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					                                                                               §§ X301 - 1301.1
                                                                                      09.12.31

                                         PART THREE

                    LOANS, INVESTMENTS AND SPECIAL CREDITS


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



Manual of Regulations for Banks                                                  Part III - Page 1
§ 1301.1
09.12.31

     (5) Internal and external audit must also                       result in a meaningful distribution of
review at least annually the bank’s internal                         exposures across grades with no excessive
rating system and its operations, including the                      concentrations on a single rating grade.
operations of the credit risk control function.                           (5) The ratings output of banks’
     d. Minimum technical standards                                  internal credit risk rating systems must
     (1) Banks must fully document their                             contain both a borrower and a facility
internal credit risk rating systems. The                             dimension. The borrower dimension should
documentation must address topics such as                            focus on factors that affect the inherent
coverage, rating criteria, responsibilities of                       credit quality of each borrower. The facility
parties involved in the ratings process,                             dimension, on the other hand, should focus
definition of what constitutes a rating                              on security/collateral arrangements and
exception, parties that have authority to                            other similar risk influencing factors of each
approve exceptions, frequency of rating                              transaction.
reviews, and management oversight of the                                  (6) In rating corporate borrowers with
rating process. A bank must document the                             total assets of more than P15.0 million, only
rationale for its choice of rating criteria and                      financial statements audited by external
must be able to provide analyses                                     auditors that are accredited/selected by
demonstrating that the rating criteria and                           the SEC, the BSP or the Insurance
procedures are likely to result in ratings that                      Commission (IC) shall be used starting
meaningfully differentiate risk.                                     with the annual financial statements
     (2) The rating criteria should reflect an                       ending 31 December 2006.1
established blend of qualitative and                                      e. Definition of default and loss. In
quantitative factors. Transparent ranges need                        connection with the data collection
to be set for the quantitative standards based                       exercise prescribed under this Subsection,
on experience. The quantitative criteria must                        banks shall be guided by the following
include leverage and cash flow standards.                            standard definitions of default and loss:
     (3) Banks must maintain rating                                       (1) Definition of default
histories on individual accounts, which                                   A default is considered to have
shall include the ratings of the account,                            occurred in the following cases:
the dates the ratings were assigned, the                                  (a) If a credit obligation is considered
methodology and key data used to derive                              non-performing under existing rules and
the ratings and the analyst who gave the                             regulations;
ratings. The identity of borrowers and                                    (b) If a borrower/obligor has sought or
facilities that default, and the timing and                          has been placed in bankruptcy, has been
circumstances of such defaults, must be                              found insolvent, or has ceased operations
retained. Banks must also retain data on                             in the case of businesses;
the realized default rates associated with                                (c) If the bank sells a credit obligation at
rating grades and ratings migration in                               a material credit-related loss, i.e., excluding
order to eventually track the predictive                             gains and losses due to interest rate
power of the risk rating system.                                     movements. Banks’ board-approved internal
     (4) A bank’s internal credit risk rating                        policies that govern the use of their internal
system must have a minimum of 6 rating                               rating systems must specifically define when
grades for unclassified accounts and 4 rating                        a material credit-related loss occurs; and
grades for classified accounts, which must                                (d) If a credit obligation of a borrower/
be assigned in a consistent manner over                              obligor is considered to be in default, all
time. Moreover, the rating system must                               credit obligations of the borrower/obligor


1
    The Monetary Board approved the one (1) year suspension of the requirement on the use of AFS audited by accredited
    external auditors for banks’ internal credit rating system starting fifteen (15) days after 18 May 2009 (publication date).

Part III - Page 2                                                                    Manual of Regulations for Banks
                                                                                             §§ 1301.1 - X301.6
                                                                                                      09.12.31

with the same bank shall also be considered                     not properly managed may cause significant
to be in default.                                               losses that could threaten its financial
     (2) Definition of loss                                     strength and undermine public confidence
     Loss, for purposes of accumulating data                    in the bank.
on loss in the event of default, refers to                           (2) Credit risk concentrations may arise
economic loss. It must therefore include                        from excessive exposures to individual
discount effects, as well as direct and indirect                counterparties, groups of related counterparties
costs associated with collecting on the credit                  and groups of counterparties with similar
obligation. Banks’ board-approved internal                      characteristics (e.g., counterparties in specific
policies that govern the use of their internal                  geographical locations, economic or industry
rating systems must include specific policies                   sectors).
and procedures that should be followed in                            (3) Diversification of risk is essential in
the determination of economic loss.                             banking. Many past bank failures have been
     f. Timetable for implementation                            due to credit risk concentrations of some
     (1) Banks       must       submit       an                 kind. It is essential for banks to prevent
implementation plan to the appropriate                          undue credit risk concentrations from
department of the SES no later than 31 July                     excessive exposures to particular
2004. A monetary penalty of P10,000 per                         counterparties, industries, economic sectors,
day shall be imposed for delay until such                       regions or countries.
plan is submitted.                                                   (4) While concentration of credit risks
     (2) A fully documented internal credit risk                are inherent in banking and cannot be
rating system, duly approved by the board of                    totally eliminated, they can be limited and
directors, must be submitted to the BSP not                     reduced by adopting proper risk control and
later than 31 December 2004. Upon                               diversification strategies. Safeguarding
submission of the system, all prospective and                   against credit risk concentrations should
existing corporate accounts must immediately                    form an important component of a bank’s
be evaluated and monitored according to such                    risk management system.
system. A monetary penalty of P10,000 per                            (5) The board of directors of a bank
day shall be imposed for delay until this                       shall be responsible for establishing and
requirement is complied with.                                   monitoring compliance with policies
(As amended by Circular Nos. 655 dated 12 May 2009, 585 dated   governing large exposures and credit risk
15 October 2007 and 531 dated 17 May 2006)                      concentrations of the bank. The board
                                                                should review these policies regularly (at
     § 2301.1 (Reserved)                                        least annually) to ensure that they remain
                                                                adequate and appropriate for the bank.
     § 3301.1 (Reserved)                                        Subsequent changes to the established
                                                                policies must be approved by the board.
     §§ X301.2 - X301.5 (Reserved)                                   (6) The policy on large exposures and
                                                                credit risk concentrations shall, at a
    § X301.6 Large exposures and credit                         minimum, cover the following:
risk concentrations. The following                                   (a) Exposure limits that are reasonable
guidelines shall govern managing large                          in relation to capital and resources for -
exposures and credit risk concentrations in                          (i) Various types of borrowers/
line with the objective of strengthening risk                   counterparties (e.g., government, banks
management in the banking system.                               and other FIs, corporate and individual
    a. General principles                                       borrowers);
    (1) A bank can be exposed to various                             (ii) A group of related borrowers/
forms of credit risk concentration which if                     counterparties;



Manual of Regulations for Banks                                                                  Part III - Page 3
§ X301.6
08.12.31

     (iii) Individual industry sectors;         twenty-five percent (25%) as a matter of
     (iv) Individual countries; and             sound practice.
     (v) Various types of investments.              b. Monitoring of large exposures/
     (b) The circumstances in which the         credit risk concentrations
above limits can be exceeded and the party          (1) Banks should have a central
authorized to approve such excesses, e.g.,      liability record (preferably based on
the bank’s board of directors or credit         automated system) for each loan exposure.
committee with delegated authority from the     Banks should be able to monitor such
board;                                          exposures against prescribed and internal
     (c) The delegation of credit authority     limits on a daily basis.
within the bank for approving large                 (2) Every bank should have adequate
exposures;                                      management information and reporting
     (d) The procedures for identifying,        systems that enable management to
reviewing, managing and reporting large         identify credit risk concentrations within
exposures of the bank;                          the asset portfolio of the bank or of the
     (e) The definition of exposure. Banks      group (including subsidiaries and overseas
should take into account the nature of their    branches) on a timely basis. If a
business and the complexity of their            concentration does exist, banks should
products. In any case, a bank’s exposures       reduce it in accordance with their
to a counterparty should include its on and     prescribed policies. Large exposures shall
off-balance sheet exposures and indirect        be subject to more intensive monitoring.
exposures; and                                      (3) Banks should ensure that their
     (f) The criteria to be used for            internal or external auditors conduct at least
identifying a group of related persons.         an annual review of the quality of large
     (7) The board and senior management        exposures and controls to safeguard against
of a bank should ensure that:                   credit risk concentrations. Their review
     (a) Adequate systems and controls are      should ascertain whether:
in place to identify, measure, monitor and          (a) The bank’s relevant policies, limits
report large exposures and credit risk          and procedures are complied with; and
concentrations of the bank in a timely              (b) The existing policies and controls
manner; and                                     remain adequate and appropriate for the
     (b) Large exposures of the bank are        bank’s business.
kept under regular review. “Large                   (4) Management should take prompt
exposures” shall refer to exposures to a        corrective action to address concerns and
counterparty or a group of related              exceptions raised.
counterparties equal or greater than five           (5) There should also be an
percent (5%) of bank’s qualifying capital as    independent compliance function to
defined under Sec. X116.                        ensure that all relevant internal and
     (8) A bank should, where appropriate,      prescribed requirements and limits are
conduct stress testing and scenario analysis    complied with. Breaches of prescribed
of its large exposures to assess the impact     requirements and deviations from
of changes in market conditions or key risk     established policies and limits should be
factors (e.g. economic cycles, interest rate,   reported to senior management in a timely
liquidity conditions or other market            manner.
movements) on its profile and earnings.             c. Unsafe and unsound practice
     (9) It is expected that banks would            Non-observance of the principles and
generally observe a lower internal single       the requirements of Items “a” and “b” above
borrower’s limit than the prescribed limit of   may be a ground for a finding of unsafe



Part III - Page 4                                           Manual of Regulations for Banks
                                                                                    §§ X301.6 - X302.2
                                                                                             08.12.31

and unsound practice under Section 56 of                The system of identifying and monitoring
the General Banking Law of 2000                    problem loans and other risk assets and
(Appendix 48) and may be subject to                setting up of allowances for probable losses
appropriate sanction as may be determined          shall include, but is not limited to, the
by the Monetary Board.                             guidelines mentioned in Appendix 18.
    d. Notification requirements                   (As amended by Circular Nos. 622 dated 16 September 2008,
    A bank must inform BSP immediately             603 dated 03 March 2008 and 520 dated 20 March 2006)
when it has concerns that its large exposures
or credit risk concentrations have the                  § X302.1 Provisions for losses; booking
potential to impact materially upon its            The board of directors of banks are
capital adequacy, along with proposed              responsible for ensuring that their institutions
measures to address these concerns.                have controls in place to determine the
    e. Reporting                                   allowance for probable losses on loans,
    Bank’s records on monitoring of large          other credit accommodations, advances
exposures shall be made available to the           and other assets consistent with the
BSP examiners for verification at any given        institutions’ stated policies and procedures,
time. When warranted, the BSP may                  generally accepted accounting principles
impose additional reporting requirements           (GAAP), the BSP rules and regulations and
on bank in relation to its large exposures         the safe and sound banking practices. The
and credit risk concentrations.                    board of directors, in fulfilling this
    f. Sanction                                    responsibility, shall require management
    Any failure or delay in complying with         to develop and maintain an appropriate,
the requirements under Items “d” and “e”           systematic and uniformly applied process
of this Subsection shall be subject to             consistent and in compliance with
penalty applicable to those involving              existing BSP rules and regulations to
major reports.                                     determine the amount of reserves for bad
                                                   debts or doubtful accounts or other
Sec. X302 Loan Portfolio and Other Risk            contingencies.
Assets Review System. To ensure that                    The specific allowance for probable
timely and adequate management action              losses for classified loans and other risk
is taken to maintain the quality of the loan       assets and the general loan loss provision
portfolio and other risk assets and that           as required in Appendix 18 shall be set up
adequate loss reserves are set up and              immediately.
maintained at a level sufficient to absorb
the loss inherent in the loan portfolio and            § X302.2 Sanctions. Non-compliance
other risk assets, each bank shall establish       with the requirement to book valuation
a system of identifying and monitoring             reserves required under the preceding
existing or potential problem loans and            Subsection shall be a ground for the
other risk assets and of evaluating credit         imposition of any or all of the following
policies vis-à-vis prevailing circumstances        sanctions:
and emerging portfolio trends.                         a. Denial of the request for authority
Management must also recognize that loss           to establish new banking offices regardless
reserve is a stabilizing factor and that failure   of type or category;
to account appropriately for losses or make            b. Denial of access to BSP credit
adequate provisions for estimated future           facilities except as may be allowed under
losses may result in misrepresentation of          Section 84 of R. A. No. 7653; and
the bank’s financial condition.                        c. Fine of P10,000 a day for UBs and




Manual of Regulations for Banks                                                          Part III - Page 5
§§ X302.2 - X303
10.12.31

KBs, P5,000 for TBs and P500 for RBs/Coop      similar documents transferring or securing
Banks, counted as follows:                     title covering readily marketable, non-
    (1) from the date the bank has been        perishable goods which must be fully
informed that the recommendation of the        covered by insurance; and
appropriate department of the SES has been          2. By an additional twenty-five percent
confirmed by the Monetary Board up to the      (25%) of the net worth of such bank:
date that said recommended valuation           Provided, That the additional loans, credit
reserves had been actually booked, in the      accommodations and guarantees are for the
case of allowance for probable losses for      purpose of undertaking infrastructure and/
loans and other risk assets classified as      or development projects under the Public-
substandard unsecured, doubtful and loss       Private Partnership (PPP) Program of the
as required by the BSP; and                    government duly certified by the Secretary
    (2) from the dates prescribed under this   of Socio-Economic Planning: Provided,
Section up to the date of the actual booking   further, That the total exposures of the bank
in cases of the two percent (2%) general       to any borrower pertaining to such
provision for probable losses, the twenty-     infrastructure and/or development projects
five percent (25%) allowance for probable      under the PPP Program shall not exceed
losses on secured loans classified as          twenty-five percent (25%) of the net worth
substandard, and the five percent (5%)         of such bank: Provided, furthermore, That
allowance for probable losses on loans         the additional twenty-five percent (25%)
especially mentioned.                          shall only be allowed for a period of
                                               three (3) years from the 28 December 2010:
          A. LOANS IN GENERAL                  Provided, finally, That the credit risk
                                               concentration arising from total exposures
Sec. X303 Credit Exposure Limits to a          to all borrowers pertaining to such
Single Borrower                                infrastructure and/or development projects
    a. Consistent with national interest,      under the PPP Program shall be considered
the total amount of loans, credit              by the bank in its internal assessment of
accommodations and guarantees that may         capital adequacy relative to its overall risk
be extended by a bank to any person,           profile and operating environment. Said
partnership, association, corporation or       loans, credit accommodations and
other entity shall at no time exceed twenty    guarantees based on the contracted amount
five percent (25%) of the net worth of such    as of the end of the three (3)-year period
bank. The basis for determining                shall not be increased but may be reduced
compliance with the single borrower’s limit    and once reduced, said exposures shall not
(SBL) is the total credit commitment of the    be increased thereafter.
bank to or on behalf of the borrower.               c. The above prescribed ceilings shall
    b. The total amount of loans, credit       include: (1) the direct liability of the maker
accommodations           and    guarantees     or acceptor of paper discounted with or sold
prescribed in the first paragraph may be       to such bank and the liability of a general
increased for each of the following            endorser, drawer or guarantor who obtains
circumstances:                                 a loan or other credit accommodation from
    1. By an additional ten percent (10%) of   or discounts paper with or sells papers to
the net worth of such bank: Provided, That     such bank; (2) in the case of an individual
the additional liabilities are adequately      who owns or controls a majority interest in
secured by trust receipts, shipping            a corporation, partnership, association or
documents, warehouse receipts or other         any other entity, the liabilities of said entities




Part III - Page 6                                            Manual of Regulations for Banks
                                                                                            § X303
                                                                                           10.12.31

to such bank; (3) in the case of a                   extent covered by margin deposits; and
corporation, all liabilities to such bank of         (6) other loans or credit accommodations
all subsidiaries in which such corporation           which the Monetary Board may from time
owns or controls a majority interest; and            to time specify as non-risk items.
(4) in the case of a partnership, association             f. The wholesale lending activities of
or other entity, the liabilities of the members      government banks to participating financial
thereof to such bank.                                institutions (PFIs) for relending to end-user
     d. Even if a parent corporation,                borrowers shall at no time exceed a separate
partnership, association, entity or an               limit of thirty-five percent (35%) of net
individual who owns or controls a majority           worth, subject to the following guidelines:
interest in such entities has no liability to        (1) it shall apply only to loans granted to
the bank, the liabilities of subsidiary              PFIs on a wholesale basis for on-lending to
corporations or members of the partnership,          end-user borrowers; (2) it shall apply only
association, entity or such individual shall         to loan programs funded by multilateral,
be combined under certain circumstances,             international or local development agencies,
including but not limited to any of the              organizations or institutions especially
following situations: (1) the parent                 designed for wholesale lending activities of
corporation, partnership, association, entity        government banks; (3) the end-user
or individual guarantees the repayment of            borrowers of the PFIs shall be subject to the
the liabilities; (2) the liabilities were incurred   twenty-five percent (25%) SBL, not the
for the accommodation of the parent                  increased ceiling of thirty-five percent
corporation or another subsidiary or of the          (35%); and (4) government banks shall
partnership or association or entity or such         observe appropriate criteria for accrediting
individual; or (3) the subsidiaries though           PFIs and for the grant/renewal of credit lines
separate entities operate merely as                  to accredited PFIs.
departments or divisions of a single entity.              g. Loans        and     other     credit
     e. For purposes of this Section, loans,         accommodations as well as deposits
other credit accommodations and                      maintained with, and usual guarantees by a
guarantees shall exclude: (1) loans and other        bank to any other bank or non-bank entity,
credit accommodations secured by                     whether locally or abroad, shall be subject
obligations of the BSP or of the Philippine          to the limits as herein prescribed.
Government; (2) loans and other credit                    Deposits of RBs/Coop Banks with
accommodations fully guaranteed by the               government-owned or controlled financial
government as to the payment of principal            institutions like the LBP and the DBP shall
and interest; (3) loans and other credit             not be covered by the SBL imposed under
accommodations secured by U.S.                       R.A. No. 8791.
Treasury Notes and other securities issued                In municipalities and cities where there
by central governments and central banks             are no government banks, the deposits of
of foreign countries with the highest credit         RBs/Coop Banks in private banks in said
quality given by any two (2)                         areas shall not be subject to the SBL.
internationally accepted rating agencies;            Deposits in private banks located in other
(4) loans and other credit accommodations            municipalities/cities shall be covered by the
to the extent covered by the hold-out on or          SBL.
assignment of, deposits maintained in the                 The outstanding balance of the deposit
lending bank and held in the Philippines;            in a private depository bank being used by
(5) loans, credit accommodations and                 the TBs/RBs/Coop Banks with authority to
acceptances under letters of credit to the           accept/create demand or current deposits,




Manual of Regulations for Banks                                                     Part III - Page 7
§§ X303 -X303.1
10.12.31

to fund checks cleared through the said                   directly or indirectly through subsidiaries
private depository bank shall also be exempt              more than one half of the voting power of
from the SBL even if there is a government-               an enterprise unless, in exceptional
owned or controlled financial institution in              circumstance, it can be clearly
the area.                                                 demonstrated that such ownership does
(As amended by Circular no. 700 dated 06 December 2010)   not constitute control. Control of majority
                                                          interest may also exist even when the
     § X303.1 Definition of terms. For                    parent owns one-half or less of the voting
purposes of this Section, the following                   power of an enterprise when there is:
definitions shall apply:                                      (1) Power over more than one-half of
     a. Total credit commitment shall                     the voting rights by virtue of an agreement
include outstanding loans and other credit                with other investors; or
accommodations, deferred letters of credit                    (2) Power to govern the financial and
less margin deposits, and guarantees.                     operating policies of the enterprise under a
Except as specifically provided, total credit             statute or an agreement; or
commitment shall be reckoned on credit                        (3) Power to appoint or remove the
risk-weighted basis consistent with existing              majority members of the board of directors
regulations.                                              or equivalent governing body; or
     b. Loans shall refer to all the accounts                 (4) Power to cast the majority votes at
under the loan portfolio of a bank as                     meetings of the board of directors or
enumerated in the Manual of Accounts for                  equivalent governing body; or
Banks.                                                        (5) Any other arrangement similar to
     c. Other credit accommodations shall                 any of the above.
refer to credit and specific market risk                      h. Subsidiary shall refer to a
exposures of banks arising from                           corporation or firm more than fifty percent
accommodations other than loans such as                   (50%) of the outstanding voting stock of
receivables (sales contract receivables,                  which is directly or indirectly owned,
accounts receivables and other receivables),              controlled or held with power to vote by its
and debt securities booked as investments.                parent corporation.
     d. Bank guarantee. A bank guarantee                      i. Credit risk transfer shall refer to
is an irrevocable commitment of a bank                    any arrangement that allows the bank to
binding itself to pay a sum of money in the               transfer the credit risk associated with its
event of non-performance of a contract by a               loan or other credit accommodation to a
third party. The guarantee is a commitment                third party.
separate and distinct from the principal debt                 j. Readily marketable goods shall
or contract.                                              mean articles of commerce, agriculture or
     e. Net worth shall mean the total of                 industry of such uses as to make them the
the unimpaired paid-in capital including                  subject of constant dealings in ready
paid-in surplus, retained earnings and                    markets with such frequent quotations as
undivided profit, net of unbooked valuation               to make their prices easily and definitely
reserves and other adjustments as may be                  ascertainable, or which lend themselves
required by the BSP.                                      easily to disposal by sale at any time to
     f. Qualifying capital shall mean capital             pay the obligations secured by the said
under Sec. X116.                                          goods.
     g. The term “control of majority                         k. Bill of exchange drawn in good faith
interest” shall be synonymous to “controlling             against actually existing values shall mean
interest” and exists when the parent owns                 one (1) which is drawn by a seller on the




Part III - Page 8                                                     Manual of Regulations for Banks
                                                                                       § X303.1
                                                                                       09.12.31

purchaser for the purchase price of                be subject to the ten percent (10%)
commodities sold. A bill of exchange,              limitation provided therein.
whether drawn against goods for exports                l. Commercial or business paper
or against goods to be sold locally, which         actually owned by the person negotiating
is discounted or purchased by a bank is a          the same shall mean a paper arising from
bill drawn against existing values only            an actual business transaction. A trade
when it is accompanied by shipping                 acceptance or promissory note actually
documents, warehouse receipts or other             owned by the person negotiating the same
papers, securing title to the goods sold.          is a commercial or a business paper.
However, bills of exchange drawn in                However, if a bill is drawn against an agent
good faith against actually existing values        or fictitious drawee, or if a promissory
as defined in this paragraph, which are            note is executed by an agent or fictitious
past due or the maturities of which have           drawee, neither is a commercial nor a
been extended, shall be considered as              business paper. Commercial or business
additional loans authorized under the              papers actually owned and discounted by
second paragraph of this section and shall         the person negotiating the same, which are




                                  (Next Page is Part III - Page - 9)




Manual of Regulations for Banks                                                Part III - Page 8a
                                                                            §§ X303.1 - X303.4
                                                                                     08.12.31

past due or the maturity of which have been      extent of 100% of the net worth of the bank
extended, shall be considered as money           concerned shall be excluded in
borrowed and shall be subject to the             determining the SBL prescribed herein,
limitation of twenty-five percent (25%)          subject to the following conditions:
provided in the first paragraph of this              (1) The importation shall be made in
Section: Provided, That commercial or            pursuance of a national policy duly
business papers purchased by banks from          enunciated by the National Government;
SMEs which became past due or the                    (2) The importation shall have been
maturities of which have been extended,          approved by the National Economic
shall be considered additional loan by the       Development Authority (NEDA);
bank to the purchaser of goods or services           (3) The letter of credit shall specify that
from the SME and shall be entitled to an         importation shall be made with certification
increased SBL equivalent to ten percent          from the National Food Authority (NFA),
(10%) of the net worth of the concerned          or the consular establishment of the
bank if the purchasers are companies with        Philippine government at the source of any
credit ratings of at least “AA-” or equivalent   such establishment of the Philippine
from a BSP-recognized rating agency.             government at the source of any such
                                                 shipment to the effect that the commodity
    § X303.2 Rediscounted papers                 being imported is either rice or corn; and
included in loan limit. The liabilities to the       (4) The related bills of lading shall
bank of borrowers whose papers were              specify in addition to the name of the
rediscounted by banks with the BSP shall         importer concerned, that the NFA shall be
not be deemed as having been                     the consignee of the shipment;
extinguished by the rediscount, but shall            c. The portion of loans and other credit
be considered as still existing and shall be     accommodations covered by the guarantee
included in determining the SBL until such       of IGLF;
papers are paid by the borrowers.                    d. The total liabilities of a commercial
                                                 paper issuer for commercial paper held by
    § X303.3 Credit risk transfer. Subject       a UB as a firm underwriter shall not be
to prior approval of the BSP, loans and other    counted in determining compliance with
credit accommodations covered by a legally       the SBL within a period of 180 days from
effective credit risk transfer arrangement       the acquisition of the commercial paper by
such as guarantee, letter of indemnity,          the UB: Provided, That in no case shall such
standby letter of credit or credit derivative,   liabilities exceed five percent (5%) of the
may be excluded from the total credit            net worth of the UB beyond the normal
commitment of the bank to a borrower in          applicable SBL;
reckoning compliance with the SBL.                   e. The portion of loans and other
                                                 credit accommodations covered by
    § X303.4 Exclusions from loan limit          guarantees of international/regional
    a. The discount of bills of exchange         institutions/multi-lateral FIs where the
drawn in good faith against actually existing    Philippine Government is a member/
values, and the discount of commercial or        shareholder, such as the IFC and the ADB;
business paper which are actually owned              f. Loans        and      other     credit
by the person, company, corporation or           accommodations or portion thereof,
association negotiating the same;                specifically provided for with valuation
    b. Credit accommodations to finance          reserve: Provided, That the bank has no
the importation of rice and corn to the          unbooked valuation reserves;




Manual of Regulations for Banks                                               Part III - Page 9
§§ X303.4 - X303.8
08.12.31

    g. Loans       and     other     credit                     (3) Other penalties as the Monetary
accommodations as a result of an                            Board may impose depending on the
underwriting or sub-underwriting                            gravity of the offense.
agreement of debt securities outstanding                        Transitory provision. Outstanding
for a period not exceeding thirty (30)                      credit commitments of a bank as of 02 May
calendar days;                                              2004 which are within the ceiling
    h. Loans granted to foreign embassies.                  prescribed under the regulations existing
These loans are considered as loans to their                prior to said date but will exceed the
respective central governments and as such                  limitations prescribed in this Section shall
shall be considered non-risk; and                           not be subject to penalty for a period of
    i. Foreign securities lending under                     one (1) year or until said credit
Sec. X531 and other domestic securities                     commitments become past due or are
lending programs duly recognized by the                     extended, renewed or restructured
BSP containing safeguards consistent with                   whichever comes later. Said credit
best international practices, to protect                    commitments shall, however, be reported
securities lenders’ risk exposures.                         to the BSP within fifteen (15) banking days
(As amended by Circular Nos. 578 dated 17 August 2007 and   from 02 May 2004.
550 dated 17 November 2006)
                                                                §§ X303.6 – X303.7 (Reserved)
     § X303.5 Sanctions. Violations of the
provisions of this Section shall be subject                      § X303.8 Limit for wholesale lending
to the following:                                           activities of government banks. There
     a. Monetary penalties - Fines of one-                  shall be a separate SBL of thirty-five percent
tenth of one percent (1/10 of 1%) of the                    (35%) of unimpaired capital and surplus for
excess over the ceiling but not to exceed                   the wholesale lending activities of
P30,000.00 a day for each SBL violation                     government banks to PFIs for relending to
shall be assessed on the bank to be                         end-user borrowers, subject to the
reckoned from the date the excess started                   following guidelines:
up to the date when such excess was                              a. Government banks’ SBL of thirty-
eliminated: Provided, That a maximum fine                   five percent (35%) of unimpaired capital
of P500.00 a day for each violation shall be                and surplus shall apply only to loans
imposed against banks with total resources                  granted to PFIs on a wholesale basis for
of less than P50.0 million at the time of                   on-lending to end-user borrowers;
granting of loan/credit accommodation.                           b. The thirty-five percent (35%) SBL
     b. Other sanctions                                     shall apply only to loan programs funded by
     First Offense – Reprimand for the                      multilateral, international or local
directors/officers who approved the credit                  developmental agencies, organizations or
availment which resulted in the excess with                 institutions specially designed for wholesale
a warning that subsequent violations will                   lending activities of government banks;
be subject to more severe sanctions.                             c. The end-user borrowers of the PFIs
     Subsequent offenses –                                  shall be subject to the twenty-five percent
     (1) Fine of P1,000.00 for directors/                   (25%) SBL, not to the increased ceiling of
officers who approved the credit availment                  thirty-five percent (35%); and
which resulted in the excess.                                    d. Government banks shall observe
     (2) Suspension of the bank’s branching                 the minimum criteria for accrediting PFIs
privileges and access to BSP rediscounting                  and for the grant/renewal of credit lines to
facilities until the excess is eliminated.                  accredited PFIs as set forth in Appendix 41.




Part III - Page 10                                                        Manual of Regulations for Banks
                                                                           §§ X304 - X304.1
                                                                                  10.12.31

Sec. X304 Grant of Loans and Other Credit       and financial statements shall also be
Accommodations. The following regulations       checked and considered in the evaluation
shall be observed in the grant of loans and     of the financial capacity and
other credit accommodations.                    creditworthiness of credit applicants. The
                                                waiver of confidentiality of client
    § X304.1 General guidelines. Consistent     information and/or an authority of the bank
with safe and sound banking practices, a        to conduct random verification with the BIR
bank shall grant loans or other credit          need not be submitted annually since once
accommodations only in amounts and for          submitted these documents remain valid
the periods of time essential for the           unless revoked.
effective completion of the operation to be         Should the document(s) submitted
financed.                                       prove to be spurious or incorrect in any
    Before granting loans or other credit       material detail, the bank may terminate any
accommodations, a bank must ascertain           loan or other credit accommodation
that the borrower, co-maker, endorser,          granted on the basis of said document(s)
surety and/or guarantor, if applicable,         and shall have the right to demand
is/are financially capable of fulfilling        immediate repayment or liquidation of the
his/their commitments to the bank. For          obligation. Moreover, the bank may seek
this purpose, a bank shall obtain adequate      redress from the court for any harm done
information on his/their credit standing        by the borrower’s submission of spurious
and financial capacities.                       documents.
    In addition to the usual information            The required submission of additional
sheet about the borrower, a bank shall          documents shall cover loans, other credit
require from the credit applicant the           accommodations, and credit lines granted,
following:                                      restructured, renewed or extended after
    a. A copy of the latest ITR of the          02 November 2006 including any
borrower and his co-maker, if applicable,       availment and/or re-availment against
duly stamped as received by the BIR;            existing credit lines, except:
    b. Except as otherwise provided by              (1) Microfinance loans as defined under
law and in other regulations, if the            Subsec. X361.1 (a);
borrower is engaged in business, a copy             (2) Loans to registered Barangay
of the borrower’s latest financial              Micro-Business Enterprises (BMBEs);
statements as submitted for taxation                (3) Interbank loans;
purposes to the BIR; and                            (4) Loans secured by hold-outs on or
    c. A waiver of confidentiality of client    assignment of deposits or other assets
information and/or an authority of the bank     considered non-risk by the Monetary
to conduct random verification with the         Board;
BIR in order to establish authenticity of the       (5) Loans to individuals who are not
ITR and accompanying financial statements       required to file ITRs under BIR regulations,
submitted by the client.                        as follows:
    The documents under Items “a” and               (a) Individuals       whose       gross
”b” above shall be required to be submitted     compensation income does not exceed
annually for as long as the loan and/or         their total personal and additional
credit accommodation is outstanding. The        exemptions, or whose compensation
consistency of the data/figures in said ITRs    income derived from one (1) employer




Manual of Regulations for Banks                                             Part III - Page 11
§§ X304.1 - X304.2
10.12.31

does not exceed P60,000 and the income            extended.
tax on which has been correctly withheld;              For purposes of this Subsection, the
     (b) Those whose income has been              following definitions shall apply:
subjected to final withholding tax;                    1. Micro and small enterprises shall be
     (c) Senior citizens not required to file a   defined as any business activity or enterprise
return pursuant to R.A. No. 7432, as              engaged in industry, agribusiness and/or
amended by R.A. No. 9257, in relation to          services whether single proprietorship,
the provisions of the National Internal           cooperative, partnership or corporation
Revenue Code (NIRC) or the Tax Reform             whose total assets, inclusive of those arising
Act of 1997; and                                  from loans but exclusive of the land on
     (d) An individual who is exempt from         which the particular business entity’s office,
income tax pursuant to the provisions of          plant and equipment are situated, must have
the NIRC and other laws, general or               a value of up to P3.0 million and P15.0
special; and                                      million, respectively, or as may be defined
     (6) Loans to borrowers, whose only           by the SMED Council or other competent
source of income is compensation and the          government agency.
corresponding taxes on which has been                  2. Consumer loans is defined to include
withheld at source: Provided, That the            housing loans, loans for purchase of car,
borrowers submitted, in lieu of the ITR, a        household appliance(s), furniture and fixtures,
copy of their Employer’s Certificate of           loans for payment of educational and hospital
Compensation Payment/Tax Withheld (BIR            bills, salary loans and loans for personal
Form 2316) or their payslips for at least         consumption, including credit card loans.
three (3) months immediately preceding            (As amended by Circular Nos. 694 dated 14 October 2010,
the date of loan application.                     622 dated 16 September 2008, 607 dated 30 April 2008 and
     Loans to micro and small enterprises         549 dated 09 October 2006)
which are not specifically exempted from
the additional documentary requirements                § X304.2 Purpose of loans and other
specified under the third paragraph of this       credit accommodations. Before granting
Subsection shall be exempted from said            a loan or other credit accommodation,
additional documentary requirement up to          banks shall ascertain the purpose of the loan
31 December 2011.                                 or other credit accommodation which shall
     Consumer loans, with original amounts        be clearly stated in the application and in
not exceeding P2.0 million, are exempted          the contract between the bank and
from updating requirements or the required        borrower. The proceeds of a loan or other
annual submission of the same                     credit accommodation shall be utilized only
requirements forwarded during the initial         for the purpose(s) stated in the application
submission under this Subsection but not          and contract; otherwise, the bank may
in their restructuring, renewal, or extensions    terminate the loan or other credit
or availment/re-availment against existing        accommodation and demand immediate
credit lines: Provided, That these loans are      repayment         of    the     obligation.
supported by ITRs or by BIR Form 2316 or          Notwithstanding the preceding sentence,
payslips for at least three (3) months            the proceeds of a loan or other credit
immediately preceding the date of loan            accommodation may be utilized by the
application, and financial statements             borrower for a purpose(s) other than that
submitted for taxation purposes to the BIR,       originally stated in the application and
as may be applicable, at the time the loans       contract: Provided, That such other
were granted, restructured, renewed, or           purpose(s) is/are among those for which the




Part III - Page 12                                                 Manual of Regulations for Banks
                                                                                           §§ X304.2 - X304.10
                                                                                                       10.12.31

lending bank may grant loans and other                     credit risk such as requiring the submission of
credit accommodations under existing laws                  a Comfort Letter from the visa holder’s
and regulations: Provided, further, That such              employer, limiting the term of the loan to the
utilization shall be with prior written                    period of the visa’s validity, submission of SIRV
approval of duly authorized officer(s)/                    identification card, as well as subjecting the
committee/board of directors of the lending                visa holder to the usual credit processes/
bank and such written approval shall form                  requirements; and
part of the contract between the bank and                      b. Embassy officials [foreign diplomats
the borrower.                                              and career consular officials and employees
                                                           who are physically residing in the
     § X304.3 Prohibited use of loan                       Philippines for a term of one (1) year or
proceeds. Banks are prohibited from                        more]: Provided, That such loans shall be
requiring their borrowers to acquire shares                limited to consumer loans, including credit
of stock of the lending bank out of the loan               cards, auto loans, appliance loans and others
or other credit accommodation proceeds                     that may henceforth be allowed by the
from the same bank.                                        Monetary Board: Provided, further, That the
                                                           lending bank institutes measures to mitigate
    § X304.4 Signatories. Banks shall                      credit risk such as requiring the submission
require that loans and other credit                        of a Comfort Letter from the Embassy
accommodations be made under the                           employing said officials.
signature of the principal borrower and, in                (M-2007-021 dated 15 August 2007)
the case of unsecured loans and other credit
accommodations to an individual                                 § X304.10 Minimum required
borrower, at least one (1) co-maker, except                disclosure. Banks shall provide a table of
that a co-maker is not required when the                   the applicable fees, penalties and interest
principal borrower has the financial                       rates on loan transactions, including the
capacity and a good track record of paying                 period covered by and the manner of and
his obligations.                                           reason for the imposition of such penalties,
(As amended by Circular No. 622 dated 16 September 2008)   fees and interests; fees and applicable
                                                           conversion reference rates for third currency
     § X304.5 - X304.8 (Reserved)                          transactions, in plain sight and language, on
                                                           materials for marketing loans, such as
    § X304.9 Policies on loans to non-                     brochures, flyers, primers and advertising
immigrants and embassy officials. Banks are                materials, on loan application forms, and
allowed to extend peso loans to the                        on billing statements: Provided, That these
following:                                                 disclosures are in addition to the full
    a. Non-immigrants holding visas issued                 disclosure of the fees, charges and interest
under Secs. 9(d) and 9(g) of the Immigration               rates in the terms and conditions of the loan
Act of 1940, Special Investor’s Resident Visa              agreement: Provided further, That such table
(SIRV) and visas issued by the Philippine                  of fees, penalties and interest rates shall be
Economic Zone Authority: Provided, That such               printed in plain language and in bold black
loans shall be limited to peso consumer loans              letters against a light or white background,
including credit cards, auto loans and                     and using the minimum Arial 12 theme font
appliance loans, but excluding real estate or              and size, or its equivalent in readability, and
housing loans: Provided, further, That the                 on the first page, if the applicable document
lending bank institutes measures to mitigate               has more than one (1) page.




Manual of Regulations for Banks                                                                Part III - Page 13
§§ X304.10 - X304.12
10.12.31

    Transitory provision: Banks shall be         are the only reasonable or convenient
given a period of 120 days from 6 January        opportunities for contact.
2011 to fully implement the required                 Banks shall inform their borrowers in
disclosure requirements.                         writing of the endorsement of the collection
(Circular No. 702 dated 15 December 2010)        of their account to a collection agency/
                                                 agent, or the endorsement of their account
    § X304.11 Unfair collection practices        from one collection agency/agent to another,
Banks, collection agencies, counsels and         at least seven (7) days prior to the actual
other agents may resort to all reasonable and    endorsement. The notification shall include
legally permissible means to collect amounts     the full name of the collection agency and
due them under the loan agreement:               its contact details: Provided, That the
Provided, That in the exercise of their rights   required notification in writing shall be
and performance of duties, they must             included in the terms and conditions of the
observe good faith and reasonable conduct        loan agreement. Banks shall adopt policies
and refrain from engaging in unscrupulous        and procedures to ensure that personnel
or untoward acts. Without limiting the           handling the collection of accounts, whether
general application of the foregoing, the        these are in-house collectors, or third-party
following conduct is a violation of this         collection agents, shall disclose his/her full
Subsection:                                      name/true identity to the borrower.
    a. the use or threat of violence or other    (As amended by Circular No. 702 dated 15 December 2010)
criminal means to harm the physical person,
reputation, or property of any person;               § X304.12 Confidentiality of
    b. the use of obscenities, insults, or       Information. Banks shall keep strictly
profane language which amount to a               confidential the data on the borrower or
criminal act or offense under applicable         consumer, except under the following
laws;                                            circumstances:
    c. disclosure of the names of borrowers          a. disclosure of information is with the
who allegedly refuse to pay debts, except        consent of the borrower or consumer;
as allowed under Subsec. X304.12;                    b. release, submission or exchange of
    d. threat to take any action that cannot     customer information with other financial
legally be taken;                                institutions, credit information bureaus,
    e. communicating or threat to                lenders, their subsidiaries and affiliates;
communicate to any person credit                     c. upon orders of court of competent
information which is known to be false,          jurisdiction or any government office or
including failure to communicate that a debt     agency authorized by law, or under such
is being disputed;                               conditions as may be prescribed by the
    f. any false representation or deceptive     Monetary Board;
means to collect or attempt to collect any           d. disclosure to collection agencies,
debt or to obtain information concerning a       counsels and other agents of the bank to
borrower; and                                    enforce its rights against the borrower;
    g. making contact at unreasonable/               e. disclosure to third party service
inconvenient times or hours which shall be       providers solely for the purpose of assisting
defined as contact before 6:00 A.M. or after     or rendering services to the bank in the
10:00 P.M., unless the account is past due       administration of its lending business; and
for more than sixty (60) days or the borrower        f. disclosure to third parties such as
has given express permission or said times       insurance companies, solely for the purpose




Part III - Page 14                                                Manual of Regulations for Banks
                                                                             §§ X304.12 - X305.3
                                                                                       10.12.31

of insuring the bank from borrower default        money, goods or credits may stipulate that
or other credit loss, and the borrower from       the rate of interest agreed upon may be
fraud or unauthorized charges.                    increased in the event that the applicable
(Circular No. 702 dated 15 December 2010)         maximum rate of interest is increased by the
                                                  Monetary Board: Provided, That such
     §§ X304.13 - X304.14 (Reserved)              stipulation shall be valid only if there is also
                                                  a stipulation in the agreement that the rate
     § X304.15 Sanctions.Violations of the        of interest agreed upon shall be reduced in
provisions of Subsecs. X304.10 to X304.12         the event that the applicable maximum rate
shall be subject to any or all of the following   of interest is reduced by law or by the
sanctions depending upon their severity:          Monetary Board: Provided, further, That the
    a. First offense. Reprimand for the           adjustment in the rate of interest agreed upon
directors/officers responsible for the            shall take effect on or after the effectivity of
violation;                                        the increase or decrease in the maximum
    b. Second offense. Disqualification of        rate of interest.
the bank concerned from the credit facilities
of the BSP except as may be allowed under             § X305.3 Floating rates of interest. The
Section 84 of R. A. No. 7653;                     rate of interest on a floating rate loan during
    c. Subsequent offense/s:                      each interest period shall be stated on the
    i. Prohibition on the bank concerned          basis of Manila Reference Rates (MRRs),
from the extension of additional credit           T-Bill Rates or other market based reference
accommodation against personal security;          rates plus a margin as may be agreed upon
and                                               by the parties.
    ii. Penalties and sanctions provided              The MRRs for various interest periods shall
under Sections 36 and 37 of R. A. No. 7653.       be determined and announced by the BSP
(Circular No. 702 dated 15 December 2010)
                                                  every week and shall be based on the weighted
                                                  average of the interest rates paid during the
Sec. X305 Interest and Other Charges. The
                                                  immediately preceding week by the ten (10)
rate of interest, including commissions,
                                                  KBs with the highest combined levels of
premiums, fees and other charges, on any
                                                  outstanding deposit substitutes and time
loan, or forbearance of any money, goods
                                                  deposits, on promissory notes issued and time
or credits regardless of maturity and whether
                                                  deposits received by such banks, of P100,000
secured or unsecured shall not be subject
                                                  and over per transaction account, with
to any regulatory ceiling.
                                                  maturities corresponding to the interest periods
                                                  for which such MRRs are being determined.
    § X305.1 Rate of interest in the absence
                                                  Such rates and the composition of the sample
of stipulation. The rate of interest for the
                                                  KBs shall be reviewed and determined at the
loan or forbearance of any money, goods
                                                  beginning of every calendar semester on the
or credits and the rate allowed in judgments,
                                                  basis of the banks’ combined levels of
in the absence of expressed contract as to
                                                  outstanding deposit substitutes and time
such rate of interest, shall be twelve percent
                                                  deposits as of 31 May or 30 November, as
(12%) per annum.
                                                  the case may be.
                                                      The rate of interest on floating rate
    § X305.2 Escalation clause; when
                                                  loans existing and outstanding as of
allowable. Parties to an agreement
                                                  23 December 1995 shall continue to be
pertaining to a loan or forbearance of




Manual of Regulations for Banks                                                  Part III - Page 15
§§ X305.3 - X306
10.12.31

determined on the basis of the MRRs              That there is no previously accrued but
obtained in accordance with the                  uncollected interest thereon.
provisions of the rules existing as of 01            Interest income on restructured loans
January 1989: Provided, however, That the        (principal plus capitalized interest thereon)
parties to such existing floating rate loan      may be accrued: Provided, That these are:
agreements are not precluded from                    (1) In current status; and
amending or modifying their loan                     (2) Fully secured by real estate with loan
agreements by adopting a floating rate of        value of up to sixty percent (60%) of the
interest determined on the basis of the TBR      appraised value of the real estate security
or other market based reference rates.           and the insured improvements thereon, and
     Where the loan agreement provides for       such other first class collaterals as may be
a floating interest rate, the interest period,   deemed appropriate by the Monetary Board.
which shall be such period of time for               c.Interest on non-performing loan
which the rate of interest is fixed, shall be    accounts shall be taken up as income only
such period as may be agreed upon by the         when actual payments thereon are received.
parties.                                             d. Accrued interest earned but not yet
     For the purpose of computing the            collected/received shall not be considered
MRRs, banks shall accomplish the report          as profits and/or earnings eligible for
forms, RS Form 2D and Form 2E (BSP 5-            dividend declaration and/or profit sharing.
17-34A).                                             e. A contra account to be designated
                                                 Allowance for Uncollected Interest on Loans
    § X305.4 Accrual of interest earned on       shall be set up in accordance with Appendix
loans. Banks are allowed to accrue interest      18 if accrued interest receivable on loans
earned on loans, subject to the following        and loan installments is still uncollected after
guidelines and/or procedures.                    three (3) months from the date such loans
    a. No accrual of interest income is          and loan installments have become non-
allowed if a loan has become non-                performing.
performing as defined under Sec. X309.               f. The amount representing Allowance
Likewise, interest income shall not be           for Uncollected Interest on Loans may be
accrued for unmatured loans/receivables          chargeable against the excess of
with indications that collectibility thereof     outstanding valuation reserves for loans
has become doubtful. These indications shall     and other risk assets as appearing in the
include declaration of bankruptcy,               bank’s books, over those recommended
insolvency, cessation of operations, or such     by the appropriate department of the SES.
other conditions of financial difficulties or    The balance thereof, if any, shall be
inability to meet financial obligations as       chargeable against operations.
they mature. Separate appropriate records            g. For all purposes, the Allowance for
shall be maintained for these non-accruing       Uncollected Interest on Loans shall be
unmatured loans.                                 considered a valuation reserve/allowance
    Interest income on past due loans arising    against the Accrued Interest Receivable
from discount amortization (and not from the     account.
contractual interest of the accounts) shall be
accrued as provided in PAS 39.                   Sec. X306 Past Due Accounts. Past due
    b. Interest earned on extended or            accounts of a bank shall, as a general rule,
renewed loans may be accrued: Provided,          refer to all accounts in its loan portfolio,


1
    See Appendix 89



Part III - Page 16                                             Manual of Regulations for Banks
                                                                                          §§ X306 - X306.1
                                                                                                 10.12.31

all receivable components of trading account                                               Minimum No.
securities and other receivables, as defined                                               of Installments
in the Manual of Accounts for Banks, which                    Mode of Payment              In Arrears
are not paid at maturity.1                                    Monthly                          3
(As amended by M-2010-039 dated 03 November 2010,             Quarterly                        1
M-2010-007 dated 23 April 2010, M-2009-040 dated 30 October   Semestral                        1
2009, M-2009- 037 dated 15 October 2009, M 2009-038 dated
08 October 2009 and M-2009-036 dated 07 October 2009)         Annual                           1

     § X306.1 Accounts considered past due                        Provided, however, That when the total
The following shall be considered as past                     amount of arrearages reaches twenty percent
due:                                                          (20%) of the total outstanding balance of the
     a. Loans or receivables payable on                       loan/receivable, the total outstanding
demand - If not paid on the date indicated                    balance of the loan/receivable shall be
on the demand letter, or within three (3)                     considered as past due, regardless of the
months from date of grant, whichever comes                    number of installments in arrears: Provided,
earlier;                                                      further, That for modes of payment other
     b. Bills discounted and time loans,                      than those listed above (e.g., daily, weekly
whether or not representing availments                        or semi-monthly), the entire outstanding
against a credit line - If not paid on the                    balance of the loan/receivable shall be
respective maturity dates of the promissory                   considered as past due when the total
notes;                                                        amount of arrearages reaches ten percent
     c. Customers’ liability on drafts under                  (10%) of the total loan/receivable balance;
letters of credit/trust receipts:                                 For this purpose, the term
     (1) Sight Bills - If dishonored upon                     “installments” shall refer to principal
presentment for payment or not paid within                    and/or interest amortizations that are due
thirty (30) days from date of original entry,                 on several dates as indicated/specified in
whichever comes earlier;                                      the loan documents.
     (2) Usance Bills - If dishonored upon                        f. Credit card receivables - If the
presentment for acceptance or not paid on                     minimum amount due or minimum payment
due date, whichever comes earlier; and                        required is not paid within two (2) cycle
     (3) Trust receipts - If not paid on due date.            dates, the total amount due stated in the
     d. Bills and other negotiable                            monthly billing statement: Provided,
instruments purchased - If dishonored                         however, That the total outstanding balance
upon presentment for acceptance/                              which includes amortization/s of any fixed
payment or not paid on maturity date,                         monthly installment plan or deferred
whichever comes earlier: Provided,                            payment scheme shall be considered and
however, That an out-of-town check and                        reported past due when the number of
a foreign check shall be considered as past                   monthly installments in arrears is three (3)
due if outstanding for thirty (30) days and                   or more: Provided, further, That the bank
forty-five (45) days, respectively, unless                    shall have the right to demand the obligation
earlier dishonored;                                           in full in case of default in any installment
     e. Loans/receivables payable in                          thereon if the contract between the bank and
installments - The total outstanding                          the cardholder contains an “acceleration
balance thereof shall be considered past                      clause”; and
due in accordance with the following                              g. (Deleted by Circular No. 202 dated
schedule:                                                     27 May 1999)




Manual of Regulations for Banks                                                           Part III - Page 16a
§§ X306.1 - X306.5
09.12.31

     h. Microfinance loans - Past Due/                                 § X306.3 Renewals/extensions. No loan
Portfolio-at-Risk (PAR) is the outstanding                         shall be renewed or its maturity date ex-
principal amount of all loans that have at                         tended unless the corresponding accrued
least one (1) installment past due for one (1)                     interest receivable shall have been paid.
or more days. The amount includes the
unpaid principal balance but excludes                                  § X306.4 Restructured loans
accrued interest. Under PAR, loans are                             Restructured loans whose terms of payment
considered past due if a payment has fallen                        have not been complied with and which
due and remained unpaid. Loan payments                             have become past due shall be governed by
are applied first to any interest due, then to                     the provisions of Sec. X322.
any installment of principal that is due but
unpaid, beginning with the earliest such                               § X306.5 Write-off of loans as bad debts
installment. The number of days of lateness/                           a. Approval by board of directors
delinquency is based on the due date of the                        Banks, upon approval by their board of
earliest loan installment that has not been                        directors may write-off loans, other credit
fully paid.                                                        accommodations, advances, and other
     For the purpose of determining                                assets, regardless of amount, against
delinquency in the payment of obligations                          allowance for probable losses (valuation
as defined in Subsec. X143.1e, any due and                         reserves) or current operations as soon as
unpaid loan installment or portion thereof,                        they are satisfied that such loans, other credit
from the time the obligor defaults, shall be                       accommodations, advances and other assets
considered past due.                                               are worthless as follows:
(Circular No. 409 dated 14 October 2009, as amended by Circular        (1) In the case of secured loans, banks
No. 607 dated 30 April 2008)                                       may write-off loans, other credit
                                                                   accommodations and other assets in an
    § X306.2 Demand loans. Banks shall,                            amount corresponding to the booked
in case of non-payment of a demand loan,                           valuation reserves: Provided, That the
make a written demand within three (3)                             balance of the secured loans, other credit
months following the grant of such loan. The                       accommodations, advances and other assets
demand shall indicate a period of payment                          shall remain in the books.
which shall not be later than three (3) months                         (2) In the case of unsecured loans, other
from date of said demand.                                          credit accommodations, advances




                                                  (Next Page is Part III - Page 17)




Part III - Page 16b                                                                   Manual of Regulations for Banks
                                                                                     §§ X306.5 - X307
                                                                                            08.12.31

and other assets, banks shall write-off said        The income tax expense deferred
loans, other credit accommodations,             corresponding to the amount of loan, other
advances and other assets in full amount        credit accommodation, advances and other
outstanding.                                    asset written-off considered deductible for
     However, write-off of loans, other         income tax purposes shall be recognized
credit accommodations, advances and             and reversed in bank’s books.
other assets considered transactions with           d. Verification of write-offs. Write-offs
DOSRI shall be with prior approval of the       of loans shall be subject to verification
Monetary Board.                                 during examination.
     b. Definitions. For purposes of this
Section, the following terms are hereby             § X306.6 Writing-off microfinance
defined as follows:                             loans as bad debts. Microfinance loans,
     (1) Loans. The term loans shall refer      regardless of amount that have become
to all the accounts under the loan portfolio    past due in accordance with Subsec.
of a bank as enumerated in the Manual of        X306.1h may be written-off, in conformity
Accounts for Banks.                             with the provisions of Subsec. X306.5:
     (2) Other credit accommodations. The       Provided, That the notice of write-off and
term other credit accommodations shall          attachments required under Item “c” of
refer to exposures of banks other than loans    Subsec. X306.5 are filed within thirty (30)
such as sales contract receivables, accounts    days after every write-off of loans.
receivables, accrued interest receivables,
lease receivables, and rental receivables.           § X306.7 Updating of information
     (3) Advances. The term advances shall      provided to credit information bureaus
refer to any advance by means of an             Banks which have provided adverse
incidental or temporary overdraft, cash         information, such as the past due or litigation
“vale”, any advance by means of DAUD            status of loan accounts, to credit information
and any advances of unearned salary or          bureaus, or any organization performing
unearned compensation.                          similar functions, shall submit monthly
     (4) Other assets. The term other assets    reports to these bureaus or organizations on
shall refer to investments, placements,         the full payment or settlement of the
ROPAs and all other asset accounts that will    previously reported accounts within five (5)
not fall under loans and other credit           banking days from the end of the month
accommodations.                                 when such full payment was received. For
     (5) Bad debts. The term bad debts shall    this purpose, it shall be the responsibility of
refer to the definition under Subsec. X136.1.   the reporting banks to ensure that their
     c. Reporting requirements. Notice of       disclosure of any information about their
write-off of loans, other credit                borrowers/clients is with the consent of
accommodations, advances, and other             borrowers/clients concerned.
assets shall be submitted in the prescribed     (Circular No. 589 dated 18 December 2007)
form to the appropriate department of SES
concerned within thirty (30) days after         Sec. X307 “Truth in Lending Act”
every write-off with (i) a sworn statement      Disclosure Requirement. Banks are
signed by the President of the bank or          required to strictly adhere to the provisions
officer of equivalent rank that write-off did   of R.A. No. 3765, otherwise known as the
not include transactions with DOSRI and         “Truth in Lending Act”, and shall make the
(ii) a copy of board resolution approving       true and effective cost of borrowing an
the write-off.                                  integral part of every loan contract.




Manual of Regulations for Banks                                                      Part III - Page 17
§§ X307 - X307.1
08.12.31

    The following regulations shall apply          payment upon delivery of property (except
to all banks engaged in the following types        money) or service purchased at the bank’s
of credit transactions:                            place of business. In the case of financial
    a. Any loan, mortgage, deed of trust,          transactions, cash price represents the
advance and discount;                              amount of money received by the debtor
    b. Any conditional sales contract, any         upon consummation of the credit
contract to sell, or sale or contract of sale of   transaction, net of finance charges
property or services, either for present or        collected at the time the credit is extended
future delivery, under which part or all of        (if any).
the price is payable subsequent to the                  c. Down Payment represents the
making of such sale or contract;                   amount paid by the debtor at the time of
    c. Any rental-purchase contract;               the transaction in partial payment for the
    d. Any contract or arrangement for the         property or service purchased.
hire, bailment, or leasing of property;                 d. Trade-in represents the value of an
    e. Any option, demand, lien, pledge,           asset agreed upon by the bank and debtor,
or other claim against, or for delivery of,        given at the time of the transaction in partial
property or money;                                 payment for the property or service
    f. Any purchase, or other acquisition          purchased.
of, or any credit upon security of any                  e. Non-finance charges correspond to
obligation or claim arising out of any of the      the amounts advanced by the bank for
foregoing; and                                     items normally associated with the
    g. Any transaction or series of                ownership of the property or of the
transactions having a similar purpose or           availment of the service purchased which
effect.                                            are not incident to the extension of credit.
    The following categories of credit             For example, in the case of the purchase
transactions are outside the scope of these        of an automobile on credit, the creditor
regulations:                                       may advance the insurance premium as
    (1) Credit transactions which do not           well as the registration fee for the account
involve the payment of any finance charge          of the debtor.
by the debtor; and                                      f. Amounts to be financed consist of
    (2) Credit transactions in which the           the cash price plus non-finance charges less
debtor is the one specifying a definite and        the amount of the down payment and value
fixed set of credit terms such as bank deposits,   of the trade-in.
insurance contracts, sale of bonds, etc.                g. Finance charge represents the
                                                   amount to be paid by the debtor incident
    § X307.1 Definition of terms                   to the extension of credit such as interest
    a. Person means any individual,                or discounts, collection fees, credit
partnership, corporation, association or           investigation fees, attorney’s fees and other
other organized group of persons, or the           service charges. The total finance charge
legal successor or representative of the           represents the difference between (a) the
foregoing, and includes the Philippine             aggregate consideration (downpayment
Government or any agency thereof or any            plus installments) on the part of the debtor
other government, or any of its political          and (b) the sum of the cash price and non-
subdivisions, or any agency of the                 finance charges.
foregoing.                                              h. Simple annual rate is the uniform
    b. Cash price or delivered price, in           percentage which represents the ratio, on
case of trade transactions, is the amount of       an annual basis, between the finance
money which would constitute full                  charges and the amount to be financed.



Part III - Page 18                                               Manual of Regulations for Banks
                                                                                                §§ X307.1 - X307.4
                                                                                                         08.12.31

   In the case of a single payment upon                             c. The difference between the amounts
maturity, the simple annual rate (R) in                        set forth under Items “a” and “b”;
percent is determined by the following                              d. The charges, individually itemized,
method:                                                        which are paid or to be paid by such person
                                                               in connection with the transaction but which
   (finance charge)              12                            are not incident to the extension of credit;
R= (amount to be    X          (maturity     X 100                  e. The total amount to be financed;
    financed)                  period in                            f. The finance charges expressed in
                               months)                         terms of pesos and centavos; and
                                                                    g. The percentage that the finance
    In the case of the normal installment                      charge bears to the total amount to be
type of credit of at least one (1) year in                     financed expressed as a simple annual rate
duration, where installment payments of                        on the outstanding unpaid balance of the
equal amount are made in regular time                          obligation.
periods spaced not more than one (1) year                           The contract covering the credit
apart, the R in percent is computed by the                     transaction or any other document to be
following method:                                              acknowledged and signed by the debtor,
                        (no. of payment                        shall indicate the above seven (7) items of
     (finance charge)     in a year)                           information. In addition, the contract or
R=2x                  x               x 100                    document shall specify additional charges,
     (amount to be      (total no. of                          if any, which will be collected in case
        financed)       payments                               certain stipulations in the contract are not
                        plus one)                              met by the debtor.
                                                                    In case any of the seven (7) items of
     In case where the credit matures in less                  information mentioned is not disclosed in
than one (1) year (e.g., installment payments                  the contract covering the credit transaction,
are required every month for six (6) months)                   all of the seven (7) items, to the extent
the same formula will apply except that the                    applicable, shall be disclosed in another
number of payments in a year would refer                       document in a form (Appendix 19)
to the number of installment periods, as                       prescribed by the Monetary Board, to be
defined in the credit contract if the credit                   signed by the debtor and appended to the
matures in one (1) year. For example, the                      main contract. A copy of the disclosure
number of payments a year would be twelve                      statement shall be furnished the borrower.
(12) for this purpose in case where six (6)
monthly installment payments are called for                        § X307.3 Inspection of contracts
in the credit transaction.1                                    covering credit transactions. Banks shall
                                                               keep in their offices or places of business
    § X307.2 Information to be disclosed                       copies of contracts which involve the
Banks shall furnish each person to whom                        extension of credit by the bank and the
credit is extended, prior to the                               payment of finance charges therefor. Such
consummation of the transaction, a clear                       copies shall be available for inspection or
statement in writing setting forth the                         examination by the appropriate department
following information:                                         of the SES.
    a. The cash price or delivered price
of the property or service to be acquired;                         § X307.4 Posters. Banks shall post in
    b. The amounts, if any, to be credited                     conspicuous places in their principal place
as downpayment and/or trade-in;                                of business and branches, if any, the following:

1
  This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months between
installment payments.
Manual of Regulations for Banks                                                                   Part III - Page 19
§§ X307.4 - X309.1
08.12.31

    a. An abstract of the provisions of         Sec. X309 Non-Performing Loans
R.A. No. 3765 in the form prescribed by
the Monetary Board (Appendix 20) which              § X309.1 Accounts considered non-
shall be reproduced in a format sixty (60)      performing; definitions
c.m. wide and seventy-five (75) c.m. long;          a. Non-performing loans shall, as a
and                                             general rule, refer to loan accounts whose
    b. Information regarding interest and       principal and/or interest is unpaid for thirty
other charges on loans:                         (30) days or more after due date or after they
    (1) Type of loan;                           have become past due in accordance with
    (2) Simple annual rate of interest;         existing rules and regulations. This shall
    (3) Manner of interest payment; i.e.        apply to loans payable in lump sum and
whether collected in advance or otherwise;      loans payable in quarterly, semi-annual or
and                                             annual installments, in which case, the total
    (4) Other fees and charges imposed by       outstanding balance thereof shall be
the bank in connection with the loan.           considered non-performing.
                                                    b. In the case of loans payable in
Sec. X308 Amortization on Loans and             monthly installments, the total outstanding
Other Credit Accommodations. The                balance thereof shall be considered non-
amortization schedule of bank loans and         performing when three (3) or more
other credit accommodations shall be            installments are in arrears.
adapted to the nature of the operations to          c. In the case of loans payable in daily,
be financed.                                    weekly or semi-monthly installments, the
    In case of loans and other credit           total outstanding balance thereof shall be
accommodations with maturities of more          considered non-performing at the same time
than five (5) years, provisions must be         that they become past due in accordance
made for periodic amortization payments,        with Sec. X306, i.e., the entire outstanding
but such payments must be made at least         balance of the loan/receivable shall be
annually: Provided, however, That when          considered as past due when the total
the borrowed funds are to be used for           amount of arrearages reaches ten percent
purposes which do not initially produce         (10%) of the total loan/receivable balance.
revenues adequate for regular                       d. Restructured loans shall be
amortization payments, the bank may             considered non-performing in accordance
permit the initial amortization payment to      with Subsec. X322.1.
be deferred until such time as said                 e. All items in litigation as defined in
revenues are sufficient for such purpose,       the Manual of Accounts for Banks shall be
but in no case shall the initial amortization   considered non-performing.
date be later than five (5) years from the          f. In the case of microfinance loans, past
date on which the loan or other credit          due/portfolio-at-risk (PAR) accounts as
accommodation is granted: Provided,             defined in Subsec. X361.1(b) shall be
further, That in the case of agriculture and    considered NPL.
fisheries projects with long gestation              Only the following accounts are
periods, the initial amortization payment       qualified to be excluded from the non-
may be deferred for a longer period based       performing classification:
on the economic life of the project as              (1) Loans previously classified as “Loss”
provided under Section 24 of R.A. No.           by the BSP fully covered by allowance for
8435 and implemented under Sec. X349.           probable losses; and




Part III - Page 20                                           Manual of Regulations for Banks
                                                                                  §§ X309.1 - X311.1
                                                                                           08.12.31

     (2) Outstanding credit card receivables                Banks which are not qualified under
classified as “Loss” in the latest BSP                 Subsec. X309.1 to exclude loans classified
examination plus credit card receivables               as “Loss” by the BSP from the non-
classified as “Loss” by the bank but not to            performing classification may opt not to fill
exceed the total amount classified as “Loss”           up Item “7a” of the Additional Information
in the latest BSP examination: Provided, That          of the monthly CSOC.
information on the outstanding credit card
receivables classified as “Loss” as of the             Sec. X310 (Reserved)
reporting month shall be reported in a
separate item in the Additional Information                      B. SECURED LOANS
of the CSOC. Only banks with no unbooked
valuation reserves and capital adjustments,            Sec. X311 Loans Secured by Real Estate
even if approved for booking on a staggered            Mortgages. Loans against real estate security
basis, are qualified to exclude loans                  shall not exceed seventy percent (70%) of
classified as “Loss” by the BSP from the non-          the appraised value of the respective real
performing classification: Provided, That              estate security plus seventy percent (70%)
interest on said loans shall not be accrued            of the appraised value of insured
and that such loans shall also be deducted             improvements, and such loans shall not be
from total loan portfolio for purposes of              made unless title to the real estate is in the
computation.                                           mortgagor.
(As amended by Circular No. 607 dated 30 April 2008)        In the case of UBs/KBs, the loan values
                                                       of real estate given as security for any loan
    § X309.2 - X309.3 (Reserved)                       granted shall be reduced from seventy
                                                       percent (70%) to not more than sixty percent
    § X309.4 Reporting requirement. Banks              (60%) of the appraised value of the real
shall report the following data, at the end            estate security and the insured improvements,
of each month, as additional information               except the following which shall be allowed
(under Item 7) of the monthly CSOC:                    a maximum value of seventy percent (70%) of
“7. Total Non-Performing Loans                         the appraised value:
     a. Non-performing regular loans            xxx         a. Any loan not exceeding P3.5 million
     b. Non-performing restructured                    to finance the acquisition or improvement
         loans                                  xxx    of residential units; and
                                                            b. Housing loans extended or
“7a. Loans classified as “Loss” in                     guaranteed under the government’s National
the latest examination by the BSP                      Shelter Program (NSP) such as the Expanded
which are fully covered by                             Housing Loans Program (EHLP) of the Home
Allowance for Probable Losses,                         Development Mutual Fund (HDMF or Pag-
net of write-offs and recoveries                xxx    IBIG Fund) and the mortgage and guaranty and
                                                       credit insurance program of the Home
“7b. Outstanding credit card                           Insurance and Guaranty Corporation (HIGC).
receivables classifed as “Loss”
in the latest BSP examination,                            § X311.1 Loans secured by junior
net of write-offs, recoveries                          mortgage on real estate. Banks may also
and collections                                 xxx    grant loans on the security of junior
                                                       mortgages on real estate: Provided, That for
“7c. Credit card receivables                           such loans to be considered as adequately
classified as “Loss” by the                            secured under Sections 37 and 38 of
bank as of this month                           xxx    R.A. No. 8791, the sum total of the loans to



Manual of Regulations for Banks                                                    Part III - Page 21
§§ X311.1 - 2311.4
08.12.31

be granted and the outstanding balance             the issuance of titles but already approved,
of the loan granted on the senior mortgage         the provisions of any law or regulations to
shall not, at any time, exceed the loan            the contrary notwithstanding: Provided, That
value of subject real estate security based        when the corresponding titles are issued,
on the appraisal of the real estate by the         the same shall be delivered to the Register
junior mortgagee.                                  of Deeds of the province where such lands
    A certified latest statement of account        are situated for the annotation of the
showing the outstanding balance of the loan        encumbrance: Provided, further, That in the
including interest and arrearages, from the        case of lands pending homestead or free
senior mortgagee shall be presented to the         patent titles, copies or notices for the
bank.                                              presentation of the final proof shall also be
    In case several loans are granted on the       furnished the creditor RB/Coop Bank and,
security of the same property, the total           if the borrower applicants fail to present the
amount of the loans shall not, at any time,        final proof within thirty (30) days from date
exceed the total loan value of the said            of notice, the creditor RB/Coop Bank may
property.                                          do so for them at their expense: Provided,
                                                   furthermore, That the applicant for
    § X311.2 (Reserved)                            homestead or free patent has already made
                                                   improvements on the land and the loan
    § 1311.2 (Reserved)                            applied for is to be used for further
                                                   development of the same or for other
    § 2311.2 (Reserved)                            productive economic activities: Provided,
                                                   finally, That the appraisal and verification
    § 3311.2 E l i g i b l e r e a l e s t a t e   of the status of a land is a full responsibility
collaterals on rural/cooperative bank              of the RB/Coop Bank and any loan granted
loans. Loans may be granted by RBs/Coop            on any land which shall be found later to
Banks on the security of lands without             be within the forest zones shall be for the
Torrens Title where the owner of private           sole account of the RB/Coop Bank.
property can show five (5) years or more of
peaceful, continuous and uninterrupted                 § X311.3 Insurance on real estate
possession in the concept of an owner; or          improvements. The required insurance on
of portions of friar land estates or other lands   improvements used as collateral for loan
administered by the Bureau of Lands that           should be such as shall be sufficient to
are covered by sales contracts and the             secure seventy percent (70%) of the
purchasers have paid at least five (5) years       appraised value of such improvements or if
installment thereon, without the necessity         inadequately insured, the loan value shall
of prior approval and consent by the               correspond to the extent of insurance taken
Director of Lands, or of portions of other         on such improvements.
estates under the administration of the
Department of Agrarian Reform (DAR) or                 § X311.4 (Reserved)
other governmental agency which are
likewise covered by sales contracts and the            § 1311.4 (Reserved)
purchasers have paid at least five (5) years
installments thereon, without the necessity            § 2311.4 Foreclosure by thrift banks
of prior approval and consent of the DAR           The foreclosure of mortgages covering loans
or corresponding governmental agency; or           granted by TBs and executions of judgment
of homesteads or free patent lands pending         thereon involving real properties




Part III - Page 22                                              Manual of Regulations for Banks
                                                                            §§ 2311.4 - 3311.4
                                                                                     10.12.31

levied upon by a sheriff shall be exempt from    barangay public market, if any, where the
the publications in newspapers now               land mortgaged is situated during the period
required by law where the total amount of        of sixty (60) days immediately preceding the
loan, excluding interests due and unpaid,        public auction of execution of judgment.
does not exceed P100,000 or such amount          Proof of publication as required herein shall
as the Monetary Board may prescribe as           be accomplished by an affidavit of the sheriff
may be warranted by prevailing economic          or officer conducting the foreclosure sale or
conditions and by the nature of service of       execution of judgment and shall be attached
customers served by each category of the         with the records of the case: Provided, That
TB. It shall be sufficient publication in such   when a homestead or free patent is
cases if the notices of foreclosure and          foreclosed, the homesteader or free patent
execution of judgment are posted in the          holder, as well as his heirs shall have the
conspicuous area of the TB’s premises,           right to redeem the same within one (1) year
municipal building, municipal public             from the date of foreclosure in the case of
market, the barangay hall, and the barangay      land not covered by a Torrens Title or one
public market, if there be any, where the        (1) year from the date of the registration of
land mortgaged is situated within a period       the foreclosure in the case of land covered
of sixty (60) days immediately preceding the     by a Torrens Title.
public auction of execution of judgment.              In the case of Coop Banks the
Proof of publication as required herein shall    foreclosure of mortgages and execution of
be accomplished by an affidavit of the sheriff   judgment thereon involving real properties
or officer conducting the foreclosure sale       levied upon by a sheriff shall be exempt
or execution of judgment and shall be            from the publications in newspaper now
attached with the records of the case.           required by law where the total amount
     A TB shall be allowed to foreclose lands    of loan, excluding interests due and
mortgaged to it: Provided, That said lands       unpaid, does not exceed P250,000 or
shall be covered under R.A. No. 6657.            such amount as the BSP may prescribe as
                                                 may be warranted by prevailing economic
   § 3311.4 Foreclosure by rural/                conditions and by the nature and character
cooperative banks. The foreclosure of            of the Coop Banks. It shall be sufficient
mortgages covering loans granted by RBs          publication in such cases if the notices of
and executions of judgment thereon               foreclosure and execution of judgment are
involving real properties levied upon by a       posted in conspicuous areas in the bank’s
sheriff shall be exempt from the publications    premises, municipal hall, the municipal
in newspapers now required by law where          public market, the barangay hall and the
the total amount of loan, excluding interests    barangay public market, if any, where the
due and unpaid, does not exceed P100,000         property mortgaged is situated during the
or such amount as the Monetary Board may         period of sixty (60) days immediately
prescribe as may be warranted by                 preceding the public auction or execution
prevailing economic conditions. It shall be      of judgment. Proof of publication as required
sufficient publication in such cases if the      herein shall be accomplished by an affidavit
notices of foreclosure and execution of          of the sheriff or officer conducting the
judgment are posted in the conspicuous area      foreclosure sale or execution of judgment
of the municipal building, the municipal         and shall be attached to the records of the
public market, the barangay hall, and the        case.




Manual of Regulations for Banks                                               Part III - Page 23
§§ 3311.4 - X313
10.12.31

   An RB/Coop Bank shall be allowed                       to the title-holder of the unencumbered
to foreclose lands mortgaged to it:                       chattels and intangible properties or his
Provided, That said lands shall be                        assignees: Provided, That in the case of
covered under R.A. No. 6657.                              intangible properties, appraisal thereof shall
(As amended by Circular No. 682 dated 15 February 2010)   be conducted by an independent appraiser
                                                          acceptable to the BSP.
     § X311.5 Redemption of foreclosed real
estate mortgage. In the event of foreclosure,             Sec. X313 Loans and Other Credit
whether judicially or extrajudicially, of any             Accommodations Secured By Personal
mortgage on real estate, the mortgagor or                 Properties. Loans and other credit
debtor shall have the right within one (1)                accommodations may be secured by
year after the sale of the real estate, to                unencumbered personal property which
redeem the property by paying the amount                  may consist of:
due under the mortgage deed, with interest                     a. Bonds and securities issued by the
thereon at the rate specified in the mortgage,            Government. Such bonds and securities
and all costs and expenses incurred by the                may be given loan values equivalent to
bank or institution from the sale and custody             their face value or cash value, as the case
of said property less the income derived                  may be;
therefrom. However, the purchaser at the                       b. Readily marketable bonds and other
auction sale concerned shall have the right               high-grade debt securities and “blue chip”
to enter upon and take possession of such                 stocks, except those issued by the lending
property immediately after the date of the                entity or by its parent company, which owns
confirmation of the auction sale and                      more than fifty percent (50%) of its
administer the same in accordance with the                outstanding shares of stocks: Provided, That
law.                                                      (1) the issuer corporation must be a listed
     Juridical persons whose property is                  corporation with a net worth of at least P1.0
being sold pursuant to an extra-judicial                  billion and with annual net earnings during
foreclosure, shall have the right to redeem               the immediately preceding five (5) years; and
the property in accordance with this                      (2) the loan value shall be equivalent to
provision until, but not after, the                       fifty percent (50%) of their market value.
registrationof the certificate of foreclosure                  c. Expected harvest from the project to
sale with the applicable Register of Deeds                be financed or growing crops, up to forty
which in no case shall be more than                       percent (40%) of the calculated market value
three (3) months after foreclosure, whichever             of the crop for which the loan or other credit
is earlier.                                               accommodation is sought, based on
                                                          previous production records or, in the
Sec. X312 Loans and Other Credit                          absence thereof, on production in the
Accommodations Secured By Chattels and                    locality of similar plantations;
Intangible Properties. Loans and other                         d. Quedans or warehouse receipts
credit accommodations on the security of                  issued by bonded warehouses covering
chattels and intangible properties, such as,              stock deposited in said warehouses up
but not limited to, patents, trademarks, trade            to eighty percent (80%) of the
names, and copyrights shall not exceed                    calculated market value of the crop for
seventy-five percent (75%) of the appraised               which the loan or other credit
value of the security, and such loans and                 accommodation is sought; and
other credit accommodations may be made




Part III - Page 24                                                     Manual of Regulations for Banks
                                                                                 §§ X313 - X319.1
                                                                                        08.12.31

     e. Any other personal property, up to             c. If the term of the CTDs subject to
fifty percent (50%) of the fair market value.     hold-out or assignment is shorter than the
If the property is newly purchased and the        term of the loan, there shall be an agreement
purchase price thereof appears in a bill of       in writing that renewal of the time deposit
sale, then the above percentage shall be          upon maturity shall be made at least co-
based on the price of the said bill of sale.      terminus with the term of the loan;
                                                       d. There shall be no pre-termination of
Sec. X314 Increased Loan Values and               the time deposit without the consent of the
Terms of Loans for Home-Building. Loans           lending bank and unless an acceptable
for home-building and subdivision                 substitute collateral for the loan has been
development for low and middle-income             made;
families against real estate security and              e. The lending bank shall keep a
housing loans defined as loans granted for        complete record of all pertinent loan
the purpose of constructing, improving or         documents, such as, but not limited to, the
acquiring a residential property which is         original copy of the CTDs subject to
rented or is occupied or intended to be           assignment or hold-out agreement; deed of
occupied by the borrower may be granted           assignment or hold-out agreement; and written
up to eighty percent (80%) of the                 waiver of the depositor required in Item “f”
appraised value of the real estate security:      below, which shall be made available for
Provided, that:                                   inspection and/or examination by the
     a. Such loans shall not be made unless       appropriate department of the SES; and
the title to the real estate security is in the        f. The loan documents shall include
name of the borrower or mortgagor; and            a waiver on the part of the depositor of
     b. In case of subdivision/housing            his rights under existing law to the
project, the same or its plan has been            confidentiality of his deposits.
approved by the proper authorities;
     Provided, further, That the loans may        Secs. X316 - X318 (Reserved)
be increased to ninety percent (90%) of the
appraised value of the real estate security if              C. UNSECURED LOANS
such loans are fully guaranteed by the
appropriate government agency, in addition        Sec. X319 Loans Against Personal
to the foregoing conditions.                      Security.The grant, renewal, restructuring
                                                  or extension of unsecured loans shall, in
Sec. X315 Loans Secured by Certificates           addition to the requirements of Sec. X304,
of Time Deposit. The following rules shall        be made under the signature of the
govern the grant of loans secured by holdout      principal borrower and at least one (1) co-
on and/or assignment of CTDs issued by            maker, except that a co-maker is not
the lending bank, as well as its branches or      required when the principal borrower has
subsidiaries abroad:                              the financial capacity and a good track
    a. The original copy of the CTDs              record of paying his obligations.
subject to hold-out or assignment shall be        (As amended by Circular No. 622 dated 16 September
surrendered to the lending bank;                  2008)
    b. The depository bank, other than the
lending bank, shall be furnished a copy of            § X319.1 General guidelines
the Deed of Assignment or hold-out                    (Deleted by Circular No. 622 dated
agreement on the deposit used as collateral;      16 September 2008)




Manual of Regulations for Banks                                                    Part III - Page 25
§§ X319.2 - X320.1
08.12.31

   § X319.2 Proof of financial capacity of         balance multiplied by the required
borrower                                           payment percentage or a fixed amount
    (Deleted by Circular No. 622 dated             whichever is higher; (2) any amount which
16 September 2008)                                 is part of any fixed monthly installment that
                                                   is charged to the card; (3) any amount in
    § X319.3 Signatories                           excess of the credit line; and (4) all past due
    (Deleted by Circular No. 622 dated             amounts, if any.
16 September 2008)                                      d. Default or delinquency. Shall mean
                                                   non-payment of, or payment of any amount
Sec. X320 Credit Card Operations; General          less than, the “Minimum Amount Due” or
Policy. The BSP shall foster the development       “Minimum Payment Required” within
of consumer credit through innovative              two (2) cycle dates, in which case, the “Total
products such as credit cards under                Amount Due” for the particular billing
conditions of fair and sound consumer credit       period as reflected in the monthly statement
practices. The BSP likewise encourages             of account may be considered in default or
competition and transparency to ensure more        delinquent.
efficient delivery of services and fair dealings        e. Acceleration clause. Shall mean
with customers.                                    any provision in the contract between the
     Towards this end, the following rules         bank and the cardholder that gives the
and regulations shall govern the credit card       bank the right to demand the obligation
operations of banks and subsidiary/affiliate       in full in case of default or non-payment
credit card companies, aligned with global         of any amount due or for whatever valid
best practices.                                    reason.
                                                        f. Subsidiary refers to a corporation or
    § X320.1 Definition of terms                   firm more than fifty percent (50%) of the
    a. Credit card. Means any card, plate,         outstanding voting stock of which is directly
coupon book or other credit device                 or indirectly owned, controlled or held with
existing for the purpose of obtaining              the power to vote by a bank or other FI.
money, property, labor or services on                   g. Affiliate refers to an entity linked
credit.                                            directly or indirectly to a bank or other FI
    b. Credit card receivables. Represents         through any one or a combination of any of
the total outstanding balance of credit            the following:
cardholders arising from purchases of goods             (1) Ownership, control or power to
and services, cash advances, annual                vote, whether by permanent or temporary
membership/renewal fees as well as interest,       proxy or voting trust, or other similar
penalties, insurance fees, processing/service      contracts, by a bank or other financial
fees and other charges.                            institution of at least ten percent (10%) or
    c. Minimum amount due or                       more of the outstanding voting stock of the
minimum payment required. Means the                entity, or vice-versa;
minimum amount that the credit                          (2) Interlocking directorship or
cardholder needs to pay on or before the           officership, except in cases involving
payment due date for a particular billing          independent directors as defined under
period/cycle as defined under the terms            existing regulations;
and conditions or reminders stated in the               (3) Common stockholders owning at
statement of account/billing statement             least ten percent (10%) of the outstanding
which may include: (1) total outstanding           voting stock of each FI and the entity; or




Part III - Page 26                                               Manual of Regulations for Banks
                                                                                  §§ X320.1 - X320.4
                                                                                           10.12.31

    (4) Management contract or any                   p. Dealings with marketing agents/
arrangement granting power to the bank or        collection agents.
other FI to direct or cause the direction of     (As amended by Circular No. 702 dated 15 December 2010)
management and policies of the entity, or
vice-versa.                                           § X320.3 Minimum requirements
                                                 Banks and their subsidiary or affiliate
    § X320.2 Risk management system              credit card companies shall not issue pre-
To safeguard their interests, banks and          approved credit cards.
subsidiary/affiliate credit card companies             Before issuing credit cards, banks and/
are required to establish an appropriate         or their subsidiary/affiliate credit card
system for managing risk exposures from          companies must exercise,in accordance
credit card operations which shall be            with the provisions of Subsec. X304.1,
documented in a complete and concise             proper diligence by ascertaining that
manner. The risk management system               applicants possess good credit standing and
shall cover the organizational set-up,           are financially capable of fulfilling their credit
records and reports, accounting, policies        commitments.
and procedures and internal control.                  The net take home pay of applicants
    Written policies, procedures and             who are employed, the net monthly receipts
internal control guidelines shall be             of those engaged in trade or business, or
established on the following aspects of credit   the net worth or cash flow inferred from
card operations:                                 deposits of those who are neither employed
    a. Requirements for application;             nor engaged in trade or business or the or
    b. Solicitation and application              the credit behavior exhibited by the
processing;                                      applicant from his other existing credit cards,
    c. Determination and approval of             or other lifestyle indicators such as, but not
credit limits;                                   limited to, club memberships, ownership
    d. Issuance, distribution and activation     and location of residence and motor vehicle
of cards;                                        ownership shall be determined and used as
    e. Supplementary or extension cards;         basis for setting credit limits. The gross
    f. Cash advances;                            monthly income may also be used provided
    g. Billing and payments;                     reasonable deductions are estimated for
    h. Deferred payment program or               income taxes, premium contributions, loan
special installment plans;                       amortizations and other deductions.
    i. Collection of past due accounts;               All credit card applications, specifically
    j. Handling of accounts for write-off;       those solicited by third party representatives/
    k. Suspension, cancellation and              agents, shall undergo a strict credit risk
withdrawal or termination of card;               assessment process and the information
    l. Renewal of cards, upgrade or              stated thereon validated and verified by
downgrade of credit limit                        authorized personnel of the banks and their
    m. Lost or stolen cards and their            subsidiary or affiliate credit card companies,
replacement;                                     other than those handling marketing.
    n. Accounts of DOSRI and employees;          (As amended by Circular No. 702 dated 15 December 2010)
    o. Disposition of errors and/or
questions about the billing statement/              § X320.4 Information to be disclosed
statement of account and other customers’        Banks or their subsidiary/affiliate credit card
complaints; and                                  companies shall disclose to each person to




Manual of Regulations for Banks                                                       Part III - Page 27
§§ X320.4
10.12.31

whom the credit card privilege is extended       fees, credit investigation fees and attorney’s
in the agreement, contract or any equivalent     fees; and
document governing the issuance or use of             k. for transactions made in foreign
the credit card or any amendment thereto         currencies and/or outside the Philippines,
or in such other statement furnished the         for dual currency accounts (peso and dollar
cardholder from time to time, prior to the       billings), as well as payments made by credit
imposition of the charges and to the extent      cardholders in any currency other than the
applicable, the following information:           billing currency: the application of
     a. non-finance charges, individually        payments; the manner of conversion from
itemized, which are paid or to be paid by        the transaction currency and payment
the cardholder in connection with the            currency to Philippine pesos or billing
transaction but which are not incident to the    currency; definition or general description
extension of credit;                             of verifiable blended exchange/conversion
     b. the percentage that the interest bears   rates (e.g., MASTERCARD and/or VISA
to the total amount to be financed expressed     International rates on the day the item was
as a simple monthly or annual rate, as the       processed/posted to the billing statement,
case may be, on the outstanding balance of       plus mark-up, if any) including conversion
the obligation;                                  commission; and/or other currency
     c. the effective interest rate per annum;   conversion charges and costs arising from
     d. for installment loans, the number of     the purchase by the card company of foreign
installments, amount and due dates or            currency to settle the customer’s transactions
periods of payment schedules to repay the        shall also be disclosed.
indebtedness;                                         Banks and their subsidiary or affiliate
     e. the default, late payment/penalty        credit card companies shall also provide the
fees or similar delinquency-related charges      following information to their cardholders:
payable in the event of late payments;                1. A table of the applicable fees,
     f. the conditions under which interest      penalties and interest rates on credit card
may be imposed, including the time period,       transactions, including the period covered
within which any credit extended may be          by and the manner of and reason for the
repaid without interest;                         imposition of such penalties, fees and
     g. the method of determining the            interests; fees and applicable conversion
balance upon which interest and/or               reference rates for third currency
delinquency charges may be imposed;              transactions, in plain sight and language,
     h. the method of determining the            on materials for marketing credit cards, such
amount of interest and/or delinquency            as brochures, flyers, primers and advertising
charges, including any minimum or fixed          materials, on credit card application forms,
amount imposed as interest and/or                and on credit card billing statements:
delinquency charge;                              Provided, That these disclosures are in
     i. where one (1) or more periodic rates     addition to the full disclosure of the fees,
may be used to compute interest, each such       charges and interest rates in the terms and
rate, the range of balances to which it is       conditions of the credit card agreement
applicable, and the corresponding simple         found elsewhere on the application form
annual rate;                                     and billing statement; and
     j. other fees, such as membership/               2. A reminder to the cardholder in the
renewal fees, processing fees, collection        monthly billing statement, or its equivalent




Part III - Page 28                                             Manual of Regulations for Banks
                                                                                  §§ X320.4 - X320.09
                                                                                              10.12.31

document, that payment of only the                        penalty fees shall be based on the unpaid
minimum amount due or any amount less                     minimum amount due or a prescribed
than the total amount due for the billing                 minimum fixed amount: Provided, further,
cycle/period, would mean the imposition                   That said late payment or penalty fees may
of interest and/or other charges:                         be based on the total outstanding balance
Provided, That such table of fees, penalties              of the credit card obligation, including
and interest rates and reminder shall be printed          amounts payable under installment terms
in plain language and in bold black letters               or deferred payment schemes, if the
against a light or white background, and using            contract between the issuer and the
the minimum Arial 12 theme font and size, or              cardholder contains an “acceleration
its equivalent in readability, and on the first           clause” and the total outstanding balance
page, if applicable document has more than                of the credit card is classified and reported
one (1) page.                                             as past due.
     Transitory provisions. Banks and their
subsidiary or affiliate credit card companies                  § X320.9 Confidentiality of
shall be given a period of 120 days from                  information. Banks and subsidiary/affiliate
06 January 2011 to fully implement the                    credit card companies shall keep strictly
required disclosure requirements.                         confidential the data on the cardholder or
(As amended by Circular No. 702 dated 15 December 2010)   consumer, except under the following
                                                          circumstances:
     § X320.5 Interest accrual on past due                     a. disclosure of information is with the
loans. Interest income on past due loans                  consent of the cardholder or consumer;
arising from discount amortization (and not                    b. release, submission or exchange of
from the contractual interest of the accounts)            customer information with other financial
shall be accrued as provided in PAS 39.                   institutions, credit information bureaus,
                                                          credit card issuers, their subsidiaries and
     § X320.6 Finance charges. The amount                 affiliates;
of finance charges in connection with any                      c. upon orders of court of competent
credit card transaction shall refer to interest           jurisdiction or any government office or
charged to the cardholder.                                agency authorized by law, or under such
                                                          conditions as may be prescribed by the
    § X320.7 Deferral charges. The bank                   Monetary Board;
and the cardholder may, prior to the                           d. disclosure to collection agencies,
consummation of the transaction, agree in                 counsels and other agents of the bank or
writing to a deferral of all or part of one (1)           card company to enforce its rights against
or more unpaid installments and the bank                  the cardholder;
may collect a deferral charge which shall                      e. disclosure to third party service
not exceed the rate previously disclosed                  providers solely for the purpose of assisting
pursuant to the provisions on disclosure.                 or rendering services to the bank or card
                                                          company in the administration of its credit
    § X320.8 Late payment/penalty fees. No                card business; and
late payment or penalty fee shall be                           f. disclosure to third parties such as
collected from cardholders unless the                     insurance companies, solely for the purpose
collection thereof is fully disclosed in the              of insuring the bank from cardholder default
contract between the issuer and the                       or other credit loss, and the cardholder from
cardholder: Provided, That late payment or                fraud or unauthorized charges.




Manual of Regulations for Banks                                                       Part III - Page 29
§§ X320.10 - X320.14
10.12.31

    § X320.10 Suspension, termination of         statement of account and inform the bank/
effectivity and reactivation. Banks or their     subsidiary credit card companies in
subsidiary/affiliate credit card companies       writing of any billing error or discrepancy.
shall formulate criteria or parameters for       Within ten (10) calendar days from receipt
suspension, revocation and reactivation of       of such written notice, the bank/
the right to use the card and shall include in   subsidiary credit card company shall send
their contract with cardholders a provision      a written acknowledgment to the
authorizing the issuer to suspend or             cardholder unless the action required is
terminate its effectivity, if circumstances      taken within such ten (10)-day period.
warrant.                                             Not later than two (2) billing cycles
                                                 or two (2) months which in no case shall
    § X320.11 Inspection of records              exceed ninety (90) days after receipt of the
covering credit card transactions. Banks         notice and prior to taking any action to
or their subsidiary/affiliate credit card        collect the contested amount, or any part
companies shall make available for               thereof, banks/subsidiary credit card
inspection or examination by the                 companies shall make appropriate
appropriate department of the SES                corrections in their records and/or send a
complete and accurate files on card              written explanation or clarification to the
applicant/cardholder to support the              cardholder after conducting an
consideration for approval of the                investigation. Nothing in this
application and determination of the             Subsection shall be construed to
credit limit which shall be in                   prohibit any action by the bank/
accordance with the verified debt                subsidiary credit card company to
repayment ability and/or net worth of            collect any amount which has not been
the card applicant/cardholder.                   indicated by the cardholder to contain
                                                 a billing error or apply against the credit
    § X320.12 Offsets. For purposes of           limit of the cardholder the amount
transparency and adequate disclosure,            indicated to be in error.
the credit card issuer shall inform/notify
the credit cardholder in the agreement,              § X320.14 Unfair collection practices
contract or any equivalent document              Banks, subsidiary/affiliate credit card
governing the issuance or use of the             companies, collection agencies,
credit card that, pursuant to the                counsels and other agents may resort
provisions of Articles 1278 to 1290 of           to all reasonable and legally
the New Civil Code of the Philippines,           permissible means to collect amounts
as amended, the use of his credit card           due them under the credit card
will subject his deposit/s with the bank         agreement: Provided, That in the
to offset against any amount/s due and           exercise of their rights and performance
payable on his credit card which have            of duties, they must observe good faith
not been paid in accordance with the             and reasonable conduct and refrain
terms of the agreement/contract.                 from engaging in unscrupulous or
                                                 untoward acts. Without limiting the
    § X320.13 Handling of complaints             general application of the foregoing,
Banks or subsidiary/affiliate credit card        the following conduct is a violation of
companies shall give cardholders at least        this Subsection:
twenty (20) calendar days from statement             a. the use or threat of violence or
date to examine charges posted in his/her        other criminal means to harm the




Part III - Page 30                                            Manual of Regulations for Banks
                                                                                         §§ X320.14 - X321
                                                                                                  10.12.31

physical person, reputation, or property               procedures to ensure that personnel
of any person;                                         handling the collection of accounts,
    b. the use of obscenities, insults, or             whether these are in-house collectors, or
profane language which amount to a                     third-party collection agents, shall
criminal act or offense under applicable               disclose his/her full name/true identity to
laws;                                                  the cardholder.
    c. disclosure of the names of credit               (As amended by Circular No. 702 dated 15 December 2010)
cardholders who allegedly refuse to pay
debts, except as allowed under Subsec.                     § X320.15 Sanctions.Violations of the
X320.9;                                                provisions of Subsecs. X320.1, X320.5 to
    d. threat to take any action that                  X320.13 shall be subject to any or all of the
cannot legally be taken;                               following sanctions depending upon their
    e. c o m m u n i c a t i n g o r t h r e a t t o   severity:
communicate to any person credit                           a. Disqualification of the bank
information which is known to be false,                concerned from the credit facilities of the
including failure to communicate that                  BSP except as may be allowed under Section
a debt is being disputed;                              84 of R.A. No. 7653;
    f. any false representation or                         b. Prohibition of the bank concerned
deceptive means to collect or attempt to               from the extension of additional credit
collect any debt or to obtain information              accommodation against personal security;
concerning a cardholder; and                           and
    g. making contact at unreasonable/                     c. Penalties and sanctions provided
inconvenient times or hours which shall be             under Sections 36 and 37 of R.A. No. 7653.
defined as contact before 6:00 A.M. or after               Violations of the provisions of Subsecs.
10:00 P.M., unless the account is past due             X320.2 to X320.4 and X320.14 shall be
for more than sixty (60) days or the                   subject to any or all of the following
cardholder has given express permission or             sanctions depending upon their severity:
said times are the only reasonable or                      a. First offense.Reprimand for the
convenient opportunities for contact.                  directors/officers responsible for the
    Banks and their subsidiary/affiliate               violation;
credit card companies shall inform their                   b. Second offense. Disqualification of
cardholder in writing of the endorsement               the bank concerned from the credit
of the collection of their account to a                facilities of the BSP except as may be
collection agency/agent, or the                        allowed under Section 84 of R. A. No.
endorsement of their account from one (1)              7653;
collection agency/agent to another, at least               c. Subsequent offense/s:
seven (7) days prior to the actual                         i.Prohibition on the bank concerned
endorsement. The notification shall                    from the extension of additional credit
include the full name of the collection                accommodation against personal security;
agency and its contact details: Provided,              and
That the required notification in writing                  ii.Penalties and sanctions provided
shall be included in the terms and                     under Sections 36 and 37 of R. A. No. 7653.
conditions of the credit card agreement.               (As amended by Circular No. 702 dated 15 December 2010)
Banks and their subsidiary/affiliate credit
card companies shall adopt policies and                Sec. X321 (Reserved)




Manual of Regulations for Banks                                                           Part III - Page 30a
§§X322 - X322.1
08.12.31

       D. RESTRUCTURED LOANS                        modified in accordance with a
                                                    restructuring agreement setting forth a new
Sec. X322 Restructured Loans; General               plan of payment or a schedule of payment
Policy. Banks shall have full discretion in         on a periodic basis. The modification may
the restructuring of loans in order to              include, but is not limited to, change in
provide flexibility in arranging the                maturity, interest rate, collateral or
repayment of such loans without                     increase in the face amount of the debt
impairing or endangering the lending                resulting from the capitalization of accrued
bank’s financial interest, except in special        interest/accumulated charges. Items in
cases approved by the Monetary Board                litigation and loans subject of judicially
such as loans funded by foreign currency            approved compromise, as well as those
obligations. However, the restructuring of          covered by petitions for suspension or for
loans granted to DOSRI should be upon               new plans of payment approved by the
terms not less favorable to the bank than           court or the SEC, shall not be classified as
those offered to others. While agreements           restructured loans.
on loan restructuring should be                          A loan which is restructured shall be
considered as management tools to                   considered non-performing except when as
maintain or improve the soundness of the            of restructuring date -
bank’s lending operations, these should                  (1) with updated principal and interest
be drawn mainly to assist borrowers                 payments; and
towards the settlement of their                          (2) fully secured by real estate with
obligations, taking into account their              loan value of up to sixty percent (60%) of
capacity to pay.                                    the appraised value of the real estate
                                                    security and the insured improvements
    § X322.1 Definition; when to                    thereon, and such other first class
consider performing/non-performing                  collaterals as may be deemed appropriate
Restructured loans are loans the principal          by the Monetary Board: Provided, That a
terms and conditions of which have been             restructured loan, with or without




                                (Next Page is Part III - Page 31 )




Part III - Page 30b                                                  Manual of Regulations for Banks
                                                                              §§ X322.1 - X322.2
                                                                                       08.12.31

capitalized interest, must be yielding a rate     specifically on restructuring of loans:
of interest equal to or greater than the          Provided, further, That said guidelines shall
bank’s average cost of funds at the date of       be submitted to the appropriate
restructuring, otherwise, it shall be             department of the SES within thirty (30)
considered non-performing.                        days following the date of approval thereof.
     The restoration to a performing loan         However, loans previously approved by
shall only be effective after a satisfactory      the executive committee as well as those
track record of payments of the required          granted to DOSRI shall be subject to
amortizations of principal and/or interest        approval by the board as provided under
has been established.                             existing rules and regulations. Loans
     For this purpose, a satisfactory track       restructured other than those approved by
record of payments of principal and/or            the board shall be reported to it for
interest shall mean three (3) consecutive         confirmation.
payments of the required amortizations of              b. A second restructuring of a loan
principal and/or interest have been made.         shall be allowed only if there are
However, in the case of a restructured loan       reasonable justifications: Provided, That it
with capitalized interest but not fully           shall be considered a non-performing loan
secured by real estate with loan value of         and classified, at least, “Substandard”. The
up to sixty percent (60%) of the appraised        restoration to a performing loan status
value of the real estate security and the         and/or upgrading of loan classification, e.g.,
insured improvements thereon or other             from “Substandard” to “Loans Especially
first class collaterals, six (6) consecutive      Mentioned”, if circumstances warrant an
payments of the required amortizations of         upgrading in accordance with the criteria
principal and/or interest must have been          under Appendix 18, shall only be allowed
made.                                             after a satisfactory track record of at least
     A restructured loan which has been           six (6) consecutive payments of the
restored to a performing loan status shall        required amortization of principal and/or
be immediately considered non-performing          interest has been established.
in case of default of any principal or interest        c. In the restructuring process, the
payment.                                          bank shall encourage the borrower to
                                                  improve the quality of the loan either by
    § X322.2 Procedural requirements              strengthening financial capacity or
    a. A loan may be restructured, subject        providing additional collateral.
to the approval of the bank’s board of                 The real estate security and/or other first
directors in a resolution which shall             class collaterals offered shall be appraised
embody, among other things:                       at the time of restructuring to ensure that
    (1) the basis of or justification for the     current market values are being used. Real
approval;                                         estate security shall be appraised by an
    (2) determination of the borrower’s           independent          appraisal       company
capacity to pay, such as viability of the         acceptable to the BSP and shall be
business; and                                     reappraised every year thereafter.
    (3) the nature and extent of protection            (1) For UBs/KBs – a loan benchmark
of the bank’s exposure.                           is set at P5.0 million, such that loans beyond
    The authority to approve the                  this amount will require an independent
restructuring of loans may be delegated           appraisal company: Provided, That the
by the bank’s board of directors to a             appraisal company contracted to do the
committee or officer(s): Provided, That           appraisal is not a subsidiary or an affiliate
there are board prescribed guidelines             of the UB/KB.



Manual of Regulations for Banks                                                 Part III - Page 31
§§ X322.2 - X322.4
08.12.31

     (2) For TBs – a loan benchmark is set       with annual net earnings during the
at P1.0 million such that loans beyond this      immediately preceding five (5) years; and
amount will require an independent                   (e) Such other collaterals that the
appraisal company: Provided, That the            Monetary Board may declare as first class
appraisal company contracted to do the           collaterals from time to time.
appraisal is not a subsidiary or an affiliate        It is understood that the loan value to
of the TB.                                       be assigned the collateral shall be as
     A TB may be allowed to use a UB/KB          prescribed under existing regulations.
or another TB acceptable to the BSP to do
the appraisal for it: Provided, That the TB          § X322.3 Restructured loans
requesting the appraisal is not a subsidiary     considered past due. Restructured loans
or affiliate of the UB/KB/other TB contracted    shall be considered past due in case of
to do the appraisal.                             default of any principal or interest and shall
     (3) For RBs/Coop Banks – the                be subject to classification in accordance
benchmark is set at P500 thousand such that      with Sec. X322.4.
loans beyond this amount will require an
independent appraisal company: Provided,              § X322.4 Classification. The classification
That the appraisal company contracted to         of a loan prior to restructuring, e.g., “Loans
do the appraisal is not a subsidiary or an       Especially Mentioned”, “Substandard” or
affiliate of the RB/Coop Bank.                   “Doubtful” shall be retained: Provided, That
     An RB/Coop Bank may be allowed to           a loan that is not classified but which is
use a UB/KB or a TB acceptable to the BSP        non-performing prior to restructuring shall
to do the appraisal for it: Provided, That the   be classified, at least, “Loans Especially
RB requesting the appraisal is not a             Mentioned”: Provided, further, That
subsidiary or affiliate of the UB/KB/TB          restructured loans with capitalized interest
contracted to do the appraisal.                  shall be classified, at least, “Substandard”
     The term “first class collaterals” refers   and the required valuation reserves shall
to assets and securities which have              be set up accordingly: Provided, finally,
relatively stable and clearly definable value    That a more adverse classification may be
and/or greater liquidity and are free from       given, i.e., “Substandard”, “Doubtful” or
lien/encumbrance, such as:                       “Loss”, if the circumstances warrant it as
     (a) Real estate;                            provided under Appendix 18.
     (b) Evidences of indebtedness of the             The upgrading of loan classification,
Republic of the Philippines and of the BSP,      e.g., from “Substandard” to “Loans
and other evidences of indebtedness or           Especially Mentioned”, if circumstances
obligations the servicing and repayment of       warrant an upgrading in accordance with
which are fully guaranteed by the Republic       the criteria under Appendix 18, shall only
of the Philippines;                              be effective after a satisfactory track record
     (c) Hold-out on and/or assignment of        of payments of the required amortizations
deposits/deposit substitutes maintained in       of principal and/or interest has been
the lending institutions;                        established.
     (d) “Blue chip” shares of stocks, except         For this purpose, a satisfactory track
those issued by the lending entity or by its     record of payments of principal and/or
parent company which owns more than              interest shall mean three (3) consecutive
fifty percent (50%) of its outstanding shares    payments of the required amortizations of
of stocks. For this purpose, the issuer          principal and/or interest have been made.
corporation must be a listed corporation         However, in the case of a restructured loan
with a net worth of at least P1.0 billion and    with capitalized interest but not fully



Part III - Page 32                                             Manual of Regulations for Banks
                                                                            §§ X322.4 - X326.1
                                                                                     10.12.31

secured by real estate with loan value of up     spouse and/or the aforementioned relatives
to sixty percent (60%) of the appraised value    own more than fifty percent (50%) of the
of the real estate security and the insured      total subscribed capital stock of such
improvements thereon or other first class        corporation, association or firm, amount to
collaterals, six (6) consecutive payments of     one percent (1%) or more of the total
the required amortizations of principal and/     subscribed capital stock of the bank.
or interest must have been made.                      d. Substantial stockholder shall mean
                                                 a person, or group of persons whether
Secs. X323 - X325 (Reserved)                     natural or juridical, owning such number
                                                 of shares that will allow such person or
   E. LOANS AND OTHER CREDIT                     group to elect at least one (1) member of
ACCOMMODATIONS TO DIRECTORS,                     the board of directors of a bank or who is
  OFFICERS, STOCKHOLDERS AND                     directly or indirectly the registered or
      THEIR RELATED INTERESTS                    beneficial owner of more than ten percent
                                                 (10%) of any class of its equity security.
Sec. X326 General Policy. Dealings of a               e. Related interest shall refer to any
bank with any of its DOSRI should be in          of the following:
the regular course of business and upon               (1) Spouse or relative within the first
terms not less favorable to the bank than        degree of consanguinity or affinity, or
those offered to others.                         relative by legal adoption, of a director,
                                                 officer or stockholder of the bank;
     § X326.1 Definitions. For purposes of            (2) Partnership of which a director,
these regulations, the following definitions     officer, or stockholder of a bank or his
shall apply:                                     spouse or relative within the first degree
     a. Directors shall refer to bank            of consanguinity or affinity, or relative by
directors as defined in Subsec. X141.1.          legal adoption, is a general partner;
     b. Officers shall refer to bank officers         (3) Co-owner with the director, officer,
as defined in Subsec. X142.1.                    stockholder or his spouse or relative within
     c. Stockholder shall refer to any           the first degree of consanguinity or affinity,
stockholder of record in the books of the        or relative by legal adoption, of the
bank, acting personally, or through an           property or interest or right mortgaged,
attorney-in-fact; or any other person duly       pledged or assigned to secure the loans or
authorized by him or through a trustee           other credit accommodations, except
designated pursuant to a proxy or voting         when the mortgage, pledge or assignment
trust or other similar contracts, whose          covers only said co-owner’s undivided
stockholdings in the lending bank,               interest;
individual and/or collectively with the               (4) Corporation, association, or firm of
stockholdings of: (i) his spouse and/or          which a director or officer of the bank, or
relative within the first degree by              his spouse is also a director or officer of
consanguinity or affinity or legal adoption;     such corporation, association or firm,
(ii) a partnership in which the stockholder      except (a) where the securities of such
and/or the spouse and/or any of the              corporation, association or firm are listed
aforementioned relatives is a general            and traded in the big board or commercial
partner; and (iii) corporation, association or   and industrial board of domestic stock
firm of which the stockholder and/or his         exchanges and less than fifty percent (50%)




Manual of Regulations for Banks                                               Part III - Page 33
§ X326.1
10.12.31

of the voting stock thereof is owned by any     bank or which controls majority interest
one (1) person or by persons related to each    of the bank pursuant to Subsec.
other within the first degree of                X303.1;and
consanguinity or affinity; or (b) where the          (8) Corporation, association or firm
director, officer or stockholder of the bank    which has an existing management contract
sits as a representative of the bank in the     or any similar arrangement with the parent
board of directors of such corporation:         of the lending bank.
Provided, That the bank representative               f. Subsidiary shall refer to a
shall not have any equity interest in the       corporation or firm more than fifty percent
borrower corporation except for the             (50%) of the outstanding voting stock of
minimum shares required by law, rules           which is directly or indirectly owned,
and regulations, or by the by-laws of the       controlled or held with power to vote by
corporation, or (c) where the corporation       its parent corporation.
is at least ninety-nine percent (99%)                g. Unencumbered deposits shall
owned by a non-stock corporation as             refer to savings, time and demand
defined in Section 87 of the Corporation        deposits, which are not subject to an
Code of the Philippines: Provided, That         assignment or hold-out agreement or any
the purpose of the loan is to finance           other encumbrance.
hospitals and other medical services:                h. Book value of the paid-in capital
Provided, further, That the loan is fully       contribution shall mean the proportional
secured: Provided, furthermore, That in         amount of the bank’s total capital accounts
the case of Items “(a)”, “(b)” and “(c)”        (net of such unbooked valuation reserves
above, the borrowing corporation is not         and other capital adjustments as may be
among those mentioned in Items “e(5)”,          required by the BSP) as the corresponding
“e(6)”, “e(7)” and “e(8)” of this Section;      paid-in capital contribution of each of the
     (5) Corporation, association or firm       bank’s directors, officers, stockholders
of which any or a group of directors,           and their related interests bear to the total
officers, stockholders of the lending bank      paid-in capital of the bank: Provided, That
and/or their spouses or relatives within the    as a basis for determining the individual
first degree of consanguinity or affinity, or   ceiling referred to in Sec. X330, the
relative by legal adoption, hold or own at      corresponding book value of the shares
least twenty percent (20%) of the               of stock of said directors, officers,
subscribed capital of such corporation, or      stockholders and their related interests
of the equity of such association or firm;      which are the subject of pledge,
     (6) Corporation, association or firm       assignment or any other encumbrance
wholly or majority-owned or controlled          shall be deducted therefrom.
by any related entity or a group of related          i. Net worth shall mean the total of
entities mentioned in Items “e(2)”, “e(4)”      the unimpaired paid-in capital including
and “e(5)” of this Section;                     paid-in surplus, retained earnings and
     (7) Corporation, association or firm       undivided profit, net of valuation reserves
which owns or controls directly or              and other adjustments as may be required
indirectly whether singly or as part of a       by the BSP.
group of related interest at least twenty            j. Total loan portfolio shall refer to
percent (20%) of the subscribed capital of      the sum of all loan accounts outstanding,
a substantial stockholder of the lending        gross of valuation reserves, as reflected




Part III - Page 34                                          Manual of Regulations for Banks
                                                                                      §§ X326.1 - X327
                                                                                             10.12.31

in the bank’s consolidated statement of           Provided, That the booking under trust
condition, excluding outstanding loans            receipts shall have been made not later than
financed by special/specific funds from           the thirty-first day from the date of original
the government FIs.                               entry referred to in Item “(6)” above.
     k. Secured loan, borrowing or other              l. Unsecured loan, borrowing or other
credit accommodation shall refer to any           credit accommodation shall refer to any loan,
loan, or credit accommodation or portion          or other credit accommodation or portion
thereof referred to in Sec. X327 which is         thereof referred in Sec. X327 which is not
secured by:                                       secured in accordance with Item “k” above.
     (1) Real estate mortgage, chattel            (As amended by Circular Nos. 695 dated 22 October 2010 and
mortgage on tangible assets, and pledge of        560 dated 31 January 2007)
jewelry, precious stones and other valuable
articles;                                         Sec. X327 Transactions Covered. The terms
     (2) Assignment of intangible assets such     loans, other credit accommodations and
as patents, trademarks, trade names and           guarantees as used herein shall refer to
copyrights;                                       transactions of the bank which involve the
     (3) Unconditional payment guarantees         grant of any loan, advance or other credit
such as standby letters of credit and letter      accommodation in any form whatsoever,
of indemnity issued by banks/multilateral         whether renewal, extension or increase, and
FIs;                                              shall include:
     (4) Assignment of, or hold-out on,               a. Any advance by means of an
deposits or deposit substitutes maintained        incidental or temporary overdraft, cash item,
in the lending bank;                              “vale”, etc.;
     (5) Cash margin deposits; or                     b. Any advance of unearned salary or
assignment or pledge of government                other unearned compensation for periods
securities or readily marketable bonds and        in excess of thirty (30) days;
other high-grade debt securities and                  c. Any advance by means of DAUDs;
“blue-chip” stocks, except those issued by            d. Outstanding availments under an
the lending entity, or by its parent company      established credit line;
which owns more than fifty percent (50%)              e. Drawings against an existing letter
of its outstanding shares of stocks, subject      of credit;
to the additional provision that the issuer           f. The acquisition of any note, draft,
corporation has a net worth of at least P1.0      bill of exchange or other evidence of
billion and with annual net earnings during       indebtedness upon which the bank’s
the immediately preceding five (5) years;         DOSRIs may be liable as makers, drawers,
     (6) Customer’s liability under import        acceptors, endorsers, guarantors or sureties;
bills outstanding for not more than thirty (30)       g. Indirect lending such as loans or
days from date of original entry;                 other credit accommodations granted by
     (7) Sales contract receivables arising       another financial intermediary to said
from sale of real property on credit where        DOSRIs from funds of the bank invested in
title to the property is retained by the bank;    the other institution’s trust or other
and                                               department when there is a clear
     (8) Customer’s liability-import bills        relationship between the transactions;
under trust receipts outstanding for not more         h. The increase of an existing
than thirty (30) days from date of booking:       indebtedness, as well as additional




Manual of Regulations for Banks                                                        Part III - Page 35
§§ X327 - X328.5
09.12.31

availments under a credit line or additional      credit accommodations granted to another
drawings against a letter of credit;              person or entity: Provided, That the foreign
    i. The sale of assets, such as shares of      bank stockholder shall automatically be
stock, on credit; and                             subject to the ceilings as herein provided in
    j. Any other transactions as a result of      the event that its contingent liability as
which the bank’s DOSRIs become obligated          guarantor becomes a real liability; and
or may become obligated to the lending                e. Interbank call loan transactions.
bank, by any means whatsoever to pay
money or its equivalent.                              § X328.1 Applicability to credit card
                                                  operations. The credit card operations of
Sec. X328 Transactions Not Covered. The           banks shall not be subject to these
terms loans, other credit accommodations          regulations where the credit cardholders
and guarantees as used herein shall not refer     are bank’s DOSRI: Provided, That (a) the
to the following:                                 privilege of becoming a credit cardholder
     a. Advances against accrued                  is open to all qualified persons on the
compensation, or for the purpose of               basis of selective criteria which are
providing payment of authorized travel,           applied by the bank to all applicants
legitimate expenses or other transactions for     thereof; and        (b) the bank’s DOSRIs
the account of the bank or for utilization of     reimburse/pay the bank for the billed
maternity and other leave credits;                amount in full on or before the payment
     b. The increase in the amount of             due date in the billing or statement of
outstanding credit accommodations as a            account, as set by the bank for all other
result of additional charges or advances          qualified credit card holders on
made by the bank to protect its interest such     availments made for the same period on
as taxes, insurance, etc.;                        their credit cards. However, the
     c. The discount of bills of exchange         transaction shall be subject to applicable
drawn in good faith against actually existing     DOSRI regulations if the bank’s DOSRIs:
values, and the discount of commercial or             a. fail to reimburse/pay the bank
business paper actually owned by the              within the period mentioned herein; or
person negotiating the same, including, but           b. on the outset, opt for deferred
not limited to, the acquisition by a domestic     payment scheme, and the availment is
bank of export bills from any of its DOSRI        booked by the bank.
which are drawn in accordance with the                For purposes of this Section,
terms and conditions of the covering letters      stockholders and related interests refer to
of credit: Provided, That the transaction shall   individual credit card holders.
automatically be subject to the ceilings as
herein provided once the DOSRI who is a               §§ X328.2 - X328.4 (Reserved)
party to the transaction becomes directly
liable to the bank;                                   § X328.5 Loans, other credit
     d. Transactions with a foreign bank          accommodations and guarantees granted
which has stockholdings in the local bank         to subsidiaries and/or affiliates
where the foreign bank acts as guarantor              a. Statement of policy. Dealings of a
through the issuance of letters of credit or      bank with its subsidiaries and/or affiliates
assignment of a deposit in a currency eligible    shall be in the regular course of business
as part of the international reserves and held    and upon terms not less favorable to the bank
in a bank in the Philippines to secure other      than those offered to others.




Part III - Page 36                                            Manual of Regulations for Banks
                                                                                           §§ X328.5
                                                                                            09.12.31

    b. Ceilings. The total outstanding loans,        these subsidiaries and affiliates are not
other credit accommodations and                      related interest of any of the director, officer,
guarantees to each of the bank’s subsidiaries        and/or stockholder of the lending bank,
and affiliates shall not exceed ten percent          except where such director, officer or
(10%) of the net worth of the lending bank:          stockholder sits in the board of directors or
Provided, That the unsecured loans, other            is appointed officer of such corporation as
credit accommodations and guarantees to              representative of the bank.
each of said subsidiaries and affiliates shall           Loans, other credit accommodations
not exceed five percent (5%) of such net             and guarantees granted by a bank to its
worth: Provided, further, That the total             subsidiaries and affiliates engaged in
outstanding loans, other credit                      energy and power generation consistent
accommodations and guarantees to all                 with the medium-term Philippine
subsidiaries and affiliates shall not exceed         development plan/medium-term public
twenty percent (20%) of the net worth of             investment program of the National
the lending bank: Provided, finally, That            Government duly certified as such by the




                                   (Next Page is Part III - Page 37)




Manual of Regulations for Banks                                                    Part III - Page 36a
                                                                                         § X328.5
                                                                                         09.12.31

Secretary of the Socio-economic Planning              (a) Name of the subsidiary or affiliate;
shall be subject to a separate individual limit       (b) Nature of the loan or other credit
of twenty-five percent (25%) of the net           accommodation or guarantee, purpose,
worth of the lending bank: Provided, That         amount, credit basis for such loan or other
the unsecured portion thereof shall not           credit accommodation or guarantee,
exceed twelve and one-half percent (12.5%)        security and appraisal thereof, maturity,
of such net worth: Provided, further, That        interest rate, schedule of repayment and
these subsidiaries and affiliates are not         other terms;
related interests of any of the director,             (c) Date of resolution;
officer, and/or stockholder of the lending            (d) Names of the directors who
bank, except where such director, officer         participated in the deliberation of the
or stockholder sits in the board of directors     meeting; and
or is appointed officer of such corporation           (e) Names in print and signatures of
as representative of the bank.                    the directors approving the resolution:
     c. Exclusions from the ceilings. Loans,      Provided, That in instances where a
other credit accommodations and guarantees        director who participated in the board
secured by assets considered as non-risk          meeting and who approved such
under existing BSP regulations as well as         resolution failed to sign, the corporate
interbank call loans shall be excluded in         secretary may issue a certification to this
determining compliance with the ceilings          effect indicating the reason for the failure
prescribed under Item “b” above.                  of the said director to sign the resolution.
     d. Procedural requirements. The                  (5) Transmittal of copy of board
following provisions shall apply if a bank        approval; contents thereof. A copy of the
grants a loan, other credit accommodation         written approval of the board of directors, as
or guarantee to any of its subsidiaries and       herein required, shall be submitted to the
affiliates.                                       appropriate department of the SES within
     (1) Approval of the board, when to           twenty (20) banking days from the date of
obtain. Except with prior written approval        approval. The copy may be a duplicate of
of the majority of all the members of the         the original, or a reproduction copy showing
board of directors, no loan, other credit         clearly the signatures of the approving
accommodation and guarantee shall be              directors: Provided, That if a reproduction
granted to a subsidiary or affiliate.             copy is to be submitted, it shall be duly
     (2) Approval by the board, how               certified by the corporate secretary that it is a
manifested. The approval shall be                 reproduction of the original written approval.
manifested in a resolution passed by the              e. Reportorial requirements. Each
board of directors during a meeting and           bank shall maintain a record of loans, other
made of record.                                   credit accommodations and guarantees
     (3) Determination of majority of all the     covered by these regulations in a manner
members of the board of directors. The            and form that will facilitate verification of
determination of the majority of all the          such transactions by BSP examiners.
members of the board of directors shall be            The appropriate department of the SES
based on the total number of directors of         may require banks to furnish such data or
the bank as provided in its articles of           information as may be necessary for
incorporation and by-laws.                        purposes of implementing the provisions
     (4) Contents of the resolution. The          of the foregoing rules.
resolution of the board of directors shall            f. Sanctions. Without prejudice to
contain the following information:                the criminal sanctions under Section 36




Manual of Regulations for Banks                                                  Part III - Page 37
§§ X328.5 - X330.1
09.12.31

of R.A. No. 7653 (The New Central Bank                   interest or right of the director, officer or
Act), any violation of the provisions of the             stockholder.
foregoing rules shall be subject to any or all                b. Indirect borrowing. If in any of the
of the following sanctions:                              transactions in Sec. X327 the borrower,
    (1) Restriction or prohibition on the                guarantor, endorser or surety is a related
bank from declaring dividends for non-                   interest as defined in Item “e”, Subsec.
compliance with the herein prescribed                    X326.1.
ceilings until the outstanding loans, other                   Other cases of direct/indirect
credit accommodations and guarantees                     borrowing shall be resolved on a case-to-
have been reduced to within the herein                   case basis.
prescribed ceilings;                                          It shall be the responsibility of the
    (2) For the duration of each violation,              bank concerned to ascertain whether the
imposition of a fine of one tenth (1/10) of              borrower, guarantor, endorser or surety
one percent (1%) of the excess over the                  is related or connected with the bank or
ceilings per day but not to exceed P30,000               with any of the directors, officers or
a day on the following:                                  stockholders of the bank in any of the
    (a) The lending bank;                                capacities mentioned in Item “e” of
    (b) Each of the directors voting for the             Subsec. X326.1.
approval of the loan, other credit                            In determining indirect borrowings, as
accommodation or guarantee in excess of                  enumerated above, only those cases
any of the ceilings prescribed above.                    involving living relatives shall be
    g. Transitory provisions. Outstanding                considered.
loans, other credit accommodation and
guarantees to subsidiaries/affiliates that will          Sec. X330 Individual Ceilings. The total
exceed the ceilings mentioned above shall                outstanding loans, other credit
not be subject to penalty until 09 April 2007            accommodations and guarantees to each
or until said accommodations become past                 of the bank’s DOSRI shall be limited to an
due, or are extended, renewed or                         amount equivalent to their respective
restructured, whichever comes later.                     unencumbered deposits and book value
(Circular No. 560 dated 31 January 2007, as amended by   of their paid-in capital contribution in the
654 dated 12 May 2009)                                   bank: Provided, however, That unsecured
                                                         loans, other credit accommodations and
Sec. X329 Direct or Indirect Borrowings                  guarantees to each of the bank’s DOSRI
Loans, other credit accommodations and                   shall not exceed thirty percent (30%) of
guarantees to DOSRI shall be considered                  their respective total loans, other credit
direct or indirect borrowings in accordance              accommodations and guarantees.
with the following criteria:
    a. Direct borrowing. If the director,                    § X330.1 Exclusions from individual
officer or stockholder of the lending bank               ceiling. The following loans, other credit
is a party to any of the transactions                    accommodations and guarantees shall be
enumerated in Sec. X327 for himself, or                  excluded in determining compliance with
as the representative or agent of others,                the individual ceiling.
or if he acts as a guarantor, endorser or                    a. Loans, other credit accommodations
surety for loans from the bank, or if the                and guarantees secured by assets
loan or other credit accommodation to                    considered as non-risk by the Monetary
another party is secured by a property                   Board;




Part III - Page 38                                                   Manual of Regulations for Banks
                                                                                               §X330.1
                                                                                               08.12.31

    Assets considered as non-risk shall                    financial institutions such as International
refer to the following:                                    Finance Corporation, Asian Development
    (1) Cash;                                              Bank and World Bank, with the highest
    (2) Debt securities issued by the BSP                  credit quality given by any two (2)
or the Philippine government;                              internationally accepted rating agencies;
    (3) Deposits maintained in the                         and
lending bank and held in the Philippines;                      (6) Such other assets considered as
    (4) Debt securities issued by the U.S.                 non-risk by the Monetary Board.
government;                                                    b. Loans, other credit accommodations
    (5) D e b t s e c u r i t i e s i s s u e d b y        and advances to officers in the form of
central governments, central banks of                      fringe benefits granted in accordance with
foreign countries and multilateral                         existing regulations; and


                                       (Next Page is Part III - Page 39)




Manual of Regulations for Banks                                                      Part III - Page 38a
                                                                            §§ X330.1 - X334
                                                                                   08.12.31

     c. Loans, other credit accommodations          (1) The corporation is a non-financial
and guarantees extended by a Coop Bank         institution;
to its cooperative shareholders.                    (2) Its shares are listed and traded in
                                               the domestic stock exchanges; and
Sec. X331 Aggregate Ceiling; Ceiling on             (3) No person or group of persons
Unsecured Loans, Other Credit                  related within the first degree of
Accommodations and Guarantees                  consanguinity or affinity holds/owns more
Except with the prior approval of the          than twenty percent (20%) of the
Monetary Board, the total outstanding          subscribed capital of the corporation.
loans, other credit accommodations and              c. Credit accommodations to
guarantees to DOSRI shall not exceed           government-owned or controlled
fifteen percent (15%) of the total loan        corporations, in cases where a director,
portfolio of the bank or 100% of net worth     officer or stockholder of the lending bank
whichever is lower: Provided, That in no       is a representative of the government in
case shall the total unsecured loans, other    the borrowing corporation and does not
credit accommodations and guarantees to        hold any proprietary interest in such
said DOSRI exceed thirty percent (30%)         corporation: Provided, That other rules on
of the aggregate ceiling or the outstanding    loans to DOSRI, such as procedural and
loans, other credit accommodations and         reportorial requirements under Sections
guarantees, whichever is lower. For the        X334 and X335 are followed.
purpose of determining compliance with              d. Exclusions from individual ceiling
the ceiling on unsecured loans, other credit   mentioned under Items “(b)” and “(c)” of
accommodations and guarantees, banks           Subsec. X330.1.
shall be allowed to average their ceiling
on unsecured loans, other credit               Sec. X333 Applicability to Branches and
accommodations and guarantees every            Subsidiaries of Foreign Banks. The
week.                                          individual and aggregate ceilings as well
     In evaluating requests for extension      as ceilings on unsecured credit
of loans in excess of the aggregate            accommodations prescribed herein shall
ceiling, the BSP shall consider the credit     also apply to branches and subsidiaries of
standing of the borrower, viability of the     foreign banks in the Philippines.
projects financed by such other credit
accommodations in relation to national         Sec. X334 Procedural Requirements. The
objectives, collateral or security and         following provisions shall apply if the bank’s
other pertinent considerations.                DOSRI are parties to, or act as representatives
                                               or agents of others in, any of the transactions
Sec. X332 Exclusions from Aggregate            enumerated under Sec. X327:
Ceiling. The following loans, other credit          a. Approval of the board, when to
accommodations and guarantees shall be         obtain. Except with prior written approval of
excluded in determining compliance with        the majority of the directors, excluding the
the aggregate ceiling:                         director concerned, no loan, other credit
    a. Credit accommodations or portions       accommodation and guarantee shall be
thereof to the extent secured by assets        granted nor shall any of the transactions
considered as non-risk by the Monetary         enumerated under Sec. X327 be entered into.
Board;                                              b. Approval by the board, how
    b. Credit accommodations to a              manifested. The approval shall be manifested
corporate stockholder which meets all the      in a resolution passed by the board of
following conditions:                          directors during a meeting and made of record.



Manual of Regulations for Banks                                             Part III - Page 39
§§ X334 - X336
08.12.31

     c. Determination of majority of the        approval: Provided, further, That such
directors. The determination of the majority    written approval shall not be required for
of the directors, excluding the director        loans, other credit accommodations and
concerned, shall be based on the total          advances granted to officers under a fringe
number of directors of the bank as provided     benefit plan approved by the BSP.
in its articles of incorporation and by-laws.
     d. Contents of the resolution. The         Sec. X335 Reportorial Requirements. Each
resolution of the board of directors shall      bank shall maintain a record of loans, other
contain the following information:              credit accommodations and guarantees
     (1) Name of the director or officer        covered by these regulations in a manner
concerned and his involvement as regards        and form that will facilitate verification of
the credit accommodation, such as               such transactions by BSP examiners.
principal, endorser, spouse of borrower,            The appropriate department of the SES
etc.;                                           may require banks to furnish such data or
     (2) Nature of the loan or other credit     information as may be necessary for
accommodation, purpose, amount, credit          purposes of implementing the provisions
basis for such loan or other credit             of the foregoing rules.
accommodation, security and appraisal
thereof, maturity, interest rate, schedule of   Sec. X336 Sanctions. Any violation of the
repayment and other terms of the loan or        provisions of the foregoing rules shall be
other credit accommodation;                     subject to any or all of the following sanctions:
     (3) Date of resolution;                        a. Restriction or prohibition on the
     (4) Names of the directors who             bank from declaring dividends for
participated in the deliberations of the        non-compliance with the prescribed
meeting; and                                    ceiling on DOSRI until the outstanding
     (5) Names in print and signatures of       loans and other credit accommodations
the directors approving the resolution:         have been reduced to within the herein
Provided, That in instances where a             prescribed ceilings;
director who participated in the board              b. After due notice to the board of
meeting and who approved such                   directors of the bank, the office of any bank
resolution failed to sign, the corporate        director or officer who violates the
secretary may issue a certification to this     provisions of this Section may be declared
effect indicating the reason for the failure    vacant and the director or officer shall be
of the said director to sign the resolution.    subject to the penal provisions of the New
     e. Transmittal of copy of board            Central Bank Act;
approval; contents thereof. A copy of the           c. Application of (1) the borrowing
written approval of the board of directors,     director’s or officer’s share in the bank’s
as herein required, shall be submitted to       profit sharing program; and (2) the share of
the appropriate department of the SES           the director voting for the approval of the
within twenty (20) banking days from the        loan or other credit accommodation,
date of approval. The copy may be a             against the excess of such loan or other
duplicate of the original, or a reproduction    credit accommodation over any of the
copy showing clearly the signatures of the      herein prescribed ceilings; and
approving directors: Provided, That if a            d. For the duration of each violation,
reproduction copy is to be submitted, it        imposition of a fine of one-tenth of one
shall contain on its face or reverse side a     percent (1/10 of 1%) of the excess over the
signed certification by the secretary that it   ceilings per day but not to exceed P30,000
is a reproduction of the original written       a day on the following:



Part III - Page 40                                            Manual of Regulations for Banks
                                                                                       §§ X336 - X338.1
                                                                                              10.12.31

     (1) The lending bank;                        needs of their officers and employees.
     (2) The director, officer or stockholder     Financing plans and amendments thereto,
whose borrowing exceeds his individual            shall be with prior approval of the BSP.1
ceiling; and                                      (As amended by M-2010-039 dated 03 November 2010,
     (3) Each of the directors voting for the     M-2010-007 dated 23 April 2010, M-2009-040 dated 30 October
approval of the loan or other credit              2009, M-2009-037 dated 15 October 2009, M-2009-038 dated
accommodation in excess of any of the             08 October 2009 and M-2009-036 dated 07 October 2009)
ceilings prescribed in Secs. X330 and X331.
     The penalty for exceeding the individual          § X338.1 Mechanics. The mechanics of
ceiling, aggregate ceiling and ceiling on         such financing plan shall have the following
unsecured loans shall be computed on the          minimum features:
average amount of loans in excess of said              a. Participation shall be limited to
ceilings during the same week.                    fulltime and permanent officers and
                                                  employees of the bank;
Sec. X337 Waiver of Secrecy of Deposit. Any            b. Financial assistance shall only be
director, officer or stockholder who, together    for the following purposes:
with his related interest, contracts a loan or         (1) The acquisition of a residential house
any form of financial accommodation from:         and lot, or the construction, renovation or
     a. his bank; or                              repair of a residential house on a lot owned
     b. from a bank                               and to be occupied by the officer or employee;
     (1) which is a subsidiary of a bank               (2) The acquisition of vehicles,
holding company of which both his bank            household equipment and appliances for
and the lending bank are subsidiaries; or         the personal use of the officer or employee
     (2) in which a controlling proportion        or his immediate family; or
of the shares is owned by the same interest            (3) To meet expenses for the medical,
that owns a controlling proportion of the         maternity, education, emergency and
shares of his bank, in excess of five percent     other personal needs of the officer or
(5%) of the capital and surplus of the bank,      employee or his immediate family;
or in the maximum amount permitted by                  c. Financial assistance for purposes
law, whichever is lower, shall be required        mentioned in Items “b(1)” and “b(2)” of
by the lending bank to waive the secrecy          this Subsection shall be granted in the
of his deposits of whatever nature in all         form of a loan, advance or other credit
banks in the Philippines. Any information         accommodation, installment sale, lease with
obtained from an examination of his               option to purchase or lease-purchase
deposits shall be held strictly confidential      arrangement where the lessee is obliged to
and may be used by the examiners only in          purchase the real estate or equipment;
connection with their supervisory and                  d. The amount and maturity of financial
examination responsibility or by the BSP          assistance for each purpose shall be
in an appropriate legal action it has initiated   determined by the bank in consonance with
involving the deposit account.                    the normal requirements thereof: Provided,
                                                  That the maximum amount shall be stated
Sec. X338 Financial Assistance to Officers        as percentage or multiple of the total monthly
and Employees. Banks may provide                  compensation of the officer or employee and
financial assistance to their officers and        shall be within the paying capacity of the
employees, as part of their fringe benefits       borrowing officer or employee.
program, to meet the housing,                          Total monthly compensation shall
transportation, household and personal            include the basic salary and all fixed and


1
    See Appendix 89

Manual of Regulations for Banks                                                        Part III - Page 41
§§ X338.1 - 1338.2
08.12.31

regular monthly allowances of the officer        incorporating in the plan or contract provisions
or employee. Payments for sickness benefits      requiring co-makers or co-signor, chattel, or
and other special emoluments which are not       real estate mortgages, fire insurance,
fixed or regular in nature, or the commutation   mortgage redemption insurance, assignment
into cash of unused leave credits shall not be   of money value of leave credits, pension or
included in the computation of total monthly     retirement benefits.
compensation;
     e. The amortization payment shall               § X338.2 (Reserved)
include amounts necessary to cover mortgage
redemption insurance and fire insurance               § 1338.2 Funding by foreign banks. In
premiums, taxes, special assessments, and        the case of local branches of foreign banks,
other related fees and charges;                  financial assistance for their officers and
     f. Availment of the financing plan to       employees may be funded, through any
construct or acquire a residential house and     of the following means:
lot shall be allowed only once during the             a. Through a local affiliate by special
officer’s or employee’s tenure with the          arrangement with the head office abroad
bank, except where the right over the real       in any of the following forms:
estate previously acquired or constructed             (1) Inward remittance from the head
under the financing plan is absolutely           office of the affiliate; or
transferred or assigned to another officer            (2) Assignment to the affiliate of
or employee of the bank or to a third party:     equivalent amounts of profits otherwise
Provided, That the bank must be fully paid       remittable abroad under existing
or reimbursed for the outstanding                regulations; or
availment on the financing plan before the            (3) Direct loans by the foreign bank to
officer/employee is allowed to re-avail          the affiliate; or
himself of the same financing plan.                   b. Through the local branch itself by:
     An officer or employee (or his spouse)           (1) Segregation or transfer of
who already owns a residential house and         undivided profits normally remitted to the
lot shall not be qualified to avail himself of   head office abroad equivalent to the loans
financial assistance for purposes of             to officers and employees which shall be
acquiring a residential house and/or lot.        lodged under “Other Liabilities-Head
     These prohibitions notwithstanding,         Office Accounts”. This account shall at all
financial assistance for the repair or           times have a balance equivalent to the
renovation of a residential house may be         outstanding loans to officers/employees
allowed subject to such limitation as may        financed under this scheme; or
be prescribed by the bank pursuant to Item            (2) Inward remittance; or
“d “ of this Subsection;                              c. Through the local branch from
     g. Availment of the financing plan for      local sources without earmarking an
the acquisition of a specific type of            equivalent amount of undivided profits:
equipment or appliance shall be allowed          Provided, That the aggregate ceilings on
not oftener than once every three (3) years:     such loans as provided under existing
Provided, That re-availment shall be             regulations shall apply.
allowed only after previous obligations in            Loans under Items “b(1)” and “b(2)” of
connection with the acquisition of the same      this Subsection shall be treated in the
type of equipment or appliances have             branch books as loans granted by its head
been fully liquidated; and                       office. The documentation and collection
     h. The bank shall adopt measures to         of such loans shall be handled by the
protect itself from losses such as by            branch for the account of the head office.



Part III - Page 42                                             Manual of Regulations for Banks
                                                                                     §§ 1338.2 - X339.4
                                                                                              08.12.31

    Loans financed under Items “a” and “b”        of up to 09 April 2007 or until said loans,
shall be excluded from the computation            other credit accommodations and
of the capital to risk assets ratio.              guarantees become past due, or are
                                                  extended, renewed or restructured,
    § 2338.2 (Reserved)                           whichever comes later.
                                                       b. Unsecured outstanding loans, other
    § 3338.2 (Reserved)                           credit accommodations and guarantees, as
                                                  well as availments of previously approved
     § X338.3 Other conditions/limitations        loans and committed credit lines not
     a. The investment by a bank in               considered as DOSRI accounts prior to
equipment and other chattels under its            10 April 2004, shall not be deducted from
fringe benefits program for officers and          capital accounts for a period of up to
employees shall be included in                    09 April 2007 or until such time that said
determining the extent of the investment          loans, other credit accommodations and
of the bank in real estate and equipment          guarantees become past due, or are
for purposes of Section 51 of R.A. No. 8791.      extended, renewed or restructured,
     b. The investment by a bank in               whichever comes later.
equipment and other chattels contemplated              c. Banks shall, however, disclose the
under these guidelines shall not be for the       following information in their financial
purpose of profits in the course of business      statements, annual report and the reports
for the bank.                                     being submitted to BSP:
     c. The aggregate outstanding loans                (1) DOSRI;
and other credit accommodations granted                (i) Loans, other credit accommodations
under the bank’s fringe benefits program,         and guarantees classified as DOSRI
inclusive of those granted to officers in the     accounts under regulations existing prior
nature of lease with option to purchase,          to 10 April 2004; and
shall not exceed five percent (5%) of the              (ii) New DOSRI loans, other credit
bank’s total loan portfolio.                      accommodations and guarantees granted
     Banks providing financial assistance to      starting 10 April 2004.
their officers/employees shall submit a                (2) Non-DOSRI prior to 10 April 2004
regular report on “availments of financial        Loans, other credit accommodations and
assistance to officers and employees” to          guarantees, as well as availments of
the BSP within fifteen (15) banking days          previously approved loans and committed
after end of reference semester.                  credit lines not considered DOSRI accounts
     The appropriate department of the SES        prior to 10 April 2004 but are allowed a
may further require banks to submit such          transition period as provided above.
data or information as may be necessary           (As amended by Circular No. 532 dated 19 May 2006)
to facilitate verification of such transactions
by BSP examiners.                                      §§ X339.1 - X339.3 (Reserved)

Sec. X339 Transitory Provisions                       § X339.4 Reportorial requirements
    a. The sanctions contained under              Financing plans and amendments thereto
Sec. X336 shall not apply to outstanding          shall be submitted to BSP within thirty (30)
loans, other credit accommodations and            calendar days from approval thereof by the
guarantees, as well as availments of              bank’s board of directors. The appropriate
previously approved loans and committed           department of the SES may require the
credit lines not considered as DOSRI              banks concerned to submit a regular report
accounts prior to 10 April 2004, for a period     monitoring the various transactions under



Manual of Regulations for Banks                                                        Part III - Page 43
§ X339.4 - X340
08.12.31

the bank’s financing plans for officers/         undertaking priority infrastructure projects
employees.                                       consistent with the Medium-Term
    All banks providing financial assistance     Development Plan/Medium-Term Public
to bank officers/employees shall submit a        Investment Program of the National
report on “Availments of Financial               Government, duly certified as such by the
Assistance to Officers and Employees” to         Secretary of Socio-Economic Planning;
the BSP within fifteen (15) banking days              (2) Loans, other credit accommodations,
after end of reference semester.                 and/or guarantees granted to PFIs in the
                                                 lending programs of the government
Sec. X340 Applicability of DOSRI Rules           wherein the funds borrowed are intended
and Regulations to Government                    for relending to other PFIs or end-user
Borrowings in Government-Owned or -              borrowers; and
Controlled Banks. The provisions of                   (3) Loans, other credit accommodations,
Secs. X326 to X337 shall also apply to loans,    and/or guarantees granted for the purpose
other credit accommodations, and/or              of providing (i) wholesale and retail loans
guarantees granted to the National               to the agricultural sector and micro, small
Government or Republic of the                    and medium enterprises (MSMEs); and/or
Philippines, its political subdivisions and      (ii) rediscounting and guarantee facilities
instrumentalities as well as GOCCs,              for loans granted to the said sector or
subject to the following clarifications:         enterprises;
     a. Loans, other credit accommodations,           c. Loans, other credit accommodations,
and/or guarantees to the Republic of the         and/or guarantees granted to state
Philippines and/or its agencies/departments/     universities and colleges (SUCs) shall be
bureaus shall be considered: (1) non-risk; and   excluded from the thirty percent (30%)
(2) not subject to any ceiling;                  ceiling on unsecured loans under
     b. Loans, other credit accommodations,      Secs. X330 and X331.
and/or guarantees to: (1) GOCCs; and                  d. In view of the fiscal autonomy
(2) corporations where the Republic of the       granted under R.A. No. 7653 and the
Philippines, its agencies/departments/           independence prescribed under the
bureaus, and/or GOCCs own at least               Constitution, the BSP shall be considered
twenty percent (20%) of the subscribed           an independent entity, hence, not a related
capital stock shall be considered indirect       interest of the Republic of the Philippines
borrowings of the Republic of the                and/or its agencies/departments/bureaus.
Philippines and shall form part of the           Loans, other credit accommodations and
individual ceiling as well as the aggregate      guarantees of the BSP shall be considered:
ceiling: Provided, That the following loans,     (1) non-risk; and (2) not subject to any
other credit accommodations, and/or              ceiling;
guarantees to GOCCs and corporations                  e. LGUs shall be considered separate
where the Republic of the Philippines, its       from the Republic of the Philippines, other
agencies/departments/bureaus, and/or             government entities, and from one another
GOCCs own at least twenty percent (20%)          due to the full autonomy in the exercise of
of the subscribed capital stock, shall be        their proprietary functions and in the
excluded from the thirty percent (30%)           management of their economic enterprises
ceiling on unsecured loans under                 granted to them under the Local
Secs. X330 and X331:                             Government Code of the Philippines,
     (1) Loans, other credit accommodations,     subject to certain limitations provided by
and/or guarantees for the purpose of             law, hence, not a related interest of the




Part III - Page 44                                            Manual of Regulations for Banks
                                                                                           §§ X340 - X341.1
                                                                                                  08.12.31

Republic of the Philippines and/or its                             a. Loanable funds shall refer to total
agencies/departments/bureaus;                                  funds generated after the effectivity of P.D.
    f. Local Water Districts (LWDs),                           No. 717, the computation of which is
although GOCCs, shall be considered                            described in Subsec. X341.4.
separate from the Republic of the                                  b. Agrarian reform credit shall refer
Philippines, other government entities, and                    to production and other types of loans
from one another due to their fiscal                           granted to beneficiaries of agrarian reform
independence from the national                                 for the following purposes: acquisition of
government, hence, not a related interest                      work animals, farm equipment and
of the Republic of the Philippines and/or                      machinery, seeds, fertilizers, poultry,
its agencies/department/bureaus, for                           livestock, feeds and other similar items;
purposes of these regulations;                                 acquisition of lands authorized under
    g. A director who acts as a government                     existing laws; construction and/or
representative in the lending institution                      acquisition of facilities for production,
shall not be excluded in the deliberation                      processing, storage and marketing; and
as well as in the determination of majority                    efficient and effective merchandising of
of the directors in cases of loans, other                      agricultural commodities stored and/or
credit accommodations, and guarantees to                       processed by the facilities aforecited in
the Republic of the Philippines and/or its                     domestic and foreign commerce.
agencies/departments/bureaus; and                                  c. Agricultural credit in general shall
    h. A director of the lending institution                   include all loans and/or advances granted
shall be excluded in the deliberation as                       to borrowers, whether beneficiaries of
well as in the determination of majority of                    agrarian reform or not, to finance activities
the directors in cases of loans, other credit                  relating to agriculture, and for processing,
accommodations, and guarantees to the                          marketing, storage, and distribution of
borrowing government entity other than                         products resulting from these activities.
the Republic of the Philippines, its                               d. Agrarian reform beneficiaries shall
agencies, departments or bureaus where                         include tillers, tenant-farmers, settlers,
said director is also a director, officer or                   agricultural lessees, amortizing owners,
stockholder under existing DOSRI                               owner-cultivators, farmers’ cooperatives
regulations.                                                   and compact farms, as determined by the
(Circular No. 514 dated 06 March 2006 as amended by Circular   DAR.
Nos. 635 dated 10 November 2008, 616 dated 30 July 2008, 580       The term shall likewise include
dated 09 September 2007, and 547 dated 21 September 2006)      agricultural enterprises registered under
                                                               P.D. No. 1159 as well as projects
          F. MANDATORY CREDITS                                 undertaken pursuant to the Corporate
                                                               Farming Program under General Order
Sec. X341 Agrarian Reform and                                  (G.O) No. 47: Provided, That the borrower
Agricultural Credit. Pursuant to P.D. No.                      submits the following documents to the
717, the following guidelines shall govern                     lending bank:
the grant of agrarian reform credit and                            (1) A certification from the Board of
agricultural credit by banks, government                       Investments to the effect that the borrower
or private.                                                    is an agricultural enterprise duly registered
                                                               under P.D. No. 1159 ; and
    § X341.1 Definition of terms. For                              (2) An endorsement of the DAR stating
purposes of this Section, the following                        that land reform beneficiaries shall benefit
definitions shall apply:                                       from the agricultural enterprises’ projects.




Manual of Regulations for Banks                                                            Part III - Page 45
§§ X341.2 - X341.4
08.12.31

     § X341.2 Who may borrow; purposes             reform beneficiaries by the nearest office
     a. All beneficiaries of agrarian reform       of the DAR; CDA; or the Farm Systems
credit mentioned under P.D. No. 717 and            Development Corporation (FSDC),
its implementing regulations which credit          National Irrigation Administration (NIA); or
shall be used for agricultural production or           (6) NFA-registered warehousemen/
for other purposes mentioned therein shall         millers/wholesalers whose grains
be qualified borrowers under agrarian              inventory, subject to a chattel mortgage,
reform credit.                                     trust receipts or pledged quedan, are duly
     b. Qualified borrowers under                  sworn to under oath by grains
agricultural credit in general are corporations,   businessmen-borrowers concurred by the
entities, or private individuals engaged in        President of the Agrarian Reform
agricultural production, processing, storage,      Beneficiaries Association in the area as
marketing, or exportation of agricultural          having been produced by agrarian reform
products, and importation/manufacture/             beneficiaries; and
distribution of farm machineries and                   (7) The NFA: Provided, That it certifies
equipment, fertilizers, etc. used for              that its palay procurements are obtained
agricultural production.                           through direct/indirect linkage arrangements
                                                   with agrarian reform beneficiaries, subject
    § X341.3 Required allocation for               to such ceilings as may be imposed by the
agrarian reform and agricultural credit            BSP/Department of Finance (DOF) on the
in general. Banks shall set aside an amount        loans/advances to the NFA by banks:
equivalent to at least twenty-five percent             Lendings to NFA are considered as
(25%) of their loanable funds for agricultural     lending to the agricultural and agrarian
credit in general, of which an amount              sector: Provided, That such lendings shall
equivalent to at least ten percent (10%) of        be given credit only once for purposes of
the loanable funds shall be made available         determining compliance with the required
for agrarian reform credit.                        allocation of fund for agrarian reform and
    a. Marketing credits considered as             agricultural credit in general.
agrarian reform credits.                               b. Development loan incentives.
    (1) Agrarian reform beneficiaries as           [Transferred to Subsec. X341.5, Item “c(1)”].
defined by P.D. No. 717;                               c. Loans for high-value crops projects.
    (2) Registered agricultural enterprises        [Transferred to Subsec. X341.5, Item “c(2)”].
duly endorsed by the nearest office of the
DAR per P.D. No. 1159;                                 § X341.4 Computation of loanable
    (3) G.O. No. 47 corporations or                funds. Loanable funds shall be:
agro-service corporations employed by                  a. The net increase from 29 May 1975
G.O. No. 47 corporation which are certified        to date of the report of the individual
by the DAR as engaged in grains                    accounts which represent the following:
production through linkage arrangements                (1) The total deposits (demand, savings,
with agrarian reform beneficiaries;                time and NOW accounts) excluding foreign
    (4) Area marketing cooperatives or             currency deposits under Circular No. 1389
Samahang Nayon duly registered with the            and deposits of the BTr representing revenue
Cooperatives Development Authority                 collections of the BIR and BOC;
(CDA);                                                 (2) Deposits of banks, net of due from
    (5) Registered agrarian reform                 other banks;
beneficiaries’ associations/other farm                 (3) Bills payable (including borrowings
groups respectively endorsed as agrarian           from banks) net of:




Part III - Page 46                                              Manual of Regulations for Banks
                                                                         §§ X341.4 - X341.5
                                                                                  10.12.31

    (a) Repo agreement by accredited                 (a) Such securities shall be held to
government securities dealers if relent to      maturity without prejudice to the right of
banks;                                          the holder bank to require the issuing
    (b) Interbank call loans with maturities    government entity to monetize, encash or
not exceeding fifteen (15) days;                repurchase such securities whenever funds
    (c) Proceeds from special on-lending        are needed by the bank for lending to the
programs like the APEX;                         beneficiaries of agrarian reform;
    (d) Proceeds from BSP rediscounting              (b) Such securities shall not be
(except special time deposits); and             hypothecated or encumbered in any way
    (e) Proceeds from special BSP credit        or earmarked for any other purposes;
accommodations in the form of emergency              (c) Such securities shall be marked
advances, overnight repo agreements and         “for agrarian reform credit” and shall be
availment of overdraft facilities.              segregated from the bank’s investment
    (4) Total capital accounts.                 portfolio; and
    b. Total collections from the loan               (d) Only the buying/lending bank may
portfolio outstanding as of 31 May 1975 to      use, during the holding period, eligible
date of the report; and                         government securities subject of a resale/
    c. The sum of Items “a” and “b” above,      repo agreement between private entities
less the net increase of the following:         for purposes of compliance with this
    (1) Bank premises, furniture and            Subsection, subject to the following:
equipment (net book value);                          (i) The resale/repurchase should be for
    (2) Real and other property owned or        terms not less than thirty (30) days without
acquired (representing properties acquired      pretermination during the first successive
in satisfaction of debts);                      thirty (30) days, which condition shall be
    (3) Other assets;                           embodied in the resale/repo agreement; and
    (4) Required reserves against:                   (ii) The buying/lending bank, with the
    (a) deposit liabilities;                    consent of the selling/borrowing entity,
    (b) deposit substitutes;                    shall register with the BSP its holdings of
    (c) others (excluding reserves for          government securities under repo/resale
margin deposits);                               agreement.
    (5) Provisions for liquidity (fifteen            (2) Eligible securities/bonds
percent (15%) of total deposits and demand           (a) NDC Agri-Agra ERAP Bonds.
liabilities); and                               Investment by banks in NDC Agri-Agra
    (6) Loans to export-oriented small and      ERAP Bonds as well as the firm
medium-scale industries involving               underwriting of said bonds by banks or by
accounts not exceeding P1.0 million.            the subsidiary IH of a UB.
                                                     (b) LGU Bonds.
    § X341.5 Allowable alternative                   (c) Pag-IBIG P4.0 billion Bond issue
compliance. In the absence of qualified         (2000 Series).
borrowers, the following shall apply:                (d) Five (5)- and Ten (10)-year Special
    a. Agrarian reform credit -                 Purpose Treasury Bonds (SPTBs) to finance
    (1) Eligibility of government securities;   the CARP-related expenditures, provided
conditions. The amount set aside for            the proceeds of the bonds will be
agrarian reform credit not actually loaned      exclusively used for the agrarian reform
out may be invested temporarily in              sector.
government securities expressly declared             (e) Zero Coupon Bond Issue by the
eligible for the purpose by the BSP, subject    HGC of up to P7.0 billion 5-year regular
to the following conditions:                    series and up to P3.0 billion 7-year special



Manual of Regulations for Banks                                            Part III - Page 47
§ X341.5
10.12.31

series to finance its guaranty servicing of             For this purpose, the following
socialized and low-cost housing projects           definitions shall apply:
only to the extent of the present value of              (a) Educational institutions shall refer
the bond computed using the original               to all educational establishments duly
yield to maturity (as of auction/issue             authorized by or with permit to operate
date).                                             from the Department of Education, Culture
     The eligibility of securities under Items     and Sports (DECS), or created by special
“(2)(a)”, “(2)(b)”, “(2)(d)” and “2(e)” shall be   laws or charters.
subject to the conditions in Items “a(1)(b)”            (b) Cooperatives shall refer to duly
and “a(1)(d)”; Item “(2)(c)” to the conditions     registered associations of persons with a
in Items “a(1)(b)” and “a(1)(d)(i)”.               common bond of interest who have
     b. Agricultural credit in general - The       voluntarily joined together to achieve a
amount set aside for agricultural credit in        lawful common social or economic end,
general not actually loaned out may be             making equitable contributions to the
invested in commercial papers issued by            capital required and accepting a fair share
entities engaged in agricultural production,       of the risks and benefits of the undertaking
processing, storage, marketing, or                 in accordance with universally accepted
exportation of agricultural products; and          cooperative principles, as defined in
importation, manufacture, distribution of          R.A. No. 6938 (Cooperative Code of the
farm machineries and equipment,                    Philippines).
fertilizers, etc. used for agricultural                 (c) Hospital shall refer to a place
production: Provided, That for purposes of         devoted primarily to the maintenance and
compliance with this Subsection, only the          operation of facilities for the diagnosis,
buying/lending bank may use commercial             treatment and care of individuals suffering
papers acquired in a resale/repo agreement         from illness, disease, injury or deformity,
during the holding period thereof subject          or in need of obstetrical or other medical
to the conditions in Item “a(1)(d)” of this        and nursing care.
Subsection.                                             It also refers to an institution, building
     c. Alternative compliance for both            or place where there are installed beds, or
agri-agra credit                                   cribs, or bassinets for twenty-four (24)-hour
     (1) Development loans. Pursuant to            use or longer by patients in the treatment
Sections 8 and 9 of R.A. No. 7721 (An Act          of diseases, injuries, deformities or
Liberalizing the Entry and Scope of                abnormal physical and mental state,
Operations of Foreign Banks in the                 maternity cases, and all institutions such
Philippines and for Other Purposes), loans         as those for convalescence, sanitorial or
extended by banks incorporated under the           sanitarial care, infirmaries, nurseries,
laws of the Philippines, whether Philippine        dispensaries and such other names by
or foreign-owned, to finance educational           which they may be designated.
institutions, cooperatives, hospitals and               (d) Medical services shall refer to
other medical services, socialized or low-         various services like general treatment,
cost housing, and to local government              physical examination, consultation,
units, without national government                 medication, dressing, suturing and
guarantee, shall be included for purposes          surgical operation, all pertaining to or
of determining compliance with the                 dealing with the healing art or the
provisions of P.D. No. 717, as amended.            science of medicine, with license to
This provision shall, however, not apply           operate from the Department of Health
to branches of foreign banks.                      (DOH).




Part III - Page 48                                              Manual of Regulations for Banks
                                                                                   §§ X341.5
                                                                                    10.12.31

     (e) Socialized housing refers to housing   Pursuant to Section 8 of R.A. No. 7900, a
programs and projects covering houses and       bank participating in the High-Value Crops
lots or home lots only undertaken by the        Development Program that shall lend a
Government or the private sector for the        minimum of five percent (5%) of its
underprivileged and homeless citizens           loanable funds, without alternative
which shall include sites and services          compliance directly to farmers’ associations
development, long-term financing,               or cooperatives for high-value crops
liberalized terms on interest payments, and     projects shall be exempted from, or shall
such other benefits in accordance with the      be deemed to have complied with the
provisions of R.A. No. 7279 (Urban              requirement of P.D. No. 717.
Development and Housing Act).                        For purposes of this item, high-value
     (f) Economic and socialized housing        crops shall refer to crops that can be
refers to housing units which are within        optimally and sustainably produced in key
the affordability level of the average and      commercial crop production areas
low-income earners which is thirty percent      identified by the Department of Agriculture
(30%) of the gross family income as             (DA) and which can generate revenue
determined by the NEDA from time to             higher than that of traditional crops (which
time. It also refers to the government-         refer to rice, corn, coconut and sugar). Such
initiated sites and services development        high-value crops include, but are not
and construction of economic and                limited to: coffee and cacao, fruit crops
socialized housing projects in depressed        (citrus, cashew, guyabano, papaya, mango,
areas.                                          pineapple, strawberry, jackfruit, rambutan,
     Socialized housing packages shall refer    durian, mangosteen, guava, lanzones, and
to housing loans not exceeding P225,000         watermelon), root crops (potato and ubi),
and low-cost housing packages shall             vegetable crops (asparagus, broccoli,
consist of Level 1 which shall refer to         cabbage, celery, carrots, cauliflower,
housing loans in excess of P225,000 but         radish, tomato, bell pepper, patola)
not more than P500,000 and Level 2 which        legume, pole sitao (snap beans and garden
shall refer to housing loans in excess of       pea), spices and condiments (black pepper,
P500,000 but not more than P2.0 million,        garlic, ginger and onion), and cutflower and
as prescribed under existing guidelines of      ornamental foliage plants (chrysanthemum,
the HUDCC for the implementation of             gladiolus, anthuriums, orchids and statice).
various government housing programs, or              Farmers’ associations/organizations
in such other amounts which HUDCC               shall refer to farmers’ cooperatives,
may prescribe in the future for said housing    associations or corporations duly registered
loans.                                          with appropriate government agencies and
     (g) LGU refers to provinces, cities,       which are composed primarily of small
municipalities and any other political          agricultural producers, farmers, farm
subdivision created by law enacted by           workers and other agrarian reform
Congress and to barangays created by            beneficiaries who voluntarily join together
ordinance passed by the Sanggunian              to form business enterprises which they
Panlalawigan or the Sanggunian Panglunsod       themselves, own, control and patronize.
that are located within its territorial              A bank participating in the high-value
jurisdiction, subject to such limitations and   crop development program shall refer to
requirements prescribed in R.A. No. 7160        the LBP, the DBP and any qualified lending
(Local Government Code of 1991).                institution which has been accredited/
     (2) Loans for high-value crops projects    selected as provided in the Implementing




Manual of Regulations for Banks                                             Part III - Page 49
§§ X341.5 - X341.9
10.12.31

Rules and Regulations of R.A. No. 7900                      in general, either between or among
(Joint Administrative Order No. 1, series                   themselves. The mechanics, including the
of 1996 of the DA dated 23 April l996).                     recording of such syndicated type of loan
     (3) (Transferred to Item “a(2)a” above                 transactions, shall follow existing
by CL dated 22 June 2000).                                  practices and regulations applicable both
     (4) Ten (10)-Year Agrarian Reform                      to the lead bank and other participating
Bond issued by the Philippine Government                    bank(s). Accordingly, the booking of
thru the LBP, subject to the conditions                     loans shall only be for the amount of
prescribed in Subsec. X341.5(a) above;                      actual participation of each syndicate
     (5) Investments by banks in the                        bank concerned. Memorandum entries,
authorized capital stock of Quedan and                      references or notations shall be made for
Rural Credit Guarantee Corporation                          the other participating bank(s).
(Quedancor);
     (6) Loans extended by banks to                             § X341.7 Interest and other charges
farmers, fishermen, cooperatives, rural                     Interest, service fees and other charges
workers and rural enterprises covered by                    shall be governed by existing rules and
the guarantees of Quedancor;                                regulations.
     (7) Rediscounting by secondary banks
of originating banks’ loan receivables                           § X341.8 Unused agri-agra funds to be
having the guarantee of Quedancor,                          utilized for socialized and low-cost housing
subject to the condition that the originating               As a source of non-budgetary funding to
bank may not use such loans as compliance                   augment the Comprehensive and Integrated
with P.D. No. 717 and only the secondary                    Shelter and Urban Development Financing
(rediscounting) bank may claim such loans                   Program under R.A. No. 7835, all unused
as compliance with P.D. No. 717;                            agri-agra allocation funds of banks in the
     (8) Loans secured by the NFAs Palay                    preceding year shall be invested in
Negotiable Warehouse Receipts (PNWRs):                      socialized and low-cost housing if the
Provided, That the PNWRs shall be printed                   utilized portion of the agri-agra funds of
on security paper by the BSP;                               said banks was solely devoted to
     (9) All loans granted to Barangay                      agricultural and agrarian reform credits.
Micro Business Enterprises (BMBEs) as
provided under Subsec. X365.5;                                  § X341.9 Submission of reports. A
     (10) Housing microfinance loans, as                    quarterly report on the following shall be
provided under Subsec. X361.5; and                          submitted to the appropriate department
     (11) Business transactions of larger                   of the SES within the period prescribed in
banks (i.e., securitization, outright                       Appendix 6.
purchases, etc.) involving housing                              a. Utilization of loanable funds set
microfinance loans, as provided under                       aside for agrarian reform credit and
Subsec. X361.5: Provided, That the volume                   agricultural credit in general;
of these banks’ housing microfinance loans                      b. Any change in the composition of
have already achieved a desirable level.                    government securities and commercial
(As amended by Circular No. 678 dated 06 January 2010 and   papers held as temporary investments for
M-2008-015 dated 19 March 2008)                             agrarian reform credit and agricultural
                                                            credit in general, respectively; and
    § X341.6 Syndicated type of agrarian                        c. A certification under oath by the
reform credit/agricultural credit. Banks                    duly designated officer of the bank of the
may grant a syndicated type of loan for                     absence of qualified borrowers for agrarian
agrarian reform credit/agricultural credit                  reform credit or agricultural credit in



Part III - Page 50                                                      Manual of Regulations for Banks
                                                                              §§ X341.9 - X341.15
                                                                                          08.12.31

general shall be submitted to the appropriate      on the total assets of the banks as of the
department of the SES together with the            reporting period:
report as required in this Subsection.                                                   Maximum
                                                                                           Daily
    §§ X341.10 - X341.11 (Reserved)                       Total Assets                      Fine
                                                   P100.0 million and below                P 100
     § X341.12 Consolidated compliance             Above P100.0 million to P200.0 million -    200
The compliance with agri-agra mandatory            Above P200.0 million to P500.0 million -    300
allocation of funds under P. D. No. 717            Above P500.0 million to P1.0 billion   -    500
shall be allowed on a groupwide basis              Above P1.0 billion to P5.0 billion     - 1,000
(based on consolidated financial                   Above P5.0 billion to P10.0 billion    - 3,000
statements of investor-FI or parent bank and       Above P10.0 billion to P25.0 billion   - 5,000
its subsidiaries/affiliates): Provided, That the   Above P25.0 billion to P50.0 billion   - 10,000
subsidiary banks are at least seventy five         Above P50.0 billion to P100.0 billion  - 15,000
percent (75%) owned/controlled by the              Over P100.0 billion                    - 30,000
parent bank, subject to the following
conditions:                                            Excess compliance in the ten percent
     a. The consolidated report shall be           (10%) agrarian reform credit may be used
submitted by the bank in the prescribed            to offset a deficiency, if any, in the fifteen
form and shall be supported by the                 percent (15%) agricultural credit in
individual reports of the bank and its             general, but not vice versa. The daily fine
subsidiaries duly signed by each bank’s            shall be counted from the end of
authorized signatory. The subsidiaries             reference quarter until the date the bank
shall continue with their respective               has complied with the credit allocation
submission of the subject report to the            requirements and files an amended
appropriate department of the SES within           report. In case of a violation noted during
the prescribed period;                             examination or verification, monetary
     b. Either the parent bank or the              penalty shall run from the date of findings
subsidiary bank can exercise the right to          until the violation is corrected; and
avail itself of/use the excess of its                  (2) Non-monetary fines
subsidiary bank/parent bank for its own                In addition to the above daily monetary
compliance; and                                    fines, any or all of the administrative sanctions
     c. In the event of a deficiency in            as provided under Section 37 of R.A. No.
compliance of any parent or subsidiary or          7653, may be imposed upon any bank for
all of these banks, the members of the             non-compliance/undercompliance, willful
board of directors and its president and the       delay or refusal to submit reports without
other officers of the parent bank shall be         prejudice to criminal sanctions against
responsible for the group’s compliance.            culpable persons provided under Sections 34,
                                                   35 and 36 of R. A. No. 7653, as follows:
    §§ X341.13 - X341.14 (Reserved)                    (a) Suspension of rediscounting
                                                   privileges or access to BSP facilities;
    § X341.15 Sanctions. The following                 (b) Suspension of lending or FX
sanctions shall be applicable for any              operations or authority to accept new
violation of this Section:                         deposits or make new investments;
    a. For non-compliance/undercompliance              (c) Suspension of interbank clearing
    (1) Daily fine in proportion to degree         privileges; and/or
of compliance shall be imposed depending               (d) Revocation of QB license.




Manual of Regulations for Banks                                                  Part III - Page 51
§§ X341.15 - X342.1
08.12.31

    b. For non-submission and delayed/                       (2) Wholesale lending of a bank to
amended reports                                          conduit non-bank FIs without quasi-banking
    The following fines shall be impose for              authority, other than those for on-lending to
non-submission and delayed/amended                       MSMEs;
reports on compliance with the mandated                      (3) Loans granted under special
credit allocations for agri-agra credit under            financing programs, other than those for
P.D. No. 717, to be reckoned on the                      MSMEs;
following day after due date of submission                   (4) Loans granted to MSMEs, other than
or until the proper report is filed with the             to BMBEs, to the extent funded by
BSP:                                                     wholesale lending of, or rediscounted
     (1) UBs/KBs/FXBs               P1,200 per day       with, another bank;
     (2) TBs                           600 per day           (5) Agrarian reform credits/other
     (3) RBs/Coop Banks                180 per day       agricultural loans granted under P.D. No.
                                                         717, other than those eligible for
    Non-submission or delayed submission                 compliance with the mandatory allocation
of reports for two (2) or more times in any              of credit for MSMEs, as well as
four (4)-quarter period shall be subject to              development loans incentives under
twice the prescribed monetary penalty for                R.A. No. 7721 granted by banks other than
willful delay or refusal to submit reports.              branches of foreign banks; and
(As amended by Circular No. 585 dated 15 October 2007)       (6) Loans and receivables arising from
                                                         repo agreements, certificates of assignment/
Sec. X342 Mandatory Allocation of Credit                 participation with recourse and securities
Resources to Micro, Small and Medium                     lending and borrowing transactions.
Enterprises. The following rules shall                       c. MSMEs shall refer to any business
govern the mandatory allocation of credit                activity within the major sectors of the
resources to Micro, Small and Medium                     economy, namely: industry, trade,
Enterprises (MSMEs).                                     services, including the practice of one’s
(As amended by Circular No. 625 dated 14 October 2008)   profession, the operation of tourism-related
                                                         establishments, and agri-business, which
    § X342.1 Definition of terms. For                    for this purpose refers to any business
purposes of this Section, the following                  activity involving the manufacturing,
definitions shall apply:                                 processing, and/or production of
    a. Lending institutions shall refer to all           agricultural produce, whether single
banks, namely: UBs, KBs, TBs and RBs/                    proprietorship, cooperative, partnership or
Coop Banks, including government-owned                   corporation:
banks.                                                       (1) whose total assets, inclusive of
    b. Total loan portfolio shall include all            those arising from loans but exclusive of
loans and receivables, other than those                  the land on which the particular business
booked in the FCDU/EFCDU as defined in                   entity’s office, plant and equipment are
the Manual of Accounts Section of the FRP                situated, must have a value falling under
under Subsec. X191.2 (gross of allowance for             the following categories:
credit losses) excluding the following:
    (1) Interbank loans receivable, other                  Micro   : not more than P 3,000,000
than (a) wholesale lending of a bank to                    Small   : more than P 3,000,000 to P 15,000,000
conduit banks/QBs for on-lending to                        Medium : more than P 15,000,000 to P 100,000,000
MSMEs, and (b) rediscounting facility
granted to another bank for loans to MSMEs;              and




Part III - Page 52                                                      Manual of Regulations for Banks
                                                                                     §§ X342.1 - X342.3
                                                                                              08.12.31

    (2) duly registered with the appropriate                  a. For MSEs
agencies as presently provided by law                         (1) Actual extension of loans to eligible
except in the case of microenterprises as                MSEs, other than to BMBEs which are
defined above.                                           covered in Item “c(3)” hereof: Provided,
(As amended by Circular No. 625 dated 14 October 2008)   however, That loans granted to MSEs other
                                                         than BMBEs, to the extent funded by
     § X342.2 Period covered; prescribed                 wholesale lending of, or rediscounted
portions of loan portfolio to be allocated               with, another bank shall not be eligible as
Banks shall for a period of ten (10) years               compliance with the mandatory credit
from 17 June 2008 to 16 June 2018,                       allocation; or
allocate at least eight percent (8%) for                      (2) Loans granted to export, import,
micro and small enterprises (MSEs) and at                and domestic micro and small scale traders,
least two percent (2%) for medium                        other than to BMBEs which are covered in
enterprises (MEs) of their total loan portfolio          Item “c(3)” hereof: Provided, however, That
based on their balance sheet as of the end               loans granted to MSEs other than BMBEs,
of previous quarter, and make it available               to the extent funded by wholesale lending
for MSME credit.                                         of, or rediscounted with another bank shall
     Banks may be allowed to report                      not be eligible as compliance with the
compliance         on       a     groupwide              mandatory credit allocation; or
(i.e., consolidation of parent and subsidiary                 (3) Purchase of eligible MSE loans
bank/s) basis so that excess compliance of               listed in Items “(1)” and “(2)” above on a
any bank in the group can be used as                     “without recourse” basis from other banks
compliance for any deficient bank in the                 and FIs; or
group: Provided, That the subsidiary                          (4) Purchase/discount on a “with or
bank/s is/are at least majority owned by                 without recourse” basis of MSE receivables,
the parent bank: Provided, further, That the             other than BMBE receivables which are
parent bank shall be held responsible for                covered in Item “c(3)” hereof; or
the compliance of the group.                                  (5) Wholesale lending or rediscounting
     The consolidated report shall be                    facility granted to PFIs for on-lending to MSEs,
submitted by the parent bank in the                      other than to BMBEs which are covered in
prescribed form and shall be supported by                Item “c(3)” hereof; or
the individual reports of the bank and its                    (6) Wholesale lending or rediscounting
subsidiaries duly signed by each bank’s                  facility granted to PFIs for on-lending to
authorized signatory.                                    export, import, and domestic micro and small
     For purposes of determining                         scale traders, other than to BMBEs which are
compliance with the mandated allocation                  covered in Item “c(3)” hereof; or
of credit resources to MSMEs, only eligible                   (7) Commercial letters of credit
credit exposures as enumerated in Subsec.                outstanding, net of margin deposits, issued
X342.3, other than those booked in the                   for the account of MSEs.
FCDU/EFCDU shall be considered.                               b. For MEs
(As amended by Circular No. 625 dated 14 October 2008)        (1) Actual extension of loans to eligible
                                                         MEs: Provided, however, That loans granted
    § X342.3 Eligible credit exposures                   to MEs to the extent funded by wholesale
Funds set aside in accordance with the                   lending of, or rediscounted with, another
foregoing requirement shall be made                      bank shall not be eligible as compliance with
available for any of the following:                      the mandatory credit allocation; or




Manual of Regulations for Banks                                                        Part III - Page 53
§§ X342.3 - X342.7
08.12.31

     (2) Loans granted to export, import,                         § X342.5 Rights/remedies available to
and domestic medium scale traders:                           lending institutions not qualified to
Provided, however, That loans granted to                     acquire or hold lands of public domain
MEs to the extent funded by wholesale                        Lending institutions which are not qualified
lending of, or rediscounted with, another                    to acquire or hold lands of the public domain
bank shall not be eligible as compliance                     in the Philippines shall be permitted to bid
with the mandatory credit allocation; or                     and take part in sales of mortgaged real
     (3) Purchase of eligible ME loans listed                property in case of judicial or extra-judicial
in Items “(1)” and “(2)” above on a “without                 foreclosure, as well as avail of receivership,
recourse” basis from other banks and FIs; or                 enforcement and other proceedings, solely
     (4) Purchase/discount on a “with or                     upon default of a borrower, and for a period
without recourse” basis of ME                                not exceeding five (5) years from actual
receivables; or                                              possession: Provided, That in no event shall
     (5) Wholesale lending or rediscounting                  title to the property be transferred to such
facility granted to PFIs for on-lending to                   lending institution. If the lending institution
MEs; or                                                      is the winning bidder, it may, during said
     (6) Wholesale lending or rediscounting                  five (5) year period, transfer its rights to a
facility granted to PFIs for on-lending to                   qualified Philippine national, without
export, import, and domestic medium scale                    prejudice to a borrower’s rights under
traders; or                                                  applicable laws.
     (7) Commercial letters of credit                        (As amended by Circular No. 625 dated 14 October 2008)
outstanding, net of margin deposits, issued
for the account of MEs.                                          § X342.6 Submission of reports. Banks
     c. Alternative compliance for either                    shall submit reports on compliance with
or both MSEs or/and MEs                                      the mandatory credit allocation on a
     (1) Paid subscription/purchase of                       quarterly basis within fifteen (15) banking
liability instruments as may be offered by                   days from the end of reference quarter to
the SB Corporation; or                                       SDC of the BSP. Said report shall be
     (2) Paid subscription of preferred                      considered Category A-3 report. It shall
shares of stock of the SB Corporation; or                    become effective starting with the
     (3) Loans from whatever sources                         reporting period ending 31 December 2008.
granted to BMBEs as provided under                               Banks shall maintain appropriate records/
Subsec. X365.5.                                              details of the reported loans to MSMEs and
(As amended by Circular Nos. 625 dated 14 October 2008 and   shall make these available to BSP.
570 dated 24 May 2007)                                       (As amended by Circular No. 625 dated 14 October 2008)

    § X342.4 Ineligible credit instruments                       § X342.7 Sanctions. The following
The purchase of government notes,                            administrative sanctions shall be imposed
securities and negotiable instruments other                  on banks:
than the instruments offered by SB                               a. For non-compliance/under compliance
Corporation, and the granting of loans to                    with the prescribed portions of loan
MSMEs, other than to BMBEs, to the extent                    portfolio to be allocated to MSEs and MEs:
funded by wholesale lending of, or                               (1) For zero compliance for both MSEs
rediscounted with, another bank shall not                    and MEs – P500,000;
be deemed compliance with the foregoing                          (2) For under compliance:
requirement.                                                     (a) For MSEs – percentage of under-
(As amended by Circular No. 625 dated 14 October 2008)       compliance multiplied by P400,000




Part III - Page 54                                                             Manual of Regulations for Banks
                                                                                            §§ X342.7 - X343.2
                                                                                                     10.12.31

    (b) For MEs – percentage of under-                             G. SPECIAL TYPES OF LOANS
compliance multiplied by P100,000
to be computed as of end of each quarter.                   Sec. X343 Interbank Loans. Interbank loan
    (3) For willful making of a false or                    transactions shall include, among other
misleading statement to the BSP - P500,000                  things, (a) interbank call loan (IBCL)
per quarter-end report without prejudice                    transactions; (b) interbank term loan
to the sanctions under Section 35 of                        transactions; (c) borrowings evidenced by
R.A. No. 7653.                                              deposit substitute instruments; and
    The imposition of the fines in Items                    (d) purchases of receivables with recourse:
“(1)” to “(2)” shall be without prejudice to                Provided, however, That only IBCL
the other administrative sanctions under                    transactions which are settled through the
Section 37 of R.A. No. 7653.                                banks’ respective DDAs with the BSP via
    (b) For non-submission/delayed                          PhilPaSS shall be subject to the reserve
submission of reports on compliance with                    requirement prescribed for IBCL in Subsec.
both the prescribed portions of loan                        X253.1: Provided, further, That funds
portfolio to be allocated to MSEs and MEs,                  borrowed by banks from trust departments
respectively:                                               of banks or IHs shall be excluded from the
     (1) UBs/KBs        - P1,200                            herein definition of interbank loan
     (2) TBs            -    600                            transactions.
     (3) RBs/Coop Banks -    180                            (As amended by Circular Nos. 703 dated 23 December 2010
per calendar day of delay.                                  and 689 dated 16 June 2010)
(As amended by Circular No. 625 dated 14 October 2008 and
585 dated 15 October 2007)
                                                                § X343.1 Systems and procedures for
                                                            interbank call loan transactions. IBCL
    § X342.8 Disposition of penalties                       transactions of banks shall be governed
collected. Ninety percent (90%) of                          by the Agreement for the PhilPaSS
penalties collected under Subsec. X342.7                    executed on 12 December 2002
above shall be remitted by the BSP to the                   between the BSP and the Bankers
MSME Development Council Fund, while                        Association of the Philippines (BAP)/
the remaining ten percent (10%) shall be                    Chamber of Thrift Banks (CTB)/Rural
retained by the BSP to cover its                            Bankers Association of the Philippines
administrative expenses.                                    (RBAP)     and     any     subsequent
(Circular No. 625 dated 14 October 2008)
                                                            amendments thereto.
                                                            (As superseded by the agreement between the BSP and
                                                            BAP/CTB/RBAP dated 12 December 2002)
     §§ X342.9 - X342.14 (Reserved)

    § X342.15 Accreditation guidelines for                      § X343.2 Accounting procedures
Rural and Thrift Banks under the SME                            a. Both lending and borrowing
Unified Lending Opportunities for National                  banks shall immediately pass the
Growth (SULONG). Without prejudice to                       corresponding entries in their books.
the refinements as may be suggested by                          b. I B C L t r a n s a c t i o n s s h a l l b e
DTI and DOF, the Twelve (12)-Point                          recorded by the lending bank as
Accreditation Guidelines for RBs and TBs,                   Interbank Call Loans Receivable and by
and the lending features of short and long                  the borrowing bank as Bills Payable
term loans for direct or retail lending by                  Interbank - Call Loans.
participating government FIs under the                          c. B a n k s s h a l l r e c o n c i l e t h e i r
SULONG, are shown in Appendix 55.                           demand deposit accounts with the BSP




Manual of Regulations for Banks                                                               Part III - Page 55
§§ X343.2 - X344.2
10.12.31

against monthly statements of account                     determined that:
to be furnished by the BSP Financial                           (1) The resources of the RB are
Accounting Department, Comptrollership                    inadequate to meet the legitimate credit
Sub-Sector.                                               needs of the locality wherein the RB is
(As amended by Circular No. 689 dated 16 June 2010)       established;
                                                               (2) There is dearth of private capital
    § X343.3 Settlement procedures for                    in said locality; and
interbank loan transactions. Interbank                         (3) I t i s n o t p o s s i b l e f o r t h e
loan transactions (call and term) among                   stockholders of the RB to increase the
banks shall be settled gross with finality                paid-up capital thereof.
subject to the availability of balances in                     The appropriate department or office
the deposit reserves maintained by                        of the BSP may prescribe and require
banks in the BSP in accordance with the                   the submission by the RB of papers and
provisions of the Agreement for the                       documents necessary for such
PhilPaSS executed on 12 December                          determination.
2002 between the BSP and the BAP/                              b. Qualifications for loan. In order
CTB/RBAP and any subsequent                               to qualify for the financial assistance
amendments thereto.                                       under said provision of law, the RB
(As superseded by the agreement between the BSP and the   shall first meet the following
BAP/CTB/RBAP dated 12 December 2002)                      requirements:
                                                               (1) Its capital-to-risk assets ratio
Sec. X344 Loans to Thrift/Rural/                          during the last six (6) months immediately
Cooperative Banks                                         preceding the loan application should be
                                                          at least ten percent (10%);
    § X344.1 Loans under Section 12 of                         (2) Its past due loans are not more
R.A. No. 7353, Section 10 of R.A. No. 7906                than twenty-five percent (25%);
and Article 102, R.A. No. 6038, as amended                     (3) It has no deficiency in allowance
by RA. No. 9520. Banks may rediscount                     for probable losses on loans and other
papers of TBs/RBs/Coop Banks. Banks shall                 risk assets;
specify the nature of papers acceptable for                    (4) I t m u s t n o t h a v e i n c u r r e d
rediscounting as well as the rediscount rate.             deficiency in its reserves against deposit
(As amended by Circular No. 682 dated 15 February         liabilities for the last six (6) months
2010)                                                     preceding the filing of the application;
                                                               (5) It must have been operating
    § X344.2 Loans under Section 14 of R.A.               profitably for the last three (3) years;
No. 7353. T h e f o l l o w i n g a r e t h e                  (6) Its arrearages with the BSP or
guidelines in the grant by the LBP, DBP                   other government FIs, if any, are being
or any government-owned or controlled                     liquidated through an approved plan of
bank or FI of a loan to an RB under                       payment, the conditions of which are
Section 14 of R.A. No. 7353.                              being complied with; and
    a. Issuance of certification. Subject to                   (7) It is operating substantially in
the qualifications of the RBs prescribed in               accordance with applicable laws and BSP
Item “b” hereof, the Monetary Board shall                 rules and regulations.
issue the certification required under                         c. Extension of loan. The LBP, the DBP
Section 14 of R.A. No. 7353, which shall                  or any government-owned or controlled
be final, after the Monetary Board has                    bank or FI shall, within sixty (60) days from




Part III - Page 56                                                      Manual of Regulations for Banks
                                                                                   §§ X344.2 - X348.1
                                                                                            08.12.31

issuance by the Monetary Board of the                      § X347.2 Ceiling. The total guarantees
certification, and subject to their loan and          or similar arrangements, the nature of which
investment policies, extend to an RB a loan           requires the guarantor to assume the
or loans from time to time, repayable in ten          liabilities/obligations of third parties in case
(10) years, with concessional rates of interest,      of their inability to pay, that may be issued
against security/ies which the stockholder or         by a bank and outstanding at any given time,
stockholders of the RB may offer.                     shall not exceed one hundred percent (100%)
                                                      of the bank’s qualifying capital.
Secs. X345 - X346 (Reserved)                               Transitory provision. This Subsection
                                                      is also covered by the last paragraph of
Sec. X347 Standby Letters of Credit. The              Subsec. X303.5.
following shall govern the issuance of
standby letters of credit.                                 § X347.3 Reports. Banks shall submit
                                                      a monthly report of domestic standby letter
     § X347.1 Domestic standby letters of             of credit opened and outstanding in the
credit. Domestic standby letters of credit            prescribed form within fifteen (15) banking
may be issued or used in transactions other           days after end of reference month to the
than those involving movement of goods                appropriate department of the SES. The
under the following guidelines:                       report shall contain the following
     a. The bank’s obligation to pay shall            minimum information:
be either unconditional (as against                        (1) Date the letter of credit was
presentation of a clean draft) or conditional         opened;
only upon the presentation of documents                    (2) Amount, purpose and accountee
and not upon actual existence or non-                 thereof;
existence of facts, i.e., the bank must not                (3) Beneficiary;
be called upon to determine disputed                       (4) Security and value of security;
questions of facts or law;                                 (5) Expiry date of the letter of credit; and
     b. The bank’s obligation shall be                     (6) Certification as to the correctness of
limited to a fixed maximum amount;                    the report by an authorized officer of the bank.
     c. The bank’s obligation shall have an
expressed expiration date;                            Sec. X348 Committed Credit Line for
     d. The standby letters of credit                 Commercial Paper Issues. The following
accommodation shall not violate any law or            guidelines shall govern committed credit
existing BSP directives, rules and regulations,       line agreements as a prerequisite for
such as the SBL and DOSRI ceilings;                   corporations proposing to issue
     e. The party who opened the standby              commercial paper, pursuant to the New
letters of credit or the ultimate borrower            Rules on the Registration of Short-Term
shall not have any past due obligation with           Commercial Papers (Appendix 14).
the issuing bank for the ninety (90)-day
period preceding the date of issuance of                  § X348.1 Who may grant line facility
the letter of credit; and                             A bank with a net worth of at least P1.0
     f. The party who opened the letter of            billion as defined in Sec. X111, may
credit (borrower or principal obligor) must           provide a committed credit line facility to
have an unqualified obligation to                     a commercial paper issuer.
reimburse the bank on the same condition                  The bank shall exercise proper caution
as the bank has paid.                                 in ascertaining that the party, in whose
(As amended by Circular No. 536 dated 18 July 2006)   favor the credit line shall be granted, is




Manual of Regulations for Banks                                                      Part III - Page 57
§§ X348.1 - X348.5
08.12.31

capable of fulfilling his commitments to the   the date of payment of obligation arising
bank under the credit line agreement.          from outstanding commercial paper;
     A bank or a group of banks may enter          e. That the request to avail of the
into a committed credit line agreement with    credit line agreement shall be addressed
any corporation proposing to issue             to the bank or to the lead bank acting for a
commercial paper. Where a group of banks       group of banks, which request shall be
is involved, a lead bank shall be designated   duly signed by a member of the board of
from among themselves.                         directors and a senior ranking officer of the
                                               commercial paper issuer duly authorized
    § X348.2 Ceilings. The aggregate           for the purpose through an appropriate
commitments under committed credit line        board resolution, which resolution shall
agreements entered into by each bank           also provide for the designation of the
pursuant to this Section shall not exceed      alternate signatories who shall likewise be
an amount equivalent to thirty percent         a member of the board of directors and a
(30%) of its net worth, reckoned as of the     senior financial officer of the corporation;
date of execution of the latest agreement:         f. That the extent of the commitment
Provided, That in no case shall a bank         of each participant in a group of banks
extend commitments to a single issuer for      under a credit line agreement shall be
more than twenty-five percent (25%) of its     stipulated in the agreement; and
net worth exclusive of other exposures to          g. That the commitment of the bank
the said issuer.                               under the credit line agreement shall be a
                                               net risk to the bank and the practice of
    § X348.3 Terms; conditions;                requiring the commercial paper issuer to
restrictions. The committed credit line        maintain a compensating deposit with the
agreement shall incorporate the following      bank shall be prohibited.
terms, conditions and restrictions:
    a. That the credit line agreement is           § X348.4 Reports to the Bangko
executed pursuant to the provisions of this    Sentral. The bank or the lead bank, as the
Section;                                       case may be, shall report to the BSP:
    b. That the bank or banks are                  a. All commitments entered into with
committed to make available to the issuer      commercial paper issuers within ten (10)
funds equivalent to at least twenty percent    banking days after the issuer shall have
(20%) of the aggregate of the commercial       been authorized by the SEC; and
paper issued and outstanding at any time;          b. Any availment under the committed
    c. That the commitment of the bank         credit line agreement within three (3)
or banks shall be firm and irrevocable and     banking days from date of drawdown.
effective for as long as the issues under a
particular permit are outstanding, subject         § X348.5 Loan limit. The liabilities of
to renewal by the bank;                        a commercial paper issuer to a bank arising
    d. That availments pursuant to the         from the availment by the issuer of the
credit line agreement shall be for the         credit line agreement shall not be counted
exclusive purpose of meeting obligations       in determining compliance by the bank
arising from commercial paper issues in        with the SBL: Provided, That in no case
accordance with the provisions of the Rules    shall they exceed five percent (5%) of the
on Registration of Commercial Papers,          net worth of the bank beyond the normal
which availments shall be honored not          applicable SBL for a period of 180 days
earlier than three (3) banking days prior to   from each availment of the credit line.




Part III - Page 58                                          Manual of Regulations for Banks
                                                                                   §§ X349 - X361.1
                                                                                          10.12.31

Sec. X349 Agriculture and Fisheries            be the grace period and not the original
Projects with Long Gestation Periods           maturity of the loan.
Pursuant to Section 24 of R.A. No. 8435
(Agriculture and Fisheries Modernization           § X349.5 Non-performing loans. The
Act of 1997), agriculture and fisheries        rule on non-performing loans under Sec.
projects with long gestation periods shall     X309 shall apply except that the reckoning
be entitled to longer grace periods in         date shall be the grace period and not the
repaying the loan based on the economic        original maturity of the loan.
life of the project. For purposes of this
Section, the following definitions and         Secs. X350 - X360 (Reserved)
guidelines shall govern the grant of loans
for long-gestating agriculture and fisheries   Sec. X361 Microfinance Loans. Pursuant to
projects.                                      Sections 40, 43 and 44 of R.A. No. 8791
                                               the following rules, regulations and
    § X349.1 Definition of terms               standards shall govern microfinancing
    a. Gestation period shall refer to the     operations of banks.
span of time from the commencement of              In the implementation of this Section,
the project to the time that it is             banks should be guided by the Notes on
economically productive and producing          Microfinance in Appendix 45.
revenues; and                                  (As amended by Circular No. 694 dated 14 October 2010 and
    b. Grace period under this Section         607 dated 30 April 2008)
shall refer to the period that the initial
amortization payment on the loan is                § X361.1 Definition
deferred. All payments, however, must be           a. Microfinance loans are small loans
made on or before the maturity of the loan.    granted to the basic sectors, as defined in the
                                               Social Reform and Poverty Alleviation Act
    § X349.2 Grace period. Banks are           of 1997 (R.A. No. 8425), and other loans
allowed to extend loans/guarantees with        granted to the poor and low-income
a grace period of up to seven (7) years to     households for their microenterprises and
viable long-gestating agriculture and          small businesses so as to enable them to raise
fisheries projects.                            their income levels and improve their living
    Suggested gestation and grace periods      standards. These loans also include the
for some of the long-gestating projects are    Housing Microfinance Product offered by
in Appendix 36.                                banks accredited by the Housing and Urban
                                               Development Coordinating Council
    § X349.3 Responsibility of lending         (HUDCC) and the Micro-Agri Loan Product
banks. Lending banks shall institute the       of the Rural Bankers Association of the
necessary safeguards and precautions to        Philippines-Microenterprise Access to
ascertain the viability of the projects        Banking Services. Sub-accounts shall be
financed and the capability of the borrower    provided for lending to Housing
in fulfilling his commitments.                 Microfinance Product, Micro-Agri and
                                               Barangay Micro Business Enterprises.
    § X349.4 Past due loans. The rule on           b. Past Due/Portfolio-at-Risk (PAR) is
past due accounts under Sec. X306 shall        the outstanding principal amount of all loans
apply except that the reckoning date shall     that have at least one (1) installment past
                                               due for one (1) or more days. The amount




Manual of Regulations for Banks                                                     Part III - Page 59
§§ X361.1 - X361.4
10.12.31

includes the unpaid principal balance but                             b. The schedule of loan amortization
excludes accrued interest. Under PAR, loans                       shall take into consideration the projected
are considered past due if a payment has                          cash flow of the borrowers which is
fallen due and remained unpaid. Loan                              adopted into the terms and conditions
payments are applied first to any interest                        formulated. Hence, microfinance loans may
due, then to any installment of principal that                    be amortized on a daily, weekly, bi-monthly
is due but unpaid, beginning with the earliest                    or monthly basis, depending on the cash
installment. The number of days of lateness                       flow conditions of the borrowers.
is based on the due date of the earliest loan                         c. Interest on such microfinancing
installment that has not been fully paid.                         loans shall be reasonable and just as may
     c. Restructured loans are loans that                         be determined by management to be
have been renegotiated or modified to either                      consistent with its credit policies.
lengthen or postpone the original scheduled                       The interest rate shall not be lower than
installment payments or substantially alter                       the prevailing market rates to enable the
the original terms of the loans. Any increase                     lending institution to recover the financial
in the face amount of the debt resulting from                     and operational costs incidental to this
accrued interest and accumulated charges                          type of microfinance lending.
which have been capitalized or made part                              d. Interest accrued and/or booked
of the principal of restructured loans shall                      shall be reversed and no accrual of
be recorded in the unearned income/                               interest shall be allowed after the
deferred credit account “Capitalized Interest                     microfinance loan has become past due
and Other Charges - Restructured Loans”.                          as defined in Subsec. X306.1.h.
Upon receipt of payment, the realized
portion shall be amortized/credited to                                § X361.3 Credit information exemption
income.                                                           In cases of microfinancing loans which
     d. Refinanced loans are loans that have                      meet the criteria in Subsec X361.2, a bank
been disbursed to enable repayment of prior                       may not require from its credit applicants,
loans that would not have been paid in                            a statement of assets and liabilities, and
accordance with the original installment                          of their income and expenditures and
schedule. Loans granted within a week or                          such information as may be prescribed by
less from the date an original loan with more                     law or by rules and regulations of the
than thirty percent (30%) of the original                         Monetary Board to enable the bank to
principal still outstanding had been paid in                      properly evaluate the credit application
advance shall be considered as refinanced                         which includes the corresponding
loans. Refinanced loans shall be classified                       financial statements submitted for taxation
and reported as restructured loans.                               purposes to the BIR, as prescribed under
(Circular No. 272 dated 30 January 2001, as amended by Circular   Section 40 of R.A. No. 8791.
Nos. 694 dated 14 October 2010, 607 dated 30 April 2008, and
409 dated 14 October 2003)
                                                                      § X361.4 Exemptions from rules on
    § X361.2 Loan limit; amortization;                            unsecured loans. In view of the unique
interest                                                          characteristics of microfinance loans, i.e.,
    a. The maximum principal amount of                            small unsecured and based on cash flow
microfinance loans shall not exceed                               of borrowers, these loans may be
P150,000. This is equivalent to the maximum                       exempted from rules and regulations which
capitalization of a microenterprise under                         may be issued by the Monetary Board with
R.A. No. 8425.                                                    respect to unsecured loans under Section




Part III - Page 60                                                            Manual of Regulations for Banks
                                                                         §§ X361.4 - X361.5
                                                                                  10.12.31

41 of the General Banking Law of 2000:          of housing microfinance is also seen as a
Provided, That the bank has:                    way to improve the living conditions of the
    a. well-defined standards, credit           enterprising poor and the low-income
policies and procedures for microfinance        households which will contribute to better
loans which are in conformity with              health, productivity and quality of life.
microfinance international best practices;          Housing as a shelter is a necessity. As
    b. specific measures to be undertaken       a sector, it spurs economic activity and
to ensure collection such as close              creates employment through the multiplier
supervision of borrowers’ projects and          effects generated in the downstream
operations; and                                 industries by the procurement of
    c. Loan Portfolio and Other Risk            construction materials. It is therefore
Assets Review System required under             important to support this sector.
Sec. X302 which would serve as:                     The following rules and regulations
    (1) An adequate loan tracking system        shall govern the approval of banks’
that allows daily monitoring of the status of   housing microfinance products:
loan releases, collection and arrearages, any       (1) Minimum criteria to determine
restructuring or refinancing; and               banks’ capacity to offer housing
    (2) A regular monitoring of past due        microfinance - The BSP will review the
loans and portfolio at risk.                    application based on the following basic
                                                principles:
    § X361.5 Housing microfinance loan              (a) To ensure that the banks have the
The BSP adopts a holistic approach in           capacity and technical capability to offer
addressing social and economic                  housing microfinance
objectives through microfinance.                    (b) To ensure that the provision of
Microfinance has been confined to mean          housing microfinance uphold adequate
financing for microenterprises or small         and appropriate risk management system
livelihood activities. It has been proven,      and procedures as well as the
however, that clients of microfinance also      microfinance best methodologies and
need a wide range of financial services         technologies.
including housing finance. Further, it is           Based on the above principles, the BSP
typical that some microfinance clients          may approve the banks’ housing
also use their access to credit for their       microfinance product upon satisfaction of
homes.                                          the following requirements:
    Housing microfinance involves the               (a) The bank must have a track record
application of microfinance principles and      of at least two (2) years in implementing
methodologies to the provision of housing       sustainable microfinance programs,
finance and consists mainly of loans to         including acceptable portfolio-at-risk
existing clients of microfinance                (PAR) levels as evaluated against
institutions and other poor and low-            prevailing BSP standards.
income households. With adequate and                (b) T h e b a n k m u s t h a v e a n
appropriate risk management measures,           appropriate housing microfinance
the product will enable institutions to         product manual where the product will
appropriately service the housing needs         be included in the bank’s microfinance
of those who are unable to access               manual as one of the types of services
traditional housing finance. The provision      or products offered to prospective




Manual of Regulations for Banks                                           Part III - Page 61
§ X361.5
10.12.31

clients. Loan/account officers must be                     Subject                    Particulars
trained about the housing microfinance                     Loan Value      ·Up to ninety percent (90%) of
product and that the details of the                                        the appraised value in case of REM
program can be communicated clearly                                        ·Acceptable valuation in cases of
to the clients.                                                            usufruct, leases, etc.
     (c) Appropriate verification of the                                   ·Capacity to pay based on household
 following:                                                                cash flow analysis
      (i) latest CAMELS rating of at least “3“             Payment         ·Frequent amortization
 and a management score of at least “3”;                                   ·With savings component
      (ii) CAR of not lower than 12%;                                      ·Loan payments should not
     (iii) no major supervisory concerns                                   exceed a reasonable percentage of
 as to warrant initiation of Prompt                                        clients income as determined by
 Corrective Action (PCA) under existing                                    cash flow analysis and capacity to
 regulations;                                                              pay as well determined through a
     (iv) no arrearages in microfinance                                    clear credit process
 borrowings,                                               Terms           ·Up to fifteen (15) years for
     d) Appropriate certification of the                                   house construction and house
banks’ commitment to implement the                                         and/or lot acquisition subject to
housing microfinance product following the                                 banks’ credit policies
guidelines set forth in the submitted manual.                              ·Up to 5 years for home
      (2) Basic product characteristics. The                               improvement/repairs
 housing microfinance product shall have the
 following basic characteristics:                             The product must share the
                                                         characteristics of the microfinance loan as
  Subject              Particulars                       describe under this section and Appendix
  Purpose        ·House construction                     45 except for the following:
                 ·House and/or lot acquisition                (a) The maximum loan amount may be
                 ·Lot acquisition should should be       P300,000.
                     for housing/business                     (b) The loans have longer terms with a
                     Home improvement/repairs            maximum of five (5) years for home
  Eligibility    ·Existing microfinance clients          improvement/repairs and fifteen (15) years for
                 ·New clients who will normally          house construction and house/lot acquisition.
                 be eligible for microfinance                 (c) For house construction and house/
                 loans based on banks’ policies          lot acquisition loans, secure tenure
                 -Borrowers who have qualified           instruments will be used as collateral. (See
                     for the Credit Surety Fund credit   Appendix 81)
                 enhancement program provided                 (3) Appropriate risk management. Due to
                 they qualify with the banks policies    a risk profile that may be different from the
  Loan Amount    ·Up to P300,000 for house               typical microfinance loan, the following risk
                 construction and/or lot acquisition     management elements must be highlighted
                 (must show tenure security)             and embedded in the product:
                 ·Up to P150,000 for home                     (a) Clients’ ability to repay based on cash
                     improvement/repairs                 flow analysis and affordability, especially
                 -incremental loan amounts to            the new clients;
                     support incremental building             (b) Opening of a savings account shall
                                                         be required for clients with no existing




Part III - Page 62                                                      Manual of Regulations for Banks
                                                                                   §§ X361.5 - X361.7
                                                                                            10.12.31

savings account;                                        (3) For housing microfinance loans
    (c) Secure tenure instruments as               secured by REM, a ninety percent (90%)
collateral/collateral substitutes for loans over   loan valuation may be allowed for loans with
P150,000;                                          a government guarantee component.
    (d) Adequate loan monitoring,                       (e) Secure tenure instruments such as
collection, control, provisioning which is         freehold, usufruct, leasehold and right to
also to be included in the banks’ housing          occupy and/or build shall be recognized as
microfinance manual;                               collateral/collateral substitute subject to
    (e) Additional risk cover may be availed       approved loan valuations (Appendix 81).
from government guarantee program;                      Banks that will offer housing
    (f) A lien or mortgage covering the house      microfinance shall also comply with the
and/or lot finance by the loan shall be            following:
executed by the borrower in favor of the               (1) The bank must maintain a sub-
lending bank; and                                  control ledger for the housing microfinance
    (g) Mortgage redemption insurance shall        product
be required to cover against death or                  (2) The housing microfinance loans
permanent disability.                              shall not exceed thirty percent (30%) of the
    (4) Application procedure                      total loan portfolio
    (a) The bank shall apply for specific              (3) Recording of PAR and the
product approval of its housing                    provisioning requirements shall be strictly
microfinance lending program with the BSP.         in accordance with applicable BSP
    (b) The bank may submit a housing              regulations.
microfinance lending program as a                  (M-2008-015 dated 19 March 2008, as amended by Circular
participant in a broader housing                   No. 678 dated 06 January 2010)
microfinance lending program based on
a common business model and organized                  § X361.6 (Reserved)
by a group of banks or industry
association.                                            § X361.7 Micro-agri loans
    c. Regulatory treatment.                            Statement of policy. The Bangko
    The following are the incentives for           Sentral ng Pilipinas adopts a holistic
housing microfinance loans (under Items            approach in addressing social and
“a” and “b”) in addition to existing               economic         objectives        through
incentives available for microfinance:             microfinance. Microfinance utilizes an
    (1) Housing microfinance loans shall           innovative technology and methodology
be eligible as alternative compliance to           that has proven successful in providing the
the mandatory credit allocation to agrarian        appropriate           financing         for
reform and other agricultural credit. These        microentrepreneurs who were previously
are also eligible for rediscounting with the       underserved by the formal financial
BSP subject to existing rules and                  system. Through the years, it has been
regulations governing rediscounting.               evident that the microfinance technology
    (2) The loans shall have an assigned           and methodology can be appropriately
risk-weight of fifty percent (50%) risk when       utilized to deliver other types of financial
not guaranteed and as low as zero percent          services in a sound, prudent and
(0%) when guaranteed by duly recognized            sustainable manner, including credit for
government guarantee programs.                     small farming activities.




Manual of Regulations for Banks                                                    Part III - Page 62a
§§ X361.7
10.12.31

    a. Minimum criteria to determine                          Subject                     Particulars
banks’ capacity to offer micro-agri loans.                   Eligibility     - Multiple income generation
The BSP will review the application based                                     activities (farm and off-farm)
on the following basic principles:                                           - Farm activities at least 2 years
    1. To ensure that the banks have the                                      in operation
capacity and technical capability to offer                                   · Existing borrowers with good
micro-agri loans                                                               track record based on banks’
    2. To ensure that the provision of                                        policies

micro-agri loans uphold adequate and                         Loan Amount     · Up to P150,000

appropriate risk management systems and                                      - Loan to start small and increase

procedures as well as the microfinance                                        incrementally based on banks’

best methodologies and technologies.                                          policies

    Based on the above principles, the                       Loan Value      · Capacity to pay based on

BSP may consider the banks’ micro-agri                                        household cash flow analysis

loans as microfinance loans upon                             Payment         · Frequent amortization

satisfaction      of    the     following                                     (weekly, semi-monthly, monthly)

requirements:                                                                - Lump sum payment may be

    1. The bank must have a track record                                      considered an option of up to 40%

of at least two (2) years in implementing                                     of loan amount

sustainable microfinance programs,                           Security        · Like microfinance loans, collateral

including acceptable portfolio-at-risk                                        substitutes may be required

(PAR) levels as evaluated against
prevailing BSP standards.                                      c. Appropriate risk management. Micro-
    2. Th e b a n k m u s t h a v e a n                     agri loans shall be subject to the same risk
appropriate micro-agri loan product                         management mechanisms required for
manual to be included in the bank’s                         microfinance loans including, but not
microfinance manual as one (1) of the                       limited to the following:
types of services or products offered to                        1. Clients’ ability to repay based on
prospective clients. Loan/account                           cash flow analysis and affordability
officers must be trained about the                          especially the new clients. The
micro-agri loan product and that the                        prospective client must have other sources
details of the program can be                               of income sufficient for the periodic
communicated clearly to the clients.                        payment of the loan while the loan project
    b. Basic product characteristics. The                   is not yet generating income, evaluated
micro-agri loan product shall have the                      through household cash flow analysis;
criteria/characteristics of a microfinance                      2. Adequate loan monitoring,
loan as provided in existing regulations                    collection, control, provisioning
in addition to the following product                        consistent with existing BSP regulations;
characteristics:                                                3. The loan product is included in the
                                                            banks’ microfinance manual as one (1) of
   Subject            Particulars                           the types of services or products offered to
  Purpose/Term   · Short term purposes only (up to          prospective clients; and
                  12 months) whether it is for farm             4. The micro-agri loans must have a sub-
                  activities, agri-business, agri-related   control ledger.
                  fixed assets, among others                    d. Regulatory treatment. The approved
                                                            micro-agri loan product will be considered




Part III - Page 62b                                                        Manual of Regulations for Banks
§§ X361.7 - 2361.8
10.12.31

as a microfinance loan and have the same       clearly distinguishable from bank
regulatory treatment as provided by            products. Towards this end, all organic
existing microfinance regulations.             documents,         informational        and
(Circular No. 680 dated 03 February 2010)      promotional materials used in the
                                               presentation and sale of these products
     § X361.8 (Reserved)                       shall prominently display both the name
                                               of the issuing insurance provider and a
     § 1361.8 (Reserved)                       clause stating that the insurance
                                               product/s of (name of issuing insurance
    § 2361.8 Marketing, sale and               provider) is/are not insured by the PDIC
servicing of microinsurance products by        and is/are not guaranteed by the (name of
thrift banks. In order to better serve         bank). The bank shall also ensure
microfinance clients pursuant to the           compliance with pertinent laws and rules
financial inclusion thrust of National         on the sale of microinsurance products
Strategy and Regulatory Framework for          set by the Insurance Commission. As part
Microinsurance, a TB, including its            of product due diligence, the bank should
authorized branch/es, extension office/s and   check whether the microinsurance
other banking offices (OBOs), can present,     product-issuing insurance provider has a
market and sell microinsurance products as     functioning customer care and claims-
defined under the Insurance Commission’s       handling mechanism to handle consumer
Memorandum Circular (IMC) No. 1-20101,         protection issues.
provided that the microinsurance product           A bank, prior to selling and/or
is duly approved by the Insurance              marketing microinsurance products, shall
Commission.                                    submit the following documents to the
    The presentation, marketing and sale of    BSP as bases for the latter’s evaluation:
microinsurance products by TBs has been            1. Copy of the approval of the bank’s
determined to be a necessary and               board of directors on the presentation, sale
complementary component of the primary         and servicing (i.e. collect premiums and
business of TBs considering the relationship   pay claims) of microinsurance products;
of the latter with their microfinance              2. Copy of duly executed written
clients. For this purpose, the Monetary        agreement between the bank and the
Board has defined that for TBs,                insurance provider on the presentation,
microinsurance products as defined under       sale and servicing by the bank of the
IMC No. 9-20062 and 1-20103 shall serve        financial products of the latter, including
as a “financial product of an allied           the terms of compensation for the services;
undertaking” under Section 20 of the               3. Copy of the letter of approval from
General Banking Law.                           the Insurance Commission covering each
    A TB can also service (i.e., collect       of the microinsurance product to be
premiums and pay claims) microinsurance        marketed or sold by the bank;
products as collection and payment agents          4. Copy of the corresponding Certificate
pursuant to Section 53.3 of the General        of Authority from the Insurance
Banking Law.                                   Commission of the insurance provider/s
    A TB which intends to avail of the         issuing the microinsurance products to be
option to market or sell microinsurance        marketed or sold;
products shall ensure that microinsurance          5. Bank’s license from the Insurance
products presented and marketed are            Commission as a microinsurance agent or




Manual of Regulations for Banks                                          Part III - Page 62c
§§ 2361.8 - X365.1
10.12.31

broker, as may be applicable.                  Commission covering all its marketing
    6. Certification from the bank             personnel for microinsurance products;
president that he/she ascertained and will     and
ensure continuing compliance with the              8. Such other information that may be
following:                                     required by the Bangko Sentral.
    a. The product is authorized for cross     (Circular No. 683 dated 23 February 2010)
selling under existing BSP rules and
regulations;                                       § 3361.8 Marketing, sale and servicing
    b. The microinsurance product is           of microinsurance products by rural and
approved by the Insurance Commission           cooperative banks
and issued by an entity duly licensed and         An RB/Coop banks including its
held in good standing by the Insurance         authorized branch/es, extension office/s
Commission;                                    and OBOs shall comply with Subsec.
    c. The bank conducted product due          2361.8 for the presentation, marketing and
diligence to be suitable to its customers;     sale of micro insurance products.
                                               (Circular No. 683 dated 23 February 2010)
    d. The organic, informational and
promotional         materials     for    the
                                                    § X361.9 (Reserved)
microinsurance products comply with BSP
requirements; and
                                                   § X361.10 Sanctions. Violations of the
    e. The bank personnel concerned has
                                               provisions of this Section shall be subject
undertaken the necessary training and
                                               to any or all of the following sanctions:
passed the qualifying examination for the
                                                   a. Disqualification of the bank
presentation and sale of microinsurance
                                               concerned from the credit facilities of the
products, in compliance with the
                                               BSP except as may be allowed under
requirements set forth by the Insurance
                                               Section 84 of R.A. No. 7653;
Commission on marketing personnel for
                                                   b. Prohibition of the bank concerned
insurance products.
                                               from the extension of additional
    7. A letter of undertaking from the bank
                                               microfinance loans; and
president that he/she will ensure the
                                                   c. Penalties and sanctions provided
retention of the following :
                                               under Sections 36 and 37 of R.A. No.
    a. Copies of the latest Certificate of
                                               7653.
Authority from the Insurance Commission
covering all insurance companies whose
                                               Secs. X362 - X364 (Reserved)
microinsurance products are being
marketed or sold by the bank;
                                               Sec. X365 Loans to Barangay Micro
    b. Copies of the letters of approval
                                               Business Enterprises. The following are
from the Insurance Commission covering
                                               the rules and regulations to implement
all the microinsurance products to be
                                               Section 9 and the second paragraph of
marketed or sold;
                                               Section 13 of R.A. No. 9178, otherwise
    c. Bank’s license from the Insurance
                                               known as the “Barangay Micro Business
Commission as a microinsurance agent or
                                               Enterprises (BMBEs) Act of 2002”.
broker or in lieu of a bank’s license as a
microinsurance agent or broker, copies of
                                                   § X365.1 Credit delivery. The LBP,
the license from the Insurance
                                               the DBP, the SBGFC, and the Peoples

 1
   Dated 29 January 2010
 2
   Dated 25 October 2006
 3
   Dated 29 January 2010



Part III - Page 62d                                             Manual of Regulations for Banks
                                                                                      §§ X365.1
                                                                                       08.12.31

Credit and Finance Corporation (PCFC)                likewise set up special credit window that
shall set up a special credit window that            will serve the financing needs of their
will service the financing needs of duly             respective members who may wish to
registered BMBEs consistent with BSP                 establish a BMBE.
policies, rules and regulations. Said                    Said FIs are encouraged to wholesale
special credit window shall service the              funds to accredited private FIs including
credit needs of BMBEs either through                 community based organizations such as
retail or wholesale lending, or both, as             cooperatives, NGOs and people’s
the concerned FIs may deem consistent                organizations engaged in granting credit,
with their corporate policies and                    for relending to BMBEs.
objectives. The GSIS and the SSS shall



                                  (Next Page is Part III -Page 63)




Manual of Regulations for Banks                                               Part III - Page 62e
                                                                                 §§ X365.1 - X365.5
                                                                                          08.12.31

   Private banking and other FIs are          granted to BMBEs under the BMBEs Act
encouraged to lend to BMBEs.                  shall be computed at twice the amount of
                                              the outstanding balance of the loans:
     § X365.2 Interest on loans to barangay   Provided, That loans used as alternative
micro business enterprises. Interest on       compliance with P.D. No. 717 which were
BMBE loans shall be just and reasonable       computed at twice their outstanding
as may be determined by management of         balance shall no longer be eligible as
the concerned entity to be consistent with    compliance with R.A. No. 6977, as
its credit policies.                          amended during the same period and vice
                                              versa: Provided, further, That said loans
    § X365.3 Amortization of loans to         may be used as alternative compliance
barangay micro business enterprises. The      with both P.D. No. 717 and R.A. No. 6977,
schedule of loan amortization shall take      as amended at the same time at the
into consideration the projected cash flow    maximum amount of 100% of their
of the borrowers. Thus, loans granted to      outstanding balance each: Provided,
BMBEs may, at the discretion of the lender,   furthermore, That funds loaned by or
be amortized daily, weekly, monthly or        rediscounted with government-owned
at such interval as the conditions of the     banks and other government FIs to
business of the BMBEs may warrant.            accredited private banking and other FIs for
                                              on-lending to BMBEs shall be eligible as
     § X365.4 Waiver of documentary           part of alternative compliance for P.D. No.
requirements. Banks and other FIs shall not   717 or for R.A. No. 6977, as amended, of
require from duly registered BMBE             the government-owned banks and the
borrowers the submission of ITR as a          accredited private banks at the maximum
condition to the grant of loans considering   amount of 100% of their outstanding
that BMBEs are exempted from income tax       balance each: Provided, finally, That loans
for income arising from their operations.     used as alternative compliance with
They may, at their discretion, also waive     R.A. No. 6977, as amended, computed at
the requirement of submission of financial    either twice their outstanding balance or
statements from BMBEs: Provided, That         their maximum amount of 100% may be
before granting any loan, banks shall         used as alternative compliance for either or
undertake reasonable measures to              both the prescribed portions of loan portfolio
determine that the borrower is capable of     to be allocated to MSEs and MEs,
fulfilling his/its commitments.               respectively, as long as the aggregate
                                              amount used does not exceed twice their
    § X365.5 Incentives to participating      outstanding balance or their maximum
financial institutions. To encourage BMBE     amount of 100%, as the case may be.
lendings, the following incentives shall be       b. Any existing laws to the contrary
granted to banks and other FIs as may be      notwithstanding, interests, commissions
applicable:                                   and discounts derived from the loans by
    a. All loans from whatever sources        the LBP, DBP, PCFC, SBGFC granted to
granted to BMBEs under R.A. No. 9178          BMBEs as well as loans extended by the
(BMBEs Act) shall be considered as part of    GSIS and SSS to their respective member-
alternative compliance to P.D. No. 717 or     employees under BMBEs Act and this
to R.A. No. 6977, as amended. For             Section shall be exempt from gross receipt
purposes of compliance with P.D. No. 717      tax (GRT).
and R. A. No. 6977, as amended, loans         (As amended by Circular No. 625 dated 14 October 2008)




Manual of Regulations for Banks                                                     Part III - Page 63
§§ X365.6 - X376.5
09.12.31

    § X365.6 Credit guarantee. The SBGFC          § X376.1 Conditions for investment in
and the Quedancor under the DA, in case       equities. A bank shall not invest in the
of agri-business activities, shall set up a   equity of any enterprise, if the investing
special guarantee window to provide credit    bank is in any of the following situations:
guarantee to BMBEs under their respective         a. Its capital is impaired, whether by
guarantee programs.                           actual losses or unbooked valuation
                                              reserves required by the BSP;
    § X365.7 Record. The LBP, DBP, PCFC           b. Its lending operations had been
and SBGFC shall maintain separate records     suspended on account of reserve or capital
of loans granted to BMBEs and the GSIS        deficiency, until such suspension shall
and SSS shall maintain records of loans       have been lifted for at least one (1) year
extended to their respective members who      and sufficient reserves or capital shall have
wish to establish BMBEs.                      been maintained;
                                                  c. It incurred losses from its
   § X365.8 Reports to Congress. The          operations during the preceding year;
LBP, DBP, PCFC, SBGFC, SSS, GSIS and              d. It has not fully booked the
Quedancor shall report annually to the        valuation reserves and other capital
appropriate Committees of both Houses         adjustments required by the BSP;
of Congress, the status of their                  e. It has exceeded the individual and
implementation of the provisions of           aggregate ceilings as well as the ceiling
Section 9 of R.A. No. 9178.                   on unsecured credit accommodations to
                                              DOSRI; and
    § X365.9 Administrative sanctions             f. Its ratio of past due loans to total loan
Any violation by the concerned                portfolio exceeds twenty percent (20%).
government FI of the provisions of
Section 9 of R.A. No. 9178 shall be               §§ X376.2 - X376.4 (Reserved)
subject to a fine of not less than P500
thousand to be imposed by the BSP and              § X376.5 Guidelines for major
which shall be payable to the BMBE            investments. The following are the
Development Fund. In case of a banking        guidelines for major acquisitions or
institution, the foregoing fine shall be      investments by a bank including corporate
without prejudice to the administrative       affiliations or structures to implement
sanctions provided for under Section 37       Section 50 of R.A. No. 8791.
of R.A. No. 7653.                                  a. Definition. Major investments
                                              are those investments in allied or
Secs. X366 - X375 (Reserved)                  non-allied undertakings including
                                              corporate affiliations or structures that
       H. EQUITY INVESTMENTS                  give the bank significant interest and/or
                                              control, such as stockholdings sufficient
Sec. X376 Scope of Authority. The following   to elect one (1) member to the acquired
rules shall govern the investment of banks    entity’s board of directors.
in the equities of allied undertakings,            b. Criteria for major investments.
whether financial or non-financial, and       Any major investment by a bank should
non-allied undertakings, as well as the       be approved by the bank’s board of
establishment/acquisition of subsidiaries     directors. In acting on such investments
and affiliates abroad.                        the Board shall consider the following:




Part III - Page 64                                           Manual of Regulations for Banks
                                                                                   §§ X376.5 - X377
                                                                                          09.12.31

    (1) Such investment must be in                 (8) Interest to be held by the bank and
accordance with the bank’s business plan       the manner in which such interest will be
and management objectives, taking into         held; and
consideration the economic developments            (9) Conformity of the investee company
and future prospects. The interests of the     for BSP to examine its books.
different stakeholders of the bank -               The BSP may impose conditions on
shareholders, depositors and creditors -       any approval, including conditions to
should always be considered before any         address financial, managerial, safety and
investment is made.                            soundness, compliance, or other
    (2) Such        investments         will   concerns. Further, the BSP may
complement/support the main business of        disapprove a proposed investment if it
the banks. Extra caution should be taken       finds that the proposal would constitute
when investing in activities where the         an unsafe and unsound practice, or would
bank has no managerial or technical            violate any law, regulation, Monetary
expertise, or businesses/industries, which     Board directive, or any condition
are high-risk.                                 imposed by, or written agreement with,
    (3) Bank management shall provide          the BSP.
for an efficient and effective “exit               The BSP may prescribe other guidelines/
mechanism” or contingency plan in case         regulations as it may consider necessary
the investee’s operations fail or do not       to ensure that banks’ major investments
prosper.                                       do not expose the banks to undue risks or
    c. Prior BSP approval; information/        hinder effective supervision.
documents required. Subject to prior               d. Examination and inspection.
approval of the BSP, banks may invest in       Whenever deemed necessary, BSP shall
allied or non-allied undertakings,             have the authority to examine investee
including corporate affiliations or            companies or to verify information
structures. A bank intending to make           provided by other supervisory authorities
such investment shall submit the               such as the SEC.
following information/documents to the             The BSP shall have the authority to
appropriate department of the SES for          seek corrective action, to issue orders to
evaluation:                                    terminate activities with or divest an
    (1) Name of the company;                   interest in an investee company, if it
    (2) Type of business activities;           believes that such action is necessary to
    (3) Board of directors’ approval on        prevent or redress unsafe or unsound
such investments;                              practice by such company that poses a
    (4) Certification from the bank’s board    material risk to the financial safety,
of directors that the criteria enumerated in   soundness or stability of a bank.
Item “b” are complied with;                    (As amended by Circular No. 671 dated 27 November 2009)
    (5) Management contract;
    (6) Financial information and other        Sec. X377 Financial Allied Undertakings
information about financial strengths,         With prior BSP approval, banks may invest
e.g., projected balance sheet and              in equities of the following financial allied
income statements for the first three (3)      undertakings, subject to the limits
years;                                         prescribed under Sec. X378:
    (7) Members of the board and senior            a. Leasing companies including
management;                                    leasing of stalls and spaces in a




Manual of Regulations for Banks                                                    Part III - Page 65
§§ X377 - X379
09.12.31

commercial establishment: Provided,              ACTIVITIES                   INVESTOR
                                                                           UB            KB
That bank investment in/acquisition of                              Publicly- Not Publicly- Not
shares of such leasing company shall be                               listed listed listed listed
limited/applicable only in cases of             Allied Enterprises
                                                Financial Allied
conversion of outstanding loan
                                                Undertaking
obligations into equity;                        UBs                100%    49%         100%    49%
    b. Banks;                                   KBs                100     49          100     49
    c. IHs;                                     TBs                    100                 100
                                                RBs                    100                 100
    d. Financing companies;                     Coop Banks             NA                  NA
    e. Credit card companies;                   Insurance
    f. FIs catering to small and medium         Companies              100                    NA
                                                VCCs                    60                    60
scale industries including venture capital      Others                 100                    49
corporation (VCC), subject to the
provisions of Sec. X379 and its                                     TB       RB        Coop Banks
                                                Financial Allied
subsections;                                    Undertaking
    g. Companies engaged in stock               UBs                 49%       49%           49%
brokerage/securities dealership; and            KBs                 49        49            49
                                                TBs                 49        49            49
    h. Companies engaged in foreign             RBs                 49        49            100
exchange dealership/brokerage.                  Coop Banks          NA        NA            30
    In addition, UBs may invest in the          Insurance           NA        NA            NA
                                                Companies
following       as    financial     allied      VCCs                60        49            49
undertakings:                                   Others              40        40            40
    (1) Insurance companies; and
    (2) Holding company: Provided,                 To promote competitive conditions,
That the investments of such holding           the Monetary Board may further limit the
company are confined to the equities of        equity investments in QBs of UBs and KBs
allied undertakings and/or non-allied          to forty percent (40%).
undertakings of UBs allowed under BSP              A publicly-listed UB or KB may own
regulations.                                   up to 100% of the voting stock of only one
    The Monetary Board may declare             (1) other UB or KB. Otherwise, it shall be
such other activities as financial allied      limited to a minority holding.
undertakings of banks.                             The existing investment of a bank in
    The determination of whether the           another bank under R.A. No. 7721 shall
corporation is engaged in a financial allied   be governed by Sec. X105 insofar as it is
undertaking shall be based on its primary      consistent with R.A. No. 8791.
purpose as stated in its articles of               The guidelines in determining
incorporation and the volume of its            compliance with ceilings on equity
principal business.                            investments in financial allied undertakings
                                               are shown in Appendix 79.
Sec. X378 Limits on Investment in the          (As amended by Circular Nos. 671 dated 27 November 2009,
Equities of Financial Allied Undertakings      581 dated 14 September 2007 and 530 dated 19 May 2006)
The equity investment of a bank in a
single financial allied undertaking shall      Sec. X379 Investments in Venture Capital
be within the following ratios in relation     Corporations. The following rules and
to the total subscribed capital stock and      regulations shall implement Presidential
to the total voting stock of the allied        Decree No. 1688 entitled “Authorizing
undertaking:                                   Banks to Invest in the Equity of Venture




Part III - Page 66                                                 Manual of Regulations for Banks
                                                                                      §§ X379 - X379.2
                                                                                             09.12.31

Capital Corporations to Assist Small and              e. The combined equity investments
Medium- Scale Enterprises”.                       in, and loans of, the bank to its VCC shall
    For purposes of this Section, a VCC shall     not exceed fifteen percent (15%) of the
refer to an entity organized jointly by private   bank’s net worth; and
banks, the National Development                       f. The aggregate investments in
Corporation and the Technology Livelihood         equities by a bank, including equity
and Resource Center and/or such other             investments in a VCC, shall not exceed the
government agency as may be authorized            prescribed ceilings under Sec. X383 on other
by the appropriate authority, the primary         limitations and restrictions.
purpose of which is to develop, promote               The guidelines in determining
and assist, thru debt or equity financing or      compliance with ceilings on equity
any other means, any small and medium-            investments in a VCC are shown in
scale enterprise in the country.                  Appendix 79.
                                                      Banks with acquired shares of stock
    § X379.1 Requirements for investors           of VCCs in excess of limits provided in
Banks may invest in a VCC organized to            this Subsection which have not been
assist small and medium-scale enterprises,        previously confirmed by the Monetary
subject to the following conditions:              Board shall seek confirmation of the
    a. The bank shall have a minimum              Monetary Board of such acquisition not
capital of P100.0 million as defined in           later than ninety (90) banking days from
Sec. X111;                                        20 December 2009: Provided, That said
    b. Two (2) or more banks may own              confirmation shall be subject, among
up to sixty percent (60%) of the total voting     others, to the condition that such shares
equity and of the total equity of a VCC. A        of stock shall be disposed of within a
bank shall not be allowed to invest in the        reasonable period not to exceed five (5)
equity of more than one VCC;                      years from the date of acquisition thereof.
    c. The initial paid-in capital of VCC shall   (As amended by Circular Nos.671 dated 27 November 2009 and
not exceed P5.0 million. Any subsequent           581 dated 14 September 2007)
increase in paid-in capital of the VCC in which
a bank owns equity shall be subject to prior          § X379.2 Equity investments of
approval of the Monetary Board;                   venture capital corporations. Equity
    d. Loans which the investor-bank may          investment of a VCC in small and medium-
grant to a VCC shall be limited to such           scale enterprises shall be subject to the
amounts as would enable the VCC to                following conditions:
promote equity financing to viable small              a. Equity financing by a VCC may be
and medium scale enterprise: Provided,            extended to a small and medium-scale
however, That unless otherwise authorized         enterprise engaged in an industry certified
by the Monetary Board, the aggregate              as desirable by the Department of Trade and
outstanding loans of such bank to a VCC           Industry; and
shall not exceed twice the amount of its              b. The total assets of the enterprises
equity investment in the VCC: Provided,           shall not exceed P4.0 million, including
further, That loans to the VCC, or the small      the VCC’s equity investment. Should the
and medium-scale enterprises shall not be         total assets of the small and medium-scale
subject to the ceilings on DOSRI, except          enterprise subsequently exceed the
where bank DOSRI are likewise                     prescribed P4.0 million maximum, the
stockholders in the VCC or in the small and       VCC equity investment therein made
medium-scale enterprise;                          before the total assets of the enterprise




Manual of Regulations for Banks                                                        Part III - Page 67
§§ X379.2 - X380
09.12.31

exceeded P4.0 million, may be maintained                (3) Safe deposit box companies;
but shall not be increased.                             (4) Companies primarily engaged in
                                                   the management of mutual funds but not in
   § X379.3 Business name of venture               the mutual funds themselves;
capital corporations. A VCC shall be                    (5) Management corporations engaged
known by any name not otherwise                    or to be engaged in an activity similar to the
appropriated: Provided, however, That the          management of mutual funds;
words “venture capital corporation” are                 (6) Companies engaged in providing
made a part thereof.                               computer services;
                                                        (7) Insurance agencies/brokerages;
    § X379.4 Reportorial requirements;                  (8) Companies engaged in home
examination by Bangko Sentral. A VCC in            building and home development;
which a bank owns equity shall be                       (9) Companies providing drying and/
subject to BSP reportorial requirements            or milling facilities for agricultural crops
prescribed for non-bank financial                  such as rice and corn;
intermediaries and may be subject to                    (10) Service bureaus, organized to
examination by the BSP.                            perform for and in behalf of banks and NBFIs
                                                   the services allowed to be outsourced
    § X379.5 Interlocking directorships            enumerated in Sec. X162: Provided, That
and/or officerships. Subject to prior              data processing companies may be allowed
approval of the Monetary Board, a person           to invest up to forty percent (40%) in the
may concurrently hold the position of a            equity of service bureaus;
director or officer in a bank and a VCC.                (11) Philippine Clearing House
                                                   Corporation (PCHC), Philippine Central
Sec. X380 Non-Financial Allied Undertakings        Depository, Inc. and Fixed Income
A bank may acquire up to 100% of the               Exchange; and
equity of a non-financial allied undertaking:           (12) Such other similar activities as the
Provided, That the equity investment of a          Monetary Board may declare as
TB/RB in any single enterprise shall remain        non-financial allied undertakings of banks.
less than fifty percent (50%) of the voting             UBs may further invest in health
shares in that enterprise: Provided, further,      maintenance organizations (HMOs).
That prior Monetary Board approval is                   In addition, TBs may also invest in the
required if the investment is in excess of forty   equities of companies enumerated in Item
percent (40%) of the total voting stock of         “b” of this Section.
such allied undertaking.                                b. RBs/Coop Banks
     The determination of whether the                   RBs/Coop Banks may invest, as a non-
corporation is engaged in a non-financial          financial undertaking, in the equities of
allied undertaking shall be based on the           companies engaged in the following:
primary purpose as stated in its articles of            (1) Warehousing and other postharvest
incorporation and the volume of its principal      facilities;
business.                                               (2) Fertilizer and agricultural chemical
     a. UBs/KBs/TBs                                and pesticides distribution;
     UBs/KBs and TBs may invest in equities             (3) Farm equipment distribution;
of the following non-financial allied                   (4) Trucking and transportation of
undertakings:                                      agricultural products;
     (1) Warehousing companies;                         (5) Marketing of agricultural products;
     (2) Storage companies;                             (6) Leasing;




Part III - Page 68                                               Manual of Regulations for Banks
                                                                                               §§ X380 - 1381.2
                                                                                                      09.12.31

    (7) Automated Teller Machine (ATM)                     or in connection with the Government’s
networks; and                                              privatization program; and
    (8) Other undertakings as may be                            d. Such other broad categories as the
determined by the Monetary Board.                          Monetary Board may declare as appropriate:
    The guidelines in determining                          Provided, further, That the bank shall submit
compliance with ceilings on equity                         within thirty (30) banking days after the
investments in non-financial allied                        investment, the following information/
undertakings are shown in Appendix 79.                     documents to the appropriate department
(As amended by Circular Nos. 671 dated 27 November 2009,   of the SES:
581 dated 14 September 2007 and 563 dated 16 March 2007)        (1) The amount of investment;
                                                                (2) The name of investee company; and
Sec. X381 (Reserved)                                            (3) The    nature      of    business,
                                                           accompanied by such pertinent documents
Sec. 1381 Investments in Non-Allied or                     as articles of incorporation, articles of
Non-Related Undertakings. Only UBs may                     partnership or registration certificate,
invest in the equity of an enterprise engaged              whichever may be applicable.
in non-allied or non-related activities.                   (As amended by Circular No. 671 dated 27 November 2009)
    The guidelines in determining
compliance with ceilings on equity                              § 1381.2 Limits on investments in
investments in non-allied or non-related                   non-allied enterprises
undertakings are shown in Appendix 79.                          a. The equity investment of a UB, or
(As amended by Circular Nos. 671 dated 27 November 2009,   of its wholly or majority-owned subsidiaries,
581 dated 14 September 2007)                               in a single non-allied enterprise shall not
                                                           exceed thirty-five percent (35%) of the total
     § 1381.1 Non-allied undertakings                      equity in that enterprise nor shall it exceed
eligible for investment by universal banks                 thirty-five percent (35%) of the voting stock
The broad category of non-allied undertakings              in that enterprise.
in which a UB may invest directly or through                    For the purpose of determining
its subsidiary shall require prior approval                compliance with the ceiling prescribed in
of the Monetary Board: Provided, That                      the preceding paragraph, (i) the equity
individual equity investments in the                       investment of the bank; and (ii) the equity
following broad categories shall not require               investment of the bank’s subsidiaries, shall
prior Monetary Board approval, except as                   be combined.
may be required in Subsec. X376.5:                              b. In no case shall the total equity
     a. Enterprises engaged in physically                  investments in a single non-allied enterprise
productive activities in agriculture, mining               of UBs, NBFIs performing QB functions and
and quarrying, manufacturing, public                       their subsidiaries, whether or not the parent
utilities, construction, wholesale trade and               financial intermediaries have equity
community and social services following the                investments in the enterprise, amount to fifty
industrial groupings in the Philippine                     percent (50%) or more of the voting stock
Standard Industrial Classification (PSIC) as               of that enterprise: Provided, however, That
enumerated in Appendix 22;                                 equity investments in excess of the ceilings
     b. Industrial park projects and/or                    prescribed herein as of 01 April 1980 may
industrial estate developments;                            be maintained but may not be increased and
     c. Financial and commercial complex                   if reduced, shall not be increased thereafter
projects (including land development and                   beyond the ceiling prescribed herein.
buildings constructed thereon) arising from                (As amended by Circular No. 671 dated 27 November 2009)




Manual of Regulations for Banks                                                                 Part III - Page 69
§§ 1381.3 - X382.3
10.12.31

    § 1381.3 Report on outstanding equity              authorities in Appendix 5, the applicant bank
investments in and outstanding loans to                shall comply with the following:
non-allied enterprises.                                     a. The citizenship, ownership ceilings
(Deleted by Circular No. 671 dated 27 November 2009)   and other limitations on voting
                                                       stockholdings in banks under existing law
Sec. X382 Investments in Subsidiaries                  and regulations; and
and     Affiliates     Abroad.     The                      b. The experience and expertise in
establishment or acquisition of                        international banking operations with proof
subsidiaries or affiliates abroad shall                to the effect that:
require prior approval of the BSP.                          (1) It must have conducted
                                                       international banking for at least three (3)
     § X382.1 Application for authority to             years prior to the date of application; and
establish or acquire subsidiaries and                       (2) Its    international       banking
affiliates abroad. The application for such            operations must have contributed a
authority shall be signed by the president of          substantial portion to its total earnings.
the bank and shall be accompanied, as a
minimum, by the following information/                      § X382.3 Conditions for approval of
documents:                                             application. The approval of the application
     a. Certified true copy of the resolution          to establish or acquire a subsidiary of an
of the bank’s board of directors authorizing           affiliate abroad shall be subject to the
the establishment or acquisition of a                  following conditions:
subsidiary or an affiliate abroad;                          a. Without prejudice to the
     b. Economic justification for such                qualification requirements of the country
establishment, indicating the services to be           where the subsidiary or the affiliate is to
offered, the minimum outlay for furniture,             be established, the proposed officer(s), at
fixture and equipment, rental and other                the time of appointment, must be at least:
expenses;                                                   (1) Twenty-five (25) years of age;
     c. A certification that an application for             (2) A college graduate, preferably with
such establishment has been filed with the             training and experience abroad;
appropriate government agency of the host                   (3) With three (3) years experience in
country;                                               international banking; and
     d. Organizational set-up of the                        (4) Must not be disqualified as an
proposed banking office showing the                    officer under existing regulations.
proposed positions and the names,                           b. The applicant shall also comply
qualifications and experience of the                   with the licensing requirements of the host
proposed manager and other officers; and               country and the necessary license to
     e. Certification signed by the president          operate shall be secured from the
or the executive vice-president that the bank          appropriate government agency of the
has complied with all the requirements                 host country;
enumerated under Subsec. X382.2.                            c. The      outward         investment
                                                       representing initial capital outlay and other
   § X382.2 Requirements for establishing              outlays shall be subject to existing
subsidiaries or affiliates abroad. In addition         regulations;
to the standard pre-qualification                           d. All dividends earned shall be
requirements for the grant of banking                  inwardly remitted to the Philippines no later




Part III - Page 70                                                   Manual of Regulations for Banks
                                                                                §§ X382.3 - X382.8
                                                                                         10.12.31

than sixty days after the date of payment.            reserves and other capital adjustments, if
For purposes of this Subsection, re-                  any; and
investment of said dividend proceeds or                   (3) Its operations in the preceding
deposits/placements thereof in accounts of            three (3) years were profitable; otherwise,
the investor banks with foreign                       the feasibility study on the proposed
correspondent banks abroad shall be                   subsidiary should show profits in the first
deemed compliance with the requirements               two (2) years of operations.
of this Subsection;                                       c. The application for authority of a
     e. The proposed subsidiary or                    bank subsidiary shall be accompanied by
affiliate shall submit the reports required           the following:
by the BSP;                                               (1) Certified true copy of the resolution
     f. The proposed subsidiary or                    authorizing the investment by the board of
affiliate shall not carry any of the business         directors of the parent bank and the bank
of a bank contemplated within the context             subsidiary;
of the Philippine banking system;                         (2) Feasibility studies on the proposed
     g. The proposed subsidiary or affiliate          subsidiary indicating, among others, the
shall not engage in stock trading activity;           economic justification, the type of industry
     h. The applicant shall submit a                  and organizational expenses to be incurred,
certification from the host country that the          including the capital expenditures; and
duly authorized personnel/examiners of                    (3) Proposed organizational structures,
the BSP will be authorized to examine the             including the proposed officers and their
proposed subsidiary or affiliate; and                 qualifications.
     i. The applicant shall defray the                    d. The applicant parent subsidiary
necessary cost and expenses to be                     shall comply with the licensing
incurred by the appropriate department                requirements of the host country and the
of the SES in the examination of the                  necessary license to operate shall be
foreign subsidiary.                                   secured from the appropriate government
(As amended by Circular No. 692 dated 23 July 2010)   agency of the host country;
                                                          e. The proposed subsidiary may
     §§ X382.4 - X382.7 (Reserved)                    invest in another subsidiary with prior
                                                      approval of the BSP;
    § X382.8 Investment of a bank subsidiary              f. Any       outward        investment
in a foreign subsidiary. The following                representing initial capital and other
guidelines shall govern the investment in a           outlays shall be subject to existing
foreign subsidiary by a bank subsidiary:              regulations;
    a. The investment of a bank                           g. At least fifty percent (50%) of the
subsidiary in the equity of a subsidiary              yearly net profits of the proposed
located abroad shall be subject to prior              subsidiary shall be declared and paid as
BSP approval;                                         cash dividends to the parent subsidiary;
    b. The bank subsidiary may invest in                  h. The proposed subsidiary shall be
a subsidiary if it meets the following                subject to -
pre-qualification requirements:                           (1) the applicable reportorial
    (1) It has complied with the minimum              requirements such as the submission of
capital requirement of the host country;              quarterly SOC and SIE; and
    (2) It has booked the required valuation              (2) the supervision and examination




Manual of Regulations for Banks                                                   Part III - Page 71
§§ X382.8 - X385
09.12.31

by the BSP and the cost of such                           banking days from 20 December 2009:
examination shall be charged against the                  Provided, That said confirmation shall be
grandparent bank; and                                     subject, among others, to the condition
    i. Any additional funding or advances                 that such shares of stock shall be disposed
of the parent bank in the Philippines to its              of within a reasonable period not to
subsidiaries abroad or the subsidiary will                exceed five (5) years from the date of
require prior BSP approval.                               acquisition thereof.
                                                          (As amended by Circular Nos. 671 dated 27 November 2009
Sec. X383 Other Limitations and                           and 581 dated 14 September 2007)
Restrictions. The following limitations and
restrictions shall also apply regarding equity            Sec. X384 (Reserved)
investments of banks.
     a. In any single enterprise. The equity              Sec. X385 Sanctions. The following
investments of UBs and KBs in any single                  sanctions shall be imposed for equity
enterprise shall not exceed at any time                   investments made without prior Monetary
twenty-five percent (25%) of the net worth                Board approval:
of the investing banks as defined in Sec.                     a. First offense - If the investment
X111 and Subsec. X105.5.                                  is not allowable under existing
     b. A g g r e g a t e l i m i t s . T h e t o t a l   regulations, divestment of the
amount of investments in equities in all                  investment and reprimand on officer/
enterprises shall not exceed the                          director who recommended/approved
following ratios in relation to the net                   the investment.
worth of the investing bank:                                  b. Subsequent offense -
         UB          KB    TB       RB     Coop Bank          On the Bank. If the investment is not
                                                          allowable under existing regulations,
LIMIT: 50%        35%      25%     25%        25%         divestment of the investment.
                                                              On the director/officer. Fine of P20,000
    c. Exclusion of underwriting                          for each investment to be imposed on the
exposure from ceiling. The exposure of a                  members of the board and the executive
bank with UB authority arising from the                   officers who recommended/approved the
firm underwriting of equity securities of                 investment per investment and to be
enterprises shall not be counted in                       shouldered personally by the officer/
determining compliance with the ceilings                  director: Provided, That if the subsequent
prescribed in this Section and Subsec.                    offense is an investment in a non-allied
1381.2 for a period of two (2) years from                 enterprise, the fine shall be P40,000.
the acquisition of such equity securities.
    d. The guidelines in determining                                I. (RESERVED)
compliance with the other limitations and
restrictions on equity investments of                     Secs. X386 - X387 (Reserved)
banks are shown in Appendix 79.
    Banks with acquired shares of stock                             J . OTHER OPERATIONS
in excess of limits provided in this Section
which have not been previously confirmed                  Sec. X388 Purchase of Receivables and
by the Monetary Board shall seek                          Other Obligations. The following
confirmation of the Monetary Board of                     regulations shall govern the purchase of
such acquisition not later than ninety (90)               receivables and other obligations.




Part III - Page 72                                                         Manual of Regulations for Banks
                                                                            §§ X388.1 - X388.3
                                                                                     08.12.31

   § X388.1 Yield on purchase of                   recourse basis shall be subject to the SBL
receivables. The rate of yield, including          of the bank: Provided, That the bank shall
commissions, premiums, fees and other              evaluate the credit worthiness of the maker
charges, from the purchase of receivables          of such promissory notes.
and other obligations, regardless of
maturity, that may be charged or received              § X388.3 Purchase of commercial
by banks shall not be subject to any               paper. Before purchasing registered
regulatory ceiling.                                commercial paper, banks authorized to
                                                   engage in quasi-banking functions shall -
   § X388.2 Purchase of receivables on                 a. Require the issuing entity to
a “without recourse” basis. The total              submit a duly certified true copy of its
exposure of a bank to a maker of                   Certificate of Registration and Authority
promissory notes resulting from the                to Issue Commercial Paper; and
purchase of receivables on a without




                                  (Next page is Part III - Page 73)




Manual of Regulations for Banks                                              Part III - Page 72a
                                                                                    §§ X388.3 - 1389
                                                                                           09.12.31

    b. Ascertain that the registration           obligations the servicing and repayment of
number and expiry date indicated in the          which are guaranteed by the Republic of the
commercial paper are the same as those in        Philippines.
the certificate of registration submitted.            b. The classification, accounting
    Any violation or failure to comply with      procedures, valuation and sales and
the provisions of this Subsection shall          transfers of investments in all debt securities
subject the erring bank to suspension or         and marketable equity securities shall be in
revocation of its authority to engage in         accordance with the guidelines in
quasi-banking functions.                         Appendices 33 and 33a.
                                                      c. Penalties and sanctions. The following
   § X388.4 Reverse repurchase                   penalties and sanctions shall be imposed on
agreements with Bangko Sentral. Reverse          FIs and concerned officers found to violate the
repo agreements with the BSP shall be            provisions of these regulations:
governed by Subsec. X601.2.                           (1) Fines to be imposed on FIs for each
                                                 violation, reckoned from the date the violation
    § X388.5 Investment in debt and readily      was committed up to the date it was corrected:
marketable equity securities. The following           (i) P20,000/day for UBs;
rules and regulations shall govern                    (ii) P10,000/day for KBs;
investment in debt securities and marketable          (iii) P2,000/day for TBs; and
equity securities.                                    (iv) P1,000/day for RBs/Coop Banks.
    a. Banks may invest in the following:             (2) Sanctions to be imposed on
    (1) Readily marketable bonds and other       concerned officers:
debt securities which are of such use or              (i) First offense - reprimand the
demand as to make them the subject of            officers responsible for the violation; and
constant dealings in securities markets, with         (ii) Subsequent offenses - suspension of
such frequent quotations of price as to make     ninety (90) days without pay for officers
the price easily and definitely ascertainable,   responsible for the violation.
and the security easy to realize upon sale at    (As amended by Circular Nos. 670 dated 18 November 2009,
any time: Provided, That the bonds and other     628 dated 31 October 2008, 626 dated 23 October 2008 and
debt securities have complied with the new       585 dated 15 October 2007, M-2007-006 dated 28 February
rules on registration of commercial papers:      2007; Circular Nos. 558 dated 22 January 2007, 546 dated
Provided, further, That in the case of RBs/      17 November 2006 and 509 dated 01 February 2006)
Coop Banks, the bonds and other securities
have been approved by the BSP.                   Sec. X389 (Reserved)
    TBs may invest in evidences of
indebtedness which are registered with the       Sec. 1389 Guidelines on the Investment of
SEC but are not readily marketable               Universal Banks and Commercial Banks in
securities: Provided, That these evidences       Credit-Linked Notes, Structured Products
of indebtedness shall be acquired with           and Securities Overlying Securitization
recourse against a bank or a QB.                 Structures. In line with the policy of
    It shall be the responsibility of the        encouraging banks to diversify their
investing bank to undertake the necessary        investment portfolios and to foster the
investigation to satisfy itself with regard to   development of a market for new financial
the particular security.                         products, the BSP has issued guidelines
    (2) Evidences of indebtedness of the         on the investment of UBs and KBs in
Republic of the Philippines or the BSP, and      (1) CLNs and similar products (Sec. 1628),
any other evidences of indebtedness or           (2) foreign currency denominated




Manual of Regulations for Banks                                                      Part III - Page 73
§§ 1389 - X393.3
08.12.31

structured products (Secs. 1635 and 1636)                 § X393.2 Regional loans-to-deposits
and (3) securities overlying securitization           ratio. An individual bank’s regional LDR is
structures (Sec. 1648).                               a measure of the extent of its lending activity
    No prior BSP approval is required to              vis-à-vis deposits generated in a region. On
enter into authorized transactions.                   an aggregate basis, the regional LDR for the
However, it shall be the responsibility of            banking system is an indicator of the level
UBs/KBs to fully comply with appropriate              of bank deposits which have been
risk management standards including, as a             transformed into investments in a region.
minimum, those prescribed under relevant              The latter may be used by banks as a
Sections. The regulatory requirements                 benchmark in assessing their regional
enumerated in Appendix 66 shall be fully              lending and deposit operations as against
complied with by UBs/KBs investing in                 that of the industry and their peer group.
products allowed under Secs./Subsec. 1628,            (As amended by Circular No. 613 dated 18 June 2008)
1635 and X115.3.
    The guidelines on the accounting for                  § X393.3 Computation of the
investments in CLNs and other SPs, in                 regional loans-to-deposits ratio. The
addition to those prescribed under PAS 39,            individual bank’s regional LDR shall be
is provided in Appendix 66a.                          computed by dividing a bank’s
(As amended by M-2008-010 dated 07 March 2008)        aggregate loans by its aggregate deposit
                                                      liabilities on a per region basis as of the
Sec. 2389 (Reserved)                                  same reporting cut-off date. A bank, in
                                                      computing its regional LDR, shall be
Sec. 3389 (Reserved)                                  guided by the following:
                                                          a. Loans shall be reported by a bank
Secs. X390 - X392 (Reserved)                          in the region where the loan proceeds
                                                      were utilized or channeled to, i.e.,
    K. MISCELLANEOUS PROVISIONS                       location of the end-users.
                                                          b. Deposits, on the other hand,
Sec. X393 Loans-to-Deposits Ratio. The                shall be reported by a bank in the
following policies and guidelines shall               region wherein these were generated.
govern the loans-to-deposits ratio (LDR) of               For purposes of this Section, loans
head offices and branches.                            shall refer to the amortized cost of a
(As amended by Circular No. 613 dated 18 June 2008)   bank’s total loan portfolio, excluding
                                                      “Loans to BSP”, “Interbank Loans
   § X393.1 Statement of policy. It is the            Receivable” and loans granted by a
policy of the BSP to promote healthy                  bank’s FCDU/EFCDU. Deposits, on the
competition within the banking system as              other hand, shall refer to a bank’s total
well as provide enhanced banking statistics           deposit liabilities, excluding FCDU/
necessary for informed decision-making.               EFCDU deposits.
(As amended by Circular No. 613 dated 18 June 2008)   (As amended by Circular No. 613 dated 18 June 2008)




Part III - Page 74                                                       Manual of Regulations for Banks
                                                                            § X394 - X394.2
                                                                                  08.12.31

Sec. X394 Acquired Assets in Settlement        of the foreclosed/purchased asset shall be
of Loans. The following rules shall govern     conducted by an independent appraiser
assets acquired in settlement of loans.        acceptable to the BSP.
                                                   b. The carrying amount of ROPA shall
     § X394.1 Posting. Banks shall post at     be allocated to land, building, other
all times in a conspicuous place in the        non-financial assets and financial assets
premises of their head office and each of      (e.g., receivables from third party or equity
their branches and other banking offices a     interest in an entity) based on their fair
list of acquired assets together with the      values, which allocated carrying amounts
corresponding lowest price at which the        shall become their initial costs.
bank is willing to sell such property.             c. The non-financial assets portion of
However, this requirement shall not            ROPA shall remain in ROPA and shall be
relieve the bank from the requirement          accounted for as follows:
under Section 52 of R.A. No. 8791 to               (1) Land and buildings shall be
dispose of such acquired assets.               accounted for using the cost model under
                                               PAS 40 “Investment Property”;
     § X394.2 Booking                              (2) Other non-financial assets shall
     a. ROPA in settlement of loans            be accounted for using the cost model
through foreclosure or dation in payment       under PAS 16 “Property Plant and
shall be booked under the ROPA account         Equipment”;
as follows:                                        (3) Buildings and other non-financial
     (1) Upon entry of judgment in case of     assets shall be depreciated over the
judicial foreclosure;                          remaining useful life of the assets, which
     (2) Upon execution of the Sheriff’s       shall not exceed ten (10) years and three
Certificate of Sale in case of extrajudicial   (3) years from the date of acquisition,
foreclosure; and                               respectively; and
     (3) Upon notarization of the Deed of          (4) Land, buildings and other
Dacion in case of dation in payment            non-financial assets shall be subject to the
(dacion en pago).                              impairment provisions of PAS 36
     ROPA shall be booked initially at the     “Impairment”.
carrying amount of the loan (i.e.,                 d. Financial assets, shall be
outstanding loan balance adjusted for any      reclassified and booked according to
unamortized premium or discount less           intention under HFT, DFVPL, AFS, HTM,
allowance for credit losses computed           INMES, Unquoted Debt Securities
based on PAS 39 provisioning                   Classified as Loans or Loans and Receivable
requirements, which take into account the      and accounted for in accordance with the
fair value of the collateral) plus booked      provisions of PAS 39, except interests in
accrued interest less allowance for credit     subsidiaries, associates and joint ventures,
losses (computed based on PAS 39               which shall be booked under Equity
provisioning        requirements)      plus    Investments in Subsidiaries, Associates and
transaction costs incurred upon acquisition    Joint Ventures and accounted for in
(such as non-refundable capital gains tax      accordance with the provisions of PAS 27,
and documentary stamp tax paid in              28 and 31, respectively.
connection with the foreclosure/purchase           e. ROPAs that comply with the
of the acquired real estate property):         provisions of PFRS 5 “Non-Current Assets
Provided, That if the carrying amount of       Held for Sale” shall be reclassified and
ROPA exceeds P5.0 million, the appraisal       accounted for as such.




Manual of Regulations for Banks                                            Part III - Page 75
§§ X394.2 - X394.3
08.12.31

     f. Claims arising from deficiency           cost subject to depreciation and
judgments rendered in connection with the        impairment testing, which shall be
foreclosure of mortgaged properties shall        reckoned from the time of acquisition.
be lodged under the real account                 (As amended by Circular Nos. 555 dated 12 January 2007 and
“Deficiency Judgment Receivable”; while          520 dated 20 March 2006)
probable claims against the borrower
arising from the foreclosure of mortgaged             § X394.3 Sales contract receivable
properties shall be lodged under the                  a. Sales Contract Receivable (SCR)
contingent account “Deficiency Claims            shall be recorded based on the present
Receivable”.                                     value of the installments receivables
     g. Appraisal of properties. Before          discounted at the imputed rate of interest.
foreclosing or acquiring any property in         Discount shall be accreted over the life of
settlement of loans, it must be properly         the SCR by crediting interest income using
appraised to determine its true economic         the effective interest method. Any
value. If the amount of ROPA to be booked        difference between the present value of
exceeds P5.0 million, the appraisal must         the SCR and the derecognized assets shall
be conducted by an independent appraiser         be recognized in profit or loss at the date
acceptable to the BSP. An in-house               of sale in accordance with the provisions
appraisal of all ROPAs shall be made at          of PAS 18 “Revenue”: Provided,
least every other year: Provided, That           furthermore, That SCR shall be subject to
immediate re-appraisal shall be conducted        impairment provision of PAS 39.
on ROPAs which materially decline in                  The provisions of this Subsection shall
value.                                           be applied retroactively to all outstanding
     h. Non-cash payment for interest. FIs       ROPAs and SCRs: Provided: That for
that accept non-cash payments for interest       properties acquired before 01 January
on their borrowers’ loans shall book the         2005, the carrying amount of the acquired
acquired assets as ROPA. The amount to           properties when initially booked under
be booked as ROPA shall be the booked            ROPA shall be the cost subject to
accrued interest less allowance for credit       depreciation and impairment testing,
losses (computed based on PAS 39                 which shall be reckoned from the time of
provisioning requirements): Provided, That       acquisition.
if the carrying amount of ROPA exceeds                b. SCRs which meet all the
P5.0 million, the appraisal of the foreclosed/   requirements/conditions enumerated
purchased asset shall be conducted by an         below are hereby considered performing
independent appraiser acceptable to the          assets and therefore, not subject to
BSP. The carrying amount of ROPA shall           classification:
be allocated in accordance with Item “b”              (1) That there has been a
and shall be subsequently accounted for          downpayment of at least twenty percent
in accordance with Item “c” of this              (20%) of the agreed selling price or in the
Subsection.                                      absence thereof, the installment payments
     The provisions of this Subsection shall     on the principal had already amounted to
be applied retroactively to all outstanding      at least twenty percent (20%) of the agreed
ROPAs and sales contract receivables:            selling price;
Provided: That for properties acquired                (2) That payment of the principal must
before 01 January 2005, the carrying             be in equal installments or in diminishing
amount of the acquired properties when           amounts and with maximum intervals of
initially booked under ROPA shall be the         one (1) year;




Part III - Page 76                                                Manual of Regulations for Banks
                                                                                     §§ X394.3 - X394.15
                                                                                                 08.12.31

     (3) That any grace period in the                           §§ X394.11 - X394.14 (Reserved)
payment of principal shall not be more than
two (2) years; and                                               §§ X394.15 Joint venture of banks with
     (4) That there is no installment payment               real estate development companies
in arrear either on principal or interest:                       a. Statement of policy. It is the policy
Provided, That an SCR account shall be                      of the BSP to encourage banks to dispose
automatically classified “Substandard” and                  of their ROPAs in settlement of loans and
considered non-performing in case of                        other advances either through foreclosure
non-payment of any amortization due:                        or dacion en pago as well as other
Provided, further, That an SCR which has                    properties acquired as a consequence of a
been classified “Substandard” and considered                merger/consolidation which are no longer
non-performing due to non-payment of any                    necessary for their banking operations.
amortization due may only be upgraded                       Towards this end, banks are hereby
restored to unclassified and/or performing                  authorized to enter into Joint Venture
status after a satisfactory track record of at              Agreements (JVA) with real estate
least three (3) consecutive payments of the                 development companies for the
required amortization of principal and/or                   development of said properties, subject to
interest has been established.                              the requirements prescribed under this
(As amended by Circular No. 520 dated 20 March 2006)        Subsection.
                                                                 b. For purposes of this Subsection,
     §§ X394.4 - X394.9 (Reserved)                          joint venture shall refer to a contractual
                                                            arrangement/undertaking between a
    § X394.10 Transfer/sale of non-                         bank and a duly registered real estate
performing assets to a special purpose                      development company (developer) for
vehicle or to an individual. The procedures                 the purpose of developing the
governing the transfer/sale of non-performing               abovementioned properties of the bank.
assets (NPAs) to a Special Purpose Vehicle                  The bank contributes said properties to the
(SPV) or to an individual that involves a single            undertaking while the developer
family residential unit, or transactions                    contributes all the development funds,
involving dacion en pago by the borrower                    resources, technical expertise, equipment,
or third party of an NPL, for the purpose of                personnel and all other requirements
obtaining the Certificate of Eligibility (COE)              desired or needed for the implementation
which is required to avail of the incentives                and completion of the undertaking
provided under R.A. No. 9182 are                            including marketing, where applicable.
presented in Appendix 56.                                   The bank and the developer shall be bound
    The accounting guidelines on the sale                   by the contract that establishes joint control
of NPAs to SPVs and to qualified                            of the undertaking. Although the developer
individuals for housing under the SPV Act                   may be designated as operator or manager
of 2002 are presented in Appendix 56a.                      of the undertaking, it does not, however,
    The significant timelines related to the                absolutely control the undertaking but only
implementation of R.A. No. 9182, also                       acts in accordance with the authorities
known as the “Special Purpose Vehicle                       granted to him under the JVA.
Act” as amended by R.A. No. 9343 are                             c. Forms of a joint venture. A bank
presented in Appendix 56b.                                  and a developer may undertake a joint
(As amended by M-2008-014 dated 17 March 2008, M-2008-005   venture under the following forms:
dated 04 February 2008, M-2007-013 dated 11 May 2007 and         (1) A jointly-controlled operation/
M-2006-001 dated 11 May 2006)                               undertaking, which does not involve the




Manual of Regulations for Banks                                                          Part III - Page 77
§ X394.15
08.12.31

establishment of a corporation, partnership           (3) The bank shall not recognize
or other entity, or a financial structure that   income out of its contribution to the joint
is separate from the bank and the                venture, regardless of the agreed valuation
developer themselves. Under this form of         of said properties.
joint venture, the rights and obligations of          (4) The bank shall not provide funds
the bank and the developer shall be              to the joint venture either as a loan or
governed primarily by their contract that        capital contribution.
must clearly specify the following:                   (5) The     JVA     or    contractual
    (a) authority of the developer to            arrangement shall clearly stipulate the
develop/subdivide the property and               rights and obligations of the bank and the
subsequently, to sell the individual lots        developer.
under a special power of attorney;                    (6) The bank shall secure prior
    (b) sharing in the sales proceeds of the     Monetary Board approval of the JVA.
developed ROPAs or in the developed lots;             e. Application for authority to enter
    (c) sharing in taxes;                        into JVA. A bank desiring to enter into a
    (d) sharing in the assets of the joint       JVA with a developer for the purpose of
venture particularly in the developed/           developing its ROPAs and other properties
subdivided lots should there still be unsold     acquired as a consequence of its merger/
lots at the time of termination of the joint     consolidation with another bank/FI shall
venture; and                                     secure prior Monetary Board approval of
    (e) name under which the subdivided          said agreement. For that purpose, the
lots shall be registered pending their sale.     concerned bank shall submit an application
    (2) A jointly-controlled entity, which       for Monetary Board approval to the
involves the establishment of a new              appropriate department of the SES. The
juridical entity, preferably a corporation       application shall be signed by the bank’s
that is separate and distinct from the bank      president or officer of equivalent rank and
and the developer. A jointly controlled          shall be accompanied by the following
corporation may be established either for        documents/information:
the purpose of developing properties of               (1) The name of the developer;
banks for immediate sale or converting                (2) Name of the principal stockholders
them into earning assets such as hotels and      and officers as well as members of the
shopping malls.                                  board of directors of said company;
    d. Requirements and limitations in a              (3) Relationship of the bank with the
joint venture. A bank desiring to enter into     developer, if any;
a JVA with a developer for the purpose of             (4) List and brief description of the
developing its ROPAs and/or other                properties to be contributed by the bank
properties acquired as a consequence of          including their market values, book values
merger/consolidation shall comply with the       and the valuation agreed upon under the
following:                                       proposed JVA;
    (1) The JVA shall be approved by the              (5) Certification by the bank’s
board of directors of the bank.                  president or officer of equivalent rank that
    (2) The bank’s contribution to the joint     the JVA is strictly in compliance or will
venture, in whatever form undertaken,            strictly comply with the requirements of
shall be limited to ROPAs and properties         this Subsection; and
acquired as a consequence of the bank’s               (6) Such other documents/information
merger/consolidation with another bank/          that the concerned department of the SES
financial institution.                           may require.




Part III - Page 78                                            Manual of Regulations for Banks
                                                                                     §§ X394.15 - X395
                                                                                              08.12.31

     f. Non-financial allied undertaking.       income out of its contribution to the joint
All types of banks are hereby authorized        venture. The excess of the value of the
to invest in the equities of companies          capital stock received by the bank over the
engaged in real estate development as a         book value of the contributed properties
non-financial allied undertaking, subject to    shall be credited to the account “Deferred
the following conditions:                       Credits”.
     (1) Investments shall be limited to            (3) Properties invested in equities of
ROPAs and other properties acquired as a        developers shall be booked in accordance
consequence of a bank’s merger/                 with the PAS: Provided, That the bank shall
consolidation with another bank/FI;             not recognize income out of the properties
     (2) Investments shall be subject to        invested if there is already an existing
existing BSP requirements applicable to         subsidiary or affiliate relationship between
investments in non-financial allied             the bank and the investee corporation prior
undertakings; and                               to the investment, regardless of the agreed
     (3) If there is already an existing        valuation of said properties. The excess of
subsidiary or affiliate relationship between    the agreed valuation of said properties over
the bank and the investee corporation prior     their book value shall be booked as
to the investment, the bank shall not           “Deferred Credits”.
recognize income out of its invested                h. Coverage. The provisions of this
properties. The excess of the value of the      Subsection shall apply to ROPAs existing,
capital stock received by the bank over the     as well as those which may be acquired
book value of its invested properties shall     by banks in settlement of non-performing
be booked as “Deferred Credits”.                or past due loans and advances
     g. Accounting treatment. Accounting        outstanding, as of 09 March 2006 and to
treatment of the properties contributed by      properties acquired as a consequence of
a bank to a joint venture or invested in the    merger or consolidation which are
equities of developers.                         outstanding in the books of banks as of said
     (1) In a joint venture in the form of a    date.
jointly controlled operations/undertaking,          i. Sanctions. Any violation of the
which does not involve the establishment        provisions of this Subsection and/or any
of a corporation or other entity, the bank      misrepresentation in the certification and
shall continue to recognize in its books the    information required to be submitted to the
properties contributed to the undertaking.      BSP under this Subsection shall subject the
However, the regular provisioning against       bank and the officer or officers responsible
probable losses required under existing         therefore, to the penalties provided under
regulations may be discontinued upon            Sections 35, 36 and 37 of R. A. No. 7653.
execution and implementation of the JVA.        (Circular No. 518 dated 09 March 2006)
     (2) In a joint venture in which a
corporation is created, the bank shall book     Sec. X395 Credit Policies of Government-
the properties contributed to the               Owned Corporations Government-owned
undertaking as investment pursuant to the       corporations which perform banking or
provisions of PAS 31. It shall also recognize   credit functions shall coordinate their
its interest in the corporation using the       general credit policies with the Schedule
proportionate consolidation method or the       of Credit Priorities embodied in Appendix
equity method as long as it continues to        23. Within the provision of their respective
have joint control over the corporation:        charters, these corporations shall limit their
Provided, That the bank shall not recognize     credits to the economic activities falling




Manual of Regulations for Banks                                                          Part III - Page 79
§§ X395 - 1397
08.12.31

under Priority II of said schedule to fifty     employees for the same purpose which
percent (50%) of their outstanding loans at     are covered by bank’s fringe benefit plan
any time.                                       and which plan was approved by the
                                                Monetary Board; and
Sec. X396 Parcellary Plans on Crop                  (2) land developers/construction
Loans. Banks shall require the submission       companies and other borrowers for the
of parcellary plans a requisite for granting    acquisition and development of land
crop loans to sugarcane planters.               and/or construction of buildings and
                                                structures, including housing units for
Sec. X397 (Reserved)                            sale/lease and/or for use in retail/
                                                wholesale, manufacturing or other income-
Sec. 1397 Limits on Real Estate Loans of        generating purposes, including loans for
UBs/KBs. Total real estate loans of UB/KBs,     the land development and construction of
excluding:                                      residential properties.
    a. Loans extended to individual                 It shall not include loans for
households for purposes of financing the        construction of highways, streets, bridges,
acquisition, construction, and/or               tunnels, railways, and other infrastructure
improvement of housing units and                for public use.
acquisition of any associated land that is or       Purchase by banks of receivables under
will be occupied by the borrower,               Contract to Sell (CTS) executed between
regardless of amount;                           the real estate developers and home buyers
    b. Loans extended to land developers/       on a with recourse basis shall be
construction companies for the purpose of       considered loans to real estate developers
development and/or construction of              and shall be classified as commercial real
socialized and low-cost residential             estate loans.
properties as defined under existing                Trust departments of UBs/KBs shall be
guidelines of the HUDCC for the                 exempted from the prescribed limit on real
implementation of government housing            estate loans.
programs, which are intended for sale to            Under existing HUDCC guidelines,
individual households;                          socialized and low-cost housing loans are
    c. Loans to the extent guaranteed by        defined as follows:
the HGC; and                                        Housing                  Loan Ceiling
    d. Loans to the extent collateralized           Package
by non-risk assets under existing
regulations shall not exceed twenty                 Low-cost
percent (20%) of the total loan portfolio,           Level 1-A
net of interbank loans.                             (Socialized)         P300,000 and below
    For this purpose, real estate loans shall       Level 1-B            Above P300,000
refer to loans granted to:                                               to P500,000
    (1) individual households for the               Level 2              Above P500,000
acquisition,      construction       and/or                              to P1,250,000
improvement of housing units and
acquisition of any associated land that is or       Level 3              Above P1,250,000 to
will be occupied by the borrower,                                        P3,000,000
including loans granted to bank officers and    (As amended by Circular No. 600 dated 04 February 2008)




Part III - Page 80                                                 Manual of Regulations for Banks
                                                                            §§ 2397 - X399
                                                                                  08.12.31

Sec. 2397 (Reserved)                                  L. GENERAL PROVISION
                                                          ON SANCTIONS
Sec. 3397 (Reserved)
                                               Sec. X399 General Provision on
Sec. X398 Debt Service Limit on Local          Sanctions. Any violation of the provisions
Government Borrowings. To ensure the           of this Part shall be subject to Sections 36
effective implementation of the debt           and 37 of R.A. No. 7653.
service limit on local government                  The guidelines for the imposition of
borrowings as stipulated in Section 324 (b)    monetary penalty for violations/offenses
of the Local Government Code of 1991,          with sanctions falling under Section 37 of
all banks shall require each borrowing LGU     R. A. No. 7653 on banks, their directors
to present a certificate of its debt service   and/or officers are shown in Appendix 67.
and borrowing capacity, duly certified by
the Bureau of Local Government Finance –
Department of Finance (BLGF-DOF).




Manual of Regulations for Banks                                           Part III - Page 81

				
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