for their implementation;

v. Provision for the training andperiodic re-training of employees in theirrespective areas of responsibility underthe security program, including theproper use of security devices and properemployee conduct during and after anemergency situation;

vi. Contingency measures for securityand rescue operations in emergencysituations;

vii. Provision for the posting ofadequate number of security personnelin all vital and/or critical areas in the bank’spremises, and the minimum number ofhours when each personnel shall be onduty; and

viii. Such other provisions/measures asthe president of the bank or country headin the case of a foreign bank branch may,in consultation with its security officer,deem appropriate.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.4 (2008 - X171.4) Minimumsecurity measures

a. Guard system. All banking officesshall be manned by an adequate numberof security personnel to be determined bythe bank, taking into consideration its size,location, costs and overall bank protectionrequirement: Provided, That cash centersshall be manned by an adequate numberof security guards as may be necessaryduring banking hours. For this purposecash centers shall refer to branches whichalso handle the cash requirements of otherbranches of the same bank.

§§ X181.2 - X181.408.12.31


b. Security devices. Within 120calendar days from 23 September 2008 inthe case of existing offices and beforeopening for business in the case of officesto be opened after 23 September 2008,banks shall effect the installation, operationand maintenance, as individuallyappropriate, of the following securitydevices in each banking office;

(1) A time delay device in the cashvault/safe;

(2) A lighting system for illuminatingthe area around the vault, if the vault isvisible from outside the banking office;

(3) Tamper-resistant locks on exteriordoors and windows;

(4) A robbery alarm system or otherappropriate device for promptly notifyingthe nearest law enforement office eitherdirectly or through an intermediary of anattempted, ongoing or perpetrated robbery;

(5) Anti-burglary or intrusion systemcapable of detecting promptly an attack onthe outer doors, walls, floor or ceiling ofthe bank premises, including the vault(s);and

(6) Such other devices like the closedcircuit television (CCTV) and videorecording system appropriate to deter thecommission of bank crimes and assist inthe identification and apprehension of theculprit/s:Provided, That the bank security officer shallconsider, among other things, the following:

(i) The incidence of crimes againstthe particular banking office and otherbusiness establishments in the areawhere the banking office is located;

(ii) The amount of currency or othervaluables exposed to robbery and otherman-made hazards;

(iii) The distance of the banking officefrom the nearest law enforcement officeand the time ordinarily required forlaw-enforcement officers to arrive at thebanking office;

(iv) The cost of the security devices;

(v) Other existing security measuresin effect at the banking office; and

(vi) The physical characteristics of thebanking office structure and its surroundings.

Each bank shall install, operate andmaintain security devices which areexpected to give a general level of bankprotection equivalent, at least, to thestandards prescribed herein.

c. Vaults and safes. Vault walls,ceilings and floors, shall be made ofsteel-reinforced concrete or such otherequally safe materials/specifications. Vaultdoors shall be made of steel or other drilland torch resistant material, equipped witha dual combination lock and time-delaydevice, and provided with inner and outergrill doors: Provided, That all vaultsconstructed after 23 September 2008 shallbe equipped with a breathing/ventilationdevice and emergency button capable ofgiving audible and visible signal in case ofaccidental lock-up.

A vault record book shall bemaintained to record all activities relativeto the opening and closing of the vault.

Safes should be sufficiently heavy orbe securely anchored to the premiseswhere located. The door shall beequipped with a combination lock witha t ime-delay device i f used forsafekeeping cash and other valuables.The body shall consist of steel with anultimate tensile strength of 50,000pounds per square inch or the equivalentin metric system.

Safe and vault combinations must bechanged whenever the custodian isterminated or transferred to another placeof assignment. A record of the names ofthe holder of the keys and combinationsshall be maintained for each lock, safe,vault and compartment. Changing ofcombinations shall be documented topinpoint responsibility and to ensureconfidentiality and proper observance ofthis requirement.

§ X181.408.12.31


d. Security of the premises. Foremergency purposes and whereapplicable, each banking office shall beprovided with a back door with a steel orgrill door which shall be used as analternative exit door for evacuation in caseof fire, flood, bomb threats, wind damage,explosion, civil disturbance, earthquake, orother emergency.

Steel grills, where applicable, shallsupport exterior glass doors and windowsof all banking offices for protection againstany forcible entry. Access to the back doorshall be limited to authorized bankpersonnel. Opening and closing thereofbefore and after banking hours shall berecorded in a registry.

Firearms and other deadly weaponsshall not be allowed inside bank premisesexcept when so authorized by the bank.A signage for this purpose shall beconspicuously placed near the mainentrance door of the bank. Specificguidelines as to when to allow firearms andother deadly weapons inside bankpremises should be incorporated in thesecurity program.

A bank shall maintain within itspremises a record of the addresses andtelephone numbers of the nearest lawenforcement agencies, hospitals, rescueagencies and fire departments.

The security officer of each bank shallconduct, at least annually, a security surveyof bank premises and make available theinspection report to BSP examiners duringregular examination.

The bank shall conduct fire, earthquakeand bomb threat drill at least once a year.

e. ATM. ATM sites shall be providedwith adequate security. Where there areno security personnel assigned to securethe ATM, an anti-tampering device shallbe installed or the ATM and its immediatesurroundings shall be regularly inspectedto promptly detect any attempt to rob ordestroy the same.

f. Armored Car Operation. To ensurethe protection of crew members andvaluables, all armored vehicles shall be builtwith bullet-resistant materials capable ofwithstanding the firepower of high-poweredfirearms, e.g., M16 and M14 rifles. Moreover,armored vehicles shall be equipped with avault or safe or a partition wall with acombination lock designed to preventretrieval of the cargo while in transit. Whenin use the armored vehicles shall be providedwith at least two (2) armed guards and itsoperations must be supervised by at least two(2) officers of the bank.

All canvass bags that contain cash andother items of value shall be provided withpadlocks for security and control purposes.Armored cars shall not be operated asmobile bank.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.5 (2008 - X171.5) ReportsBanks shall conduct a review and self-assessment of their security program toensure their compliance with prescribedsecurity requirements. Any substantiveamendment thereto shall be approved bythe bank’s board of directors or countryhead in the case of branches of foreignbanks. The self-assessment of compliancewith prescribed security requirementstogether with the updated security program(if amended during the year) shall besubmitted annually to the appropriatedepartment of the SES on or before30 January of the following year inaccordance with the format shown inAppendix 10. The self-assessment togetherwith the updated security program shallbe considered Category A-2 reports.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.6 (2008 - X171.6) BangkoSentral inspection. During regularexamination, the BSP reserves the rightto perform a compliance assessment ofthe adequacy of a bank’s security

§§ X181.4 - X181.608.12.31


arrangements. The BSP, with approval ofthe Governor, may also conduct at anytime a targeted inspection of the bank’simplementation of its security program todetermine compliance with regulations. Forthis purpose, the BSP may avail of theservices of experts as resource persons.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.7 (2008 - X171.7) Commonsecurity service provision. A bank, withprior BSP approval, may share the servicesof a security officer or a securitymanagement team with its related FIs.(As amended by Circular No. 620 dated 03 September 2008)

§ X181.8 (2008 - X171.8) SanctionsAny violation of the provisions of thisSection, as well as non-compliance withthe minimum standards set forth or anydirective of the Monetary Board issuedpursuant hereof, shall be subject to theadministrative sanctions provided underSection 37 of R.A. No. 7653 and may,depending on the materiality orseriousness of the violation, constitute aground for considering the same as anunsafe and unsound banking practice.(As amended by Circular No. 620 dated 03 September 2008)


Sec. X185 (2008 - X163) Internal ControlSystem. The following provisions are theminimum internal control standards forbanks to help promote effective controlsystem.

For this purpose, the following records/data shall be compiled and made availablefor the inspection of BSP examiners:

a. Records showing compliance withindependent balancing procedures. Theserecords should indicate the accounts and theperiodic balancing procedures performed.

b. Statements of actual duties ofpersons assigned to handle cash andsecurities.

c. All internal control audit reports ortheir equivalent.

d. Information/data on the direct and/or indirect equity holdings and/orconnection with any firm, partnership orcorporation organized for profits, of all thebank directors, officers and majorstockholders as defined under Subsec.X326.1 should be maintained.

e. Information/data pertaining to theelectronic data processing (EDP)department or EDP servicer of the bankparticularly on organization, input controls,processing controls, output controls, softwarecontrols, program and documentationstandards, logs on the operation ofmainframes and peripherals, hardwarecontrols and such other EDP internal controlstandards prescribed by the BSP in separaterules and regulations.

§ X185.1 (2008 - X163.1) Properaccounting records

a. All banks shall maintain proper andadequate accounting records.

b. These records should be keptup-to-date and shall contain sufficient detailso that an audit trail is established.

c. All tickets shall bear officialapproval and should be initiated by theperson originating and another person bychecking them.

§ X185.2 (2008 - X163.2) Independentbalancing

a. Independent balancing shall meanthat records posted by a person or cashheld by a teller or cashier shall be balancedor counted by another person.

b. The following minimumindependent balancing procedures shallbe adopted:

(1) Monthly reconciliation of generalledger balances against respective subsidiaryand supporting records and documentationby someone other than the bookkeeper orthe person handling the records;

§§ X181.6 - X185.208.12.31


(2) Irregular and unannounced countof teller’s cash and checks and other cashitems at least twice a month and vault cashincluding Automated Tellering Machine’s(ATM) cash dispensers at least once amonth by the auditor/control officer or byan officer not connected with cashdepartment;

(3) Monthly reconciliation of due frombanks, cash in bank accounts (domesticand foreign) and due from/to head office/branches by someone other than theperson handling the records or posting thegeneral ledger entries;

(4) Periodic verification of securitiesand collaterals by someone other than theircustodian; and

(5) Periodic verification of theaccuracy of the interest credits to depositliabilities accounts.

§ X185.3 (2008 - X163.3) Division ofduties and responsibilities

a. The duties of all the officers andemployees shall be segregated, clearlydefined, understood, documented andmanualized. No individual shall havecomplete authority and responsibility forhandling all phases of any transaction frombeginning to end, without some check orbalance from some other part of theorganization.

b. The physical handling of atransaction shall be separated from itsrecording and supervision as follows:

(1) A person handling cash shall notbe permitted to post the ledger records norshould posting the general ledger beperformed by an employee who posts thedepositor’s subsidiary ledgers;

(2) A lending officer shall never beallowed to disburse proceeds of notes,accept note payment nor post loanledgers;

(3) The functions of issuing,recording and signing of drafts/checksshall be separated;

(4) Checks and other cash itemsshall be maintained either by anemployee not handling cash or by theRack/Distributing Department providedthat adequate control as to custody anddisposit ion of funds are properlymaintained;

(5) The receipt of statements fromdepository bank shall be assigned to anemployee other than the one connectedwith the preparation, recording and signingof bank drafts;

(6) Custodians of securities shall notbe allowed to handle security transactions;

(7) Collateral appraisal shall be doneby an employee/officer who does notapprove loans;

(8) Incoming checks and other cashitems shall be recorded chronologicallyin a register by an employee other thanthe bookkeeper before they areforwarded for posting purposes;

(9) Credit reports shall be obtained bysomeone other than lending officers;

(10) Mailing of customers’ statementsand delinquent notices shall be done byan employee other than the one whogranted the loan or the one handling therecords; and

(11) Dispatching and delivery ofcurrent account statements shall be doneby someone who is not involved in currentaccount operations.

c. Extensive background checking ofpersons intended to be assigned to handlecash and securities shall be conducted.Frequent follow-up checking after theiremployment shall also be made.

§ X185.4 (2008 - X163.4) Joint custodya. Joint custody shall mean the

processing of transactions in the presenceof and under the direct observation of asecond person. Both persons shall beequally accountable for the physicalprotection of the items and recordsinvolved.

§§ X185.2 - X185.408.12.31


b. Physical protection shall bedeemed established through the use oftwo (2) locks or combinations on a filechest or vault compartment.

c. Two (2) or more persons shall beassigned to each half of the control sothat operating efficiency is not impairedif one (1) person is not immediatelyavailable.

d. Persons who are related to eachother within the third degree ofconsanguinity or affinity shall not be madejoint custodians.

e. The following shall be under jointcustody:

(1) Cash in vault and in ATM cashdispensers;

(2) All accountable forms;(3) Collaterals;(4) Securities;(5) Documents of title and/or

ownership of properties or fixed assets;(6) Dormant or inactive deposit

ledgers/EDP print-outs and correspondingsignature cards including on-line postingof dormant/inactive accounts;

(7) Import documents;(8) Trust receipts;(9) Collection items;(10) Duplicate keys, safe deposit spare

locks and keys, and keys to unrented safedeposit boxes;

(11) Safekeeping items;(12) Vault door and safe combinations;(13) Unissued specimen signature

books;(14) Correspondent’s and bank’s own

telegraphic and/or electronic fundtransfer system or cable test keyscurrently in use;

(15) Test key fixed numbers unissued;(16) Unissued and captured ATM cards

and similar devices;(17) Access locks and keys to on-line

EDP terminals and similar devices; and(18) Access locks and keys to EDP

mainframes and peripherals.

§ X185.5 (2008 - X163.5) Signingauthorities. Signing authorities for thedifferent levels of officers to sign for and inbehalf of the banks shall be approved bythe board of directors and the extent ofeach level of authority shall be clearlydefined. These signing authorities shallinclude but need not be limited to thefollowing:

a. Lending;b. Investment;c. Approval of expense;d. Various supervisory reports; ande. Bank drafts, manager’s/cashier’s

checks, bank money orders and certificatesof time deposit.

§ X185.6 (2008 - X163.6) Dual controla. Dual control shall mean the work of

one (1) person is to be verified by a secondperson to ensure that the transaction isproperly authorized, recorded and settled.

b. The routine and completion of eachtransaction shall involve at least two (2) ormore individuals.

c. Except as herein provided, thefollowing accounts/transactions shall beunder dual control:

(1) Cashier's/manager's checks,telegraphic transfers (TTs) and electronicfund transfer system (EFTS) - Thesignature of at least two (2) officers shouldbe required in the issuance of cashier’s/manager’s checks and payment orders(incoming and outgoing) of TTs and EFTS.The board of directors may, however,prescribe a predetermined amount bywhich one (1) senior officer can signchecks or payment orders, subject toappropriate control measures.

(2) Certificates of Time Deposit - Theboard of directors of a bank is given thediscretion to determine the number ofsignatories for the issuance of certificatesof time deposit (CTDs).

For this purpose, all banks shall submitto the appropriate department of the SES

§§ X185.4 - X185.608.12.31


their respective internal control measuresfor the issuance of CTDs, the minimum ofwhich shall include the following activities:

(a) Joint custody of unissued CTD forms;(b) Accounting for all issued/ cancelled

CTDs;(c) Signature requirement for the

issuance of CTDs;(d) Counterchecking of issued CTDs

against the tellers’ proofsheets/validatedslips; and

(e) Recording of CTD transactions.Any change in the internal control

measures shall be submitted to theappropriate department of the SES not laterthan thirty (30) days prior to theimplementation. For newly establishedbanks, the requirement shall be submittednot later than a month from the start ofbanking operations.

(3) Bank Drafts - The signature of two(2) authorized officers should be requiredin the issuance of bank draft.

(4) Borrowings - The signature of atleast two (2) authorized officers should berequired.

(5) All transactions giving rise to Dueto or Due from accounts and all instrumentsof remittances evidencing thesetransactions particularly those involvingsubstantial amounts should be approved bytwo (2) authorized officers.

§ X185.7 (2008 - X163.7) Numbercontrol

a. Sequence number controls shallbe incorporated in the accountingsystem and should be used in registeringnotes, in issuing official checks and in othersimilar situations.Bank management shalldesignate a person who is detachedfrom the banking operations involved tomoni tor sa id sequence numbercontrols.

b. The following are the forms,instruments and accounts that shall benumber-controlled:

(1) Bank drafts;(2) Manager’s and cashier’s checks;(3) Promissory notes;(4) Savings deposit accounts;(5) Demand deposit accounts;(6) CTDs;(7) Letters of credit;(8) Collection items;(9) Official and provisional receipts;(10) Certificates of stocks;(11) Loan accounts;(12) Expense vouchers;(13) Payment orders (incoming and

outgoing ) of TTs and EFTS;(14) Transfer requests through EFTS

involving bank’s accounts abroad;(15) EDP batch transmittal slips of

documents; and(16) Due to/from head office/branches

tickets.

§ X185.8 (2008 - X163.8) Rotation ofduties

a. The duties of personnel handlingcash, securities and bookkeeping recordsshall be rotated.

b. Rotation assignment shall bei r regula r , unannounced and longenough to permit disclosure of anyirregularities or manipulations.

c. Tellers/cashiers shall be temporarilyrelieved of their duties during the actual countof their cash accountabilities by BSP examinersor by internal/external auditors.

§ X185.9 (2008- X163.9) Independenceof the internal auditor

a. The by-laws shall provide for theposition of internal auditor together withthe duties and responsibilities, scope andobjectives of internal auditing.

b. The internal auditor shall reportdirectly to the board of directors or to anaudit committee composed of directors whodo not hold executive positions in the bank.

c. The internal auditor shall not installnor develop procedures, prepare records

§§ X185.6 - X185.908.12.31


or engage in other activities which henormally reviews or appraises.

§ X185.10 (2008 - X163.10) Confirmationof accounts. At least once a year, theinternal auditing staff shall confirm bydirect verification with bank clients, thefollowing:

a. Balances of loans and creditaccommodations of borrowers;

b. Deposit account balancesparticularly new deposit accounts, inactiveor dormant accounts and closed accounts;

c. Outstanding balances ofborrowings and other liabilities; and

d. Outstanding balances ofreceivables/payables.

§ X185.11 (2008 - X163.11) Otherinternal control standards

a. Deposit accounts(1) Entries to dormant account ledgers

shall be verified and approved by adesignated officer. His initials shall beplaced next to the entry on the ledgersheet.

(2) Dormant accounts shall besegregated from active account ledgerswith a separate subsidiary control.

(3) Signature cards for dormantaccounts shall be removed from activefiles.

(4) All new current accounts shall beapproved by a designated officer.

(5) Signature cards and depositledger sheets shall be authenticated bysome form of validation. Subsequentchanges shall also be validated.

(6) Signature cards and depositledger sheets shall be accessible only toauthorized persons.

(7) Deposit tickets shall be occasionallyexamined at irregular intervals to determinethat postings are made on the actual datedeposits are received.

(8) Checks shall be cancelled as soonas they have been paid and posted.

(9) Reports on closed accounts andreturned checks shall be prepared daily.

(10) All current account statementsshall be mailed or sent electronically viaelectronic mail (e-mail), or such otherelectronic means direct to depositors:Provided, That banks using the electronicmeans of sending the current accountstatements shall have prior BSP-approvedinternet banking service and shall strictlyobserve the required retention of electronicdata messages or electronic documentsunder Section 13 of R.A. No. 8792,otherwise known as the “ElectronicCommerce Act”.

Undelivered statements shall beretained by an organizational unit notrespons ib le fo r demand depos i taccount processing.

(11) An officer shall be designated toattend to customers who report differenceson their statements.

(12) Checkbooks shall be issued onlyagainst requisition forms signed by anauthorized signatory to the account.

(13) Banks shall adopt a system toestablish the identity of their depositors.

b. Miscellaneous(1) Loan applications and related

documents shall be verified to ensure theirauthenticity particularly the name,residence, employment and currentreputation of the borrower.

(2) Tellers paying checks to strangersshall obtain positive identification of theperson and the account on which thechecks are drawn should be verified.

(3) No employee shall be permittedto process transaction affecting his ownaccount.

(4) Tellers and other employeeshaving contact with customers shall beprohibited from preparing deposit ticket,withdrawal slip or other forms for thecustomer.

(5) All banks shall have a soundrecruitment policy.

§§ X185.9 - X185.1108.12.31


(6) In the case of TBs, all accountableofficers and employees shall be bonded.

§ X185.12 (2008 - X163.12) Internalcontrol procedures for dormant/inactiveaccounts

a. Definition of dormant or inactiveaccounts

(1) Current or checking accountsshowing no activity (deposit orwithdrawals) for a period of one (1) year.

(2) Savings account showing noactivity (deposit or withdrawals) for aperiod of two (2) years.

b. Procedures for classification. Banksshall review and segregate dormantaccounts as herein defined at least once inevery semester.

c. Internal control measures(1) As a matter of policy, banks shall

exert all efforts to prevent checking andsavings accounts from becoming dormant.When it becomes apparent that an accountis inactive, a short letter should be sent tothe depositor encouraging him to use hisaccount.

In case of checking accounts, the banksshall ensure that the monthly statement ofaccounts reach the depositors. If thedepositors cannot be located, the followingsteps should be undertaken:

(a) Check any significant changes orfluctuations in the depositors’ accountbalances over a period of time with emphasison accounts with decreasing balances;

(b) Verify apparent reactivationentries, represented either by deposit orwithdrawal, that appears to haveprevented the account from beingclassified as dormant; and

(c) Investigate any obvious alterationof the ledger records.

(2) Segregated dormant accounts shallbe placed under joint custody of two (2)responsible officers/employees.

(3) A separate ledger control fordormant accounts shall be maintained.

(4) Signature cards for dormantaccounts shall also be segregated fromactive files and held under joint custody.

(5) Entries to dormant account ledgersshall be verified and approved by adesignated officer. His initials shall be placednext to the entry on the ledger sheet.

(6) All inquiries on dormant accountsshall be coursed to one officer whoshould obtain sufficient identificationfrom the inquirer to assure that he isentitled to the information.

(7) A trial balance of dormant accountledgers shall be taken periodically andbalances with the general control account byan employee other than the bookkeeper.

(8) Dormant or inactive accounts shallbe verified directly with depositors.

(9) All transactions affecting dormantaccounts shall be subject to audit by theinternal auditor.

(10) A semestral report on depositaccounts transferred to dormant shall berendered to bank management.

Sec. X186 (2008 - X164) Internal AuditFunction. Internal audit is an independent,objective assurance and consulting functionestablished to examine, evaluate andimprove the effectiveness of riskmanagement, internal control, andgovernance processes of an organization.

§ X186.1 (2008 - X164.1) Independenceof internal audit function. The internalaudit function must be independent of theactivities audited and from day-to-dayinternal control process. It must be free toreport audit results, findings, opinions,appraisals and other information to theappropriate level of management. It shallhave authority to directly access andcommunicate with any officer oremployee, to examine any activity orentity of the institution, as well as to accessany records, files or data wheneverrelevant to the exercise of its assignment.

§§ X185.11 - X186.108.12.31


The Audit Committee or seniormanagement should take all necessarymeasures to provide the appropriateresources and staffing that would enableinternal audit to achieve its objectives.

§ X186.2 (2008 - X164.2) Scope. Thescope of internal audit shall include:

a. Examination and evaluation of theadequacy and effectiveness of the internalcontrol systems;

b. Review of the application andeffectiveness of risk management proceduresand risk assessment methodologies;

c. Review of the management andfinancial information systems, includingthe electronic information system andelectronic banking services;

d. Assessment of the accuracy andreliability of the accounting system and ofthe resulting financial reports;

e. Review of the systems andprocedures of safeguarding assets;

f. Review of the system of assessingcapital in relation to the estimate oforganizational risk;

g. Transaction testing and assessmentof specific internal control procedures; and

h. Review of the compliance systemand the implementation of establishedpolicies and procedures.

§ X186.3 (2008 - X164.3) Qualificationstandards of the internal auditor. Theinternal auditor of a UB or a KB must be aCertified Public Accountant (CPA) andmust have at least five (5) years experiencein the regular audit (internal or external)of a UB or KB as auditor-in-charge, seniorauditor or audit manager. He must possessthe knowledge, skills, and othercompetencies to examine all areas inwhich the institution operates. Professionalcompetence as well as continuing trainingand education shall be required to face upto the increasing complexity and diversityof the institution’s operations.

The internal auditor of a TB,QB, trustentity or national Coop Bank must be a CPAwith at least five (5) years experience inthe regular audit (internal or external) of aTB, QB, trust entity or national Coop Bankas auditor-in-charge, senior auditor or auditmanager or, in lieu thereof, at least three(3) years experience in the regular audit(internal or external) of a UB or KB asauditor-in-charge, senior auditor or auditmanager.

The internal auditor of an RB, NSSLAor local Coop Bank must be at least anaccounting graduate with two (2) yearsexperience in external audit or in theregular audit of an RB, NSSLA or local CoopBank or, in lieu thereof, at least one (1)year experience in the regular audit(internal or external) of a UB, KB, TB, QB,trust entity or national Coop Bank asauditor-in-charge, senior auditor or auditmanager.

A qualified internal auditor of a UB ora KB shall be qualified to audit TBs, QBs,trust entities, national Coop Banks, RBs,NSSLAs, local Coop Banks, subsidiariesand affiliates engaged in allied activities,and other FIs under BSP supervision.

A qualified internal auditor of a TB ornational Coop Bank shall likewise bequalified to audit QBs, trust entities, RBs,NSSLAs, local Coop Banks, subsidiariesand affiliates engaged in allied activities,and other FIs under BSP supervision.

§ X186.4 (2008 - X164.4) Code of Ethicsand Internal Auditing Standards. Theinternal auditor should conform with theCode of Professional Ethics for CPAs andensure compliance with sound internalauditing standards, such as the Institute ofInternal Auditors’ International Standardsfor the Professional Practice of InternalAuditing (e-mail: [email protected];Web: http://www.theiia.org.) and othersupplemental standards issued byregulatory authorities/government

§§ X186.1 - X186.408.12.31


agencies. The Standards addressindependence and objectivity, professionalproficiency, scope of work, performanceof audit work, management of internalaudit, quality assurance reviews,communication and monitoring of results.


Sec. X189 (2008 - X165) Selection,Appointment and Reporting Requirementsfor External Auditors; Sanction;Effectivity. Under Section 58, R.A. No.8791, the Monetary Board may require abank to engage the services of anindependent auditor to be chosen by thebank concerned from a list of CPAsacceptable to the Monetary Board.

It is the policy of the BSP to promotehigh ethical and professional standards inpublic accounting practice and toencourage coordination and sharing ofinformation between external auditors andregulatory authorities of banks, QBs, trustentities and/or NSSLAs to ensure effectiveaudit and supervision of these institutionsand to avoid unnecessary duplication ofefforts. In furtherance of this policy and toensure that reliance by regulatoryauthorities and the public on the opinionof external auditors is well placed, the BSPhereby prescribes the rules and regulationsthat shall govern the selection,appointment, reporting requirements anddelisting for external auditors of banks,QBs, trust entities, NSSLAs, theirsubsidiaries and affiliates engaged in alliedactivities and other FIs which under speciallaws are subject to BSP supervision.

The selection of external auditorsshall be valid for a period of three (3)years. BSP selected external auditorsshall apply for the renewal of theirselection every three (3) years. Theprovisions of Items “A” and “B” ofAppendix 43 shall likewise apply for eachapplication for renewal.

The SES shall make an annualassessment of the performance of externalauditors and will recommend deletionfrom the list even prior to the three (3)-year renewal period, if based onassessment, the external auditors’ reportdid not comply with BSP requirements.

External auditors who meet therequirements specified in this Section shallbe included in the list of BSP selectedexternal auditors. In case of partnership,inclusion in the list of BSP selected externalauditors shall apply to the audit firm onlyand not to the individual signing partnersor auditors under its employment.

The BSP will circularize to all banks,QBs, trust entities and NSSLAs the list ofselected external auditors once a year. TheBSP, however, shall not be liable for anydamage or loss that may arise from itsselection of the external auditors to beengaged by banks, QBs, trust entities orNSSLAs for regular audit or specialengagements.

a. Rules and regulations. The rulesand regulations to govern the selection anddelisting by the BSP of external auditors ofbanks and their subsidiaries and affiliatesengaged in allied activities are shown inAppendix 43.

b. Sanctions. The applicable sanctions/penalties prescribed under Sections 36 and37 of R.A. No. 7653 to the extentapplicable shall be imposed on the bank,its audit committee and the directorsapproving the hiring of external auditorswho are not in the BSP list of selectedauditors for banks, QBs, trust entities,NSSLAs or for hiring, and/or retaining theservices of the external auditor in violationof any of the provisions of this Section andfor non-compliance with the MonetaryBoard directive under Item “l” in Appendix43. Erring external auditors may also bereported by the BSP to the PRC forappropriate disciplinary action.(As amended by Circular No. 529 dated 11 May 2006)

§§ X186.4 - X18908.12.31


Sec. X190 (2008 - X166) Audited FinancialStatements of Banks. The following rulesshall govern the utilization and submissionof AFS of banks.

For purposes of this Section, AFS shallinclude the balance sheets, incomestatements, statements of changes inequity, statements of cash flows and notesto financial statements which shall includeamong other information, disclosure of thevolume of past due loans as well as loan-loss provisions. On the other hand, financialaudit report shall refer to the AFS and theopinion of the auditor. The AFS of bankswith subsidiaries shall be presented sideby side on a solo basis (parent) and on aconsolidated basis (parent and subsidiaries).(As amended by Circular No. 540 dated 09 August 2006)

§ X190.1 (2008 - X166.1) Financialaudit. Banks shall cause an annual financialaudit by an external auditor acceptable tothe BSP not later than thirty (30) calendardays after the close of the calendar year orthe fiscal year adopted by the bank. Reportof such audit shall be submitted to theboard of directors or country head, in thecase of foreign bank branches, and theappropriate department of the SES not laterthan 120 calendar days after the close ofthe calendar year or the fiscal year adoptedby the bank. The report to the BSP shall beaccompanied by the: (1) certification bythe external auditor on the: (a) dates ofstart and termination of audit; (b) date ofsubmission of the financial audit report andcertification under oath stating that nomaterial weakness or breach in the internalcontrol and risk management systems wasnoted in the course of the audit of the bankto the board of directors or country head;and (c) the absence of any direct or indirectfinancial interest and other circumstancesthat may impair the independence of theexternal auditor; (2) ReconciliationStatement between the AFS and thebalance sheet and income statement for

bank proper (regular and FCDU) and trustdepartment submitted to the BSP includingcopies of adjusting entries on thereconciling items; and (3) other informationthat may be required by the BSP.

In addition, the external auditor shallbe required by the bank to submit to theboard of directors or country head, a LOCindicating any material weakness orbreach in the institution’s internal controland risk management systems within thirty(30) calendar days after submission of thefinancial audit report. If no materialweakness or breach is noted to warrant theissuance of an LOC, a certification underoath stating that no material weakness orbreach in the internal control and riskmanagement systems was noted in thecourse of the audit of the bank shall besubmitted in its stead, together with thefinancial audit report.

Material weakness shall be defined asa significant control deficiency, orcombination of deficiencies, that results inmore than a remote likelihood that amaterial misstatement of the financialstatements will not be detected orprevented by the entity’s internal control.A material weakness does not mean thata material misstatement has occurred orwill occur, but that it could occur. Acontrol deficiency exists when thedesign or operation of a control does notallow management or employees, in thenormal course of performing theirassigned functions, to prevent or detectmisstatements on a timely basis. Asignif icant deficiency is a controldeficiency, or combination of controldeficiencies, that adversely affects theentity’s ability to initiate, authorize, record,process, or report financial data reliably inaccordance with generally acceptedaccounting principles. The phrase morethan remote likelihood shall mean thatfuture events are likely to occur or arereasonably possible to occur.

§§ X190 - X190.108.12.31


The board of directors, in a regular orspecial meeting, shall consider and act onthe financial audit report and thecertification under oath submitted in lieuof the LOC and shall submit, within thirty(30) banking days after receipt of thereports, a copy of its resolution to theappropriate department of the SES. Theresolution shall show, among other things,the actions(s) taken on the reports and thenames of the directors present and absent.

The board shall likewise consider andact on the LOC and shall submit, withinthirty (30) banking days after receiptthereof, a copy of its resolution togetherwith said LOC to the appropriatedepartment of the SES. The resolution shallshow the action(s) taken on the findingsand recommendations and, the names ofthe directors present and absent, amongother things.

The country head of foreign banks withbranches in the Philippines shall submit areport on the action taken by management(head office, regional, or country, as thecase may be) on the financial audit reportand the certification under oath submittedin lieu of the LOC within thirty (30)banking days after receipt thereof.

The country head shall likewise submita report on the action taken bymanagement on the LOC within thirty (30)banking days after receipt thereof.

The LOC shall be accompanied bythe certification of the external auditorof the date of its submission to the boardof directors or country head, as the casemay be.

Government-owned or-controlledbanks, including their subsidiaries andaffiliates, as well as other FIs under BSPsupervision which are under theconcurrent jurisdiction of the Commissionon Audit (COA) shall be exempt from theaforementioned annual financial audit byan acceptable external auditor: Provided,That when warranted by supervisory

concern such as material weakness/breachin internal control and/or risk managementsystems, the Monetary Board may, uponrecommendation of the appropriatedepartment of the SES, require the financialaudit to be conducted by an externalauditor acceptable to the BSP, at theexpense of the institution concerned:Provided, further, That when circumstancessuch as, but not limited to loans frommultilateral FIs, privatization, or publiclisting warrant, the financial audit of theinstitution concerned by an acceptableexternal auditor may also be allowed.

Banks and other FIs under theconcurrent jurisdiction of the BSP and COAshall, however, submit a copy of theannual audit report (AAR) of the COA tothe appropriate department of the SESwithin thirty (30) banking days after receiptof the report by the board of directors. TheAAR shall be accompanied by the:(1) certification by the institution concernedon the date of receipt of the AAR by theboard of directors; (2) reconciliationstatement between the AFS in the AAR andthe balance sheet and income statementof bank proper (regular and FCDU) andtrust department submitted to the BSP,including copies of adjusting entries on thereconciling items; and (3) other informationthat may be required by the BSP.

The board of directors of saidinstitutions, in a regular or special meeting,shall consider and act on the AAR, as wellas on the comments and observations andshall submit, within thirty (30) bankingdays after receipt of the report, a copy ofits resolution to the appropriate departmentof the SES. The resolution shall show theaction(s) taken on the report, including onthe comments and observations and thenames of the directors present and absent,among other things.

The financial audit report required tobe submitted shall in all respect be PFRS/PAS compliant: Provided, That banks shall

§ X190.108.12.31


submit to the BSP adjusting entriesreconciling the balances in the financialstatements for prudential reporting withthat in the audited annual financialstatements.

Banks as well as external auditors shallstrictly observe the requirements in thesubmission of the financial audit report andreports required to be submitted underAppendix 61.

The reports and certifications ofinstitutions concerned, schedules andattachments required under this Subsec.shall be considered Category Breports, delayed submission of which shallbe subject to the penalties under Subsec.X192.2b(1)b.(As amended by Circular Nos. 554 dated 22 December 2006 and

540 dated 09 August 2006)

§ X190.2 (2008 - X166.2) Posting ofaudited financial statements. Local banksshall post in conspicuous places in theirhead offices, all their branches and otherbanking offices, as well as in theirrespective websites, their latest financialaudit report.

The abovementioned documents shallalso be posted by foreign bank branchesin all their banking offices in thePhilippines.(As amended by Circular No. 540 dated 9 August 2006)

§ X190.3 (2008 - X166.3) Disclosureof external auditor’s adverse findings tothe Bangko Sentral; sanction

a. Findings to be disclosed. Banks shallrequire their external auditors to report tothe BSP any matter adversely affecting thecondition or soundness of the bank, suchas, but not limited to:

(1) Any serious irregularity, includingthose involving fraud or dishonesty, thatmay jeopardize the interest of depositors andcreditors;

(2) Losses incurred which substantiallyreduce the capital funds of the bank; and

(3) Inability of the auditor to confirmthat the claims of creditors are still coveredby the bank’s assets.

The disclosure of information by theexternal auditor to the BSP shall not be aground for civil, criminal or disciplinaryproceedings against the former.

Bank management shall be presentduring discussions or at least be informedof the adverse findings in order to preservethe concerns of the supervisory authorityand external auditors regarding theconfidentiality of information.

b. Sanction. The auditing firm(s) shallbe blacklisted by the Monetary Board for aperiod as the Board may deem appropriatefor their failure to perform their duty ofreporting to the BSP any matter adverselyaffecting the condition or soundness of thebank. Banks shall not be allowed to engagethe services of the blacklisted auditing firm.

§ X190.4 (2008 - X166.4) Disclosurerequirement in the notes to the auditedfinancial statements. Banks shall requiretheir external auditors to include thefollowing additional information in thenotes to financial statements:

a. Basic quantitative indicators offinancial performance such as return onaverage equity, return on average assetsand net interest margin;

For purposes of computing the indicators,the following formulas shall be used:

(1) Return on Average Equity (%) = Net Income (or Loss) after Income Tax x 100 Average Total Capital Accounts

Where:Average Total = Sum of Total Capital Accounts as of the 12 Capital month-ends in the calendar/fiscal year Accounts adopted by the Bank 12(2) Return on Average Assets (%) = Net Income (or Loss) after Income Tax x 100 Average Total Assets

Where: Average = Sum of Total Assets as of the 12 month-ends in Total the calendar/fiscal year adopted by the Bank Assets 12

§§ X190.1 - X190.408.12.31


(3) Net Interest = Net Interest Income x 100 Margin (%) Average Interest Earning Assets

Where: Net = Total Interest Income – Total Interest Expense Interest Income

Average = Sum of Total Interest Earning Assets as of theInterest 12 month-ends in the calendar/fiscal yearEarning adopted by the Bank

Assets 12

b. Risk-based capital adequacy ratiounder Section 34 of R.A. No. 8791/Sec. X116;

c. Concentration of credit as to industry/economic sector where concentration is saidto exist when total loan exposures to aparticular industry/economic sector exceedsthirty percent (30%) of total loan portfolio;

d. Breakdown of total loans as tosecured and unsecured and breakdown ofsecured loans as to type of security;

e. Total outstanding loans to bank’sDOSRI, percent of DOSRI loans to totalloan portfolio, percent of unsecured DOSRIloans to total DOSRI loans, percent of pastdue DOSRI loans to total DOSRI loans andpercent of non-performing DOSRI loans tototal DOSRI loans;

f. Nature and amount ofcontingencies and commitments arisingfrom off-balance sheet items [includedirect credit substitutes (e.g., export LCsconfirmed, underwrit ten accountsunsold), transaction-related contingencies(e.g., performance bonds, bid bonds,standby LCs), short-term self-liquidatingtrade-related contingencies arising fromthe movement of goods (e.g., sight/usance domestic LCs, sight/usanceimport LCs), sale and repurchaseagreements not recognized in thebalance sheet; interest and foreignexchange rate related items; and othercommitments;

g. Provisions and allowances forlosses and how these are determined;

h. Aggregate amount of securedliabilities and assets pledged as security; and

i. Accounting policies which shallinclude, but shall not be limited to,general accounting principles, changesin account ing pol ic ies /prac t ices ,principles of consolidation, policiesand methods for determining whenassets are impaired, recognizing incomeon impaired assets and losses on non-performing credits, income recognition,valuation policies and accounting policieson securitizations, foreign currencytranslations, loan fees, premiums anddiscounts, repurchase agreements,premises/fixed assets, income taxes andderivatives.

§ X190.5 (2008 - X166.5) Disclosurerequirements in the annual report. UBs,KBs, and TBs with at least P1.0 billionresources shall prepare an annual reportwhich shall include, in addition to theaudited financial statements and otherusual information contained therein, adiscussion and/or analysis of the followinginformation:

a. Financial performance;b. Financial position and changes

therein;c. Overa l l r i sk management

philosophy (i.e., a general statemento f the r i sk management pol icyadopted by the bank's board o fdirectors which serves as the basis forthe establishment of its risk managementsystem), risk management system andstructure;

d. Qualitative and quantitativeinformation on risk exposures (credit,market, liquidity, operational, legal andother risks); and

e. Basic business management andcorporate governance information such asthe bank’s organizational structure,incentive structure including itsremuneration policies, nature and extent oftransactions with affiliates and relatedparties.

§§ X190.4 - X190.508.12.31


§ X190.6 (2008 - X166.6) Posting andsubmission of annual report. A copy of thelatest annual report shall be posted by thebank in a conspicuous place in its headoffice, all its branches and other offices.

The deadline for the submission of theannual report to the appropriate departmentof the SES is 180 calendar days after theclose of the calendar or fiscal year adoptedby the bank.

Sec. X191 (2008 - X161) Records. Banksshall have a true and accurate account,record or statement of their dailytransactions, particularly those referring totheir deposit liabilities. The making of anyfalse entry or the willful omission of entriesrelevant to any transaction, is a ground forthe imposition of administrative sanctionsunder Section 37 of R.A. No. 7653 and thedisqualification from office of any directoror officer responsible therefor underSection 9-A of R.A. No. 337, as amended.This is without prejudice to their criminalliability under Sections 35 and 36 ofR.A. No. 7653 and/or the applicableprovisions of the Revised Penal Code.

§ X191.1 (2008 - X161.1) Adoption ofthe Manual of Accounts. Banks shallstrictly adopt the Manual of Accountsprescribed by the BSP for recording dailytransactions including reportorial andpublication requirements.

Local branches of foreign banks maycontinue using their parent bank’s generalledger accounts: Provided, That publishedstatements and reports submitted to theBSP follow the account definitions in theBSP-prescribed Manual of Accounts:Provided, further, That the mathematicalformulas for reconciling such publishedstatements and submitted reports with thegeneral ledger accounts of the bank aresubmitted to the appropriate departmentof the SES: Provided, finally, That saidbanks prepare for BSP use, reconciliations

of their ledger accounts with the BSPprescribed Manual of Accounts duringregular or special bank examinations.

Any bank which fails or refuses to adoptthe prescribed Manual of Accounts, or anyof the applicable accounts containedtherein, or adopts any general ledgeraccount not specified in the said Manual ofAccounts without prior written approval ofthe Governor of the BSP, shall be penalizedby revocation or suspension of its authorityto engage in quasi-banking function.

§ X191.2 (2008 - X162.16) FinancialReporting Package. In line with theadoption of the Philippine FinancialReporting Standards (PFRS) andPhilippine Accounting Standards (PAS)effective the annual financial reportingperiod beginning 01 January 2005, theManual of Accounts and the BSPreportorial requirements consisting of theConsolidated Statement of Condition(CSOC), Consolidated Statement ofIncome and Expense (CSIE) and theirsupporting schedules are amendedthrough the issuance of the new FinancialReporting Package (FRP) for banks.

The general features as well as theimplementing guidelines of the FRP areprovided in Appendix 77.(Circular No. 512 dated 03 February 2006, as amended by

Circular No. 568 dated 08 May 2007)

§ X191.3 (2008 - X161.2) PhilippineFinancial Reporting Standards/PhilippineAccounting Standards

Statement of policy. It is the policy ofthe BSP to promote fairness, transparencyand accuracy in financial reporting. It is inthis light that the BSP aims to adopt all PFRSand PAS issued by the ASC to the greatestextent possible.

Banks shall adopt the PFRS and PASwhich are in accordance with generallyaccepted accounting principles in recordingtransactions and in the preparation of

§§ X190.6 - X191.308.12.31


financial statements and reports to BSP.However, in cases where there aredifferences between BSP regulations andPFRS/PAS as when more than one (1)option are allowed or certain maximumor minimum limits are prescribed by thePFRS/PAS, the option or limit prescribedby BSP regulations shall be adopted bybanks.

For purposes hereof, the PFRS/PASshall refer to issuances of the ASC andapproved by the Professional RegulationCommission (PRC).

Accounting treatment for prudentialreporting. For prudential reporting, banksshall adopt in all respect the PFRS and PASexcept as follows:

a. In preparing consolidated financialstatements, only investments in financialallied subsidiaries except insurancesubsidiaries shall be consolidated on aline-by-line basis; while insurance andnon-financial allied subsidiaries shall beaccounted for using the equity method.Financial/non-financial allied/non-alliedassociates shall be accounted for usingthe equity method in accordance withthe provisions of PAS 28 “Investmentsin Associates”.

b. For purposes of preparing separatefinancial statements, financial/non-financial allied/non-allied subsidiaries/associates, including insurancesubsidiaries/associates, shall also beaccounted for using the equity method; and

c. Banks shall be required to meet theBSP recommended valuation reserves.

Government grants extended in theform of loans bearing nil or low interestrates shall be measured upon initialrecognition at its fair value (i.e., the presentvalue of the future cash flows of thefinancial instrument discounted using themarket interest rate). The differencebetween the fair value and the netproceeds of the loan shall be recordedunder “Unearned Income-Others”, which

shall be amortized over the term of theloan using the effective interest method.

The provisions on government grantsshall be applied retroactively to alloutstanding government grants received.FIs that adopted an accounting treatmentother than the foregoing shall consider theadjustment as a change in accountingpolicy, which shall be accounted for inaccordance with PAS 8.

Notwithstanding the exceptions inItems “a”, “b” and “c”, the audited annualfinancial statements required to besubmitted to the BSP in accordance withthe provision of Subsec. X190.1 shall in allrespect be PFRS/PAS compliant: Provided,That FIs shall submit to the BSP adjustingentries reconciling the balances in thefinancial statements for prudentialreporting with that in the audited annualfinancial statements. (As amended by Circular No. 572 dated 22 June 2007)

§§ X191.4 - X191.9 (Reserved)



§ 3191.9 (2008 - §3161.9) Retentionand disposal of records of rural/cooperative banks. To guide RBs/CoopBanks in the disposition of their records anddocuments which no longer need to beretained and in determining which of therecords are of permanent value andtherefore should be preserved, RBs/CoopBanks shall follow the guidelines onretention and disposal of records inAppendix 50.

Sec. X192 (2008 - X162) Reports. Banksshall submit to the appropriate departmentof the SES all their statements and/orperiodic reports listed in Appendix 6 in suchfrequency and deadlines indicated therein.In the preparation of said statements/

§§ X191.3 - X19208.12.31


reports, banks shall use and strictly followthe forms prescribed by the BSP.

In line with the policy direction ofR.A. No. 8792 (E-Commerce Act), the BSPis strongly encouraging banks to submittheir regular reports to the BSP in electronicform.

However, the BSP cannot presentlyguarantee the security/confidentiality of datain the course of electronically transmittingreports to BSP. BSP recommends thatsensitive or confidential information beprovided by ordinary post or courier. TheBSP will accept no responsibility forelectronic messages/reports/information thatmay be hacked or cracked, intercepted,copied or disclosed outside BSP’sinformation system.

§ X192.1 (2008 - X162.1) Categoriesand signatories of bank reports

a. Categories of reports. Reportsrequired to be submitted to the BSP bybanks are grouped into Category A-1,Category A-2, Category A-3 and CategoryB reports as indicated in Appendix 6.

b. Authorized signatories(1) Category A-1 reports shall be

signed by the bank’s chief executive officeror, in his absence, by the executive vicepresident, and by the comptroller or, in hisabsence, by the chief accountant, or officersholding equivalent positions.

(2) Category A-2 reports shall besigned by the president, executive vicepresident, vice president or by an officerholding equivalent position.

(3) Category A-3 and Category Breports shall be signed by officers or theiralternates, duly designated by the boardof directors.

The designated signatories ofCategories A-1, A-2, A-3 and B reportsincluding their specimen signatures shallbe contained in a resolution approved bythe board of directors. A copy of the boardresolution covering the initial designation

and subsequent change(s) in signatories aswell as specimen signatures of thesignatories and alternates, shall besubmitted to the appropriate departmentof the SES in such frequency and withinthe deadline indicated in Appendix 6.

(4) Reports in computer media thatare submitted by banks shall be subjectto the same requirements regardingauthorized signatories.

(5) Any report submitted to the BSPthat is signed by an officer who is not listedor included in any of the resolutionsmentioned above, shall be considered asnot having been submitted at all.

(6) All authorized agent banks shallsubmit to the Director, Branch Operations,BSP, the updated specimen signatures ofSenior Bank Officers in their respectiveHead Offices who are authorized toauthenticate the signatures of theirprovincial branch officers transactingbusiness with the BSP Regional Offices/Branches.

The BSP Branch Operations shall beadvised of any changes in authorizedbranch signatories, as well asauthenticating Head Office Senior Officers.

c. Deadline for submission of reports(1) Regular reports. Unless otherwise

specified, the deadlines for submissionof reports enumerated in Appendix 6,shall be reckoned on the basis of bankingdays. For this purpose, banking daysshall be understood to mean Mondaythrough Friday or banking days of theBSP.

(2) Call Reports. The deadline ofsubmission of call reports shall be specifiedin the letter calling for the report.

§ X192.2 (2008 - X162.2) Sanctions incase of willful delay in the submission ofreports/refusal to permit examination. Forwillful delay in the submission of reports,specific sanctions shall be imposed inaccordance with the following rules.

§§ X192 - X192.208.12.31


a. Definitions. For purposes of thisSubsection, the following definitionsshall apply.

(1) Report shall refer to any report orstatement required to be submitted by abank to the BSP.

(2) Willful delay in the submission ofreports shall refer to the failure of any bankto submit on time the report defined inItem “a(1)” above. Failure to submit areport on time due to fortuitous events,such as fire and other natural calamities,and public disorders including strike orlockout affecting a bank as defined in theLabor Code, or of a national emergencyaffecting operations of banks, shall not beconsidered as willful delay.

(3) Examination shall include, butneed not be limited to, the verification,review, audit, investigation and inspectionof the books and records, business affairs,administration and financial condition of anybank including the reproduction of bankingrecords, as well as the taking possessionof the books and records and keeping themunder BSP’s custody after giving properreceipts therefor.

It shall also include the interview of thedirectors and personnel of any bankincluding its Electronic Data Processing(EDP) servicer. Books and records shallinclude, but not limited to, data andinformation stored in magnetic tapes, discs,diskettes printouts, logbooks and manualskept and maintained by the bank or by theEDP servicer, that are necessary andincidental to the use of EDP systems bythe bank.

(4) Refusal to permit examinationshall mean any act or omission whichimpedes, delays or obstructs the dulyauthorized BSP off icer/examiner/employee from conducting anexamination, including the act of refusingto accept or honor a letter of authority toexamine presented by any off icer/examiner/employee of the BSP.

b. Fines for willful delay in thesubmission of reports.

(1) Amount of fine. Any bank whichshall incur willful delay in the submissionof required reports shall pay a fine inaccordance with the following schedule:

(a) For Category A-1, A-2 and A-3reports

(1) UBs/KBs - P1,200(2) TBs - 600(3) RBs/Coop Banks - 180

per day of default until the report is filedwith the BSP: and

(b) For Category B reports(i) UBs/KBs - P 240(ii) TBs - 120(iii) RBs/Coop Banks - 60

per day of default until report is filed withthe BSP.

In the implementation of the foregoingrules, delay or default shall start to run onthe day following the last day required forthe submission of reports. However,should the last day of filing fall on a non-working day in the locality where thereporting bank is situated, delay or defaultshall start on the day following the nextbanking day. The due date/deadline forsubmission of reports to BSP as prescribedunder Sec. X192 governing the frequencyand deadlines indicated in Appendix 6 shallbe automatically moved to the nextbanking day whenever a half-daysuspension of business operations ingovernment offices is declared due to anemergency such as typhoon, floods, etc.

Delayed schedules/attachments andamendments shall be considered latereporting subject to the above penalties.

(2) Manner of filing. For the purposeof establishing delay or default, thesubmission of reports shall be effectedby filing them with the appropriatedepartment of the SES or with the BSPRegional Offices, or by sending them byregistered mail or by special deliverythrough a private courier, unless

§ X192.208.12.31


otherwise specified in the circular ormemorandum of the BSP.

In the first case, the date ofacknowledgment by the appropriatedepartment of the SES or the BSP RegionalOffice appearing on the copies of such reportsfiled or submitted, and in the second case,the date of mailing postmarked on theenvelope or the date of the registry receiptor the date of special delivery receipt, shallbe considered as the date of filing.

c. Fines for refusal to permitexamination.

(1) Amount of fine - A bank whichshall will fully refuse to permitexamination shall pay a fine of P3,000daily from the day of refusal and for aslong as such refusal lasts.

(2) Basis and effectivity of theimposition of fine.

(a) The BSP officer/examiner/employee shall report the refusal of thebank to permit examination to the head ofthe appropriate department of the SES, whoshall forthwith make a written demandupon the bank concerned for suchexamination. If the bank continues torefuse said examination without anysatisfactory explanation thereof, the BSPofficer/examiner/employee concernedshall submit a report to that effect to thesaid department head.

(b) The fine shall be imposed startingon the day following the receipt by the saiddepartment of the written report submittedby the BSP officer/examiner/employeeconcerned regarding the continued refusalof the bank to permit the desiredexamination.

d. Manner of payment or collectionof fines. The regulations embodied inSubsec. X902.1 shall be observed in thecollection of fines from banks for willfuldelay in the submission of reports or forrefusal to permit examination.

e. Other penalties. The imposition ofthe foregoing penalties shall be without

prejudice to imposition of the otheradministrative sanctions and to the filingof a criminal case as provided for in otherprovisions of law.

f. Appeal to the Monetary Board. Anaggrieved bank may appeal to the MonetaryBoard any fine imposed by the BSP.(As amended by Circular 585 dated 15 October 2007)

§ X192.3 (2008 - X162.3) Submissionof certain required information. Banksshall submit to the appropriate departmentof the SES the information on bank’s profilerequired in Appendix 7. Any change in anyof the required information submitted, afterthe initial submission, shall be reported tothe said department immediately.

Banks shall likewise submit to thesaid department any or all of thedocuments/information on bank’sorganizational structure and operationalpolicies enumerated in Appendix 8. Anysubsequent change/issuance should befurnished the department within fifteen(15) banking days from such change/issuance.

§ X192.4 (2008 - X162.4) Report oncrimes/losses. Banks shall report on thefollowing matters to the appropriatedepartment of the SES.

a. Crimes whether consummated,frustrated or attempted against property/facilities (such as robbery, theft, swindlingor estafa, forgery and other deceits) andother crimes involving loss/destruction ofbank property when the amount involved,in each crime is P20,000 or more.

Crimes involving bank personnel,regardless of whether or not such crimesinvolve the loss/destruction of bankproperty, even if the amount involved isless than P20,000, shall likewise bereported to the BSP.

b. Incidents involving material loss,destruction or damage to the bank’sproperty/facilities, other than arising from

§§ X192.2 - X192.408.12.31


a crime, when the amount involved perincident is P100,000 or more.

c. Definition of terms. For the purposeof this regulation, the following definitionsshall apply:

(1) Estafa - a crime committed by aperson who defrauds another causing thelatter to suffer damage by means of any ofthe following:

(a) unfaithfulness or abuse of confidence;(b) false pretense; or(c) fraudulent acts/means, under

Articles 315 to 317 of the Revised PenalCode, as amended.

(2) Theft - a crime committed by aperson who, with intent to gain but withoutviolence against or intimidation of personsnor force upon things, shall take personalproperty of another without the latter’sconsent pursuant to Article 308 and otherpertinent provisions of Chapter III, Title Xof the Revised Penal Code, as amended.

(3) Robbery - a crime committed by aperson who, with intent to gain, shall takeany personal property belonging to another,by means of violence against or intimidationof any person, or using force upon anythingpursuant to Article 295 and other pertinentprovisions of Chapter 1, Title X of the RevisedPenal Code, as amended.

(4) Falsification - a crime committedby a person who falsifies a document by

(a) Counterfeiting or imitating anyhandwriting, signature or rubric;

(b) Causing it to appear that personshave participated in any act or proceedingwhen they did not in fact so participate;

(c) Attributing to persons who haveparticipated in an act or proceedingstatements other than those in fact madeby them;

(d) Making untruthful statements in anarration of facts;

(e) Altering true dates;(f) Making any alteration or

intercalation in a genuine document whichchanges its meaning;

(g) Issuing in an authenticated form adocument purporting to be a copy of anoriginal document when no such originalexists, or including in such a copy astatement contrary to, or different from, thatof the genuine original; or

(h) Intercalating any instrument ornote relative to the issuance thereof in aprotocol, registry, or official book and otheracts falling under Articles 169, 171 and172 of the Revised Penal Code, asamended.

(5) Credit-card related crimes - crimesarising through the use of credit cards.

(6) Other crimes that may causeloss to the bank - crimes committed thatcannot be appropriately classified underany of the above classifications.

(7) Negligence - the failure toexercise the care which an ordinarilyprudent person would use under thecircumstances in the discharge of the dutythen resting upon him (People v. Aguilar,2899-R, 18 October 1949).

(8) Non-crime related loss - Incidentsthat may cause the bank to suffer a lossarising from fortuitous events.

(9) Insider - person involved includestockholders, directors, officers andemployees of the bank.

(10) Outsider - persons involvedother than an insider.

(11) Perpetrator - a person, whether aninsider or outsider, who is responsible forthe commission of crime either by directparticipation, inducement or cooperation,including accomplices and accessories asdefined under Articles 18 and 19 of theRevised Penal Code, as amended.

(12) Victim - an insider or outsider otherthan the perpetrator, who is the aggrievedparty to the crime and may as a result of theincident, suffered the loss.

(13) Attempted crime - a crime isattempted when the perpetratorcommences the commission of the crimedirectly by overt acts but does not perform

§ X192.408.12.31


all of the acts of execution which constitutethe crime by reason of some cause or actother than his own voluntary desistanceunder Article 6 of the Revised Penal Code,as amended.

(14) Frustrated crime - a crime isclassified as frustrated, when theperpetrator performs all the acts ofexecution which should produce the crimeas a consequence but which, nevertheless,do not produce it by reason of causesindependent of the will of the perpetratorunder Article 6 of the Revised Penal Code,as amended.

(15) Consummated crime - a crime isconsummated when all the acts ofexecution which constitute the crime wasperformed. As a result, the bank may havesuffered a loss, the recoverable portion ofwhich should be deducted to arrive at theprobable loss incurred by the bank.

(16) Termination of the investigation -an investigation is said to be terminatedwhen all the material facts/informationwhich are sufficient to support a conclusionrelative to the matters involved havealready been gathered and a finding/conclusion may be made based on thegathered information.

d. The following guidelines shall beobserved in the preparation andsubmission of the report:

(1) The Branch or Head Office unit’sReport on Crimes and Losses shall besubmitted to the BSP through the bank’shead office unit and shall be certifiedcorrect by the compliance officer. Thereport shall be assigned a prescribedreference number by the bank using theformat mm-yyyy-xxx with mm and yyyyas numeric code for the month and year ofreporting respectively and xxx as sequenceno. (e.g. 01-2007-001) which shall be acontinuing series until the end of the year.

The report shall be prepared using thenew format in two (2) copies and shall besubmitted to the SDC and to the BSP

Security Coordinator, thru the Director,Security, Investigation and TransportDepartment (SITD) within ten (10) calendardays from knowledge of the crime/incident;

(2) Where a thorough investigationand evaluation of facts is necessary tocomplete the report, an initial reportsubmitted within deadline may beaccepted: Provided, That a complete reportis submitted not later than twenty (20)calendar days from termination ofinvestigation.

Moreover, final reports on crimes andlosses with incomplete information asrequired under SES Form 6G shall beconsidered erroneous reports and theconcerned bank shall be required to submitamended reports subject to penalties onlate reporting for Category B reports underSubsec. X192.2; and

(3) Proof of submission of thereport shall be determined by the date ofpostmark, if the report was sent by mail orby the date received, if handcarried to theSDC and SITD.(As amended by Circular No. 587 dated 26 October 2007)

§ X192.5 (2008 - X162.5) Report onreal estate/chattel transactions. Banksshall within ten (10) banking days fromapproval of the transaction:

a. Report to the appropriatedepartment of the SES, any real estate/chattel transaction (such as, but not limitedto, rentals or leases, purchases and sales,of foreclosed assets) between the bank andits director(s), officer(s), employee(s), orbetween the bank and its stockholder(s) ortheir related interest(s), as defined underItems “c” and “e”, respectively, of Subsec.X326.1; and

b. Certify to the BSP that suchtransaction has been thoroughly reviewedand verified as having been entered intoin the best interest of the bank.(As amended by Circular No. 525 dated 04 April 2006)

§ X192.4 - X192.508.12.31


§ X192.6 (2008-X162.6) Reconciliationof head office and branch transactionsBanks shall prepare reconciliationstatements covering transactions betweenthe head office and all its branches withinthirty (30) banking days after the end ofeach month.

All items which are unresponded oroutstanding in the reconciliation statementfor more than (6) months as ofreconciliation statement date shall bereported, with explanations/reasons fortheir being outstanding, to the appropriatedepartment of the SES in such frequencyand within the deadline set in Appendix 6.

The reconciliation statement shall bemade available to any authorized bankexaminer for inspection/examinationwithout need of advance notice.

A copy of the year-end reconciliationstatement covering transactions between thebank’s head office and all its branches shallbe furnished the said department not laterthan the end of January of the following year.

§ X192.7 (2008 - X162.7) List ofstockholders and their stockholdings

a. Banks shall submit to theappropriate department of the SESannually a complete list of stockholdersand their stockholdings in the prescribedform within the deadline indicated inAppendix 6.

b. Any change in the list shall also bereported to the said department in suchfrequency and within the deadlineindicated in Appendix 6, indicating thename(s) and/or stockholdings involvedwhich is/are to be cancelled or replaced,and the new name(s) and/orstockholdings which shall be includedfor that quarter. In case no changeoccurred during a particular quarter, thereport shall provide a notation, viz “nochange(s) since last report submitted forquarter ended, , 20 ”.

§ X192.8 (2008 - X162.8) BangkoSentral offices, where reports aresubmitted. Submission of BSP periodic orcall reports shall be as follows:

a. All banking offices shall submitthe required reports in accordance withAppendix 6 to the BSP, Manila or to thenearest BSP Regional Offices: Provided,That the head office of a bank may submitto the SDC in electronic form the batchedcopy of all its banking units’ QuarterlyStatement of Condition and Statement ofIncome and Expenses by Banking Unitin behalf of its branches and otheroffices;

b. Where a particular report form callsfor distribution of copies to otherdepartments of the BSP, the bankconcerned shall furnish said copies of thereport direct to the respective departmentsof the BSP; and

c. As an exception to Item “a” above,the duplicate copy of the bio-data fordirectors/officers shall be submitted to theSDC of the BSP.

§ X192.9 (2008 - X162.9) Publication/Posting of balance sheet

a. UBs/KBs, TBs, RBs and Coop Bankswith resources of P1.0 billion and above

(1) Banks belonging to this categoryshall accomplish the prescribed form andpublish their quarterly Balance Sheet (BS)as of the cut-off date indicated in the callletter issued by the SES.

The Consolidated Balance Sheet (CBS)of a bank and its subsidiaries and affiliatesshall be published side by side with theBS of its head office and its branches/otheroffices.

(2) The CBS of the bank and itssubsidiaries and aff i l iates shall beprepared in accordance with the rules ofconsolidation provided under theFinancial Reporting Package (FRP), inwhich case, only f inancial all ied

§§ X192.6 - X192.908.12.31


subsidiaries, except subsidiary insurancecompanies, shall be consolidated on aline-by-line basis, while non-financialallied subsidiaries including subsidiaryinsurance companies shall be accountedfor using the equity method.

(3) Such BS, and CBS whereapplicable, shall be published in anewspaper of general circulation in thecity/province where the principal office,in the case of a domestic bank, or theprincipal branch/office, in the case of aforeign bank, is located, but if nonewspaper is published in the sameprovince, then in a newspaper publishedin Metro Manila or in the nearest city/province.

(4) The names and position/designation of the members of the boardof directors, president and executive vicepresidents (senior vice presidents, if thereare no executive vice presidents), shall bepublished and shown in the right sidecolumn of the published BS as of June ofevery year.

(5) (a) Before publication, a soft copyof the BS shall be submitted to the SDCwithin twelve (12) banking days from thedate of the call letter.

Further, a hard copy of the control prooflist for the said report shall likewise besubmitted to the SDC within the saiddeadline.

(b) Banks that are incapable ofsubmitting the BS in electronic formshall submit the same in hard copy tothe SDC within the said deadline.

(c) The published BS with thepublisher’s certificate shall be submittedwithin twenty (20) banking days after thedate of said call letter to the SDC.

b. TBs/RBs/Coop Banks withresources of less than P1 billion

(1) A TB, RB and Coop Bankbelonging to this category shall eitherpublish its quarterly BS as of the cut-offdate indicated in the call letter issued by

the SES of the BSP, in a newspaper ofgeneral circulation as in Item “a(3)” aboveor post the same in the most conspicuousarea of its premises, in the municipalbuilding, municipal public market,barangay hall and barangay public marketwhere the head office and all its branchesare located. The posting shall be printedon 12”x18” white paper, preferably whitebuff paper (cartolina) and shall be madewithin twenty (20) banking days from theend of the reference quarter and for a periodof thirty (30) successive calendar days.

(2) (a) A TB, RB and Coop Bank thatshall publish/post its quarterly BS shallsubmit a soft copy of the same to the SDCwithin twenty (20) banking days after theend of the reference quarter.

(b) Banks that are incapable ofsubmitting the BS in electronic form shallsubmit the same in hard copy to the SDCwithin the said deadline.

(c) In either case, an aff idavitexecuted by the president, or in hisabsence, the vice-president or manager,as the case may be, shall likewise besubmitted to the SDC within the saiddeadline.

c. Additional information requiredBanks shall disclose the followinginformation in the quarterly published/posted BS:

(1) Solo BS (Head Office and Branches/Other Offices)

(a) Non-performing loans (NPLs)(b) Ra t io o f NPLs to to ta l loan

portfolio (TLP)(c) Classified loans and other risk

assets(d) Specific provision for loan losses(e) Return on equity (ROE)(f) DOSRI loans and receivables(g) Ratio of DOSRI loans and

receivables to TLP(h) Past due DOSRI loans and receivables(i) Ratio of past due DOSRI loans and

receivables to TLP

§ X192.908.12.31


(j) Percent compliance with MagnaCarta - 6% for Small Enterprise

(k) Percent compliance with MagnaCarta - 2% for Medium Enterprise

(l) CAR on Solo Basis under Appendix63b for UBs/KBs, TBs, and RBs that aresubsidiaries of UBs/KBs. For stand-aloneTBs, RBs and Coop Banks, Sec. X116 shallapply.

(i) Total CAR (ii) Tier 1 CAR(2) CBS (parent bank and financial

allied subsidiaries excluding subsidiaryinsurance companies)

(a) List of financial allied subsidiaries(excluding subsidiary insurancecompanies)

(b) List of subsidiary insurancecompanies

(c) CAR on consolidated basis(i) Total CAR (ii) Tier 1 CAR For purposes of additional information,

all amounts and ratios shall be as of thesame call date. However, the basis forcomputing the ROE shall be the latestquarter immediately preceding the call dateusing the following formula:

Return on Average Equity (%) =Net Income (or Loss) after Income Tax x 100

Average Total Capital Accounts

Where net income/(loss) after tax andaverage total capital accounts shall be:

Net Income After Tax Average Total Capital

Quarter(loss) (NIAT) AccountsMarch Quarter end Sum of end-month capital

NIAT accounts (December -multiplied by 4. March) divided by 4.

June Semester end Sum of end-month capitalNIAT accounts (December -multiplied by 2. June) divided by 7.

Sept. Nine (9) mos. Sum of end-month capitalNIAT accounts (December -multiplied by September) divided by10.1.33333.

Dec. Year end Sum of end-month capital NIAT accounts (December -

December) divided by 13.

d. Deferment of publicationrequirement.

The abovementioned publicationrequirement may be deferred by theMonetary Board by at least five (5)affirmative votes upon application by thebank concerned during periods of nationaland/or local emergency or of imminentpanic which directly threaten monetaryand banking stability.

The amended prescribed form forthe published BS shall be used startingwith the quarter-end September 2007reports.(As amended by Circular No. 576 dated 08 August 2007)

§ X192.10 (2008-X162.10) Consolidatedfinancial statements of banks and theirsubsidiaries engaged in financial alliedundertakings. Banks shall submit after theend of the calendar year or the end of thefiscal year adopted by the bank theirconsolidated financial statements andsupported by the individual annualfinancial statements of their subsidiariesengaged in financial allied undertakings.

For purposes of this Subsection, theconsolidated financial statements shallconform to the guidelines of PAS 27“Consolidated and Separate FinancialStatements” except that for purposes ofconsolidated financial statements, theprovisions of Subsec. X191.3a shallapply.

The consolidated financial statementsand the supporting individual financialstatements of their subsidiaries shall besubmitted to the appropriate departmentof the SES within the deadline indicated inAppendix 6.

§ X192.11 (2008 - X162.11) Reportsof other banking offices. Extension officesof banks which maintain separate booksof accounts shall be subject to all reportingrequirements of a regular branch.

§§ X192.9 - X192.1108.12.31


An extension office whose record oftransactions/accounts is consolidated dailywith its mother unit shall submit only theSelected Financial Accounts form as listedin Appendix 6.

Convenience Banking Centers (CBCs)are not required by BSP to submitStatement of Condition (SOC) andStatement of Income and Expenses (SIE).A CBC is not considered as a branch but asan extension office of a bank withoutseparate books of accounts which directlyreports its transactions to its mother branch.

§ X192.12 (2008 - X162.12) Reportsrequired of foreign subsidiaries/affiliates/banking offices or non-bank entities ofdomestic banks. The submission ofperiodic reports of a foreign subsidiary/affiliate/banking offices or non-bankentities of domestic banks shall begoverned by the following rules:

a. For foreign subsidiaries/affiliates ofdomestic banks, the local investor-bank(s)concerned shall regularly submit to theappropriate department of the SES aquarterly statement of condition andquarterly/annual report of income andexpenses concerning the operations of theforeign subsidiaries/affiliates, includingsuch other periodic reports which may berequired from time to time in the formsprescribed by the BSP for domesticfinancial intermediaries to the extent thattheir operations are applicable;

b. For foreign subsidiaries/affiliates ofdomestic banks, the appropriate departmentof the SES shall be furnished by saiddomestic banks copies of the annual reportprescribed by any of the supervisory/regulatory authorities in the country ofoperations;

c. When material changes noted inthe annual financial statements warrant aninterim comprehensive evaluation, theforeign affiliate concerned shall be

requested to submit to the appropriatedepartment of the SES, through itsdomestic investor-bank, copies of itsquarter/interim reports to stockholders orthe call reports in the case of U.S. banks;

d. Audited financial statements (AFS)of the foreign banking offices andsubsidiaries; and

e. Examination reports done by theforeign bank supervisory authority.

The submission of the documents inItems “d” and “e” to BSP shall not be laterthan thirty (30) banking days from date ofsubmission/release of said reports to theforeign banking offices and subsidiaries ofPhilippine banks. Material findings, if any,contained in said reports should behighlighted.

f. For purposes of this Subsection,affiliate shall refer to an entity linked directlyor indirectly to a bank by means of:

(1) Ownership, control or power tovote, of ten percent (10%) or more of theoutstanding voting stock of the entity,or vice-versa;

(2) Interlocking directorship orofficership, except in cases involvingindependent directors as defined underexisting regulations;

(3) Common stockholders owning tenpercent (10%) or more of the outstandingvoting stock of each financial intermediaryand the entity;

(4) Management contract or anyarrangement granting power to the bankto direct or cause the direction ofmanagement and policies of the entity, orvice-versa; and

(5) Permanent proxy or voting trusts infavor of the bank constituting ten percent(10%) or more of the outstanding votingstock of the entity, or vice-versa.

For purposes of this Manual, the abovedefinition of affiliate shall be adoptedexcept where the provision of theregulation expressly states otherwise.

§§ X192.11 - X192.1208.12.31



§ 1192.13 (2008 - §1162.13) Additionalreports from UBs/KBs

a. Volume and weighted averageinterest rates of deposits and loans. Dataon the volume of transactions andweighted average interest rates ofcertificates of time deposits and secured/unsecured loans granted, classified bymaturity, and outstanding savings depositsclassified by interest rates, shall beprepared daily (except data on savingsdeposits which shall be prepared weekly)and submitted weekly by all head officesof UBs/KBs to the Department of EconomicResearch of the BSP not later than 4:00 PMon Thursday after end of reference week.

b. Short-term prime rates. All UBs andKBs shall submit in the prescribed form areport on the volume and interest rates oncredit line availments under short-termprime rates in such frequency and withinthe deadline indicated in Appendix 6.

c. (Deleted by Cir. No. 405 dated28 August 2003).

d. Foreign Exchange Position ReportBanks may be allowed to submit on aweekly basis the notarized certificationsigned by the bank’s president/CEO/country manager and the treasurer to coverthe daily hard copies of Schedule 13,FX Form I and CFXPR pertaining to eachday of the week. Delayed submission ofthe notarized certification shall be subjectto monetary penalty, as follows:

Daily Penalty1st banking day of P6,000.00 (equivalentdelay P1,200.00 per day for

five (5) report dates coveredby the certification on theassumption that the five (5)weekdays of the referenceweek are all banking days)

2nd banking day of P1,200.00/daydelay and onwards



§ X192.14 (2008 - X162.14) Reportsof strikes and lockouts. Banks throughtheir president or chief executive officershall immediately apprise the DeputyGovernor of the SES of the BSP on thestatus of strikes/lockouts involving theirbanks, i f unsett led after seven (7)calendar days. The bank shall disclosethe following pertinent information on thestrike/lockout:

a. Cause of the strike/lockout andbank management’s position on itslegality; and

b. Bank operations affected.

§ X192.15 (2008 - X162.15) Report onthe Sworn Statement on Real Estate/Chattel Transactions. The Report onthe Sworn Statement on Real Estate/Chattel Transactions submitted underBSP Form Nos. NP06-KB, NP06-TB andRB/COB 20 need not be under thesignature of all the members of thebank’s board of directors: Provided,That:

(a) transactions reported are beingavailed of strictly in accordance withthe terms and conditions of a fringebenef i t p rogram approved by thebank’s board of directors and by theBSP; and

(b) the signatory to the certificationis an officer duly authorized by the bank’sboard of directors.

Transactions not covered under thebank’s fringe benefit plan shall still bereported under the signatures of all themembers o f the bank’s board o fdirectors.

§§ X192.16 - X192.20 (Reserved)

§§ X192.13 - X192.2008.12.31


O. PROMPT CORRECTIVE ACTIONFRAMEWORK

§ X193 (2008 - X106.4) Promptcorrective action framework. A bankmay be subject to Prompt CorrectiveAction (PCA) whenever any or all of thefollowing conditions obtain:

(1) When either of the Total Risk-BasedRatio [otherwise known as CapitalAdequacy Ratio (CAR)], Tier 1 Risk-BasedRatio, or Leverage Ratio (total capital/totalassets) falls below ten percent (10%), sixpercent (6%) and five percent (5%),respectively, or such other minimumlevels that may be prescribed for the saidratios under relevant regulations, and/orthe combined capital account falls belowthe minimum capital requirementprescribed under Subsec. X111.1;

(2) The Capital Adequacy, AssetQuality, Management, Earnings, Liquidityand Sensitivity to Market Risk (“CAMELS”)composite rating is less than three “3” or aManagement component rating of less thanthree “3”; and

(3) A serious supervisory concern hasbeen identified that places a bank at more-than-normal risk of failure in the opinionof the Director of the examinationdepartment concerned, which opinion isconfirmed by the Monetary Board. Suchconcerns could include, but are not limited,to any one (1) or a combination of thefollowing;

(a) Finding of unsafe and unsoundactivities that could adversely affect theinterest of depositors and/or creditors;

(b) A finding of repeat violations of lawor continuing failure to comply withMonetary Board directives; and

(c) Significant reporting errors thatmaterially misrepresent the bank’s financialcondition.

The framework for the enforcement ofPCA on banks and other financial

institutions under its jurisdiction is inAppendix 69.(Circular No. 523 dated 23 March 2006)


P. LIQUIDATION AND RECEIVERSHIP

Sec. X196 Voluntary Liquidation. Thefollowing guidelines shall be observedwhen a bank decides to undertakevoluntary liquidation as a consequence ofvoluntary dissolution, such as (i) by voteof the board of directors and stockholders,where no creditors are affected;(ii) judgment of the SEC after hearing thepetition for voluntary dissolution;(iii) amending the articles of incorporationto shorten the corporate term.

§ X196.1 Prior Monetary Boardapproval. Upon voluntary dissolution ofa bank pursuant to the provisions of theCorporation Code, voluntary liquidationmay be undertaken by the bank itselfthrough its board of directors, by atrustee appointed by the bank, or by areceiver appointed to the bank: Provided,however, That no voluntary dissolutionshall be undertaken by a bank withoutprior approval of the Monetary Board:Provided, further, That requests forapproval of a voluntary dissolution shallbe accompanied by a liquidation planwhich lays down the procedure to beadopted by the bank in the event ofliquidation: Provided, finally, Thatwritten notice shall be sent to theMonetary Board before actual liquidationis undertaken in accordance with theliquidation plan previously approved bythe Monetary Board.

§ X196.2 Liquidation plan. Theminimum requirements to be set forth ina liquidation plan are the following:

§§ X193 - X196.208.12.31


a. Inventory/Appraisal of assets andliabilities. Submission to the MonetaryBoard within thirty (30) days from writtennotice of liquidation, a schedule/inventoryand status/appraisal reports on assets andliabilities of the bank.

b. Notice to creditors requirement.Notice by registered mail to all recordedclaimants of the bank, and notice bypublication in a newspaper of generalcirculation at least once a week for two (2)consecutive weeks, to be made withinthirty (30) days from submission ofaforesaid inventory of assets and liabilities.

c. Conversion of assets into money.Projected timetable in the conversion,manner of sale (public auction, sealedbidding, or on negotiated basis), notice bypublication requirement, and report onliquidation to be submitted to the MonetaryBoard.

d. Final notice to claimants/creditors.Undertaking of the board of directors/trustee/receiver to cause, within thirty (30)days from conversion into money of all orsubstantially all of the assets of the bank,the publication in a newspaper of generalcirculation at least once a week for two (2)consecutive weeks of a notice givingclaimants/creditors fifteen (15) days withinwhich to file their claims.

e. Inventory of remaining claimsagainst the bank. Submission to theMonetary Board of a complete list of allremaining claims against the bank, withinthirty (30) days from the deadline given inthe final notice to claimants/creditors.

f. Plan for distribution of proceedsof sales and distribution of liquidatingdividends. Submission to the MonetaryBoard of a distribution plan of assetswithin thirty (30) days from conversionof all or substantially all of the assets ofthe bank.

§§ X196.3 - X196.7 (Reserved)

§ X196.8 Final liquidation report. Theboard of directors/trustee/receiver shallsubmit to the Monetary Board a finalliquidation report after winding up theaffairs of the bank.


Sec. X198 Insolvency or Receivershipof Banks. The rules and regulationsgoverning insolvency and receivershipare as follows:

§ X198.1 Definition of term. A “bankdeclared insolvent or placed underreceivership by the Monetary Board”shall refer to a banking institution that hasbeen forbidden from doing business inthe Philippines by the Monetary Boardunder the applicable grounds providedfor under Section 30 of R.A. No. 7653and placed under receivership of thePDIC.

§ X198.2 Prohibited acts. Any directoror officer of a bank declared insolventor placed under receivership by theMonetary Board shall not commit any ofthe following acts:

a. refusing to turn over the bank’srecords and assets to the designatedreceivers;

b. tampering with bank records;c. appropriat ing for himself or

another party, or destroying or causingmisappropriation and destruction of thebank’s assets;

d. receiving or permitting or causingto be received in said bank any deposit,collection of loans and/or receivables;

e. paying out or permitt ing orcausing to be paid out any funds of saidbank; and

f. transferring or permitting orcausing to be transferred any securities orproperty of said bank.

§§ X196.2 - X198.208.12.31


§§ X198.3 - X198.8 (Reserved)

§ X198.9 Penalties and sanctions. Anydirector or officer of a bank declaredinsolvent or placed under receivership bythe Monetary Board who commits any ofthe foregoing acts shall be subject to thesanctions under Sections 36 and 37 of R.A.No. 7653, in correlation with Section 66 ofR.A. No. 8791. Moreover, any such directoror officer thereby sanctioned shall beincluded in the watchlist files of directors/officers disqualified by the Monetary Boardfrom holding any position in any bank or FI.

§§ X198.3 - X19908.12.31

Q. GENERAL PROVISION ONSANCTIONS

Sec. X199 General Provision onSanctions. Except as otherwise provided,any violation of the provisions of this Partshall be subject to Sections 36 and 37 ofR.A. No. 7653.

The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37of R.A. No. 7653 on banks, theirdirectors and/or officers are shown inAppendix 67.


Manual of Regulations for Banks Part II - Page 1

PART TWO

DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS

Section X201 Authority to Accept orCreate Demand Deposits. Banks mayaccept or create demand deposits subjectto withdrawal by check.

A UB/KB may accept or create demanddeposits subject to withdrawal by check,without prior authority from the BSP.

A TB/RB/Coop Bank may accept orcreate demand deposits upon priorauthority of the BSP.

§ X201.1 Prerequisites to accept orcreate demand deposits for Thrift Banks/Rural Banks/Cooperative Banks. Inaddition to the Standard Pre-qualificationRequirements for the Grant of BankingAuthorities enumerated in Appendix 5, aTB/RB/Coop Bank applying for authority toaccept or create demand deposits shall alsocomply with the following requirements:

a. The applicant TB must havecomplied with the minimum capital requiredunder Subsecs. X111.1 and X111.2.

In the case of RB/Coop Bank, it musthave net assets of at least P5.0 million:Provided, That RBs which have beenauthorized to accept or create demanddeposits prior to the approval of R.A. No.7353 (Rural Banks Act of 1992) shall beallowed to continue servicing such deposits.

The terms capital and net assets shallhave the same meaning as in Sec. X111.

b. It must be a member of thePhilippine Deposit Insurance Corporation(PDIC) in good standing.

§ X201.2 Requirements for acceptingdemand deposits. After a TB’s/RB’s/CoopBank’s application to accept demanddeposits has been approved, it may

actually accept such deposits, subject to thefollowing conditions:

a. Submission of a certificationsigned by the President/Chairman of theBoard of the bank stating that therequirements enumerated under Subsec.X201.1 have been complied with up tothe day before the checking accountservices are actually offered/extended tothe public;

b. That if it is not a member of thePhilippine Clearing House Corporation(PCHC), it has appointed a commercialbank, or a normally operating thrift bankwhich is a direct participant in clearing withthe PCHC/BSP and has complied with theminimum capital required for commercialbanks, thru which it shall participate in thecheck clearing system; and

c. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit awritten notice to the appropriatesupervising and examining department ofthe BSP of the actual date when thedemand deposit service is offered to thepublic not later than ten (10) banking daysfrom such offering of the service.

§ X201.3 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653.

a. On the BankSuspension of its authority to accept or

create demand deposits for one (1) year.b. On the Certifying OfficerA fine of P5,000 per day from the time

the certification was made up to the timethe certification was found to be false.

§§ X201 - X201.308.12.31

Part II - Page 2 Manual of Regulations for Banks

Sec. X202 Temporary Overdrawings;Drawings Against Uncollected DepositsThe following regulations shall governtemporary overdrawings and drawingsagainst uncollected deposits (DAUDs).

a. Temporary overdrawings. Temporaryoverdrawings against current account shallnot be allowed, unless caused by normalbank charges and other fees incidental tohandling such accounts. Banks which violatethese regulations shall be subject to a fine ofone-tenth of one percent (1/10 of 1%) perday of violation, computed on the basis ofthe amount of overdrawing or fines inamounts as may be determined by theMonetary Board, but not to exceed P30,000a day for each violation, whichever is lower.

Technical overdrawings arising from“force posting” in-clearing checks shall bedebited by banks under “Returned Checksand Other Cash Items Not in Process ofCollection” which is part of “Other Assets”in the Statement of Condition. Items to belodged under this account shall consistonly of in-clearing checks which mayresult in “technical overdrawn” accountsand shall be immediately reversed thefollowing day.

The checks lodged under “ReturnedChecks, etc.” shall either be returned orhonored the following day before clearing.The items to be used as cover for thehonored checks should only consist of anyof the following:

(1) Cash(2) Cashier’s, Manager’s or Certified

Checks(3) Bank Drafts(4) Postal Money Orders(5) Treasury Warrants(6) Duly funded “On us” Checks(7) Fund transfers/credit memos

within the same bank representingproceeds of loans granted under existingregulations.

Peso demand deposit accountsmaintained by foreign correspondent banks

with commercial banks shall not be subjectto the above-mentioned regulations:Provided, That:

(a) The maintenance of non-residentcorrespondent bank’s peso checkingaccounts and overdrawings therefrom arecovered by reciprocal arrangement;

(b) Temporary overdrawings arecovered within fifteen (15) days from thedate overdrawings are incurred; and

(c) Such accounts are credited onlythrough foreign exchange inwardremittance.

b. Drawings against uncollecteddeposits. DAUDs shall be prohibitedexcept when the drawings are madeagainst uncollected deposits representingmanager’s/cashier’s/treasurer’s checks,treasury warrants, postal money orders andduly funded “on us” checks which may bepermitted at the discretion of each bank.

Sec. X203 Checks Without SufficientFunds. To complement the provisions ofBatas Pambansa Blg. 22, (An Act Penalizingthe Making or Drawing and Issuance of aCheck Without Sufficient Funds or Credit),the following regulations shall govern:

a. The drawee bank shall stamp, writeor print on a dishonored check or on a paperattached thereto the date the check ispresented for payment and the reason forthe refusal to pay the same to the holderthereof.

b. Where the reason for the dishonorof a check is stamped, written or printedon a paper attached to the checks, thedrawee bank shall indicate the pertinentdetails, such as the names of the drawer,the payee and the drawee bank, the dateand amount of the check, the checknumber and the date of dishonor.

c. The drawee bank shall use only theremark or notation “Drawn AgainstInsufficient Funds”, “No Funds”, or“Insufficient Funds” stamped, written, orprinted on, or attached to the check

§§ X202 - X20308.12.31


dishonored or returned by reason ofinsufficiency of funds or credit.

d. Notwithstanding receipt of an orderto stop payment, the drawee bank shalllikewise stamp, write, or print on, or attachto the check any of the remarks ornotations mentioned in Item “c” hereofindicating that there were no sufficientfunds in or credit with such bank for thepayment in full of such check, if such bethe fact. The bank shall also indicate receiptof a stop payment order.

e. A check and other clearing item(COCI) dishonored by reason ofinsufficiency of funds or credit shall bereturned by the drawee bank to thenegotiating bank not later than the nextclearing for returned COCI.

(1) For Local ExchangesThere shall be two (2) separate clearing

windows for COCIs returned due toinsufficient funds or credit in the localexchanges in the integrated Metro Manilaarea served by the PCHC and the BSPRegional Clearing Centers (RCCs). (Thesettlement of interbank transactions vis-à-vis covering reserve requirement/deficiency of banks’ demand depositaccount (DDA) is shown in Appendix 39.)

(a) AM Returned COCI Clearing - TheAM returned COCI clearing in theintegrated Metro Manila local exchangeshall be conducted from 7:30 AM to 10:00AM on the banking day immediatelyfollowing the original date of presentationof the COCI to PCHC.

The AM returned COCI clearingwindow for local exchanges in the BSPRCCs shall be conducted from 8:00 AM to9:30 AM on the banking day immediatelyfollowing the original date of presentationof the COCI to the RCC.

Returned COCI in the AM clearingwindows shall be given value on the samedate as the date of original presentation ofthe COCI to PCHC and RCC. The amountof debits and credits on the date of original

presentation shall be reversed to theextent of the amount of credits and debitsarising from the returned COCI. Theprocess restores the balances of thedemand deposits of banks with the BSPto their position prior to the settlementof the clearing results affected by theCOCI later returned due to insufficientfunds or credit.

(b) PM Returned COCI Clearing - ThePM returned COCI clearing window shallcoincide with the afternoon regularclearing. Other dishonored COCI notreturned in the morning clearing sessionshall be presented by the drawee bank tothe negotiating bank in the afternoonregular clearing. Such returned COCI shallbe given value on the date the returnedCOCI was presented to PCHC for theintegrated Metro Manila area and to BSPRCCs.

Return of Dishonored COCI - A COCIdishonored by reason of insufficiency offunds or credit shall be returned by thedrawee bank to the negotiating bank notlater than the next clearing for returnedCOCI.

(2) For Out-of-town ExchangesFor out-of-town exchanges, a COCI

so dishonored shall be returned by thedrawee bank to the negotiating bankwithin the period specified in the clearingCircular Letters issued by BSP.

(3) COCI not coursed through theClearing System

A COCI dishonored by reason ofinsufficiency of funds or credit which wasnot coursed through the clearing systemshall be returned by the drawee bank tothe holder or the negotiating bank, as thecase may be, not later than the businessday following the date the COCI is presentedfor payment with the drawee bank.

The negotiating bank shall, in turn,return a COCI dishonored by reason ofinsufficiency of funds or credit to the holdernot later than the business day following

§ X20308.12.31


its receipt of the dishonored COCI from thedrawee bank.

Sec. X204 Current Accounts of BankOfficers and Employees. As a generalrule, officers and employees of banks, theirspouses and relatives within the seconddegree of consanguinity and affinity,including partnerships, associations orcorporations in which such officers andemployees, their spouses and relativeswithin the second degree of consanguinityand affinity, individually or as a group, ownor control at least a majority of the capitalare prohibited from maintaining demanddeposits or current accounts with thebanking office in which they are assigned.However, officers and employees withoutdirect access and involvement in thehandling of transactions and/or recordspertaining to demand deposit operationsmay be allowed to maintain demanddeposits or current accounts in the bankingoffice where they are assigned subject tothe following conditions:

a. It shall be the responsibility of thebank concerned to identify the officers,employees, departments or units withdirect involvement in its demand depositoperations and/or deposit records;

b. The opening of current accounts ofofficers and employees shall be subject toapproval of the head of the branchesdepartment or any designated higherranking officer; and

c. The following minimum operatingcontrol measures shall be implemented toensure systems integrity and mitigatetechnology-related risks:

(1) Tagging of accounts. Savings anddemand deposits of officers andemployees, their spouses and relativeswithin the second degree of consanguinityand affinity, including partnerships,associations or corporations in which suchofficers and employees, their spouses andrelatives within the second degree of

consanguinity and affinity, individually oras a group, own or control at least amajority of the capital shall be tagged inthe bank’s current accounts/savingsaccounts (CA/SA) system;

(2) Monitoring of accounts. All accountsmaintained by officers, employees and saidrelatives including their business interestsshall be monitored by a designated officerwho shall be responsible for ensuring thataccounts of officers and staff are properlymaintained. Any irregularity in the accountactivity shall be promptly investigated andreported to the appropriate managementlevel;

(3) Access controls. Access to all data,application software, operating systemsand utilities must be restricted to authorizedpersons through appropriate identificationmechanisms and access codes and suchauthentication and authorization controlsmust be fully documented and auditable.No officer or employee, regardless of rankor position, shall be allowed to process anytransaction from initiation to finalauthorization;

(4) Data capture. Operating proceduresfor data capture, update and retrieval mustbe strictly adhered to. The operatingsystem shall maintain a permanent recordof each authenticated user sessionincluding every user input; and

(5) Audit trails. Detailed records andaudit trails shall be maintained tosubstantiate the processing of alltransactions. Audit trails must be reviewedperiodically by a designated officercommensurate with the risk level of theinformation system. The review processmust ensure that the reviewer does notreview his/her own activity.(As amended by Circular No. 508 dated 24 January 2006)

Sec. X205 (2008 - X603) Check ClearingOperations. Banks shall observe theclearing procedures outlined in Appendix 28for the clearing of checks and settlement

§§ X203 - X20508.12.31


§§ X205 - 2205 08.12.31

of interbank balances through the clearingfacilities.

Secs. 1205 (Reserved)

Sec. 2205 Check Clearing Rules for ThriftBanks Authorized to Accept DemandDeposits. The following are the checkclearing rules for TBs authorized to acceptdemand deposits:

a. TBs authorized to accept demanddeposits may participate in the clearingprocess conducted by the PCHC in theintegrated Metro Manila clearing area andby the BSP in regional clearing centersthrough either of the following modes:(i) maintenance of NOW accounts withKBs; (ii) conduit arrangements with KBs;and (iii) direct participation in clearingoperations, at the option of the TBconcerned.

b. In conduit arrangements, capsshall be set on the net clearing losses tobe passed on to the conduit KB by theconduit TB.

To address the settlement risks, thepro-forma conduit arrangement shouldinclude provisions setting aforementionedcap on the net clearing losses. The cap isdefined as the combined value of thefollowing amounts:

(1) the TB’s reserve deposit with BSP;and

(2) the value of collateralized overdraftline that may be extended by the conduitKB to the conduit TB.

Parties to existing conduitarrangements shall have thirty (30) daysfrom 08 April 1998 to comply with theabove requirement.

c. For TBs authorized to participate inthe PCHC and BSP check clearingoperations, ceilings for clearing losses notcovered by interbank borrowings shall beestablished and unwinding of the clearingtransactions shall be authorized when theceilings are breached.

(1) The proposed ceiling is defined asthe collateralized overnight clearing linethat will be extended by BSP. Every TBauthorized to participate directly in theclearing operations of PCHC should applyfor this line with the appropriate departmentof the SES. The availments against theapproved loan line shall bear interest at theninety-one (91)-day Treasury Bill rate of thelast auction immediately preceding theavailments.

(2) Procedures for unwinding shall applyto all inward items, other than Returned Itemsand to local exchanges only.

(3) The aggregate value of all inwarditems of all clearing centers, including OnManila clearing demands presented toPCHC, shall be ranked from highest tolowest. The unsettled net clearing lossesshall be eliminated by unwinding theinward items starting from the clearingcenters, including PCHC, with highestaggregate value.

(4) In case the aggregate value of theinward items for a given clearing center,except PCHC, exceeds the unsettled netclearing losses, the total inward items forthat clearing center shall be the subject ofunwinding.

(5) In the case of checks cleared throughPCHC, the inward clearing items shall beunwound to the extent of the unsettled netclearing loss. The selection of the specificdemand items to be covered by unwindingshall be based on PCHC rules.

(6) Checks which are the subject of theunwound clearing transactions shall bereturned to the presenting banks not laterthan 9:00 A.M. of the following clearing day.

d. TBs authorized to participatedirectly in the clearing in PCHC and BSPregional clearing centers shall be subjectto the following measures to manage thesettlement risks:

(1) Settlement of Outward items shallbe value dated on the day the checks arecleared, net of returns. For this purpose,


§§ 2205 - X21308.12.31

the value date or settlement date referredto herein shall be defined uniformly as thenext clearing day when dishonored checksare returned within the reglementaryperiod, reckoned after the date ofpresentation for local clearing in theintegrated Manila Clearing area for PCHCand in all BSP regional clearing centers.For inter-regional clearing items, outwardManila clearing items and to Manilaclearing items, the value or settlement dateshall be defined in clearing circulars to beissued by BSP.

(2) A ceiling shall be set on the amountof overdraft a TB authorized to acceptdemand deposits may incur due to failureto cover clearing losses through interbankborrowings. The ceiling is defined as thecollateralized overnight clearing line thatwill be extended by BSP DLC. Theavailments against the approved loan lineshall bear interest at the ninety-one (91)-day Treasury Bill (T-Bill) rate of the lastauction immediately preceding theavailments.

(3) Should the overdraft exceed theceiling, the BSP Accounting Departmentis authorized to instruct the PCHC and theBSP regional clearing centers to unwindthe clearing transactions following theprocedures defined in Item “c” of thisSection.

The operating guidelines implementingItems “c” and “d” of this Section are inAppendix 31.

e. Any overdraft incurred underSection 102 of R.A. No. 7653 may beconverted into an emergency loan oradvance provided it complies with theguidelines governing the grant ofemergency loans under Subsec. X272.2.(As amended by Circular No. 516 dated 06 March 2006)

Sec. 3205 Check Clearing Rules for RuralBanks Who Are Members of the PhilippineClearing House Corporation. Theprovisions of Items “c” and “d” of Sec. 2205and the implementing operating guidelines

in Appendix 31 shall also apply to RBswhich are members of the PCHC.(As amended by Circular No. 516 dated 06 March 2006)


Sec. X207 Check Clearing OperationsDuring Public Sector Holidays. Theguidelines on check clearing operationsduring public sector holidays are shownin Appendix 84.(M-2008-025 dated 13 August 2008)


B. SAVINGS DEPOSITS

Sec. X213 Servicing Deposits OutsideBank Premises. Banks may be authorizedby the BSP to solicit and accept depositsoutside their bank premises, subject to thefollowing conditions:

a. Minimum capital requirement ismet;

b. No major supervisory concernsaffecting safety and soundness;

c. The area of operations shall bewithin one (1)-hour normal travel time byland/sea from any head office or branch,except in remote areas where more thanone (1)- hour normal travel time may beallowed; and

d. Applicant bank shall institute andmaintain the following minimumsafeguards:

(1) All deposit solicitors shall beinitially bonded for at least P1,000 subjectto the increase thereof to approximate theirdaily collections;

(2) Deposit solicitors shall beprovided with proper identification cardswith photograph and signature of eachrespective solicitor, certified to by theappropriate officer of the bank. Saididentification cards shall be worn by eachsolicitor at all times at the upper breastof his outer garment when solicitingdeposits; and


§§ X213 - X21508.12.31

(3) Adequate insurance coverage forfunds in transit (representing depositscollected outside banking premises) shallbe secured by applicant bank frominsurance companies not included in thelist of companies blacklisted by theInsurance Commissioner;

(4) Deposit slips shall be in bookletform, prenumbered, in triplicate copies andin three (3) colors - the original to be issuedto the depositor, the second copy to beused for posting reference, and the thirdcopy to be retained in the booklet;

(5) All collections shall be turned overto the cashier at the end of each dayaccompanied by a Collection SummaryReport to be accomplished in duplicatewhich shall contain the following minimuminformation:

(a) Date of the report(b) Names and addresses of the

depositors(c) Deposit slip numbers(d) Amounts of deposit(e) Savings account and passbook

numbers(f) Name and signature of solicitor

rendering the report(6) Depositors shall always be

required to accomplish a Signature Cardwhen opening an account, which cardshall be used always as reference inchecking the genuineness/authenticity ofsignatures affixed on withdrawal slips orauthorizations for withdrawal;

(7) Deposits/withdrawals shall berecorded by the bookkeeper or any ledgerclerk, except any bank solicitor, in thedepositor’s ledger cards and passbooks onthe same day that such deposits/withdrawals are accepted. Passbooks shallbe returned to the depositors not later thanthe following business day;

(8) At the end of each month,depositors shall be advised in writing ofthe balances of their deposits with the bank,the advise slips of which shall never behandcarried by the solicitors themselves;

(9) Places of assignments of banksolicitors shall be rotated at least quarterly.

Sec. X214 Withdrawals. Banks areprohibited from issuing/acceptingwithdrawal slips or any other similarinstruments designed to effect withdrawalsof savings deposits without requiring thedepositors concerned to present theirpassbooks and accomplishing thenecessary withdrawal slips, except forbanks authorized by the BSP to adopt theno passbook withdrawal system: Provided,That banks which are already adopting theno passbook withdrawal system shall begiven six (6) months from effectivity of thisManual to seek approval from the BSP.

The provisions of Sec. X202b shall alsoapply to withdrawals from savings deposits.

Sec. X215 Rental Deposits of LesseesThe following guidelines shall govern theopening and handling by banks of depositsmade by lessees under Section 5(b) ofBatas Pambansa Blg. 25, otherwise knownas the Rent Control Law:

a. The deposit made by the lesseeshall only be accepted by the bank under aspecial savings account in the name of thelessor;

b. The bank shall require the lesseeto submit a copy of the written notice sentto the lessor for the deposit made, statingamong other things, the date and amountof the deposit and the name and addressof the lessor;

c. The bank, at its option, may requirethe lessee to submit any supportingdocument, such as the lease contract orofficial receipts of previous rentals paid,which will show the specimen signatureof the lessor, or other papers to identify thelessor;

d. The bank shall segregate from itsregular savings deposit accounts andmaintain a separate subsidiary controlledger for deposits made under Section 5(b)of Batas Pambansa Blg. 25;


§§ X215 - X223.208.12.31

e. Any withdrawal against thesespecial savings deposit accounts may onlybe allowed in favor of the lessee concernedbefore the amount deposited underconsignation has been accepted by thelessor, or when authorized by the lessor;

f. The expenses which may beincurred by the bank with respect to suchrental deposits shall be charged against thelessor;

g. All the minimum internal controlstandards applicable to savings depositaccounts prescribed in Sec. X185 shall becomplied with; and

h. The acceptance of such rentaldeposits, however, shall be optional ordiscretionary only upon the bank concerned.


Sec. X221 Peso Savings Deposit Accountsof Embassy Officials. Embassy officialsare allowed to open peso savings depositaccounts with Philippine banks: Provided,That they submit proof of conversion offoreign currency to peso with Philippinebanks.(M-2007-021 dated 15 September 2007)


C. NEGOTIABLE ORDER OFWITHDRAWAL ACCOUNTS

Sec. X223 Authority to Accept NegotiableOrder of Withdrawal AccountsNegotiable Order of Withdrawal (NOW)accounts are interest-bearing depositaccounts that combine the payable ondemand feature of checks and investmentfeature of savings accounts.

A UB/KB may offer NOW accountswithout prior authority of the MonetaryBoard.

A TB/RB/Coop Bank may accept NOWaccounts upon prior approval of theMonetary Board.

§ X223.1 Prerequisites to acceptnegotiable order of withdrawal accountsfor thrift banks/rural banks/cooperativebanks. In addition to the Standard Pre-qualification Requirements for the Grantof Banking Authorities enumerated inAppendix 5, a TB/RB/Coop Bank applyingfor authority to accept NOW accountsshall also comply with the followingrequirements:

a. The applicant TB must havecomplied with the minimum capitalrequired under Subsecs. X111.1 andX111.2.

In the case of RB/Coop Bank, it musthave net assets of at least P5.0 million:Provided, That RBs which have beenauthorized to accept or create NOWaccounts prior to the approval of R.A. No.7353 (Rural Banks Act of 1992) shall beallowed to continue servicing suchdeposits.

The terms capital and net assets shallhave the same meaning as in Sec. X111.

b. It must be a member of the PDICin good standing.

§ X223.2 Requirements for acceptingnegotiable order of withdrawal accountsAfter a TB’s/RB’s/Coop Bank’s applicationto accept NOW account has beenapproved, it may actually accept the samesubject to the following conditions:

a. Submission of a certificationsigned by the president/chairman of theboard of the bank stating that therequirements enumerated under Subsec.X223.1 have been complied with up tothe day before the NOW accountservices are actually offered/extended tothe public; and

b. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit awritten notice to the appropriatedepartment of the SES of the actual datewhen the NOW account deposit service


is offered to the public not later than ten(10) banking days from such offering of theservice.

§ X223.3 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653:

a. On the bankSuspension of its authority to accept or

create NOW accounts for one (1) year.b. On the certifying officerA fine of P5,000 per day from the time


Sec. X224 Rules on Servicing NegotiableOrder of Withdrawal Accounts. Thefollowing rules shall be observed inservicing NOW accounts:

a. Prior to or simultaneous with theopening of a NOW account, the bank shallinform the depositor of its terms andconditions;

b. The bank shall be responsible forthe proper identification of its depositors;it shall require, among other things, two(2) specimen signatures and such otherpertinent information;

c. Deposits shall be covered bydeposit slips in duplicate duly validated andinitialed by the teller receiving the deposit.A copy of the deposit slip shall be furnishedthe depositor;

d. NOW accounts shall be kept andmaintained separately from the regularsavings deposits;

e. Blank NOW forms shall beprenumbered and shall be controlled as inthe case of unissued blank checks;

f. A bank statement shall be sent toeach depositor at the end of each monthfor confirmation of balances; and

g. Banks must use the form prescribedby present rules for NOW accounts.

Nothing herein shall be construed asprecluding a TB, RB or Coop Bank fromapplying for authority to accept bothdemand deposits and NOW accounts.

Sec. X225 Minimum Features. The orderof withdrawal form shall have a size ofthree (3) inches by seven (7) inches, andshall be printed on security/check paper.It shall contain, as a minimum, the featuresof the pro-forma order of withdrawalshown in Appendix 11.

Sec. X226 Clearing of Negotiable Orderof Withdrawal Accounts. Any NOWaccount which may be deposited with abank other than the drawee bank maybe cleared through the PCHC in Manilaand the Regional Clearing Units inregional clearing centers designated bythe BSP in accordance with the clearingprocedures. Nothing in this Section shallprevent direct settlement between theparties concerned.

The provision of Sec. X202 shall alsoapply for withdrawals on NOW accounts.


D. TIME DEPOSITS

Sec. X231 Term of Time Deposits. Timedeposits shall be issued for a specific periodof term.

Sec. X232 Special Time DepositsAuthority shall be automatically granted toany accredited banking institution whichmay participate in the supervised creditprogram to accept special time depositsfrom the Agrarian Reform FundCommission with interest lower than therate allowed on time deposits acceptedfrom the general public. Such deposits shallbe exempt from the legal reserverequirements, as an exception to theexisting policies on the matter.

§§ X223.2 - X23208.12.31


Sec. X233 Certificates of Time Deposita. Negotiable Certificates of Time

Deposit (NCTDs)(1) UBs/KBs may issue NCTDs

without approval of the BSP.(2) TBs/RBs/Coop Banks may issue

NCTDs upon the prior approval of the BSP.b. Non-Negotiable Certificates of

Time DepositBanks may issue long-term non-

negotiable tax-exempt certificates of timedeposit without approval of the BSP.

§ X233.1 Prerequisites to issuenegotiable certificates of time depositsfor thrift banks/rural banks/cooperativebanks . In addition to the StandardPre-qualification Requirements for theGrant of Banking Authorities enumeratedin Appendix 5, a TB/RB/Coop Bankapplying for authority to issue NCTDsshall also comply with the followingrequirements:

a. Applicant’s capital must be at leastP150.0 million. For this purpose, capitalshall have the same meaning as in Sec.X111; and


§ X233.2 Requirements for issuingnegotiable certificates of time depositsAfter a TB’s/RB’s/Coop Bank’s applicationto issue NCTDs has been approved, it mayactually issue the same subject to thefollowing conditions:

a. Submission of a certification signedby the president/chairman of the board of thebank stating that the requirementsenumerated under Subsec. X233.1 havebeen complied with up to the day before theNCTDs are actually issued to the public; and

b. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit awritten notice to the appropriatedepartment of the SES of the actual date

when the NCTDs are actually issued to thepublic not later than ten (10) banking daysfrom such issuance.

§ X233.3 Minimum featuresa. Form; denomination - NCTDs may

be issued in bearer or other form denotingnegotiability and shall have a standard formatto be prescribed by the BSP which shall beprenumbered serially and predenominated.The minimum denomination shall be at thediscretion of the issuing bank. No certificatepayable to bearer shall contain wordsprohibiting its negotiation.

b. Term - The minimum maturity ofthe certificates shall be 731 days.

c. Manner of issuance - The certificatesshall be issued only upon receipt of fundsequivalent to their face value.

d. Manner of printing - NCTDs shallbe printed on security paper by theSecurity Printing Plant (SPP) of the BSP.

Orders for the printing of the desiredforms shall not exceed a total valueequivalent to twenty percent (20%) of theissuing bank’s capital accounts (based onthe quarter immediately preceding therequest for printing) at any one time.Additional orders for printing which shallresult in an excess over the prescribedbenchmark shall require prior BSPapproval.

§ X233.4 Insurance coverage. TheNCTDs shall be insured with the PDIC.Banks issuing bearer certificates shallimprint on the instrument the following:

“For purposes of deposit insurance bythe PDIC, the holder shall have his nameregistered in the books of the issuing bank.”

§ X233.5 Desistance from issuing newnegotiable certificates of time depositsUnless authorized by the BSP, TBs/RBs/Coop Banks with outstanding NCTDs shallimmediately desist from issuing newNCTDs.

§§ X233 - X233.508.12.31


All outstanding NCTDs shall be validand negotiable up to their maturity datesand shall not be subject to renewal.

§ X233.6 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653.

a. On the bankSuspension of its authority to issue

NCTDs for one (1) year.b. On the certifying officerA fine of P5,000 per day from the time


§§ X233.7 - X233.8 (Reserved)

§ X233.9 Long-term negotiablecertificates of time deposit. The followingguidelines shall govern the issuance oflong-term negotiable certificates of timedeposit (LTNCTD) with a minimummaturity of five (5) years:

a. Prior BSP approval. No LTNCTDshall be issued without the prior approvalof the BSP.

b. Application for authority of theissuing bank. An application for authorityon each issue/issue program of LTNCTDshall be filed with the appropriatedepartment of the SES: Provided, That theissue period of an issue program of two (2)or more tranches shall not exceed one (1)year from approval.

The application shall be signed by thepresident/country manager (branch of aforeign bank) of the bank. It shall beaccompanied by a certified true copy ofthe resolution of the bank’s board ofdirectors authorizing the issuance ofLTNCTD indicating, among others, theissue size, offering period, purpose orintended use of proceeds thereof, registrybank, underwriter/arranger, sellingagent(s) and market maker(s).

c. Pre-qualification requirements(1) Issuing bankA bank applying for authority to issue

an LTNCTD shall comply with thefollowing requirements:

(a) It has complied with the followingcapital adequacy requirements:

(i) Minimum capitalization as definedunder Sec. X111; and

(ii) Risk-based capital adequacy ratiounder Sec. X115 within the sixty (60) daysimmediately preceding the date ofapplication;

(b) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(c) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/or BSP Management in the last two (2)preceding examinations prior to the dateof application, more particularly:

(i) The ceilings on creditaccommodations to DOSRI;

(ii) Liquidity floor requirements forgovernment deposits;

(iii) Single borrower’s loan limit; and(iv) Investment in bank premises and

other fixed assets;(d) It maintains adequate provisions

for probable losses commensurate to thequality of its asset portfolio but not lowerthan the required valuation reserves asdetermined by the BSP;

(e) It does not have float itemsoutstanding for more than sixty (60)calendar days in the “Due From/To HeadOffice/Branches/Offices” accounts and the“Due From Bangko Sentral“ accountexceeding one percent (1%) of the totalresources as of date of application;

(f) It has no past due obligations withthe BSP or with any government FI;

(g) It has established a risk managementsystem appropriate to its operationscharacterized by clear delineation ofresponsibility for risk management, adequate

§§ X233.5 - X233.908.12.31


risk measurement systems, appropriatelystructured risk limits, effective internalcontrols and complete, timely and efficientrisk reporting system;

(h) It has a CAMELS CompositeRating of at least “3” in the last regularexamination; and

(i) It is a member of PDIC in goodstanding.

(2) Registry bank(a) It may be a UB, a KB, or such other

specialized entity that may be qualified bythe Monetary Board;

(b) In the case of a UB or a KB:(i) It must be a third party:(aa) with no subsidiary/affiliate

relationship with the issuing bank; and(bb) which is not related to the issuing

bank in any manner that would undermineits independence.

(ii) It must have adequate facilitiesand the organization to do the following:

(aa) Maintain the Electronic RegistryBook (ERB);

(bb) Deliver transactions within theagreed trading period; and

(cc) Issue registry confirmations toholders of LTNCTDs.

(iii) It must have a CAMELS CompositeRating of at least “3” in the last regularexamination.

(3) Underwriter/Arranger(a) I t i s e i ther a UB or an IH:

Provided, That if an offering is on abest-efforts basis, such arranger may alsobe a KB;

(b) It must be a third party, such that:(i) it has no subsidiary/affiliate

relationship with the issuing bank; and(ii) it is not related in any manner that

would undermine the objective conduct ofdue diligence.

(c) Underwriters must be well-capitalized and must have adequate riskmanagement as evidenced by compliancewith Items “c(1)(a), (d), (g) and (h)” as maybe applicable.

(4) Selling agentIt may be any FI, with dealership or

brokering license, under the regulatorysupervision of the BSP.

(5) Market maker(a) It must not be the issuing bank;(b) It must be a third party which is not

related to the issuing bank in any mannerthat would undermine its independence;

(c) It must be a FI, with dealership orbrokering license, under the regulatorysupervision of the BSP; and

(d) It must be well-capitalized andmust have adequate risk management asevidenced by compliance with Items“c(1)(a), (d), (g) and (h)” as may beapplicable.

d. Additional requirements for theissuance of LTNCTD. After a bank’sapplication to issue an LTNCTD has beenapproved, it may issue the same, subjectto the submission of the followingadditional requirements:

(1) At least fifteen (15) days before thedate of offering:

(a) Written waiver of the secrecy ofdeposits on said LTNCTD by the issuingbank, its subsidiaries, affiliates and whollyor majority-owned or -controlled entitiesof such subsidiaries and affiliates;

(b) Information disclosure and theterms and conditions of the LTNCTDissuance;

(c) Promotional materials; and(d) Specimen of the proposed registry

confirmation and purchase advice fromeach selling agent/market maker whichwill evidence sale of the LTNCTD.

(2) Within ten (10) days after issuanceof the initial and subsequent tranches:

Written notice to the appropriatedepartment of the SES of the actual date ofinitial/tranche offering accompanied by acertification by the president/countrymanager that the pre-qualificationrequirements under Item “c(1)” have beencomplied with up to the time of offering.

§ X233.908.12.31


e. Functions/responsibilities of theparties involved. The respective partiesshall have, among others, the followingfunctions/responsibilities:

(1) Registry bank(a) Generates and maintains the

ERB;(b) Records any transfer of ownership;(c) Issues and sends registry

confirmation to holders;(d) Functions as paying agent for

periodic interest and principal payments;and

(e) Monitors compliance with theprohibition on holdings of LTNCTD, asprescribed under Item “h” hereof.

(2) Underwriter/Arranger(a) Conducts due diligence on the

issuing bank and determines the valuation/pricing of the primary issue;

(b) Prepares the prospectus/informationdisclosure/updates for multi-tranche issues;

(c) Formulates the distr ibution/allocation plan for the initial offering andensures proper and orderly distributionof the primary sale/issue of theLTNCTDs;

(d) Disseminates information toprospective depositors/investors ofLTNCTDs on the terms and conditions ofthe issue (including information of non-pretermination by the depositor prior tooriginal maturity and the liquiditymechanism in secondary trades) and therights and obligations of the holder, issuer,market maker/selling agent, underwriter/arranger and registry bank; and

(e) When selling to its clients, it mustperform the functions/responsibilities of theselling agent under Items “e(3)(a) and (b)”.

(3) Selling agent(a) Verifies identity of each investor

and applies other standards to combatmoney laundering as required under Sec.X801; and

(b) Issues the purchase advice for theprimary offering of the LTNCTDs.

(4) Market maker(a) Sets independent pricing for the

secondary trading of LTNCTDs;(b) Posts daily the bid and offer prices

for the LTNCTDs on the screen of at leastone (1) of the information providers untilthe operation of a fixed income exchangefor LTNCTDs;

(c) Verifies identity of each investorand applies other standards to combatmoney laundering as required under Sec.X801;

(d) Issues the purchase advice for thesecondary sale of the LTNCTDs; and

(e) Ensures secondary market transfersand registration in coordination with theregistry bank.

f. Change of Underwriter/Arranger,registry bank, selling agent(s)/marketmaker(s). After an application for authorityto issue LTNCTDs has been approved bythe BSP, the issuing bank cannot changeits underwriter/arranger, registry bank,selling agent(s) and market maker(s)without the prior approval of the BSP.

g. Waiver of the secrecy of depositsfor market makers. A market maker whoholds an LTNCTD for its own account mustissue a waiver of the secrecy of depositsin favor of the BSP for examinationpurposes. Any information obtained froman examination of said LTNCTD shall beheld strictly confidential.

h. Prohibition on holdings ofLTNCTDs. The issuing bank including itsrelated companies (subsidiaries andaffiliates and wholly or majority-owned or-controlled entities of such subsidiaries andaffiliates) cannot be a holder of theLTNCTDs of the issuing bank.

The issuing bank shall provide theregistry bank with an updated list of allrelated companies. This report shall be a“Category B” report.

For purposes of this Subsection, anaffiliate is an entity, at least twenty percent(20%) but not exceeding fifty percent (50%)

§ X233.908.12.31


of the outstanding voting stock of which is,owned by the issuing bank.

i. Agreements between issuing bankand registry bank/selling agent(s)/marketmaker(s). The agreements between theissuing bank and the registry bank/marketmakers/selling agents shall comply withthe provisions of Sec. X162 on bank servicecontracts. The issuing bank shall be liablefor any damages to investors/depositorscaused by actions of said registry bank,selling agent(s)/market maker(s) contraryto the agreements entered into.

j. Minimum features(1) Form; denomination - An LTNCTD

shall be in scripless form with a third partyregistry bank maintaining the ERB. To havelegal effect, it shall comply with theprovisions of R.A. No. 8792 (ElectronicCommerce Act) particularly on theexistence of an assurance on the integrity,reliability and authenticity of the LTNCTDin electronic form. LTNCTDs shall beregistered in the name of individuals orcorporations, negotiable and prenumberedserially. The minimum denomination shallbe at the discretion of the issuing bank.

(2) Currency - Denomination shall bein Philippine pesos.

(3) Term - The minimum maturity ofthe LTNCTDs shall be five (5) years.

(4) Primary Offering/SecondaryTrading - The initial offering shall beexecuted through an underwriter or anarranger. Subsequent negotiations insecondary trading must be executedthrough authorized market maker(s).

k. Purchase Advice and RegistryConfirmation

(1) The Purchase Advice and RegistryConfirmation shall conspicuously containthe following caveat:

(a) “This LTNCTD cannot be terminatedby the holder nor the Issuing Bank before(maturity date). However, negotiations/transfers from one (1) holder to another donot constitute pretermination.”

The caveat shall apply if the issuingbank commits no pretermination.Otherwise, it shall read as follows:

“This LTNCTD cannot be terminated bythe holder before (maturity date). However,it may be preterminated at the instance ofthe Issuing Bank upon prior notice to theholder on record. Negotiations/transfers fromone (1) holder to another do not constitutepretermination”; and

(b) “All negotiations/transfers of thisLTNCTD prior to maturity must be coursedthrough a Market Maker”.

(2) The selling agent/market makershall issue a Purchase Advice to evidenceinitial purchase/secondary trading ofLTNCTD with the original copy given tothe holder.

(3) The registry bank shall issue aRegistry Confirmation to evidenceownership of the LTNCTD, with theoriginal copy given to the holder.

l. Issue size and aggregate ceiling.An issuing bank can issue LTNCTDs up to300% of its total capital accounts as definedunder Subsec. X111/X105.5: Provided, Thateach issue/issue program size does notexceed P5.0 billion pesos. This ceiling shallbe subject to a regular review by the BSP.

m. Deposit insurance coverage. TheLTNCTDs shall be insured with the PDIC,subject to applicable rules and regulations,among others, on maximum insurancecoverage.

n. Pretermination by the issuer.LTNCTDs may be preterminated by theissuing bank, subject to the followingconditions:

(1) The Information Disclosure,Purchase Advice and Registry Confirmationshall include the information that theLTNCTD may be preterminated by theissuing bank;

(2) Thirty (30)-day prior notificationmust be given to the appropriatedepartment of the SES together with thejustification for the pretermination;

§ X233.908.12.31


(3) Thirty (30)-day prior notification toholders of record;

(4) Notwithstanding any agreement tothe contrary, the issuer shall shoulder thetax due on the interest income alreadyearned by the holders; and

(5) The issuing bank’s reservepositions shall be recomputed retroactivelybased on the applicable reserve rate(s) forregular time deposits during the affectedperiods.

If the recomputed amounts result in areserve deficiency, the issuing bank shallbe fined with the corresponding monetarypenalties. The preceding monetarypenalty, however, shall not be imposed ifpretermination by the issuer is due to achange in law or regulation that willincrease the cost of maintaining theLTNCTDs.

o. Non-pretermination by the holder.Presentation of the LTNCTD to the issuingbank for payment before the maturity dateis not allowed. However, negotiation ortransfer from one (1) holder to another shallnot constitute pretermination of theLTNCTD.

p. Sanctions. Without prejudice tothe other sanctions prescribed underSection 37 of R.A. No. 7653 and theprovisions of Section 16 of R.A. No. 8791,the following sanctions will be imposedon any issuing bank, registry bank andother parties for failure to perform theirrespective functions/responsibilities andfor non-disclosure or misrepresentationof information:

(1) On the issuing bank - Suspensionof its authority to issue LTNCTDs,disqualification from future issuance ofLTNCTDs and a monetary penalty ofP30,000 for each violation.

(2) On the registry bank - Disqualificationto be a registry bank for one (1)-year and amonetary penalty of P30,000 for eachviolation.

(3) On all authorized selling agents/market makers - Disqualification to beappointed as selling agent/market makerfor one (1) year and a monetary penalty ofP30,000 for each violation.

(4) On the certifying officer - A fine ofP5,000 per day from the time of requireddisclosure up to the time disclosure wasmade; or from the time misrepresentationwas made up to the time the informationwas corrected.

(5) On the responsible officer - A fineof P30,000 for participating or confirmingin the non-disclosure or misrepresentationof information.(As amended by Circular No. 585 dated 15 October 2007)


§ X233.11 Long-term non-negotiabletax-exempt certificates of time depositThe issuance of long-term non-negotiabletax-exempt certificates of time deposit shallbe governed by the following rules:

a. Minimum features(1) Form; denomination - The

certificate shall contain words denotingits non-negotiability and shall be issuedby banks only in the name of individualswith denominations in increments ofP1,000.00.

(2) Term - The minimum maturity ofthe certificate shall be five (5) years.

(3) Manner of issuance - The certificateshall be issued only upon receipt of fundsequivalent to their face value.

(4) Manner of printing - The certificateshall be printed on security paper.

(5) Pre-termination - In case ofpre-termination, the deposit shall besubject to income tax as provided underSection 24(B)(1) of the Tax Reform Act of1997 which states that “xxx a final tax shallbe imposed on the entire income and shallbe deducted and withheld by thedepository bank from the proceeds of the

§§ X233.9- X233.1108.12.31


long-term deposit or investment certificatebased on the remaining maturity thereof:

(a) Four (4) years to less than

five (5) years 5%

(b) Three (3) years to less than

four (4) years 12%

(c) Less than three (3) years 20%

b. Insurance coverage. The depositsshall be insured with the PDIC, subjectto applicable rules and regulations,among others, on maximum insurancecoverage.

c. Reserves against long-termnon-negotiable certificates of time deposit.The rate and form of required reserves onregular time deposit shall also apply to therequired reserves on long-term non-negotiable tax-exempt certificates of timedeposit.

E. DEPOSIT SUBSTITUTEOPERATIONS

(QUASI-BANKING FUNCTIONS)

Sec. X234 Scope of Quasi-BankingFunctions. The following rules andregulations shall govern the quasi-bankingoperations of banks.

§ X234.1 Elements of quasi-bankingThe essential elements of quasi-banking are:

a. Borrowing funds for the borrower’sown account;

b. Twenty (20) or more lenders at anyone (1) time;

c. Methods of borrowing areissuance, endorsement, or acceptance ofdebt instruments of any kind, other thandeposits, such as acceptances, promissorynotes, participations, certificates ofassignments or similar instruments withrecourse, trust certificates, repurchaseagreements, and such other instruments asthe Monetary Board may determine; and

d. The purpose of which is (1)relending, or (2) purchasing receivables orother obligations.

§ X234.2 Definition of terms andphrases. The following terms and phrasesshall be understood as follows:

a. Borrowing shall refer to all formsof obtaining or raising funds through anyof the methods and for any of the purposesprovided in Subsec. X234.1 whether theborrower’s liability thereby is treated asreal or contingent.

b. For the borrower’s own account shallrefer to the assumption of liability in one’sown capacity and not in representation, oras an agent or trustee, of another.

c. Purchasing of receivables or otherobligations shall refer to the acquisition ofclaims collectible in money, includinginterbank borrowings or borrowingsbetween financial institutions, or ofacquisition of securities, of any amount andmaturity, from domestic or foreign sources.

d. Relending shall refer to theextension of loans by an institution withantecedent borrowing transactions.Relending shall be presumed, in theabsence of express stipulations, when theinstitution is regularly engaged in lending.

e. Regularly engaged in lending shallrefer to the practice of extending loans,advances, discounts or rediscounts as amatter of business, as distinguished fromisolated lending transactions.

§ X234.3 Transactions not consideredquasi-banking. The following shall notconstitute quasi-banking:

a. Borrowing by commercial,industrial and other non-financialcompanies through any of the means listedin Subsec. X234.1 hereof, for the limitedpurpose of financing their own needs orthe needs of their agents or dealers; and

b. The mere buying and sellingwithout recourse of instruments mentionedin Subsec. X234.1: Provided, That:

(1) The institution buying and sellingwithout recourse shall indicate inconspicuous print on its instrument the

§§ X233.11 - X234.308.12.31


phrase without recourse, sans recourse orwords of similar import that will conveythe absence of liability or guarantee by saidinstitution; and

(2) In the absence of the phrase“without recourse”, “sans recourse” orwords of similar import, the instrument soissued, endorsed or accepted, shallautomatically be considered as fallingwithin the purview of these regulations:Provided, further, That any of the followingpractices or practices similar and/ortantamount thereto in connection with awithout recourse transaction is herebyprohibited:

(a) Issuance of postdated checks by afinancial intermediary, whether for its ownaccount or as an agent of the debtinstrument issuer, in payment of the debtinstrument, sold, assigned or transferredwithout recourse; or

(b) Issuance by a financial intermediaryof any form of guaranty on sale transactionsor on negotiations or assignment of debtinstruments without recourse; and

(c) Payment with its own funds by afinancial intermediary which assigned, soldor transferred the debt instrument withoutrecourse, unless the financial intermediarycan show that the issuer has with the saidfinancial intermediary funds correspondingto the amount of the obligation.

§ X234.4 Pre-conditions for theexercise of quasi-banking functions. Nobank shall engage in quasi-bankingfunctions without authority from the BSP:Provided, however, That banks authorizedby the BSP to perform universal orcommercial banking functions shallautomatically have the authority to engagein quasi-banking functions: Provided,further, That the authority to obtain fundsfrom the public, which shall mean twenty(20) or more persons under Section 8.2 ofR.A. 8791, is not a condition but anauthorization for the bank or quasi-bank,

once the Monetary Board has granted thequasi-banking license.

In addition to the StandardPre-qualification Requirements for theGrant of Bank Authorities enumerated inAppendix 5, a TB securing BSP authorityto engage in quasi-banking functions mustmeet the following requirements:

a. The bank must have a networth orcombined capital of at least P650.0 millioncomputed in accordance with Sec. X111;

b. The bank is well capitalized withrisk-based capital adequacy ratio of notlower than twelve percent (12%) at thetime of filing the application;

c. The bank’s operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

d. The bank has elected at least two(2) independent directors and all itsdirectors have attended the requiredseminar for directors of banks conductedor accredited by the BSP;

e. The bank has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls, andcomplete, timely and efficient riskreporting system; and

f. The bank has a CAMELSComposite Rating of at least “3” in the lastregular examination with managementrating of not lower than “3”.

§ X234.5 Certificate of Authority fromthe Bangko Sentral. A bank securing BSP’sCertificate of Authority to engage inquasi-banking functions shall file anapplication with the appropriatedepartment of the SES. The applicationshall be signed by the bank president orofficer of equivalent rank and shall beaccompanied by the following documents:

§§ X234.3- X234.508.12.31


a. Certified true copy of the resolutionof the bank’s board of directors authorizingthe application;

b. A certification signed by thepresident or the officer of equivalent rankthat the institution has complied with allconditions/prerequisites for the grant ofauthority to engage in quasi-bankingfunctions;

c. An information sheet;d. Bio-data signed under oath, of the

members of the managerial staff who willundertake quasi-banking operations;

e. Borrowing-investment program forone (1) year which should include at theminimum:

(1) planned distribution of portfoliosas to -

(a) underwriting;(b) commercial paper markets;(c) stocks and bonds;(d) government securities;(e) receivables financing, discounting

and factoring;(f) leasing; and(g) direct loans;(2) expected sources of funds to

support investment program classifiedas to -

(a) maturity: short, medium andlong-term;

(b) interest rates; and(c) domestic or foreign sources

whether institutional or personal.TBs authorized to engage and are

actually performing quasi-banking functionsbut do not meet the new capitalrequirement are hereby given a period oftwo (2) years reckoned from 11 November2004 within which to comply with theminimum capital requirement in Subsec.X234.4 (a): Provided, That in case the TBhas an approved capital build-up programunder Subsec. X501.2, for its FDCUlicense, the approved capital build-upprogram, may be considered compliancewith this requirement: Provided, further,

That in case, the TB has no approvedcapital build-up program, the minimumcapital requirement may be substituted bya capital build-up program for a period ofnot more than five (5) years from11 November 2004 and which must beapproved by the Monetary Board. Suchcapital build-up program shall be in equalannual or diminishing amounts and shallbe submitted to the appropriatedepartment of the SES within three (3)months from 11 November 2004.

TBs which fail to comply with therequired capitalization upon expiration ofsaid two (2) year period given them orthose which fail to comply with approvedcapital build-up program shall liquidatetheir quasi-banking operations within one(1) year and shall be considered revoked/cancelled. The license of a TB withauthority to engage in quasi-bankingfunctions but has not actually engaged inquasi-banking functions and has notcomplied with the above minimum capitalrequirements as of 11 November 2004,shall automatically be revoked.

§ X234.6 Sale, discounting, assignmentor negotiation by banks of their creditrights arising from claims against theBSP. Pursuant to the policy of the BSP topromote investor protection andtransparency in securities transactions asimportant components of capital marketsdevelopment, credit rights in SpecialDeposit Account (SDA) placements andreverse repo agreements with the BSP,shall not be subject of sale, discounting,assignment or negotiation on a with orwithout recourse basis.

Any violation of the provisions of thisSubsection shall be considered a lessserious offense and shall subject the bankand the director/s and/or officer/sconcerned to the sanctions provided underSection X299.(Circular No. 636 dated 17 December 2008)

§§ X234.5 - X234.608.12.31


Sec. X235 Deposit Substitute InstrumentsAny deposit substitute transaction by abank performing quasi-banking functionsshall be limited to its own promissorynotes, repurchase agreements, andcertificates of assignment/participationwith recourse.

§ X235.1 Prohibition against use ofacceptances, bills of exchange and trustcertif icates. Acceptances, bil ls ofexchange, and trust certificates shall notbe used by banks as evidence of depositsubstitute liabilities in connection withtheir quasi-banking functions. Thisprohibit ion shall not apply to theacceptance or negotiation of bills ofexchange in connection with tradetransactions, or to the issuance of trustcertificates creating trust relationships.

§ X235.2 Negotiation of promissorynotes. Negotiable promissory notesacquired by banks in connection with theirquasi-banking functions shall not benegotiated by mere indorsements and/ordelivery, if they do not conform with theminimum features prescribed underSubsec. X235.3. If these notes do notcontain the features, their negotiation shallbe covered by any of the appropriatedeposit substitute instruments above-mentioned.

§ X235.3 Minimum features. Depositsubstitute instruments issued by entitiesperforming quasi-banking functions shallhave the following minimum features:

a. The present value and maturityvalue and/or the principal amount andinterest rate and such other informationas may be necessary to enable the partiesto determine the cost or yield of theborrowing or placement shall bespecified.

b. The date of issuance shall beindicated at the upper right corner of the

instrument, and directly below which shallbe the maturity period or the word“demand”, if it is a demand instrument.

c. The payee may be identified by histrust account/deposit account number inboth negotiable and non-negotiableinstruments.

d. Securities which are the subject ofa repurchase agreement or a certificate ofassignment/participation with recourse,shall be particularly described on the faceof said instruments or on a separateinstrument attached and specificallyreferred to therein and made an integralpart thereof as to the maker, value,maturity, serial number, and such otherparticulars as shall clearly identify thesecurities.

e. The instrument shall provide for thepayment of liquidated damages, in additionto stipulated interest, in case of default bythe maker or issuer, as well as attorney’sfees and costs of collection in case of suit.

f. A conspicuous notice at the lowercenter margin of the face of the instrumentthat the transaction is not insured by thePDIC shall be indicated.

g. The corporate name of the issuershall be printed at the upper center marginof the instrument and directly belowwhich shall be a designation of theinstrument, such as “Promissory Note”or “Repurchase Agreement”.

h. The words “duly authorizedofficer“ shall be placed directly below thesignature of the person signing for themaker or issuer.

i. Each instrument shall be seriallypre -numbered.

j. The copy delivered to the payeeshall bear the word “Original” and thecopies retained by the issuer shall beidentified as “Duplicate”, “File Copy” orwords of similar import.

k. Only security paper with adequatesafeguards against alteration or falsificationshall be used.

§§ X235 - X235.308.12.31


Borrowings of banks from the loans anddiscounts window of other banks ornon-bank financial intermediaries shall beexempted from the documentationrequirements prescribed in this Subsection:Provided, That the exemption from thedocumentation requirements prescribed inthis Subsection shall not be construed orinterpreted as exempting said borrowingsfrom other regulations standardizingdeposit substitute instruments and fromother BSP regulations on depositsubstitutes.

Deposit substitute instruments shallconform to the language prescribed by theBSP. Any substantial deviation therefromor any additional stipulation therein shallbe referred to the BSP for prior approval.The size and appearance of theseinstruments, shall not be similar to the sizeand appearance of checks. Rubberstamping, typewriting or handwriting someprovisions shall not be consideredcompliance with said regulations. (Shownin Appendix 12 are the samples ofstandardized instruments as evidence ofdeposit substitute liabilities.)

§ X235.4 Interbank loan transactionsExcept for interbank loan transactionsevidenced by interbank loan advice orrepayment transfer tickets settled thru theDDAs with the BSP, all interbank loantransactions shall be evidenced by apromissory note containing the minimumfeatures prescribed in Subsec. X235.3.

§ X235.5 Delivery of securities 1

a. Securities, warehouse receipts,quedans and other documents of titlewhich are the subject of quasi-bankingfunctions, such as repurchase agreements,shall be physically delivered, if certificated,to a BSP accredited custodian that ismutually acceptable to the lender/purchaser and borrower/seller, or by meansof book-entry transfer to the appropriate

securities account of the BSP-accreditedcustodian in a registry for said securities,if immobilized or dematerialized whilethe overlying principal borrowinginstrument shall be physically deliveredto the lender/purchaser. The custodianshall hold the securities in the name ofthe borrower/seller, but shall keep saidsecurities segregated from the regularsecurities account of the borrower/sellerif the borrower/seller has an existingsecurities account with the custodian:Provided, That a bank/other entityauthorized by the BSP to performcustodianship function may not beallowed to be custodian of securitiesissued or owned by said bank/entity, itssubsidiaries or affiliates, or of securitiesin bearer form.

The delivery shall be effected uponpayment and shall be evidenced by asecurities delivery receipt duly signedby authorized officers of the custodianand delivered to both the lender/purchaser and seller/borrower.

Sanctions. Violation of any provisionof Item “a” shall be subject to the followingsanctions/penalties:

(1) Monetary penaltiesFirst Offense - Fine of P10,000 a day

for each violation reckoned from the datethe violation was committed up to the dateit was corrected.

Subsequent offenses - Fine of P20,000a day for each violation reckoned from thedate the violation was committed up to thedate it was corrected.

(2) Other sanctionsFirst offense - Reprimand for the

directors/officers responsible for the violation.Subsequent offense -(a) Suspension for ninety (90) days

without pay of directors/officers responsiblefor the violation;

(b) Suspension or revocation of theaccreditation to perform custodianshipfunction;

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

§§ X235.3 - X235.508.12.31


(c) Suspension or revocation of theauthority to engage in quasi-bankingfunction; and/or

(d) Suspension or revocation of theauthority to engage in trust and otherfiduciary business.

b. The guidelines to implement thedelivery by the seller of securities to thebuyer or to his designated third partycustodian are shown in Appendix 68.

The disposition of compliance issuesof Appendix 68 is shown in Appendix 68a.

The guidelines on the delivery ofgovernment securities to the investor’sprincipal securities account with theRegistry of Scripless Securities (RoSS) arein Appendix 68b.

Sanctions. Without prejudice to thepenal and administrative sanctionsprovided for under Sections 36 and 37,respectively of R.A. No. 7653 (The NewCentral Bank Act), violation of anyprovision of the guidelines in Appendix68 shall be subject to the followingsanctions/penalties depending on thegravity of the offense:

(a) First offense -(1) Fine of up to P10,000 a day for the

institution for each violation reckoned fromthe date the violation was committed upto the date it was corrected; and

(2) Reprimand for the directors/officersresponsible for the violation.

(b) Second offense -(1) Fine of up to P20,000 a day for

the ins t i tu t ion for each v io la t ionreckoned from the date the violationwas committed up to the date it wascorrected; and

(2) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

(c) Subsequent offenses -(1) Fine of up to P30,000 a day for the

institution for each violation from the datethe violation was committed up to the dateit was corrected;

(2) Suspension or revocation of theauthority to act as securities custodianand/or registry; and

(3) Suspension for 120 days withoutpay of the directors/officers responsible forthe violation.(As amended by M-2007-002 dated 23 January 2007,

M-2006-009 dated 06 July 2006, M-2006-002 dated

05 June 2006 and Circular No. 524 dated 31 March 2006)

§ X235.6 Other rules and regulationsgoverning the issuance and treatment ofdeposit substitute instruments

a. If there is any stipulation thatpayment of the deposit substitute shallbe chargeable against a part iculardeposit account, it shall further providethat the liability of the maker or issuerof the instrument shall not be limitedto the outstanding balance of saidaccount.

b. Any agreement allowing theissuer or maker to substi tute theunderlying securit ies shall furtherprovide that the actual substitution shallbe with the prior written consent of thepayee.

c. Automatic renewal upon maturityof the instrument may be effected onlyunder terms and conditions previouslystipulated by the parties.

d. Stipulations between the maker orissuer and the payee which are embodiedin separate instruments shall be specificallyreferred to in the deposit substituteinstruments and made an integral partthereof.

e. In the case of repurchaseagreements and certificates of assignment/participation with recourse, the stipulationshall clearly state either (1) that theunderlying securities are being deliveredto the buyer or assignee as collaterals or(2) that the ownership thereof is beingtransferred to the buyer or assignee.

§§ X235.7 - X235.11 (Reserved)

§§ X235.5- X235.1108.12.31


§ X235.12 Repurchase agreementscovering government securities,commercial papers and other negotiableand non-negotiable securities orinstruments. The following regulations shallgovern repurchase agreements coveringgovernment securities, commercial papersand other negotiable and non-negotiablesecurities or instruments of banks as wellas sale on a without recourse basis of saidsecurities by banks.

a. Proper recording and documentationof repurchase agreements.

Banks shall have a true and accurateaccount, record or statement of their dailytransactions. As such, repurchaseagreements covering governmentsecurities, commercial papers and othernegotiable and non-negotiable securitiesor instruments must be properlyrecorded and documented in accordancewith existing BSP regulations.

The absence of proper documentationfor repurchase agreements is tantamountto willful omission of entries relevant toany transaction, which shall be a groundfor the imposition of administrativesanctions and the disqualification fromoffice of any director or officer responsibletherefor under existing laws andregulations.

b. Responsibilities of the chiefexecutive officer (CEO) or officer ofequivalent rank.

It shall be the responsibility of the CEOor the officer of equivalent rank in a bank to:

(1) Institute policies and proceduresto prevent undocumented or improperlydocumented repurchase agreementscovering government securit ies,commercial papers and other negotiableand non-negotiable securit ies orinstruments;

(2) Submit a notarized certification atthe end of every semester that the bankdid not enter into any repurchaseagreement covering government

securities, commercial papers and othernegotiable and non-negotiable securitiesor instruments that are not documentedin accordance with exist ing BSPregulations and that the bank has strictlycomplied with the pertinent rules of theSEC and the BSP on the proper sale ofsecurities to the public and performedthe necessary representations anddisclosures on the securities particularlythe following:

(a) Informed the clients that suchsecurities are not deposits and as such, donot benefit from any insurance otherwiseapplicable to deposits such as, but notlimited to, R.A. No. 3591, as amended,otherwise known as the PDIC law;

(b) Informed and explained to theclient all the basic features of the securitybeing sold on a without recourse basis, suchas but not limited to:

(i) issuer and its financial conditions;(ii) term and maturity date;(iii) applicable interest rate and its

computation;(iv) tax features (whether taxable, tax

paid or tax-exempt);(v) risk factors and investment

considerations;(vi) liquidity feature of the instrument:(aa) procedures for selling the security

in the secondary market (e.g., OTC orexchange);

(bb) authorized selling agents; and(cc) minimum selling lots.(vii) disposition of the security:(aa) registry (address and contact

numbers);(bb) functions of the registry; and(cc) pertinent registry rules and

procedures.(viii) collecting and paying agent of the

interest and principal; and(ix) other pertinent terms and

conditions of the security and if possible, acopy of the prospectus or information sheetof the security.

§ X235.1208.12.31


(c) Informed the client that pursuant toSubsecs. X235.5 and X238.1:

(i) Securities sold under repurchaseagreements shall be physically delivered,if certificated, to a BSP-accreditedcustodian that is mutually acceptable to theclient and the bank, or by means of book-entry transfer to the appropriate securitiesaccount of the BSP-accredited custodian ina registry for said securities, if immobilizedor dematerialized; and

(ii) Securities sold on a withoutrecourse basis are required to be deliveredphysically to the purchaser, or to hisdesignated custodian duly accredited bythe BSP, if certificated, or by means ofbook-entry transfer to the appropriatesecurities account of the purchaser or hisdesignated custodian in a registry for saidsecurities if immobilized or dematerialized.

(d) Clearly stated to the client that:(i) The bank does not guarantee the

payment of the security sold on a “withoutrecourse basis” and in the event of defaultby the issuer, the sole credit risk shall beborne by the client; and

(ii) The bank is not performing anyadvisory or fiduciary function.

(3) Report to the appropriatedepartment of the SES any undocumentedrepurchase agreement within seventy-two(72) hours from knowledge of suchtransactions.

c. Treatment as Deposit Substitutes.All sales of government securities,commercial papers and other negotiableand non-negotiable securities orinstruments that are not documented inaccordance with existing BSP regulationsshall be deemed to be deposit substitutessubject to regular reserves.

d. Certification. The submissiondeadline for the required certification fromthe CEO/officer of equivalent rank of thebank shall initially be 01 February 2005using the format attached as Annex A ofAppendix 65. Thereafter, the required

succeeding certification shall be submittedwithin five (5) banking days from end ofreference semester using the formatattached as Appendix 65.

e. Sanctions. The Monetary Boardmay, at its evaluation and discretion,impose any or all of the following sanctionsto a bank or the director/s or officer/s foundto be responsible for repurchaseagreements covering governmentsecurities, commercial papers and othernegotiable and non-negotiable securitiesor instruments that are not documentedin accordance with exist ing BSPregulations:

(1) Fine of up to P30,000 a day to theconcerned entity for each violation fromthe date the violation was committed upto the date it was corrected;

(2) Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

(3) Suspension of access to BSPrediscounting facilities;

(4) Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

(5) Revocation of quasi-bankinglicense;

(6) Revocation of authority to performtrust operations; and

(7) Suspension for one hundred twenty(120) days without pay of the directors/officers responsible for the violation.

Sec. X236 Minimum Trading Lot andMinimum Term of Deposit Substitute

a. The minimum size of any singledeposit substitute transaction shall beP50,000.

No bank performing quasi-bankingfunctions shall issue deposit substituteinstruments in the name of two (2) or morepersons or accounts except those fallingunder the following relationships in whichcases, commingling may be allowed: (a)husband and wife; (b) persons related to

§§ X235.12- X23608.12.31


each other within the second degree ofconsanguinity; and (c) “in trust for” (ITF)arrangements.

b. The minimum term of any singledeposit substitute transaction shall befifteen (15) days except interbankborrowings, which shall not be subject tothis limitation.

Sec. X237 Money Market Placements ofRural Banks. Banks shall not accept moneymarket placements from any RB unless thelatter presents a certification under oathstating: (a) that it has no overdue specialtime deposits; (b) that it has no past dueobligations with the BSP or othergovernment financial institutions; (c) theamount of its current obligations, if any,with said government financial institutions;and (d) the amount of its total outstandingmoney market placements. However, inno case shall such banks sell receivablesto RBs without recourse.

§ X237.1 Definition of terms. As usedin this Section, the following terms shallhave the following meanings:

a. Money market placements shallinclude investments in debt instruments,including purchase of receivables withrecourse to the lending institution, exceptpurchase of government securities on anoutright basis.

b. Government securities shallinclude evidences of indebtedness of theRepublic of the Philippines, the BSP andother evidences of indebtedness orobligations of government entities theservicing and repayment of which are fullyguaranteed by the Republic of thePhilippines.

c. Persistent violation shall mean theviolation of any of the provisions of theserules by the director or officer concernedfor four (4) or more times within a twelve(12)-month period from the date the firstoffense was committed.

§ X237.2 Conditions required onaccepted placements not covered byprohibition. Placements accepted whichare otherwise not covered by the aboveprohibition must comply with the followingconditions:

a. That total money market placementsof an RB as stated in the certification,including the placement being acceptedby the entity concerned, shall not exceedthe RB’s combined capital accounts or networth less current obligations with the BSPor other government financial entities;

b. The maturity of the money marketplacement shall not exceed sixty (60) days;and

c. That placements shall be evidencedin all cases by promissory notes of acceptingentities/repurchase agreements and/orcertificates of participation/assignment withrecourse and that underlying instrumentsshall be certificates of indebtedness issuedby the BSP or other government securitiesthe servicing and repayment of which areguaranteed by the Republic of thePhilippines.

§ X237.3 Sanctions. Violations of theprovisions of this Section shall be subjectto the following sanctions/penalties:

a. Monetary penaltiesFirst offense - Fines of P3,000 a day,

reckoned from the date placement startedup to the date when said placement waswithdrawn, for each violation shall beassessed on the bank.

Subsequent offenses - Fines of P5,000a day, reckoned from the date placementstarted up to the date placement waswithdrawn, for each violation shall beassessed on the bank.

b. Other sanctionsFirst offense - Reprimand for the

directors/officers who approved theacceptance/placement with a warning thatsubsequent violations will be subject tomore severe sanctions.

§§ X236 - X237.308.12.31


Subsequent offenses -(1) Suspension for ninety (90) days

without pay for directors/officers whoapproved the placement.

(2) Suspension or revocation of theauthority to engage in quasi-bankingfunctions.

Sec. X238 Without Recourse TransactionsNo bank shall sell, discount, assign, ornegotiate, in whole or in part, such as thrusyndications, participations and othersimilar arrangements, any notes,receivables, loans, debt instruments andany type of financial asset or claim, exceptgovernment securities, or be a party in anycapacity in any of the above transactions,on a without recourse basis unless suchreceivables, notes, loans, debt instrumentsand financial assets or claims are registeredwith the SEC. This prohibition includestransactions between a bank and its trustdepartment.

Unregistered commercial papers maybe sold, discounted, assigned, or negotiatedby banks to the following:

a. other banks;b. QBs;c. IHs;d. insurance companies;e. finance companies;f. investment companies;g. pension or retirement plan

maintained by the government of thePhilippines or any political subdivisionthereof or managed by a bank or otherpersons authorized by the Bangko Sentralto engage in trust functions;

h. funds managed by another bank orother entities duly authorized to engage intrust or other fiduciary business; and

i. such other person as the SEC mayby rule determine as qualified buyers, onthe basis of such factors as financialsophistication, net worth, knowledge, andexperience in financial and business matters,or amount of assets under management.

§ X238.1 Delivery of securities1

a. Securities sold on a withoutrecourse basis allowed under Sec. X238shall be delivered physically to thepurchaser, or to his designated custodianduly accredited by the BSP, if certificated,or by means of book-entry transfer to theappropriate securities account of thepurchaser or his designated custodian in aregistry for said securities, if immobilizedor dematerialized, while the confirmationof sale or document of conveyance by theseller shall be physically delivered to thepurchaser. The custodian shall hold thesecurities in the name of the buyer:Provided, That a bank/other entityauthorized by the BSP to performcustodianship function may not be allowedto be custodian of securities issued or soldon a without recourse basis by said bank/entity, its subsidiaries or affiliates, or ofsecurities in bearer form.

The delivery shall be effected uponpayment and shall be evidenced by asecurities delivery receipt duly signed bythe authorized officer of the custodian anddelivered to the purchaser.

Sanctions. Violation of any provisionsof Item “a” shall be subject to thefollowing sanctions/penalties:

(1) Monetary penaltiesFirst offense - Fine of P10,000 a day for

each violation reckoned from the date theviolation was committed up to the date itwas corrected.

Subsequent offenses - Fine of P20,000a day for each violation reckoned from thedate the violation was committed up to thedate it was corrected.

(2) Other sanctionsFirst offense - Reprimand for the

directors/officers responsible for theviolation.

Subsequent offense -(a) Suspension for ninety (90) days

without pay of directors/officers responsiblefor the violation;

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

§§ X237.3 - X238.108.12.31


(b) Suspension or revocation of theaccreditation to perform custodianshipfunction;

(c) Suspension or revocation of theauthority to engage in quasi-bankingfunction; and/or

(d) Suspension or revocation of theauthority to engage in trust and otherfiduciary business.

b. The guidelines to implement thedelivery by the seller of securities to thebuyer or to his designated third partycustodian are shown in Appendix 68.

Sanctions. Violation of any provision ofthe guidelines in Appendix 68 shall besubject to the sanctions/penalties underItem “b” of Subsec. X235.5.(As amended by M-2007-002 dated 23 January 2007,

M-2006-009 dated 06 July 2006 and M-2006-002 dated

05 June 2006, Circular No. 524 dated 31 March 2006)

§ X238.2 Sanctions. Unless specificsanctions are prescribed under these rules,any violation of the provisions of thisSection shall be subject to any or all of thefollowing sanctions:

a. Suspension of quasi-bankingauthority for a period of six (6) months; and

b. Monetary penalty of P500 per dayper transaction for each officer of the bankinvolved in any capacity in any transactionviolative of these regulations.

§ X238.3 Securities custodianshipoperations

a. Securit ies sold on a withoutrecourse basis shall be delivered to thepurchaser, or to his designated custodianduly accredited by the BSP: Provided,That a bank/other entity authorized bythe BSP to perform custodianshipfunction may not be allowed to becustodian of securities issued or sold ona without recourse basis by said bank/entity, its subsidiaries or affiliates, or ofsecurit ies in bearer form. Exist ingsecurities being held under custodianship

by banks/other entities under BSPsupervision, which are not in accordancewith said regulation, must therefore, bedelivered to a BSP-accredited third partycustodian. However, banks and other FIsunder BSP supervision may maintaincustody of existing securities of their clientswho are unable or unwilling to takedelivery pursuant to the provisions ofSubsec. X235.5 but who declined todeliver their existing securities to a BSPaccredited third party custodian subject tothe following conditions:

(1) the custody arrangements withclients have been in existence prior to05 November 2004 (effectivity ofCircular 457 dated 14 October 2004);

(2) the dealing bank/NBFI under BSPsupervision had been informed in writingby the client that he is not willing to havehis existing securities delivered to a thirdparty custodian;

(3) any BSP regulated institution shallnot enter into securities transactions witha client who has outstanding securities notdelivered to a BSP-accredited third partycustodian; and

(4) it shall be the responsibility of anyBSP regulated institution to satisfy itself thatthe person purchasing securities from it hasno outstanding securities holdings whichwere not delivered to a BSP-accredited thirdparty custodian.

Sanctions. Without prejudice to thepenal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of the R.A. No. 7653,violation of any provision of this Subsectionshall be subject to the following sanctions/penalties:

(1) First offense -(a) Fine of up to P10,000 a day for the


(b) Reprimand for the directors/officersresponsible for the violation.

§§ X238.1 - X238.308.12.31


(2) Second offense -(a) Fine of up to P20,000 a day for the


(b) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

(3) Subsequent offenses -(a) Fine of up to P30,000 a day for the


(b) Suspension or revocation of theauthority to act as securities custodianand/or registry; and

(c) Suspension for 120 days withoutpay of the directors/officers responsible forthe violation.

b. Sec. X441 shall also govern thesecurities custodianship and securitiesregistries of banks.(As amended by M-2006-009 dated 06 July 2006,

M-2006-002 dated 05 June 2006 and Circular No. 524

dated 31 March 2006)

Sec. X239 Issuance of Bonds. The followingguidelines shall govern the issuance of bondsby banks with quasi-banking authority.

§ X239.1 Definition of terms. Forpurposes of this Section, unless the contextclearly indicates otherwise, the followingshall have the meaning as indicated:

a. Government securities shall referto evidences of indebtedness of theRepublic of the Philippines or itsinstrumentalities, or of the BSP, and mustbe freely negotiable and regularlyserviced.

b. Net book value shall refer to theacquisition cost of property or accounts plusadditions and improvements thereon lessvaluation reserves, if any.

c. Current market value shall refer tothe value of the property as established bya duly licensed and independent appraiser.

§ X239.2 Compliance with Securitiesand Exchange Commission rules onregistration of bond issues. All banks withquasi-banking authority issuing or intendingto issue bonds shall comply with the NewRules on Registration of Long-TermCommercial Papers promulgated by theSEC (Appendix 13).

§ X239.3 Notice to Bangko Sentral ngPilipinas. Within three (3) days fromapproval by SEC of its bond issue, the bankconcerned shall notify the appropriatedepartment of the SES of the approvalattaching thereto the documents requiredby the SEC for the issuance and registrationof the bond issue.

§ X239.4 Minimum features. Bondsissued by banks shall have the followingminimum features:

a. Form; issue price; denomination -The trust indenture and the name of theindenture trustee shall be indicated on theface of the bond certificate.

The SEC-assigned bond registrationnumber and expiry date, if any, shalllikewise be indicated, stamped on the faceof each bond certificate issued.

Bonds may be issued at face value, at adiscount or at a premium. Minimumdenomination shall be P20,000.

b. Term - The minimum term of thebonds shall be four (4) years. No optionalredemption before the fourth year shall beallowed.

c. Interest; manner; form of payment -The bonds shall not be subject to interestrate ceilings prescribed by the MonetaryBoard or Act No. 2655, as amended.

d. Trust indenture; collaterals; sinkingfund - A trust indenture shall be executedbetween the issuer and a qualified trustcorporation as trustee, which shall neitherbe an affiliate nor a subsidiary of the issuer.

The following shall be deemed aseligible collateral and shall be maintained

§§ X238.3 - X239.408.12.31


at respective values indicated in relationto the face value of the bond issue:

(1) Government - Aggregatesecurities current

market valueof 100%

(2) Readily marketable - Aggregateprivate securities currentlisted in the big board market valueof stock exchanges of 150%

(3) Real estate - Net bookvalue of 100%

(4) Unmatured - Net bookreceivables acquired value of 150%with recourse

(5) Unmatured - Net bookreceivables acquired value of 200%without recourse

Government and private securities,certificates of title and documentsevidencing receivables offered as securityshall be physically delivered to theindenture trustee. Substitution of collateralsshall be allowed: Provided, That in no caseshall the collateral fall below the hereinrequired ratios.

The issuer may, at his option, providefor the retirement at maturity of the bondissue through the sinking fund to bedeposited with and managed by theindenture trustee.

e. Bond registry - The bonds shall befully registered as to principal andinterest. The issuer, its trustee, agent orunderwriter must maintain a bondregistry duly approved by the SEC forrecording initial and subsequent transfersthe names of transferees, date of transfer,purchase price and serial numbers ofbonds transferred.

§ X239.5 Issuance of commercialpapers. The issuance of other forms ofcommercial papers by banks withquasi-banking authority shall be subject tothe new rules on registration of short-termand long-term commercial papersappended hereto as Appendices 13 and 14.

F. GOVERNMENT DEPOSITS

Sec. X240 Statement of Policy. As ageneral policy, cash balances of theGovernment, its political subdivisions andinstrumentalities as well as ofgovernment-owned or controlledcorporations shall be deposited with theBSP, with only minimum workingbalances to be held by government-ownedbanks and such other banks incorporatedin the Philippines as the Monetary Boardmay designate: Provided, That such banksmay be authorized by the Monetary Boardto hold deposits of the political subdivisionsand instrumentalities of the Governmentbeyond their minimum working balanceswhenever such subdivisions andinstrumentalities have outstanding loanswith said banks.

For purposes of this Section:a. The term government-owned or

controlled corporations shall referto government-owned or-controlledcorporations which are created by speciallaws. It shall exclude government FIs suchas DBP, LBP and Al-Amanah IslamicInvestment Bank of the Philippines,corporations which are created under theprovisions of the Corporation Law (Act No.1459, as amended) or the CorporationCode (BP Blg. 68) and private corporationswhich are taken over by government-owned or-controlled corporations.

b. Minimum working balancesshall represent the minimum amountsnecessary to enable the governmentinstrumentality/political subdivisionmaking the deposit to transact businessefficiently and effectively as determinedby the Department of Finance.

§ X240.1 Prior Monetary Boardapproval. No private bank shall, withoutprior approval of the Monetary Board,accept, as depository, any fund or moneyfrom the Government, its political

§§ X239.4 - X240.108.12.31


subdivisions and instrumentalities, andgovernment-owned or-controlledcorporations; nor shall a private bankborrow any fund or money therefrom,through the issuance or sale of itsacceptances, notes or other evidences ofindebtedness.

§ X240.2 Banks which may acceptgovernment funds

a. Banks, the majority of the capitalof which is owned by the Government,may act as depository of funds of theGovernment, its political subdivisions andinstrumentalities, and government-ownedor-controlled corporations.

b. Private banks incorporated in thePhilippines may act as depository ofgovernment funds only with the priorapproval of the BSP. Local governmentunits may maintain depository accountspreferably in government banks and, inexceptional cases and with the priorapproval of the Monetary Board, in thename of their respective government units,in private banks located in or nearest totheir respective areas of jurisdiction but thedepository bank(s) must also seek the priorapproval of the BSP: Provided, That a TB/RB/Coop Bank may only act as officialdepository of government funds pursuantto R.A. Nos. 7906, 7353 and 6938, asfollows:

(1) a TB may only act as officialdepository of national agencies, and ofmunicipal, city or provincial funds in themunicipality, city or province where theTB is located;

(2) an RB may only act as officialdepository of municipal, city or provincialfunds in the municipality, city or provincewhere the RB is located; and

(3) a Coop Bank may accept depositsof all government departments, agenciesand units of the national and localgovernments including government-owned or-controlled corporations.

c. Where there is no governmentbank or BSP office in the province and thenearest government bank or BSP office isinaccessible by ordinary transportation, ortransporting/withdrawing the governmentdeposits to and from the said office isimpractical or risky, the province, as wellas cities and municipalities located therein,may seek approval of the Monetary Boardto consider all their funds eligible fordeposits with a qualified private depositorybank within the province, city ormunicipality, as the case may be.

d. Banks acting as official depositoryof government funds may accept demand,savings or time deposits.

e. The authority of a bank to acceptgovernment deposits does not obligate theGovernment, its subdivisions andinstrumentalities and government-ownedor-controlled corporations to deposit withthat bank. Thus, even if a TB or RB isauthorized by the Monetary Board to acceptgovernment deposits, a municipality is notobligated to deposit with that TB or RB.Similarly, a bank which is authorized toaccept deposits of the Government or agovernment corporation because ofoutstanding loans granted by the bankcannot demand as a matter of right that theGovernment or government corporationmake deposits unless there is a stipulationin the loan agreement.

§ X240.3 Prerequisites for the grantof authority to accept deposits from theGovernment and government entities. Inaddition to the Standard Pre-qualificationRequirements for the Grant of BankingAuthorities enumerated in Appendix 5,private banks applying for authority toaccept deposits from the Government, itssubdivisions and instrumentalitiesand government-owned or-controlledcorporations and government banksapplying for authority to acceptgovernment deposits in excess of

§§ X240.1 - X240.308.12.31


minimum working balances shall alsocomply with the following conditions:

a. The applicant bank must havecomplied with the minimum capitalrequired under Subsecs. X111.1 andX111.2; and


c. The bank’s CAMELS compositerating in its latest examination is not lowerthan three (3) with Management componentscore of not lower than three (3).(As amended by Circular No. 526 dated 10 April 2006)

§ X240.4 Application for authority. Anapplication for authority to acceptgovernment deposits shall be signed by thepresident of the bank and shall be filed withthe appropriate department of the SES. Theapplication shall be accompanied by acertification by the bank president orexecutive vice-president that the bank hascomplied with all the requirementsenumerated under Subsec. X240.3.

Banks authorized to accept governmentfunds as depository shall continuouslycomply with the conditions enumeratedunder Subsec. X240.3 even after theauthority to accept government depositshas been granted and during the periodwhile the banks actually hold governmentdeposits, otherwise, any violation may bea basis for the imposition of sanctionsagainst the bank, its directors and officers,or revocation of the authority to acceptgovernment deposits.

Deposits maintained by the Government,its subdivisions and instrumentalitiesand government-owned or-controlledcorporations shall be supported by thefollowing documents whenever applicable:

a. A copy of the resolution of thebarangay, municipal or city council(Sangguniang Bayan/Panglunsod) or theprovincial board (Sangguniang Panlalawigan)authorizing the deposit of municipal, city orprovincial funds;

b. A copy of the resolution of the boardof directors of the government-owned or-controlled corporations authorizing thedeposit of funds of said corporations; or

c. In case of the National Government,its unincorporated branches, agencies andinstrumentalities, a written authority todeposit government funds signed by theduly authorized official of the department,agency, office or unit making the deposit.

The resolution or authority should statethe name and location of the depositorybank, type and terms of the deposit, andthat the amount to be deposited representsworking balances.

§ X240.5 Limits on funds of theGovernment and government entitiesthat may be deposited with banks

a. Funds of the Government, itssubdivisions and instrumentalities andgovernment-owned or-controlled corporation,deposited with banks authorized to receivedeposits shall be limited to the minimumworking balance of the depositor.

With prior Monetary Board approval,government or private banks may beauthorized to accept amounts in excess ofminimum working balances if theGovernment or government entity makingthe deposit has outstanding loan obligationsto the depository bank but such amountsshall not exceed the amount of itsoutstanding loan obligations to thedepository bank. The amount of non-transferable and non-negotiablegovernment securities with market orbelow market interest rate at the time ofissue, issued by the National Governmentto the depository bank shall be consideredas “outstanding loans” of the NationalGovernment to said bank within themeaning of Section 113 of R.A. No. 7653.

b. The aggregate amount ofgovernment funds which a private bankcan hold at any given time shall not exceed200% of the bank’s net worth.

§§ X240.3 - X240.508.12.31


c. Where any director, officer orstockholder of a private bank, as definedunder Subsec. X326.1, is also an electiveor appointive official of a municipality, cityor province, said bank is prohibited fromaccepting deposits from said municipality,city or province unless it is the only bankexisting therein: Provided, That thisprovision shall not be construed as a grantof authority to such elective or appointivepublic official to act as director or officer ofa private bank.

§ X240.6 Liquidity floor. Unlessotherwise prescribed by the MonetaryBoard, authorized government depositorybanks other than the BSP, and authorizedprivate banks shall, inclusive of therequired reserves against deposits and/ordeposit substitutes, maintain a fifty percent(50%) liquidity floor with respect todeposits of, borrowings from, and all otherliabilities to, the Government andgovernment entities, in the form oftransferable government securities whichrepresent direct obligations of the NationalGovernment.

Government securities representingdirect obligations of the NationalGovernment regardless of maturity, issuedpursuant to the provisions of R.A. No. 245,as amended by P.D. No. 142, which arenot otherwise earmarked or used as partof other reserve requirements of the BSP,shall be eligible as liquidity reserves.

Securities received pursuant to theDomestic Debt Exchange Offer of theRepublic of the Philippines in exchangefor securities that are eligible reserves forliquidity floor requirement shall, likewisebe eligible as liquidity reserves.

Eligible securities being used as suchreserve shall not in any way be encumberedor be subject to any transaction without priorapproval of the BSP.

Also eligible for liquidity floor are thefollowing:

a. The free portion of the “Due fromBangko Sentral - Local Currency” aftersatisfying the legal and other reserverequirements;

b. NDC Agri-Agra ERAP Bonds, whichare not being used as alternativecompliance with PD 717. Such bonds shallnot in any way be encumbered or besubject to any transaction without priorapproval of the BSP;

c. Securities backed by theunreleased Internal Revenue Allotments(IRA) of local government units (issued bya Special Purpose Trust administered bythe DBP under the IRA MonetizationProgram of the Union of Local Authoritiesof the Philippines) the release of which IRAon scheduled date of payment has beencertified by the Department of BudgetManagement (DBM) as not being subjectto any conditionalities: Provided, That suchsecurities shall be eligible only to the extentof the present value of the bond computedusing the original yield to maturity (as ofauction/issue date);

d. Tobacco Excise Tax ReceivablesMonetization Program InvestmentCertificates (TEXTR Certificates) backedby receivables representing theunreleased portion of the obligation of theNational Government to its LGU for theirshare of the Tobacco Excise Taxes underR.A. No. 7171 amounting to P1.85 billionand covering the years 2001 and 2002:Provided, That such securities shall beeligible only to the extent of the presentvalue of the securities computed using theoriginal yield to maturity as of auction/issuedate; and

e. Placement of banks in their SDAwith the BSP, effective 10 May 2007.

For purposes of computing the fiftypercent (50%) liquidity floor requirementon a l l government funds he ld byauthorized banks, banks shall adopt aone (1)-week lag system, ef fect ive04 May 2001.

§§ X240.5 - X240.608.12.31


Banks authorized to accept governmentdeposits shall specify in the prescribedreports submitted to the SDC of the BSPthe balance of government deposits subjectto liquidity floor requirement and, if any,the corresponding GS earmarked forsubject purpose.(As amended by Circular Nos. 566 dated 03 May 2007 and 509

dated 01 February 2006)

§ X240.7 Exempt transactions. Thefollowing deposits of, borrowings fromand/or liabilities to, the Government andgovernment entities shall be exemptfrom the liquidity floor:

a. Obligations to the BSP arising fromrediscounting facilities and sale ofgovernment securities under repoagreements made in connection with theprovisions of Sec. X269 and Subsec. X601.1;

b. Special time deposits (STDs) anddeposit substitutes under the specialfinancing program of the Governmentand/or international FIs;

c. Obligations to the BSP consistingof emergency advances, overdraftfacilities, and those arising from peso swapdifferentials and supervision andexamination fees;

d. Marginal deposits on importations;e. Due to the Treasurer of the

Philippines (unclaimed deposit balances);f. Funds held by participating

financial institutions (PFIs) under the GSISHousing Loan Programs: Provided, Thatthe agreement between GSIS and theconduit banks specify that such funds maybe held by the conduit banks for a periodof not more than seven (7) calendar daysprior to their release to the borrower andprior to the remittance by the conduitbanks of payment to the GSIS;

g. Deposits of the BIR and BOC; andh. Any other form of deposits,

borrowings and/or liabilities specificallyauthorized by law or exempted by theMonetary Board.

§ X240.8 Reports. Banks shall submitto the appropriate department of the SES areport of their government deposits fromall sources in the aggregate in theprescribed form.

§ X240.9 Sanctions. Any violation ofthis Section shall be a ground for theimposition of the following sanctions:

a. The deposit account with the BSPof the bank concerned shall be debited bythe Accounting Department of the BSP inthe amount of the unauthorized deposit orborrowing upon receipt of a report ornotice from the appropriate department ofthe SES and the deposit account of thegovernment institutions with the BSP shallbe credited for the same amount. A copyof said report or notice of the SES shall befurnished each to the bank concerned andthe government institutions.

b. The withdrawal of previouslygranted authority to accept governmentfunds;

c. Without prejudice to the sanctionsunder Section 35 of R.A. No. 7653, thefollowing administrative sanctions shall beimposed if any part of the certification asrequired in this Section is found to be falseor misleading:

On the bank - Cancellation of theauthority to accept government deposits ifone has already been granted and/ordisqualification to act as a governmentdepository for not more than one (1) year.

On the certifying officer - A fine ofP5,000 per day from the time thecertification was found to be false, for eachapplication filed with the BSP.

d. Any bank with deficiency in therequired liquidity floor against deposits of,and/or borrowings from, the Governmentand government entities or with excessholdings of such deposits shall: (1) bedenied the credit facilities of the BSP; and(2) if the deficiency lasts for four (4)consecutive weeks, the bank shall be

§§ X240.6 - X240.908.12.31


prohibited from declaring cash dividendsand making new loans and investments,except investments in governmentsecurities. The prohibition shall be liftedby the Governor of the BSP, uponcertification by the appropriate departmentof the SES that the bank has had nodeficiency in its liquidity floor and noexcess holdings of government depositsfor at least four (4) consecutive weeks.

§§ X240.10 - X240.14 (Reserved)

§ X240.15 Acceptance by banks withinternet banking facility of payment of feesfor account of government entitiesDomestic private banks with BSP-approvedinternet banking facility are allowed toaccept payment of fees/other charges ofsimilar nature for the account of thedepartments, bureaus, offices and agenciesof the government as well as all GOCCs:Provided, That the funds so accepted/collected shall be treated as depositliabilities subject to existing regulations ongovernment deposits and shall not exceedthe minimum working balance of the saidgovernment entities.

These banks are required to notify theappropriate department of the SES thatsupervises the bank, copy furnished theHead of the Technical Working Group onE-Banking, SDC, of the names of thegovernment institutions that will interfacewith their systems and any changes thatmay subsequently be made on thearrangements.


G. INTEREST

Sec. X242 Interest on Deposits/DepositSubstitutes. Demand, savings, NOWaccounts, time deposits and depositsubstitutes shall not be subject to interestceilings.

§ X242.1 Time of payment of intereston time deposits/deposit substitutesInterest or yield on time deposit/depositsubstitute may be paid at maturity or uponwithdrawal or in advance: Provided,however, That interest or yield paid inadvance shall not exceed the interest forone (1) year.

§ X242.2 Treatment of matured timedeposits/deposit substitutes

a. A time deposit not withdrawn orrenewed on its due date shall be treatedas a savings deposit and shall earn interestfrom maturity to the date of actualwithdrawal or renewal at a rate applicableto savings deposits.

b. A deposit substitute instrumentnot withdrawn or renewed on its maturitydate shall from said date become payableon demand and shall earn an interest oryield from maturity to actual withdrawalor renewal at a rate applicable to adeposit substitute with a maturity offifteen (15) days.

Banks performing quasi-bankingfunctions shall continue to considermatured and unwithdrawn depositsubstitutes as such and subject to reserves.

Sec. X243 Disclosure of Effective Ratesof Interest. Banks are required to discloseto depositors the following information oninterest computation and payments:

a. Type/kind of deposit;b. Nominal rate of interest and period

covered;c. Manner of interest payment, i.e.,

whether credited in advance or otherwise;d. Basis of interest payment, i.e.,

whether based on average daily balancecompounded quarterly or otherwise;

e. Effective rate of interest expressedas a simple annual rate, on the basis of theinformation above given and indicating theformula used to arrive at the effective rateof interest; and

§§ X240.9 - X24308.12.31


f. Illustration of basis of computinginterest on a hypothetical deposit account.

Copies of the abovementionedinformation shall be made available to eachand every depositor by attaching thesecopies to savings deposit passbooks andtime deposit certificates. Posters disclosingthe above information and aggregatedeposit rates shall also be displayedconspicuously within the bank premises.


H. RESERVES AGAINST DEPOSITAND DEPOSIT SUBSTITUTE

LIABILITIES

Sec. X253 Accounts Subject to Reserves;Amounts Required. The following rules andregulations shall govern the reserves againstdeposit and deposit substitute liabilities.

§ X253.1 Regular reserves againstdeposit and deposit substitute liabilitiesThe rates of regular reserves againstdeposit and deposit substitute liabilities inlocal currency of banks shall be as follows:

RBs/ UBs/KBs TBs Coop Banks

a. DemandDeposits 8%1 4% 4%

b. NOW Accounts 8% 4% 4%c. Savings

Deposits 8%1 4% 1%d. Time Deposits,

Negotiable CTDs,Long-Term Non- 8%1 4% 1% Negotiable Tax- Exempt CTDsLong-term NCTDs 2% 2% 2%

e. DepositSubstitutes 8% 4% NA

f. IBCL 0% 0% 0%(Sec. X343)

g. Bonds 5% 5% NAh. Mortgage/CHM cert. NA 5% NA

Provided, That deposit substitutesevidenced by repo agreements coveringgovernment securities up to the amountequivalent to the adjusted Tier 1 capital ofthe bank shall be subject to the statutoryreserve of two percent (2%)2: Provided,further, That such rate shall apply only torepo agreements, the documentation ofwhich conforms with, and were deliveredto a BSP accredited third party custodianas required under existing BSP regulations.(As amended by Circular No. 632 dated 19 November 2008)

§ X253.2 Liquidity reserves. On topof the regular reserve requirements,liquidity reserves against peso demand,“NOW”, savings, time deposit and depositsubstitute liabilities shall be maintained, asfollows:

LiquidityCategory of Banks Reservesa. UBs/KBs 11%1

b. TBs 2%c. RBs/Coop Banks 0%

The liquidity reserves for LTNCTDsshall be 0%.

The required liquidity reserves shall bemaintained in the Reserve DepositAccount (RDA) with the BSP, or may be inthe form of the following: Provided, That itcomplies with the guidelines shown inAppendix 71.

a. Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-Treasury Department;

b. NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Such bondsshall not in any way be encumbered or besubject to any transaction without priorapproval of the BSP; and

c. Poverty Eradication and AlleviationCertificates (PEACe) bonds only to the

1 Under Circular 632 dated 19 November 2008, the reduction in regular reserves shall be effective the reserve weekstarting 14 November 2008.2 The statutory reserve of two percent (2%) may not yet be availed of pending:(a) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactionsevidenced by repo agreements covering government securities; and(b) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP- accredited thirdparty custodian.

§§ X243 - X253.208.12.31


extent of the original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlying zero-coupon Treasury Notes as and when thecorresponding interest is earned over thelife of the bonds.

Any deficiency in the liquidity reservesshall continue to be in the forms or modesprescribed under existing regulations forthe composition of required reserves.(As amended by Circular Nos. 632 dated 19 November 2008,

551 dated 17 November 2006 and 539 dated 09 August 2006)

Sec. X254 Composition of Reserves. Thecomposition of the required reserves shallbe as follows:

a. Deposits with the BSP. At leasttwenty-five percent (25%) shall be in theform of deposits with the BSP.

b. Government securities and cash invault. The remaining portion of the requiredreserves may be held by all banks in theform of cash in vault and/or governmentsecurities or evidences of indebtedness ofthe Republic of the Philippines.

To support the implementation of theprovisions of Subsecs. X343.3 and X601.3,the cash-in-vault (CIV) component ofavailable reserves shall be based on theactual CIV balance outstanding one (1)banking day lag, for purposes ofcomputing the reserve position of thecurrent day.

For purposes of this Section,government securities which may formpart of the reserves against deposits/deposit substitute liabilities of banks shallrefer to bonds or other evidences ofindebtedness representing directobligations of the Government of theRepublic of the Philippines: Provided, Thatsuch securities shall have the followingminimum features/conditions:

(1) The securities must bear an interestrate of not more than four percent (4%) perannum, must be non-negotiable and shallcarry BSP support; and

(2) The amount, maturity date andrate of interest must be definite andstated in the certificate itself.

Other government securities beingused for reserve purposes shall continueto be eligible as such: Provided, Thatwhenever said securities shall havematured, they shall be replaced bysecurities carrying the above features.

The securities held as reserves underItem “b” and last paragraph of Sec. X253 shallbe valued at cost of acquisition and the bankmay freely alter its composition: Provided,That any substitution or acquisition satisfiesthe eligibility requirements prescribed above:Provided, further, That the bank notifies theBSP of any such change in the prescribedforms not later than the reporting dayfollowing the change. Securities counted asreserves may not be hypothecated orencumbered in any way or earmarked forany other purpose without automaticallylosing their eligibility as reserves.

Only the buying/lending bank in anagreement covering eligible governmentsecurities may use such securities asreserves against deposits/depositsubstitutes. Conversely, the selling/borrowing bank in a resale agreementcovering eligible government securitiesmay not use such securities as reservesagainst deposits/deposit substitutes.

The list of reserve-eligible and non-eligible securities may be found inAppendix 15.

The reserve eligibility of governmentsecurities under the reverse repo operationsof the BSP shall be suspended during the termof the reverse repo agreement.

The phrase non-reserve eligible shall bestamped on the face of the custodian receiptbeing issued by the BSP to buyer FIs.

§ X254.1 Allowable drawings againstreserves. Deposit with the BSP to complywith reserve requirements are not regularcurrent accounts. The use, therefore, of

§§ X253.2 - X254.108.12.31


BSP checks for drawings against reservedeposits shall be limited to (a) settlementof obligations with the BSP, and(b) withdrawals to meet cash requirements.

§ X254.2 Exclusion of unclearedchecks and other cash items. COCIs whichhave not been cleared yet through theClearing Office should not be debited tothe account Due from the BSP and shouldnot be considered as available reservesagainst deposit/deposit substitute liabilities.Such items shall be debited to the COCIsaccount.

Only after the COCIs have been clearedthrough the Clearing Office can the bankdebit the Due from the BSP account for saiditems.

§ X254.3 Interest income on reservedeposits. Deposits maintained by bankswith the BSP up to forty percent (40%) ofthe reserve requirement (excluding theliquidity reserve mentioned in Subsec.X253.2 against the combined deposit anddeposit substitute liabilities of banksallowed to be maintained in the form ofshort-term market yielding governmentsecurities purchased directly from the BSPTreasury Department) shall be paid interestat four percent (4%) per annum based onthe average daily balance of said depositsto be credited quarterly.

The computation of quarterly interestpayments credited to the DDAs of banks’legal reserve deposits with BSP are shownin Appendix 54.

Effective 01 July 2003, published interestrates that will be applied on BSP’s RegularDDAs of banks shall be inclusive of the tenpercent (10%) Value Added Tax (VAT).

§ X254.4 Book entry method forreserve securities. In the implementationof the book entry system for transactionsin government securities eligible forreserves, transactions concerning reserve-

eligible securities shall be entered in therespective securities account of each bankwith the BSP and shall be evidenced bysecurities account debit or credit advicesto be promptly furnished the institution/sconcerned. No certificate shall be issuedfor any purpose. Transactions with thirdparties other than the BSP shall not berecognized.

Sec. X255 Exemptions from ReserveRequirements. The following shall beexempt from reserve requirements:

a. All collections credited to the specialaccount “Due to BSP - Internal RevenueAccount (Other Cities and Municipalities)”;

b. STDs from the Agrarian ReformFund Commission and special savingsdeposits from farmer-borrowers; and

c. Unclaimed balances of depositliabilities already reported to the Treasurerof the Philippines in accordance with theUnclaimed Balances Act (Act No. 3936,as amended) and transferred/reclassifiedfrom the deposit liability/other creditaccounts to the liability account “Due tothe Treasurer of the Philippines”.

Local banks may deduct from theamount of their gross demand deposits, thetotal of their Due from Local Banks -Demand and Due from PNB - Clearing inan amount not exceeding the total of theirDemand Deposits-Banks and Due to LocalBanks. As used herein, the term grossdemand deposits shall mean the sum ofall individual deposits, including depositsmade by other local banks, the PhilippineGovernment, its political subdivisions andinstrumentalities, and GOCCs.

Sec. X256 Computation of ReservePosition. The reserve position of any bankand the penalty on reserve deficiency shallbe computed based on a seven (7)-dayweek, starting Friday and endingThursday, including Saturdays, Sundays,public special/legal holidays, non-banking

§§ X254.1 - X25608.12.31


days, unexpected declared non-bankingdays or declared half-day holidays and dayswhen there is no clearing: Provided, Thatwith reference to public special/legalholidays, non-banking days, unexpecteddeclared non-banking days, declared half-day holidays and days when there is noclearing, the reserve position as calculatedat the close of the business dayimmediately preceding such publicspecial/legal holidays, non-banking daysand unexpected declared non-bankingdays and declared half-day holidays anddays when there is no clearing, shall applythereon. For this purpose, the principaloffice in the Philippines and all otherbanking offices located therein shall betreated as a single unit.

The guidelines on the computation ofa banks’ reserve position during publicsector holidays are shown in Appendix 84.(As amended by M-2008-025 dated 13 August 2008)

§ X256.1 Measurement of reserverequirement. The required reserves in thecurrent period (reference reserve week)shall be computed based on thecorresponding levels of deposit and depositsubstitute liabilities of the prior week.

§§ X256.2 – X256.4 (Reserved)

§ X256.5 Guidelines in calculating andreporting to the Bangko Sentral therequired reserves on deposit substitutesevidenced by repurchase agreementscovering government securities

a. The SDC shall determine themaximum allowable amount of repoagreements covering governmentsecurities that will qualify for the reducedstatutory reserve requirements of twopercent (2%). It shall be based on theamount reported by banks in their weeklyConsolidated Daily Report of Condition.The adjusted Tier 1 capital reported dailyshould approximate the quarterly adjusted

Tier 1 capital as submitted by banks incompliance with the provisions of Sec. X115or X116, as applicable.

b. Any material differences that maybe noted by the SDC between the dailyand the quarterly report shall be consideredas erroneous reporting and shall be subjectto the penalties under existing regulations.The SDC shall also make a re-run of itscomputation of the bank’s reserve positionand in the event that the reserve positionresulted to a reserve deficiency/ies, thecorresponding penalties on reservedeficiencies shall also apply.

c. The lagged system in themeasurement of a bank’s reserverequirement, as provided in Subsec. X256.1,shall also be adopted in the calculation of thetwo percent (2%) statutory reserverequirements for repo agreements coveringgovernment securities.

d. Deposit substitutes evidenced byrepo agreements covering governmentsecurities in excess of the adjusted Tier 1capital shall be treated as regular depositsubstitutes and shall be subject to theregular statutory and liquidity reserverequirements under existing regulations.

Sec. X257 Reserve Deficiencies;Sanctions. Whenever the reserve positionof any bank computed in the mannerspecified in Sec. X256 is below therequired minimum, it shall pay the BSPone-tenth of one percent (1/10 of 1%) perday on the amount of the deficiency or theprevailing ninety-one (91) day T-Bill rateplus three (3) percentage points, whicheveris higher: Provided, however, That a bankshall be permitted to offset any reservedeficiency occurring one (1) or more daysof the week covered by the report againstexcess reserves which it may hold on otherdays of the same week, and shall berequired to pay the penalty only on theaverage daily net deficiency during theweek.

§§ X256 - X25708.12.31


In case of abuse, a bank shallautomatically lose the privilege ofoffsetting reserve deficiency in theaforesaid manner until such time that itmaintains its daily reserve position at therequired minimum for at least two (2)consecutive weeks.

As used in this Section, “abuse”* in theprivilege of offsetting reserve deficienciesagainst excess reserves shall mean havingreserve deficiencies occurring four (4) ormore times during any given week for two(2) consecutive weeks, whether or notresulting in net weekly deficiencies.

§ X257.1 Chronic reserve deficiency;penalties. In cases where the bank haschronic reserve deficiency in deposit/deposit substitute liabilities, the bank shallbe denied the credit facilities of the BSP;and the Monetary Board may:

(a) limit or prohibit the making of newloans or investments by the bank; and

(b) prohibit the declaration of cashdividends. The board of directors of saidbank shall be notified of such chronicreserve deficiency and the penaltiestherefor, and be required to immediatelycorrect the reserve position of the bank.

As used in this Subsection, “chronicreserve deficiency” shall mean having netreserve deficiencies for two (2) consecutiveweeks.

§ X257.2 Failure to cover overdrawingswith the Bangko Sentral. Any bank whichincurs an overdrawing in its deposit accountwith the BSP shall fully cover said overdraftnot later than the next clearing dayincluding interest thereon equivalent toone-tenth of one percent (1/10 of 1%) perday or the prevailing ninety-one (91) dayT-Bill plus three (3) percentage points,whichever is higher. In case a bank fails tocover its overdrawings, it shall be excludedfrom clearing on such day and it shall also

be denied the credit facilities of the BSP.Such exclusion from clearing shall continuefor as long as it has not maintained creditbalances with the BSP for at least five (5)consecutive banking days. If its clearingaccount is overdrawn for five (5)consecutive banking days, it shall beprohibited from (a) making new loans orinvestments, except investment ingovernment securities with BSP support;(b) declaring cash dividends until it hasmaintained credit balances in its BSPclearing account for at least fifteen (15)consecutive banking days; and(c) establishing branches. The denial fromavailment of credit facilities of the BSP shallcontinue for as long as the bank maintainedcredit balances with the BSP for at leastfifteen (15) consecutive banking days.

For purposes of computing the totalavailable reserves against deposit/depositsubstitute liabilities, the total amount ofoverdrawing in the clearing account withthe BSP shall be deducted from availablereserves after the required reserves againstdeposit/deposit substitute liabilities shallhave been satisfied.

§ X257.3 Payment of penalties onreserve deficiencies. Penalties if unpaidwithin fifteen (15) days from receipt of theassessment, shall be charged against thedemand deposits of banks with the BSP:Provided, That where the bank’s creditbalance is insufficient and it fails to settlethe assessment, the Monetary Board maylimit or prohibit the making of new loansor investments by the bank.

Sec. X258 Report on Compliance. Everybank shall make a weekly report to theBSP of its daily required and availablereserves on deposit/deposit substituteliabilities in the prescribed forms.


§§ X257 - X26008.12.31

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


I. SUNDRY PROVISIONSON DEPOSIT OPERATIONS

Sec. X261 Booking of Deposits andWithdrawals. The following regulationsshall govern the booking of deposits andwithdrawals of banks.

§ X261.1 Clearing cut-off time. As ageneral rule, all deposits and withdrawalsduring regular banking hours shall becredited or debited to deposit liabilityaccounts on the date of receipt or paymentthereof: Provided, however, That a bankmay set a clearing cut-off time for its headoffice not earlier than two (2) hours beforethe start of clearing at the BSP, and notearlier than three and one-half (3-1/2) hoursbefore the start of clearing for all itsbranches, agencies and extension officesdoing business in the Philippines, afterwhich time, deposits received shall bebooked as hereinafter provided: Provided,further, That banks which are located inareas where there are no BSP regional/clearing arrangements may set a clearingcut-off time not earlier than two (2) hoursbefore the start of their local clearing afterwhich time, deposits received shall bebooked likewise as hereinafter provided.

§ X261.2 Definitions. As used in thisSection, the following terms shall have thefollowing meanings:

a. Regular banking hours shall referto the banking hours reported to theBSP pursuant to Sec. X156, includingthe extended banking hours reportedfor servicing deposits and withdrawals;and

b. Clearing cut-off time shall mean thebank’s closing time for the acceptance ofdeposits in the form of checks, bills andother demand items for clearing on the dayof their receipt.

§ X261.3 Booking of cash depositsCash deposits received after the selectedclearing cut-off time until the close of theregular banking hours shall be booked asdeposits on the day of receipt.

§ X261.4 Booking of non-cash depositsDeposits of checks including “on us”checks, manager’s/cashier’s/ treasurer’schecks and demand drafts, which aredrawn against the depository bank and allits offices, as well as treasury warrants andpostal money orders, received after theselected clearing cut-off time until the closeof the regular banking hours, may, at theoption of the bank, be booked as depositson the day of receipt.

Other non-cash deposits received afterthe selected clearing cut-off time shall betreated as contingent accounts on the dayof receipt and shall be booked as depositsthe following banking day.

§ X261.5 Booking of deposits afterregular banking hours. Deposits, whethercash or non-cash, received after the closeof the regular banking hours shall betreated as contingent accounts on the dayof receipt and shall be booked as depositsthe following banking day.

§ X261.6 Other records requiredFor record and control purposes, banksshall prepare a daily abstract of deposittransactions treated as contingentaccounts.

§ X261.7 Notice required. Banks shallpost at a conspicuous place near eachteller’s window a notice to depositorsindicating their selected clearing cut-offtime and a statement to the effect thatnon-cash items deposited after said cut-offtime shall be treated as transactions for thenext banking day.

§§ X261 - X261.708.12.31


Sec. X262 Miscellaneous Rules onDeposits. Banks shall also be governed bythe following miscellaneous rules ondeposits.

§ X262.1 Specimen signatures,identification photos. All bankinginstitutions are required to set a minimumof three (3) specimen signatures to besimultaneously required from each of theirdepositors and to update the specimensignatures of their depositors every five (5)years or sooner, at the discretion of thebank. Banks may, at their option, requiretheir depositors to submit ID photostogether with the specimen signatures.

§ X262.2 Insurance on deposits. Allbanks shall indicate the coverage of thePDIC in each passbook, certificate of timedeposit and/or cover of checkbook fordemand deposit/NOW accounts stating,among other things, the maximum amountof insurance.

§ X262.3 Certification of compliancewith Subsection 55.4 of R.A. No. 8791Banks shall submit to the appropriatesupervising and examining department ofthe BSP, through the Deputy Governor ofSES, a statement within seven (7) bankingdays after end of June and December,signed solely by the Vice-President forAdministration or Human Resource orPersonnel, or by any officer assumingequivalent responsibility, certifying theirinstitution’s compliance with Subsection55.4 of R.A. No. 8791, which prohibitsbanks from employing casual, nonregularpersonnel or too lengthy probationarypersonnel in the conduct of its businessinvolving bank deposits. A format for thecertification of compliance is shown inAppendix 49.

The definition contained in Articles280-281 of the Labor Code of thePhilippines for private banks and Section 2

of the Civil Service CommissionMemorandum Circular No. 40 and RuleVII of Civil Service: Laws and Rules forgovernment banks shall apply inclassifying employee/personnel as casual,regular or probationary. Personnel with toolengthy probationary status are employeeswho are allowed to work after aprobationary period of six (6) monthswithout being considered a regular/permanent employee.

Sec. X263 Service and Maintenance FeesBanks may impose and collect servicecharges and/or maintenance fees onsavings and demand deposit accounts,whether active or dormant, that fall belowthe required minimum monthly averagedaily balance (ADB), subject to thefollowing conditions:

a. the imposition of such charges orfees is clearly stated among the terms andconditions of the deposit;

b. the rate or amount of such chargesor fees is properly disclosed among theterms and conditions of the deposit;

c. the deposit account balances havefallen below the required minimummonthly ADB for dormant accounts and forat least two (2) consecutive months foractive accounts;

d. the required minimum monthlyADB of deposits are properly disclosedamong the terms and conditions of thedeposit; and

e. in the case of charges and fees fordormant accounts or dormancy fee, theperiod of dormancy as prescribed underSubsec. X185.12 shall be properlydisclosed among the terms and conditionsof the deposit, and that the depositors shallbe informed by registered mail with returncard or Proof of Delivery (POD) service ofthe Philippine Postal Corporation and othermail couriers on his last known address atleast sixty (60) days prior to the impositionof dormancy fee.

§§ X262 - X26308.12.31


Said Proof of Delivery Receipt will beaccomplished upon the addressee-depositor’s receipt of the letter, with thepostal personnel or courier required toobtain and safekeep a copy of the signedPOD, for submission to the sender/bank.

The PhilPost system likewise employsa Delivery/Monitoring Report that talliesthe number of mails with POD received,delivered and returned per client/bank,indicating the name of the letter carrier,his signature and date signed. Said PODand Delivery/Monitoring Report may besystem generated by the bank so as not torely on the manual inscription of therequired information by the PhilPostand/or other mail courier personnel.

Regardless of the forms adopted by thePhilPost and/or other mail couriers, theproper implementation of the POD servicerequires as a minimum, that the followinginformation be stated clearly: (1) name andaddress of the addressee/depositor;(2) actual date of delivery/receipt; (3) nameand address of sender/bank; and (4) nameof recipient and relationship to theaddressee/depositor.

§ X263.1 Amendments to terms andconditions for the imposition of servicecharges/fees. Any change in the terms andconditions for the imposition of servicecharges and/or maintenance fees, e.g.,increase in the amount of such charges andfees or increase in the required minimummonthly average daily balance of deposits,shall take effect only after due notice tothe depositor: Provided, That informationby regular mail, statement of accountmessages, electronic mail, courier deliveryand/or other alternative modes ofcommunication on the depositor’s lastknown address at least sixty (60) days priorto implementation shall be consideredsufficient notice: Provided, further, Thatfailure of the depositor to manifest orregister his objection to the new service

charges and maintenance fees or anychange in their terms and conditions inwriting within thirty (30) days from receiptof written notice of amendment shall bedeemed to constitute acceptance of suchchanges, for purposes of this Subsection.

Banks shall likewise post saidinformation on their respective websites,Automated Time Machine on-screenmessages, and in conspicuous placeswithin the bank premises and other placesnear the bank’s own Automated TimeMachine at least sixty (60) days prior toimplementation.

Sec. X264 Unclaimed Balances. Allunclaimed balances, which include creditsor deposits of money, bullion, securities orother evidences of indebtedness of anykind, and interest thereon already reportedto the Treasurer of the Philippines inaccordance with the Unclaimed BalancesAct (Act No. 3936, as amended) shall betransferred/reclassified from the depositliability/other credit accounts to the liabilityaccount, “Due to the Treasurer of thePhilippines,” until they are deposited withor turned over to the Treasurer of thePhilippines upon order of the court that thesame have been escheated in favor of theGovernment of the Republic of thePhilippines and as such, the unclaimeddeposit liabilities shall no longer be coveredby reserves required of deposit liabilities.

Sec. X265 Acceptance, Encashment orNegotiation of Checks Drawn in Favorof Commissioner/Collector of CustomsAll checks payable to the Commissioner/Collector of Customs shall be accepted fordeposit only to the account of theCommissioner/Collector of Customs.Banks where the Commissioner/Collectorof Customs has no account shall notencash, accept nor negotiate checkspayable to the Commissioner/Collector ofCustoms.

§§ X263 - X26508.12.31


Any attempt to defraud the governmentor the bank through the irregular orunauthorized encashment or deposit ofthese checks to accounts other than that ofthe Commissioner/Collector of Customsshall be reported immediately by the headof the banking office to the BOC, copyfurnished the BSP.

Sec. X266 Deposit Pick-up/Cash DeliveryServices. The following are the guidelineson the deposit pick-up/cash deliveryservices of banks;

a. As a general rule, deposit pick-up/cash delivery services shall be limited tothe following:

(1) To service the need of valuedclients whose daily average depositamounts to:

P500 thousand – for Metro Manila andMetro Cebu clients/depositors

P300 thousand – for outside MetroManila and Metro Cebu clients/depositors

(2) To be serviced during regularbanking hours and days only, unless thenature of the business and the volume ofthe deposits/cash would warrant servicingbeyond regular banking hours and days, inwhich case justification therefore should besubmitted to the satisfaction of theappropriate department of the SES (CentralPoint of Contact Department (CPCD) I,CPCD II, Integrated Supervision Department(ISD) I, and ISD II).

b. Prior BSP authority is not requiredbefore banks can engage in deposit pick-up/cash delivery services: Provided, Thatthe following conditions are complied with:

(1) Pick-up of deposits/cash deliveryshall be made with the use of armored cars,which shall not be operated as a mobile bankused in soliciting deposits from the generalpublic, or in any manner in carrying outbanking transactions/services other than toafford security of deposit/cash items in transit;

(2) Pick-up of deposits/cash deliverymay be made with the use of non-armored

vehicles in the following cases/circumstances:

(a) On an unscheduled request;Provided, That:

(i) all armored vehicles have alreadybeen fielded and the request has to beserved immediately; and

(ii) it is within a five (5) kilometerradius of a servicing banking office.

(b) In rugged terrain/mountainousroads or roads not suitable for heavyarmored vehicles;

(c) In critical or rebel-infested areaswhere there are peace and order problemsas certified by the local police authorities;and

(d) In island provinces where thetransport of cash to a branch or office maybe made only with the use of a ferry boat:

Provided, That the non-armored vehiclesare equipped with dual control safe andsupported with adequate security back-up.Their movements may be coordinatedwith law enforcement authorities.

(3) The risk of loss involved in the pick-up of deposits/cash delivery shall beadequately covered by insurance, and thearmored car/non-armored car to be usedshall be provided, with at least two (2)armed guards and supervised by at leasttwo (2) officers of the bank;

(4) The deposit/cash deliverytransactions shall be booked in accordancewith existing regulation;

(5) The strictest measure of safeguards,control and confidentiality will be adoptedin implementing the services;

(6) A separate record/log book for eacharmored car/non-armored car shall bemaintained by the bank which shall containthe information on the deposit pick-up/cashdelivery activities of the armored car/non-armored car to be supported by “triptickets” signed by a responsible officer ofthe bank; and

(7) Records and/or such other reportsthat may be required of the bank from time

§§ X265 - X26608.12.31


to time shall be made available forexamination/inspection by the authorizedrepresentative(s) of the appropriatedepartment of the SES during on-siteexamination;

c. If the use of the non-armored carunder Item “b(2)(a)” becomes regular, thebank shall engage an armored car to takeits place. Regularity shall mean daily (i.e.,regular banking days) or periodic (e.g.,every 15th or end of the month) servicingof a valued client within a three (3) monthperiod.

d. Pick-up of deposits/cash deliveryservices to be made on days other thanthe bank’s regular banking days shall beallowed without prior BSP authority:Provided, That a notarized certification(using the format shown in Appendix 82)stating that the bank complies with all theconditions set forth in Sec. X266, jointlysigned by the bank’s executive vicepresident or officer of equivalent rank andby the bank’s compliance officer, shall besubmitted to the appropriate departmentof the SES (CPCD I, CPCD II, ISD I andISD II) at least five (5) banking days beforebank’s intended starting date of its depositpick-up/cash delivery services beyondregular banking hours and days to clients.

e. If any of the above conditions is notmet, the BSP may suspend the deposit pickup/cash delivery operations of the bankwithout prejudice to the imposition ofsanctions under Section 37 of R.A. No. 7653.(As amended by Circular No. 614 dated 14 July 2008)

§ X266.1 Operation of armored carsExcept for Item “b(2)” of this Section, banksshall use armored cars to afford security incollection and/or delivering cash orsecurities and other valuables from or totheir clients, branch or extension officesor the BSP, provided such armored carsare not operated as mobile banks.



Sec. 3266 Qualifying Criteria Before aRural/Cooperative Bank Engages inDeposit Pick-up Services

a. An RB/Coop Bank desiring toundertake deposit pick-up service mustmeet the following criteria:

(1) Its total resources should not be lessthan P100.0 million and its net assets shouldbe at least P10.0 million or the minimumcapital required under Subsec. X111.1,whichever is higher;

(2) It should not be deficient in itsnetworth-to-risk assets ratio;

(3) Its past due loan ratio should not bemore than fifteen percent (15%);

(4) It has no past due obligations withthe BSP or with any government FI;

(5) It should have continuous profitableoperations; and

(6) It must show adherence to law, andBSP rules and regulations.

b. An RB/Coop Bank that meets theabove criteria shall submit for evaluation,the following justifications on the need forthe RB/Coop Bank and its branches toundertake such service which shouldcontain, among other things, the following:

(1) the names of clients/companies tobe serviced, estimated daily averagedeposit and distance/proximity of clientfrom applicant bank;

(2) the names and number of banks,branches, if any, in the area wheredepositor is situated;

(3) the arrangement in writing betweenthe bank and the client desiring to avail ofthe service, which arrangement shall defineand specify the respective responsibilitiesof the parties; and

(4) such other information pertinent tothe application.

Sec. X267 Automated Teller Machinesa. Off-site ATMs. Banks may establish off-

site ATMs, subject to the following conditions:

§§ X266 - X26708.12.31


(1) Banks shall submit a report to theappropriate department of the SES on ATMswhich they establish;

(2) The off-site ATMs shall be installedonly in centers of activity like shoppingcenters, supermarkets, hospitals, universitycampuses: Provided, That adequate internalcontrol and security measures shall beadopted and submitted to the BSP; and

(3) Only banks which have showngeneral compliance with laws, rules andregulations shall be allowed to openoff-site ATMs.

b. Mobile ATMs. Banks may alsoestablish mobile ATMs, subject to thefollowing conditions:

(1) The mobile ATMs should beallowed to visit only centers of activity asmentioned in Item a(2) above and shouldconfine their itinerary to Metro Manila untilfurther notice;

(2) The bank shall secure insurancecoverage or adopt a self-insurance schemeto protect itself against losses of whatevernature in its mobile ATM operations; and

(3) The bank shall notify the appropriatedepartment of the SES of the actual date amobile ATM becomes operational andwhen no longer in operation.

J. BORROWINGS FROM THEBANGKO SENTRAL

Sec. X268 Rediscounting Line. Thefollowing guidelines shall govern theoperations of the BSP’s rediscounting lineby banking institutions.(Circular No. 515 dated 06 March 2006)

§ X268.1 Credit Information SystemThe rediscounting availments of all eligiblebanks shall be drawn against theirrediscounting line which is based on theirtotal credit score under the CreditInformation System (CRIS). The scoringsystem under the CRIS shall consider thefollowing factors:

a. Management and risk managementsystem;

(1) Management; and(2) Risk management system;b. Financial indicators;(1) Capital adequacy;(2) Asset quality;(3) Profitability; and(4) Liquidity;c. Credit experience;(1) Compliance with the terms and

conditions of the loan and other BSPregulations; and

(2) Credit experience with other FIs.The CRIS guidelines shall be reviewed

on a regular basis by a Credit Committeecreated under MB Resolution No. 832dated 02 July 2008, to maximize itseffectiveness in managing the credit riskof the BSP.(Circular No. 515 dated 06 March 2006 as amended by Circular

No. 630 dated 11 November 2008)

§ X268.2 Application procedureBanks applying for a rediscounting lineshall submit their application in theprescribed form (RL Form No. 1) to theDLC, BSP- Manila or the appropriateRegional Loans and Credit Division(RLCD), BSP Regional Offices in Cebu,Davao and La Union, together with thefollowing documents:

a. Board resolution duly signed by theboard of directors of the applicant bank,authorizing the bank to apply for arediscounting line with the BSP anddesignating the officer/s of the bank to signand endorse documents pertaining thereto,together with their specimen signature/s;

b. Articles of incorporation (for newapplicants only) and amendments, if any;

c. Organizational chart (for newapplicants only);

d. List of board of directors andprincipal officers (top three (3) executiveofficers) and their education/training andwork experience;

§§ X267 - X268.208.12.31


e. Annual report/AFS for theimmediately preceding year; and

f. For banks applying for microfinancefacility, a copy of the Manual of Operationspertaining to microfinance operations.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X268.3 Approval/Renewal of the lineThe approval/renewal of the line shall besubject to the bank’s full compliance withthe following requirements:

a. Minimum capital prescribed underSubsecs. X111.1 and X111.2 based on thelatest available report of the SDC;

b. CAR as required under Sec. X115or X116, as applicable based on the latestavailable report of the SDC except thosewith capital build-up program approvedby the Monetary Board;

c. Required reserves against depositliabilities/deposit substitutes for two (2)consecutive weeks based on the latestavailable report of the SDC;

d. NPL ratio lower or equal to theindustry average adjusted upward by twopercent (2%) based on the latest availablereport of the SDC, or the allowable NPLratio approved by the Monetary Board;

e. Positive DDA balance with the BSPas of date of application;

f. No past due obligations orcollateral deficiencies on account ofmatured notes/unremitted collections/missing collaterals or ineligible papers withthe BSP as of date of application;

g. A CAMELS composite rating of “3”or higher based on the latest generalexamination of the appropriate departmentof the SES; and

h. The ratio of past due direct andindirect loans to DOSRI to the aggregatepast due loans should not be more thanfive percent (5%) based on latest availablereport of the SDC.

Banks applying for the microfinancefacility shall also comply with the following

requirements based on the latest availablereport of the SES:

a. At least one (1) year track record inmicrofinance;

b. At least 500 active microfinanceborrowers;

c. A portfolio at risk ratio (PAR) of notmore than five percent (5%);

d. The ratio of total collections(excluding prepayments) during thepreceding twelve (12)-month period to totalcollectibles (past due microfinance loansbeginning, plus matured loans/principalamortizations due for the period) should notbe less than ninety-five percent (95%); and

e. Officers and staff responsible formicrocredit operations shall havecompleted: (1) a training course onmicrofinance; and (2) at least one (1) yearexperience in microlending activities.

The approval, disapproval, extension,amendment, cancellation, suspension andrestoration of the rediscounting line shallbe delegated to a Credit Committeecomposed of the Assistant Governor/Managing Director (MD) of the MonetaryOperations Sub-Sector, MD of the RegionalMonetary Affairs Sub-Sector, and theDirector of the DLC.

Banks with approved rediscounting lineshall, thereafter, submit the following:

a. Rediscounting line agreement(RL Form No. 3);

b. Surety agreement executed by thecontrolling interest [single stockholder,natural or juridical owning more than fiftypercent (50%) of the voting stocks]obligating himself/itself jointly andseverally with the bank to pay promptlyon maturity, or when due, the BSP, itssuccessors or assigns, the bank’soutstanding obligations with the BSP(RL Form No. 4); and

c. For new applicant RBs/CoopBanks with designated custodian bank, atripartite depository agreement (RLFForm No. 2) by and among the applicant

§§ 268.2 - X268.308.12.31


bank, designated depository bank (dulyconcurred by its Head Office) and the DLCor RLCD.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X268.4 Amount of line. The amountof rediscounting line shall be based on thetotal credit score obtained by the applicantbank computed under the CRIS guidelineswhich ranges from fifty percent (50%) to200% of adjusted net worth.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X268.5 Term of the line. The term ofthe line shall be for one (1) year unlesssooner cancelled, suspended, amended orextended by the Credit Committee. Theline is renewable annually uponsubmission of application one (1) monthbefore the expiry of said line. Should therebe special circumstances or informationfrom the SES that may adversely affectthe credit worthiness of a bank in theintervening period, the rediscountingline of the bank concerned will bereviewed immediately and acted uponaccordingly.(Circular No. 515 dated 06 March 2006 as amended by Circular


§§ X268.6 - X268.9 (Reserved)

§ X268.10 Constitutional prohibitionThe following regulations shall govern theimplementation of Section 16, Article XIof the Constitution, which reads as follows:

“Sec. 16. No loan, guaranty, or otherform of financial accommodation for anybusiness purpose may be granted, directlyor indirectly, by any government-ownedor controlled corporation or financialinstitution to the President, the Vice-President, the Members of the Cabinet,the Congress, the Supreme Court, and theConsti tutional Commissions, the

Ombudsman, or to any firm or entity inwhich they have controlling interest,during their tenure.”

a. Definition(1) The terms “loan”, “guaranty” or

“other form of financial accommodation”as used in these regulations shall refer totransactions which involve the grant,renewal or extension to a bank by the BSPof any loan, advance, discount, rediscountor credit in any form whatsoever.

(2) Controlling interest in a bank. Anyof the government officials mentioned inSection 16, Article XI of the Constitution(the “Official”) shall be deemed to have acontrolling interest in a bank if he ownsmore than fifty percent (50%) of the votingstock of such bank. For the purpose of thisSubsection, the stockholdings of thespouse or minor child of the Official shallbe included in determining if he has suchcontrolling interest.

b. Certification required. A bankapplying for a loan or financialaccommodation with the BSP shallsubmit, together with the application, acertification under oath of the Presidentof the bank that the bank and/or any ofits stockholders do not fall within theprohibition under Section 16, Article XIof the Constitution.

Sec. X269 Rediscounting AvailmentsBanks shall enroll in the ElectronicRediscounting System (eRS) byexecuting and submitting to the DLC orthe RLCD a Notarized ElectronicRediscounting System ParticipationAgreement before avail ing of therediscounting facility of the BSP.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.1 Eligibility requirements at thetime of availment. Banks availing of the BSPrediscounting facility must have at the timeof availment :

§§ X268.3 - X269.108.12.31


a. A positive DDA balance;b. No past due obligations; andc. No collateral deficiencies on

account of matured notes, unremittedcollections, missing collaterals orineligible papers.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.2 Eligible papers andcollaterals. The BSP shall accept creditinstruments covering all economicactivities except the following:

a. Interbank loans;b. Extended/Restructured loans;c. Past due loans;d. Unsecured loans;e. Personal consumption loans;f. Loans to NBFIs; andg. Loans funded from other

borrowings, e.g. government FIs or multi-lateral agencies.

Credit instruments offered as collateralshall be subject to the eligibilityrequirements provided under Section 82of R.A. No. 7653.

a. Commercial credits - Bills,acceptances, promissory notes (PNs) andother credit instruments with maturities ofnot more than 180 days from the date oftheir rediscount, discount or acquisition bythe BSP and resulting from transactionsrelated to:

(1) the importation, exportation,purchase or sale of readily saleable goodsand products, or their transportation withinthe Philippines; or

(2) the storing of non-perishable goodsand products which are duly insured anddeposited, under conditions assuring theirpreservation, in authorized bondedwarehouses or in other places approvedby the Monetary Board.

Credit instruments acquired undercommercial credits shall be securedeither by:

Type of Collateral Collateral Value(1) Duly notarized Shall equal or

assignment of export exceed theor domestic letters of outstanding balancecredit confirmed of the creditpurchase order sales instrumentcontract, quedans

(2) Trust Receipts Shall equal orexceed theoutstanding balanceof the creditinstrument

(3) Duly registered 70% of themortgage on real appraised valueproperty shall equal or

exceed theoutstandingbalance of the PN

(4) Credit guarantees/ Shall equal orsureties issued by exceed thethe lGLF, the Small outstandingBusiness Corporation balance of the PN(SBC) and the nationalgovernment

(5) Credit guarantees/ Shall equal orsureties issued by exceed 80% ofthe Credit Surety the outstandingFund (CSF) jointly balance of the PNestablished bycooperatives andlocal governmentunits

b. Production credits - Bills, acceptances,PNs and other credit instruments havingmaturities of not more than 360 days fromthe date of their rediscount, discount oracquisition by the BSP and resulting fromtransactions related to the production orprocessing of agricultural, animal, mineral,industrial and other products.

Credit instruments acquired underproduction credits shall be secured by a dulyregistered mortgage on real property seventypercent (70%) of the appraised value ofwhich equals or exceeds the outstandingbalance of the PN.

c. Other credits - Special creditinstruments not otherwise rediscountableunder the immediately preceding Items “a”and “b” such as, but not limited to,

§§ X269.1 - X269.208.12.31


microfinance, housing, services,agricultural loans with long gestation periodand other eligible economic activities withmaturity of not more than ten (10) yearsfrom date of their rediscount, discount oracquisition of the BSP.

Credit instruments acquired under othercredits shall be secured by:

Type of Collateral Collateral Value

(1) Duly registered 70% of themortgage on real appraised valueproperty shall equal or

exceed theoutstanding balanceof the PN

(2) Duly notarized Shall equal orassignment of exceed thereceivables from outstandingservice contract balance of the PN

(3) Credit guarantees/ Shall equal orsureties issued by the exceed theIGLF the SBC and the outstandingnational government balance of the PN

(4) Credit guarantees Shall equal orsureties issued by the exceed 80% ofCSF jointly established the outstandingby cooperatives and balance of the PNLGUs

(5) Other collaterals Current marketacceptable to the BSP value shall equale.g., government or exceed thesecurities outstanding

balance of the PN

For housing loans, the lien or mortgageshall cover the property being financed.

Unsecured loans may be accepted forrediscounting provided they are:

a. Microfinance loans; orb. Loans secured by a duly registered

mortgage on real property of the bank,seventy percent (70%) of the appraised valueof which equals or exceeds the outstandingbalance of the unsecured PN and othercollaterals acceptable to the BSP, e.g.,government securities.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.3 Loan availment procedureBanks availing of the rediscounting facilityshall submit their loan applicationselectronically to the BSP using their eRSregistered computers.

Upon receipt of the confirmation ofloan approval:

a. Banks shall execute the PNs withTrust Receipt Agreement and Deed ofAssignment (PNTRADA) in favor of theBSP (RL Form No. 7 for peso and RL FormNo. 8 for dollar and yen), signed by theauthorized officer/s of the bank.

b. Banks authorized to hold-in trust therediscounted credit instruments andunderlying collaterals shall segregate andkeep the same together with the PNTRADAat a secured place within their premisesunder the custody of the accountable officer.

c. Banks with custodianship agreementsshall deposit with their respective depositary/custodian bank the rediscounted creditinstruments, underlying collaterals and thePNTRADA not later than the next bankingday from date of loan grant, receipt of whichshall be acknowledged by the depositarybank in the List of Rediscounted Loans.(Circular No. 515 dated 06 March 2006 as amended by

Circular No. 630 dated 11 November 2008)

§ X269.4 Loan value. The loan valueof all eligible papers shall be eightypercent (80%) of the outstanding balanceof the borrower’s credit instrument.(Circular No. 515 dated 06 March 2006 as amended by

Circular No. 630 dated 11 November 2008)

§ X269.5 Maturities. The maturitiesof BSP rediscounts are as follows:

Type of Credit Maturity Date

a. Commercial Credits

(1) Export Packing 180 days from date

(2) Trading of rediscount but

(3) Transport shall not go beyond

(4) Quedan the maturity date of

the credit instrument

§§ X269.2 - X269.508.12.31


Type of Credit Maturity Date

(5) Export Bills (EBs)

At sight fifteen (15) days

from purchase date

Usance EB term of draft but not to

exceed sixty (60) days

from shipment date

b. Production 360 days from date of

Credits rediscount but shall

not go beyond the

maturity date of the PN

c. Other Credits maximum term of ten

(10) years but shall not

go beyond the maturity

date of the credit

instrument

(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.6 Rediscount/Lending rates andliquidated damages. The rediscount ratesfor peso, dollar and yen loans shall be asfollows:

Based on the applicable T-Bill rates from the last auction of the preceding week as follows: Loan Maturity Applicable T-Bill Rates a. Peso 90 days or less 91 days Rediscount 91-180 days 182 days 181-360 days 364 day

>360 days 364-day subject to re-pricing every year

b. Dollar/ Based on their respective London Yen Inter-Bank Offered Rate (LIBOR) Rediscounts for the last working day of the

immediately preceding month

The lending rates of banks on theirrediscounted papers shall not be subjectto any ceiling but the spreads of the bankson these papers shall be closely monitoredby the BSP to ensure that these areconsistent with the prevailing market rates.

Past due BSP loans and unpaid maturednotes shall be levied liquidated damagesequivalent to five percent (5%) per annum.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.7 Release of proceeds. Theproceeds of the rediscounting availmentshall be released as follows:

a. Peso rediscounts - automaticallycredited to the borrowing bank’s DDA orits depository bank’s DDA with the BSPon the same day for loan applicationsubmitted to the BSP before 4:30 pmduring banking days.

b. Dollar/Yen rediscounts - releasedthrough the Treasury Department, BSP, forcredit to the designated foreigncorrespondent bank of the borrowing bankas follows:

(1) Same banking day credit for dollarloan application submitted to the BSPbefore 11:00 am, during banking days; and

(2) Following banking day credit foryen loan application submitted to the BSPbefore 11:00 am, during banking days.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.8 Repayments/Remittance ofcollections/arrearages. The following shallgovern repayments, remittance ofcollections, and arrearages:

a. Repayments -(1) Peso rediscounts(a) The loan value of the rediscounted

credit instruments or the amortization plusinterest due thereon shall automatically bedebited against the borrower bank’s DDAwith the BSP at maturity/amortization duedate.

(b) For microfinance loans, the DDAof the borrower bank shall automaticallybe debited on the amortization due datefor the loan value of the amortization plusinterest due thereon. For loans with daily,weekly or semi-monthly amortizations,the borrower bank’s DDA shallautomatically be debited on the lastamortization due date of said month for thetotal loan value of the amortizations for themonth plus interest due thereon.

§§ 269.5 - X269.808.12.31


(c) The loan value of unremittedcollections and of the rediscounted creditinstruments and/or underlying collateralsfound to be missing, ineligible or withexceptions not corrected within fifteen (15)days from receipt of notice plus interest duethereon shall automatically be debited againstthe borrowers bank’s DDA with the BSP.

(2) Dollar/Yen rediscountsDollar and yen loans shall be repaid in

the same currency under which they werereleased. For this purpose, the bank shallsubmit online to the BSP its paymentinstruction one (1) day before the paymentdate or the maturity date of the loancorresponding to the remittance instructionto its designated correspondent bank. Thepayment shall cover total collections orpayment of maturing loans plus interestdue thereon. In case of short payment, thebank’s DDA with the BSP shallautomatically be debited for the pesoequivalent of the shortage.

If the foreign currency denominatedloans are not settled on maturity date, theborrowing bank’s DDA with the BSP shallautomatically be debited for the pesoequivalent of the matured obligation plusaccrued interest due thereon, using theapplicable BSP selling rate for dollar or yenat the date of debit.

b. Remittance of collections -(1) Total collections received by the

borrowing bank before the maturity dateof the rediscounted credit instruments shallbe remitted not later than five (5) bankingdays following the date of receipt ofcollections to the following:

Peso Rediscounts BSP

Dollar Rediscounts Federal Reserve Bank ofNew York for theaccount of BSP

Yen Rediscounts Bank of Tokyo for theaccount of BSP

(i) Total collections shall refer to theloan value of the principal amountcollected from rediscounted creditinstruments plus accrued interest due onthe outstanding balance of subject creditinstruments.

(ii) For banks with BSP loans under pastdue status, total collections shall includeall collections on principal, interest andpenalty.

(iii) In the case of negotiated EBs, thereceipt by the borrowing bank of paymentfrom its correspondent bank either throughactual remittance or credit advice; orthrough book entries made by theborrowing bank charging its correspondentbank before receipt of advice shallconstitute receipt of collection.

(2) The bank shall ensure thatadequate records are maintained in itsHead Office on the collections made bythe branches.

c. Arrearages. The BSP shallundertake all necessary collectionmeasures allowed by law, such asforeclosure proceedings against bankswith past due loans.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.9 Prohibited transactionsThe following shall not be allowed withoutprior approval of the BSP:

a. Substitution of rediscounted creditinstruments and underlying collateral realproperties on outstanding loans with theBSP;

b. Renewal of rediscounted creditinstruments without remitting paymentwhile the loan released against therediscounted credit instrument is stilloutstanding with the BSP; and

c. Acceptance of properties aspayment (dacion en pago).(Circular No. 515 dated 06 March 2006 as amended by Circular


§§ X269.8 - X269.908.12.31


The following definition of terms shallapply:

(1) Offense shall refer to a violationthat connotes infraction of the terms andconditions of the loans granted by the BSPand of the applicable laws, rules andregulations, BSP credit policies and non-compliance with the BSP/Monetary Boarddirectives.

(2) Serious offense – This refers toacts or omissions constituting violationof the terms and conditions of the loansgranted to the bank and of the applicablelaws, rules and regulations that constituteunsafe and unsound banking practices;and the misrepresentation of facts andwarranties committed by the bank/individual(s) that influenced the approvaland amount of the rediscounting loan/linegranted, such as:

(a) Rediscounting of ineligible papers,fictitious borrowers/loans/titles orsubmission of spurious documents;

(b) Absence of or failure to executevital loan documents;

(c) Failure or delay in the deposit ofrediscounted loan documents with thecustodian bank, except those caused byfortuitous events; and

(d) Failure to remit to the BSPcollections on principal of the rediscountedloans within the prescribed period of five(5) banking days from date of actual receiptof collections except collections frommicrofinance loans.

(3) Less serious offense – This refersto acts or omissions constituting violationof the terms and conditions of the loansgranted to the bank and of the applicablelaws, rules and regulations that constituteunsafe and unsound banking practices butnot falling under the serious offensecategory; however, the deficiencies notedshould be addressed immediately tomitigate the credit risk of the BSP.

§ X269.10 Monitoring and creditexamination of borrowing banks. TheDLC and the RLCD shall conduct anoff-site analysis of the BSP’s creditexposure to borrowing banks and a risk-based on-site examination that will focusprimarily on determining whether thereis a “high”, “moderate” or “low”probability of default on the settlementof the banks’ rediscounting obligationswith the BSP.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.11 Penalties/sanctions. Thefollowing penalties and sanctions shall beimposed on the erring bank and/or thebank’s authorized/certifying officers.

a. For serious offenseAggregate Amount/Penalty Range Minimum MaximumP50K or less P83 P250Above P50K

to 100K 250 750Above P100K

to P500K 1,000 3,000Above P500K

to 1M 2,500 7,500Above P1M 5,000 15,000

b. For less serious offenseP50K or less P63 P188Above P50K

to 100K 188 563Above P100K

to P500K 750 2,250Above P500K

to 1M 1,875 5,625Above P1M 3,750 11,250

c. Minor offenseP50K or less P42 P125Above P50K

to 100K 125 375Above P100K

to P500K 500 1,500Above P500K

to 1M 1,250 3,750Above P1M 2,500 7,500

§§ X269.10 - X269.1108.12.31


(4) Minor offense – This includes actsor omissions which are procedural innature, not intentional, may not result inany loss or damage to or any significantincrease in the risk of the creditor BSP andcan be resolved immediately during thenormal course of business. For purposesof classifying the nature of the offense, thisincludes all other acts or omissions whichcannot be classified under serious or lessserious offenses.

(5) Aggregate amount - shall refer tothe aggregate amount of the followingunder the current examination:

(a) Under serious offense:Total loan value of the following:(i) Rediscounted ineligible papers

with serious offense, fictitious loans orspurious loan documents as determined bythe BSP or OSI;

(ii) Undeposited vital loan documentsand underlying collaterals as ofexamination date; and

(iii) Collections on principal ofrediscounted loans which were notremitted to the BSP within the prescribedperiod of five (5) banking days from dateof receipt of collections.

(b) Under less serious offense:Total loan value of rediscounted

ineligible papers with less serious offenseas determined by the BSP.

(c) Under minor offense:Total loan value of rediscounted

ineligible papers with minor offense asdetermined by the BSP.

(6) Minimum penalty – refers to therange of penalties to be imposed if themitigating factor(s) outweigh theaggravating circumstances, to wit:

(a) The act or omission is notintentional or the bank acted in “good faith”when the error, deficiency, violation or theabsence/lack of the required action werecommitted.

(b) The bank is willing to takeimmediate action or has started to rectify

the deficiencies/violations noted orundertakes to correct the deficiencieswithin fifteen (15) days from receipt ofnotice.

(c) The bank has voluntary disclosedthe offense/violation committed before itis discovered by the BSP or has remitted tothe BSP the total amount due plus accruedinterest.

(7) Maximum penalty – refers to therange of penalties to be imposed if theaggravating circumstances outweigh themitigating factor(s), to wit:

(a) The act or omission carries with itthe intention to commit or cover up aviolation or to defraud the BSP.

(b) Commission or omission of aspecific offense corrected in the past butfound repeated in another transaction insubsequent examination.

(c). Additional interest charges onunpaid penalty.

An additional interest of twelve percent(12%) per annum shall be assessed on non-payment of the penalties, from date ofdemand until full settlement thereof.

The foregoing monetary penalties shallbe without prejudice to the cancellation ofthe bank’s rediscounting line with the BSPand/or administrative and criminalsanctions that may be charged against itsculpable officers.(Circular No. 515 dated 06 March 2006 as amended by Circular


§ X269.12 Interlocking directorship/officership. Banks owned or managed bythe same owners, stockholders, directors,officers or family/business group may alsobe suspended from availment of therediscounting facility by the CreditCommittee once the rediscounting line ofany of the banks belonging to the samegroup is suspended, until such time that thesuspension of the erring bank is lifted.(Circular No. 515 dated 06 March 2006 as amended by Circular


§§ X269.11 - X269.1208.12.31


Sec. X270 Repurchase Agreements withthe Bangko Sentral. Repo agreements withthe BSP shall be governed by Sec. X601.

Sec. X271 Bangko Sentral LiquidityWindow. The following guidelines shallgovern the grant by the BSP of creditaccommodations through a liquiditywindow to banks.

§ X271.1 Nature of liquidity windowThe window shall meet the liquidity needsof the financial system under normalconditions and shall be distinct fromoverdrafts and emergency advances.

§ X271.2 Terms of credita. Interest rate. The rate of interest

chargeable on availments under theliquidity window shall be the rateequivalent to the reference rate for ninety(90) days determined and announced bythe BSP for floating rate loans, plus orminus a rate to be determined by the BSPon the basis of the prevailing monetarysituation.

The additional or discount rateestablished for any given time shall be madepublic by the BSP and applied uniformly toall borrowers during that period.

The additional rate to be imposed overand above the reference rate shall not beless than two (2) percentage points, withthe applicable additional rate to bedetermined by the BSP on the basis of theprevailing monetary situation.

b. Security. Any paper, irrespectiveof maturity, eligible under Section 82 ofR.A. No. 7653.

c. Loan values. The loan values of thepaper offered as collateral should be eightypercent (80%) of the amount still dueoutstanding on the paper offered ascollateral.

d. Repayment period. The term of thecredit accommodation shall not exceedseven (7) days.

§ X271.3 Limit. Availment by any bankunder this facility shall not exceed tenpercent (10%) of its net worth, as definedunder Sec. X111 as of the end of the quarterpreceding the date of application. In thecase of branches of foreign banks, the quotashall be ten percent (10%) of the assignedcapital as of the date of application.Additionally, a bank or a branch of a foreignbank may avail itself of this facility to theextent equivalent to a further five percent(5%) of its net worth, as defined underSec. X111 or assigned capital, as the casemay be, as of the end of the quarterpreceding the date of availment. Anyavailment of the liquidity window shallfall within the unavailed basic rediscountceiling of the bank or the branch of aforeign bank as the case may be.

Sec. X272 Emergency Loans or Advancesto Banking Institutions. The emergencyloan or advance to banking institutions isgoverned by the provisions of Sections 84to 88 of R.A. No. 7653, otherwise knownas The New Central Bank Act. Thefollowing guidelines shall govern the BSP’semergency loans and advances.(Circular No. 517 dated 06 March 2006)

§ X272.1 Nature of emergency loansor advances. An emergency loan oradvance is a credit facility that is intendedto assist a bank experiencing seriousliquidity problems arising from causes notattributable to, or beyond the control of,the bank management. The grant of suchfacil i ty is discretionary upon theMonetary Board, and is intended only asa temporary remedial measure to help asolvent bank overcome serious liquidityproblems. As provided under Sections 84to 88 of R.A. No. 7653, no emergencyloan or advance may be granted excepton a fully secured basis and the MonetaryBoard may prescribe additionalconditions, which the borrowing banks

§§ X270 - X272.108.12.31


must satisfy in order to have access to thecredit facility of the BSP.(Circular No. 517 dated 06 March 2006)

§ X272.2 When an emergency loan oradvance may be availed of. An emergencyloan or advance may be granted:

a. In periods of national and/or localemergency or of imminent financial panicwhich directly threaten monetary andbanking stability, i.e., situations involvingbank runs, massive movements by depositorsof their funds from certain banks to otherbanks, bank holidays and voluntary cessationof business, or when there are movementswhich endanger the economy, or when theinternational stability of the peso is threatened,or when there is an exchange crisis.

b. During normal periods for thepurpose of assisting a bank in a precariousfinancial condition or under serious financialpressures brought about by unforeseenevents or events which though foreseeable,cannot be prevented by the bank concerned.

Provided, That there is a concurrentvote of at least five (5) members of theMonetary Board and the latter hasascertained that the bank is not insolvent:Provided, further, That banks with positiveCAR of not more than six percent (6%)based on adjusted books of accounts shallsubmit a Business Improvement Plan (BIP)acceptable to the BSP within six (6) monthsfrom date of advice by the appropriatedepartment of the SES. For this purpose,the appropriate department of the SES shallwarn the concerned banks that failure tosubmit the required BIP in accordance withthe criteria of the appropriate departmentof the SES shall disqualify the bank fromaccess to the BSP’s emergency loan facility.Banks with zero to negative CAR shouldhave an existing BSP-approvedrehabilitation plan and on track with thePlan to be eligible to avail itself ofemergency loan.(Circular No. 517 dated 06 March 2006)

§ X272.3 Allowable amount ofemergency loan or advance. Themaximum amount of an emergency loanor advance shall be limited to the amountneeded by the applicant bank to overcomethe emergency or financial predicamentbut not to exceed the sum of fifty percent(50%) of its total deposits and depositsubstitutes as of the last banking day of themonth preceding the date of emergencyloan application: Provided, That, in no caseshall such maximum amount exceed theloan values of the collaterals submitted, asdetermined by the BSP.

The amount approved by the MonetaryBoard shall be released in tranches. The firsttranche shall not exceed twenty-five percent(25%) of the total deposits and depositsubstitutes of the bank as of the last bankingday of the month preceding the date ofemergency loan application and shall bereleased only after the submission of thecollaterals and required documents underSubsecs. X272.4 and X272.5: Provided,however, That upon request of the applicantbank, the Monetary Board may authorize afirst tranche in an amount greater than twenty-five percent (25%) of the bank’s total depositsand deposit substitutes if the circumstancessurrounding the emergency or financialpredicament warrant the release of suchgreater amount and the same is adequatelysecured by first class collaterals.

Except as provided in Subsec.X272.7(d) hereof, the proceeds of theemergency loan or advance shall beutilized exclusively to service netwithdrawals of deposits and depositsubstitutes, i.e., amount of the bank’s totalwithdrawals less total deposits.

The principal amount of the emergencyloan or advance shall not exceed thedifference between the highest level of thebank’s deposit and deposit substitutes ofthe immediately preceding thirty (30)-dayperiod from date of emergency loanapplication and the current level of deposits

§§ X272.1 - X272.308.12.31


and deposit substitutes as determined bythe appropriate department of the SES.(Circular No. 517 dated 06 March 2006)

§ X272.4 Application proceduresBanks applying for an emergency loanor advance shall submit an application(EL Form No. 1) with the appropriatedepartment of the SES, copy furnished theDLC. During normal periods, theapplicant-bank shall state the reasons forthe proposed loan availment and otherdetails showing the precarious financialcondition or the serious financial pressuresbeing experienced by the bank.

The bank shall submit together with theapplication, the following documents:

a. Certified Statement of Condition(under oath) as of the last banking day ofthe month preceding the date ofemergency loan application.

b. A duly notarized secretary’scertificate (EL Form No. 2) together with aresolution of the board of directors of the bank:

(1) Authorizing the availment by thebank of an emergency loan or advancefrom the BSP.

(2) Signifying the bank’s commitmentto comply with the guidelines set forthherein and the terms and conditions thatmay be imposed by the Monetary Board.

(3) Designating the chairman and thepresident or in their absence, any of the nexttwo (2) highest officers, as duly authorizedsignatories for the emergency loan oradvance application, promissory notes, andall undertakings. Designated authorizedofficers not lower than senior vice president,or equivalent position, may be authorized toexecute all accessory documents for theemergency loan or advance.

(4) Authorizing the Bangko Sentral toevaluate other assets of the bank certifiedby its auditors to be good and availablefor collateral purposes should the grantof subsequent tranches be applied for.

After determining the eligibility of theapplicant bank to avail of the emergency

loan or advance under Subsec. X272.2, theappropriate department of the SES shallprepare a memorandum to the MonetaryBoard stating among others, the following:

a. Validation of the eligibility ofapplicant bank.

b. Financial condition of applicant bank.c. Volume of deposits and expected

withdrawals of deposits.d. Amount and terms of the loan.e. Whenever applicable, circumstances

that warrant the grant of the first tranchegreater than twenty-five percent (25%) ofthe total deposits and deposit substitutesas provided by law.

The applicant bank shall submit to theDLC, prior to the release of the first tranche,the following documents together with thecopy of the application:

a. Listing of assets that are good andavailable for collateral purposes as certifiedby the bank’s duly appointed externalauditor (EL Form No. 3).

b. List ing of collaterals in theprescribed formats (EL Form Nos. 4/4a/4b) as well as a 3.5” diskette containingthe database, (in MS Excel format),together with the documents of title and/or evidences of ownership of thecollaterals offered including the followingdocuments:

(1) Appraisal reports of not more thanone (1) year conducted by an independentappraiser acceptable to the BSP inaccordance with BSP’s terms of reference.

(2) Latest tax declarations.(3) Current tax receipts, tax clearances

and other documents needed forregistration of mortgages and deeds ofassignment.

(4) Current insurance policies coveringimprovements and official receipts ofpremium payments.

(5) Department of Agrarian Reform(DAR) certification that agriculturalproperties offered as collaterals are notcovered by the Comprehensive AgrarianReform Program (CARP).

§§ X272.3 - X272.408.12.31


(6) Current original promissory notesof bank’s borrowers duly endorsed in favorof the BSP.

(7) Special power of attorney orstockholder’s resolution, when appropriate.

c. Notarized Deed of Undertakingexecuted by the above-mentioned officersof the bank to: (1) register with the Registryof Deeds all the covering legal documentsbefore loan release at the expense of thebank and that, in the event the BSP agreesto release the proceeds of the loan beforesaid documents are registered, the sameshall be registered by the bank at its ownexpense; and (2) submit the documentsneeded to complete the requirements ofthe tranche not later than fifteen (15) daysfrom release of the emergency loan oradvance. (EL Form No. 5).

In case of failure by the bank to registerthe covering legal documents within fifteen(15) days from date of release of loanproceeds, the BSP shall register saiddocuments for the account of the applicantbank, and all costs and expenses shall, atthe option of BSP, be deducted from anysubsequent availments of the bank or fromits DDA or be added to its liability accountwith the BSP.

d. Notarized Joint and SeveralUndertaking executed by all thecontrolling stockholders [owning morethan fifty percent (50%) of the voting stocks]of the bank and every person or a group ofpersons whose stockholdings are sufficientto elect at least one (1) director toindemnify and hold harmless from suit theBSP, its Monetary Board members,Governor, officers and personnel, and theconservator whose appointment theMonetary Board may find necessary at anytime. The Department of Finance orstockholder of record will sign the joint andseveral undertaking if the government is astockholder (EL Form No. 6).

e. Notarized Deed of Undertakingwith waiver of secrecy of deposits and

commitment by the directors, principalofficers with the equivalent rank ofvice-president and up, all the controllingstockholders, and every person or groupof persons and their respective spouses,whose stockholdings are sufficient to electat least one (1) director not to withdraw anyportion of their deposits and depositsubstitutes as of date of release of the firsttranche while the emergency loan remainsoutstanding. In the event of a compellingreason to withdraw, payment of theemergency loan or advance in an amountequivalent to the deposits to be withdrawnshall be made (EL Form No. 7).

f. Notarized Surety Agreementexecuted by the controlling stockholdersand every person or group of personswhose stockholdings are sufficient to electat least one (1) director obligatingthemselves jointly and severally with thebank to pay promptly on maturity, or whendue, the Bangko Sentral, its successorsor assigns, all promissory notes coveringthe emergency loan or advance.(The Government, its subdivisions,instrumentalities and agencies, andgovernment entities are exempted fromthis requirement.) (EL Form No. 8)

g. Notarized Deed of NegativePledge executed by the controllingstockholders and every person or group ofpersons whose stockholdings are sufficientto elect at least one (1) director, togetherwith their respective certificates of stock.(The Government, its subdivisions,instrumentalities and agencies, andgovernment entities are exempted from thisrequirement.) (EL Form No. 9).

h. Certification under oath executedby the chairman and president of thebank that the bank or any of i tsstockholders does not fall within theprohibition under Section 16, Article XIof the Constitution (EL Form No. 10).

Prior to the release of the subsequenttranches, the bank shall submit to DLC the

§ X272.408.12.31


in Favor of the BSP (EL Form No. 11/11a),Notarized Deed of Real Estate Mortgage(EL Form No. 12-Bank Assets/12a-Stockholder/Third Party Assets), Notarized Deed of Pledge(EL Form No.13- Individual/Corporation/13a-Stockholders’/Third Party Assets), NotarizedDeed of Assignment of Mortgages (EL FormNo. 14), Hold-out on Foreign CurrencyDeposits with BSP (EL Form No. 15) andJoint Affidavit executed by the bank’schairman and president and the IndividualMortgagor (EL Form No. 16- Individual) orthe Corporate-Mortgagor’s chairman andpresident (EL Form 16a- Corporation).(Circular No. 517 dated 06 March 2006)

§ X272.6 Acceptable collaterals andtheir corresponding loan values. Allavailments of the emergency loan oradvance shall be secured by first classcollaterals, i.e., assets and securities whichhave relatively stable and clearly definablevalue and/or greater liquidity and free fromlien and encumbrances, to the extent oftheir applicable loan values, as follows:

§§ X272.4 - X272.608.12.31

documents of title and/or evidences ofownership of the collaterals, together withthe other documents referred to in Item “b”of the immediately preceding paragraph ofthis Subsection for the amount being appliedfor release and, where necessary, such otheracceptable security which, in the judgmentof the Monetary Board, would be adequateto supplement the assets tendered tocollateralize the subsequent tranche.

Banks availing of emergency loan oradvance may decline to submit either item“f” or “g” or both, but the loan valuesspecified in Items “b” and “d” of Subsec.X272.6 shall be reduced.(Circular No. 517 dated 06 March 2006)

§ X272.5 Other documentaryrequirements. Before release of anyemergency loan or advance, the applicantbank shall, aside from the documentaryrequirements already mentioned above,submit such other requirements/documentation as may be required by theDLC, e.g., duly Notarized Promissory Note

ACCEPTABLE COLLATERALS With Surety With Surety With No Surety Agreement Pledge Negative Agreement and but no Pledge but and no Negative Negative no Surety Negative Pledge Pledge Agreement Pledge

a. Government securities - based on the current market 80% 80% 80% 80% value of the securities b. Unencumbered real estate properties in the name of the bank 1. Initial rate - based on the appraised value (AV) of the land and insured improvements 40% 35% 30% 25% 2. Final rate - based on the AV of the land and insured 70% 65% 60% 55% improvements determined by a licensed and independent appraiser acceptable to the BSP in accordance with BSP's terms of reference c. Hold-outs on foreign currency deposits with the BSP 80% 80% 80% 80% - based on current market value d. Mortgage credits (with remaining maturities of not more than 360 days) 1. Initial rate - based on the AV of the property securing 40% of AV or 35% of AV or 30% of AV or 25% of AV or the loan evidenced by negotiable instruments or the 50% of the 40% of the 40% of the 40% of the outstanding balance of such loan whichever is lower outstanding outstanding outstanding outstanding balance balance balance balance 2. Final rate - based on the AV of the property securing 70% of AV or 65% of AV or 60% of AV or 55% of AV or the loan evidenced by negotiable instruments as 80% of the 75% of the 70% of the 65% of the determined by a licensed and independent appraiser outstanding outstanding outstanding outstanding acceptable to the BSP in accordance with BSP's terms balance balance balance balance of reference or the outstanding balanceof such loan whichever is lower. e. Commercial papers ("AAA") 80% 80% 80% 80%


Other types of assets may beacceptable as collateral for emergency loanas the Monetary Board may approve.

The initial valuation rate shall apply incase the appraisal reports of independentappraiser acceptable to the BSP for realestate collaterals are not available or notin accordance with BSP’s terms of referenceor the collaterals themselves are withrectifiable minor deficiencies asdetermined by DLC, but will be adjustedupon compliance with the foregoingrequirements.

All collateralization expenses, such asregistration fees, documentary stamps, etc.,shall be borne by the applicant bank.(Circular No. 517 dated 06 March 2006)

§ X272.7 Manner and conditions ofrelease. The manner and conditions ofrelease of emergency loan or advance shallbe as follows:

a. The grant of emergency loan oradvance shall bear the concurrent vote ofat least five (5) members of the MonetaryBoard.

b. The emergency loan or advanceshall have a ninety (90)-day availabilityperiod from date of Monetary Boardapproval, non-renewable, non-extensible.Request for extension or renewal shall betreated as new loan application to beevaluated by the appropriate departmentof the SES if qualified under Subsec.X272.2.

c. The amount approved by theMonetary Board may be disbursed in one(1) or more releases as dictated by theneeds of the bank and availability of firstclass collateral.

d. The proceeds of the emergencyloan or advance shall be applied first tothe advance interest, and then to anyoutstanding overdrawings that may have

§§ X272.6 - X272.708.12.31

ACCEPTABLE COLLATERALS With Surety With Surety With No Surety Agreement Pledge Negative Agreement and but no Pledge but and no Negative Negative no Surety Negative Pledge Pledge Agreement Pledge I. Asset of stockholders to secure new loan releases if the bank has no available first class collaterals: a. Unencumbered real estate 1. Initial rate - based on the AV of the land and insured 35% 30% 25% 20% improvements 2. Final rate - based on the AV of the land and insured 60% 55% 50% 45% improvements determined by a licensed and independent appraiser acceptable to the BSP in accordance with BSP's terms of reference b. Government Securities 80% 80% 80% 80% c. Commercial papers ("AAA") 80% 80% 80% 80% II. Assets of other third parties to cover deficiency arising from unpaid interest and liquidated damages, reduction in loan value of existing colaterals and conversion of overdrafts into emergency loan: a. Unencumbered real estate 1. Initial rate - based on the AV of the land and 30% 25% 20% 15% insured improvements 2. Final rate - based on the AV of the land and insured 50% 45% 40% 35% improvements determined by a licensed and independent appraiser acceptable to the BSP in accordance with BSP's terms of reference b. Government securities 80% 80% 80% 80% c. Commercial papers ("AAA") 80% 80% 80% 80%

Assets of stockholders and of other third parties, the latter acceptable only in instancesprovided under the last paragraph of Subsec. X272.8, are acceptable as collaterals foremergency loan with corresponding loan values, as follows:


been incurred by the bank in its demanddeposit with the BSP.

e. The bank shall submit to the DLCa board resolution confirming every receiptof proceeds of emergency loan oradvance. Likewise, the bank shall submita board resolution confirming theundertakings executed by the officersunder Subsec. X272.4.(Circular No. 517 dated 06 March 2006)

§ X272.8 Interest rates, liquidateddamages, and penalties. The interest ratethat shall be charged on emergency loanor advance shall be based on the BSPlending rate plus two percent (2%) perannum. Interest shall be collected inadvance from the borrowing bank.

An additional five percent (5%) perannum shall be imposed as liquidateddamages on the past due emergency loanor advance.

A penalty of one-tenth of one percent(1/10th of 1%) per day of delay onunremitted/delayed remittance ofcollections received by the bank frompromissory notes covering the assignedmortgage credits or the proceeds of salefrom assigned/mortgaged real estateproperties commencing on the dayfollowing the deadline prescribed inSubsec. X272.11 shall be imposed on theerring bank.

Any shortfall in collateral due to unpaidaccrued interest, liquidated damages,reduction in loan value of existingcollaterals and conversion of overdraft intoemergency loan may be covered by thirdparty assets after the assets of the bankhave been exhausted.

A Joint Affidavit (EL Form No. 16/16a) between the bank’s chairman andpresident and the corporate-mortgagor’schairman and president or the individualmortgagor to be signed and notarized inthe BSP shall be submitted in support ofthe mortgage documents. The signing

shall be photographed as well as recordedin video tape.(Circular No. 517 dated 06 March 2006)

§ X272.9 General terms andconditions. A bank with an outstandingemergency loan or advance shall complywith the following conditions:

a. The bank shall not, without theprior authorization of the Monetary Board,expand its outstanding loans orinvestments as of the date of applicationfor emergency loan, except for investmentin government securities.

b. The bank shall not declare cashdividends.

c. The bank shall not grant newloans to DOSRI or to affiliates andsubsidiaries.

d. The bank shall accept the BSPdesignated Comptroller to be assisted byexaminers recommended by theappropriate department of the SES and theDLC to monitor the operations of the bankunder the Terms of Reference asdetermined by the Monetary Board.

e. The bank shall not be allowed toavail of the BSP rediscounting facility.

f. The bank shall comply with anyother terms and conditions that may beimposed by the Monetary Board.(Circular No. 517 dated 06 March 2006)

§ X272.10 Maturity/Conditions forrenewals. The term of any emergency loanor advance shall not exceed 180 daysincluding renewals.

Any request for renewal of anemergency loan or advance shall betreated as a new loan and shall beconsidered only upon the bank’scompliance with the following:

a. All the requirements of theprevious tranche/s;

b. Remittance of collections/proceedsof sales under Subsec. X272.11;

c. Payment of advance interest;

§§ X272.7 - X272.1008.12.31


d. Submission of a duly notarizedpromissory note in favor of the BangkoSentral; and

e. Other requirements that may beimposed by the Monetary Board on theborrowing bank.

The Director of the DLC shall approvethe renewal of an emergency loan oradvance.(Circular No. 517 dated 06 March 2006)

§ X272.11 Remittance of collections/repayments/arrearages. The followingshall govern remittance of collections, saleproceeds, repayments and arrearages:

a. Total collections received on loanaccounts assigned to the BSP shall be heldin trust for, and remitted to the BSP notlater than five (5) banking days followingthe date of receipt in payment of the bank’soutstanding emergency loan or advance,net of refund of interests, if any.

b. Proceeds from the sale ofproperties assigned/mortgaged to theBSP shall be held in trust for, andremitted to the BSP not later than five (5)banking days following the date ofreceipt in payment of the bank’soutstanding emergency loan or advance,net of refund of interests, if any.

For banks with emergency loan oradvance under current status, “totalcollections” and “proceeds from the sale”shall pertain to the loan value of themortgaged credits and properties.

For banks with emergency loan oradvance under past due status:

(1) Total collections shall pertain tototal collections from the mortgagedcredits, i.e. principal plus interest andpenalty.

(2) Proceeds from the sale shall pertainto net proceeds from the sale of assigned/mortgaged properties or the total BSPclaims pertaining to the sold properties,i.e., loan value plus interest and penalty,whichever is higher.

The bank shall ensure that adequaterecords on the collections and sale madeby the branches are maintained in its HeadOffice.

c. Increases in the deposit level of theborrowing bank equivalent to the recoveryof the net withdrawal of deposits, shall beremitted to the BSP or debited against thebank’s demand deposit account in paymentof the emergency loan or advance, net ofrefund of interest.

d. The loan value of the collaterals ofthe emergency loan or advance, i.e.,mortgaged credits and properties,discovered by the BSP falling short of itscriteria of first class collaterals, shall bedebited against the bank’s DDA with theBSP, net of refund of interest.

e. The BSP shall undertake allnecessary collection measures allowed bylaw, such as foreclosure proceedingsagainst banks, whether operating orclosed, with past due loans.

In the event the bank fails to complywith any of the foregoing, the DLC shallnotify, copy furnished the bank, theborrowers of the assignment of theiroutstanding loans to the BSP and advisethem to remit payment directly to the BSP(EL Form 17).(Circular No. 517 dated 06 March 2006)

§ X272.12 Default. The following shallconstitute events of default which shallrender the emergency loan or advance dueand demandable and shall be sufficientcause for the BSP to stop further releasesof funds, without prejudice to any actionthe BSP may decide to take in accordancewith R.A. No. 7653:

a. Insolvency or bankruptcy of thebank.

b. Appointment of a receiver for thebank.

c. The bank’s property and businessis taken possession of or its businesssuspended or closed by the lawfully

§§ X272.10 - X272.1208.12.31


authorized governmental agency orauthority.

d. Violation of any of the terms andconditions of all loan and collateraldocuments.

e. Non-compliance with theundertakings executed by the borrowingbank.(Circular No. 517 dated 06 March 2006)

Sec. X273 Facility to Committed CreditLine Issuers. The following guidelines shallgovern the grant by the BSP of specialcredit accommodations to banks whichestablish committed credit line in favor ofcorporations proposing to issuecommercial paper.

§ X273.1 Nature of special creditaccommodations. The BSP may extend aloan to any bank which on its own or as amember of a group of banks, provides acommitted credit line facility to acorporation proposing to issue commercialpaper.

§ X273.2 Conditions to access. A bankapplying for a loan pursuant to theprovisions of this Section shall submit tothe BSP documents showing that it hasextended a committed credit line to acommercial paper issuer and that suchissuer has availed itself of said credit line.

§ X273.3 Terms of credita. Interest rate. The rate of interest

chargeable on the availment of this creditfacility shall be that which is equivalent toeighty percent (80%) of the total of interestand fees received by the bank from theissuer, net of provision for gross receiptstax paid by the bank on such income.

b. Security. The promissory noteexecuted by the commercial paper issuerin favor of the bank for the amount drawnagainst the committed credit line shall bethe security for this credit facility.

c. Loan values. The loan value ofpaper offered as collateral shall be eightypercent (80%) of the amount still due andoutstanding on the paper offered ascollateral.

d. Repayment period. The term of thecredit accommodation may not exceedninety (90) days and shall be non-renewable.

§ X273.4 Ceiling. If availment of thiscredit facility is outside the other rediscountceiling of the bank, it shall be limited tothe extent of fifteen percent (15%) of thenet worth of the bank.



Sec. 2274 Countryside FinancialInstitutions Enhancement Program(CFIEP) for Thrift Banks. The CFIEP shallbe implemented under the terms ofreference indicated in Appendix 16.

Sec. 3274 Countryside FinancialInstitutions Enhancement Program forRural and Cooperative Banks. The CFIEPshall be implemented under the terms ofreference indicated in Appendix 16.

Sec. X275 Recording and Reporting ofBorrowings. The bank’s liability for papersdiscounted and/or rediscounted “withrecourse” with the BSP and/or otherfinancial institutions shall be recorded andshown as “Bills Payable” in all reportssubmitted to the BSP.

The loans and discounts, billspurchased, acceptances and other accountsaffected by such discounting and/orrediscounting transactions shall remain aspart of the bank’s loan portfolio. A footnotein the financial statement shall indicate theoutstanding balances of the discounted and/or rediscounted loans.

§§ X272.12 - X27508.12.31


Sec. X276 Rediscounting Window for Low-Cost Housing as Defined by the Housingand Urban Development CoordinatingCouncil (HUDCC). The rules andregulations governing the rediscounting ofhousing loan papers of qualified banksunder the low-cost housing program of theHUDCC are shown in Appendix 40.


Sec. 1277 Rediscounting WindowAvailable to All Universal andCommercial Banks for the Purpose ofProviding Liquidity Assistance toInvestment Houses. The followingimplementing guidelines shall govern thenew rediscount window available to allUBs and KBs under Section 82(c) of R.A.No. 7653, for the purpose of providingliquidity assistance to IH:

a. Criteria for eligibility(1) Eligible papersPromissory note of the UB/KB

executed in favor of the BSP and securedby a Deed of Pledge or Assignment ofu n e n c u m b e r e d / u n h y p o t h e c a t e dcommercial papers with a rating of triple“A” and double “A”.

(2) Loan limitAvailments against this facility shall be

charged against the rediscount ceiling ofthe borrowing bank (100% of net worth) asof the end of the quarter immediatelypreceding the date of application.

b. Terms and conditions(1) The loan shall be assessed an

annual interest rate equivalent to onepercent (1%) below the weighted averageof the ninety-one (91)-day Treasury Bill ratefor the last auction of the immediatelypreceding month.

(2) The loan shall have a term of 180days from date of availment.

(3) The loan value shall be ninetypercent (90%) of the face value of thecommercial paper.

(4) The BSP will automatically debitthe demand deposit account of the UB/KBupon maturity of the rediscounting loan.

(5) The chief executive officer of thebank or his equivalent must certify that therediscounted commercial paper is stilloutstanding as of the time of assignment.

(6) The UBs/KBs shall comply with thedocumentary requirements of the DLC.

c. DurationQualified UBs/KBs may avail of this

facility until December 2000.

Sec. 2277 Rediscounting WindowAvailable to TBs for the Purpose ofProviding Liquidity Assistance to Supportand Promote Microfinance Programs. TBsavailing of rediscounting facility for purposesof providing liquidity assistance to supportand promote microfinance programs shallcomply with the guidelines under Sec.3277, except for the requirement of acustodian bank under Subsec. 3277.4a(6).

Sec. 3277 Rediscounting WindowAvailable to Rural and Cooperative Banksfor the Purpose of Providing LiquidityAssistance to Support and PromoteMicrofinance Programs. The followingguidelines shall govern the rediscountingfacility available to RBs and Coop Banksfor the purpose of providing liquidityassistance to support and promotemicrofinance programs.

§ 3277.1 Eligibility requirementsa. Eligible borrowers . RBs and Coop

Banks with at least one (1) year track recordin microfinance and at least 500 activeborrowers, ratio of past due microfinanceloans to total outstanding microfinanceloans of not more than five percent (5%)as of end of the month preceding loanapplication and collection ratio of not lessthan ninety-five percent (95%) based onratio of total collections (excludingprepayments) during the preceding twelve

§§ X276 - 3277.108.12.31


(12)-month period to the sum of past duemicrofinance loans at the beginning of saidperiod and amount of matured loansincluding principal amortizations duringthe same twelve (12) - month period.

b. Eligible papers. Promissory Note(PN) of the RB or Coop Bank executed infavor of the BSP and secured by dulyendorsed PN of microcredit borrowers.

c. Manual of operations. Writtenpolicies on microfinance operations mustbe set forth and documented in a policymanual duly approved by the bank’s boardof directors. The manual should include thefollowing minimum features:

(1) Scope of microfinance activitiesand the types of services or products offeredto clients;

(2) Authorities and responsibilities of:(a) Board of directors;(b) Management;(c) Chief executive officer or its

equivalent;(d) Credit officers; and(e) Other officers involved in the

microfinance operations;(3) Policies and procedures covering

microfinance program/project;(4) Client evaluation process which

should involve at least: client orientation,pre-application, credit investigation, andloan application process;

(5) Loan processing, documentationand release of proceeds;

(6) Accounts monitoring system;(7) Accounts delinquency management;(8) Management Information System;(9) Accounting policies, systems and

procedures; and(10) Internal controls and audit policies,

systems and procedures.d. A copy of System of Reviewing

Asset Accounts and Setting Up of AdequateValuation Reserves submitted.

e. Staff training and experience. Keyofficers and staff responsible for microcreditoperations must have a minimum

experience of one (1) year and havecompleted a training course inmicrolending activities.

f. Prescribed financial ratios andregulations. Applicant bank must complywith the following financial ratios andregulations:

(1) Minimum capital prescribed underSubsec. X111.1;

(2) Risk-based capital ratio of not lessthan ten percent (10%);

(3) Reserves against deposit liabilitiesprescribed under existing regulations;

(4) Ratio of past due direct and indirectloans to DOSRI to the bank’s aggregate pastdue loans of not more than ten percent(10%);

(5) Loans-to-deposits ratio of at leastseventy-five percent (75%);

(6) Reports required to be submittedto the various departments and/or officesof the BSP;

(7) CAMELS rating of “3” or better; and(8) Ratio of past due loans to total loan

portfolio of not more than the industryaverage for RBs as of the preceding quarter.

§ 3277. 2 Microcredit linea. Application for MCR Line shall be

filed with the DLC, BSP at its head officein Manila or the appropriate BSP RegionalLoans and Credit Unit (BSPRLCU). Theterm of the MCR line shall not exceed one(1) year from the date it is granted. The linemay be renewed for another year uponsubmission of an application at least two(2) months before expiry, subject to fullcompliance with the prescribed eligibilityrequirements and the credit review by theDLC.

b. Total availments against the facility,which shall be charged against theapproved MCR line, shall form part of thetotal authorized rediscount ceiling of theborrowing bank. The rediscount ceiling formicrofinance shall be equivalent to onehundred percent (100%) of the bank’s net

§§ 3277.1 - 3277.208.12.31


worth, net of valuation reserves and othercapital adjustments as recommended bythe appropriate department of the SES asof the last regular examination of the bank.

c. The proceeds of availment ordrawdown against the approved MCR lineshall be credited to the account of the RBor Coop Bank maintained with thedepository bank or with BSP. The RB orCoop Bank shall be notified in writing/electronically of the credit of such accounton the same banking day that the proceedsare released.

§ 3277. 3 Terms and conditionsa. The loan value shall be equivalent

to eighty percent (80%) of the outstandingbalance of the microfinance borrower’s PN.

b. The RB or Coop Bank’s loan fromthe BSP shall have a term of not more than360 days. The maturity date of themicrofinance borrower’s PN shall in nocase be beyond the maturity date of theRB or Coop Bank’s PN.

c. The loan shall be assessed anannual interest rate equivalent to the 91-day Treasury Bill rate for the last auctiondate of the preceding month.

d. The demand deposit account of theRB or Coop Bank will be automaticallydebited at the maturity date of the BSP loanfor the full amount due excluding collectionsfrom microfinance borrowers which werecredited to the Special Savings Account ofthe BSP with the borrowing bank.

e. Any responsible officer who isholding a position that is not lower thanmanager or equivalent rank must, uponapproval by the bank’s Board, endorse therediscounted PNs and certify that the sameare still outstanding as of the time ofapplication.

f. Collections made on amortizationsdue and maturing PNs shall be remitted tothe DLC not later than two (2) banking daysfollowing the date of receipt of collectionsby the Head Office/branches located

within Metro Manila and not later than four(4) banking days following the date ofreceipt of collections by the Head Office/branches located outside Metro Manila asprovided under Subsec. 3277.5.

g. A penalty of five percent (5%) perannum shall be imposed on matured andunpaid bank PNs in favor of the BSP.

Full compliance at all times with theeligibility requirements as prescribedunder Subsec. 3277.1.

§ 3277.4 Documentary requirementsa. Application for MCR Line. RBs or

Coop Banks applying for an MCR line shallsubmit a letter of application to DLC or theappropriate BSPRLCU accompanied by thefollowing documents:

(1) Certificate of the Secretary (original)and copy of the resolution duly signed bythe board of directors of the applicant bank,authorizing the bank to apply for an MCRline with the BSP and designating theofficer authorized under Subsec. 3277.3(e)to endorse the PNs and sign all paperspertaining to the rediscounting line in theprescribed format.

(2) Certification of the applicant bankthat it has complied with the financial andregulatory ratios, conditions, and reportorialrequirements prescribed under theeligibility requirements for rediscountingas provided under Subsec. 3277.1.

(3) Consolidated Financial Statements.Statement of Condition as of the end of themonth immediately preceding the date ofapplication together with thecorresponding Statement of Income andExpenses covering the results ofoperations for the last three (3) years.

(4) Report on required and availablereserves covering the past two (2)consecutive weeks immediatelypreceding the date of application.

(5) Rediscounting Line Agreementexecuted by the CEO of the RB or CoopBank.

§§ 3277.2 - 3277.408.12.31


(6) Notarized custodian agreementexecuted among the CEO of the RB orCoop Bank, the third party custodian andthe BSP.

b. Availment of MCR Line. Foravailment of MCR line, the RB or CoopBank shall submit the followingdocuments:

(1) Application for MCR LineAvailment - original and one (1) copy inprescribed form duly accomplished andsigned by the CEO of the applicant bank;

(2) Rediscount Schedule (RS); and(3) Notarized PNs in favor of the BSP -

original and two (2) copies.

§ 3277.5 Remittance of collections/payments/repayments. Collections madeon amortizations due and maturing PNsshall be remitted to the DLC not laterthan two (2) banking days following thedate of receipt of collections by the HeadOffice/branches located within MetroManila and not later than four (4) bankingdays following the date of receipt ofcollections by the Head Office/brancheslocated outside Metro Manila. As analternative, collections may be depositedin a Special Savings Deposit Account(SSDA) which shall be maintained by theBSP with the borrower-bank and remittedto DLC or the appropriate BSPRLCU onthe last banking day of every month. TheSSDA shall earn interest of one percent(1%) lower than the 91-day Treasury Billrate for the last auction date of thepreceding month.

On due date of the PN, the RB or CoopBank shall remit to the BSP the unpaidbalance of such PN: Provided, That anyamount credited to the SSDA shall beapplied as payment of the PN in favor ofBSP. The remittance shall be reportedunder DLC Form No. 5. The remittance toBSP shall be in the form of cash, demanddraft, manager’s check or based onauthority issued by the bank to debit its

demand deposit account with BSP. Checkpayments and demand drafts shall begiven value when cleared.

§ 3277.6 Reports required. A monthlyreport on microfinance transactions shallbe submitted to DLC or the appropriateBSPRLCU within the deadline set inAppendix 6.

§ 3277.7 Accounts verification. Themicrocredit accounts rediscounted shall besubject to verification and confirmation byauthorized DLC or the appropriateBSPRLCU representatives to determinetheir eligibility and acceptability forrediscounting.

§ 3277.8 Sanctions. Any misrepresentationand/or violation of the provisions of thisSection shall subject the RB or Coop Bankand/or the erring directors/officers to anyof the following sanctions:

a. Erring RB or Coop Bank(1) Fines in amounts as may be

determined by the Monetary Board to beappropriate, but in no case to exceed Thirtythousand pesos (P30,000) a day for eachviolation;

(2) Suspension of rediscountingprivileges or access to BSP credit facilities;and/or

(3) Reduction of rediscounting line.b. Erring directors/officersFor violation of any of the provisions

of this Section the following shall beimposed against the directors andofficers of the bank:

(1) 1st offense - a warning that arepetition of the same or similar offenseshall subject the erring director/officer tomonetary penalties and/or sanctions;

(2) 2nd offense - a fine of P500 per dayfor each violation from the time theviolation was committed up to the time itis corrected without prejudice, however,to the imposition of higher penalties; and

§§ 3277.4 - 3277.808.12.31


(3) 3rd and subsequent offenses - a fineof P5,000 per day from the time theviolation was committed up to the time itis corrected without prejudice, however,to the imposition of higher penalties.

If any of the documentary requirementssubmitted by the bank as required underSubsec. 3277.4 is found to be false, a fineof P5,000 per day, from the time thecertification was made up to the time thecertification was found to be false, shall beimposed against the certifying officer.

Sec. X278 Enhanced Intraday LiquidityFacility. The ILF is a smootheningmechanism which is available to eligibleparticipant banks in the PhilippinePayments and Settlements System(PhilPaSS) to support their liquidityrequirements and avoid payment gridlocksin PhilPaSS. The revised features of theenhanced intraday liquidity facility are inAppendix 21-B.(As superseded by the MOA between the BSP, BTr, BAP and

Money Market Association of the Philippines dated 25 March

2008)


K. OTHER BORROWINGS

Sec. X281 Borrowings from theGovernment. Except as may be authorizedby existing statutes, no private bank shall,whether or not performing quasi-bankingfunctions, borrow any fund or money fromthe Government and government entities,through the issuance or sale of itsacceptances, notes or other evidences ofdebt.

§ X281.1 Exemption from reserverequirement. The following borrowingsshall not be subject to the reserverequirements:

a. STDs and deposit substitutes ofspecialized government banks and

private banks arising from their lendingoperations under the special financingprograms of the Government and/orinternational FIs; and

b. Funds held by participatingfinancial institutions (PFIs) under the GSISHousing Loan Programs: Provided, Thatthe agreement between the GSIS and theconduit banks specify that such funds maybe held by the conduit banks for a periodof not more than seven (7) calendar daysprior to their release to the borrower andprior to the remittance by the conduitbanks of payments to the GSIS.

c. Borrowings by accredited FIs underthe Wholesale Lending Program for SMEsof the SBGFC.

Sec. X282 Borrowings from TrustDepartments or Investment HousesFunds borrowed by banks or non-bankfinancial intermediaries performing quasi-banking functions from trust departmentsor managed funds of banks or IHs are notconsidered as interbank borrowings andtherefore are subject to the:

a. Reserve requirement on depositsubstitutes;

b. Minimum fifteen (15)-day maturityperiod; and

c. Minimum trading lot rule.



Sec. 2283 Mortgage/CHM Certificatesof Thrift Banks. With prior approval ofthe Monetary Board, TBs may issue anddeal in mortgage and CHM certificates.The rules and regulations governing theissuance of said certificates is shown inAppendix 17.



§§ 3277.8 - X28408.12.31




Sec. 3284 Borrowings of Rural Banks/Cooperative Banks. RBs and Coop Banksmay rediscount papers with any bank.

The obligations of RBs arising fromavailments of rediscounting facilities andother borrowings from the BSP, will beconsidered as deposit substitutes.However, with the qualification in the TaxCode of 1997 that the term public meansborrowing from twenty (20) or moreindividual or corporate lenders at any one(1) time, it is clear that the obligations of

the RBs to BSP, which are entered intheir books as “Bills Payable-BSP,” donot presently fall under the categoryof deposit substitutes.


Sec. X299 General Provision onSanctions. Any violation of the provisionsof this Part shall be subject to Sections 36and 37 of R.A. No. 7653.

The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37of R.A. No. 7653 on banks, their directorsand/or officers are shown in Appendix 67.

§§ 1284 - X29908.12.31

Manual of Regulations for Banks Part III - Page 1

§§ X301 - 1301.108.12.31

PART THREE

LOANS, INVESTMENTS AND SPECIAL CREDITS

Section X301 Lending Policies. It shall bethe responsibility of the board of directors ofa bank to formulate written policies on theextension of credit and risk diversificationand to set the guidelines for evaluation ofrisk assets. Well-defined lending policiesand sound lending practices are essential ifa bank is to perform its lending functioneffectively and minimize the risk inherentin any extension of credit. The responsibilityshould be approached in a way that willprovide assurance to the public, thestockholders and supervisory authorities thattimely and adequate action will be taken tomaintain the quality of the loan portfolio andother risk assets.


§ 1301.1 Rules and regulations to governthe development and implementation ofbanks’ internal credit risk rating systems

a. Statement of policy. It is the policyof the BSP to ensure that banks’ credit riskmanagement processes are sound andeffective. Towards this end, the followingrules and regulations that shall govern theuse of banks’ internal credit risk ratingsystems are hereby prescribed.

b. Scope. UBs and KBs must have inplace a formal internal credit risk ratingsystem for the underwriting and ongoingadministration, initially, of corporate creditexposures. The internal credit risk ratingsystem must be appropriate to a bank’snature, complexity and scale of activities.

Initially and until such time that theMonetary Board prescribes otherwise,corporate credit exposure shall be definedas exposures to companies with assets ofmore than P15.0 million.

c. Minimum operational requirements(1) A bank’s internal credit risk rating

system must be duly approved by the boardof directors (or equivalent managementcommittee in the case of Philippinebranches of foreign banks). The boardshould exercise appropriate oversight overthe system in a consistent manner.

(2) A bank’s internal credit risk ratingsystem must be operationally integrated intoits internal credit risk management process.Its output should accordingly be an integralpart of the process of evaluation and reviewof prospective and existing exposures,respectively. Credit underwriting criteriashould become progressively moreconservative as credit rating declines. Allcredit decisions must be supported by awritten assessment. In the context ofongoing review, provisioning standardsmust be rationally tied to the internal creditrating system.

(3) Banks must have an independentcredit risk control function that isresponsible for the design, implementationand performance of their credit risk ratingsystems. The credit risk control functionmust be independent from the businessfunctions responsible for originatingexposures.

(4) Internal ratings must be an essentialpart of annual or more frequent reportingof banks’ changing portfolio quality overtime to the board of directors (or equivalentmanagement committee in the case ofPhilippine branches of foreign banks).Reporting must include portfoliobreakdown by credit grade, major portfoliosegments breakdown by credit grade, andanalysis of realized default rates againstexpectations.

Part III - Page 2 Manual of Regulations for Banks

§ 1301.108.12.31

(5) Internal and external audit mustalso review at least annually the bank’sinternal rating system and its operations,including the operations of the credit riskcontrol function.

d. Minimum technical standards(1) Banks must fully document their

internal credit risk rating systems. Thedocumentation must address topics suchas coverage, rating criteria, responsibilitiesof parties involved in the ratings process,definition of what constitutes a ratingexception, parties that have authority toapprove exceptions, frequency of ratingreviews, and management oversight of therating process. A bank must document therationale for its choice of rating criteria andmust be able to provide analysesdemonstrating that the rating criteria andprocedures are likely to result in ratingsthat meaningfully differentiate risk.

(2) The rating criteria should reflect anestablished blend of qualitative andquantitative factors. Transparent rangesneed to be set for the quantitative standardsbased on experience. The quantitativecriteria must include leverage and cashflow standards.

(3) Banks must maintain ratinghistories on individual accounts, whichshall include the ratings of the account, thedates the ratings were assigned, themethodology and key data used to derivethe ratings and the analyst who gave theratings. The identity of borrowers andfacilities that default, and the timing andcircumstances of such defaults, must beretained. Banks must also retain data onthe realized default rates associated withrating grades and ratings migration in orderto eventually track the predictive powerof the risk rating system.

(4) A bank’s internal credit risk ratingsystem must have a minimum of 6 ratinggrades for unclassified accounts and 4 ratinggrades for classified accounts, which mustbe assigned in a consistent manner overtime. Moreover, the rating system must

result in a meaningful distribution ofexposures across grades with no excessiveconcentrations on a single rating grade.

(5) The ratings output of banks’ internalcredit risk rating systems must contain botha borrower and a facility dimension. Theborrower dimension should focus onfactors that affect the inherent credit qualityof each borrower. The facility dimension,on the other hand, should focus on security/collateral arrangements and other similarrisk influencing factors of each transaction.

(6) In rating corporate borrowers withtotal assets of more than P15.0 million,only financial statements audited byexternal auditors that are accredited/selected by the SEC, the BSP or theInsurance Commission (IC) shall be usedstarting with the annual financial statementsending 31 December 2006.

e. Definition of default and loss. Inconnection with the data collectionexercise prescribed under this Subsection,banks shall be guided by the followingstandard definitions of default and loss:

(1) Definition of defaultA default is considered to have

occurred in the following cases:(a) If a credit obligation is considered

non-performing under existing rules andregulations;

(b) If a borrower/obligor has sought orhas been placed in bankruptcy, has beenfound insolvent, or has ceased operationsin the case of businesses;

(c) If the bank sells a credit obligationat a material credit-related loss, i.e.,excluding gains and losses due to interestrate movements. Banks’ board-approvedinternal policies that govern the use of theirinternal rating systems must specificallydefine when a material credit-related lossoccurs; and

(d) If a credit obligation of a borrower/obligor is considered to be in default, allcredit obligations of the borrower/obligorwith the same bank shall also be consideredto be in default.


(2) Definition of lossLoss, for purposes of accumulating data

on loss in the event of default, refers toeconomic loss. It must therefore includediscount effects, as well as direct andindirect costs associated with collecting onthe credit obligation. Banks’ board-approved internal policies that govern theuse of their internal rating systems mustinclude specific policies and proceduresthat should be followed in thedetermination of economic loss.

f. Timetable for implementation(1) Banks must submit an

implementation plan to the appropriatedepartment of the SES no later than 31 July2004. A monetary penalty of P10,000 perday shall be imposed for delay until suchplan is submitted.

(2) A fully documented internal creditrisk rating system, duly approved by theboard of directors, must be submitted tothe BSP not later than 31 December 2004.Upon submission of the system, allprospective and existing corporateaccounts must immediately be evaluatedand monitored according to such system.A monetary penalty of P10,000 per dayshall be imposed for delay until thisrequirement is complied with.(As amended by Circular No. 585 dated 15 October 2007 and

531 dated 17 May 2006)



§§ X301.2 – X301.5 (Reserved)

§ X301.6 Large exposures and creditrisk concentrations. The followingguidelines shall govern managing largeexposures and credit risk concentrations inline with the objective of strengthening riskmanagement in the banking system.

a. General principles(1) A bank can be exposed to various

forms of credit risk concentration which if

not properly managed may causesignificant losses that could threaten itsfinancial strength and undermine publicconfidence in the bank.

(2) Credit risk concentrations mayarise from excessive exposures toindividual counterparties, groups of relatedcounterparties and groups of counterpartieswith similar characteristics (e.g.,counterparties in specific geographicallocations, economic or industry sectors).

(3) Diversification of risk is essentialin banking. Many past bank failures havebeen due to credit risk concentrations ofsome kind. It is essential for banks toprevent undue credit risk concentrationsfrom excessive exposures to particularcounterparties, industries, economicsectors, regions or countries.

(4) While concentration of credit risksare inherent in banking and cannot betotally eliminated, they can be limited andreduced by adopting proper risk control anddiversification strategies. Safeguardingagainst credit risk concentrations shouldform an important component of a bank’srisk management system.

(5) The board of directors of a bankshall be responsible for establishing andmonitoring compliance with policiesgoverning large exposures and credit riskconcentrations of the bank. The boardshould review these policies regularly (atleast annually) to ensure that they remainadequate and appropriate for the bank.Subsequent changes to the establishedpolicies must be approved by the board.

(6) The policy on large exposures andcredit risk concentrations shall, at aminimum, cover the following:

(a) Exposure limits that are reasonablein relation to capital and resources for –

(i) Various types of borrowers/counterparties (e.g., government, banksand other FIs, corporate and individualborrowers);

(ii) A group of related borrowers/counterparties;

§§ 1301.1 - X301.608.12.31


(iii) Individual industry sectors;(iv) Individual countries; and(v) Various types of investments.(b) The circumstances in which the

above limits can be exceeded and the partyauthorized to approve such excesses, e.g.,the bank’s board of directors or creditcommittee with delegated authority fromthe board.

(c) The delegation of credit authoritywithin the bank for approving largeexposures;

(d) The procedures for identifying,reviewing, managing and reporting largeexposures of the bank;

(e) The definition of exposure. Banksshould take into account the nature of theirbusiness and the complexity of theirproducts. In any case, a bank’s exposuresto a counterparty should include its on andoff-balance sheet exposures and indirectexposures; and

(f) The criteria to be used foridentifying a group of related persons;

(7) The board and senior managementof a bank should ensure that:

(a) Adequate systems and controls arein place to identify, measure, monitor andreport large exposures and credit riskconcentrations of the bank in a timelymanner; and

(b) Large exposures of the bank arekept under regular review. “Largeexposures” shall refer to exposures to acounterparty or a group of relatedcounterparties equal or greater than fivepercent (5%) of bank’s qualifying capital asdefined under Section X116.

(8) A bank should, where appropriate,conduct stress testing and scenario analysisof its large exposures to assess the impactof changes in market conditions or key riskfactors (e.g. economic cycles, interest rate,liquidity conditions or other marketmovements) on its profile and earnings.

(9) It is expected that banks wouldgenerally observe a lower internal singleborrower’s limit than the prescribed limit

of twenty-five percent (25%) as a matter ofsound practice.

b. Monitoring of large exposures/credit risk concentrations

(1) Banks should have a centralliability record (preferably based onautomated system) for each loan exposure.Banks should be able to monitor suchexposures against prescribed and internallimits on a daily basis.

(2) Every bank should have adequatemanagement information and reportingsystems that enable management toidentify credit risk concentrations withinthe asset portfolio of the bank or of thegroup (including subsidiaries and overseasbranches) on a timely basis. If aconcentration does exist, banks shouldreduce it in accordance with theirprescribed policies. Large exposures shallbe subject to more intensive monitoring.

(3) Banks should ensure that theirinternal or external auditors conduct at leastan annual review of the quality of largeexposures and controls to safeguard againstcredit risk concentrations. Their reviewshould ascertain whether:

(a) The bank’s relevant policies, limitsand procedures are complied with; and

(b) The existing policies and controlsremain adequate and appropriate for thebank’s business.

(4) Management should take promptcorrective action to address concerns andexceptions raised.

(5) There should also be anindependent compliance function toensure that all relevant internal andprescribed requirements and limits arecomplied with. Breaches of prescribedrequirements and deviations fromestablished policies and limits should bereported to senior management in a timelymanner.

c. Unsafe and unsound practiceNon-observance of the principles and

the requirements of Items “a” and “b” abovemay be a ground for a finding of unsafe

§ X301.608.12.31


and unsound practice under Section 56 ofthe General Banking Law of 2000(Appendix 48) and may be subject toappropriate sanction as may be determinedby the Monetary Board.

d. Notification requirementsA bank must inform BSP immediately

when it has concerns that its large exposuresor credit risk concentrations have thepotential to impact materially upon itscapital adequacy, along with proposedmeasures to address these concerns.

e. ReportingBank’s records on monitoring of large

exposures shall be made available to theBSP examiners for verification at any giventime. When warranted, the BSP mayimpose additional reporting requirementson bank in relation to its large exposuresand credit risk concentrations.

f. SanctionAny failure or delay in complying with

the requirements under Items “d” and “e”of this Subsection shall be subject topenalty applicable to those involvingmajor reports.

Sec. X302 Loan Portfolio and Other RiskAssets Review System. To ensure thattimely and adequate management actionis taken to maintain the quality of the loanportfolio and other risk assets and thatadequate loss reserves are set up andmaintained at a level sufficient to absorbthe loss inherent in the loan portfolio andother risk assets, each bank shall establisha system of identifying and monitoringexisting or potential problem loans andother risk assets and of evaluating creditpolicies vis-à-vis prevailing circumstancesand emerging portfolio trends.Management must also recognize that lossreserve is a stabilizing factor and that failureto account appropriately for losses or makeadequate provisions for estimated futurelosses may result in misrepresentation ofthe bank’s financial condition.

The system of identifying andmonitoring problem loans and other riskassets and setting up of allowances forprobable losses shall include, but is notlimited to, the guidelines mentioned inAppendix 18.(As amended by Circular Nos. 622 dated 16 September 2008,

603 dated 03 March 2008 and 520 dated 20 March 2006)

§ X302.1 Provisions for losses; bookingThe board of directors of banks areresponsible for ensuring that their institutionshave controls in place to determine theallowance for probable losses on loans,other credit accommodations, advancesand other assets consistent with theinstitutions’ stated policies and procedures,generally accepted accounting principles(GAAP), the BSP rules and regulations andthe safe and sound banking practices. Theboard of directors, in fulfilling thisresponsibility, shall require managementto develop and maintain an appropriate,systematic and uniformly applied processconsistent and in compliance withexisting BSP rules and regulations todetermine the amount of reserves for baddebts or doubtful accounts or othercontingencies.

The specific allowance for probablelosses for classified loans and other riskassets and the general loan loss provisionas required in Appendix 18 shall be set upimmediately.

§ X302.2 Sanctions. Non-compliancewith the requirement to book valuationreserves required under the precedingSubsection shall be a ground for theimposition of any or all of the followingsanctions:

a. Denial of the request for authorityto establish new banking offices regardlessof type or category;

b. Denial of access to BSP creditfacilities except as may be allowed underSection 84 of R. A. No. 7653; and

§§ X301.6 - X302.208.12.31


c. Fine of P10,000 a day for UBs andKBs, P5,000 for TBs and P500 for RBs/CoopBanks, counted as follows:

(1) from the date the bank has beeninformed that the recommendation of theappropriate department of the SES has beenconfirmed by the Monetary Board up to thedate that said recommended valuationreserves had been actually booked, in thecase of allowance for probable losses forloans and other risk assets classified assubstandard unsecured, doubtful and lossas required by the BSP; and

(2) from the dates prescribed under thisSection up to the date of the actual bookingin cases of the two percent (2%) generalprovision for probable losses, the twenty-five percent (25%) allowance for probablelosses on secured loans classified assubstandard, and the five percent (5%)allowance for probable losses on loansespecially mentioned.

A. LOANS IN GENERAL

Sec. X303 Credit Exposure Limits to aSingle Borrower

a. Consistent with national interest,the total amount of loans, creditaccommodations and guarantees that maybe extended by a bank to any person,partnership, association, corporation orother entity shall at no time exceed twentyfive percent (25%) of the net worth of suchbank. The basis for determiningcompliance with the single borrower’s limit(SBL) is the total credit commitment of thebank to or on behalf of the borrower.

b. The total amount of loans, creditaccommodations and guaranteesprescribed in the first paragraph may beincreased by an additional ten percent(10%) of the net worth of such bank:Provided, That the additional liabilities areadequately secured by trust receipts,shipping documents, warehouse receiptsor other similar documents transferring or

securing title covering readily marketable,non-perishable goods which must be fullycovered by insurance.

c. The above prescribed ceilings shallinclude: (1) the direct liability of the makeror acceptor of paper discounted with or soldto such bank and the liability of a generalendorser, drawer or guarantor who obtainsa loan or other credit accommodation fromor discounts paper with or sells papers tosuch bank; (2) in the case of an individualwho owns or controls a majority interestin a corporation, partnership, association orany other entity, the liabilities of saidentities to such bank; (3) in the case of acorporation, all liabilities to such bank ofall subsidiaries in which such corporationowns or controls a majority interest; and(4) in the case of a partnership, associationor other entity, the liabilities of themembers thereof to such bank.

d. Even if a parent corporation,partnership, association, entity or anindividual who owns or controls amajority interest in such entities has noliability to the bank, the liabilities ofsubsidiary corporations or members ofthe partnership, association, entity orsuch individual shall be combined undercertain circumstances, including but notlimited to any of the following situations:(1) the parent corporation, partnership,association, enti ty or individualguarantees the repayment of theliabilities; (2) the liabilities were incurredfor the accommodation of the parentcorporation or another subsidiary or of thepartnership or association or entity or suchindividual; or (3) the subsidiaries thoughseparate entities operate merely asdepartments or divisions of a single entity.

e. For purposes of this Section, loans,other credit accommodations andguarantees shall exclude: (1) loans andother credit accommodations secured byobligations of the BSP or of the PhilippineGovernment; (2) loans and other credit

§§ X302.2 - X30308.12.31


accommodations fully guaranteed by thegovernment as to the payment of principaland interest; (3) loans and other creditaccommodations secured by U.S. TreasuryNotes and other securities issued by centralgovernments and central banks of foreigncountries with the highest credit qualitygiven by any two (2) internationallyaccepted rating agencies; (4) loans andother credit accommodations to the extentcovered by the hold-out on or assignmentof, deposits maintained in the lending bankand held in the Philippines; (5) loans, creditaccommodations and acceptances underletters of credit to the extent covered bymargin deposits; and (6) other loans orcredit accommodations which theMonetary Board may from time to timespecify as non-risk items.

f. The wholesale lending activities ofgovernment banks to participating financialinstitutions (PFIs) for relending to end-userborrowers shall at no time exceed aseparate limit of thirty-five percent (35%)of net worth, subject to the followingguidelines: (1) it shall apply only to loansgranted to PFIs on a wholesale basis foron-lending to end-user borrowers; (2) itshall apply only to loan programs fundedby multilateral, international or localdevelopment agencies, organizations orinstitutions especially designed forwholesale lending activities of governmentbanks; (3) the end-user borrowers of thePFIs shall be subject to the twenty-fivepercent (25%) SBL, not the increasedceiling of thirty-five percent (35%); and(4) government banks shall observeappropriate criteria for accrediting PFIs andfor the grant/renewal of credit lines toaccredited PFIs.

g. Loans and other creditaccommodations as well as depositsmaintained with, and usual guarantees bya bank to any other bank or non-bank entity,whether locally or abroad, shall be subjectto the limits as herein prescribed.

Deposits of RBs/Coop Banks withgovernment-owned or controlled financialinstitutions like the LBP and the DBP shallnot be covered by the SBL imposed underR.A. No. 8791.

In municipalities and cities where thereare no government banks, the deposits ofRBs/Coop Banks in private banks in saidareas shall not be subject to the SBL.Deposits in private banks located in othermunicipalities/cities shall be covered bythe SBL.

The outstanding balance of the depositin a private depository bank being used bythe TBs/RBs/Coop Banks with authority toaccept/create demand or current deposits,to fund checks cleared through the saidprivate depository bank shall also beexempt from the SBL even if there is agovernment-owned or controlled financialinstitution in the area.

§ X303.1 Definition of terms. Forpurposes of this Section, the followingdefinitions shall apply:

a. Total credit commitment shallinclude outstanding loans and other creditaccommodations, deferred letters of creditless margin deposits, and guarantees.Except as specifically provided, total creditcommitment shall be reckoned on creditrisk-weighted basis consistent with existingregulations.

b. Loans shall refer to all the accountsunder the loan portfolio of a bank asenumerated in the Manual of Accounts forBanks.

c. Other credit accommodations shallrefer to credit and specific market riskexposures of banks arising fromaccommodations other than loans such asreceivables (sales contract receivables,accounts receivables and other receivables),and debt securities booked as investments.

d. Bank guarantee. A bank guaranteeis an irrevocable commitment of a bankbinding itself to pay a sum of money in the

§§ X303 - X303.108.12.31


event of non-performance of a contract bya third party. The guarantee is acommitment separate and distinct from theprincipal debt or contract.

e. Net worth shall mean the total ofthe unimpaired paid-in capital includingpaid-in surplus, retained earnings andundivided profit, net of unbooked valuationreserves and other adjustments as may berequired by the BSP.

f. Qualifying capital shall meancapital under Sec. X116.

g. The term “control of majorityinterest” shall be synonymous to“controlling interest” and exists when theparent owns directly or indirectly throughsubsidiaries more than one half of thevoting power of an enterprise unless, inexceptional circumstance, it can be clearlydemonstrated that such ownership doesnot constitute control. Control of majorityinterest may also exist even when theparent owns one-half or less of the votingpower of an enterprise when there is:

(1) Power over more than one-half ofthe voting rights by virtue of an agreementwith other investors; or

(2) Power to govern the financial andoperating policies of the enterprise undera statute or an agreement; or

(3) Power to appoint or remove themajority members of the board of directorsor equivalent governing body; or

(4) Power to cast the majority votes atmeetings of the board of directors orequivalent governing body; or

(5) Any other arrangement similar toany of the above.

h. Subsidiary shall refer to acorporation or firm more than fifty percent(50%) of the outstanding voting stock ofwhich is directly or indirectly owned,controlled or held with power to vote byits parent corporation.

i. Credit risk transfer shall refer to anyarrangement that allows the bank totransfer the credit risk associated with its

loan or other credit accommodation to athird party.

j. Readily marketable goods shallmean articles of commerce, agriculture orindustry of such uses as to make them thesubject of constant dealings in readymarkets with such frequent quotations asto make their prices easily and definitelyascertainable, or which lend themselveseasily to disposal by sale at any time topay the obligations secured by the saidgoods.

k. Bill of exchange drawn in goodfaith against actually existing values shallmean one (1) which is drawn by a selleron the purchaser for the purchase price ofcommodities sold. A bill of exchange,whether drawn against goods for exportsor against goods to be sold locally, whichis discounted or purchased by a bank is abill drawn against existing values onlywhen it is accompanied by shippingdocuments, warehouse receipts or otherpapers, securing title to the goods sold.However, bills of exchange drawn in goodfaith against actually existing values asdefined in this paragraph, which are pastdue or the maturities of which have beenextended, shall be considered as additionalloans authorized under the secondparagraph of this section and shall besubject to the ten percent (10%) limitationprovided therein.

l. Commercial or business paperactually owned by the person negotiatingthe same shall mean a paper arising froman actual business transaction. A tradeacceptance or promissory note actuallyowned by the person negotiating the sameis a commercial or a business paper.However, if a bill is drawn against an agentor fictitious drawee, or if a promissory noteis executed by an agent or fictitiousdrawee, neither is a commercial nor abusiness paper. Commercial or businesspapers actually owned and discounted bythe person negotiating the same, which are

§ X303.108.12.31


past due or the maturity of which have beenextended, shall be considered as moneyborrowed and shall be subject to thelimitation of twenty-five percent (25%)provided in the first paragraph of thisSection: Provided, That commercial orbusiness papers purchased by banks fromSMEs which became past due or thematurities of which have been extended,shall be considered additional loan by thebank to the purchaser of goods or servicesfrom the SME and shall be entitled to anincreased SBL equivalent to ten percent(10%) of the net worth of the concernedbank if the purchasers are companies withcredit ratings of at least “AA-” or equivalentfrom a BSP-recognized rating agency.

§ X303.2 Rediscounted papersincluded in loan limit. The liabilities to thebank of borrowers whose papers wererediscounted by banks with the BSP shallnot be deemed as having beenextinguished by the rediscount, but shallbe considered as still existing and shall beincluded in determining the SBL until suchpapers are paid by the borrowers.

§ X303.3 Credit risk transfer. Subjectto prior approval of the BSP, loans and othercredit accommodations covered by a legallyeffective credit risk transfer arrangementsuch as guarantee, letter of indemnity,standby letter of credit or credit derivative,may be excluded from the total creditcommitment of the bank to a borrower inreckoning compliance with the SBL.

§ X303.4 Exclusions from loan limita. The discount of bills of exchange

drawn in good faith against actually existingvalues, and the discount of commercial orbusiness paper which are actually ownedby the person, company, corporation orassociation negotiating the same;

b. Credit accommodations to financethe importation of rice and corn to the

extent of 100% of the net worth of the bankconcerned shall be excluded indetermining the SBL prescribed herein,subject to the following conditions:

(1) The importation shall be made inpursuance of a national policy dulyenunciated by the National Government;

(2) The importation shall have beenapproved by the National EconomicDevelopment Authority (NEDA);

(3) The letter of credit shall specify thatimportation shall be made with certificationfrom the National Food Authority (NFA),or the consular establishment of thePhilippine government at the source of anysuch establishment of the Philippinegovernment at the source of any suchshipment to the effect that the commoditybeing imported is either rice or corn; and

(4) The related bills of lading shallspecify in addition to the name of theimporter concerned, that the NFA shall bethe consignee of the shipment;

c. The portion of loans and other creditaccommodations covered by the guaranteeof IGLF;

d. The total liabilities of a commercialpaper issuer for commercial paper held bya UB as a firm underwriter shall not becounted in determining compliance withthe SBL within a period of 180 days fromthe acquisition of the commercial paper bythe UB: Provided, That in no case shall suchliabilities exceed five percent (5%) of thenet worth of the UB beyond the normalapplicable SBL;

e. The portion of loans and othercredit accommodations covered byguarantees of international/regionalinstitutions/multi-lateral FIs where thePhilippine Government is a member/shareholder, such as the IFC and the ADB;

f. Loans and other creditaccommodations or portion thereof,specifically provided for with valuationreserve: Provided, That the bank has nounbooked valuation reserves;

§§ X303.1 - X303.408.12.31


g. Loans and other creditaccommodations as a result of anunderwriting or sub-underwritingagreement of debt securities outstandingfor a period not exceeding thirty (30)calendar days;

h. Loans granted to foreign embassies.These loans are considered as loans to theirrespective central governments and as suchshall be considered non-risk; and

i. Foreign securities lending underSec. X531 and other domestic securitieslending programs duly recognized by theBSP containing safeguards consistent withbest international practices, to protectsecurities lenders’ risk exposures.(As amended by Circular Nos. 578 dated 17 August 2007 and

550 dated 17 November 2006)

§ X303.5 Sanctions. Violations of theprovisions of this Section shall be subjectto the following:

a. Monetary penalties - Fines of one-tenth of one percent (1/10 of 1%) of theexcess over the ceiling but not to exceedP30,000.00 a day for each SBL violationshall be assessed on the bank to bereckoned from the date the excess startedup to the date when such excess waseliminated: Provided, That a maximum fineof P500.00 a day for each violation shall beimposed against banks with total resourcesof less than P50.0 million at the time ofgranting of loan/credit accommodation.

b. Other sanctionsFirst Offense – Reprimand for the

directors/officers who approved the creditavailment which resulted in the excess witha warning that subsequent violations willbe subject to more severe sanctions.

Subsequent offenses –(1) Fine of P1,000.00 for directors/

officers who approved the credit availmentwhich resulted in the excess.

(2) Suspension of the bank’s branchingprivileges and access to BSP rediscountingfacilities until the excess is eliminated.

(3) Other penalties as the MonetaryBoard may impose depending on thegravity of the offense.

Transitory provision. Outstandingcredit commitments of a bank as of 02 May2004 which are within the ceilingprescribed under the regulations existingprior to said date but will exceed thelimitations prescribed in this Section shallnot be subject to penalty for a period ofone (1) year or until said creditcommitments become past due or areextended, renewed or restructuredwhichever comes later. Said creditcommitments shall, however, be reportedto the BSP within fifteen (15) banking daysfrom 02 May 2004.

§§ X303.6 – X303.7 (Reserved)

§ X303.8 Limit for wholesale lendingactivities of government banks. Thereshall be a separate SBL of thirty-five percent(35%) of unimpaired capital and surplus forthe wholesale lending activities ofgovernment banks to PFIs for relending toend-user borrowers, subject to thefollowing guidelines:

a. Government banks’ SBL of thirty-five percent (35%) of unimpaired capitaland surplus shall apply only to loansgranted to PFIs on a wholesale basis foron-lending to end-user borrowers;

b. The thirty-five percent (35%) SBLshall apply only to loan programs funded bymultilateral, international or localdevelopmental agencies, organizations orinstitutions specially designed for wholesalelending activities of government banks;

c. The end-user borrowers of the PFIsshall be subject to the twenty-five percent(25%) SBL, not to the increased ceiling ofthirty-five percent (35%); and

d. Government banks shall observethe minimum criteria for accrediting PFIsand for the grant/renewal of credit lines toaccredited PFIs as set forth in Appendix 41.

§§ X303.4 - X303.808.12.31


Sec. X304 Grant of Loans and OtherCredit Accommodations. The followingregulations shall be observed in the grantof loans and other credit accommodations.

§ X304.1 General guidelines. Consistentwith safe and sound banking practices, abank shall grant loans or other creditaccommodations only in amounts and forthe periods of time essential for theeffective completion of the operation to befinanced.

Before granting loans or other creditaccommodations, a bank must ascertainthat the borrower, co-maker, endorser,surety and/or guarantor, if applicable,is/are financially capable of fulfillinghis/their commitments to the bank. Forthis purpose, a bank shall obtain adequateinformation on his/their credit standingand financial capacities.

In addition to the usual informationsheet about the borrower, a bank shallrequire from the credit applicant thefollowing:

a. A copy of the latest ITR of theborrower and his co-maker, if applicable,duly stamped as received by the BIR;

b. Except as otherwise provided bylaw and in other regulations, if theborrower is engaged in business, a copyof the borrower’s latest financialstatements as submitted for taxationpurposes to the BIR; and

c. A waiver of confidentiality of clientinformation and/or an authority of the bankto conduct random verification with theBIR in order to establish authenticity of theITR and accompanying financial statementssubmitted by the client.

The documents under Items “a” and”b” above shall be required to be submittedannually for as long as the loan and/orcredit accommodation is outstanding. Theconsistency of the data/figures in said ITRsand financial statements shall also bechecked and considered in the evaluation

of the financial capacity andcreditworthiness of credit applicants. Thewaiver of confidentiality of clientinformation and/or an authority of the bankto conduct random verification with the BIRneed not be submitted annually since oncesubmitted these documents remain validunless revoked.

Should the document(s) submittedprove to be spurious or incorrect in anymaterial detail, the bank may terminate anyloan or other credit accommodationgranted on the basis of said document(s)and shall have the right to demandimmediate repayment or liquidation of theobligation. Moreover, the bank may seekredress from the court for any harm doneby the borrower’s submission of spuriousdocuments.

The required submission of additionaldocuments shall cover loans, other creditaccommodations, and credit lines granted,restructured, renewed or extended after02 November 2006 including anyavailment and/or re-availment againstexisting credit lines, except:

(1) Microfinance loans. This representssmall loans granted to the basic sectorssuch as farmer-peasant, artisanal fisherfolk,workers in the formal and informal sector,migrant workers, indigenous peoples andcultural communities, women, differently-abled persons, senior citizens, victims ofcalamities and disasters, youth andstudents, children, and urban poor, asdefined in the Social Reform and PovertyAlleviation Act of 1997 (R.A. No. 8425),and other loans granted to poor andlow-income households for theirmicroenterprises and small businesses.The maximum principal amount ofmicrofinance loans shall not exceedP150,000 and may be amortized on adaily, weekly, semi-monthly or monthlybasis, depending on the cash flowconditions of the borrowers. Said loans areusually unsecured, for relatively short

§§ X304 - X304.108.12.31


periods of time (180 days) and oftenfeaturing joint and several guarantees ofone (1) or more persons;

(2) Loans to registered BarangayMicro-Business Enterprises (BMBEs);

(3) Interbank loans;(4) Loans secured by hold-outs on or

assignment of deposits or other assetsconsidered non-risk by the MonetaryBoard;

(5) Loans to individuals who are notrequired to file ITRs under BIR regulations,as follows:

(a) Individuals whose grosscompensation income does not exceedtheir total personal and additionalexemptions, or whose compensationincome derived from one (1) employerdoes not exceed P60,000 and the incometax on which has been correctly withheld;

(b) Those whose income has beensubjected to final withholding tax;

(c) Senior citizens not required to filea return pursuant to R.A. No. 7432, asamended by R.A. No. 9257, in relation tothe provisions of the National InternalRevenue Code (NIRC) or the Tax ReformAct of 1997; and

(d) An individual who is exempt fromincome tax pursuant to the provisions ofthe NIRC and other laws, general orspecial; and

(6) Loans to borrowers, whose onlysource of income is compensation and thecorresponding taxes on which has beenwithheld at source: Provided, That theborrowers submitted, in lieu of the ITR, acopy of their Employer’s Certificate ofCompensation Payment/Tax Withheld (BIRForm 2316) or their payslips for at leastthree (3) months immediately precedingthe date of loan application.

Loans to micro and small enterpriseswhich are not specifically exempted fromthe additional documentary requirementsspecified under the third paragraph of thisSubsection shall be exempted from said

additional documentary requirement up to31 December 2011.

Consumer loans, with original amountsnot exceeding P2.0 million, are exemptedfrom updating requirements or the requiredannual submission of the samerequirements forwarded during the initialsubmission under this Subsection but notin their restructuring, renewal, orextensions or availment/re-availmentagainst existing credit lines: Provided, Thatthese loans are supported by ITRs or byBIR Form 2316 or payslips for at least three(3) months immediately preceding the dateof loan application, and financialstatements submitted for taxation purposesto the BIR, as may be applicable, at thetime the loans were granted, restructured,renewed, or extended.

For purposes of this Subsection, thefollowing definitions shall apply:

1. Micro and small enterprises shallbe defined as any business activity orenterprise engaged in industry,agribusiness and/or services whether singleproprietorship, cooperative, partnership orcorporation whose total assets, inclusive ofthose arising from loans but exclusive ofthe land on which the particular businessentity’s office, plant and equipment aresituated, must have a value of up to P3.0million and P15.0 million, respectively, oras may be defined by the SMED Councilor other competent government agency.

2. Consumer loans is defined to includehousing loans, loans for purchase of car,household appliance(s), furniture and fixtures,loans for payment of educational and hospitalbills, salary loans and loans for personalconsumption, including credit card loans.(As amended by Circular Nos. 622 dated 16 September 2008

and 549 dated 09 October 2006)

§ X304.2 Purpose of loans and othercredit accommodations. Before grantinga loan or other credit accommodation,banks shall ascertain the purpose of the loan

§§ X304.1 - X304.208.12.31


or other credit accommodation which shallbe clearly stated in the application and inthe contract between the bank andborrower. The proceeds of a loan or othercredit accommodation shall be utilized onlyfor the purpose(s) stated in the applicationand contract; otherwise, the bank mayterminate the loan or other creditaccommodation and demand immediaterepayment of the obligation.Notwithstanding the preceding sentence,the proceeds of a loan or other creditaccommodation may be utilized by theborrower for a purpose(s) other than thatoriginally stated in the application andcontract: Provided, That such otherpurpose(s) is/are among those for which thelending bank may grant loans and othercredit accommodations under existing lawsand regulations: Provided, further, That suchutilization shall be with prior writtenapproval of duly authorized officer(s)/committee/board of directors of the lendingbank and such written approval shall formpart of the contract between the bank andthe borrower.

§ X304.3 Prohibited use of loanproceeds. Banks are prohibited fromrequiring their borrowers to acquire sharesof stock of the lending bank out of the loanor other credit accommodation proceedsfrom the same bank.

§ X304.4 Signatories. Banks shallrequire that loans and other creditaccommodations be made under thesignature of the principal borrower and, inthe case of unsecured loans and other creditaccommodations to an individualborrower, at least one (1) co-maker, exceptthat a co-maker is not required when theprincipal borrower has the financialcapacity and a good track record of payinghis obligations.(As amended by Circular No. 622 dated 16 September 2008)

§ X304.5 - X304.8 (Reserved)

§ X304.9 Policies on loans to non-immigrants and embassy officials. Banksare allowed to extend peso loans to thefollowing:

a. Non-immigrants holding visas issuedunder Secs. 9(d) and 9(g) of the ImmigrationAct of 1940, Special Investor’s Resident Visa(SIRV) and visas issued by the PhilippineEconomic Zone Authority: Provided, Thatsuch loans shall be limited to peso consumerloans including credit cards, auto loans andappliance loans, but excluding real estate orhousing loans: Provided, further, That thelending bank institutes measures to mitigatecredit risk such as requiring the submissionof a Comfort Letter from the visa holder’semployer, limiting the term of the loan tothe period of the visa’s validity, submissionof SIRV identification card, as well assubjecting the visa holder to the usual creditprocesses/requirements; and

b. Embassy officials [foreigndiplomats and career consular officials andemployees who are physically residing inthe Philippines for a term of one (1) yearor more]: Provided, That such loans shallbe limited to consumer loans, includingcredit cards, auto loans, appliance loans andothers that may henceforth be allowed bythe Monetary Board: Provided, further, Thatthe lending bank institutes measures tomitigate credit risk such as requiring thesubmission of a Comfort Letter from theEmbassy employing said officials.(M-2007-021 dated 15 August 2007)

Sec. X305 Interest and Other ChargesThe rate of interest, including commissions,premiums, fees and other charges, on anyloan, or forbearance of any money, goodsor credits regardless of maturity andwhether secured or unsecured shall not besubject to any regulatory ceiling.

§ X305.1 Rate of interest in theabsence of stipulation. The rate of interestfor the loan or forbearance of any money,goods or credits and the rate allowed in

§§ X304.2 - X305.108.12.31


judgments, in the absence of expressedcontract as to such rate of interest, shall betwelve percent (12%) per annum.

§ X305.2 Escalation clause; whenallowable. Parties to an agreementpertaining to a loan or forbearance ofmoney, goods or credits may stipulate thatthe rate of interest agreed upon may beincreased in the event that the applicablemaximum rate of interest is increased bythe Monetary Board: Provided, That suchstipulation shall be valid only if there is alsoa stipulation in the agreement that the rateof interest agreed upon shall be reducedin the event that the applicable maximumrate of interest is reduced by law or by theMonetary Board: Provided, further, That theadjustment in the rate of interest agreedupon shall take effect on or after theeffectivity of the increase or decrease inthe maximum rate of interest.

§ X305.3 Floating rates of interest. Therate of interest on a floating rate loan duringeach interest period shall be stated on thebasis of Manila Reference Rates (MRRs),T-Bill Rates or other market basedreference rates plus a margin as may beagreed upon by the parties.

The MRRs for various interest periodsshall be determined and announced by theBSP every week and shall be based on theweighted average of the interest rates paidduring the immediately preceding week bythe ten (10) KBs with the highest combinedlevels of outstanding deposit substitutes andtime deposits, on promissory notes issuedand time deposits received by such banks,of P100,000 and over per transaction account,with maturities corresponding to the interestperiods for which such MRRs are beingdetermined. Such rates and the compositionof the sample KBs shall be reviewed anddetermined at the beginning of everycalendar semester on the basis of the banks’combined levels of outstanding deposit

substitutes and time deposits as of 31 Mayor 30 November, as the case may be.

The rate of interest on floating rateloans existing and outstanding as of23 December 1995 shall continue to bedetermined on the basis of the MRRsobtained in accordance with the provisionsof the rules existing as of 01 January 1989:Provided, however, That the parties to suchexisting floating rate loan agreements arenot precluded from amending or modifyingtheir loan agreements by adopting afloating rate of interest determined on thebasis of the TBR or other market basedreference rates.

Where the loan agreement providesfor a floating interest rate, the interestperiod, which shall be such period of timefor which the rate of interest is fixed, shallbe such period as may be agreed upon bythe parties.

For the purpose of computing the MRRs,banks shall accomplish the report forms,RS Form 2D and Form 2E (BSP 5-17-34A).

§ X305.4 Accrual of interest earnedon loans. Banks are allowed to accrueinterest earned on loans, subject to thefollowing guidelines and/or procedures.

a. No accrual of interest income isallowed if a loan has become non-performing as defined under Sec. X309.Likewise, interest income shall not beaccrued for unmatured loans/receivableswith indications that collectibility thereofhas become doubtful. These indicationsshall include declaration of bankruptcy,insolvency, cessation of operations, or suchother conditions of financial difficulties orinability to meet financial obligations asthey mature. Separate appropriate recordsshall be maintained for these non-accruingunmatured loans.

Interest income on past due loans arisingfrom discount amortization (and not from thecontractual interest of the accounts) shall beaccrued as provided in PAS 39.

§§ X305.1 - X305.408.12.31


b. Interest earned on extended orrenewed loans may be accrued: Provided,That there is no previously accrued butuncollected interest thereon.

Interest income on restructured loans(principal plus capitalized interest thereon)may be accrued: Provided, That these are:

(1) In current status; and(2) Fully secured by real estate with

loan value of up to sixty percent (60%) ofthe appraised value of the real estatesecurity and the insured improvementsthereon, and such other first classcollaterals as may be deemed appropriateby the Monetary Board.

c. Interest on non-performing loanaccounts shall be taken up as income onlywhen actual payments thereon arereceived.

d. Accrued interest earned but not yetcollected/received shall not be consideredas profits and/or earnings eligible fordividend declaration and/or profit sharing.

e. A contra account to be designatedAllowance for Uncollected Interest onLoans shall be set up in accordance withAppendix 18 if accrued interest receivableon loans and loan installments is stilluncollected after three (3) months from thedate such loans and loan installments havebecome non-performing.

f. The amount representing Allowancefor Uncollected Interest on Loans may bechargeable against the excess of outstandingvaluation reserves for loans and other riskassets as appearing in the bank’s books, overthose recommended by the appropriatedepartment of the SES. The balance thereof,if any, shall be chargeable against operations.

g. For all purposes, the Allowance forUncollected Interest on Loans shall beconsidered a valuation reserve/allowanceagainst the Accrued Interest Receivableaccount.

Sec. X306 Past Due Accounts. Past dueaccounts of a bank shall, as a general rule,refer to all accounts in its loan portfolio,

all receivable components of tradingaccount securities and other receivables,as defined in the Manual of Accounts forBanks, which are not paid at maturity.

§ X306.1 Accounts considered pastdue. The following shall be considered aspast due:

a. Loans or receivables payable ondemand - If not paid on the date indicatedon the demand letter, or within three (3)months from date of grant, whichevercomes earlier;

b. Bills discounted and time loans,whether or not representing availmentsagainst a credit line - If not paid on therespective maturity dates of the promissorynotes;

c. Customers’ liability on drafts underletters of credit/trust receipts:

(1) Sight Bills - If dishonored uponpresentment for payment or not paid withinthirty (30) days from date of original entry,whichever comes earlier;

(2) Usance Bills - If dishonored uponpresentment for acceptance or not paid ondue date, whichever comes earlier; and

(3) Trust receipts - If not paid on due date.d. Bills and other negotiable

instruments purchased - If dishonored uponpresentment for acceptance/payment ornot paid on maturity date, whichevercomes earlier: Provided, however, That anout-of-town check and a foreign check shallbe considered as past due if outstandingfor thirty (30) days and forty-five (45) days,respectively, unless earlier dishonored;

e. Loans/receivables payable ininstallments - The total outstanding balancethereof shall be considered past due inaccordance with the following schedule:

Minimum No. of Installments

Mode of Payment In ArrearsMonthly 3Quarterly 1Semestral 1Annual 1

§§ X305.4 - X306.108.12.31


Provided, however, That when the totalamount of arrearages reaches twentypercent (20%) of the total outstandingbalance of the loan/receivable, the totaloutstanding balance of the loan/receivableshall be considered as past due, regardlessof the number of installments in arrears:Provided, further, That for modes ofpayment other than those listed above(e.g., daily, weekly or semi-monthly), theentire outstanding balance of the loan/receivable shall be considered as past duewhen the total amount of arrearagesreaches ten percent (10%) of the total loan/receivable balance;

For this purpose, the term“installments” shall refer to principaland/or interest amortizations that are dueon several dates as indicated/specified inthe loan documents.

f. Credit card receivables - If theminimum amount due or minimumpayment required is not paid within two(2) cycle dates, the total amount due statedin the monthly billing statement: Provided,however, That the total outstanding balancewhich includes amortization/s of any fixedmonthly installment plan or deferredpayment scheme shall be considered andreported past due when the number ofmonthly installments in arrears is three (3)or more: Provided, further, That the bankshall have the right to demand theobligation in full in case of default in anyinstallment thereon if the contract betweenthe bank and the cardholder contains an“acceleration clause”; and

g. (Deleted by Circular No. 202 dated27 May 1999)

h. Microfinance loans - If a paymenthas fallen due and remained unpaid. Loanpayments are applied first to any interestdue, then to any installment of principal thatis due but unpaid, beginning with theearliest such installment. The number ofdays of lateness/delinquency is based onthe due date of the earliest loan installmentthat has not been fully paid.

For the purpose of determiningdelinquency in the payment of obligationsas defined in Subsec. X143.1e, any due andunpaid loan installment or portion thereof,from the time the obligor defaults, shall beconsidered past due.

§ X306.2 Demand loans. Banks shall,in case of non-payment of a demand loan,make a written demand within three (3)months following the grant of such loan.The demand shall indicate a period ofpayment which shall not be later than three(3) months from date of said demand.

§ X306.3 Renewals/extensions. Noloan shall be renewed or its maturity dateextended unless the corresponding accruedinterest receivable shall have been paid.

§ X306.4 Restructured loansRestructured loans whose terms ofpayment have not been complied with andwhich have become past due shall begoverned by the provisions of Sec. X322.

§ X306.5 Write-off of loans as baddebts

a. Approval by board of directorsBanks, upon approval by their board ofdirectors may write-off loans, other creditaccommodations, advances, and otherassets, regardless of amount, againstallowance for probable losses (valuationreserves) or current operations as soon asthey are satisfied that such loans, othercredit accommodations, advances andother assets are worthless as follows:

(1) In the case of secured loans, banksmay write-off loans, other creditaccommodations and other assets in anamount corresponding to the bookedvaluation reserves: Provided, That thebalance of the secured loans, other creditaccommodations, advances and otherassets shall remain in the books.

(2) In the case of unsecured loans,other credit accommodations, advances

§§ X306.1 - X306.508.12.31


and other assets, banks shall write-off saidloans, other credit accommodations,advances and other assets in full amountoutstanding.

However, write-off of loans, othercredit accommodations, advances andother assets considered transactions withDOSRI shall be with prior approval of theMonetary Board.

b. Definitions. For purposes of thisSection, the following terms are herebydefined as follows:

(1) Loans. The term loans shall referto all the accounts under the loan portfolioof a bank as enumerated in the Manual ofAccounts for Banks.

(2) Other credit accommodations. Theterm other credit accommodations shallrefer to exposures of banks other than loanssuch as sales contract receivables, accountsreceivables, accrued interest receivables,lease receivables, and rental receivables.

(3) Advances. The term advances shallrefer to any advance by means of anincidental or temporary overdraft, cash“vale”, any advance by means of DAUDand any advances of unearned salary orunearned compensation.

(4) Other assets. The term other assetsshall refer to investments, placements,ROPAs and all other asset accounts that willnot fall under loans and other creditaccommodations.

(5) Bad debts. The term bad debts shallrefer to the definition under Subsec. X136.1.

c. Reporting requirements. Notice ofwrite-off of loans, other creditaccommodations, advances, and otherassets shall be submitted in the prescribedform to the appropriate department of SESconcerned within thirty (30) days afterevery write-off with (i) a sworn statementsigned by the President of the bank orofficer of equivalent rank that write-off didnot include transactions with DOSRI and(ii) a copy of board resolution approvingthe write-off.

The income tax expense deferredcorresponding to the amount of loan, othercredit accommodation, advances and otherasset written-off considered deductible forincome tax purposes shall be recognizedand reversed in bank’s books.

d. Verification of write-offs. Write-offsof loans shall be subject to verificationduring examination.

§ X306.6 Writing-off microfinanceloans as bad debts. Microfinance loans,regardless of amount that have becomepast due in accordance with Subsec.X306.1h may be written-off, in conformitywith the provisions of Subsec. X306.5:Provided, That the notice of write-off andattachments required under Item “c” ofSubsec. X306.5 are filed within thirty (30)days after every write-off of loans.

§ X306.7 Updating of informationprovided to credit information bureausBanks which have provided adverseinformation, such as the past due or litigationstatus of loan accounts, to credit informationbureaus, or any organization performingsimilar functions, shall submit monthlyreports to these bureaus or organizations onthe full payment or settlement of thepreviously reported accounts within five (5)banking days from the end of the monthwhen such full payment was received. Forthis purpose, it shall be the responsibility ofthe reporting banks to ensure that theirdisclosure of any information about theirborrowers/clients is with the consent ofborrowers/clients concerned.(Circular No. 589 dated 18 December 2007)

Sec. X307 “Truth in Lending Act”Disclosure Requirement. Banks arerequired to strictly adhere to the provisionsof R.A. No. 3765, otherwise known as the“Truth in Lending Act”, and shall make thetrue and effective cost of borrowing anintegral part of every loan contract.

§§ X306.5 - X30708.12.31


The following regulations shall applyto all banks engaged in the following typesof credit transactions:

a. Any loan, mortgage, deed of trust,advance and discount;

b. Any conditional sales contract, anycontract to sell, or sale or contract of sale ofproperty or services, either for present orfuture delivery, under which part or all ofthe price is payable subsequent to themaking of such sale or contract;

c. Any rental-purchase contract;d. Any contract or arrangement for the

hire, bailment, or leasing of property;e. Any option, demand, lien, pledge,

or other claim against, or for delivery of,property or money;

f. Any purchase, or other acquisitionof, or any credit upon security of anyobligation or claim arising out of any of theforegoing; and

g. Any transaction or series oftransactions having a similar purpose oreffect.

The following categories of credittransactions are outside the scope of theseregulations:

(1) Credit transactions which do notinvolve the payment of any finance chargeby the debtor; and

(2) Credit transactions in which thedebtor is the one specifying a definite andfixed set of credit terms such as bank deposits,insurance contracts, sale of bonds, etc.

§ X307.1 Definition of termsa. Person means any individual,

partnership, corporation, association orother organized group of persons, or thelegal successor or representative of theforegoing, and includes the PhilippineGovernment or any agency thereof or anyother government, or any of its politicalsubdivisions, or any agency of theforegoing.

b. Cash price or delivered price, incase of trade transactions, is the amount ofmoney which would constitute full

payment upon delivery of property (exceptmoney) or service purchased at the bank’splace of business. In the case of financialtransactions, cash price represents theamount of money received by the debtorupon consummation of the credittransaction, net of finance chargescollected at the time the credit is extended(if any).

c. Down Payment represents theamount paid by the debtor at the time ofthe transaction in partial payment for theproperty or service purchased.

d. Trade-in represents the value of anasset agreed upon by the bank and debtor,given at the time of the transaction in partialpayment for the property or servicepurchased.

e. Non-finance charges correspond tothe amounts advanced by the bank foritems normally associated with theownership of the property or of theavailment of the service purchased whichare not incident to the extension of credit.For example, in the case of the purchaseof an automobile on credit, the creditormay advance the insurance premium aswell as the registration fee for the accountof the debtor.

f. Amounts to be financed consist ofthe cash price plus non-finance charges lessthe amount of the down payment and valueof the trade-in.

g. Finance charge represents theamount to be paid by the debtor incidentto the extension of credit such as interestor discounts, collection fees, creditinvestigation fees, attorney’s fees and otherservice charges. The total finance chargerepresents the difference between (a) theaggregate consideration (downpaymentplus installments) on the part of the debtorand (b) the sum of the cash price and non-finance charges.

h. Simple annual rate is the uniformpercentage which represents the ratio, onan annual basis, between the financecharges and the amount to be financed.

§§ X307 - X307.108.12.31


In the case of a single payment uponmaturity, the simple annual rate (R) inpercent is determined by the followingmethod:

(finance charge) 12R= (amount to be X (maturity X 100

financed) period in months)

In the case of the normal installmenttype of credit of at least one (1) year induration, where installment payments ofequal amount are made in regular timeperiods spaced not more than one (1) yearapart, the R in percent is computed by thefollowing method:

(no. of payment (finance charge) in a year)

R=2x x x 100 (amount to be (total no. of

financed) paymentsplus one)

In case where the credit matures in lessthan one (1) year (e.g., installment paymentsare required every month for six (6) months)the same formula will apply except that thenumber of payments in a year would referto the number of installment periods, asdefined in the credit contract if the creditmatures in one (1) year. For example, thenumber of payments a year would be twelve(12) for this purpose in case where six (6)monthly installment payments are called forin the credit transaction.1

§ X307.2 Information to be disclosedBanks shall furnish each person to whomcredit is extended, prior to theconsummation of the transaction, a clearstatement in writing setting forth thefollowing information:

a. The cash price or delivered priceof the property or service to be acquired;

b. The amounts, if any, to be creditedas downpayment and/or trade-in;

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

c. The difference between theamounts set forth under Items “a” and “b”;

d. The charges, individually itemized,which are paid or to be paid by such personin connection with the transaction but whichare not incident to the extension of credit;

e. The total amount to be financed;f. The finance charges expressed in

terms of pesos and centavos; andg. The percentage that the finance

charge bears to the total amount to befinanced expressed as a simple annual rateon the outstanding unpaid balance of theobligation.

The contract covering the credittransaction or any other document to beacknowledged and signed by the debtor,shall indicate the above seven (7) items ofinformation. In addition, the contract ordocument shall specify additional charges,if any, which will be collected in casecertain stipulations in the contract are notmet by the debtor.

In case any of the seven (7) items ofinformation mentioned is not disclosed inthe contract covering the credit transaction,all of the seven (7) items, to the extentapplicable, shall be disclosed in anotherdocument in a form (Appendix 19)prescribed by the Monetary Board, to besigned by the debtor and appended to themain contract. A copy of the disclosurestatement shall be furnished the borrower.

§ X307.3 Inspection of contractscovering credit transactions. Banks shallkeep in their offices or places of businesscopies of contracts which involve theextension of credit by the bank and thepayment of finance charges therefor. Suchcopies shall be available for inspection orexamination by the appropriate departmentof the SES.

§ X307.4 Posters. Banks shall post inconspicuous places in their principal placeof business and branches, if any, the following:

§§ X307.1 - X307.408.12.31


a. An abstract of the provisions ofR.A. No. 3765 in the form prescribed bythe Monetary Board (Appendix 20) whichshall be reproduced in a format sixty (60)c.m. wide and seventy-five (75) c.m.long; and

b. Information regarding interest andother charges on loans:

(1) Type of loan;(2) Simple annual rate of interest;(3) Manner of interest payment; i.e.

whether collected in advance or otherwise;and

(4) Other fees and charges imposed bythe bank in connection with the loan.

Sec. X308 Amortization on Loans andOther Credit Accommodations. Theamortization schedule of bank loans andother credit accommodations shall beadapted to the nature of the operations tobe financed.

In case of loans and other creditaccommodations with maturities of morethan five (5) years, provisions must bemade for periodic amortization payments,but such payments must be made at leastannually: Provided, however, That whenthe borrowed funds are to be used forpurposes which do not initially producerevenues adequate for regular amortizationpayments, the bank may permit the initialamortization payment to be deferred untilsuch time as said revenues are sufficientfor such purpose, but in no case shall theinitial amortization date be later than five(5) years from the date on which the loanor other credit accommodation is granted:Provided, further, That in the case ofagriculture and fisheries projects with longgestation periods, the initial amortizationpayment may be deferred for a longerperiod based on the economic life of theproject as provided under Section 24 ofR.A. No. 8435 and implemented underSec. X349.

Sec. X309 Non-Performing Loans

§ X309.1 Accounts considered non-performing; definitions

a. Non-performing loans shall, as ageneral rule, refer to loan accounts whoseprincipal and/or interest is unpaid for thirty(30) days or more after due date or afterthey have become past due in accordancewith existing rules and regulations. Thisshall apply to loans payable in lump sumand loans payable in quarterly, semi-annualor annual installments, in which case, thetotal outstanding balance thereof shall beconsidered non-performing.

b. In the case of loans payable inmonthly installments, the total outstandingbalance thereof shall be considered non-performing when three (3) or moreinstallments are in arrears.

c. In the case of loans payable in daily,weekly or semi-monthly installments, thetotal outstanding balance thereof shall beconsidered non-performing at the sametime that they become past due inaccordance with Sec. X306, i.e., the entireoutstanding balance of the loan/receivableshall be considered as past due when thetotal amount of arrearages reaches tenpercent (10%) of the total loan/receivablebalance.

d. Restructured loans shall beconsidered non-performing in accordancewith Subsec. X322.1.

e. All items in litigation as defined inthe Manual of Accounts for Banks shall beconsidered non-performing.

Only the following accounts arequalified to be excluded from the non-performing classification:

(1) Loans previously classified as“Loss” by the BSP fully covered byallowance for probable losses; and

(2) Outstanding credit card receivablesclassified as “Loss” in the latest BSPexamination plus credit card receivables

§§ X307.4 - X309.108.12.31


classified as “Loss” by the bank but not toexceed the total amount classified as “Loss”in the latest BSP examination: Provided,That information on the outstanding creditcard receivables classified as “Loss” as ofthe reporting month shall be reported in aseparate item in the Additional Informationof the CSOC. Only banks with nounbooked valuation reserves and capitaladjustments, even if approved for bookingon a staggered basis, are qualified toexclude loans classified as “Loss” by theBSP from the non-performing classification:Provided, That interest on said loans shallnot be accrued and that such loans shallalso be deducted from total loan portfoliofor purposes of computation.

§ X309.2 - X309.3 (Reserved)

§ X309.4 Reporting requirementBanks shall report the following data, at theend of each month, as additionalinformation (under Item 7) of the monthlyCSOC:

“7. Total Non-Performing Loansa. Non-performing regular loans xxxb. Non-performing restructured

loans xxx

“7a. Loans classified as “Loss” inthe latest examination by the BSPwhich are fully covered byAllowance for Probable Losses,net of write-offs and recoveries xxx

“7b. Outstanding credit cardreceivables classifed as “Loss”in the latest BSP examination,net of write-offs, recoveriesand collections xxx

“7c. Credit card receivablesclassified as “Loss” by thebank as of this month xxx

Banks which are not qualified underSubsec. X309.1 to exclude loans classifiedas “Loss” by the BSP from the non-performing classification may opt not to fillup Item “7a” of the Additional Informationof the monthly CSOC.


B. SECURED LOANS

Sec. X311 Loans Secured by Real EstateMortgages. Loans against real estatesecurity shall not exceed seventy percent(70%) of the appraised value of therespective real estate security plus seventypercent (70%) of the appraised value ofinsured improvements, and such loansshall not be made unless title to the realestate is in the mortgagor.

In the case of UBs/KBs, the loan valuesof real estate given as security for any loangranted shall be reduced from seventypercent (70%) to not more than sixtypercent (60%) of the appraised value of thereal estate security and the insuredimprovements, except the following whichshall be allowed a maximum value ofseventy percent (70%) of the appraised value:

a. Any loan not exceeding P3.5million to finance the acquisition orimprovement of residential units; and

b. Housing loans extended orguaranteed under the government’sNational Shelter Program (NSP) such as theExpanded Housing Loans Program (EHLP)of the Home Development Mutual Fund(HDMF or Pag-IBIG Fund) and themortgage and guaranty and credit insuranceprogram of the Home Insurance andGuaranty Corporation (HIGC).

§ X311.1 Loans secured by juniormortgage on real estate. Banks may alsogrant loans on the security of juniormortgages on real estate: Provided, That

§§ X309.1 - X311.108.12.31


for such loans to be considered as adequatelysecured under Sections 37 and 38 of R.A.No. 8791, the sum total of the loans to begranted and the outstanding balance of theloan granted on the senior mortgage shall not,at any time, exceed the loan value of subjectreal estate security based on the appraisal ofthe real estate by the junior mortgagee.

A certified latest statement of accountshowing the outstanding balance of the loanincluding interest and arrearages, from thesenior mortgagee shall be presented to thebank.

In case several loans are granted on thesecurity of the same property, the totalamount of the loans shall not, at any time,exceed the total loan value of the saidproperty.




§ 3311.2 Eligible real estate collateralson rural/cooperative bank loans. Loansmay be granted by RBs/Coop Banks on thesecurity of lands without Torrens Titlewhere the owner of private property canshow five (5) years or more of peaceful,continuous and uninterrupted possession inthe concept of an owner; or of portions offriar land estates or other lands administeredby the Bureau of Lands that are covered bysales contracts and the purchasers have paidat least five (5) years installment thereon,without the necessity of prior approval andconsent by the Director of Lands, or ofportions of other estates under theadministration of the Department ofAgrarian Reform (DAR) or othergovernmental agency which are likewisecovered by sales contracts and thepurchasers have paid at least five (5) yearsinstallments thereon, without the necessityof prior approval and consent of the DARor corresponding governmental agency; or

of homesteads or free patent lands pendingthe issuance of titles but already approved,the provisions of any law or regulations tothe contrary notwithstanding: Provided,That when the corresponding titles areissued, the same shall be delivered to theRegister of Deeds of the province wheresuch lands are situated for the annotationof the encumbrance: Provided, further, Thatin the case of lands pending homestead orfree patent titles, copies or notices for thepresentation of the final proof shall also befurnished the creditor RB/Coop Bank and,if the borrower applicants fail to presentthe final proof within thirty (30) days fromdate of notice, the creditor RB/Coop Bankmay do so for them at their expense:Provided, furthermore, That the applicantfor homestead or free patent has alreadymade improvements on the land and theloan applied for is to be used for furtherdevelopment of the same or for otherproductive economic activities: Provided,finally, That the appraisal and verificationof the status of a land is a full responsibilityof the RB/Coop Bank and any loan grantedon any land which shall be found later tobe within the forest zones shall be for thesole account of the RB/Coop Bank.

§ X311.3 Insurance on real estateimprovements. The required insurance onimprovements used as collateral for loanshould be such as shall be sufficient tosecure seventy percent (70%) of theappraised value of such improvements orif inadequately insured, the loan value shallcorrespond to the extent of insurance takenon such improvements.



§ 2311.4 Foreclosure by thrift banksThe foreclosure of mortgages coveringloans granted by TBs and executions ofjudgment thereon involving real properties

§§ X311.1 - 2311.408.12.31


levied upon by a sheriff shall be exemptfrom the publications in newspapers nowrequired by law where the total amount ofloan, excluding interests due and unpaid,does not exceed P100,000 or such amountas the Monetary Board may prescribe asmay be warranted by prevailing economicconditions and by the nature of service ofcustomers served by each category of theTB. It shall be sufficient publication in suchcases if the notices of foreclosure andexecution of judgment are posted in theconspicuous area of the TB’s premises,municipal building, municipal publicmarket, the barangay hall, and thebarangay public market, if there be any,where the land mortgaged is situatedwithin a period of sixty (60) daysimmediately preceding the public auctionof execution of judgment. Proof ofpublication as required herein shall beaccomplished by an affidavit of the sheriffor officer conducting the foreclosure saleor execution of judgment and shall beattached with the records of the case.

A TB shall be allowed to foreclose landsmortgaged to it: Provided, That said landsshall be covered under R.A. No. 6657.

§ 3311.4 Foreclosure by rural/cooperative banks. The foreclosure ofmortgages covering loans granted by RBs/Coop Banks and executions of judgmentthereon involving real properties leviedupon by a sheriff shall be exempt from thepublications in newspapers now requiredby law where the total amount of loan,excluding interests due and unpaid, doesnot exceed P100,000 or such amount asthe Monetary Board may prescribe as maybe warranted by prevailing economicconditions. It shall be sufficient publicationin such cases if the notices of foreclosureand execution of judgment are posted inthe conspicuous area of the municipalbuilding, the municipal public market, thebarangay hall, and the barangay publicmarket, if any, where the land mortgaged

is situated during the period of sixty (60)days immediately preceding the publicauction of execution of judgment. Proof ofpublication as required herein shall beaccomplished by an affidavit of the sheriffor officer conducting the foreclosure saleor execution of judgment and shall beattached with the records of the case:Provided, That when a homestead or freepatent is foreclosed, the homesteader orfree patent holder, as well as his heirs shallhave the right to redeem the same withinone (1) year from the date of foreclosure inthe case of land not covered by a TorrensTitle or one (1) year from the date of theregistration of the foreclosure in the caseof land covered by a Torrens Title.

An RB/Coop Bank shall be allowed toforeclose lands mortgaged to it: Provided,That said lands shall be covered underR.A. No. 6657.

§ X311.5 Redemption of foreclosedreal estate mortgage. In the event offoreclosure, whether judicially orextrajudicially, of any mortgage on realestate, the mortgagor or debtor shall havethe right within one (1) year after the saleof the real estate, to redeem the propertyby paying the amount due under themortgage deed, with interest thereon at therate specified in the mortgage, and all costsand expenses incurred by the bank orinstitution from the sale and custody of saidproperty less the income derivedtherefrom. However, the purchaser at theauction sale concerned shall have theright to enter upon and take possessionof such property immediately after thedate of the confirmation of the auctionsale and administer the same inaccordance with the law.

Juridical persons whose property isbeing sold pursuant to an extra-judicialforeclosure, shall have the right to redeemthe property in accordance with thisprovision until, but not after, the registrationof the certificate of foreclosure sale with

§§ 2311.4 - X311.508.12.31


the applicable Register of Deeds which inno case shall be more than three (3) monthsafter foreclosure, whichever is earlier.

Sec. X312 Loans and Other CreditAccommodations Secured By Chattelsand Intangible Properties. Loans and othercredit accommodations on the security ofchattels and intangible properties, such as,but not limited to, patents, trademarks, tradenames, and copyrights shall not exceedseventy-five percent (75%) of the appraisedvalue of the security, and such loans andother credit accommodations may be madeto the title-holder of the unencumberedchattels and intangible properties or hisassignees: Provided, That in the case ofintangible properties, appraisal thereof shallbe conducted by an independent appraiseracceptable to the BSP.

Sec. X313 Loans and Other CreditAccommodations Secured By PersonalProperties. Loans and other creditaccommodations may be secured byunencumbered personal property whichmay consist of:

a. Bonds and securities issued by theGovernment. Such bonds and securitiesmay be given loan values equivalent totheir face value or cash value, as the casemay be;

b. Readily marketable bonds andother high-grade debt securities and “bluechip” stocks, except those issued by thelending entity or by its parent company,which owns more than fifty percent (50%)of its outstanding shares of stocks: Provided,That (1) the issuer corporation must be alisted corporation with a net worth of at leastP1.0 billion and with annual net earningsduring the immediately preceding five (5)years; and (2) the loan value shall beequivalent to fifty percent (50%) of theirmarket value.

c. Expected harvest from the projectto be financed or growing crops, up to fortypercent (40%) of the calculated market

value of the crop for which the loan or othercredit accommodation is sought, based onprevious production records or, in theabsence thereof, on production in thelocality of similar plantations;

d. Quedans or warehouse receiptsissued by bonded warehouses coveringstock deposited in said warehouses up toeighty percent (80%) of the calculated marketvalue of the crop for which the loan or othercredit accommodation is sought; and

e. Any other personal property, up tofifty percent (50%) of the fair market value.If the property is newly purchased and thepurchase price thereof appears in a bill ofsale, then the above percentage shall bebased on the price of the said bill of sale.

Sec. X314 Increased Loan Values andTerms of Loans for Home-Building. Loansfor home-building and subdivisiondevelopment for low and middle-incomefamilies against real estate security andhousing loans defined as loans granted forthe purpose of constructing, improving oracquiring a residential property which isrented or is occupied or intended to beoccupied by the borrower may be grantedup to eighty percent (80%) of the appraisedvalue of the real estate security: Provided,That:

a. Such loans shall not be made unlessthe title to the real estate security is in thename of the borrower or mortgagor; and

b. In case of subdivision/housingproject, the same or its plan has beenapproved by the proper authorities;

Provided, further, That the loans maybe increased to ninety percent (90%) of theappraised value of the real estate securityif such loans are fully guaranteed by theappropriate government agency, inaddition to the foregoing conditions.

Sec. X315 Loans Secured by Certificatesof Time Deposit. The following rules shallgovern the grant of loans secured by hold-out on and/or assignment of CTDs issued

§§ X311.5 - X31508.12.31


by the lending bank, as well as its branchesor subsidiaries abroad:

a. The original copy of the CTDssubject to hold-out or assignment shall besurrendered to the lending bank;

b. The depository bank, other than thelending bank, shall be furnished a copy ofthe Deed of Assignment or hold-outagreement on the deposit used ascollateral;

c. If the term of the CTDs subject tohold-out or assignment is shorter than theterm of the loan, there shall be anagreement in writing that renewal of thetime deposit upon maturity shall be madeat least co-terminus with the term of theloan;

d. There shall be no pre-terminationof the time deposit without the consent ofthe lending bank and unless an acceptablesubstitute collateral for the loan has beenmade;

e. The lending bank shall keep acomplete record of all pertinent loandocuments, such as, but not limited to,the original copy of the CTDs subject toassignment or hold-out agreement; deedof assignment or hold-out agreement;and written waiver of the depositorrequired in Item “f” below, which shallbe made available for inspection and/orexamination by the appropriatedepartment of the SES; and

f. The loan documents shall includea waiver on the part of the depositor of hisrights under existing law to theconfidentiality of his deposits.


C. UNSECURED LOANS

Sec. X319 Loans Against PersonalSecurity. The grant, renewal, restructuringor extension of unsecured loans shall, inaddition to the requirements of Sec. X304,be made under the signature of theprincipal borrower and at least one (1)

co-maker, except that a co-maker is notrequired when the principal borrower hasthe financial capacity and a good trackrecord of paying his obligations.(As amended by Circular No. 622 dated 16 September 2008)

§ X319.1 General guidelines(Deleted by Circular No. 622 dated

16 September 2008)

§ X319.2 Proof of financial capacityof borrower

(Deleted by Circular No. 622 dated

16 September 2008)

§ X319.3 Signatories(Deleted by Circular No. 622 dated

16 September 2008)

Sec. X320 Credit Card Operations;General Policy. The BSP shall foster thedevelopment of consumer credit throughinnovative products such as credit cardsunder conditions of fair and soundconsumer credit practices. The BSPlikewise encourages competition andtransparency to ensure more efficientdelivery of services and fair dealings withcustomers.

Towards this end, the following rulesand regulations shall govern the credit cardoperations of banks and subsidiary/affiliatecredit card companies, aligned with globalbest practices.

§ X320.1 Definition of termsa. Credit card. Means any card,

plate, coupon book or other credit deviceexisting for the purpose of obtainingmoney, property, labor or services oncredit.

b. Credit card receivables. Representsthe total outstanding balance of creditcardholders arising from purchases ofgoods and services, cash advances, annualmembership/renewal fees as well asinterest, penalties, insurance fees,processing/service fees and other charges.

§§ X315 - X320.108.12.31


c. Minimum amount due or minimumpayment required. Means the minimumamount that the credit cardholder needs topay on or before the payment due date for aparticular billing period/cycle as definedunder the terms and conditions or remindersstated in the statement of account/billingstatement which may include: (1) totaloutstanding balance multiplied by therequired payment percentage or a fixedamount whichever is higher; (2) anyamount which is part of any fixed monthlyinstallment that is charged to the card; (3)any amount in excess of the credit line;and (4) all past due amounts, if any.

d. Default or delinquency. Shall meannon-payment of, or payment of any amountless than, the “Minimum Amount Due” or“Minimum Payment Required” withintwo (2) cycle dates, in which case, the“Total Amount Due” for the particularbilling period as reflected in the monthlystatement of account may be consideredin default or delinquent.

e. Acceleration clause. Shall meanany provision in the contract between thebank and the cardholder that gives thebank the right to demand the obligationin full in case of default or non-paymentof any amount due or for whatever validreason.

f. Subsidiary refers to a corporationor firm more than fifty percent (50%) of theoutstanding voting stock of which is directlyor indirectly owned, controlled or held withthe power to vote by a bank or other FI.

g. Affiliate refers to an entity linkeddirectly or indirectly to a bank or other FIthrough any one or a combination of anyof the following:

(1) Ownership, control or power tovote, whether by permanent or temporaryproxy or voting trust, or other similarcontracts, by a bank or other financialinstitution of at least ten percent (10%) ormore of the outstanding voting stock of theentity, or vice-versa;

(2) Interlocking directorship orofficership, except in cases involvingindependent directors as defined underexisting regulations;

(3) Common stockholders owning atleast ten percent (10%) of the outstandingvoting stock of each FI and the entity; or

(4) Management contract or anyarrangement granting power to the bankor other FI to direct or cause the directionof management and policies of the entity,or vice-versa.

§ X320.2 Risk management systemTo safeguard their interests, banks andsubsidiary/affiliate credit card companiesare required to establish an appropriatesystem for managing risk exposures fromcredit card operations which shall bedocumented in a complete and concisemanner. The risk management systemshall cover the organizational set-up,records and reports, accounting, policiesand procedures and internal control.

Written policies, procedures andinternal control guidelines shall beestablished on the following aspects ofcredit card operations:

a. Requirements for application;b. Solicitation and application

processing;c. Determination and approval of

credit limits;d. Pre-approved cards;e. Issuance, distribution and

activation of cards;f. Supplementary or extension cards;g. Cash advances;h. Billing and payments;i. Deferred payment program or

special installment plans;j. Collection of past due accounts;k. Handling of accounts for write-off;l. Suspension, cancellation and

withdrawal or termination of card;m. Renewal of cards, upgrade or

downgrade of credit limit;

§§ X320.1 - X320.208.12.31


n. Lost or stolen cards and theirreplacement;

o. Accounts of DOSRI andemployees;

p. Disposition of errors and/orquestions about the billing statement/statement of account and other customers’complaints; and

q. Dealings with marketing agents/collection agents.

§ X320.3 Minimum requirementsBefore issuing credit cards, banks and/ortheir subsidiary/affiliate credit cardcompanies must exercise proper diligenceby ascertaining that applicants possessgood credit standing and are financiallycapable of fulfilling their creditcommitments. The net take home pay ofapplicants who are employed, the netmonthly receipts of those engaged in tradeor business, or the net worth or cash flowinferred from deposits of those who areneither employed nor engaged in trade orbusiness or the credit behavior exhibitedby the applicant from his other existingcredit cards, or other lifestyle indicatorssuch as, but not limited to, clubmemberships, ownership and location ofresidence and motor vehicle ownershipshall be determined and used as basis forsetting credit limits. The gross monthlyincome may also be used providedreasonable deductions are estimated forincome taxes, premium contributions, loanamortizations and other deductions.

All credit card applications, especiallythose solicited by third partyrepresentatives/agents, shall undergo astrict credit risk assessment process andthe information stated thereon validatedand verified by persons other than thosehandling marketing.

§ X320.4 Information to be disclosedBanks or their subsidiary/affiliate creditcard companies shall disclose to eachperson to whom the credit card privilege

is extended in the agreement, contract orany equivalent document governing theissuance or use of the credit card or anyamendment thereto or in such otherstatement furnished the cardholder fromtime to time, prior to the imposition of thecharges and to the extent applicable, thefollowing information:

a. non-finance charges, individuallyitemized, which are paid or to be paid bythe cardholder in connection with thetransaction but which are not incident tothe extension of credit;

b. the percentage that the interestbears to the total amount to be financedexpressed as a simple monthly or annualrate, as the case may be, on the outstandingbalance of the obligation;

c. the effective interest rate perannum;

d. for installment loans, the numberof installments, amount and due dates orperiods of payment schedules to repay theindebtedness;

e. the default, late payment/penaltyfees or similar delinquency-related chargespayable in the event of late payments;

f. the conditions under which interestmay be imposed, including the time period,within which any credit extended may berepaid without interest;

g. the method of determining thebalance upon which interest and/ordelinquency charges may be imposed;

h. the method of determining theamount of interest and/or delinquencycharges, including any minimum or fixedamount imposed as interest and/ordelinquency charge;

i. where one (1) or more periodicrates may be used to compute interest,each such rate, the range of balancesto which i t is applicable, and thecorresponding simple annual rate;

j. other fees, such as membership/renewal fees, processing fees, collectionfees, credit investigation fees andattorney’s fees; and

§§ X320.2 - X320.408.12.31


k. for transactions made in foreigncurrencies and/or outside the Philippines,for dual currency accounts (peso and dollarbillings), as well as payments made bycredit cardholders in any currency otherthan the billing currency: the applicationof payments; the manner of conversionfrom the transaction currency and paymentcurrency to Philippine pesos or billingcurrency; definition or general descriptionof verifiable blended exchange/conversionrates (e.g., MASTERCARD and/or VISAInternational rates on the day the item wasprocessed/posted to the billing statement,plus mark-up, if any) including conversioncommission; and/or other currencyconversion charges and costs arising fromthe purchase by the card company offoreign currency to settle the customer’stransactions shall also be disclosed.

§ X320.5 Interest accrual on past dueloans. Interest income on past due loansarising from discount amortization (and notfrom the contractual interest of theaccounts) shall be accrued as provided inPAS 39.

§ X320.6 Finance charges. The amountof finance charges in connection with anycredit card transaction shall refer to interestcharged to the cardholder.

§ X320.7 Deferral charges. The bankand the cardholder may, prior to theconsummation of the transaction, agreein writing to a deferral of all or part ofone (1) or more unpaid installments andthe bank may collect a deferral chargewhich shall not exceed the ratepreviously disclosed pursuant to theprovisions on disclosure.

§ X320.8 Late payment/penalty feesNo late payment or penalty fee shall becollected from cardholders unless thecollection thereof is fully disclosed in thecontract between the issuer and the

cardholder: Provided, That late paymentor penalty fees shall be based on theunpaid minimum amount due or aprescribed minimum fixed amount:Provided, further, That said late paymentor penalty fees may be based on the totaloutstanding balance of the credit cardobligation, including amounts payableunder installment terms or deferredpayment schemes, if the contract betweenthe issuer and the cardholder contains an“acceleration clause” and the totaloutstanding balance of the credit card isclassified and reported as past due.

§ X320.9 Confidentiality ofinformation. Banks and subsidiary/affiliatecredit card companies shall keep strictlyconfidential the data on the cardholder orconsumer, except under the followingcircumstances:

a. disclosure of information is with theconsent of the cardholder or consumer;

b. release, submission or exchange ofcustomer information with other financialinstitutions, credit information bureaus,credit card issuers, their subsidiaries andaffiliates;

c. upon orders of court of competentjurisdiction or any government office oragency authorized by law, or under suchconditions as may be prescribed by theMonetary Board;

d. disclosure to collection agencies,counsels and other agents of the bank orcard company to enforce its rights againstthe cardholder;

e. disclosure to third party serviceproviders solely for the purpose of assistingor rendering services to the bank or cardcompany in the administration of its creditcard business; and

f. disclosure to third parties such asinsurance companies, solely for thepurpose of insuring the bank fromcardholder default or other credit loss, andthe cardholder from fraud or unauthorizedcharges.

§§ X320.4 - X320.908.12.31


§ X320.10 Suspension, termination ofeffectivity and reactivation. Banks or theirsubsidiary/affiliate credit card companiesshall formulate criteria or parameters forsuspension, revocation and reactivation ofthe right to use the card and shall includein their contract with cardholders aprovision authorizing the issuer to suspendor terminate its effectivity, if circumstanceswarrant.

§ X320.11 Inspection of recordscovering credit card transactions. Banksor their subsidiary/affiliate credit cardcompanies shall make available forinspection or examination by theappropriate department of the SEScomplete and accurate files on cardapplicant/cardholder to support theconsideration for approval of theapplication and determination of the creditlimit which shall be in accordance with theverified debt repayment ability and/or networth of the card applicant/cardholder.

§ X320.12 Offsets. For purposes oftransparency and adequate disclosure, thecredit card issuer shall inform/notify thecredit cardholder in the agreement,contract or any equivalent documentgoverning the issuance or use of the creditcard that, pursuant to the provisions ofArticles 1278 to 1290 of the New CivilCode of the Philippines, as amended, theuse of his credit card will subject hisdeposit/s with the bank to offset against anyamount/s due and payable on his creditcard which have not been paid inaccordance with the terms of theagreement/contract.

§ X320.13 Handling of complaintsBanks or subsidiary/affiliate credit cardcompanies shall give cardholders at leasttwenty (20) calendar days from statementdate to examine charges posted in his/herstatement of account and inform the bank/subsidiary credit card companies in writing

of any billing error or discrepancy. Withinten (10) calendar days from receipt of suchwritten notice, the bank/subsidiary creditcard company shall send a writtenacknowledgment to the cardholder unlessthe action required is taken within such ten(10)-day period.

Not later than two (2) billing cycles ortwo (2) months which in no case shallexceed ninety (90) days after receipt of thenotice and prior to taking any action tocollect the contested amount, or any partthereof, banks/subsidiary credit cardcompanies shall make appropriatecorrections in their records and/or send awritten explanation or clarification to thecardholder after conducting aninvestigation. Nothing in this Subsectionshall be construed to prohibit any action bythe bank/subsidiary credit card company tocollect any amount which has not beenindicated by the cardholder to contain abilling error or apply against the credit limitof the cardholder the amount indicated tobe in error.

§ X320.14 Unfair collection practicesBanks, subsidiary/affiliate credit cardcompanies, collection agencies, counselsand other agents may resort to allreasonable and legally permissible meansto collect amounts due them under thecredit card agreement: Provided, That inthe exercise of their rights and performanceof duties, they must observe good faith andreasonable conduct and refrain fromengaging in unscrupulous or untoward acts.Without limiting the general application ofthe foregoing, the following conduct is aviolation of this Subsection:

a. the use or threat of violence orother criminal means to harm the physicalperson, reputation, or property of anyperson;

b. the use of obscenities, insults, orprofane language which amount to acriminal act or offense under applicablelaws;

§§ X320.10 - X320.1408.12.31


c. disclosure of the names of creditcardholders who allegedly refuse to paydebts, except as allowed under Subsec.X320.9;

d. threat to take any action that cannotlegally be taken;

e. communicating or threat tocommunicate to any person creditinformation which is known to be false,including failure to communicate that adebt is being disputed;

f. any false representation ordeceptive means to collect or attempt tocollect any debt or to obtain informationconcerning a cardholder; and

g. making contact at unreasonable/inconvenient times or hours which shall bedefined as contact before 6:00 A.M. or after10:00 P.M., unless the account is past duefor more than sixty (60) days or thecardholder has given express permissionor said times are the only reasonable orconvenient opportunities for contact.

§ X320.15 Sanctions. Violations of theprovisions of this Section shall be subjectto any or all of the following sanctionsdepending upon their severity:

a. Disqualification of the bankconcerned from the credit facilities of theBSP except as may be allowed underSection 84 of R.A. No. 7653;

b. Prohibition of the bank concernedfrom the extension of additional creditaccommodation against personal security;and

c. Penalties and sanctions providedunder Sections 36 and 37 of R.A. No. 7653.


D. RESTRUCTURED LOANS

Sec. X322 Restructured Loans; GeneralPolicy. Banks shall have full discretion inthe restructuring of loans in order to provideflexibility in arranging the repayment ofsuch loans without impairing or

endangering the lending bank’s financialinterest, except in special cases approvedby the Monetary Board such as loansfunded by foreign currency obligations.However, the restructuring of loansgranted to DOSRI should be upon termsnot less favorable to the bank than thoseoffered to others. While agreements onloan restructuring should be considered asmanagement tools to maintain or improvethe soundness of the bank’s lendingoperations, these should be drawn mainlyto assist borrowers towards the settlementof their obligations, taking into account theircapacity to pay.

§ X322.1 Definition; when to considerperforming/non-performing. Restructuredloans are loans the principal terms andconditions of which have been modifiedin accordance with a restructuringagreement setting forth a new plan ofpayment or a schedule of payment on aperiodic basis. The modification mayinclude, but is not limited to, change inmaturity, interest rate, collateral or increasein the face amount of the debt resultingfrom the capitalization of accrued interest/accumulated charges. Items in litigationand loans subject of judicially approvedcompromise, as well as those covered bypetitions for suspension or for new plansof payment approved by the court or theSEC, shall not be classified as restructuredloans.

A loan which is restructured shall beconsidered non-performing except whenas of restructuring date -

(1) with updated principal and interestpayments; and

(2) fully secured by real estate withloan value of up to sixty percent (60%) ofthe appraised value of the real estatesecurity and the insured improvementsthereon, and such other first classcollaterals as may be deemed appropriateby the Monetary Board: Provided, That arestructured loan, with or without

§§ X320.14 - X322.108.12.31


capitalized interest, must be yielding a rateof interest equal to or greater than thebank’s average cost of funds at the date ofrestructuring, otherwise, it shall beconsidered non-performing.

The restoration to a performing loanshall only be effective after a satisfactorytrack record of payments of the requiredamortizations of principal and/or interesthas been established.

For this purpose, a satisfactory trackrecord of payments of principal and/orinterest shall mean three (3) consecutivepayments of the required amortizations ofprincipal and/or interest have been made.However, in the case of a restructured loanwith capitalized interest but not fullysecured by real estate with loan value ofup to sixty percent (60%) of the appraisedvalue of the real estate security and theinsured improvements thereon or otherfirst class collaterals, six (6) consecutivepayments of the required amortizations ofprincipal and/or interest must have beenmade.

A restructured loan which has beenrestored to a performing loan status shallbe immediately considered non-performingin case of default of any principal or interestpayment.

§ X322.2 Procedural requirementsa. A loan may be restructured, subject

to the approval of the bank’s board ofdirectors in a resolution which shallembody, among other things:

(1) the basis of or justification for theapproval;

(2) determination of the borrower’scapacity to pay, such as viability of thebusiness; and

(3) the nature and extent of protectionof the bank’s exposure.

The authority to approve therestructuring of loans may be delegatedby the bank’s board of directors to acommittee or officer(s): Provided, Thatthere are board prescribed guidelines

specifically on restructuring of loans:Provided, further, That said guidelines shallbe submitted to the appropriatedepartment of the SES within thirty (30)days following the date of approval thereof.However, loans previously approved bythe executive committee as well as thosegranted to DOSRI shall be subject toapproval by the board as provided underexisting rules and regulations. Loansrestructured other than those approved bythe board shall be reported to it forconfirmation.

b. A second restructuring of a loanshall be allowed only if there arereasonable justifications: Provided, That itshall be considered a non-performing loanand classified, at least, “Substandard”. Therestoration to a performing loan statusand/or upgrading of loan classification, e.g.,from “Substandard” to “Loans EspeciallyMentioned”, if circumstances warrant anupgrading in accordance with the criteriaunder Appendix 18, shall only be allowedafter a satisfactory track record of at leastsix (6) consecutive payments of therequired amortization of principal and/orinterest has been established.

c. In the restructuring process, thebank shall encourage the borrower toimprove the quality of the loan either bystrengthening financial capacity orproviding additional collateral.

The real estate security and/or other firstclass collaterals offered shall be appraisedat the time of restructuring to ensure thatcurrent market values are being used. Realestate security shall be appraised by anindependent appraisal companyacceptable to the BSP and shall bereappraised every year thereafter.

(1) For UBs/KBs – a loan benchmarkis set at P5.0 million, such that loans beyondthis amount will require an independentappraisal company: Provided, That theappraisal company contracted to do theappraisal is not a subsidiary or an affiliateof the UB/KB.

§§ X322.1 - X322.208.12.31


(2) For TBs – a loan benchmark is setat P1.0 million such that loans beyond thisamount will require an independentappraisal company: Provided, That theappraisal company contracted to do theappraisal is not a subsidiary or an affiliateof the TB.

A TB may be allowed to use a UB/KBor another TB acceptable to the BSP to dothe appraisal for it: Provided, That the TBrequesting the appraisal is not a subsidiaryor affiliate of the UB/KB/other TB contractedto do the appraisal.

(3) For RBs/Coop Banks – thebenchmark is set at P500 thousand such thatloans beyond this amount will require anindependent appraisal company: Provided,That the appraisal company contracted todo the appraisal is not a subsidiary or anaffiliate of the RB/Coop Bank.

An RB/Coop Bank may be allowed touse a UB/KB or a TB acceptable to the BSPto do the appraisal for it: Provided, That theRB requesting the appraisal is not asubsidiary or affiliate of the UB/KB/TBcontracted to do the appraisal.

The term “first class collaterals” refersto assets and securities which haverelatively stable and clearly definable valueand/or greater liquidity and are free fromlien/encumbrance, such as:

(a) Real estate;(b) Evidences of indebtedness of the

Republic of the Philippines and of the BSP,and other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines;

(c) Hold-out on and/or assignment ofdeposits/deposit substitutes maintained inthe lending institutions;

(d) “Blue chip” shares of stocks, exceptthose issued by the lending entity or by itsparent company which owns more thanfifty percent (50%) of its outstanding sharesof stocks. For this purpose, the issuercorporation must be a listed corporationwith a net worth of at least P1.0 billion and

with annual net earnings during theimmediately preceding five (5) years; and

(e) Such other collaterals that theMonetary Board may declare as first classcollaterals from time to time.

It is understood that the loan value tobe assigned the collateral shall be asprescribed under existing regulations.

§ X322.3 Restructured loansconsidered past due. Restructured loansshall be considered past due in case ofdefault of any principal or interest and shallbe subject to classification in accordancewith Sec. X322.4.

§ X322.4 Classification. The classificationof a loan prior to restructuring, e.g., “LoansEspecially Mentioned”, “Substandard” or“Doubtful” shall be retained: Provided, Thata loan that is not classified but which isnon-performing prior to restructuring shallbe classified, at least, “Loans EspeciallyMentioned”: Provided, further, Thatrestructured loans with capitalized interestshall be classified, at least, “Substandard”and the required valuation reserves shallbe set up accordingly: Provided, finally,That a more adverse classification may begiven, i.e., “Substandard”, “Doubtful” or“Loss”, if the circumstances warrant it asprovided under Appendix 18.

The upgrading of loan classification,e.g., from “Substandard” to “LoansEspecially Mentioned”, if circumstanceswarrant an upgrading in accordance withthe criteria under Appendix 18, shall onlybe effective after a satisfactory track recordof payments of the required amortizationsof principal and/or interest has beenestablished.

For this purpose, a satisfactory trackrecord of payments of principal and/orinterest shall mean three (3) consecutivepayments of the required amortizations ofprincipal and/or interest have been made.However, in the case of a restructured loanwith capitalized interest but not fully

§§ X322.2 - X322.408.12.31


secured by real estate with loan value ofup to sixty percent (60%) of the appraisedvalue of the real estate security and theinsured improvements thereon or otherfirst class collaterals, six (6) consecutivepayments of the required amortizations ofprincipal and/or interest must have beenmade.


E. LOANS AND OTHER CREDITACCOMMODATIONS TO DIRECTORS,

OFFICERS, STOCKHOLDERS ANDTHEIR RELATED INTERESTS

Sec. X326 General Policy. Dealings of abank with any of its DOSRI should be inthe regular course of business and uponterms not less favorable to the bank thanthose offered to others.

§ X326.1 Definitions. For purposes ofthese regulations, the following definitionsshall apply:

a. Directors shall refer to bankdirectors as defined in Subsec. X141.1.

b. Officers shall refer to bank officersas defined in Subsec. X142.1.

c. Stockholder shall refer to anystockholder of record in the books of thebank, acting personally, or through anattorney-in-fact; or any other person dulyauthorized by him or through a trusteedesignated pursuant to a proxy or votingtrust or other similar contracts, whosestockholdings in the lending bank,individual and/or collectively with thestockholdings of: (i) his spouse and/orrelative within the first degree byconsanguinity or affinity or legal adoption;(ii) a partnership in which the stockholderand/or the spouse and/or any of theaforementioned relatives is a generalpartner; and (iii) corporation, association orfirm of which the stockholder and/or hisspouse and/or the aforementioned relativesown more than fifty percent (50%) of the

total subscribed capital stock of suchcorporation, association or firm, amount toone percent (1%) or more of the totalsubscribed capital stock of the bank.

d. Substantial stockholder shall meana person, or group of persons whethernatural or juridical, owning such numberof shares that will allow such person orgroup to elect at least one (1) member ofthe board of directors of a bank or who isdirectly or indirectly the registered orbeneficial owner of more than ten percent(10%) of any class of its equity security.

e. Related interest shall refer to anyof the following:

(1) Spouse or relative within the firstdegree of consanguinity or affinity, orrelative by legal adoption, of a director,officer or stockholder of the bank;

(2) Partnership of which a director,officer, or stockholder of a bank or hisspouse or relative within the first degreeof consanguinity or affinity, or relative bylegal adoption, is a general partner;

(3) Co-owner with the director, officer,stockholder or his spouse or relative withinthe first degree of consanguinity or affinity,or relative by legal adoption, of theproperty or interest or right mortgaged,pledged or assigned to secure the loans orother credit accommodations, exceptwhen the mortgage, pledge or assignmentcovers only said co-owner’s undividedinterest;

(4) Corporation, association, or firm ofwhich a director or officer of the bank, orhis spouse is also a director or officer ofsuch corporation, association or firm,except (a) where the securities of suchcorporation, association or firm are listedand traded in the big board or commercialand industrial board of domestic stockexchanges and less than fifty percent (50%)of the voting stock thereof is owned by anyone (1) person or by persons related to eachother within the first degree ofconsanguinity or affinity; or (b) where thedirector, officer or stockholder of the bank

§§ X322.4 - X326.108.12.31


sits as a representative of the bank in theboard of directors of such corporation:Provided, That the bank representative shallnot have any equity interest in the borrowercorporation except for the minimum sharesrequired by law, rules and regulations, or bythe by-laws of the corporation: Provided,further, That the borrowing corporation is notamong those mentioned in Items “e(5)”,“e(6)”, “e(7)” and “e(8)” of this Section;

(5) Corporation, association or firm ofwhich any or a group of directors, officers,stockholders of the lending bank and/ortheir spouses or relatives within the firstdegree of consanguinity or affinity, orrelative by legal adoption, hold or own atleast twenty percent (20%) of thesubscribed capital of such corporation, orof the equity of such association or firm;

(6) Corporation, association or firmwholly or majority-owned or controlled byany related entity or a group of relatedentities mentioned in Items “e(2)”, “e(4)”and “e(5)” of this Section;

(7) Corporation, association or firmwhich owns or controls directly orindirectly whether singly or as part of agroup of related interest at least twentypercent (20%) of the subscribed capital ofa substantial stockholder of the lendingbank or which controls majority interest ofthe bank pursuant to Subsec. X303.1; and

(8) Corporation, association or firmwhich has an existing managementcontract or any similar arrangement withthe parent of the lending bank.

f. Subsidiary shall refer to acorporation or firm more than fifty percent(50%) of the outstanding voting stock ofwhich is directly or indirectly owned,controlled or held with power to vote byits parent corporation.

g. Unencumbered deposits shall referto savings, time and demand deposits,which are not subject to an assignment orhold-out agreement or any otherencumbrance.

h. Book value of the paid-in capitalcontribution shall mean the proportionalamount of the bank’s total capital accounts(net of such unbooked valuation reservesand other capital adjustments as may berequired by the BSP) as the correspondingpaid-in capital contribution of each of thebank’s directors, officers, stockholders andtheir related interests bear to the totalpaid-in capital of the bank: Provided, Thatas a basis for determining the individualceiling referred to in Sec. X330, thecorresponding book value of the shares ofstock of said directors, officers, stockholdersand their related interests which are thesubject of pledge, assignment or any otherencumbrance shall be deducted therefrom.

i. Net worth shall mean the total of theunimpaired paid-in capital including paid-insurplus, retained earnings and undividedprofit, net of valuation reserves and otheradjustments as may be required by the BSP.

j. Total loan portfolio shall refer tothe sum of all loan accounts outstanding,gross of valuation reserves, as reflected inthe bank’s consolidated statement ofcondition, excluding outstanding loansfinanced by special/specific funds from thegovernment FIs.

k. Secured loan, borrowing or othercredit accommodation shall refer to anyloan, or credit accommodation or portionthereof referred to in Sec. X327 which issecured by:

(1) Real estate mortgage, chattelmortgage on tangible assets, and pledgeof jewelry, precious stones and othervaluable articles;

(2) Assignment of intangible assetssuch as patents, trademarks, trade namesand copyrights;

(3) Unconditional payment guaranteessuch as standby letters of credit and letter ofindemnity issued by banks/multilateral FIs;

(4) Assignment of, or hold-out on,deposits or deposit substitutes maintainedin the lending bank;

§ X326.108.12.31


(5) Cash margin deposits; or assignmentor pledge of government securities orreadily marketable bonds and otherhigh-grade debt securities and “blue-chip”stocks, except those issued by the lendingentity, or by its parent company whichowns more than fifty percent (50%) of itsoutstanding shares of stocks, subject to theadditional provision that the issuercorporation has a net worth of at least P1.0billion and with annual net earnings duringthe immediately preceding five (5) years;

(6) Customer’s liability under importbills outstanding for not more than thirty(30) days from date of original entry;

(7) Sales contract receivables arisingfrom sale of real property on creditwhere title to the property is retained bythe bank; and

(8) Customer’s liability-import billsunder trust receipts outstanding for not morethan thirty (30) days from date of booking:Provided, That the booking under trustreceipts shall have been made not later thanthe thirty-first day from the date of originalentry referred to in Item “(6)” above.

l. Unsecured loan, borrowing orother credit accommodation shall refer toany loan, or other credit accommodationor portion thereof referred in Sec. X327which is not secured in accordance withItem “k” above.(As amended by Circular No. 560 dated 31 January 2007)

Sec. X327 Transactions Covered. Theterms loans, other credit accommodationsand guarantees as used herein shall referto transactions of the bank which involvethe grant of any loan, advance or othercredit accommodation in any formwhatsoever, whether renewal, extensionor increase, and shall include:

a. Any advance by means of anincidental or temporary overdraft, cashitem, “vale”, etc.;

b. Any advance of unearned salary orother unearned compensation for periodsin excess of thirty (30) days;

c. Any advance by means of DAUDs;d. Outstanding availments under an

established credit line;e. Drawings against an existing letter

of credit;f. The acquisition of any note, draft,

bill of exchange or other evidence ofindebtedness upon which the bank’sDOSRIs may be liable as makers, drawers,acceptors, endorsers, guarantors orsureties;

g. Indirect lending such as loans orother credit accommodations granted byanother financial intermediary to saidDOSRIs from funds of the bank investedin the other institution’s trust or otherdepartment when there is a clearrelationship between the transactions;

h. The increase of an existingindebtedness, as well as additionalavailments under a credit line or additionaldrawings against a letter of credit;

i. The sale of assets, such as shares ofstock, on credit; and

j. Any other transactions as a resultof which the bank’s DOSRIs becomeobligated or may become obligated to thelending bank, by any means whatsoeverto pay money or its equivalent.

Sec. X328 Transactions Not Covered. Theterms loans, other credit accommodationsand guarantees as used herein shall notrefer to the following:

a. Advances against accruedcompensation, or for the purpose ofproviding payment of authorized travel,legitimate expenses or other transactionsfor the account of the bank or for utilizationof maternity and other leave credits;

b. The increase in the amount ofoutstanding credit accommodations as aresult of additional charges or advancesmade by the bank to protect its interestsuch as taxes, insurance, etc.;

c. The discount of bills of exchangedrawn in good faith against actually existingvalues, and the discount of commercial or

§§ X326.1 - X32808.12.31


business paper actually owned by theperson negotiating the same, including, butnot limited to, the acquisition by a domesticbank of export bills from any of its DOSRIwhich are drawn in accordance with theterms and conditions of the covering lettersof credit: Provided, That the transactionshall automatically be subject to theceilings as herein provided once the DOSRIwho is a party to the transaction becomesdirectly liable to the bank;

d. Transactions with a foreign bankwhich has stockholdings in the local bankwhere the foreign bank acts as guarantorthrough the issuance of letters of credit orassignment of a deposit in a currencyeligible as part of the international reservesand held in a bank in the Philippines tosecure other credit accommodationsgranted to another person or entity:Provided, That the foreign bank stockholdershall automatically be subject to theceilings as herein provided in the event thatits contingent liability as guarantor becomesa real liability; and

e. Interbank call loan transactions.

§ X328.1 Applicability to credit cardoperations. The credit card operations ofbanks shall not be subject to theseregulations where the credit cardholdersare bank’s DOSRI: Provided, That (a) theprivilege of becoming a credit cardholderis open to all qualified persons on the basisof selective criteria which are applied bythe bank to all applicants thereof; and (b)the bank’s DOSRIs reimburse/pay the bankfor the billed amount in full on or beforethe payment due date in the billing orstatement of account, as set by the bankfor all other qualified credit card holderson availments made for the same periodon their credit cards. However, thetransaction shall be subject to applicableDOSRI regulations if the bank’s DOSRIs:

a. fail to reimburse/pay the bankwithin the period mentioned herein; or

b. on the outset, opt for deferredpayment scheme, and the availment isbooked by the bank.

For purposes of this Section,stockholders and related interests refer toindividual credit card holders.

§ X328.2-X328.4 (Reserved)

§ X328.5 Loans, other creditaccommodations and guarantees grantedto subsidiaries and/or affiliates

a. Statement of policy. Dealings of abank with its subsidiaries and/or affiliatesshall be in the regular course of businessand upon terms not less favorable to thebank than those offered to others.

b. Ceilings. The total outstandingloans, other credit accommodations andguarantees to each of the bank’ssubsidiaries and affiliates shall not exceedten percent (10%) of the net worth of thelending bank: Provided, That the unsecuredloans, other credit accommodations andguarantees to each of said subsidiaries andaffiliates shall not exceed five percent (5%)of such net worth: Provided, further, Thatthe total outstanding loans, other creditaccommodations and guarantees to allsubsidiaries and affiliates shall not exceedtwenty percent (20%) of the net worth ofthe lending bank: Provided, finally, Thatthese subsidiaries and affiliates are notrelated interest of any of the director,officer, and/or stockholder of the lendingbank, except where such director, officeror stockholder sits in the board of directorsor is appointed officer of such corporationas representative of the bank.

c. Exclusions from the ceilings. Loans,other credit accommodations andguarantees secured by assets consideredas non-risk under existing BSP regulationsas well as interbank call loans shall beexcluded in determining compliance withthe ceilings prescribed under Item “b”above.

§§ X328 - X328.508.12.31


d. Procedural requirements. Thefollowing provisions shall apply if a bankgrants a loan, other credit accommodationor guarantee to any of its subsidiaries andaffiliates.

(1) Approval of the board, when toobtain. Except with prior written approvalof the majority of all the members of theboard of directors, no loan, other creditaccommodation and guarantee shall begranted to a subsidiary or affiliate.

(2) Approval by the board, howmanifested. The approval shall bemanifested in a resolution passed by theboard of directors during a meeting andmade of record.

(3) Determination of majority of all themembers of the board of directors. Thedetermination of the majority of all themembers of the board of directors shall bebased on the total number of directors ofthe bank as provided in its articles ofincorporation and by-laws.

(4) Contents of the resolution. Theresolution of the board of directors shallcontain the following information:

(a) Name of the subsidiary or affiliate;(b) Nature of the loan or other credit

accommodation or guarantee, purpose,amount, credit basis for such loan or othercredit accommodation or guarantee,security and appraisal thereof, maturity,interest rate, schedule of repayment andother terms;

(c) Date of resolution;(d) Names of the directors who

participated in the deliberation of themeeting; and

(e) Names in print and signatures ofthe directors approving the resolution:Provided, That in instances where adirector who participated in the boardmeeting and who approved suchresolution failed to sign, the corporatesecretary may issue a certification to thiseffect indicating the reason for the failureof the said director to sign the resolution.

(5) Transmittal of copy of boardapproval; contents thereof. A copy of thewritten approval of the board of directors, asherein required, shall be submitted to theappropriate department of the SES withintwenty (20) banking days from the date ofapproval. The copy may be a duplicate ofthe original, or a reproduction copy showingclearly the signatures of the approvingdirectors: Provided, That if a reproductioncopy is to be submitted, it shall be dulycertified by the corporate secretary that it is areproduction of the original written approval.

e. Reportorial requirements. Eachbank shall maintain a record of loans, othercredit accommodations and guaranteescovered by these regulations in a mannerand form that will facilitate verification ofsuch transactions by BSP examiners.

The appropriate department of the SESmay require banks to furnish such data orinformation as may be necessary forpurposes of implementing the provisionsof the foregoing rules.

f. Sanctions. Without prejudice to thecriminal sanctions under Sec. 36 of R.A. No.7653 (The New Central Bank Act), anyviolation of the provisions of the foregoingrules shall be subject to any or all of thefollowing sanctions:

(1) Restriction or prohibition on thebank from declaring dividends for non-compliance with the herein prescribedceilings until the outstanding loans, othercredit accommodations and guaranteeshave been reduced to within the hereinprescribed ceilings;

(2) For the duration of each violation,imposition of a fine of one tenth (1/10) ofone percent (1%) of the excess over theceilings per day but not to exceed P30,000a day on the following:

(a) The lending bank;(b) Each of the directors voting for the

approval of the loan, other creditaccommodation or guarantee in excess ofany of the ceilings prescribed above.

§ X328.508.12.31


g. Transitory provisions. Outstandingloans, other credit accommodation andguarantees to subsidiaries/affiliates that willexceed the ceilings mentioned above shallnot be subject to penalty until 09 April 2007or until said accommodations become pastdue, or are extended, renewed orrestructured, whichever comes later.(Circular No. 560 dated 31 January 2007)

Sec. X329 Direct or Indirect BorrowingsLoans, other credit accommodations andguarantees to DOSRI shall be considereddirect or indirect borrowings in accordancewith the following criteria:

a. Direct borrowing. If the director,officer or stockholder of the lending bankis a party to any of the transactionsenumerated in Sec. X327 for himself, oras the representative or agent of others,or if he acts as a guarantor, endorser orsurety for loans from the bank, or if theloan or other credit accommodation toanother party is secured by a propertyinterest or right of the director, officer orstockholder.

b. Indirect Borrowing. If in any of thetransactions in Sec. X327 the borrower,guarantor, endorser or surety is a relatedinterest as defined in Item “e”, Subsec.X326.1.

Other cases of direct/indirectborrowing shall be resolved on a case-to-case basis.

It shall be the responsibility of thebank concerned to ascertain whether theborrower, guarantor, endorser or suretyis related or connected with the bank orwith any of the directors, officers orstockholders of the bank in any of thecapacities mentioned in Item “e” ofSubsec. X326.1.

In determining indirect borrowings, asenumerated above, only those casesinvolving living relatives shall beconsidered.

Sec. X330 Individual Ceilings. The totaloutstanding loans, other creditaccommodations and guarantees to eachof the bank’s DOSRI shall be limited to anamount equivalent to their respectiveunencumbered deposits and book valueof their paid-in capital contribution in thebank: Provided, however, That unsecuredloans, other credit accommodations andguarantees to each of the bank’s DOSRIshall not exceed thirty percent (30%) oftheir respective total loans, other creditaccommodations and guarantees.

§ X330.1 Exclusions from individualceiling. The following loans, other creditaccommodations and guarantees shall beexcluded in determining compliance withthe individual ceiling.

a. Loans, other credit accommodationsand guarantees secured by assetsconsidered as non-risk by the MonetaryBoard;

Assets considered as non-risk shallrefer to the following:

(1) Cash;(2) Debt securities issued by the BSP

or the Philippine government;(3) Deposits maintained in the lending

bank and held in the Philippines;(4) Debt securities issued by the U.S.

government;(5) Debt securities issued by central

governments, central banks of foreigncountries and multilateral financialinstitutions such as International FinanceCorporation, Asian Development Bank andWorld Bank, with the highest credit qualitygiven by any two (2) internationallyaccepted rating agencies; and

(6) Such other assets considered asnon-risk by the Monetary Board.

b. Loans, other credit accommodationsand advances to officers in the form offringe benefits granted in accordance withexisting regulations; and

§§ X328.5 - X330.108.12.31


c. Loans, other credit accommodationsand guarantees extended by a Coop Bankto its cooperative shareholders.

Sec. X331 Aggregate Ceiling; Ceiling onUnsecured Loans, Other CreditAccommodations and GuaranteesExcept with the prior approval of theMonetary Board, the total outstandingloans, other credit accommodations andguarantees to DOSRI shall not exceedfifteen percent (15%) of the total loanportfolio of the bank or 100% of net worthwhichever is lower: Provided, That in nocase shall the total unsecured loans, othercredit accommodations and guarantees tosaid DOSRI exceed thirty percent (30%)of the aggregate ceiling or the outstandingloans, other credit accommodations andguarantees, whichever is lower. For thepurpose of determining compliance withthe ceiling on unsecured loans, other creditaccommodations and guarantees, banksshall be allowed to average their ceilingon unsecured loans, other creditaccommodations and guarantees everyweek.

In evaluating requests for extensionof loans in excess of the aggregateceiling, the BSP shall consider the creditstanding of the borrower, viability of theprojects financed by such other creditaccommodations in relation to nationalobjectives, collateral or security andother pertinent considerations.

Sec. X332 Exclusions from AggregateCeiling. The following loans, other creditaccommodations and guarantees shall beexcluded in determining compliance withthe aggregate ceiling:

a. Credit accommodations or portionsthereof to the extent secured by assetsconsidered as non-risk by the MonetaryBoard;

b. Credit accommodations to acorporate stockholder which meets all thefollowing conditions:

(1) The corporation is a non-financialinstitution;

(2) Its shares are listed and traded inthe domestic stock exchanges; and

(3) No person or group of personsrelated within the first degree ofconsanguinity or affinity holds/owns morethan twenty percent (20%) of thesubscribed capital of the corporation.

c. Credit accommodations togovernment-owned or controlledcorporations, in cases where a director,officer or stockholder of the lending bankis a representative of the government inthe borrowing corporation and does nothold any proprietary interest in suchcorporation: Provided, That other rules onloans to DOSRI, such as procedural andreportorial requirements under SectionsX334 and X335 are followed.

d. Exclusions from individual ceilingmentioned under Items “(b)” and “(c)” ofSubsec. X330.1.

Sec. X333 Applicability to Branches andSubsidiaries of Foreign Banks. Theindividual and aggregate ceilings as wellas ceilings on unsecured creditaccommodations prescribed herein shallalso apply to branches and subsidiaries offoreign banks in the Philippines.

Sec. X334 Procedural Requirements. Thefollowing provisions shall apply if the bank’sDOSRI are parties to, or act as representativesor agents of others in, any of the transactionsenumerated under Sec. X327:

a. Approval of the board, when toobtain. Except with prior written approval ofthe majority of the directors, excluding thedirector concerned, no loan, other creditaccommodation and guarantee shall begranted nor shall any of the transactionsenumerated under Sec. X327 be entered into.

b. Approval by the board, howmanifested. The approval shall be manifestedin a resolution passed by the board ofdirectors during a meeting and made of record.

§§ X330.1 - X33408.12.31


c. Determination of majority of thedirectors. The determination of the majorityof the directors, excluding the directorconcerned, shall be based on the totalnumber of directors of the bank as providedin its articles of incorporation and by-laws.

d. Contents of the resolution. Theresolution of the board of directors shallcontain the following information:

(1) Name of the director or officerconcerned and his involvement as regardsthe credit accommodation, such asprincipal, endorser, spouse of borrower,etc.;

(2) Nature of the loan or other creditaccommodation, purpose, amount, creditbasis for such loan or other creditaccommodation, security and appraisalthereof, maturity, interest rate, schedule ofrepayment and other terms of the loan orother credit accommodation;

(3) Date of resolution;(4) Names of the directors who

participated in the deliberations of themeeting; and

(5) Names in print and signatures ofthe directors approving the resolution:Provided, That in instances where adirector who participated in the boardmeeting and who approved suchresolution failed to sign, the corporatesecretary may issue a certification to thiseffect indicating the reason for the failureof the said director to sign the resolution.

e. Transmittal of copy of boardapproval; contents thereof. A copy of thewritten approval of the board of directors,as herein required, shall be submitted tothe appropriate department of the SESwithin twenty (20) banking days from thedate of approval. The copy may be aduplicate of the original, or a reproductioncopy showing clearly the signatures of theapproving directors: Provided, That if areproduction copy is to be submitted, itshall contain on its face or reverse side asigned certification by the secretary that itis a reproduction of the original written

approval: Provided, further, That suchwritten approval shall not be required forloans, other credit accommodations andadvances granted to officers under a fringebenefit plan approved by the BSP.

Sec. X335 Reportorial Requirements. Eachbank shall maintain a record of loans, othercredit accommodations and guaranteescovered by these regulations in a mannerand form that will facilitate verification ofsuch transactions by BSP examiners.

The appropriate department of the SESmay require banks to furnish such data orinformation as may be necessary forpurposes of implementing the provisionsof the foregoing rules.

Sec. X336 Sanctions. Any violation of theprovisions of the foregoing rules shall besubject to any or all of the following sanctions:

a. Restriction or prohibition on thebank from declaring dividends fornon-compliance with the prescribedceiling on DOSRI until the outstandingloans and other credit accommodationshave been reduced to within the hereinprescribed ceilings;

b. After due notice to the board ofdirectors of the bank, the office of any bankdirector or officer who violates theprovisions of this Section may be declaredvacant and the director or officer shall besubject to the penal provisions of the NewCentral Bank Act;

c. Application of (1) the borrowingdirector’s or officer’s share in the bank’sprofit sharing program; and (2) the share ofthe director voting for the approval of theloan or other credit accommodation,against the excess of such loan or othercredit accommodation over any of theherein prescribed ceilings; and

d. For the duration of each violation,imposition of a fine of one-tenth of onepercent (1/10 of 1%) of the excess over theceilings per day but not to exceed P30,000a day on the following:

§§ X334 - X33608.12.31


(1) The lending bank;(2) The director, officer or stockholder

whose borrowing exceeds his individualceiling; and

(3) Each of the directors voting for theapproval of the loan or other creditaccommodation in excess of any of theceilings prescribed in Secs. X330 and X331.

The penalty for exceeding theindividual ceiling, aggregate ceiling andceiling on unsecured loans shall becomputed on the average amount of loansin excess of said ceilings during the sameweek.

Sec. X337 Waiver of Secrecy of DepositAny director, officer or stockholder who,together with his related interest, contractsa loan or any form of financialaccommodation from:

a. his bank; orb. from a bank(1) which is a subsidiary of a bank

holding company of which both his bankand the lending bank are subsidiaries; or

(2) in which a controlling proportionof the shares is owned by the same interestthat owns a controlling proportion of theshares of his bank, in excess of five percent(5%) of the capital and surplus of the bank,or in the maximum amount permitted bylaw, whichever is lower, shall be requiredby the lending bank to waive the secrecyof his deposits of whatever nature in allbanks in the Philippines. Any informationobtained from an examination of hisdeposits shall be held strictly confidentialand may be used by the examiners only inconnection with their supervisory andexamination responsibility or by the BSPin an appropriate legal action it has initiatedinvolving the deposit account.

Sec. X338 Financial Assistance toOfficers and Employees. Banks mayprovide financial assistance to their officersand employees, as part of their fringebenefits program, to meet the housing,

transportation, household and personalneeds of their officers and employees.Financing plans and amendments thereto,shall be with prior approval of the BSP.

§ X338.1 Mechanics. The mechanicsof such financing plan shall have thefollowing minimum features:

a. Participation shall be limited tofulltime and permanent officers andemployees of the bank;

b. Financial assistance shall only befor the following purposes:

(1) The acquisition of a residentialhouse and lot, or the construction,renovation or repair of a residential houseon a lot owned and to be occupied by theofficer or employee;

(2) The acquisition of vehicles,household equipment and appliances forthe personal use of the officer or employeeor his immediate family; or

(3) To meet expenses for the medical,maternity, education, emergency andother personal needs of the officer oremployee or his immediate family;

c. Financial assistance for purposesmentioned in Items “b(1)” and “b(2)” of thisSubsection shall be granted in the form ofa loan, advance or other creditaccommodation, installment sale, leasewith option to purchase or lease-purchasearrangement where the lessee is obligedto purchase the real estate or equipment;

d. The amount and maturity offinancial assistance for each purpose shallbe determined by the bank in consonancewith the normal requirements thereof:Provided, That the maximum amount shallbe stated as percentage or multiple of thetotal monthly compensation of the officeror employee and shall be within the payingcapacity of the borrowing officer oremployee.

Total monthly compensation shallinclude the basic salary and all fixed andregular monthly allowances of the officeror employee. Payments for sickness

§§ X336 - X338.108.12.31


benefits and other special emoluments whichare not fixed or regular in nature, or thecommutation into cash of unused leavecredits shall not be included in thecomputation of total monthly compensation;

e. The amortization payment shallinclude amounts necessary to covermortgage redemption insurance and fireinsurance premiums, taxes, specialassessments, and other related fees andcharges;

f. Availment of the financing plan toconstruct or acquire a residential house andlot shall be allowed only once during theofficer’s or employee’s tenure with thebank, except where the right over the realestate previously acquired or constructedunder the financing plan is absolutelytransferred or assigned to another officeror employee of the bank or to a third party:Provided, That the bank must be fully paidor reimbursed for the outstandingavailment on the financing plan before theofficer/ employee is allowed to re-availhimself of the same financing plan.

An officer or employee (or his spouse)who already owns a residential house andlot shall not be qualified to avail himself offinancial assistance for purposes ofacquiring a residential house and/or lot.

These prohibitions notwithstanding,financial assistance for the repair orrenovation of a residential house may beallowed subject to such limitation as maybe prescribed by the bank pursuant to Item“d “ of this Subsection;

g. Availment of the financing plan forthe acquisition of a specific type ofequipment or appliance shall be allowednot oftener than once every three (3) years:Provided, That re-availment shall beallowed only after previous obligations inconnection with the acquisition of the sametype of equipment or appliances havebeen fully liquidated; and

h. The bank shall adopt measures toprotect itself from losses such as byincorporating in the plan or contract

provisions requiring co-makers orco-signor, chattel, or real estate mortgages,fire insurance, mortgage redemptioninsurance, assignment of money value ofleave credits, pension or retirementbenefits.


§ 1338.2 Funding by foreign banks. Inthe case of local branches of foreign banks,financial assistance for their officers andemployees may be funded, through anyof the following means:

a. Through a local affiliate by specialarrangement with the head office abroadin any of the following forms:

(1) Inward remittance from the headoffice of the affiliate;

(2) Assignment to the affiliate ofequivalent amounts of profits otherwiseremittable abroad under existingregulations; or

(3) Direct loans by the foreign bank tothe affiliate; or

b. Through the local branch itself by:(1) Segregation or transfer of

undivided profits normally remitted to thehead office abroad equivalent to the loansto officers and employees which shall belodged under “Other Liabilities-HeadOffice Accounts”. This account shall at alltimes have a balance equivalent to theoutstanding loans to officers/employeesfinanced under this scheme; or

(2) Inward remittance; orc. Through the local branch from

local sources without earmarking anequivalent amount of undivided profits:Provided, That the aggregate ceilings onsuch loans as provided under existingregulations shall apply.

Loans under Items “b(1)” and “b(2)” ofthis Subsection shall be treated in thebranch books as loans granted by its headoffice. The documentation and collectionof such loans shall be handled by thebranch for the account of the head office.

§§ X338.1 - 1338.208.12.31


Loans financed under Items “a” and “b”shall be excluded from the computationof the capital to risk assets ratio.



§ X338.3 Other conditions/limitationsa. The investment by a bank in

equipment and other chattels under itsfringe benefits program for officers andemployees shall be included indetermining the extent of the investmentof the bank in real estate and equipmentfor purposes of Section 51 of R.A. No. 8791.

b. The investment by a bank inequipment and other chattels contemplatedunder these guidelines shall not be for thepurpose of profits in the course of businessfor the bank.

c. The aggregate outstanding loansand other credit accommodations grantedunder the bank’s fringe benefits program,inclusive of those granted to officers in thenature of lease with option to purchase,shall not exceed five percent (5%) of thebank’s total loan portfolio.

Banks providing financial assistance totheir officers/employees shall submit aregular report on “availments of financialassistance to officers and employees” tothe BSP within fifteen (15) banking daysafter end of reference semester.

The appropriate department of the SESmay further require banks to submit suchdata or information as may be necessaryto facilitate verification of such transactionsby BSP examiners.

Sec. X339 Transitory Provisionsa. The sanctions contained under

Sec. X336 shall not apply to outstandingloans, other credit accommodations andguarantees, as well as availments ofpreviously approved loans and committedcredit lines not considered as DOSRIaccounts prior to 10 April 2004, for a period

of up to 09 April 2007 or until said loans,other credit accommodations andguarantees become past due, or areextended, renewed or restructured,whichever comes later.

b. Unsecured outstanding loans, othercredit accommodations and guarantees, aswell as availments of previously approvedloans and committed credit lines notconsidered as DOSRI accounts prior to10 April 2004, shall not be deducted fromcapital accounts for a period of up to09 April 2007 or until such time that saidloans, other credit accommodations andguarantees become past due, or areextended, renewed or restructured,whichever comes later.

c. Banks shall, however, disclose thefollowing information in their financialstatements, annual report and the reportsbeing submitted to BSP:

(1) DOSRI;(i) Loans, other credit accommodations

and guarantees classified as DOSRIaccounts under regulations existing priorto 10 April 2004; and

(ii) New DOSRI loans, other creditaccommodations and guarantees grantedstarting 10 April 2004.

(2) Non-DOSRI prior to 10 April 2004Loans, other credit accommodations andguarantees, as well as availments ofpreviously approved loans and committedcredit lines not considered DOSRI accountsprior to 10 April 2004 but are allowed atransition period as provided above.(As amended by Circular No. 532 dated 19 May 2006)

§§ X339.1 - X339.3 (Reserved)

§ X339.4 Reportorial requirementsFinancing plans and amendments theretoshall be submitted to BSP within thirty (30)calendar days from approval thereof by thebank’s board of directors. The appropriatedepartment of the SES may require thebanks concerned to submit a regular reportmonitoring the various transactions under

§§ 1338.2 - X339.408.12.31


the bank’s financing plans for officers/employees.

All banks providing financial assistanceto bank officers/employees shall submit areport on “Availments of FinancialAssistance to Officers and Employees” tothe BSP within fifteen (15) banking daysafter end of reference semester.

Sec. X340 Applicability of DOSRI Rulesand Regulations to GovernmentBorrowings in Government-Owned or -Controlled Banks. The provisions ofSecs. X326 to X337 shall also apply to loans,other credit accommodations, and/orguarantees granted to the NationalGovernment or Republic of thePhilippines, its political subdivisions andinstrumentalities as well as GOCCs,subject to the following clarifications:

a. Loans, other credit accommodations,and/or guarantees to the Republic of thePhilippines and/or its agencies/departments/bureaus shall be considered: (1) non-risk; and(2) not subject to any ceiling;

b. Loans, other credit accommodations,and/or guarantees to: (1) GOCCs; and(2) corporations where the Republic of thePhilippines, its agencies/departments/bureaus, and/or GOCCs own at leasttwenty percent (20%) of the subscribedcapital stock shall be considered indirectborrowings of the Republic of thePhilippines and shall form part of theindividual ceiling as well as the aggregateceiling: Provided, That the following loans,other credit accommodations, and/orguarantees to GOCCs and corporationswhere the Republic of the Philippines, itsagencies/departments/bureaus, and/orGOCCs own at least twenty percent (20%)of the subscribed capital stock, shall beexcluded from the thirty percent (30%)ceiling on unsecured loans underSecs. X330 and X331:

(1) Loans, other credit accommodations,and/or guarantees for the purpose of

undertaking priority infrastructure projectsconsistent with the Medium-TermDevelopment Plan/Medium-Term PublicInvestment Program of the NationalGovernment, duly certified as such by theSecretary of Socio-Economic Planning;

(2) Loans, other credit accommodations,and/or guarantees granted to PFIs in thelending programs of the governmentwherein the funds borrowed are intendedfor relending to other PFIs or end-userborrowers; and

(3) Loans, other credit accommodations,and/or guarantees granted for the purposeof providing (i) wholesale and retail loansto the agricultural sector and micro, smalland medium enterprises (MSMEs); and/or(ii) rediscounting and guarantee facilitiesfor loans granted to the said sector orenterprises;

c. Loans, other credit accommodations,and/or guarantees granted to stateuniversities and colleges (SUCs) shall beexcluded from the thirty percent (30%)ceiling on unsecured loans underSecs. X330 and X331.

d. In view of the fiscal autonomygranted under R.A. No. 7653 and theindependence prescribed under theConstitution, the BSP shall be consideredan independent entity, hence, not a relatedinterest of the Republic of the Philippinesand/or its agencies/departments/bureaus.Loans, other credit accommodations andguarantees of the BSP shall be considered:(1) non-risk; and (2) not subject to anyceiling;

e. LGUs shall be considered separatefrom the Republic of the Philippines, othergovernment entities, and from one anotherdue to the full autonomy in the exercise oftheir proprietary functions and in themanagement of their economic enterprisesgranted to them under the LocalGovernment Code of the Philippines,subject to certain limitations provided bylaw, hence, not a related interest of the

§ X339.4 - X34008.12.31


Republic of the Philippines and/or itsagencies/departments/bureaus;

f. Local Water Districts (LWDs),although GOCCs, shall be consideredseparate from the Republic of thePhilippines, other government entities, andfrom one another due to their fiscalindependence from the nationalgovernment, hence, not a related interestof the Republic of the Philippines and/orits agencies/department/bureaus, forpurposes of these regulations;

g. A director who acts as a governmentrepresentative in the lending institutionshall not be excluded in the deliberationas well as in the determination of majorityof the directors in cases of loans, othercredit accommodations, and guarantees tothe Republic of the Philippines and/or itsagencies/departments/bureaus; and

h. A director of the lending institutionshall be excluded in the deliberation aswell as in the determination of majority ofthe directors in cases of loans, other creditaccommodations, and guarantees to theborrowing government entity other thanthe Republic of the Philippines, itsagencies, departments or bureaus wheresaid director is also a director, officer orstockholder under existing DOSRIregulations.(Circular No. 514 dated 06 March 2006 as amended by Circular

Nos. 635 dated 10 November 2008, 616 dated 30 July 2008, 580

dated 09 September 2007, and 547 dated 21 September 2006)

F. MANDATORY CREDITS

Sec. X341 Agrarian Reform andAgricultural Credit. Pursuant to P.D. No.717, the following guidelines shall governthe grant of agrarian reform credit andagricultural credit by banks, governmentor private.


a. Loanable funds shall refer to totalfunds generated after the effectivity of P.D.No. 717, the computation of which isdescribed in Subsec. X341.4.

b. Agrarian reform credit shall referto production and other types of loansgranted to beneficiaries of agrarian reformfor the following purposes: acquisition ofwork animals, farm equipment andmachinery, seeds, fertilizers, poultry,livestock, feeds and other similar items;acquisition of lands authorized underexisting laws; construction and/oracquisition of facilities for production,processing, storage and marketing; andefficient and effective merchandising ofagricultural commodities stored and/orprocessed by the facilities aforecited indomestic and foreign commerce.

c. Agricultural credit in general shallinclude all loans and/or advances grantedto borrowers, whether beneficiaries ofagrarian reform or not, to finance activitiesrelating to agriculture, and for processing,marketing, storage, and distribution ofproducts resulting from these activities.

d. Agrarian reform beneficiaries shallinclude tillers, tenant-farmers, settlers,agricultural lessees, amortizing owners,owner-cultivators, farmers’ cooperativesand compact farms, as determined by theDAR.

The term shall likewise includeagricultural enterprises registered underP.D. No. 1159 as well as projectsundertaken pursuant to the CorporateFarming Program under General Order(G.O) No. 47: Provided, That the borrowersubmits the following documents to thelending bank:

(1) A certification from the Board ofInvestments to the effect that the borroweris an agricultural enterprise duly registeredunder P.D. No. 1159 ; and

(2) An endorsement of the DAR statingthat land reform beneficiaries shall benefitfrom the agricultural enterprises’ projects.

§§ X340 - X341.108.12.31


§ X341.2 Who may borrow; purposesa. All beneficiaries of agrarian reform

credit mentioned under P.D. No. 717 andits implementing regulations which creditshall be used for agricultural production orfor other purposes mentioned therein shallbe qualified borrowers under agrarianreform credit.

b. Qualified borrowers underagricultural credit in general are corporations,entities, or private individuals engaged inagricultural production, processing, storage,marketing, or exportation of agriculturalproducts, and importation/manufacture/distribution of farm machineries andequipment, fertilizers, etc. used foragricultural production.

§ X341.3 Required allocation foragrarian reform and agricultural creditin general. Banks shall set aside an amountequivalent to at least twenty-five percent(25%) of their loanable funds for agriculturalcredit in general, of which an amountequivalent to at least ten percent (10%) ofthe loanable funds shall be made availablefor agrarian reform credit.

a. Marketing credits considered asagrarian reform credits.

(1) Agrarian reform beneficiaries asdefined by P.D. No. 717;

(2) Registered agricultural enterprisesduly endorsed by the nearest office of theDAR per P.D. No. 1159;

(3) G.O. No. 47 corporations oragro-service corporations employed byG.O. No. 47 corporation which are certifiedby the DAR as engaged in grainsproduction through linkage arrangementswith agrarian reform beneficiaries;

(4) Area marketing cooperatives orSamahang Nayon duly registered with theCooperatives Development Authority(CDA);

(5) Registered agrarian reformbeneficiaries’ associations/other farmgroups respectively endorsed as agrarian

reform beneficiaries by the nearest officeof the DAR; CDA; or the Farm SystemsDevelopment Corporation (FSDC),National Irrigation Administration (NIA); or

(6) NFA-registered warehousemen/millers/wholesalers whose grainsinventory, subject to a chattel mortgage,trust receipts or pledged quedan, are dulysworn to under oath by grainsbusinessmen-borrowers concurred by thePresident of the Agrarian ReformBeneficiaries Association in the area ashaving been produced by agrarian reformbeneficiaries; and

(7) The NFA: Provided, That it certifiesthat its palay procurements are obtainedthrough direct/indirect linkage arrangementswith agrarian reform beneficiaries, subjectto such ceilings as may be imposed by theBSP/Department of Finance (DOF) on theloans/advances to the NFA by banks:

Lendings to NFA are considered aslending to the agricultural and agrariansector: Provided, That such lendings shallbe given credit only once for purposes ofdetermining compliance with the requiredallocation of fund for agrarian reform andagricultural credit in general.

b. Development loan incentives.[Transferred to Subsec. X341.5, Item “c(1)”].

c. Loans for high-value crops projects.[Transferred to Subsec. X341.5, Item “c(2)”].

§ X341.4 Computation of loanablefunds. Loanable funds shall be:

a. The net increase from 29 May 1975to date of the report of the individualaccounts which represent the following:

(1) The total deposits (demand, savings,time and NOW accounts) excluding foreigncurrency deposits under Circular No. 1389and deposits of the BTr representing revenuecollections of the BIR and BOC;

(2) Deposits of banks, net of due fromother banks;

(3) Bills payable (including borrowingsfrom banks) net of:

§§ X341.2 - X341.408.12.31


(a) Repo agreement by accreditedgovernment securities dealers if relent tobanks;

(b) Interbank call loans with maturitiesnot exceeding fifteen (15) days;

(c) Proceeds from special on-lendingprograms like the APEX;

(d) Proceeds from BSP rediscounting(except special time deposits); and

(e) Proceeds from special BSP creditaccommodations in the form of emergencyadvances, overnight repo agreements andavailment of overdraft facilities.

(4) Total capital accounts.b. Total collections from the loan

portfolio outstanding as of 31 May 1975 todate of the report; and

c. The sum of Items “a” and “b” above,less the net increase of the following:

(1) Bank premises, furniture andequipment (net book value);

(2) Real and other property owned oracquired (representing properties acquiredin satisfaction of debts);

(3) Other assets;(4) Required reserves against:(a) deposit liabilities;(b) deposit substitutes;(c) others (excluding reserves for

margin deposits);(5) Provisions for liquidity (fifteen

percent (15%) of total deposits and demandliabilities); and

(6) Loans to export-oriented small andmedium-scale industries involvingaccounts not exceeding P1.0 million.

§ X341.5 Allowable alternativecompliance. In the absence of qualifiedborrowers, the following shall apply:

a. Agrarian reform credit -(1) Eligibility of government securities;

conditions. The amount set aside foragrarian reform credit not actually loanedout may be invested temporarily ingovernment securities expressly declaredeligible for the purpose by the BSP, subjectto the following conditions:

(a) Such securities shall be held tomaturity without prejudice to the right ofthe holder bank to require the issuinggovernment entity to monetize, encash orrepurchase such securities whenever fundsare needed by the bank for lending to thebeneficiaries of agrarian reform;

(b) Such securities shall not behypothecated or encumbered in any wayor earmarked for any other purposes;

(c) Such securities shall be marked“for agrarian reform credit” and shall besegregated from the bank’s investmentportfolio; and

(d) Only the buying/lending bank mayuse, during the holding period, eligiblegovernment securities subject of a resale/repo agreement between private entitiesfor purposes of compliance with thisSubsection, subject to the following:

(i) The resale/repurchase should be forterms not less than thirty (30) days withoutpretermination during the first successivethirty (30) days, which condition shall beembodied in the resale/repo agreement; and

(ii) The buying/lending bank, with theconsent of the selling/borrowing entity,shall register with the BSP its holdings ofgovernment securities under repo/resaleagreement.

(2) Eligible securities/bonds(a) NDC Agri-Agra ERAP Bonds.

Investment by banks in NDC Agri-AgraERAP Bonds as well as the firmunderwriting of said bonds by banks or bythe subsidiary IH of a UB.

(b) LGU Bonds.(c) Pag-IBIG P4.0 billion Bond issue

(2000 Series).(d) Five (5)- and Ten (10)-year Special

Purpose Treasury Bonds (SPTBs) to financethe CARP-related expenditures, providedthe proceeds of the bonds will beexclusively used for the agrarian reformsector.

(e) Zero Coupon Bond Issue by theHGC of up to P7.0 billion 5-year regularseries and up to P3.0 billion 7-year special

§§ X341.4 - X341.508.12.31


series to finance its guaranty servicing ofsocialized and low-cost housing projectsonly to the extent of the present value ofthe bond computed using the originalyield to maturity (as of auction/issuedate).

The eligibility of securities under Items“(2)(a)”, “(2)(b)”, “(2)(d)” and “2(e)” shall besubject to the conditions in Items “a(1)(b)”and “a(1)(d)”; Item “(2)(c)” to the conditionsin Items “a(1)(b)” and “a(1)(d)(i)”.

b. Agricultural credit in general - Theamount set aside for agricultural credit ingeneral not actually loaned out may beinvested in commercial papers issued byentities engaged in agricultural production,processing, storage, marketing, orexportation of agricultural products; andimportation, manufacture, distribution offarm machineries and equipment,fertilizers, etc. used for agriculturalproduction: Provided, That for purposes ofcompliance with this Subsection, only thebuying/lending bank may use commercialpapers acquired in a resale/repo agreementduring the holding period thereof subjectto the conditions in Item “a(1)(d)” of thisSubsection.

c. Alternative compliance for bothagri-agra credit

(1) Development loans. Pursuant toSections 8 and 9 of R.A. No. 7721 (An ActLiberalizing the Entry and Scope ofOperations of Foreign Banks in thePhilippines and for Other Purposes), loansextended by banks incorporated under thelaws of the Philippines, whether Philippineor foreign-owned, to finance educationalinstitutions, cooperatives, hospitals andother medical services, socialized or low-cost housing, and to local governmentunits, without national governmentguarantee, shall be included for purposesof determining compliance with theprovisions of P.D. No. 717, as amended.This provision shall, however, not applyto branches of foreign banks.

For this purpose, the followingdefinitions shall apply:

(a) Educational institutions shall referto all educational establishments dulyauthorized by or with permit to operatefrom the Department of Education, Cultureand Sports (DECS), or created by speciallaws or charters.

(b) Cooperatives shall refer to dulyregistered associations of persons with acommon bond of interest who havevoluntarily joined together to achieve alawful common social or economic end,making equitable contributions to thecapital required and accepting a fair shareof the risks and benefits of the undertakingin accordance with universally acceptedcooperative principles, as defined inR.A. No. 6938 (Cooperative Code of thePhilippines).

(c) Hospital shall refer to a placedevoted primarily to the maintenance andoperation of facilities for the diagnosis,treatment and care of individuals sufferingfrom illness, disease, injury or deformity,or in need of obstetrical or other medicaland nursing care.

It also refers to an institution, buildingor place where there are installed beds, orcribs, or bassinets for twenty-four (24)-houruse or longer by patients in the treatmentof diseases, injuries, deformities orabnormal physical and mental state,maternity cases, and all institutions suchas those for convalescence, sanitorial orsanitarial care, infirmaries, nurseries,dispensaries and such other names bywhich they may be designated.

(d) Medical services shall refer tovarious services like general treatment,physical examination, consultation,medication, dressing, suturing andsurgical operation, all pertaining to ordealing with the healing art or thescience of medicine, with license tooperate from the Department of Health(DOH).

§ X341.508.12.31


(e) Socialized housing refers tohousing programs and projects coveringhouses and lots or home lots onlyundertaken by the Government or theprivate sector for the underprivileged andhomeless citizens which shall include sitesand services development, long-termfinancing, liberalized terms on interestpayments, and such other benefits inaccordance with the provisions of R.A. No.7279 (Urban Development and HousingAct).

(f) Economic and socialized housingrefers to housing units which are withinthe affordability level of the average andlow-income earners which is thirty percent(30%) of the gross family income asdetermined by the NEDA from time totime. It also refers to the government-initiated sites and services developmentand construction of economic andsocialized housing projects in depressedareas.

Socialized housing packages shall referto housing loans not exceeding P225,000and low-cost housing packages shallconsist of Level 1 which shall refer tohousing loans in excess of P225,000 butnot more than P500,000 and Level 2 whichshall refer to housing loans in excess ofP500,000 but not more than P2.0 million,as prescribed under existing guidelines ofthe HUDCC for the implementation ofvarious government housing programs, orin such other amounts which HUDCCmay prescribe in the future for said housingloans.

(g) LGU refers to provinces, cities,municipalities and any other politicalsubdivision created by law enacted byCongress and to barangays created byordinance passed by the SanggunianPanlalawigan or the Sanggunian Panglunsodthat are located within its territorialjurisdiction, subject to such limitations andrequirements prescribed in R.A. No. 7160(Local Government Code of 1991).

(2) Loans for high-value crops projectsPursuant to Section 8 of R.A. No. 7900, abank participating in the High-Value CropsDevelopment Program that shall lend aminimum of five percent (5%) of itsloanable funds, without alternativecompliance directly to farmers’ associationsor cooperatives for high-value cropsprojects shall be exempted from, or shallbe deemed to have complied with therequirement of P.D. No. 717.

For purposes of this item, high-valuecrops shall refer to crops that can beoptimally and sustainably produced in keycommercial crop production areasidentified by the Department of Agriculture(DA) and which can generate revenuehigher than that of traditional crops (whichrefer to rice, corn, coconut and sugar). Suchhigh-value crops include, but are notlimited to: coffee and cacao, fruit crops(citrus, cashew, guyabano, papaya, mango,pineapple, strawberry, jackfruit, rambutan,durian, mangosteen, guava, lanzones, andwatermelon), root crops (potato and ubi),vegetable crops (asparagus, broccoli,cabbage, celery, carrots, cauliflower,radish, tomato, bell pepper, patola)legume, pole sitao (snap beans and gardenpea), spices and condiments (black pepper,garlic, ginger and onion), and cutflower andornamental foliage plants (chrysanthemum,gladiolus, anthuriums, orchids and statice).

Farmers’ associations/organizationsshall refer to farmers’ cooperatives,associations or corporations duly registeredwith appropriate government agencies andwhich are composed primarily of smallagricultural producers, farmers, farmworkers and other agrarian reformbeneficiaries who voluntarily join togetherto form business enterprises which theythemselves, own, control and patronize.

A bank participating in the high-valuecrop development program shall refer tothe LBP, the DBP and any qualified lendinginstitution which has been accredited/

§§ X341.508.12.31


selected as provided in the ImplementingRules and Regulations of R.A. No. 7900(Joint Administrative Order No. 1, seriesof 1996 of the DA dated 23 April l996).

(3) (Transferred to Item “a(2)a” aboveby CL dated 22 June 2000).

(4) Ten (10)-Year Agrarian ReformBond issued by the Philippine Governmentthru the LBP, subject to the conditionsprescribed in Subsec. X341.5(a) above;

(5) Investments by banks in theauthorized capital stock of Quedan andRural Credit Guarantee Corporation(Quedancor);

(6) Loans extended by banks tofarmers, fishermen, cooperatives, ruralworkers and rural enterprises covered bythe guarantees of Quedancor;

(7) Rediscounting by secondary banksof originating banks’ loan receivableshaving the guarantee of Quedancor,subject to the condition that the originatingbank may not use such loans as compliancewith P.D. No. 717 and only the secondary(rediscounting) bank may claim such loansas compliance with P.D. No. 717;

(8) Loans secured by the NFAs PalayNegotiable Warehouse Receipts (PNWRs):Provided, That the PNWRs shall be printedon security paper by the BSP;

(9) All loans granted to BarangayMicro Business Enterprises (BMBEs) asprovided under Subsec. X365.5;

(10) Housing microfinance loans, asprovided under Subsec. X361.5; and

(11) Business transactions of largerbanks (i.e., securitization, outrightpurchases, etc.) involving housingmicrofinance loans, as provided underSubsec. X361.5: Provided, That the volumeof these banks’ housing microfinance loanshave already achieved a desirable level.(As amended by M-2008-015 dated 19 March 2008)

§ X341.6 Syndicated type of agrarianreform credit/agricultural credit. Banksmay grant a syndicated type of loan foragrarian reform credit/agricultural credit

in general, either between or amongthemselves. The mechanics, includingthe recording of such syndicated type ofloan transactions, shall follow existingpractices and regulations applicable bothto the lead bank and other participatingbank(s). Accordingly, the booking ofloans shall only be for the amount ofactual participation of each syndicatebank concerned. Memorandum entries,references or notations shall be made forthe other participating bank(s).

§ X341.7 Interest and other chargesInterest, service fees and other chargesshall be governed by existing rules andregulations.

§ X341.8 Unused agri-agra funds to beutilized for socialized and low-cost housingAs a source of non-budgetary funding toaugment the Comprehensive and IntegratedShelter and Urban Development FinancingProgram under R.A. No. 7835, all unusedagri-agra allocation funds of banks in thepreceding year shall be invested insocialized and low-cost housing if theutilized portion of the agri-agra funds ofsaid banks was solely devoted toagricultural and agrarian reform credits.

§ X341.9 Submission of reports. Aquarterly report on the following shall besubmitted to the appropriate departmentof the SES within the period prescribed inAppendix 6.

a. Utilization of loanable funds setaside for agrarian reform credit andagricultural credit in general;

b. Any change in the composition ofgovernment securities and commercialpapers held as temporary investments foragrarian reform credit and agriculturalcredit in general, respectively; and

c. A certification under oath by theduly designated officer of the bank of theabsence of qualified borrowers for agrarianreform credit or agricultural credit in

§§ X341.5 - X341.908.12.31


general shall be submitted to the appropriatedepartment of the SES together with thereport as required in this Subsection.

§§ X341.10 - X341.11 (Reserved)

§ X341.12 Consolidated complianceThe compliance with agri-agra mandatoryallocation of funds under P. D. No. 717shall be allowed on a groupwide basis(based on consolidated financialstatements of investor-FI or parent bank andits subsidiaries/affiliates): Provided, That thesubsidiary banks are at least seventy fivepercent (75%) owned/controlled by theparent bank, subject to the followingconditions:

a. The consolidated report shall besubmitted by the bank in the prescribedform and shall be supported by theindividual reports of the bank and itssubsidiaries duly signed by each bank’sauthorized signatory. The subsidiariesshall continue with their respectivesubmission of the subject report to theappropriate department of the SES withinthe prescribed period;

b. Either the parent bank or thesubsidiary bank can exercise the right toavail itself of/use the excess of itssubsidiary bank/parent bank for its owncompliance; and

c. In the event of a deficiency incompliance of any parent or subsidiary orall of these banks, the members of theboard of directors and its president and theother officers of the parent bank shall beresponsible for the group’s compliance.

§§ X341.13 - X341.14 (Reserved)

§ X341.15 Sanctions. The followingsanctions shall be applicable for anyviolation of this Section:

a. For non-compliance/undercompliance(1) Daily fine in proportion to degree

of compliance shall be imposed depending

on the total assets of the banks as of thereporting period:

Maximum

Daily

Total Assets Fine

P100.0 million and below P 100

Above P100.0 million to P200.0 million - 200

Above P200.0 million to P500.0 million - 300

Above P500.0 million to P1.0 billion - 500

Above P1.0 billion to P5.0 billion - 1,000





Over P100.0 billion - 30,000

Excess compliance in the ten percent(10%) agrarian reform credit may be usedto offset a deficiency, if any, in the fifteenpercent (15%) agricultural credit ingeneral, but not vice versa. The daily fineshall be counted from the end ofreference quarter until the date the bankhas complied with the credit allocationrequirements and files an amendedreport. In case of a violation noted duringexamination or verification, monetarypenalty shall run from the date of findingsuntil the violation is corrected; and

(2) Non-monetary finesIn addition to the above daily monetary

fines, any or all of the administrative sanctionsas provided under Section 37 of R.A. No.7653, may be imposed upon any bank fornon-compliance/undercompliance, willfuldelay or refusal to submit reports withoutprejudice to criminal sanctions againstculpable persons provided under Sections 34,35 and 36 of R. A. No. 7653, as follows:

(a) Suspension of rediscountingprivileges or access to BSP facilities;

(b) Suspension of lending or FXoperations or authority to accept newdeposits or make new investments;

(c) Suspension of interbank clearingprivileges; and/or

(d) Revocation of QB license.

§§ X341.9 - X341.1508.12.31


b. For non-submission and delayed/amended reports

The following fines shall be impose fornon-submission and delayed/amendedreports on compliance with the mandatedcredit allocations for agri-agra credit underP.D. No. 717, to be reckoned on thefollowing day after due date of submissionor until the proper report is filed with theBSP:

(1) UBs/KBs/FXBs P1,200 per day

(2) TBs 600 per day

(3) RBs/Coop Banks 180 per day

Non-submission or delayed submissionof reports for two (2) or more times in anyfour (4)-quarter period shall be subject totwice the prescribed monetary penalty forwillful delay or refusal to submit reports.(As amended by Circular No. 585 dated 15 October 2007)

Sec. X342 Mandatory Allocation of CreditResources to Micro, Small and MediumEnterprises. The following rules shallgovern the mandatory allocation of creditresources to Micro, Small and MediumEnterprises (MSMEs).(As amended by Circular No. 625 dated 14 October 2008)


a. Lending institutions shall refer to allbanks, namely: UBs, KBs, TBs and RBs/Coop Banks, including government-ownedbanks.

b. Total loan portfolio shall include allloans and receivables, other than thosebooked in the FCDU/EFCDU as defined inthe Manual of Accounts Section of the FRPunder Subsec. X191.2 (gross of allowance forcredit losses) excluding the following:

(1) Interbank loans receivable, otherthan (a) wholesale lending of a bank toconduit banks/QBs for on-lending toMSMEs, and (b) rediscounting facilitygranted to another bank for loans to MSMEs;

(2) Wholesale lending of a bank toconduit non-bank FIs without quasi-bankingauthority, other than those for on-lending toMSMEs;

(3) Loans granted under specialfinancing programs, other than those forMSMEs;

(4) Loans granted to MSMEs, other thanto BMBEs, to the extent funded bywholesale lending of, or rediscountedwith, another bank;

(5) Agrarian reform credits/otheragricultural loans granted under P.D. No.717, other than those eligible forcompliance with the mandatory allocationof credit for MSMEs, as well asdevelopment loans incentives underR.A. No. 7721 granted by banks other thanbranches of foreign banks; and

(6) Loans and receivables arising fromrepo agreements, certificates of assignment/participation with recourse and securitieslending and borrowing transactions.

c. MSMEs shall refer to any businessactivity within the major sectors of theeconomy, namely: industry, trade,services, including the practice of one’sprofession, the operation of tourism-relatedestablishments, and agri-business, whichfor this purpose refers to any businessactivity involving the manufacturing,processing, and/or production ofagricultural produce, whether singleproprietorship, cooperative, partnership orcorporation:

(1) whose total assets, inclusive ofthose arising from loans but exclusive ofthe land on which the particular businessentity’s office, plant and equipment aresituated, must have a value falling underthe following categories:

Micro : not more than P 3,000,000

Small : more than P 3,000,000 to P 15,000,000

Medium : more than P 15,000,000 to P 100,000,000

and

§§ X341.15 - X342.108.12.31


(2) duly registered with the appropriateagencies as presently provided by lawexcept in the case of microenterprises asdefined above.(As amended by Circular No. 625 dated 14 October 2008)

§ X342.2 Period covered; prescribedportions of loan portfolio to be allocatedBanks shall for a period of ten (10) yearsfrom 17 June 2008 to 16 June 2018,allocate at least eight percent (8%) formicro and small enterprises (MSEs) and atleast two percent (2%) for mediumenterprises (MEs) of their total loan portfoliobased on their balance sheet as of the endof previous quarter, and make it availablefor MSME credit.

Banks may be allowed to reportcompliance on a groupwide(i.e., consolidation of parent and subsidiarybank/s) basis so that excess compliance ofany bank in the group can be used ascompliance for any deficient bank in thegroup: Provided, That the subsidiarybank/s is/are at least majority owned bythe parent bank: Provided, further, That theparent bank shall be held responsible forthe compliance of the group.

The consolidated report shall besubmitted by the parent bank in theprescribed form and shall be supported bythe individual reports of the bank and itssubsidiaries duly signed by each bank’sauthorized signatory.

For purposes of determiningcompliance with the mandated allocationof credit resources to MSMEs, only eligiblecredit exposures as enumerated in Subsec.X342.3, other than those booked in theFCDU/EFCDU shall be considered.(As amended by Circular No. 625 dated 14 October 2008)

§ X342.3 Eligible credit exposuresFunds set aside in accordance with theforegoing requirement shall be madeavailable for any of the following:

a. For MSEs(1) Actual extension of loans to eligible

MSEs, other than to BMBEs which arecovered in Item “c(3)” hereof: Provided,however, That loans granted to MSEs otherthan BMBEs, to the extent funded bywholesale lending of, or rediscountedwith, another bank shall not be eligible ascompliance with the mandatory creditallocation; or

(2) Loans granted to export, import,and domestic micro and small scale traders,other than to BMBEs which are covered inItem “c(3)” hereof: Provided, however, Thatloans granted to MSEs other than BMBEs,to the extent funded by wholesale lendingof, or rediscounted with another bank shallnot be eligible as compliance with themandatory credit allocation; or

(3) Purchase of eligible MSE loanslisted in Items “(1)” and “(2)” above on a“without recourse” basis from other banksand FIs; or

(4) Purchase/discount on a “with orwithout recourse” basis of MSE receivables,other than BMBE receivables which arecovered in Item “c(3)” hereof; or

(5) Wholesale lending or rediscountingfacility granted to PFIs for on-lending to MSEs,other than to BMBEs which are covered inItem “c(3)” hereof; or

(6) Wholesale lending or rediscountingfacility granted to PFIs for on-lending toexport, import, and domestic micro and smallscale traders, other than to BMBEs which arecovered in Item “c(3)” hereof; or

(7) Commercial letters of creditoutstanding, net of margin deposits, issuedfor the account of MSEs.

b. For MEs(1) Actual extension of loans to eligible

MEs: Provided, however, That loans grantedto MEs to the extent funded by wholesalelending of, or rediscounted with, anotherbank shall not be eligible as compliance withthe mandatory credit allocation; or

§§ X342.1 - X342.308.12.31


(2) Loans granted to export, import,and domestic medium scale traders:Provided, however, That loans granted toMEs to the extent funded by wholesalelending of, or rediscounted with, anotherbank shall not be eligible as compliancewith the mandatory credit allocation; or

(3) Purchase of eligible ME loans listedin Items “(1)” and “(2)” above on a “withoutrecourse” basis from other banks and FIs; or

(4) Purchase/discount on a “with orwithout recourse” basis of MEreceivables; or

(5) Wholesale lending or rediscountingfacility granted to PFIs for on-lending toMEs; or

(6) Wholesale lending or rediscountingfacility granted to PFIs for on-lending toexport, import, and domestic medium scaletraders; or

(7) Commercial letters of creditoutstanding, net of margin deposits, issuedfor the account of MEs.

c. Alternative compliance for eitheror both MSEs or/and MEs

(1) Paid subscription/purchase ofliability instruments as may be offered bythe SB Corporation; or

(2) Paid subscription of preferredshares of stock of the SB Corporation; or

(3) Loans from whatever sourcesgranted to BMBEs as provided underSubsec. X365.5.(As amended by Circular Nos. 625 dated 14 October 2008 and

570 dated 24 May 2007)

§ X342.4 Ineligible credit instrumentsThe purchase of government notes,securities and negotiable instruments otherthan the instruments offered by SBCorporation, and the granting of loans toMSMEs, other than to BMBEs, to the extentfunded by wholesale lending of, orrediscounted with, another bank shall notbe deemed compliance with the foregoingrequirement.(As amended by Circular No. 625 dated 14 October 2008)

§ X342.5 Rights/remedies available tolending institutions not qualified toacquire or hold lands of public domainLending institutions which are not qualifiedto acquire or hold lands of the public domainin the Philippines shall be permitted to bidand take part in sales of mortgaged realproperty in case of judicial or extra-judicialforeclosure, as well as avail of receivership,enforcement and other proceedings, solelyupon default of a borrower, and for a periodnot exceeding five (5) years from actualpossession: Provided, That in no event shalltitle to the property be transferred to suchlending institution. If the lending institutionis the winning bidder, it may, during saidfive (5) year period, transfer its rights to aqualified Philippine national, withoutprejudice to a borrower’s rights underapplicable laws.(As amended by Circular No. 625 dated 14 October 2008)

§ X342.6 Submission of reports. Banksshall submit reports on compliance withthe mandatory credit allocation on aquarterly basis within fifteen (15) bankingdays from the end of reference quarter toSDC of the BSP. Said report shall beconsidered Category A-3 report. It shallbecome effective starting with thereporting period ending 31 December 2008.

Banks shall maintain appropriate records/details of the reported loans to MSMEs andshall make these available to BSP.(As amended by Circular No. 625 dated 14 October 2008)

§ X342.7 Sanctions. The followingadministrative sanctions shall be imposedon banks:

a. For non-compliance/under compliancewith the prescribed portions of loanportfolio to be allocated to MSEs and MEs:

(1) For zero compliance for both MSEsand MEs – P500,000;

(2) For under compliance:(a) For MSEs – percentage of under-

compliance multiplied by P400,000

§§ X342.3 - X342.708.12.31


(b) For MEs – percentage of under-compliance multiplied by P100,000to be computed as of end of each quarter.

(3) For willful making of a false ormisleading statement to the BSP - P500,000per quarter-end report without prejudiceto the sanctions under Section 35 ofR.A. No. 7653.

The imposition of the fines in Items“(1)” to “(2)” shall be without prejudice tothe other administrative sanctions underSection 37 of R.A. No. 7653.

(b) For non-submission/delayedsubmission of reports on compliance withboth the prescribed portions of loanportfolio to be allocated to MSEs and MEs,respectively:

(1) UBs/KBs - P1,200

(2) TBs - 600

(3) RBs/Coop Banks - 180

per calendar day of delay.(As amended by Circular No. 625 dated 14 October 2008 and

585 dated 15 October 2007)

§ X342.8 Disposition of penaltiescollected. Ninety percent (90%) ofpenalties collected under Subsec. X342.7above shall be remitted by the BSP to theMSME Development Council Fund, whilethe remaining ten percent (10%) shall beretained by the BSP to cover itsadministrative expenses.(Circular No. 625 dated 14 October 2008)

§§ X342.9 - X342.14 (Reserved)

§ X342.15 Accreditation guidelines forRural and Thrift Banks under the SMEUnified Lending Opportunities for NationalGrowth (SULONG). Without prejudice tothe refinements as may be suggested byDTI and DOF, the Twelve (12)-PointAccreditation Guidelines for RBs and TBs,and the lending features of short and longterm loans for direct or retail lending byparticipating government FIs under theSULONG, are shown in Appendix 55.

G. SPECIAL TYPES OF LOANS

Sec. X343 Interbank Loans. Interbank loantransactions shall include, among otherthings, (a) interbank call loan (IBCL)transactions; (b) borrowings evidenced bydeposit substitute instruments; and(c) purchases of receivables with recourse:Provided, however, That only IBCLtransactions which are evidenced byinterbank loan advice or repaymenttransfer tickets and settled through thebanks’ respective DDAs with BSP shall besubject to the reserve requirementprescribed for IBCL in Subsec. X253.1:Provided, further, That funds borrowed bybanks from trust departments of banks orIHs shall be excluded from the hereindefinition of interbank loan transactions.

Interbank loan transactions notsubmitted to the BSP ComptrollershipDepartment by means of interbank loanadvice or repayment transfer tickets shallbe reported to the BSP in the prescribedform.

§ X343.1 Systems and procedures forinterbank call loan transactions. IBCLtransactions of banks shall be governed bythe Agreement for the PhilPaSS executedon 12 December 2002 between the BSPand the Bankers Association of thePhilippines (BAP)/Chamber of Thrift Banks(CTB)/Rural Bankers Association of thePhilippines (RBAP) and any subsequentamendments thereto.(As superseded by the agreement between the BSP and BAP/

CTB/RBAP dated 12 December 2002)

§ X343.2 Accounting proceduresa. Both lending and borrowing banks

shall immediately pass the correspondingentries in their books and, upon receipt ofa copy of the transfer instruction reportedas matched in the Multi-TransactionInterbank Payment System (MIPS), theborrowing bank shall attach the same to

§§ X342.7 - X343.208.12.31


the corresponding ticket debiting its Due fromBSP account in its books and, in the case ofthe lending bank, to the same ticket passedin its books on the day payment is made.

b. IBCL transactions shall be recordedby the borrowing bank as Bills PayableInterbank Call Loans.

c. Banks shall reconcile their demanddeposit accounts with the BSP againstmonthly statements of account to befurnished by the BSP ComptrollershipDepartment.

§ X343.3 Settlement procedures forinterbank loan transactions. Interbank loantransactions (call and term) among banksshall be settled gross with finality subjectto the availability of balances in the depositreserves maintained by banks in the BSPin accordance with the provisions of theAgreement for the PhilPaSS executed on12 December 2002 between the BSP andthe BAP/CTB/RBAP and any subsequentamendments thereto.(As superseded by the agreement between the BSP and the

BAP/CTB/RBAP dated 12 December 2002)

Sec. X344 Loans to Thrift/Rural/Cooperative Banks

§ X344.1 Loans under Section 12 ofR.A. No. 7353, Section 10 of R.A. No. 7906and Article 108, R.A. No. 6938. Banks mayrediscount papers of TBs/RBs/Coop Banks.Banks shall specify the nature of papersacceptable for rediscounting as well as therediscount rate.

§ X344.2 Loans under Section 14 ofR.A. No. 7353. The following are theguidelines in the grant by the LBP, DBP orany government-owned or controlled bankor FI of a loan to an RB under Section 14 ofR.A. No. 7353.

a. Issuance of certification. Subject tothe qualifications of the RBs prescribed inItem “b” hereof, the Monetary Board shall

issue the certification required underSection 14 of R.A. No. 7353, which shallbe final, after the Monetary Board hasdetermined that:

(1) The resources of the RB areinadequate to meet the legitimate creditneeds of the locality wherein the RB isestablished;

(2) There is dearth of private capital insaid locality; and

(3) It is not possible for thestockholders of the RB to increase thepaid-up capital thereof.

The appropriate department or office ofthe BSP may prescribe and require thesubmission by the RB of papers anddocuments necessary for such determination.

b. Qualifications for loan. In order toqualify for the financial assistance undersaid provision of law, the RB shall first meetthe following requirements:

(1) Its capital-to-risk assets ratio duringthe last six (6) months immediatelypreceding the loan application should beat least ten percent (10%);

(2) Its past due loans are not more thantwenty-five percent (25%);

(3) It has no deficiency in allowancefor probable losses on loans and other riskassets;

(4) It must not have incurreddeficiency in its reserves against depositliabilities for the last six (6) monthspreceding the filing of the application;

(5) It must have been operatingprofitably for the last three (3) years;

(6) Its arrearages with the BSP or othergovernment FIs, if any, are being liquidatedthrough an approved plan of payment, theconditions of which are being compliedwith; and

(7) It is operating substantially inaccordance with applicable laws and BSPrules and regulations.

c. Extension of loan. The LBP, the DBPor any government-owned or controlledbank or FI shall, within sixty (60) days from

§§ X343.2 - X344.208.12.31


issuance by the Monetary Board of thecertification, and subject to their loan andinvestment policies, extend to an RB a loanor loans from time to time, repayable in ten(10) years, with concessional rates of interest,against security/ies which the stockholder orstockholders of the RB may offer.


Sec. X347 Standby Letters of Credit. Thefollowing shall govern the issuance ofstandby letters of credit.

§ X347.1 Domestic standby letters ofcredit. Domestic standby letters of creditmay be issued or used in transactions otherthan those involving movement of goodsunder the following guidelines:

a. The bank’s obligation to pay shallbe either unconditional (as againstpresentation of a clean draft) or conditionalonly upon the presentation of documentsand not upon actual existence or non-existence of facts, i.e., the bank must notbe called upon to determine disputedquestions of facts or law;

b. The bank’s obligation shall belimited to a fixed maximum amount;

c. The bank’s obligation shall have anexpressed expiration date;

d. The standby letters of creditaccommodation shall not violate any law orexisting BSP directives, rules and regulations,such as the SBL and DOSRI ceilings;

e. The party who opened the standbyletters of credit or the ultimate borrowershall not have any past due obligation withthe issuing bank for the ninety (90)-dayperiod preceding the date of issuance ofthe letter of credit; and

f. The party who opened the letter ofcredit (borrower or principal obligor) musthave an unqualified obligation toreimburse the bank on the same conditionas the bank has paid.(As amended by Circular No. 536 dated 18 July 2006)

§ X347.2 Ceiling. The total guaranteesor similar arrangements, the nature of whichrequires the guarantor to assume theliabilities/obligations of third parties in caseof their inability to pay, that may be issuedby a bank and outstanding at any given time,shall not exceed one hundred percent (100%)of the bank’s qualifying capital.

Transitory provision. This Subsectionis also covered by the last paragraph ofSubsec. X303.5.

§ X347.3 Reports. Banks shall submita monthly report of domestic standby letterof credit opened and outstanding in theprescribed form within fifteen (15) bankingdays after end of reference month to theappropriate department of the SES. Thereport shall contain the followingminimum information:

(1) Date the letter of credit wasopened;

(2) Amount, purpose and accounteethereof;

(3) Beneficiary;(4) Security and value of security;(5) Expiry date of the letter of credit; and(6) Certification as to the correctness of

the report by an authorized officer of the bank.

Sec. X348 Committed Credit Line forCommercial Paper Issues. The followingguidelines shall govern committed creditline agreements as a prerequisite forcorporations proposing to issuecommercial paper, pursuant to the NewRules on the Registration of Short-TermCommercial Papers (Appendix 14).

§ X348.1 Who may grant line facilityA bank with a net worth of at least P1.0billion as defined in Sec. X111, mayprovide a committed credit line facility toa commercial paper issuer.

The bank shall exercise proper cautionin ascertaining that the party, in whosefavor the credit line shall be granted, is

§§ X344.2 - X348.108.12.31


capable of fulfilling his commitments to thebank under the credit line agreement.

A bank or a group of banks may enterinto a committed credit line agreement withany corporation proposing to issuecommercial paper. Where a group of banksis involved, a lead bank shall be designatedfrom among themselves.

§ X348.2 Ceilings. The aggregatecommitments under committed credit lineagreements entered into by each bankpursuant to this Section shall not exceedan amount equivalent to thirty percent(30%) of its net worth, reckoned as of thedate of execution of the latest agreement:Provided, That in no case shall a bankextend commitments to a single issuer formore than twenty-five percent (25%) of itsnet worth exclusive of other exposures tothe said issuer.

§ X348.3 Terms; conditions;restrictions. The committed credit lineagreement shall incorporate the followingterms, conditions and restrictions:

a. That the credit line agreement isexecuted pursuant to the provisions of thisSection;

b. That the bank or banks arecommitted to make available to the issuerfunds equivalent to at least twenty percent(20%) of the aggregate of the commercialpaper issued and outstanding at any time;

c. That the commitment of the bankor banks shall be firm and irrevocable andeffective for as long as the issues under aparticular permit are outstanding, subjectto renewal by the bank;

d. That availments pursuant to thecredit line agreement shall be for theexclusive purpose of meeting obligationsarising from commercial paper issues inaccordance with the provisions of the Ruleson Registration of Commercial Papers,which availments shall be honored notearlier than three (3) banking days prior to

the date of payment of obligation arisingfrom outstanding commercial paper;

e. That the request to avail of thecredit line agreement shall be addressedto the bank or to the lead bank acting for agroup of banks, which request shall beduly signed by a member of the board ofdirectors and a senior ranking officer of thecommercial paper issuer duly authorizedfor the purpose through an appropriateboard resolution, which resolution shallalso provide for the designation of thealternate signatories who shall likewise bea member of the board of directors and asenior financial officer of the corporation;

f. That the extent of the commitmentof each participant in a group of banksunder a credit line agreement shall bestipulated in the agreement; and

g. That the commitment of the bankunder the credit line agreement shall be anet risk to the bank and the practice ofrequiring the commercial paper issuer tomaintain a compensating deposit with thebank shall be prohibited.

§ X348.4 Reports to the BangkoSentral. The bank or the lead bank, as thecase may be, shall report to the BSP:

a. All commitments entered into withcommercial paper issuers within ten (10)banking days after the issuer shall havebeen authorized by the SEC; and

b. Any availment under the committedcredit line agreement within three (3)banking days from date of drawdown.

§ X348.5 Loan limit. The liabilities ofa commercial paper issuer to a bank arisingfrom the availment by the issuer of thecredit line agreement shall not be countedin determining compliance by the bankwith the SBL: Provided, That in no caseshall they exceed five percent (5%) of thenet worth of the bank beyond the normalapplicable SBL for a period of 180 daysfrom each availment of the credit line.

§§ X348.1 - X348.508.12.31


Sec. X349 Agriculture and FisheriesProjects with Long Gestation PeriodsPursuant to Section 24 of R.A. No. 8435(Agriculture and Fisheries ModernizationAct of 1997), agriculture and fisheriesprojects with long gestation periods shallbe entitled to longer grace periods inrepaying the loan based on the economiclife of the project. For purposes of thisSection, the following definitions andguidelines shall govern the grant of loansfor long-gestating agriculture and fisheriesprojects.

§ X349.1 Definition of termsa. Gestation period shall refer to the

span of time from the commencement ofthe project to the time that it iseconomically productive and producingrevenues; and

b. Grace period under this Sectionshall refer to the period that the initialamortization payment on the loan isdeferred. All payments, however, must bemade on or before the maturity of the loan.

§ X349.2 Grace period. Banks areallowed to extend loans/guarantees witha grace period of up to seven (7) years toviable long-gestating agriculture andfisheries projects.

Suggested gestation and grace periodsfor some of the long-gestating projects arein Appendix 36.

§ X349.3 Responsibility of lendingbanks. Lending banks shall institute thenecessary safeguards and precautions toascertain the viability of the projectsfinanced and the capability of the borrowerin fulfilling his commitments.

§ X349.4 Past due loans. The rule onpast due accounts under Sec. X306 shallapply except that the reckoning date shallbe the grace period and not the originalmaturity of the loan.

§ X349.5 Non-performing loans. Therule on non-performing loans under Sec.X309 shall apply except that the reckoningdate shall be the grace period and not theoriginal maturity of the loan.


Sec. X361 Microfinancing Loans. Pursuantto Sections 40, 43 and 44 of R.A. No. 8791the following rules, regulations andstandards shall govern microfinancingoperations of banks.

In the implementation of this Section,banks should be guided by the Notes onMicrofinance in Appendix 45.

§ X361.1 Definitiona. Microfinancing loans are small loans

granted to the basic sectors, as defined in theSocial Reform and Poverty Alleviation Actof 1997 (R.A. No. 8425), and other loansgranted to the poor and low-incomehouseholds for their microenterprises andsmall businesses so as to enable them to raisetheir income levels and improve their livingstandards. These loans are granted on thebasis of the borrowers’ cash flow and aretypically unsecured.

b. Portfolio-at-Risk (PAR) is theoutstanding principal amount of all loansthat have at least one (1) installment pastdue for one (1) or more days. The amountincludes the unpaid principal balance butexcludes accrued interest. Under PAR,loans are considered past due if a paymenthas fallen due and remained unpaid. Loanpayments are applied first to any interestdue, then to any installment of principalthat is due but unpaid, beginning with theearliest installment. The number of daysof lateness is based on the due date of theearliest loan installment that has not beenfully paid.

c. Restructured loans are loans thathave been renegotiated or modified toeither lengthen or postpone the original

§§ X349 - X361.108.12.31


scheduled installment payments orsubstantially alter the original terms of theloans. Any increase in the face amount ofthe debt resulting from accrued interest andaccumulated charges which have beencapitalized or made part of the principal ofrestructured loans shall be recorded in theunearned income/deferred credit account“Capitalized Interest and Other Charges -Restructured Loans”. Upon receipt ofpayment, the realized portion shall beamortized/credited to income.

d. Refinanced loans are loans that havebeen disbursed to enable repayment of priorloans that would not have been paid inaccordance with the original installmentschedule. Loans granted within a week orless from the date an original loan with morethan thirty percent (30%) of the originalprincipal still outstanding had been paid inadvance shall be considered as refinancedloans. Refinanced loans shall be classified andreported as restructured loans.

§ X361.2 Loan limit; amortization;interest

a. The maximum principal amount ofmicrofinance loans shall not exceedP150,000. This is equivalent to the maximumcapitalization of a microenterprise underR.A. No. 8425.

b. The schedule of loan amortizationshall take into consideration the projectedcash flow of the borrowers which isadopted into the terms and conditionsformulated. Hence, microfinance loansmay be amortized on a daily, weekly,bi-monthly or monthly basis, depending onthe cash flow conditions of the borrowers.

c. Interest on such microfinancingloans shall be reasonable and just as maybe determined by management to beconsistent with its credit policies.The interest rate shall not be lower thanthe prevailing market rates to enable thelending institution to recover the financialand operational costs incidental to this typeof microfinance lending.

d. Interest accrued and/or bookedshall be reversed and no accrual of interestshall be allowed after the microfinance loanhas become past due as defined in Subsec.X306.1.h.

§ X361.3 Credit information exemptionIn cases of microfinancing loans whichmeet the criteria in Subsec X361.2, a bankmay not require from its credit applicants,a statement of assets and liabilities, and oftheir income and expenditures and suchinformation as may be prescribed by lawor by rules and regulations of the MonetaryBoard to enable the bank to properlyevaluate the credit application whichincludes the corresponding financialstatements submitted for taxation purposesto the BIR, as prescribed under Section 40of R.A. No. 8791.

§ X361.4 Exemptions from rules onunsecured loans. In view of the uniquecharacteristics of microfinance loans, i.e.,small unsecured and based on cash flowof borrowers, these loans may beexempted from rules and regulations whichmay be issued by the Monetary Board withrespect to unsecured loans under Section41 of the General Banking Law of 2000:Provided, That the bank has:

a. well-defined standards, creditpolicies and procedures for microfinanceloans which are in conformity withmicrofinance international best practices;

b. specific measures to be undertakento ensure collection such as closesupervision of borrowers’ projects andoperations; and

c. Loan Portfolio and Other RiskAssets Review System required underSec. X302 which would serve as:

(1) An adequate loan tracking systemthat allows daily monitoring of the statusof loan releases, collection and arrearages,any restructuring or refinancing; and

(2) A regular monitoring of past dueloans and portfolio at risk.

§§ X361.1 - X361.408.12.31


§ X361.5 Housing microfinance loanThe following provisions govern the grantof housing microfinance loans:

a. Banks that intend to provide thehousing microfinance loans must first beaccredited by the HUDCC in accordancewith the accreditation criteria andconditions provided under the MOAbetween the BSP and the HUDCC. Theloans must likewise be provided pursuantto the terms of the Housing MicrofinanceProduct Manual jointly approved by theBSP and HUDCC.

The approved product has the followingsalient features:

(1) It has the following basiccharacteristics:

Subject Particulars

Purpose ·House construction

·House and/or lot acquisition

·Home improvement/repairs

Eligibility ·Existing microfinance clients

·New clients without access to

formal housing finance institutions

(but with verifiable proof of income)

Loan Amount ·Up to P300,000 for house

construction and/or lot acquisition

(must show tenure security)

·Up to P150,000 for home

improvement/repairs

Loan Value ·Up to ninety percent (90%) of

the appraised value in case of REM

·Acceptable valuation in cases of

usufruct, leases, etc.

·Capacity to pay based on cash

flow analysis

Payment ·Frequent amortization

·With savings component

·Loan payments should not

exceed 60% of clients income as

determined by cash flow analysis

Terms ·Up to 10 years for house construction

and house and/or lot acquisition

·Up to 5 years for home

improvement/repairs

(2) The loan shares the characteristicsof the microfinance loan except for thefollowing:

(a) The maximum loan amount isP 300,000 (microfinance loans have amaximum of P150,000).

(b) The loans have longer terms with amaximum of five (5) years for homeimprovement/repairs and ten (10) years forhouse construction and house/lot acquisition.

(c) While most clients for housingmicrofinance loans are existing microfinanceclients who have demonstrated a good trackrecord with the bank, new clients may alsobe accepted subject to certain requirements.

(d) For house construction and house/lot acquisition loans, secure tenureinstruments will be used as collateral.

(3) Due to the features that are differentfrom the typical microfinance loan, thefollowing additional risk managementfeatures are embedded in the product:

(a) Clients’ ability to repay based oncash flow analysis and affordability (loanpayment < 60% of income) especially thenew clients. In addition, new clients haveto demonstrate that they cannot access anyother formal housing finance facility;

(b) Savings typically a requirement;(c) Secure tenure instruments as

collateral/collateral substitutes;(d) Additional risk cover may be availed

from HGC cash flow guarantee program;(e) Adequate loan monitoring,

collection, control, provisioning;(f) Accreditation from the HUDCC

with standards approved by the BSP andformalized by a MOA between HUDCCand BSP; and

(g) Mortgage redemption insuranceprovided in case of death and permanentdisability.

b. Banks intending to provide housingmicrofinance loans not under Item “a”hereof shall present the relevant productmanual for BSP consideration and approval.

§ X361.508.12.31


The following are the incentives forhousing microfinance loans in additionto existing incentives available formicrofinance:

(a) Housing microfinance loans shallbe eligible as alternative compliance to themandatory credit allocation requirement toagrarian reform and other agricultural credit.

(b) The loans shall have an assignedrisk-weight of fifty percent (50%) when notguaranteed and zero percent (0%) whenguaranteed by the HGC.

(c) When the volume of large banks’housing microfinance loans have reacheda desirable level, their business transactions(i.e. securitization, outright purchase, etc.)shall be considered as an alternativecompliance with the mandatory creditallocation requirement to agrarian reformand other agricultural credit.

(d) If secured by REM, a ninety percent(90%) loan valuation may be allowedconsidering the guarantee component.

(e) Secure tenure instruments such asfreehold, usufruct, leasehold and right tooccupy and/or build shall be recognized ascollateral/collateral substitute subject toapproved loan valuations (Appendix 81).

(f) Housing microfinance loans shallnot exceed thirty percent (30%) of the totalloan portfolio.

(g) Recording of portfolio at risk (PAR)and the provisioning requirement formicrofinance loans under Appendix 18for home improvement/repair loans.Provisioning for house construction andhouse/lot acquisition shall follow those ofregular loans under Appendix 18.

Banks which will grant housingmicrofinance loans must:

(1) include the loan in the bank’smicrofinance manual as one (1) of the typesof services or products offered toprospective clients; and

(2) maintain a sub-control ledger forthe loan.(M-2008-015 dated 19 March 2008)

§§ X361.6 - X361.9 (Reserved)

§ X361.10 Sanctions. Violations of theprovisions of this Section shall be subjectto any or all of the following sanctions:

a. Disqualification of the bank con-cerned from the credit facilities of the BSPexcept as may be allowed under Section84 of R.A. No. 7653;

b. Prohibition of the bank concernedfrom the extension of additionalmicrofinance loans; and

c. Penalties and sanctions providedunder Sections 36 and 37 of R.A. No. 7653.


Sec. X365 Loans to Barangay MicroBusiness Enterprises. The following arethe rules and regulations to implementSection 9 and the second paragraph ofSection 13 of R.A. No. 9178, otherwiseknown as the “Barangay Micro BusinessEnterprises (BMBEs) Act of 2002”.

§ X365.1 Credit delivery. The LBP, theDBP, the SBGFC, and the Peoples Creditand Finance Corporation (PCFC) shall setup a special credit window that will servicethe financing needs of duly registeredBMBEs consistent with BSP policies, rulesand regulations. Said special creditwindow shall service the credit needs ofBMBEs either through retail or wholesalelending, or both, as the concerned FIs maydeem consistent with their corporatepolicies and objectives. The GSIS and theSSS shall likewise set up special creditwindow that will serve the financing needsof their respective members who maywish to establish a BMBE.

Said FIs are encouraged to wholesalefunds to accredited private FIs includingcommunity based organizations such ascooperatives, NGOs and people’sorganizations engaged in granting credit,for relending to BMBEs.

§§ X361.5 - X365.108.12.31


Private banking and other FIs areencouraged to lend to BMBEs.

§ X365.2 Interest on loans to BarangayMicro Business Enterprises. Interest onBMBE loans shall be just and reasonableas may be determined by management ofthe concerned entity to be consistent withits credit policies.

§ X365.3 Amortization of loans toBarangay Micro Business Enterprises. Theschedule of loan amortization shall takeinto consideration the projected cash flowof the borrowers. Thus, loans granted toBMBEs may, at the discretion of the lender,be amortized daily, weekly, monthly orat such interval as the conditions of thebusiness of the BMBEs may warrant.

§ X365.4 Waiver of documentaryrequirements. Banks and other FIs shallnot require from duly registered BMBEborrowers the submission of ITR as acondition to the grant of loans consideringthat BMBEs are exempted from income taxfor income arising from their operations.They may, at their discretion, also waivethe requirement of submission of financialstatements from BMBEs: Provided, Thatbefore granting any loan, banks shallundertake reasonable measures todetermine that the borrower is capable offulfilling his/its commitments.

§ X365.5 Incentives to participatingfinancial institutions. To encourageBMBE lendings, the following incentivesshall be granted to banks and other FIsas may be applicable:

a. All loans from whatever sourcesgranted to BMBEs under R.A. No. 9178(BMBEs Act) shall be considered as part ofalternative compliance to P.D. No. 717 orto R.A. No. 6977, as amended. Forpurposes of compliance with P.D. No. 717and R. A. No. 6977, as amended, loans

granted to BMBEs under the BMBEs Actshall be computed at twice the amount ofthe outstanding balance of the loans:Provided, That loans used as alternativecompliance with P.D. No. 717 which werecomputed at twice their outstandingbalance shall no longer be eligible ascompliance with R.A. No. 6977, asamended during the same period and viceversa: Provided, further, That said loansmay be used as alternative compliancewith both P.D. No. 717 and R.A. No. 6977,as amended at the same time at themaximum amount of 100% of theiroutstanding balance each: Provided,furthermore, That funds loaned by orrediscounted with government-ownedbanks and other government FIs toaccredited private banking and other FIs foron-lending to BMBEs shall be eligible aspart of alternative compliance for P.D. No.717 or for R.A. No. 6977, as amended, ofthe government-owned banks and theaccredited private banks at the maximumamount of 100% of their outstandingbalance each: Provided, finally, That loansused as alternative compliance with R.A.No. 6977, as amended, computed at eithertwice their outstanding balance or theirmaximum amount of 100% may be usedas alternative compliance for either or boththe prescribed portions of loan portfolio tobe allocated to MSEs and MEs,respectively, as long as the aggregateamount used does not exceed twice theiroutstanding balance or their maximumamount of 100%, as the case may be.

b. Any existing laws to the contrarynotwithstanding, interests, commissionsand discounts derived from the loans bythe LBP, DBP, PCFC, SBGFC granted toBMBEs as well as loans extended by theGSIS and SSS to their respective member-employees under BMBEs Act and thisSection shall be exempt from gross receipttax (GRT).(As amended by Circular No. 625 dated 14 October 2008)

§§ X365.1 - X365.508.12.31


§ X365.6 Credit guarantee. TheSBGFC and the Quedancor under the DA,in case of agri-business activities, shall setup a special guarantee window to providecredit guarantee to BMBEs under theirrespective guarantee programs.

§ X365.7 Record. The LBP, DBP, PCFCand SBGFC shall maintain separate recordsof loans granted to BMBEs and the GSISand SSS shall maintain records of loansextended to their respective members whowish to establish BMBEs.

§ X365.8 Reports to Congress. TheLBP, DBP, PCFC, SBGFC, SSS, GSIS andQuedancor shall report annually to theappropriate Committees of both Housesof Congress, the status of theirimplementation of the provisions ofSection 9 of R.A. No. 9178.

§ X365.9 Administrative sanctionsAny violation by the concernedgovernment FI of the provisions ofSection 9 of R.A. No. 9178 shall besubject to a fine of not less than P500thousand to be imposed by the BSP andwhich shall be payable to the BMBEDevelopment Fund. In case of a bankinginstitution, the foregoing fine shall bewithout prejudice to the administrativesanctions provided for under Section 37of R.A. No. 7653.


H. EQUITY INVESTMENTS

Sec. X376 Scope of Authority. Thefollowing rules shall govern the investmentof banks in the equities of alliedundertakings, whether financial or non-financial, and non-allied undertakings,aswell as the establishment/acquisition ofsubsidiaries and affiliates abroad.

§ X376.1 Conditions for investment inequities. A bank shall not invest in theequity of any enterprise, if the investingbank is in any of the following situations:

a. Its capital is impaired, whether byactual losses or unbooked valuationreserves required by the BSP;

b. Its lending operations had beensuspended on account of reserve or capitaldeficiency, until such suspension shallhave been lifted for at least one (1) yearand sufficient reserves or capital shall havebeen maintained;

c. It incurred losses from itsoperations during the preceding year;

d. It has not fully booked thevaluation reserves and other capitaladjustments required by the BSP;

e. It has exceeded the individual andaggregate ceilings as well as the ceilingon unsecured credit accommodations toDOSRI; and

f. Its ratio of past due loans to total loanportfolio exceeds twenty percent (20%).

§§ X376.2 - X376.4 (Reserved)

§ X376.5 Guidelines for majorinvestments. The following are theguidelines for major acquisitions orinvestments by a bank including corporateaffiliations or structures to implementSection 50 of R.A. No. 8791.

a. Definition. Major investments arethose investments in allied or non-alliedundertakings including corporateaffiliations or structures that give the banksignificant interest and/or control, such asstockholdings sufficient to elect one (1)member to the acquired entity’s board ofdirectors.

b. Criteria for major investments. Anymajor investment by a bank should beapproved by the bank’s board of directors.In acting on such investments the Boardshall consider the following:

§§ X365.6 - X376.508.12.31


(1) Such investment must be inaccordance with the bank’s business planand management objectives, taking intoconsideration the economic developmentsand future prospects. The interests of thedifferent stakeholders of the bank -shareholders, depositors and creditors -should always be considered before anyinvestment is made.

(2) Such investments will complement/support the main business of the banks.Extra caution should be taken wheninvesting in activities where the bank hasno managerial or technical expertise, orbusinesses/industries, which are high-risk.

(3) Bank management shall providefor an efficient and effective “exitmechanism” or contingency plan in casethe investee’s operations fail or do notprosper.

c. Prior BSP approval; information/documents required. Subject to priorapproval of the BSP, banks may invest inallied or non-allied undertakings, includingcorporate affiliations or structures. A bankintending to make such investment shallsubmit the following information/documents to the appropriate departmentof the SES for evaluation:

(1) Name of the company;(2) Type of business activities;(3) Board of directors’ approval on such

investments;(4) Certification from the bank’s board

of directors that the criteria enumerated inItem “b” are complied with;

(5) Management contract;(6) Financial information and other

information about financial strengths,e.g., projected balance sheet and incomestatements for the first three (3) years;

(7) Members of the board and seniormanagement;

(8) Interest to be held by the bank andthe manner in which such interest will beheld; and

(9) Conformity of the investeecompany for BSP to examine its books.

The BSP may impose conditions on anyapproval, including conditions to addressfinancial, managerial, safety andsoundness, compliance, or other concerns.Further, the BSP may disapprove aproposed investment if it finds that theproposal would constitute an unsafe andunsound practice, or would violate anylaw, regulation, Monetary Board directive,or any condition imposed by, or writtenagreement with, the BSP.

The BSP may prescribe otherguidelines/regulations as it may considernecessary to ensure that banks’ majorinvestments do not expose the banks toundue risks or hinder effective supervision.

Within six (6) months from07 September 2001, banks shall providethe BSP reliable information on companiesin which they have significant interest orcontrol, such as but not limited to:

(i) Name of the companies;(ii) Type of business activities; and(iii) Interest held by the bank and the

manner in which such interest is held.d. Examination and inspection.

Whenever deemed necessary, BSP shallhave the authority to examine investeecompanies or to verify informationprovided by other supervisory authoritiessuch as the SEC.

The BSP shall have the authority toseek corrective action, to issue orders toterminate activities with or divest aninterest in an investee company, if itbelieves that such action is necessary toprevent or redress unsafe or unsoundpractice by such company that poses amaterial risk to the financial safety,soundness or stability of a bank.

Sec. X377 Financial Allied UndertakingsWith prior BSP approval, banks may investin equities of the following financial allied

§§ X376.5 - X37708.12.31


undertakings, subject to the limitsprescribed under Sec. X378:

a. Leasing companies includingleasing of stalls and spaces in a commercialestablishment: Provided, That bankinvestment in/acquisition of shares of suchleasing company shall be limited/applicable only in cases of conversion ofoutstanding loan obligations into equity;

b. Banks;c. IHs;d. Financing companies;e. Credit card companies;f. FIs catering to small and medium

scale industries including venture capitalcorporation (VCC), subject to the provisionsof Sec. X379 and its subsections;

g. Companies engaged in stockbrokerage/securities dealership; and

h. Companies engaged in foreignexchange dealership/brokerage.

In addition, UBs may invest in thefollowing as financial allied undertakings:

(1) Insurance companies; and(2) Holding company: Provided ,

That the investments of such holdingcompany are confined to the equities ofallied undertakings and/or non-alliedundertakings of UBs allowed under BSPregulations.

The Monetary Board may declare suchother activities as financial alliedundertakings of banks.

The determination of whether thecorporation is engaged in a financial alliedundertaking shall be based on its primarypurpose as stated in its articles ofincorporation and the volume of itsprincipal business.

Sec. X378 Limits on Investment in theEquities of Financial Allied UndertakingsThe equity investment of a bank in a singlefinancial allied undertaking shall be withinthe following ratios in relation to the totalsubscribed capital stock and to the totalvoting stock of the allied undertaking:

ACTIVITIES INVESTOR UB KB

Publicly- Not Publicly- Not listed listed listed listed

Allied EnterprisesFinancial AlliedUndertakingUBs 100% 49% 100% 49%KBs 100 49 100 49TBs 100 100RBs 100 100Coop Banks NA NAInsuranceCompanies 100 NAVCCs 60 60Others 100 49

TB RB Coop BanksFinancial AlliedUndertakingUBs 49% 49% 49%KBs 49 49 49TBs 49 49 49RBs 49 49 100Coop Banks NA NA 30Insurance NA NA NACompaniesVCCs 60 49 49Others 40 40 40

To promote competitive conditions,the Monetary Board may further limit theequity investments in QBs of UBs and KBsto forty percent (40%).

A publicly-listed UB or KB may ownup to 100% of the voting stock of only one(1) other UB or KB. Otherwise, it shall belimited to a minority holding.

The existing investment of a bank inanother bank under R.A. No. 7721 shallbe governed by Sec. X105 insofar as it isconsistent with R.A. No. 8791.

The guidelines in determiningcompliance with ceilings on equityinvestments in financial allied undertakingsare shown in Appendix 79.(As amended by Circular Nos. 581 dated 14 September 2007

and 530 dated 19 May 2006)

Sec. X379 Investments in Venture CapitalCorporations. The following rules andregulations shall implement PresidentialDecree No. 1688 entitled “AuthorizingBanks to Invest in the Equity of Venture

§§ X377 - X37908.12.31


Capital Corporations to Assist Small andMedium- Scale Enterprises”.

For purposes of this Section, a VCCshall refer to an entity organized jointlyby private banks, the NationalDevelopment Corporation and theTechnology Livelihood and ResourceCenter and/or such other governmentagency as may be authorized by theappropriate authority, the primary purposeof which is to develop, promote and assist,thru debt or equity financing or any othermeans, any small and medium-scaleenterprise in the country.

§ X379.1 Requirements for investorsBanks may invest in a VCC organized toassist small and medium-scale enterprises,subject to the following conditions:

a. The bank shall have a minimumcapital of P100.0 million as defined inSec. X111;

b. Two (2) or more banks may ownup to sixty percent (60%) of the total votingequity and of the total equity of a VCC. Abank shall not be allowed to invest in theequity of more than one VCC;

c. The initial paid-in capital of VCC shallnot exceed P5.0 million. Any subsequentincrease in paid-in capital of the VCC inwhich a bank owns equity shall be subjectto prior approval of the Monetary Board;

d. Loans which the investor-bank maygrant to a VCC shall be limited to suchamounts as would enable the VCC topromote equity financing to viable smalland medium scale enterprise: Provided,however, That unless otherwise authorizedby the Monetary Board, the aggregateoutstanding loans of such bank to a VCCshall not exceed twice the amount of itsequity investment in the VCC: Provided,further, That loans to the VCC, or the smalland medium-scale enterprises shall not besubject to the ceilings on DOSRI, exceptwhere bank DOSRI are likewisestockholders in the VCC or in the smalland medium-scale enterprise;

e. The combined equity investmentsin, and loans of, the bank to its VCC shallnot exceed fifteen percent (15%) of thebank’s net worth; and

f. The aggregate investments inequities by a bank, including equityinvestments in a VCC, shall not exceed theprescribed ceilings under Sec. X383 onother limitations and restrictions.

The guidelines in determiningcompliance with ceilings on equityinvestments in a VCC are shown inAppendix 79.(As amended by Circular No. 581 dated 14 September 2007)

§ X379.2 Equity investments ofventure capital corporations. Equityinvestment of a VCC in small and medium-scale enterprises shall be subject to thefollowing conditions:

a. Equity financing by a VCC may beextended to a small and medium-scaleenterprise engaged in an industry certifiedas desirable by the Department of Tradeand Industry; and

b. The total assets of the enterprisesshall not exceed P4.0 million, including theVCC’s equity investment. Should the totalassets of the small and medium-scaleenterprise subsequently exceed theprescribed P4.0 million maximum, theVCC equity investment therein madebefore the total assets of the enterpriseexceeded P4.0 million, may be maintainedbut shall not be increased.

§ X379.3 Business name of venturecapital corporations. A VCC shall beknown by any name not otherwiseappropriated: Provided, however, That thewords “venture capital corporation” aremade a part thereof.

§ X379.4 Reportorial requirements;examination by Bangko Sentral. A VCCin which a bank owns equity shall besubject to BSP reportorial requirementsprescribed for non-bank financial

§§ X379 - X379.408.12.31


intermediaries and may be subject toexamination by the BSP.

§ X379.5 Interlocking directorshipsand/or officerships. Subject to priorapproval of the Monetary Board, a personmay concurrently hold the position of adirector or officer in a bank and a VCC.

Sec. X380 Non-Financial AlliedUndertakings. A bank may acquire up to100% of the equity of a non-financial alliedundertaking: Provided, That the equityinvestment of a TB/RB in any singleenterprise shall remain less than fiftypercent (50%) of the voting shares in thatenterprise: Provided, further, That priorMonetary Board approval is required if theinvestment is in excess of forty percent(40%) of the total voting stock of such alliedundertaking.

The determination of whether thecorporation is engaged in a non-financialallied undertaking shall be based on theprimary purpose as stated in its articles ofincorporation and the volume of itsprincipal business.

a. UBs/KBs/TBsUBs/KBs and TBs may invest in equities

of the following non-financial alliedundertakings:

(1) Warehousing companies;(2) Storage companies;(3) Safe deposit box companies;(4) Companies primarily engaged in

the management of mutual funds but notin the mutual funds themselves;

(5) Management corporationsengaged or to be engaged in an activitysimilar to the management of mutualfunds;

(6) Companies engaged in providingcomputer services;

(7) Insurance agencies/brokerages;(8) Companies engaged in home

building and home development;

(9) Companies providing drying and/or milling facilities for agricultural cropssuch as rice and corn;

(10) Service bureaus, organized toperform for and in behalf of banks andNBFIs the services allowed to beoutsourced enumerated in Sec. X162:Provided, That data processing companiesmay be allowed to invest up to fortypercent (40%) in the equity of servicebureaus;

(11) Philippine Clearing HouseCorporation (PCHC), Philippine CentralDepository, Inc. and Fixed IncomeExchange; and

(12) Such other similar activities asthe Monetary Board may declare asnon-financial allied undertakings of banks.

UBs may further invest in healthmaintenance organizations (HMOs).

In addition, TBs may also invest in theequities of companies enumerated in Item“b” of this Section.

b. RBs/Coop BanksRBs/Coop Banks may invest, as a non-

financial undertaking, in the equities ofcompanies engaged in the following:

(1) Warehousing and otherpostharvest facilities;

(2) Fertilizer and agriculturalchemical and pesticides distribution;

(3) Farm equipment distribution;(4) Trucking and transportation of

agricultural products;(5) Marketing of agricultural products;(6) Leasing;(7) Automated Teller Machine (ATM)

networks; and(8) Other undertakings as may be

determined by the Monetary Board.The guidelines in determining

compliance with ceilings on equityinvestments in non-financial alliedundertakings are shown in Appendix 79.(As amended by Circular Nos.581 dated 14 September 2007 and

563 dated 16 March 2007)

§§ X379.4 - X38008.12.31



Sec. 1381 Investments in Non-Allied orNon-Related Undertakings. Only UBsmay invest in the equity of an enterpriseengaged in non-allied or non-relatedactivities.

The guidelines in determiningcompliance with ceilings on equityinvestments in non-allied or non-relatedundertakings are shown in Appendix 79.(As amended by Circular No. 581 dated 14 September 2007)

§ 1381.1 Non-allied undertakingseligible for investment by universal banksThe broad category of non-alliedundertakings in which a UB may investdirectly or through its subsidiary shallrequire prior approval of the MonetaryBoard: Provided, That individual equityinvestments in the following broadcategories shall not require prior MonetaryBoard approval, except as may be requiredin Subsec. X376.5:

a. Enterprises engaged in physicallyproductive activities in agriculture, miningand quarrying, manufacturing, publicutilities, construction, wholesale trade andcommunity and social services followingthe industrial groupings in the PhilippineStandard Industrial Classification (PSIC) asenumerated in Appendix 22;

b. Industrial park projects and/orindustrial estate developments;

c. Financial and commercial complexprojects (including land development andbuildings constructed thereon) arising fromor in connection with the Government’sprivatization program; and

d. Such other broad categories as theMonetary Board may declare asappropriate: Provided, further, That thebank shall submit within thirty (30) bankingdays after the investment, the followinginformation/documents to the appropriatedepartment of the SES:

(1) The amount of investment;

(2) The name of investee company; and(3) The nature of business,

accompanied by such pertinent documentsas articles of incorporation, articles ofpartnership or registration certificate,whichever may be applicable.

§ 1381.2 Limits on investments innon-allied enterprises

a. The equity investment of a UB, orof its wholly or majority-ownedsubsidiaries, in a single non-alliedenterprise shall not exceed thirty-fivepercent (35%) of the total equity in thatenterprise nor shall it exceed thirty-fivepercent (35%) of the voting stock in thatenterprise.

For the purpose of determiningcompliance with the ceiling prescribed inthe preceding paragraph, (i) the equityinvestment of the bank; and (ii) the equityinvestment of the bank’s subsidiaries, shallbe combined.

b. In no case shall the total equityinvestments in a single non-alliedenterprise of UBs, NBFIs performing QBfunctions and their subsidiaries, whether ornot the parent financial intermediaries haveequity investments in the enterprise,amount to fifty percent (50%) or more ofthe voting stock of that enterprise: Provided,however, That equity investments inexcess of the ceilings prescribed herein asof 01 April 1980 may be maintained butmay not be increased and if reduced, shallnot be increased thereafter beyond theceiling prescribed herein.

§ 1381.3 Report on outstanding equityinvestments in and outstanding loans tonon-allied enterprises. UBs shall submit tothe appropriate department of the SESwithin fifteen (15) banking days, a reportas of June 30 and December 31 of eachyear showing the following:

a. Their outstanding equityinvestments in non-allied enterprises;

§§ 381 - 1381.308.12.31


b. Outstanding equity investments oftheir wholly or majority-ownedsubsidiaries in non-allied enterprises;

c. Their outstanding loans to non-allied enterprises in which they haveequity investments;

d. Outstanding loans of their whollyor majority-owned subsidiaries to non-allied enterprises in which these wholly ormajority-owned subsidiaries have equityinvestments; and

e. Their outstanding loans to non-allied enterprises in which their wholly ormajority- owned subsidiaries have equityinvestments.

For purposes of this Subsection, awholly-owned subsidiary is a corporation100% of the voting stock of which is ownedby the reporting bank while a majority-owned subsidiary is a corporation morethan fifty percent (50%) but less than 100%of the voting stock of which is owned bythe reporting bank.

Sec. X382 Investments in Subsidiaries andAffiliates Abroad. The establishment oracquisition of subsidiaries or affiliatesabroad shall require prior approval of theBSP.

§ X382.1 Application for authority toestablish or acquire subsidiaries andaffiliates abroad. The application for suchauthority shall be signed by the presidentof the bank and shall be accompanied, asa minimum, by the following information/documents:

a. Certified true copy of the resolutionof the bank’s board of directors authorizingthe establishment or acquisition of asubsidiary or an affiliate abroad;

b. Economic justification for suchestablishment, indicating the services to beoffered, the minimum outlay for furniture,fixture and equipment, rental and otherexpenses;

c. A certification that an application forsuch establishment has been filed with the

appropriate government agency of thehost country;

d. Organizational set-up of theproposed banking office showing theproposed positions and the names,qualifications and experience of theproposed manager and other officers; and

e. Certification signed by thepresident or the executive vice-presidentthat the bank has complied with all therequirements enumerated under Subsec.X382.2.

§ X382.2 Requirements for establishingsubsidiaries or affiliates abroad. In additionto the standard pre-qualificationrequirements for the grant of bankingauthorities in Appendix 5, the applicantbank shall comply with the following:

a. The citizenship, ownership ceilingsand other limitations on votingstockholdings in banks under existing lawand regulations; and

b. The experience and expertise ininternational banking operations with proofto the effect that:

(1) It must have conductedinternational banking for at least three (3)years prior to the date of application; and

(2) Its international banking operationsmust have contributed a substantial portionto its total earnings.

§ X382.3 Conditions for approval ofapplication. The approval of the applicationto establish or acquire a subsidiary of anaffiliate abroad shall be subject to thefollowing conditions:

a. Without prejudice to thequalification requirements of the countrywhere the subsidiary or the affiliate is tobe established, the proposed officer(s), atthe time of appointment, must be at least:

(1) Twenty-five (25) years of age;(2) A college graduate, preferably with

training and experience abroad;(3) With three (3) years experience in

international banking; and

§§ 1381.3 - X382.308.12.31


(4) Must not be disqualified as anofficer under existing regulations.

b. The applicant shall also complywith the licensing requirements of the hostcountry and the necessary license tooperate shall be secured from theappropriate government agency of the hostcountry;

c. The outward investmentrepresenting initial capital outlay and otheroutlays shall be subject to existingregulations;

d. All dividends earned shall beinwardly remitted to the Philippines withinreasonable period after the date ofpayment;

e. The proposed subsidiary or affiliateshall submit the reports required by theBSP;

f. The proposed subsidiary or affiliateshall not carry any of the business of a bankcontemplated within the context of thePhilippine banking system;

g. The proposed subsidiary or affiliateshall not engage in stock trading activity;

h. The applicant shall submit acertification from the host country that theduly authorized personnel/examiners ofthe BSP will be authorized to examine theproposed subsidiary or affiliate; and

i. The applicant shall defray thenecessary cost and expenses to be incurredby the appropriate department of the SESin the examination of the foreignsubsidiary.

§§ X382.4 - X382.7 (Reserved)

§ X382.8 Investment of a banksubsidiary in a foreign subsidiary. Thefollowing guidelines shall govern theinvestment in a foreign subsidiary by abank subsidiary:

a. The investment of a banksubsidiary in the equity of a subsidiarylocated abroad shall be subject to priorBSP approval;

b. The bank subsidiary may invest ina subsidiary if it meets the following pre-qualification requirements:

(1) It has complied with the minimumcapital requirement of the host country;

(2) It has booked the requiredvaluation reserves and other capitaladjustments, if any; and

(3) Its operations in the precedingthree (3) years were profitable; otherwise,the feasibility study on the proposedsubsidiary should show profits in the firsttwo (2) years of operations.

c. The application for authority of abank subsidiary shall be accompanied bythe following:

(1) Certified true copy of the resolutionauthorizing the investment by the boardof directors of the parent bank and the banksubsidiary;

(2) Feasibil i ty studies on theproposed subsidiary indicating, amongothers, the economic justification, thetype of industry and organizationalexpenses to be incurred, including thecapital expenditures; and

(3) Proposed organizational structures,including the proposed officers and theirqualifications.

d. The applicant parent subsidiaryshall comply with the licensingrequirements of the host country and thenecessary license to operate shall besecured from the appropriate governmentagency of the host country;

e. The proposed subsidiary mayinvest in another subsidiary with priorapproval of the BSP;

f. Any outward investmentrepresenting initial capital and other outlaysshall be subject to existing regulations;

g. At least fifty percent (50%) of theyearly net profits of the proposed subsidiaryshall be declared and paid as cashdividends to the parent subsidiary;

h. The proposed subsidiary shall besubject to -

§§ X382.3 - X382.808.12.31


(1) the applicable reportorialrequirements such as the submission ofquarterly SOC and SIE; and

(2) the supervision and examination bythe BSP and the cost of such examinationshall be charged against the grandparentbank; and

i. Any additional funding or advancesof the parent bank in the Philippines to itssubsidiaries abroad or the subsidiary willrequire prior BSP approval.

Sec. X383 Other Limitations andRestrictions. The following limitations andrestrictions shall also apply regardingequity investments of banks.

a. In any single enterprise. The equityinvestments of UBs and KBs in any singleenterprise shall not exceed at any timetwenty-five percent (25%) of the net worthof the investing banks as defined in Sec.X111 and Subsec. X105.5.

b. Aggregate limits. The total amountof investments in equities in all enterprisesshall not exceed the following ratios inrelation to the net worth of the investingbank:

UB KB TB RB Coop Bank

LIMIT: 50% 35% 25% 25% 25%

c. Exclusion of underwriting exposurefrom ceiling. The exposure of a bank withUB authority arising from the firmunderwriting of equity securities ofenterprises shall not be counted indetermining compliance with the ceilingsprescribed in this Section and Subsec.1381.2 for a period of two (2) years fromthe acquisition of such equity securities.

d. The guidelines in determiningcompliance with the other limitations andrestrictions on equity investments of banksare shown in Appendix 79.(As amended by Circular No. 581 dated 14 September 2007)


Sec. X385 Sanctions. The followingsanctions shall be imposed for equityinvestments made without prior MonetaryBoard approval:

a. First Offense - If the investment isnot allowable under existing regulations,divestment of the investment andreprimand on officer/director whorecommended/approved the investment.

b. Subsequent Offense -On the Bank. If the investment is not

allowable under existing regulations,divestment of the investment.

On the Director/Officer. Fine of P20,000for each investment to be imposed on themembers of the board and the executiveofficers who recommended/approved theinvestment per investment and to beshouldered personally by the officer/director:Provided, That if the subsequent offense isan investment in a non-allied enterprise, thefine shall be P40,000.

I. (RESERVED)


J . OTHER OPERATIONS

Sec. X388 Purchase of Receivables andOther Obligations. The followingregulations shall govern the purchase ofreceivables and other obligations.

§ X388.1 Yield on purchase ofreceivables. The rate of yield, includingcommissions, premiums, fees and othercharges, from the purchase of receivablesand other obligations, regardless of maturity,that may be charged or received by banksshall not be subject to any regulatory ceiling.

§ X388.2 Purchase of receivables ona “without recourse” basis. The totalexposure of a bank to a maker of promissorynotes resulting from the purchase ofreceivables on a without recourse basis

§§ X382.8 - X388.208.12.31


shall be subject to the SBL of the bank:Provided, That the bank shall evaluate thecredit worthiness of the maker of suchpromissory notes.

§ X388.3 Purchase of commercialpaper. Before purchasing registeredcommercial paper, banks authorized toengage in quasi-banking functions shall -

a. Require the issuing entity to submita duly certified true copy of its Certificateof Registration and Authority to IssueCommercial Paper; and

b. Ascertain that the registrationnumber and expiry date indicated in thecommercial paper are the same as thosein the certificate of registration submitted.

Any violation or failure to comply withthe provisions of this Subsection shallsubject the erring bank to suspension orrevocation of its authority to engage inquasi-banking functions.

§ X388.4 Reverse repurchaseagreements with Bangko SentralReverse repo agreements with the BSPshall be governed by Subsec. X601.2.

§ X388.5 Investment in debt andreadily marketable equity securities. Thefollowing rules and regulations shallgovern investment in debt securities andmarketable equity securities.

a. Banks may invest in the following:(1) Readily marketable bonds and other

debt securities which are of such use ordemand as to make them the subject ofconstant dealings in securities markets, withsuch frequent quotations of price as to makethe price easily and definitely ascertainable,and the security easy to realize upon sale atany time: Provided, That the bonds and otherdebt securities have complied with the newrules on registration of commercial papers:Provided, further, That in the case of RBs/Coop Banks, the bonds and other securitieshave been approved by the BSP.

TBs may invest in evidences ofindebtedness which are registered with theSEC but are not readily marketablesecurities: Provided, That these evidencesof indebtedness shall be acquired withrecourse against a bank or a QB.

It shall be the responsibility of theinvesting bank to undertake the necessaryinvestigation to satisfy itself with regard tothe particular security.

(2) Evidences of indebtedness of theRepublic of the Philippines or the BSP, andany other evidences of indebtedness orobligations the servicing and repayment ofwhich are guaranteed by the Republic ofthe Philippines.

b. The classification, accountingprocedures, valuation and sales andtransfers of investments in all debtsecurities and marketable equity securitiesshall be in accordance with the guidelinesin Appendices 33 and 33a.

c. Penalties and sanctions. Thefollowing penalties and sanctions shall beimposed on FIs and concerned officersfound to violate the provisions of theseregulations:

(1) Fines to be imposed on FIs for eachviolation, reckoned from the date theviolation was committed up to the date itwas corrected:

(i) P20,000/day for UBs;(ii) P10,000/day for KBs;(iii) P2,000/day for TBs; and(iv) P1,000/day for RBs/Coop Banks.(2) Sanctions to be imposed on

concerned officers:(i) First offense - reprimand the officers

responsible for the violation; and(ii) Subsequent offenses - suspension

of ninety (90) days without pay for officersresponsible for the violation.(As amended by Circular Nos. 628 dated 31 October 2008,

626 dated 23 October 2008 and 585 dated 15 October 2007,

M-2007-006 dated 28 February 2007; Circular Nos. 558 dated

22 January 2007, 546 dated 17 November 2006 and 509 dated

01 February 2006)

§§ X388.2 - X388.508.12.31



Sec. 1389 Guidelines on the Investmentof UBs and KBs in Credit-Linked Notes,Structured Products and SecuritiesOverlying Securitization Structures. Inline with the policy of encouraging banksto diversify their investment portfolios andto foster the development of a market fornew financial products, the BSP has issuedguidelines on the investment of UBs andKBs in (1) CLNs and similar products (Sec.1628), (2) foreign currency denominatedstructured products (Secs. 1635 and 1636)and (3) securities overlying securitizationstructures (Sec. 1648).

No prior BSP approval is required toenter into authorized transactions.However, it shall be the responsibility ofUBs/KBs to fully comply with appropriaterisk management standards including, asa minimum, those prescribed underrelevant Sections. The regulatoryrequirements enumerated in Appendix 66shall be fully complied with by UBs/KBsinvesting in products allowed under Secs./Subsecs. 1628, 1635 and X115.3.

The guidelines on the accounting forinvestments in CLNs and other SPs, inaddition to those prescribed under PAS 39,is provided in Appendix 66a.(As amended by M-2008-010 dated 07 March 2008)




K. MISCELLANEOUS PROVISIONS

Sec. X393 Loans-to-Deposits Ratio. Thefollowing policies and guidelines shallgovern the loans-to-deposits ratio (LDR) ofhead offices and branches.(As amended by Circular No. 613 dated 18 June 2008)

§ X393.1 Statement of policy. It is thepolicy of the BSP to promote healthycompetition within the banking system aswell as provide enhanced banking statisticsnecessary for informed decision-making.(As amended by Circular No. 613 dated 18 June 2008)

§ X393.2 Regional loans-to-depositsratio. An individual bank’s regional LDRis a measure of the extent of its lendingactivity vis-à-vis deposits generated in aregion. On an aggregate basis, the regionalLDR for the banking system is an indicatorof the level of bank deposits which havebeen transformed into investments in aregion. The latter may be used by banksas a benchmark in assessing theirregional lending and deposit operationsas against that of the industry and theirpeer group.(As amended by Circular No. 613 dated 18 June 2008)

§ X393.3 Computation of the regionalloans-to-deposits ratio. The individualbank’s regional LDR shall be computed bydividing a bank’s aggregate loans by itsaggregate deposit liabilities on a per regionbasis as of the same reporting cut-off date.A bank, in computing its regional LDR,shall be guided by the following:

a. Loans shall be reported by a bankin the region where the loan proceedswere utilized or channeled to, i.e., locationof the end-users.

b. Deposits, on the other hand, shallbe reported by a bank in the regionwherein these were generated.

For purposes of this Section, loans shallrefer to the amortized cost of a bank’s totalloan portfolio, excluding “Loans to BSP”,“Interbank Loans Receivable” and loansgranted by a bank’s FCDU/EFCDU.Deposits, on the other hand, shall refer toa bank’s total deposit liabilities, excludingFCDU/EFCDU deposits.(As amended by Circular No. 613 dated 18 June 2008)

§§ 389 - X393.308.12.31


Sec. X394 Acquired Assets in Settlementof Loans. The following rules shall governassets acquired in settlement of loans.

§ X394.1 Posting. Banks shall post atall times in a conspicuous place in thepremises of their head office and each oftheir branches and other banking offices alist of acquired assets together with thecorresponding lowest price at which thebank is willing to sell such property.However, this requirement shall notrelieve the bank from the requirementunder Section 52 of R.A. No. 8791 todispose of such acquired assets.

§ X394.2 Bookinga. ROPA in settlement of loans

through foreclosure or dation in paymentshall be booked under the ROPA accountas follows:

(1) Upon entry of judgment in case ofjudicial foreclosure;

(2) Upon execution of the Sheriff’sCertificate of Sale in case of extrajudicialforeclosure; and

(3) Upon notarization of the Deed ofDacion in case of dation in payment(dacion en pago).

ROPA shall be booked initially at thecarrying amount of the loan (i.e.,outstanding loan balance adjusted for anyunamortized premium or discount lessallowance for credit losses computedbased on PAS 39 provisioningrequirements, which take into account thefair value of the collateral) plus bookedaccrued interest less allowance for creditlosses (computed based on PAS 39provisioning requirements) plustransaction costs incurred upon acquisition(such as non-refundable capital gains taxand documentary stamp tax paid inconnection with the foreclosure/purchaseof the acquired real estate property):Provided, That if the carrying amount ofROPA exceeds P5.0 million, the appraisal

of the foreclosed/purchased asset shall beconducted by an independent appraiseracceptable to the BSP.

b. The carrying amount of ROPA shallbe allocated to land, building, othernon-financial assets and financial assets(e.g., receivables from third party or equityinterest in an entity) based on their fairvalues, which allocated carrying amountsshall become their initial costs.

c. The non-financial assets portion ofROPA shall remain in ROPA and shall beaccounted for as follows:

(1) Land and buildings shall beaccounted for using the cost model underPAS 40 “Investment Property”;

(2) Other non-financial assets shallbe accounted for using the cost modelunder PAS 16 “Property Plant andEquipment”;

(3) Buildings and other non-financialassets shall be depreciated over theremaining useful life of the assets, whichshall not exceed ten (10) years and three(3) years from the date of acquisition,respectively; and

(4) Land, buildings and othernon-financial assets shall be subject to theimpairment provisions of PAS 36“Impairment”.

d. Financial assets, shall bereclassified and booked according tointention under HFT, DFVPL, AFS, HTM,INMES, Unquoted Debt SecuritiesClassified as Loans or Loans and Receivableand accounted for in accordance with theprovisions of PAS 39, except interests insubsidiaries, associates and joint ventures,which shall be booked under EquityInvestments in Subsidiaries, Associates andJoint Ventures and accounted for inaccordance with the provisions of PAS 27,28 and 31, respectively.

e. ROPAs that comply with theprovisions of PFRS 5 “Non-Current AssetsHeld for Sale” shall be reclassified andaccounted for as such.

§ X394 - X394.208.12.31


f. Claims arising from deficiencyjudgments rendered in connection with theforeclosure of mortgaged properties shallbe lodged under the real account“Deficiency Judgment Receivable”; whileprobable claims against the borrowerarising from the foreclosure of mortgagedproperties shall be lodged under thecontingent account “Deficiency ClaimsReceivable”.

g. Appraisal of properties. Beforeforeclosing or acquiring any property insettlement of loans, it must be properlyappraised to determine its true economicvalue. If the amount of ROPA to be bookedexceeds P5.0 million, the appraisal mustbe conducted by an independent appraiseracceptable to the BSP. An in-houseappraisal of all ROPAs shall be made atleast every other year: Provided, Thatimmediate re-appraisal shall be conductedon ROPAs which materially decline invalue.

h. Non-cash payment for interest. FIsthat accept non-cash payments for intereston their borrowers’ loans shall book theacquired assets as ROPA. The amount tobe booked as ROPA shall be the bookedaccrued interest less allowance for creditlosses (computed based on PAS 39provisioning requirements): Provided, Thatif the carrying amount of ROPA exceedsP5.0 million, the appraisal of the foreclosed/purchased asset shall be conducted by anindependent appraiser acceptable to theBSP. The carrying amount of ROPA shallbe allocated in accordance with Item “b”and shall be subsequently accounted forin accordance with Item “c” of thisSubsection.

The provisions of this Subsection shallbe applied retroactively to all outstandingROPAs and sales contract receivables:Provided: That for properties acquiredbefore 01 January 2005, the carryingamount of the acquired properties wheninitially booked under ROPA shall be the

cost subject to depreciation andimpairment testing, which shall bereckoned from the time of acquisition.(As amended by Circular Nos. 555 dated 12 January 2007 and

520 dated 20 March 2006)

§ X394.3 Sales contract receivablea. Sales Contract Receivable (SCR)

shall be recorded based on the presentvalue of the installments receivablesdiscounted at the imputed rate of interest.Discount shall be accreted over the life ofthe SCR by crediting interest income usingthe effective interest method. Anydifference between the present value ofthe SCR and the derecognized assets shallbe recognized in profit or loss at the dateof sale in accordance with the provisionsof PAS 18 “Revenue”: Provided,furthermore, That SCR shall be subject toimpairment provision of PAS 39.

The provisions of this Subsection shallbe applied retroactively to all outstandingROPAs and SCRs: Provided: That forproperties acquired before 01 January2005, the carrying amount of the acquiredproperties when initially booked underROPA shall be the cost subject todepreciation and impairment testing,which shall be reckoned from the time ofacquisition.

b. SCRs which meet all therequirements/conditions enumeratedbelow are hereby considered performingassets and therefore, not subject toclassification:

(1) That there has been adownpayment of at least twenty percent(20%) of the agreed selling price or in theabsence thereof, the installment paymentson the principal had already amounted toat least twenty percent (20%) of the agreedselling price;

(2) That payment of the principal mustbe in equal installments or in diminishingamounts and with maximum intervals ofone (1) year;

§§ X394.2 - X394.308.12.31


(3) That any grace period in thepayment of principal shall not be more thantwo (2) years; and

(4) That there is no installment paymentin arrear either on principal or interest:Provided, That an SCR account shall beautomatically classified “Substandard” andconsidered non-performing in case ofnon-payment of any amortization due:Provided, further, That an SCR which hasbeen classified “Substandard” and considerednon-performing due to non-payment of anyamortization due may only be upgradedrestored to unclassified and/or performingstatus after a satisfactory track record of atleast three (3) consecutive payments of therequired amortization of principal and/orinterest has been established.(As amended by Circular No. 520 dated 20 March 2006)

§§ X394.4 - X394.9 (Reserved)

§ X394.10 Transfer/sale of non-performing assets to a special purposevehicle or to an individual. The proceduresgoverning the transfer/sale of non-performingassets (NPAs) to a Special Purpose Vehicle(SPV) or to an individual that involves a singlefamily residential unit, or transactionsinvolving dacion en pago by the borroweror third party of an NPL, for the purpose ofobtaining the Certificate of Eligibility (COE)which is required to avail of the incentivesprovided under R.A. No. 9182 arepresented in Appendix 56.

The accounting guidelines on the saleof NPAs to SPVs and to qualifiedindividuals for housing under the SPV Actof 2002 are presented in Appendix 56a.

The significant timelines related to theimplementation of R.A. No. 9182, alsoknown as the “Special Purpose VehicleAct” as amended by R.A. No. 9343 arepresented in Appendix 56b.(As amended by M-2008-014 dated 17 March 2008, M-2008-005

dated 04 February 2008, M-2007-013 dated 11 May 2007 and

M-2006-001 dated 11 May 2006)

§§ X394.11 - X394.14 (Reserved)

§§ X394.15 Joint venture of banks withreal estate development companies

a. Statement of policy. It is the policyof the BSP to encourage banks to disposeof their ROPAs in settlement of loans andother advances either through foreclosureor dacion en pago as well as otherproperties acquired as a consequence of amerger/consolidation which are no longernecessary for their banking operations.Towards this end, banks are herebyauthorized to enter into Joint VentureAgreements (JVA) with real estatedevelopment companies for thedevelopment of said properties, subject tothe requirements prescribed under thisSubsection.

b. For purposes of this Subsection,joint venture shall refer to a contractualarrangement/undertaking between abank and a duly registered real estatedevelopment company (developer) forthe purpose of developing theabovementioned properties of the bank.The bank contributes said properties to theundertaking while the developercontributes all the development funds,resources, technical expertise, equipment,personnel and all other requirementsdesired or needed for the implementationand completion of the undertakingincluding marketing, where applicable.The bank and the developer shall be boundby the contract that establishes joint controlof the undertaking. Although the developermay be designated as operator or managerof the undertaking, it does not, however,absolutely control the undertaking but onlyacts in accordance with the authoritiesgranted to him under the JVA.

c. Forms of a joint venture. A bankand a developer may undertake a jointventure under the following forms:

(1) A jointly-controlled operation/undertaking, which does not involve the

§§ X394.3 - X394.1508.12.31


establishment of a corporation, partnershipor other entity, or a financial structure thatis separate from the bank and thedeveloper themselves. Under this form ofjoint venture, the rights and obligations ofthe bank and the developer shall begoverned primarily by their contract thatmust clearly specify the following:

(a) authority of the developer todevelop/subdivide the property andsubsequently, to sell the individual lotsunder a special power of attorney;

(b) sharing in the sales proceeds of thedeveloped ROPAs or in the developed lots;

(c) sharing in taxes;(d) sharing in the assets of the joint

venture particularly in the developed/subdivided lots should there still be unsoldlots at the time of termination of the jointventure; and

(e) name under which the subdividedlots shall be registered pending their sale.

(2) A jointly-controlled entity, whichinvolves the establishment of a newjuridical entity, preferably a corporationthat is separate and distinct from the bankand the developer. A jointly controlledcorporation may be established either forthe purpose of developing properties ofbanks for immediate sale or convertingthem into earning assets such as hotels andshopping malls.

d. Requirements and limitations in ajoint venture. A bank desiring to enter intoa JVA with a developer for the purpose ofdeveloping its ROPAs and/or otherproperties acquired as a consequence ofmerger/consolidation shall comply with thefollowing:

(1) The JVA shall be approved by theboard of directors of the bank.

(2) The bank’s contribution to the jointventure, in whatever form undertaken,shall be limited to ROPAs and propertiesacquired as a consequence of the bank’smerger/consolidation with another bank/financial institution.

(3) The bank shall not recognizeincome out of its contribution to the jointventure, regardless of the agreed valuationof said properties.

(4) The bank shall not provide fundsto the joint venture either as a loan orcapital contribution.

(5) The JVA or contractualarrangement shall clearly stipulate therights and obligations of the bank and thedeveloper.

(6) The bank shall secure priorMonetary Board approval of the JVA.

e. Application for authority to enterinto JVA. A bank desiring to enter into aJVA with a developer for the purpose ofdeveloping its ROPAs and other propertiesacquired as a consequence of its merger/consolidation with another bank/FI shallsecure prior Monetary Board approval ofsaid agreement. For that purpose, theconcerned bank shall submit an applicationfor Monetary Board approval to theappropriate department of the SES. Theapplication shall be signed by the bank’spresident or officer of equivalent rank andshall be accompanied by the followingdocuments/information:

(1) The name of the developer;(2) Name of the principal stockholders

and officers as well as members of theboard of directors of said company;

(3) Relationship of the bank with thedeveloper, if any;

(4) List and brief description of theproperties to be contributed by the bankincluding their market values, book valuesand the valuation agreed upon under theproposed JVA;

(5) Certification by the bank’spresident or officer of equivalent rank thatthe JVA is strictly in compliance or willstrictly comply with the requirements ofthis Subsection; and

(6) Such other documents/informationthat the concerned department of the SESmay require.

§ X394.1508.12.31


f. Non-financial allied undertaking.All types of banks are hereby authorizedto invest in the equities of companiesengaged in real estate development as anon-financial allied undertaking, subject tothe following conditions:

(1) Investments shall be limited toROPAs and other properties acquired as aconsequence of a bank’s merger/consolidation with another bank/FI;

(2) Investments shall be subject toexisting BSP requirements applicable toinvestments in non-financial alliedundertakings; and

(3) If there is already an existingsubsidiary or affiliate relationship betweenthe bank and the investee corporation priorto the investment, the bank shall notrecognize income out of its investedproperties. The excess of the value of thecapital stock received by the bank over thebook value of its invested properties shallbe booked as “Deferred Credits”.

g. Accounting treatment. Accountingtreatment of the properties contributed bya bank to a joint venture or invested in theequities of developers.

(1) In a joint venture in the form of ajointly controlled operations/undertaking,which does not involve the establishmentof a corporation or other entity, the bankshall continue to recognize in its books theproperties contributed to the undertaking.However, the regular provisioning againstprobable losses required under existingregulations may be discontinued uponexecution and implementation of the JVA.

(2) In a joint venture in which acorporation is created, the bank shall bookthe properties contributed to theundertaking as investment pursuant to theprovisions of PAS 31. It shall also recognizeits interest in the corporation using theproportionate consolidation method or theequity method as long as it continues tohave joint control over the corporation:Provided, That the bank shall not recognize

income out of its contribution to the jointventure. The excess of the value of thecapital stock received by the bank over thebook value of the contributed propertiesshall be credited to the account “DeferredCredits”.

(3) Properties invested in equities ofdevelopers shall be booked in accordancewith the PAS: Provided, That the bank shallnot recognize income out of the propertiesinvested if there is already an existingsubsidiary or affiliate relationship betweenthe bank and the investee corporation priorto the investment, regardless of the agreedvaluation of said properties. The excess ofthe agreed valuation of said properties overtheir book value shall be booked as“Deferred Credits”.

h. Coverage. The provisions of thisSubsection shall apply to ROPAs existing,as well as those which may be acquiredby banks in settlement of non-performingor past due loans and advancesoutstanding, as of 09 March 2006 and toproperties acquired as a consequence ofmerger or consolidation which areoutstanding in the books of banks as of saiddate.

i. Sanctions. Any violation of theprovisions of this Subsection and/or anymisrepresentation in the certification andinformation required to be submitted to theBSP under this Subsection shall subject thebank and the officer or officers responsibletherefore, to the penalties provided underSections 35, 36 and 37 of R. A. No. 7653.(Circular No. 518 dated 09 March 2006)

Sec. X395 Credit Policies of Government-Owned Corporations Government-ownedcorporations which perform banking orcredit functions shall coordinate theirgeneral credit policies with the Scheduleof Credit Priorities embodied in Appendix23. Within the provision of their respectivecharters, these corporations shall limit theircredits to the economic activities falling

§§ X394.15 - X39508.12.31


under Priority II of said schedule to fiftypercent (50%) of their outstanding loans atany time.

Sec. X396 Parcellary Plans on CropLoans. Banks shall require the submissionof parcellary plans a requisite for grantingcrop loans to sugarcane planters.


Sec. 1397 Limits on Real Estate Loans ofUBs/KBs. Total real estate loans of UB/KBs,excluding:

a. Loans extended to individualhouseholds for purposes of financing theacquisition, construction, and/orimprovement of housing units andacquisition of any associated land that is orwill be occupied by the borrower,regardless of amount;

b. Loans extended to land developers/construction companies for the purpose ofdevelopment and/or construction ofsocialized and low-cost residentialproperties as defined under existingguidelines of the HUDCC for theimplementation of government housingprograms, which are intended for sale toindividual households;

c. Loans to the extent guaranteed bythe HGC; and

d. Loans to the extent collateralizedby non-risk assets under existingregulations shall not exceed twentypercent (20%) of the total loan portfolio,net of interbank loans.

For this purpose, real estate loans shallrefer to loans granted to:

(1) individual households for theacquisition, construction and/orimprovement of housing units andacquisition of any associated land that is orwill be occupied by the borrower,including loans granted to bank officers and

employees for the same purpose whichare covered by bank’s fringe benefit planand which plan was approved by theMonetary Board; and

(2) land developers/constructioncompanies and other borrowers for theacquisition and development of landand/or construction of buildings andstructures, including housing units forsale/lease and/or for use in retail/wholesale, manufacturing or other income-generating purposes, including loans forthe land development and construction ofresidential properties.

It shall not include loans forconstruction of highways, streets, bridges,tunnels, railways, and other infrastructurefor public use.

Purchase by banks of receivables underContract to Sell (CTS) executed betweenthe real estate developers and home buyerson a with recourse basis shall beconsidered loans to real estate developersand shall be classified as commercial realestate loans.

Trust departments of UBs/KBs shall beexempted from the prescribed limit on realestate loans.

Under existing HUDCC guidelines,socialized and low-cost housing loans aredefined as follows:

Housing Loan Ceiling Package

Low-cost

Level 1-A (Socialized) P300,000 and below

Level 1-B Above P300,000 to P500,000

Level 2 Above P500,000 to P1,250,000

Level 3 Above P1,250,000 to

P3,000,000

(As amended by Circular No. 600 dated 04 February 2008)

§§ X395 - 139708.12.31


§§ 2397 - X39908.12.31



Sec. X398 Debt Service Limit on LocalGovernment Borrowings. To ensure theeffective implementation of the debtservice limit on local governmentborrowings as stipulated in Section 324 (b)of the Local Government Code of 1991,all banks shall require each borrowing LGUto present a certificate of its debt serviceand borrowing capacity, duly certified by

the Bureau of Local Government Finance– Department of Finance (BLGF-DOF).


The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37of R. A. No. 7653 on banks, theirdirectors and/or officers are shown inAppendix 67.

Manual of Regulations for Banks Part IV - Page 1

PART FOUR

TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENTMANAGEMENT ACTIVITIES

§§ X401 - X40208.12.31

Section X401 Statement of PrinciplesThe cardinal principle common to all trustand other fiduciary relationships is fidelity.Policies predicated upon this principle aredirected towards confidentiality, scrupulouscare, safety and prudent management ofproperty including reasonable probabilityof income with proper accounting andappropriate reporting thereon. Practicesare designed in accordance with the basicstandards for trust, other fiduciary andinvestment management accounts inAppendix 83 to promote efficiency inadministration and operation; to adhere andconform to the terms of the instrument orcontract; and to maintain absoluteseparation of property free from anyintrusion of conflict of interest.

A bank authorized to engage in trustand fiduciary business is under noobligation, either legal or moral, to acceptany such business being offered nor has itthe right to accept if the same is contraryto law, rules, regulations, public order andpublic policy. It shall advertise its servicesin a dignified manner and enter suchbusiness only when demand for suchservice is evident, when speciallyequipped to render such service and uponfull appreciation of the responsibilitiesinvolved. It shall be ready and willing togive full disclosure of the services beingoffered and shall conduct its dealing withtransparency. Harmonious relationshipshall likewise be pursued with otherprofessions to achieve the common goalof mutual service to the public andprotection of its interest.

Banks may not receive or hold astrustee, agent, administrator, financialmanager, or other similar capacity, anyfund or money from the Government and

government entities: Provided, however,That government-owned banks mayreceive or hold as trustee, agent,administrator, financial manager, or othersimilar capacity, the following:

a. Funds of local government units(LGUs) which are expected to be availablefor investment purposes for a relatively longperiod of time: Provided, further, That theamounts held in trust or otherwise managed/advised for and in behalf of the LGUs shallbe invested only in government securities,specifically, evidences of indebtedness of theNational Government, the BSP and otherevidences of indebtedness or obligations ofgovernment entities, the servicing andrepayment of which are fully guaranteed bythe National Government; and

b. Funds of government andgovernment entities which are authorizedby special laws to be placed in trust.(As amended by Circular No. 618 dated 20 August 2008)

Sec. X402 Scope of Regulations. Theseregulations shall govern the grant of authorityto and the management, administration andconduct of trust, other fiduciary business andinvestment management activities (as theseterms are defined in Sec. X403) of banks.

The regulations are divided into three(3) Sub-Parts where:

A. Trust and Other Fiduciary Businessshall apply to banks authorized to engagein trust and other fiduciary businessincluding investment managementactivities;

B. Investment Management Activitiesshall apply to banks without trust authoritybut with authority to engage in investmentmanagement activities; and

C. General Provisions shall apply toboth.

Manual of Regulations for BanksPart IV - Page 2

Sec. X403 Definitions. For purposes ofregulating the operations of trust and otherfiduciary business and investmentmanagement activities, unless the contextclearly connotes otherwise, the followingshall have the meaning indicated.

a. Trust business shall refer to anyactivity resulting from a trustor-trusteerelationship (trusteeship) involving theappointment of a trustee by a trustor forthe administration, holding, managementof funds and/or properties of the trustor bythe trustee for the use, benefit or advantageof the trustor or of others calledbeneficiaries.

b. Other fiduciary business shall referto any activity of a trust-licensed bankresulting from a contract or agreementwhereby the bank binds itself to renderservices or to act in a representativecapacity such as in an agency, guardianship,administratorship of wills, properties andestates, executorship, receivership, andother similar services which do not createor result in a trusteeship. It shall excludecollecting or paying agency arrangementsand similar fiduciary services which areinherent in the use of the facilities of theother operating departments of said bank.Investment management activities, whichare considered as among other fiduciarybusiness, shall be separately defined in thesucceeding item to highlight its being amajor source of fiduciary business.

c. Investment management activityshall refer to any activity resulting from acontract or agreement primarily forfinancial return whereby the bank (theinvestment manager) binds itself to handleor manage investible funds or anyinvestment portfolio in a representativecapacity as financial or managing agent,adviser, consultant or administrator offinancial or investment management,advisory, consultancy or any similararrangement which does not create orresult in a trusteeship.

d. Trust is a relationship or anarrangement whereby a person called atrustee is appointed by a person called atrustor to administer, hold and managefunds and/or property of the trust or for thebenefit of a beneficiary.

e. Trust agreement is an instrumentin writing covering the terms andconditions of the trust.

f. Trustee is any person who holds legaltitle to the funds and/or property of a trust.

g. Trustor is any person who createsa trust.

h. Beneficiary is any person forwhose benefit a trust is created.

i. Fiduciary shall refer to any personor entity engaged in any of the otherfiduciary business as herein defined whereno trustor-trustee relation exists.

j. Agency shall refer to a contractwhereby a person binds himself to rendersome service or to do something inrepresentation or on behalf of another, withthe consent or authority of the latter.

k. Principal shall refer to the personwho grants authority to another personcalled an agent, under a contract to enterinto transactions in his behalf.

l. Agent shall refer to a person whoacts in representation or on behalf ofanother with the latter’s authority.

m. Trust department shall refer to thedepartment, office, unit, group, division orany aggrupation which carries out the trustand other fiduciary business of a bank.

n. Trust officer shall refer to thedesignated head or officer-in-charge of thetrust department.

o. Trust account shall refer to anaccount where transactions arising from atrusteeship are kept and recorded.

p. Common trust fund (CTF) shallrefer to a fund maintained by a bankauthorized to perform trust functions undera written and formally established plan,exclusively for the collective investmentand reinvestment of certain money

§ X40308.12.31


representing participation in the planreceived by it in its capacity as the trustee.

q. Fiduciary account shall refer to anaccount where transactions arising fromany of the other fiduciary businesses arekept and recorded.

r. Investment Manager shall refer toany person or entity engaged in investmentmanagement activities as herein defined.

s. Investment Management Departmentshall refer to the department, unit, group,division or any aggrupation which carries outthe investment management activities of abank that does not have an authority toengage in trust and other fiduciary business.

t. Investment Management Officershall refer to the designated head or officer-in-charge of the investment managementdepartment of a bank which does not havethe authority to engage in trust and otherfiduciary business.

u. Investment management accountshall refer to an account where transactionsarising from investment managementactivities are kept and recorded.

A. TRUST AND OTHERFIDUCIARY BUSINESS

Sec. X404 Authority to Perform Trust andOther Fiduciary Business. With priorapproval of the Monetary Board, banksmay engage in trust and other fiduciarybusiness under Chapter VII of R.A. No. 337,as amended.

If a bank is found to engage inunauthorized trust and other fiduciarybusiness and/or investment managementactivities, whether as its primary, secondaryor incidental business, the Monetary Boardmay impose administrative sanctions againstsuch bank or its principal officers and/ormajority stockholders or proceed againstthem in accordance with law.

The Monetary Board may take suchaction as it may deem proper such as, butmay not be limited to, requiring the transfer

or turnover of any trust and other fiduciaryand/or investment management account toduly incorporated and licensed entities ofthe choice of the trustor, beneficiary orclient, as the case may be.

No bank shall advertise or represent itselfas being engaged in trust and other fiduciarybusiness or in investment managementactivities or represent itself as trustee orinvestment manager or use words ofsimilar import; and/or use in connectionwith its business title the words trust, trustcorporation, trust company, trust plan orwords of similar import, without havingobtained the required authority to do so.

§ X404.1 Application for authority toperform trust and other fiduciary businessBanks desiring to perform trust and otherfiduciary business shall file an applicationwith the appropriate supervising andexamining department. The applicationshall be signed by the bank’s president orofficer of equivalent rank and shall beaccompanied by the following documents:

a. Certified true copy of the resolutionof the institution’s board of directorsauthorizing the application; and

b. A certification signed by thepresident or the officer of equivalent rankthat the institution has complied with allconditions/prerequisites for the grant ofauthority to perform trust and otherfiduciary business.

§ X404.2 Required capital. Banksapplying for authority to perform trust andother fiduciary business must haveminimum capital accounts as follows:

UBs/KBs. The amount required underSec. X111 or such amount as may berequired by the Monetary Board in thefuture.

Branches of foreign banks. The amountrequired under Sec. X105 or such amountas may be required by the Monetary Boardin the future.

§§ X403 - X404.208.12.31


TBs. P650.0 million or such amountsas may be required by the Monetary Boardin the future.

Banks authorized to perform and areactually performing trust and other fiduciarybusiness prior to 20 August 2002 whosecapital accounts are lower than theabove-prescribed minimum capitalaccounts shall, before declaring anydividend, carry to surplus at least fiftypercent (50%) of their net income from alloperations since the last precedingdividend until such time that their capitalaccounts meet the above requirement.

§ X404.3 Prerequisites for engaging intrust and other fiduciary business. Beforeit may engage in trust and other fiduciarybusiness, a bank shall comply with thefollowing requirements:

a. The applicant has been dulylicensed or incorporated as a bank orcreated as such by special law or charter;

b. The articles of incorporation orgoverning charter of the institution shallinclude among its powers or purposes,acting as trustee or administering any trustor holding property in trust or on depositfor the use, or in behalf of others;

c. The by-laws of the institution shallinclude among other things, provisions onthe following;

(1) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the institution;

(2) The creation of a trust committee, theappointment of a trust officer and subordinateofficers of the trust department; and

(3) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization;

d. The bank’s operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

e. The bank is well capitalized whoserisk-based capital adequacy ratio is notlower than twelve percent (12%) at thetime of filing the application;

f. It has not incurred net weeklyreserve deficiencies during the eight (8)-week period immediately preceding thedate of application;

g. It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/ orBSP Management in the last two (2)preceding examinations prior to the dateof application, particularly on the following:

(1) election of at least two (2)independent directors;

(2) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(3) the ceilings on creditaccommodations to DOSRI;

(4) liquidity floor requirements forgovernment deposits;

(5) single borrower’s limit; and(6) investment in bank premises and

other fixed assets;h. It maintains adequate provisions


i. It does not have float itemsoutstanding for more than sixty (60)calendar days in the “Due From/To HeadOffice/Branches/Other Offices” accountsand the “Due from Bangko Sentral” accountexceeding one percent (1%) of the totalresources as of date of application;

j. It has no past due obligations withthe BSP or with any government financialinstitution;

k. It has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurement

§§ X404.2 - X404.308.12.31


systems, appropriately structured risklimits, effective internal controls andcomplete, timely and efficient riskreporting system;

l. It has a CAMELS composite ratingof at least “3” in the last regularexamination with management rating ofnot lower than “3”; and

m. It is a member of the PDIC in goodstanding.

Compliance with the foregoing as wellas with other requirements under existingregulations shall be maintained up to thetime the trust license is granted. A bankthat fails in this respect shall be required toshow compliance for another test periodof the same duration.

§ X404.4 Pre-operating requirementsA bank authorized to engage in trust andother fiduciary business shall, beforeengaging in actual operations, submit to theBSP the following:

a. Government securities acceptableto the BSP amounting to P500,000 asminimum basic security deposit for thefaithful performance of trust and otherfiduciary duties required under Subsec.X405.1;

b. Organization chart of the trustdepartment which shall carry out the trustand other fiduciary business of the bank; and

c. Names and positions of individualsdesignated as chairman and members ofthe trust committee, trust officer and othersubordinate officers of the trust departmentwith their respective bio-data andstatement of duties and responsibilities.


Sec. 2404 Grant of Authority to Engagein Limited Trust Business to Thrift Banks

a. Statement of policy. It is herebydeclared the policy of the BSP to promotehealthy competition in order to improvethe delivery of banking services especially

in the countryside. Towards this end,authority to engage in limited trust businessshall be granted to qualified TBs which meetthe minimum capital required for the grantof such authority, among others.

b. Scope of limited trust businessLimited trust business shall be confined to:

(1) court trusts or trusts under ordersof court of competent jurisdiction, such asacting as:

(a) executor or administrator of a will;and

(b) guardian of the estate of a minor orincompetent; and

(2) administration of properties.c. Application for authority to engage

in limited trust business. A TB desiring toengage in a limited trust business shall filean application with the CentralizedApplication and Licensing Group (CALG)of the SES. The application shall be signedby the bank president or officer ofequivalent rank and shall be accompaniedby the following documents:

(1) Certified true copy of the resolutionof the bank’s board of directors authorizingthe application; and

(2) Certification signed by the bankpresident or officer of equivalent rank thatthe bank has complied with all theconditions/pre-requisites for the grant ofauthority to engage in a limited trustbusiness.

d. Required capital. A TB applying forauthority to engage in limited trust businessmust have minimum capital accountsunder existing regulations or P100.0million, whichever is higher, or suchamounts as may be required by theMonetary Board in the future.

e. Pre-requisites for the grant ofauthority to engage in limited trustbusiness. A TB applying for authority toengage in limited trust business mustcomply with the following requirements:

(1) The bank’s operation during thepreceding calendar year and for the period

§§ X404.3 - 240408.12.31


immediately preceding the date ofapplication has been profitable;

(2) The bank is well capitalized whoserisk-based CAR is not lower than twelvepercent (12%) at the time of filing theapplication;

(3) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(4) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/orBSP Management in the last two (2)preceding examinations prior to the dateof application, more particularly:

(a) election of at least two (2)independent directors;

(b) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(c) the ceilings on creditaccommodations to DOSRI;

(d) liquidity floor requirements forgovernment deposits;

(e) SBL; and(f) investment in bank premises and

other fixed assets;(5) It maintains adequate provisions for

probable losses commensurate to thequality of its asset portfolio but not lowerthan the required valuation reserves asdetermined by the BSP;

(6) It does not have float itemsoutstanding for more than sixty (60)calendar days in the “Due From/To HeadOffice/Branches/Offices” accounts and the“Due From Bangko Sentral” accountexceeding one percent (1%) of the totalresources as of date of application;


(8) It has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for risk

management, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls andcomplete, timely and efficient riskreporting system;

(9) It has a CAMELS composite ratingof at least “3” in the last regularexamination with Management rating notlower than “3”; and

(10) It is a member of the PDIC in goodstanding;

f. Requirements for engaging inlimited trust business. A TB authorized toengage in limited trust business shallcomply with the following requirements:

(1) The articles of incorporation of thebank shall include among its powers orpurposes, acting as trustee or administeringtrust or holding property in trust or ondeposit for the use, or in behalf of others;

(2) The by-laws of the bank shallinclude among others, provisions on thefollowing:

(a) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the bank;

(b) The creation of a trust committee,to be composed of at least three (3)members who are all members of theboard of directors and who are notoperating officers of the bank, and at leasttwo (2) of whom are independent directors:Provided, That if the bank decides to havea trust committee composed of at least five(5) members, the provisions of Subsec.X406.2 shall apply;

(c) The appointment of a trust officerand subordinate officers of the trustdepartment, office or unit: Provided, Thatthe trust officer shall have the following:

(i) At least two (2) years of actualexperience in trust operations; or

(ii) At least one (1) year of actualexperience in trust operations andcompletion of a training program in trustoperations acceptable to the BSP; or

§ 240408.12.31


(iii) At least two (2) years of actualexperience as officer of a bank andcompletion of a training program in trustoperations acceptable to the BSP; and

(d) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

g. Administration of properties heldin trust. The properties held in trust or otherfiduciary capacity shall be administered inaccordance with the terms of theinstrument creating the trust and/or orderof the court. Unless otherwise directed inwriting by the court, investments offiduciary funds shall be limited to:

(1) Bank deposits; and(2) Evidences of indebtedness of the

Republic of the Philippines or of the BSP,and any other evidences of indebtednessor obligations the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines;

h. Applicability of the rules andregulations on trust, other fiduciarybusiness and investment managementactivities. The provision of this Part whichare not inconsistent with the provisions ofthis Section shall apply to TBs authorizedto engage in limited trust business.(Circular No. 583 dated 24 September 2007)

Sec. 3404 Grant of Authority to Engagein Limited Trust Business to Rural Banks

a. Statement of policy. It is herebydeclared the policy of the BSP to promotehealthy competition in order to improvethe delivery of banking services especiallyin the countryside. Towards this end,authority to engage in limited trust businessshall be granted to qualified RBs whichmeet the minimum capital required for thegrant of such authority, among others.

b. Scope of limited trust businessLimited trust business shall be confined to:

(1) court trusts or trusts under ordersof court of competent jurisdiction, such asacting as:

(a) executor or administrator of a will;and

(b) guardian of the estate of a minor orincompetent; and

(2) administration of properties.c. Application for authority to engage

in limited trust business. An RB desiring toengage in a limited trust business shall filean application with the CALG of the SES.The application shall be signed by the bankpresident or officer of equivalent rank andshall be accompanied by the followingdocuments:

(1) Certified true copy of the resolutionof the bank’s board of directors authorizingthe application; and

(2) Certification signed by the bankpresident or officer of equivalent rank thatthe bank has complied with all the conditions/pre-requisites for the grant of authority toengage in a limited trust business.

d. Required capital. An RB applyingfor authority to engage in limited trustbusiness must have minimum capitalaccounts of P100.0 million, or such amountsas may be required by the Monetary Boardin the future.

e. Pre-requisites for the grant ofauthority to engage in limited trustbusiness. An RB applying for authority toengage in limited trust business mustcomply with the following requirements;

(1) The bank’s operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

(2) The bank is well capitalized whoserisk-based CAR is not lower than twelvepercent (12%) at the time of filing theapplication;

(3) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(4) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/orBSP Management in the last two (2)

§§ 2404 - 340408.12.31


preceding examinations prior to the dateof application, more particularly;

(a) election of at least two (2)independent directors;

(b) attendance by every member ofthe board of directors in a special seminarfor board of directors conducted oraccredited by the BSP;

(c) the ceilings on creditaccommodations to DOSRI;

(d) liquidity floor requirements forgovernment deposits;

(e) SBL; and(f) investment in bank premises and

other fixed assets;(5) It maintains adequate provisions


(6) It does not have float itemsoutstanding for more than sixty (60)calendar days in the “Due From/To HeadOffice/Branches/Offices” accounts and the“Due From Bangko Sentral” accountexceeding one percent (1%) of the totalresources as of date of application;


(8) It has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risk limits,effective internal controls and complete,timely and efficient risk reporting system;

(9) It has a CAMELS composite ratingof at least “3” in the last regularexamination with Management rating notlower than “3”; and

(10) It is a member of the PDIC in goodstanding.

f. Requirements for engaging inlimited trust business. An RB authorized toengage in limited trust business shallcomply with the following requirements:

(1) The articles of incorporation of thebank shall include among its powers orpurposes, acting as trustee or administeringtrust or holding property in trust or ondeposit for the use, or in behalf of others;

(2) The by-laws of the bank shall includeamong others, provisions on the following:

(a) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the bank;

(b) The creation of a trust committee,to be composed of at least three (3)members who are all members of theboard of directors and who are notoperating officers of the bank, and at leasttwo (2) of whom are independent directors:Provided, That if the bank decides to havea trust committee composed of at least five(5) members, the provisions of Subsec.X406.2 shall apply;

(c) The appointment of a trust officerand subordinate officers of the trustdepartment, office or unit: Provided, Thatthe trust officer shall have the following:

(i) At least two (2) years of actualexperience in trust operations; or

(ii) At least one (1) year of actualexperience in trust operations andcompletion of a training program in trustoperations acceptable to the BSP; or

(iii) At least two (2) years of actualexperience as officer of a bank andcompletion of a training program in trustoperations acceptable to the BSP; and

(d) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

g. Administration of properties heldin trust. The properties held in trust or otherfiduciary capacity shall be administered inaccordance with the terms of theinstrument creating the trust and/or orderof the court. Unless otherwise directed inwriting by the court, investments offiduciary funds shall be limited to:

§ 340408.12.31


(1) Bank deposits; and(2) Evidences of indebtedness of the

Republic of the Philippines or of the BSP,and any other evidences of indebtednessor obligations the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines;

h. Applicability of the rules andregulations on trust, other fiduciarybusiness and investment managementactivities. The provision of this Part whichare not inconsistent with the provision ofthis Section shall apply to RBs authorizedto engage in limited trust business.(Circular No. 583 dated 24 September 2007)

Sec. X405 Security for the FaithfulPerformance of Trust and OtherFiduciary Business

§ X405.1 Basic security deposit. Abank authorized to engage in trust and otherfiduciary business shall deposit with theBSP eligible government securities assecurity for the faithful performance of itstrust and other fiduciary duties equivalentto at least one percent (1%) of the bookvalue of the total volume of trust, otherfiduciary and investment managementassets: Provided, That at no time shall suchdeposit be less than P500,000.

Scripless securit ies under theRegistry of Scripless Securities (RoSS)System of the Bureau of Treasury (BTr)may be used as basic security deposit fortrust and other fiduciary duties using theGuidelines enumerated in Appendix 34of this Manual.

§ X405.2 Eligible securities. Governmentsecurities which shall be deposited incompliance with the above basic securitydeposit shall consist of:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSPand any other evidences of indebtednessor obligations the servicing and repayment

of which are fully guaranteed by theRepublic of the Philippines; and such otherkinds of securities which may be declaredeligible by the Monetary Board: Provided,That such securities shall be free,unencumbered, and not utilized for anyother purpose: Provided, further, That suchsecurities shall have remaining maturity ofnot more than three (3) years from the dateof deposit with the BSP; and

b. NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Therequirement that the securities used shallhave a remaining maturity of not more thanthree (3) years shall not apply.

c. Five (5)- and Ten (10)-year SPTBsto finance the CARP-related expenditures,provided such bonds shall not behypothecated in any way or earmarked forany other purpose and they meet the three(3)-year remaining maturity requirement toensure that such bonds are liquid.

d. Securities backed by theunreleased IRAs of LGUs (issued by aSpecial Purpose Trust administered by theDBP under the IRA Monetization Programof the Union of Local Authorities of thePhilippines) the release of which IRA onscheduled date of payment has beencertified by the DBM as not being subjectto any conditionalities: Provided, That suchsecurities shall be eligible only to theextent of the present value of the bondcomputed using the original yield tomaturity (as of auction/issue date):Provided, further, That for reserve fortrust and other fiduciary duties, theremaining maturities of the securitiesshall not exceed three (3) years; and

e. Zero Coupon Bond Issue by theHGC of up to P7.0 billion five (5)-yearregular series and up to P3.0 billion seven(7)-year special series to finance its guarantyservicing of socialized and low-costhousing projects: Provided, That they meetthe three (3)-year remaining maturity

§§ 3404 - X405.208.12.31


requirement to ensure that such bonds areliquid: Provided, further, That such bondsshall qualify as eligible reserve for trust andother fiduciary duties only to the extent ofthe present value of the bond computedusing the original yield to maturity (as ofauction/issue date).

f. Tobacco Excise Tax ReceivableMonetization Program InvestmentCertificates (TEXTR Certificates) backed byreceivables representing the unreleasedportion of the obligation of the NationalGovernment to its LGUs for their share ofthe Tobacco Excise Taxes under R.A. No.7171 amounting to P1.85 billion andcovering the years 2001 and 2002:Provided, That such securities shall beeligible only to the extent of the presentvalue of the securities computed using theoriginal yield to maturity as of auction/issuedate.

g. Securities received, pursuant to theDomestic Debt Exchange Offer of theRepublic of the Philippines, in exchangefor securities that are eligible reserves fortrust duties.(As amended by Circular No. 509 dated 01 February 2006)

§ X405.3 Valuation of securities andbasis of computation of the basic securitydeposit requirement. For purposes ofdetermining compliance with the basicsecurity deposit under this Section, theamount of securities so deposited shall bebased on their book value, that is, cost asincreased or decreased by the correspondingdiscount or premium amortization.

The base amount for the basic securitydeposit shall be the average of themonth-end balances of total trust,investment management and otherfiduciary assets of the immediatelypreceding calendar quarter.

§ X405.4 Compliance period; sanctionsThe trustee or fiduciary shall have thirty (30)calendar days after the end of every calendar

quarter within which to deposit with the BSPthe securities required under this Section.

The following sanctions shall beimposed for any deficiency in the basicsecurity deposit for the faithful performanceof trust, investment management and otherfiduciary duties:

a. On the bank:i. Monetary penalty/ies:

Offense Third and Trust First Second subsequent

Asset Size offense(s)

TBs/RBs with

Limited Trust P 3 0 0 . 0 0 P 4 0 0 . 0 0 P 5 0 0 . 0 0

Authority

Up to

P500 P600.00 P700.00 P800.00

million

Above

P500

million P1,000.00 P1,250.00 P1,500.00

but not

exceeding

P1 billion

Above

P1 billion

but not P2,000.00 P3,000.00 P4,000.00

exceeding

P10 billion

Above

P10 billion

but not P5,000.00 P6,000.00 P7,000.00

exceeding

P50 billion

Above

P50 billion P8,000.00 P9,000.00 P10,000.00

ii. Non-monetary penalty beginningwith the third offense (all banks) -Prohibition against the acceptance of newtrust and other fiduciary accounts, and fromrenewing expiring trust and other fiduciarycontracts up to the time the violation iscorrected.

b. On the trust officer and/or otherofficer(s) responsible for the deficiency/non-compliance:

§§ X405.2 - X405.408.12.31

Pen

alty

per

Cal

enda

r D

ay U

Bs/

KB

s/TB

s w

ith F

ull

Trus

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and

with

Tru

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(1) First offense - warning thatsubsequent violations shall be dealt withmore severely;

(2) Second offense - written reprimandwith a stern warning that subsequentviolations shall be subject to suspension;

(3) Third offense - thirty (30) calendarday-suspension without pay; and

(4) Subsequent offense(s) - sixty (60)calendar day-suspension without pay.

For purposes of determining thefrequency of the violation, the bank’scompliance profile for the immediatelypreceding three (3) years or twelve (12)quarters will be reviewed: Provided, Thatfor purposes of determining appropriatepenalty on the trust officer and/or otherresponsible officer(s), any offensecommitted outside the preceding three (3)year or twelve (12) quarter- period shallbe considered as the first offense: Provided,further, That in the case of trust officer, alloffenses committed by him in the past astrust officer of other institution(s) shall alsobe considered: Provided, finally, That if theoffense cannot be attributed to any otherofficer of the bank, the trust officer shallbe automatically held responsible since theultimate responsibility for ensuringcompliance with the regulation rests uponhim, as evidence may warrant.(As amended by Circular Nos. 617 dated 30 July 2008 and


§ X405.5 Reserves against peso-denominated common trust funds andtrust and other fiduciary accounts -others

a. Reserves against peso-denominated CTFs. In addition to the basicsecurity deposit, a bank authorized toengage in trust and other fiduciary businessshall maintain reserves on:

(1) peso-denominated CTF; and

(2) such other managed peso fundswhich partake the nature of collectiveinvestment of a peso-denominated CTF asmay be indicated by the presence of thefollowing features:

(a) The funds are composed ofcontributions from two (2) or moreinvestors;

(b) The funds are managed/administered as a vehicle for collectiveinvestment and reinvestment;

(c) The trustee/administrator/agent hasthe exclusive management and control overthe funds and the sole right at any time tosell, convert, invest, exchange, transfer orotherwise change or dispose of the assetscomprising the funds; and

(d) Investments/contributions to, orwithdrawals from, the funds are beingallowed at anytime or as of a fixed date inthe future, and/or the income, net of allexpenses incurred in the management ofthe fund plus the fee of the trustee/administrator/agent, are being distributedamong the participants of the funds, withoutthe need to liquidate all assets of the funds.

The required reserves againstpeso-denominated CTFs and such othermanaged peso funds which partake thenature of collective investment ofpeso-denominated CTFs shall be as follows:

UBs/KBs - 10%1

TBs - 5%2

RBs - 4%In addition to the regular reserve

requirement, the liquidity reserves againstpeso-denominated CTFs and such otherpeso funds which partake the nature ofcollective investment of peso-denominatedCTFs shall be as follows:

UBs/KBs - 11%1

TBs - 4%2

The liquidity reserve shall bemaintained in the Reserve Deposit

1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,effective the reserve week starting 15 July 2005.2 Under MAB dated 29 December 2004, regular reserve and liquidity reserve rates shall be 6% and 2%, respectively,effective the reserve week starting 07 January 2005.

§§ X405.4 - X405.508.12.31


Account (RDA) with the BSP, or may be inthe form of the following: Provided, That itcomplies with the guidelines shown inAppendix 71.

(i) Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-Treasury Department (TD);

(ii) NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Therequirement that the securities used shallhave a term of not more than one (1) yearshall not apply; and

(iii) PEACe bonds only to the extent ofthe original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlyingzero-coupon Treasury Notes as and whenthe corresponding interest is earned overthe life of the bonds;

Any deficiency in the liquidity reservesshall continue to be in the forms or modesprescribed under existing regulations forthe composition of required reserves.

The reserves on peso-denominatedCTFs and such other managed peso fundsshall be provided out of such funds.

b. Reserves against TOFA - Others.In addition to the basic security deposit,banks shall maintain reserves on TOFA-Others, except accounts held under(1) Administratorship; (2) Bond Issues/OtherObligations Under Deed of Trust orMortgage; (3) Custodianship andSafekeeping; (4) Depository andReorganization; (5) Employee BenefitPlans Under Trust; (6) Escrow; (7) PersonalTrust (testamentary or living trust);(8) Executorship; (9) Guardianship;(10) Life Insurance Trust; and (11) Pre-need Plans (institutional/individual).

The required reserves against TOFAOthers shall be as follows:

UBs/KBs - 6%TBs - 5%RBs - 4%

The liquidity reserve, which is inaddition to the regular reserve, shall be asfollows:

UBs/KBs - 11%1

TBs - 4%RBs - 0%

The liquidity reserve shall bemaintained in the RDA with the BSP, ormay be in the form of the following:Provided, That it complies with theguidelines shown in Appendix 71.

(1) Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-TD: Provided, That thereserves on TOFA-Others shall beprovided out of such funds;

(2) NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Therequirement that the securities used shallhave a term of not more than one (1) yearshall not apply; and

(3) PEACe bonds only to the extent ofthe original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlyingzero-coupon Treasury Notes as and whenthe corresponding interest is earned overthe life of the bonds.

Any deficiency in the liquidity reservesshall continue to be in the forms or modesprescribed under existing regulations forthe composition of required reserves.

The reserves on TOFA-Others shall beprovided by the institution out of said funds.(As amended by Circular Nos. 551 dated 17 November 2006 and

539 dated 09 August 2006)

§ X405.6 Composition of reservesa. The provisions of Sec. X254 shall

govern the composition of reserves againstpeso-denominated CTFs and such othermanaged peso funds, as well asTOFA-Others, of banks authorized toengage in trust and other fiduciarybusiness.

1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,effective the reserve week starting 15 July 2005.

§§ X405.5 - X405.608.12.31


For purposes of this Subsection, aspecial deposit account shall be maintainedby banks with the BSP exclusively for trustreserves. Deposits maintained by banksauthorized to engage in trust and otherfiduciary business with the BSP up to fortypercent (40%) of the required reservesagainst peso-denominated CTFs (less thepercentage allowed to be maintained in theform of short-term market-yieldinggovernment securities), as well as therequired reserves on TOFA-Others (lessthe percentage allowed to be maintainedin the form of short-term market-yieldinggovernment securities), shall be paidinterest at four and one-half percent (4½%)(for UBs/KBs and TBs) and four percent(4%) (for RBs) per annum effective09 October 1998 based on the averagedaily balance of said deposits to be creditedquarterly.

Effective 01 July 2003, publishedinterest rates that will be applied on BSP’sSDAs of banks shall be inclusive of the tenpercent (10%) VAT.

b. The required reserves which maybe in the form of short-term market-yielding government securities shall bepurchased directly from the BSP TreasuryDepartment at one-half percent (½%)below the prevailing market rate for anequivalent term and volume and subjectto BSP’s firm commitment to buy back atany time at prevailing market rates. Suchreserves in the form of governmentsecurities shall be in addition to other formsof eligible reserves such as cash in vault oron deposit with BSP.

All purchases of said governmentsecurities shall be under the RoSS systemof the BTr. Transactions covering saidsecurities shall be recorded in accordancewith the guidelines in Appendix 34.

§ X405.7 Computation of reserveposition. A bank authorized to engage intrust and other fiduciary business shallcalculate daily the required and available

reserves on the value per books of itspeso-denominated CTFs and such othermanaged peso funds, as well as onTOFA-Others, based on the seven-dayweek, starting Friday and ending Thursdayincluding Saturdays, Sundays, holidays,non-banking days or days when there isno clearing: Provided, That with referenceto holidays, non-banking days and dayswhere there is no clearing, the reserveposition at the close of banking dayimmediately preceding such holidays, non-banking days or days where there is noclearing, shall apply. For the purpose ofcomputing reserve position, the principaloffice in the Philippines and all branchesand agencies located therein shall betreated as a single unit.

The required reserves in the currentperiod (reference reserve week) shall becomputed based on the correspondinglevels of peso-denominated CTFs and suchother managed peso funds, as well as onTOFA-Others of the prior week.

For purposes of computing the requiredand available statutory and liquidityreserves for peso-denominated CTFs andsuch other managed peso funds, as well asTOFA-Others, the term value per booksshall refer to the total volume of CTFs, othermanaged peso funds, as well asTOFA-Others less booked “Allowance forProbable Losses”.(As amended by Circular No. 535 dated 04 July 2006)

§ X405.8 Reserve deficiencies;sanctions. The provisions of Sec. X257 shallgovern the computation of reservedeficiencies for peso-denominated CTFsand such other managed peso funds, aswell as TOFA-Others, of banks authorizedto engage in trust and other fiduciarybusiness, including the sanctions providedin said Section.

§ X405.9 Report of compliance. Everybank shall submit a report to the BSP of itsdaily required and available reserves on

§§ X405.6 - X405.908.12.31


peso-denominated CTFs and such othermanaged peso funds, as well as TOFA-Others, in such frequency and within thedeadline stated in Appendix 6.

Sec. X406 Organization and Management

§ X406.1 Organization. A bankauthorized to engage in trust and otherfiduciary business shall, pursuant to Subsec.X404.1, include in its by-laws, provisionson the organization plan or structure of thedepartment, office or unit which shallconduct such business. The by-laws shallalso include provisions on the creation of atrust committee, the appointment of a trustofficer and other subordinate officers and aclear definition of their duties andresponsibilities as well as their line and stafffunctional relationships within theorganization which shall be in accordancewith the following guidelines.

a. Trust and other fiduciary business ofa bank shall be carried out through a trustdepartment which shall be organizationally,operationally, administratively andfunctionally separate and distinct from theother departments and/or businesses of theinstitution.

A bank which is also engaged ininvestment management activities, shallconduct the same only through its trustdepartment and the responsibilities of theboard of directors, trust committee and trustofficer shall be construed to include theproper administration and management ofinvestment management activities.

No bank shall undertake any of the trustand other fiduciary business and, wheneverapplicable, investment managementactivities outside the direct control,authority and management of the trustdepartment or through any department oroffice which is involved in the otherbusinesses of the bank, such as theTreasury, Funds Management or anysimilar department, otherwise, any such

business shall be considered part of thebank’s real liabilities.

The bank proper and the trustdepartment may share the followingactivities: (1) electronic data processing;(2) credit investigation; (3) collateralappraisal; and (4) messengerial, janitorialand security services.

b. The trust department, trust officerand other subordinate officers of the trustdepartment shall only be directlyresponsible to the bank’s trust committeewhich shall, in turn, be only directlyresponsible to the bank’s board of directors.

No director, officer or employee takingpart in the management of trust and otherfiduciary accounts shall perform duties inother departments or the audit committeeof the bank and vice versa. However,branch managers duly authorized by theboard of directors may, for or on behalf ofthe trust officer, sign predrawn trustinstruments such as CTFs.

c. The organization structure anddefinition of duties and responsibilities ofthe trust committee, officers and employeesof the trust department shall reflectadherence to the minimum internal controlstandards prescribed by the BSP.

d. Provisions shall be made by thebank to have legal assistance readilyavailable in the review of proposed and/orexisting trust and fiduciary agreements anddocuments and in the handling of legal andtax matters related thereto.

§ X406.2 Composition of trustcommittee. The trust committee shall becomposed of at least five (5) membersincluding the president, the trust officer anddirectors who are appointed by the boardof directors on a regular rotation basis andwho are not officers of the bank proper.No member of the audit committee, if thebank has any, shall be concurrentlydesignated as a member of the trustcommittee: Provided, That in the case of a

§§ X405.9 - X406.208.12.31


trust committee composed of more thanfive (5) members, the appointment thereinof an operating officer may be allowed onlyif the required balance in the membershipof at least three (3) members of the boardfor every operating officer shall bemaintained: Provided, further, That thePhilippine branch of a foreign bank mayappoint its resident manager or chiefexecutive officer in lieu of the presidentwhile the positions allotted for membersof the board may be filled up by the areamanager and/or officers/representativesfrom the Head Office who are not involvedin audit-related activities.

For purposes of this Subsection, theterm officer shall include the president,executive vice-president, generalmanager, corporate secretary, treasurerand others mentioned as officers of thebank, or those whose duties as such aredefined in the by-laws, or are generallyknown to be officers of the bank (or any ofits branches and offices other than the HeadOffice) either through announcement,representation, publication or any kind ofcommunication made by the bank.

The board of directors shall duly notein the minutes the committee membersand designate the chairman who shall beone of the directors referred to above.

§ X406.3 Qualifications of committeemembers, officers and staff. The bank’strust department shall be staffed by personsof competence, integrity and honesty.Directors, committee members andofficers charged with the administration oftrust and other fiduciary activities shall, inaddition to meeting the qualificationstandards prescribed for directors andofficers of banks, possess the necessarytechnical expertise in such business:Provided, That trust officers who shall beappointed shall have at least two (2) yearsof actual experience or training in trustoperations.

§ X406.4 Responsibilities of administrationa. Board of Directors. The board of

directors is responsible for the properadministration and management of trust andother fiduciary business. Funds and propertiesheld in trust or in any fiduciary capacity shallbe administered with the skill, care, prudenceand diligence necessary under thecircumstances then prevailing that a prudentman, acting in like capacity and familiar withsuch matters, would exercise in the conductof an enterprise of like character and withsimilar aims.

The responsibilities of the board ofdirectors shall include, but need not belimited to, the following:

(1) It shall determine and formulategeneral policies and guidelines on the:(a) acceptance, termination, or closure oftrust and other fiduciary accounts;(b) proper administration and managementof each trust and other fiduciary account;and (c) investment, reinvestment anddisposition of funds or property held in itscapacity as trustee or fiduciary;

(2) It shall direct and review theactions of the trust committee and allofficers and employees designated tomanage the trust and other fiduciaryaccounts, especially accounts withoutspecific agreements on investments ordiscretionary accounts;

(3) It shall approve or confirm theacceptance, termination or closure of alltrust and other fiduciary accounts and shallrecord such in its minutes;

(4) Upon the acceptance of an account,it shall immediately review all non-cashassets received for management. Likewise,it shall make a review of the trust and/orfiduciary assets at least once every twelve(12) months to determine the advisabilityof retaining or disposing of such assets;

(5) It shall be responsible for takingappropriate action on the examinationreports of supervisory agencies, internaland/or external auditors on the bank’s trust

§§ X406.2 - X406.408.12.31


and other fiduciary business and recordingsuch actions thereon in the minutes;

(6) It shall designate the members ofthe trust committee, the trust officer andsubordinate officers of the trust departmentand shall be responsible for requiringreports from said committee and officersand recording its actions thereon in theminutes; and

(7) It shall establish an appropriatestaffing pattern and adopt operating budgetsthat shall enable the trust department toeffectively carry out its functions. It shalllikewise be responsible for providing theofficers and staff of the bank withappropriate training programs in theadministration and operation of all phasesof trust and other fiduciary business.

The board of directors may, by actionduly entered in the minutes, delegate itsauthority for the acceptance, termination,closure or management of trust and otherfiduciary accounts to the trust committeeor to the trust officer, subject to certainguidelines approved by the board.

b. Trust Committee. The trustcommittee duly constituted and authorizedby the board of directors shall act withinthe sphere of authority which may beprovided in the by-laws and/or as may bedelegated by the board, such as, but notlimited to, the following:

(1) The acceptance and closing of trustand other fiduciary accounts;

(2) The initial review of assets placedunder the trustee’s or fiduciary’s custody;

(3) The investment, reinvestment anddisposition of funds or property;

(4) The review and approval oftransactions between trust and/or fiduciaryaccounts; and

(5) The review of trust and otherfiduciary accounts at least once everytwelve (12) months to determine theadvisability of retaining or disposing of thetrust or fiduciary assets, and/or whether theaccount is being managed in accordance

with the instrument creating the trust orother fiduciary relationship.

For this purpose, the trust committeeshall meet whenever necessary and keepminutes of its actions and make periodicreports thereon to the board.

c. Trust Officer. The trust officerdesignated by the board of directors ashead of the Trust Department shall act andrepresent the bank in all trust and otherfiduciary matters within the sphere of hisauthority as may be provided in theby-laws or as may be delegated by theboard. His responsibilities shall include,but need not be limited to the following:

(1) The administration of trust and otherfiduciary accounts;

(2) The implementation of policies andinstructions of the board of directors andthe trust committee;

(3) The submission of reports onmatters which require the attention of thetrust committee and the board of directors;

(4) The maintenance of adequatebooks, records and files for each trust orother fiduciary account; and

(5) The maintenance of necessarycontrols and measures to protect assetsunder his custody and held in trust or otherfiduciary capacity.

§ X406.5 – X406.8 (Reserved)

§ X406.9 Outsourcing services in trustdepartments. Trust departments of banksperforming trust and other fiduciarybusiness and investment managementactivities are covered by the requirementof prior BSP approval for outsourcingservices under Subsec. X162.3.(M-2007-009 dated 22 March 2007)

Sec. X407 Non-Trust, Non-Fiduciaryand/or Non-Investment ManagementActivities. The basic characteristic of trust,other fiduciary and investment managementrelationship is the absolute non-existence of

§§ X406.4 - X40708.12.31


a debtor-creditor relationship, thus, thereis no obligation on the part of the trustee,fiduciary or investment manager toguarantee returns on the funds orproperties regardless of the results of theinvestment. The trustee, fiduciary orinvestment manager is entitled to fees/commissions which shall be stipulated andfixed in the contract or indenture and thetrustor or principal is entitled to all the fundsor properties and earnings less fees/commissions, losses and other charges.Any agreement/arrangement that does notconform to these shall not be consideredas trust, other fiduciary and/or investmentmanagement relationship.

The following shall not constitute a trust,other fiduciary and/or investmentmanagement relationship:

a. When there is a preponderance ofpurpose or of intent that the arrangementcreates or establishes a relationship otherthan a trust, fiduciary and/or investmentmanagement;

b. When the agreement or contractis itself used as a certificate of indebtednessin exchange for money placement fromclients and/or as the medium forconfirming placements and investmentthereof;

c. When the agreement or contractof an account is accepted under thesignature(s) of those other than the trustofficer or subordinate officer of the trustdepartment or those authorized by theboard of directors to represent the trustofficer;

d. Where there is a fixed rate orguaranty of interest, income or return infavor of its client or beneficiary: Provided,however, That where funds are placed infixed income-generating investments, aquotation of income expectation or liketerms, shall neither be considered asarrangements with a fixed rate nor aguaranty of interest, income or return whenthe agreement or indenture categorically

states in bold letters that the quoted incomeexpectation or like terms is neither assurednor guaranteed by the trustee or fiduciaryand it does not, therefore, entitle the clientto a fixed interest or return on hisinvestments: Provided, further, That any ofthe following practices or practices similarand/or tantamount thereto shall beconstrued as fixing or guaranteeing the rateof interest, income or return:

(1) Issuance of certificates, sideagreements, letters of undertaking or othersimilar documents providing for fixed ratesor guaranteeing interest, income or return;

(2) Paying trust earnings based onindicated or expected yield regardless ofthe actual investment results;

(3) Increasing or reducing fees in orderto meet a quoted or expected yield;

(4) Entering into any arrangement,scheme or practice which results in thepayment of fixed rates or yield on trustinvestments or in the payment of theindicated or expected yield regardless ofthe actual investment results; and

e. Where the risk or responsibility isexclusively with the trustee, fiduciary orinvestment manager in case of loss in theinvestment of trust, fiduciary or investmentmanagement funds, when such loss is notdue to the failure of the trustee or fiduciaryto exercise the skill, care, prudence anddiligence required by law.

Trust, other fiduciary and investmentmanagement activities involving any of theforegoing which are accepted, renewed orextended after 16 October 1990 shall bereported as deposit substitutes and shall besubject to the reserve requirement for depositsubstitutes from the time of inception, withoutprejudice to the imposition of the applicablesanctions provided for in Sections 36 and 37of R.A. No. 7653.

Sec. X408 Unsafe and Unsound PracticesWhether a particular activity may beconsidered as conducting business in an

§§ X407 - X40808.12.31


unsafe or unsound manner all relevant factsmust be considered. An analysis of theimpact thereof on the bank’s operations andfinancial conditions must be undertaken,including evaluation of capital position,asset condition, management, earningsposture and liquidity position.

In determining whether a particular actor omission, which is not otherwiseprohibited by any law, rule or regulationaffecting banks, may be deemed asconducting business in an unsafe orunsound manner, the Monetary Board,upon report of the head of the supervisingor examining department based onfindings in an examination or a complaint,shall consider any of the followingcircumstances:

a. The act or omission has resultedor may result in material loss or damage,or abnormal risk or danger to the safety,stability, liquidity or solvency of thebank;

b. The act or omission has resulted ormay result in material loss or damage orabnormal risk to the bank’s depositors,creditors, investors, stockholders or to theBSP or to the public in general;

c. The act or omission has caused anyundue injury, or has given unwarrantedbenefits, advantage or preference to thebank or any party in the discharge by thedirector or officer of his duties andresponsibilities through manifest partiality,evident bad faith or gross inexcusablenegligence; or

d. The act or omission involvesentering into any contract or transactionmanifestly and grossly disadvantageous tothe bank, whether or not the director orofficer profited or will profit thereby.

The list of activities which may beconsidered unsafe and unsound is shownin Appendix 48.

In line with the statement of principlesgoverning trust and other fiduciary businessunder Sec. X401, the trustee, fiduciary or

investment manager shall desist from thefollowing unsound practices:

a. Entering in an arrangementwhereby the client is at the same timethe borrower of his own fund placement,or whereby the trustor or principal is aborrower of other trust, fiduciary orinvestment management fundsbelonging to the same family or businessgroup of such trustor or principal;

b. Granting loans or accommodationsto any trust committee member, officer andemployee of the trust department exceptwhere such loans are obtained by saidpersons as members of an employeebenefit fund of the trustee’s own institution;

c. Borrowing from, or selling trust,other fiduciary and/or investmentmanagement assets to, the bank proper tocover portfolio losses and/or to guaranteethe return of principal or income;

d. Granting new loans to anyborrower who has a past due and/orclassified loan account with the bankproper or the trust department; and

e. Requiring clients to signdocuments in blank.

§§ X408.1 – X408.8 (Reserved)

§ X408.9 Sanctions. The MonetaryBoard may, at its discretion and based onthe seriousness and materiality of the actsor omissions, impose any or all of thefollowing sanctions provided under Section37 of R.A. No. 7653 and Section 56 ofR.A. No. 8791, whenever a bank conductsbusiness in an unsafe and unsound manner:

a. Issue an order requiring the bankto cease and desist from conductingbusiness in an unsafe and unsound mannerand may further order that immediateaction be taken to correct the conditionsresulting from such unsafe or unsoundpractice;

b. Fines in amounts as may bedetermined by the Monetary Board to be

§§ X408 - X408.908.12.31


appropriate, but in no case to exceedP30,000 a day on a per transaction basistaking into consideration the attendantcircumstances, such as the gravity of theact or omission and the size of the bank,to be imposed on the bank, their directorsand/or responsible officers;

c. Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

d. Suspension of rediscountingprivileges or access to BSP credit facilities;

e. Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

f. Suspension of responsible directorsand/or officers;

g. Revocation of quasi-bankinglicense; and/or

h. Receivership and liquidation underSection 30 of R.A. No. 7653.

All other provisions of Sections 30 and37 of R.A. No. 7653, whenever appropriate,shall also be applicable on the conduct ofbusiness in an unsafe or unsound manner.

The imposition of the above sanctionsis without prejudice to the filing ofappropriate criminal charges againstculpable persons as provided in Sections34, 35 and 36 of R.A. No. 7653.

Sec. X409 Trust and Other FiduciaryBusiness. The conduct of trust and otherfiduciary business shall be subject to thefollowing regulations.

§ X409.1 Minimum documentaryrequirements. Each trust or fiduciaryaccount shall be covered by a writtendocument establishing such account, asfollows:

a. In the case of accounts created byan order of the court or other competentauthority, the written order of said court orauthority.

b. In the case of accounts created bycorporations, business firms, organizations

or institutions, the voluntary writtenagreement or indenture entered into by theparties, accompanied by a copy of the boardresolution or other evidence authorizingthe establishment of, and designating thesignatories to, the trust or other fiduciaryaccount.

c. In the case of accounts created byindividuals, the voluntary writtenagreement or indenture entered into by theparties.

The voluntary written agreement orindenture shall include the followingminimum provisions:

(1) Title or nature of contractualagreement in noticeable print;

(2) Legal capacities, in noticeableprint, of parties sought to be covered;

(3) Purposes and objectives;(4) Funds and/or properties subject of

the arrangement;(5) Distribution of the funds and/or

properties;(6) Duties and powers of trustee or

fiduciary;(7) Liabilities of the trustee or fiduciary;(8) Reports to the client;(9) Termination of contractual

arrangement and, in appropriate cases,provision for successor-trustee or fiduciary;

(10) The amount or rate of thecompensation of trustee or fiduciary;

(11) A statement in noticeable print tothe effect that trust and other fiduciarybusiness are not covered by the PDIC andthat losses, if any, shall be for the accountof the client; and

(12) Disclosure requirements fortransactions requiring prior authority and/or specific written investment directivefrom the client, court of competentjurisdiction or other competent authority.

§ X409.2 Lending and investmentdisposition. Assets received in trust or inother fiduciary capacity shall beadministered in accordance with the terms

§§ X408.9 - X409.208.12.31


of the instrument creating the trust or otherfiduciary relationship.

When a trustee or fiduciary is granteddiscretionary powers in the investmentdisposition of trust or other fiduciary funds andunless otherwise specifically enumerated in theagreement or indenture and directed in writingby the client, court of competent jurisdiction orother competent authority, loans andinvestments of the fund shall be limited to:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtednessor obligations the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines or loans againstsuch government securities;

b. Loans fully guaranteed by theRepublic of the Philippines as to thepayment of principal and interest;

c. Loans fully secured by a hold-outon, assignment or pledge of depositsmaintained either with the bank proper orother banks, or of deposit substitutes of thebank, or of mortgage and chattel mortgagebonds issued by the trustee or fiduciary;

d. Loans fully secured by real estateor chattels in accordance with Section 78of R.A. No. 337, as amended, and subjectto the requirements of Sections 75, 76, and77 of R.A. No. 337, as amended; and

e. Investment in the BSP special depositaccount (SDA) facility made in accordancewith the guidelines in Appendix 78.

The specific directives required underthis Subsection shall consist of thefollowing information:

(1) The transaction to be entered into;(2) The borrower’s name;(3) Amount involved; and(4) Collateral security(ies), if any.

(As amended by M-2007-038 dated 29 November 2007 and

M-2007-011 dated 08 May 2007)

§ X409.3 Transactions requiringprior authority. A trustee or fiduciaryshall not undertake any of the followingtransactions for the account of a client,

unless prior to its execution, suchtransaction has been fully disclosed andspecifically authorized in writing by theclient, beneficiary, other party-in-interest,court of competent jurisdiction or othercompetent authority:

a. Lend, sell, transfer or assign moneyor property to any of the departments,directors, officers, stockholders oremployees of the trustee or fiduciary, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterest of such directors, officers andstockholders; or to any corporation wherethe trustee or fiduciary owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not astrustee nor in a representative capacity;

b. Purchase or acquire property ordebt instruments from any of thedepartments, directors, off icers,stockholders, or employees of the trusteeor fiduciary, or relatives within the firstdegree of consanguinity or affinity, or therelated interest of such directors, officersand stockholders; or from anycorporation where the trustee orfiduciary owns at least fifty percent (50%)of the subscribed capital or voting stockin its own right and not as trustee nor ina representative capacity;

c. Invest in equities of, or insecurities underwritten by, the trustee orfiduciary or a corporation in which thetrustee or fiduciary owns at least fiftypercent (50%) of the subscribed capitalor voting stock in its own right and notas trustee nor in a representativecapacity; and

d. Sell, transfer, assign, or lendmoney or property from one trust orfiduciary account to another trust orfiduciary account except where theinvestment is in any of those enumeratedin Items “a” to “d” of Subsec. X409.2.

DOSRIs covered by this Subsectionshall be those considered as such underexisting regulations on loans to DOSRI in

§§ X409.2 - X409.308.12.31


Part III - E of this Manual. The proceduraland reportorial requirements in saidregulations shall also apply.

The disclosure required under thisSubsection shall consist of the followingminimum information:

(1) The transactions to be entered into;(2) Identities of the parties involved in

the transactions and their relationships (shallnot apply to Item “d” of this Subsection);

(3) Amount involved; and(4) Collateral security(ies), if any.The above information shall be made

known to clients in a separate instrumentor in the very instrument creating the trustor fiduciary relationship.

§ X409.4 Ceilings on loans. Loansfunded by trust accounts shall be subjectto the SBL and DOSRI ceilings imposedon banks under Secs. X303, X330 andX331. For purposes of determiningcompliance with said ceilings, the totalamount of said loans granted by the trustdepartment and the bank to the sameperson, firm or corporation shall becombined.

§ X409.5 Funds awaiting investmentor distribution. Funds held by the trusteeor fiduciary awaiting investment ordistribution shall not be held uninvestedor undistributed any longer than isreasonable for the proper management ofthe account.

§ X409.6 Other applicable regulationson loans and investments. The loans andinvestments of trust and other fiduciaryaccounts shall be subject to pertinent laws,rules and regulations for banks that shallinclude but need not be limited to thefollowing:

a. Requirements of Sections 76 and77 of R.A. No. 337, as amended;

b. Provisions of Section 4(e) of theNew Rules on Registration of Short-Term

Commercial Papers and Section 7(f) of theNew Rules on Registration of Long-TermCommercial Papers issued by the SEC(Appendices 13 and 14).

c. Criteria for past due accounts; andd. Qualitative appraisal of loans,

investments and other assets that mayrequire provision for probable losses whichshall be booked in accordance with theManual of Accounts for Trust and OtherFiduciary Business and InvestmentManagement Activities.

§ X409.7 Operating and accountingmethodology. Trust and other fiduciaryaccounts shall be operated and accountedfor in accordance with the following:

a. The trustee or fiduciary shalladminister, hold or manage the fund orproperty in accordance with the instrumentcreating the trust or other fiduciaryrelationship; and

b. Funds or property of each clientshall be accounted separately and distinctlyfrom those of other clients herein referredto as individual account accounting.

§ X409.8 Tax-exempt individual trustaccounts. The following shall be thefeatures/requirements of individual trustaccounts which may be exempted from thetwenty percent (20%) final tax underSection 24(B)(1) of R.A. No. 8424 (The TaxReform Act of 1997):

a. The tax exemption shall apply totrust indentures/agreements contracted onor after 03 January 2000;

b. The trust indenture/agreement shallonly be between individuals who areFilipino citizens or resident aliens andbanks acting as trustee. The trust indenture/agreement shall be non-negotiable andnon-transferable;

c. The trust indenture/agreement shallindicate that pursuant to Section 24(B)(1) ofR.A. No. 8424, interest income of the trustfund derived from investments in interest-

§§ X409.3 - X409.808.12.31


bearing instruments (e.g., time deposits,government securities, loans and otherdebt instruments) which are otherwisesubject to the twenty percent (20%) finaltax shall be exempt from said final taxprovided the fund was held by the trustee-bank for at least five (5) years. If said fundwas held for a period less than five (5) years,interest income shall be subject to a finaltax based on the following schedule –

Holding Period Rate of Tax

Four (4) years to less than five (5) years 5%Three (3) years to less than four (4) years 12%Less than three (3) years 20%

Necessarily, the trust indenture/agreement shall clearly indicate the datewhen the trustee-bank actually received thetrust funds which shall serve as basis fordetermining the holding period of the funds.

d. A trustee may accept additionalfunds for inclusion in trust accounts whichhave been established as tax-exempt underR.A. No. 8424. However, the receipt ofadditional funds shall be properlydocumented by indicating that they are partof existing tax-exempt trust accounts andthat the interest income of the additionalfunds derived from investments in interest-bearing instruments shall be exempt fromthe twenty percent (20%) final tax underthe same conditions mentioned in thepreceding item. The document shall alsoindicate the date when the funds werereceived by the trustee-bank to serve asbasis for determining the minimum five (5)-year holding period for tax exemptionpurposes of the additional funds; and

e. Tax-exempt individual trustaccounts established under this Subsectionshall be subject to the provisions of Subsecs.X409.1(c) and X409.2 up to X409.7.

§ X409.9 Living trust accounts. Theguidelines on living trust accounts are asfollows:

a. Definition. Living trust is defined underthe Manual of Accounts for Trust, as a personaltrust created by agreement.It becomesoperational during the lifetime of the trustor assoon as the agreement is accomplished.

Under a living trust, the trustor (alsoknown as settlor) conveys property or a sumof money to be managed by the trustee, asthe agreement dictates, for the benefit ofthe trustor and third person(s) or thirdperson(s) only. However, the trustor/s cannotcreate a trust with himself/themselves as thesole beneficiary/(ies). The functions andauthorities of the trustee as defined in theagreement shall include:

(1) the purpose or intention of the trust;(2) the nature and value of the property

or sum of money that comprise the trust;(3) the trustee’s investment powers;(4) the name(s) of the beneficiaries; and(5) the terms and conditions under

which the income and/or principal of thetrust is to be paid or to be disposed of duringthe lifetime and ultimately, upon the deathof the trustor or upon the occurrence of aspecified event(s).

A living trust may either be revocableor irrevocable.

b. Minimum criteria. In line with suchdefinition, transactions considered as livingtrust accounts should meet the followingminimum criteria:

(1) Minimum entry amount andmaintaining balance shall at least be P100,000:Provided, That living trust accounts withbalances of up to P500,000 shall only beinvested in deposits and government securities;

(2) Living trust accounts shall bemaintained for a minimum period of six(6) months. The termination of the livingtrust agreement, for any cause, within theminimum holding period shall render thetrustor ineligible from opening a new livingtrust account within a period of one (1) yearfrom termination date;

(3) Reversion of any part of theprincipal to the trustor, except in cases

§§ X409.8 - X409.908.12.31


provided under the dispositive portion, shallbe allowed only upon termination of theliving trust agreement: Provided, That inno case can there be a complete orsubstantial reversion of the principalpursuant to the dispositive portion withinthe minimum holding period nor can theprincipal fall below P100,000;

(4) Any living trust account that doesnot meet the requirement on the minimumentry and minimum maintaining balanceor is not invested in qualified outlets shallbe considered as other fiduciary accountssubject to applicable reserve and otherrequirements;

(5) Pre-printed living trust agreementsmay be allowed for expediency: Provided,That the sections for the trust purpose andthe dispositive provision are left blank andshall only be filled-up upon the client’ssigning thereof. The purpose shallcategorically state the real intention of thetrustor, which may include, but need notbe limited to:

(a) providing his/her and beneficiary/(ies) present and/or future financial support;

(b) protecting his/her beneficiary/(ies)against his/her inexperience in businessmatters;

(c) preventing him/her from makingimprudent expenditures;

(d) prevent the beneficiary/(ies) fromliving beyond their means in case ofoutright disposition of assets in their favor;

(e) protecting the beneficiary/(ies)against unforeseen contingencies such asincompetency, incapacity, physicaldisability or similar misfortune; and

(f) setting aside and segregatingparticular assets, proceeds or payments foradministration and distribution pursuant toa court decree or by agreement.

The dispositive provision should clearlyand specifically define the terms andconditions under which the principal and/orincome shall be distributed in order toaccomplish such purpose/(s), by taking into

consideration the frequency of redemption;the respective interests of each beneficiary;and to whom the proceeds shall be payable.Redemption of funds shall strictly be inaccordance with the said terms andconditions; and

(6) A living trust account may beopened jointly under one (1) living trustagreement by related individuals up to thesecond degree of consanguinity or affinity;Provided, That the requirements under Item“5” above are fully complied with.Unrelated individuals or those beyond thesecond degree of consanguinity or affinitymay likewise open a joint living trustaccount under one (1) living trustagreement: Provided, That the minimumcontribution of each individual is at leastP100,000: Provided further, That the trustis for a common purpose and: Providedfinally, That the requirements under Item“5” are fully complied with.

c. Marketing. Officers and personnelof the bank proper, including branchmanagers, shall not be allowed to marketliving trust products and sign pre-printedliving trust agreements. However, branchmanagers/officers may be allowed to referclients to the Trust Department and giveshort introduction on the living trustproducts to prospective clients.

d. Transitory provision. Outstandingliving trust accounts that do not meet theforegoing additional requirements shall begiven twelve (12)1 months from 11 April2006 to comply with the aforestatedrequirements; otherwise, such accountsshall be considered as Other FiduciaryAccounts subject to applicable reserverequirements.

e. Sanctions. Any violation of theprovisions of this Subsection shall besubject to the sanctions provided underSection 37 of R.A. No. 7653 (The NewCentral Bank Act).(Circular Nos. 553 dated 22 December 2006 and 521 dated

21 March 2006)

1 Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553

§ X409.908.12.31


§§ X409.10 - X409.15 (Reserved)

§ X409.16 Qualification andaccreditation of private banks acting astrustee on any mortgage or bond issuanceby any municipality, government-owned orcontrolled corporation, or any body politic

a. Applicability. Private banks dulyaccredited by the BSP may act as trusteeon any mortgage or bond issued by anymunicipality, GOCC, or any body politic.

b. Application for accreditation. Aprivate bank desiring to act as trustee onany mortgage or bond issued by anymunicipality, GOCC, or any body politicshall file an application for accreditationwith the appropriate supervising andexamining department of SES. Theapplication shall be signed by the presidentor officer of equivalent rank of the bankand shall be accompanied by the followingdocuments:

(1) certified true copy of the resolutionof the institution’s board of directorsauthorizing the application;

(2) a certification signed by thepresident or officer of equivalent rank thatthe institution has complied with all thequalification requirements for accreditation.

c. Qualification requirements. A bankapplying for accreditation to act as trusteeon any mortgage or bond issued by anymunicipality, government-owned orcontrolled corporation, or any body politicmust comply with the requirements inAppendix 5b.

d. Independence of the trustee. Abank is prohibited from acting as trustee ofa mortgage or bond issuance if any electiveor appointive official of the LGU, GOCC,or body politic which issued said mortgageor bond and/or his related interests ownsuch number of shares of the bank that willallow him or his related interests to electat least one (1) member of the board ofdirectors of such bank or is directly orindirectly the registered or beneficial owner

of more than ten percent (10%) of any classof its equity security.

e. Investment and management ofthe funds. A domestic bank designated astrustee of a mortgage or bond issuance mayhold and manage, in accordance with theprovisions of the trust indenture oragreement, the proceeds of the mortgageor bond issuance and such assets and fundsof the issuing municipality, corporation, orbody politic as may be required to bedelivered to the trustee under the trustindenture/agreement, subject to thefollowing conditions/restrictions:

(1) Pending the utilization of such fundspursuant to the provisions of the trustindenture/agreement, the same shall only bedeposited in any bank, other than the trustee/bank proper, its subsidiary or affiliateauthorized to accept deposits from theGovernment or government entities, orinvested in peso-denominated treasury billsacquired/purchased from any securitiesdealer/entity, other than the trustee or any ofits unit/department, its subsidiary or affiliate.

(2) Investments of funds constituting orforming part of the sinking fund created asthe primary source for the payment of theprincipal and interests due the mortgageor bonds shall also be limited to depositsin any bank, other than the trustee/bankproper, its subsidiary or affiliate, authorizedto accept deposits from the Governmentor government entities and investments ingovernment securities that are consistentwith such purpose which must be acquired/purchased from any securities dealer/entity,other than the trustee or any of its unit/department, its subsidiary or affiliate.

f. Waiver of confidentiality. A bankdesignated as trustee of any mortgage orbond issued by any municipality, GOCC,or any body politic shall submit to theappropriate supervising and examiningdepartment of SES a waiver of theconfidentiality of information underSections 2 and 3 of R.A. No. 1405, as

§§ X409.10 - X409.1608.12.31


amended, duly executed by the issuer ofthe mortgage or bond in favor of the BSP.

g. Reportorial requirements. A bankauthorized by the BSP to act as trustee ofthe proceeds of mortgage or bond issuanceof a municipality, GOCC or controlledcorporation, or body politic shall complywith reportorial requirements that may beprescribed by the BSP.

h. Applicability of the rules andRegulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities. The provisions of the Rules andRegulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities not inconsistent with theprovisions of this Subsection shall form partof these rules.

i. Sanctions. Without prejudice to thepenal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of the R.A. No. 7653, violationof any provision of this Subsection shall besubject to the following sanctions/penaltiesdepending on the gravity of the offense:

(1) First offense –(a) Fine of up to P10,000 a day for the


(b) Reprimand for the directors/officersresponsible for the violation.

(2) Second offense –(a) Fine of up to P20,000 a day for the

institution for each violation reckoned fromthe date the violation was committed upto the date it was corrected;

(b) Suspension for ninety (90) dayswithout pay for directors/officersresponsible for the violation; and

(c) Revocation of the authority to actas trustees on any mortgage or bondissuance by any municipality, GOCCs, orbody politic.

(3) Subsequent offense –(a) Fine of up to P30,000 a day for the

institution for each violation reckoned from

the date the violation was committed up tothe date it was corrected;

(b) Suspension or revocation of thetrust license;

(c) Suspension for one hundred twenty(120) days without pay of the directors/officers responsible for the violation.

§ X409.17 Trust fund of pre-needcompanies. The following rules andregulations shall govern the acceptance,management and administration of the trustfunds of pre-need companies by banks andother entities authorized to perform trustand other fiduciary functions.

a. Administration of trust fund. In linewith the policy of providing greaterprotection to pre-need planholders,prudential measures are hereby laid out inthe administration of trust funds of preneedcompanies. The trust fund, inclusive ofearnings, shall be administered andmanaged by the trustee with the skill, care,prudence and diligence necessary underthe circumstances then prevailing that aprudent man, acting in the same capacityand familiar with such matters, wouldexercise in the conduct of an enterprise ofa like character and similar aims.

The trustee shall have exclusivemanagement and control over the trustfund and the right at any time to sell,convert, invest, change, transfer orotherwise dispose of the assets comprisingthe funds.

b. Trustee. No trust entity shall act as atrustee or administer or hold a trust fundestablished by a pre-need company, whichis a subsidiary or affiliate, as defined underexisting BSP regulations, of such trust entity.Trust entities currently holding oradministering trust funds of an affiliatepre-need company may continue to act astrustee of such funds after the transitionperiod provided under Item “g” only uponprior approval of the Monetary Board onthe basis of a clear showing that no potential

§§ X409.16 - X409.1708.12.31


conflict of interest will arise. An absence ofany exception or finding on conflicts ofinterest during an examination of the trustentity shall be deemed as prima facieevidence that no potential conflict of interestwill arise.

c. Investment of the trust fund. Unlessotherwise allowed under existing laws orregulations issued by the agency havingjurisdiction and supervision over pre-needcompanies, or with prior written approvalby said agency, loans and investments ofthe trust funds shall be limited to:

(1) Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtednessor obligations wherein the servicing andrepayment of which are fully guaranteedby the Republic of the Philippines or loansagainst such government securities;

(2) Commercial papers duly registeredwith the SEC with a credit rating of one (1)for short term and “AAA” for long-term ortheir equivalent;

(3) Loans fully guaranteed by theRepublic of the Philippines, as to thepayment of principal and interest;

(4) Loans fully secured by a hold-outon, assignment or pledge of depositsmaintained either with the bank proper orother banks, and/or of deposit substitutesor of mortgage and chattel mortgage bondsissued by the trustee/fiduciary or by otherbanks;

(5) Loans fully secured by real estatein accordance with Section 37 and subjectto the requirements of Sections 39 and 40of R.A. No. 8791 and their implementingregulations; and

(6) Loans fully secured byunconditional payment guarantees (such asstandby letters of credit and letter ofindemnity) issued by banks/multilateralfinancial institutions.

d. Transactions with DOSRI. Thetrustee shall not, for the account of thetrustor or the beneficiary of the trust,

purchase or acquire property from, or sell,transfer, assign or lend money or propertyto, or purchase debt instruments of, any ofthe departments, directors, officers,stockholders, employees, subsidiaries andaffiliates of the trustee and/or the trustor,and relatives within the first degree ofconsanguinity or affinity, or the relatedinterests, of such directors, officers andstockholders, without prejudice to any rulethat may be issued by the agency havingjurisdiction and supervision over suchpreneed company allowing such transactionwith the prior written approval of suchagency. Such written approval shall clearlyspecify the amount of the loan and/orinvestment including the name of theconcerned director, officer, stockholder andtheir related interests.

e. Applicability of the Rules andRegulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities (Trust Rules). The provisions of theTrust Rules consistent with the provisions ofthis Subsection shall supplementarily applyto trust funds of pre-need companies.

f. Penalties and sanctions. Anyviolation of the provisions of this Subsectionshall be a ground for prohibiting theconcerned entity from accepting, managingand administering trust funds of pre-needcompanies without prejudice to theimposition of the applicable sanctionsprescribed or allowed under the Trust Rules.

g. Transitory provisions. Banks whichare presently administering and managingtrust funds of pre-need companies arehereby given a period of one (1) year from25 April 2006 to comply with therequirements hereof.(Memorandum to All Banks and NBFIs dated 28 March 2006)

Sec. X410 Unit Investment Trust Funds/Common Trust Funds.1 The following rulesand regulations shall govern the creation,administration and investment/s of UnitInvestment Trust (UIT) Funds.

1 The regulations on common trust funds (CTFs) were relocated to Appendix 60. UIT Funds regulations took effect on01 October 2004 (effectivity of Circular 447 dated 03 September 2004).

§§ X409.17 - X41008.12.31


The rules and regulations on CommonTrust Funds (CTFs) are in Appendix 60.

§ X410.1 Definitionsa. Unit Investment Trust Funds. Unit

Investment Trust Funds are open-endedpooled trust funds denominated in pesosor any acceptable currency, which areoperated and administered by a trust entityand made available by participation. Theterm Unit Investment Trust Funds issynonymous to CTFs. As an open-endedfund, participation or redemption isallowed as often as stated in its plan rules.

UIT Funds shall not include long termfunds designed for the primary purpose ofavailing the tax incentives/exemptionunder Section 24(B)(1) of R.A. No. 8424(The Tax Reform Act of 1997).

b. Trust entity. Any bank, IH or a stockcorporation duly authorized by theMonetary Board to engage in trust,investment management and fiduciarybusiness.

c. Board of directors. For this purpose,the term shall include a trust entity’s dulyconstituted board of directors or itsfunctional oversight equivalent which shallinclude the country head in the case offoreign banks.

§ X410.2 Establishment of a UnitInvestment Trust Fund. Any trust entityauthorized to perform trust functions mayestablish, administer and maintain one (1)or more UIT Funds subject to applicableprovisions under this Section.

§ X410.3 Administration of a UnitInvestment Trust Fund. The trustee shallhave exclusive management and controlof each UIT Fund under its administration,and the sole right at any time to sell,convert, reinvest, exchange, transfer orotherwise change or dispose of the assetscomprising the fund: Provided, That noparticipant in a UIT Fund shall have or be

deemed to have any ownership or interestin any particular account or investment inthe UIT Fund but shall have only itsproportionate beneficial interest in the fundas a whole.

§ X410.4 Relationship of trustee withUnit Investment Trust Fund. A trusteeadministering a UIT Fund shall not haveany other relationship with such fund otherthan its capacity as trustee of the UIT Fund:Provided, however, That a trustee whichsimultaneously administers other trust,fiduciary or investment management fundsmay invest such funds in the trustee’s UITFund, if allowed under a policy approvedby the board of directors.

§ X410.5 Operating and accountingmethodology. A UIT Fund shall beoperated and accounted for in accordancewith the following:

a. The total assets and accountabilitiesof each fund shall be accounted for as asingle account referred to as pooled-fundaccounting method.

b. Contributions to each fund by clientsshall always be through participation in unitsof the fund and each unit shall have uniformrights or privileges, as any other unit.

c. All such participations shall bepooled and invested as one (1) account(referred to as collective investments).

d. The beneficial interest of eachparticipation unit shall be determined undera unitized net asset value per unit (NAVPu)valuation methodology defined in thewritten plan of the UIT Fund, and noparticipation shall be admitted to, orredeemed from, the fund except on thebasis of such valuation. To arrive at a fund’sNAVPu, the fund’s total Net Assets isdivided by the total outstanding units. TotalNet Assets is a summation of the marketvalue of each investment less fees, taxes,and other qualified expenses, as definedunder the plan rules.

§§ X410 - X410.508.12.31


§ X410.6 Plan rules. Each UIT Fundshall be established, administered andmaintained in accordance with a writtentrust agreement drawn by the trustee,referred to as the “Plan” which shall beapproved by the board of directors of thetrustee and a copy of which shall besubmitted to the BSP for processing andapproval prior to its implementation. Eachnew UIT Fund Plan filed for approval shallbe charged a processing fee ofP10,000.00.

The Plan shall contain the followingminimum elements:

a. Title of the Plan. This shallcorrespond to the product/brand name bywhich the UIT Fund is proposed to beknown and made available to its clients.The Plan rules shall state the classificationof the UIT Fund (e. g., money market fund,bond fund, balanced fund and equity fund).

b. Manner by which the fund is to beoperated. A statement of the fund’sinvestment objectives and policiesincluding limitations, if any.

c. Risk disclosure. The Plan rules shallstate both the general risks and risksspecific to the type of fund.

d. Investment powers of the trusteewith respect to the fund, including thecharacter and kind of investments, whichmay be purchased, by the fund. There mustbe an unequivocal statement of the fulldiscretionary powers of the trustee as faras the fund’s investments are concerned.These powers shall be limited only by theduly stated investment objective andpolicies of the fund.

e. The unitized NAVPu valuationmethodology as prescribed under Subsec.X410.5.d shall be employed.

f. Terms and conditions governingthe admission or redemption of units ofparticipation in the fund. The Plan rulesshall state that the trustee, prior toadmission of a client’s initial participationin the UIT Fund, shall conduct a client

suitability assessment to profile the risk-return orientation and suitability of theclient to the specific type of fund. If thefrequency of admission or redemption isother than daily; that is, any business day,the same should be explicitly stated in thePlan rules: Provided, That the admissionand redemption prices shall be based onthe end of day NAVPu of the fundcomputed after the cut-off time for fundparticipation and redemption for thatreference day, in accordance with existingBSP regulations on mark to marketvaluation of investment securities.

g. Aside from the regular auditrequirement applicable to all trustaccounts, an external audit of each UITFund shall be conducted annually by anindependent auditor acceptable to the BSPand the results thereof made available toparticipants. The external audit shall beconducted by the same external auditorengaged for the audit of the trust entity.

h. Basis upon which the fund may beterminated. The Plan rules shall state therights of participants in case of terminationof the fund. Termination of the fund shallbe duly approved by the trustee’s board ofdirectors and a copy of the resolutionsubmitted to the appropriate departmentof the BSP.

i. Liability clause of the trustee.There must be a clear and prominentstatement adjacent to where a client isrequired to sign the participating trustagreement that (1) the UIT Fund is a trustproduct and not a deposit account or anobligation of, or guaranteed, or insuredby the trust entity or its affiliates orsubsidiaries; (2) the UIT Fund is notinsured or governed by the PDIC; (3) dueto the nature of the investment, yieldsand potential yields cannot beguaranteed; (4) any loss/income arisingfrom market fluctuations and pricevolatility of the securities held by the UITFund, even if invested in government

§ X410.608.12.31


securities, is for the account of the client/participant; (5) as such, the units ofparticipation of the investor in the UITFund, when redeemed, may be worthmore or be worth less than his/her initialinvestment/contributions; (6) historicalperformance, when presented, is purelyfor reference purposes and is not aguarantee of similar future result; and(7) the trustee is not liable for losses unlessupon willful default, bad faith or grossnegligence.

j. Amount of fees/commission andother charges to be deducted from the fund.The amount of fees that shall be chargedto a fund shall cover the fund’s fair andequitable share of the routineadministrative expenses of the trustee suchas salaries and wages, stationery andsupplies, credit investigation, collateralappraisal, security, messengerial andjanitorial services, EDP expenses, BSPsupervision fees and internal audit fees.However, the trustee may charge a UITFund for special expenses in case suchexpenses are (1) necessary to preserve orenhance the value of the fund, (2) payableto a third party covered by a separatecontract, and (3) disclosed to participants.The trustee shall secure prior BSP approvalfor outsourcing services provided underexisting regulations. No other fees shallbe charged to the fund.

Marketing or other promotional relatedexpenses shall be for the account of thetrustee and shall be presumed covered bythe trust fee.

k. Such other matters as may benecessary or proper to define clearly therights of participants in the UIT Fund. Theprovisions of the Plan shall governparticipation in the fund including the rightsand benefits of persons having interest in suchparticipation, as beneficiaries or otherwise.The Plan may be amended by a resolutionof the board of directors of the trustee:Provided, however, That participants in the

fund shall be immediately notified ofsuch amendments and shall be allowedto withdraw their participations within areasonable time but in no case less thanthirty (30) calendar days after theamendments are approved, if they arenot in conformity with the amendmentsmade thereto: Provided further, Thatamendments to the Plan shall be submittedto the BSP within ten (10) business daysfrom approval of the amendments by theboard of directors. For purposes ofimposing monetary penalties providedunder Subsec. X192.2 for delayedsubmission of reports, the amendments tothe Plan shall be considered as “CategoryA-3” report. The amendments shall bedeemed approved after thirty (30) businessdays from date of completion ofrequirements.

A copy of the Plan shall be available atthe principal office of the trustee duringregular office hours, for inspection by anyperson having an interest in the fund or byhis authorized representative. Uponrequest, a copy of the Plan shall befurnished such interested person.(As amended by Circular No. 593 dated 08 January 2008)

§ X410.7 Minimum disclosurerequirements

a. Disclosure of UIT Fund investments.A list of prospective and outstandinginvestment outlets shall be made availableby the trustee for the review of all UITFund clients. Such disclosure shall besubstantially in the form as shown inAppendix 62. The list of investment outletsshall be updated quarterly.

b. Distribution of investment units.The trustee may issue such conditions orrules, as may affect the distribution ofinvestment units subject to the minimumconditions enumerated hereunder.

(1) Marketing materials. All printedmarketing materials related to the sale ofa UIT Fund shall clearly state:

§§ X410.6 - X410.708.12.31


(a) The designated name andclassification of the fund and the fund’strustee.

(b) Minimum information regarding:(i) The general investment policy and

applicable risk profile. There shall be aclear description/explanation of the generalrisks attendant with investing in a UIT Fund,including risk specific to a type of fund. Technical terms should likewise bedefined in laymen’s terms1.

(ii) Particulars or administrative andmarketing details like pricing and cut-offtime.

(iii) All charges made/to be madeagainst the fund, including trust fees, otherrelated charges.

(iv) The availability of the Plan Rulesgoverning the fund, upon the client’s request.

(v) Client and Product SuitabilityStandards. Prior to admission, the trusteeshall perform a client profiling process forall UIT Fund participants under the generalprinciples on client suitability assessmentto guide the client in choosing investmentoutlets that are best suited to his objectives,risk tolerance, preferences and experience.The profiling process shall, at the minimum,require the trustee to obtain clientinformation through the Client SuitabilityAssessment (CSA) form, classify the clientaccording to his financial sophistication andcommunicate the CSA results to thesubject client. The general principles onCSA shall also require the trustee to adopta notice mechanism whereby clients areadvised and/or reminded of the explicitrequirement to notify the trustee or its UITFund marketing personnel of any change intheir characteristics, preferences orcircumstances to enable the trustee to updateclient’s profile at least every three (3) years.

(c) The participation is not a “depositaccount” but a trust product; and that anyloss/income is for the account of theparticipant; that the trustee is not liable for

losses unless upon willful default, bad faithor gross negligence.

(d) A balanced assessment of thepossible gains and losses of the UIT Fundand that the participation does not carryany guaranteed rate of return, and is notinsured by the PDIC.

(e) An advisory that the investor mustread the complete details of the fund inthe Plan Rules, make his/her own riskassessment, and when necessary, he/shemust seek independent/professionalopinion, before making an investment.

(2) Evidence of participation. EveryUIT Fund participant shall be given -

(a) A participating trust agreement.Such agreement shall clearly indicate that(1) the UIT Fund is a trust product and nota deposit account or an obligation of, orguaranteed, or insured by the trust entityor its affiliates or subsidiaries; (2) the UITFund is not insured or governed by thePDIC; (3) due to the nature of theinvestment, yields and potential yieldscannot be guaranteed; (4) any loss/incomearising from market fluctuations and pricevolatility of the securities held by the UITFund, even if invested in governmentsecurities, is for the account of the client/participant; (5) as such, the units ofparticipation of the investor in the UIT Fund,when redeemed, may be worth more orbe worth less than his/her initial investment/contributions; (6) historical performance,when presented, is purely for referencepurposes and is not a guarantee of similarfuture result; and (7) the trustee is not liablefor losses unless upon willful default, badfaith or gross negligence.

In addition to the agreement, every UITFund participant shall be provided with -

(1) CSA form to be accomplishedduring the profiling process required underthe general principles on CSA. This isdesigned to ensure that based on relevantinformation about the client, his investment

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"

§§ X410.708.12.31


profile is matched against the investmentparameters of the UIT Fund. At theminimum, client information shall includepersonal or institutional data, investmentobjective, investment horizon, investmentexperience, and risk tolerance; and

(2) Risk disclosure statement, which inreference to Subsec. X410.6c, shalldescribe the attendant general and specificrisks that may arise from investing in theUIT Fund. Such statement shall besubstantially similar to the form in AnnexA of Appendix 62a.

Both documents shall be signed by theclient/participant and the UIT marketingpersonnel who assessed and explained tothe concerned client his/her ability to bearthe risks and potential losses.

(b) A confirmation of participation andredemption made to/from the fund that shallcontain the following information:

(i) NAVPu of the fund on day ofpurchase/redemption;

(ii) Number of units purchased/redeemed; and

(iii) Absolute peso or foreign currencyvalue.

No indicative rates of return shall beprovided in the trust participatingagreement. Marketing materials maypresent relevant historical performancepurely for reference and with clearindication that past results do not guaranteesimilar future results.

(3) A participating trust agreement orconfirmation of contribution/redemptionneed not be manually signed by the trusteeor his authorized representative if thesame is in the form of an electronicdocument that conforms with theimplementing rules and regulations ofR.A. No. 8792, otherwise known as theE-Commerce Act.

c. Regular publication/computation/availability of the fund’s NAVPu. Trustentities managing a UIT Fund shall causeat least the weekly publication of the

NAVPu of such fund in one (1) or morenewspaper of national circulation:Provided, That a pooled weekly publicationof such NAVPu shall be considered assubstantial compliance with thisrequirement. The said publication, at theminimum, shall clearly state the name ofthe fund, its general classification, the fund’sNAVPu and the moving return oninvestment (ROI) of the fund on a year-to-date (YTD) and year-on-year (YOY) basis.

NAVPu shall be computed daily andshall be made available to participants andprospective participants upon request.

d. Marketing personnel. To ensurethe competence and integrity of all dulydesignated UIT marketing personnel, allpersonnel involved in the sales of thesefunds shall be required to undergostandardized training program inaccordance with the guidelines of thisSubsection. This training program may beconducted by their respective trust entitiesin accordance with the minimum trainingprogram guidelines provided by the TrustOfficers Association of the Philippines(TOAP). Such training program shallhowever be regularly validated by TOAP.(As amended by Circular No. 593 dated 08 January 2008)

§ X410.8 Exposure limit to singleperson/entity. The combined exposure ofthe UIT Fund to any entity and its relatedparties shall not exceed fifteen percent(15%) of the market value of the UIT Fund:Provided, That, a UIT Fund invested,partially or substantially, in exchangetraded equity securities shall be subject tothe fifteen percent (15%) exposure limit toa single entity/issuer: Provided, further,That, in the case of an exchange tradedequity security which is included in anindex and tracked by the UIT Fund, theexposure of the UIT Fund to a single entityshall be the actual benchmark weightingof the issuer or fifteen percent (15%),whichever is higher.

§§ X410.7 - X410.808.12.31


This limitation shall not apply tonon-risk assets as defined by the BSP.

In case the limit is breached due to themarking-to-market of certain investment/sor any extraordinary circumstances, e.g.,abnormal redemptions which are beyondthe control of the trustee, the trustee shallbe given thirty (30) days from the time thelimit is breached to correct the same.(As amended by Circular No. 577 dated 17 August 2007).

§ X410.9 Allowable investmentsand valuation. UIT Fund investments shallbe limited to bank deposits and thefollowing financial instruments:

(a) Securities issued by or guaranteedby the Philippine government, or the BSP;

(b) Tradable securities issued by thegovernment of a foreign country, anypolitical subdivision of a foreign countryor any supranational entity;

(c) Exchange-listed securities;(d) Marketable instruments that are

traded in an organized exchange;(e) Loans traded in an organized

market; and(f) Such other tradable investments

outlets/categories as the BSP may allow:Provided, That a financial instrument

is regarded as tradable if quoted two-wayprices are readily and regularly availablefrom an exchange, dealer, broker,industry group, pricing service orregulatory agency, and those pricesrepresent actual and regularly occurringmarket transactions on an arm’s lengthbasis.

The UIT Fund may avail itself offinancial derivatives instruments solely forthe purpose of hedging risk exposures ofthe existing investments of the Fund,provided these are accounted for inaccordance with existing BSP hedgingguidelines as well as the trust entity’s riskmanagement and hedging policies dulyapproved by the Trust Committee anddisclosed to participants.

The use of hedging instruments shallalso be disclosed in the “Plan” asprovided in Item “c” of Subsec. X410.6and specified in the quarterly “list ofinvestment outlets” as provided in Item“a” of Subsec. X410.7.

§ X410.10 Other related guidelines onvaluation of allowable investments

a. In pricing debt securities,interpolated yields shall be used forsecurities with odd or off-the-run tenorsusing the straight-line basis and generallyaccepted market convention.

b. In case outstanding UIT Fundinvestments may deteriorate in quality,i.e., no longer tradable as defined underSubsec. X410.9, the trustee shallimmediately provision to reflect fair valuein accordance with generally acceptedaccounting principles or as may beprescribed by the BSP. If no fair value isavailable, the instrument shall be assumedto be of no market value.

§ X410.11 Unit Investment Trust Fundadministration support

a. Backroom operations. Administrativerules on backroom under Sec. X421 shallbe applicable to UIT Fund. Adequatesystems to support the daily marking-to-market of the fund’s financial instrumentsshall be in place at all times. In thisrespect, a daily reconcilement of thefund’s resultant marked-to-market valuewith the unrealized market losses andgains (respective contra asset balance)versus the book value of the fund forinvestments in financial instruments shallbe done and all differences resolvedwithin the day.

b. Custody of securities. Investmentsin securities of a UIT Fund shall be heldfor safekeeping by BSP accredited thirdparty custodians which shall performindependent marking-to-market of suchsecurities.

§§ X410.8 - X410.1108.12.31


§ X410.12 Counterpartiesa. Dealings with related interests/bank

proper/holding company/subsidiaries/affiliates and related companies. A trusteeof a UIT Fund shall be transparent at alltimes and maintain an audit trail for alltransactions with related parties orentities. The trustee shall observe theprinciple of best execution and nopurchase/sale shall be made with relatedcounterparties without considering atleast two (2) competitive quotes fromother sources.

b. Accreditation of counterparties.The Fund shall only invest with approvedcounterparties qualified in accordance withthe policy duly approved by the TrustCommittee. Counterparties shall besubject to appropriate limits in accordancewith sound risk management principles.

§ X410.13 Foreign currency-denominated unit investment trust fundsUIT Fund denominated in any acceptableforeign currency provided under existingBSP rules and regulations may beestablished. Such fund may only beinvested in allowable investmentsdenominated in pesos or any acceptableforeign currency as expressly allowedunder the fund’s plan rules and properlydisclosed to fund participants.

§ X410.14 Exemptions from statutoryand liquidity reserves, single borrower’slimit, director, officers, stockholders andtheir related interests. The provisions onreserves, single borrower’s limit andDOSRI ceilings under Subsec. X405.5, andSecs. X303, X330 and X331, respectively,applicable to trust funds in general shallnot be made applicable to UIT Funds.

Sec. X411 Investment ManagementActivities. The conduct of investmentmanagement activities shall be subject tothe following regulations.

§ X411.1 Minimum documentaryrequirements. An investment managementaccount shall be covered by a writtendocument establishing such account, asfollows:

a. In the case of accounts created bycorporations, business firms, organizationsor institutions, the voluntary writtenagreement or indenture entered into by theparties, accompanied by a copy of the boardresolution or other evidence authorizing theestablishment of and designating thesignatories to, the investment managementaccount.

b. In the case of accounts created byindividuals, the voluntary writtenagreement or indenture entered into by theparties.

The voluntary written agreement orcontract shall include the followingminimum provisions:

(1) Pre-numbered contractualagreement form;

(2) Title or nature of contractualagreement in noticeable print;

(3) Legal capacities, in noticeable print,of parties sought to be covered;

(4) Purposes and objectives;(5) The initial amount of funds and/or

value of securities subject of thearrangement delivered to the investmentmanager;

(6) Statement in underlined noticeableprint that:

(a) The agreement is an agency and nota trust agreement. As such, the client shallat all times retain legal title to funds andproperties subject of the arrangement;

(b) The arrangement does not guarantya yield, return or income by the investmentmanager. As such, past performance of theaccount is not a guaranty of futureperformance and the income of investmentscan fall as well as rise depending onprevailing market conditions; and

(c) The investment managementagreement is not covered by the PDIC and

§§ X410.12 - X411.108.12.31


that losses, if any, shall be for the accountof the client;

(7) Duties and powers of theinvestment manager;

(8) Liabilities of the investmentmanager;

(9) Reports to the client;(10) The amount or rate of the

compensation of the investment manager;(11) Terms and conditions governing

withdrawals from the account;(12) Termination of contractual

arrangement; and(13) Disclosure requirements for

transactions requiring prior authority and/or specific written investment directivesfrom the client.

A sample investment managementagreement which conforms to the foregoingrequirements is shown as Appendix 24.

§ X411.2 Minimum size of eachinvestment management account. Noinvestment management account shall beaccepted or maintained for an amount lessthan P1.0 million. An investmentmanagement account reduced to less thanP1.0 million due to investment losses shallbe exempt from this requirement.

§ X411.3 Commingling of funds. Two(2) or more individual investmentmanagement accounts shall not becommingled except for the purpose ofinvesting in government securities or induly registered commercial papers:Provided, That the participation of each ofthe aforementioned accounts in thecommingled account shall not be less thanP1.0 million: Provided, further, That suchcommingling has been duly disclosed andspecifically agreed in writing by the clients.

§ X411.4 Lending and investmentdisposition. Assets received in investmentmanagement capacity shall beadministered in accordance with the terms

of the instrument creating the investmentmanagement relationship.

When an investment manager isgranted discretionary powers in theinvestment disposition of investmentmanagement funds and unless otherwisespecifically enumerated in the agreementor indenture and directed in writing by theclient, loans and investments of the fundshall be limited to:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtednessor obligations the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines or loans againstsuch government securities;

b. Loans fully guaranteed by theRepublic of the Philippines as to thepayment of principal and interest;

c. Loans fully secured by a hold-out on,assignment or pledge of deposits maintainedeither with the bank proper or other banks,or of deposit substitutes of the bank, ormortgage and chattel mortgage bondsissued by the investment manager; and

d. Loans fully secured by real estateor chattels in accordance with Sections 37and 38 of R.A. No. 8791, and subject tothe requirements of Sections 39 and 40 ofR.A. No. 8791.

The specific directives required underthis Subsection shall consist of thefollowing information:

(1) The transaction to be entered into;(2) Borrower’s name;(3) Amount involved; and(4) Collateral security(ies), if any.

§ X411.5 Transactions requiring priorauthority. An investment manager shallnot undertake any of the followingtransactions for the account of a client,unless prior to its execution, suchtransaction has been fully disclosed andspecifically authorized in writing by theclient:

§§ X411.1 - X411.508.12.31


a. Lend, sell, transfer or assign moneyor property to any of the departments,directors, officers, stockholders, oremployees of the investment manager, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests of such directors, officers andstockholders; or to any corporation wherethe investment manager owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not astrustee nor in a representative capacity;

b. Purchase or acquire property or debtinstruments from any of the departments,directors, officers, stockholders, oremployees of the investment manager, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests of such directors, officers andstockholders; or from any corporation wherethe investment manager owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not as trusteenor in a representative capacity;

c. Invest in equities of, or in securitiesunderwritten by, the investment manageror a corporation in which the investmentmanager owns at least fifty percent (50%)of the subscribed capital or voting stock inits own right and not as trustee nor in arepresentative capacity; and

d. Sell, transfer, assign or lend moneyor property from one trust, fiduciary orinvestment management account toanother trust, fiduciary or investmentmanagement account except where theinvestment is in any of those enumeratedin Items “a” to “d” of Subsec. X411.4.

Directors, officers, stockholders, andtheir related interests covered by thisSubsection shall be those considered assuch under existing regulations on loansto DOSRI in Part III-E of this Manual. Theprocedural and reportorial requirements insaid regulations shall also apply.

The disclosure required under thisSubsection shall consist of the followingminimum information:

(1) The transaction to be entered into;(2) Identities of the parties involved

in the transaction and their relationships(shall not apply to Item “d” of thisSubsection);

(3) Amount involved; and(4) Collateral security(ies), if any.The above information shall be made

known to clients in a separate instrumentor in the very instrument creating theinvestment management relationship.

§ X411.6 Title to securities and otherproperties. Securities such as promissorynotes, shares of stocks, bonds and otherproperties of the portfolio shall be issuedor registered in the name of the principalor of the investment manager: Provided,That in case of the latter, the instrumentshall indicate that the investment manageris acting in a representative capacity andthat the principal’s name is disclosedthereat.

§ X411.7 Ceilings on loans. Loansfunded by investment managementaccounts shall be subject to the DOSRIceilings imposed on banks and IHs underSecs. X330 and X331. For purposes ofdetermining compliance with said ceilings,the total amount of said loans granted bythe trust department and the bank properto the same person, firm or corporationshall be combined.

§ X411.8 Operating and accountingmethodology. Investment managementaccounts shall be operated and accountedfor in accordance with the following:

a. The investment manager shalladminister, hold, or manage the fund orproperty in accordance with the instrumentcreating the investment managementrelationship; and

b. Funds or property of each clientshall be accounted separately and distinctlyfrom those of other clients herein referredto as individual account accounting.

§§ X411.5 - X411.808.12.31


§ X411.9 Tax-exempt individualinvestment management accounts. Thefollowing shall be the features/requirements of investment managementaccounts of individuals which may beexempted from the twenty percent (20%)final tax under Section 24(B)(1) of R.A. No.8424 (The Tax Reform Act of 1997):

a. The tax exemption shall apply toinvestment management agreementscontracted on or after 03 January 2000;

b. The investment managementagreement shall only be between individualswho are Filipino citizens or resident aliensand investment manager-banks. Theagreement shall be non-negotiable andnon-transferable;

c. The minimum amount ofinvestment for an investment managementaccount shall be P1.0 million;

d. The investment managementagreement shall indicate that pursuant toSection 24(B)(1) of R.A. No. 8424, interestincome of the investment managementfunds derived from investments in interest-bearing instruments (e.g., time deposits,government securities, loans and otherdebt instruments) which are otherwisesubject to the twenty percent (20%) finaltax, shall be exempt from said final taxprovided the funds are held underinvestment management by the investmentmanager for at least five (5) years. If saidfunds are held by the investment managerfor a period less than five (5) years, interestincome shall be subject to a final tax whichshall be deducted and withheld from theproceeds of the investment managementaccount based on the following schedule–

Holding Period Rate of Tax

Four (4) years to less than five (5) years 5%Three (3) years to less than four (4) years 12%Less than three (3) years 20%

Necessarily, the investmentmanagement agreement shall clearlyindicate the date when the investment

manager actually received the funds whichshall serve as basis for determining theholding period of the funds;

e. The investment manager mayaccept additional funds for inclusion ininvestment management accounts whichhave been established as tax-exempt underR.A. No. 8424. However, the receipt ofadditional funds shall be properlydocumented by indicating that they are partof existing tax-exempt investmentmanagement accounts and that the interestincome of the additional funds derived frominvestments in interest-bearing instrumentsshall be exempt from the twenty percent(20%) final tax under the same conditionsmentioned in the preceding item. Thedocument shall also indicate the date whenthe additional funds were received by theinvestment manager-bank to serve as basisfor determining the minimum five (5)-yearholding period for tax exemption purposesof the additional funds; and

f. Tax-exempt individual investmentmanagement accounts established underthis Subsection shall be subject to theprovisions of Subsecs. X411.1(b) andX411.2 up to X411.8.

Sec. X412 Foreign Currency Deposit Unit/Expanded Foreign Currency Deposit UnitTrust Accounts. Only a bank with authorityto operate a foreign currency deposit unit(FCDU) or an expanded foreign currencydeposit unit (EFCDU) under R.A. No. 6426,as amended, may accept foreign currency-denominated trust accounts.

§ X412.1 Banks with trust authorityA bank authorized to engage in trust businessunder Section 79 of R.A. No. 8791, which isalso authorized to operate an FCDU orEFCDU under R.A. No. 6426, as amended,shall include FCDU/EFCDU trust accountsamong those managed or administered byits trust department under the responsibilityof the board of directors, the trust committeeand the trust officer.

§§ X411.9 - X412.108.12.31


§ X412.2 Banks without trust authorityA bank not authorized to engage in thetrust business under Section 79 of R.A.No. 8791, which accepts FCDU/EFCDUtrust accounts under R.A. No. 6426, asamended, shall manage such trustaccounts in its FCDU/EFCDU as anexception to Item “a” of Subsec. X406.1.Pursuant to the provisions of Subsec.X406.4, the board of directors shall beresponsible for the proper administrationand management of FCDU/EFCDU trustaccounts: Provided, That the board ofdirectors may, by action duly entered inthe minutes, constitute an FCDU orEFCDU trust committee to which theadministration and management of suchaccounts may be delegated.

The FCDU or EFCDU trust committeeshall be composed of three (3) directors,who shall be appointed on a regularrotation basis, one of whom shall bedesignated as chairman. The three (3)directors shall meet the qualificationrequirements under Subsec. X406.3 andshall not be operating off icers ormembers of the audit committee of thebank.

§ X412.3 Additional deposit for thefaithful performance of trust duties. Abank authorized to engage in trustbusiness that accepts FCDU/EFCDUtrust accounts shall deposit with theBSP additional eligible governmentsecurities under Subsec. X405.2 assecurity for the faithful performance oftrust duties equivalent to at least onepercent (1%) of the value of the FCDU/EFCDU t rus t asse t s based on theaverage of the month-end balances ofsuch assets during the immediatelypreceding quarter as converted in thelocal currency at the prevailing foreignexchange rate. Such securities shall bedeposited within thirty (30) bankingdays after the end of every calendarquarter.

§ X412.4 Liquidity requirement forforeign currency deposit unit/expandedforeign currency deposit unit common trustfunds. In addition to the basic securitydeposit, each FCDU/EFCDU CTF shall berequired to set up at least ten percent (10%)of the book value of the fund for liquiditypurposes: Provided, That such liquidityrequirement shall be in any or acombination of the following: (a) readilymarketable foreign currency securities withmaturity of not more than three (3) years;and (b) foreign currency deposits withforeign banks: Provided, further, That theliquidity requirement of EFCDUs may, inaddition to the foregoing, also be in theform of foreign currency deposits with otherEFCDUs or resident offshore banking units.The base amount of the liquidity requirementshall be the average of the month-endbalances of the CTFs within a given quarter.

§ X412.5 Applicability of rules andregulations. Unless otherwise revised bythe provisions of this Section, the rules andregulations governing the administration oftrust accounts, including CTFs, shall beobserved, whether the FCDU/EFCDU trustaccounts are administered by the bank’s trustdepartment or by its FCDU/EFCDU. Alsoapplicable are rules and regulations on theoperations of FCDUs/EFCDUs that include,among other things, regulations onacceptable foreign currencies, eligible andineligible foreign currency sources; foreigncurrency cover requirements; and allowableloans and investments.

Sec. X413 Required Surplus. A bankauthorized to engage in trust and otherfiduciary business shall, before thedeclaration of dividends, carry to surplus atleast ten percent (10%) of its net profitsrealized out of its trust, investmentmanagement and other fiduciary businesssince the last preceding dividenddeclaration until the surplus shall amountto twenty percent (20%) of its authorized

§§ X412.2 - X41308.12.31


capital stock and no part of such surplusshall at any time be paid out in dividendsbut losses accruing in the course of itsbusiness may be charged against surplus.

B. INVESTMENTMANAGEMENT ACTIVITIES

Sec. X414 Authority to PerformInvestment Management. Banks may beauthorized by the Monetary Board to actas managing agent, adviser, consultant oradministrator of investment management/advisory/consultancy account underSection 53.4 of R.A. No. 8791. However,such authority shall not be construed toinclude the authority to engage in trust andother fiduciary business under Chapter IXof R.A. No. 8791.

If a bank is found to engage inunauthorized investment managementactivities, the Monetary Board may imposeadministrative sanctions against such bank orits principal officers and/or majoritystockholders or proceed against them inaccordance with law.

The Monetary Board may take suchaction as it may deem proper such as, butmay not be limited to, requiring the transferor turnover of any investment managementaccount to duly incorporated and licensedentities of the choice of the client.

A bank not authorized to engage ininvestment management activities shall notadvertise or represent itself as beingengaged in investment managementactivities or represent itself as investmentmanager or use words of similar import.

§ X414.1 Prerequisites for engagingin investment management activities. Abank before it may engage in investmentmanagement activities shall comply withthe following requirements:

a. The bank has been duly licensed bythe BSP or created by special law or charter.

b. The articles of incorporation orcharter of the bank shall include among its

powers or purposes the authority to engagein investment management activities.

c. The by-laws of the bank shallinclude, among other things:

(1) The organization plan or structureof the department, office or unit which shallconduct the investment managementactivities of the institution;

(2) The creation of an investmentmanagement committee, the appointmentof an investment management officer andsubordinate officers of the investmentmanagement department; and

(3) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

d. The applicant shall also meet thefollowing additional requirements:

(1) It has continuously complied withits net worth-to-risk assets ratio, liquidityfloor, and ceilings on DOSRI loans for thelast sixty (60) days immediately precedingthe date of application;

(2) It has not incurred net weeklyreserve deficiency against depositliabilities and deposit substitutes duringthe last eight (8) weeks immediatelypreceding the date of application; and

(3) It has shown substantial compliancewith other pertinent laws, rules andregulations, policies and instructions of theBSP; and has not been cited for seriousviolations or exceptions affecting its solvency,liquidity and profitability.

Compliance with the foregoing as wellas with other requirements under existingregulations, shall be maintained up to thetime the trust license is granted. A bankthat fails in this respect shall be requiredto show compliance for another test periodof the same duration.

§ X414.2 Pre-operating requirementsA bank authorized to engage in investmentmanagement activities shall, beforeengaging in actual operations, submit tothe BSP the following:

§§ X413 - X414.208.12.31


a. Government securities acceptableto the BSP amounting to P500,000 asminimum basic security deposit for thefaithful performance of investmentmanagement duties required underSubsec. X415.1;

b. Organization chart of theinvestment management departmentwhich shall carry out the investmentmanagement activities of the bank; and

c. Names and positions of individualsdesignated as chairman and members ofthe investment management committee,investment management officer and othersubordinate officers of the investmentmanagement department.

Sec. X415 Security for the FaithfulPerformance of Investment ManagementActivities

§ X415.1 Basic security deposit. A bankauthorized to engage in investmentmanagement activities shall deposit with theBSP eligible government securities assecurity for the faithful performance of itsinvestment management activitiesequivalent to at least one percent (1%) of thebook value of the total investmentmanagement assets: Provided, That at notime shall such deposit be less than P500,000.

Scripless securities under the RoSSsystem of the BTr may be used as basicsecurity deposit for the faithful performanceof investment management activities usingthe guidelines enumerated in Appendix 33.

§ X415.2 Eligible securities. Securitiesenumerated in Subsec. X405.2 shall beeligible as security deposit for faithfulperformance of investment managementactivities.

§ X415.3 Valuation of securities andbasis of computation of the basic securitydeposit requirement. For purposes ofdetermining compliance with the basicsecurity deposit under this Section, the

amount of securities so deposited shall bebased on their book value, that is, cost asincreased or decreased by the correspondingdiscount or premium amortization.

The base amount for the basic securitydeposit shall be the average of the month-end balances of the total assets ofinvestment management funds of theimmediately preceding calendar quarter.

§ X415.4 Compliance period; sanctionsThe investment manager shall have thirty (30)calendar days after the end of every calendarquarter within which to deposit with the BSPsecurities required under this Section.

The following sanctions shall beimposed for any deficiency in the basicsecurity deposit for the faithful performanceof investment management activity:

a. On the bank:i. Monetary penalty/ies:

Offense Third and Trust First Second subsequent

Asset Size offense(s)

TBs/RBs with

Limited Trust P 3 0 0 . 0 0 P 4 0 0 . 0 0 P 5 0 0 . 0 0

Authority

Up to

P500 P 6 0 0 . 0 0 P 7 0 0 . 0 0 P 8 0 0 . 0 0

million

Above

P500

million P1,000.00 P1,250.00 P1,500.00

but not

exceeding

P1 billion

Above

P1 billion

but not P2,000.00 P3,000.00 P4,000.00

exceeding

P10 billion

Above

P10 billion

but not P5,000.00 P6,000.00 P7,000.00

exceeding

P50 billion

Above

P50 billion P8,000.00 P9,000.00 P10,000.00

§§ X414.2 - X415.408.12.31

Pen

alty

per

Cal

enda

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ay U

Bs/

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s w

ith F

ull

Trus

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ii. Non-monetary penalty beginningwith the third offense (all banks) -Prohibition against the acceptance of newinvestment management accounts andfrom renewing expiring investmentmanagement contracts up to the time theviolation is corrected.

b. On the Head of the InvestmentManagement Department and/or otherofficers responsible for the deficiency/non-compliance:

(1) First offense - warning thatsubsequent violations shall be dealt withmore severely;

(2) Second offense - written reprimandwith a stern warning that subsequentviolations shall be subject to suspension;

(3) Third offense - thirty (30) calendarday-suspension without pay; and

(4) Subsequent offense(s) - sixty (60)calendar day-suspension without pay.

For purposes of determining thefrequency of the violation, the bank’scompliance profile for the immediatelypreceding three (3) years or twelve (12)quarters will be reviewed: Provided, Thatfor purposes of determining appropriatepenalty on the head of the InvestmentManagement Department and/or otherresponsible officer(s), any offensecommitted outside the preceding three (3)year or twelve (12) quarter - period shallbe considered as the first offense: Provided,further, That in the case of the head of theInvestment Management Department, alloffenses committed by him in the past asthe head of the Investment ManagementDepartment of other institution(s) shall alsobe considered: Provided, finally, That if theoffense cannot be attributed to any otherofficer of the bank, the head of theInvestment Management Department shallbe automatically held responsible since theultimate responsibility for ensuringcompliance with the regulation rests uponhim, as evidence may warrant.(As amended by Circular Nos. 617 dated 30 July 2008 and


Sec. X416 Organization and ManagementThe provisions of Sec. X406 up to Subsec.X406.9 shall govern the organization andmanagement of banks without trust licensewhich are engaged in investmentmanagement activities only. The followingterms shall, however, be used:

a. Investment management activities,in lieu of trust and other fiduciary business;

b. Investment management accounts,in lieu of trust and other fiduciary accounts;

c. Investment management committee,in lieu of trust committee;

d. Investment management officer, inlieu of trust officer; and

e. Investment management department,in lieu of trust department.(As amended by M-2007-009 dated 22 March 2007)

Sec. X417 Non-Investment ManagementActivities. The provisions of Sec. X407shall apply in determining non-investmentmanagement activities except that theterms trust, other fiduciary, trustee andfiduciary shall be disregarded.

Sec. X418 Unsound Practices. Theprovisions of Sec. X408 shall govern theunsound practices for investmentmanagement accounts.

Sec. X419 Conduct of InvestmentManagement Activities. The provisions ofSec. X411 shall govern the conduct ofinvestment management activities of abank without a trust license.

Sec. X420 Required Surplus. A bankauthorized to engage in investmentmanagement activities shall, before thedeclaration of dividends, carry to surplusat least ten percent (10%) of its net profitsrealized out of its investment managementactivities since the last preceding dividenddeclaration until the surplus shall amountto twenty percent (20%) of its authorizedcapital stock and no part of such surplusshall at any time be paid out in dividends,

§§ X415.4 - X42008.12.31


but losses accruing in the course of itsbusiness may be charged against surplus.

C. GENERAL PROVISIONS

Sec. X421 Books and Records. The bank’strust department or investment managementdepartment shall keep books and records ontrust, other fiduciary and investmentmanagement accounts separate and distinctfrom the books and records of its otherbusinesses and shall follow the Manual ofAccounts for Trust and Other FiduciaryBusiness and Investment ManagementActivities prescribed by the BSP.

Each trust, other fiduciary orinvestment management account shallhave a record separate from all otheraccounts except only in the case of CTFswhere the trustee can maintain commonrecords utilizing pooled fund accountingmethod for each fund: Provided, That thetrustee shall clearly indicate in the recordsthe trustors owning participation in the CTFand the extent of the interest of suchtrustors.

Books and records shall contain fullinformation relative to each trust, otherfiduciary or investment managementaccount and shall be supported byduplicate signed copies of relateddocuments. Said records and duplicatesigned copies of related documents shallbe compiled and kept as to allowinspection by BSP examiners andsubmission of information or reports asmay be required by competent authorities.

The bank’s trust department orinvestment management department shallmaintain separate general ledger accountsand other relevant sub-accounts fortax-exempt individual trust accounts, CTFsand individual management accountsestablished under Section 24(B)(1) of R.A.No. 8424 and Subsecs. X409.8, X411.9,and Item “8” of Appendix 60. The bank’strust department or investmentmanagement department shall also adopt

appropriate systems, internal controlprocedures and audit trail mechanisms toensure that the correct amount of final taxis withheld or exempted from suchaccounts.

Sec. X422 Custody of Assets. All moneys,properties or securities received by a bankin its capacity as trustee, fiduciary, orinvestment manager shall be keptphysically separate and distinct from theassets of its other businesses and shall beunder the joint custody of at least two (2)persons, one of whom shall be an officerof the trust or investment managementdepartment, designated for that purpose bythe board of directors.

The investment of each trust, otherfiduciary or investment managementaccount shall be kept physically separatedfrom those of other trust, other fiduciary orinvestment management accounts, andadequately identified as the assets orproperty of the relevant account.

Sec. X423 Fees and Commissions. A bankacting as trustee, fiduciary or investmentmanager shall be entitled to reasonablefees and commissions which shall bedetermined on the basis of the cost ofservices rendered and the responsibilitiesassumed: Provided, That where the trustee,fiduciary or investment manager is actingas such under appointment by a court, thecompensation shall be that allowed orapproved by the court: Provided, further,That in the case of CTFs, the fee which atrustee may charge each participant shallbe fully disclosed by the trustee in the CTFplan, prospectus, flyers, posters and in allforms of advertising materials to market thefunds and in the documents given to clientsas proof of participation in the fund. In nocase shall such fees and commissions bebased on the excess of the income of thetrust, other fiduciary or investmentmanagement funds over a certain amountor percentage.

§§ X420 - X42308.12.31


No trustee, fiduciary or investmentmanager shall solicit or receive rebates oncommissions, fees and other payments forthe services rendered to the trust, otherfiduciary or investment managementaccount or beneficiaries of the trust, otherfiduciary or investment managementaccount by stockbrokers, real estatebrokers, insurance agents and similarpersons or entities unless the rebates, feesand other payments shall accrue to thebenefit of the trust, other fiduciary orinvestment management account or thebeneficiaries thereof.

Officers and employees of the trustdepartment or investment managementdepartment of banks, while serving as such,shall be prohibited from retaining anycompensation for acting as co-trustee orfiduciary in the administration of a trust,other fiduciary or investment managementaccount.

No bank shall collect, for its ownaccount, referral and/or arrangement fees,or any other fees that take the nature ofpayment to the bank from whatever source,in connection with loans sourced from trustfunds managed by its trust department:Provided, That if such fees are collected,the same shall be properly disclosed to thetrustor, and shall accrue to the benefit ofthe trust, in accordance with the provisionsof Secs. X401 and X407.(As amended by Circular No. 541 dated 30 August 2006)

Sec . X424 Taxes. The terms andconditions of trust, other fiduciary orinvestment management agreementsincluding CTF plans shall containprovisions regarding the applicability ofregulations governing taxation on theincome of trust, other f iduciary orinvestment management accounts. Forthis purpose, the trustee, fiduciary orinvestment manager shall maintainadequate records and shall includeinformation such as the amount of final

income tax withheld at source and theamount withheld by the trustee, fiduciaryor investment manager in the periodicreports submitted to trustors, beneficiaries,principals and other parties in interest.

With respect to tax-exempt CTFs,individual trust and investmentmanagement accounts established underSection 24(B)(1) of R.A. No. 8424, thebank’s trust department or investmentmanagement department shall beresponsible for obtaining the tax-exemptioncertifications which may be required by theBIR for the interest-bearing instrumentswhere the CTFs, individual trust funds andinvestment management funds will beinvested. Likewise, the banks shall ensurethat the correct amount of final tax on theinterest income on the interest-bearinginstruments is withheld/deducted from theproceeds from the CTF participation, trustor investment management account andremitted to the BIR in the event said taxbecomes due such as when funds arewithdrawn before the required five (5)-yearholding period or when corporationshappen to invest in the tax-exempt trustinstruments created within the purview ofR.A. No. 8424.

Sec. X425 Reports Required

§ X425.1 To trustor, beneficiary,principal. A bank acting as trustee, fiduciaryor investment manager shall render reportson the trust, other fiduciary or investmentmanagement accounts to the trustor,beneficiary, principal or other party ininterest or the court concerned or any partyduly designated by the court order, as thecase may be, under the followingguidelines:

a. The reports shall be in such formsas to apprise the party concerned of thesignificant developments in theadministration of the account and shallconsist of:

§§ X423 - X425.108.12.31


(1) A balance sheet;(2) An income statement;(3) A schedule of earning assets of the

account; and(4) An investment activity report.b. Items (3) and (4) above shall include

at least the following:(1) Name of issuer or borrower;(2) Type of instrument;(3) Collateral, if any;(4) Amount invested;(5) Earning rate or yield;(6) Amount of earnings;(7) Transaction date; and(8) Maturity date;c. The reports shall be prepared in

such frequency as required under theagreement but shall not in any case be longerthan once every quarter; and

d. The reports shall be madeavailable to clients not later than twenty(20) calendar days from the end of thereference date/period in Item “c” above.

§ X425.2 To the Bangko Sentral. A bankacting as trustee, fiduciary or investmentmanager shall submit periodic reportsprescribed by the appropriate departmentof the SES on the bank’s trust and otherfiduciary business and investmentmanagement activit ies within thedeadlines indicated in Appendix 6.

§ X425.3 Post-Bond Flotation ReportThe LGU or its representative or its trusteebank, as the case may be, shall submit tothe BSP the post-bond flotation reportrequired in the Revised Guidelines on theFlotation of Bonds by LGUs (WithoutNational Government Guarantee)(Appendix 57) that will indicate the actualamount of the issue as well as the finalterms and conditions of the issue withinthe deadline indicated in Appendix 6; andsuch other reports as may be requiredby the BSP.

Sec. X426 Audits

§ X426.1 Internal audit. The bank’sinternal auditor shall include among hisfunctions, the conduct of periodic audits ofthe trust department or investmentmanagement department at least onceevery twelve (12) months. The board ofdirectors, in a resolution entered in itsminutes, may also require the internalauditor to adopt a suitable continuous auditsystem to supplement and/or to replace theperiodic audit. In any case, the audit shallascertain whether the institution’s trust andother fiduciary business and investmentmanagement activities have beenadministered in accordance with laws, BSPrules and regulations, and sound trust orfiduciary principles.

§ X426.2 External audit. The trust andother fiduciary business and investmentmanagement activities of a bank shall beincluded in the annual financial audit byindependent external auditors requiredunder Sec. X165.

The audit of the assets andaccountabilities of the trust department/investment management department of abank authorized to engage in trust andother fiduciary business, investmentmanagement activities, which shall coverat the minimum a review of the trustinvestment management operations,practices and policies, including audit andinternal control system, shall be subject toauditing standards to the extent necessaryto express an opinion on the financialstatements.

The audit of the trust/investmentmanagement department of a bankauthorized to engage in trust and otherfiduciary business/investment managementactivities shall be covered by a separatesupplemental audit report to be submittedto the bank’s board of directors and to the

§§ X425.1 - X426.208.12.31


BSP within the prescribed period containing,among others things, the statements ofcondition of trust funds and managed fundsand the related statements of earnings of bothfunds presented separately.

§ X426.3 Board action. A report of theforegoing audits, together with the actionsthereon, shall be noted in the minutes ofthe board of directors of the bank.

Sec. X427 Authority Resulting fromMerger or Consolidation. In merger of FIs,the authority to engage in trust and otherfiduciary business and in investmentmanagement activities shall continue to bein effect if the surviving institution has suchauthority and the same has not beenwithdrawn by the BSP. In case the survivinginstitution does not have previous authoritybut desires to engage in trust and otherfiduciary business and in investmentmanagement activities, it shall secure theprior approval of the Monetary Board toengage in such business as part of itsapplication for merger to enable it toincorporate such among its powers orpurpose clause in its articles ofincorporation, articles of merger, by-lawsand such other pertinent documents.

In the consolidation of FIs where theresulting entity is an entirely new one, itshall secure from the Monetary Board anauthority to engage in trust and otherfiduciary business or in investmentmanagement activities before it mayengage in such business.

Sec. X428 Receivership. Whenever areceiver is appointed by the MonetaryBoard for a bank which is authorized toengage in trust and other fiduciarybusiness or in investment managementactivities, the receiver shall, pursuant tothe instructions of the Monetary Board,proceed to close the trust, other fiduciaryand investment management accounts

promptly and/or transfer all otheraccounts to substitute trustees, fiduciariesor investment managers acceptable tothe trustors, beneficiaries, principals orother parties in interest: Provided, Thatwhere the trustee, f iduciary orinvestment manager is acting as suchunder appointment by a court, thereceiver shall proceed pursuant to theinstructions of said court.

Sec. X429 Surrender of Trust orInvestment Management License. Anybank which has been authorized to engagein trust and other fiduciary business or ininvestment management activities andwhich intends to surrender said authorityshall file with the BSP a certified copy ofthe resolution of its board of directorsmanifesting such intention. Theappropriate department of the SES shallthen conduct an examination of the bank’strust, other fiduciary business andinvestment management activities. If thebank is found to have satisfactorilydischarged its duties and responsibilitiesas trustee, fiduciary or investmentmanager, and has provided for the orderlyclosure or transfer of its trust, fiduciary orinvestment management accounts, theMonetary Board, on the basis of therecommendation of the examiningdepartment, shall order the withdrawal ofthe bank’s authority to engage in trust andother fiduciary management activities.

Secs. X430 – X440 (Reserved)

Sec. X441 Securities Custodianship andSecurities Registry Operations. Thefollowing rules and regulations shallgovern securities custodianship andsecurities registry operations of banks.

The guidelines to implement thedelivery by the seller of securities to thebuyer or to his designated third partycustodian are shown in Appendix 68.

§§ X426.2 - X44108.12.31


Violation of any provision of theguidelines in Appendix 68 shall be subjectto the sanctions/penalties under Subsec.X441.29.(As amended by M-2007-002 dated 23 January 2007,

M-2006-009 dated 06 July 2006, M-2006-002 dated 05 June

2006 and Circular No. 524 dated 31 March 2006)

§ X441.1 Statement of policy. It is thepolicy of the BSP to promote the protectionof investors in order to gain their confidenceand encourage their participation in thedevelopment of the domestic capitalmarket. Therefore, the following rules andregulations are promulgated to enhancetransparency of securities transactions withthe end in view of protecting investors.

§ X441.2 Applicability of this regulationThis regulation shall govern securitiescustodianship and securities registryoperations of banks and NBFIs under BSPsupervision. It shall cover all theirtransactions in securities as defined inSection 3 of the Securities Regulation Code(SRC), whether exempt or required to beregistered with the SEC, that are sold,borrowed, purchased, traded, held undercustody or otherwise transacted in thePhilippines where at least one (1) of theparties is a bank or an NBFI under BSPsupervision. However, this regulation shallnot cover the operations of stock andtransfer agents duly registered with the SECpursuant to the provisions of SRC Rule36-4.1 and whose only function is tomaintain the stock and transfer book forshares of stock.

§ X441.3 Prior Bangko Sentralapproval. Banks may act as securitiescustodian and/or registry only upon priorMonetary Board approval.

§ X441.4 Application for authorityA bank desiring to act as securitiescustodian and/or registry shall file an

application with the appropriate supervisingand examining department of the BSP. Theapplication shall be signed by the highestranking officer of the bank and shall beaccompanied by a certified true copy of theresolution of the bank’s board of directorsauthorizing the bank to engage insecurities custodianship and/or registryand, in the case of a branch of a foreignbank, approval by its highest rankingregional officer with proof of delegatedauthority from the bank’s board of directors.

§ X441.5 Pre-qualification requirementsfor a securities custodian/registry

a. It must be a bank;b. It must have complied with the

minimum capital accounts required underexisting regulations, as follows:

(1) Domestic banks. Its adjusted capitalaccount is at least equal to the amountrequired under Subsec. X111.1 or theamount required for TBs operating in MetroManila, whichever is higher.

(2) Branches of foreign banks. Theminimum capital required under Subsec.X105.4.

c. Its risk-based capital adequacy ratiois not lower than twelve percent (12%) atthe time of filing the application;

d. It must have a CAMELS compositerating of at least “4” (as rounded off) in thelast regular examination;

e. It must have in place acomprehensive risk management systemapproved by its board of directors (orequivalent management committee in thecase of foreign bank branches) appropriateto its operations characterized by a cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risk limits,effective internal control and complete,timely and efficient risk reporting systems.In this connection, a manual of operations(which includes custody and/or registryoperations) and other related documents

§§ X441 - X441.508.12.31


embodying the risk management systemmust be submitted to the appropriatesupervising and examining department atthe time of application for authority andwithin thirty (30) days from updates;

f. I t must have adequatetechnological capabili t ies and thenecessary technical expertise to ensure theprotection, safety and integrity of clientassets, such as:

(1) It can maintain an electronicregistry dedicated to recording ofaccountabilities to its clients; and

(2) It has an updated andcomprehensive computer security systemcovering system, network andtelecommunication facilities that will:

(a) limit access only to authorizedusers;

(b) preserve data integrity; and(c) provide for audit trail of

transactions.g. It has complied, during the period

immediately preceding the date ofapplication, with the following:

(1) ceilings on credit accommodationto DOSRI; and

(2) single borrower’s limit.h. It has no reserve deficiencies

during the eight (8) weeks immediatelypreceding the date of application;

i. It has set up the prescribedallowances for probable losses, both generaland specific, as of date of application;

j. It has not been found engaging inunsafe and unsound practices during the lastsix (6) months preceding the date ofapplication;

k. It has generally complied withlaws, rules and regulations, orders orinstructions of the Monetary Board and/orBSP Management;

l. It has submitted additionaldocuments/information which may berequested by the appropriate supervisionand examination department, such as, butnot limited to:

(1) Standard custody/registry agreementand other standard documents;

(2) Organizational structure of thecustody/registry business;

(3) Transaction flow; and(4) For those already in the custody or

registry business, a historical backgroundfor the past three (3) years;

m. It shall be conducted in a separateunit headed by a qualified person with atleast two (2) years experience in custody/registry operations; and

n. It can interface with the clearing andsettlement system of any recognizedexchange in the country capable of achievinga real time gross settlement of trades.

§ X441.6 Functions and responsibilitiesof a securities custodian. A securitiescustodian shall have the following basicfunctions and responsibilities:

a. Safekeeps the securities of theclient;

b. Holds title to the securities in anominee capacity;

c. Executes purchase, sale and otherinstructions;

d. Performs at least a monthlyreconciliation to ensure that all positionsare properly recorded and accounted for;

e. Confirms tax withheld;f. Represents clients in corporate

actions in accordance with the directionprovided by the securities owner;

g. Conducts mark-to-market valuationand statement rendition;

h. Does earmarking of encumbrancesor liens such as, but not limited to, Deedsof Assignment and court orders;

In addition to the above basic functions,it may perform the following value-addedservice to clients:

i. Acts as a collecting and payingagent: Provided, That the management offunds that may be collected shall be clearlydefined in the custody contract or in aseparate document or agreement attached

§§ X441.5 - X441.608.12.31


thereto: Provided, further, That thecustodian shall immediately make knownto the securities owner all payments madeand collections received with respect to thesecurities under custody; and

j. Securities borrowing and lendingoperations as agent.

§ X441.7 Functions and responsibilitiesof a securities registry

a. Maintains an electronic registrybook;

b. Delivers confirmation oftransactions and other documents withinagreed trading periods;

c. Issues registry confirmations fortransfers of ownership as it occurs;

d. Prepares regular statement ofsecurities balances at such frequency as maybe required by the owner on record but notless frequent than every quarter; and

e. Follows appropriate legaldocumentation to govern its relationshipwith the Issuer.

§ X441.8 Protection of securities of thecustomer. A custodian must incorporate thefollowing procedures in the discharge ofits functions in order to protect the securitiesof the customer:

a. Accounting and recording forsecurities. Custodians must employaccounting and safekeeping proceduresthat fully protect customer securities. It isessential that custodians segregatecustomer securities from one another andfrom its proprietary holdings to protect thesame from the claims of its generalcreditors.

All securities held under custodianshipshall be recorded in the books of thecustodian at the face value of said securitiesin a separate subsidiary ledger account“Securities Held Under Custodianship” ifbooked in the Bank Proper or the subsidiaryledger account “Safekeeping andCustodianship – Securities Held Under

Custodianship”, if booked in the TrustDepartment: Provided, That securities heldunder custodianship where the custodianalso performs securities borrowing andlending as agent shall be booked in theTrust Department.

b. Documentation. The appropriatedocumentation for custodianship shall bemade and it shall clearly define, amongothers, the authority, role, responsibilities,fees and provision for succession in theevent the custodian can no longer dischargeits functions. It shall be accepted in writingby the counterparties.

The governing custodianship agreementshall be pre-numbered and this numbershall be referred to in all amendments andsupplements thereto.

c. Confirmation of custody. Thecustodian shall issue a custody confirmationto the purchaser or borrower of securitiesto evidence receipt or transfer of securitiesas they occur. It shall contain, as aminimum, the following information on thesecurities under custody:

(1) Owner of securities;(2) Issuer;(3) Securities type;(4) Identification or serial numbers;(5) Quantity;(6) Face value; and(7) Other information, which may be

requested by the parties.d. Periodic reporting. The custodian

shall prepare at least quarterly (or asfrequent as the owner of securities willrequire) securities statements delivered tothe registered owner’s address on record.Said statement shall present detailedinformation such as, but not limited to,inventory of securities, outstandingbalances, and market values.

§ X441.9 Independence of the registryand custodian. A BSP-accredited securitiesregistry must be a third party with nosubsidiary/affiliate relationship with the

§§ X441.6 - X441.908.12.31


issuer of securities while a BSP-accreditedcustodian must be a third party with nosubsidiary/affiliate relationship with theissuer or seller of securities. A bankaccredited by BSP as securities custodianmay, however, continue holding securitiesit sold under the following cases:

a. where the purchaser is a relatedentity acting in its own behalf and not asagent or representative of another;

b. where the purchaser is anon-resident with existing global custodyagreement governed by foreign laws andconventions wherein the bank is designatedas custodian or sub-custodian; and

c. upon approval by the BSP, wherethe purchaser is an insurance companywhose custody arrangement is eithergoverned by a global custody agreementwhere the bank is designated as custodianor sub-custodian or by a direct custodyagreement with features at par with thestandards set under this Subsection drawnor prepared by the parent company owningmore than fifty percent (50%) of the capitalstock of the purchaser and executed by thepurchaser itself and its custodian.

Purchases by non-residents andinsurance companies that are exemptedfrom the independence requirement of thisSection shall, however, be subject to allother provisions of this Subsection.

§ X441.10 Registry of scriplesssecurities of the Bureau of the TreasuryThe Registry of Scripless Securities (RoSS),operated by the Bureau of the Treasury,which is acting as a registry for governmentsecurities is deemed to be automaticallyaccredited for purposes of this Section andis likewise exempted from theindependence requirement under Subsec.X441.9. However, securities registeredunder the RoSS shall only be considereddelivered if said securities were transferredby means of book entry to the appropriatesecurities account of the purchaser or

his designated custodian. Book entrytransfer to a sub-account for clientsunder the primary account of the sellersha l l no t cons t i tu te de l ivery fo rpurposes of this Section and of Subsecs.X235.5 and X238.1.

§ X441.11 Confidentiality. A BSP-accredited securities custodian/registryshall not disclose to any unauthorizedperson any information relative to thesecurit ies under i ts custodianship/registry. The Management shall likewiseensure the confidentiality of clientaccounts of the custody or registry unitfrom other units within the sameorganization.

§ X441.12 Compliance with anti-money laundering laws/regulations. Forpurposes of compliance with therequirements of R.A. No. 9160,otherwise known as the “Anti-MoneyLaundering Act of 2001,” as amended,particularly the provisions regardingcustomer identification, record keepingand reporting of suspicious transactions,a BSP-accredited custodian may rely onreferral by the seller issuer of securities:Provided, That it maintains a record ofsuch referral together with the minimumidentification, information/documentsrequired under the law and itsimplementing rules and regulations.

A BSP accredited custodian mustmaintain accounts only in the true and fullname of the owners of the security.However, said securities owners may beidentified by number or code in reportsand correspondences to keep his identityconfidential.

Securities subject of pledge and/ordeed of assignment as of 14 October 2004(date of Circular 457), may be held by alending bank up to the original maturity ofthe loan or full payment thereof, whichevercomes earlier.

§§ X441.9 - X441.1208.12.31


§ X441.13 Basic security depositSecurities held under custodianshipwhether booked in the Trust Departmentor carried in the regular books of the bankshall be subject to a security deposit forfaithful performance of duties at the rate of1/25 of one percent (1%) of the total facevalue or P500,000 whichever is higher.

However, securities held undercustodianship where the custodian alsoperforms securities borrowing and lendingas agent shall be subject to a higher basicsecurity deposit of one percent (1%) of thetotal face value. For this purpose, thefollowing subsidiary ledger account shallbe created in the Trust Department Books:

“Safekeeping and Custodianship -Securities Held Under Custodianship withSecurities Borrowing and Lending As Agent”

Compliance shall be in the form ofgovernment securities deposited with theBSP eligible pursuant to existing regulationsgoverning security for the faithfulperformance of trust and other fiduciarybusiness.

§ X441.14 Reportorial requirementsAn accredited securities custodian shallcomply with reportorial requirements thatmay be prescribed by the BSP, which shallinclude as a minimum, the face and marketvalue of securities held undercustodianship.

§§ X441.15 – X441.28 (Reserved)

§ X441.29 Sanctions. Withoutprejudice to the penal and administrativesanctions provided for under Sections 36and 37, respectively, of the R.A. No. 7653,violation of any provision of this Sectionshall be subject to the following sanctions/penalties:

a. First offense –(1) Fine of up to P10,000 a day for the

institution for each violation reckoned from

the date the violation was committed up tothe date it was corrected; and

(2) Reprimand for the directors/officersresponsible for the violation.

b. Second offense -(1) Fine of up to P20,000 a day for the

institution for each violation reckoned fromthe date the violation was committed up tothe date it was corrected; and

(2) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

c. Subsequent offenses –(1) Fine of up to P30,000 a day for the


(2) Suspension or revocation of theauthority to act as securities custodian and/orregistry; and

(3) Suspension for one hundred twenty(120) days without pay of the directors/officers responsible for the violation.


D. GENERAL PROVISION ONSANCTIONS

Sec. X499 Sanctions. Any violation of theprovisions of this Part shall be subject toSections 36 and 37 of R.A. No. 7653 withoutprejudice to the imposition of othersanctions as the Monetary Board mayconsider warranted under thecircumstances that may include thesuspension or revocation of a bank’sauthority to engage in trust and otherfiduciary business or in investmentmanagement activities, and such othersanctions as may be provided by law.

The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37 ofR.A. No. 7653 on banks, their directors andor officers are shown in Appendix 67.

§§ X441.13 - X49908.12.31

PART FIVE

FOREIGN CURRENCY DEPOSIT SYSTEM AND OTHER OPERATIONS INFOREIGN CURRENCY

if located in Metro Manila or P52.0 millionif located outside Metro Manila may,subject to prior Monetary Board approval,operate an FCDU. A TB desiring tooperate an FCDU shall file an applicationwith the appropriate department of the SES.The application shall be signed by the bankpresident or officer of equivalent rank andshall be accompanied by the followingdocuments:

(1) Certified true copy of the resolutionof the bank’s board of directors authorizingthe application.

(2) A certification signed by thepresident or the officer of equivalent rankthat the bank has complied with allconditions/prerequisites for the grant ofauthority to operate an FCDU inAppendix 5a.

Transitory provisions. TBs authorizedto operate and are actually operating anFCDU are hereby given a period of two(2) years reckoned from 07 March 2002within which to comply with the minimumcapital requirements for FCDU: Provided,That this requirement may be substitutedby a capital build-up program for a periodof not more than five (5) years or only upto 31 December 2007 and which must beapproved by the Monetary Board: Provided, further, That annual cash infusionshall be included in the capital build-upprogram adopted for this purpose. Theamount of cash infusion shall be evenlydistributed over the capital build-upprogram period. Banks which failed tocomply with the required capitalizationupon expiration of said two (2)-year periodgiven them or those which failed to complywith approved capital build-up program shallliquidate their FCDU business within one(1) year and shall surrender to the BSP their

Section X501 Foreign Currency DepositSystem. The foreign currency depositoperations of banks under R.A. No. 6426,as amended, shall be governed by thefollowing rules and regulations.

§ X501.1 Definition of terms. Thefollowing terms and phrases shall meanas follows:

a. FCDU and EFCDU shall refer to aunit of a local bank or of a local branch of aforeign bank authorized by the BSP toengage in foreign currency-denominatedtransactions, pursuant to the provisions ofR.A. No. 6426, as amended.

b. Local bank shall refer to a KB, UBor TB organized under the laws of theRepublic of the Philippines.

c. Local branch of a foreign bankshall refer to a branch of a foreign bankdoing business in the Philippines.

d. Short-term loans and securitiesshall refer to those with maturities of one(1) year or less.

e. Medium-term loans and securitiesshall refer to those with maturities of morethan one (1) year but not more than five(5) years.

f. Long-term loans and securitiesshall refer to those with maturities of morethan five (5) years.

§ X501.2 Qualification requirementsa. KBs/UBs may be authorized to

operate an FCDU or EFCDU: Provided,That they meet the minimum capitalrequirements as prescribed under Sec.X111 and Subsecs. X111.1 and X111.2, andin the case of branches of foreign banks,Subsecs. X105.4 and X105.5.

b. TBs with net worth or combinedcapital accounts of at least P325.0 million

§§ X501 - X501.208.12.31

Manual of Regulations for Banks Part V - Page 1

corresponding FCDU licenses. The licenseof TBs already authorized to operate FCDUbut not yet operating the same shall beautomatically revoked if they do notcomply with the above minimum capitalrequirements as of 07 May 2002.

In addition, the standard pre-qualificationrequirements prescribed under Appendix 5shall be complied with by a bank applyingfor an FCDU/EFCDU license.

c. RBs/Coop Banks may, subject toprior Monetary Board approval, beauthorized to operate an FCDU: Provided,That they meet the minimum capital underSubsec. X151.3 or P20.0 million,whichever is higher. An RB/Coop Bankdesiring to operate an FCDU shall file anapplication with the appropriatedepartment of the SES. The applicationshall be signed by the bank president orofficer of equivalent rank and shall beaccompanied by the following documents:

(1) Certified true copy of the resolutionof the bank’s board of directors authorizingthe application.

(2) Certi f ication signed by thepresident or the officer of equivalent rankthat the bank has complied with all theconditions/prerequisites for the grant ofauthority to operate an FCDU inAppendix 5a.

In addition to requirements underexisting regulations, an RB/Coop Bankauthorized to operate an FCDU shall:

(a) Have the capacity to operate anFCDU. An RB/Coop Bank may, however,upgrade its capacity by appointing asofficer who will be in-charge of the FCDUoperations either, (i) an individual withactual experience in another bank asin-charge or assistant in-charge of the sameoperations for at least one (1) year, or(ii) an individual who has attended aspecialized training course on FCDUtransactions or operations conducted by theBSP Institute or an institution or bank dulyaccredited by the BSP; and

(b) Establish a risk managementsystem appropriate to its operations,characterized by clear delineation ofresponsibility for risk management, adequaterisk measurement system, appropriatelystructured risk limits, effective internalcontrol system and complete, timely andefficient risk reporting system.(As amended by Circular Nos. 582 dated 17 September 2007,

579 dated 23 August 2007, and 522 dated 23 March 2006)

§ X501.3 Authorized transactionsa. Banks which are granted a

certificate of authority to operate an FCDUare authorized to engage in the followingtransactions in any acceptable foreigncurrency:

(1) Accept deposits and trust accountsfrom residents and non-residents;

(2) Deposit, regardless of maturity,with foreign banks abroad, OBUs andother FCDUs/EFCDUs;

(3) Invest in readily marketableforeign currency denominated debtinstruments. For this purpose, readilymarketable debt instruments shall refer todebt instruments that are quoted in anactive market and the quoted prices arereadily and regularly available from anexchange, dealer, broker, industry group,pricing service or regulatory agency, andthose prices represent actual and regularlyoccurring market transactions on an arm’slength basis;

(4) Grant short-term foreign currencyloans as may be allowed by BSP regulations;

(5) Borrow, (a) regardless of maturity,from EFCDUs, foreign banks abroad andOBUs, subject to existing rules on foreign/foreign currency borrowings; and (b) onshort-term maturity, from other FCDUs;

(6) Engage in foreign currency-foreigncurrency swap with the BSP, OBUs andother FCDUs/EFCDUs;

(7) Engage in securities lendingactivities as lender subject to the provisionsin Sec. X531;

§§ X501.2 - X501.308.12.31

Part V - Page 2 Manual of Regulations for Banks

(8) Engage in repo agreementsinvolving foreign currency denominatedgovernment securities subject to theprovisions in Sec. X532;

(9) Purchase foreign currencydenominated government securities underresale agreements from other banks’EFCDU/FCDU, non-resident FIs and OBUs,subject to the following conditions:

(a) That the government securitiespurchased shall be limited to those issuedby central governments and/or centralbanks of foreign countries with thehighest credit quality given by any two(2) internationally accepted ratingagencies (i.e., currently the equivalentof Standard and Poor’s AA- or Moody’sAa3 or better);

(b) That for TBs which are granted acertificate of authority to operate an FCDU,the maximum term of the resaleagreements shall be one (1) year; and

(c) That such government securitiespurchased under resale agreements shallbe classified as “Trading Account Securities- Loans” and booked under the sub-account“Government Securities Purchased underResale Agreements – EFCDU/FCDU”;

(10) Issue HT1 capital instruments; and(11) Engage in US dollar denominated

repo agreements with the BSP, as providedunder Subsec. X601.1.

RBs/Coop Banks which are authorizedto operate FCDUs shall be governed bythe provisions of Circular 1389 dated 13April 1993, as amended, and by all existingregulations applicable to FCDUs. Theymay undertake all transactions which TBswith FCDUs are authorized to enter into,except the granting of loans to producers/manufacturers, including oil companiesand public utility concerns.

b. UBs/KBs which are authorized tooperate under the expanded foreigncurrency deposit system may engage inthe following transactions in any acceptableforeign currency:

(1) Accept deposits and trust accountsfrom residents and non-residents;

(2) Deposit with foreign banksabroad, OBUs and other FCDUs/EFCDUs;

(3) Invest in foreign currency-denominated debt instruments;

(4) Grant foreign currency loans asmay be allowed by the BSP;

(5) Borrow from other FCDUs/EFCDUs and from non-residents andOBUs, subject to existing rules on foreignborrowings;

(6) Engage in foreign currency-foreign currency swap;

(7) Engage in foreign exchangetrading and, with prior BSP approval,engage in financial futures and optionstrading;

(8) On request/instructions of itsforeign correspondent bank:

(a) issue letters of credit for anon-resident importer in favor of anon-resident exporter;

(b) pay, accept or negotiate drafts/bills of exchange drawn under the letterof credit; and

(c) make payment to the order of thenon-resident exporter:

Provided, That the foreign correspondentbank shall deposit sufficient foreignexchange with the EFCDU issuing the letterof credit to cover all drawings;

(9) Engage in direct purchase ofexport bills of resident exporters, subjectto the following conditions:

(a) Export transactions covered byusance or sight letters of credit shall beallowed to be purchased by EFCDUs; and

(b) Export bills negotiated/purchasedby the bank’s Regular Unit and outstandingin its books shall not be allowed to bepurchased by its EFCDU;

(10) Engage in securities lendingactivities as lender subject to the provisionsin Sec. X531;

(11) Engage in repo agreementsinvolving foreign currency denominated

§ X501.308.12.31


government securities subject to theprovisions in Sec. X532;

(12) Invest in foreign currencydenominated structured products issuedby banks and SPVs of high credit qualitysubject to the provisions in Sec. 1636;

(13) Purchase foreign currencydenominated government securities underresale agreements from other banks’EFCDU/FCDU, non-resident FIs andOBUs, subject to the following conditions:

(a) That the government securitiespurchased shall be limited to those issuedby central governments and/or central banksof foreign countries with the highest creditquality given by any two (2) internationallyaccepted rating agencies (i.e., currently theequivalent of Standard and Poor’s AA - orMoody’s Aa3 or better); and

(b) That such government securitiespurchased under resale agreements shall beclassified as “Trading Account Securities -Loans”and booked under the sub-account“Government Securities Purchased underResale Agreements – EFCDU/FCDU”;

(14) Issue HT1 capital instruments; and(15) Engage in US dollar denominated

repo agreements with the BSP, as providedunder Subsec. X601.1.

c. Excess FCDU/EFCDU funds ofUBs and KBs may be lent to RBU to fundthe latter’s on-balance sheet foreignexchange trade transactions, subject to thefollowing conditions –

(1) FCDU/EFCDU may lend funds toRBU only after it has fully complied withthe prescribed 100% asset cover/thirtypercent (30%) liquid asset cover onFCDU/EFCDU liabilities.

(2) FCDU/EFCDU lending to RBUshall be -

(a) Capped at the lower of totaloutstanding balance on RBU’s on-balancesheet foreign currency trade assets1 orthirty percent (30%) of the level of FCDU/EFCDU deposit liabilities, computed at the

average daily balance (using 2-monthrolling data) as of end of the second weekprior to the reference week (refer toAppendix 51a for sample computation).Total outstanding balance of FCDU/EFCDU lending to RBU shall, at all times,be within the prescribed cap. Any breachthereon shall be subject to the impositionof a monetary penalty of P30,000 per day,commencing on the day the cap wasbreached until the same is corrected.

(b) Charged interest at prevailingmarket rates, computed monthly at theaverage daily balance of the receivablefrom RBU.

(c) On short-term maturity, or for aperiod of one (1) year or less. Balancesshall be settled, within a year fromavailment, by way of actual transfer offoreign currency assets from the RBUbooks to the FCDU/EFCDU books.

(3) The lending transaction shall bebooked as “Lending-RBU” in the FCDU/EFCDU books and “Borrowing-FCDU/EFCDU” in the RBU books.

(4) The “Lending-RBU” accountbalance [net of transactions outstanding formore than one (1) year] shall qualify aseligible asset cover, but not as liquid assetcover, for FCDU/EFCDU liabilities.

(5) Banks shall establish and maintainsystems to -

(a) monitor the foreign currency fundsflow of RBU and the average dailybalances of foreign currency trade assets,with minimum database covering a two(2) - month rolling period; and

(b) account for the utilization of fundsborrowed from FCDU/EFCDU.

The systems as well as periodic reportsgenerated therefrom shall be madeavailable to the BSP examiners forverification.

(6) Banks shall submit to the appropriatedepartment of the SES, within five (5) bankingdays from end of reference month,

1 i.e., Customers’ Liability on Import Bills-Foreign, Customers’ Liability under Trust Receipts-Foreign, Customers’ Liabilityfor this Bank’s Acceptances Outstanding-Foreign, Export Bills Purchased and Foreign Bills Purchased-Documentary,excluding past due accounts and Items in Litigation.

§ X501.308.12.31


a certification under oath (prescribed formatshown in Appendix 51), signed by thebank’s president or country manager, incase of local branch/subsidiary of foreignbanks, compliance officer and head oftreasury, to the effect that, at any day ofthe reference month, the outstandingbalance on funds borrowed from FCDU/EFCDU did not exceed the prescribed cap[i.e., lower of total outstanding balance onRBU’s on-balance sheet foreign currencytrade assets or thirty percent (30%) of thelevel of FCDU/EFCDU deposit liabilities]and were utilized by RBU solely for foreigncurrency trade transactions.

The foregoing rule shall be subject toquarterly review by BSP.(As amended by Circular Nos. 627 dated 23 October 2008,

590 dated 27 December 2007, 565 dated 03 May 2007,

522 dated 23 March 2006 and 519 dated 16 March 2006)

§ X501.4 Foreign currency coverrequirements. Depository banks underthe foreign currency deposit and expandedforeign currency deposit systems shallmaintain at all times a 100% cover for theirforeign currency liabilities, except USdollar denominated repo agreements withthe BSP: Provided, That violation of theterms and conditions of the US dollardenominated repo agreements facility shallsubject the borrowings of the bank to theFCDU/EFCDU asset and liquid asset coverrequirements. For purposes of complyingwith this requirement, the principal officesin the Philippines of the authorized banksand all its branches located therein shallbe considered as a single unit. Theforeign currency cover shall consist ofthe net carrying amount of the following:

a. For banks authorized to operate anFCDU -

(1) Foreign currency cash on hand;(2) Foreign currency checks and other

cash items;(3) Due from BSP – Foreign Currency;(4) Due from other banks (other FCDUs/

EFCDUs, OBUs, and non-resident banks);

(5) Derivatives with Positive FairValue Held for Trading and/or Hedging(Derivatives with Negative Fair Value Heldfor Trading and/or Hedging shall requirecorresponding asset/liquid asset cover);

(6) Investments in readily marketableforeign currency-denominated debtinstruments, booked under the followingcontrol accounts:

(a) Held for Trading (HFT);(b) Designated at Fair Value through

Profit or Loss (DFVPL);(c) Available for Sale (ASS); and(d) Held to Maturity (HTM).Foreign currency-denominated debt

securities sold/lent in repo agreements/securities lending and borrowing transactionsshall be considered as eligible asset coverfor the 100% asset cover requirement. Thesame treatment shall likewise apply toforeign currency denominated debtsecurities used as additional collateral inrepo agreements or as collateral byborrowing bank in securities lending andborrowing transactions;

(7) Foreign currency loans andreceivables maturing within one (1) yearauthorized by the BSP, booked under thefollowing:

(a) Loans to BSP;(b) Interbank loans receivable; and(c) Loans and receivables – others.Loans and receivables authorized by

the BSP shall refer to those granted pursuantto Circular No. 1389 dated 13 April 1993,as amended, and shall include thefollowing:

(a) those with specific approval by theBSP under Section 23 of Circular No. 1389,as amended (Loans Requiring Prior BSPApproval);

(b) those short term loans to residentprivate and public sector borrowers whichunder existing regulations require no priorBSP approval but allowed to be servicedusing foreign exchange purchased from thebanking system (i.e., loans to commodityand service exporters, indirect exporters,

§§ X501.3 - X501.408.12.31


producers/manufacturers, including oilcompanies and public utility concerns)under Section 24.4 of Circular No. 1389,as amended, (Loans Not Requiring PriorBSP Approval); and

(c) those loans to resident privatesector borrowers to be serviced usingforeign exchange purchased from outsideof the banking system under Section 24.1.aof Circular No. 1389, as amended:

Provided, That all applicable bankingrules and regulations are complied withincluding single borrower’s limit asprovided in Sec. X303;

(8) Loans and receivables arising fromrepo agreements, certificates of assignment/participation with recourse, and securitieslending and borrowing transactions,maturing within one (1) year;

(9) Foreign currency accrued interestincome from financial assets;

(10) Accounts receivable arising fromsale of financial assets under the trade dateaccounting pending actual settlement/delivery of the underlying securities;(Accounts payable arising from thepurchase of financial assets under the tradedate accounting pending actual settlement/receipt of the underlying securities shallrequire corresponding asset/liquid assetcover);

(11) Loans to RBU [net of transactionsoutstanding for more than one (1) year]:Provided, That the conditions under Item“(c)" of Subsec. X501.3 are complied with;

(12) Receivable from the RBU bookarising from the exercise of warrants pairedwith ROP Global Bond Holdings in theFCDU/EFCDU book: Provided, That itshall be settled by the RBU book to theFCDU/EFCDU book within six (6) monthsfrom the date of receipt of the ExchangeSecurities; and

(13) Such other assets as may bedetermined by the Monetary Board aseligible asset cover.

b. For banks authorized to operate anEFCDU - The foregoing accounts, regardless

of maturity, and in the case of investmentin foreign currency denominated debtinstruments (including debt instrumentsbooked under Unquoted Debt SecuritiesClassified as Loans and investments instructured products), regardless of maturityand marketability, shall all be consideredas eligible asset cover. Loans to residentprivate and public sector borrowers whichunder Section 24.4 of Circular No. 1389,as amended, require no prior BSP approvaland allowed to be serviced using foreignexchange purchased from the bankingsystem (i.e., loans to commodity andservice exporters, indirect exporters,producers/manufacturers, including oilcompanies and public utility concerns) shallhowever have short-term maturity.

In addition, the following shall also beconsidered as eligible asset cover:

(1) Loans and receivables granted byEFCDU pursuant to Section 24 of CircularNo. 1389 dated 13 April 1993, asamended, i.e., those loans of non-residentsfrom EFCDUs, to be serviced using foreignexchange purchased from outside thebanking system under Section 24.1.b ofCircular No. 1389, as amended: Provided,That all applicable banking rules andregulations are complied with includingsingle borrower’s limit as provided inSec. X303;

(2) Outstanding export billspurchased in the EFCDU books, bookedunder the following control accounts:

(a) Interbank loans receivable - ifwithout recourse; and

(b) Loans and receivables – others - ifwith recourse.

For this purpose, net carrying amountshall refer to the gross amount of financialasset, plus or minus, as the case may be,the following: (i) unamortized premium/(discount) determined using the effectiveinterest method; (ii) any accumulated marketgains/(losses) in the case of ASS financialassets; and (iii) any allowance for credit lossesdetermined based on existing regulations.

§ X501.408.12.31


c. Further, at least thirty percent (30%)of the cover requirement for foreign currencyliabilities in the FCDU/EFCDU shall be inthe form of liquid assets as follows:

(1) Foreign currency cash on hand;(2) Foreign currency checks and other

cash items;(3) Due from BSP – Foreign currency

with remaining maturity of one (1) year orless regardless of funding: Provided, Thatsuch deposit/placement is not encumberedor is not being utilized for any otherpurposes;

(4) Due from other banks (otherFCDUs/EFCDUs, OBUs and non-residentbanks);

(5) Investments in readily marketableforeign currency denominated debtinstruments, booked under the followingcontrol accounts:

(a) HFT;(b) DFVPL;(c) ASS; and(d) HTM;

except for the following:(a) those which are sold/lent in repo

agreements/securities lending andborrowing transactions and those used asadditional collateral in repo agreements oras collateral by borrowing bank insecurities lending and borrowingtransactions; and

(b) those investments in structuredproducts;

(6) Loans and receivables authorizedby the BSP booked under the following:

(a) Loans to BSP maturing within one(1) year;

(b) Interbank loans receivablematuring within one (1) year;

(c) Loans and receivables – Others thatis any of the following: (i) Outstanding export bills purchasedin the EFCDU books; and (ii) Short-term EFCDU loans toexporters in the form of export packingcredits, whether rediscounted or not under

BSP’s Export Dollar Facility, up to theextent guaranteed by TIDCORP orSBGFC: Provided, That these credits arenot overdue;

(7) Loans and receivables arising fromrepo agreements, certificates ofassignment/participation with recourse andsecurities lending and borrowingtransactions, maturing within one (1) year;

(8) Accounts receivable arising fromsale of financial assets under the trade dateaccounting pending actual settlement/delivery of the underlying securitiespertaining to readily marketable foreigncurrency denominated debt instruments; and

(9) Receivable from the RBU bookarising from the exercise of warrants pairedwith ROP Global Bond Holdings in theFCDU/EFCDU book: Provided, That it shallbe settled by the RBU book to the FCDU/EFCDU book within six (6) months from thedate of receipt of the Exchange Securities.

The 100% asset cover and thirty percent(30%) to be held in the form of liquid assetsenumerated above, shall be unencumbered,except as otherwise provided in secondparagraph of Item “a(6)" hereof.

d. The Due from Other Banks -Non-Resident (DFOB-Non-Resident)account representing cover for foreigncurrency liabilities of FCDU/EFCDU shall bekept separate and distinct from the DFOB -Non-Resident account for the RBU.(As amended by Circular Nos. 627 dated 23 October 2008,

602 dated 13 February 2008, 601 dated 13 February 2008,

575 dated 17 July 2007 and 559 dated 26 January 2007)

§ X501.5 Foreign currency depositwith the Bangko Sentral. Foreign currencydeposit with the BSP equivalent to at leastfifteen percent (15%) as a form of foreigncurrency cover referred to in Section 4 ofR.A. No. 6426, as amended, shall beoptional on FCDUs of KBs/UBs and TBs.The BSP may pay interest on the foreigncurrency deposit and if requested, shallexchange the foreign currency notes and

§§ X501.4 - X501.508.12.31


coins into foreign currency instrumentsdrawn on its depository banks.

§ X501.6 Currency composition ofthe cover. FCDUs of TBs shall maintainthe foreign currency cover in the samecurrency as that of the correspondingforeign currency deposit liability.

FCDUs/EFCDUs of KBs/UBs shallmaintain not less than seventy percent(70%) of the foreign currency cover inthe same currency as that of the liabilityand thirty percent (30%) or less, at theoption of the FCDU/EFCDU, may bedenominated in other acceptable foreigncurrencies.

§ X501.7 Secrecy of deposits. Allforeign currency deposits are absolutelyconfidential. Except upon the writtenpermission of the depositor, in no instanceshall such foreign currency deposits beexamined, inquired or looked into by anyperson, government official, bureau oroffice, whether judicial, administrative orlegislative, or any other entity, whetherpublic or private.

§ X501.8 Numbered accounts. FCDUs/EFCDUs may adopt a numbered accountsystem.

§ X501.9 Withdrawability andtransferability of deposits. There shallbe no restrictions on the withdrawal bythe depositor of his deposit or on thetransfer of the same abroad, except thosearising from the contract between thedepositor and the bank.

§ X501.10 Insurance coverageForeign currency deposits shall be insuredunder the provisions of R.A. No. 3591, asamended. Depositors are entitled toreceive payment in the same currency inwhich the insured deposits aredenominated.

§ X501.11 Rates of interest. Foreigncurrency deposits shall not be subject tointerest ceilings.

§ X501.12 Eligibility as collateralDeposits under the Foreign CurrencyDeposit System are eligible as collateralfor peso loans or for foreign currency loansto residents and non-residents.

§ X501.13 Taxes. All foreign currencydeposits, including interest and all otherincome or earnings of such deposits, areexempt from any and all taxes whatsoever,irrespective of whether or not thesedeposits are made by residents ornon-residents, so long as the deposits areeligible or allowed under these rules, andin the case of non-residents, irrespectiveof whether or not they are engaged intrade or business in the Philippines.

§ X501.14 Exemption from court orderor process. Foreign currency deposits shallbe exempt from attachment, garnishment orany other order or process of any court,legislative body, government agency or anyadministrative body whatsoever.

§ X501.15 Inapplicability of theUsury Law. The provisions of R.A. No.2655, as amended (Usury Law), shall notapply to banks in respect to their foreigncurrency transactions under this Section.

§ X501.16 Accounting. The foreigncurrency deposits and their correspondingcover shall be considered as funds separateand distinct from the regular assets andliabilities of the authorized banks. Authorizedbanks shall maintain a separate accounting fortransactions covered by these rules that willenable preparation of the Balance Sheet andProfit and Loss Statement covering said funds.

For purposes of preparing the FCDU/EFCDU financial statements, the bankshall use the US dollar (USD) as its

§§ X501.5 - X501.1608.12.31


functional currency. However, forpurposes of consolidating the FCDU/EFCDU financial statements with the RBUfinancial statements, these shall betranslated into the presentation currency,i.e., Philippine Peso (Php).(As amended by Circular No. 601 dated 13 February 2008)

§ X501.17 Supervision. The Governorand the head of the appropriatedepartment of the BSP, personally or bydeputies, are authorized to verify thebooks of account and transactions of eachauthorized bank, to verify the eligiblecover, as well as review all otherrequirements under these regulationsand the bank’s compliance with theprovisions of law and these regulations.

§ X501.18 Sanctionsa. Any willful violation of R.A. No.

6426, as amended, or any regulation dulypromulgated by the Monetary Boardpursuant thereto, shall subject the offenderupon conviction to an imprisonment of notless than one (1) year nor more than five(5) years or a fine of not less than P5,000nor more than P25,000 or both such fineand imprisonment, at the discretion of thecourt.

The BSP may revoke or suspend theauthority of a bank to accept new foreigncurrency deposits for violation of R.A. No.6426, as amended, or these regulations,or if such bank ceases to possess theminimum qualifications required.

b. Violation on the monthlyreportorial requirement required underSubsec. X501.3c shall be subject to:

(1) Maximum monetary penalty ofP30,000 per day (reckoned from due dateuntil date corrected) for any false/erroneouscertification issued, without prejudice to theimposition, on the erring bank and/or theconcerned bank officers, of the penalsanctions provided under Sections 35 and36 of R.A. No. 7653.

(2) Monetary penalty of P1,200 perday for delayed and/or incompletecertifications.

c. Any deficiency in the 100%FCDU/EFCDU cover and/or thirty percent(30%) liquid asset cover that may beincurred due to violation of the conditionsin Subsec. X501.3c shall be subject to theimposition of a monetary penalty of one-tenth of one percent (1/10 of 1%) of thedeficiency, converted to its peso equivalentat the exchange rate prevailing on the datethe deficiency was incurred but not toexceed P30,000 per deficiency, per day.

Sec. X502 Other Transactions in ForeignCurrency. All categories of banks dulylicensed by the BSP (including RBs/CoopBanks) are considered authorized agentbanks (AABs) and therefore, can, subjectto compliance with the provisions ofCircular No. 1389 dated 13 April 1993, asamended, buy and sell foreign exchange(FX) from the public even without anFCDU license and prior BSP approval.They are likewise required to comply withthe requirements under Sec. X801,particularly on the “Know Your Customer”(KYC) rules, record keeping and reportingof covered and suspicious transactions.

The operation of mobile foreign currencybooths and off-site automatic multi-currencymoney changers (OAMMC) shall begoverned by this Section.(As amended by Circular No. 522 dated 22 March 2006)

§ X502.1 Mobile foreign exchangebooths. Without prior authority from theBSP, banks may operate mobile foreigncurrency booths, subject to the followingguidelines:

a. The bank shall advise the BSP ofthe number of mobile foreign currencybooths it will operate, the date it will startoperations, the areas of operation and thebranch where the foreign exchangeacquisition will be turned over and booked;

§§ X501.16 - X502.108.12.31


b. The services of the mobile foreigncurrency booths shall be solely forchanging foreign exchange currency intopeso notes and coins, and not pesos to otherforeign currency;

c. The mobile foreign currency boothsshall not accept deposit or perform otherbanking functions other than purchase offoreign currencies;

d. The internal control system of theproposed mobile foreign currency boothsshall be submitted to the appropriatedepartment of the SES, as well as othersecurity measures adopted therein; and

e. The mobile foreign currencybooths shall be covered by insurance toprotect adequately the bank againstlosses of whatever nature arising from itsoperations.

§ X502.2 Off-site automaticmulti-currency money changers. Withprior approval of the BSP, banks whichhave shown general compliance withbanking laws, rules and regulations mayinstall an OAMMC, subject to thefollowing conditions:

a. The OAMMC shall be installed onlyin centers of activities like shoppingcenters, supermarkets, hotels andairports: Provided, That the site is withinthe area where the applicant bank has aregular branch to service the moneychangers;

b. The applicant bank shall maintainadequate internal control and securitymeasures, which shall include immediaterejection and detection of fake currenciesby the machines;

c. The transactions of the moneychangers shall be booked in specificbranches which must be identified at thetime of application for the putting up of anOAMMC; and

d. The services of the OAMMC shallbe solely for changing foreign exchangecurrency into peso notes and coins, and notpesos to other foreign currencies.

Sec. X503 Recognition of Positions Arisingfrom Banks’ Foreign Currency Options inthe Computation of Net Open FX PositionThe following are the guidelines for therecognition of positions arising from banks’foreign currency options in the computationof the net open FX position:

a. Scope. For purposes of complyingwith Circular No. 1327 dated 30 January1992, as amended, UBs and KBs withexpanded derivatives authority shallinclude the net delta weighted positionsof foreign currency options in theircomputation of the net FX position. UBsand KBs without expanded derivativesauthority shall include the notionalamounts of purchased options that are inor at the money and exclude those thatare out of the money in their computationof the net FX position.

b. Reporting. The USD equivalent ofthe positions arising from foreign currencyoptions shall be reported as a manualadjustment to the net FX position amountreported in the bank’s ConsolidatedForeign Exchange Position Report(CFXPR). For banks with expandedderivatives authority, the USD equivalentof the foreign currency options position isequal to the sum of long delta-weightedpositions minus the sum of shortdelta-weighted positions arising from FXoptions contracts. The breakdown of theoptions positions by currency and a listingof outstanding contracts shall be annexedto the CFXPR.


Sec. X531 Securities Lending. Banks withEFCDU/FCDU license may engage insecurities lending activities as lendersubject to the following conditions:

a. The securities to be lent shall belimited to securities lodged under theaccount “Trading Account Securities(TAS) - Investments” (for UBs and KBsonly) and “ASS - Foreign”.

§§ X502.1 - X53108.12.31


The use of IBODI holdings shall alsobe allowed in securities lending, subjectto the following conditions:

(1) The lending bank had the positiveintention and ability to maintain or recovercontrol of the same or substantially similarsecurities as those lent.

(2) The counterparty’s failure toredeliver the securities lent at maturity orat the date agreed upon could not havebeen reasonably anticipated by the lenderat the time of the transaction.

(3) In case of failure or default of thecounterparty to redeliver the securitieslent, the same shall be immediatelyreplaced by identical or substantiallysimilar securities. For this purpose, areplacement security may only beconsidered substantially similar to thesecurities lent if all of the followingcircumstances are present:

(a) the security must have the sameprimary obligor and must have the sameguarantor under the same terms andconditions, if guaranteed;

(b) the security must be identical inform and type so as to give the same risksand rights to the holder; and

(c) the debt instrument must have thesame maturity and interest rate.

Sanctions. Without prejudice to thecriminal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of R. A. No. 7653, violationof any provision of Item “a“ of this Sectionshall be a ground for considering all IBODIof the concerned entity as TAS subject tomark-to-market requirements and shalldisqualify said entity from carrying in itsbooks the account “Investment in Bondsand Other Debt Instruments” for a periodof two (2) years reckoned from the datethe violation was committed ordiscovered, whichever comes later.

b. The lending activity shall have priorapproval of the bank’s board of directorsand shall be governed by adequate written

policies and procedures duly approved bythe board of directors;

c. The securities lending shall bedone through reputable internationally -recognized and experienced third-partylending agent/intermediary which must bea regulated entity in its country of operation;

d. The securities lending transactionshall be subject to a written legal agreementbetween the lending bank and the lendingagent which must clearly specify the -

(1) relationship as well as therespective duties and responsibilities ofeach counterparty;

(2) obligation of the borrower toredeliver a like quantity of the same issueor series as the loaned securities;

(3) guidelines for selecting investmentsfor cash collateral, which shall include aprovision that cash collateral will not bereinvested in liabilities of the lender, itssubsidiaries or affiliates; and

(4) lending fee or compensation;e. The loaned securities must be

fully secured by debt securit ies ofcountries or entities with highest creditquality, cash in currencies acceptable aspart of international reserves, letters ofcredit and certificates of deposits issuedby banks with highest credit quality. Forthis purpose, a foreign country and a bankwith highest credit quality refer to aforeign country and a bank given thehighest credit rating by any two (2) of thefollowing internationally accepted ratingagencies:

Rating Agencies Highest Rating• Moody’s “Aa3”• Standard and Poors’s “AA”• Fitch IBCA “AA”• Others as may be approved by the Monetary Board

Collateral value shall initially be at least102% of the current market value of theloaned securities and maintained at 100%of the value of the loaned securities plus

§ X53108.12.31


accrued interest thereon during the courseof the loan;

f. The lender shall do dailymark-to-market on the loaned securitiesand on the securities where cash collateralis invested/reinvested;

g. The lender shall require from thelending agent/intermediary timely andcomprehensive reports on the lendingactivity;

h. For proper identification andmonitoring, the outstanding bookbalance on the loaned securities shall bereclassified to “Government SecuritiesLent under Securit ies LendingAgreements”;

i. The bank has in place a riskmanagement system commensurate to thenature, volume and complexity of itsoperations and characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls andcomplete, timely and efficient riskreporting system: Provided, That thisrequirement shall be automaticallyconsidered complied with by banks withderivatives license;

j. The bank’s CAMELS compositerating in the last BSP regular examinationis at least “3”, with a minimum score of “3”on management; and

k. The foreign currency-denominateddebt securities lent or used as collateral bythe borrowing bank in securities lendingand borrowing transactions shall beconsidered as eligible asset cover for the100% cover requirement. However, theseshall not be eligible for the thirty percent(30%) liquid asset cover.(As amended by Circular No. 601 dated 13 February 2008)

Sec. X532 Repurchase AgreementsInvolving Foreign Currency-DenominatedGovernment Securities. Banks may engagein repo agreements involving foreign

currency-denominated governmentsecurities, subject to the following conditions:

a. Such repo agreements shall belimited to:

(1) Trading Account Securities (TAS)held under the FCDU/EFCDU books. Thegovernment securities subject of repoagreements are to be booked under theaccount “Government Securities Soldunder Repo Agreements-FCDU/EFCDU”.

(2) IBODI holdings, subject to thefollowing conditions:

(a) The selling bank had the positiveintention and ability to maintain or recovercontrol of the same or substantially similarsecurities as those sold.

(b) The counterparty’s failure toredeliver the securities sold at maturity orat the date agreed upon could not havebeen reasonably anticipated by the sellerat the time of the transaction.

(c) In case of failure or default of thecounterparty to redeliver the securitiessold, the same shall be immediatelyreplaced by identical or substantiallysimilar securities. For this purpose, areplacement security may only beconsidered substantially similar to thesecurities sold if all of the followingcircumstances are present:

(i) the security must have the sameprimary obligor and must have the sameguarantor under the same terms andconditions, if guaranteed;

(ii) the security must be identical inform and type so as to give the same risksand rights to the holder; and

(iii) the debt instrument must have thesame maturity and interest rate.

The provisions/requirements underSec. X531 which are not inconsistent withthe foregoing shall be strictly observed bythe bank concerned.

(3) ASS held under the FCDU/EFCDUbooks. HFT and ASS under the RBU of UBsand KBs are also allowed to be used in repoagreements.

§§ X531 - X53208.12.31


(4) Securities booked as HFT and ASSDebt Securities under the RBU of UBs andKBs are also allowed to be used in repoagreements.

Sanctions. Without prejudice to thecriminal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of R.A. No. 7653, violationof any provision of Item “a(2)“ of thisSection shall be a ground for consideringall IBODI of the concerned entity as TASsubject to mark-to-market requirementsand shall disqualify said entity fromcarrying in its books the account“Investment in Bonds and Other DebtInstruments” for a period of two (2) yearsreckoned from the date the violation wascommitted or discovered, whichevercomes later.

b. The borrowings shall only be fromFCDUs/EFCDUs, non-resident FIs andOBUs;

c. For TBs which are granted acertificate of authority to operate anFCDU, the maximum term of the repoagreements shall be one (1) year;

d. The borrowings shall be bookedunder “Bills Payable” and included in thecomputation of the total FCDU/EFCDUliabilities subject to the mandatory 100%asset cover and thirty percent (30%) liquidasset cover;

e. The foreign currency-denominateddebt securities sold or used as additionalcollateral in repo agreements shall beconsidered as eligible asset cover for the100% cover requirement. However,these shall not be eligible for the thirtypercent (30%) liquid asset cover;

f. Banks shall, at all times, comply withthe 100% FCDU/EFCDU asset cover andthirty percent (30%) liquid asset cover; and

g. Banks shall monitor and assess therisks inherent in these repo transactions.(As amended by Circular No. 601 dated 13 February 2008)


Sec. X564 Transfer of Undivided Profits/(Losses) from Foreign Currency DepositUnit/Expanded Foreign Currency DepositUnit to Regular Banking Unit Books. Thetransfer of Undivided Profits/(Losses) –FCDU/EFCDU to the Retained Earnings –Free (and in the case of Philippine branchesof foreign banks, Net Due to H. O./Branches/Agencies Abroad) account in theRBU book shall refer to realized FCDU/EFCDU profits/(losses) only and shallexclude the following:

1. Unrealized Gains/(Losses) fromMarking to Market of Financial Assets andLiabilities HFT;

2. Unrealized Gains/(Losses) fromMarking to Market of Financial Assets andLiabilities DFVPL;

3. Foreign Exchange Profit/(Loss);4. Unrealized Gains/(Losses) from

Remeasurement of Hedging Instruments; and5. Unrealized Gains/(Losses) from

Remeasurement of Hedged Items(collectively referred to as Net UnrealizedGains/(Losses) from Operations in thisSection): Provided, That prior to the transferof realized Undivided Profits/(Losses) -FCDU/EFCDU to the Retained Earnings -Free in the RBU book, the FCDU/EFCDUshall fully provide for its classified accounts.

a. The transfer of realized FCDU/EFCDU profits to the RBU book shall bemade initially by a debit to UndividedProfits/(Losses) – FCDU/EFCDU and acredit to Retained Earnings – Free - FCDU/EFCDU at the end of the calendar year orfiscal year adopted by the bank, andsubsequently by a corresponding transferof eligible foreign currency assets from theFCDU/EFCDU to the RBU books within aperiod of one month from the end of thecalendar year or fiscal year adopted by thebank. The foreign currency assets shall bein the form of:

(1) Due from BSP – Foreign Currency;(2) Due from other banks (other FCDUs/

EFCDUs, OBUs and non-resident banks);

§§ X532 - X56408.12.31


(3) Investments in readily marketableforeign currency denominated debtinstruments, except for the following:

(a) those which are sold/lent in repoagreements/securities lending andborrowing transactions and those used asadditional collateral in repo agreementsor as collateral of the borrowing bank insecurities lending and borrowingtransactions;

(b) those investments in structuredproducts: and

(c) those Philippine debt papers whichwere restructured during the period ofmoratorium in the payment of external debt.Provided, That these shall likewise bebooked under the same category in theRBU book as they were before the transferfrom FCDU/EFCDU.

The transfer of the abovementionedeligible foreign currency assetsrepresenting realized FCDU/EFCDUprofits to RBU book shall be made by a debitto Retained Earnings – Free - FCDU/EFCDU.

b. The transfer of realized FCDU/EFCDU losses to the RBU book shall bemade immediately and shall beaccompanied by a corresponding transfer ofthe abovementioned eligible foreigncurrency assets from the RBU book to theFCDU/EFCDU: Provided, That investmentsin readily marketable foreign currencydenominated debt instruments shall likewisebe booked under the same category in theFCDU/EFCDU as they were before thetransfer from RBU book.

The transfer of the abovementionedeligible foreign currency assets representingrealized FCDU/EFCDU losses during theinterim period from the RBU book shall bemade by a credit to Due to RBU – FCDU/EFCDU Realized Losses from Operations,which account shall not be subject to assetand liquid asset cover requirements, andwhich account shall be credited to theUndivided Profits/(Losses) – FCDU/EFCDU

at the end of the calendar year or fiscalyear adopted by the bank.

The amount of eligible foreign currencyassets to be transferred from the RBU bookto the FCDU/EFCDU shall be that whichwill bring the balance of Due to RBU -FCDU/EFCDU Realized Losses fromOperations, equal to the cumulative netrealized losses incurred from the beginningof the calendar year or fiscal year adoptedby the bank.

Whenever the balance of Due to RBU- FCDU/EFCDU Realized Losses fromOperations exceeds the cumulative netrealized losses incurred from the beginningof the calendar year or fiscal year adoptedby the bank, the excess shall be settled bythe FCDU/EFCDU to the RBU by a creditto the abovementioned eligible foreigncurrency assets at the end of the referencemonth.

c. The items comprising the NetUnrealized Gains/(Losses) from Operationsin the FCDU/EFCDU, on the other hand,shall be credited/debited to UndividedProfits/(Losses) - FCDU/EFCDU at the endof each month, which account shall becredited/debited to Retained Earnings - Free- FCDU/EFCDU at the end of the calendaryear or fiscal year adopted by the bank.

Whenever the total of the followingFCDU/EFCDU book accounts:

(1) Retained Earnings - Free - FCDU/EFCDU, representing cumulativeunrealized gains/(losses) from operationsfrom prior years;

(2) Items comprising the NetUnrealized Gains/(Losses) from Operationscredited/debited to Undivided Profits/(Losses), as well as those not yet credited/debited to Undivided Profits/(Losses);

(3) Net Unrealized Gains/(Losses) onASS Financial Assets recognized directlyin equity; and

(4) Gains/(Losses) on Fair ValueAdjustments of Hedging Instrumentsrecognized directly in equity;

§ X56408.12.31


results to a net debit balance, the bankshall transfer from the RBU book to theFCDU/EFCDU immediately theabovementioned eligible foreign currencyassets by a credit to the Due to RBU -FCDU/EFCDU Unrealized LossesRecognized in Profit or Loss and in Equity,which account shall not be subject to assetand liquid asset cover requirements.1

The amount of eligible foreign currencyassets to be transferred from the RBU bookto the FCDU/EFCDU shall be that which willbring the balance of Due to RBU - FCDU/EFCDU Unrealized Losses Recognized inProfit or Loss and in Equity equal to the netdebit balance of the immediately precedingItems "1" to "4" above.

Whenever the Due to RBU - FCDU/EFCDU Unrealized Losses Recognized inProfit and Loss and in Equity exceeds thenet debit balance of the immediatelypreceding Items "1" to "4" above, theexcess shall be settled by the FCDU/EFCDU to the RBU book by a credit tothe abovementioned eligible foreigncurrency assets at the end of thereference month.

The illustrative accounting entries areshown in Appendix 85.(Circular No. 601 dated 13 February 2008 as amended by

Circular No. 629 dated 31 October 2008)

Sec. X565 Conversion to Peso Loans/Realand other Properties Acquired andTransfer to Regular Banking Unit ofForeign Currency Deposit Unit/ExpandedForeign Currency Deposit Unit Loans/Real and other Properties Acquired. Thefollowing are the policy guidelines on theconversion and transfer of foreign currency-denominated loans, and ROPA in thebooks of the FCDU/EFCDU to peso loansand ROPA in the books of the RBU:

a. FCDU/EFCDU loans may betransferred to the RBU without prior BSPapproval, subject to the following conditions:

(1) the FCDU/EFCDU loan to betransferred must meet the following criteria:(a) current and performing; and (b) eligibleto be serviced by the banking system:Provided, That a past due FCDU/EFCDUloan may be transferred to the RBU if it meetsthe following criteria: (a) eligible to beserviced by the banking system; (b) fullysecured by real estate mortgage; (c)foreclosure of the collateral shall be effectedwithin six (6) months from the date of transferto the RBU if the loan remains to be pastdue; and (d) they are not eligible to beserviced by the banking system but loan isalready outstanding as of 27 October 2000:Provided, further, That a past due partiallysecured or unsecured FCDU/EFCDU loanshall only be eligible for conversion/transferto RBU if part of a multi-creditor rehabilitationor work-out plan acceptable to all creditorswhere the said plan requires the conversionof FCDU/EFCDU loans to peso;

(2) there shall be actual settlement inforeign currency, simultaneous with thetransfer, by the RBU to the FCDU/EFCDUof the total amount of foreign currency-denominated loans being transferred to theRBU using the prevailing foreign exchange/conversion rate at the time of transfer;

(3) the transfer and conversion of foreigncurrency-denominated loans from theFCDU/EFCDU books to the RBU booksincluding the prevailing foreign exchange/conversion rate to be used shall have theprior approval of the bank’s board of directors,or the Country Head, in case of branches offoreign banks, and the prior written consentof the borrower whose account will betransferred/converted, except for loanscovered by credit/loan agreement allowingthe bank to unilaterally convert and transferthe FCDU/EFCDU loan in which case theprior written consent requirement may bedispensed with;

(4) the converted/transferred FCDU/EFCDU loans are properly documented/

§§ X564 - X56508.12.31


1 From 31 October 2008 to 31 March 2009, banks may add back the resulting net debit balance in the total of Item Nos. “1”to “4” above to total assets in the FCDU/EFCDU book for purposes of determining compliance with the 100% asset coverrequirement instead of transferring eligible foreign currency assets from the RBU book to FCDU/EFCDU book.

covered by a written agreement/contract:Provided, That if the original loan agreementallows the bank to unilaterally convert/transferthe FCDU/EFCDU loan to peso, the said loanagreement should indicate the generalterms and conditions of the converted/transferred peso loan: Provided, further,That upon conversion/transfer, theborrower must be informed in writing ofthe peso loan’s new terms and conditions:Provided, finally, That once converted/transferred to a peso loan, the same loanshould not be converted back to an FCDU/EFCDU loan;

(5) no income shall be recognized bythe FCDU/EFCDU or RBU on the transferof FCDU/EFCDU loans to RBU;

(6) the status of the FCDU/EFCDU loanprior to the transfer, i.e., current or past due,performing or non-performing, and the loanclassification, i.e., especially mentioned,substandard, doubtful or loss, shall beretained once the loan is transferred to theRBU books, which transfer shall alsoinclude the corresponding bookedallowance for probable losses;

b. FCDU/EFCDU ROPAs may also betransferred to the RBU without prior BSPapproval, subject to Items “(2)” to “(6)” above;

c. Conversions and transfers ofFCDU/EFCDU loans and ROPA to RBUbooks that do not meet the aboveguidelines shall be subject to priorMonetary Board approval; and

§§ X565 - X59908.12.31


d. All foreign currency-denominatedloans and ROPA in the FCDU/EFCDUconverted to peso and transferred to thebooks of the RBU shall be reportedmonthly to the appropriate departmentof the SES within ten (10) banking daysfrom end of reference month. The report,classified as Category B, shall includename of borrower, date transferred/converted, outstanding balance inforeign currency in the FCDU/EFCDU,peso amount booked in the RBU,prevailing foreign exchange rate used,status and classification on date oftransfer, collateral (if any) and dateapproved by bank’s board/Country Head.A report is not required if no transferswere effected during the month.

The prescribed accounting entries onthe conversion and transfer of FCDU/EFCDU loans and ROPA to RBU booksare shown in Appendix 59.


Sec. X599 General Provision onSanctions Any violation of the provisionsof this Part shall be subject to Sections 36and 37 of R.A. No. 7653.

The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37 ofR.A. No. 7653 on banks, their directorsand/or officers are shown in Appendix 67.

§§ X601 - X601.108.12.31

PART SIX

TREASURY AND MONEY MARKET OPERATIONS

A. OTHER OPERATIONS

Section X601 Open Market OperationsThe following rules and regulations shallgovern the buying and selling ofgovernment securities in the open market,pursuant to Section 91 of R.A. No. 7653.

a. The BSP may buy and sell in theopen market for its own account:

(1) Evidences of indebtedness issueddirectly by the Government of thePhilippines or its political subdivisions; and

(2) Evidences of indebtedness issuedby government instrumentalities and fullyguaranteed by the Government.

The above evidences of indebtednessmust be freely negotiable and regularlyserviced. Purchases and sales in the openmarket shall be made through banks, QBsand accredited government securitiesdealers.

b. Outright purchases and sales ofgovernment securities shall be effected atprevailing market prices.

c. Repo agreements shall be open tobanks (except RBs), QBs, and accreditedgovernment securities dealers and shall bemade under the terms provided for inSubsec. X601.1 and the following:

(1) The repo agreement may be paidat any time before maturity, subject tomutual agreement of both parties;

(2) In the event the securities coveredby the repo agreement are not repurchasedby the issuer of such agreement, the samemay be sold in the open market ortransferred to the BSP portfolio; and

(3) Should an issuer of a repoagreement become no longer qualified assuch, its outstanding repo agreement shallimmediately become due and payable.If settlement of the amount due is not madewithin three (3) days from the date of its

disqualification, the BSP shall proceed tocollect said amount in accordance with thepreceding paragraph.

d. Reverse repo agreements coveringthe sale of portion of the security holdingsof the BSP portfolio may be made underthe terms provided for in Subsec. X601.2.

e. The purchase and sale ofgovernment securities by the NationalTreasury and government-owned orcontrolled corporations shall be made onlywith (a) the BSP; (b) the DBP, the LBP, theSSS, the GSIS, the Al-Amanah IslamicInvestment Bank of the Philippines andbanks that are wholly-owned or controlledby these institutions; and (c) the PhilippineVeterans Bank. Transactions shall be donewith the bank proper and not through itstrust department.

§ X601.1 Repurchase agreementswith Bangko Sentral

a. Repo agreements may be effectedwith the BSP subject to the following termsand conditions:

(1) Rate. The rates on the repoagreement facility shall be set by theTreasury Department, with theconcurrence of the Governor, taking intoaccount prevailing liquidity/marketconditions.

(2) Term. At the option of the TreasuryDepartment, availments may be for aminimum of one (1) day (overnight) and amaximum of ninety-one (91) days.

(3) Security. Only obligations of theNational Government and itsinstrumentalities and political subdivisions,which are fully guaranteed by theGovernment, with a remaining maturity ofnot more than ten (10) years and which arefreely negotiable and regularly serviced,shall be eligible as underlying instruments

Manual of Regulations for Banks Part VI - Page 1

§§ X601.1 - X601.208.12.31

for repo agreements subject to the collateralrequirement prescribed by the BSP.

(4) Delivery. Delivery of the underlyinginstruments shall be made to the BSP at theprescribed time. For overnight repoagreements, delivery of the underlyinginstruments shall be made not later than12:00 noon of the date of transaction.

Government securities which are heldby the issuer of the repo agreement underthe book-entry system with the BSP maybe used as underlying instruments onlywith the conformity of the BSP.

(5) Upon termination of the repoagreement, the issuer of such agreementshall claim and take delivery of theunderlying instruments at the TreasuryDepartment, BSP. Failure to claim and takedelivery of the underlying instrumentsimmediately upon such termination shallrelieve the BSP of any liability orresponsibility for the loss or misplacementof said instruments.

b. US dollar (USD) denominated repoagreement facility may likewise be effectedwith the BSP, subject to the following termsand conditions, and as may be providedunder the repo agreement facility:

(1) Eligible borrowers. The USDdenominated repo agreement facility shallonly be available to banks with legitimateforeign currency denominated fundingneeds as may be provided under the repoagreement facility: Provided, That theborrowing shall be for the account of theapplicant bank and shall not be used to fundliquidity requirements of foreign branches,affiliates, or subsidiaries.

(2) Collateral. Only USD denominatedobligations of the National Government ofthe Republic of the Philippines shall beeligible as collateral.

(3) The guidelines on the availment ofUSD denominated repo agreement withthe BSP are shown in Appendix 86.

The Monetary Board may, at itsdiscretion, impose any or all of the following

sanctions to a bank and/or its director/s orofficer/s found to be responsible forviolation of the provisions on the terms andconditions of the USD denominated repoagreement with the BSP:

(1) Termination of eligibility andpre-termination of any outstanding balancethrough repayment and/or sale of thecollateral;

(2) Fine of up to P30,000 pertransaction per day of violation reckonedfrom the time the violation was committedup to the date it is corrected;

(3) Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

(4) Suspension of access to BSPrediscounting facilities;

(5) Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

(6) Revocation of authority to performtrust operations;

(7) Revocation of quasi-bankinglicense;

(8) Suspension for 120 days withoutpay of the officers and/or directorsresponsible for the violation; and

(9) Other sanctions as may beprovided by law.(As amended by Circular Nos. 631 dated 12 November 2008,

627 dated 23 October 2008, M-2008-034 dated 12 November

2008 and M-2008-031 dated 23 October 2008)

§ X601.2 Reverse repurchaseagreements with Bangko Sentral. Reverserepo agreements may be effected with theBSP subject to the following terms andconditions:

a. Rate. The rates shall be set by theTreasury Department, with the concurrenceof the Governor, taking into account theprevailing liquidity/market conditions.

b. Term. At the option of the TreasuryDepartment, availments may be for aminimum of one (1) day (overnight) and amaximum of 364 days.

Part VI - Page 2 Manual of Regulations for Banks

c. Security. The collateral shall consistof obligations of the National Governmentand other freely negotiable securities inthe BSP portfolio valued at 100%.

d. Delivery. No delivery of thecollateral shall be made, but a custodyreceipt shall be issued instead.

e. Reservation. Prepayment may bemade by the BSP at its option anytimebefore maturity.

Effective 01 July 2003, publishedinterest rates that will be applied on BSP’sreverse repo agreements with banks shallbe inclusive of Value Added Tax (VAT).

Reverse repo agreements enteredinto by the BSP with any AAB areincluded in the definition of the term“deposit substitutes” under Sec. 22 (y)Chapter 1 of the National InternalRevenue Code of 1997.

The BSP shall withhold twentypercent (20%) Final Withholding Tax(FWT) on its overnight reverse repoagreements starting January 01, 2008,under the following guidelines:

(1) All overnight reverse repoagreements with the BSP shall besubject to the twenty percent (20%) FWTin the same manner as term reverse repoagreements, which tax is deducted oneach maturity date and remitted to theBIR;

(2) The total twenty percent (20%)FWT on the overnight reverse repoagreements due starting 01 January 2008until 08 September 2008 shall be dividedequally in the remaining months of taxableyear 2008. The installments due will bededucted every end of the month from theRDDA of concerned banks; and

(3) Concerned banks shall issue thecorresponding debit authority to the BSPto cover the twenty percent (20%) FWTon their overnight reverse repoagreements with the BSP mentioned inItem “2” above.(As amended by Circular No. 619 dated 22 August 2008)


§§ X601.2 - X61108.12.31

§ X601.3 Settlement procedures onthe purchase and sale of governmentsecurities under repurchase agreementswith the Bangko Sentral. Purchase and saleof government securities under repoagreements (GS/repo agreements)between and among banks and QBs andBSP in connection with the latter’s openmarket operations shall be settled inaccordance with the provisions of theagreement for the PhilPaSS executed on12 December 2002 between the BSP andBAP/CTB/RBAP and any subsequentamendments thereto.(As superseded by the agreement between the BSP and BAP/

CTB/RBAP dated 12 December 2002)

§§ X601.4 - X601.5 (Reserved)

§ X601.6 Bangko Sentral tradingwindows and services during public sectorholidays. The guidelines on BSP’s tradingwindows and services during public sectorholidays are shown in Appendix 84.(M-2008-025 dated 13 August 2008)


B. FINANCIAL INSTRUMENTS

Sec. X611(2008 - X602) Derivatives. Abank may engage in authorized derivativesactivities: Provided, That the bank:

a. Understands, measures, monitorsand controls the risks assumed from itsderivatives activities;

b. Adopts effective risk managementpractices whose sophistication arecommensurate to the risks beingmonitored and controlled; and

c. Maintains capital commensuratewith the risk exposures assumed.

Further, a bank may likewise engagein financial derivatives activities inaccordance with these guidelines. Thetransacting bank shall have theresponsibility to comply with the guidelines

set out in this Section, including therelevant appendices, and otherapplicable laws, rules and regulationsgoverning derivatives transaction. Incase of derivatives instruments involvingforeign currencies and/or other foreigncurrency - denominated assets, thetransacting bank shall observe thepertinent FX rules and regulations. Forpurposes of these guidelines, a bank thattransacts (i.e., transacting bank) whetheras end-user, broker or dealer, inderivatives instruments is considered tobe engaging in a derivatives activity.

Derivative is broadly defined as afinancial instrument that primarily derivesits value from the performance of anunderlying variable. For purposes of theseguidelines, a financial derivative is anyfinancial instrument or contract with all ofthe following characteristics:

a. Its value changes in response to achange in a specified interest rate, financialinstrument price, commodity price, FXrate, index of prices or rates, credit spread,credit rating or credit index or othervariables not prohibited under existinglaws, rules and regulations (the“underlying”);

b. It requires either no initial netinvestment or an initial net investment thatis smaller than would be required for othertypes of contracts that would be expectedto have a similar response to changes inmarket factors; and

c. It is settled at a future date.Financial derivatives activities shall also

include transactions in cash instrumentswith embedded derivatives that reshape therisk-return profile of the host instrument,such as credit-linked notes (“CLNs”) andother structured products (“SPs”).

A market participant may take any ofthe following roles in a derivativestransaction:

a. An end-user is defined as a financialmarket participant that enters, for its own

account, in a derivatives transaction forlegitimate economic purposes. Thesepurposes may include, but are not limitedto, the following: hedging, proprietarytrading, managing capital or fundingcosts, obtaining indirect exposures todesired market factors, investment,yield-enhancement, and/or altering therisk-reward profile of a particular item oran entire balance sheet.

An end-user may be classifiedaccording to its financial sophistication:

(1) Market counterparty - refers to anyUB or KB, only with respect to theinstruments for which it is authorized toengage in as a dealer.

(2) Institutional counterparty - refers toan institution which is not a marketcounterparty and has the level of net worth,knowledge, expertise, and experience todeal with financial derivatives.

(3) Sophisticated individual end-user- refers to an individual who hasdemonstrated to the bank as having thelevel of net worth, knowledge andexperience in dealing with financialproducts, including financial derivatives.An individual may register as asophisticated individual end-user with theCentralized Applications and LicensingGroup of the BSP.

(4) Other end-user - This refers to allother institutional or individual clients notcategorized as market counterparty,institutional counterparty or sophisticatedindividual end-user.

b. A broker is a financial marketparticipant that facilitates a derivativestransaction between a dealer and itsclient, for a fee or commission. Thecounterparties to the derivatives contractare the client and an authorized dealer.

c. A dealer is defined as a financialmarket participant that engages in aderivatives activity as an originator ofderivatives products or as market-maker inderivatives products. A dealer can distribute

§ X61108.12.31


its own derivatives products, including thoseof others. A dealer can also act as brokerand/or end-user of derivatives instruments.(As amended by Circular No. 594 dated 08 January 2008)

§ X611.1 (2008 - X602.1) Generallyauthorized derivatives activities. A bankmay engage in the following derivativesactivities without need of prior BSPapproval: Provided, That it observes theprovisions of Appendix 25 and meets thefollowing conditions:

a. UBs and KBs may transact in thefollowing derivatives in the capacitiesspecified:

(1) As a dealer. A UB or KB mayoriginate and distribute the following“organized market”-traded financialderivatives:

(a) FX forwards, FX swaps, currencyswaps and analogous financial futures witha tenor of three (3) years or less; and

(b) Interest rate swaps, forward rateagreements and analogous financial futureswith a tenor of ten (10) years or less:Provided, That the issuance of sub-participation in any derivatives held as anend-user shall be deemed as undertakingthe role of a dealer: Provided, further, Thatthe dealer UB or KB observes theprovisions of Appendix 26 and otherpertinent securities laws, rules andregulations.

For purposes of this Subsection, anorganized market refers to an exchangeor a BSP-recognized over-the-countermarket governed by transparent andbinding market conventions on pricetransparency, trade reporting, marketsurveillance and orderly conduct/operations of the market.

(2) As end-user1. (a) A UB or KB, including its trust

department, may enter in any financialderivatives transaction for the purpose of

hedging its own risks: Provided, That itobserves all the requirements for hedgingtransactions under PAS.

(b) A UB or KB may trade withcounterparties in order to take positions forits own account in “organized market” -traded financial instruments enumeratedunder Item "1" above. It can also take longpositions in naked FX options with a tenorof three (3) years or less.

(c) RBU and EFCDU of UBs and KBs,including its trust departments, may invest,for their own account, in the following SPs:

(i) Principal-protected foreigncurrency-denominated SPs, the revenuestreams of which are linked to interest rateindices, interest rate instruments, listedequity shares or indices, FX rates, creditrating or index, or gold: Provided, That themaximum contractual maturity shall befive (5) years;

(ii) Plain vanilla single-name CLNswhere the reference asset is an obligationissued or guaranteed by the Republic ofthe Philippines.

Provided, That the bank or trust entityshall comply with the following conditions:

(aa) Total carrying value of allinvestments in SPs shall not exceed 100%of the bank’s qualifying Tier 1 capital orfifty percent (50%) of a trust entity’s trustassets; and

(bb) For investments in SPs under theEFCDU, total carrying value of SPs asdefined herein shall also not exceedtwenty percent (20%) of the total FCDUassets: Provided, That SPs which are notbooked in an investment account(e.g., booked as inter-bank loans), for thispurpose, shall be considered as part of theEFCDU assets.

An SP is considered principal-protectedif the minimum all-in return for suchinvestment is at least zero and suchminimum all-in return is guaranteed by an

§§X611 - X611.108.12.31


1 All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered as among thegenerally 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 suchinstruments shall comply with the requirements of Appendix 25, where applicable.

entity (i.e., issuer or a third party) rated atleast “A” or its equivalent by aninternational rating agency acceptable tothe BSP or fully collateralized by an assetwith equivalent credit quality.

(3) As a broker. A UB or KB mayfacilitate derivatives transactions betweendealers and market and/or institutionalcounterparties and/or sophisticatedindividual end-users: Provided, That theUB/KB, acting as broker, ensures that itsclient fully understands its limitedresponsibility as a broker: Provided further,That the bank adheres to procedures forevaluating client suitability, including riskdisclosures, as prescribed in Appendix 26:Provided finally, That the bank complieswith other pertinent securities laws, rulesand regulations.

b. TBs, RBs and Coop Banks mayenter in derivatives transactions as end-userwith BSP - authorized dealers and brokerssolely for hedging purposes: Provided, Thatthey observe all the requirements forhedging transactions under PAS1. A TB, RBor Coop Bank may apply for a Type 3authority to enter into derivativestransactions as end-user for purposes otherthan hedging: Provided, That the applicantbank agrees to be covered by allregulations prescribing capital for marketrisk, notwithstanding any provision to thecontrary; and

c. A trust department of a UB or KBmay transact, as an institutionalcounterparty, with financial derivativesinstruments enumerated under Subsec.X611.1(a)(2) on behalf of its trustor/principal/s as may be authorized by suchtrustor/ principal/s: Provided, That the trustdepartment observes the relevantprovisions of Appendices 25 and 26. Trustentities other than that within a UB or KBmay apply for a Type 3 authority to enteron behalf of its trustor/principal/s in

derivatives transactions under Subsec.X611.1(a)(2). Any trust entity may alsoapply for Type 3 authority in order totransact as end-user on behalf of its trustor/principal/s with derivatives instrumentoutside those enumerated under Subsec.X611.1(a)(2).(As amended by Circular Nos. 605 dated 05 March 2008 and

594 dated 08 January 2008)

§ X611.2(2008 - X602.2) Activitiesrequiring additional derivativesauthority. A bank shall apply for prior BSPapproval of additional derivatives authorityto engage in all other financial derivativesactivities not expressly allowed in Subsec.X611.1. A bank may apply for two (2) ormore additional authorities. A bankapplying for additional derivativesauthority/ies must have and maintain a riskmanagement system commensurate to theadditional authority/ies being applied for,in accordance with the provisions ofAppendix 25 and meet other conditionsspecified under this Subsection.

a. Classification of additionalderivatives authority

(1) Type 1 - Expanded dealer authorityA UB or KB may apply for a Type 1

authority. A bank with Type 1 authoritymay transact in any financial derivativesas a dealer: Provided, That a bank withType 1 authority shall comply with thesales and marketing guidelines prescribedin Appendix 26. A bank with Type 1authority may likewise transact in anyfinancial derivatives as a broker and anend-user.

The BSP expects banks applying forType 1 authority to institutionalize a(a) comprehensive and integrated riskmanagement system; and (b) sales andmarketing practices that are deemedappropriate and adequate for the differentderivatives activities it expects to engage

§§ X611.1 - X611.208.12.31


1 All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered as among thegenerally 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 suchinstruments shall comply with the requirements of Appendix 25, where applicable.

in. It must be rated at least CAMELS (orROCA for branches of foreign banks) of“4” or better over-all, notwithstanding anyprovision to the contrary.

(2) Type 2 - Limited dealer authorityA UB or KB may apply for a Type 2

authority. A bank with Type 2 authoritymay operate as a dealer in specific typesof derivatives products with specificunderlying reference, as applied for by thebank, outside those financial derivativesinstruments under Subsec. X611.1(a)(1):Provided, That a bank with Type 2authority shall comply with the sales andmarketing guidelines prescribed inAppendix 26. The Type 2 authority alsocarries authority to transact as broker andend-user of the said specific derivativesinstruments.

(3) Type 3 - Limited user authorityAny bank may apply for a Type 3

authority. A bank with Type 3 authority maytransact, as an end-user, in specific types ofderivatives products, with specific underlyingreference, as applied for by the bank, outsideof those instruments under Subsec.X611.1(a)(2). However, as regards a TB, RBor Coop Bank and trust entity other than thatwithin a UB or KB, a Type 3 authority willenable said bank/entity to transact as end-user of a derivative instrument as may beapplied for by the bank/entity.

(4) Type 4 - Special broker authorityA bank, other than a UB or KB, may

apply for a Type 4 authority. A bank withType 4 authority may facilitate a derivativestransaction between a UB or KB, as dealer,and market and institutional counterpartiesand sophisticated individual end-users:Provided, That the bank, acting as broker,ensures that its client fully understands itslimited responsibility as a broker andobserves the provisions of Appendix 26.

A UB or KB may likewise apply for aType 4 authority to enable itself to brokera derivatives transaction for or with otherend-users.

A bank with additional Type 1, 2 or 4authorities shall be responsible forcomplying with pertinent securities laws,rules and regulations.

For purposes of this Subsection, thetypes of derivatives are classified as follows:forwards, swaps and options. Underlyingreference pertains to the following: interest,FX, equity, credit and commodity.

b. Qualification requirements. Abank applying for additional authority toengage in expanded derivatives activitiesshall:

(1) Demonstrate adequate competencein its general operations as evidenced by:

(a) CAMELS (or ROCA for branches offoreign banks) composite rating of at least“3” with a similar rating for Management;

(b) No unresolved major safety andsoundness issues that threaten liquidity orsolvency; and

(c) Substantial compliance withregulations on anti-money laundering,corporate governance and riskmanagement.

(2) Hold capital commensurate to therisks assumed or to be assumed from thederivatives activities. The BSP expects abank applying for or holding additionalderivatives authority to have adequatecapital to accommodate existing andfuture risks from additional and generallyauthorized derivatives activities as wellas risks arising from the bank’s otherbusiness activities. For this purpose, theBSP may require capital higher than theminimum required under prudentialregulations.

(3) Have and maintain a riskmanagement system that conforms to theprinciples and complies with the minimumstandards prescribed in Appendix 25.

c. Applicability to trust entities. Trustentities may apply for Type 3 authority:Provided, That they comply with therequirements prescribed and observe theprovisions of Appendix 26.

§ X611.208.12.31


d. Application procedures. Theapplicant shall submit to the CapitalMarkets Specialist Group, SES of the BSPa written application for additionalderivatives authority/ies accompanied by:

(1) A copy of the board resolution (orequivalent management review body inthe case of branches of foreign banks ortrust committee, in case of trust entities)approving the application for a specific typeof derivatives authority;

(2) A notarized certification signedjointly by the president, treasurer andcompliance officer of the applicant-bank (ortwo (2) authorized signatories of equivalentrank of the trust committee in case of trustentities), stating that the bank complies withall the requirements for the authority beingapplied for specified in Subsec. X611.2; and

(3) A list of the types of derivatives andunderlying reference the bank intends toengage in, including the followinginformation for each derivatives class or type:

(a) Target customers for suchderivatives;

(b) The capacity in which the bankintends to engage in such derivatives;

(c) Description of each type ofderivatives and underlying reference withwhich it will deal;

(d) Analysis of the risks involved intransacting in each type of derivatives;

(e) Procedures/methodologies that thebank will implement to measure, monitor(including risk management reports) andcontrol the risks inherent in the types ofderivatives;

(f) Relevant accounting guidelines,including pro-forma accounting entries;

(g) Analysis of any actual or potentiallegal/regulatory restrictions; and

(h) Process flow chart, from dealinitiation to risk reporting, indicating thedepartments and personnel involved inidentified processes.

(4) Payment of a non-refundableprocessing fee amounting to:

Authority Amount

Type 1 P 200,000

Type 2 100,000 (UBs and KBs)

Type 3 50,000

25,000 (other applicants)

Type 4 25,000 (all banks)

(5) The BSP will not acceptapplications lacking any of the above-stated requirements. The BSP, however,may require additional documents to aidits evaluation of the application. By virtueof the application, the applicantautomatically authorizes the BSP toconduct an on-site evaluation of theapplicant’s risk management capabilities,if this is deemed necessary.

(6) Type 1 authority shall be subjectto approval by the Governor, uponrecommendation of the Deputy Governor,SES. All other applications for additionalauthority/ies shall be subject to approval bythe Deputy Governor, SES.

(7) A bank whose application foradditional derivatives authority/ies or anupgrade thereof (e.g., from Type 2 toType 1 authority) has been denied cannotsubmit a new application for additionalderivatives authorities until after six (6)months from receipt of denial. The samerule applies for a bank whose authoritieshave been limited or downgraded.

(8) A bank that holds an additionalderivatives authority may apply foradditional derivatives authorit ies(e.g., currently holding Type 3 authoritywho wish to apply for Type 4 authority)or an upgrade thereof only after the lapseof six (6) months from the grant of theprevious additional derivatives authority. (As amended by Circular No. 594 dated 08 January 2008)

§ X611.3 (2008 - X602.3) Intra-grouptransactions. All derivatives transactionsbetween a bank and any of its subsidiariesand affiliates shall comply with minimumrisk management standards for related-

§§ X611.2 - X611.308.12.31


party transactions outlined in Appendix 25,as part of the bank’s internal controlprocedures. The BSP expects banks toestablish internal reporting and monitoringsystem for derivatives activities for related-party transactions. Failure to comply withminimum standards shall be a ground forciting non-compliance with Subsecs.X611.1 and X611.2 without prejudice toother BSP rules and regulations such asthose related to corporate governance andunsafe and unsound banking practices.(As amended by Circular No. 594 dated 08 January 2008)

§ X611.4 (2008 - X602.4) Accountingguidelines. A bank that engages inderivatives activities must strictly account forsuch transactions in accordance with PAS.(As amended by Circular No. 594 dated 08 January 2008)

§ X611. 5 (2008 - X602.5) Reportingrequirements. A bank or trust department/entity engaged in any derivativestransaction shall submit, in addition to thederivatives reports enumerated under theBSP FRP, a monthly report on derivativestransactions/outstanding derivatives withinfifteen (15) banking days from end of thereference month. The reports shall becertified by the treasurer.(As amended by Circular No. 594 dated 08 January 2008)

§ X611.6 (2008 - X602.6) Sanctionsa. Unauthorized transactions.

Sanctions prescribed under Sections 36 and37 of R.A. No. 7653 shall be imposed onany bank (including its directors andofficers) found to have engaged in anunauthorized derivatives activity.

A bank undertaking unauthorizedderivatives activities may be consideredas conducting its business in an unsafe andunsound manner under Section 56 ofR.A. No. 8791.

b. Delayed/erroneous/inaccuratereporting. Banks failing to submit thereports required under Subsec. X611.5within the prescribed deadline shall be

subject to monetary penalties applicablefor delayed reporting under existingregulations. Moreover, submission ofincomplete, uncertified or improperlycertified or otherwise erroneous reportsshall be considered non-reporting, subjectto applicable penalties for amended/delayed reports. For purposes of imposingmonetary penalties, the reports shall beclassified as a Category A-1 report.Habitual delayed or erroneous reportingmay be a ground for further sanction,including limitation of generally authorizedactivities and/or additional authoritiesand/or suspension of authority to engagein such derivatives activities.

c. Non-compliance with theprovisions of Sec. X611 and its Subsectionsand Appendices 25 and 26. Any bank/trustentity found violating any of the provisionsof Sec. X611 and its Subsections, and/orAppendices 25 and/or 26 shall besanctioned with the penalties prescribedunder Sections 36 and 37 of R.A. No. 7653in accordance with the gravity/seriousnessof the offense taking into consideration thenumber of times the offense wascommitted, possible consequent losses onthe clients, effect on the financial marketsand other relevant factors.

d. Curtailment of derivatives authority.The BSP reserves the right to suspend,modify, downgrade, limit or revoke anybank’s derivatives authority (includingany or all of those generally authorizedactivities) for prudential reasons as maybe evidenced by any or all of thefollowing:

(1) The bank is assigned a CAMELS(or ROCA in the case of branches of foreignbanks) composite rating or componentmanagement rating of lower than thatprescribed under Subsec. X611.2, in themost recent regular examination.

(2) The bank has not maintainedadequate risk management systems giventhe level and type of derivatives activitiesit has engaged in as may be determined

§§ X611.3 - X611.608.12.31


by the BSP in any on-site evaluation andconfirmed by the Monetary Board.

(3) The Monetary Board has confirmedan SES finding that the bank has conductedbusiness in an unsafe and unsound manner.

An erring bank may apply forreinstatement of its derivatives authorityonly after six (6) months from lapse of theimplementation of the sanction: Provided,That the bank has satisfactorily addressedall BSP concerns.

Transitory provisions. Expanded or anyother derivatives authority granted prior to30 January 2008 shall be operative for one(1) year from the said date: Provided, That abank undertaking any derivatives activitiespursuant thereto shall immediately complywith the pertinent provisions of Appendices25 and 26. A bank which intends to continueits existing derivatives authority not coveredby those generally authorized under Subsec.X611.1, must submit an application for theappropriate additional derivatives authoritywithin the one (1) - year transitory period. After the lapse of the one (1) - year transitoryperiod, a bank can only perform thoseactivities which are permissible underSec. X611 and its Subsections.

A bank whose SPs, as of 30 January 2008,exceed the prudential limits prescribedunder Subsec. X611.1(a)(3) may maintainexisting positions but cannot increase itsexposures or invest in additional SPs untilsuch time when its exposure levels arewithin the prescribed limits. (As amended by Circular No. 594 dated 08 January 2008)


Sec. X625 (2008 - X602.14) Forward andSwap Transactions. The followingguidelines shall govern the forward andswap transactions in Philippine peso

§ X625.1 (2008 - X602.14) Statementof policy. It is the policy of the BSP tosupport the deepening of the Philippinefinancial markets. In line with this policy,

customers may, thru FX forwards, hedgetheir market risks arising from FXobligations and/or exposures: Provided,That forward sale of FX (deliverable andnon-deliverable) may only be used whenthe underlying transaction is eligible forservicing by the banking system underCircular No. 1389 dated 13 April 1993, asamended. Customers may, likewise, covertheir funding requirements thru FX swaps.

Banks may only engage in FX forwardsand swap transactions with customers if thelatter is hedging market risk or coveringfunding requirements. There shall be nodouble/multiple hedging such that at anygiven point in time, the total notionalamount of the FX derivatives transaction/sshall not exceed the amount of theunderlying FX obligation/exposure.

The customer shall no longer beallowed to buy FX from the bankingsystem for FX obligations/exposures thatare fully covered by deliverable FXforwards and FX swaps.

The following guidelines, as well asminimum documentary requirements, shallcover FX forward and swap transactionsinvolving the Philippine peso betweenauthorized dealer banks and their customers.(As amended by Circular No. 591 dated 27 December 2007)

§ X625.2 (2008 - X602.15) Definitionof terms

a. Credit default swaps (CDS) - refersto a financial contract between two (2)parties, the protection buyer and protectionseller, with reference to a certain notionalvalue of a reference credit or a basket ofreference credits, whereby the formerpays a premium to the latter, and in returnthe latter agrees to make certain protectionpayments to the former contingent uponthe occurrence of a credit event withrespect to the reference entity(ies)/asset(s).

b. Credit-linked note (CLN) - refers toa pre-funded credit derivative instrumentunder which the note holder effectivelyaccepts the transfer of credit risk pertaining

§§ X611.6 - X625.208.12.31


to a reference asset or basket of assetsissued by a reference entity/ies. Therepayment of the principal to the noteholder is contingent upon the occurrenceof a defined credit event. In considerationthereof, the note holder receives aneconomic return reflecting the underlyingcredit risk of the reference assets.For purposes of Sec. X611, the term shallgenerically include similar instrumentssuch as credit-linked deposits (CLDs) andcredit-linked loans (CLLs). Unlessotherwise stated, the term shall refer onlyto plain vanilla CLNs. Plain vanilla CLNsare composed of a debt or depositinstrument and a CDS. Non-plain vanillaCLNs are those that are leveraged and/orinclude features of other SPs (e.g., couponpayments linked to interest or FX ratemovements) and/or contains more thanone (1) embedded derivative.

c. Currency swaps - refers to anarrangement in which two partiesexchange a series of cash flows in one (1)currency for a series of cash flows inanother currency, at specified exchangeand/or interest rates and at agreed intervalsover an agreed period.

d. Forward FX contracts - refers to anagreement for delayed delivery of a foreigncurrency in which the buyer agrees topurchase and the seller agrees to deliverat a specified future date a specified amountat a specified exchange rate.

e. Forward rate agreement (FRA) -refers to an agreement fixing the interestrates for a specified period whereby thebuyer receives (or pays) and the seller pays(or receives) the interest rate differential ifthe reference rate rises above (or fallsbelow) the contract rate, respectively.

f. FX exposure - refers to an FX riskarising from an existing commitment to orfrom a non-resident or AAB which leadsto payment of an FX obligation or receiptof an FX asset based on verifiabledocuments on deal date.

g. FX obligation - refers to an actualFX commitment to a non-resident or anyAAB where the amount, payment tenor andparty have been determined.

h. FX options - refers to optioncontracts which convey the right or theobligation depending upon whether thebank is the purchaser or the writer,respectively to buy or sell at a specifiedprice by a specified future date, for a feeor a premium, two (2) different currenciesat a specified exchange rate.

i. FX swaps - refers to an agreementinvolving an initial exchange of two (2)currencies, usually at the prevailing spotrate, and a simultaneous commitment toreverse the exchange of the same two (2)currencies at a date further in the future ata rate (different from the rate applied to theinitial exchange) agreed on deal date.

j. Interest rate swaps (IRS) - refers toan agreement in which the parties agree toexchange interest cash flows on a principalamount at certain times in the futureaccording to an agreed upon formula.

k. Non-deliverable forward (NDF) -refers to a forward FX contract where onlythe net difference between the contractedforward rate and the market rate shall besettled at maturity.

l. Non-resident - refers to an individual,a corporation or other juridical person notincluded in the definition of resident.

m. Resident - refers to:(1) An individual citizen of the

Philippines residing therein; or(2) An individual who is not a citizen

of the Philippines but is permanentlyresiding therein; or

(3) A corporation or other juridicalperson organized under the laws of thePhilippines; or

(4) A branch, subsidiary, affiliate,extension office or any other unit ofcorporations or juridical persons which areorganized under the laws of any country andoperating in the Philippines, except OBUs.

§ X625.208.12.31


n. Structured product (SP) - refers to afinancial instrument where the total returnis a function of one (1) or more underlyingindices, such as interest rates, equities andexchange rates. It is composed of a hostcontract (e.g., plain vanilla debt or equitysecurities) and an embedded derivative(e.g., swaps, forwards or options) thatre-shape the risk-return pattern of thehybrid instrument. For purposes ofguidelines under Sec. X611, the term SPdoes not include asset-backed securities.Provisions under Sec. 1648 shall continueto apply for securities overlyingsecuritization structures.(As amended by Circular Nos. 594 dated 08 January 2008 and

591 dated 27 December 2007)

§ X625.3 (2008 - X602.16) DocumentationMinimum documentary requirements forFX forward and swap transactions inAppendix 58 shall be presented on orbefore deal date to the banks unlessotherwise indicated.

FX selling banks shall stamp thesupporting documents upon presentationby customers as follows:

a. For hedging transactions: “FXhedged/deliverable” or “FX hedged/non-deliverable";

b. For funding transactions: “FX sold”,indicating the contract date and amountinvolved, and signed by the bank’sauthorized officer. Copies of all dulymarked supporting documents shall beretained by the banks and made availableto the BSP for verification. The retainedcopies shall also be marked “DocumentsPresented as Required” and signed by thebank’s authorized officer.(As amended by Circular No. 591 dated 27 December 2007)

§ X625.4 (2008 - X602.17) Tenor/maturity and settlement

a. Forward sale of FX (whetherdeliverable or non-deliverable). The tenor/maturity of such contracts shall not be longer

than: (i) the maturity of the underlying FXobligation; or (ii) the approximate due dateor settlement of the FX exposure. Fordeliverable FX forward contracts, the tenor/maturity shall be co-terminus with thematurity of the underlying obligation or theapproximate due date or settlement of theFX exposure. This shall not precludepretermination of the contract due toprepayment of the underlying obligationor exposure: Provided, That for foreigncurrency loans, prior BSP approval hasbeen obtained for the prepayment and acopy of such approval is presented to thebank counterparty.

b. FX Swaps - No restriction on tenor.c. Settlement of NDFs - All NDF

contracts with residents shall be settled inpesos.

d. Remittance of FX proceeds ofdeliverable forward and swap contractsFX proceeds of deliverable forward andswap contracts shall be delivered by thebank counterparty directly to thebeneficiaries concerned except for foreigninvestments where said FX proceeds arereconverted to Philippine pesos andreinvested in eligible peso instrumentsuch as those listed in Item “A.2.2” ofAppendix 58. For this purpose,beneficiaries shall refer to the FCDU of abank or a nonresident entity (e.g., creditor,supplier, investor) to whom the customeris committed to pay/remit FX.(As amended by Circular No. 591 dated 27 December 2007)


§ 1625.5 (2008 - 1602) Forwardcontracts with non-residents. All forwardcontracts to sell foreign exchange tonon-residents (including OBUs) with nofull delivery of principal, includingcancellations, roll-overs/renewals shall besubmitted for prior clearance to the BSP.However, every roll-over of short-term (ST)deliverable forward contracts with


§§ X625.2 - 1625.508.12.31

non-residents need not be prior-approved,provided:

a. The underlying transaction for eachST deliverable FX forward contract is aforeign investment in long-term (LT)Philippine government securities forwhich a Bangko Sentral RegistrationDocument (BSRD) has been issued;

b. The roll-over is effected during thetenor of the underlying LT Philippinegovernment securities;

c. The actual delivery/settlement ofthe forward contract coincides with the dateof the intended capital repatriation of theBSP-registered investments;

d. The value of the forward contractdoes not exceed the foreign currencyequivalent of the maturity value/netproceeds of the BSP-registered investmentscomputed at the agreed forward exchangerate; and

e. The repatriation of capital andremittance of income for the BSP-registeredinvestment complies with documentaryrequirements under existing BSP rules.(As amended by Circular No. 591 dated 27 December 2007)



§ X625.6 (2008 - X602.18) Cancellations,roll overs or non-delivery of FX forwardcontracts. All cancellations, roll-overs ornon-delivery of all FX deliverable forwardcontracts and the forward leg of swapcontracts shall be subject to the followingguidelines to determine the validity thereof:

a. Eligibility test - Contracts must besupported by documents listed inAppendix 58 hereof.

b. Frequency test - the reasonablenessof the cancellation, roll-over or non-deliveryshall be based on the results of the evaluationof the justification/explanation submitted bybanks as evidenced by appropriatedocuments.

c. Counterparty test - the cancellationor roll-over of contracts must be dulyacknowledged by the counterparty to thecontract as shown in documents submittedby banks, e.g., there should be conformeof counterparty as evidenced by thecounterparty signature on pertinentdocuments.

d. Mark-to-Market test - the booking orrecording in the books of accounts of theprofit or loss on contracts and cash flows/settlement to counterparties must be fullysupported by appropriate documents suchas authenticated copy of debit/credittickets, schedules showing among others,mark-to-market valuation computation, etc.(As amended by Circular No. 591 dated 27 December 2007)

§ X625.7 (2008 - X602.19) Non-deliverable forward contracts withnon-residents. NDF contracts to sell FX tonon-residents shall be covered by theprovisions of Subsection 1625.5.

§ X625.8 (2008 - X602.20) Compliancewith anti-money laundering rules. Alltransactions under Sec. X625 and Subsecs.X625.1 to X625.9 shall comply withexisting regulations on anti-moneylaundering under Sec. X801.(As amended by Circular No. 591 dated 27 December 2007)

§ X625.9 (2008 - X602.21) Reportingrequirements. Banks duly authorized toengage in derivatives transactions shallcontinue to be covered by the BSP’sexisting reporting requirements on financialderivatives. Cancellations, roll-overs ornon-delivery of deliverable FX forwardcontracts and under the forward leg of swapcontracts shall be reported electronically inExcel format to the BSP not later than five(5) banking days after reference month asindicated in Appendix 6.

Swap contracts with counterpartiesinvolving purchase of FX by banks at theinitial leg shall likewise be reported


§§ 1625.5 - X625.908.12.31

electronically in Excel format to the BSP notlater than five (5) banking days after referencemonth as indicated in Appendix 6.

The reports shall be transmitted to theInternational Department at [email protected],copy furnished the SDC at the followingaddresses: [email protected] (fordomestic banks) and [email protected](for foreign banks).(As amended by Circular No. 591 dated 27 December 2007)

§§ X625.10 - X625.13 (Reserved)

§ X625.14 (2008 - X602.26) SanctionsViolations of Sec. X625 and Subsecs. X625.1to X625.9 shall be subject to the penaltyprovisions under R.A. No. 7653 (The NewCentral Bank Act) and other existingbanking laws and regulations.

Failure to comply with Subsec. X625.6shall result in the exclusion of the forwardcontracts in the computation of the bank’sconsolidated daily position starting fromday one, i .e., when the individualcontracts were entered into. Violationsof the prescribed FX position limits shallbe subject to the following sanctionsprovided under Circular Letter dated13 March 1998:

a. Monetary PenaltiesPer Calendar Month Daily Penalty1st banking day P10,0002nd banking day 20,0003rd banking day of violation, 30,000and onwards, or if the excessFX position of the bank isthirty percent (30%) ormore of the allowablelimits in any banking day,regardless of whether a bankis in the first, second, third ormore days of violation

b. In addition, the followingnon-monetary sanctions shall be imposedon the bank committing violationsconsidered as:

(1) “chronic”, i.e., when the violationcontinues beyond three (3) banking dayswithin a calendar month, but the excessposition is less than thirty percent (30%) ofthe allowable limit; and

(2) “abusive”, i.e., when the violationcontinues beyond three (3) business dayswithin a calendar month and excessposition is thirty percent (30%) or more ofthe allowable limit.

“Chronic” Suspension of the bank’s violation rediscounting privileges,

cash dividend declarationand branching privilegesuntil the violation iscorrected but in no caseshall such suspension beless than thirty (30)calendar days.

“Abusive” Suspension of the bank’s violation rediscounting privileges,

cash dividend declarationand branching privilegesuntil the violation iscorrected but in no caseshall such suspension beless than sixty (60)calendar days.

c. The Monetary Board may imposeother non-monetary sanctions on a bankfor violations determined by BSP as“chronic” or “abusive” on a case-to-casebasis, pursuant to Sec. 37 of R.A. No. 7653.

d. Banks shall be duly advised by theBSP of their violations and thecorresponding sanctions imposed for suchviolations.

e. A monetary penalty imposed on abank shall be paid to the BSP CashDepartment, within three (3) banking daysfrom the bank’s receipt of advice of saidpenalty imposition.

For purposes of imposing sanctions fordelayed, erroneous or unsubmitted reports,reports required under Subsec. X625.9 areclassified as Category B reports and subjectto corresponding penalties.

§§ X625.9 - X625.1408.12.31


§§ X625.14 - 1628.308.12.31


Counterparties that habitually canceldeliverable forwards without properjustification may be subject of a BSP watchlist.(As amended by Circular No. 591 dated 27 December 2007)


Sec. 1628 (2008 - 1633) Credit-linkedNotes and Similar Credit DerivativeProducts. The following are the guidelinesfor the capital treatment of investments incredit-linked notes and similar creditderivative products such as credit-linkeddeposits and credit linked loans.

§ 1628.1(2008 - 1633) Definitions(1) A credit-linked note (CLN) pertains

to a pre-funded credit derivativeinstrument under which the note holdereffectively accepts the transfer of credit riskpertaining to a reference asset or basket ofassets issued by a reference entity/ies. Therepayment of the principal to the noteholder is contingent upon the occurrenceof a defined credit event. In consideration,the note holder receives an economicreturn reflecting the underlying credit riskof the reference asset/s.

All references to CLNs in this Sectionshall be taken to generically includesimilar instruments, such as Credit-LinkedDeposits (CLDs) and Credit-Linked Loans(CLLs).

(2) An SPV, for purposes of thisSection, refers to an entity specificallyestablished to issue CLNs of a single,homogeneous risk class that are fullycollateralized as to principal by high-gradesecurities purchased out of the proceedsof the note issuance. Collateral shall belimited to securities with an assignable riskweight of not more than twenty percent(20%) under existing regulations.

§ 1628.2 (2008 - 1633) Qualified banksIn general, only banks with expandedderivatives authority may invest in CLNs

as defined above on the principle that suchbanks have already demonstrated a moresophisticated ability to manage risks.Subject to the provisions in Sec. 1648, theymay also invest in SPV-issued CLNs thatco-exist with other CLNs of differentseniority of claims against the referenceasset pool. As an exception to thegeneral rule, a UB/KB without expandedderivatives authority may invest in singlename CLNs where the reference assetis a direct ROP obligation or an obligationfully guaranteed by the ROP.

§ 1628. 3 (2008 - 1633) Capital treatmentof investments in CLNs

(1) Banking book. Positions in CLNs inthe banking book shall be reported in thecomputation of the risk-based capitaladequacy ratio covering credit risks underSec. X116.

Through holding a CLN, a bankacquires credit exposure on two (2) fronts- to the reference entity of the note andalso to the note issuer. The on-balancesheet exposure arising from the CLNshould be weighted by the higher of therisk weight of the reference entity or therisk weight of the note issuer. The amountof exposure is the book value of the note.If the CLN principal is fully collateralizedby securities that are acceptable as creditrisk mitigant under Sec. X116 and providedsuch collateral is constituted in a legallyeffective manner as to give priority to thenote holders’ interest in the event ofbankruptcy of the note issuer, the riskweight of the note issuer is substituted withthe risk weight associated with the relevantsecurity.

When the CLN is referenced to abasket of reference entities and the contractterminates and pays out on the first entityto default in the basket, capital should beheld to consider the cumulative risk of allthe reference entities in the basket. Thismeans that the risk weights of all the

§ 1628.308.12.31


reference entities are added up and the sumcompared with the risk weight of the noteissuer. If the sum of the risk weights of allthe reference entities in the basket is higherthan the risk weight of the note issuer, thenthis sum is adopted. The resultant risk-weighted exposure to the basket is,however, capped at ten (10) times the bookvalue of the note. Accordingly, themaximum capital charge is 100% of thebook value of the note. The multiplier ten(10) is the reciprocal of the BSP-requiredminimum capital adequacy ratio of tenpercent (10%).

If, on the other hand, the risk weight ofthe note issuer is still higher than the sumof the risk weights of all the referenceentities in the basket, then the risk weightof the note issuer is adopted.

When the contract terminates and paysout on the nth (other than the first) entity todefault in the basket, the treatment aboveshall apply except that in aggregating therisk weights of reference entities, the riskweight/s of n–1 entity/ies is/are excludedfrom the computation. The bank maychoose which entity/ies to exclude.

If a CLN that pays out on the nth entityto default is rated such that it meets thecriteria of a security with the “highest creditquality” as defined under Appendix 46, onlythe highest risk weight in the basket ofreference entities is compared with the riskweight of the note issuer.

If the CLN is issued by an SPV, the bankis exposed to both the reference entity andthe collateral held by the SPV. Thus, therisk weight/s of the reference entity/iesshould be compared with the risk weightof the riskiest eligible collateral forpurposes of computing the risk-weightedexposure of the note and the correspondingcapital charge.

Subject to prior BSP clearance, a bankmay disapply the additive rule when a verystrong correlation among the referenceentities in the basket can be demonstrated.

A CLN which is referenced to entitiesin the basket proportionately should berisk-weighted according to eachreference entity’s share of protectionunder the contract. Thus, if there are two(2) reference entities in a P100.0 millioncontract, one (1) with a 100% risk weightand a twenty percent (20%) share andthe other with a twenty percent (20%)risk weight and an eighty percent (80%)share, the risk weighted exposure isP36.0 million, i.e., P100.0 million x 20%x 100% + P100.0 million x 80% x 20%.The corresponding capital charge isP3.6 million (P36.0 million x 10%).

(2) Trading book. Positions in CLNstaken up in the trading book should bereported in the computation of the adjustedrisk-based capital adequacy ratio coveringcombined credit risk and market risk underAppendix 46.

(a) Standardized approachThe following describes the positions

to be reported for investments in CLNs forpurposes of calculating specific risk andgeneral market risk charges under thestandardized approach.

A CLN investment is treated as aposition in the note itself, with anembedded credit default product. The CLNis subject to the specific risk associatedwith the issuer or the collateral when theissuer is an SPV. In addition, it is subject togeneral market risk that is a function of thematurity and coupon or interest rate of thenote. The embedded credit default productcreates a notional position in the specificrisk of the reference obligation (with noadditional general market risk positioncreated).

Specific riskA CLN investment should be reported

as a long position on the referenceobligation and a long position on the noteitself.

When a CLN is referenced to multipleobligations in a basket, the positions

§§ 1628.3 - 1628.608.12.31


reported shall depend on the structure ofthe contract. When the contract terminatesand pays out on the first obligation todefault in the basket, the note should bereported as long positions in each of thereference obligations in the basket, withthe total capital charge for the productcapped at the book value of the note.

When the contract terminates and paysout on the nth (other than the first) entity todefault in the basket, the treatment aboveshall apply except that in aggregating therisk weights of the reference obligations,the risk weight/s of n-1 obligations is/areexcluded from the computation. The bankmay choose which obligations to exclude.

Subject to prior BSP clearance, a bankmay disapply the additive rule when avery strong correlation among thereference obligations in the basket can bedemonstrated.

The additive treatment may also bedisapplied when an nth-to-default CLN israted such that it meets the criteria of asecurity with the “highest credit quality”as defined under Appendix 46. Positionsin the reference obligations can bereported as a single long position in a debtsecurity with the “highest credit quality”.A long position on the note should also bereported whether or not the CLN meetsthe criteria of a security with the “highestcredit quality”.

When the CLN is referenced tomultiple obligations under a proportionatestructure, positions in the referenceobligations should be reported accordingto their respective proportions in thecontract.

General market riskA CLN investment creates a long

position in the note itself.(b) Internal models approachBanks may seek the BSP’s approval

to include CLNs in their recognizedmodels for calculating capital charges.The detailed requirements relating to the

use of internal models are set out in AnnexA of Appendix 46.

While some banks may not be able torun full internal models to calculate marketrisk capital charges, they may, with thenecessary expertise and systems, usepreprocessing techniques to calculatecapital charge for CLNs. Banks wishing toadopt these techniques should seek BSP’sprior consent. The preprocessing modelsare subject to verification by the BSP.

§ 1628.4 (2008 - 1633) Risk managementCLN structures are considered to beexposed to greater risks than comparableinvestments in direct obligations. Inparticular, investing banks should be awareof the potential legal risk arising from anunenforceable contract. They shouldconsult their legal advisors about these andrelated legal issues before engaging insuch transactions. In addition, allinvestments in CLNs must be dulyapproved by a bank’s board of directors andsubjected to appropriate risk managementprocedures.

§ 1628.5 (2008 - 1633) Transitionalarrangements. Banks which haveoutstanding investments in CLNs, butwhich have not been authorized under thisSection to invest in such, shall be given aperiod of ninety (90) calendar days from25 February 2004 (effectivity of CircularNo. 417) to divest themselves of suchinvestments.

§ 1628.6 (2008 - 1633) Bangko Sentralapproval not required. No prior BSPapproval is required to invest in CLNs andsimilar products. However, it shall be theresponsibility of UBs/KBs to fully complywith appropriate risk managementstandards including, as a minimum, thoseprescribed under this Section. Theregulatory requirements enumerated inAppendix 66 shall be fully complied with

§§ 1628.6 - 1635.508.12.31


by UBs/KBs investing in products allowedunder this Section.




Sec. 1635 Banks’ Exposures to StructuredProducts. The following rules and regulationsshall govern the capital treatment of banks’exposures to structured products.

§ 1635.1 Statement of policy. The BSPaims to foster the development of a marketfor new financial products in the country,while at the same time ensure that bankshold sufficient capital commensurate to therisks inherent in these products.

§ 1635.2 Definition. A structured productrefers to a financial instrument where thereturn is a function of one (1) or moreunderlying indices, such as interest rates,equities and exchange rates. There mayalso be embedded derivatives such asswaps, forwards, options, caps, and floorsthat reshape the risk-return pattern. Forpurposes of this Subsection, structuredproducts do not include asset-backedsecurities, credit-linked notes and othersimilar instruments.

§ 1635.3 Qualified banks. As a generalrule, only UBs and KBs with expandedderivatives license may obtain exposuresin structured products. Banks withoutexpanded derivatives license may onlyinvest in structured products duly approvedby the BSP.

§ 1635.4 Capital treatment of banks’exposures to structured products

a. Banking book(1) Risk weights. Capital charge for

structured products held in the banking

book shall depend on the rating of theissuing entity, or rating of the collateral incase of structured products issued byspecial purpose vehicles (SPVs), given bythe following BSP-recognized internationalcredit rating agencies:

(a) Moody’s;(b) Standard & Poor’s;(c) Fitch Ratings; and(d) Such other international rating

agencies as may be approved by theMonetary Board.

In cases where there are two (2) ormore types of collateral, capital charge shalldepend on the lowest rated collateral.

The mapping of ratings to thecorresponding risk weights shall be asfollows:

Risk weight Moody’s Standard Fitch & Poor's Ratings

50% Aaa to Aa3 AAA to AA- AAA to AA-100% A1 to A3 A+ to A- A+ to A-150% Baa1 to Baa3 BBB+ to BBB+ to

BBB- BBB-Deductionfrom totalof Tier 1 and Below Baa3 Below BBB- Below BBB-Tier 2 capital Unrated

(2) Use of ratings. If an issuer of astructured product has only one (1) ratingby any of the BSP-recognized internationalrating agencies, that rating shall be usedto determine the risk weight of the product;in cases where there are two (2) or moreratings which map into different riskweights, the higher of the lowest two (2)risk weights should be used.

b. Trading book. Capital charge forstructured products held in the tradingbook shall be determined in accordancewith Appendix 45.

§ 1635.5 Bangko Sentral approval notrequired. No prior BSP approval is requiredto enter into authorized transactions.However, it shall be the responsibility ofUBs/KBs to fully comply with appropriate

§§ 1635.5 - 1636.308.12.31


risk management standards including, asa minimum, those prescribed under thisSection. The regulatory requirementsenumerated in Appendix 66 shall be fullycomplied with by UBs/KBs investing inproducts allowed under this Section.




Sec. 1636 Expanded Foreign CurrencyDeposit Units Investments in ForeignCurrency Denominated StructuredProducts. The following guidelines allowUBs and KBs without expanded derivativesauthority to invest in certain specifiedstructured products.

§ 1636.1 Statement of policy. The BSPencourages banks to diversify their EFCDUinvestment portfolios in order to stabilizeearnings, control maturity mismatches andminimize over concentration of exposures.

§ 1636.2 Scope. EFCDUs of UBs andKBs without expanded derivatives authoritymay invest, for their own account, in foreigncurrency-denominated structured productsissued by banks and SPVs of high creditquality: Provided, That the revenue streamsof such products may only be linked tointerest rate indices and/or foreign exchangerates other than those that involve thePhilippine Peso: Provided, further, That theminimum all-in return of such investmentsmay not be lower than zero. For purposes ofthis Section, structured products do notinclude asset backed securities, credit-linkednotes and other similar instruments.

§ 1636.3 Other conditionsa. Maturity - The maximum

contractual maturity of any investment instructured products shall be five (5) years.

b. Credit quality of issuer - Acceptableissuers are banks and SPVs collateralizedby securities rated at least “A” or itsequivalent by an international ratingagency acceptable to the Monetary Board.

c. Booking - Investments in structuredproducts as herein defined shall be bookedunder banking book accounts as follows:(1) DFVPL, (2) AFS, (3) Held to Maturity(HTM); or (4) Unquoted Debt SecuritiesClassified as Loans, which shall beaccounted for in accordance with Subsecs.X186.1, X388.5 and Appendix 33, but notunder the HFT category.

d. Prudential limits - The total carryingvalue of all investments in structuredproducts as defined herein at any givenpoint in time must not exceed twentypercent (20%) of the total investmentportfolio of the EFCDU [combined amountof Trading Account Securities (TAS), ASSand IBODI].

e. Risk management - Investing banksmust have established internal processes toidentify, evaluate, monitor and manage therisk exposures, e.g., credit risk, market risk,liquidity risk, operational risk, legal risk,compliance risk, created by their investmentsin structured products. As a minimum:

(1) Such investments must be specificallyapproved by the board of directors and besubject to appropriate internal limits andperiodic reporting to the Board.

(2) Banks must comply with generallyaccepted accounting and disclosurestandards and/or rules and regulationsprescribed by the BSP.

(3) An independent risk managementfunction must be in place.

(4) Banks should have the ability tovalue their investments on a continuing andconsistent basis and to measure theirsensitivity to market movements. Thisshould include performing, at regularintervals, stress tests that reflect extrememarket conditions. As part of the valuationexercise, banks should be able to obtain bid

§§ 1636.3 - 1648.408.12.31


prices from the issuers of the investmentinstruments on a monthly basis.

(5) Management should ensure that therisks of the investments are accuratelyaggregated in risk reports on a timely basis.

§ 1636.4 Capital treatment ofstructured products. The capital treatmentshall be in accordance with existing rulesand regulations as modified for structuredinstruments.

§ 1636.5 Bangko Sentral approval notrequired. No prior BSP approval is requiredto enter into authorized transactions.However, it shall be the responsibility ofUBs/KBs to fully comply with appropriaterisk management standards including, asa minimum, those prescribed under thisSection. The regulatory requirementsenumerated in Appendix 66 shall be fullycomplied with by UBs/KBs investing inproducts allowed under this Section.

§ 1636.6 Sanctions. Non-compliancewith the provisions of this Section shallsubject the bank to a fine of one-tenth of onepercent (1/10 of 1%) of the outstandinginvestment per day, but not to exceedP30,000 per day, to be reckoned from theday the bank is deemed in violation ofregulations, until the day the bank hascomplied with the requirements. Banks mayalso be temporarily or permanentlyprohibited from such investments ascircumstances may warrant.




Sec. 1648 Investments in SecuritiesOverlying Securitization Structures. Thefollowing rules shall govern banks’investments in securities overlyingsecuritization structures.

§ 1648.1 Statement of policy. The BSPaims to foster the development of a marketfor new financial products in the countryand provide banks with expandedopportunities for investment diversification,while at the same time ensure that theyhold sufficient capital commensurate to therisks inherent in these products.

§ 1648.2 Definition. Securitizationstructures refer to:

a. structures where the cash flow froman underlying pool of exposures is used toservice at least two (2) different stratifiedrisk positions or tranches reflectingdifferent degrees of credit risk (also knownas traditional securitization); or

b. structures with at least two (2)different stratified risk positions or tranchesthat reflect different degrees of credit risk,where credit risk of an underlying pool ofexposures is transferred, in whole or inpart, through the use of credit derivativesor guarantees that serve to hedge the creditrisk of the portfolio (also known assynthetic securitization).

§ 1648.3 Qualified banks. UBs/KBs withexpanded derivatives authority may investin securities overlying any tranches ofsecuritization structures. UBs/KBs withoutexpanded derivatives authority may alsoinvest but only in securities overlyingtranches of securitization structures that arerated at least “A”, or its equivalent, by a BSP-recognized credit rating agency.

§ 1648.4 Capital treatment ofinvestments in securities overlyingsecuritization structures

a. Credit risk(1) Risk weights. Capital charge for

investments in securitization structures heldin the banking book shall be based on thelatest rating given by any of the followingBSP-recognized credit rating agencies:

(a) International rating agencies:(i) Moody’s;

§§ 1648.4 - X651.108.12.31


(ii) Standard & Poor’s;(iii) Fitch IBCA; and(iv) Other international rating agencies

as may be approved by the MonetaryBoard

(b) Domestic rating agencies:(i) PhilRatings; and(ii) Other domestic rating agencies as

may be approved by the Monetary BoardThe assignment of risk weights

corresponding to agency ratings shall beas follows:

Risk weight Moody’s Standard Fitch PhilRatings& Poor’s IBCA

20% Aaa to AAA to AAA to Aaa to AaAa3 AA- AA-

50% A1 to A3 A+ to A- A+ to A- A

100% Baa1+ BBB+ BBB+ Baato Baa3 to BBB- to BBB-

Deduction Below Below Below Below Baafrom total Baa3 BBB- BBB-of Tier 1 andTier 2 capital Unrated

(2) Use of ratings. Ratings of BSPrecognized credit rating agencies shall beused as follows:

(a) Securities overlying securitizationstructures created within the Philippinesmay be rated by any BSP-recognizedinternational or domestic credit ratingagency, while securit ies overlyingsecuritization structures created outsideof the Philippines may only be rated byany of the international credit ratingagencies that are recognized by the BSP;and

(b) In cases when overlying securitieshave split ratings which map into differentrisk weights, the higher risk weight shouldbe used.

b. Market risk. Capital charge forsecurities overlying securitizationstructures held in the trading book shall bedetermined in accordance with Appendix46 and the use of agency ratings for suchpurpose shall be consistent with the aboveprinciples.

§ 1648.5 Bangko Sentral approval notrequired. No prior BSP approval is requiredto invest in securities overlyingsecuritization structures. However, it shallbe the responsibility of UBs/KBs to fullycomply with appropriate risk managementstandards including, as a minimum, thoseprescribed under this Section. Theregulatory requirements enumerated inAppendix 66 shall be fully complied withby UBs/KBs investing in products allowedunder this Section.




Sec. X651 Asset-Backed Securities. Thefollowing regulations shall govern theorigination, issuance, sale, servicing andadministration of asset-backed securities(ABS) by any bank including i tssubsidiaries and affiliates engaged inallied activities, which are domiciled inthe Philippines.

§ X651.1 Definition of termsa. Assets shall mean loans or

receivables existing in the books of theoriginator prior to securitization. Suchassets are generated in the ordinary courseof business of the originator and mayinclude mortgage loans, consumptionloans, trade receivables, lease receivables,credit card receivables and other similarfinancial assets.

b. Asset-backed securities shall referto the certificates issued by a SpecialPurpose Trust (SPT) representing undividedownership interest in the asset pool.

c. Asset pool shall mean a group ofidentified, self-amortizing assets that isconveyed the SPT issuing the ABS and suchother assets acquired as a consequence ofthe securitization.

§§ X651.1 - X651.408.12.31


d. Clean-up call shall refer to anoption granted to the seller to purchase theremaining assets in the asset pool.

e. Credit enhancement shall refer toany legally enforceable scheme that isintended to enhance the marketability ofthe ABS and increase the probability thatinvestors receive payment of amounts duethem.

f. Guarantor shall refer to an entitythat guarantees the repayment of principaland interest on loans or receivablesincluded in the asset pool in the event ofdefault by the borrower.

g. Investible funds shall refer to theproceeds of collection of loans orreceivables included in the asset pool whichare not yet due for distribution to investors.

h. Issuer shall refer to the SPT thatissues the ABS.

i. Originator shall refer to a bankand/or its subsidiary or affiliate engaged inallied activities that grants or purchasesloans or receivables and assembles theminto a pool for securitization.

j. Residual certificates shall refer tocertificates issued representing claims onthe remaining value of the asset pool afterall ABS holders are paid.

k. Seller shall refer to the entity whichconveys to the SPT the assets that constitutethe asset pool.

l. Servicer shall refer to the entitydesignated by the Issuer primarily to collectand record payment received on the Assets,to remit such collections to the Issuer andperform such other services as may bespecifically required by the issuer excludingasset management or administration.

m. Special Purpose Trust shall refer toa trust administered by a trustee andcreated solely for the purpose of issuingand administering an ABS.

n. Trustee shall refer to the entitydesignated to administer the SPT.

o. Underwriter shall refer to the entityengaged in the act or process of distributing

and selling of the ABS either on guaranteedor best effort basis.

§ X651.2 Prior Bangko Sentral approvalAny bank including its subsidiaries andaffiliates engaged in allied activities, maysecuritize its assets upon prior approval ofthe BSP.

§ X651.3 Board approval requirementThe originator/seller shall have thesecuritization program approved by itsboard of directors. The originator/sellershall integrate such securitization programinto its corporate strategic plan. The boardof directors shall ensure that thesecuritization of assets is consistent withsuch program.

§ X651.4 Minimum documents requiredThe application to securitize must beaccompanied by the following documentsas a minimum requirement:

a. Trust indenture evidencing theconveyance of the assets from the sellerto the Issuer or SPT, the features of whichshall include the following:

(1) Title or nature of the contract innoticeable print;

(2) The parties involved, indicating innoticeable print, their respective legalcapacities, responsibilities and functions;

(3) Features and amount of ABS;(4) Purposes and objectives;(5) Description and amount of assets

comprising the asset pool;(6) Representations and warranties;(7) Credit enhancements;(8) Distribution of funds;(9) Authorized investment of

investible funds;(10) Rights of the investor;(11) Reports to investors; and(12) Termination and final settlement.

The trust indenture shall include asannexes the servicing agreementbetween the trustee and the servicer and

§§ X651.4 - X651.708.12.31


the underwriting agreement between theseller and the underwriter.

b. Prospectus. As a minimumrequirement, it shall contain the following:

(1) Summary of the contents of theprospectus;

(2) Description of each class ofcertificate, including such matters asprobable yields, payment dates and priorityof payments;

(3) Description of the assetscomprising the Asset Pool as well as therepresentations and warranties set forth bythe originator and/or seller;

(4) Assumptions underlying the cashflow projections for each class ofcertificate;

(5) Description of any creditenhancements;

(6) Identity of the servicer; and(7) Disclosure statements as required

under Subsec. X651.6.c. Specimen of application to

purchase ABS. It shall include the termsand conditions of the purchase and thedisclosures required under Subsec. X651.6.

d. Specimen of certificate. It shallindicate the features of the ABS and thedisclosures required under Subsec. X651.6.

§ X651.5 Minimum features of asset-backed securities.The ABS shall bepre-numbered and printed on securitypaper. The ABS shall be signed andauthenticated by the trustee.They aretransferable by endorsement of thecertificate. The transfer shall be recordedin the books of the trustee, indicating thenames of the parties to the transaction, thedate of the transfer and the number of thecertificate transferred.

The minimum denomination of anyABS shall be P10,000.

§ X651.6 Disclosure requirementsThe following disclosures must be providedin a conspicuous manner in any document

inviting investment, application topurchase ABS and the certificate itself:

a. The ABS do not represent depositsor liabilities of the originator, servicer ortrustee and that they are not insured withPDIC;

b. The investor has an investment risk;c. The trustee does not guarantee the

capital value of the ABS or the collectibilityof the asset pool; and

d. The right of an investor.The investors shall be required to sign

an acknowledgment indicating that theyhave read and understood the disclosures.

§ X651.7 Conveyance of assetsa. The conveyance of the assets

comprising the asset pool shall be donewithin the context of a true sale and, forthis purpose, the seller may not retain inits books the ABS, except the residualcertificate, if any.

b. The seller shall have no obligationto repurchase or substitute an asset or anypart of the asset pool at any time, exceptin cases of a breach of representation orwarranty, or under a revolving structure,to replace performing assets which havebeen paid out in part or full.

c. The seller shall be under noobligation to provide additional assets tothe SPT to maintain a “coverage ratio” ofcollateral to outstanding ABS. A breachof this requirement will be considered acredit enhancement and should becharged against capital. However, thiswill not apply to an asset pool conveyedunder a revolving structure such as thesecuritization of credit card receivables.

d. Securit ized assets shall beconsidered the subject to a true salebetween the seller and the SPT. Soldassets shall be taken off the books of theseller and shall be transferred to thebooks of the SPT.

For accounting purposes, the transfershall only be considered a true sale if the

§§ X651.7 - X651.1108.12.31


following three (3) conditions have beensatisfied:

(1) the transferred assets have beenisolated and put beyond the reach of theseller and its creditor;

(2) the SPT has the right to pledge orexchange its interest in the assets; and

(3) the seller does not effectivelymaintain control over the transferred assetsby any concurrent agreement.

e. All expenses incidental tounderwriting, conveyance of the asset poolincluding expenses for credit enhancementmay be paid by the originator/seller:Provided, That no further expenses shallbe borne by the originator/seller after theasset pool has been conveyed to the SPT.

§ X651.8 Representations andwarranties

a. Standard representations andwarranties refer to an existing state of factsthat the originator, seller or servicer caneither control or verify with reasonable duediligence at the time the assets are sold.Any breach of representation or warrantymay give rise to legal recourse.

b. The representations or warrantiesshall be clear and explicit and, in particular,shall not relate to the futurecreditworthiness of the assets in the assetpool or the performance of the SPT or thesecurities issued.

c. Any agreement to pay damages asa result of breach of warranties andrepresentations shall hold only where:

(1) there is a well-documentednegotiation of the agreement in good faith;

(2) the burden of proof for a breach ofrepresentation or warranty rests with theother party;

(3) damages are limited to the lossincurred as a result of the breach; and

(4) there is a written notice of claimspecifying the basis for the claim.

The BSP shall be notified of anyinstance where a bank or its subsidiaries/

affiliates has agreed to pay damages arisingout of any breach of representation orwarranty.

§ X651.9 Third party review. A duediligence review by an independent entitymutually agreed upon by the seller and theIssuer shall be done before the assets aresold.

§ X651.10 Originator and sellera. The seller may itself be the

originator, and may likewise be designatedas the servicer.

b. The seller or originator shall deliverto the trustee all original documents orinstruments with respect to each asset sold.

§ X651.11 Trustee and issuera. The trustee shall be the trust

department of a bank licensed to dobusiness in the Philippines.

b. The trustee shall have the right tomanage or administer the asset pool. Thetrustee shall see to it that necessarymeasures are taken to protect the assetpool.

c. The trustee shall undertake aperformance review of the asset pool atleast quarterly and shall prepare a reportto investors indicating, among others,collections, fees and other expenses aswell as defaults, which report shall bemade available to the investors at anytimeafter thirty (30) days from end of thereference quarter.

d. The trustee shall initiate all civilactions including foreclosure of mortgagedproperties to effect collection ofreceivables in the asset pool. The serviceror any other party may be designated bythe trustee to perform such function on acase-by-case basis.

e. The trustee may invest theInvestible funds only in obligations issuedand/or fully guaranteed by the governmentof the Republic of the Philippines or by the

§§ X651.11 - X651.1508.12.31


BSP and such other high-grade readilymarketable debt securities as the BSP mayapprove.

f. The trustee shall designate areplacement of the servicer if the latter failsto satisfactorily perform its duties andresponsibilities according to the terms andconditions of the servicing agreement.

§ X651.12 Servicera. The servicer shall perform its duties

according to the terms and conditions ofthe servicing agreement and such otherwritten instructions as the trustee may issueon a case-by-case basis. Collections madeby the servicer shall be remitted promptlyto the trustee or as may be agreed upon bythe parties in the servicing agreement, butin no case shall the remittance period belonger than one (1) month.

b. The servicer shall prepare periodicreports as may be required by the trustee.

c. The servicer shall report to the trusteewithin thirty (30) days, any borrower whichfails to pay its debt at maturity date or anyadverse development that may affect thecollectibility of any loan account orreceivable comprising the asset pool.

d. The servicer shall have no authorityto waive penalties and charges except witha written authority from the trustee.

§ X651.13 Underwritera. A UB or IH shall have written

policies and procedures on underwritingof ABS.

b. The underwriter shall perform itsfunctions according to the terms andconditions of the underwriting agreement.

c. An underwriter may deal in ABS,except those administered by its trustdepartment, the trust departments of itssubsidiaries/affiliates, the trust departmentof its parent bank or the trust departmentof its parent bank’s subsidiaries/affiliates.

d. A UB/IH may act as underwriter,on a firm basis, of ABS except those

administered by its trust department, thetrust departments of its subsidiaries/affiliates, the trust department of its parentbank or the trust department of its parentbank’s subsidiaries/affiliates.

e. The underwriter may not extendcredit for the purpose of purchasing theABS which such UB/IH underwrites or thatwhich is underwritten by its subsidiaries/affiliates, its parent bank or its parent bank’ssubsidiaries/affiliates.

§ X651.14 Guarantora. Only an entity the regular business

of which includes the issuance ofguarantees or similar undertaking may actas guarantor.

b. The guarantor must have thefinancial capacity to perform itsresponsibilities in accordance with theterms and conditions of the guaranteeagreement. It shall submit to the trustee atleast once in every six (6) months suchfinancial reports as the trustee may require.

c. The originator or seller may notissue a counter-guarantee in favor of theguarantor.

§ X651.15 Credit enhancement. Creditenhancement may be provided in any ofthe following manner:

a. Standby letter of credit issued by aUB/KB other than the originator/seller orits subsidiary/affiliate, its parent bank or theparent bank’s subsidiary/affiliate, andtrustee or its subsidiary/affiliate;

b. Surety bond issued by anyinsurance company other than theoriginator’s/seller’s subsidiary or affiliate,the subsidiary or affiliate of the originator’s/seller’s parent bank and the trustee or itssubsidiary/affiliate;

c. Guarantee issued by any entityother than the originator/seller or itssubsidiary/ affiliate, its parent bank or theparent bank’s subsidiary/affiliate, andtrustee or its subsidiary/affiliate;

§§ X651.15 - X651.1908.12.31


d. Overcollateralization provided bythe originator/seller wherein the assetsconveyed to the SPT exceed the amountof securities to be issued.

Losses arising from overcollateralizationshall be recognized by the originator/sellerupfront. Such losses shall be treated as capitalcharges.

e. Spread account wherein theincome from the underlying pool ofreceivables is made available to cover anyshortfall in the repayment of ABS. Thespread account shall be handled by thetrustee which shall account for itseparately. If not needed, this "spread"generally reverts to the holder of theresidual certificate.

f. Subordinated securities that arelower ranking, or junior to other obligationsand are paid after claims to holders of seniorsecurities are satisfied.

g. Other credit enhancements as maybe approved by the Monetary Board.

To be consistent with the concept oftrue sale, subordinated securities shall besold to third party investors other thanoriginator’s/seller’s parent company or itssubsidiary/affiliate and the trustee or itssubsidiary/affiliate or, if held by theseller, capital charges should be bookedupfront. Otherwise, the subordinatedsecurities shall be treated as depositsubstitute subject to legal reserves.

§ X651.16 Clean-up call. A clean-upcall may be exercised by the seller oncethe outstanding principal balance of thereceivable component of the asset pool fallsto ten percent (10%) or less of the originalprincipal balance of the asset pool. Wherethe asset pool includes foreclosed and otherassets, such assets shall be included in theclean-up call and the consideration thereofshall be at current market value. Such aclean-up call shall not be consideredrecourse or in violation of Subsec. X651.7on conveyance of assets.

§ X651.17 Prohibited activitiesa. The seller may not, under any

circumstance, designate its trust department,the trust department of its subsidiaries/affiliates, the trust department of its parentbank or the trust department of its parentbank’s subsidiaries/affiliates as trustee.

b. Any director, officer or employeeof the originator, seller or servicer may notserve as a member of the board of directorsor trust committee of the trustee or viceversa for the duration of the securitization.

c. The trust indenture shall not containany stipulation whereby the seller, itssubsidiaries/affiliates, its parent bank or theparent bank’s subsidiaries/affiliates shallcommit to extend any credit facility to theissuer and/or trustee.

d. The ABS shall not be eligible ascollateral for a loan extended by a bankwhich originated/sold the underlying assetsof such ABS.

e. The trust department of a bank thathas discretion in the management of anytrust or investment management accountmay not purchase for said trust/investmentmanagement account ABS administeredby the trust department of the same bank,the trust department of such trustee’ssubsidiaries/affiliates, the trust departmentof such trustee’s parent bank and the trustdepartment of the parent bank’ssubsidiaries/affiliates.

f. The trustee may not designate itssubsidiary/affiliate, its parent or the parent’ssubsidiaries/affiliates as servicer or viceversa.

§ X651.18 Amendment of trustindenture. Any amendment to the trustindenture shall require the prior approvalof the BSP.

§ X651.19 Trustee or servicer insecuritization. Without prior approval ofthe BSP, a bank or any entity supervisedby the BSP may act as trustee or servicer

§§ X651.19 - X69908.12.31


in a securitization scheme originated byan entity not supervised by the BSP:Provided, That the assets which are thesubject of such securitization are existingin the books of the entity prior tosecuritization: Provided, further, Thatsuch entity acting as trustee or serviceris not a subsidiary/aff i l iate of theoriginator/seller, its parent bank or theparent bank’s subsidiaries/affiliates orvice versa: Provided, finally, That suchentity acting as trustee may not designateits subsidiaries/affiliates, its parent or theparent’s subsidiaries/affiliates as serviceror vice versa.

§ X651.20 Report to Bangko SentralThe trustee bank shall submit a report ofevery securitization scheme in formats tobe prescribed by the BSP. The report shall

be submitted to the appropriatedepartment of the SES, within fifteen (15)banking days after end of every referencequarter. Such report shall be considered aCategory A report for purposes ofimplementing fines in the submission ofrequired reports pursuant to existingregulations.



The guidelines for the imposition ofmonetary penalty for violations/offenseswith sanctions falling under Section 37 ofR. A. No. 7653 on banks, their directorsand/or officers are shown in Appendix 67.

Manual of Regulations for Banks Part VII - Page 1

PART SEVEN

ELECTRONIC BANKING SERVICES AND OPERATIONS

Section X701 (2008 - X621) ElectronicBanking Services. The following are theguidelines concerning electronicbanking activities.

§ X701.1 (2008 - X621.1) ApplicationBanks wishing to provide and/or enhanceexisting electronic banking services shallsubmit to the BSP an application describingthe services to be offered/enhanced andhow it fits the bank’s overall strategy. Thisshall be accompanied by a certificationsigned by its president or any officer ofequivalent rank and function to the effectthat the bank has complied with thefollowing minimum pre-conditions:

a. An adequate risk managementprocess is in place to assess, control,monitor and respond to potential risksarising from the proposed electronicbanking activities;

b. A manual on corporate securitypolicy and procedures exists that shalladdress all security issues affecting itselectronic banking system, particularly thefollowing:

(1) Authentication - establishes theidentity of both the sender and thereceiver; uses trusted third parties thatverify identities in cyberspace;

(2) Non-repudiation - ensures thattransactions can not be repudiated orpresents undeniable proof of participationby both the sender and the receiver in atransaction;

(3) Authorization - establishes andenforces the access rights of entities (bothpersons and/or devices) to specifiedcomputing resources and applicationfunctions; also locks out unauthorizedentities from physical and logical accessto the secured systems;

(4) Integrity - assures that data have notbeen altered; and

(5) Confidentiality - assures that no oneexcept the sender and the receiver of thedata can actually understand the data.

c. The system had been tested priorto its implementation and that the testresults are satisfactory. As a minimumstandard, appropriate systems testing anduser acceptance testing should have beenconducted; and

d. A business continuity planningprocess and manuals have been adoptedwhich should include a section onelectronic banking channels and systems.

§ X701.2 (2008 - X621.2) Pre-screeningof applicants

a. The BSP, thru the TechnicalWorking Group on Electronic Banking,shall pre-screen the overall financialcondition as well as the applicant-bank’scompliance with BSP rules and regulationsbased on the latest available BankPerformance Rating (BPR) and Report ofExamination (ROE) including CAMELSRating.

b. The Working Group shall ensurethat the applicant bank’s overall financialcondition can adequately support itselectronic banking activities and that it shallhave complied with certain comprehensiveprudential requirements such as, but notlimited to, the following:

(1) Minimum capital requirement andnet worth to risk assets ratio;

(2) Satisfactory solvency, liquidity andprofitability positions;

(3) CAMELS composite rating of atleast 3, (this number, however can beflexible depending on other circumstancesprevailing), and with at least a moderate

§§ X701 - X701.208.12.31

Part VII - Page 2 Manual of Regulations for Banks

§§ X701.2 - X701.508.12.31

risk assessment system (RAS) based on thelatest regular examination.

(4) There are no uncorrected majorfindings/exceptions noted in the latest BSPexamination.

§ X701.3 (2008 - X621.3) Approval inprinciple

a. Based on the recommendation ofthe Technical Working Group on ElectronicBanking, the Deputy Governor, SES, shallapprove in principle the application so thatbanks may immediately launch and/orenhance their existing electronic bankingservices.

b. Banks shall be informed of theconditional approval of the DG, SES andthey shall in turn notify the BSP on the actualdate of its launching/enhancement.

§ X701.4 (2008 - X621.4) Documentaryrequirements

a. Within thirty (30) calendar daysfrom such launching/enhancement, banksshall submit to the BSP thru the SDC forevaluation, the following documentaryrequirements:

(1) A discussion on the bankingservices to be offered/enhanced, thebusiness objectives for such services andthe corresponding procedures, bothautomated and manual, offered through theelectronic banking channels;

(2) A description or diagram of theconfiguration of the bank’s electronic bankingsystem and its capabilities showing:

(i) how the electronic banking systemis linked to other host systems or thenetwork infrastructure in the bank;

(ii) how transaction and data flowthrough the network;

(iii) what types of telecommunicationschannels and remote access capabilities(e.g., direct modem dial-in, internet access,or both) exist; and

(iv) what security controls/measures areinstalled;

(3) A list of software and hardwarecomponents indicating the purpose of thesoftware and hardware in the electronicbanking infrastructure;

(4) A description of the security policiesand procedures manual containing:

(i) description of the bank’s securityorganization;

(ii) definition of responsibilities fordesigning, implementing, and monitoringinformation security measures; and

(iii) established procedures forevaluating policy compliance, enforcingdisciplinary measures and reportingsecurity violations;

(5) A brief description of thecontingency and disaster recovery plansfor electronic banking facilities and eventscenario/problem management plan/program to resolve or address problems,such as complaints, errors and intrusionsand the availability of back-up facilities;

(6) Copy of contract with thecommunications carrier, arrangements forany liability arising from breaches in thesecurity of the system or fromunauthorized/fraudulent transactions;

(7) Copy of the maintenanceagreements with the software/hardwareprovider/s; and

(8) Latest report on the periodicreview of the system, if applicable.

b. If after the evaluation of thesubmitted documents, the Working Grouphas still some unresolved issues and grayareas, the bank may be required to makea presentation of its electronic bankingtransactions to BSP.

§ X701.5 (2008 - X621.5) Conditionsfor Monetary Board approval. Uponcompletion of evaluation, the appropriaterecommendation shall be made to theMonetary Board. The following shall bethe standard conditions for approval:

a. Existence at all times of appropriatetop-level risk management oversight;


§§ X701.5 - X701.1208.12.31

b. Operation of electronic bankingsystem outsourced to a third party serviceprovider taking into consideration theexistence of adequate security controls andthe observance of confidentiality [asrequired in R.A. No. 1405 (Bank SecrecyLaw)] of customer information;

c. Adoption of measures to properlyeducate customers on safeguarding of userID, PIN and/or password, use of bank’sproducts/services, actual fees/bank chargesthereon and problem/error resolutionprocedures;

d. Clear communication with itscustomers in connection with the termsand condition which would highlight howany losses from security breaches, systemsfailure or human error will be settledbetween the bank and its customers;

e. Customer’s acknowledgement inwriting that they have understood theterms and conditions and thecorresponding risks that entail in availingelectronic banking service;

f. The bank’s oversight process shallensure that business expansion shall notput undue strains on its systems and riskmanagement capability;

g. The establishment of proceduresfor the regular review of the bank’ssecurity arrangements to ensure that sucharrangements remain appropriate havingregard to the continuing developments insecurity technology;

h. Strict adherence to BSP regulationson fund transfers in cases where clientsuse the electronic banking services totransfer funds;

i. The electronic banking serviceshall not be used for money laundering orother illegal activities that will underminethe confidence of the public; and

j. The BSP shall be notified in writingthirty (30) days in advance of anyenhancements that may be made to theonline electronic banking service.

§ X701.6 (2008 - X621.6) Requirementsfor banks with pending applications. Thesame procedure and requirements statedin the foregoing shall apply to all bankswith pending applications with the BSP,except on the submission of the documentsenumerated in Subsec. X701.4, i.e., bankswhich have already submitted all therequired information/documents need notcomply with this requirement.

§ X701.7 (2008 - X621.7) ExemptionElectronic banking services that are purelyinformational in nature are exempted fromthese regulations: Provided, however, Thatshould such services be upgraded totransactional service, then prior BSPapproval shall be required.

§ X701.8 (2008 - X621.8) Transitoryprovision. Banks with existing electronicbanking services but do not qualify as aresult of the pre-screening processmentioned in Item “b”, Subsec. X701.1,shall be given three (3) months from21 December 2000, within which to showproof of improved overall financialcondition and/or substantial compliancewith BSP’s prudential requirements,otherwise, their electronic bankingactivities will be temporarily suspendeduntil such time that the same have beencomplied with.

§§ X701.9 - X701.11 (Reserved)

§ X701.12 (2008 - X621.12) SanctionsFor failure to seek BSP approval beforelaunching/enhancing/implementingelectronic banking services, and/or submitwithin the prescribed deadline the requiredinformation/documents, the followingmonetary penalties and/or suspension ofelectronic banking activities or both, shallbe imposed on erring banks and/or itsofficers:


§§ X701.12 - X705.108.12.31

Monetary penalties Amount

a. For responsible officer/s a one time

and/or director/s - for penalty of

failure to seek prior BSP P200,000

approval and/or for

non-submission delayed

submission of required

information/documents

b. On the bank - for failure P30,000 per

to seek prior BSP approval day starting

and/or for non-submission/ from the day

delayed submission of the offense

required information/ was committed

documents up to the time

the same was

corrected.

§ X701.13 (2008 - X621.13) Outsourcingof internet and mobile banking services.Outsourcing of internet and mobilebanking services shall be governed by theprovisions of Subsec. X162.2.(M-2008-030 dated 12 September 2008)


Sec. X705 (2008 - X624 and App. 70)Consumer Protection for ElectronicBanking. These guidelines shall govern theimplementation of e-banking activities of abank for purposes of compliance with therequirements to safeguard customerinformation; prevention of money launderingand terrorist financing; reduction of fraud andtheft of sensitive customer information; andpromotion of legal enforceability of banks’electronic agreements and transactions.(Circular No. 542 dated 01 September 2006, as amended by

CL-2007-048 dated 24 September 2007)

§ X705.1 (2008 - App. 70) E-Bankingoversight function

(a) Bank’s board of directors (BOD) anda senior management committee areresponsible fo developing the bank’se-banking business strategy and establishing

an effective management oversight overe-banking services.

The BOD is expected to take anexplicit, informed and documentedstrategic decision as to whether and howthe bank is to provide e-banking servicesto their customers. Effective managementoversight encompasses the review andapproval of the key aspects of the bank’ssecurity control program and process, suchas the development and maintenance ofsecurity control policies and infrastructurethat properly safeguard e-banking systemsand data from both internal and externalthreats. It also includes a comprehensiveprocess for managing risks associated withincreased complexity of and increasingreliance on outsourcing relationships andthird-party dependencies to performcritical e-banking functions.

It is also incumbent upon the BOD andbanks’ senior management to take stepsto ensure that their banks have updatedand modified where necessary, theirexisting risk management policies andprocesses to cover their current or plannede-banking services. The integration ofe-banking applications with legacysystems implies an integrated riskmanagement approach for all bankingactivities.

(b) Bank’s compliance officer shouldensure that proper controls are incorporatedinto the system so that all relevantcompliance issues are fully addressed.

Management and system designersshould consult with the complianceofficer during the development andimplementation stages of e-bankingproducts and services. This level ofinvolvement will help decrease bank’scompliance risk and may prevent theneed to delay deployment or redesignprograms that do not meet regulatoryrequirements.(Circular No. 542 dated 01 September 2006, as amended by



§ X705.2 (2008 - App. 70) E-Bankingrisk management and internal control

(a) Information Security ProgramBanks should establish and maintain

comprehensive information securityprogram and ensure that it is properlyimplemented and strictly enforced. Theyshould also encourage the development ofa security culture within the organization.The information security program shouldinclude, at a minimum, the following:

(1) Identification and assessment ofrisks associated with e-banking productsand services;

(2) Identification of risk mitigationactions, including appropriate authenticationtechnology and internal controls;

(3) Information disclosure andcustomer privacy policy; and

(4) Evaluation of consumer awarenessefforts.

Banks should adjust or update, asappropriate, their information securityprogram in light of any relevant changesin technology, the sensitivity of itscustomer information and internal orexternal threats to information such asincreasing incidence of identity theft1.

(b) Information security measuresBanks should ensure that their

information security measures and internalcontrol related to e-banking are installed,regularly updated, monitored and isappropriate with the risks associated withtheir products and services.

Appendices 70a and 70b provide forthe minimum security measures that banksshould employ in their ATM facilities andinternet/mobile banking activities,respectively, to protect depositors and

consumers from fraud, robbery and othere-banking crimes.

Banks should also take into accountother relevant industry security standardsand sound practices as appropriate, andkeep up with the most current informationsecurity issues (e.g., security weaknessesof the wireless environment), by sourcingrelevant information from well-knownsecurity resources and organizations.

(c) AuthenticationTo authenticate the identity of

e-banking customers, banks should employtechniques appropriate to the risksassociated with their products and services.The implementation of appropriateauthentication methodologies should startwith a risk assessment process. The riskshould be evaluated based on the type ofcustomer; the customer transactionalcapabilities (e.g., bill payment, fundtransfer, inquiry); the sensitivity of customerinformation and transaction beingcommunicated to both the bank and thecustomer; the ease of using thecommunication method; and the volumeof transactions.

Because the standards for implementinga commercially reasonable system maychange over time as technology and otherprocedures develop, banks and technologyservice providers should continuouslyreview, evaluate and identify authenticationtechnology and ensure appropriate changesare implemented for each transaction typeand level of access based on the current andchanging risk factors. Account fraud andidentity theft are frequently the result of single-factor (e.g., ID/password) authenticationexploitation. Where risk assessments

1 There are several schemes perpetrated by these identity thieves, e.g., credit card fraud, account takeover fraud, newaccount fraud and check fraud.Credit card fraud is where a fraudster causes the credit card of another person to be charged for a purchase. Accounttakeover fraud occurs when a fraudster obtains an individual’s personal information, and changes the official mailingaddress with that individual’s FI. Once accomplished, the fraudster has established a window of opportunity in whichtransactions are conducted without the victim’s knowledge. New account fraud involves the criminal using a false identity,made-up or stolen; to open a new account, typically to obtain a credit card or loan. Check fraud may either be done through(i) alterations to the check, (ii) forgeries of the maker’s signature on either the face of the check or the payee’s endorsementat the back of the check, or (iii) counterfeit checks created by a dishonest third party

§ X705.208.12.31


indicate that the use of single-factorauthentication is inadequate, banks shouldimplement multi-factor authentication(e.g., ATM card and PIN), layered security,or other controls reasonably calculated tomitigate those risks.

Banks’ authentication process should beconsistent with and support the bank’s overallsecurity and risk management programs. Aneffective authentication process should havecustomer acceptance, reliable performance,scalability to accommodate growth, andinteroperability with existing systems andfuture plans as well as appropriate policies,procedures, and controls.

(d) Account origination and customerverification

With the growth in e-banking ande-commerce, banks should use reliablemethods of originating new customeraccounts. Potentially significant risks mayarise when a bank accepts new customersthrough the internet or other electronicchannels. Thus, in an e-bankingenvironment, banks need to ensure that inoriginating new accounts, the KYC (“knowyour customer”) requirement whichinvolves a “face-to-face” process is strictlyadhered to.

(e) Monitoring and reporting ofe-banking transactions

Monitoring systems can determine ifunauthorized access to computer systemsand customer accounts has occurred. Asound monitoring system should includeaudit features that can assist in the detectionof fraud, money laundering, compromisedpasswords, or other unauthorized activities.

The activation and maintenance of auditlogs can help banks to identifyunauthorized activities, detect intrusions,reconstruct events, and promote employeeand user accountability. This controlprocess also facilitates banks in thesubmission of suspicious activities reportsas required by the AMLC and otherregulatory bodies.

Adequate reporting mechanisms areneeded to promptly inform securityadministrators when users are no longerauthorized to access a particular system andto permit the timely removal or suspensionof user account access.

Whenever critical systems or processesare outsourced to third parties,management should ensure that theappropriate logging and monitoringprocedures are in place and that suspectedunauthorized activities are communicatedto the bank in a timely manner.

An independent party (e.g., internal orexternal auditor) should also review activityreports documenting the securityadministrators’ actions to provide thenecessary checks and balances formanaging system security.(Circular No. 542 dated 01 September 2006, as amended by


§ X705.3 (2008 - App. 70) Compliancewith consumer awareness program

Consumer awareness is a key defenseagainst fraud and identity theft and securitybreach. Appendix 70c provides for theminimum Consumer Awareness Programthat banks should convey to theircustomers.

To be effective, banks shouldimplement and continuously evaluate theirconsumer awareness program. Methods toevaluate a program’s effectiveness includetracking the number of customers whoreport fraudulent attempts to obtain theirauthentication credentials (e.g., ID/password), the number of clicks oninformation security links on websites, thenumber of inquiries.(Circular No. 542 dated 01 September 2006, as amended by


§ X705.4 (2008 - App. 70) Minimumdisclosure requirements

(a) Banks are required to provide theircustomers with a level of comfort regarding

§§ X705.2 - X705.408.12.31


information disclosures or transparencies,protection of customer data and businessavailability that they can expect whenusing traditional banking services.

To minimize operational, legal andreputational risks associated withe-banking activities, banks should makeadequate disclosure of information and takeappropriate measures to ensure adherenceto customer privacy and protectionrequirements. Appendix 70d provides forthe minimum disclosure requirement ofthe banks.

Likewise, to meet customers’expectations, banks should have effectivecapacity, business continuity andcontingency planning. They should havethe ability to deliver e-banking services toall end-users and be able to maintain suchavailability in all circumstances (e.g., 24/7availability). Effective incident responsemechanisms and communication strategiesare also critical to minimize risks arisingfrom unexpected events, including internaland external attacks.

(b) Banks should apply to e-bankingfinancial transactions and disclosures therecord retention provisions required inpaper-based transactions.

A written policy or procedure needsto define vital records relating to e-bankingfinancial transactions and disclosures andthe corresponding retention period ofthese records.(Circular No. 542 dated 01 September 2006, as amended by


§ X705.5 (2008 - App. 70) Complaintresolution. Banks may receive customercomplaint either through an electronicmedium or otherwise, concerning anunauthorized transaction, loss, or theft in

its e-banking account. Therefore, banksshould ensure that controls are in place toreview these notifications and that aninvestigation is initiated as required. Banksshould also establish procedures to resolvedisputes arising from the use of thee-banking products and services.(Circular No. 542 dated 01 September 2006, as amended by


§ X705.6 (2008 - App. 70) ApplicabilityThis regulations is intended for alle-banking services and products offered bythe banks to their customers. Althoughthese are focused on the risks and riskmanagement techniques associated withan electronic delivery channel to protectcustomers and the general public, it shouldbe understood, however, that not all of theconsumer protection issues that have arisenin connection with new technologies arespecifically addressed in this Section.Additional issuances may be issued inthe future to address other aspects ofconsumer protection as the financialservice environment through e-bankingevolves.(Circular No. 542 dated 01 September 2006, as amended by



Sec. X799 (2008 - X199) General Provisionon Sanctions. Except as otherwise provided,any violation of the provisions of this Partshall be subject to Sections 36 and 37 ofR.A. No. 7653.


§§ X705.4 - X79908.12.31

Manual of Regulations for Banks

§§ X801 - X801.108.12.31

PART EIGHT

ANTI-MONEY LAUNDERING REGULATIONS

Sec. X801 (2008 - X691 and App. 52a)Prevention of Money Laundering,Customer Identification Requirementsand Record Keeping. Banks, OBUs,QBs, trust entities, NSSLAs, pawnshops,and all other institutions, including theirsubsidiaries and affiliates supervisedand/or regulated by the BSP, otherwiseknown as “covered institutions” shallcomply with the provisions of R.A. No.9160, otherwise known as the “Anti-Money Laundering Act of 2001” and itsImplementing Rules and Regulations(IRRs) in Appendix 52 and the followingrules and regulations.

Banks, QBs, trust entities and allother institutions, and their subsidiariesand affiliates supervised or regulated bythe BSP (covered institutions) shallstrictly comply with the provisions ofSection 9 of R.A. No. 9160, as amended,and the following rules and regulationson anti-money laundering.(As amended by Circular Nos. 612 dated 13 June 2008, 564

dated 03 April 2007 and CL-2007-010 dated 28 February 2007)

§ X801.1 (2008 - App. 52a) Customeridentification. Covered institutions shallestablish and record the true identity of itsclients based on official documents. Theyshall maintain a system of verifying thetrue identity of their clients and, in case ofcorporate clients, require a system ofverifying their legal existence andorganizational structure, as well as theauthority and identification of all personspurporting to act on their behalf.

The guidelines on Customer DueDiligence for banks issued by the BASELCommittee on Banking Supervision whichhighlights the Know-Your-Customer (KYC)standards to be observed in the design ofKYC programs are shown in Appendix 52c.

The guidelines on the AccountOpening and Customer Identificationissued by the BASEL Committee onBanking Supervision represent the startingpoint, which can be used by banks in thearea of customer identification are shownin Appendix 52e.

When establishing business relationsor conducting transactions (particularlyopening of deposit accounts, acceptingdeposit substitutes, entering into trust andother fiduciary transactions, renting ofsafety deposit boxes, performingremittances and other large cashtransactions) banks should take reasonablemeasures to establish and record the trueidentity of their clients. Said clientidentification may be based on official orother reliable documents and records.

a. In cases of corporate and other legalentities, the following measures should betaken, when necessary:

(1) Verification of the legal existenceand structure of the client from theappropriate agency or from the client itselfor both, proof of incorporation, includinginformation concerning the customer’sname, legal form, address, directors,principal officers and provisions regulatingthe power behind the entity.

(2) Verification of the authority andidentification of the person purporting toact on behalf of the client.

b. In case of doubt as to whether theirpurported clients or customers are actingfor themselves or for another, reasonablemeasures should be taken to obtain the trueidentity of the persons on whose behalf anaccount is opened or a transactionconducted.

c. The provisions of existing laws tothe contrary notwithstanding, anonymousaccounts, accounts under fictitious names,

Part VIII - Page 1

Part VIII - Page 2 Manual of Regulations for Banks

§§ X801.1 - X801.208.12.31

and all other similar accounts shall beabsolutely prohibited. In case wherenumbered accounts is allowed (i.e., pesoand foreign currency non-checkingnumbered accounts), bank should ensurethat the client is identified in an official orother identifying documents.

The BSP may conduct annual testingsolely limited to the determination of theexistence and the identity of the owners ofsuch accounts.

Banks shall phase out within a periodof one (1) year from 02 April 2001 or upontheir maturity, whichever is earlier,anonymous accounts or accounts underfictitious names as well as numberedaccounts being kept or managed by them,which are not expressly allowed underexisting law.

d. The identity of existing clients orbeneficial owners of deposits and otherfunds held or being managed by the bankshould be renewed/updated at least everyother year.

e. All records of all transactions ofcovered institutions shall be maintainedand safely stored for five (5) years from thedates of transactions. With respect to closedaccounts, the records on customeridentification, account files and businesscorrespondence, shall be preserved andsafely stored for at least five (5) years fromthe dates when they were closed.

Such records must be sufficient to permitreconstruction of individual transactions so asto provide, if necessary, evidence forprosecution of criminal behaviour.

f. Special attention should be givento all complex, unusual large transactions,and all unusual patterns of transactions,which have no apparent or visible lawfulpurpose. The background and purpose ofsuch transactions should, as far as possible,be examined, the findings established inwriting, and be available to helpsupervisors, auditors and law enforcementagencies.

g. Banks should not, or should at leastavoid, transacting business with criminals.Reasonable measures should be adoptedto prevent the use of their facilities forlaundering of proceeds of crime and otherillegal activities.

h. Banks are enjoined to require theirclients FDXs/MCs and RAs to submit acopy of their certificate of registration issuedby the BSP. This requirement shall beconsidered as part of KYC complianceprocedures.

The certificates can be confirmed orverified with the appropriate departmentof the BSP. The registration of FXDs/MCsand the RAs with the BSP is provided forunder Sec. 4511N of the MORNBFIs.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.2 (2008 - App. 52a) Issuanceof cashier's, manager's or certifiedchecks. Banks may issue cashier’s,manager’s or certified checks or othersimilar instruments in blank or payable tocash, bearer or numbered account subjectto the following conditions:

a. The amount of each check shall notexceed P10,000;

b. The buyer of the check is properlyidentified as required under this Subsection;

c. A register of said checks shall bemaintained with the following minimuminformation:

(1) Date issued;(2) Amount;(3) Name of buyer;(4) Date paid; and(5) If the aggregate instruments

purchased by the same person within anythirty (30) day period amounts to at leastP50,000, the purpose of the buyer shouldbe stated.

d. Banks which issue as well as thosewhich accept as deposits, said cashier’s,manager’s or certified checks or othersimilar instruments issued in blank orpayable to cash, bearer or numbered


§§ X801.2 - X801.508.12.31

account shall take such measure(s) as maybe necessary to ensure that saidinstruments are not being used/resorted toby the buyer or depositor in furtherance ofa money laundering activity;

e. The deposit of said instrumentsshall be subject to the same requirementsscrutiny applicable to cash deposits; and

f. Transactions involving saidinstruments should be accordingly reportedto the BSP if there is reasonable ground tosuspect that said transactions are beingused to launder funds of illegitimate origin.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.3 (2008 - App. 52a) Programsagainst money laundering. Programsagainst money laundering should bedeveloped. These programs, shouldinclude, as a minimum:

a. The development of internalpolicies, procedures and controls, includingthe designation of compliance officers atmanagement level, and adequatescreening procedures to ensure highstandards when hiring employees;

b. An ongoing employee trainingprogram; and

c. An audit function to test the system.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.4 (2008 - App. 52a) Submissionof plans of action. Banks shall submit aplan of action on how to comply with therequirements of Items “1”, “3” and “5”, oncustomers identification, programs againstmoney laundering and requires reporting,respectively, within thirty (30) days from31 July 2000 or from opening of the bank.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.5 (2008 - App. 52a) Requiredreporting of certain transactions. If thereis reasonable ground to believe that thefunds are proceeds of an unlawful activityas defined under R.A. No. 9160, asamended, and/or its IRRs, the transactions

involving such funds or attempts to transactthe same, should be reported to the Anti-Money Laundering Council (AMLC) inaccordance with Rules 5.2 and 5.3 of theAMLA IRRs.

a. Report on covered and suspicioustransactions.1 Banks shall report coveredtransactions and suspicious transactions, asdefined in Rules 5.2 and 5.3 of the AMLAIRRs, to the AMLC using the formsprescribed by the AMLC. Reportabletransactions shall include the following:

(1) Outward remittances withoutvisible lawful purpose;

(2) Inward remittances without visiblelawful purpose or without underlying tradetransactions;

(3) Unusual purchases of foreignexchange without visible lawful purpose;

(4) Unusual sales of foreign exchangewhose sources are not satisfactorilyestablished;

(5) Complex, unusually largetransactions, and all unusual patterns oftransactions, which have no apparent orvisible lawful purpose;

(6) Funds being managed or held asdeposit substitutes if there is reasonableground to believe that the same are proceedsof criminal and other illegal activities;

(7) Suspicious Transaction Indicators or“red flags” as a guide in the submission tothe AMLC of reports of suspicioustransactions relating to potential or actualfinancing of terrorism:

(a) Wire transfers between accounts,without visible economic or businesspurpose, especially if the wire transfers areeffected through countries which areidentified or connected with terrorist activities;

(b) Sources and/or beneficiaries ofwire transfers are citizens of countrieswhich are identified or connected withterrorist activities;

(c) Repetitive deposits or withdrawalsthat cannot be explained or do not makesense;

1 Amended by AMLC Resolution No. 292 dated 20 November 2003 (App. 52a) and AMLC Resolution No. 10 dated31 January 2007 (App. 52b).

Part VIII - Page 3


(d) Value of the transaction is over andabove what the client is capable of earning;

(e) Client is conducting a transactionthat is out of the ordinary for his knownbusiness interest;

(f) Deposits being made by individualswho have no known connection or relationwith the account holder;

(g) An individual receiving remittances,but has no family members working in thecountry from which the remittance ismade;

(h) Client was reported and/ormentioned in the news to be involved interrorist activities;

(i) Client is under investigation bylaw enforcement agencies for possibleinvolvement in terrorist activities;

(j) Transactions of individuals,companies or NGOs that are affiliated orrelated to people suspected of beingconnected to a terrorist group or a groupthat advocates violent overthrow of agovernment;

(k) Transactions of individuals,companies or NGOs that are suspected asbeing used to pay or receive funds fromrevolutionary taxes;

(l) The NGO does not appear to haveexpenses normally related to relief orhumanitarian effort;

(m) The absence of contributions fromdonors located within the country of originof the NGO;

(n) A mismatch between the patternand size of financial transactions on the onehand and the stated purpose and activityof the NGO on the other;

(o) Incongruities between apparentsources and amount of funds raised ormoved by the NGO;

(p) Any other transaction that issimilar, identical or analogous to any of theforegoing; and

(8) All other suspicious transactions/activities which can be reported withoutviolating any law.

The report on suspicious transactionsshall provide the following minimuminformation:

(a) Name or names of the partiesinvolved;

(b) A brief description of thetransaction or transactions;

(c) Date(s) the transaction(s) occurred;(d) Amount(s) involved in every

transaction; and(e) Such other relevant information

which can be of help to the authoritiesshould there be an investigation.

b. Exemption from Bank SecrecyLaw. When reporting covered transactionsto the AMLC, covered institutions and theirofficers, employees, representatives,agents, advisors, consultants or associatesshall not be deemed to have violatedR.A. No. 1405, as amended; R.A. No. 6426,as amended; R.A. No. 8791 and othersimilar laws, but are prohibited fromcommunicating, directly or indirectly, inany manner or by any means, to any personthe fact that a covered transaction reportwas made, the contents thereof, or anyother information in relation thereto. In caseof violation thereof, the concerned officer,employee, representative, agent, advisor,consultant or associate of the coveredinstitution, shall be criminally liable.However, no administrative, criminal orcivil proceedings, shall lie against anyperson for having made a coveredtransaction report in the regularperformance of his duties and in good faith,whether or not such reporting results in anycriminal prosecution under R.A. No. 9160,as amended, or any other Philippine law.

c. Prohibition from disclosure of thecovered transaction report. Whenreporting covered transactions to theAMLC, covered institutions and theirofficers, employees, representatives,agents, advisors, consultants or associatesare prohibited from communicating,directly or indirectly, in any manner or by

§ X801.508.12.31


any means, to any person, entity, themedia, the fact that a covered transactionreport was made, the contents thereof, orany other information in relation thereto.Neither may such reporting be publishedor aired in any manner or form by themass media, electronic mail, or othersimilar devices. In case of violationthereof, the concerned officer, employee,representative, agent, advisor, consultantor associate of the covered institution, ormedia shall be held criminally liable.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.6 (2008 - App. 52a) Certificationof compliance with anti-money launderingregulations. Banks shall submit annually tothe BSP thru the appropriate supervising andexamining department a certification(Appendix 53) signed by bank president orofficer of equivalent rank and by theircompliance officer to the effect that they havemonitored compliance with existinganti-money laundering regulations.

The certification shall be submitted inaccordance with Appendix 6 and shall beconsidered a Category A-2 report.(As amended by CL-2007-010 dated 28 February 2007)

§ X801.7 (2008 - App. 52a) Acceptanceof second-endorsed checks. Banks shalladopt stricter policy guidelines in theacceptance of second-endorsed checks toensure that they are not being used asinstruments for money laundering or otherillegal activities.

For this purpose, banks shall limit theacceptance of second-endorsed checksfrom properly identified clients and onlyafter establishing that the nature of thebusiness of said client justifies, or at least,makes practical the deposit of second-endorsed checks. In case of isolatedtransactions involving deposits of second-endorsed checks by clients who are notengaged in trade or business, the identityof the first endorser should be established

and the record of the identification shallalso be kept for five (5) years. It is alsounderstood that banks shall at all timesfollow the Know-Your-Customer (KYC)rules whenever they handle or transactsecond-endorsed checks.(As amended by CL-2007-010 dated 28 February 2007)


Sec. X804 (2008 - X691.1) MinimumGuidelines for Fund Transfers andCorrespondent Banking AccountOpening and Customer IdentificationBanks shall adopt the minimumprescribed guidelines that contain thesalient and relevant policies related toelectronic fund transfers in Subsecs.X804.1 to X804.7 and correspondentbanking transactions in Sec. X805.

The prescribed minimum guidelinesshould be incorporated as part of thestandard operating procedures manual andwider anti-money laundering programwhich must be adhered to at all times.Enhancements may be introduced to theseminimum guidelines to suit the particularinstitution’s risk profile but taking intoconsideration the minimum requirementsprescribed under existing anti-moneylaundering rules and regulations of the BSP,particularly in the area of “Know YourCustomer/Customer Due Diligence”.

§ X804.1 (2008 - App. 52b) Nature offund transfers. Fund transfers areremittances of funds from one (1) bank toanother, either locally or internationally, inlocal or foreign currencies. It is used formoving the proceeds of loans, reimbursingletters of credit, payment of collections,foreign exchange transactions, etc. This mayalso include the movement of moneybetween customers or between accounts ofthe same customer, or from a customer to athird party who is not a customer of thebank. Transfers can be effected by

§§ X801.5 - X804.108.12.31

Part VIII - Page 5


teletransmission, draft, manager’s check,or certified check depending on therequest of the applicant. The term alsoincludes Automated Clearing Housetransfers, transfers made at automated tellermachines (ATMs) and point-of-saleterminals.

§ X804.2 (2008 - App. 52b) Responsibilityand oversight

a. The FIs should be governed by aManually Initiated Fund Transfers (MIFT)Policies and Procedures for fund transferrequests that are manually initiated (via fax,telephone, messenger, electronic mail, filetransfers, and other similar manualorigination means) externally from clientsor internally from within the bankinggroup/entities.

b. The policies and procedures shouldspecify personnel that will be responsiblefor ensuring compliance with the guidelineson fund transfer transactions.

c. The policies and procedures shallalso provide for independent review byappropriate personnel to monitor andensure continued compliance with theinstitution’s policies, procedures andguidelines on fund transfers.

d. The FI shall allow electronic wiretransfer (internet transfer) only upon itsprior approval.

§ X804.3 (2008 - App. 52b) Risk-baseddue diligence

a. The bank should maintain a policiesand procedures manual for fund transfersthat is reasonably designed to prevent theFI from being used to facilitate moneylaundering and the financing of terroristactivities. At a minimum, the manual mustincorporate policies, procedures andinternal controls to:

• Verify customer information (KYC);• Verify transactions that show

indicators of suspicious transactions,particularly those instance stated under

Rule 3.b.1 of the Revised ImplementingRules and Regulations (R.A. No. 9160, asamended by R.A. No. 9194);

• File reports (including coveredtransaction/suspicious transactions reports);

• Respond to regulators/lawenforcement requests;

• Provide education and/or trainingof personnel; and

• Provide security procedures.b. The bank should not accept fund

transfer instructions from and/or pay-outfund transfers to non-customers, unless incases where the initiating party is anauthenticated primary customer of asending group or unit of the bank.

c. If the fund sender/remitter is not abank or coming from non-FATF memberor non-compliant countries on AML, thereceiving bank must do the due diligenceon the beneficiary of the fund.

d. Whenever possible, manuallyinitiated fund transfer instructions shouldnot be the primary delivery method. Everyeffort should be made to provide the clientwith an electronic banking solution

§ X804.4 (2008 - App. 52b) Validationa. For written and faxed transaction

initiations. The term validation applies tovarious methods used by both sendingand receiving parties to verify theidentity of the sender of a message.Some validation methods also verifyelements in the message including butnot limited to amount, value date andcurrency. Validation must be performedby all bank units. Some specif icvalidation methods are:

Test key: An algorithmic computationmethod using a fixed set of factors knownonly to the sender and receiver, used toverify the sender and, in some cases, otherelements of the message.

Authentication: A cryptographicprocess used to verify the sender and, insome cases, the full text of a message.

§§ X804.1 - X804.408.12.31


Signature verification: A matching ofsignature or other representation from asource document request to a documentpre-signed by a bank customer and heldon file by the bank, or other documentsheld by the customer (e.g. bank approvedacceptable identification), used to verifythe sender.

Telephone callback: A procedure usedto verify the authenticity of a messagereceived by telephone. The bank places areturn phone call to the customer using apre-determined telephone number on filewithin the bank.

• Validation proceduresi. Prior to the bank accepting from a

customer a manually initiated funds transferrequest, the customer must execute andsign an agreement which preferably is partof the account opening documentation,wherein are outlined the manualinstruction procedures with relatedsecurity procedures including customeragreement to accept responsibility forfraudulent or erroneous instructionsprovided the bank has complied with thestated security procedures.

ii. It is mandatory that written MIFTinstructions are signature verified. Inaddition, one (1) of the following primarysecurity procedures must be applied: arecorded callback to the customer toconfirm the transaction instructions, ortestword arrangement/verification. Thecallback or testword requirement may besubstituted by any of the followingvalidity checks: use of a controlled PINor other pre-established code; sequentialnumbering control of messages;pre-established verifiable forms; same asprior transmissions; standing/pre-definedinstructions; or value for valuetransactions.

iii. It is mandatory that faxed MIFTinstructions are signature verified and thefax machine be located in a secured

environment with limited and controlledstaff access which permits visualmonitoring. If monitoring is not possible,the equipment must be secured orprogrammed to receive messages into apassword protected memory.

Faxed MIFT transactions below acertain threshold (approved by thePresident/Country Manager (for branchesof foreign banks) or Business RiskManager) may be processed with themandatory procedure described above andan enhanced security procedure such as(a) a recorded callback to the customer toconfirm the transaction instructions and/or(b) testword arrangement/verification,and/or (c) utilization of secured forms thatincorporate verifiable security proceduressuch as watermarks or codes, and/or(d) transmission encryption.

iv. Telephone callback numbers andcontacts must be securely controlled. Theconfirmation callback is to be recorded andmade to the signatory/(ies) of thecustomer’s individual account(s). Forcommercial and company accounts thecallback will be made to the signatory/(ies)of the account or, if so authorized, anotherperson designated by the customer in theMIFT agreement. The party called is to bedocumented on the instructions. Thecallback must be made by someone otherthan (a) the person receiving the originalinstructions and (b) effecting the signatureverification.

b. Over-the-counter initiatedtransactions. Over-the-counter initiatedfunds transfers by the customersthemselves require positive identificationof the customer and verification of his/hersignature. For transactions over a thresholdset by the President/Country Manager (forbranches of foreign banks) or Business RiskManager these transactions shall alsorequire a recorded telephone callbackconfirmation or another appropriateadditional security procedure.

§ X804.408.12.31

Part VIII - Page 7


§ X804.5 (2008 - App. 52b) Exceptionprocessing. On rare occasions, exceptionsprocessing may be necessary. When anestablished control standard temporarilycannot be met, a senior officer preferablyVice President or above, designated inwriting by the President/Country Manager(for branches of foreign banks) mayapprove an exception processing standardbecause of unique business circumstances.The reason for creating the exception mustbe clearly documented including theidentification of the applied compensatingcontrols.

§ X804.6 (2008 - App. 52b) Control andadministration policies for incoming fund/wire transfers. This section deals withteletransmission payment orders receivedfrom Head office, branches and banksrequesting payment or credit to be madeto a specified beneficiary.

a. Cash payments to beneficiariesshould only be made against proper receiptand identification.

b. Payment orders with incomplete orinsufficient details should be referredimmediately to the remitter bank forclarification. If no response is receivedwithin a reasonable time, the matter shouldbe referred to the Compliance orOperations Officer or his/her designatedofficer for appropriate action as to whetherto further investigate or return funds.

§ X804.7 (2008 - App. 52b) Integrationwith anti-money laundering programThese guidelines shall form part of theinstitution’s wider anti-money launderingprogram.

Sec. X805 (2008 - App. 52c) BankingAccount Opening and CustomerIdentification. The following Subsectionsare the minimum guidelines forcorrespondent banking account openingand customer identification.

§ X805.1 (2008 - App. 52c) Nature ofcorrespondent banking activitiesCorrespondent banking refers to activitiesof a bank having direct connection orfriendly service relations with anotherbank.

§ X805.2 (2008 - App. 52c) Responsibilityand oversight. FIs should, in relation to cross-border correspondent banking and othersimilar relationships, in addition toperforming normal due diligence measures:

a. Gather sufficient information abouta respondent institution to understand fullythe nature of the respondent’s business andto determine from publicly availableinformation the reputation of the institutionand the quality of supervision, includingwhether it has been subject to moneylaundering or terrorist financinginvestigation or regulatory action.

b. Assess the respondent institution’santi-money laundering and terroristfinancing controls.

c. Obtain approval from seniormanagement before establishing newcorrespondent relationships.

d. Document the respectiveresponsibilities of each institution.

e. With respect to “payable-throughaccounts”, be satisfied that the respondentbank has verified the identity of andperformed on-going due diligence on thecustomers having direct access accountsof the correspondent and that it is ableto provide relevant customer identificationdata upon request to the correspondentbank.

§ X805.3 (2008 - App. 52c) Risk–baseddue diligence

a. Correspondent Banking Clients(CBC) presenting greater risk should besubjected to a higher level of duediligence.

b. The FI should consider the type ofrisk indicators in initiating the

§§ 804.5 - X805.308.12.31


correspondent banking relationship, and ona continuing basis, to ascertain whatreasonable due diligence or enhanced duediligence it will undertake.

c. The risk indicators to be consideredare as follows:

(1) The Correspondent BankingClient’s (CBC) domicile:

(a) Jurisdiction where the CBC isbased and/or where its ultimate parent isheadquartered. Certain jurisdictions areinternationally recognized as havinginadequate anti-money launderingstandards, insufficient regulatorysupervision or presenting greater risk forcrime, corruption or terrorist financing. Onthe other hand, other jurisdictions such asmembers of the Financial Action Taskforce (FATF) have more robust regulatoryenvironments representing lowers risks.

(b) Institutions should reviewpronouncements from regulatory agenciesand international bodies, such as the FATF,to evaluate the degree of risk presentedby the jurisdiction in which the CBC isbased and/or in which its ultimate parentis headquartered.

(2) The Correspondent BankingClient’s Ownership and ManagementStructures:

(a) location of owners;(b) their corporate legal form;(c) transparency or ownership

structure;(d) location and experience of

management; and(e) involvement o f po l i t i ca l ly

exposed persons (PEPs ) in themanagement or ownership.

(3) The Correspondent BankingClient’s Business and Customer Base:

(a) type of businesses the CBCengages in;

(b) type of markets the CBC serves;(c) involvement in certain business

segments internationally recognized ascreating particular vulnerabili ty to

money laundering, corruption or terroristfinancing; and

(d) substantial part of businessincome derived from higher risk clients(i.e., clients of a CBC that may beinvolved in activities or are connectedto jurisdictions that are identified bycredible sources as activities or countriesbeing especially susceptible to moneylaundering).

d. The institution may give theappropriate weight to each risk factor as itdeems necessary.

§ X805.4 (2008 - App. 52c) Duediligence standards

a. All CBC should be subjected toappropriate due diligence that will seek toassure that an institution is comfortableconducting business with a particular clientgiven the client’s risk profile.

b. The institution may rely on publiclyavailable information obtained either fromthe CBC or reliable third parties(e.g., regulators, exchanges) to satisfy itsdue diligence requirements.

c. Countries may permit FIs to rely onintermediaries or other third parties toperform the Customer Due Diligence(CDD) process or to introduce business,provided that the criteria set out below aremet. Where such reliance is permitted, theultimate responsibility for customeridentification and verification remains withthe FI relying on the third party.

The criteria that should be met are asfollows:

(1) An FI relying upon a third partyshould immediately obtain the necessaryinformation concerning the elements ofthe CDD process. FIs should takeadequate steps to satisfy themselves thatcopies of identification data and otherrelevant documentation relating to theCDD requirements will be madeavailable from the third party uponrequest without delay.

§§ X805.3 - X805.408.12.31

Part VIII - Page 9


(2) The FI should satisfy itself that thethird party is regulated and supervised for,and has measures in place to comply withCDD requirements.

d. The institution should consider thefollowing elements -

(1) CBC domicile and organization(a) jurisdiction where the CBC’s

ultimate parent is incorporated and/orheadquartered;

(b) particular operating unit wishing tomaintain relationship; and

(c) corporate legal form of CBC.(2) CBC ownership(a) publicly held(3) Shares traded on an exchange in a

jurisdiction with an adequately recognizedregulatory scheme; and

(4) Identity of any significantcontrolling interests.

(a) or privately owned(5) CBC executive management(a) structure and experience; and(b) existence of PEP.(6) CBC’s Business(a) types of financial products and

services; and(b) geographic markets reached.(7) Products and Services Offered(a) business purpose for the

relationship with the CBC; and(b) products and services offered to

the CBC.(8) Regulatory status and history(a) primary regulatory body

supervising CBC; and(b) based on publicly available

materials, any criminal or adverseregulatory action in the recent past.

(9) CBC anti-money laundering controls(a) nature and extent of application.(10) No business arrangements with

shell banks(a) the institution should confirm that

CBC will not use the institution’s productsand services to engage in business withshell banks.

(11) CBC visit(a) The institution should visit CBC

premises prior to or within a reasonableperiod of time; and

(b) The institution confirms that CBCis not a shell bank.

§ X805.5 (2008 - App. 52c) Enhanceddue diligence. The enhanced due diligenceprocess will involve further considerationof the following elements designed toassure the institution has secured a greaterlevel of understanding:

a. Ownership and management(1) Significant controlling interests,

owner’s sources of wealth andbackground, reputation in the marketplace, and recent material ownershipchanges.

(2) Detailed data on the experienceof each member of executivemanagement and recent material changesin the executive management structure.

b. Politically Exposed Person (PEP)involvement.

FIs should, in relation to PEP, in additionto performing normal due diligencemeasures:

(1) Have appropriate risk managementsystems to determine whether the customeris a PEP.

(2) Obtain senior managementapproval for establishing businessrelationships with such customers.

(3) Take reasonable measures toestablish the source of wealth and sourceof funds.

(4) Conduct enhanced on-goingmonitoring of the business relationship.

c. CBC anti-money launderingcontrols

(1) Quality of anti-money launderingand client identification controls

(2) Recognition by CBC seniormanagement of the importance of controls

d. Downstream correspondentclearing

§§ X805.4 - X805.508.12.31


(1) Downstream correspondent cleareris a CBC who receives correspondentbanking services from an institution anditself provides corresponding bankingservices to other FIs in the same currencyas the account it maintains with theinstitution.

(2) If CBC is also downstreamcorresponding clearer, the institutionshould (1) take steps to understand thetypes of FIs to whom the CBC offers thedownstream banking services, and(2) consider the degree to which the CBCexamines the anti-money launderingcontrols of the FIs to whom it offers thoseservices.

§ X805.6 (2008 - App. 52c) Shell banksa. A shell bank is a bank that (a) does

not conduct business at a fixed address ina jurisdiction in which the shell bank isauthorized to engage in banking activities;(b) does not employ one or moreindividuals on a full time business at thisfixed address; (c) does not maintainoperating records at this address, and (d) isnot subject to inspection by the bankingauthority that licensed it to conduct bankingactivities.

b. FIs should refuse to enter into, orcontinue, a correspondent bankingrelationship with shell banks. FIs shouldalso guard against establishing relationswith respondent foreign FIs that permittheir accounts to be used by shell banks.

§ X805.7 (2008 - App. 52c) Branches,subsidiaries and affiliates

a. In situations involving branches,subsidiaries or affiliates, the institutionshould consider the parent of the CBC indetermining the extent of required duediligence.

b. If CBC is an affiliate notsubstantively and effectively controlled bythe parent, the institution should reviewboth the parent and the CBC.

§ X805.8 (2008 - App. 52c) Updatingclient files. The institution’s policies andprocedures should require that the CBCinformation is reviewed and updated on aperiodic basis or when a material changein the risk profile of the CBC occurs.

§ X805.9 (2008 - App. 52c) Monitoringand reporting of suspicious activities. Theinstitution’s policies and procedures on themonitoring and reporting of suspiciousactivities should include correspondentbanking activity.

§ X805.10 (2008 - App. 52c) Integrationwith anti-money laundering program. Theseguidelines shall form part of the institution’swider anti-money laundering program.


Sec. 1881 (2008 - 1691.4) ElectronicMonitoring Systems for MoneyLaundering. UBs and KBs are required toadopt an electronic money launderingtransaction monitoring system which at theminimum shall detect and raise to thebank’s attention, transactions and/oraccounts that qualify either as “coveredtransactions” or “suspicious transactions” asdefined under Rules 3.b and 3.b.1 ofAppendix 52, respectively, of R.A. No.9160 otherwise known as the Anti-MoneyLaundering Act of 2001, as amended.

The system must have at least thefollowing functionalities:

a. Covered and suspicious transactionmonitoring - performs statistical analysisand profiling;

b. Watch list monitoring - checkstransfer parties (originator, beneficiary andnarrative fields) and the existing customerdatabase for any listed undesirableindividual or corporation;

c. Investigation - checks for givennames throughout the history of paymentstored in the system;

§§ X805.5 - 188108.12.31

Part VIII - Page 11


d. Can generate both the coveredtransaction reporting (CTR) and thesuspicious transaction reporting (STR);

e. Must provide complete audit trail;f. Capable of aggregating information

and statistics for reporting purposes; andg. Has the capability to support the

investigation of alerts surfaced by thesystem.

UBs and KBs are given up to14 October 2007 to put in place theelectronic money laundering transactionmonitoring system.

UBs and KBs with existing electronicsystem of flagging and monitoringtransactions already in place shall ensurethat their existing system is fully compliantwith and has similar functionalities as thoserequired above by 14 October 2007.(As amended by Circular No. 527 dated 28 April 2006)



Sec. X882 (2008 - X691.9) Sanctions andpenalties

a. Whenever a covered institutionviolates the provisions of Section 9 of R.A.No. 9160 or of this Section, the officer(s)or other persons responsible for suchviolation shall be punished by a fine of notless than P50,000 nor more than P200,000or by imprisonment of not less than two(2) years nor more than ten (10) years, orboth, at the discretion of the court pursuantto Section 36 of R.A. No. 7653, otherwiseknown as “The New Central Bank Act”.

b. Without prejudice to the criminalsanctions prescribed above against theculpable persons, the Monetary Board may,at its discretion, impose upon any coveredinstitution, its directors and/or officers for anyviolation of Section 9 of R.A. No. 9160, theadministrative sanctions provided underSection 37 of R.A. No. 7653.


Sec. X895 (2008 - X695) Valid IdentificationCards for Financial Transactions. Thefollowing guidelines govern theacceptance of valid ID cards for all typesof financial transactions by banks, includingfinancial transactions involving overseasFilipino workers (OFWs), in order topromote access of Filipinos to servicesoffered by formal FIs, particularly thoseresiding in the remote areas, as well as toencourage and facilitate remittances ofOFWs through the banking system:

a. Clients who engage in a financialtransaction with covered institutions for thefirst time shall be required to present theoriginal and submit a clear copy of at leastone (1) valid photo-bearing ID documentissued by an official authority.

For this purpose, the term officialauthority shall refer to any of thefollowing:

(1) Government of the Republic of thePhilippines;

(2) Its political subdivisions andinstrumentalities;

(3) GOCCs; and(4) Private entities or institutions

registered with or supervised or regulatedeither by the BSP or SEC or IC.

Valid IDs include the following:(a) Passport(b) Driver’s license(c) PRC ID(d) NBI clearance(e) Police clearance(f) Postal ID(g) Voter’s ID(h) Barangay certification(i) GSIS e-Card(j) SSS card(k) Senior Citizen card(l) OWWA ID(m) OFW ID(n) Seaman’s book

§§ 1881 - X89508.12.31


(o) Alien Certification of Registration/Immigrant Certificate of Registration

(p) Government office and GOCC ID(e.g., AFP, HDMF IDs)

(q) Certification from the NCWDP(r) DSWD certification(s) IBP ID; and(t) Company IDs issued by private

entities or institutions registered with orsupervised or regulated either by theBSP, SEC or IC.

b. Students who are beneficiaries ofremittances/fund transfers and who are notyet of voting age, may be allowed topresent the original and submit a clear copyof one (1) valid photo-bearing school IDduly signed by the principal or head of theschool.

c. Banks shall require their clients tosubmit a clear copy of one (1) valid ID ona one-time basis only, or at thecommencement of a business relationship.They shall require their clients to submitan updated photo and other relevantinformation whenever the need for itarises.

The foregoing shall be in addition tothe customer identification requirements

under Rule 9.1.c of the Revised IRRs ofR.A. No. 9160, as amended (Appendix 52).

For purposes of this Section, financialtransactions may include remittances,among others, as falling under thedefinition of transaction. Under the Anti-Money Laundering Act of 2001, asamended, a financial transaction is any actestablishing any right or obligation orgiving rise to any contractual or legalrelationship between the parties thereto.It also includes any movement of funds byany means with a covered institution.(Circular No. 564 dated 03 April 2007, as amended by

Circular No. 608 dated 20 May 2008)


Sec. X899 (2008 - X199) General Provisionon Sanctions. Except as otherwiseprovided, any violation of the provisionsof this Part shall be subject to Sections 36and 37 of R.A. No. 7653.


§§ X895 - X89908.12.31

Part VIII - Page 13


§§ X901 - X90208.12.31

PART NINE

OTHER BANKING REGULATIONS

A. BANKING FEES/CHARGES

Section X901 (2008 - X608) AssessmentFees on Banks. Banks shall contribute tothe BSP an annual fee to help defray thecost of maintaining the appropriatedepartment of the SES in accordance withthe following guidelines.

§ X901.1 (2008 - X608.1) Annual feeson banks. For purposes of computing theannual fees chargeable against banks,the term “Total Assessable Assets” shallbe the amount referred to as the totalassets under Section 28 of R.A. No. 7653(end-of-month total assets per balancesheet, after deducting cash on hand andamounts due from banks, including theBSP and banks abroad), plus trustdepartment accounts.

Average Assessable Assets (AAAs)shall be the summation of the end-of-month total assessable assets divided bythe number of months in operation duringthe particular assessment period.

The rates of annual fees for banks forthe assessable years 2000, 2001 and 2002shall be as follows:

a. UBs/KBs - 1/28 of 1%b. TBs - 1/28 of 1%c. RBs/Coop Banks - 1/40 of 1%

multiplied by their AAAs for 2000, 2001and 2002: Provided, That the annual feeschargeable to RBs/Coop Banks shall be thelower of the amount computed based onthe above rate or the cost of maintainingthe appropriate department of the SES:Provided, further, That beginning the fiscalyear 1999, the annual banking fees of RBs/Coop Banks shall be computed based on

average total assets based on the bank’sbalance sheets as of month-end for themonths of March, June, September andDecember and dividing by four (4) the sumof the end-of-month balances. RBs andCoop Banks shall compute and pay thesupervisory fees on or before 30 Januaryof each year starting 2003 and every yearthereafter. The amount of the fee ascomputed by the banks shall be subject toBSP review and verification, andappropriate adjustment, as the case maybe. Non-payment of the supervisory feewithin the prescribed period shall subjectthe concerned bank to the sanctionsprescribed under Sections 34, 35, 36 and37 of R.A. No. 7653.

Annual fees to be collected from banksshall be debited from their respectivedeposits with the BSP by the BSPComptrollership Department upon receiptof the notice of the assessment from theappropriate department of the SES.

Where the deposit account isinsufficient to cover the assessment fee, theBSP Comptrollership Department shall billthe bank for the full amount of the annualfee or for the balance thereof not coveredby its deposit account, as the case may be.

Within thirty (30) calendar days fromreceipt of the bill, the bank shall make thecorresponding remittance to the BSPAccounting Department. Failure to pay thebill within the prescribed period shallsubject the institution to administrativesanctions.

Sec. X902 (2008 - X609) Collection ofFines and Other Charges from Banks. Thefollowing regulations shall govern thepayment of fines and other charges bybanks.

Part IX - Page 1

Part IX - Page 2 Manual of Regulations for Banks

§ X902.108.12.31

§ X902.1 (2008 - X609.1) Guidelineson the imposition of monetary penaltiesThe following are the guidelines on theimposition of monetary penalties on banks,their directors and/or officers.

a. Definition of terms. For purposesof the imposition of monetary penalties,the following definitions are adopted:

(1) Continuing offenses/violations areacts, omissions or transactions entered into,in violation of laws, BSP rules andregulations, Monetary Board directives,and orders of the Governor which persistfrom the time the particular acts werecommitted or omitted or the transactionswere entered into until the same werecorrected/rectified by subsequent acts ortransactions. They shall be penalized on aper calendar day basis from the time theacts were committed/omitted or thetransactions were effected up to the timethey were corrected/rectified.

(2) Transactional offenses/violationsare acts, omissions or transactions enteredinto in violation of laws, BSP rules andregulations, Monetary Board directives,and orders of the Governor which cannotbe corrected/rectified by subsequent actsor transactions. They shall be meted withone-time monetary penalty on a pertransaction basis.

(3) Continuing penalty refers to themonetary penalty imposed on continuingoffenses/violations on a per calendar daybasis reckoned from the time the offense/violation occurred or was committed untilthe same was corrected/rectified.

(4) Transactional penalty refers to aone-time penalty imposed on atransactional offense/violation.

b. Basis for the computation of theperiod or duration of penalty. Thecomputation of the period or duration ofall penalties shall be based on calendardays. For this purpose the terms “perbanking day”, “per business day”, “perday” and/or “a day” as used in this Manual,

and other BSP rules and regulations shallmean “per calendar day” and/or “calendarday” as the case may be.

c. Additional charge for late paymentof monetary penalty. Late payment ofmonetary penalty shall be subject to anadditional charge of six percent (6%) perannum to be computed from the time saidpenalty becomes due and payable up tothe time of actual payment. The penaltyshall become due and payable fifteen (15)calendar days from receipt of the Statementof Account from the BSP. For banks whichmaintain DDA with the BSP, penaltieswhich remain unpaid after the lapse of thefifteen-day period shall be automaticallydebited against their corresponding DDAon the following banking day withoutadditional charge. If the balance of theconcerned bank’s DDA is insufficient tocover the amount of the penalty, saidpenalty shall already be subject to anadditional charge of six percent (6%) perannum to be reckoned from the bankingday immediately following the end of saidfifteen (15)-day period up to the day ofactual payment.

d. Appeal or request forreconsideration. A one (1)-time appeal orrequest for reconsideration on themonetary penalty approved by theGovernor/Monetary Board to be imposedon the bank, its directors and/or officersshall be allowed: Provided, That the sameis filed with the appropriate department ofthe SES within fifteen (15) calendar daysfrom receipt of the Statement of Account/billing letter. The appropriate departmentof the SES shall evaluate the appeal orrequest for reconsideration of the bank/individual and make recommendationsthereon within thirty (30) calendar daysfrom receipt thereof. The appeal orrequest for reconsideration on themonetary penalty approved by theGovernor/Monetary Board shall beelevated to the Monetary Board for


§§ X902.1 - X903.108.12.31

resolution/decision. The running of thepenalty period in case of continuingpenalty and/or the period for computingadditional charge shall be interrupted fromthe time the appeal or request forreconsideration was received by theappropriate department of the SES up tothe time that the notice of the MonetaryBoard decision was received by the bank/individual concerned.(As amended by Circular No. 585 dated 15 October 2007)

§ X902.2 (2008 - X609.2) Payment offines by banks. Banks shall pay the fineswithin fifteen (15) calendar days fromreceipt of the statement of account fromthe BSP.

For banks which maintain demanddeposit account with the BSP, fines whichare unpaid after the lapse of the fifteen(15)-day period shall be automaticallydebited against the corresponding demanddeposit account of the bank concerned:Provided, That if the balance of the bank’saccount is insufficient to cover the finesdue, such fines shall be paid not later thanthe following banking day. For the purposeof this Subsection, banking day means aday on which the BSP head office and thehead office of the bank are open forbusiness.

For uniform implementation of theabove regulations, the proceduralguidelines embodied in Appendix 29 shallbe observed.(As amended by Circular No. 585 dated 15 October 2007)

§ X902.3 (2008 - X609.3) Cost ofchecks and documentary stamps. Banksare given fifteen (15) days from receipt ofinvoice to settle their accounts with theBSP Security Printing Plant for transactionsrepresenting the cost of printed checks anddocumentary stamps. Accounts not settledwithin fifteen (15) days will be debitedagainst the bank’s corresponding demanddeposit account with the BSP. A debit

advice showing invoices paid shall be sentto the head office of the bank concerned.(As amended by Circular No. 585 dated 15 October 2007)

§ X902.4 (2008 - X609.4) Check/demand draft payments to the BangkoSentral of thrift, cooperative and ruralbanks. TBs, Coop Banks and RBs arerequired to make all check and demanddraft payments for CB:IBRD, LC/STD, legalreserve, supervisory fees, fines orpenalties, redemption of preferred sharesand cash dividends for government heldpreferred shares, and collections orrepayments of notes used as collateral forloans payable either to the CashDepartment, Bangko Sentral ng Pilipinas,Mabini St., Malate, Manila or directly to BSPRegional Cash Units. Such payments shallbe accompanied by appropriate paymentform as shown in Appendix 35. Paymentsnot accompanied by the required paymentforms shall be presumed to be additions toreserves and shall be credited to thedemand deposit account of the payingbank.

Check payments shall be value datedwhen the check is cleared.

However, all assessments for annualsupervisory fees, fines and penalties of TBsshall be debited from the respectivedemand deposit accounts with BSP.(As amended by Circular No. 585 dated 15 October 2007)

B. BANK AS COLLECTION/REMITTANCE AGENTS

Sec. X903 (2008 - X604) Collection ofCustoms Duties/Taxes/Levies and OtherRevenues. The following regulations shallgovern the collection and reporting ofcustoms duties, taxes, levies and otherrevenues through the banking system.

§ X903.1 (2008 - X604.1) CoverageAll presently accredited agent banks withdemand deposit accounts with the BSP and

Part IX - Page 3


§§ X903.1 - X903.408.12.31

government banks are authorized tocollect (a) customs duties, taxes and otherlevies, (b) import processing fees, and(c) export/premium duties: Provided,however, That the collection of taxes fromGOCCs shall be made only throughbanking offices of government banks.

§ X903.2 (2008 - X604.2) Collectionand reporting of internal revenue taxesBanks which are duly accredited by the BIRto accept payment of internal revenuetaxes shall be governed by the relevant BIRRevenue Regulations.

Deposits of the BIR shall be limited tothose arising from tax collection.

The Authorized Agent Banks (AABs)shall transfer the deposit collection to theaccount of the Treasurer of the Philippineswith the BSP on the sixth day from the dayof deposit of the BIR collections.

§ X903.3 (2008 - X604.3) Collectionand reporting of customs duties andimport processing fees. Participating banksare authorized to accept payment ofcustoms duties, taxes and other levies, andimport processing fees under the followingprocedures:

a. The collecting bank shallacknowledge receipt of payments ofcustoms duties, taxes and other levies, andimport processing fees by issuing OfficialReceipts (ORs) in forms to be requisitionedby the Head Office from the GeneralServices Division, Bureau of Customs,Manila;

b. The collecting bank shall book allsuch collections and credit the same to thespecial account “Due to BSP - Bureau ofCustoms”;

c. The branch shall report bytelephone, telex or other means to its HeadOffice, at the end of each day, totalcollections for the day and the inclusiveserial numbers of ORs issued, to be usedas basis for the preparation by the Head

Office of the Consolidated Report of DailyCollections of Customs Duties, Taxes andOther Levies (RC 82-005);

d. The Head Office and its branchesshall accomplish the Abstract of DailyCollections of Customs Duties, Taxes andOther Levies (RC 82-006) and submit thesame, duly supported with copies ofOrders of Payment (OPs), ORs, ReleaseCertificates (RCs) and commercial invoiceson the same day to the offices indicated inthe form; and

e. The Head Office of theparticipating banks shall consolidate allreports of collections with those of itsbranches and submit the original of theConsolidated Report on Daily Collectionsof Customs Duties, Taxes and Other Levies(RC 82-005) to the ComptrollershipDepartment, BSP, Manila on the 10thcalendar day following the date ofcollection. Simultaneously, the remainingcopies shall be distributed to the officesindicated in the form.

Deposits of the BOC shall be limitedto those arising from customs collection.

The AABs shall transfer the depositcollection to the account of the Treasurerof the Philippines with the BSP on theeleventh day from the day of deposit ofthe BOC collections.

§ X903.4 (2008 - X604.4) Collectionand reporting of export/premium dutiesParticipating banks are authorized to acceptpayment of export premium duties underthe following procedures:

a. The collecting bank shall deductfrom the export proceeds the estimatedamount of export/premium duties duefrom the export shipment upon negotiationof the shipping documents but shall collectthe exact and correct amount of such dutiesupon presentation of the OP issued by theExport Coordinating Division, Bureau ofCustoms (For Port of Manila) or theCollector of Customs concerned;


§§ X903.4 - X903.808.12.31

b. The collecting bank shall issue thecorresponding ORs in forms to berequisitioned by the Head Office from theGeneral Services Division, Bureau ofCustoms, Manila;

c. The collecting bank shall book allsuch collections and credit the same to thespecial account “Due to BSP-Export/Premium Duty”;

d. The branch/extension office/agencyshall:

(1) Report by telephone, telex or othermeans to its Head Office, at the end ofeach day, total collections for the day andthe inclusive serial numbers of ORs issued,to be used as basis for the preparation bythe Head Office of the Consolidated Reporton Daily Collections of Export/PremiumDuty (RC 82-007); and

(2) Accomplish the Abstract of DailyCollections of Export/Premium Duty(RC 82-008) and submit the same, dulysupported with copies of OPs and ORs,within ten (10) calendar days from date ofcollection to the offices indicated in the form.

e. The Head Office of the collectingbank shall:

(1) Consolidate its report of collectionwith those of its branches/extension offices/agencies and submit to the Bureau ofCustoms the Consolidated Report of DailyCollections of Export/Premium Duty(RC 82-009) on the day following the dateof collection; and

(2) Consolidate the Abstract of DailyCollections of Export/Premium Duty(RC 82-010) with those received frombranches/extension offices/agencies. Theoriginal of the Consolidated Abstract ofCollection of Export/Premium Duty(RC 82-011) shall be submitted to theComptrollership Department, BSP, Manila,on the 10th calendar day following the dateof collection.

Simultaneously, the remaining copies,with the supporting OPs and ORs, shall besubmitted to the Bureau of Customs.

§ X903.5 (2008 - X604.5) Remittancesthru debit/credit advices. The ComptrollershipDepartment, BSP, Manila, shall debit thedemand deposit accounts of the banksconcerned for the total daily collection,which is due for remittance on the 10thcalendar day from the date of collection(based on either forms RC 82-005,RC 82-007 or RC 82-011). Said Departmentshall also credit on the same day theaccount of the Treasurer of the Philippinesfor all such remittances of tax collections,duties, fees and other levies.

Copies of debit/credit advices to AABsshall be furnished by the ComptrollershipDepartment, BSP.

§ X903.6 (2008 - X604.6) Reconciliationof revenue collections. The Bureau ofCustoms shall report to the appropriatedepartment of the SES, BSP, Manila, anyunreported collection or other discrepanciesdiscovered for proper examination. The BSPshall take appropriate action, through theComptrollership Department, either bydebiting or crediting the DDA of the bankconcerned, upon advice by the appropriatedepartment of the SES on the results of theinvestigation.

§ X903.7 (2008 - X604.7) Penalty forwillful delay on the reporting of collections/remittances. In the event the Bureau ofCustoms shall discover, in the course of itsverification, any willful delay in thereporting of collections and remittances bybanks, said Bureau shall advise theComptrollership Department of the BSP todebit the DDA of the bank concerned withthe corresponding penalty therefor, inaccordance with Subsec. X903.8.

§ X903.8 (2008 - X604.8) Fines fordelayed reports/remittances of collectionsAny bank authorized to collect customsduties, taxes and other levies and export/premium duty, which shall willfully delay

Part IX - Page 5


§§ X903.8 - X903.1008.12.31

the submission of reports and remittanceof its collection to the BSP within theperiod prescribed thereon, shall pay finesin accordance with the following schedule:

Per delay in For delay insubmission remittanceof report of collection

a. Per day of P 60 plus 1/30 of 1% ondefault for the amount ofthe first 5 delayeddays of remittancedefault

b. Per day of P 90 plus 1/15 of 1% on

default for the the amountnext 5 days of delayed

of default remittance

c. Per day of P 120 plus 1/10 of 1% on

default for the amount ofthe succeeding delayeddays of default remittance

Provided, That:(1) Fines imposed above shall not be in

excess of P30,000 a day;(2) The default shall start to run on the

day following the last day required forsubmission of the report or remittance, asthe case may be. However, should the lastday of filing fall on a non-banking day inthe locality where the reporting bank issituated, the default shall start on the dayfollowing the next banking day; and

(3) The manner of payment or collectionof fines enumerated under Subsec. X902.1shall apply.(As amended by Circular No. 585 dated 15 October 2007)

§ X903.9 (2008 - X604.9) Liquidityfloor requirement on revenue collectionsRevenue collections of AABs shall besubject to the liquidity floor requirementunder Subsec. X240.6.

§ X903.10 (2008 - X604.10) Collectionof import duties at the time of opening ofletters of credit. The following rules andregulations shall govern the collection ofimport duties at the time of opening of

letters of credit covering imports and forother purposes:

a. Collection of deposits for importduties. All FIs shall, upon opening of theletters of credit covering imports, collectfrom the applicant/importer a depositequivalent to the full amount of importduties due on the importation covered bysuch letters of credit. The deposit shall notbe withdrawable and shall be utilized onlyby crediting the same to the import dutiesdue on the importation.

b. Amount of import duties. Theimport duties due shall be determined anddeclared by the applicant for the letter ofcredit subject to the penalties prescribedunder the Tariff and Customs Code.

c. Other payment arrangements.The requirement of a deposit shalllikewise apply even if the importation iseffected under other types of paymentarrangements or on a deferred paymentbasis. The deposit should be made uponpresentation of the import documents tothe agent bank.

d. Validation of official receipt. Suchdeposits shall be validated by officialreceipts of the FIs concerned and shall becredited in the final computation of theimport duties, taxes and other charges dueon the importation, upon the filing of thecorresponding import entry.

e. Collection of deficiency and refundof excess deposits. Any deficiency in thedeposit made as against the actual importduties, taxes and other charges due on theimportation shall be collected by theBureau of Customs from the importer priorto the release or withdrawal of theshipment. Any excess deposit shall berefunded by the Bureau of Customs to theimporter.

f. Remittance of collection. The BSPdemand deposit account of the FIsconcerned shall be debited for thedeposits collected, in accordance withSubsec. X903.5


g. Violation. Violation of theprovisions of this Section shall be penalizedunder the pertinent provisions of the Tariffand Customs Code and/or under Sections36 and 37 of R.A. No. 7653.

Sec. X904 (2008 - X605.1) Collection andPaying Agents of the Social SecuritySystem. Banks duly accredited by the SSSare authorized to act as collecting andpaying agents under which agency,employer-members of the SSS may paytheir premium contributions to the SSSthrough the said banks and the funds thuscollected shall be remitted to the SSSwithin thirty (30) days from receipt thereof.

Such banks are also authorized toreceive amortization payments by SSSmembers, individuals and entities oncommercial, industrial, housing, salary andeducational loans granted by the SSS.

During the thirty (30)-day period thatsuch premium contributions are in thecustody of the banks, such funds shall notearn interest.

The banks shall not collect from theSSS any service charge for such agency.

The funds collected by banks shall behandled by the bank proper and not thetrust department: Provided, however, Thatsuch deposits shall be subject to thereserve requirements and the liquidity floorrequirements on government deposits.

Sec. X905 (2008 - X605.3) CollectionAgents of PhilHealth. Banks areauthorized to act as collecting agents of thePhilippine Health Insurance Corporation(PhilHealth) under which agency:

a. PhilHealth members may paytheir premium contributions toPhilHealth through the said banks andthe funds thus collected shall be remittedto PhilHealth in accordance withPhilHealth’s agreed remittance schedulewhich in no case shall exceed thirty (30)days from receipt thereof;

b. During the period that suchpremium contributions are in the custody ofbanks, such funds shall not earn interest; and

c. The banks shall not collect fromPhilHealth any service charge for suchagency.

The funds collected by the banks shallbe handled by the operating departments(cash departments) of the banks concernedand not their trust operations: Provided,however, That such funds shall be subjectto the reserve requirement on deposits andto the liquidity floor on governmentdeposits.

Sec. X906 (2008 - X660) Disclosure ofRemittance Charges and Other RelevantInformation. It is the policy of the BSP topromote the efficient delivery ofcompetitively-priced remittance servicesby banks and other remittance serviceproviders by promoting competition andthe use of innovative payment systems,strengthening the financial infrastructure,enhancing access to formal remittancechannels in the source and destinationcountries, deepening the financial literacyof consumers, and improving transparencyin remittance transactions, consistent withsound banking practices.

Towards this end, banks providingoverseas remittance services shall discloseto the remittance sender and to therecipient/beneficiary, the followingminimum items of information regardingremittance transactions, as defined herein:

a. Transfer/remittance fee - charge forprocessing/sending the remittance from thecountry of origin to the country ofdestination and/or charge for receiving theremittance at the country of destination;

b. Exchange rate - rate of conversionfrom foreign currency to local currency,e.g., peso-dollar rate;

c. Exchange rate differential/spread -foreign exchange mark-up or thedifference between the prevailing BSP

§§ X903.10 - X90608.12.31

Part IX - Page 7


reference/guiding rate and the exchange/conversion rate;

d. Other cur rency convers ioncharges - commissions or service fees,if any;

e. Other related charges - e.g.,surcharges, postage, text message ortelegram;

f. Amount/currency paid out in therecipient country - exact amount of moneythe recipient should receive in localcurrency or foreign currency; and

g. Delivery time to recipients/beneficiaries - delivery period ofremittance to beneficiary stated in numberof days, hours or minutes.

Banks shall l ikewise post saidinformation in their respective websitesand display them prominently inconspicuous places within their premisesand/or remittance/service centers.(Circular No. 534 dated 26 June 2006)


C. CREDIT RATING AGENCIES

Sec. X931 (2008 - X654) Recognition andDerecognition of Domestic Credit RatingAgencies for Bank Supervisory PurposesThe following regulations shall govern therecognition and derecognition of domesticcredit rating agencies (CRAs) for banksupervisory purposes.

§ X931.1 (2008 - X654.1) Statement ofpolicy. The introduction in the financialmarket of new and innovative productscreate increasing demand for and relianceon CRAs by the industry players andregulators as well. As a matter of policy,the BSP wants to ensure that the relianceon credit ratings is not misplaced. Thefollowing rules and regulations that shallgovern the recognition/derecognition ofdomestic CRAs for bank supervisorypurposes.

§ X931.2 (2008 - X654.2) Minimumeligibility criteria. Only ratings issued byCRAs recognized by the BSP shall beconsidered for BSP bank supervisorypurposes. The BSP, through the MonetaryBoard, may officially recognize a creditrating agency upon satisfaction of thefollowing requirements:

a. Organizational structure(1) A domestic CRA must be a duly

registered company under the Securitiesand Exchange Commission (SEC); and

(2) A domestic CRA must have at leastfive (5) years track record in the issuanceof reliable and credible ratings. In the caseof new entrants, a probationary status maybe granted: Provided, That the CRAemploys professional analytical staff withexperience in the credit rating business.

b. Resources(1) Human Resources(a) The size and quality of the CRA’s

professional analytical staff must have thecapability to thoroughly and competentlyevaluate the assessed/rated entity’screditworthiness;

(b) The size of the CRA’s professionalanalytical staff must be sufficient to allowsubstantial on-going contact with seniormanagement and operational levels ofassessed/rated entities as a routinecomponent of the surveillance process;

(c) The CRA shall establish a RatingCommittee composed of adequatelyqualified and knowledgeable individualsin the rating business, majority of whommust have at least five (5) years experiencein credit rating business;

(d) The directors of the CRA mustpossess a high degree of competencyequipped with the appropriate educationand relevant experience in the ratingbusiness;

(e) The directors, officers, members ofthe rating committee and professionalanalytical staff of the CRA have not at anytime been convicted of any offense

§§ X906 - X931.208.12.31


involving moral turpitude or violation ofthe Securities Regulation Code; and

(f) The directors, officers, members ofthe rating committee and professionalanalytical staff of the CRA are not currentlyinvolved as a defendant in any litigationconnected with violations of the SecuritiesRegulation Code nor included in the BSPwatchlist.

(2) Financial resources(a) The CRA must have the financial

capability to invest in the necessarytechnological infrastructure to ensurespeedy acquisition and processing of data/information and timely release of reliableand credible ratings; and

(b) The CRA must have financialindependence that will allow it tooperate free from economic and politicalpressures.

c. Objectivity(1) The CRA must use a rigorous and

systematic assessment methodology thathas been established for at least one (1)year; however, a three (3)-year period ispreferable;

(2) The assessment methodology ofthe CRA must be based both on qualitativeand quantitative approaches; and

(3) The CRA must use an assessmentmethodology that is subject to on-goingreview and is responsive to changes in theoperations of assessed/rated entities.

d. Independence(1) The CRA must be free from control

of and undue influence by the entities itassesses/rates;

(2) The assessment process must befree from ownership pressures to allowmanagement to exercise independentprofessional judgement;

(3) Persons directly involved in theassessment process of the CRA are freefrom conflicts of interest with assessed/rated entities; and

(4) The CRA does not assess/rate anassociate entity.

e. Transparency(1) A general statement of the

assessment methodology used by the CRAshould be publicly available;

(2) The CRA shall disseminate to thepublic thru a well-circularized publication,all assigned ratings disclosing whether therating issued is solicited or unsolicited;

(3) The rationale of ratings issued andrisk factors considered in the assessmentshould be made available to the public;

(4) The ratings issued by the CRAshould be available both to domestic andforeign insti tutions with legitimateinterest; and

(5) Publication of changes in ratingstogether with the basis for the changeshould be done on a timely basis.

f. Disclosure requirements(1) Qualitative disclosures(a) Definition of ratings along with

corresponding symbols;(b) Definition of what constitutes a

default, time horizon within which adefault is considered and measure of lossgiven a default; and

(c) Material changes within the CRA(i.e., changes in management ororganizational structure, rating personnel,modifications of rating practices, financialdeterioration) that may affect its ability toprovide reliable and credible ratings.

(2) Quantitative disclosures(a) Actual default rates experienced in

each rating category; and(b) Rating transitions of assessed/

rated entities over time (i.e., likelihoodof an AAA credit rating transiting to AAetc. over time).

g. Credibility(1) The CRA must have a general

reputation of high standards of integrityand fairness in dealing with its clients andconducts its business in an ethicalmanner;

(2) The CRA is generally accepted bypredominant users in the market

§ X931.208.12.31

Part IX - Page 9


(i.e., issuers, investors, bankers, financialinstitutions, securities traders); and

(3) The CRA must carry out its ratingactivities with due diligence to ensureratings are fair and appropriate.

For purposes of this Section, asubsidiary refers to a corporation, morethan fifty percent (50%) of the voting stockof which is owned or controlled directly orindirectly by the CRA while an affiliaterefers to a corporation, not more than fiftypercent (50%) but not less than ten percent(10%) of the voting stock of which is ownedor controlled directly or indirectly by theCRA.

“Control” exists when the parentowns directly or indirectly throughsubsidiaries more than one-half of thevoting power of an enterprise unless, inexceptional circumstance, it can beclearly demonstrated that suchownership does not constitute control.Control may also exist even whenownership is one-half or less of the votingpower of an enterprise when there is:

(a) power over more than one-half ofthe voting rights by virtue of an agreementwith other stockholders;

(b) power to govern the financial andoperating policies of the enterprise undera statute or an agreement;

(c) power to appoint or remove themajority of the members of the board ofdirectors or equivalent governing body;

(d) power to cast the majority votes atmeetings of the board of directors orequivalent governing body; or

(e) any other arrangement similar toany of the above.

h. Internal compliance procedures(1) The CRA must have the necessary

internal procedures to prevent misuse orunauthorized disclosure of confidential/non-public information; and

(2) The CRA must have rules andregulations that prevent insider trading andother conflict of interest situations.

§ X931.3 (2008 - X654.3) Pre-qualification requirements

The application of a domestic CRAfor BSP recognition shall be submittedto the appropriate department of the SESof the BSP together with the followinginformation/documents:

a. An undertaking(1) That the CRA shall comply with

regulations, directives and instructionswhich the BSP or other regulatoryagency/body may issue from time totime; and

(2) That the CRA shall notify the BSPin writing of any material changes withinthe organization (i.e., changes inmanagement or organizational structure,rating personnel, modifications of its ratingpractices, financial deterioration) that mayaffect its ability to provide reliable andcredible ratings.

b. Other documents/information:(1) Brief history of the CRA, major

rating activit ies handled includinginformation on the name of the client,type of instruments rated, size and yearof issue;

(2) Audited financial statements forthe past three (3) years and such otherinformation as the Monetary Boardmay consider necessary for selectionpurposes;

(3) For new entrants, employment ofprofessional analytical staff withexperience in the credit rating business;

(4) List of major stockholders/partners(owning at least ten percent (10%) of thevoting stocks of the CRA directly or alongwith relatives within the 1st degree ofconsanguinity or affinity);

(5) List of directors, off icers,members of the rating committee andprofessional analytical staff of the CRA;including their qualifications, experiencerelated to rating activities, directorshipand shareholdings in the CRA and inother companies, if any;

§§ X931.2 - X931.308.12.31


(6) List of subsidiaries and affiliatesincluding their line of business and thenature of interest of the CRA in thesecompanies;

(7) Details of the denial of a previousrequest for recognition, i f any(i.e., application date, date of denial,reason for denial etc.); and

(8) Details of all settled and pendinglitigations connected with the securitiesmarket against the CRA, its directors,officers, stockholders, members of therating committee and professionalanalytical staff, if any.

§ X931.4 (2008 - X654.4) Inclusion inBangko Sentral list. The BSP will regularlycircularize to all banks and NBFIs anupdated list of recognized CRAs. The BSP,however, shall not be liable for any damageor loss that may arise from its recognitionof CRAs to be engaged by users.

§ X931.5 (2008 - X654.5) Derecognitionof credit rating agencies

a. Grounds for derecognition. Creditrating agencies may be derecognized fromthe list of BSP recognized CRAs under thefollowing circumstances:

(1) Failure to maintain compliancewith the requirements under Subsec.X931.2 or any willful misrepresentation inthe information/documents required underSubsec. X931.3;

(2) Involvement in illegal activitiessuch as ratings blackmail; creation of a falsemarket or insider trading; divulging anyconfidential information about a clientwithout prior consent to a third partywithout legitimate interest; indulging inunfair competition (i.e., luring clients ofanother rating agency by assuring higherratings etc.); and

(3) Any violations of applicable laws,rules and regulations.

b. Procedure for derecognition. A CRAshall only be derecognized upon prior

notice and after being given theopportunity to defend itself.

§ X931.6 (2008 - X654.6) Recognitionof PhilRatings as domestic credit ratingagency for bank supervisory purposesCredit ratings assigned by PhilippineRating Services Corporation (PhilRatings)may be used, among others, fordetermining appropriate risk weights inascertaining compliance with existingrules and regulations on risk-basedcapital requirements.

Sec. X932 (2008 - X659) InternationallyAccepted Credit Rating AgenciesInternationally accepted CRAs arerecognized for bank supervisory purposesto undertake local and national ratings:Provided, That said CRAs shall have at leasta representative office in the Philippines.Accordingly, credit ratings assigned by saidCRAs may be used, among others, as basisfor determining appropriate risk weightsin ascertaining compliance with existingrules and regulations on risk-based capitalrequirements.

Sec. X933 (2008 - X659.6) Recognition ofFitch Singapore Pte., Ltd. as InternationalCredit Rating Agency For BankSupervisory Purposes. The national ordomestic credit ratings of Fitch SingaporePte. Ltd., a BSP-recognized internationalcredit rating agency with representativeoffice in the Philippines, is herebyrecognized by the BSP for banksupervisory purposes. Accordingly,national or domestic credit ratings assignedby Fitch Singapore Pte. Ltd. may be used,among others, as basis for determiningappropriate risk weights in ascertainingcompliance with existing rules andregulations on risk-based capitalrequirements.


§§ X931.3 - X94608.12.31

Part IX - Page 11


Sec. X947 (2008 - X632) Prohibition on theSale of Foreign-Based Mutual Funds byBanks. Criminal and administrativesanctions prescribed under Sections 36 and37, respectively, of R.A. No. 7653 (TheNew Central Bank Act) shall be imposedon banks marketing/selling foreign-basedmutual funds using any or all of theirbranches as outlets and/or selling suchfinancial products without prior BSPapproval.

Sec. 1948 (2008 - 1650) Offering in thePhilippines of Products by Parent Bankand Branches Abroad of the Parent BankPhilippine branches and subsidiaries offoreign banks shall:

a. Inform/notify the BSP if theirparent bank and/or branches abroad oftheir parent bank offer or market productsin the Philippines, either throughelectronic means (website) or through itslocal desks (within bank premises); and

b. In cases when there are productsbeing offered, to submit to theappropriate department of the SES withinten (10) banking days from receipt ofCircular Letter dated 12 April 2005, thelist of products offered/marketed, thecorresponding manuals containing thepolicies and procedures, the flow chartof transaction and the risk managementsystem for each particular product.




D. PHILIPPINE & FOREIGN CURRENCYNOTES & COINS

Sec. X950 (2008 - X610) Philippine andForeign Currency Notes and Coins. Thefollowing rules and regulations shallgovern the treatment and disposition of

counterfeit Philippine and foreign currencynotes and coins, the reproduction and/oruse of facsimiles of legal tender Philippinecurrency notes and coins, the replacementand redemption of legal tender Philippinecurrency notes and coins consideredmutilated or unfit for circulation, and thetreatment and disposition of Philippinecurrency notes and coins called in forreplacement.

§ X950.1 (2008 - X610.1) Definition ofterms. For purposes of this Section, thefollowing terms are defined.

a. Legal Tender Philippine Currency- Notes and coins issued and circulatingunder the provisions of R.A No. 265and/ or R.A. No. 7653, which when offeredfor the payment of public or private debtmust be accepted.

b. Counterfeit Note - An imitation ofa legal and genuine note intended todeceive or to be taken for that which isoriginal, legal and genuine.

c. Counterfeit Coin - An imitation orforged design of a genuine legal andauthorized coin intended to deceive orpass for the genuine coin, regardless of itsintrinsic value.

d. Unauthorized Reproduction ofLegal Tender Philippine Note - Areproduction of a facsimile or anyi l lus t ra t ion or objec t bear ing thelikeness or similitude of legal tenderPhilippine currency note or any partthereof, without prior authority fromthe Governor o f BSP or h i s du lyauthorized representative.

e. Unauthorized Reproduction ofLegal Tender Philippine Coin - Areproduction of a facsimile or anyobjec t in meta l form bear ing thelikeness or similitude of legal tenderPhilippine currency coin or any partthereof, without prior authority fromthe Governor o f BSP or h i s du lyauthorized representative.

§§ X947 - X950.108.12.31


§ X950.2 (2008 - X610.2) Treatmentand disposition of counterfeit Philippineand foreign currency notes and coins. Anyperson or entity, public or private, whoreceives or takes hold of a note or coinwhich is counterfeit or whose genuinenessis questionable, whether Philippine orforeign currency, shall issue a temporaryreceipt to its owner/holder and mustindicate therein his name, address andcommunity tax certificate number or thepassport number, in case of a foreigner,the date of receipt, the denomination, serialnumber of the note or the coin series asthe case may be. The owner/holder shallbe required to countersign the receipt andin case of refusal, the reasons thereof shallbe stated in the receipt.

Any person or entity, public or private,who receives, takes hold or has in hispossession a note or a coin which iscounterfeit or whose genuineness isquestionable, whether Philippine orforeign currency, shall forward the samewithin five (5) working days from date ofreceipt/ possession thereof, together witha copy of the temporary receipt requiredherein for examination to:

The Cash DepartmentBangko Sentral ng Pilipinas

A. Mabini St., Manila

In cases where personal delivery to theCash Department, BSP, Manila, is notfeasible, delivery of the afore-stated notesor coins may be made through any of thefollowing agencies:

(1) The BSP Regional Offices/Units; or(2) Any banking institution.Any law enforcement agency which

conducted any seizure of notes and coins,whether Philippine or foreign, which arecounterfeits or suspected to be counterfeitcurrency, shall within five (5) working daysfrom date of seizure, advise in writing theCash Department, BSP, Manila of said

seizure enclosing therewith a copy of thereceipt and inventory taken on the seizeditems. All seized notes or coins which arenot or no longer needed as evidence inany investigation/legal proceedings shallbe immediately turned over to the CashDepartment, BSP, for proper disposition.

The Cash Department, BSP, afterexamining all notes and coins submittedto it for examination and/or determinationas to its genuineness, shall:

(a) Issue a corresponding certificationfor the currency examined, if needed;

(b) Stamp the word “COUNTERFEIT”on both the face and the back of each notefound to be counterfeit; and

(c) Return to the owner/holder, and/orsender the Philippine or foreign currencynotes or coins found to be genuine inaccordance with existing accounting andauditing regulations.

All notes and coins, whether Philippineor foreign, determined by the BSP to becounterfeit currency, shall not be returnedto the owner/holder, but shall be retainedand later disposed of in accordance withsuch guidelines as may be adopted by theBSP, except those which will be used asevidence in an investigation or legalproceedings, in which case, the same shallbe retained and preserved by the BSP forevidentiary purposes.

The BSP shall extend assistance as maybe requested of it in the investigation,apprehension and/or prosecution ofperson/s responsible for counterfeiting ofnotes and coins, both Philippine or foreign.

§ X950.3 (2008 - X610.3) Reproductionand/or use of facsimiles of legal tenderPhilippine currency notes. No person orentity, public or private, shall design,engrave, print, make or execute in any othermanner, or utter, issue, distribute, circulateor use any handbill, advertisement, placard,circular, card, or any other object whatsoeverbearing the facsimile, likeness or similitude

§§ X950.2 - X950.308.12.31

Part IX - Page 13


of any legal tender Philippine currencynote, or any part thereof, whether in blackand white or any color or combination ofcolors, without prior authority thereforhaving been secured from the Governor,BSP or his duly authorized representative.

The reproduction and/or use offacsimiles or any illustration bearing thelikeness or similitude of legal tenderPhilippine currency notes may beauthorized by the Governor, BSP or hisduly authorized representative, for printedillustrations in articles, books, journals,newspapers, or other similar materials andstrictly for numismatic, educational,historical, newsworthy or other purposeswhich will maintain, promote or enhancethe integrity and dignity of said note:Provided, however, That any suchfacsimile or illustration shall be of a sizeless than three-fifths (3/5) or more than oneand one-half (1-1/2) times in size of thecurrency note being illustrated and thatthere will be no deviation from the purposefor which the notes will be used.

§ X950.4 (2008 - X610.4) Reproductionand/or use of facsimiles of legal tenderPhilippine currency coins. No person orentity, public or private, shall design,engrave, make or execute in any othermanner, or use, issue, or distribute anyobject whatsoever bearing the likeness orsimilitude as to design, color or theinscription thereon of any legal tenderPhilippine currency coin or any partthereof, in metal form, irrespective of sizeand metallic composition, without priorauthority from the Governor, BSP or hisduly authorized representative.

The reproduction and/or use offacsimiles or of any object bearing thelikeness or similitude of legal tenderPhilippine currency coins referred to in theforegoing section may be authorized bythe Governor, BSP or his duly authorizedrepresentative, strictly for numismatic,

educational, historical and other purposeswhich will maintain, promote or enhancethe integrity and dignity of said coins.

§ X950.5 (2008 - X610.5) Clean notepolicy. When making cash deposits withthe Cash Department or any of the RegionalOffices/Units of the BSP, banks and theirbranches shall observe the followingguidelines and procedures.

a. Banks shall classify their cashdeposits into: (1) clean or fit notes and (2)dirty or unfit notes, in accordance with theCurrency Guide for Bank Tellers, MoneyCounters and Cash Custodians preparedby Cash Department, BSP. The notes thusclassified shall be further sorted by seriesand by denomination.

b. Banks shall provide securelysealed bags or containers separately forthe clean or fit notes and for the dirty orunfit notes accompanied by a deposit slipfor each type/category. The deposit slipfor unfit currency notes shall be clearlylabelled as unfit.

c. To facilitate handling of deposits,bank deposits shall be packed in sealedbags or containers in standard quantity oftwenty (20) full bundle per denomination(each bundle containing 1,000 notes inten (10) equal straps, each strap containing100 notes).

d. Provincial branches of banks maymake direct deposits of currency notes dulyidentified and sorted, with the nearest BSPRegional Office/Unit. In areas where thereare no BSP Regional Office/Unit, provincialbranches of banks shall arrange with theirrespective head offices the shipment oftheir unfit or dirty notes for deposit withthe BSP Cash Department in Manila. Costof shipment and other related expenses tobe incurred shall be solely for the accountof the bank concerned.

For purposes of this Subsection, theCash Department and the regional offices/units of BSP may refuse acceptance of cash

§§ X950.3 - X950.508.12.31


deposits that do not conform with theseguidelines and procedures.

§ X950.6 (2008 - X610.6) Replacementand redemption of mutilated or unfit legaltender Philippine currency notes andcoins. The replacement and redemption oflegal tender Philippine currency notes andcoins considered mutilated or unfit forcirculation shall be governed by thefollowing rules.

a. Unfit currency note. A currency noteshall be considered unfit for circulation when:

(1) It contains heavy creases whichbreak the fiber of the paper and indicatethat disintegration has begun: Provided,however, that mere creasing or wrinklingwhich has not broken nor weakened thenote does not render the note unfit forcirculation; or

(2) It is badly soiled/contaminatedand/or with writings even if it has properlife or sizing; or

(3) It presents a limp or raglikeappearance.

b. Mutilated currency note. A currencynote shall be considered mutilated when:

(1) Torn parts of banknote are joinedtogether with adhesive tape in a mannerwhich tries to preserve as nearly as possiblethe original design and size of the note; or

(2) The original size of the note hasbeen reduced/lost through wear and tearor has been otherwise torn, damaged,defaced or perforated through action ofinsects, chemicals or other causes; or

(3) It is scorched or burned to such anextent that although recognizable as such,it has become frail and brittle as to renderfurther handling thereof impossiblewithout disintegration or breaking; or

(4) It is split edgewise; or(5) It has lost all the signatures

inscribed thereon.c. Unfit currency coin. A currency

coin shall be considered unfit for circulationwhen:

(1) It is bent or twisted out of shapeor defaced, but its genuineness and/ordenomination can still be readily andclearly determined/identified; or

(2) It has been considerably reducedin weight by natural abrasion/wear andtear.

d. Mutilated currency coin . Acurrency coin shall be consideredmutilated when:

(1) It shows signs of filing, clipping orperforation; or

(2) It shows signs of having beenburned or has been so defaced, that itsgenuineness and/or denomination cannotbe readily and clearly identified.

e. Currency notes and coinsconsidered unfit for circulation shall notbe re-circulated, but may be presentedfor exchange to or deposited with anybank.

f. Currency notes and coinsconsidered mutilated shall not berecirculated nor deposited/exchanged, butmay be presented or forwarded fordetermination of their redemptionexchange value to:

(1) The Cash DepartmentBangko Sentral ng PilipinasA. Mabini St., Manila; or

(2) The nearest BSP Regional Office/Unit.

g. The BSP shall replace or redeemnotes and coins considered unfit forcirculation or mutilated except when suchnotes and coins fall under any of thefollowing classifications:

(1) Notes and coins the identificationof which is impossible;

(2) Coins which show signs of filing,clipping or perforations; or

(3) Notes which have lost more thantwo-fifths (2/5) of their surface or all of thesignatures inscribed thereon.

Notes and coins falling under any ofthe classifications mentioned under Item“g” above shall be withdrawn from

§§ X950.5 - X950.608.12.31

Part IX - Page 15


circulation and demonetized withoutcompensation to the owner/bearer.

§ X950.7 (2008 - X610.7) Treatmentof Philippine currency notes and coinscalled in for replacement. Any person orentity, public or private, who receives,takes, holds or has in his possessionPhilippine currency notes and coins calledin for replacement shall forward the sameduring the redemption period to:

a. Any authorized agent banks of theBSP when the notes are still consideredlegal tender, within one (1) year from thedate of call; or

b. The BSP Cash Department or BSPRegional Offices/Cash Units, within theredemption period as may be determinedby the Monetary Board.

The BSP Cash Department or the BSPRegional Cash Units shall exchange thenotes/coins called in for replacement ifpresented to the BSP within theredemption period as determined by the

§§ X950.6 - X99908.12.31

Monetary Board and subsequentlydispose the same in accordance with BSPprocedures for disposal.

§ X950.8 (2008 - X610.8) Sanctions. Anyviolation of the provisions of Subsecs. X950.3and X950.4, shall subject the offender toimprisonment of not less than five (5) years,but not more than ten (10) years. In case theRevised Penal Code provides for a greaterpenalty, then that penalty shall be imposed.


Sec. X999 (2008 - X199) General Provisionon Sanctions. Except as otherwiseprovided, any violation of the provisionsof this Part shall be subject to Sections 36and 37 of R.A. No. 7653.


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