1999 Manual of Regulations For Banks

1999 1999 MANUAL OF REGULATIONS FOR BANKS BSP CIRCULAR NO. 189-99 The Monetary Board, in its Resolution No. 1034 dated July 22, 1998, adopted the new Manual of Regulations for Banks (the "New Manual) as a code of Bangko Sentral regulation for banks which shall be cited as authority for enjoining compliance with banking rules and as basis for the imposition of sanctions for the violation thereof. The New Manual shall become effective fifteen (15) days after its complete publication in the Official Gazette: Provided, That banks are given three (3) months' grace period to comply with the new regulations prescribed therein: Provided, further, That prior to such effectivity, Bangko Sentral regulatory issuances for banks shall continue to be in force. On the date the New Manual becomes effective, the Manual of Regulations for Banks and Other Financial Intermediaries (Books I to III) and provisions of regulatory issuances existing as of December 31, 1996 which are consistent therewith shall be deemed repealed and/or superseded. Foreign exchange rules and regulations not covered by the New Manual shall continue to be in effect. Except foreign exchange rules and regulations not covered by the New Manual, Bangko Sentral regulations for banks issued after December 31, 1996 shall be printed semestrally as updates or supplements to the New Manual. The New Manual and subsequent updates are available for sale at the Public Information, Relations and Special Events Office (PIRSEO) located at the Ground Floor, Cafetorium Building, BSP Complex, Bangko Sentral ng Pilipinas, Malate, Manila. For the Monetary Board: (SGD.) GABRIEL C. SINGSON Governor FOREWORD Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the Monetary Board recognized the need not only to update but also to improve the presentation of the Manual of Regulations for Banks to make it a more useful and accessible information resource for the banking industry and the interested public. A special committee was therefore created to revise the old Manual accordingly. This revised format Manual is the outcome of that effort. It benefits from the inputs of the many concerned departments of the BSP as well as the various banking industry associations. By combining-a multi-dimensional perspective, we are hopeful that this new Manual and its subsequent updates will be able to more effectively disseminate the regulatory issuances of the BSP on a timely basis and provide appropriate guidance to the banking community. We also believe that it will be a especially useful tool at this time when the BSP has come up with many new banking regulations and issuances in response to the unprecedented challenges posed by the Asian crisis. Nevertheless, we recognize that there will always be room for improvement. Our task is therefore a continuing one of constant search for a better product to provide better services to the public. (SGD.) GABRIEL C. SINGSON Governor PREFACE The Manual of Regulations for Banks (the "New Manual") is not only an updated edition but also a revised and consolidated version of the first three volumes of the present Manual of Regulations for Banks and Other Financial Intermediaries, Books I, II and III (the "Old Manual"). Its adoption was impelled by certain considerations, namely: (1) that the Central Bank of the Philippines as the administrative agency of the monetary, banking and credit system which promulgated the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the central monetary authority, (2) that the Old Manual was last updated as of December 31, 1989 and since that time, significant developments in the statutory law and the financial system of the country have rendered many of its provisions obsolete or irrelevant, and (3) that there was need to simplify the code of banking regulations for ready accessibility to, and the convenience of, the users. To accomplish the work of proposing revisions to the Old Manual, the Monetary Board of the BSP, in its Resolution No. 1203 dated December 7, 1994, directed the creation of a multi-departmental Ad Hoc Review Committee. This committee was officially constituted under Office Order No. 2, Series of 1995, and consisted of Deputy General Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services), as chairman; Deputy Director Ma. Dolores B. Yuvienco 1 (Supervisory Reports and Studies Office); Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director Danilo A. Monasterio 2 (Department of Rural Banks); and Deputy Director Erlinda S. J. Marzan 3 (Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head; and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III; Atty. Policarpo G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco, Manager II. as members. Deputy Governor Armando L. Suratos, the BSP General Counsel, acted as committee consultant. TcSaHC Under the aforesaid office order, the Ad Hoc Committee was instructed to examine, evaluate and review the provisions of the four (4) volumes of the Old Manual for purposes of (1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous or inconsistent with law, (2) amending provisions so as to make them consistent with each other or to harmonize them with existing statutes, executive issuances and official policies, and (3) reformulating provisions to make them more responsive to the needs and concerns of the banking and financial intermediation industry. In discharging its mandated task, the Ad Hoc Review Committee sought the comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange, Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to provisions of the Old Manual relevant to their operations. Likewise consulted were the various associations in the banking industry, such as the Bankers Association of the Philippines, the Chamber of Thrift Banks, the Rural Bankers Association of the Philippines and the Trust Officers Association of the Philippines. Their valuable suggestions contributed much to the accomplishment of this project. The New Manual comprises substantially the regulatory issuances of the BSP, as well as those of its predecessor agency, the Central Bank of the Philippines, as they were amended or revised through the years, up to December 31, 1996. It shall serve as the principal source of all substantive banking regulations issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein. It is fervently hoped that the publication of this long-awaited new code of banking regulations will measure up to the expectations of the Philippine banking sector. The Bangko Sentral ng Pilipinas INSTRUCTIONS TO USERS The Manual of Regulations for Banks (the "Manual") is the comprehensive authority on the specific subjects covered therein. New rules and amendments to the rules shall immediately form part of the affected section or subsection of the Manual while repealed rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e., circular or memorandum, but shall instead cite the particular section or subsection of the Manual. Banks shall comply with the provisions of the Manual and any violation thereof shall be punishable under its specific and/or general provisions on sanctions. As a code of regulations, the Manual is divided into six (6) Parts, further subdivided into major topic headings, which introduce the corresponding sections, and subsections that make up the provisions governing a particular aspect of bank operations. Coding of the Manual provisions utilizes six (6) digits where the first four (4) digits refer to a Section while the last two (2) digits (if there is any and which is separated from the first four digits by a period) refer to a Subsection. The first digit refers to the type of bank to which the regulation is applicable. "X" denotes a common provision applicable to all types of banks; "1" means that the regulation is applicable to expanded commercial banks (EKBs) and commercial banks (KBs), except when the regulation expressly states that it applies only to an EKB or KB; "2" means that it applies to thrift banks (TBs); and "3" to rural banks (RBs) and cooperative banks (Coop Banks). The second digit refers to the Part of the Manual, i. e., "1" refers to "Organization, Management and Administration"; "2" for "Deposits and Borrowing Operations"; "3" for "Loans, Investments and Special Credits"; "4" for "Trust, Other Fiduciary Business and Investment Management Activities; "5" for "Foreign Currency Deposit System and Other Operations in Foreign Currency"; and "6" for "Miscellaneous Provisions". The third and fourth digits refer to the main caption of the provision while the fifth and sixth digits, if any, refer to the subcaption or subsection under the main caption. EScAHT Thus, to illustrate, the code numbers X161.2 and 1162.13 would indicate The paging is by Parts, each Part beginning with page 1, and so on corresponding to the number of pages of the particular Part. For example, Part I, consisting of six (6) pages will start with a first page indicated as "Part I-Page 1" and "Part I-Page 6" as its last page. The pages for updates will follow the same pagination, with letters added to indicate inserted pages, in the event amendatory regulations that require additional pages. TABLE OF CONTENTS BSP Circular No. 189-99 PART ONE Organization, Management and Administrations A. Scope of Authority SECTION X101 Scope of Banking Authorities X101.1 Expansion of banking authorities X101.2 Prerequisites for grant of expanded commercial banking authority SECTIONS X102-X105 (Reserved) B. Capitalization SECTION X106 Bank Capital X106.1 Minimum Capitalization X106.2 Capital build-up program X106.3 Sanctions SECTIONS X107-X110 (Reserved) C. Merger or Consolidation of Banks SECTION X111 Merger or Consolidation to Meet Minimum Capital X111.1 Requirement of Bangko Sentral Approval X111.2 Rules on exchange of shares SECTION X112 Merger or Consolidation Incentives SECTIONS X113-X115 (Reserved) D. Net Worth to Risk Assets Ratio SECTION X116 Basic Ratio X116.1 Definitions X116.2 Required reports X116.3 Sanctions SECTIONS X117-X120 (Reserved) E. Liberalized Entry and Scope of Operations of Foreign Banks SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks X121.1 Modes of entry of foreign banks X121.2 Qualification requirements X121.3 Guidelines for selection X121.4 Capital requirements X121.5 Composition of capital accounts; compliance with capital ratio X121.6 Prescribed ratio of Net Due to and permanently assigned capital X121.7 Head Office guarantee X121.8 Scope of authority for locally incorporated subsidiaries of foreign banks as well as branches with full banking authority X121.9 Limitations X121.10 Change from one mode of entry to another X121.11. Listing of shares with the Philippine Stock Exchange X121.12 Applicability to Philippine corporations SECTIONS X122-X125 (Reserved) F. Stock, Stockholders and Dividends SECTION X126 Shares of Stock of Banks X126.1 Limits of stockholdings in a singled bank X126.2 Transfer of shares X126.3 Foreign equity investment in domestic banks under R.A. No. 337, as amended X126.4 Convertibility of preferred stock to common stock X126.5 Issuance of redeemable shares X126.6 Stock options/warrants SECTION 1127 Shares of Stock of Commercial Banks 1127.1 Limits on stockholdings in several banks 1127.2 to 1127.5 (Reserved) SECTION 2127 Shares of Stock of Thrift Banks 2127.1 Moratorium on ownership ceilings 2127.2 Preferred Shares 2127.3 to 2127.5 (Reserved) SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks 3127.1 Moratorium on ownership ceilings 3127.2 Government-held shares 3127.3 Limits on stockholdings in several rural banks 3127.4 Convertibility of preferred stock to common stock 3127.5 Equity investment by holding corporations SECTIONS X128-X135 (Reserved) SECTION X136 Dividends X136.1 Definitions X136.2 Requirements on the declaration of dividends X136.3 Net amount available for dividends X136.4 Reporting and verification X136.5 Recording of dividends X136.6 Issuance of fractional shares SECTION 1137 (Reserved) SECTION 2137 (Reserved) SECTION 3137 Limitations/Amount Available on Dividends Declared by Rural Banks and Cooperative Banks 3137.1 Dividends on government shares SECTIONS X138-X140 (Reserved) G. Directors, Officers and Employees SECTION X141 Definition and Qualifications of Directors X141.1 Definition of directors X141.2 Qualifications of a directors SECTION X142 Definition and Qualifications of Officers X142.1 Definition of officers X142.2 Qualifications of an officer SECTION X143 Disqualification of Directors and Officers X143.1 Persons disqualified to become directors X143.2 Persons disqualified to become officers X143.3 Disqualification procedures SECTION X144 Bio-data of Directors and Officers SECTION X145 Interlocking Directorships and/or Officership X145.1 Representatives of government SECTION X146 Profit Sharing Programs SECTION 1147 (Reserved) SECTION 2147 (Reserved) SECTION 3147 Bonding/Training of Directors, Officers and Employees SECTION X148-X150 (Reserved) H. Banking Offices SECTION X151 Establishment/Relocation/Voluntary Closure of Branch X151.1 Prior Monetary Board Approval X151.2 Application for authority to establish branches X151.3 Prerequisites for the grant of authority to establish a branch/banking office X151.4 Branch location X151.5 Date of opening X151.6 Requirements for opening a branch X151.7 Relocation/transfer of branches X151.8 Voluntary closure of branches X151.9 Sanctions SECTION X152 Relocation/Transfer of Head Offices X152.1 Sanctions SECTION X153 Establishment of Additional Branches of Foreign Banks X153.1 Application for authority to establish additional branch X153.2 Requirements for establishment of additional branch X153.3 Date of opening X153.4 Requirements for opening branch X153.5 Choice of locations for establishment of branches X153.6 Sanctions SECTION X154 Establishment of Offices Abroad X154.1 Application for authority to establish an office abroad X154.2 Requirements for establishing an office abroad X154.3 Conditions attached to the approved application X154.4 Date of opening X154.5 Requirements for opening an office abroad X154.6 Sanctions SECTION X155 Tellering Booths I. Banking Days and Hours SECTION X156 Banking Days and Hours X156.1 Banking hours beyond the minimum X156.2 Report of, and changes in, banking days and hours X156.3 Posting of schedule of banking days and hours SECTIONS X157-X160 (Reserved) J. Records and Reports SECTION X161 Records X161.1 Adoption of the Manual of Accounts X161.2 Statements of Financial Accounting Standards SECTION X162 Reports X162.1 Categories and signatories of bank reports X162.2 Sanctions in case of willful delay in the submission of reports/refusal to permit examination X162.3 Submission of certain required information X162.4 Reports on crimes/losses X162.5 Report on real estate transactions X162.6 Reconciliation of head office and branch transactions X162.7 List of stockholders and their stockholdings X162.8 Bangko Sentral Offices, where reports are submitted X162.9 Publication/Posting of statement of condition X162.10 Consolidated financial statements of banks and their subsidiaries engaged in allied undertakings X162.11 Reports of other banking offices X162.12 Reports required of foreign subsidiaries/affiliates of domestic banks 1162.13 Additional reports from EKBs/KBs 2162.13 Reserved 3162.13 (Reserved) K. Internal Control SECTION X163 Internal Control System X163.1 Proper accounting records X163.2 Independents balancing X163.3 Division of duties and responsibilities X163.4 Joint custody X163.5 Signing authorities X163.6 Dual Control X163.7 Number control X163.8 Rotation of duties X163.9 Independence of the internal auditor X163.10 Confirmation of accounts X163.11 Other internal control standards X163.12 Internal control procedures for dormant/inactive accounts SECTION X164 Audited Financial Statements of Banks X164.1 Financial Audit X164.2 Posting of audited financial statements SECTION X165 Bank Protection X165.1 Objectives X165.2 Designation of security officer X165.3 Security program X165.4 Security devices X165.5 Reports X165.6 Bangko Sentral Inspection L. Miscellaneous Provisions SECTION X166 Place of Board of Directors' Meeting SECTION X167 Business Name SECTION X168 Management Contracts SECTION X169 Bank Service Contracts SECTION X170-X198 (Reserved) SECTION X199 General Provision on Sanctions PART TWO Deposit and Borrowing Operations A. Demand Deposits SECTION X201 Authority to Accept or Create Demand Deposits X201.1 Prerequisites to accept or create demand deposits for thrift banks/rural banks/cooperative banks X201.2 Requirements for accepting demand deposits X201.3 Sanctions SECTION X202 Temporary Overdrawings; Drawings Against Uncollected Deposits SECTION X203 Checks Without Sufficient Funds SECTION X204 Current Accounts of Bank Officers and Employees SECTIONS X205-X212 (Reserved) B. Savings Deposits SECTION X213 Servicing Deposits Outside Bank Premises SECTION X214 Withdrawals SECTION X215 Rental Deposits of Lessees SECTION X216-X222 (Reserved) C. Negotiable Order of Withdrawal Accounts SECTION X223 Authority to Accept Negotiable Order or Withdrawal Accounts X223.1 Prerequisites to accept NOW accounts for thrift banks/rural banks/ cooperative banks X223.2 Requirements for accepting NOW accounts X223.3 Sanctions SECTION X224 Rules on Servicing NOW Accounts SECTION X225 Minimum Features SECTION X226 Clearing of NOW SECTIONS X227-X230 (Reserved) D. Time Deposits SECTION X231 Minimum Term of Time Deposits SECTION X232 Special Time Deposits SECTION X233 Negotiable Certificates of Time Deposits X233.1 Prerequisites to issue NCTDs for thrift banks/rural banks cooperative banks X233.2 Requirements for issuing NCTDs X233.3 Minimum features X233.4 Insurance coverage X233.5 Desistance from issuing new NCTDs X233.6 Sanctions E. Deposit Substitute Operations (Quasi-Banking Functions) SECTION X234 Scope of Quasi-Banking Functions X234.1 Elements of quasi-banking X234.2 Definition of terms and phrases X234.3 Transactions not considered quasi-banking X234.4 Pre-conditions for the exercise of quasi-banking functions X234.5 Certificate of Authority from the Bangko Sentral SECTION X235 Deposit Substitute Instruments X235.1 Prohibition against use of acceptances, bill of exchange and trust certificates X235.2 Negotiation of promissory notes X235.3 Minimum features X235.4 Interbank loan transactions X235.5 Physical delivery of securities X235.6 Other rules and regulations governing the issuance and treatment of deposit substitute instruments SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitutes SECTION X237 Money Market Placements of Rural Banks X237.1 Definition of terms X237.2 Conditions required on accepted placements not covered by prohibition X237.3 Sanctions SECTION X238 Without Recourse Transactions X238.1 Sanctions SECTION X239 Issuance of Bonds X239.1 Definitions of Terms X239.2 Compliance with Securities and Exchange Commission rules on registration of bonds issues X239.3 Notice to Bangko Sentral ng Pilipinas X239.4 Minimum features X239.5 Issuance of commercial papers F. Government Deposits SECTION X240 Statement of Policy X240.1 Prior Monetary Board approval X204.2 Banks which may accept government funds X240.3 Prerequisites for the grant of authority to accept deposits from the Government and government entities X240.4 Application for authority X240.5 Limits on funds of the Government entities that may be deposited with banks X240.6 Liquidity floor X240.7 Exempt transactions X240.8 Reports X240.9 Sanctions SECTION X241 (Reserved) G. Interest SECTION X242 Interest on Deposits/Deposit Substitutes X242.1 Time of payment of interest on time deposits/deposit substitutes X242.2 Treatment of matured time deposits/deposit substitutes SECTION X243 Disclosure of Effective Rates of Interest SECTIONS X244-X252 (Reserved) H. Reserves Against Deposit and Deposit Substitute Liabilities SECTION X253 Accounts Subject to Reserves; Amounts Required SECTION X254 Composition of Reserves X254.1 Allowable drawings against reserves X254.2 Exclusion of uncleared checks and other cash items X254.3 Interest income on reserve deposits X254.4 Book entry method for reserve securities SECTION X255 Exemptions from Reserve Requirements SECTION X256 Computation of Reserve Position SECTION X257 Reserve Deficiencies; Sanctions X257.1 Chronic reserve deficiency; penalties X257.2 Failure to cover overdrawings with the Bangko Sentral X257.3 Payment of penalties on reserve deficiencies SECTION X258 Report on Compliance SECTIONS X259-X260 (Reserved) I. Sundry Provisions on Deposit Operations SECTION X261 Booking of Deposits and Withdrawals X261.1 Clearing cut-off time X261.2 Definitions X261.3 Booking of cash deposits X261.4 Booking of non-cash deposits X261.5 Booking of deposits after regular banking hours X261.6 Other records required X261.7 Notice required SECTION X262 Miscellaneous Rules on Deposits X262.1 Specimen signatures, ID photos X262.2 Insurance on deposits SECTION X263 Disclosure of Service and Maintenance Fees on Dormant Accounts SECTION X264 Unclaimed Balances SECTION X265 Acceptance, Encashment or Negotiation of Checks Drawn in Favor of Commissioner/Collector of Customs SECTION X266 Deposit Pick-up Services X266.1 Operation of armored car SECTION 1266 (Reserved) SECTION 2266 (Reserved SECTION 3266 Qualifying Criteria Before a Rural Bank/Cooperative Bank Engages in Deposit Pick-up Services SECTION X267 Automated Teller Machines J. Borrowings from the Bangko Sentral SECTION X268 Qualifications/Disqualifications for Availment of BSP Credit Facilities; Penalties X268.1 Qualifications for availment of credit facilities by banks X268.2 Grounds for temporary disqualification X268.3 Effects of natural calamities X268.4 Credit examination of borrowing banks SECTION X269 Rediscount Ceilings; Eligibility of Papers; Maturities X269.1 Rediscount ceilings X269.2 Eligibility of papers X269.3 Maturities X269.4 Suspension of re-discounting privilege X269.5 Loan value, rediscount and lending rates X269.6 Specification of areas or rediscounting X269.7 Remittance of collections; repayments; arrearages SECTION X270 Repurchase Agreements with the Bangko Sentral SECTION X271 Bangko Sentral Liquidity Window X271.1 Nature of liquidity window X271.2 Terms of credit X271.3 Limit SECTION X272 Emergency Loans or Advances to Banking Institutions X272.1 Nature of Emergency loans or advances X272.2 When an emergency loan or advance may be availed of X272.3 Procedures X272.4 Allowable amount of emergency loan or advance X272.5 Manner and conditions of release X272.6 Types of acceptable collaterals X272.7 Interest rate X272.8 Term X272.9 Other documentary requirements X272.10 General terms and conditions SECTION X273 Facility to Committed Credit Lines Issuers X273.1 Nature of special credit accommodations X273.2 Conditions to access X273.3 Terms of credit X273.4 Ceiling SECTION 1274 (Reserved) SECTION 2274 Countryside Financial Institutions Enhancement Program for Thrift Banks (CFIEP) SECTION 3274 Countryside Financial Institutions Enhancement Program for Rural and Cooperative Banks SECTION X275 Recording and Reporting of Borrowings SECTION X276-X280 (Reserved) K. Other Borrowings SECTION X281 Borrowings from the Government X281.1 Exemption from reserve requirement SECTION X282 Borrowings from Trust Departments or Investment Houses SECTION 1283 (Reserved) SECTION 2283 Mortgage/Chattel Mortgage Certificates of Thrift Banks SECTION 3283 (Reserved) SECTION 1284 (Reserved) SECTION 2284 (Reserved) SECTION 3284 Borrowings of Rural Banks/Cooperative Banks SECTIONS X285-X298 (Reserved) SECTION X299 General Provision on Sanctions PART THREE Loans, Investments and Special Credits SECTION X301 Lending Policies SECTION X302 Loan Portfolio and Other Risk Assets Review System A. Loans in General SECTION X303 Loan Limit to a Single Borrower X303.1 Definition of terms X303.2 Discounted/rediscounted papers included in loan limit X303.3 Contingent liabilities included in loan limit X303.4 Exclusion from loan limit X303.5 Sanctions SECTION X304 Loan Proceeds X304.1 Prohibited used of loan proceeds SECTION X305 Interest and Other Charges X305.1 Rate of interest in the absence of stipulation X305.2 Escalation clause; when allowable X305.3 Floating rates of interest X305.4 Accrual of interest earned on loans SECTION X306 Past Due Accounts X306.1 Accounts considered past due X306.2 Demand loans X306.3 Renewals/extensions X606.4 Restructured loans X606.5 Writing-off of loans as bad debts SECTION X307 "Truth in Lending Act" Disclosure Requirement X307.1 Definition of terms X307.2 Information to be disclosed X307.3 Inspection of contracts covering credit transactions X307.4 Posters SECTION X308-310 (Reserved) B. Secured Loans SECTION X311 Loans Secured by Real Estate Mortgage X311.1 Loans Secured by junior mortgage on real estate 1311.2 (Reserved) 2311.2 (Reserved) 3311.2 Eligible real estate collaterals on rural bank cooperative banks loans X311.3 Insurance on real estate improvements X311.4 (Reserved) 2311.4 Foreclosure by thrift banks 3311.4 Foreclosure by rural/cooperative banks X311.5 Redemption of foreclosed real estate mortgage SECTION X312 Loans Secured by Chattels SECTION X313 Loans Secured by Personal Properties SECTION X314 Increased Loan Values and Terms of Loans for Home Building SECTION X315 Loans Secured by Certificates of Time Deposit SECTIONS X316-X318 (Reserved) C. Unsecured Loans SECTION X319 Loans Against Personal Security X319.1 General guidelines X319.2 Proof of financial capacity of borrower X319.3 Amounts and terms of credit accommodations; renewals X319.4 Signatories X319.5 Collateral requirements X319.6 Sanctions SECTIONS X320-X321 (Reserved) D. Restructured Loans SECTION X322 Restructured Loans; General Policy X322.1 Definition X322.2 Procedural requirements X322.3 Restructured loans considered past due SECTION X323-X325 (Reserved) E. Loans and Other Credit Accommodations to Directors and Officers, Stockholders and their Related Interests SECTION X326 General Policy X326.1 Definitions SECTION X327 Transactions Covered SECTION X328 Transactions Not Covered X328.1 Applicability to credit card operations SECTION X329 Direct or Indirect Borrowings SECTION X330 Individual Ceilings SECTION X331 Aggregate Ceiling; Ceiling on Unsecured Loans SECTION X332 Exclusions from Aggregate Ceiling SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks SECTION X334 Procedural Requirements SECTION X335 Reportorial Requirements SECTION X336 Availment of Credit Facility with the Bangko Sentral SECTION X337 Sanctions SECTION X338 Waiver of Secrecy of Deposits SECTION X339 Financial Assistance to Officers and Employees X339.1 Mechanics 1339.2 Funding by foreign banks 2339.2 (Reserved) 3339.2 (Reserved) X339.3 Other conditions/limitations X339.4 Reportorial requirements SECTION X340 (Reserved) F. Mandatory Credits SECTION X341 Agrarian Reform and Agricultural Credit X341.1 Definition of terms X341.2 Who may borrow; purposes X341.3 Required allocation for agrarian reform and agricultural credit in general X341.4 Computation of loanable funds X341.5 Allowable alternative investment X341.6 Syndicated type of agrarian reform credit/ agricultural credit X341.7 Interest and other charges X341.8 Unused agri-agra funds to be utilized for socialized and low-cost housing X341.9 Submission of reports SECTION X342 Mandatory Credit to Small Enterprises X342.1 Definition of terms X342.2 Mandatory allocation of credit resources to small enterprises X342.3 Eligible investments X342.4 Ineligible instruments X342.5 Guarantee coverage X342.6 Submission of reports X342.7 Lendings to medium enterprises X342.8 Sanctions G. Special Types of Loans SECTION X343 Interbank Loans X343.1 Systems and procedures for interbank call loans transactions X343.2 Accounting procedures SECTION X344 Loans to Thrift/Rural Cooperative Banks X344.1 Loans under Section 12 of R.A. No. 7353, Section 10 of R.A. No. 7906 and Article 108, R.A. No. 6938 X344.2 Loans under Section 14 of R.A. No. 7353 SECTION X345-X346 (Reserved) SECTION X347 Standby Letters of Credit X347.1 Domestic standby letters of credit X347.2 Ceiling X347.3 Reports SECTION X348 Committed Credit Line for Commercial Paper Issues X348.1 Who may grant line facility X348.2 Ceilings X348.3 Terms; conditions; restrictions X348.4 Reports to the Bangko Sentral X348.5 Loan limit SECTIONS X349-X375 (Reserved) H. Equity Investments SECTION X376 Scope of Authority X376.1 Conditions for investment in equities SECTION X377 Financial Allied Undertakings SECTION X378 Limits on Investments in the Equities of Financial Allied Undertaking SECTION X379 Investments in Venture Capital Corporations X379.1 Requirements for investors X379.2 Equity investments of venture capital corporations X379.3 Business name of venture capital corporations X379.4 Reportorial requirements; examination by Bangko Sentral X379.5 Interlocking directorship and/or officerships SECTION X380 Non-Financial Allied Undertakings SECTION X381 Investment in Non-Allied or Non Related Undertakings 1381.1 Non-allied undertaking eligible for investment by expanded commercial banks 1381.2 Limits on investments in non-allied enterprises 1381.3 Report on outstanding equity investments in and outstanding loans to non-allied enterprises SECTION X382 Investments in Subsidiaries and Affiliates abroad X382.1 Application for Authority to establish or acquire subsidiaries and affiliates abroad X382.2 Requirements for establishing subsidiaries or affiliates abroad X382.3 Conditions for approval of application SECTION X383 Other Limitations and Restrictions SECTION X384 (Reserved) SECTION X385 Sanctions I. Reserved SECTIONS X386-X387 (Reserved) J. Other Operations SECTION X388 Purchase of Receivables and Other Obligations X388.1 Yield on purchase of receivables X388.2 Purchase of receivables on a "without recourse" basis X388.3 Purchase of commercial paper X388.4 Reverse repurchase agreements with Bangko Sentral X388.5 Investment in bonds and other debt instruments SECTIONS X389-X392 (Reserved) K. Miscellaneous Provisions SECTION X393 Loans-to-Deposits Ratio X393.1 Statement of Policy X393.2 Other methods of compliance X393.3 Geographical groupings SECTION X394 Assets Acquired in Settlement of Loans SECTION X395 Credit Policy of Government Owned Corporations SECTION X396 Parcellary Plans on Crop Loans SECTION X397-X398 (Reserved) SECTION X399 General Provisions on Sanctions PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION X401 Statement of Principles SECTION X402 Scope of Regulations SECTION X403 Definitions A. Trust and Other Fiduciary Business SECTION X404 Authority to Perform Trust and Other Fiduciary Business X404.1 Prerequisites for engaging in trust and other fiduciary business X404.2 Pre-operating requirements SECTION X405 Security for the Faithful Performance of Trust and Other Fiduciary Business X405.1 Basic security deposit X405.2 Eligible securities X405.3 Valuation of securities and basis of computation of the basic security deposit requirement X405.4 Compliance period; Sanctions X405.5 Reserves against peso-denominated Common Trust Funds and Trust and Other Fiduciary Accounts-Others X405.6 Composition of reserves X405.7 Computation of reserve position X405.8 Reserve deficiencies; Sanctions X405.9 Report of compliance SECTION X406 Organization and Management X406.1 Organization X406.2 Composition of trust committee X406.3 Qualifications of committee members, officers and staff X406.4 Responsibilities of administration SECTION X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities SECTION X408 Unsound Practices SECTION X409 Trust and other Fiduciary Business X409.1 Minimum documentary requirements X409.2 Lending and investment disposition X409.3 Transactions requiring prior authority X409.4 Ceilings on loans X409.5 Funds awaiting investment or distribution X409.6 Other applicable regulations on loans and investments X409.7 Operating and accounting methodology SECTION X410 Common Trust Funds X410.1 Establishment of common trust funds X410.2 Minimum documentary requirements for common trust funds X410.3 Management of common trust funds X410.4 Trustee as participant in common trust funds X410.5 Exposure limit of common trust fund to a single person or entity X410.6 Operating and accounting methodology SECTION X411 Investment Management Activities X411.1 Minimum documentary requirements X411.2 Minimum size of each investment management account X411.3 Commingling of funds X411.4 Lending and investment disposition X411.5 Transactions requiring prior authority X411.6 Title to securities and other properties X411.7 Ceilings on loans X411.8 Operating and accounting methodology SECTION X412 FCDU/EFCDU Trust Accounts X412.1 Banks with trust authority X412.2 Banks without trust authority X412.3 Additional deposit for the faithful performance of trust duties X412.4 Liquidity requirement to FCDU/EFCDU common trust funds X412.5 Applicability of rules and regulations SECTION X413 Required Surplus B. Investment Management Activities SECTION X414 Authority to Perform Investment Management X414.1 Pre-requisites for engaging in investment management activities X414.2 Pre-operating requirements SECTION X415 Security for the Faithful Performance of Investment Management Activities X415.1 Basic security deposit X415.2 Eligible securities X415.3 Valuation of securities and basis of computation of the basic security deposit requirement X415.4 Compliance period; Sanctions SECTION X416 Organization and Management SECTION X417 Non-Investment Management Activities SECTION X418 Unsound Practices SECTION X419 Conduct of Investment Management Activities SECTION X420 Required Surplus C. General Provisions SECTION X421 Books and Records SECTION X422 Custody of Assets SECTION X423 Fees and Commissions SECTION X424 Taxes SECTION X425 Reports Required X425.1 To trustor, beneficiary, principal X425.2 To the Bangko Sentral SECTION X426 Audits X426.1 Internal audit X426.2 External audit X426.3 Board action SECTION X427 Authority Resulting from Merger or Consolidation SECTION X428 Receivership SECTION X429 Surrender of Trust or Investment Management License SECTIONS X430-X498 (Reserved) SECTION X499 Sanctions PART FIVE Foreign Currency Deposit System and Other Operations in Foreign Currency SECTION X501 Foreign Currency Deposit System X501.1 Definitions of terms X501.2 Qualification requirements X501.3 Authorized transactions X501.4 Foreign currency cover requirements X501.5 Foreign currency deposit with the Bangko Sentral X501.6 Currency composition of the cover X501.7 Secrecy of deposits X501.8 Numbered accounts X501.9 Withdrawability, and transferability of deposits X501.10 Insurance coverage X501.11 Rates of interest X501.12 Eligibility as collateral X501.13 Taxes X501.14 Exemption from court order or process X501.15 Inapplicability of the Usury Law X501.16 Accounting X501.17 Supervision X501.18 Sanctions SECTION X502 Other Transactions in Foreign Currency X502.1 Mobile foreign exchange booths X502.2 Off-site automatic multi-currency money changers SECTIONS X503-X598 (Reserved) SECTION X599 General Provisions on Sanctions PART SIX Miscellaneous A. Other Operations SECTION X601 Open Market Operations X601.1 Repurchase agreements with Bangko Sentral X601.2 Reverse repurchase agreements with Bangko Sentral SECTION X602 Derivatives X602.1 Pre-qualification requirements X602.2 Authorized transactions X602.3 Risk management guidelines X602.4 Accounting guidelines X602.5 Sanctions SECTION X603 Clearing Operations SECTION X604 Collection of Customs Duties/Taxes/Levies and Other Revenues X604.1 Coverage X604.2 Collection and reporting of internal revenue taxes X604.3 Collection and reporting of customs duties and import processing fees X604.4 Collection and reporting of export/premium duties X604.5 Remittances thru debit/credit advices X604.6 Reconciliation of revenue collections X604.7 Penalty for willful delay on the reporting of collections/remittances X604.8 Fines for delayed reports/remittances of collections X604.9 Liquidity floor requirement on revenue collections X604.10 Collection of import duties at the time of opening of letters of credit SECTION X605 Miscellaneous Operations X605.1 Collection and paying agents of the Social Security System X605.2 Commercial banks as depository of rediscounting proceeds B. Sundry Provisions SECTION X606 Bank Premises and Other Fixed Assets X606.1 Appreciation or increase in book value X606.2 Ceiling on total investments X606.3 Lease of bank premises SECTION X608 Assessment Fees on Banks X608.1 Annual fees on banks SECTION X609 Collection of Fines and Other Charges X609.1 Payment of fines by banks X609.2 Cost of checks and documentary stamps SECTION X610 Philippine and Foreign Currency Notes and Coins X610.1 Definition of terms X610.2 Treatment and disposition of counterfeit Philippine and foreign currency notes and coins X610.3 Reproduction and/or use of facsimiles of legal tender Philippine currency notes X610.4 Reproduction and/or use of facsimiles of legal tender Philippine currency coins X610.5 Clean Note Policy X610.6 Replacement and redemption of mutilated or unfit legal tender Philippine currency notes and coins X610.7 Treatment of Philippine currency notes and coins called in for replacement X610.8 Sanctions SECTIONS X611-X698 (Reserved) SECTION X699 General Provision on Sanctions APPENDICES No . Subject Matter 1 Guidelines for the Issuance of an Expanded Commercial Banking Authority for Domestic Banks 2 Prescribed Application Forms for the Entry of Foreign Banks 3 Guidelines for the Issuance of an Expanded Commercial Banking Authority for Branches of Foreign Banks 4 Format of Affidavit on Transfer of Stocks 5 Standard Pre-qualification Requirements for the Grant of Banking Authorities 6 Reports Required of Banks 7 Certain Information Required from Banks 8 Documents/Information on Organizational Structure and Operational Policies 9 Guidelines for Consolidation of Financial Statements of Banks and their Subsidiaries Engaged in Financial Allied Undertakings 10 Format Certification on Compliance with Rules and Regulations on Bank Protection 11 Pro-Forma Order of Withdrawal for "NOW" Accounts 12 Samples of Standardized Instruments Evidencing Deposit Substitute Liabilities 13 New Rules on the Registration of Long-Term Commercial Papers 14 New Rules on the Registration of Short-Term Commercial Papers 15 List of Reserve-Eligible and Non-Eligible Securities 16 Implementing Guidelines of the Countryside Financial Institutions Enhancement Program 17 Rules Governing Issuance of Mortgage/Chattel Mortgage Certificate by Thrift Banks 18 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets and Setting Up of Allowance for Probable Losses 19 Format of Disclosure Statement on Loan/Credit Transaction 20 Format of Abstract of "Truth in Lending Act" (Republic Act No. 3765) 21 Agreement for an Interbank Call Loan Funds Transfer System 22 List of Non-Allied Undertakings where EKBs may invest in Equities 23 Credit Priority Classification 24 Sample Investment Management Agreement 25 Risk Management Guidelines for Derivatives 26 Risk Disclosure Statement for Derivatives Activities 27 Accounting Guidelines for Derivatives 28 Clearing Procedures 28a Clearing Operations Between Regional Clearing Center and the Manila Clearing Center (Tarlac, Tarlac Used as Sample) 29 Procedures on Collection of Fines from Banks PART ONE Organization, Management and Administration A. Scope of Authority SECTION X101. Scope of Banking Authorities . The following provisions shall govern the scope and prerequisites for the grant of banking authorities. a. Expanded Commercial Banks (EKBs) . An expanded commercial banking authority shall include, in addition to commercial banking powers enumerated in Item b of this Section, the authority to exercise the powers of investment houses as provided in pertinent laws, the authority to invest in the equity of non-allied undertakings and to own up to 100% of the equity of a financial intermediary other than a commercial bank or a bank authorized to provide commercial banking services, in accordance with applicable laws and regulations. A commercial bank authorized by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to operate under an expanded commercial banking authority may perform the functions of an investment house either directly or indirectly through a subsidiary Investment house; in either case, the underwriting of equity securities and securities dealing shall be subject to pertinent laws and rules and regulations of the Securities and Exchange Commission (SEC): Provided, That the EKB cannot perform such functions both directly, and indirectly through a subsidiary: Provided, further, That if the investment house functions are performed directly by the EKB, such functions shall be undertaken by a separate and distinct department or other similar unit in the EKB: Provided, finally, That an EKB which avails of this option of exercising the powers of investment houses included in the expanded commercial banking authority indirectly through its subsidiary investment house may not directly exercise the powers which are exclusively reserved to investment houses. b. Commercial Banks (KBs) . A commercial banking corporation shall have, in addition to the general powers incident to corporations, all such powers as shall be necessary to carry on the business of commercial banking, by accepting drafts and issuing letters of credit, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debts; by receiving deposits; by buying and selling foreign exchange and gold or silver bullion, and by lending money against personal security or against securities consisting of personal property or mortgages on improved real estate and the insured improvements thereon. It may accept or create demand deposits subject to withdrawal by check; offer Negotiable Order of Withdrawal (NOW) accounts; invest to the extent allowed under existing applicable law and regulations in equities of allied undertaking, whether financial or non-financial; and acquire readily marketable bonds and other debt securities. c. Thrift Banks (TBs) . Savings and mortgage banks, stock savings and loan associations, and private development banks, hereinafter collectively referred to as TBs, may perform any or all of the following services: (1) grant loans, whether secured or unsecured; (2) invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; (3) issue domestic letters of credit; (4) extend credit facilities to private and government employees; (5) extend credit against the security of jewelry, precious stones and articles of similar nature, subject to such rules and regulations as the Monetary Board may prescribe; (6) accept savings and time deposits; (7) rediscount paper with the Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP) and other government-owned or controlled corporations; (8) accept foreign currency deposits as provided under R.A. No. 6426, as amended; (9) act as correspondent for other financial institutions; (10) purchase, hold and convey real estate under the same conditions as those governing commercial banks as specified under Section 25 of R.A. No. 337, as amended; (11) offer other banking services as provided in Section 72 of R. A. No. 337, as amended; With prior approval of the Monetary Board, and subject to such guidelines as may be established by it, TBs may perform the following services: (12) open current or checking accounts and NOW accounts; (13) engage in trust, quasi-banking functions and money market operations; (14) act as collection agent for government entities, including but not limited to, the Bureau of Internal Revenue (BIR), Social Security System (SSS) and the Bureau of Customs (BOC); (15) act as official depository of national agencies and of municipal, city or provincial funds in the municipality, city or province where the TB is located; (16) issue mortgage and chattel mortgage certificates, buy and sell them for its own account or for the account of others, or accept and receive them in payment or as amortization of its loan; and (17) to invest in the equity of allied undertakings. d. Rural Banks (RBs) . An RB may perform any or all of the following services: (1) extend loans and advances primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families as well as cooperatives, merchants, private and public employees; (2) accept savings and time deposits; (3) act as correspondent of other financial institutions; (4) rediscount paper with the LBP, DBP or any other bank, including its branches and agencies. Said banks shall specify the nature of paper deemed acceptable for rediscount, as well as the rediscount rate to be charged by any of these banks; (5) act as a collection agent; (6) offer other banking services as, provided in Section 72 of R. A. No. 337, as amended. With prior approval of the Monetary Board, an RB may perform any or all of the following services: (7) accept current or checking accounts: Provided, That such RB has net assets of at least P5 million; (8) accept NOW accounts; (9) act as trustee over estates or properties of farmers and merchants; (10) act as official depository of municipal, city or provincial funds in the municipality, city or province where it is located; and (11) sell domestic drafts; and (12) invest in allied undertakings. e. Cooperative Banks (Coop Banks) . A Coop Bank shall be organized primarily to provide financial and credit services to cooperatives and may perform any or all of the services offered by RBs. SUBSECTION X101.1 Expansion of banking Authorities a. Expansion of KB authority . KBs, as well as government-owned and controlled banks, may be permitted by the Monetary Board to operate under an expanded commercial banking authority. An investment house existing as of April 1, 1980 may be converted into a KB authorized to operate under an expanded commercial banking authority. An applicant bank may be authorized to operate under an expanded commercial banking authority with or without change in its corporate name: Provided, That its articles of incorporation are amended to include its new powers. b. Expansion of TB authority . With prior approval of the Monetary Board, a TB may perform commercial banking services or operate under an expanded banking authority or exercise such functions and authority, whenever applicable and not inconsistent with the provisions of R.A. No. 7906 and BSP regulations, and such other powers incident to a corporation: Provided, That its articles of incorporation are amended to include its new powers. c. Expansion of RB/Coop Bank authority . With prior approval of the Monetary Board, an RB/Coop Bank may perform thrift or commercial banking services or operate under an expanded banking authority or exercise such functions and authorities, whenever applicable and not inconsistent with the provisions of R.A. No. 7353 and BSP regulations, and such other powers incident to a corporation: Provided, That its articles of incorporation are amended to include its new powers. In the grant of authority to provide expanded banking services, the factors that will be considered shall include, among other things, the following: (1) financial resources, liquidity, solvency and profitability of the bank; (2) past performance of management in the operation of the bank; (3) general compliance with banking laws, BSP rules and regulations, and policies and instructions of the Monetary Board; (4) managerial reorganization or potential capacity to provide international banking expertise, where applicable; and (5) adequate staffing, equipment and other facilities to meet its expanded functions, including international correspondent bank relationship, where applicable. SUBSECTION X101.2 Prerequisites for grant of expanded commercial banking authority a. Compliance with guidelines . A domestic bank seeking authority to operate as an EKB shall submit an application to the appropriate supervising and examining department of the BSP. The applicant shall comply with the guidelines for the issuance of an EKB authority and shall submit all the documentary requirements enumerated in Appendix 1. b. Public offering of bank shares . A domestic bank applying for an expanded commercial banking authority shall, as a condition to the approval of its application make a public offering of at least ten percent (10%) of the required minimum capital and this condition must be complied with before it can be granted the license for authority to operate as an EKB. The term public offering shall mean the offer to sell equity shares to the public stockholders. Public stockholders shall refer to all stockholders, excluding the bank's directors, shareholders owning twenty percent (20%) or more of the bank's subscribed capital stock together with those of their relatives within the third degree of consanguinity or affinity, and corporations controlled or affiliated with them. A bank whose shares of stock are already listed in the Philippine Stock Exchange (PSE) at the time of filing of its application for an EKB authority shall be deemed to have complied with the public offering requirement. Likewise, an applicant bank may opt to have its shares listed in the PSE directly instead of passing through the process of public offering. In either case, at least ten percent (10%) of the applicant bank's capital stock should be held by public stockholders before it can be granted the license for authority to operate as an EKB. c. Listing of bank shares in the stock exchange . Domestic banks granted an EKB license, existing or new, must list their shares in the PSE within three (3) years: Provided, That in the case of new EKBs, the three (3)-year period shall be reckoned from the date the license to operate as an EKB was granted; whereas in the case of existing EKBs which have not yet listed their shares in the exchange, the three (3) year period shall be reckoned from December 27, 1995. The guidelines on public offering and listing of bank shares are enumerated in Appendix 1 . SECTIONS X102 - X105 (Reserved) B. Capitalization SECTION X106.1 Bank Capital . The following provisions shall govern the capital requirements for banks. The term capital shall be synonymous to unimpaired capital and surplus, combined capital accounts and net worth and shall refer to the total of the unimpaired paid-in capital, surplus and undivided profits, less: a. Unbooked valuation reserves and other capital adjustments as may be required by the BSP; b. Total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, stockholders, and their related interest (DOSRI); c. Deferred income tax; d. Appraisal increment reserve (revaluation reserve) as a result of appreciation or an increase in the book value of bank assets; e. Equity investment of a bank in another bank or enterprise, whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case, the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower; and f. In the case of RBs/Coop Banks, the government counterpart equity, except those arising from conversion of arrearages under the BSP rehabilitation program. With respect to Item b hereof, the provisions in Subsec. X326.1 shall apply except that in the definition of stockholders in said Subsection, the qualification that his stockholdings, individually and/or together with his related interest in the lending bank should at least amount to two percent (2%) or more of the total subscribed capital stock of the bank shall not apply for the purpose of this Item. SUBSECTION X106.1 Minimum capitalization The minimum capital of banks shall be as follows: a. EKBs P4.5 billion each. b. KBs P2.0 billion each. c. TBs (1) With head offices within Metro Manila P250 million each; and (2) With head offices outside Metro Manila P40 million each. d. RBs (1) An RB may be established in any city or municipality, except in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati; in the municipalities of Malabon, Navotas, San Juan and Paraaque; and in the cities of Cebu and Davao, with minimum capital requirements as follows: (a) In first, second and third class cities and in first class municipalities - P5 million each; (b) In fourth, fifth and sixth class cities and in second, third, and fourth class municipalities-P3 million each; and (c) In fifth and sixth class municipalities - P2 million each. (2) Existing RBs within the excepted cities and municipalities shall maintain the following minimum capital requirements: (a) In the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong and Makati and in the municipalities of Malabon, Navotas, San Juan and Paraaque - P20 million each; and (b) In the cities of Cebu and Davao - P10 million each. e. Coop Banks Coop Banks that may be established shall have a minimum authorized capital of: (1) P200 million for national Coop Banks divided into such number of shares with a minimum par value of P1,000 per share, with a private paid-in capital of at least P20 million; and (2) P20 million for local Coop Banks divided into such number of shares, with a private paid-in capital of at least P1.25 million, except as follows: (a) P20 million minimum private paid-in capital for Coop Banks to be established in Metro Manila; (b) P10 million minimum private paid-in capital for Coop Banks to be established in the cities of Cebu and Davao; and (c) P5 million minimum private paid-in capital for Coop Banks to be established in other cities: Provided, however , That for the first Coop Bank organized in the province, although it will be located in a city, the minimum private paid-in capital shall be P1.25 million. SUBSECTION X106.2 Capital build-up program a. EKBs and KBs which are existing, or which are newly authorized but not yet operating, or banks from which completed applications to operate under an EKB/KB authority have been received as of November 27, 1996 but pending action by the BSP, are hereby allowed to meet the above minimum capital requirement in two phases, as follows: First phase P3.5 billion for EKBs and P1.625 billion for KBs, within the first twelve (12) months from December 24, 1996; and Second phase P4.5 billion for EKBs and P2 billion for KBs within the next twelve (12) months from December 24, 1997: Provided , That they shall submit to the BSP a capital build-up program for this purpose within three (3) months from December 24, 1996: Provided, further , That EKBs/KBs which are listed in the PSE, or are in process of listing, as certified by the SEC, shall have an additional six (6)-month period to meet the above minimum capital requirement. b. TBs which are existing, or which are newly authorized but not yet operating, or persons from whom completed applications to establish TBs have been received as of November 27, 1996 but pending action by the BSP, are hereby allowed the following time frame within which to meet the above minimum capital requirement: (1) With head office within Metro Manila: (a) P150 million on or before February 21, 1997; (b) P200 million within the first twelve (12) months from February 22, 1997; and (c) P250 million within the next twelve (12) months after February 22, 1998: Provided , That for the P200 million and P250 million minimum capital, they shall submit to the BSP a capital build-up program for this purpose within three (3) months from December 24, 1996: Provided, further , That TBs which are listed in the PSE, or are in process of listing, as certified by the SEC, shall have an additional six (6)-month period to meet the above minimum capital requirement; and (2) With head office outside Metro Manila - P40 million on or before February 21, 1997. SUBSECTION X106.3 Sanctions . Any or all of the following sanctions may be applied to any bank which: (i) fails to comply with Subsecs. X106.1 and X106.2, until it attains the minimum capital requirement, or (ii) having complied, shall fail to maintain thereafter such minimum capital requirement: a. Suspension of branching privilege; b. Prohibition against granting of new unsecured loans to DOSRI; c. Prohibition against declaration of cash dividends; d. Denial of access to the BSP rediscounting facilities; and e. Revocation of the authority to accept government deposits and to handle government funds as a result of agency agreements with the BIR, BOC, SSS, etc.: Provided , That where a bank fails to meet and/or maintain its required minimum capital after having been required by the Monetary Board to do so, the Monetary Board may withdraw the expanded banking authority granted to such bank or suspend certain aspects of such authority. SECTIONS X107 - X110 (Reserved) C. Merger or Consolidation of Banks SECTION X111. Merger or Consolidation to Meet Minimum Capital . The merger or consolidation of banks or of bank(s) and investment house(s) to meet minimum capital requirements shall be allowed subject to the following regulations. SUBSECTION X111.1 Requirement of Bangko Sentral approval . Mergers and consolidations including the terms and conditions thereof shall comply with the provisions of applicable law and are subject to approval by the BSP. SUBSECTION X111.2 Rules on exchange of shares . As a general rule, the ratio of exchange of shares between or among the participants in a bank merger or consolidation shall be based on mutual agreement of the parties concerned. However, any appraisal increment reserve (revaluation reserve) arising from the revaluation of the fixed assets, as may be agreed upon by the parties shall be limited to premises, improvement, and equipment which are necessary for its immediate accommodation in the transaction of the bank's business. Such revaluation should be based on fair valuation of the property which shall be subject to review and approval by the BSP. SECTION X112. Merger or Consolidation Incentives . In pursuance of the policy to promote mergers and consolidations, the participants may, subject to BSP approval, avail of any or all of the following: a. Revaluation of premises, improvements and equipment of the institutions: Provided, That such revaluation shall be based on fair valuation of the property which shall be subject to review and approval of the BSP; b. Conversion or upgrading of the existing head offices, branches and/or other offices of the merged or absorbed institutions into branches of the new or surviving institution; c. Condonation of liquidated damages and/or penalties on loan arrearages to the BSP of RBs which are parties to the merger or consolidation: Provided, That loan arrearages of RBs to the BSP are paid in full or covered by a plan of payment payable on an equal monthly amortization schedule over a period not exceeding ten (10) years; d. Relocation of branches/offices may be allowed within one (1) year from date of merger or consolidation in cases where the merger or consolidation resulted in duplication of branches/offices in a city or municipality subject to such conditions as the Monetary Board may prescribe; e. Outstanding penalties in legal reserve deficiencies and interest on overdrafts with BSP as of date or merger or consolidation may be paid in installments over a period of one (1) year; f. Unbooked valuation reserves and other capital adjustments resulting from the merger or consolidation based on the BSP examination may be booked on staggered basis over a maximum period of five (5) years; g. If, in the process of a bank merger or consolidation, the resulting bank is unable to comply fully with the net worth to risk assets ratio prescribed under these regulations, the Monetary Board may, at its discretion, suspend the application of capital to risk asset ratio under Sec. X116; h. Exemption from the twenty percent (20%) and/or thirty percent (30%) limitations on voting stockholdings in the new or surviving institution of any person or persons related to each other within the third degree of consanguinity or affinity, or corporations, respectively: Provided , That this shall be allowed only if the bank that is being merged is distressed: Provided, further , That whenever any of the stockholders exceed the twenty percent (20%) and/or thirty percent (30%) ceilings, their holdings shall not be increased, but may be reduced and once reduced, shall not thereafter be increased beyond the twenty percent (20%) and/or thirty percent (30%) ceilings; and i. Any right or privilege granted a merging bank under a rehabilitation program previously approved by the Monetary Board or under any special authority previously granted by the Monetary Board shall continue to be in effect. SECTIONS X113 - X115 (Reserved) D. Net Worth To Risk Assets Ratio SECTION X116. Basic Ratio . The net worth (or combined capital accounts) of a bank shall not be less than an amount equal to ten percent (10%) of its risk assets as herein defined. The Monetary Board may, consistent with prudent banking and the general economic conditions obtaining at the time, prescribe ratios of net worth to risk assets lower than herein prescribed: Provided , That such ratios shall not be lower than five percent (5%): Provided, further, That the reduction from the ratio will apply uniformly to all banks, regardless of category, beyond a certain minimum size with respect to the level of their capital accounts: Provided, finally , That the Monetary Board may subsequently raise a ratio but any such upward adjustment shall be made effective only after a reasonable period of time. SUBSECTION X116.1 Definitions a. Risk assets . Risk assets is defined as total assets minus the following assets: (1) Cash on hand; (2) Amount due from the BSP; (3) Evidence of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. As approved by the Monetary Board, such evidences of indebtedness or obligations subject of repurchase or resale agreements may be deducted by both the selling/borrowing and buying/lending banks; (4) Loans to the extent covered by hold-out on or assignment of, deposits/deposit substitutes maintained with the lending bank and held in the Philippines; (5) Loans or acceptances under letters of credit to the extent covered by margin deposits; (6) Bank premises net of depreciation; (7) Furniture, fixtures and equipment net of depreciation; (8) Balances maintained with any bank designated by the Monetary Board for clearing checks drawn on banks located in places not serviced by the BSP clearing offices; (9) Amounts due from foreign banks representing normal working balances in currencies eligible as part of the international reserve (and not maintained in the form of savings, time or fixed deposits), but not to exceed thirty percent (30%) of outstanding regular sight letters of credit: Provided, however , That amounts earmarked from balances of due from foreign banks to fund cash letters of credit should be considered non-risk assets in its entirety; (10) Portions of special time deposit loans covered by Industrial Guarantee and Loan Fund (IGLF) guarantee; (11) Real estate mortgage loans insured by the Home Insurance Guaranty Corporation (HIGC) to the extent of the amount of the insurance or the outstanding loan, whichever is lower; (12) Loans to the extent secured by assets listed in Item (3) above; , (13) Loans to the extent guaranteed by the Philippine Export and Foreign Loan Guarantee Corporation which are not past due; (14) Deferred income tax; (15) The portion of the peso loans covered by guarantees of international/regional institutions where the Philippine Government is a member/shareholder, such as the International Finance Corporation and the Asian Development Bank; and (16) Outstanding balance of deposit accounts of TBs with KBs/EKBs for clearing purposes. The following assets held by foreign branches of domestic banks shall be considered as non-risk assets for purposes of computing the minimum capital required under Section 22 of R. A. No. 337, as amended: (a) Cash on hand in currencies acceptable as part of the Philippine international reserves; and (b) Investments in bonds/securities denominated in foreign currencies which form part of the Philippine international reserves, the repayment and servicing of which are fully guaranteed by the issuing government of the country where the banking office is located. b. Total Assets. For this purpose, the term total assets shall exclude the following: (1) All trust department accounts; (2) Unutilized portions of letters of credit; and (3) All contingent accounts. c. Net worth (or combined capital accounts). (1) For domestic banks, net worth for purposes of this Section shall be as defined in Sec. X106. (2) For branches of foreign banks with full banking authority, the term net worth shall mean the capital as defined in Item b of Subsec. X121.5. d. Cash on hand . This refers to total cash held by the bank consisting of both notes and coins in Philippine currency and in such foreign currencies acceptable as part of the international reserves. e. Amount due from the Bangko Sentral . This refers to all deposits of the reporting bank with the BSP. f Loans to the extent covered by hold-out on, or assignment of, deposits or deposit substitutes maintained in the lending bank and held in the Philippines . (1) A loan shall be considered as secured by a hold-out on, or assignment of, deposit or deposit substitute only if such deposit or deposit substitute account is covered by a hold-out agreement or deed of assignment signed by the depositor or investor/placer in favor of the bank and held in the Philippines. (2) The amount deductible from total assets shall be the outstanding balance of the loan to the extent covered by the corresponding hold-out on or assignment; of deposits or deposit substitutes signed by the depositor or investor/placer in favor of the bank. (3) Loans transferred to/carried by the bank's trust department (secured by deposit hold-out/assignment) are not deductible items. g. Loans or acceptances under letter of credit to the extent covered by margin deposits . (1) Unnegotiated letters of credit or the unutilized portion thereof, or other items booked under contingent accounts are not deductible items. Only the amount of loans or acceptances (real account) negotiated under letters of credit to the extent covered by the corresponding margin deposits shall be considered as deductible item. (2) Margin deposits against loans or acceptance accounts which are fully liquidated shall not be deductible items. h. Bank premises net of depreciation . This refers to the cost of land and improvements owned by the bank and used as bank premises. i. Furniture, fixtures and equipment net of depreciation . This refers to the cost of furniture, fixtures and equipment owned by the bank, and used for its banking operations. j. Deferred income tax. This refers to the accumulated balance of income tax expense deferred in view of certain expenses or provision for losses not currently deductible for income tax purposes. SUBSECTION X116.2 Required reports . Banks shall compute every business day their capital required and capital accounts and shall submit a report thereon on a weekly basis to the appropriate supervising and examining department of the BSP in the prescribed form on the day of the week and within the deadline indicated in Appendix 6 . SUBSECTION X116.3 Sanctions . Whenever the capital accounts of a bank are deficient with respect to the prescribed net worth to risk assets ratio, the Monetary Board after considering a report of the appropriate supervising and examining department of the BSP on the state of solvency of the institution concerned, shall limit or prohibit the distribution of the net profits and shall require that part or all of net profits be used to increase the capital accounts of the bank until the minimum requirement has been met. The Monetary Board may restrict or prohibit the making of new investments of any sort by the bank, with the exception of purchases of readily marketable evidences of indebtedness included under Item a (3) of Subsec. X116.1, until the minimum required capital ratio has been restored. SECTIONS X117 - X120 (Reserved) E. Liberalized Entry and Scope of Operations of Foreign Banks SECTION X121. Liberalized Entry and Scope of Operations of Foreign Banks . The following rules shall govern the liberalized entry and scope of operation of foreign banks. SUBSECTION X121.1 Modes of entry of foreign banks . With prior approval of the Monetary Board, foreign banks may operate in the Philippines through any one of the following modes: a. By acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing domestic bank (including banks under receivership or liquidation, provided no final court liquidation order has been issued); b. By investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or c. By establishing branches with full banking authority. Interested foreign banks shall file with the Office of the Governor, BSP, their application for authority to operate in the Philippines through any of the modes of entry mentioned above. The application must be submitted in the prescribed forms shown in Appendix 2 . SUBSECTION X121.2 Qualification requirements a. Investment in an existing domestic bank . A foreign bank seeking to acquire, purchase or own up to sixty percent (60%) of the voting stock of an existing domestic bank needs only to meet the selection criteria under Subsec. X121.3. b. Establishment of subsidiary or branch . Any foreign bank seeking to establish a new banking subsidiary or to establish branches with full banking authority, in addition to satisfying the criteria prescribed Subsec. X121.3, must be (1) Widely-owned and publicly-listed (listed in any stock exchange authorized by the government of the country of origin), unless more than fifty percent (50%) of the capital stock of said foreign bank applicant is owned by the government of its country of origin. The bank is considered as widely-owned if it has at least fifty (50) stockholders without any stockholder owning more than fifteen percent (15%) of its capital stock: Provided , That if the bank is owned/controlled by a holding company, this requirement shall apply to the holding company; and (2) Among the top 150 banks in the world or the top five (5) banks in its country of origin. The determination of the top 150 banks in the world may be based on lists prepared and published by reputable organizations/publications. The determination of the top five (5) banks in the country of origin shall be based on information supplied by the bank supervisory authorities in which country of origin as to the ranking of banks based on net worth. However, the Monetary Board may also use total assets as a criterion: Provided, That the same shall be based on book accounts only and on the consolidated balance sheet of the head office and all branches, excluding subsidiaries and affiliates. In addition to the foregoing requirements, the foreign bank applicant must be in compliance with capital requirements as prescribed by the laws and regulations of its country of origin. SUBSECTION X121.3 Guidelines for selection . The following factors shall be considered in selecting the foreign bank which will be allowed to invest in majority of the voting stock of an existing domestic bank or to establish a subsidiary or branch in the Philippines. a. Geographic representation and complementation . Representation from the different parts of the world and/or the international financial centers shall be ensured. b. Strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank . Consideration shall be given to the countries of origin of applicant foreign banks (1) With substantial financial assistance to, and loans and investments, past and present, in the Philippines; and (2) With which the Philippines has significant volume of trade especially to those with which the country has substantial net exports. c. Relationship between the applicant bank and the Philippines . Consideration shall be given to the capability of the foreign bank to promote trade with, and to bring foreign investments into, the Philippines. Long standing financial and commercial relationship with, and assistance extended to, the Philippines, shall likewise be taken into account. d. Demonstrated capacity, global reputation for financial innovations and stability in a competitive environment of the applicant . Demonstrated capacity and stability may be indicated by the fact that the applicant ranks among the top 150 in the world or top five (5) in its country of origin. Global reputation may be measured by international presence, e.g., number of branches with full banking authority outside of its country of origin. e. Reciprocity rights enjoyed by Philippine banks in the applicant's country . Philippine banks shall enjoy reciprocity rights in the applicant's country. f. Willingness to fully share technology . The applicant bank shall submit an undertaking to this effect together with its application. SAHIaD SUBSECTION X121.4 Capital requirements a. For locally incorporated subsidiaries The minimum capital required for locally incorporated subsidiaries of foreign banks shall be the same as that prescribed by the Monetary Board for domestic banks of the same category. b. For foreign bank branches with full banking authority A foreign bank authorized to establish branches with full banking authority in the Philippines shall inwardly remit and convert into Philippines currency, as permanently assigned capital, the U.S. Dollar equivalent of P210 million at the exchange rate prevailing on June 5, 1994 (the date of effectivity of R.A. No. 7721), i.e., P26.979 to US$1. The foreign bank shall thereby be entitled to establish three (3) branches in locations of its choice. For purposes of this Subsection, the same foreign bank may open three (3) additional branches in locations designated by the Monetary Board by inwardly remitting and converting into Philippine currency, as additional permanently assigned capital the U.S. Dollar equivalent of P35 million for every additional branch, computed at the same exchange rate of P26.979 to US$1. The Monetary Board, in determining the location of the next three (3) branches established pursuant to the provisions of R.A. No. 7721, shall consider, among other things, development requirements of a region and the contribution of a bank branch may make to regional development, expansion of basic financial services and enhanced access to credit by small and medium-scale enterprises: Provided, That the total number of branches for each new foreign bank entrant shall not exceed six (6). c. For foreign banks with existing branches in the Philippines (1) A foreign bank with existing branch or branches in the Philippines upon the effectivity of R.A. No. 7721 shall comply with the required permanently assigned capital by inwardly remitting and converting into Philippine currency the U.S. Dollar equivalent of P210 million computed at the same exchange rate of P26.979 to US$1, within a period of one and one-half (1 1/2) years from June 5, 1994. The said foreign bank may establish up to six (6) branches in addition to its branch or branches existing as June 5, 1994, the first three (3) additional branches in locations of its choice, and the next three (3) additional branches in locations designated by the Monetary Board: Provided , That upon establishing any additional branch, the bank shall comply immediately with the permanently assigned capital mentioned in the next preceding paragraph: Provided, further , That the said permanently assigned capital shall be the capital for the bank's first three (3) additional branches, including its existing branch or branches, and for each branch established in addition thereto, the U.S. Dollar equivalent of P35 million computed at the same exchange rate of P26.979 to US$1, shall be inwardly remitted and converted into Philippine currency. If the permanently assigned capital of the existing branch/es of said foreign bank that has been converted to Philippine currency is sufficient to cover the above-mentioned amount of assigned capital required for the additional branches, no additional assigned capital shall be required; otherwise, the foreign bank shall comply immediately with the capital requirements under the above paragraphs. (2) Foreign banks with existing branches in the Philippines on June 5, 1994 shall have a period of one and one-half (1 1/2) years from said date within which to comply with the ratio between the assigned capital and the Net due to head office, branches, subsidiaries and offices outside the Philippines prescribed in Subsec. X121.6: Provided, That upon establishing any additional branch pursuant to the provisions of this Section, the bank shall comply immediately with the aforesaid ratio. d. Capital of Foreign Bank Branch Authorized to Operate as Expanded Commercial Bank The capital of a Philippine branch of a foreign bank which is authorized to operate as an EKB may consist of its permanently assigned capital plus the Net due to account: Provided , That at no time shall the aggregate of said accounts fall below the amount required for EKB authority under Subsecs. X106.1 and X106.2: Provided, further , That the amount of the Net due to which may be added to permanently assigned capital shall not exceed the equivalent of three (3) times the amount of the permanently assigned capital. The capital as described in the preceding paragraph shall be net of the items enumerated in Subsec. X121.5d. e. Applicable Exchange Rate It is understood that the exchange rate of P26.979 to US$1 mentioned hereinabove is applicable only to the minimum capital requirements provided in Items b and c of this Subsection. For other purposes, the exchange rate prevailing at the time of remittance shall be applicable. SUBSECTION X121.5 Composition of capital accounts; compliance with capital ratios a. Foreign bank branches shall comply with the same capital ratios applicable to domestic banks of the same category. b. For Philippine branches of foreign banks, the term capital shall include permanently assigned capital which shall be inwardly remitted and converted to Philippine currency and Net due to up to an amount prescribed under Subsec. X121.6. Should there be any Net due from head office, branches, subsidiaries and other offices outside the Philippines, the same shall be deducted from the capital accounts for purposes of determining compliance with the required capital ratios. c. Earnings not remitted to the head office shall constitute part of the Net due to of the local branch of a foreign bank: Provided , That said bank may elect to consider such earnings as part of the assigned capital, in which case said earnings may no longer be remittable to the head office. d. The term capital shall also be net of: (1) unbooked valuation reserves and other capital adjustments as may be required by the BSP; (2) total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI; (3) deferred income tax; and (4) equity investment of a bank in another enterprise, whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower, and (5) appraisal increment reserve (revaluation reserve) arising from appreciation or an increase in book value of bank assets. e. Where a foreign bank has more than one branch or banking office in the Philippines, all its branches and banking offices shall be treated as a unit for purpose of determining compliance with the legal reserve requirement and with capital requirement prescribed in laws/regulations. SUBSECTION X121.6 Prescribed ratio of Net Due to and permanently assigned capital The amount of Net due to which may be added to permanently assigned capital for purposes of determining compliance with capital ratios prescribed in laws/regulations shall not exceed the equivalent of four (4) times the amount of permanently assigned capital: Provided , That for the purpose of a foreign bank branch seeking to operate as an EKB, the ratio shall not exceed three (3) times as provided in Item d of Subsec. X121.4. At least fifteen percent (15%) of the Net due to required to comply with the prescribed capital ratio shall be inwardly remitted and converted into Philippine currency: Provided , That amounts invested in productive enterprises or utilized by Philippine companies for export activities, including foreign currency denominated loans granted to Philippine exporters and loans for productive purposes such as the following: agriculture, fisheries and forestry; manufacturing; mining; public utilities; construction; and home building, need not be subject to conversion into Philippine currency. If there is non-compliance with the prescribed fifteen percent (15%) of Net due to required to be inwardly remitted and converted to pesos, the bank shall immediately inwardly remit and convert to Philippine currency the amount of the deficiency. Branches of foreign banks shall submit the reports prescribed in Appendix 6 to show compliance with the requirement that at least fifteen percent (15%) of its Net due to shall be inwardly remitted and converted into Philippine currency. SUBSECTION X121.7 Head office guarantee . The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches, as well as the observance of the constitutional rights of the employees of such branches. SUBSECTION X121.8 Scope of authority for locally incorporated subsidiaries of foreign banks as well as branches with full banking authority . Subsidiaries and branches of foreign banks established under Subsec. X121.1 shall be allowed to perform the same functions and enjoy the same privileges of, and be subject to the same limitations imposed upon, a Philippine bank of the same category. Privileges shall include the eligibility to operate under an expanded commercial banking authority subject to compliance with existing rules and regulations and the guidelines enumerated in Appendix 3 on the matter: Provided , That foreign bank branches authorized to operate under an expanded commercial banking authority shall be exempted from the requirement of publicly offering at least ten percent (10%) of its shares. The limitations include, among other things, the single borrower's limit, the capital-to-risk assets ratio, and the capitalization and other requirements under R.A. No. 337, as amended, and other related laws. SUBSECTION X121.9 Limitations a. Limit on mode of entry for each foreign bank A foreign bank may avail itself of only one (1) mode of entry provided under Items a to c of Subsec. X121.1: Provided , That entry pursuant thereto shall not preclude investment in the equity of a domestic bank Pursuant to the Provisions of R.A. No. 337, as amended. A foreign bank that comes in via the establishment of branches under R.A. No. 7721 may still invest in the equity of a domestic bank subject to the provisions of R.A. No. 337, as amended. b. Limit on the number of foreign banks which may be allowed to establish branches . The Monetary Board may authorize up to six (6) new foreign banks to establish branches. However, upon recommendation of the Monetary Board, the President of the Republic of the Philippines may approve, as the national interest may require, four (4) additional new foreign banks to establish branches, subject to compliance with provisions of this Section. c. Limit on the period for entry through establishment of branches . Foreign banks shall be allowed entry under Item c of Subsec. X121.1 by establishing branches with full banking authority within five (5) years from June 5, 1994. The entry of foreign banks through the establishment of a new banking subsidiary and through investment in existing domestic banks shall not be subject to any time limitation. d. Control of the resources of the banking system . The monetary board shall adopt such measures as may be necessary to ensure that all times the control of the seventy percent (70%) of the resources or assets of the entire banking system is held by domestic banks more than fifty percent (50%) of the subscribed capital of which is owned by Filipinos. Said measures may include review of, among other things, the existing policies on (i) the granting of authority to establish additional subsidiaries and branches; (ii) the granting of authority to (a) engage in expanded commercial banking and trust activities; (b) open an FCDU; (c) collect taxes and customs duties; and (d) invest in the equity of other entities; and (iii) access to rediscounting facilities. SUBSECTION X121.10 Change from one mode of entry to another a. As a general rule, a foreign bank which has been authorized to operate in the Philippines through any one of the allowable modes of entry may change to another mode by giving up the first mode it availed of. b. A foreign bank which pursuant to Items a and b of Subsec. X121.1, has established or acquired a banking subsidiary may sell its stockholdings therein and may apply for authority to establish a branch subject to the provisions of Subsec. X121.9c and to the following conditions: (i) that the disposition/sale of its stockholdings in the subsidiary is done within five (5) years from June 5, 1994; (ii) that the foreign bank qualifies under the provisions of Subsec. X121.2b; and (iii) that the limit of ten (10) foreign banks establishing branches as a mode of entry has not yet been reached. c. Foreign banks with existing branches in the Philippines, as well as those that may be allowed to establish branches under R.A. No. 7721, may incorporate under Philippine laws, in which case foreign banks may own up to sixty percent (60%) of the voting stock of the new bank. SUBSECTION X121.11 Listing of shares with the Philippine Stock Exchange . At least ten percent (10%) of the capital of banks have invested under Subsec. X121.1a and b, shall be listed in the PSE within a reasonable period of time after the investment is made as may be determined by the Monetary Board. SUBSECTION X121.12 Applicability to Philippine corporations a. Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under R.A. No. 7721 shall be equally enjoyed by, and extended under the same conditions to, domestic banks. b. Philippine corporations, whose shares of stocks are listed in the PSE, or which are of long standing for at least ten (10) years, as determined by the Monetary Board, shall have the right to acquire, purchase or own up to sixty percent (60%) of the voting stock of a domestic bank: Provided , That said corporations, as well as foreign banks may own up to sixty percent (60%) of the voting stock of only one (1) domestic bank. SECTIONS X122-X125 (Reserved) F. Stock, Stockholders and Dividends SECTION X126. Shares of Stock of Banks . The following shall govern transactions affecting shares of stock of banks and the limits on stockholdings in a single bank or in several banks. SUBSECTION X126.1 Limits of stockholdings in a single bank . The stockholdings of an individual, family, corporate or business group in any bank shall be subject to the limits prescribed in Sections 12, 12-A, 12-B and 12-D of R.A. No. 337, as amended. a. Corporations owned/controlled by the same group of persons ceiling . Except as otherwise allowed under Item c below, the stockholdings in any bank of the following shall not exceed thirty percent (30%) of the voting stock of the bank: (1) Any two (2) or more corporations which are wholly owned or a majority of the voting stock of which are owned by the same group of persons including their subsidiaries whose combined voting stockholdings shall be the basis for the computation of the thirty percent (30%) corporate ceiling; and (2) Any two (2) or more corporations which are controlled by the same group of persons including their subsidiaries whose combined voting stockholdings shall be the basis for the computation of the thirty percent (30%) corporate ceiling. b. Individual/family group/corporate ceilings . Except as otherwise allowed under Item c below, the stockholdings in any bank of any of the following shall not exceed twenty percent (20%) of the voting stock of the bank: (1) Any natural person; or (2) Persons related to each other within the third degree of consanguinity or affinity, herein termed a family group; or (3) Any corporation or corporations including their subsidiaries which are wholly-owned or a majority of the voting stock of which are owned by a natural person such as in (1) above, or by a family group such as in (2) above: Provided, That where (3) together with (1) and/or (2) own or desire to own equity in any bank, the voting stockholdings of (1 ) and/or (2) and that of (3) to the extent of voting stockholdings held by (1) and/or (2) in (3) shall be combined and shall be the basis for the computation of the twenty percent (20%) ceiling; or (4) Any corporation or corporations including their subsidiaries which are controlled by a natural person such as in (1) above, or by a family group such as in (2) above: Provided, That where (4) together with any or all of (1), (2) and (3) own or desire to own equity in any bank, the voting stockholdings of (1) and/or (2) and those of (3) and/or (4) to the extent of the voting stockholdings held by (1) and/or (2) in (3) and/or (4) shall be combined and shall be the basis for the computation of the twenty percent (20%) ceiling. For purposes of determining compliance with the above-mentioned twenty percent (20%) ceiling, only the stockholdings of the living relatives and the stockholdings of corporations which are wholly or majority owned or controlled by such living relatives shall be considered. Control referred to in Subsec. X126.1 a and b shall mean a total direct and indirect ownership of over thirty percent (30%) or twenty percent (20%), as the case may be, in corporate stockholders of banks. c. Stockholdings in excess of ceiling . Any or all, as the case may be, of the above-mentioned stockholders owning more than thirty percent (30%) in Item (a) and twenty percent (20%) in Item (b), of the voting stock of any bank on the date of effectivity of P.D. No. 71 amending R. A. No. 337, as amended, may retain but may not increase such holdings in percentage terms; and once reduced, the same may not thereafter be increased beyond the limits provided herein. Likewise, any excess over the ceilings as of March 29, 1988 may not be increased and once reduced may not be increased beyond the limits provided herein, except as may otherwise be approved by the Monetary Board. d. Determination of (1) relationship within the third degree of consanguinity or affinity, and (2) a "family group" subject to the twenty percent (20%) ceiling. (1) Relationship of persons to each other within the third degree of consanguinity or affinity shall be determined in accordance with the provisions of Articles 963 to 966 of the Civil Code of the Philippines. (2) Persons owning voting stock in a bank who are related to each other within the third degree of consanguinity or affinity shall comprise a family group whose combined stockholding is subject to the twenty percent (20%) ceiling. In determining whether the prospective transferee or purchaser is part of a family group subject to the twenty percent (20%) limit/ceiling, the degree of relationship shall be counted from the transferee or purchaser. It is possible for a person to belong to several family groups, and in a such a case, it is enough that the percentage limit of twenty percent (20%) for one family group is exceeded for the acquisition/transfer of shares to be considered a violation, even if the transaction may not violate the limit for all of the other possible family groups. e. Ceiling on stockholding in a cooperative bank . The equity investment of any cooperative in any Coop Bank shall not exceed thirty percent (30%) of the subscribed capital stock of such Coop Bank. SUBSECTION X126.2 Transfer of shares . The following regulations shall govern transfer of voting shares of stock in banks. a. Transfer and acquisition of shares within a family group . Transfers of ownership of shares of stock within a family group that merely maintain the aggregate percentage holdings of the group beyond twenty percent (20%) of the bank's voting stock, shall be allowed: Provided, That no stockholder-member of a family group may acquire additional shares from any other member of that group, if such acquisition would increase his holdings of voting stock beyond the twenty percent (20%) ceiling on individual holdings. b. Unlawful and void transactions involving voting stocks in banks . The following transactions, to the extent of the excess over any of the ceilings prescribed are hereby declared unlawful: (1) The sale or transfer of voting stocks of banks to any individual or entity, if such sale or transfer, in itself, or in relation with another previous sale or transfer shall result in the ownership by foreign persons or corporations in excess of thirty percent (30%) or, when allowed by the Monetary Board and approved by the President of the Philippines, forty percent (40%) of the voting stock in the bank, in violation of Sections 12 and 12-A of R.A. No. 337, as amended. (2) The sale or transfer of voting stocks of banks to any corporation, including its subsidiaries, if such sale or transfer, in itself, or in relation with another previous sale or transfer shall result in the ownership by such corporation and its subsidiary in excess of thirty percent (30%) of the voting stock of the bank and the other limitations prescribed in Section 12-B of R.A. No. 337, as amended. (3) The sale or transfer of voting shares of stock of banks to (a) any natural person; (b) a family group; and (c) any corporation or corporations which are wholly-owned or a majority of the voting stock of which is owned by a natural person such as in (a) above or by a family group such as in (b) above, including their subsidiaries, if such sale or transfer or encumbrance, in itself, or in relation with another previous sale or transfer, shall result in the ownership by such person or family group and such corporations in excess of twenty percent (20%) of the voting stock of the bank, in violation of Sections 12-B and 12-D of R.A. No. 337, as amended. (4) Any arrangement, such as voting trust agreement or proxy, which vests on any person or corporation the right to vote or control voting stocks in banks, if such agreement in itself, or in relation with another previous similar agreement or previous sale or transfer shall result in the acquisition of control, in excess of the limitations prescribed in Sections 12, 12-A, 12-B and 1 2-D of R.A. No. 337, as amended. c. Duties of a corporate secretary . In all transactions which may lawfully come to the knowledge of the corporate secretary involving transfer of voting shares of stock or registration of voting trust agreements, or any form of agreement vesting the right to vote the voting shares of stock of the bank, the corporate secretary shall: (1) ascertain the identity and citizenship of the transferee, voting trustee, proxy or person vested with the right to vote, and his relation to existing stockholders, and for this purpose, he should require the transferee, voting trustee, proxy or the person vested with the right to vote to submit proof of citizenship, which may consist, in case of a corporation, of a certified true copy of the articles of incorporation, accompanied by the affidavit of the corporate secretary of the corporation, certifying to the correctness and accuracy of the list of stockholders and the percentage of shares owned by them; (2) require the transferee, voting trustee, proxy or person vested with the right to vote, at the time of the receipt of the request for transfer or registration, or at any time thereafter, to disclose all information with respect to persons related to the transferee, voting trustee, proxy or person vested with the right to vote, within the third degree of consanguinity or affinity, as well as corporations, partnerships or associations where the transferee, voting trustee, proxy or person vested with the right to vote has equity interest, and the extent thereof; (3) require the transferee to execute an affidavit (sample format shown in Appendix 4 ) stating, among other things, that the transferee is a bona fide owner of shares of stock and that he acknowledges full awareness of the requirements of the law and the prohibitions against exceeding ownership of voting stocks beyond the limitations prescribed by Sections 12, 12-A, 12-B and 12-D of R.A. No. 337, as amended. If the request for transfer or the arrangement sought to be registered will patently cause the voting stocks of a person or persons related to each other within the third degree of consanguinity or affinity, or corporations, to exceed the limits prescribed by law, the corporate secretary shall deny the transfer or registration and forthwith inform the parties to the transaction in writing. Simultaneous with the notice to the parties, the corporate secretary shall submit a written report to the Governor of the BSP of the attempted illegal transfer or arrangement, together with the names, addresses of parties and other pertinent data with respect to the particular stock transaction. In the event the corporate secretary has reason to doubt the legality of the transfer or of the arrangement sought to be registered, he may commence an action before the SEC, pursuant to its original and exclusive jurisdiction to hear and decide cases involving controversies arising out of intracorporate relations; and (4) promptly inform stockholders who have reached any of the ceilings imposed by law, of their ineligibility to own or control more than the applicable ceiling. d. Transfers requiring prior Monetary Board approval (1) Prior approval of the Monetary Board shall be required on the following: (a) Any sale or transfer of ownership or control of more than twenty percent (20%) of the voting stock of a bank to any person whether natural or juridical; and (b) Any sale or transfer or a series of sales or transfers which will effect a change in the majority ownership or control of the voting stock of the banks from one group of persons to another group: Provided, That in no case shall such sale or transfer be approved unless the bank concerned shall immediately comply with the prescribed minimum capital requirement for new banks, notwithstanding any approved capital build-up program. (2) For purposes of these regulations, the sale or transfer of voting stocks shall refer to sales or transfers of voting stocks which are allowed under existing laws or BSP rules and regulations and which have not been registered/recorded in the transfer book/stock ledger or other records of banks. e. Requirement for newly established banks . Entities which may hereinafter apply for a license to engage in banking business shall, before being allowed to operate, submit (1) An alphabetical list of stockholders with the number and percentage of voting stocks owned by them; and (2) A separate list containing the names of persons who own voting stocks in banks and who are related to each other within the third degree of consanguinity or affinity, with proper indication of the combined percentage of voting stocks held by them in the particular bank, as well as corporations which are wholly-owned or a majority of the stock of which is owned by any of such persons, including their subsidiaries. SUBSECTION X126.3 Foreign equity investment in domestic banks under R . A . No . 337, as amended . Except as otherwise covered under Sec. X121, the following guidelines shall be observed on equity investments of foreigners in domestic banks: a. The prior authority of the Monetary Board shall be obtained by foreign banks, including their subsidiaries and their holding companies having majority holdings in such foreign banks, whenever acquiring shares of domestic banks, including foreign-owned shares outstanding and foreign-held as of April 27, 1973 and which continued to be held by the foreign stockholder up to the date of the acquisition by the foreign banks. b. If the foreign investor in the equity of a domestic bank is (1) an individual, (2) a non-financial entity, or (3) a non-bank financial entity which is not owned nor controlled by a bank, its subsidiary or holding company and the investor is acquiring shares which were not foreign-held as of April 27, 1973 nor continued to be held by the foreign stockholder up to the date of the acquisition by the foreign investor, the investment may be made only with the prior authority of the Monetary Board. c. The prior authority of the Monetary Board is not required if the foreign investor is (1) an individual, (2) a non-financial entity, or (3) a non-bank financial entity which is not owned or controlled by a bank, its subsidiary or holding company, and the investor is acquiring foreign-owned shares in existing domestic banks: Provided , That said shares were outstanding and foreign held as of April 27, 1973 and which continued to be foreign-held up to the date of acquisition by the foreign investor. d. The maximum stockholdings foreigners may own in domestic banks shall continue to be governed by existing provisions of law. e. Only foreign-owned shares directly funded by inward remittance of foreign exchange sold to the local banking system are qualified for registration with the BSP through its appropriate department for capital repatriation and remittance of profits/dividends privileges, in accordance with existing BSP rules and regulations. SUBSECTION X126.4 Convertibility of preferred stock to common stock . Out of the convertible preferred shares of stock which KBs/TBs may henceforth be authorized to issue, at least fifty percent (50%) of each such issue, shall be convertible into common stock at the option of the holders thereof after five (5) years from date of issue: Provided, however , That: a. The bank concerned may allow the conversion of such preferred stock into common stock even before the lapse of five (5) years from date of issue; b. At the time of the sale of the preferred stock, both classes thereof (one with convertibility feature and the other without convertibility feature) shall be offered to the purchasers, with the purchasers having the option to acquire either or both classes of preferred stock; and c. Preferred shares of stock with a cumulative feature issued by banks shall automatically be convertible into common shares of stock at the option of the holders thereof whenever the right as may be acquired by the holders by virtue of such cumulative feature are not satisfied by the bank within a period of three (3) years from date of issue. SUBSECTION X126.5 Issuance of redeemable shares . Banks may issue redeemable shares of stock subject to the following conditions: a. Redemption of shares shall be allowed at the specific dates or period fixed for redemption only upon prior approval of the BSP and only if the shares redeemed are replaced with at least an equivalent amount of newly paid-in shares so that the total paid-in capital stock is maintained at the same level immediately prior to redemption; and b. This condition shall be incorporated in the articles of incorporation of banks which propose to issue redeemable shares of stock and in the certificates of stock evidencing ownership of the shares of stock. SUBSECTION X126.6 Stock options/warrants . A bank may grant options/warrants to subscribe at par to its capital stock: Provided, That: a. Provisions authorizing such options/warrants shall be embodied in its articles of incorporation and in its by-laws; and b. Such options/warrants may be granted for a maximum period of three (3) years from the date such options/warrants become effective. SECTION 1127. Shares of Stock of Commercial Banks . The following guidelines shall also govern shares of stock in EKBs and KBs. SUBSECTION 1127.1 Limits on stockholdings in several banks . Stockholders affiliated to each other through a common interest herein termed a business group or any corporation or association majority or all of the equity of which is owned by a business group may not control more than one (1) KB nor more than one (1) EKB or both. Any natural person or a family group, who, together, with any corporation majority or all of the equity of which is owned by such person or family group, owns more than twenty percent (20%) of the voting stock of any EKB or KB may not acquire more than twenty percent (20%) of the voting stock in any other EKB or KB, even if the shares of stock are being acquired from a natural person in a single transaction and the stockholding is in excess of twenty percent (20%) of the bank's voting stock. cCEAHT For purposes of determining applicability of the limitations provided in this Section, stockholders shall be deemed as affiliated to each other through common business interest or a business group in cases where the holdings of such stockholders altogether constitute a majority or control in one (1) or more enterprises. SUBSECTIONS 1127.2-1127.5 (Reserved) SECTION 2127. Shares of Stock of Thrift Banks . The following regulations shall also govern shares of stock in TBs. SUBSECTION 2127.1 Moratorium on ownership ceilings . Stockholdings in a TB shall be exempt from the ownership ceilings prescribed under Subsec. X126.1 until March 16, 2005. SUBSECTION 2127.2 Preferred shares . Private development banks may also issue ordinary preferred shares of stock to private persons, other than the preferred stock representing government counterpart capital contribution: Provided, That said preferred stock sold to private persons shall be governed by the pertinent BSP regulations for preferred stock issued to private investors. Preferred shares of stock of private development banks held by DBP/LBP and sold thereafter to private persons may, at the option of the purchasers, be retained with the same rights as when such shares of stock were held by DBP/LBP, or converted at not less than par to common shares or to ordinary preferred shares of the class issued to private shareholders. SUBSECTIONS 2127.3-2127.5 (Reserved) SECTION 3127. Shares of Stock of Rural Banks and Cooperative Banks . The following rules shall govern stockholdings in RBs and Coop Banks. SUBSECTION 3127.1 Moratorium on ownership ceilings . Stockholdings in an RB shall be exempt from the ownership ceilings for a period of ten (10) years from April 2, 1992: Provided , That any exemption shall require the approval of the Monetary Board: Provided, further , That such exemption shall be valid up to April 2, 2002 only and therefore by such date, the stockholdings should have been reduced to within the prescribed ceilings under Sections 12-B and 12-D of R.A. No. 337, as amended, as provided for under Subsec. X126.1. Any request for exemption from the prescribed ownership ceilings of individual/family group/corporate stockholdings shall be submitted to the Monetary Board for approval through the appropriate supervising and examining department of the BSP and the exemption shall be reflected in the required report on stock transactions. In cases where unsubscribed shares of stock are sold to any person other than the existing stockholders, the bank's corporate secretary shall execute a certificate under oath that all the pertinent requirements of the Corporation Code on a valid stock transfer/subscriptions have been complied with. SUBSECTION 3127.2 Government-held shares . The articles of incorporation of RBs or the articles of cooperation of Coop Banks shall provide for: (a) common stock with the power to vote; (b) preferred stock to represent the counterpart capital of the LBP, DBP or any government-owned or controlled bank or financial institution, which shall be non-voting and preferred as to assets upon liquidation; and (c) preferred stock with such rights, voting powers, preferences and restrictions, as may be approved by the Monetary Board. Preferred and common stocks shall have a minimum par value of ten pesos (P10) per share: Provided, That this requirement shall not apply to existing RBs whose par value per share of stock is less than ten pesos (P10). An RB may not issue no-par value stock. For Coop Banks, preferred and common shares shall have a minimum par value of P1,000 per share for national Coop Banks; and P100 per share for local Coop Banks: Provided, That a Coop Bank may not issue no-par value shares. The LBP; the DBP, or any government-owned or controlled bank or financial institution, on representation of the said private shareholders but subject to the investment guidelines, policies and procedures of the bank or financial institution and upon approval of the Monetary Board, shall subscribe to the capital stock of any RB/Coop Bank, which shall be paid in full at the time of subscription in an amount equal to the fully paid subscribed and unimpaired capital of the private shareholders or such amount as the Monetary Board may prescribe as may be necessary to promote and expand rural economic development and/or cooperative movement. SUBSECTION 3127.3 Limits on stockholdings in several rural banks . An individual or a family group, and/or its wholly or majority-owned corporation or corporations may own up to 100% of the voting stock in three (3) RBs: Provided, That the individual or a family group and/or its subsidiary/ies, may thereafter own shares in any number of other RBs only to such an extent as would not enable this group of investors to elect by virtue of its share holdings a director of each additional RB. Persons owning voting stock in an RB who are related to each other within the third degree of consanguinity or affinity shall comprise a family group. In determining whether the prospective investor, transferee or purchaser is part of a family group, the degree of relationship shall be counted from the transferee or purchaser. SUBSECTION 3127.4 Convertibility of preferred stock to common stock . RBs may convert their unissued preferred shares into common stock. In the case of sale by the DBP, LBP or any government-owned or controlled bank or financial institution of preferred stock to private persons, such stock may be converted into common stock: Provided , That pending amendment of the bank's articles of incorporation, if necessary for the purpose of reflecting the conversion, the transfer shall be recorded by the bank in its stock and transfer book and such shareholders shall thereafter enjoy all the rights and privileges appurtenant to the converted stock. The certificates of the government preferred stocks so transferred shall be surrendered and canceled and the corresponding common stock certificates shall be issued. The corporate secretary of the bank shall submit to the appropriate supervising and examining department and the SEC a report of every transfer of preferred stock from the LBP, DBP or any government-owned or controlled bank or financial institution to private shareholders within five (5) banking days from the date of such transfer. When all the preferred shares of stocks held by the LBP, DBP or any government-owned or controlled bank or financial institution have been sold to private shareholders, the bank's articles of incorporation shall be amended to reflect the conversion, if any, of the preferred shares of stock into common stock. For this purpose, a certificate that all preferred shares have been sold and transferred to private-shareholders shall be issued, duly signed by the president, the corporate secretary, and a majority of the board of directors. The bank shall submit copies of such certificate and the amended articles of incorporation to the BSP for the issuance of a certificate of authority for the purpose of registering the amended articles with the SEC. SUBSECTION 3127.5 Equity investment by holding corporations . With the exception of shareholdings of corporations in the equities in RBs as provided for under Section 12-C of R.A. No. 337, as amended, and of Filipino-controlled domestic banks, the capital stock of any RB shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock. ETaSDc The equity investment of any corporation in any RB shall not exceed thirty percent (30%) of the voting stock of such RB: Provided , That the equity investment of a corporation which is wholly-owned, or the majority of the voting stock of which is owned by a family group, shall not exceed twenty percent (20%) of the voting stock of any RB. Upon prior approval of the Monetary Board, more than thirty percent (30%) or all of the equity of an RB may be owned by an EKB, or KB, or by a holding corporation referred to in Section 12-C of R.A. No. 337, as amended: Provided , That the holdings of voting stock of any individual, family group or corporation, in such EKB, or KB, or holding corporation shall be within the ceilings as provided in Sections 12, 12-A, 12-B and 12-D of R.A. No. 337, as amended. A holding corporation for purposes of this Subsection shall refer to a corporation primarily organized to hold equities in RBs. SECTIONS X128-X135 ( Reserved ) SECTION X136. Dividends . Pursuant to the first paragraph of Section 84 of R.A. No. 337, as amended, and on the underlying principle that no bank shall, while it continues in operation, withdraw or permit to be withdrawn, either in the form of cash dividends or otherwise, any portion of its capital, the following regulations on the declaration of dividends by banks shall govern. SUBSECTION X136.1 Definitions . For purposes of this Section, the following definitions shall apply: a. Bad debts shall include any debt on which interest is past due for a period of six (6) months, unless it is well secured and in process of collection. A loan payable in installments with an automatic acceleration clause shall be considered a bad debt within the contemplation of this Subsection where installments or amortizations have become past due for a period of six (6) months, unless the loan is well secured and in process of collection. For a loan payable in installment without an acceleration clause, only the installments or amortizations that have become past due for a period of six (6) months and which are not well secured and in the process of collection shall be considered bad debts within the contemplation of this Section. b. Well secured A debt shall be considered well secured (or fully secured), if it is covered by collateral in the form of a duly constituted mortgage, pledge, or lien on real or personal properties, including securities, having a loan value sufficient to discharge the debt in full, including accrued interest and other pertinent fees and expenses. c. In process of collection A debt due to a bank shall be considered in process of collection when it is the subject of continuing extrajudicial or judicial proceedings aimed towards its full settlement or liquidation or otherwise to place it in current status. The extrajudicial proceedings, such as the writing of collection or demand letters, must have been initiated by the bank and/or its lawyers before the interest or installments or amortizations on the debt have become past due and unpaid for a period of six (6) months. The debt shall continue to be considered in process of collection for a period of six (6) months counted from date of the first collection or demand letter and if, within this period, the debtor fails to make a payment of at least twenty percent (20%) of the outstanding balance of the principal on his account, plus all interest which may have accrued thereon, the same shall automatically be classified as bad debts unless judicial proceedings are instituted. The debt shall continue to be considered in process of collection during the pendency of the judicial proceedings. When judgment against the debtor has been obtained, the bank must be active in enforcing the judgment for the debt to continue to be considered in process of collection. SUBSECTION X136.2 Requirements on the declaration of dividends . Before any declaration of dividends, banks shall comply with the following: a. Minimum capitalization requirement and net worth to risk assets ratio; b. Legal reserves; c. Liquidity floor; and d. EFCDU/FCDU cover. For purposes of this Subsection, the prescribed duration of compliance shall be reckoned from the last eight (8) weeks immediately preceding the date of dividend declaration up to the record date of said dividend. SUBSECTION X136.3 Net amount available for dividends . The net amount available for dividend shall be the total of unrestricted or free earned surplus and undivided profits less: a. Bad debts against which valuation reserves are not required to be set up; b. Unbooked valuation reserves, and other unbooked capital adjustments required by the BSP, whether or not allowed to be set up on a staggered basis; c. Deferred income tax as defined under item j of Subsec. X116.1; d. Accumulated profits not yet received but already recorded by a bank representing its share in profits of its subsidiaries under the equity method of accounting; e. Accrued interest as required to be excluded pursuant to Item d of Subsec. X305.4; and f. Amount required to be transferred to Surplus Reserves - Reserve for Trust Business account pursuant to Section 66 of R.A. No. 337, as amended. For purposes of this Subsection, any balance of Paid-in Surplus account may be included in the amount available for stock dividends. SUBSECTION X136.4 Reporting and verification Declaration of dividends shall be reported by the bank concerned to the appropriate supervising and examining department of the BSP in the prescribed form within the deadline indicated in Appendix 6 . Pending verification of above-mentioned report by the appropriate supervising and examining department of the BSP, the bank concerned shall not make any announcement or communication on the declaration of dividends nor shall any payment be made thereon. Banks, however, whose shares are listed with any domestic stock exchange may declare dividends and give immediate notice of such declaration to the SEC and the stock exchanges, in compliance with pertinent rules of SEC: Provided , That no record date is fixed for such dividend pending verification of the report on such declaration by the appropriate supervising and examining department of the BSP. In any case, the declaration may be announced and the dividends paid, if after thirty (30) banking days from the date the report required herein shall have been received by the BSP, no advice against such declaration has been received by the bank concerned. SUBSECTION X136.5 Recording of dividends The liability for dividends declared shall be taken up in the books upon receipt of BSP approval thereof, or if no such approval is received, after thirty (30) banking/business days from the date the required report on dividend declaration was received by the appropriate supervising and examining department of the BSP, whichever comes earlier. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors and for full disclosure purposes, the dividends declared may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the dividend declaration is subject to review by the BSP. Dividends of all kinds, whether on common or on preferred shares of stock, should not be treated as interest expense, considering that as a general policy, only irredeemable stock may be issued by banks. SUBSECTION X136.6 Issuance of fractional shares Whenever the declaration of stock dividend results in the issuance of fractional shares, banks may observe the following guidelines: a. The amount corresponding to the fraction should be given in the form of cash dividend; and b. The certificate of stock issued should be in whole numbers, and the fractional shares shall be issued in the form of scrip certificates. In no case shall the certificate of stock be issued including such fractional share. The scrip certificate is temporary in nature and should be redeemed in cash when the bank is in a position to do so, or stockholders holding such scrip certificates may negotiate with other stockholders for the purchase or sale of such shares to convert them into full shares, subject to the limitations on stockholdings as provided by law. SECTION 1137. ( Reserved ) SECTION 2137. ( Reserved ) SECTION 3137. Limitations/Amount Available on Dividends Declared by Rural Banks and Cooperative Banks . The following rules shall also govern the declaration of dividends by RBs and Coop Banks. a. RBs . In addition to the requirements prescribed in Sec. X136, an RB may declare cash dividends only if the amount of its reserve for retirement of government preferred stock is at least equal to the amount which should have been accumulated had the bank transferred annually to the reserve account from its undivided profits an amount equal to at least an average of one-tenth (1/10) of the total amount of preferred stock. In no case shall cash dividends be declared whenever any of the following circumstances is present: (i) Arrearages in its obligations with the BSP amount to P1 million or more unless covered by an approved plan of payment which is being fully complied with: Provided, however , That cash dividends shall not exceed ten percent (10%) per annum; and (ii) Past due loans comprise twenty-five percent (25%) or more of the total loan portfolio at any time during the last six (6) months prior to the dividend declaration. b. Coop Banks (1) Interest on share capital (a) Interest on share capital shall be declared only upon compliance with the requirements prescribed under Sec. 3137a. (b) Government preferred shares shall be entitled to interest as enumerated in Subsec. 3137.1: Provided, That no cumulative interest shall be allowed for any kind or class of share issued by the Coop Bank. Unless otherwise provided for in the by-laws of the Coop Bank, the share capital shall earn interest at the rate computed as follows: Rate of Interest = X (Net Surplus less Statutory Reserves) - (Total Average Share Month) where: (i) "X" shall be a percentage to be determined by the board of directors allocated for interest on share capital; and (ii) "Statutory Reserves" shall refer to Article 87 of R.A. No. 6938. No allocation of interest on share capital shall be made without the approval of the general assembly which may increase or decrease any or both. (2) Patronage refund (a) The amount allocated for patronage refund shall not be less than thirty percent (30%) of the net surplus after deducting the statutory reserves based on the principle of equity; (b) The rate of patronage refund shall not be more than twice the rate of interest on share capital; (c) The sum allocated for patronage refunds shall be made available at the same rate to all cooperative patrons of the Coop Bank in proportion to their individual patronage: Provided, That (i) In the case of a cooperative member patron with paid-up share capital contribution, its proportionate amount of patronage refund shall be paid unless it agrees to credit the amount to its account as additional share capital contribution; (ii) In the case of a cooperative member patron with unpaid share capital contribution, its proportionate amount of patronage refund shall be credited to its share capital contribution; (iii) In the case of a non-member patron, its proportionate amount of patronage refund shall be set aside in a general fund for such patrons and shall be allocated to non-member patrons only upon request and presentation of evidence of the amount of its patronage. The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership. When a sum equal to this amount has accumulated at any time within a period specified in the by-laws, such patron shall be deemed and become a member of the Coop Bank if it so agrees or requests and complies with the provisions of the by-laws for admission to membership; and (iv) If within any period of time specified in the by-laws, any subscriber who has not fully paid his subscribed share capital or any non-member patron which has accumulated the sum necessary for membership but does not request nor agree to become a member or fails to comply with the provision of the by-laws for admission to membership, the amount so accumulated or credited to their account together with any part of the general fund for non-member patrons shall be credited to the reserve fund or to the education and training fund of the Coop Bank. SUBSECTION 3137.1 Dividends on government shares a. Held prior to June 9, 1992 . Whenever dividend of not less than fourteen percent (14%) are declared on common stock, government preferred stock shall be entitled to a cash dividend not to exceed two percent (2%) of total outstanding preferred stock. Should the dividends declared on common stock be less than fourteen percent (14%), the dividend on preferred stock shall be proportionately reduced. b. Held on or after June 9, 1992 . Shares held by the LBP, DBP, or by any government-owned or controlled bank or financial institution shall share in dividend distributions from the date of issuance in the amount of four percent (4%) on the first and second years; six percent (6%) on the third and fourth years; eight percent (8%) on the fifth and sixth years; ten percent (10%) on the seventh and eighth years; and twelve percent (12%) on the ninth to the fifteenth years, which shall be cumulative: Provided, That the RB and the government-owned or controlled bank are not precluded from entering into an agreement providing for rates of dividends other than those prescribed by law. SECTIONS X138 - X140 ( Reserved ) G. Directors, Officers And Employees SECTION X141. Definition and Qualifications of Directors . For purposes of this Section, the following shall be the definition and qualifications of directors. SUBSECTION X141.1 Definition of directors Directors shall include: (1) directors who are named as such in the articles of incorporation; (2) directors duly elected in subsequent meetings of the bank's stockholders: and (3) those elected to fill vacancies in the board of directors. SUBSECTION X141.2 Qualifications of a director A director shall have the following minimum qualifications: a. He shall be at least twenty-five (25) years of age at the time of his election or appointment; and b. He shall be at least a college graduate or have at least five (5) years experience in business, or have undergone training in banking acceptable to the appropriate supervising and examining department of the BSP. The foregoing qualifications for directors shall be in addition to those already required or prescribed by R.A. No. 337, as amended, and other existing applicable laws and regulations. SECTION X142. Definition and Qualifications of Officers . For purposes of this Section, the following shall be the definition and qualification of officers. SUBSECTION X142.1 Definition of officers . Officers shall include the president, executive vice president, senior vice president, vice president, general manager, secretary, treasurer, trust officer and others mentioned as officers of the bank, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the bank (or any of its branches and offices other than the head office) either through announcement, representation, publication or any kind of communication made by the bank. A person holding the position of chairman, vice-chairman or any other position of the board who also performs functions of management such as those ordinarily performed by regular officers shall also be considered an officer. SUBSECTION X142.2 Qualifications of an officer An officer shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age; and b. He shall be at least college graduate, or have at least five (5) years experience in banking or trust operations or related activities or in a field related to his position and responsibilities, or have undergone training in banking or trust operations acceptable to the appropriate supervising and examining department of the BSP: Provided , however, That trust officers shall have at least two (2) years of actual experience or training in trust operations or fund management or other related fields. The foregoing qualifications for officers shall be in addition to those already required or prescribed by R.A. No. 337, as amended, and other existing applicable laws and regulations. SECTION X143. Disqualification of Directors and Officers . The following regulations shall govern the disqualification of bank directors, and officers. SUBSECTION X143.1 Persons disqualified to become directors . Without prejudice to specific provisions of law prescribing disqualification for directors, the following are disqualified from becoming directors: a. Persons who have been convicted judicially or administratively of an offense involving moral turpitude or judicially declared insolvent, spendthrift, or incapacitated to contract; b. Persons who have been disqualified by the Monetary Board pursuant to the provisions of Section 9-A of R.A. No. 337, as amended and other provisions thereof; c. Persons who shall refuse to disclose the extent of their business interest to the appropriate supervising and examining department of the BSP when required for the proper implementation of a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; d. Directors who have been absent for whatever reasons for more than fifty percent (50%) of the regular meetings of the board of directors during their incumbency. This disqualification shall apply for purposes of the immediately succeeding election; e. Those who are delinquent in the payment of their obligations as defined hereunder: (1) Delinquency in the payment of obligations means that an obligation of a person with a bank where he is a director or officer or where he may be elected or appointed to said position, or at least two (2) obligations with other banks and with NBQBs, under different credit lines or loan contracts, are past due pursuant to Sec. X306; and (2) Obligations shall include all borrowings from a bank or from an NBQB obtained by: (a) A director or officer for his own account or as the representative or agent of others or where he acts as a guarantor, endorser or surety, for loans from the bank; (b) The spouse or child under the parental authority of the director or officer; (c) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director or officer; (d) A partnership of which a director or officer or his spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (e) A corporation, association or firm, wholly-or majority-owned by any or a group of persons mentioned in the foregoing Items (a), (b) and (d); f. Persons found by the Monetary Board to have willfully failed or refused to comply with any banking law, order, instruction or regulation issued by the Monetary Board or by the Governor, or to have committed irregularities or to have conducted business in an unlawful, unsafe or unsound manner as determined by the Monetary Board in any institution supervised by the BSP; and g. Persons who have been dismissed for cause from any institution under the regulation or supervision of the BSP. The foregoing disqualifications for directors shall be in addition to those already required or prescribed by R. A. No. 337 as amended, and other existing applicable laws and regulations. SUBSECTION X143.2 Persons disqualified to become officers a. The disqualifications for directors mentioned in Subsec. X143.1 shall likewise apply to officers, except that stated in Item d . b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of chairman, vice chairman, president, executive vice president, general manager, treasurer, chief cashier or chief accountant or any equivalent position, is disqualified from holding or being elected or appointed to any of said positions in the same bank; and the spouse or a relative within the second degree of consanguinity or affinity or any person holding the position of manager, cashier, or accountant of a branch or extension office of a bank is disqualified from holding or being appointed to any of said positions in the same branch or extension office. c. Except in the case of technical personnel whose employment may be especially authorized by the Secretary of Justice, foreigners cannot be officers or employees of banks. d. In the case of EKBs, KBs, and TBs, any appointive or elective officials whether full time or part time, except in cases where such service is incident to financial assistance provided by the government or government owned or controlled corporations. e. In the case of Coop Banks, any officer or employee of Cooperative Development Authority or any elective public official, except a barangay official. The foregoing disqualifications for officers shall be in addition to those already required or prescribed by R. A. No. 337, as amended, and other existing applicable laws and regulations. SUBSECTION X143.3 Disqualification procedures a. Upon the establishment of any of the grounds for disqualification mentioned in Subsecs. X143.1 and X143.2, the bank shall cause the removal of disqualified director or officer, except in the case of delinquency in the payment of obligations wherein the director or officer concerned shall be given thirty (30) days within which to restore the obligation in current status. b. All cases of disqualification reported to the board of directors of a bank shall be acted by the board not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the appropriate supervising and examining department of the BSP, the name of the director or officer involved, the ground for his disqualification and the action taken by the board. c. When the ground for disqualification ceases to exist, the director or officer concerned shall be eligible to become director or officer of any institution regulated or supervised by the BSP only upon prior approval of the BSP. SECTION X144. Bio-data of Directors and Officers a. All banks shall submit to the appropriate supervising and examining department of the BSP a bio-data of their directors and officers after their election or appointment, in a prescribed form and within the deadline indicated in Appendix 6 . The bio-data shall be updated in any of the following-instances: (1) Change in educational attainment, experience or additional qualifications in banking that will enhance the director's or officer's competence or will qualify him to his present position; (2) Promotion; and (3) Transfer to other banks. The bio-data shall be submitted only once. For purposes of updating, only the pertinent sections and pages shall be submitted to the BSP. b. All banks shall submit to the appropriate supervising and examining department of the BSP within the deadline indicated in Appendix 6 , a list of the members of the board of directors and officers after the annual election of the board of directors as provided in the bank's by-laws. Any change in the composition of the board of directors shall also be reported to the BSP after the election or appointment of a member. SECTION X145. Interlocking Directorships and/or Officerships . In order to safeguard against the exercise by the same person or group or persons of undue influence over the policy-making and/or management functions of similar financial institutions that could have an adverse effect on competition or which could result in conflict of interest situations to the detriment of others, the following regulations shall govern interlocking directorships and/or officerships within the financial system. a. Interlocking directorships (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder, there shall be no concurrent directorships between banks or between a bank and a non-bank financial intermediary; and (2) Without the need for prior approval of the Monetary Board, concurrent directorships between entities not involving an investment house shall be allowed in the following cases: (a) Banks not belonging to the same category: Provided , That not more than one (1) of the banks shall have quasi-banking functions; (b) A non-bank financial intermediary, other than an investment house, not performing quasi-banking functions, and a bank; (c) A bank not performing quasi-banking functions and an NBQB; and (d) A bank and one (1) or more financial institutions in each of which majority interest is held by the bank. For purposes of the foregoing, a husband and his wife shall be considered as one (1) person. b. Interlocking directorships and officerships (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder, there shall be no-concurrent directorship and officership between banks or between a bank and a non-bank financial intermediary; and (2) Without need for prior approval of the Monetary Board, concurrent directorship and officership in a bank and one (1) or more of its subsidiary financial institutions other than an investment house, shall be allowed. c. Interlocking officerships (1) Except with prior approval of the Monetary Board, there shall be no concurrent officerships between banks or between a bank and non-bank financial intermediary, whether or not performing quasi-banking functions, in the following instances: (a) Between a bank and one (1) or more of its subsidiary financial institutions; or (b) Between two (2) or more banks and their subsidiary non-bank financial intermediaries. (2) With prior approval of the Monetary Board, concurrent officerships may also be allowed between banks or between a bank and a non-bank financial intermediary other than an investment house: Provided , That at least twenty percent (20%) but less than majority of the equity of each of the banks and non-bank financial intermediaries is owned by a holding company or a bank and the interlocking arrangement is necessary for the holding company or the bank to provide technical expertise or managerial assistance to its affiliates and subject to the following conditions: (a) that the positions do not involve any functional conflict of interests; (b) that the position of chief executive officer may be held by a person in only one (1) financial intermediary; (c) that the officer involved, or his spouse or any of his relatives within the first degree of consanguinity or affinity or by legal adoption, or a corporation, association or firm wholly- or majority-owned or controlled by such officer or his relatives enumerated above, does not own in his/its own capacity more than twenty percent (20%) of the subscribed capital of the entities in which the bank has equity investments; and (d) that where any of the positions involved is held on full-time basis, adequate justification shall be submitted to the Monetary Board. For purposes of this Section, members of a group or committee, including sub-groups or sub-committees, whose duties include functions of management such as those ordinarily performed by regular officers, shall likewise be considered as officers. SUBSECTION X145.1 Representatives of government . The provisions of this Section shall not apply to persons appointed to such positions as representatives of the government or government-owned or controlled entities. SECTION X146. Profit Sharing Programs . Profit sharing programs adopted in favor of directors, officers and employees shall be reflected in the by-laws of the bank, subject to the following guidelines: a. The base in any profit sharing program shall be the net income for the year of the bank as shown in its Consolidated Statement of Income and Expenses for the year, net of the following: (1) All cumulative dividends accruing to preferred stock to the extent not covered by earned surplus; (2) Accrued interest receivable credited to income but not yet collected, net of reserves already set up for uncollected interest on loans; (3) Unbooked valuation reserves on loans or the amount required to update valuation reserves in accordance with the schedule approved by the Monetary Board, as well as all amortizations due on deferred charges; (4) Provisions for current year's taxes; (5) Income tax deferred for the year. Provided, however , That in case of reversal of deferred income taxes which were deducted from net income in computing for profit sharing of previous years, the deferred income tax reversed to expense shall be added back to net income to arrive at the base for profit sharing for the year during which the reversal is made; (6) Accumulated profits not yet received but already recorded by a bank representing its share in profits of its subsidiaries under the equity method of accounting; and (7) Amount required to be transferred to Surplus Reserves - Reserve for Trust Business pursuant to Section 66 of R. A. No. 337, as amended; b. The bank may provide in its by-laws for other priorities in the computation of net profits for purposes of profit sharing: Provided , That in no case shall profit sharing take precedence over any of the items in the preceding paragraph; and c. Prior approval of the Monetary Board shall be necessary before a bank which has received financial assistance from the BSP may implement its profit sharing program. Financial assistance shall refer to emergency loans and advances and such other forms of credit accommodations which are intended to provide banks with liquidity in times of need. SECTION 1147. ( Reserved ) SECTION 2147. ( Reserved ) SECTION 3147. Bonding/Training of Directors, Officers and Employees . Officers and employees handling funds or securities amounting to P5,000 or more in any one (1) year shall be bonded in an amount determined by the Monetary Board. Directors, officers and other personnel of RBs/Coop Banks shall undergo such training in banking as may be required by the BSP. SECTIONS X148-X150 ( Reserved ) H. Banking Offices SECTION X151. Establishment/Relocation/Voluntary Closure of Branch . The following rules shall govern the establishment, relocation or voluntary closure of local branches of banks. For purposes of this Section, branches shall refer to branches, agencies or extension offices outside of a bank's head office. SUBSECTION X151.1 Prior Monetary Board approval . No bank operating in the Philippines shall establish, open or operate branches, or transact business outside the premises of its duly authorized principal office without the prior approval of the BSP. SUBSECTION X151.2 Application for authority to establish branches . An application for authority to establish a branch shall be signed by the president of the bank and shall be accompanied by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment of the additional branch and indicating its proposed site; b. Banking facilities and services to be offered; c. Organizational set up of the proposed branch showing the proposed staffing pattern; and d. Certification signed by the president or the executive vice president that the bank has complied with all the requirements enumerated under Subsec. X151.3. SUBSECTION X151.3 Prerequisites for the grant of authority to establish a branch/banking office a. Required capital. The capital requirements for each branch of a bank shall be as follows: (Amounts in Millions) Location EKB/KB TB RB Coop Bank (1) National Capital Region P20 P10 NA NA (2) Greater Manila Area (GMLA)* NA NA P5 P5.0 (3) Cities of Cebu and Davao P20 P10 P2.5 P2.5 (4) 1st, 2nd and 3rd class cities P10 P5 P1.25 P1.25 (5) 4th, 5th and 6th class cities P10 P5 P.5 P.5 (6) 1st class municipalities P10 P5 P1.25 P1.25 (7) 2nd, 3rd and 4th class municipalities P10 P3 P5 P1.25 (8) 5th and 6th class municipalities P10 None None None *GMLA includes the Cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong and Makati and the municipalities of Malabon, Navotas, San Juan, and Paraaque. Provided, however, That in no case shall the capitalization of the bank be less than the minimum capital required for EKBs, KBs, TBs, RBs and Coop Banks under Subsecs. X106.1 and X106.2. A bank that has complied with the above minimum capital requirements or, if the bank has an approved capital build-up program and has complied with the terms thereof, as well as with all the other requirements of this Subsection, such bank may establish additional branches. The amount of capital, if any, to be put up by such bank in establishing additional branches shall be equal to the sum of the products of: (a) the number of existing branches of the bank each multiplied by the above-mentioned capital required for a branch depending on the location thereof; and (b) the number of branches to be established each multiplied by such capital required for a branch depending on its location, less the present total capital accounts of the bank. In the case of a TB with head office outside the National Capital Region (NCR), it may establish a branch in the NCR only after it has put up the minimum capital requirement for a new TB in the NCR. An RB establishing a branch in a place classified higher than that of the location of its head office shall comply with the minimum capital requirement for the place of a higher classification. b. Compliance with standard prequalification requirements . The applicant bank shall also comply with the standard prequalification requirements for the grant of banking authorities in Appendix 5 . SUBSECTION X151.4 Branch location . EKBs, KBs, and TBs may establish branches on a nationwide basis. RBs may establish branches in the Philippines except in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong and Makati; in the municipalities of Malabon, Navotas, San Juan, and Paraaque; and in the cities of Cebu and Davao, as follows: a. An RB with unimpaired paid-in capital of P20 million or more and a Coop Bank with P10 million or more, net of government equity, may establish branches in any region; b. An RB and a Coop Bank with unimpaired paid-in capital of less than P20 and P10 million, respectively, net of government equity, may establish branches anywhere in the region where its head office is located as well as in the provinces adjacent to the province where its head office is located. If the head office of the said RB/Coop Bank which has an unimpaired paid-in capital of less than P20/P10 million, net of government equity, is located in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong and Makati; and in the municipalities of Malabon, Navotas, San Juan, and Paraaque, such bank may establish branches only in either Region III (Central Luzon) or Region IV (Southern Tagalog). If the head office of an RB/Coop Bank which has an unimpaired paid-in capital of less than P20/P10 million, net of government equity, is located in the cities of Cebu or Davao, such bank may establish branches only within its region. SUBSECTION X151.5 Date of opening . Approved branches shall be opened within six (6) months from the date of approval thereof: Provided , That an applicant bank may be given a final extension of another six (6) months by the Deputy Governor, Supervision and Examination Sector, subject to the presentation of justification and valid reason for the bank's failure to open within the six (6)-month period and proof that said branch/es can be opened within the succeeding six (6)-month period. SUBSECTION X151.6 Requirements for opening a branch . After a bank's application to establish a branch has been approved, it may open the same subject to the following conditions: a. Submission of the personal information sheet (bio-data) of the proposed manager and other officers of the branch at least thirty (30) days prior to the intended date of opening; and b. A certification signed by the officer-in-charge of the Branches Department with the rank of a vice president, or its equivalent or by a higher officer that: (1) Installation of the required security devices under Subsec. X165.4 have been complied with; and (2) Requirements enumerated under Subsec. X151.3 have been complied with up to the time of actual opening. A bank that fails to continuously comply with the requirements under Subsec. X151.3 shall be given an extension of time to open such branch after it has shown compliance for another test period of the same duration required of each requirement under said subsection: Provided , That the provisions of Subsec. X151.5 shall be observed if the branch cannot open within six (6) months from the date of approval thereof: Provided, further , That before such branch opens for business, the bank shall submit to the BSP the requirements under Items a and b (1) of this Subsection; and a certification by the bank officer mentioned under Item b hereof to the effect that upon opening of the branch, the bank has complied within the period prescribed therein. Banks shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date of opening of their branches not later than ten (10) banking days from such opening. SUBSECTION X151.7 Relocation/transfer of branches . Transfer of branches shall only be allowed within the same city or municipality where the branch to be transferred is located and such transfer shall not require prior BSP approval but shall be subject to the following conditions: a. Notice of transfer to depositors and other creditors by registered mail and posters in conspicuous place in the premises of the banking office to be transferred at least three (3) months prior to the transfer; b. Written notice to the appropriate supervising and examining department of the BSP of the transfer not later than five (5) banking days from the date of such transfer. The notification shall be accompanied by a certified copy of the resolution of the bank's board of directors authorizing the transfer; and c. A certification signed by the officer in-charge of the Branches Department with the rank of vice president or its equivalent or by a higher ranking officer, that the above requirements have been complied with. The certification shall be submitted to the appropriate supervising and examining department of the BSP not later than five (5) banking days from date of transfer. SUBSECTION X151.8 Voluntary closure of branches . Voluntary closure of a branch may be effected only with prior approval of the BSP and shall be subject to the conditions enumerated under Subsec. X151.7. SUBSECTION X151.9 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the following sanctions shall be imposed: a. On the Bank . Suspension for one (1) year of the privilege to establish and/or to open approved banking offices. b. On the Certifying Officer . A fine of P5,000 per day (P200 per day for RBs/Coop Banks) from the time the certification was made up to the time the certification was found to be false for each banking offices opened, transferred or closed without prejudice to the sanctions under Section 35 of R.A. No. 7653. SECTION X152. Relocation/Transfer of Head Offices . Transfer of a head office or any of its departments shall require prior BSP approval and shall be subject to the conditions enumerated under Subsec. X151. 7, except that the certification shall be signed by the officer with the rank of senior vice president or its equivalent or by a higher ranking officer. SUBSECTION X152.1 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the sanctions under Subsec. X151.9 shall be imposed. SECTION X153. Establishment of Additional Branches of Foreign Banks . The following guidelines shall govern the establishment of additional branches of foreign banks in the Philippines pursuant to R. A. No. 7721. For purposes of this Section, the term bank shall refer to the existing branches of the applicant bank in the Philippines reckoned as a single unit. SUBSECTION X153.1 Application for authority to establish additional branch . An application for authority to establish additional branch or branches shall be signed by the Country Manager or the highest ranking officer in the Philippines of the applicant foreign bank, and shall be accompanied by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment of the additional branch/es and indicating its proposed site/s and/or authority of the bank's Country Manager or highest ranking officer in the Philippines to apply for authority to establish additional branch/es and represent the bank in connection therewith; b. Banking facilities and services to be offered; c. Organizational set up of the proposed branch showing the proposed staffing pattern; and d. Certification signed by the bank's Country Manager that the bank's existing branches in the Philippines reckoned as a single unit, have complied with all the requirements enumerated under Subsec. X153.2. SUBSECTION X153.2 Requirements for establishment of additional branch . In addition to the standard prequalification requirement for the grant of banking authorities in Appendix 5 , the applicant bank shall comply with requirements prescribed in Subsecs. X121.4 b and c, and X121.6. SUBSECTION X153.3 Date of opening . The opening of approved branches shall be subject to the provisions of Subsec. X151.5. SUBSECTION X153.4 Requirements for opening branch . After a bank's application to establish a branch has been approved, it may open the same subject to the following conditions: a. Submission by the applicant bank of a written notice at least thirty (30) days prior to the intended date of opening, accompanied by the following: (1) Proof or evidence of inward remittance needed to meet the requirements prescribed in Subsecs. X121.4 b and c, and X121.6; 2) List of principal and junior officers of the proposed branch/es and their respective designations and salaries; (3) Personal information sheet (bio-data) for each of the officers to enable the BSP to evaluate their qualifications as officers; and (4) A certification signed by the bank's Philippine Country Manager that the requirements enumerated under Subsec. X1153.2 has been complied with up to the date of the aforementioned written notice. A bank that fails to continuously comply with the requirements under Subsec. X153.2 shall be given an extension of time to open such branch after it has shown compliance for another test period of the same duration required of each requirement in Subsec. X153.2: Provided , That the provisions of Subsec. X153.3 shall be observed if the branch cannot open within six (6) months from the date of approval thereof: Provided, further , That before such branch opens for business, the bank shall submit to the BSP the requirements under Subsec. X153.4a with the certification to the effect that the bank has complied with requirements of Subsec. X153.2 up to the date of the written notice within the period prescribed therein; b. The foreign bank branch has adequate staff, equipment, and other facilities to meet the needs of its commercial banking operations: Provided , That the bank's premises, vault and office equipment, after inspection by the representatives of the Supervision and Examination Sector of the BSP shall have been found to be substantially in compliance with specifications on security standards and ready for use by the bank; and c. Issuance by the Governor of the permit to open and operate the approved branch/es. Banks shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date of opening of their branches not later than ten (10) banking days from such opening. SUBSECTION X153.5 Choice of locations for establishment of branches a. A foreign bank authorized to establish branches in the Philippines pursuant to the provisions of R. A. No. 7721, may open its first three (3) branches in locations of its choice. b. The same foreign bank may open its next three (3) additional branches only in locations designated by the Monetary Board to ensure balanced economic development in all the regions. SUBSECTION X153.6 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the sanctions under Subsec. X151.9 shall be imposed. SECTION X154. Establishment of Offices Abroad . The following rules shall govern the establishment by domestic banks of branches and other offices abroad. For purposes of this Section, the term offices shall include branches, agencies, representative offices, remittance centers, remittance desk offices and other offices. SUBSECTION X154.1 Application for authority to establish an office abroad. An application for authority to establish an office abroad shall be signed by the president of the bank and shall be accompanied by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment of that office indicating its proposed site; b. Economic justification for such establishment, indicating among other things, the services to be offered, the minimum outlay such as capital requirement of the host country, outlay for furniture, fixture and equipment, rental and other expenses; c. Organizational set up of the proposed office showing the proposed positions and the names, qualifications and experience of the proposed manager and other officers; and d. Certification signed by the president or the executive vice president that the bank has complied with the standard prequalification requirements for the grant of banking authorities enumerated in Appendix 5 ; and e. Certification from the host country that the duly authorized personnel/examiners of the BSP will be authorized to examine the proposed office. SUBSECTION X154.2 Requirements for establishing an office abroad . In addition to the standard prequalification requirements of Appendix 5 , the applicant bank shall comply with the following: a. The citizenship requirements, ownership ceilings and other limitations on voting stockholdings in banks under existing law and regulations; b. Experience and expertise in international banking operations as shown by: (1) Its international banking operations for at least three (3) years prior to the date of application; (2) Substantial income derived from international banking operations; and (3) Established correspondent relationship with reputable banks. SUBSECTION X154.3 Conditions attached to the approved application . An approved application to establish a banking office abroad shall be subject to the following conditions: a. Without prejudice to the qualification requirements in the country where the office is to be established, the proposed officer(s), at the time of appointment must be at least: (1) Twenty-five (25) years of age; (2) A college graduate, preferably with training and experience abroad; (3) With three (3) years experience in international banking operations; and (4) Must not possess any of the disqualification of an officer as provided for under existing regulations; b. The applicant bank shall comply with the licensing requirements of the host country and the necessary license to operate shall be secured from the appropriate government agency of the host country; c. The outward investment representing initial capital outlay and other outlays shall be subject to existing regulations; d. The proposed office shall submit periodic reports on its financial condition and profitability and such other reports that may be required by the BSP; e. An office not authorized to perform banking business (e.g., representative and liaison offices) shall not carry any of the business of a bank as contemplated within the context of the Philippine banking system; and f. The applicant shall defray the necessary cost and expenses to be incurred by the appropriate supervising and examining department of the BSP. SUBSECTION X154.4 Date of opening . The opening of any office abroad shall be subject to the provisions of Subsec. X151.5. SUBSECTION X154.5 Requirements for opening an office abroad . After a bank's application to establish a branch has been approved, it may open the same subject to the following conditions: a. Submission by the applicant bank of a written notice at least thirty (30) days prior to the intended date of opening, accompanied by the following: (1) Proof or evidence of outward remittance needed to meet the capital requirements prescribed by the host country; (2) List of principal and junior officers of the proposed branch/es and their respective designations and salaries; and (3) Personal information sheet (Bio-data) for each of the officers to enable the BSP to evaluate their qualifications as officers; and b. A certification signed by the bank's president or executive vice president that the standard prequalification requirements enumerated in Appendix 5 have been complied with up to the date of the aforementioned written notice. A bank that fails to continuously comply with the requirements shall be given an extension of time to open such office after it has shown compliance for another test period of the same duration required of each requirement: Provided , That the provisions of Subsec. X151.5 shall be observed if the branch cannot open within six (6) months from the date of approval thereof: Provided, further, That before such branch opens for business, the bank shall submit to the BSP the requirements under Subsec. X154.5 a together with a certification stating that the bank has complied with the standard prequalification requirements in Appendix 5 up to the date of the written notice within the period prescribed therein. ACcEHI SUBSECTION X154.6 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the sanctions under Subsec. X151.9 shall be imposed. SECTION X155. Tellering Booths . The following rules shall govern the establishment of tellering booths in BIR offices: a. As a general policy, the establishment of tellering booths in BIR offices are not authorized. However, in cases where tellering booths in offices are needed as determined by the BIR, banks shall secure prior Monetary Board approval; b. A bank's application shall be accompanied by a letter from the BIR Commissioner or Deputy Commissioner or other officer specifically authorized by the Commissioner to sign such letter, stating that the BIR has agreed to allow the applicant bank to establish a tellering booth in the specified BIR office; c. The applicant bank has complied with the standard prequalification requirements prescribed in Appendix 5; and d. Tax collections received shall be subject to rules on government deposits. I. Banking Days and Hours SECTION X156. Banking Days and Hours . All banks, including their branches, agencies and extension offices, doing business in the Philippines, shall observe a minimum five-day banking week for the conduct of their business, the banking days during which each banking unit may be opened to be selected by the bank concerned. However, subject to compliance with other relevant laws, they may, at their discretion, open and transact regular banking business for more than five (5) days a week or even during Saturdays and Sundays: Provided, That they shall regularly open and transact business on said days. Subject to compliance with other relevant laws, banks including their branches and other offices doing business in the Philippines may, at their discretion, open and transact regular banking business on official and special holidays, if said days fall on regular banking days selected by them, without need of giving notice to the BSP. All banks including their branches and other offices doing business in the Philippines shall transact business for not less than six (6) hours a day, to be selected by the bank concerned between 8:00 AM and 8:00 PM with the exception of banks located in any international airport and any major fish port, e.g., Malabon and Navotas fish ports. Banks opting to open beyond the regular five (5) banking days in a week shall likewise comply with the minimum six (6) hour daily requirement for five (5) regular banking days: Provided, That they may choose the number of hours within which to transact their regular banking business on the days they are open in excess of said five (5) regular banking days: Provided, further , That the banking hours for all the days during which they are open shall be regularly observed. SUBSECTION X156.1 Banking hours beyond the minimum . For purposes of servicing deposits and withdrawals, banks may, at their discretion, remain open beyond the minimum six (6) hours and for as long as they find it necessary, even before 8:00 AM or after 8:00 PM. Banks may, after prior written notice, also remain open beyond the minimum six (6) hours for banking services other than the servicing of deposits and withdrawals but in no case shall such banking hours start earlier than 8:00 AM nor extend beyond 8:00 PM: Provided, however , That branches of banks at any international airport or major fish port are allowed to operate on flexible banking hours within a twenty-four (24)-hour period, subject to the condition that the individual bank's management will inform the BSP of the schedule of its banking hours which shall in no case be less than six (6) hours a day. SUBSECTION X156.2 Report of, and changes in, banking days and hours . The banking days and hours selected for each of the offices of banks shall be reported in writing to the appropriate supervising and examining department of the BSP. Banks may change the banking days and hours previously reported to the BSP by giving prior written notice: Provided , That changes in banking days or hours shall not be made oftener than once every thirty (30) days, except during emergencies. Emergency shall mean (a) condition of an area or locality proclaimed by the President of the Philippines as in a state of emergency; or (b) an event or occasion or a combination of circumstances equivalent to a public calamity resulting from fire, flood, or like disaster, or through some unusual occurrence or pressing necessity not reasonably subject to anticipation calling for immediate action or remedy. The prior written notice to the BSP on charges in banking days and hours shall be given through the fastest means of communication, at least seven (7) banking days before the intended effectivity of the change in banking hours or days. In case a bank, due to an emergency, has to open outside, or close during, the banking hours or days reported to the BSP, a written report submitted within twenty-four (24) hours from opening or closing, as the case may be, will suffice. The report shall state the specific nature of the emergency and the period the bank opened or closed or shall open or close by reason of emergency. SUBSECTION X156.3 Posting of schedule of banking days and hours . The schedule of banking days and hours reported to the BSP shall be posted conspicuously at all times in the bank's premises. SECTIONS X157-X160 ( Reserved ) J. Records and Reports SECTION X161. Records . Banks shall have a true and accurate account, record or statement of their daily transactions, particularly those referring to their deposit liabilities. The making of any false entry or the willful omission of entries relevant to any transaction, is a ground for the imposition of administrative sanctions under Section 37 of R.A. No. 7653 and the disqualification from office of any director or officer responsible therefor under Section 9-A of R.A. No. 337, as amended. This is without prejudice to their criminal liability under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. SUBSECTION X161.1 Adoption of the Manual of Accounts . Banks shall strictly adopt the Manual of Accounts prescribed by the BSP for recording daily transactions including reportorial and publication requirements. Local branches of foreign banks may continue using their parent bank's general ledger accounts: Provided , That published statements and reports submitted to the BSP follow the account definitions in the BSP-prescribed Manual of Accounts: Provided, further , That the mathematical formulas for reconciling such published statements and submitted reports with the general ledger accounts of the bank are submitted to the appropriate supervising and examining department of the BSP: Provided, finally , That said banks prepare for BSP use, reconciliations of their ledger accounts with the BSP prescribed Manual of Accounts during regular or special bank examinations. Any bank which fails or refuses to adopt the prescribed Manual of Accounts, or any of the applicable accounts contained therein, or adopts any general ledger account not specified in the said Manual of Accounts without prior written approval of the Governor of the Bangko Sentral, shall be penalized by revocation or suspension of its authority to engage in quasi-banking function. SUBSECTION X161.2 Statements of Financial Accounting Standards . Banks shall adopt the Statements of Financial Accounting Standards (SFAS) which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to the BSP. However, in cases where there are differences between BSP regulations and SFAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the SFAS, the option or limit prescribed by BSP regulations shall be adopted by all banks. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council and approved by the Professional Regulation Commission. SECTION X162. Reports . Banks shall submit to the appropriate supervising and examining department of the BSP all their statements and/or periodic reports listed in Appendix 6 in such frequency and deadlines indicated therein. In the preparation of said statements/reports, banks shall use and strictly follow the forms prescribed by the BSP. SUBSECTION X162.1 Categories and signatories of bank reports a. Categories of reports . Reports required to be submitted to the BSP by banks are grouped into Category A-1, Category A-2, Category A-3 and Category B reports as indicated in Appendix 6 . b. Authorized Signatories (1) Category A-1 reports shall be signed by the bank's chief executive officer or, in his absence, by the executive vice president, and by the comptroller or, in his absence, by the chief accountant, or officers holding equivalent positions. (2) Category A-2 reports shall be signed by the president, executive vice president, vice president or by an officer holding equivalent position. (3) Category A-3 and Category B reports shall be signed by officers or their alternates, duly designated by the board of directors. The designated signatories of Categories A-1, A-2, A-3 and B reports including their specimen signatures shall be contained in a resolution approved by the board of directors. A copy of the board resolution covering the initial designation and subsequent change(s) in signatories as well as specimen signatures of the signatories and alternates, shall be submitted to the appropriate supervising and examining department of the BSP in such frequency and within the deadline indicated in Appendix 6 . (4) Reports in computer media that are submitted by banks shall be subject to the same requirements regarding authorized signatories. (5) Any report submitted to the BSP that is signed by an officer who is not listed or included in any of the resolutions mentioned above, shall be considered as not having been submitted at all. c. Deadline for submission of reports (1) Regular reports . Unless otherwise specified, the deadlines for submission of reports enumerated in Appendix 6 , shall be reckoned on the basis of banking days. For this purpose, banking days shall be understood to mean Monday through Friday or banking days of the BSP. (2) Call Reports . The deadline of submission of call reports shall be specified in the letter calling for the report. SUBSECTION X162.2 Sanctions in case of willful delay in the submission of reports/refusal to permit examination . For willful delay in the submission of reports, specific sanctions shall be imposed in accordance with the following rules. a. Definitions . For purposes of this Subsection, the following definitions shall; apply. (1) Report shall refer to any report or statement required to be submitted by a bank to the BSP. (2) Willful delay in the submission of reports shall refer to the failure of any bank to submit on time the report defined in Item a(1) above. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities, and public disorders including strike or lockout affecting a bank as defined in the Labor Code, or of a national emergency affecting operations of banks, shall not be considered as willful delay. (3) Examination shall include, but need not be limited to, the verification, review, audit, investigation and inspection of the books and records, business affairs, administration and financial condition of any bank including the reproduction of banking records, as well as the taking possession of the books and records and keeping them under BSP's custody after giving proper receipts therefor. It shall also include the interview of the directors and personnel of any bank including its Electronic Data Processing (EDP) servicer. Books and records shall include, but not limited to, data and information stored in magnetic tapes, discs, diskettes printouts, logbooks and manuals kept and maintained by the bank or by the EDP servicer, that are necessary and incidental to the use of EDP systems by the bank. (4) Refusal to permit examination shall mean any act or omission which impedes, delays or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination, including the act of refusing to accept or honor a letter of authority to examine presented by any officer/examiner/ employee of the BSP. b. Fines for willful delay in the submission of reports . (1) Amount of Fine . Any bank which shall incur willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: (a) For Category A-l, A-2 and A-3 reports P1,200 for EKBs/KBs; P600 for TBs; and P180 for RBs/Coop Banks, per business day of default until the report is filed with the ; BSP; and (b) Category B reports P240 for EKBs/KBs; P120 for TBs; and P60 for RBs/Coop Banks, per business day of default until the report is filed with the BSP. In the implementation of the foregoing rules, delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting bank is situated, delay or default shall start on the day following the next banking day. Delayed schedules/attachments and amendments shall be considered late reporting subject to the above penalties. (2) Manner of filing . For the purpose of establishing delay or default, the submission of reports shall be effected by filing them with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices, or by sending them by registered mail or by special delivery through a private courier, unless otherwise specified in the circular or memorandum of the BSP. In the first case, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Office appearing on the copies of such reports filed or submitted, and in the second case, the date of mailing postmarked on the envelope or the date of the registry receipt or the date of special delivery receipt, shall be considered as the date of filing. c. Fines for refusal to permit examination . (1) Amount of fine A bank which shall willfully refuse to permit examination shall pay a fine of P3,000 daily from the day of refusal and for as long as such refusal lasts. (2) Basis and effectivity of the imposition of fine . (a) The BSP officer/examiner/employee shall report the refusal of the bank to permit examination to the head of the appropriate supervising and examining department of the BSP, who shall forthwith make a written demand upon the bank concerned for such examination. If the bank continues to refuse said examination without any satisfactory explanation thereof, the BSP officer/examiner/employee concerned shall submit a report to that effect to the said department head. (b) The fine shall be imposed starting on the day following the receipt by the said department of the written report submitted by the BSP officer/examiner/employee concerned regarding the continued refusal of the bank to permit the desired examination. d. Manner of payment or collection of fines . The regulations embodied in Subsec. X609.1 shall be observed in the collection of fines from banks for willful delay in the submission of reports or for refusal to permit examination. e. Other penalties . The imposition of the foregoing penalties shall be without prejudice to imposition of the other administrative sanctions and to the filing of a criminal case as provided for in other provisions of law. f. Appeal to the Monetary Board . An aggrieved bank may appeal to the Monetary Board any fine imposed by the BSP. SUBSECTION X162.3 Submission of certain required information . Banks shall submit to the appropriate supervising and examining department of the BSP the information on bank's profile required in Appendix 7 . Any change in any of the required information submitted, after the initial submission, shall be reported to the said department immediately. Banks shall likewise submit to the said department any or all of the documents/information on bank's organizational structure and operational policies enumerated in Appendix 8 . Any subsequent change/issuance should be furnished the department within fifteen (15) banking days from such change/issuance. SUBSECTION X162.4 Report on crimes/losses . Banks shall report on the following matters to the appropriate supervising and examining department. a. Crimes whether consummated, frustrated or attempted against property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of bank property when the amount involved, in each crime is P20,000 or more. Crimes involving bank personnel, regardless of whether or not such crimes involve the loss/destruction of bank property, even if the amount involved is less than P20,000, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the bank's property/facilities, other than arising from a crime, when the amount involved per incident is P100,000 or more. i c. The following guidelines shall be observed in the preparation and submission of the report: (1) The report shall be prepared in the prescribed form in two (2) copies and shall be submitted to the appropriate supervising and examining department and to the BSP Security Coordinator, thru the Director, Security, Investigation and Transport Department within the deadline stated in Appendix 6; (2) Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the deadline may be accepted: Provided, That a complete report is submitted not later than fifteen (15) banking days from termination of investigation; and (1) Proof of submission of the report within the deadline shall be determined by the date of postmark, if the report was sent by mail or by the date received, if hand carried to the appropriate supervising and examining department, Manila, or in applicable cases, to the unit of the supervising and examining department in any of the Regional Offices of the BSP. SUBSECTION X162.5 Report on real estate transactions . Banks shall within the deadline indicated in Appendix 6 - a. Report to the appropriate supervising and examining department of the BSP, any real estate transaction (such as, but not limited to, rentals or leases, purchases and sales, or foreclosed assets) between the bank and its director(s), officer(s), stockholder(s) owning at least two percent (2%) of the bank's subscribed capital stock, or any firm substantially owned (in the aggregate of at least twenty percent (20%) of the paid-in capital of such firm) by one (1) or more of such directors/officers/stockholders; and b. Certify to the BSP that such transaction has been thoroughly reviewed and verified as having been entered into in the best interest of the bank. SUBSECTION X162.6 Reconciliation of head office and branch transactions . Banks shall prepare reconciliation statements covering transactions between the head office and all its branches within thirty (30) banking days after the end of each month. All items which are unresponded or outstanding in the reconciliation statement for more than (6) months as of reconciliation statement date shall be reported, with explanations/reasons for their being outstanding, to the appropriate supervising and examining department of the BSP in such frequency and within the deadline set in Appendix 6. The reconciliation statement shall be made available to any authorized bank examiner for inspection/examination without need of advance notice. A copy of the year-end reconciliation statement covering transactions between the bank's head office and all its branches shall be furnished the said department not later than the end of January of the following year. SUBSECTION X162.7 List of stockholders and their stockholdings a. Banks shall submit to the appropriate supervising and examining department of the BSP annually a complete list of stockholders and their stockholdings in the prescribed form within the deadline indicated in Appendix 6 . b. Any change in the list shall also be reported to the said department in such frequency and within the deadline indicated in Appendix 6 , indicating the name(s) and/or stockholdings involved which is/are to be canceled or replaced, and the new name(s) and/or stockholdings which shall be included for that quarter. In case no change occurred during a particular quarter, the report shall provide a notation, viz "no change(s) since last report submitted for quarter ended, _______________ ______, 19____". SUBSECTION X162.8 Bangko Sentral offices, where reports are submitted . Submission of BSP periodic or call reports shall be as follows: a. All banking offices shall submit the required reports (original and duplicate) direct to the appropriate supervising and examining department of the BSP, Manila, or to the nearest BSP Regional Offices personally, by registered mail, or by private courier; b. Where a particular report form calls for distribution of copies to other departments of the BSP, the bank concerned shall furnish said copies of the report direct to the respective departments of the BSP; and c. As an exception to Item a above, the duplicate copy of the bio-data for directors/officers shall be submitted to the Supervisory Reports and Studies Office (SRSO) of the BSP. SUBSECTION X162.9 Publication/Posting of statement of condition a. EKBs/KBs and TBs with 21 billion resources and above (1) Banks belonging to this category shall accomplish the prescribed form and publish their quarterly statements of condition as of the cut-off date indicated in the call letter of the appropriate supervising and examining department of the BSP. They shall publish their Consolidated Statement of Condition (bank and its financial subsidiaries) side-by-side with the Statement of Condition (Head Office and its branches/other offices); (2) Such statements of condition shall be published in a newspaper of general circulation in the city/province where the bank has its head office or in the absence of such newspaper in such city/province, in the City of Manila or in the region where the principal office of the bank is located; (3) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there are no executive vice president), shall be published and shown in the right side column of the published statement of condition as of June of every year; and (4) The original and a copy of the statement of condition shall be submitted to the appropriate supervising and examining department of the BSP before the publication and within twelve (12) banking days from receipt of the call letter. Thereafter, the published reports shall be submitted within twenty (20) banking days after the receipt of said call letter. b. TBs with resources of less than P1 billion (1) A TB belonging to this category may either publish its quarterly statement of condition as of the cut-off date indicated in the call letter of the appropriate supervising and examining department of the BSP, in a newspaper of general circulation as in Item a above or post the same in the most conspicuous area of its premises, in the municipal building, municipal public market, barangay hall and barangay public market where the head office and all its branches are located. The posting shall be printed on twelve-inch by eighteen-inch (12"x18") white paper, preferably white buff paper (cartolina) and shall be made within twenty (20) banking days from the end of every quarter and for a period of thirty (30) successive days; (2) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there are no executive vice president), shall be published and shown in the right side column of the published statements of condition as of June of every year; and (3) A copy of the posted statement of condition together with an affidavit executed by the president or any officer of equivalent rank shall be submitted to the appropriate supervising and examining department within twenty (20) banking days from receipt of call letter. c. RBs and Coop Banks (1) An RB/Coop Bank may either publish its statement of condition at the end of each quarter in a newspaper of general circulation as in Item a above or post the same in the most conspicuous area of its premises, in the municipal building, municipal public market, barangay hall and barangay public market where the head office and all its branches are located. The posting shall be printed on 12"x18" white paper, preferably white buff paper (cartolina) and shall be made within twenty (20) banking days from the end of every quarter and for a period of thirty (30) successive days; (2) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there are no executive vice president), shall be published and shown in the right side column of the published statement of condition as of June of every year; and (3) A copy of the posted statement of condition together with an affidavit executed by the president or, in his absence, the vice-president or manager shall be submitted to the appropriate supervising and examining department within twenty (20) banking days after the end of the quarter. SUBSECTION X162.10 Consolidated financial statements of banks and their subsidiaries engaged in financial allied undertakings Banks shall submit after the end of the calendar year or the end of the fiscal year adopted by the bank their consolidated financial statements and supported by the individual annual financial statements of their subsidiaries engaged in financial allied undertakings. For purposes of this Subsection, the consolidated financial statements shall be prepared in accordance with the guidelines in Appendix 9 on consolidation of financial statements of banks and their subsidiaries engaged in financial allied undertakings. The consolidated financial statements and the supporting individual financial statements of their subsidiaries shall be submitted to the appropriate supervising and examining department of the BSP within the deadline indicated in Appendix 6 . SUBSECTION X162.11 Reports of other banking offices . Extension offices of banks which maintain separate books of accounts shall be subject to all reporting requirements of a regular branch. An extension office whose record of transactions/accounts is consolidated daily with its mother unit shall submit only the Selected Financial Accounts form as listed in Appendix 6. SUBSECTION X162.12 Reports required of foreign subsidiaries/affiliates of domestic banks The submission of periodic reports of a foreign subsidiary/affiliate or non-bank entities of domestic banks shall be governed by the following rules: a. For foreign subsidiaries/affiliates of domestic banks, the local investor-bank(s) concerned shall regularly submit to the appropriate supervising and examining department of the BSP a quarterly statement of condition and quarterly/annual report of income and expenses concerning the operations of the foreign subsidiaries/affiliates, including such other periodic reports which may be required from time to time in the forms prescribed by the BSP for domestic financial intermediaries to the extent that their operations are applicable; b. For foreign subsidiaries/affiliates of domestic banks, the appropriate supervising and examining department shall be furnished by said domestic banks copies of the annual report prescribed by any of the supervisory/regulatory authorities in the country of operations; and c. When material changes noted in the annual financial statements warrant an interim comprehensive evaluation, the foreign affiliate concerned shall be requested to submit to the appropriate supervising and examining department, through its domestic investor-bank, copies of its quarter/interim reports to stockholders or the call reports in the case of U.S. banks. SUBSECTION 1162.13 Additional Reports from EKBs/KBs a. Volume and weighted average interest rates of deposits and loans . Data on the volume of transactions and weighted average interest rates of certificates of time deposits and secured/unsecured loans granted, classified by maturity, and outstanding savings deposits classified by interest rates, shall be prepared daily (except data on savings deposits which shall be prepared weekly) and submitted weekly by all head offices of EKBs/KBs to the Department of Economic Research of the BSP not later than 4:00 PM on Thursday after end of reference week. b. Short-term prime rates . All EKBs and KBs shall submit in the prescribed form a report on the volume and interest rates on credit line availments under short-term prime rates in such frequency and within the deadline indicated in Appendix 6 . c. Computation of Capital to Risk Assets Ratio in Accordance with the Basle Guidelines, as Modified . To prepare banks for the eventual adoption of the Basle risk-based capital adequacy standard and for monitoring purpose, all EKBs and KBs shall submit starting September 30, 1993 and every quarter thereafter a quarter-end report of their capital adequacy under the modified Basle Guidelines based on their consolidated statement of condition (bank and financial subsidiaries). The report shall be submitted in the format prescribed under Circular Letter dated July 13, 1993 within fifteen (15) banking days after the end of the reference quarter. SUBSECTION 2162.13 ( Reserved ) SUBSECTION 3162.13 ( Reserved ) K. Internal Control SECTION X163. Internal Control System . The following provisions are the minimum internal control standards for banks to help promote effective control system. For this purpose, the following records/data shall be compiled and made available for the inspection of BSP examiners: a. Records showing compliance with independent balancing procedures. These records should indicate the accounts and the periodic balancing procedures performed. b. Statements of actual duties of persons assigned to handle cash and securities. c. All internal control audit reports or their equivalent. d. Information/data on the direct and/or indirect equity holdings and/or connection with any firm, partnership or corporation organized for profits, of all the bank' directors, officers and major stockholders as defined under Subsec. X326.1 should be maintained. e. Information/data pertaining to the electronic data processing (EDP) department or EDP servicer of the bank particularly on organization, input controls, processing controls, output controls, software controls, program and documentation standards, logs on the operation of mainframes and peripherals, hardware controls and such other EDP internal control standards prescribed by the BSP in separate rules and regulations. SUBSECTION X163.1 Proper accounting records a. All banks shall maintain proper and adequate accounting records. b. These records should be kept up-to-date and shall contain sufficient detail so that an audit trail is established. c. All tickets shall bear official approval and should be initiated by the person originating and another person by checking them. SUBSECTION X163.2 Independent balancing a. Independent balancing shall mean that records posted by a person or cash held by a teller or cashier shall be balanced or counted by another person. b. The following minimum independent balancing procedures shall be adopted. (1) Monthly reconciliation of general ledger balances against respective subsidiary and supporting records and documentation by someone other than the bookkeeper or the person handling the records. (2) Irregular and unannounced count of teller's cash and checks and other cash items at least twice a month and vault cash including Automated Tellering Machine's (ATM) cash dispensers at least once a month by the auditor/control officer or by an officer not connected with cash department. (3) Monthly reconciliation of due from banks, cash in bank accounts (domestic and foreign) and due from/to head office/branches by someone other than the person handling the records or posting the general ledger entries. (4) Periodic verification of securities and collaterals by someone other than their custodian. (5) Periodic verification of the accuracy of the interest credits to deposit liabilities accounts. SUBSECTION X163.3 Division of duties and responsibilities a. The duties of all the officers and employees shall be segregated, clearly defined, understood, documented and manualized. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end, without some check or balance from some other part of the organization. b. The physical handling of a transaction shall be separated from its recording and supervision as follows: (1) A person handling cash shall not be permitted to post the ledger records nor should posting the general ledger be performed by an employee who posts the depositor's subsidiary ledgers; (2) A lending officer shall never be allowed to disburse proceeds of notes, accept note payment nor post loan ledgers; (3) The functions of issuing, recording and signing of drafts/checks shall be separated; (4) Checks and other cash items shall be maintained either by an employee not handling cash or by the Rack/Distributing Department provided that adequate control as to custody and disposition of funds are properly maintained; (5) The receipt of statements from depository bank shall be assigned to an employee other than the one connected with the preparation, recording and signing of bank drafts; (6) Custodians of securities shall not be allowed to handle security transactions; (7) Collateral appraisal shall be done by an employee/officer who does not approve loans; (8) Incoming checks and other cash items shall be recorded chronologically in a register by an employee other than the bookkeeper before they are forwarded for posting purposes; (9) Credit reports shall be obtained by someone other than lending officers; (10) Mailing of customers' statements and delinquent notices shall be done by an employee other than the one who granted the loan or the one handling the records; and (11) Dispatching and delivery of current account statements shall be done by someone who is not involved in current account operations. c. Extensive background checking of persons intended to be assigned to handle cash and securities shall be conducted. Frequent follow-up checking after their employment shall also be made. SUBSECTION X163.4 Joint custody a. Joint custody shall mean the processing of transactions in the presence of and under the direct observation of a second person. Both persons shall be equally accountable for the physical protection of the items and records involved. b. Physical protection shall be deemed established through the use of two (2) locks or combinations on a file chest or vault compartment. c. Two (2) or more persons shall be assigned to each half of the control so that operating efficiency is not impaired if one (1) person is not immediately available. d. Persons who are related to each other within the third degree of consanguinity or affinity shall not be made joint custodians. e. The following shall be under joint custody: (1) Cash in vault and in ATM cash dispensers; (2) All accountable forms; (3) Collaterals; (4) Securities; (5) Documents of title and/or ownership of properties or fixed assets; (6) Dormant or inactive deposit ledgers/EDP print-outs and corresponding signature cards including on-line posting of dormant/inactive accounts; (7) Import documents; (8) Trust receipts; (9) Collection items; (10) Duplicate keys, safe deposit spare locks and keys, and keys to unrented safe deposit boxes; (11) Safekeeping items; (12) Vault door and safe combinations; (13) Unissued specimen signature books; (14) Correspondent's and bank's own telegraphic and/or electronic fund transfer system or cable test keys currently in use; (15) Test key fixed numbers unissued; (16) Unissued and captured ATM cards and similar devices; (17) Access locks and keys to on-line EDP terminals and similar devices; and (18) Access locks and keys to EDP mainframes and peripherals. SUBSECTION X163.5 Signing authorities . Signing authorities for the different levels of officers to sign for and in behalf of the banks shall be approved by the board of directors and the extent of each level of authority shall be clearly defined. These signing authorities shall include but need not be limited to the following: a. Lending; b. Investment; c. Approval of expense; d. Various supervisory reports; and e. Bank drafts, manager's/cashier's checks, bank money orders and certificates of time deposit. SUBSECTION X163.6 Dual control a. Dual control shall mean the work of one (1) person is to be verified by a second person to ensure that the transaction is properly authorized, recorded and settled. b. The routine and completion of each transaction shall involve at least two (2) or more individuals. c. Except as herein provided, the following accounts/transactions shall be under dual control: (1) Cashier's/manager's checks, telegraphic transfers (TTs) and electronic, fund transfer system (EFTS) The signature of at least two (2) officers should be required in the issuance of cashier's/manager's checks and payment orders (incoming and outgoing) of TTs and EFTS. The board of directors may, however, prescribe a predetermined amount by which one (1) senior officer can sign checks or payment orders, subject to appropriate control measures. (2) Certificates of Time Deposit The board of directors of a bank is given the discretion to determine the number of signatories for the issuance of certificates of time deposit (CTDs). For this purpose, all banks shall submit to the appropriate supervision and examination department of the BSP their respective internal control measures for the issuance of CTDs, the minimum of which shall include the following activities: (a) Joint custody of unissued CTD forms; (b) Accounting for all issued/cancelled CTDs; (c) Signature requirement for the issuance of CTDs; (d) Counterchecking of issued CTDs against the tellers' proofsheets/validated slips; (e) Recording of CTD transactions. Any change in the internal control measures shall be submitted to the appropriate supervising and examining department of the BSP not later than thirty (30) days prior to the implementation. For newly established banks, the requirement shall be submitted not later than a month from the start of banking operations. (3) Bank Drafts The signature of two (2) authorized officers should be required in the issuance of bank draft. (4) Borrowings The signature of at least two (2) authorized officers should be required. (5) All transactions giving rise to Due to or Due from accounts and all instruments of remittances evidencing these transactions particularly those involving substantial amounts should be approved by two (2) authorized officers. SUBSECTION X163.7 Number control a. Sequence number controls shall be incorporated in the accounting system and should be used in registering notes, in issuing official checks and in other similar situations. Bank management shall designate a person who is detached from the banking operations involved to monitor said sequence number controls. b. The following are the forms, instruments and accounts that shall be number-controlled: (1) Bank drafts; (2) Manager's and cashier's checks; (3) Promissory notes; (4) Savings deposit accounts; (5) Demand deposit accounts; (6) CTDs; (7) Letters of credit; (8) Collection items; (9) Official and provisional receipts; (10) Certificates of stocks; (11) Loan accounts; (12) Expense vouchers; (13) Payment orders (incoming and outgoing ) of TTs and EFTS; (14) Transfer requests through EFTS involving bank's accounts abroad; (15) EDP batch transmittal slips of documents; and (16) Due to/from head office/branches tickets. SUBSECTION X163.8 Rotation of duties a. The duties of personnel handling cash, securities and bookkeeping records shall be rotated. b. Rotation assignment shall be irregular, unannounced and long enough to permit disclosure of any irregularities or manipulations. c. Tellers/cashiers shall be temporarily relieved of their duties during the actual count of their cash accountabilities by BSP examiners or by internal/external auditors. SUBSECTION X163.9 Independence of the internal auditor a. The by-laws shall provide for the position of internal auditor together with the duties and responsibilities, scope and objectives of internal auditing. b. The internal auditor shall report directly to the board of directors or to an audit committee composed of directors who do not hold executive positions in the bank. c. The internal auditor shall not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. SUBSECTION X163.10 Confirmation of accounts At least once a year, the internal auditing staff shall confirm by direct verification with bank clients, the following: a. Balances of loans and credit accommodations of borrowers; b. Deposit account balances particularly new deposit accounts, inactive or dormant accounts and closed accounts; c. Outstanding balances of borrowings and other liabilities; and d. Outstanding balances of receivables/payables. SUBSECTION X163.11 Other internal control standards a. Deposit Accounts (1) Entries to dormant account ledgers shall be verified and approved by a designated officer. His initials shall be placed next to the entry on the ledger sheet. (2) Dormant accounts shall be segregated from active account ledgers with a separate subsidiary control. (3) Signature cards for dormant accounts shall be removed from active files. (4) All new current accounts shall be approved by a designated officer. (5) Signature cards and deposit ledger sheets shall be authenticated by some form of validation. Subsequent changes shall also be validated. (6) Signature cards and deposit ledger sheets shall be accessible only to authorized persons. (7) Deposit tickets shall be occasionally examined at irregular intervals to determine that postings are made on the actual date deposits are received. (8) Checks shall be canceled as soon as they have been paid and posted. (9) Reports on closed accounts and returned checks shall be prepared daily. (10) All current account statements shall be mailed direct to the depositors. Undelivered statements shall be retained by an organizational unit not responsible for demand deposit account processing. (11) An officer shall be designated to attend to customers who report differences on their statements. (12) Checkbooks shall be issued only against requisition forms signed by an authorized signatory to the account. (13) Banks shall adopt a system to establish the identity of their depositors. b. Miscellaneous (1) Loan applications and related documents shall be verified to ensure their authenticity particularly the name, residence employment and current reputation of the borrower. (2) Tellers paying checks to strangers shall obtain positive identification of the person and the account on which the checks are drawn should be verified. (3) No employee shall be permitted to process transaction affecting his own account. (4) Tellers and other employees having contact with customers shall be prohibited from preparing deposit ticket, withdrawal slip or other forms for the customer. (5) All banks shall have a sound recruitment policy. SUBSECTION X163.12 Internal control procedures for dormant/inactive accounts a. Definition of dormant or inactive accounts (1) Current or checking accounts showing no activity (deposit or withdrawals) for a period of one (1) year. (2) Savings account showing no activity (deposit or withdrawals) for a period of two (2) years. b. Procedures for classification . Banks shall review and segregate dormant accounts as herein defined at least once in every semester. c. Internal control measures (1) As a matter of policy, banks shall exert all efforts to prevent checking and savings accounts from becoming dormant. When it becomes apparent that an account is inactive, a short letter should be sent to the depositor encouraging him to use his account. In case of checking accounts, the banks shall ensure that the monthly statement of accounts reach the depositors. If the depositors cannot be located, the following steps should be undertaken: (a) Check any significant changes or fluctuations in the depositors' account balances over a period of time with emphasis on accounts with decreasing balances; (b) Verify apparent reactivation entries, represented either by deposit or withdrawal, that appears to have prevented the account from being classified as dormant; and (c) Investigate any obvious alteration of the ledger records. (2) Segregated dormant accounts shall be placed under joint custody of two (2) responsible officers/employees. (3) A separate ledger control for dormant accounts shall be maintained. (4) Signature cards for dormant accounts shall also be segregated from active files and held under joint custody. (5) Entries to dormant account ledgers shall be verified and approved by a designated officer. His initials shall be placed next to the entry on the ledger sheet. (6) All inquiries on dormant accounts shall be coursed to one officer who should obtain sufficient identification from the inquirer to assure that he is entitled to the information. (7) A trial balance of dormant account ledgers shall be taken periodically and balances with the general control account by an employee other than the bookkeeper. (8) Dormant or inactive accounts shall be verified directly with depositors. (9) All transactions affecting dormant accounts shall be subject to audit by the internal auditor. (10) A semestral report on deposit accounts transferred to dormant shall be rendered to bank management. SECTION X164. Audited Financial Statements of Banks . The following rules shall govern the utilization and submission of audited financial statements (annual reports) of banks. SUBSECTION X164.1 Financial audit . Banks shall cause an annual financial audit to be conducted by an external independent auditor not later than thirty (30) calendar days after the close of the calendar year or the fiscal year adopted by the bank. Reports of such audit shall be made and submitted to the board of directors and the appropriate supervising and examining department of the BSP not later than ninety (90) calendar days after the start of such audit. For purposes hereof, an external independent auditor who may be engaged by a bank shall refer to one who does not hold or own two percent (2%) or more of equity in that bank. In the case of a partnership, this limitation shall apply to the principal partners or associates. The audit of a government-owned or controlled bank by an external independent auditor shall be in addition to that conducted by the Commission on Audit. The board of directors, in a regular or special meeting, shall consider and act on the financial audit report and shall submit, within thirty (30) banking days after receipt of the report, a copy of its resolution to the appropriate supervising and examining department of the BSP. The resolution shall show, among other things, the names of the directors present and absent. Further, the board shall also consider and act on the Letter of Comments (LOC) submitted by the external auditor and shall submit, within thirty (30) banking days after receipt of the report, a copy of its resolution together with the said LOC to the appropriate supervising and examining department of the BSP. The resolution shall show, among other things, the names of the directors present and absent and the actions(s) taken on the findings and recommendations. SUBSECTION X164.2 Posting of audited financial statements . Banks shall post in a conspicuous place in all their branches and other banking offices, their latest audited financial statements consisting of the following: a. Balance sheet; b. Income statement; c. Notes to financial statements, which shall include, among other things, disclosure of the volume of past due loans as well as loan-loss provisions; and d. Auditor's certificate. SECTION X165. Bank Protection . Banks shall observe the following rules and regulations on bank protection. SUBSECTION X165.1 Objectives . These regulations are designed to: a. Ensure maximum protection of life and property against bank robberies; b. Prevent and discourage bank robberies; and c. Assist law enforcement agencies in identifying, apprehending and prosecuting perpetrators of bank robberies. SUBSECTION X165.2 Designation of security officer . The board of directors of each bank shall appoint or designate a qualified security officer who shall be under the direct supervision of the president and shall be responsible for the development and administration of a security program and the installation, maintenance and operation of security devices in accordance with the standards prescribed by the BSP in separate rules and regulations. The security officer must be: (a) at least twenty-five (25) years of age; (b) a college graduate; (c) with at least two (2) years experience in law-enforcement or police matters; (d) of unquestionable integrity; and (e) of good moral character. SUBSECTION X165.3 Security program . The security program of each bank shall be in writing approved by its board of directors and retained in such form as will readily permit determination of its adequacy and effectiveness and shall contain provisions as may be prescribed by the BSP. SUBSECTION X165.4 Security devices . Within thirty (30) calendar days from the designation of the security officer in the case of a bank with less than ten (10) branches; sixty (60) calendar days in the case of a bank with ten (10) but less than twenty (20) branches; and ninety (90) calendar days in the case of a bank with twenty (20) or more branches, the security officer shall, under the direction of the bank's president, conduct a security survey and submit a report on the needed security devices in each of the bank's banking offices. Banks shall effect the installation, maintenance and operation, as individually appropriate, of the following in each banking office: a. A lighting system for illuminating, during the hours of darkness, the area around the vault, if the vault is visible from outside the bank premises; b. Time delay device to be installed in the cash vault or safe; c. Tamper-resistant locks on exterior doors and windows designed to be opened; d. An alarm system or other appropriate device for promptly notifying the nearest law enforcement officers of an attempted or perpetrated robbery; and e. Such other devices as the security officer shall determine to be appropriate for discouraging robberies and for assisting in the identification and apprehension of persons who commit such acts: Provided, That the security officer shall consider, among other things, the following: (1) The incidence of crimes against banks and other business establishments in the area in which the banking office is located; (2) The amount of currency or other valuables exposed to robbery; (3) The distance of the banking office from the nearest law-enforcement officers and the time ordinarily required for such law; enforcement officers to arrive at the banking office; (4) The cost of the security devices; (5) Other existing security measures in effect at the banking office; and ScEaAD (6) The physical characteristics of the banking office structure and its surroundings. Each bank shall install, maintain and operate security devices which are expected to give a general level of bank protection equivalent, at least, to the standards prescribed by the BSP in separate rules and regulations. SUBSECTION X165.5 Reports . As of the last business day of December of every year, each bank shall submit not later than January 15 of the following year to the appropriate supervising and examining department of the BSP a certification of compliance with the requirements of BSP rules and regulations on bank protection in accordance with the format shown in Appendix 10 . SUBSECTION X165.6 Bangko Sentral inspection . Banks shall be subject to inspection by the BSP to determine if the security measures, devices or procedures used or adopted by a bank meet the requirements of these regulations and its supplementary regulations. If the bank fails to meet the standard herein set forth, the Governor may direct or require the bank to take necessary corrective actions. L. Miscellaneous Provisions SECTION X166. Place of Board of Directors' Meeting . Banks shall include in their by-laws a provision that meetings of their board of directors shall be held only within the Philippines. SECTION X167. Business Name a. EKBs/KBs . Only a bank that is granted expanded commercial banking authority may represent itself to the public as such in connection with its business name. b. TBs . All TBs may be allowed to adopt and use any name: Provided, That the words A Thrift Bank, A Savings Bank, A Private Development Bank or A Stock Savings and Loan Association, as the case may be, are affixed after its business name. c. RBs/Coop Banks . RBs/Coop Banks may adopt a corporate name or use a business name/style with the word Rural or Coop, as the case may be. Said banks may also adopt a name without such words: Provided , That the identifying phrase, A Cooperative Bank or A Rural Bank , as the case may be, is affixed after its business name: Provided, further , That where the name of the bank is shown on letterheads, billboards and other advertising materials, the size of the letters of such phrase shall be at least one-half (1/2) the size of the business name. SECTION X168. Management Contracts a. Management contracts of banks with management firms shall be limited to consultancy and advisory services; b. Only a natural person may be elected or appointed as an officer of a bank, without prejudice to each person being a nominee of a management corporation: Provided , That the responsibility and/or accountability of anyone elected or appointed to an officer position shall be personal in nature and cannot be delegated to a corporation; and c. Any bank that enters into contracts contrary to this policy shall be denied the credit facilities of the BSP. SECTION X169. Bank Service Contracts . A bank may engage a bank service bureau or corporation to perform the following services: a. Data processing systems development and maintenance; b. Deposit and withdrawal recording; c. Computation and recording of interests, service charges, penalties and other fees; d. Check clearing/processing, such as the transmission and receipt of check-clearing items/tapes to and from the BSP collection and delivery of checks not included in the Philippine Clearing House System, as well as the recording of the same; and e. Printing and delivery of bank statements: Provided , That (1) The performance by the service bureau of aforesaid bank services pertinent to deposit operations will not in any way violate laws on secrecy of bank deposits; (2) There will be no diminution of BSP's supervisory and examining authority over banks, nor in any manner impede BSP's exercise thereof; (3) The administrative powers of the BSP over the bank, its directors and officers shall not be impaired by such transfer of activities; (4) The bank remains responsible for the performance of subject activities in the same manner and to same extent as it was before the transfer of said services to the Bureau; (5) The service bureau shall be owned exclusively by banks and shall render services to bank, and (6) The bank shall continue to comply with all laws and regulations covering the activities performed by the service bureau for and in its behalf such as, but may not be limited to, keeping of records and preparation of reports, signing authorities, internal control, and clearing regulations. SECTIONS X170-X198 ( Reserved ) SECTION X199. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART TWO Deposit and Borrowing Operations A. Demand Deposits SECTION X201. Authority to Accept or Create Demand Deposits . Banks may accept or create demand deposits subject to withdrawal by check. An EKB/KB may accept or create demand deposits subject to withdrawal by check, without prior authority from the BSP. A TB/RB/Coop Bank may accept or demand deposits upon prior authority of the BSP. SUBSECTION X201.1 Prerequisites to accept or create demand deposits for Thrift Banks/Rural Banks/Cooperative Banks . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , a TB/RB/Coop Bank applying for authority to accept or create demand deposits shall also comply with the following requirements: a. The applicant TB must have complied with the minimum capital required under Subsecs. X106.1 and X106.2. In the case of RB/Coop Bank, it must have net assets of at least P5 million: Provided , That RBs which have been authorized to accept or create demand deposits prior to the approval of R.A. No. 7353 (Rural Banks Act of 1992) shall be allowed to continue servicing such deposits. The terms capital and net assets shall have the same meaning as in Sec. X106. b. It must be a member of the Philippine Deposit Insurance Corporation (PDIC) in good standing. SUBSECTION X201.2 Requirements for accepting demand deposits . After a TB's/RB's/Coop Bank's application to accept demand deposits has been approved, it may actually accept such deposits, subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X201.1 have been complied with up to the day before the checking account services are actually offered/extended to the public; b. That if it is not a member of the Philippine Clearing House Corporation (PCHC), it shall have designated a KB/TB thru which it shall participate in the check clearing system; and c. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the demand deposit service is offered to the public not later than ten (10) banking days from such offering of the service. SUBSECTION X201.3 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653. a. On the Bank Suspension of its authority to accept or create demand deposits for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. SECTION X202. Temporary Overdrawings Drawings Against Uncollected Deposits . The following regulations shall govern temporary overdrawings and drawings against uncollected deposits (DAUDs). CcTIDH a. Temporary overdrawings . Temporary overdrawings against current accounts shall not be allowed, unless caused by normal bank charges and other fees incidental to handling such accounts. Banks which violate these regulations shall be subject to a fine of one-tenth of one percent(1/10 of 1%) per day of violation, computed on the basis of the amount of overdrawing. Technical overdrawings arising from "force posting" in-clearing checks shall be debited by banks under "Returned Checks and Other Cash Items Not in Process of Collection" which is part of "Other Assets" in the Statement of Condition. Items to be lodged under this account shall consist only of in-clearing checks which may result in "technical overdrawn" accounts and shall be immediately reversed the following day. The checks lodged under "Returned Checks, etc." shall either be returned or honored the following day before clearing. The items to be used as cover for the honored checks shall only consist of any of the following: (1) Cash (2) Cashier's, Manager's or Certified Checks (3) Bank Drafts (4) Postal Money Orders (5) Treasury Warrants (6) Duly funded "On us" Checks (7) Fund transfers/credit memos within the same bank representing proceeds of loans granted under existing regulations. Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks shall not be subject to the above-mentioned regulations: Provided , That: (a) The maintenance of non-resident correspondent bank's peso checking accounts and overdrawings therefrom are covered by reciprocal arrangement; (b) Temporary overdrawings are covered within fifteen (15) days from the date overdrawings are incurred; and (c) Such accounts are credited only through foreign exchange inward remittance. b. Drawings against uncollected deposits . DAUDs shall be prohibited except when the drawings are made against uncollected deposits representing manager's/cashier's/treasurer's checks, treasury warrants, postal money orders and duly funded "on us" checks which may be permitted at the discretion each bank. SECTION X203. Checks Without Sufficient Funds . To complement the provisions of Batas Pambansa Blg. 22 (An Act Penalizing the Making or Drawing and Issuance of a Check Without Sufficient Funds or Credit) the following regulations shall govern: a. The drawee bank shall stamp, write or print on a dishonored check or on a paper attached thereto the date the check is presented for payment and the reason for the refusal to pay the same to the holder thereof. b. Where the reason for the dishonor of a check is stamped, written or printed on a paper attached to the checks, the drawee bank shall indicate the pertinent details, such as the names of the drawer, the payee and the drawee bank, the date and amount of the check, the check number and the date of dishonor. c. The drawee bank shall use only the remark or notation "Drawn Against Insufficient Funds", "No Funds" , or "Insufficient Funds" stamped, written, or printed on, or attached to the check dishonored or returned by reason of insufficiency of funds or credit. d. Notwithstanding receipt of an order to stop payment, the drawee bank shall likewise stamp, write, or print on, or attach to the check any of the remarks or notations mentioned in Item "c" hereof indicating that there were no sufficient funds in or credit with such bank for the payment in full of such check, if such be the fact. The bank shall also indicate receipt of a stop payment order. e. For local exchanges, a check dishonored by reason of insufficiency of funds or credit shall be returned by the drawee bank to the negotiating bank not later than the next regular clearing. For out-of-town exchanges, a check so dishonored shall be returned by the drawee bank to the negotiating bank within the period specified announcing the opening of clearing facilities in each of the authorized regional clearing centers. A check dishonored by reason of insufficiency of funds or credit which was not coursed through the clearing system shall be returned by the drawee bank to the holder or the negotiating bank, as the case may be, no later than the business day following the date the check is presented for payment with the drawee bank. The negotiating bank shall, in turn, return a check dishonored by reason of insufficiency of funds or credited to the holder not later than the business day following its receipt of the dishonored check from the drawee bank. SECTION X204. Current Accounts of Bank Officers and Employees . The following officers and employees of banks are prohibited from maintaining demand deposits or current accounts with the banking office in which they are assigned a. All officers; b. Employees of the bank's cash department/cash units; and c. Other employees who have direct and immediate responsibility in the handling of transactions and/or records pertaining to demand deposits or current accounts. The above-mentioned prohibition shall include the spouses and relatives within the second degree of consanguinity and affinity of the officers and employees covered by the prohibition, and the business interests of such officers and employees, their spouses and relatives within the second degree of consanguinity and affinity, in single proprietorships, or partnerships or corporations in which such officers and employees, individually or as a group, own or control at least a majority of the capital of the partnership or the outstanding subscribed capital stock (voting and non-voting) of the corporation. SECTIONS X205 - X212 ( Reserved ) B. Savings Deposits SECTION X213. Servicing Deposits Outside Bank Premises . Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises, subject to the following conditions: a. The financial condition of the bank applying for authority to solicit and collect savings deposits outside its bank premises is sound and the operations and the quality of the management thereof could reasonably assure the safety of the funds which may be entrusted to its deposit collectors and/or solicitors; b. The proposed area where applicant bank intends to solicit shall be clearly defined; c. Solicitation of deposits shall only be confined within a locality where there are no other banks in operation, or where it can be clearly established that the deposit potentials of the said locality are still untapped; and d. Applicant bank shall institute and maintain the following minimum safeguards: (1) All deposit solicitors shall be initially bonded for at least P1,000 subject to the increase thereof to approximate their daily collections; (2) Deposit solicitors shall be provided with proper identification cards with photograph and signature of each respective solicitor, certified to by the appropriate officer of the bank. Said identification cards shall be worn by each solicitor at all times at the upper breast of his outer garment when soliciting deposits; (3) Adequate insurance coverage for funds in transit (representing deposits collected outside banking premises) shall be secured by applicant bank from insurance companies not included in the list of companies blacklisted by the Insurance Commissioner; (4) Deposit slips shall be in booklet form, prenumbered, in triplicate copies and in three (3) colors the original to be issued to the depositor, the second copy to be used for posting reference, and the third copy to be retained in the booklet; (5) All collections shall be turned over to the cashier at the end of each day accompanied by a "Collection Summary Report" to be accomplished in duplicate which shall contain the following minimum information: (a) Date of the report (b) Names and addresses of the depositors (c) Deposit slip numbers (d) Amounts of deposit (e) Savings account and passbook numbers (f) Name and signature of solicitor rendering the report (6) Depositors shall always be required to accomplish a "Signature Card" when opening an account, which card shall be used always as reference in checking the genuineness/authenticity of signatures affixed on withdrawal slips or authorizations for withdrawal; (7) Deposits/withdrawals shall be recorded by the bookkeeper or any ledger clerk, except any bank solicitor, in the depositor's ledger cards and passbooks on the same day that such deposits/withdrawals are accepted. Passbooks shall be returned to the depositors not later than the following business day; (8) At the end of each month, depositors shall be advised in writing of the balances of their deposits with the bank, the advise slips of which shall never be handcarried by the solicitors themselves; and (9) Places of assignments of bank solicitors shall be rotated at least quarterly. SECTION X214. Withdrawals . Banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments designed to effect withdrawals of savings deposits without requiring the depositors concerned to present their passbooks and accomplishing the necessary withdrawal slips, except for banks authorized by the BSP to adopt the no passbook withdrawal system: Provided , That banks which are already adopting the no passbook withdrawal system shall be given six (6) months from effectivity of this Manual of Regulations (MOR) to seek approval from the BSP. The provisions of Sec. X202b shall also, apply to withdrawals from savings deposits SECTION X215. Rental Deposits of Lessees . The following guidelines shall govern the opening and handling by banks of deposits made by lessees under Section 5(b) of Batas Pambansa Blg. 25, otherwise known as the Rent Control Law: a. The deposit made by the lessee shall only be accepted by the bank under a special savings account in the name of the lessor; b. The bank shall require the lessee to submit a copy of the written notice sent to the lessor for the deposit made, stating among other things, the date and amount of the deposit and the name and address of the lessor; c. The bank, at its option, may require the lessee to submit any supporting document, such as the lease contract or official receipts of previous rentals paid, which will show the specimen signature of the lessor, or other papers to identify the lessor; d. The bank shall segregate from its regular savings deposit accounts and maintain a separate subsidiary control ledger for deposits made under Section 5(b) of Batas Pambansa Blg. 25; e. Any withdrawal against these special savings deposit accounts may only be allowed in favor of the lessee concerned before the amount deposited under consignation has been accepted by the lessor, or when authorized by the lessor; f. The expenses which may be incurred by the bank with respect to such rental deposits shall be charged against the lessor; g. All the minimum internal control standards applicable to savings deposit accounts prescribed in Sec. X163 shall be complied with; and h. The acceptance of such rental deposits, however, shall be optional or discretionary only upon the bank concerned. SECTIONS X216-X222 ( Reserved ) C. Negotiable Order of Withdrawal Accounts SECTION X223. Authority to Accept Negotiable Order of Withdrawal Accounts . Negotiable Order of Withdrawal (NOW) accounts are interest-bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings accounts. An EKB/KB may offer NOW accounts without prior authority of the Monetary Board. A TB/RB/Coop Bank may accept NOW accounts upon prior approval of the Monetary Board. SUBSECTION X223.1 Prerequisites to accept NOW accounts for thrift banks/rural banks/cooperative banks . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , a TB/RB/Coop Bank applying for authority to accept NOW accounts shall also comply with the following requirements: a. The applicant TB must have complied with the minimum capital required under Subsecs. X106.1 and X106.2. In the case of RB/Coop Bank, it must have net assets of at least P5 million: Provided , That RBs which have been authorized to accept or create NOW accounts prior to the approval of R.A. No. 7353 (Rural Banks Act of 1992) shall be allowed to continue servicing such deposits. The terms capital and net assets shall have the same meaning as in Sec. X106. b. It must be a member of the PDIC in; good standing. SUBSECTION X223.2 Requirements for accepting NOW accounts . After a TB's/RB's/Coop Bank's application, to accept NOW account has been approved, it may actually accept the same subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X223.1 have been complied with up to the day before the NOW account services are actually offered/extended to the public; and b. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the NOW account deposit service is offered to the public not later than ten (10) banking days from such offering of the service. SUBSECTION X223.3 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653: a. On the Bank Suspension of its authority to accept or create NOW accounts for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. SECTION X224. Rules on Servicing NOW Accounts . The following rules shall be observed in servicing NOW accounts: a. Prior to or simultaneous with the opening of a NOW account, the bank shall inform the depositor of its terms and conditions. b. The bank shall be responsible for the proper identification of its depositors; it shall require, among other things, two (2) specimen signatures and such other pertinent information. c. Deposits shall be covered by deposit slips in duplicate duly validated and initialed by the teller receiving the deposit. A copy of the deposit slip shall be furnished the depositor. d. NOW accounts shall be kept and maintained separately from the regular savings deposits. e. Blank NOW forms shall be prenumbered and shall be controlled as in the case of unissued blank checks. f. A bank statement shall be sent to each depositor at the end of each month for confirmation of balances. g. Banks must use the form prescribed by present rules for NOW accounts. Nothing herein shall be construed as precluding a TB, RB or Coop Bank from applying for authority to accept both demand deposits and NOW accounts. SECTION X225. Minimum Features . The order of withdrawal form shall have a size of three (3) inches by six and three-eighth (6-3/8) inches, and shall be printed on security/check paper. It shall contain as a minimum the features of the proforma order of withdrawal shown in Appendix 11 . SECTION X226. Clearing of NOW . Any NOW which may be deposited with a bank other than the drawee bank may be cleared through the PCHC in Manila and the Regional Clearing Units in regional clearing centers designated by the BSP in accordance with the clearing procedures. Nothing in this Section shall prevent direct settlement between the parties concerned. The provision of Sec. X202 shall also apply for withdrawals on NOW accounts. SECTIONS X227-X230 ( Reserved ) D. Time Deposits SECTION X231. Minimum Term of Time Deposits . No time deposit shall be accepted for a term of less than thirty (30) days. SECTION X232. Special Time Deposits . Authority shall be automatically granted to any accredited banking institution which may participate in the supervised credit program to accept special time deposits from the Agrarian Reform Fund Commission with interest lower than the rate allowed on time deposits accepted from the general public. Such deposits shall be exempt from the legal reserve requirements, as an exception to the existing policies on the matter. SECTION X233. Negotiable Certificates of Time Deposits a. EKBs/KBs may issue Negotiable Certificates of Time Deposits (NCTDs) without approval of the BSP. b. TBs/RBs/Coop Banks may issue NCTDs upon the prior approval of the BSP. aScITE SUBSECTION X233.1 Prerequisites to issue NCTDs for thrift banks/rural banks/cooperative banks . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , a TB/RB/Coop Bank applying for authority to issue NCTDs shall also comply with the following requirements: a. Applicant's capital must be at least P150 million. For this purpose, capital shall have same meaning as in Sec. X106; and b. It must be a member of the PDIC in good standing. SUBSECTION X233.2 Requirements for issuing NCTDs. After a TB's/RB's/Coop Bank's application to issue NCTDs has been approved, it may actually issue the same subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X233.1 have been complied with up to the day before the NCTDs are actually issued to the public; and b. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the NCTDs are actually issued to the public not later than ten (10) banking days from such issuance. SUBSECTION X233.3 Minimum features a. Form; denomination NCTDs may be issued in bearer or other form denoting negotiability and shall have a standard format to be prescribed by the BSP which shall be prenumbered serially and predominated. The minimum denomination shall be at the discretion of the issuing bank. No certificate payable to bearer shall contain words prohibiting its negotiation. b. Term The minimum maturity of the certificates shall be 731 days. c. Manner of issuance The certificates shall be issued only upon receipt of funds equivalent to their face value. d. Manner of printing NCTDs shall be printed on security paper by the Security Printing Plant (SPP) of the BSP. Orders for the printing of the desired forms shall not exceed a total value equivalent to twenty percent (20%) of the issuing bank's capital accounts (based on the quarter immediately preceding the request for printing) at any one time. Additional orders for printing which shall result in an excess over the prescribed benchmark shall require prior BSP approval. SUBSECTION X233.4 Insurance coverage . The NCTDs shall be insured with the PDIC. Banks issuing bearer certificates shall imprint on the instrument the following: "For purposes of deposit insurance by the PDIC, the holder shall have his name registered in the books of the issuing bank." SUBSECTION X233.5 Desistance from issuing new NCTDs . Unless authorized by the BSP, TBs/RBs/Coop Banks with outstanding NCTDs shall immediately desist from issuing new NCTDs. All outstanding NCTDs shall be valid and negotiable up to their maturity dates and shall not be subject to renewal. SUBSECTION X233.6 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653. a. On the Bank Suspension of its authority to issue NCTDs for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. E. Deposit Substitute Operations (Quasi-Banking Functions) SECTION X234. Scope of Quasi-Banking Functions . The following rules and regulations shall govern the quasi-banking operations of banks. SUBSECTION X234.1 Elements of quasi-banking . The essential elements of quasi-banking are: a. Borrowing funds for the borrower's own account; b. Twenty (20) or more lenders at any one time; c. Methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as acceptances, promissory notes, participations, certificates of assignments or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as the Monetary Board may determine; and d. The purpose of which is (1) relending, or (2) purchasing receivables or other obligations. SUBSECTION X234.2 Definition of terms and phrases . The following terms and phrases shall be understood as follows: a. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in Subsec. X234.1 whether the borrower's liability thereby is treated as real or contingent. b. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. c. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institutions, or of acquisition of securities, of any amount and maturity, from domestic or foreign sources. d. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed, in the absence of express stipulations, when the institution is regularly engaged in lending. e. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, as distinguished from isolated lending transactions. SUBSECTION X234.3 Transactions not considered quasi-banking . The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies through any of the means listed in Subsec. X234.1 hereof, for the limited purpose of financing their own needs or the needs of their agents or dealers; and b. The mere buying and selling without recourse of instruments mentioned in Subsec. X234.1: Provided , That: (1) The institution buying and selling without recourse shall indicate in conspicuous print on its instrument the phrase "without recourse', "sans recourse" or words of similar import that will convey the absence of liability or guarantee by said institution; and (2) In the absence of the phrase "without recourse", "sans recourse" or words of similar import, the instrument so issued, endorsed or accepted, shall automatically be considered as falling within the purview of these regulations: Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction is hereby prohibited: (i) Issuance of postdated checks by a financial intermediary, whether for its own account or as an agent of the debt instrument issuer, in payment of the debt instrument, sold, assigned or transferred without recourse; or (ii) Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse; and (iii) Payment with its own funds by a financial intermediary which assigned, sold or transferred the debt instrument without recourse, unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. SUBSECTION X234.4 Pre-conditions for the exercise of quasi-banking functions . Only banks authorized to engage in quasi-banking functions may undertake or perform quasi-banking functions as defined in Subsec. X234.1: Provided, That in addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , the bank must have a paid-in capital of at least P250 million. SUBSECTION X234.5 Certificate of Authority from the Bangko Sentral . Banks possessing the qualifications in Subsec. X234.4 and desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the BSP by filing: a. An information sheet; b. Individual bio-data of directors and members of the managerial staff, signed by them under oath; and c. A borrowing-investment program for one (1)year, which should include at the minimum: (1) planned distribution of portfolio as to (a) underwriting; (b) commercial paper markets; (c) stocks and bonds; (d) government securities; (e) receivables financing discounting and factoring; (f) leasing; and (g) direct loans; (2) expected sources of funds to support investment program classified as to (a) maturity: short, medium and long-term; (b) interest rates; and (c) domestic or foreign sources whether institutional or personal. SECTION X235. Deposit Substitute Instruments . Any deposit substitute transaction by a bank performing quasi-banking functions shall be limited to its own promissory notes, repurchase agreements, and certificates of assignment/participation with recourse. SUBSECTION X235.1 Prohibition against use of acceptances, bills of exchange and trust certificates . Acceptances, bills of exchange, and trust certificates shall not be used by banks as evidence of deposit substitute liabilities in connection with their quasi-banking functions. This prohibition shall not apply to the acceptance or negotiation of bills of exchange in connection with trade transactions, or to the issuance of trust certificates creating trust relationships. SUBSECTION X235.2 Negotiation of promissory notes . Negotiable promissory notes acquired by banks in connection with their quasi-banking functions shall not be negotiated by mere endorsements and/or delivery, if they do not conform with the minimum features prescribed under Subsec. X235.3. If these notes do not contain the features, their negotiation shall be covered by any of the appropriate deposit substitute instruments above-mentioned. SUBSECTION X235.3 Minimum features . Deposit substitute instruments issued by entities performing quasi-banking functions shall have the following minimum features: a. The present value and maturity value and/or the principal amount and interest rate and such other information as may be necessary to enable the parties to determine the cost or yield of the borrowing or placement shall be specified. b. The date of issuance shall be indicated at the upper right corner of the instrument, and directly below which shall be the maturity period or the word "demand", if it is a demand instrument. c. The payee may be identified by his trust account/deposit account number in both negotiable and non-negotiable instruments. d. Securities which are the subject of a repurchase agreement or a certificate of assignment/participation with recourse, shall be particularly described on the face of said instruments or on a separate instrument attached and specifically referred to therein and made an integral part thereof as to the maker, value, maturity, serial number, and such other particulars as shall clearly identify the securities. e. The instrument shall provide for the payment of liquidated damages in addition to stipulated interest, in case of default by the maker or issuer, as well as attorney's fees and costs of collection in case of suit. f. A conspicuous notice at the lower center margin of the face of the instrument that the transaction is not insured by the PDIC shall be indicated. g. The corporate name of the issuer shall be printed at the upper center margin of the instrument and directly below which shall be a designation of the instrument, such as "Promissory Note" or "Repurchase Agreement". h. The words "duly authorized officer" shall be placed directly below the signature of the person signing for the maker or issuer. i. Each instrument shall be serially pre-numbered. j. The copy delivered to the payee shall bear the word "Original" and the copies retained by the issuer shall be identified as "Duplicate", "File Copy" or words of similar import. k. Only security paper with adequate safeguards against alteration or falsification shall be used. Borrowings of banks from the loans and discounts window of other banks or non-bank financial intermediaries shall be exempted from the documentation requirements prescribed in this Subsection: Provided , That the exemption from the documentation requirements prescribed in this Subsection shall not be construed or interpreted as exempting said borrowings from other regulations standardizing deposit substitute instruments and from other BSP regulations on deposit substitutes. Deposit substitute instruments shall conform to the language prescribed by the BSP. Any substantial deviation therefrom or any additional stipulation therein shall be referred to the BSP for prior approval. The size and appearance of these instruments, shall not be similar to the size and appearance of checks. Rubber stamping, typewriting or handwriting some provisions shall not be considered compliance with said regulations. (Shown in Appendix 12 are the samples of standardized instruments as evidence of deposit substitute liabilities.) SUBSECTION X235.4 Interbank loan transactions . Except for interbank loan transactions evidenced by interbank loan advice or repayment transfer tickets settled thru the demand deposit accounts with the BSP, all interbank loan transactions shall be evidenced by a promissory note containing the minimum features prescribed in Subsec. X235.3. SUBSECTION X235.5 Physical delivery of securities . Securities, warehouse receipts, quedans and other documents of title which are the subject of quasi-banking functions shall be physically delivered to the lender/purchaser together with the principal/overlying borrowing instrument, or to a custodian bank as signified in writing by the lender/purchaser: Provided , That the custodian bank is not related directly or indirectly to the borrowing/selling entity: Provided, further , That a bank engaged in quasi-banking functions may not be allowed custodianship functions for securities issued or owned by said bank, or securities in bearer form. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by authorized officer/s of the entity performing quasi-banking functions and the lender/purchaser, or by the custodian bank. The principal borrowing instrument without underlying securities, warehouse receipts, quedans, or other documents of title shall likewise be physically delivered to the lender/purchaser. SUBSECTION X235.6 Other rules and regulations governing the issuance and treatment of deposit substitute instruments a. If there is any stipulation that payment of the deposit substitute shall be chargeable against a particular deposit account, it shall further provide that the liability of the maker or issuer of the instrument shall not be limited to the outstanding balance of said account. b. Any agreement allowing the issuer or maker to substitute the underlying securities shall further provide that the actual substitution shall be with the prior written consent of the payee. c. Automatic renewal upon maturity of the instrument may be effected only under terms and conditions previously stipulated by the parties. d. Stipulations between the maker or issuer and the payee which are embodied in separate instruments shall be specifically referred to in the deposit substitute instruments and made an integral part thereof. e. In the case of repurchase agreements and certificates of assignment/participation with recourse, the stipulation shall clearly state either (1) that the underlying securities are being delivered to the buyer or assignee as collaterals or (2) that the ownership thereof is being transferred to the buyer or assignee. SECTION X236. Minimum Trading Lot and Minimum Term of Deposit Substitute a. The minimum size of any single deposit substitute transaction shall be P50,000. No bank performing quasi-banking functions shall issue deposit substitute instruments in the name of two (2) or more persons or accounts except those falling under the following relationships in which cases, commingling may be allowed: (a) husband and wife; (b) persons related to each other within the second degree of consanguinity; and (c) "in trust for" (ITF) arrangements. b. The minimum term of any single deposit substitute transaction shall be fifteen (15) days except interbank borrowings, which shall not be subject to this limitation. SECTION X237. Money Market Placements of Rural Banks . Banks shall not accept money market placements from any RB unless the latter presents a certification under oath stating: (a) that it has no overdue special time deposits; (b) that it has no past due obligations with the BSP or other government financial institutions; (c) the amount of its current obligations, if any, with said government financial institutions; and (d) the amount of its total outstanding money market placements. However, in no case shall such banks sell receivables to RBs without recourse. SUBSECTION X237.1 Definition of terms . As used in this Section, the following terms shall have the following meanings: a. Money market placements shall include investments in debt instruments, including purchase of receivables with recourse to the lending institution, except purchase of government securities on an outright basis. b. Government securities shall include evidences of indebtedness of the Republic of the Philippines, the BSP and other evidences of indebtedness or obligations of government entities the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. c. Persistent violation shall mean the violation of any of the provisions of these rules by the director or officer concerned for four (4) or more times within a twelve (12)-month period from the date the first offense was committed. SUBSECTION X237.2 Conditions required on accepted placements not covered by prohibition . Placements accepted which are otherwise not covered by the above prohibition must comply with the following conditions: a. That total money market placements of an RB as stated in the certification, including the placement being accepted by the entity concerned, shall not exceed the RB's combined capital accounts or net worth less current obligations with the BSP or other government financial entities; b. The maturity of the money market placement shall not exceed sixty (60) days; and c. That placements shall be evidenced in all cases by promissory notes of accepting entities/repurchase agreements and/or certificates of participation/assignment with recourse and that underlying instruments shall be certificates of indebtedness issued by the BSP or other government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. SUBSECTION X237.3 Sanctions Violations of the provisions of this Section shall be subject to the following sanctions/penalties: a. Monetary Penalties First Offense Fines of P3,000 a day, reckoned from the date placement started up to the date when said placement was withdrawn, for each violation shall be assessed on the bank. Subsequent Offenses Fines of P5,000 a day, reckoned from the date placement started up to the date placement was withdrawn, for each violation shall be assessed on the bank. b. Other Sanctions First Offense Reprimand for the directors/officers who approved the acceptance/placement with a warning that subsequent violations will be subject to more severe sanctions. Subsequent offenses (1) Suspension for ninety (90) days without pay for directors/officers who approved the placement. (2) Suspension or revocation of the authority to engage in quasi-banking functions. SECTION X238. Without Recourse Transactions . No bank shall sell, discount, assign, or negotiate, in whole or in part, such as thru syndications, participations and other similar arrangements, any notes, receivables, loans, debt instruments and any type of financial asset or claim, except government securities, or be a party in any capacity in any of the above transactions, on a without recourse basis unless such receivables, notes, loans, debt instruments and financial assets or claims are registered with the SEC. This prohibition includes transactions between a bank and its trust department. Unregistered commercial papers may be sold, discounted, assigned, or negotiated by banks to other financial intermediaries with quasi-banking functions. SUBSECTION X238.1 Sanction . Any violation of the above rules and regulations shall be subject to any or all of the following sanctions: a. Suspension of quasi-banking authority for a period of six (6) months; and b. Monetary penalty of P500 per day per transaction for each officer of the bank involved in any capacity in any transaction violative of these regulations. SECTION X239. Issuance of Bonds . The following guidelines shall govern the issuance of bonds by banks with quasi-banking authority. SUBSECTION X239.1 Definition of terms . For purposes of this Section, unless the context clearly indicates otherwise, the following shall have the meaning as indicated: a. Government securities shall refer to evidences of indebtedness of the Republic of the Philippines or its instrumentalities, or of the BSP, and must be freely negotiable and regularly serviced. b. Net book value shall refer to the acquisition cost of property or accounts plus additions and improvements thereon less valuation reserves, if any. c. Current market value shall refer to the value of the property as established by a duly licensed and independent appraiser. SUBSECTION X239.2 C ompliance with Securities and Exchange Commission rules on registration of bond issues . All banks with quasi-banking authority issuing or intending to issue bonds shall comply with the New Rules on Registration of Long-Term Commercial Papers promulgated by the SEC (Appendix 13) . SUBSECTION X239.3 Notice to Bangko Sentral ng Pilipinas . Within three (3) days from approval by SEC of its bond issue, the bank concerned shall notify the appropriate supervision and examination department of the BSP of the approval attaching thereto the documents required by the SEC for the issuance and registration of the bond issue. SUBSECTION X239.4 Minimum features . Bonds issued by banks shall have the following minimum features: a. Form; issue price; denomination . The trust indenture and the name of the indenture trustee shall be indicated on the face of the bond certificate. The SEC-assigned bond registration number and expiry date, if any, shall likewise be indicated, stamped on the face of each bond certificate issued. Bonds may be issued at face value, at a discount or at a premium. Minimum denomination shall be P20,000. b. Term The minimum term of the bonds shall be four (4) years. No optional redemption before the fourth year shall be allowed. c. Interest; manner; form of payment . The bonds shall not be subject to interest rate ceilings prescribed by the Monetary Board or Act No. 2655, as amended. d. Trust indenture; collaterals; sinking fund A trust indenture shall be executed between the issuer and a qualified trust corporation as trustee, which shall neither be an affiliate nor a subsidiary of the issuer. The following shall be deemed as eligible collateral and shall be maintained at respective values indicated in relation to the face value of the bond issue: (1) Government - Aggregate securities current market value of 100% (2) Readily marketable - Aggregate private securities listed current market in the big board of value of 150% stock exchanges (3) Real estate - Net book value of 100% (4) Unmatured - Net book receivables acquire value of 150% with recourse (5) Unmatured - Net book receivables acquired value of 200% without recourse Government and private securities, certificates of title and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee. Substitution of collaterals shall be allowed provided that in no case shall the collateral fall below the herein required ratios. The issuer may, at his option, provide for the retirement at maturity of the bond issue through the sinking fund to be deposited with and managed by the indenture trustee. e. Bond registry The bonds shall be fully registered as to principal and interest. The issuer, its trustee, agent or underwriter must maintain a bond registry duly approved by the SEC for recording initial and subsequent transfers the names of transferees, date of transfer, purchase price and serial numbers of bonds transferred. SUBSECTION X239.5 Issuance of commercial papers . The issuance of other forms of commercial papers by banks with quasi-banking authority shall be subject to the new rules on registration of short-term and long-term commercial papers appended hereto as Appendices 13 and 14 . F. Government Deposits SECTION X240. Statement of Policy . As a general policy, cash balances of the Government, its political subdivisions and instrumentalities as well as of government-owned or controlled corporations shall be deposited with the BSP, with only minimum working balances to be held by government-owned banks and such other banks incorporated in the Philippines as the Monetary Board may designate: Provided , That such banks may be authorized by the Monetary Board to hold deposits of the political subdivisions and instrumentalities of the Government beyond their minimum working balances whenever such subdivisions and instrumentalities have outstanding loans with said banks. For purposes of this Section: a. The term government-owned or controlled corporations shall refer to government-owned or controlled corporations which are created by special laws. It shall exclude government financial institutions such as DBP, LBP and Al-Amanah Islamic Investment Bank of the Philippines, corporations which are created under the provisions of the Corporation Law (Act No. 1459, as amended) or the Corporation Code (BP Blg. 68) and private corporations which are taken over by government-owned or controlled corporations. b. Minimum working balances shall represent the minimum amounts necessary to enable the government instrumentality/political subdivision making the deposit to transact business efficiently and effectively as determined by the Department of Finance. SUBSECTION X240.1 Prior Monetary Board approval. No private bank shall, without prior approval of the Monetary Board, accept, as depository, any fund or money from the Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations; nor shall a private bank borrow any fund or money therefrom, through the issuance or sale of its acceptances, notes or other evidences of indebtedness. SUBSECTION X240.2 Banks which may accept government funds a. Banks, the majority of the capital of which is owned by the Government, may act as depository of funds of the Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations. b. Private banks incorporated in the Philippines may act as depository of government funds only with the prior approval of the BSP. Local government units may maintain depository accounts preferably in government banks and, in exceptional cases and with the prior approval of the Monetary Board, in the name of their respective government units, in private banks located in or nearest to their respective areas of jurisdiction but the depository bank(s) must also seek the prior approval of the BSP: Provided; That a TB/RB/Coop Bank may only act as official depository of government funds pursuant to R.A. Nos. 7906, 7353 and 6938, as follows: (1) a TB may only act as official depository of national agencies, and of municipal, city or provincial funds in the municipality, city or province where the TB is located; (2) an RB may only act as official depository of municipal, city or provincial funds in the municipality, city or province where the RB is located; and (3) a Coop Bank may accept deposits of all government departments, agencies and units of the national and local governments including government-owned or controlled corporations. c. Where there is no government bank or BSP office in the province and the nearest government bank or BSP office is inaccessible by ordinary transportation, or transporting/withdrawing the government deposits to and from the said office is impractical or risky, the province, as well as cities and municipalities located therein, may seek approval of the Monetary Board to consider all their funds eligible for deposits with a qualified private depository bank within the province, city or municipality, as the case may be. d. Banks acting as official depository of government funds may accept demand, savings or time deposits. e. The authority of a bank to accept government deposits does not obligate the Government, its subdivisions and instrumentalities and government-owned or controlled corporations to deposit with that bank. Thus, even if a TB or RB is authorized by the Monetary Board to accept government deposits, a municipality is not obligated to deposit with that TB or RB. Similarly, a bank which is authorized to accept deposits of the Government or a government corporation because of outstanding loans granted by the bank cannot demand as a matter of right that the Government or government corporation make deposits unless there is a stipulation in the loan agreement. SUBSECTION X240.3 Prerequisites for the grant of authority to accept deposits from the Government and government entities . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , private banks applying for authority to accept deposits from the Government, its, subdivisions and instrumentalities and government-owned or controlled corporations and government banks applying for authority to accept government deposits in excess of minimum working balances shall also comply with the following conditions: TcHCDI a. The applicant bank must have complied with the minimum capital required under Subsecs. X106.1 and X106.2; and b. It must be a member of the PDIC in good standing. SUBSECTION X240.4 Application for authority . An application for authority to accept government deposits shall be signed by the president of the bank and shall be filed with the appropriate supervising and examining department of the BSP. The application shall be accompanied by a certification by the bank president or executive vice-president that the bank has complied with all the requirements enumerated under Subsec. X240.3. Banks authorized to accept government funds as depository shall continuously comply with the conditions enumerated under Subsec. X240.3 even after the authority to accept government deposits has been granted and during the period while the banks actually hold government deposits, otherwise, any violation may be a basis for the imposition of sanctions against the bank, its directors and officers, or revocation of the authority to accept government deposits. Deposits maintained by the Government, its subdivisions and instrumentalities and government-owned or controlled corporations shall be supported by the following documents whenever applicable: a. A copy of the resolution of the barangay, municipal or city council (Sangguniang Bayan/Panlungsod) or the provincial board (Sangguniang Panlalawigan) authorizing the deposit of municipal, city or provincial funds; b. A copy of the resolution of the board of directors of the government-owned or controlled corporations authorizing the deposit of funds of said corporations; or c. In case of the National Government, its unincorporated branches, agencies and instrumentalities, a written authority to deposit government funds signed by the duly authorized official of the department, agency, office or unit making the deposit. The resolution or authority should state the name and location of the depository bank, type and terms of the deposit, and that the amount to be deposited represents working balances. SUBSECTION X240.5 Limits on funds of the Government and government entities that may be deposited with banks a. Funds of the Government, its subdivisions and instrumentalities and government-owned or controlled corporations, deposited with banks authorized to receive deposits shall be limited to the minimum working balance of the depositor. With prior Monetary Board approval, government or private banks may be authorized to accept amounts in excess of minimum working balances if the Government or government entity making the deposit has outstanding loan obligations to the depository bank but such amounts shall not exceed the amount of its outstanding loan obligations to the depository bank. The amount of non-transferable and non-negotiable government securities with market or below market interest rate at the time of issue, issued by the National Government to the depository bank shall be considered as "outstanding loans" of the National Government to said bank within the meaning of Section 113 of R.A. No. 7653. b. The aggregate amount of government funds which a private bank can hold at any given time shall not exceed 200% of the bank's net worth. c. Where any director, officer or stockholder of a private bank, as defined under Subsec. X326.1 of the MOR, is also an elective or appointive official of a municipality, city or province, said bank is prohibited from accepting deposits from said municipality, city or province unless it is the only bank existing therein: Provided, That this provision shall not be construed as a grant of authority to such elective or appointive public official to act as director or officer of a private bank. SUBSECTION X240.6 Liquidity floor . Unless otherwise prescribed by the Monetary Board, authorized government depository banks other than the BSP, and authorized private banks shall, inclusive of the required reserves against deposits and/or deposit substitutes, maintain a fifty percent (50%) liquidity floor with respect to deposits of, borrowings from, and all other liabilities to, the Government and government entities, in the form of negotiable and transferable government securities which represent direct obligations of the National Government. Government securities representing direct obligations of the National Government regardless of maturity, issued pursuant to the provisions of R.A. No. 245, as amended by P.D. No. 142, which are not otherwise earmarked or used as part of other reserve requirements of the BSP,. shall be eligible as liquidity reserves. Eligible securities being used as such reserve shall not in any way be encumbered or be subject to any transaction without prior approval of the BSP. Also eligible for liquidity floor is the free portion of the "Due from Bangko Sentral - Local Currency" after satisfying the legal and other reserve requirements. SUBSECTION X240.7 Exempt transactions . The following deposits of, borrowings from and/or liabilities to, the Government and government entities shall be exempt from the liquidity floor: a. Obligations to the BSP arising from rediscounting facilities and those through the sale of government securities under repurchase agreements made in connection with the provisions of Sec. X269 and Subsec. X601.1 of the MOR. b. Special time deposits (STDs) and deposit substitutes under the special financing program of the Government and/or international financial institution. c. Obligations to the BSP consisting of emergency advances, overdraft facilities, and those arising from peso swap differentials and supervision and examination fees; d. Marginal deposits on importations; e. Due to the Treasurer of the Philippines (unclaimed deposit balances); and f. Any other form of deposits, borrowings and/or liabilities specifically authorized by law or exempted by the Monetary Board. SUBSECTION X240.8 Reports . Banks shall submit to the appropriate supervising and examining department of the BSP a report of their government deposits from all sources in the aggregate in the prescribed form. SUBSECTION X240.9 Sanctions . Any violation of this Section shall be a ground for the imposition of the following sanctions: a. The deposit account with the BSP of the bank concerned shall be debited by the Accounting Department of the BSP in the amount of the unauthorized deposit or borrowing upon receipt of a report or notice from the appropriate supervising and examining department of the BSP and the deposit account of the government institutions with the BSP shall be credited for the same amount. A copy of said report or notice of the supervising and examining department shall be furnished each to the bank concerned and the government institutions. b. The withdrawal of previously granted authority to accept government funds; c. Without prejudice to the sanctions under Section 35 of R.A. No. 7653, the following administrative sanctions shall be imposed if any part of the certification as required in this Section is found to be false or misleading: On the Bank Cancellation of the authority to accept government deposits if one has already been granted and/or disqualification to act as a government depository for not more than one (1) year. On the Certifying Officer A fine of P5,000 per day from the time the certification was found to be false, for each application filed with the BSP. d. Any bank with deficiency in the required liquidity floor against deposits of, and/or borrowings from, the Government and government entities or with excess holdings of such deposits shall: (1) be denied the credit facilities of the BSP; and (2) if the deficiency lasts for four (4) consecutive weeks, the bank shall be prohibited from declaring cash dividends and making new loans and investments, except investments in government securities. The prohibition shall be lifted by the Governor of the BSP, upon certification by the appropriate supervising and examining department that the bank has had no deficiency in its liquidity floor and no excess holdings of government deposits for at least four (4) consecutive weeks. SECTION X241. ( Reserved ) G. Interest SECTION X242. Interest on Deposits/Deposit Substitutes . Demand, savings, NOW accounts, time deposits and deposit substitutes shall not be subject to interest ceilings. SUBSECTION X242.1 Time of payment of interest on time deposits/deposit substitutes . Interest or yield on time deposit/deposit substitute may be paid at maturity or upon withdrawal or in advance: Provided , however , That interest or yield paid in advance shall not exceed the interest for one (1) year. SUBSECTION X242.2 Treatment of matured time deposits/deposit substitutes a. A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable to savings deposits. b. A deposit substitute instrument not withdrawn or renewed on its maturity date shall from said date become payable on demand and shall earn an interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15) days. Banks performing quasi-banking functions shall continue to consider matured and unwithdrawn deposit substitutes as such and subject to reserves. SECTION X243. Disclosure of Effective Rates of Interest . Banks are required to disclose to depositors the following information on interest computation and payments: a. Type/kind of deposit; b. Nominal rate of interest and period covered; c. Manner of interest payment, i.e., whether credited in advance or otherwise; d. Basis of interest payment, i.e., whether based on average daily balance compounded quarterly or otherwise; e. Effective rate of interest expressed as a simple annual rate, on the basis of the information above given and indicating the formula used to arrive at the effective rate of interest; and f. Illustration of basis of computing interest on a hypothetical deposit account. Copies of the above-mentioned information shall be made available to each and every depositor by attaching these copies to savings deposit passbooks and time deposit certificates. Posters disclosing the above information shall also be displayed conspicuously within the bank premises. SECTIONS X244-X252 ( Reserved ) H. Reserves Against Deposit and Deposit Substitute Liabilities SECTION X253. Accounts Subject to Reserves; Amounts Required . The rates of required reserves against deposit liabilities and deposit substitutes in local currency of banks shall be as follows: RBs/ Coop EKBs/KBs TBs Banks a. Demand Deposits 14% 14% 14% b. NOW Accts. 14% 14% 14% c. Savings Deposits 14% 12% 6% d. Time Deposits/ NCTDs 14% 12% 6% e. Deposit Substitutes 14% 14% NA f. IBCL 1% 1% 1% (Sec. X343) g. Bonds 5% 5% NA h. Mortgage/ CHM cert. NA 5% NA Rates on Items a to e shall take effect January 3, 1997 and shall be reduced by one percent (1%) for each type effective July 4, 1997. On top of the reserve requirements prescribed above, an additional two (2) percentage points required reserves against deposit liabilities and deposit substitute liabilities of banks (Items a to e ) shall be imposed, which may be maintained in the form of short-term market yielding government securities purchased directly from the BSP. Any deficiency shall be in the form prescribed in Sec. X254 a and/or b. SECTION X254. Composition of Reserves . The composition of the required reserves shall be as follows: a. Deposits with the BSP . At least twenty-five percent (25%) shall be in the form of deposits with the BSP. b. Government securities and cash in vault . The remaining portion of the required reserves may be held by all banks in the form of cash in vault and/or government securities or evidences of indebtedness of the Republic of the Philippines. For purposes of this Section, government securities which may form part of the reserves against deposit/deposit substitute liabilities of banks shall refer to bonds or other evidences of indebtedness representing direct obligations of the Government of the Republic of the Philippines: Provided , That such securities shall have the following minimum features/conditions: (1) The securities must bear an interest rate of not more than four percent (4%) per annum, must be non-negotiable and shall carry BSP support; and (2) The amount, maturity date and rate of interest must be definite and stated in the certificate itself. Other government securities being used for reserve purposes shall continue to be eligible as such: Provided , That whenever said securities shall have matured, they shall be replaced by securities carrying the above features. The securities held as reserves under Item b and last paragraph of Sec. X253 shall be valued at cost of acquisition and the bank may freely alter its composition: Provided, That any substitution or acquisition satisfies the eligibility requirements prescribed above: Provided, further, That the bank notifies the BSP of any such change in the prescribed forms not later than the reporting day following the change. Securities counted as reserves may not be hypothecated or encumbered in any way or earmarked for any other purpose without automatically losing their eligibility as reserves. Only the buying/lending bank in an agreement covering eligible government securities may use such securities as reserves against deposits/deposit substitutes. Conversely, the selling/borrowing bank in a resale agreement covering eligible government securities may not use such securities as reserves against deposits/deposit substitutes. The list of reserve-eligible and non-eligible securities may be found in Appendix 15 . The reserve eligibility of government securities under the reverse repurchase operations of the BSP shall be suspended during the term of the reverse repurchase agreement. The phrase "non-reserve eligible" shall be stamped on the face of the custodian receipt being issued by the BSP to buyer financial institutions. SUBSECTION X254.1 Allowable drawings against reserves . Deposit with the BSP to comply with reserve requirements are not regular current accounts. The use, therefore, of BSP checks for drawings against reserve deposits shall be limited to (a) settlement of obligations with the BSP, and (b) withdrawals to meet cash requirements. SUBSECTION X254.2 Exclusion of uncleared checks and other cash items . Checks and other cash items which have not been cleared yet through the Clearing Office should not be debited to the account "Due from the BSP" and should not be considered as available reserves against deposit/deposit substitute liabilities. Such items shall be debited to the "Checks and Other Cash Items" account. Only after the checks and other cash items have been cleared through the Clearing Office can the bank debit the "Due from the BSP" account for said items. SUBSECTION X254.3 Interest income on reserve deposits . Deposits maintained by banks with the BSP up to twenty-five percent (25%) of their reserve requirement, less the two percent (2%) of the combined deposit and deposit substitute liabilities of banks allowed to be maintained in the form of short-term market yielding government securities purchased directly from the BSP, shall be paid interest at four percent (4%)per annum based on the average daily balance of said deposits to be credited quarterly. SUBSECTION X254.4 Book entry method for reserve securities . In the implementation of the book entry system for transactions in government securities eligible for reserves, transactions concerning reserve-eligible securities shall be entered in the respective securities account of each bank with the BSP and shall be evidenced by securities account debit or credit advices to be promptly furnished the institution/s concerned. No certificate shall be issued for any purpose. Transactions with third parties other than the BSP shall not be recognized. cSEaTH SECTION X255. Exemptions from Reserve Requirements . The following shall be exempt from reserve requirements: a. All collections credited to the special account "Due to BSP - Internal Revenue Account (Other Cities and Municipalities)" ; b. Special time deposits from the Agrarian Reform Fund Commission and special savings deposits from farmer-borrowers; and c. Unclaimed balances of deposit liabilities already reported to the Treasurer of the Philippines in accordance with the Unclaimed Balances Act (Act No. 3936, as amended) and transferred/reclassified from the deposit liability/other credit accounts to the liability account " Due to the Treasurer of the Philippines." Local banks may deduct from the amount of their gross demand deposits, the total of their Due from Local Banks - Demand and Due from PNB - Clearing in an amount not exceeding the total of their Demand Deposits- Banks and Due to Local Banks . As used herein, the term "gross demand deposits" shall mean the sum of all individual deposits, including deposits made by other local banks, the Philippine Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations. SECTION X256. Computation of Reserve Position . The reserve position of any bank and the penalty on reserve deficiency shall be computed based on a seven-day week, starting Friday and ending Thursday, including Saturdays and Sundays, holidays, non-banking days and days when there is no clearing: Provided , That with reference to holidays, non-banking days and days when there is no clearing, the reserve position as calculated at the close of the business day immediately preceding such holidays, non-banking days and days when there is no clearing, shall apply thereon. For this purpose, the principal office in the Philippines and all other banking offices located therein shall be treated as a single unit. SECTION X257. Reserve Deficiencies; Sanctions . Whenever the reserve position of any bank computed in the manner specified in Sec. X256 is below the required minimum, it shall pay the BSP one-tenth of one percent (1/10 of 1%) per day on the amount of the deficiency or the prevailing ninety-one (91) day Treasury Bill rate plus three (3) percentage points, whichever is higher: Provided, however , That a bank shall be permitted to offset any reserve deficiency occurring one (1) or more days of the week covered by the report against excess reserves which it may hold on other days of the same week, and shall be required to pay the penalty only on the average daily net deficiency during the week. In case of abuse, a bank shall automatically lose the privilege of offsetting reserve deficiency in the aforesaid manner until such time that it maintains its daily reserve position at the required minimum for at least two (2) consecutive weeks. As used in this Section, "abuse" in the privilege of offsetting reserve deficiencies against excess reserves shall mean having reserve deficiencies occurring four (4) or more times during any given week for two (2) consecutive weeks, whether or not resulting in net weekly deficiencies. SUBSECTION X257.1 Chronic reserve deficiency; penalties . In cases where the bank has chronic reserve deficiency in deposit/deposit substitute liabilities, the bank shall be denied the credit facilities of the BSP; and the Monetary Board may: (a) limit or prohibit the making of new loans or investments by the bank; and (b) prohibit the declaration of cash dividends. The board of directors of said bank shall be notified of such chronic reserve deficiency and the penalties therefor, and be required to immediately correct the reserve position of the bank. As used in this Subsection, "chronic reserve deficiency" shall mean having net reserve deficiencies for two (2) consecutive weeks. SUBSECTION X257.2 Failure to cover overdrawings with the Bangko Sentral . Any bank which incurs an overdrawing in its deposit account with the BSP shall fully cover said overdraft not later than the next clearing day including interest thereon equivalent to one tenth of one percent (1/10 of 1%) per day or the prevailing ninety-one (91) day Treasury Bill plus three (3) percentage points, whichever is higher. In case a bank fails to cover its overdrawings, it shall be excluded from clearing on such day and it shall also be denied the credit facilities of the BSP. Such exclusion from clearing shall continue for as long as it has not maintained credit balances with the BSP for at least five (5) consecutive banking days. If its clearing account is overdrawn for five (5) consecutive banking days, it shall be prohibited from (a) making new loans or investments, except investment in government securities with BSP support; (b) declaring cash dividends until it has maintained credit balances in its BSP clearing account for at least fifteen (15) consecutive banking days; and (c) establishing branches. The denial from availment of credit facilities of the BSP shall continue for as long as the bank maintained credit balances with the BSP for at least fifteen (15) consecutive banking days. For purposes of computing the total available reserves against deposit/deposit substitute liabilities, the total amount of overdrawing in the clearing account with the BSP shall be deducted from available reserves after the required reserves against deposit/deposit substitute liabilities shall have been satisfied. SUBSECTION X257.3 Payment of penalties on reserve deficiencies . Penalties if unpaid within fifteen (15) days from receipt of the assessment, shall be charged against the demand deposits of banks with the BSP: Provided , That where the bank's credit balance is insufficient and it fails to settle the assessment, the Monetary Board may limit or prohibit the making of new loans or investments by the bank. SECTION X258. Report on Compliance . Every bank shall make a weekly report to the BSP of its daily required and available reserves on deposit/deposit substitute liabilities in the prescribed forms. SECTIONS X259-X260 ( Reserved ) I. Sundry Provisions on Deposit Operations SECTION X261. Booking of Deposits and Withdrawals . The following regulations shall govern the booking of deposits and withdrawals of banks. SUBSECTION X261.1 Clearing cut-off time . As a general rule, all deposits and withdrawals during regular banking hours shall be credited or debited to deposit liability accounts on the date of receipt or payment thereof: Provided , however, That a bank may set a clearing cut-off time for its head office not earlier than two (2) hours before the start of clearing at the BSP, and not earlier than three and one-half (3) hours before the start of clearing for all its branches, agencies and extension offices doing business in the Philippines, after which time, deposits received shall be booked as hereinafter provided: Provided, further, That banks which are located in areas where there is no BSP regional/clearing arrangements may set a clearing cut-off time not earlier than two (2) hours before the start of their local clearing after which time, deposits received shall be booked likewise as hereinafter provided. SUBSECTION X261.2 Definitions . As used in this Section, the following terms shall have the following meanings: a. Regular banking hours shall refer to the banking hours reported to the BSP pursuant to Sec. X156, including the extended banking hours reported for servicing deposits and withdrawals; and b. Clearing cut-off time shall mean the banks closing time for the acceptance of deposits in the form of checks, bills and other demand items for clearing on the day of their receipt. SUBSECTION X261.3 Booking of cash deposits . Cash deposits received after the selected clearing cut-off time until the close of the regular banking hours shall be booked as deposits on the day of receipt. SUBSECTION X261.4 Booking of non-cash deposits . Deposits of checks including "on us" checks, manager's/cashier's/treasurer's checks and demand drafts, which are drawn against the depository bank and all its offices, as well as treasury warrants and postal money orders, received after the selected clearing cut-off time until the close of the regular banking hours, may, at the option of the bank, be booked as deposits on the day of receipt. Other non-cash deposits received after the selected clearing cut-off time shall be treated as contingent accounts on the day of receipt and shall be booked as deposits the following banking day. SUBSECTION X261.5 Booking of deposits after regular banking hours . Deposits, whether cash or non-cash, received after the close of the regular banking hours shall be treated as contingent accounts on the day of receipt and shall be booked as deposits the following banking day. SUBSECTION X216.6 Other records required . For record and control purposes, banks shall prepare a daily abstract of deposit transactions treated as contingent accounts. SUBSECTION X261.7 Notice required . Banks shall post at a conspicuous place near each teller's window a notice to depositors indicated their selected cut-off time and the statement of the effect that non-cash items deposited after said cut-off time shall be treated as transactions for the next banking day. SECTION X262. Miscellaneous Rules on Deposits . Banks shall also be governed by the following miscellaneous rules on deposits. SUBSECTION X262.1 Specimen signatures, ID photos . All banking institutions are required to set a minimum of three (3) specimen signatures to be simultaneously required from each of their depositors and to update the specimen signatures of their depositors every five (5) years or sooner, at the discretion of the bank. Banks may, at their option, require their depositors to submit ID photos together with the specimen signatures. SUBSECTION X262.2 Insurance on deposits . All banks shall indicate the coverage of the PDIC in each passbook, certificate of time deposit and/or cover of checkbook for demand deposit/NOW accounts stating, among other things, the maximum amount of insurance. SECTION X263. Disclosure of Service and Maintenance Fees on Dormant Accounts . Banks may impose service or maintenance fees on dormant or inactive savings and demand-deposit accounts: Provided , That before such charges or fees may be imposed, the rate of service charges or maintenance fee, the period of dormancy as prescribed in Subsec. X163.12 and the minimum balance of deposits shall be properly disclosed among the terms and conditions of the deposit. SECTION X264. Unclaimed Balances . All unclaimed balances, which include credits or deposits of money, bullion, securities or other evidences of indebtedness of any kind, and interest thereon already reported to the Treasurer of the Philippines in accordance with the Unclaimed Balances Act (Act No. 3936, as amended) shall be transferred/reclassified from the deposit liability/other credit accounts to the liability account, "Due to the Treasurer of the Philippines," until they are deposited with or turned over to the Treasurer of the Philippines upon order of the court that the same have been escheated in favor of the Government of the Republic of the Philippines and as such, the unclaimed deposit liabilities shall no longer be covered by reserves required of deposit liabilities. SECTION X265. Acceptance, Encashment or Negotiation of Checks Drawn in Favor of Commissioner/Collector of Customs . All checks payable to the Commissioner/Collector of Customs shall be accepted for deposit only to the account of the Commissioner/Collector of Customs. Banks where the Commissioner/Collector of Customs has no account shall not encash, accept nor negotiate checks payable to the Commissioner/Collector of Customs. Any attempt to defraud the government or the bank through the irregular or unauthorized encashment or deposit of these checks to accounts other than that of the Commissioner/Collector of Customs shall be reported immediately by the head of the banking office to the Bureau of Customs, copy furnished the BSP. SECTION X266. Deposit Pick-up Services . The following are the guidelines on the deposit pick-up service of banks: a. As a general policy, deposit pick-up service shall be limited to the following: (1) To service the need of valued clients whose daily average deposit amounts to: P500 thousand for Metro Manila and Metro-Cebu clients/depositors P300 thousand for outside Metro Manila and Metro Cebu clients/depositors (2) To be serviced during regular banking hours and days only, unless the nature of the business and the volume of the deposits would warrant servicing beyond regular banking hours and days, in which case justification therefor should be submitted to the satisfaction of the appropriate supervising and examining department. b. Prior BSP authority is not required before banks can engage in deposit pick-up services, provided, the following conditions are complied with: (1) Pick-up of deposits, as a general rule, shall be made with the use of armored cars which, however, shall not be operated as a mobile bank used in soliciting deposits from the general public, or in any manner in carrying out banking transactions/services other than to afford security of deposit items in transit; (2) The risk of loss involved in the pick-up of deposits shall be adequately covered by insurance, and the armored car to be used shall be provided, with at least two (2) armed guards and supervised by at least two (2) officers of the bank; (3) The deposit transactions shall be booked in accordance with existing regulation; (4) Pick-up of deposits shall not be allowed on days other than the bank's regular banking days; (5) The strictest measures of safeguards, control and confidentiality will be adopted in implementing the services; (6) A record/log book shall be maintained by the bank which shall contain the information on the deposit pick-up activities of the armored car to be supported by "trip tickets" signed by a responsible officer of the bank; and (7) Records and/or such other reports that may be required of the bank from time to time shall be made available for examination/inspection by the authorized representative(s) of the appropriate supervising department of the BSP. c. If any of the above conditions are not met, the BSP may suspend the deposit pick-up operation of the bank without prejudice to the imposition of sanctions under Section 37 of R.A. No. 7653. SUBSECTION X266.1 Operation of armored cars . Banks shall use armored cars to afford security in collecting and/or delivering cash or securities and other valuables from or to their clients, branch or extension offices or the BSP, provided such armored cars are not operated as mobile banks. SECTION 1266. (Reserved) SECTION 2266. (Reserved) SECTION 3266. Qualifying Criteria Before a Rural Bank/Cooperative Bank Engages in Deposit Pick-up Services a. An RB/Coop Bank desiring to undertake deposit pick-up service must meet the following criteria: (1) Its total resources should not be less than P100 million and its net assets should be at least P10 million or the minimum capital required under Subsec. X106.1, whichever is higher; (2) It should not be deficient in its net worth-to-risk assets ratio; (3) Its past due loan ratio should not be more than fifteen percent (15%); (4) It has no past due obligations with the BSP or with any government financial institution; (5) It should have continuous profitable operations; and (6) It must show adherence to law, and BSP rules and regulations. b. An RB/Coop Bank that meets the above criteria shall submit for evaluation, the following justifications on the need for the RB/Coop Bank and its branches to undertake such service which should contain, among other things, the following: (1) the names of clients/companies to be serviced, estimated daily average deposit and distance/proximity of client from applicant bank; (2) the names and number of banks, branches, if any, in the area where depositor is situated; (3) the arrangement in writing between the bank and the client desiring to avail of the service, which arrangement shall define and specify the respective responsibilities of the parties; and (4) such other information pertinent to the application. SECTION X267. Automated Teller Machines a. Off-site Automated Teller Machines (ATMs) . Banks may establish off site ATMs, subject to the following conditions: (1) Banks shall submit a report to the appropriate department of the BSP on ATMs which they establish; (2) The off-site ATMs shall be installed only in centers of activity like shopping centers, supermarket, hospitals, university campuses: Provided, That adequate internal control and security measures shall be adopted and submitted to the BSP; and (3) Only banks which have shown general compliance with laws, rules and regulations shall be allowed to open off-site ATMs. b. Mobile ATMs . Banks may also establish mobile ATMs, subject to the following conditions: (1) The mobile ATMs should be allowed to visit only centers of activity as mentioned in item a(2) above and should confine their itinerary to Metro Manila until further notice, (2) The ink shall secure insurance coverage or adopt a self-insurance scheme to protect itself against losses of whatever nature in its mobile ATM operations; and (3) The bank shall notify the supervising and examining department of the BSP of the actual date a mobile ATM becomes operational and when no longer in operation. J. Borrowings From the Bangko Sentral SECTION X268. Qualifications/Disqualifications for Availment of BSP Credit Facilities; Penalties . The following are the qualifications/disqualifications for availment of BSP credit facilities and the penalties that shall be imposed for violation of any of the Provisions. SUBSECTION X268.1 Qualifications for availment of credit facilities by banks . The following are the qualifications for availment of the privilege of access by banks to the credit facilities of the BSP: a. The ratio of banks' past due direct and indirect loans to its DOSRI to the bank's aggregate past due loans as of the last examination by the appropriate supervising and examining department must not exceed five percent (56) for EKBs/KBs and ten percent (10%) for TBs/RBs/Coop Banks. b. The bank meets the minimum capital required as prescribed under Subsecs. X106.1 and X106.2 at the time of the application. c. The bank has complied with the capital-to-risk asset ratio as required under Sec. X116 continuously for a period of thirty (30) days immediately preceding date of application. d Required reports are being submitted on time to the various departments and/or offices of the BSP. e. The bank has complied with the loans-to-deposits ratio at the time of the application. f. The applicant bank has not been deficient in reserves against deposit liabilities/deposit substitutes for two (2) consecutive weeks based on latest required reports. g. The applicant bank must be operating in accordance with pertinent laws, existing rules and regulations of the BSP, and sound banking practices. Whenever the total accommodations of a bank to its DOSRI reaches fifty percent (50%) of the prescribed aggregate ceiling, the Monetary Board may, upon the recommendation of the appropriate supervising and examining department, require as a condition for the extension of the credit facility the designation of a comptroller in the bank to protect the interests of the BSP. SUBSECTION X268.2 Grounds for temporary disqualification . The following are the grounds for temporary disqualification from the credit facilities of the BSP: a. Non-submission of a plan or schedule for the payment of the unpaid capital subscriptions or non-compliance with the said plan or schedule; b. Past due ratio in excess of five percent (5%) for EKBs/KBs and twenty-five percent (25%) for TBs/RBs/Coop Banks of total outstanding loans; c. Default in obligations with the BSP or collateral deficiencies due to unremitted collections/matured notes, except those obligations covered by a duly approved plan of payment whose terms and conditions are faithfully complied with; d. Deficiency in legal reserves; e. Deficiency in capital-to risk assets ratio; f. Investment in bank premises in excess of the fifty percent (50%) of net worth, excluding government capital; g. Borrowings in excess of the rediscounting limit under Subsec. X269.1; and h. Suspension of rediscounting privilege. SUBSECTION X268.3 Effects of natural calamities . In case a bank is adversely affected by natural calamities such as earthquakes, typhoons, droughts and other natural occurrences, the BSP shall not consider Items b and c of Subsec. X268.2 as disqualifying grounds, based on the results of the survey to be made by the appropriate supervising and examining department. A supplementary agreement should be executed between the Department of Loans and Credit (DLC) of the BSP and the affected bank; Banks in areas which may suffer damages on account of force majeure may restructure their corresponding rediscounting liabilities with the DLC secured by restructured notes of these borrowers for a period of one (1) year: Provided, That in meritorious cases, a second and third restructuring, to cover the maximum period of three (3) years, may be allowed for reasons of force majeure, in the absence of which, however, farmer-borrowers' delinquent accounts may be restructured under this scheme: Provided, further , That payment of thirty percent (30%) of principal, plus accrued interest due thereon, shall be made on each of the first and second restructuring. Banks may continue to avail themselves of their rediscounting privilege during the life of the restructured loans. SUBSECTION X268.4 Credit examination of borrowing banks . Credit examination of all borrowing banks shall be undertaken regularly by the Department of Loans and Credit at which time promissory notes used as collateral for loans with the BSP are examined together with the supporting documents. a. Pre-audit system . The amount allowable for each loan application is determined after deducting all items which have been found ineligible or unacceptable as collateral. b. Post audit (automatic) system . In case of loans granted before actual credit examination, the loan value of all collateral promissory notes found to be ineligible or unacceptable for rediscounting, plus accrued interest, must be remitted immediately by the bank to the BSP. The BSP may also debit the reserve account of the bank without prior notice in an amount corresponding to the loan value of papers found to be ineligible or unacceptable plus accrued interest. SECTION X269. Rediscount Ceilings Eligibility of Papers; Maturities . The following are the rediscount ceilings, eligibility requirements and maturities of papers discounted with the BSP. SUBSECTION X269.1 Rediscount ceilings . The rediscount ceilings of banks shall be 100% of their net worth as of the end of the quarter immediately preceding the date of application for BSP refinancing. The rediscount ceiling of branches of foreign banks shall be twenty-five percent (25%) of "Net Due To" plus assigned capital as of the end of the quarter immediately preceding the date of application for BSP refinancing: Provided , That in the case of RBs/Coop Banks, the rediscount ceilings shall be 500% of their net worth, plus 300% of their monthly average savings and time deposit liabilities for the four (4) months immediately preceding the date of the loan application. An RB may submit an application for a rediscount or loan in an amount not exceeding the following: (a) P900,000 for RBs with a credit rating of "A" or "B"; (b) P700,000 for RBs with a credit rating of "C"; and (c) P400,000 for RBs with a credit rating of "D" and for newly-established RBs which have been in operation for not more than one (1) year. SUBSECTION X269.2 Eligibility of papers . Credit instruments offered as collateral shall be subject to the eligibility requirements provided under Section 82 of R.A. No. 7653. For non-traditional exports under Documents on Acceptances (D/A) and Documents on Payments (D/P) arrangements authorized by the BSP, the required letter of credit shall be dispensed with and in lieu thereof, a deed of assignment of export proceeds shall be submitted in addition to the usual shipping documents and the promissory note of the borrowing bank concerned. Papers presented for rediscounting with the BSP by banks pertaining to firms and/or principal stockholders and officers thereof with outstanding loans with DBP, LBP, the GSIS, and/or the SSS may be accepted on the basis of a certification of the borrower/firm, duly endorsed by the bank concerned that it or its stockholders and/or officers have no arrearages on their loan accounts with these government institutions. Should an examination by the BSP disclose that the papers rediscounted with the BSP involve loan accounts with any of the above-mentioned government institutions that are delinquent or in arrears, the demand deposit account with the BSP of the bank concerned shall be automatically debited for the full amount of the loan still outstanding, plus accrued interest due thereon, without prejudice to the imposition of administrative sanctions provided for under Section 37 of R.A. No. 7653. ADaEIH SUBSECTION X269.3 Maturities . The maturity of BSP loans or advances/rediscounts for commercial credit shall not exceed 180 days from the date the proceeds of such loans or advances/rediscounts are released to the applicant bank while those for production credit shall not exceed 360 days from the date the proceeds for such loans or advances/rediscounts are released to the applicant bank. Furthermore, advances against Treasury Bills and other government eligible securities shall not be more than 180 days from date of rediscounts. The maturity date of the loan from the BSP which shall be indicated in the promissory note of the applicant bank shall be the maturity date of the collateral paper with the latest maturity. Should any amount remain outstanding on that date, the BSP shall debit the borrowing bank's clearing account on such date for that amount plus accrued interest due. SUBSECTION X269.4 Suspension of rediscounting privilege . The following are the grounds for suspension of rediscounting privilege from the BSP: a. When the bank has chronic reserve deficiency in deposit/deposit substitute liabilities; b. When the bank fails to cover any overdrawings in its deposit accounts with the BSP; and c. When the bank has deficiency in required liquidity floor for government deposits. SUBSECTION X269.5 Loan value, rediscount and lending rates . The following rules and regulations shall govern the loan values and rediscount rates of the BSP for preferential rediscounting and the lending rates that may be charged by banks on papers rediscounted with the BSP. The loan value of eligible papers shall be eighty percent (80%) and the rediscount rate for this BSP credit facility shall be prescribed from time to time by the BSP: Provided, That the loan value for export credit shall be 100%. The lending rates that the banks may charge on their rediscounted papers shall not be subject to any ceiling. However, the spreads made by banks shall be closely monitored periodically by the BSP to ensure these are consistent with the prevailing market rates. SUBSECTION X269.6 Specification of areas of rediscounting . Agricultural production credits are short-term credits granted for rice, corn, sugar cane, sugar (inclusive of sugar quedan), coconut, feed grains, livestock, poultry, vegetable, aquaculture, tobacco, cotton and other products as may be determined by the BSP. SUBSECTION X269.7 Remittance of collections; repayments; arrearages . The following regulations shall govern remittance of collections, repayments and arrearages: a. Collections received before maturity of the collaterals for loans and advances from the BSP shall be remitted to the DLC, not later than two (2) banking days following the date of receipt of collections by Head Office/branches located within Metro Manila and not later than four (4) banking days following the date of receipt of collections by Head Office/branches located outside Metro Manila. In the case of negotiated export bills, when the bank receives the corresponding payment from its correspondent bank either through actual remittance or credit advice or through entry(ies), charging its correspondent bank before receipt of advice, the amount involved shall be remitted to the DLC not later than two (2) banking days following the date of receipt of payment and/or entry(ies) by Head Office/branches located within or outside Metro Manila. To check compliance with the above regulations, the Head Office shall require its branches to submit a report of collection duly certified by the branch manager. b. Whenever any collateral matures before the maturity date of the loan from the BSP, the corresponding loan value thereof shall be debited against the bank's demand deposit account with the BSP, including the accrued interest thereon. c. Substitution of collaterals on outstanding loans with the BSP shall not be allowed. d. In accordance with Section 86 of R.A. 7653, the documents offered as collateral shall be endorsed by authorized officers of the applicant bank. e. A fine of P500 per day of delay commencing from the day immediately after the deadline provided above, shall be imposed on banks for unremitted collections/delayed remittances of collections in violation of Item a of this subsection and for delayed recording of corresponding credit advices received from foreign banks. SECTION X270. Repurchase Agreements with the Bangko Sentral . Repurchase agreements with the BSP shall be governed by Sec. X601 of the MOR. SECTION X271. Bangko Sentral Liquidity Window . The following guidelines shall govern the grant by the BSP of credit accommodations through a liquidity window to banks. SUBSECTION X271.1 Nature of liquidity window . The window shall meet the liquidity needs of the financial system under normal conditions and shall be distinct from overdrafts and emergency advances. SUBSECTION X271.2 Terms of credit a. Interest rate . The rate of interest chargeable on availments under the liquidity window shall be the rate equivalent to the reference rate for ninety (90) days determined and announced by the BSP for floating rate loans, plus or minus a rate to be determined by the BSP on the basis of the prevailing monetary situation. The additional or discount rate established for any given time shall be made public by the BSP and applied uniformly to all borrowers during that period. The additional rate to be imposed over and above the reference rate shall not be less than two (2) percentage points, with the applicable additional rate to be determined by the BSP on the basis of the prevailing monetary situation. b. Security . Any paper, irrespective of maturity, eligible under Section 82 of R.A. No. 7653. c. Loan values . The loan values of the paper offered as collateral should be eighty percent (80%) of the amount still due outstanding on the paper offered as collateral. d. Repayment period . The term of the credit accommodation shall not exceed seven (7) days. SUBSECTION X271.3 Limit . Availment by any bank under this facility shall not exceed ten percent (10%) of its net worth, as defined under Sec. X106 as of the end of the quarter preceding the date of application. In the case of branches of foreign banks, the quota shall be ten percent (10%) of the assigned capital as of the date of application. Additionally, a bank or a branch of a foreign bank may avail itself of this facility to the extent equivalent to a further five percent (5%) of its net worth, as defined under Sec. X106 or assigned capital, as the case may be, as of the end of the quarter preceding the date of availment. Any availment of the liquidity window shall fall within the unavailed basic rediscount ceiling of the bank or the branch of a foreign bank as the case may be. SECTION X272. Emergency Loans or Advances to Banking Institutions . The following guidelines shall govern the grant by the BSP of emergency loans and advances to banking institutions. SUBSECTION X272.1 Nature of emergency loans or advances . An emergency loan or advance is a credit facility that is intended to assist a bank experiencing serious liquidity problems arising from causes not attributable to, or beyond the control of, the bank management. The grant of such facility is discretionary upon the Monetary Board, and is intended only as temporary remedial measure to help a bank overcome liquidity problems. No emergency loan or advance may be granted except on a fully secured basis. SUBSECTION X272.2 When an emergency loan or advance may be availed of . An emergency loan or advance may be granted only after the Monetary Board has ascertained that the bank is not insolvent and has the assets to fully secure the advances. a. During abnormal periods shall refer to periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability. b. During normal periods shall refer to situations where a particular bank is in a precarious financial condition or under serious financial pressures brought about by unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned. IDSaTE SUBSECTION X272.3 Procedures . An application shall be filed with the DLC, copy simultaneously furnished the appropriate supervising and examining department. An application during normal periods shall state the reasons and other details showing the precarious financial condition or the serious financial pressures being experienced by the bank, as well as a listing of the collaterals offered. The following shall be submitted together with the application: a. A resolution of the board of directors of the bank authorizing the availment by the bank of an emergency loan or advance from the BSP, signifying the bank's commitment to comply with the guidelines set forth herein and the terms and conditions that may be imposed by the Monetary Board, and designating the officers duly authorized to sign any and all requisite documents for the emergency loan or advance; b. The documents of title and/or evidences of ownership of the collaterals offered; and c. A resolution of the board of directors authorizing the BSP to evaluate other assets of the applicant bank which are available for collateral purposes should the release of subsequent tranches be applied for. The resolution shall be accompanied by a certification of the bank's external auditor that the said assets are good and available for collateral purposes. Prior to the release of the second and subsequent tranches, the principal stockholders of the applicant bank shall submit: (1) An acceptable undertaking to indemnify and hold harmless from suit a comptroller or conservator whose appointment the Monetary Board may find necessary at any time; and (2) The documents of title and/or evidences of ownership of the collaterals for the amount being applied for release and, where necessary, such other acceptable security which, in the judgment of the Monetary Board, would be adequate to supplement the assets tendered to collateralize the subsequent tranche. SUBSECTION X272.4 Allowable amount of emergency loan or advance . The maximum amount of an emergency loan or advance shall be limited to the amount needed by the applicant bank to overcome the emergency or financial predicament or the sum of fifty percent (50%) of the applicant bank's total deposits and deposit substitutes as of date of application for emergency loan or advance, whichever is lower: Provided , That in no case shall such maximum amount exceed the loan values of the collaterals submitted, as determined by the BSP. SUBSECTION X272.5 Manner and conditions of release a. The grant of any emergency loan or advance shall bear the concurrent vote of at least five(5) members of the Monetary Board. b. The proceeds of emergency loans or advances shall be released in two (2) or more tranches as the need of the bank will arise. The release of a second and subsequent tranches must have the authorization of the Monetary Board by a vote of at least five (5) of its members. c. The amount of the first tranche shall not exceed twenty-five percent (25%) of the total deposits and deposit substitutes of the bank and shall be released only after the required securities and collateral documents duly notarized have been submitted. However, an amount greater than twenty-five percent (25%) of the bank's total deposits and deposit substitutes may be released upon request of the applicant bank if, as determined by the Monetary Board, the circumstances surrounding the emergency or financial predicament warrant the release of such greater amount and the same is adequately secured by applicable loan values of government securities and unencumbered first class collaterals approved by the Monetary Board, and the principal stockholders of the applicant bank furnish an acceptable undertaking to indemnify and hold harmless from suit a comptroller or conservator of the bank who may be appointed by the Monetary Board. d. The release of a second and subsequent tranche(s) shall likewise be effected only after submission of the required securities and duly accomplished collateral documents, and upon compliance with the other requirements as stated in Subsec. X272.3. SUBSECTION X272.6 Types of acceptable collaterals . The amount of the first tranche shall be secured by government securities to the extent of their applicable loan values and/or unencumbered real estate and other first-class collaterals. For second and subsequent tranches, aside from the collaterals mentioned above, other assets previously certified by the bank's external auditor to be good and available for collateral purposes as provided in Subsec. X272.3 hereof, as evaluated by the BSP, may be considered. All collateralization expenses, such as registration fees, documentary stamps, etc., shall be borne by the applicant bank. SUBSECTION X272.7 Interest rate . The interest rate that shall be charged on loans or advances granted shall be the average ninety-one (91) day Treasury Bill rate as of the last auction immediately preceding the release of the tranche. SUBSECTION X272.8 Term . The term of any emergency loan or advance shall not exceed one (1)year. SUBSECTION X272.9 Other documentary requirements . Before release of any tranche, the applicant bank shall comply, aside from the documentary requirements already mentioned above, with such other requirements documentation as may be required by the DLC, e.g., promissory note in favor of the BSP. SUBSECTION X272.10 General terms and conditions a. A bank with an outstanding emergency loan or advance shall comply with the following conditions: (1) The bank shall not, without the prior authorization of the Monetary Board, expand its outstanding loans or investments as of the date of application for the loan, except for investments in government securities. (2) The bank shall not declare cash dividends. (3) No new loans to DOSRI and/or affiliates/subsidiaries shall be granted by the bank. (4) The BSP may designate a comptroller to be assisted by examiners to oversee the operations of the bank under terms of reference to be determined by the Governor. b. Any collection received on loan accounts/proceeds from the sale of properties assigned/mortgaged to BSP shall be held in trust for, and immediately remitted to, the BSP in payment of the bank's outstanding emergency loan or advance and corresponding accrued interests. c. Any other terms and conditions that may be imposed by the Monetary Board. Non-compliance with any of the above provisions shall automatically make the emergency loan or advance due and demandable and shall be sufficient cause for the BSP to stop further releases against the bank's approved emergency loan or advance, without prejudice to any action that the BSP may decide to take in accordance with R.A. No. 7653. SECTION X273. Facility to Committed Credit Line Issuers . The following guidelines shall govern the grant by the BSP of special credit accommodations to banks which establish committed credit line in favor of corporations proposing to issue commercial paper. SUBSECTION X273.1 Nature of special credit accommodations . The BSP may extend a loan to any bank which on its own or as a member of a group of banks, provides a committed credit line facility to a corporation proposing to issue commercial paper. SUBSECTION X273.2 Conditions to access . A bank applying for a loan pursuant to the provisions of this Section shall submit to the BSP documents showing that it has extended a committed credit line to a commercial paper issuer and that such issuer has availed itself of said credit line. SUBSECTION X273.3 Terms of credit a. Interest Rate . The rate of interest chargeable on the availment of this credit facility shall be that which is equivalent to eighty percent(80%) of the total of interest and fees received by the bank from the issuer, net of provision for gross receipts tax paid by the bank on such income. b. Security . The promissory note executed by the commercial paper issuer in favor of the bank for the amount drawn against the committed credit line shall be the security for this credit facility. c. Loan values . The loan value of paper offered as collateral shall be eighty percent (80%) of the amount still due and outstanding on the paper offered as collateral. d. Repayment period . The term of the credit accommodation may not exceed ninety (90) days and shall be non-renewable. SUBSECTION X273.4 Ceiling . If availment of this credit facility is outside the other rediscount ceiling of the bank, it shall be limited to the extent of fifteen percent (15%) of the net worth of the bank. SECTION 1274. ( Reserved ) SECTION 2274. Countryside Financial Institutions Enhancement Program for Thrift Banks (CFIEP) . The CFIEP shall be implemented under the terms of reference indicated in Appendix 16 . SECTION 3274. Countryside Financial Institutions Enhancement Program for Rural and Cooperative Banks . The CFIEP shall be implemented under the terms of reference indicated in Appendix 16 . SECTION X275. Recording and Reporting of Borrowings . The bank's liability for papers discounted and/or rediscounted "with recourse" with the BSP and/or other financial institutions shall be recorded and shown as "Bills Payable" in all reports submitted to the BSP. The loans and discounts, bills purchased, acceptances and other accounts affected by such discounting and/or rediscounting transactions shall remain as part of the bank's loan portfolio. A footnote in the financial statement shall indicate the outstanding balances of the discounted and/or rediscounted loans. SECTIONS X276 - X280 ( Reserved ) K. Other Borrowings SECTION X281. Borrowings from the Government . Except as may be authorized by existing statutes, no private bank shall, whether or not performing quasi-banking functions, borrow any fund or money from the Government and government entities, through the issuance or sale of its acceptances, notes or other evidences of debt. SUBSECTION X281.1 Exemption from reserve requirement . Special time deposits (STDs) and deposit substitutes of specialized government banks and private banks arising from their lending operations under the special financing programs of the Government and/or international financial institutions shall not be subject to the reserve requirement. SECTION X282. Borrowings from Trust Departments or Investment Houses . Funds borrowed by banks or non-bank financial intermediaries performing quasi-banking functions from trust departments or managed funds of banks or investment houses are not considered as interbank borrowings and therefore are subject to the: a. Reserve requirement on deposit substitutes; b. Minimum fifteen (15) day maturity period; and c. Minimum trading lot rule. SECTION 1283. ( Reserved ) SECTION 2283. Mortgage/Chattel Mortgage Certificates of Thrift Banks . With prior approval of the Monetary Board, TBs may issue and deal in mortgage and chattel mortgage certificates. The rules and regulations governing the issuance of said, certificates is shown in Appendix 17. SECTION 3283. ( Reserved ) SECTION 1284. ( Reserved ) SECTION 2284. ( Reserved ) SECTION 3284. Borrowings of Rural Banks/Cooperative Banks . RBs and Coop Banks may rediscount papers with any bank. SECTIONS X285-X298 ( Reserved ) SECTION X299. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART THREE Loans, Investments and Special Credits SECTION X301. Lending Policies . It shall be the responsibility of the board of directors of a bank to formulate written policies on the extension of credit and risk diversification and to set the guidelines for evaluation of risk assets. Well-defined lending policies and sound lending practices are essential if a bank is to perform its lending function effectively and minimize the risk inherent in any extension of credit. The responsibility should be approached in a way that will provide assurance to the public, the stockholders and supervisory authorities that timely and adequate action will be taken to maintain the quality of the loan portfolio and other risk assets. SECTION X302. Loan Portfolio and Other Risk Assets Review System . To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets, each bank shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis-a-vis prevailing circumstances and emerging portfolio trends. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the bank's financial condition. The system of identifying and monitoring problem loans and other risk assets and setting up of allowances for probable losses shall include, but is not limited, to the criteria mentioned in Appendix 18 . Allowance for probable losses for loans and other risk assets classified as Sub-standard, Doubtful and Loss as required in the guidelines shall be set up immediately. A. Loans In General SECTION X303. Loan Limit to a Single Borrower . The total liabilities of any person, company, corporation or firm, to a bank for money borrowed, excluding (a) loans secured by obligations of the BSP or of the Philippine Government; (b) loans fully guaranteed by the government as to the payment of principal and interest; (c) loans to the extent covered by the hold-out on or assignment of, deposits maintained in the lending bank and held in the Philippines; (d) loans and acceptances under letters of credit to the extent covered by margin deposits; and (e) other loans or credits which the Monetary Board may, from time to time specify as non-risk assets, shall at no time exceed twenty five percent (25%) of the unimpaired capital and surplus of the bank. The total liabilities of any borrower may amount to a further fifteen percent (15%) of the unimpaired capital and surplus of such bank: Provided , That in the case of KBs, EKBs, RBs and Coop Banks, the additional liabilities are adequately secured by shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable staples, which staples must be fully covered by insurance, and must have a market value equal to at least 125% of such additional liabilities: Provided, further , That in the case of TBs, the additional indebtedness is for the purpose of financing subdivision or housing development, medium and low-income borrowers and agriculture on a fully secured basis. Loan accommodations granted by banks to any other bank, as well as deposits maintained by them in any bank licensed to do business in the Philippines, shall be subject to the loan limit to any single borrower as herein prescribed. Deposits of RBs/Coop Banks with government-owned or controlled financial institutions like the LBP and the DBP shall not be covered by the single borrower's limit (SBL). In municipalities or cities where there is no government bank, the deposits of RBs/Coop Banks in private banks in said areas shall not be subject to the SBL. Deposit in private banks located in other municipalities/cities shall be covered by the SBL. The outstanding balance of the deposit in a private depository bank being used by RBs/ Coop Banks with authority to accept/create demand or current deposits, to fund checks cleared through the said private depository bank shall also be exempt from the SBL even if there is a government-owned or controlled financial institution in the area. However, said deposit shall be limited to the highest debit for the last three (3) months against the demand deposits of the RBs/Coop Banks maintained with the private depository bank concerned. Funds of an RB/Coop Bank, representing proceeds of special time deposits and rediscounting, deposited with any other bank shall be exempted from the SBL. SUBSECTION X303.1 Definition of terms . For purposes of this Section, the following definitions shall apply: a. Liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of the endorser, drawer or guarantor who obtained a loan from or discounts paper with or sells paper under his guaranty to such bank and shall include in the case of liabilities of a co-partnership or association, the liabilities of the several members thereof and shall include in the case of liabilities of a corporation, all liabilities of all subsidiaries thereof in which such corporation owns or controls a majority interest: Provided , That even in cases where the parent corporation, co-partnership or association has no liability to the bank, the liabilities of subsidiary corporations or members of the co-partnership or association shall automatically be combined for purposes of the SBL: Provided, further , That the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed for the purpose of this Item: Provided, finally , That certain types of contingent liabilities of borrowers may be included among total liabilities as may be determined by the Monetary Board. b. Money borrowed shall include the direct liability of the maker or acceptor of paper discounted with or sold to such bank, commercial or business paper actually owned and discounted by the person negotiating the same, which are either past due or renewed at maturity; and bills of exchange which exempt the drawer from liability and hold only the acceptor liable. c Unimpaired capital and surplus shall mean the combined capital accounts as defined under Sec. X106 and Subsec. X121.5. d. Readily marketable nonperishable staples shall mean articles of commerce, agriculture or industry of such uses as to make them the subject of constant dealings in ready markets with such frequent quotations as to make their prices easily and definitely ascertainable, or which lend themselves easily to disposal by sale at any time to pay the obligations secured by the said staples and which are non-perishable in character, and reasonably sure of maintaining their values as security at least for the duration of the obligation secured by the said staples or the use of the draft drawn against them. A staple is not-considered readily marketable if it is imported not for resale, but for the exclusive use of the buyer or the importer such as machinery, equipment and construction materials which are to be used exclusively for the construction of the factory or building belonging to the buyer or importer of the said staple. e. Bill of exchange drawn in good faith against actually existing values shall mean one which is drawn by a seller on the purchaser for the purchase price of commodities sold. A bill of exchange, whether drawn against goods for exports or against goods to be sold locally, which is discounted or purchased by a bank is a bill drawn against existing values only when it is accompanied by shipping documents, warehouse receipts or other papers, securing title to the goods sold. However, bills of exchange drawn in good faith against actually existing values as defined in this paragraph, which are past due or the maturities of which have been extended, shall be considered as additional loans authorized under the second paragraph of this Section and shall be subject to the fifteen percent (15%) limitation provided therein. f Commercial or business paper actually owned by the person negotiating the same shall mean a paper arising from an actual business transaction. A trade acceptance or promissory note actually owned by the person negotiating the same is a commercial or a business paper. However, if a bill is drawn against an agent or fictitious drawee, or if a promissory note is executed by an agent or fictitious drawee, neither is a commercial nor a business paper. Commercial or business papers actually owned and discounted by the person negotiating the same, which are past due or the maturity of which have been extended, shall be considered as money borrowed and shall be subject to the limitation of twenty-five percent (25%) provided in the first paragraph of this Section. SUBSECTION X303.2 Discounted/rediscounted papers included in loan limit . The liabilities to the bank of borrowers whose papers were discounted and/or rediscounted by banks with the BSP or any other institution shall not be deemed as having been extinguished by the discount and/or rediscount, but shall be considered as still existing and shall be included in determining the SBL until such papers are paid by the borrowers. SUBSECTION X303.3 Contingent liabilities included in loan limit . Outstanding foreign and domestic standby and deferred letters of credit less margin deposits; and outstanding guarantees, the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay, shall be included in the determination of the SBL, except those fully secured by cash, hold-out on deposits/deposit substitutes or government securities. SUBSECTION X303.4 Exclusions from loan limit . In addition to those enumerated in Sec. X303, the following loans or liabilities shall be excluded in determining the SBL prescribed under the first paragraph of said Section: a. The discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper which are actually owned by the person, company, corporation or association negotiating the same; b. The unused portion of letters of credit which is issued for the purpose of financing importation of goods; c. Credit accommodations to finance the importation of rice and corn to the extent of 100% of the unimpaired capital and surplus of the bank concerned, subject to the following conditions: (1) The importation shall be made in pursuance of a national policy duly enunciated by the National Government; (2) The importation shall have been approved by the National Economic and Development Authority (NEDA); (3) The letter of credit shall specify that importation shall be trade with certification from the National Food Authority (NFA), or the consular establishment of the Philippine government at the source of any such shipment to the effect that the commodity being imported is either rice or corn; and (4) The related bills of lading shall specify in addition to the name of the importer concerned, that the NFA shall be the consignee of the shipment; d. The portions of the special time deposit loans covered by IGLF guarantee shall be excluded in the determination of the maximum aggregate loans which a bank may grant to a person, company, corporation or firm; e. The total liabilities of a commercial paper issuer for commercial paper held by an EKB as a firm underwriter shall not be counted in determining compliance with the SBL within a period of 180 days from the acquisition of the commercial paper by the EKB: Provided , That in no case shall such liabilities exceed five percent (5%) of the net worth of the EKB beyond the normal applicable SBL; SAaTHc f. Commitments under a committed credit line issued by the bank in favor of a registered commercial paper issuer as provided under Subsec. X348.2 and availments thereon under Subsec. X348.5; and g. The portions of the peso loans covered by guarantees of international/regional institutions where the Philippine Government is a member/shareholder, such as the International Finance Corporation and the Asian Development Bank. SUBSECTION X303.5 Sanctions . Violations of the provisions of the foregoing rules shall be subject to the following: a. Monetary Penalties Fines of one-tenth of one percent (1/10 of 1%) of the excess over the ceiling but not to exceed P30,000 a day for each violation shall be assessed on the bank to be reckoned from the date the excess started up to the date when such excess was eliminated: Provided , That a fine of P100.00 a day for each violation shall be imposed against banks with total resources of less than P50 million at the time of granting of loan/credit accommodation. b. Other Sanctions First Offense Reprimand for the directors/officers who approved the credit line or availment which resulted in the excess with a warning that subsequent violations will be subject to more severe sanctions. Subsequent Offenses (1) Fine of P500.00 a day for directors/officers who approved the credit line or availment which resulted in the excess. (2) Suspension of the bank from branching privileges and availment of BSP rediscounting facilities until the excess is eliminated. SECTION X304. Loan Proceeds . Before granting a loan, banks shall ascertain the purpose of the loan which shall be clearly stated in the contract between the bank and borrower. The proceeds of a loan shall be utilized only for the purpose(s) stated in the loan contract; otherwise, the bank may terminate the loan and demand immediate repayment of the obligation. Notwithstanding the preceding sentence, the proceeds of a loan may be utilized by the borrower for a purpose(s) other than that originally stated in the loan contract: Provided, That such other purpose(s) is/are among those for which the lending bank may grant loans under existing laws and regulations: Provided, further , That such utilization shall be with prior written approval of duly authorized officer(s)/committee/board of directors of the lending bank and such written approval shall form part of the contract between the bank and the borrower. SUBSECTION X304.1 Prohibited use of loan proceeds . Banks are prohibited from requiring their borrowers to acquire shares of stock of the lending bank out of loan proceeds from the same bank. SECTION X305. Interest and Other Charges . The rate of interest, including commissions, premiums, fees and other charges, on any loan, or forbearance of any money, goods or credits regardless of maturity and whether secured or unsecured shall not be subject to any regulatory ceiling. SUBSECTION X305.1 Rate of interest in the absence of stipulation . The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of expressed contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION X305.2 Escalation clause; when allowable . Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board: Provided , That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further , That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. SUBSECTION X305.3 Floating rates of interest . The rate of interest on a floating rate loan during each interest period shall be stated on the basis of Manila Reference Rates (MRRs), T-Bill Rates (TBRs) or other market based reference rates plus a margin as may be agreed upon by the parties. The MRRs for various interest periods shall be determined and announced by the BSP every week and shall be based on the weighted average of the interest rates paid during the immediately preceding week by the ten (10) commercial banks with the highest combined levels of outstanding deposit substitutes and time deposits, on promissory notes issued and time deposits received by such banks, of P100,000 and over per transaction account, with maturities corresponding to the interest periods for which such MRRs are being determined. Such rates and the composition of the sample commercial banks shall be reviewed and determined at the beginning of every calendar semester on the basis of the banks' combined levels of outstanding deposit substitutes and time deposits as of May 31 or November 30, as the case may be. The rate of interest on floating rate loans existing and outstanding as of December 23, 1995 shall continue to be determined on the basis of the MRRs obtained in accordance with the provisions of the rules existing as of January 1, 1989: Provided, however , That the parties to such existing floating rate loan agreements are not precluded from amending or modifying their loan agreements by adopting a floating rate of interest determined on the basis of the TBR or other market based reference rates. Where the loan agreement provides for a floating interest rate, the interest period, which shall be such period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the parties. For the purpose of computing the MRRs, banks shall accomplish the report forms, RS Form 2D and Form 2E (BSP 5-17-34A). SUBSECTION X305.4 Accrual of interest earned on loans . Banks are allowed to accrue interest earned on loans, subject to the following guidelines and/or procedures. a. No accrual of interest income is allowed if a loan has become past due as defined under Sec. X306. Likewise, interest income shall not be accrued for unmatured loans/receivables with indications that collectibility thereof has become doubtful. These indications shall include declaration of bankruptcy, insolvency, cessation of operations, or such other conditions of financial difficulties or inability to meet financial obligations as they mature. Separate appropriate records shall be maintained for these non-accruing unmatured loans. b. Interest earned on extended or renewed loans may be accrued: Provided , That there is no previously accrued but uncollected interest thereon. Interest on restructured loans may be accrued under the following conditions: (1) That the loan is on current status at the time of interest accrual; and (2) That there is no previously-accrued and/or capitalized but uncollected interest on such loan. c. Interest on past due accounts shall be taken up as income only when actual payments thereon are received. d. Accrued interest earned but not yet collected/received shall not be considered as profits and/or earnings eligible for dividend declaration and/or profit sharing. e. A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up if accrued interest receivable on loans and loan installments as set up in Items a and b above is still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due. f. The amount representing Allowance for Uncollected Interest on Loans may be chargeable against the excess of outstanding valuation reserves for loans and other risk assets as appearing in the bank's books over those recommended by the appropriate supervising and examining department of the BSP. The balance thereof, if any, shall be chargeable against operations. g. For all purposes, the A llowance for Uncollected Interest on Loans shall be considered a valuation reserve/allowance against the Accrued Interest Receivable account . SECTION X306. Past Due Accounts . Past due accounts of a bank shall, as a general rule, refer to all accounts in its loan portfolio, all receivable components of trading account securities and other receivables, as defined in the Manual of Accounts for Banks, which are not paid at maturity. SUBSECTION X306.1 Accounts considered past due . The following shall be considered as past due: a. Loans or receivables payable on demand If not paid on the date indicated on the demand letter, or within six (6) months from date of grant, whichever comes earlier; b. Bills discounted and time loans, whether or not representing availments against a credit line If not paid on the respective maturity dates of the promissory notes; c. Customer's liability on drafts under letters of credit/trust receipts: (1) Sight bills If dishonored upon presentment for payment or not paid within thirty (30) days from date of original entry, whichever comes earlier; (2) Usance Bills If dishonored upon presentment for acceptance or not paid on due date, whichever comes earlier; and (3) Trust receipts If not paid on due date; d. Bills and other negotiable instruments purchased If dishonored upon presentment for acceptance/payment or not paid on maturity date, whichever comes earlier: Provided, however , That an out-of-town check and a foreign check shall be considered as past due if outstanding for thirty (30) days and forty-five (45) days respectively, unless earlier dishonored; e. Loans/receivables payable in installments The total outstanding balance thereof shall be considered past due in accordance with the following schedule: Minimum No . of Installments Mode of Payment In Arrears Monthly 6 Quarterly 2 Semestral 1 Annually 1 Provided, however , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan/receivable shall be considered as past due, notwithstanding the number of installments in arrears: Provided, further , That for modes of payment other than those listed above (e.g., daily, weekly, or semi-monthly), the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan receivable balance; f. Credit card receivables If the amount due is not paid within ten (10) days from the deadline indicated in the billing statement; and g. All items in litigation as defined in the Manual of Accounts for Banks . For the purpose of determining delinquency in the payment of obligations as defined in Subsec. X143.1e, any due and unpaid loan installment or portion thereof, from the time the obligor defaults, shall be considered past due. SUBSECTION X306.2 Demand loans . Banks shall, in case of non-payment of a demand loan, make a written demand within six (6) months following the grant of such loan. The demand shall indicate a period of payment which shall not be later than six (6) months from date of said demand. SUBSECTION X306.3 Renewals/extensions . No loan shall be renewed or its maturity date extended unless the corresponding accrued interest receivables shall have been paid. SUBSECTION X306.4 Restructured loans . Restructured loans whose terms of payment have not been complied with, and which have become past due in accordance with this Section, shall be reverted to past due status and classification, in accordance with Sec. X302. SUBSECTION X306.5 Writings-off of loans as bad debts a. Definition of loans and advances . The term loans and advances shall include all types of credit accommodations granted to, and advances made by the bank for the account of the borrower including interest thereon recorded in the books. Only loans and advances that have been past due for six (6) months or more and are justified to be uncollectible may be written-off. b. Frequency of write-off. The frequency of writing-off loans and advances shall be left to the discretion of the board of directors of the bank concerned: Provided, That charge-offs are made against allowance for probable losses (valuation reserves) or against current operations. c. Procedural requirements . Notice/application for write-off of loans and advances shall be submitted to the appropriate supervising and examining department within the periods prescribed in Appendix 6 : Provided , That no loans and advances shall be written-off without the prior approval of: (1) the Monetary Board, in the case of loans and advances to DOSRI, whether direct or indirect; or (2) the head of the appropriate supervising and examining department, in the case of loans and advances other than those mentioned in (1) above with individual outstanding balances of P100,000 or more. SECTION X307. "Truth in Lending Act" Disclosure Requirement . Banks are required to strictly adhere to the provisions of R.A. No. 3765, otherwise known as the "Truth in Lending Act", and shall make the true and effective cost of borrowing an integral part of every loan contract. The following regulations shall apply to all banks engaged in the following types of credit transactions: a. Any loan, mortgage, deed of trust, advance and discount; b. Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; c. Any rental-purchase contract; d. Any contract or arrangement for the hire, bailment, or leasing of property; e. Any option, demand, lien, pledge, or other claim against, or for delivery of, property or money; f. Any purchase, or other acquisition of, or any credit upon security of any obligation or claim arising out of any of the foregoing; and g. Any transaction or series of transactions having a similar purpose or effect. The following categories of credit transactions are outside the scope of these regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor; and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. SUBSECTION X307.1 Definition of terms a. Person means any individual, partnership, corporation, association or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof or any other government, or any of its political subdivisions, or any agency of the foregoing. b. Cash price or delivered price , in case of trade transactions, is the amount of money which would constitute full payment upon delivery of property (except money) or service purchased at the bank's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended (if any). c. Down Payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. d. Trade-in represents the value of an asset agreed upon by the bank and debtor, given at the time of the transaction in partial payment for the property or service purchased. e. Non-finance charges correspond to the amounts advanced by the bank for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. For example, in the case of the purchase of an automobile on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. f. Amounts to be financed consist of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. g. Finance charge represents the amount to be paid by the debtor incident to the extension of credit such as interest or discounts, collection fees, credit investigation fees, attorney's fees and other service charges. The total finance charge represents the difference between (a) the aggregate consideration (down payment plus installments) on the part of the debtor and (b) the sum of the cash price and non-finance charges. h. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed. In the case of a single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: (finance charge) 12 R= x x 100 (amount to be financed) (maturity period in months) In the case of the normal installment type of credit of at least one (1) year in duration, where installment payments of equal amount are made in regular time periods spaced not more than one (1) year apart, the R in percent is computed by the following method: (finance charge) (no. of payments in a Year) R = 2 x x x100 (amount to be financed) (total no. of payments plus one) In case where the credit matures in less than one (1) year (e.g., installment payments are required every month for six (6) months) the same formula will apply except that the number of payments in a year would refer to the number of installment periods, as defined in the credit contract if the credit matures in one (1) year. For example, the number of payments a year would be twelve (12) for this purpose in case where six (6) monthly installment payments are called for in the credit transaction. l SUBSECTION X307.2 Information to be disclosed. Banks shall furnish each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information: a. The cash price or delivered price of the property or service to be acquired; b. The amounts, if any, to be credited as down payment and/or trade-in; c. The difference between the amounts set forth under Items a and b; d. The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; e. The total amount to be financed; f. The finance charges expressed in terms of pesos and centavos; and g. The percentage that the finance charge bears to the total amount to be financed expressed as a single annual rate on the outstanding unpaid balance of the obligation. The contract covering the credit transaction or any other document to be acknowledged and signed by the debtor shall indicate the above seven (7) items of information. In addition, the contract or document shall specify additional charges if any, which will be collected in case certain stipulations in the contract are not met by the debtor. In case any of the seven (7) items of information mentioned is not disclosed in the contract covering the credit transaction, all of the seven (7) items, to the extent applicable, shall be disclosed in another document in a form (Appendix 19) prescribed by the Monetary Board, to be signed by the debtor and appended to the main contract A copy of the disclosure statement shall be furnished by the borrower. SUBSECTION X307.3 Inspection of contracts covering credit transactions . Banks shall keep in their offices or places of business copies of contracts which involve the extension of credit by the bank and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department. SUBSECTION X307.4 Posters . Banks shall post in conspicuous places in their principal place of business and branches, if any, an abstract of the provisions of R.A. No. 3765 in the form prescribed by the Monetary Board (Appendix 20) which shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long. SECTIONS X308-X310 ( Reserved ) B. Secured Loans SECTION X311. Loans Secured by Real Estate Mortgages . Loans against real estate security shall not exceed seventy percent (70%) of the appraised value of the respective real estate security plus seventy percent (70%) of the appraised value of insured improvements, and such loans shall not be made unless title to the real estate is in the mortgagor. SUBSECTION X311.1 Loans secured by junior mortgage on real estate . Banks may also grant loans on the security of junior mortgages on real estate: Provided , That for such loans to be considered as adequately secured under Section 78 of R.A. 337, as amended, the sum total of the loans to be granted and the outstanding balance of the loan granted on the senior mortgage shall not, at any time, exceed the loan value of subject real estate security based on the appraisal of the real estate by the junior mortgagee. A certified latest statement of account showing the outstanding balance of the loan including interest and arrearages, from the senior mortgagee shall be presented to the bank. In case several loans are granted on the security of the same property, the total amount of the loans shall not, at any time, exceed the total loan value of the said property. SUBSECTION 1311.2 (Reserved) SUBSECTION 2311.2 (Reserved) SUBSECTION 3311.2 Eligible real estate collaterals on rural bank/cooperative bank loans . Loans may be granted by RBs/Coop Banks on the security of lands without Torrens Title where the owner of private property can show five (5) years or more of peaceful, continuous and uninterrupted possession in the concept of an owner; or of portions of friar land estates or other lands administered by the Bureau of Lands that are covered by sales contracts and the purchasers have paid at least five (5) years installment thereon, without the necessity of prior approval and consent by the Director of Lands, or of portions of other estates under the administration of the Department of Agrarian Reform (DAR) or other governmental agency which are likewise covered by sales contracts and the purchases have paid at least five (5) years installments thereon, without the necessity of prior approval and consent of the DAR or corresponding governmental agency; or of homesteads or free patent lands pending the issuance of titles but already approved, the provisions of any law or regulations to the contrary notwithstanding: Provided , That when the corresponding titles are issued, the same shall be delivered to the Register of Deeds of the province where such lands are situated for the annotation of the encumbrance: Provided, further , That in the case of lands pending homestead or free patent titles, copies or notices for the presentation of the final proof shall also be furnished the creditor RB/Coop Bank and, if the borrower applicants fail to present the final proof within thirty (30) days from date of notice, the creditor RB/Coop-Bank may do so for them at their expense: Provided, furthermore, That the applicant for homestead or free patent has already made improvements on the land and the loan applied for is to be used for further development of the same or for other productive economic activities: Provided, finally , That the appraisal and verification of the status of a land is a full responsibility of the RB/Coop Bank and any loan granted on any land which shall be found later to be within the forest zones shall be for the sole account of the RB/Coop Bank. SUBSECTION X311.3 Insurance on real estate improvements . The required insurance on improvements used as collateral for loan should be such as shall be sufficient to secure seventy percent (70%) of the appraised value of such improvements or if inadequately insured, the loan value shall correspond to the extent of insurance taken on such improvements. SUBSECTION 1311.4 ( Reserved ) SUBSECTION 2311.4 Foreclosure by thrift banks . The foreclosure of mortgages covering loans granted by TBs and executions of judgment thereon involving real properties levied upon by a sheriff shall be exempt from the publications in newspapers now required by law where the total amount of loan, excluding interests due and unpaid, does not exceed P100,000 or such amount as the Monetary Board may prescribe as may be warranted by prevailing economic conditions and by the nature of service of customers served by each category of the TB. It shall be sufficient publication in such cases if the notices of foreclosure and execution of judgment are posted in the conspicuous area of the TB's premises, municipal building, municipal public market, the barangay hall, and the barangay public market, if there be any, where the land mortgaged is situated within a period of sixty (60) days immediately preceding the public auction of execution of judgment. Proof of publication as required herein shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be attached with the records of the case. A TB shall be allowed to foreclose lands mortgaged to it: Provided , That said lands shall be covered under R.A. No. 6657. SUBSECTION 3311.4 Foreclosure by rural/cooperative banks . The foreclosure of mortgages covering loans granted by RBs/Coop Banks and executions of judgment thereon involving real properties levied upon by a sheriff shall be exempt from the publications in newspapers now required by law where the total amount of loan, excluding interests due and unpaid, does not exceed P100,000 or such amount as the Monetary Board may prescribe as may be warranted by prevailing economic conditions. It shall be sufficient publication in such cases if the notices of foreclosure and execution of judgment are posted in the conspicuous area of the municipal building, the municipal public market, the barangay hall, and the barangay public market, if any, where the land mortgaged is situated during the period of sixty (60) days immediately preceding the public auction of execution of judgment. Proof of publication as required herein shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be attached with the records of the case: Provided , That when a homestead or free patent is foreclosed, the homesteader or free patent holder, as well as his heirs shall have the right to redeem the same within one (1) year from the date of foreclosure in the case of land not covered by a Torrens Title one (1) year from the date of the registration of the foreclosure in the case of land covered by a Torrens Title. An RB/Coop Bank shall be allowed to foreclose lands mortgaged to it: Provided , that said lands shall be covered under R.A. No. 6657. SUBSECTION X311.5 Redemption of foreclosed real estate mortgage . In the event of foreclosure, whether judicially or extrajudicially, of any real estate mortgage, the mortgagor or debtor shall within one (1) year after the sale of the real estate as a result of the foreclosure sale, may redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest and all the costs and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with the law. SECTION X312. Loans Secured by Chattels . Loans on the security of chattels shall not exceed fifty percent (50%) of the appraised value of the security, and such loans shall not be made unless title to the chattels, free from encumbrances, shall be in the mortgagor. SECTION X313. Loans Secured by Personal Properties . Loans may be secured by unencumbered personal property which may consist of: a. Bonds and securities issued by the Government. Such bonds and securities may be accepted at their face value; b. Stocks and other securities issued by reputable commercial, industrial and other private companies, or entities engaged in non-speculative business, up to fifty percent (50%) of their market value; c. Expected harvest from the project to be financed or growing crops, up to forty percent (40%) of the calculated market value of the crop for which the loan is sought, based on previous production records or, in the absence thereof, on production in the locality of similar plantations; d. Quedans or warehouse receipts issued by bonded warehouses covering stock deposited in said warehouses up to eighty percent (80%) of the calculated market value of the crop for which the loan is sought; and e. Any other personal property, up to fifty percent (50%) of the fair market value. If the property is newly purchased and the purchase price thereof appears in a bill of sale, then the above percentage shall be based on the price of the said bill of sale. SECTION X314. Increased Loan Values and Terms of Loans for Home-Building . Loans for home-building and subdivision development for low and middle-income families against real estate security may be granted up to eighty percent (80%) of the appraised value of the real estate security: Provided , That: a. Such loans shall not be made unless the title to the real estate security is in the name of the borrower or mortgagor; and b. The subdivision/housing project or plan has been approved by the proper authorities: Provided, further, That the loans may be increased to ninety percent (90%) of the appraised value of the real estate security if such loans are fully guaranteed by the appropriate government agency, in addition to the foregoing conditions. SECTION X315. Loans Secured by Certificates of Time Deposit . The following rules shall govern the grant of loans secured by hold-out on and/or assignment of CTDs issued by the lending bank, as well as its branches or subsidiaries abroad: a. The original copy of the CTDs subject to hold-out or assignment shall be surrendered to the lending bank; b. The depository bank, other than the lending bank, shall be furnished a copy of the Deed of Assignment or hold-out agreement on the deposit used as collateral; c. If the term of the CTDs subject to hold-out or assignment is shorter than the term of the loan, there shall be an agreement in writing that renewal of the time deposit upon maturity shall be made at least co-terminus with the term of the loan; d. There shall be no pretermination of the time deposit without the consent of the lending bank and unless an acceptable substitute collateral for the loan has been made; e. The lending bank shall keep a complete record of all pertinent loan documents, such as, but not limited to, the original copy of the CTDs subject to assignment or hold-out agreement; deed of assignment or hold-out agreement; and written waiver of the depositor required in Item f below, which shall be made available for inspection and/or examination by the appropriate supervising and examining department of the BSP; and f. The loan documents shall include a waiver on the part of the depositor of his rights under existing law to the confidentiality of his deposits. SECTIONS X316-X318 ( Reserved ) C. Unsecured Loans SECTION X319. Loans Against Personal Security . The following regulations shall govern credit accommodations against personal security granted by banks. SUBSECTION X319.1 General guidelines . Before granting credit accommodations against personal security, banks must exercise proper caution by ascertaining that the borrowers co-makers, endorsers, sureties and/or guarantors possess good credit standing and are financially capable of fulfilling their commitments to the bank. For this purpose, banks shall keep records containing information on the credit standing and financial capacity of credit applicants. SUBSECTION X319.2 Proof of financial capacity of borrower . In addition to the usual personal information sheet about the borrower, banks shall require that an application for a credit accommodation against personal security be accompanied by: a. A copy of the latest income tax returns of the borrower and his co-maker duly stamped as received by the BIR; and b. If the credit accommodation exceeds P500,000, a copy of the borrower's balance sheet duly certified by an independent Certified Public Accountant (CPA), and in case he is engaged in business, also a copy of the profit and loss statement duly certified by a CPA. The above documents shall be required to be submitted annually for as long as the credit accommodation is outstanding. SUBSECTION X319.3 Amounts and terms of credit accommodations; renewals . Banks shall grant credit accommodation against personal security only in the amounts and for the period of time essential for the completion of the operation to be financed. The amount and period of the loan shall be justified by the financial statements submitted or by specific feasibility/project studies for a particular operation to be financed by the load applied for. Any extension or renewal of such credit accommodations shall be subject to the provisions of Subsec. X306.3 on renewals. SUBSECTION X319.4 Signatories . Banks shall require that credit accommodations against personal security be made under the signature of the principal borrower and at least one (1) co-maker except in the case of a principal borrower whose responsibility and financial capacity are unquestionable in which case the signature of the borrower shall suffice. SUBSECTION X319.5 Collateral requirements . When circumstances so warrant, banks may require applicants for credit accommodations against personal security to furnish collaterals, without subjecting such collaterals to the maximum loan values prescribed under the first and second paragraphs of Section 78 of R.A. No. 337, as amended. Such credit accommodations shall continue to be subject to the provisions of this Section. SUBSECTION X319.6 Sanctions . Any violation of the provisions of this Section shall be subject to any or both of the following sanctions: a. Disqualification of the bank concerned from the credit facilities of the BSP; and b. Prohibition on the bank concerned from the extension of additional credit accommodation against personal security. SECTIONS X320-X321 (Reserved) D. Restructured Loans SECTION X322. Restructured Loans; General Policy . Banks shall have full discretion in the restructuring of loans in order to provide flexibility in arranging the repayment of such loans without impairing or endangering the lending bank's financial interest, except in special cases approved by the Monetary Board such as loans funded by foreign currency obligations. However, the restructuring of loans granted to DOSRI should be upon terms not less favorable to the bank than those offered to others. While agreements on loan restructuring should be considered as management tools to maintain or improve the soundness of the bank's lending operations, these should be drawn mainly to assist borrowers towards the settlement of their obligations, taking into account their capacity to pay. SUBSECTION X322.1 Definition . Restructured loans are loans the principal terms and conditions of which have been modified in accordance with a restructuring agreement setting forth a new plan of payment or a schedule of payment on a periodic basis. The modification may include, but is not limited to, change in maturity, interest rate, collateral or increase in the face amount of the debt resulting from the capitalization of accrued interest/accumulated charges. Items in litigation and loans subject of judicially approved compromise, as well as those covered by petitions for suspension or for new plans of payment approved by the court or the SEC, shall not be classified as restructured loans. SUBSECTION X322.2 Procedural requirements . A loan may be restructured, subject to the approval of the bank's board of directors in a resolution which shall embody, among other things: (a) the basis of or justification for the approval; (b) determination of the borrower's capacity to pay, such as viability of the business; and (c) the nature and extent of protection of the bank's exposure. The authority to approve the restructuring of loans may be delegated by the bank's board of directors to a committee or officer(s): Provided , That there are board-prescribed guidelines specifically on restructuring of loans: Provided, further , That said guidelines shall be submitted to the appropriate supervising and examining department of the BSP within thirty (30) days following the date of approval thereof. However, loans previously approved by the executive committee as well as those granted to DOSRI shall be subject to approval by the board as provided under existing rules and regulations. Loans restructured other than those approved by the board shall be reported to it for confirmation. SUBSECTION X322.3 Restructured loans considered past due . Restructured loans shall be considered past due in accordance with Sec. X306 and shall be subject to classification in accordance with Sec. X302. SECTIONS X323 - X325 ( Reserved ) E. Loans and Other Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION X326. General Policy . Dealings of a bank with any of its DOSRI should be in the regular course of business and upon terms not less favorable to the bank than those offered to others. SUBSECTION X326.1 Definitions . For purposes of these regulations, the following definitions shall apply: a. Directors shall refer to the bank directors as defined in Subsec. X141.1. b. Officers shall refer to bank officers as defined in Subsec. X142.1. c. Stockholders shall refer to (i) any stockholder of record in the books of the bank, acting personally, or through an attorney-in-fact, executor, as administrator or guardian of a minor, incompetent and./or deceased stockholder or through a trustee designated by one (1) or more stockholders pursuant to a voting trust agreement, whose stockholdings in the lending bank, individually and/or together with his spouse or relative within the first degree of consanguinity or affinity or relative by legal adoption; (ii) a partnership in which the stockholder or his spouse or any of his relatives mentioned above is a general partner; and (iii) a co-owner with the stockholder or the stockholder's spouse or relative mentioned above of a property/right/interest referred to in Sec. X329b(3), amounting to two percent (2%) or more of the total subscribed capital stock of the bank. d. Outstanding deposits shall refer to savings, time and demand deposits which are not subject to an assignment or hold-out agreement. e. Book value of the paid-in capital contribution shall mean the proportional amount of the bank's total capital account (net of such unbooked valuation reserves and other capital adjustments as may be required by the BSP) as the corresponding paid-in capital contribution of each director, officer or stockholder concerned bears to the total paid-in capital of the bank: Provided , That as a basis for determining the individual ceiling referred to in Sec. X330, the corresponding book value of the shares of stock of such director, officer, or stockholder which are the subject of pledge, assignment or any other encumbrance shall be deducted therefrom. f. Total capital accounts of a Philippine branch of a foreign bank shall refer to the total capital accounts as defined under Subsec. X121.5. g. Total loan portfolio shall refer to the sum all loan accounts outstanding, gross of valuation reserves, as reflected in the bank's consolidated statement of condition, excluding loans financed by special/specific funds from the government financial institutions to the extent of the total outstanding loans granted from said special/specific funds. h. Secured loan, borrowing or credit accommodation shall refer to: (1) Any loan, discount, credit or advance or portion thereof referred to in Sec. X327 which is secured by real estate mortgage; chattel mortgage on tangible assets; standby letter of credit issued by foreign banks excluding Philippine branches of foreign banks; assignment of, or hold-out on, deposits or deposit substitutes maintained in the lending bank; cash margin deposit; or assignment or pledge of government securities or readily marketable bonds and other high-grade debt securities except those issued by the lending entity; (2) Customer's liability under import bills outstanding for more than thirty (30) days from date of original entry; (3) Sales contract receivables arising from sale of real property on credit where title to the property is retained by the bank; and (4) Customer's liability-import bills under trust receipts outstanding for not more than thirty (30) days from date of booking: Provided, That the booking under trust receipts shall have been made not later than the thirty-first day from the date of original entry referred to in Sub-item (2) above. i. Unsecured loan, borrowing or credit accommodation shall refer to any loan, discount, credit or advance or portion thereof referred in Sec. X327 which is not secured in accordance with Item h above. SECTION X327. Transactions Covered . The terms loan, borrow, money borrowed and credit accommodations as used herein shall refer to transactions which involve the grant, renewal or extension or increase of any loan, discount, credit or advance in any form whatsoever, and shall include: a. Any advance by means of an incidental or temporary overdraft, cash item, "vale", etc.; b. Outstanding availments under an established credit line; c. Drawings against an existing letter of credit; d. The acquisition of discount, purchase, exchange or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which a director, officer, or stockholder may be liable as a maker, drawer, acceptor, endorser, guarantor or surety; e. Any advance of unearned salary or other unearned compensation for periods in excess of thirty (30) days; f. Loans or other credit accommodations granted by another financial intermediary to such director, officer or stockholder from funds of the bank invested in the other institution's trust or other department when there is a clear relationship between the transactions; g. Any advance by means of DAUDs; h. The increase of an existing indebtedness, as well as additional availments under a credit line or additional drawings against a letter of credit; i. The sale of assets, such as shares of stock, on credit; and j. Any other transactions as a result of which a director, officer or stockholder becomes obligated or may become obligated to the lending bank, directly or indirectly, by any means whatsoever to pay money or its equivalent such as standby and deferred letters of credit. SECTION X328. Transactions Not Covered . The terms loans, borrow, money borrowed or credit accommodations as used herein shall not refer to the following: a. Advances against accrued compensation, or for the purpose of providing payment of authorized travel, legitimate expenses or other transactions for the account of the bank or for utilization of maternity and other leave credits; b. The increase in the amount of outstanding credit accommodations as a result of additional charges or advances made by the bank to protect its interest such as taxes, insurance, etc.; c. The discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, including, but not limited to, the acquisition by a domestic bank of export bills from any of its DOSRI which are drawn in accordance with the terms and conditions of the covering letters of credit: Provided , That the transaction shall automatically be subject to the ceilings as herein provided once the DOSRI who is a party to the transaction becomes directly liable to the bank; d. Transactions with a foreign bank which has stockholdings in the local bank where the foreign bank acts as guarantor through the issuance of letters of credit or assignment of a deposit in a currency eligible as part of the international reserves and held in a bank in the Philippines to secure credit accommodations granted to another person or entity: Provided , That the foreign bank stockholder shall automatically be subject to the ceilings as herein provided in the event that its contingent liability as guarantor becomes a real liability; and e. Deposits of bank with another bank, whether domestic or foreign, which has stockholdings in the depositing bank. SUBSECTION X328.1 Applicability to credit card operations . The credit card operations of banks shall not be subject to these regulations where the credit cardholder is a director, officer or stockholder of the bank: Provided , That (a) the privilege of becoming a credit cardholder is open to all qualified persons on the basis of selective criteria which are applied by the bank to all applicants thereof; and (b) the bank director, officer or stockholder concerned reimburses the bank for advances made on availments on his credit card within a period of thirty (30) days from the date the bank made such advances. However, if the director, officer or stockholder concerned fails to reimburse the bank within the thirty (30) day period mentioned herein, the transaction shall be subject to the applicable requirements of these regulations. SECTION X329. Direct or Indirect Borrowings . For purposes of these rules on loans and other credit accommodations to DOSRI, a credit accommodation shall be considered a direct or indirect borrowing in accordance with the following criteria: a. Direct borrowing . If the director, officer or stockholder of the lending bank is a party to any of the transactions enumerated in Sec. X327 for himself, or as the representative or agent of others, or if he acts as a guarantor, endorser or surety for loans from the bank, or if the loan or credit accommodation to another party is secured by a property interest or right of the director, officer or stockholder. b. Indirect borrowing . If in any of the transactions in Sec. X327 the borrower, guarantor, endorser or surety is a: (1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or stockholder of the bank; (2) Partnership of which a director, officer, or stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, is a general partner; (3) Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner's undivided interest; (4) Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director or officer of such corporation, association or firm, except (a) where the securities of such corporation, association or firm are listed and traded in the big board or commercial and industrial board of domestic stock exchanges and less than fifty percent (50%) of the voting stock thereof is owned by any one person or by persons related to each other within the third degree of consanguinity or affinity; or (b) where the director, officer or stockholder of the bank sits as a representative of the bank in the board of directors of such corporation: Provided, That the bank representative shall not have any equity interest in the borrower corporation except for the minimum shares required by law, rules and regulations, or by the by-laws of the corporation: Provided, further , That the borrowing corporation under Item a or b is not among those mentioned in Items b(5) and b(6) of this Section; HDCAaS (5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or their spouses or relatives within the first degree of consanguinity or affinity, or relative by legal adoption, hold/own more than twenty percent (20%) of the subscribed capital of such corporation, or of the equity of such association or firm; or (6) Corporation, association or firm wholly or majority-owned or controlled by any related entity or a group of related entities mentioned in Items b(2), b(4) and b(5) of this Section. Other cases of direct/indirect borrowing shall be resolved on a case-to-case basis. It shall be the responsibility of the bank concerned to ascertain whether the borrower, guarantor, endorser or surety is related to persons mentioned in Item b(1) of this Section or connected with any of the directors, officers or stockholders of the bank in any of the capacities mentioned in Items b(2), b(3), b(4), b(5) and b(6) of this Section. In determining indirect borrowings, as enumerated above, only those cases involving living relatives shall be considered. SECTION X330. Individual Ceilings . The total outstanding direct credit accommodations to each of the bank's directors or officers or stockholders shall not exceed, at any time, an amount equivalent to the unencumbered portion of his outstanding deposits and book value of his paid-in capital contribution in the lending bank: Provided, That unsecured credit accommodations to each of the bank's directors, officer or stockholder shall not exceed thirty percent (30%) of his total credit accommodations: Provided, further , That in the case of Coop Banks, unsecured credit accommodation to each of the bank's stockholders shall not be subject to the thirty percent (30%) ceiling. SECTION X331. Aggregate Ceiling; Ceiling on Unsecured Loans . Except with the prior approval of the Monetary Board, the total outstanding borrowings of directors, officers or stockholders, whether direct or indirect, shall not exceed fifteen percent (15%) of the total loan portfolio of the bank or 100% of combined capital accounts as defined in Sec. X106 and Subsec. X121.5 in the case of branches of foreign banks, whichever is lower: Provided , That in no case shall the total unsecured direct and indirect borrowings of directors, officers and stockholders exceed thirty percent (30%) of the aggregate ceiling or the outstanding direct/indirect loans thereto, whichever is lower. For the purpose of determining compliance with the ceiling on unsecured loans, banks shall be allowed to average their ceiling on unsecured loans and their outstanding unsecured loans every week. In evaluating requests for extension of loans in excess of the aggregate ceiling, the BSP shall consider the credit standing of the borrower, viability of the projects financed by such loans in relation to national objectives, collateral or security and other pertinent considerations. The ceilings provided in this Section shall not apply to unsecured loan accommodations granted by Coop Banks to their shareholders. SECTION X332. Exclusions from Aggregate Ceiling . The following credit accommodations shall be excluded in determining compliance with the aggregate ceiling. a. Credit accommodations or portions thereof to the extent covered by a hold-out on deposit or deposit substitutes in the lending bank, or covered by cash margin deposits or secured by evidences of indebtedness of the Republic of the Philippines or of the BSP or by the other evidences of indebtedness or which are fully guaranteed by the Republic of the Philippines. b. Credit accommodations to a corporate stockholder which meets all the following conditions: (1) The corporation is a non-financial institution; (2) Its shares are listed and traded in the domestic stock exchanges; (3) Its stockholdings in the lending bank do not exceed thirty percent (30%) of the voting stock of the bank; and (4) No person or group of persons related within the first degree of consanguinity or affinity holds/owns more than twenty percent (20%) of the subscribed capital of the corporation. c. Credit accommodations to government-owned or controlled corporations, in cases where a director, officer or stockholder of the lending bank is a representative of the government in the borrowing corporation and does not hold any proprietary interest in such corporation: Provided , That other rules on loans to DOSRI, such as procedural and reportorial requirements under Section 83 of R.A. No. 337, as amended, are followed. SECTION X333. Applicability to Branches and Subsidiaries of Foreign Banks . The individual and aggregate ceilings, as well as ceilings on unsecured loans prescribed herein, shall also apply to a Philippine branch or subsidiary of a foreign bank. SECTION X334. Procedural Requirements . The following provisions shall apply if a director or officer is a party, directly or indirectly, to, or acts as representative or agent of others in, any of the transactions enumerated under Sec. X327. a. Approval of the board, when to obtain . Except with prior written approval of the majority of the directors, excluding the director concerned, no loan or other credit accommodation shall be granted nor shall any of the transactions enumerated under Sec. X327 be entered into. b. Approval by the board, how manifested . The approval shall be manifested in a resolution passed by the board of directors duly assembled during a regular or special meeting for that purpose and made of record. c. Determination of majority of the directors . The determination of the majority of the directors, excluding the director concerned, shall be based on the total number of directors of the bank as provided in its articles of incorporation and by-laws. d. Contents of the resolution . The resolution of the board of directors shall contain the following information: (1) Name of the director or officer concerned and his relationship as regards the credit accommodation, such as principal, endorser, spouse of borrower, etc.; (2) Nature of the Loan or other credit accommodation, purpose, amount, credit basis for such loan or credit accommodation, security and appraisal thereof, maturity, interest rate, schedule of repayment and other terms of the loan or credit accommodation; (3) Date of resolution; (4) Names of the directors who were present and who participated in the deliberations of the meeting; (5) Names in print and signatures of the directors approving the resolution: Provided, That the corporate secretary may sign, under a power-of-attorney, in behalf of a director who was present in the board meeting and who approved such resolution, in instances where such signature is necessary to indicate that such resolution was approved by majority of the directors; and (6) Such other information as may be required by the appropriate supervising and examining department of the BSP. e. Transmittal of copy of board approval; contents thereof. A copy of the written approval of the board of directors, as herein required, shall be submitted to the appropriate supervising and examining department of the BSP within twenty (20) banking days from the date of approval. The copy may be a duplicate of the original, or a reproduction copy showing clearly the signatures of the approving directors: Provided , That if a reproduction copy is to be submitted, it shall contain on its face or reverse side a signed certification by the secretary that it is a reproduction of the original written approval. SECTION X335. Reportorial Requirements . Banks shall maintain a record of loans covered by these regulations in a manner and form that will facilitate verification of such transactions by BSP examiners. The appropriate supervising and examining department may require banks to furnish such data or information as may be necessary for purposes of implementing the provisions of the foregoing rules. SECTION X336. Availment of Credit Facility with the Bangko Sentral . Whenever the total direct accommodations of a bank to the parties mentioned in Item a of Sec. X329 reach fifty percent (50%) of the prescribed aggregate ceiling and the bank is applying for a loan or advance with the BSP, the Monetary Board may, upon the recommendation of the appropriate supervising and examining department, require as a condition for the extension of the credit facility, the designation of a comptroller in the bank primarily ,'or the purpose of bringing about the reduction of such accommodations. SECTION X337. Sanctions . Any violation of the provisions of the foregoing rules shall be subject to any or all of the following sanctions: a. Restriction or prohibition on the bank from declaring dividends until the outstanding loans and other credit accommodations have been reduced to within the herein prescribed ceilings; b. Disqualification of the directors voting for the approval of the loan or credit in excess of any of the ceilings prescribed in Secs. X330 and X331, from participating in the approval of loans or credit to officers, directors and stockholders of the bank: Provided, however , That the disqualification may be lifted by the BSP as the circumstances may warrant; c. Application of (1) the borrowing director's or officer's share in the bank's profit sharing program; and (2) the share of the director voting for the approval of the loan or credit accommodation, against the excess of such loan or credit accommodation over any of the herein prescribed ceilings for such period of time as may be approved by the Monetary Board; and d. For the duration of each violation, imposition of a fine of one-tenth of one percent (1/10 of 1%) of the excess over the ceilings per day but not to exceed P30,000 a day on the following: (1) The lending bank and the director, officer or stockholder whose borrowing exceeds his individual ceiling; and (2) Each of the directors voting for the approval of the loan or credit accommodation in excess of any of the ceilings prescribed in Secs. X330 and X331. The penalty for exceeding the individual ceilings, aggregate ceiling and ceiling on unsecured loans shall be computed on the average amount of loans in excess of said ceilings during the same week. SECTION X338. Waiver of Secrecy of Deposits . Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: a. his bank; or b. from a bank (1) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries or (2) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. Any information obtained from an examination of his deposits shall be held strictly confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the BSP in an appropriate legal action it has initiated involving the deposit account. SECTION X339. Financial Assistance to Officers and Employees . Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet the housing, transportation, household and personal needs of their officers and employees. SUBSECTION X339.1 Mechanics . The mechanics of such financing plan shall have the following minimum features: a. Participation shall be limited to full-time and permanent officers and employees of the bank; b. Financial assistance shall only be for the following purposes: (1) The acquisition of a residential house and lot, or the construction, renovation or repair of a residential house on a lot owned and to be occupied by the officer or employee; (2) The acquisition of vehicles, household equipment and appliances for the personal use of the officer or employee or his immediate family; or (3) To meet expenses for the medical, maternity, education, emergency and other personal needs of the officer or employee or his immediate family; ACSaHc c. Financial assistance for purposes mentioned in Items b(1) and b(2) of this Subsection shall be granted in the form of a loan, advance or credit accommodation, installment sale, lease with option to purchase or lease-purchase arrangement where the lessee is obliged to purchase the real estate or equipment; d. The amount and maturity of financial assistance for each purpose shall be determined by the bank in consonance with the normal requirements thereof: Provided , That the maximum amount shall be stated as percentage or multiple of the total monthly compensation of the officer or employee and shall be within the paying capacity of the borrowing officer or employee. Total monthly compensation shall include the basic salary and all fixed and regular monthly allowances of the officer or employee. Payments for sickness benefits and other special emoluments which are not fixed or regular in nature, or the commutation into cash of unused leave credits shall not be included in the computation of total monthly compensation; e. The amortization payment shall include amounts necessary to cover mortgage redemption insurance and fire insurance premiums, taxes, special assessments, and other related fees and charges; f. Availment of the financing plan to construct or acquire a residential house and lot shall be allowed only once during the officer's or employee's tenure with the bank, except where the right over the real estate previously acquired or constructed under the financing plan is absolutely transferred or assigned to another officer or employee of the bank or to a third party: Provided , That such third party shall have fully reimbursed the bank for the outstanding availment on the financing plan before the officer/employee is allowed to re-avail himself of the same financing plan. An officer or employee (or his spouse) who already owns a residential house and lot shall not be qualified to avail himself of financial assistance for purposes of acquiring a residential house and/or lot. These prohibitions notwithstanding, financial assistance for the repair or renovation of a residential house may be allowed, subject to such limitation as may be prescribed by the bank pursuant to Item d of this Subsection; g. Availment of the financing plan for the acquisition of a specific type of equipment or appliance shall be allowed not oftener than once every three (3) years: Provided, That re-availment shall be allowed only after previous obligations in connection with the acquisition of the same type of equipment or appliances have been fully liquidated; and h. The bank shall adopt measures to protect itself from losses such as by incorporating in the plan or contract provisions requiring co-makers or co-signor, chattel or real estate mortgages, fire insurance, mortgage redemption insurance, assignment of money value of leave credits, pension or retirement benefits, including a provision for the restructuring of the loan under the bank's regular lending operations in case of termination or separation of the officer or employee for whatever cause. SUBSECTION 1339.2 Funding by foreign banks . In the case of local branches of foreign banks, financial assistance for their officers and employees may be funded, through any of the following means: a. Through a local affiliate by special arrangement with the head office abroad in any of the following forms: (1) Inward remittance from the head office of the affiliate; or (2) Assignment to the affiliate or equivalent amounts of profits otherwise remittable abroad under existing regulations; or (3) Direct loans by the foreign bank to the affiliate; or b. Through the local branch itself by: (1) Segregation or transfer of undivided profits normally remitted to the head office abroad equivalent to the loans to officers and employees which shall be lodged under "Other Liabilities-Head Office" accounts. This account shall at all times have a balance equivalent to the outstanding loans to officers/employees financed under this scheme; or (2) Inward remittance; or c. Through the local branch from local sources without earmarking an equivalent amount of undivided profits: Provided , That the aggregate ceilings on such loans as provided under existing regulations shall apply. Loans under Items b(1) and b(2) of this Subsection shall be treated in the branch books as loans granted by its head office. The documentation and collection of such loans shall be handled by the branch for the account of the head office. Loans financed under Items a and b shall be subject to the reporting requirements of Sec. X335 put not to the ceilings provided under Sec. X330 and X331. The same shall be excluded from the computation of the capital-to-risk assets ratio. SUBSECTION 2339.2 ( Reserved ) SUBSECTION 3339.2 ( Reserved ) SUBSECTION X339.3 Other conditions/limitations a. The investment by a bank in real estate, equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment of the bank in real estate and equipment for purposes of Section 25 of R.A. No. 337, as amended. b. The investment by a bank in real estate, equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank. c. All loans or credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 83 of R.A. No. 337, as amended and Secs. X326 to X336 but not to the individual ceilings where such loans or credit accommodations are obtained under the bank's fringe benefits program. The aggregate outstanding loans and credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio. SUBSECTION X339.4 Reportorial requirements . Financing plans and amendments thereto shall be submitted to BSP within thirty (30) calendar days from approval thereof by the bank's board of directors. The appropriate supervising and examining department of the BSP may require the banks concerned to submit a regular report monitoring the various transactions under the bank's financing plans for officers/employees. All banks providing financial assistance to bank officer/employees shall submit a report on "Availments of Financial Assistance to officers and Employees" to the BSP with in fifteen (15) banking days after end of reference semester. SECTION X340. ( Reserved ) F. Mandatory Credits SECTION X341. Agrarian Reform and Agricultural Credit . Pursuant to P.D. No. 717, the following guidelines shall govern the grant of agrarian reform credit and agricultural credit by banks, government or private. SUBSECTION X341.1 Definition of terms . For purposes of this Subsection, the following definitions shall apply: a. Loanable funds shall refer to total funds generated after the effectivity of P.D. No. 717, the computation of which is described in Subsec. X341.4. b. Agrarian reform credit shall refer to production and other types of loans granted to beneficiaries of agrarian reform for the following purposes: acquisition of work animals, farm equipment and machinery, seeds, fertilizers, poultry, livestock, feeds and other similar items; acquisition of lands authorized under existing laws; construction and/or acquisition of facilities for production, processing, storage and marketing; and efficient and effective merchandising of agricultural commodities stored and/or processed by the facilities aforecited in domestic and foreign commerce. c. Agricultural credit in general shall include all loans and/or advances granted to borrowers, whether beneficiaries of agrarian reform or not, to finance activities relating to agriculture, and for processing, marketing, storage, and distribution of products resulting from these activities. d. Agrarian reform beneficiaries shall include tillers, tenant-farmers, settlers, agricultural lessees, amortizing owners, owner-cultivators, farmers' cooperatives and compact farms, as determined by the DAR. The term shall likewise include agricultural enterprises registered under P.D. No. 1159 as well as projects undertaken pursuant to the Corporate Farming Program under General Order (G.O) No. 47: Provided , That the borrower submits the following documents to the lending bank: (1) A certification from the Board of Investments to the effect that the borrower is an agricultural enterprise duly registered under P.D. No. 1159; and (2) An endorsement of the DAR stating that land reform beneficiaries shall benefit from the agricultural enterprises' projects. SUBSECTION X341.2 Who may borrow; purposes a. All beneficiaries of agrarian reform credit mentioned under P.D. No. 717 and its implementing regulations which credit shall be used for agricultural production or for other purposes mentioned therein shall be qualified borrowers under agrarian reform credit. b. Qualified borrowers under agricultural credit in general are corporations, entities, or private individuals engaged in agricultural production, processing, storage, marketing, or exportation of agricultural products, and importation/manufacture/distribution of farm machineries and equipment, fertilizers, etc. used for agricultural production. SUBSECTION X341.3 Required allocation for agrarian reform and agricultural credit in general . Banks shall set aside an amount equivalent to at least twenty-five percent (25%) of their loanable funds for agricultural credit in general, of which an amount equivalent to at least ten percent (10%) of the loanable funds shall be made available for agrarian reform credit. a. Marketing credits considered as agrarian reform credits . (1) Agrarian reform beneficiaries as defined by P.D. No. 717; (2) Registered agricultural enterprises duly endorsed by the nearest office of the DAR per P.D. No. 1159; (3) G.O. No. 47 corporations or agro-service corporations employed by G.O. No. 47 corporation which are certified by the DAR as engaged in grains production through linkage arrangements with agrarian reform beneficiaries; (4) Area marketing cooperatives or Samahang Nayon duly registered with the Cooperative Development Authority (CDA); (5) Registered agrarian reform beneficiaries' associations/other farm groups respectively endorsed as agrarian reform beneficiaries by the nearest office of the DAR; CDA; or the Farm Systems Development Corporation (FSDC), National Irrigation Administration (NIA); or (6) NFA-registered warehousemen/millers/wholesalers whose grains inventory, subject to a chattel mortgage, trust receipts or pledged quedan, are duly sworn to under oath by grains businessmen-borrowers concurred by the President of the Agrarian Reform Beneficiaries Association in the area as having been produced by agrarian reform beneficiaries; and (7) The NFA: Provided, That the palay procurement operations thereof are certified by the DAR as having been obtained through direct/indirect linkage arrangements with agrarian reform beneficiaries, subject to such ceilings as may be imposed by the BSP/Department of Finance on the loans/advances to the NFA by banks; b. Development loan incentives . Loans extended by banks incorporated under the laws of the Philippines, whether Philippine or foreign-owned, to finance educational institutions, cooperatives, hospitals and other medical services, socialized or low-cost housing and to local government units without national government guarantee, shall be included for purposes of determining compliance with the provisions of P. D. No. 717, as amended. This provision shall, however, not apply to branches of foreign banks. c. Loans for high-value crops projects . Pursuant to Sec. 8 of R.A. No. 7900, a bank participating in the High-Value Crops Development Program that shall lend a minimum of five percent (5%) of its loanable funds, without alternative compliance, directly to farmers' associations or cooperatives for high-value crops projects shall be exempted from, or shall be deemed to have complied with, the requirement of P.D. No. 717. For purposes of this item, high value crops projects shall refer to the production, processing, marketing and distribution of crops other than traditional crops which include, but are not limited to: coffee and cacao, fruit crops (citrus, cashew, guyabano, papaya, mango, pineapple, strawberry, jackfruit, rambutan, durian, mangosteen, guava, lanzones, and watermelon), root crops (potato and ubi), vegetable crops (asparagus, broccoli, cabbage, celery, carrots, cauliflower, radish, tomato, bell pepper, patola) legume, pole sitao (snap beans and garden pea), spices and condiments (black pepper, garlic, ginger and onion), and cutflower and ornamental foliage plants (chrysanthemum, gladiolus, anthuriums, orchids and statice). SUBSECTION X341.4 Computation of loanable funds . Loanable funds shall be: a. The net increase from May 29, 1975 to date of the report of the individual accounts which represent the following: (1) The total deposits (demand, savings, time and NOW accounts) excluding foreign currency deposits under Circular No. 1389; (2) Deposits of banks, net of due from other banks; (3) Bills payable (including borrowings from banks) net of: (a) Repurchase agreement by accredited government securities dealers if relent to banks; (b) Interbank call loans with maturities not exceeding fifteen (15) days; (c) Proceeds from special on-lending programs like the APEX; (d) Proceeds from BSP rediscounting (except special time deposits); and (e) Proceeds from special BSP credit accommodations in the form of emergency advances, overnight repurchase agreements and availment of overdraft facilities. (4) Total capital accounts. b. Total collections from the loan portfolio outstanding as of May 31, 1975 to date of the report; and c. The sum of Items a and b above, less the net increase of the following: (1) Bank premises, furniture and equipment (net book value); (2) Real and other property owned or acquired (representing properties acquired in satisfaction of debts); (3) Other assets; (4) Required reserves against: (a) deposit liabilities, (b) deposit substitutes, (c) others (excluding reserves for margin deposits); (5) Provisions for liquidity (fifteen percent (15%) of total deposits and demand liabilities); and (6) Loans to export-oriented small and medium-scale industries involving accounts not exceeding P1 million. SUBSECTION X341.5 Allowable alternative investment . In the absence of qualified borrowers, the following shall apply: a. Agrarian reform credit the amount set aside for agrarian reform credit not actually loaned out may be invested temporarily in government securities expressly declared eligible for the purpose by the BSP, subject to the following conditions: (1) Such securities shall be held to maturity without prejudice to the right of the holder bank to require the issuing government entity to monetize, encash or repurchase such securities whenever funds are needed by the bank for lending to the beneficiaries of agrarian reform; (2) Such securities shall not be hypothecated or encumbered in any way or earmarked for any other purposes; (3) Such securities shall be marked "for agrarian reform credit" and shall be segregated from the bank's investment portfolio; and (4) Only the buying/lending bank may use, during the holding period, eligible government securities subject of a resale/repurchase agreement between private entities for purposes of compliance with this Subsection, subject to the following: (a) The resale/repurchase should be for terms not less than thirty (30) days without pretermination during the first successive thirty (30) days, which condition shall be embodied in the resale/repurchase agreement; and (b) The buying/lending bank, with the consent of the selling/borrowing entity, shall register with the BSP its holdings of government securities under repurchase/resale agreement. b. Agricultural credit in general The amount set aside for agricultural credit in general not actually loaned out may be invested in commercial papers issued by entities engaged in agricultural production, processing, storage, marketing, or exportation of agricultural products; and importation, manufacture, distribution of farm machineries and equipment, fertilizers, etc. used for agricultural production: Provided , That for purposes of compliance with this Subsection, only the buying/lending bank may use commercial papers acquired in a resale/repurchase agreement during the holding period thereof subject to the conditions in Item a(4) of this Subsection. CSEHIa SUBSECTION X341.6 Syndicated type of agrarian reform credit/agricultural credit . Banks may grant a syndicated type of loan for agrarian reform credit/agricultural credit in general, either between or among themselves. The mechanics, including the recording of such syndicated type of loan transactions, shall follow existing practices and regulations applicable both to the lead bank and other participating bank(s). Accordingly, the booking of loans shall only be for the amount of actual participation of each syndicate bank concerned. Memorandum entries, references or notations shall be made for the other participating bank(s). SUBSECTION X341.7 Interest and other charges . Interest, service fees and other charges shall be governed by existing rules and regulations. SUBSECTION X341.8 Unused agri-agra funds to be utilized for socialized and low-cost housing . As a source of non-budgetary funding to augment the Comprehensive and Integrated Shelter and Urban Development Financing Program under R.A. No. 7835, all unused agri-agra allocation funds of banks in the preceding year shall be invested in socialized and low-cost housing if the utilized portion of the agri-agra funds of said banks was solely devoted to agricultural and agrarian reform credits. SUBSECTION X341.9 Submission of reports . A quarterly report on the following shall be submitted to the appropriate supervising and examining department of the BSP within twelve (12) banking days after the end of each reference quarter: a. Utilization of loanable funds set aside for agrarian reform credit and agricultural credit in general; b. Any change in the composition of government securities and commercial papers held as temporary investments for agrarian reform credit and agricultural credit in general, respectively; and c. A certification under oath by the duly designated officer of the bank of the absence of qualified borrowers for agrarian reform credit or agricultural credit in general shall be submitted to the appropriate supervising and examining department of the BSP together with the report as required in this Subsection. SECTION X342. Mandatory Credit to Small Enterprises . The following rules shall govern the mandatory allocation of credit resources to small enterprises. SUBSECTION X342.1 Definition of terms . For purposes of this Section, the following definitions shall apply: a. Lending institutions shall refer to all banks including branches of foreign banks. b. Loan portfolio shall include all loans and advances (net of valuation reserves) in the Statement of Condition/Balance Sheet excluding the following: interbank loan receivables; agrarian reform/other agricultural credit loans under P.D. No. 717; loans granted under special financing programs; foreign-currency denominated loans and advances; and loans from multilateral and bilateral sources which are relent by a bank on a wholesale basis to conduit financial institutions. c. Small enterprises shall refer to any business activity or enterprises engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation: (1) Whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, amounts to P15 million and below; (2) Duly registered with the appropriate agencies as presently provided by law: Provided , That in the case of microenterprises (with total assets, as similarly determined in Item c(1) above, of less than P50,000) registration with the office of the municipal or city treasurer shall be deemed sufficient compliance with this requirement; (3) One hundred percent (100%) owned and capitalized by Filipino citizens if a single proprietorship or partnership. If the enterprise is a corporation, at least sixty percent (60%) of its capital or outstanding stocks must be owned by Filipino citizens; (4) Primarily engaged in manufacturing, processing, and/or production excluding farm level agricultural/crop production; domestic and export trading including those not guaranteed by the Small Business Guarantee and Finance Corporation (SBGFC); and (5) Not a branch, subsidiary or division of a large scale enterprise nor its policies determined by a large scale enterprise or by persons who are not owners or employees of the enterprise. SUBSECTION X342.2 Mandatory allocation of credit resources to small enterprises a. All lending institutions shall set aside a portion of their total loan portfolio based on their Consolidated Statement of Condition/-Balance Sheet as of the end of the previous quarter, and make it available for small enterprise credit. The portion mandated to be so set aside shall at least be five percent (5%) of the loan portfolio. Banks may, however, be allowed to report compliance on a groupwide basis (based on consolidated financial statements of investor-financial institution or parent bank and its subsidiaries/affiliates): Provided, That the subsidiary banks are at least seventy-five percent (75%) owned/controlled by the parent bank, subject to the following conditions: (1) The consolidated report shall be submitted by the bank in the prescribed form and which shall be supported by the individual reports of the bank and its subsidiaries duly signed by each bank's authorized signatory. The subsidiaries shall continue with their separate submission of the subject report to their respective supervising and examining departments within the prescribed period. (2) Only the parent bank can exercise the right to avail/use the excess of its subsidiaries for its own compliance. (3) In the event of a deficiency in compliance of any parent or subsidiary or all of these banks, the members of the board of directors and its president and the other officers of the parent bank shall be responsible for the group's compliance. b. For purposes of determining compliance with the mandated allocation, loans to small enterprises and such instruments mentioned in Item b of Subsec. X342.3 below which have been rediscounted with the SBGFC or the BSP shall be excluded. SUBSECTION X342.3 Eligible investments . Funds set aside in accordance with the foregoing requirement shall be made available for any of the following: a. Loans to small enterprises; b. Instruments as may be offered by the SBGFC; c. Purchase of small enterprises' promissory notes from tending institutions and/or Non-government Organizations (NGOs); d. Equity investments by member banks in, and loans by member banks to, the BAP Credit Guaranty Corporation (BCGC) to the extent of the member bank's proportionate share to total outstanding loans granted by BCGC to small enterprises; and e. Unavailed but committed credit lines. The funds set aside which have not been invested in any of the above may be held in the form of Cash on Hand and/or Due from BSP: Provided, That these are free, unencumbered, not hypothecated and not utilized or earmarked for other purposes. The Accounting Department or, if the Due From BSP is in foreign currency, the Treasury Department, shall maintain a special account for amounts deposited with the BSP for this purpose which deposits shall not earn interest and shall not form part of the banks' legal reserves. Deposits with the Treasury Department shall be in acceptable foreign currency and shall be converted into pesos anytime there is a need to fund small enterprises' loans. SUBSECTION X342.4 Ineligible instruments . The purchase of government notes, securities and negotiable instruments other than the instruments offered by SBGFC shall not be deemed compliance with the foregoing requirement. SUBSECTION X342.5 Guarantee coverage . Loans granted in accordance with this Section shall be eligible for guarantee coverage to be issued by the SBGFC, subject to such rules and regulations as may be issued by the SBGFC. SUBSECTION X342.6 Submission of reports . Banks shall submit reports to the appropriate supervising and examining department of the BSP showing compliance with the mandatory allocation for small enterprises credit required under R.A. No. 6977 as indicated in Appendix 6 . Lending institutions shall maintain appropriate records/details of the reported loans to small enterprises and shall make these available to BSP examiners. SUBSECTION X342.7 Lendings to medium enterprises . Lending institutions are encouraged to make available funds for lending to medium enterprises with total assets of more than P15 million but not more than 260 million or as may be determined under Section 3 of R.A. No. 6977. SECTION X342.8 Sanctions . The administrative transactions under Section 37 of R.A. No. 7653 and the penal sanctions under Section 14 of R.A. No. 6977 shall be applicable to any violation of this Section. G. Special Types of Loans SECTION X343. Interbank Loans . Interbank loan transactions shall include, among other things; (a) interbank call loan (IBCL) transactions; (b) borrowings evidenced by deposit substitute instruments; and (c) purchases of receivables with recourse: Provided, however, That only IBCL transactions which are evidenced by interbank loan advice or repayment transfer tickets and settled through the banks' respective demand deposit accounts with BSP shall be eligible to the one percent (1%) reserve: Provided, further , That funds borrowed by banks from trust departments of banks or investment houses shall be excluded from the herein definition of interbank loan transactions. Interbank loan transactions not submitted to the BSP Accounting Department by means of interbank loan advice or repayment transfer tickets shall be reported to the BSP in the prescribed form. SUBSECTION X343.1 Systems and procedures for interbank call loans transactions . IBCL transactions of banks shall be governed by the Agreement for an Interbank Call Loan Funds Transfer System executed among the BSP the Bankers Association of the Philippines and the Philippine Clearing House Corporation (Appendix 21) and any subsequent amendments thereto. Banks shall generate hard copies of the formats of the loan and repayment instruction in the form presented in Annexes A, B, C and D of the aforesaid agreement to be kept as documentary evidence of their matched and processed IBCL transactions. SUBSECTION X343.2 Accounting procedures a. Both lending and borrowing banks shall immediately pass the corresponding entries in their books and, upon receipt of a copy of the transfer instruction reported as matched in the Multi-Transaction Interbank Payment System (MIPS), the borrowing bank shall attach the same to the corresponding ticket debiting its Due from BSP account in its books and, in the case of the lending bank, to the same ticket passed in its books on the day payment is made. b. IBCL transactions shall be recorded by the borrowing bank as Bills Payable Interbank Call Loans . c. Banks shall reconcile their demand deposit accounts with the BSP against monthly statements of account to be furnished by the BSP Accounting Department. Two (2) copies of the reconciliation statement shall be submitted within seven (7) banking days from receipt of the statements of account from the BSP the original to the BSP Accounting Department and the other copy to the appropriate supervising department. SECTION X344. Loans to Thrift/Rural/Cooperative Banks SUBSECTION X344.1 Loans under Section 12 of R . A . No . 7353, Section 10 of R . A . No . 7906 and Article 108, R . A . No . 6938 . Banks may rediscount papers of TBs/RBs/Coop Banks. Banks shall specify the nature of papers acceptable for rediscounting as well as the rediscount rate. SUBSECTION X344.2 Loans under Section 14 of R . A . No . 7353 . The following are the guidelines in the grant by the LBP, DBP or any government-owned or controlled bank or financial institution of a loan to an RB under Section 14 of R.A. No. 7353. a. Issuance of certification Subject to the qualifications of the RBs prescribed in Item b hereof, the Monetary Board shall issue the certification required under Section 14 of R.A. No. 7353, which shall be final, after the Monetary Board has determined that: (1) The resources of the RB are inadequate to meet the legitimate credit needs of the locality wherein the RB is established; (2) There is dearth of private capital in said locality; and (3) It is not possible for the stockholders of the RB to increase the paid-up capital thereof. The appropriate department or office of the BSP may prescribe and require the submission by the RB of papers and documents necessary for such determination. b. Qualifications for loan . In order to qualify for the financial assistance under said provision of law, the RB shall first meet the following requirements: (1) Its capital-to-risk assets ratio during the last six (6) months immediately preceding the loan application should be at least ten percent (10%); (2) Its past due loans are not more than twenty-five percent (25%); (3) It has no deficiency in allowance for probable losses on loans and other risk assets; (4) It must not have incurred deficiency in its reserves against deposit liabilities for the last six (6) months preceding the filing of the application; (5) It must have been operating profitably for the last three (3) years; (6) Its arrearages with the BSP or other government financial institutions, if any, are being liquidated through an approved plan of payment, the conditions of which are being complied with; and (7) It is operating substantially in accordance with applicable laws and BSP rules and regulations. c. Extension of loan . The LBP, the DBP or any government-owned or controlled bank or financial institution shall, within sixty (60) days from issuance by the Monetary Boards of the certification, and subject to their loan and investment policies, extend to an RB a loan or loans from time to time, repayable in ten (10) years, with concessional rates of interest, against security/ies which the stockholder or stockholders of the RB may offer. SECTIONS X345-X346 ( Reserved ) SECTION X347. Standby Letters of Credit . The following shall govern the issuance of standby letters of credit. SUBSECTION X347.1 Domestic standby letters of credit Domestic standby letters of credit may be issued or used in transactions other than those involving movement of goods under the following guidelines: a. The bank's obligation to pay shall be either unconditional (as against presentation of a clean draft) or conditional only upon the presentation of documents and not upon actual existence or non-existence of facts, i.e., the bank must not be called upon to determine disputed questions of facts or law; b. The bank's obligation shall be limited to a fixed maximum amount; c. The bank's obligation shall have an expressed expiration date; d. The standby letters of credit accommodation shall not violate any law or existing BSP directives, rules and regulations, such as the SBL and DOSRI ceilings; e. The party who opened the standby letters of credit or the ultimate borrower shall not have any past due obligation with the issuing bank for the ninety (90)-day period preceding the date of issuance of the letter of credit; f. Drawings shall be honored only upon failure of the party who opened the letter of credit (borrower or principal obligor) to pay the amortization(s) due and upon presentation of a written certificate to this effect; g. The party who opened the letter of credit (borrower or principal obligor) must have an unqualified obligation to reimburse the bank on the same condition as the bank has paid; and h. Banks shall not issue standby letters of credit in favor of another bank to secure the obligation of the latter's client or for the faithful performance by the client of his obligation to said bank. SUBSECTION X347.2 Ceiling . The total standby letters of credit, foreign and domestic, including guarantees, the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay, that may be issued by a bank and outstanding at any given time, shall not exceed fifty percent (50%) of the bank's unimpaired capital and surplus, except those fully secured by cash, hold-out on deposits/deposit substitutes or government securities. SUBSECTION X347.3 Reports . Banks shall submit a monthly report of domestic standby letter of credit opened and outstanding in the prescribed form within fifteen (15) banking days after end of reference month to the appropriate supervising and examining department. The report shall contain the following minimum information: (1) Date the letter of credit was opened; (2) Amount, purpose and accountee thereof; (3) Beneficiary; (4) Security and value of security; (5) Expiry date of the letter of credit; and (6) Certification as to the correctness of the report by an authorized officer of the bank. SECTION X348. Committed Credit Line for Commercial Paper Issues . The following guidelines shall govern committed credit line agreements as a prerequisite for corporations proposing to issue commercial paper, pursuant to the New Rules on the Registration of Short-Term Commercial Papers (Appendix 14) . SUBSECTION X348.1 Who may grant line facility . A bank with a net worth of at least P1 billion as defined in Sec. X106, may provide a committed credit line facility to a commercial paper issuer. The bank shall exercise proper caution in ascertaining that the party, in whose favor the credit line shall be granted, is capable of fulfilling his commitments to the bank under the credit line agreement. A bank or a group of banks may enter into a committed credit line agreement with any corporation proposing to issue commercial paper. Where a group of banks is involved, a lead bank shall be designated from among themselves. SUBSECTION X348.2 Ceilings . The aggregate commitments under committed credit line agreements entered into by each bank pursuant to this Section shall not exceed an amount equivalent to thirty percent (30%) of its net worth, reckoned as of the date of execution of the latest agreement: Provided , That in no case shall a bank extend commitments to a single issuer for more than twenty-five percent (25%) of its net worth exclusive of other exposures to the said issuer. SUBSECTION X348.3 Terms; conditions; restrictions . The committed credit line agreement shall incorporate the following terms, conditions and restrictions: a. That the credit line agreement is executed pursuant to the provisions of this Section; b. That the bank or banks are committed to make available to the issuer funds equivalent to at least twenty percent (20%) of the aggregate of the commercial paper issued and outstanding at any time; c. That the commitment of the bank or banks shall be firm and irrevocable and effective for as long as the issues under a particular permit are outstanding, subject to renewal by the bank; d. That availments pursuant to the credit line agreement shall be for the exclusive purpose of meeting obligations arising from commercial paper issues in accordance with the provisions of the Rules on Registration of Commercial Papers, which availments shall be honored not earlier than three (3) banking days prior to the date of payment of obligation arising from outstanding commercial paper; e. That the request to avail of the credit line agreement shall be addressed to the bank or to the lead bank acting for a group of banks, which request shall be duly signed by a member of the board of directors and a senior ranking officer of the commercial paper issuer duly authorized for the purpose through an appropriate board resolution, which resolution shall also provide for the designation of the alternate signatories who shall likewise be a member of the board of directors and a senior financial officer of the corporation; f. That the extent of the commitment of each participant in a group of banks under a credit line agreement shall be stipulated in the agreement; and g. That the commitment of the bank under the credit line agreement shall be a net risk to the bank and the practice of requiring the commercial paper issuer to maintain a compensating deposit with the bank shall be prohibited. SUBSECTION X348.4 Reports to the Bangko Sentral . The bank or the lead bank, as the case may be, shall report to the BSP: a. All commitments entered into with commercial paper issuers within ten (10) banking days after the issuer shall have been authorized by the SEC; and b. Any availment under the committed credit line agreement within three (3) banking days from date of drawdown. SUBSECTION X348.5 Loan limit . The liabilities of a commercial paper issuer to a bank arising from the availment by the issuer of the credit line agreement shall not be counted in determining compliance by the bank with the SBL: Provided, That in no case shall they exceed five percent (5%) of the net worth of the bank beyond the normal applicable SBL for a period of 180 days from each availment of the credit line. SECTIONS X349-X375 ( Reserved ) H. Equity Investments SECTION X376. Scope of Authority . The following rules shall govern the investment of banks in the equities of allied undertakings, whether financial or non-financial, and non-allied undertakings, as well as the establishment/acquisition of subsidiaries and affiliates abroad. SUBSECTION X376.1 Conditions for investment in equities . A bank shall not invest in the equity of any enterprise, if the investing bank is in any of the following situations: a. Its capital is impaired, whether by actual losses or unbooked valuation reserves required by the BSP; b. Its lending operations had been suspended on account of reserve or capital deficiency, until such suspension shall have been lifted for at least one (1) year and sufficient reserves or capital shall have been maintained; c. It incurred losses from its operations during the preceding year; d. It has not fully booked the valuation reserves and other capital adjustments required by the BSP; e. It has exceeded the individual and aggregate ceilings as well as the ceiling on unsecured credit accommodations to DOSRI; and f. Its ratio of past due loans to total loan portfolio exceeds twenty percent (20%). SECTION X377. Financial Allied Undertakings . With prior BSP approval, banks may invest in equities of the following financial allied undertakings: a. Leasing companies; b. Banks; c. Investment houses; d. Financing companies; e. Credit card companies; f. Financial institutions catering to small and medium scale industries including venture capital corporations; g. Companies engaged in stock brokerage/securities dealership; and h. Companies engaged in foreign exchange dealership/brokerage. In addition, EKBs may invest in the following as financial allied undertakings: (1) Insurance companies: Provided , That the equity investment in an insurance company of an investing bank, any of its subsidiaries, its directors, officers and stockholders owning two percent (2%) or more of the bank's subscribed capital stock, shall not exceed fifty-one percent (51%) of the total subscribed capital stock and the total voting stock of such insurance company; and (2) Holding company: Provided , That the investments of such holding company are confined to the equities of allied undertakings and/or non-allied undertakings of EKBs allowed under BSP regulations. The Monetary Board may declare such other activities as financial allied undertakings of banks. The determination of whether the corporation is engaged in a financial allied undertaking shall be based on its primary purpose as stated in its articles of incorporation and the volume of its principal business. SECTION X378. Limits on Investment in the Equities of Financial Allied Undertakings . The equity investment of a bank in a single financial allied undertaking shall be within the following ratios in relation to the total subscribed capital stock and to the total voting stock of the allied undertaking: I n v e s t o r Financial Allied EKB KB TB RB Coop Undertaking Bank KBs 49% 49% 49% 49% 49% TBs 100 100 49 49 49 RBs 100 100 49 49 100 Coop Banks NA NA NA NA 30 Insurance Companies 51 NA NA NA 49 VCCs 60 60 60 49 49 Others 100 40 40 40 40 The equity investment of a bank in another bank under R.A. No. 7721 shall be governed by Sec. X121. SECTION X379. Investments in Venture Capital Corporations . The following rules and regulations shall implement Presidential Decree No. 1688 entitled "Authorizing Banks to Invest in the Equity of Venture Capital Corporations to Assist Small and Medium-Scale Enterprises". For purposes of this Section, a venture capital corporation (VCC) shall refer to an entity organized jointly by private banks, the National Development Corporation and the Technology Livelihood and Resource Center and/or such other government agency as may be authorized by the appropriate authority, the primary purpose of which is to develop, promote and assist, thru debt or equity financing or any other means, any small and medium-scale enterprise in the country. SUBSECTION X379.1 Requirements for investors . Banks may invest in a VCC organized to assist small and medium-scale enterprises, subject to the following conditions: a. The bank shall have a minimum capital of P100 million as defined in Sec. X106; b. Two or more banks may own up to sixty percent (60%) of the total voting equity and of the total equity of a VCC. A bank shall not be allowed to invest in the equity of more than one VCC; c. The initial paid-in capital of VCC shall not exceed P5 million. Any subsequent increase in paid-in capital of the VCC in which a bank owns equity shall be subject to prior approval of the Monetary Board; d. Loans which the investor-bank may grant to a VCC shall be limited to such amounts as would enable the VCC to promote equity financing to viable small and medium scale enterprise: Provided, however , That unless otherwise authorized by the Monetary Board, the aggregate outstanding loans of such bank to a VCC shall not exceed twice the amount of its equity investment in the VCC: Provided, further , That loans to the VCC, or the small and medium-scale enterprises shall not be subject to the ceilings on DOSRI, except where bank DOSRI are likewise stockholders in the VCC or in the small and medium-scale enterprise; e. The combined equity investments in, and loans of, the bank to its VCC shall not exceed fifteen percent (15%) of the bank's net worth; and f. The aggregate investments in equities by a bank, including equity investments in a VCC, shall not exceed the prescribed ceiling of twenty-five percent (25%) of the bank's net worth. SUBSECTION X379.2 Equity investments of venture capital corporations . Equity investment of a VCC in small and medium-scale enterprises shall be subject to the following conditions: a. Equity financing by a VCC may be extended to a small and medium-scale enterprise engaged in an industry certified as desirable by the Department of Trade and Industry; and b. The total assets of the enterprises shall not exceed P4 million, including the VCCs equity investment. Should the total assets of the small and medium-scale enterprise subsequently exceed the prescribed P4 million maximum, the VCC equity investment therein made before the total assets of the enterprise exceeded P4 million, may be maintained but shall not be increased. SUBSECTION X379.3 Business name of venture capital corporations . A VCC shall be known by any name not otherwise appropriated: Provided, however , That the words "venture capital corporation" are made a part thereof. SUBSECTION X379.4 Reportorial requirements; examination by Bangko Sentral . A VCC in which a bank owns equity shall be subject to BSP reportorial requirements prescribed for non-bank financial intermediaries and may be subject to examination by the BSP. SUBSECTION X379.5 Interlocking directorships and/or officerships . Subject to prior approval of the Monetary Board, a person may concurrently hold the position of a director or officer in a bank and a VCC. SECTION X380. Non-Financial Allied Undertakings . A bank may acquire up to 100% of the equity of a non-financial allied undertaking: Provided , That the equity investment of a TB/RB in any single enterprise shall remain less than fifty percent (50%) of the voting shares in that enterprise: Provided, further , That prior Monetary Board approval is required if the investment is in excess of forty percent (40%) of the total voting stock of such allied undertaking. The determination of whether the corporation is engaged in a non-financial allied undertaking shall be based on the primary purpose as stated in its articles of incorporation and the volume of its principal business. a. EKBs/KBs/TBs EKBs/KBs and TBs may invest in equities of the following non-financial allied undertakings: (1) Warehousing companies; (2) Storage companies; (3) Safe deposit box companies; (4) Companies primarily engaged in the management of mutual funds but not in the mutual funds themselves; (5) Management corporations engaged or to be engaged in an activity similar to the management of mutual funds; (6) Companies engaged in providing computer services; (7) Insurance agencies/brokerages; (8) Companies engaged in home building and home development; (9) Companies providing drying and/or milling facilities for agricultural crops such as rice and corn; (10) Bank service corporations all of the capital of which is owned by one or more banks and organized to perform for and in behalf of banks the services enumerated in Sec. X169; (11) Philippine Clearing House Corporation (PCHC) and Philippine Central Depository, Inc.; and (12) Such other similar activities as the Monetary Board may declare as non-financial allied undertakings of banks. In addition, TBs may also invest in the equities of companies enumerated in Item b of this Section. b. RBs/Coop Banks RBs/Coop Banks may invest, as a non-financial allied undertaking, in the equities of companies engaged in the following: (1) Warehousing and other post-harvest facilities; (2) Fertilizer and agricultural chemical and pesticides distribution; (3) Farm equipment distribution; (4) Trucking and transportation of agricultural products; (5) Marketing of agricultural products; (6) Leasing; and (7) Other undertakings as may be determined by the Monetary Board. SECTION 1381. Investments in Non-Allied or Non-Related Undertakings . Only EKBs may invest in the equity of an enterprise engaged in non-allied or non-related activities. SUBSECTION 1381.1 Non-allied undertakings eligible for investment by expanded commercial banks . The broad category of non-allied undertakings in which an EKB may invest directly or through its subsidiary shall require prior approval of the Monetary Board: Provided, That individual equity investments in the following broad categories shall not require prior Monetary Board approval: a. Enterprises engaged in physically productive activities in agriculture, mining and quarrying, manufacturing, public utilities, construction, wholesale trade and community and social services following the industrial groupings in the Philippine Standard Industrial Classification (PSIC) as enumerated in Appendix 22 ; b. Industrial park projects and/or industrial estate developments; c. Financial and commercial complex projects (including land development and buildings constructed thereon) arising from or in connection with the Government's privatization program; and d. Such other broad categories as the Monetary Board may declare as appropriate: Provided, further , That the bank shall submit within thirty (30) banking days after the investment, the following information/documents to the appropriate supervising and examining department of the BSP: (1) The amount of investment; (2) The name of investee company; and (3) The nature of business, accompanied by such pertinent documents as articles of incorporation, articles of partnership or registration certificate, whichever may be applicable. SUBSECTION 1381.2 Limits on investments in non-allied enterprises a. The equity of an EKB or its subsidiaries, in any single non-allied enterprise shall not exceed thirty-five percent (35%) of the total subscribed capital stock nor shall it exceed; thirty-five percent (35%) of the voting stock in the enterprise. For the purpose of determining compliance with the ceiling prescribed in the preceding paragraph, (i) the equity investment of the bank; (ii) the equity investment of the bank's subsidiaries; and (iii) the equity investment of directors, officers and stockholders owning at least two percent (2%) of the bank or of the bank's subsidiaries, shall be combined. b. In no case shall the total equity investments in a single non-allied enterprise of EKBs, NBFIs performing QB functions and their subsidiaries, whether or not the parent financial intermediaries have equity investments in the enterprise, amount to fifty percent (50%) or more of the voting stock of that enterprise: Provided, however , That equity investments in excess of the ceilings prescribed herein as of April 1, 1980 may be maintained but may not be increased and if reduced, shall not be increased thereafter beyond the ceiling prescribed herein. SUBSECTION 1381.3 Report on outstanding equity investments in and outstanding loans to non-allied enterprises . EKBs shall submit to the appropriate supervising and examining department of the BSP within fifteen (15) banking days, a report as of June 30 and December 31 of each year showing the following: a. Their outstanding equity investments in non-allied enterprises; b. Outstanding equity investments of their wholly or majority-owned subsidiaries in non-allied enterprises; c. Their outstanding loans to non-allied enterprises in which they have equity investments; d. Outstanding loans of their wholly or majority-owned subsidiaries to non-allied enterprises in which these wholly or majority-owned subsidiaries have equity investments; and e. Their outstanding loans to non-allied enterprises in which their wholly or majority-owned subsidiaries have equity investments. For purposes of this Subsection, a wholly-owned subsidiary is a corporation 100% of the voting stock of which is owned by the reporting bank while a majority-owned subsidiary is a corporation more than fifty percent (50%) but less than 100% of the voting stock of which is owned by the reporting bank. SECTION X382. Investments in Subsidiaries and Affiliates Abroad . The establishment or acquisition of subsidiaries or affiliates abroad shall require prior approval of the BSP. SUBSECTION X382.1 Application for authority to establish or acquire subsidiaries and affiliates abroad . The application for such authority shall be signed by the president of the bank and shall be accompanied, as a minimum, by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment or acquisition of a subsidiary or an affiliate abroad; b. Economic justification for such establishment, indicating the services to be offered, the minimum outlay for furniture, fixture and equipment, rental and other expenses; c. A certification that an application for such establishment has been filed with the appropriate government agency of the host country; d. Organizational set-up of the proposed banking office showing the proposed positions and the names, qualifications and experience of the proposed manager and other officers; and e. Certification signed by the president or the executive vice-president that the bank has complied with all the requirements enumerated under Subsec. X382.2. SUBSECTION X382.2 Requirements for establishing subsidiaries or affiliates abroad . In addition to the standard pre-qualification requirements for the grant of banking authorities in Appendix 5 , the applicant bank shall comply with the following: a. The citizenship, ownership ceilings and other limitations on voting stockholdings in banks under existing law and regulations; and b. The experience and expertise in international banking operations with proof to the effect that: (1) It must have conducted international banking for at least three (3) years prior to the date of application; and (2) Its international banking operations must have contributed a substantial portion to its total earnings. SUBSECTION X382.3 Conditions for approval of application . The approval of the application to establish or acquire a subsidiary of an affiliate abroad shall be subject to the following conditions: a. Without prejudice to the qualification requirements of the country where the subsidiary or the affiliate is to be established, the proposed officer(s), at the time of appointment, must be at least: (1) Twenty-five (25) years of age; (2) A college graduate, preferably with training and experience abroad; (3) With three (3) years experience in international banking; and (4) Must not be disqualified as an officer under existing regulations. b. The applicant shall also comply with the licensing requirements of the host country and the necessary license to operate shall be secured from the appropriate government agency of the host country; c. The outward investment representing initial capital outlay and other outlays shall be subject to existing regulations; d. All dividends earned shall be inwardly remitted to the Philippines within reasonable period after the date of payment; e. The proposed subsidiary or affiliate shall submit the reports required by the BSP; f. The proposed subsidiary or affiliate shall not carry any of the business of a bank contemplated within the context of the Philippine banking system; g. The proposed subsidiary or affiliate shall not engage in stock trading activity; h. The applicant shall submit a certification from the host country that the duly authorized personnel/examiners of the BSP will be authorized to examine the proposed subsidiary or affiliate; and i. The applicant shall defray the necessary cost and expenses to be incurred by the appropriate supervising and examining department of the BSP in the examination of the foreign subsidiary. SECTION X383. Other Limitations and Restrictions . The following limitations and restrictions shall also apply regarding equity investments of banks. a. In any single enterprise . The equity investments of banks in any single enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5. b. Aggregate limits . The total amount of investments in equities in all enterprises shall not exceed the following ratios in relation to the net worth of the investing bank: EKB KB TB RB Coop Bank LIMIT: 50% 25% 25% 25% 25% c. Exclusion of underwriting exposure from ceiling . The exposure of a bank with EKB authority arising from the firm underwriting of equity securities of enterprises shall not be counted in determining compliance with the ceilings prescribed in this Section and Subsec. X38 1.2 for a period of two (2) years from the acquisition of such equity securities. SECTION X384. ( Reserved ) SECTION X385. Sanctions . The following sanctions shall be imposed for equity investments made without prior Monetary Board approval: a. First Offense If the investment is not allowable under existing regulations, divestment of the investment and reprimand on officer/director who recommended/approved the investment. b. Subsequent Offense On the Bank . If the investment is not allowable under existing regulations, divestment of the investment. On the Director/Officer . Fine of P20,000 for each investment to be imposed on the members of the board and the executive officers who recommended/approved the investment per investment and to be shouldered personally by the officer/director: Provided, That if the subsequent offense is an investment in a non-allied enterprise, the fine shall be P40,000. I. (Reserved) SECTIONS X386-X387 ( Reserved ) J. Other Operations SECTION X388. Purchase of Receivables and Other Obligations . The following regulations shall govern the purchase of receivables and other obligations. SUBSECTION X388.1 Yield on purchase of receivables . The rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations, regardless of maturity, that may be charged or received by banks shall not be subject to any regulatory ceiling. SUBSECTION X388.2 Purchase of receivables on a "without recourse" basis . The total exposure of a bank to a maker of promissory notes resulting from the purchase of receivables on a without recourse basis shall be subject to the SBL of the bank: Provided, That the bank shall evaluate the credit worthiness of the maker of such promissory notes. SUBSECTION X388.3 Purchase of commercial paper . Before purchasing registered commercial paper, banks authorized to engage in quasi-banking functions shall a. Require the issuing entity to submit a duly certified true copy of its Certificate of Registration and Authority to Issue Commercial Paper; and b. Ascertain that the registration number and expiry date indicated in the commercial paper are the same as those in the certificate of registration submitted. Any violation or failure to comply with the provisions of this Subsection shall subject the erring bank to suspension or revocation of its authority to engage in quasi-banking functions. SUBSECTION X388.4 Reverse repurchase agreements with Bangko Sentral . Reverse repurchase agreements with the BSP shall be governed by Subsec. X601.2. SUBSECTION X388.5 Investment in bonds and other debt instruments. Banks may invest in the following: a. Readily marketable bonds and other debt securities which are of such use or demand as to make them the subject of constant dealings in securities markets, with such frequent quotations of price as to make the price easily and definitely ascertainable, and the security easy to realize upon sale at any time: Provided , That the bonds and other debt securities have complied with the new rules on registration of commercial papers: Provided, further , That in the case of RBs/Coop Banks, the bonds and other securities have been approved by the BSP. It shall be the responsibility of the investing bank to undertake the necessary investigation to satisfy itself with regard to the particular security. b. Evidences of indebtedness of the Republic of the Philippines or the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are guaranteed by the Republic of the Philippines. In addition, TBs may invest in evidences of indebtedness which are registered with the SEC but are not readily marketable securities: Provided , That these evidences of indebtedness shall be acquired with recourse against a bank or an NBQB. SECTIONS X389-X392 ( Reserved ) K. Miscellaneous Provisions SECTION X393. Loans-to-Deposits Ratio . The following policies and guidelines shall govern the loans-to-deposits ratio of head offices, branches and other banking offices of banks in regions outside the National Capital Region. SUBSECTION X393.1 Statement of policy . At least seventy-five percent (75%) of total deposits, net of required reserves against deposit liabilities and total amount of cash in vault, accumulated by branches and other banking offices of banks in a particular geographical grouping shall be invested therein as a means to develop the area. For purposes hereof, deposits shall include "Time Certificates of Deposits-Special Financing", but shall exclude: (a) government deposits subject to the liquidity floor requirement, (b) FCDU deposits, and (c) deposits of banks maintained for clearing purposes in areas where there are no BSP clearing units. Loans shall exclude FCDU loans. SUBSECTION X393.2 Other methods of compliance The policy shall be deemed complied with, if, in a geographical grouping, the bank's total lending constitutes sixty percent (60%) of its deposits. Loans granted by the head office and other offices in a geographical grouping may be assigned and considered part of the loans of offices in another geographical grouping, subject to the presentation of acceptable proof that the end-users of the loan proceeds are located in the latter grouping. Acceptable proof may include, but need not be limited to: (a) ticket showing that the loan proceeds were released by an officer in that geographical grouping, and (b) cable advice from the lending office to the office in the geographical grouping where end-users are located relative to approval of loan and release thereof. SUBSECTION X393.3 Geographical groupings . For purposes of this policy, the geographical groupings shall be Luzon (Regions I, II, III, IV and V), Visayas (Regions VI, VII and VIII) and Mindanao (Regions IX, X, XI and XII). SECTION X394. Assets Acquired in Settlement of Loans . Banks shall post at all times in a conspicuous place in the premises of their head office, branches and other banking offices a list of acquired assets together with the corresponding lowest price at which the bank is willing to sell such property. However, this requirement shall not relieve the bank from the requirement under Section 25 of R. A. No. 337, as amended, to dispose of such acquired assets. SECTION X395. Credit Policies of Government-Owned Corporations . Government-owned corporations which perform banking or credit functions shall coordinate their general credit policies with the Schedule of Credit Priorities embodied in Appendix 23 . Within the provision of their respective charters, these corporations shall limit their credits to the economic activities falling under Priority II of said schedule to fifty percent (50%) of their outstanding loans at any time. SECTION X396. Parcellary Plans on Crop Loans . Banks shall require the submission of parcellary plans a requisite for granting crop loans to sugarcane planters. SECTIONS X397 - X398 ( Reserved ) SECTION X399. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION X401. Statement of Principles . The cardinal principle common to all trust and other fiduciary relationships is fidelity. Policies predicated upon this principle are directed towards confidentiality, scrupulous care, safety and prudent management of property including reasonable probability of income with proper accounting and appropriate reporting thereon. Practices are designed to promote efficiency in administration and operation; to adhere and conform with the terms of the instrument or contract; and to maintain absolute separation of property free from any intrusion of conflict of interest. A bank authorized to engage in trust and fiduciary business is under no obligation, either legal or moral, to accept any such business being offered nor has it the right to accept if the same is contrary to law, rules, regulations, public order and public policy. It shall advertise its services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation of the responsibilities involved. It shall be ready and willing to give full disclosure of the services being offered and shall conduct its dealing with transparency. Harmonious relationship shall likewise be pursued with other professions to achieve the common goal of mutual service to the public and protection of its interest. SECTION X402. Scope of Regulations . These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. X403) of banks. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to banks without trust authority but with authority to engage in investment management activities; and C. General Provisions shall apply to both. SECTION X403. Definitions . For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated. a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a contract or agreement whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of said bank. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. d. Trust is a relationship or an arrangement whereby a person called a trustee is appointed by a person called a trustor to administer, hold and manage funds and/or property of the trustor for the benefit of a beneficiary. e. Trust Agreement is an instrument in writing covering the terms and conditions of the trust. f. Trustee is any person who holds legal title to the funds and/or property of a trust. g. Trustor is any person who creates a trust. h. Beneficiary is any person for whose benefit a trust is created. i. Fiduciary shall refer to any person or entity engaged in any of the other fiduciary business as herein defined where no trustor-trustee relation exists. j. Agency shall refer to a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. k. Principal shall refer to the person who grants authority to another person called an agent, under a contract to enter into transactions in his behalf. l. Agent shall refer to a person who acts in representation or on behalf of another with the latter's authority. m. Trust Department shall refer to the department, office, unit, group, division or any aggrupation which carries out the trust and other fiduciary business of a bank. n. Trust Officer shall refer to the designated head or officer-in-charge of the trust department. o. Trust account shall refer to an account where transactions arising from a trusteeship are kept and recorded. p. Common Trust Fund (CTF) shall refer to a fund maintained by a bank authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as the trustee. q. Fiduciary account shall refer to an account where transactions arising from any of the other fiduciary businesses are kept and recorded. r. Investment Manager shall refer to any person or entity engaged in investment management activities as herein defined. s. Investment Management Department shall refer to the department, unit, group, division or any aggrupation which carries out the investment management activities of a bank that does not have an authority to engage in trust and other fiduciary business. t. Investment Management Officer shall refer to the designated head or officer-in-charge of the investment management department of a bank which does not have the authority to engage in trust and other fiduciary business. u. Investment management account shall refer to an account where transactions arising from investment management activities are kept and recorded. A. Trust and Other Fiduciary Business SECTION X404. Authority to Perform Trust and Other Fiduciary Business . With prior approval of the Monetary Board, banks may engage in trust and other fiduciary business under Chapter VII of R.A. No. 337, as amended. If a bank is found to engage in unauthorized trust and other fiduciary business and/or investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such bank or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any trust and other fiduciary and/or investment management account to duly incorporated and licensed entities of the choice of the trustor, beneficiary or client, as the case may be. No bank shall advertise or represent itself as being engaged in trust and other fiduciary business or in investment management activities or represent itself as trustee or investment manager or use words of similar import; and/or use in connection with its business title the words trust, trust corporation, trust company, trust plan or words of similar import, without having obtained the required authority to do so. SUBSECTION X404.1 Prerequisites for engaging in trust and other fiduciary business . A bank, before it may engage in trust and other fiduciary business, shall comply with the following requirements: a. Where the applicant is a domestic bank, its combined capital accounts shall not be less than the amount prescribed under Subsecs. X106.1 and X106.2 but in no case less than P250 million. Combined capital accounts shall have the same meaning as defined in Sec. X106. Where the applicant is a branch of a foreign bank, it must comply with the capital requirements prescribed under Items b, c, or d of Subsecs. X121.4 and the relevant provisions of Subsecs. X121.5 and X121.6; b. The applicant has been duly licensed or incorporated as a bank or created as such by special law or charter; c. The articles of incorporation or governing charter of the bank shall include among its powers or purposes, acting as trustee or administering any trust or holding property in trust or on deposit for the use, or in behalf of others; d. The by-laws of the bank shall include, among other things, provisions on the following: (1) The organization plan or structure of the department, office, or unit of the bank which shall conduct the trust and other fiduciary business; (2) The creation of a trust committee, the appointment of a trust officer and subordinate officers of the trust department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. e. The applicant bank shall also meet the following additional requirements: (1) It has continuously complied with its net worth to risk assets ratio, liquidity floor, and ceilings on DOSRI loans for the last sixty (60) days immediately preceding the date of application; (2) It has not incurred net weekly reserve deficiency against deposit liabilities and deposit substitutes during the last eight (8) weeks immediately preceding the date of application; and (3) It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the BSP; and it has not been cited for serious violations or exceptions affecting its solvency, liquidity and profitability. Compliance with the foregoing, as well as with other requirements under existing regulations, shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION X404.2 Pre-operating requirements . A bank authorized to engage in trust and other fiduciary business shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of trust and other fiduciary duties required under Subsec. X405.1; b. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the bank; and c. Names and positions of individuals designated as chairman and members of the trust committee, trust officer and other subordinate officers of the trust department with their respective bio-data and statement of duties and responsibilities. SECTION X405. Security for the Faithful Performance of Trust and Other Fiduciary Business SUBSECTION X405.1 Basic security deposit . A bank authorized to engage in trust and other fiduciary business shall deposit with the BSP eligible government securities as security for the faithful performance of its trust and other fiduciary duties equivalent to at least one percent (1%) of the book value of the total volume of trust, other fiduciary and investment management assets: Provided , That at no time shall such deposit be less than P500,000. SUBSECTION X405.2 Eligible securities . Government securities which shall be deposited in compliance with the above basic security deposit shall consist of evidences of indebtedness of the Republic of the Philippines and of the BSP and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided, That such securities shall be free, unencumbered, and not utilized for any other purpose: Provided, further , That such securities shall have remaining maturity of not more than three (3) years from the date of deposit with the BSP. SUBSECTION X405.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of total trust, investment management and other fiduciary assets of the immediately preceding calendar quarter. SUBSECTION X405.4 Compliance period; Sanctions . The trustee or fiduciary shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the BSP the securities required under this Section. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of trust, investment management and other fiduciary activities: a. On the bank: (1) First offense Penalty of P5,000 per banking day to be reckoned from thirty (30) banking days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of trust license. b. On the Head of the Trust and Fund Management Department: (1) First offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for ninety (90) days without pay. In case a bank fails to comply with the basic security deposit, the Monetary Board may require the bank to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and other fiduciary contracts. SUBSECTION X405.5 Reserves against peso - denominated Common Trust Funds and Trust and Other Fiduciary Accounts - Others a. Reserves against peso-denominated CTFs. In addition to the basic security deposit, a bank authorized to engage in trust and other fiduciary business shall maintain reserves on (1) peso-denominated CTF; and (2) such other managed peso funds which partake the nature of collective investment of a peso-denominated CTF as may be indicated by the presence of the following features: (a) The funds are composed of contributions from two (2) or more investors; (b) The funds are managed/administered as a vehicle for collective investment and reinvestment; (c) The trustee/administrator/agent has the exclusive management and control over the funds and the sole right at any time to sell, convert, invest, exchange, transfer or otherwise change or dispose of the assets comprising the funds; and (d) Investments/contributions to, or withdrawals from, the funds are being allowed at anytime or as of a fixed date in the future, and/or the income, net of all expenses incurred in the management of the fund plus the fee of the trustee/administrator/agent, are being distributed among the participants of the funds, without the need to liquidate all assets of the funds. The reserves to be maintained shall be as follows: (i) Fourteen percent (14%) (10% plus 4% in the form of market-yielding government securities) effective January 3, 1997; and (ii) Thirteen percent (13%) (10% plus 3% in the form of market-yielding government securities) effective July 4, 1997. The reserves on peso-denominated CTFs and such other managed peso funds shall be provided by the bank out of said funds. b. Reserves against Trust and Other Fiduciary Accounts (TOFA) - Others . In addition to the basic security deposit, banks shall maintain reserves on TOFA-Others, except accounts held under (1) Administratorship ; (2) Bond Issues/Other Obligations Under Deed of Trust or Mortgage; (3) Custodianship and Safekeeping; (4) Depository and Reorganization; (5) Employee Benefit Plans Under Trust; (6) Escrow; (7) Personal Trust (testamentary or living trust) ; (8) Executorship ; (9) Guardianship ; (10) Life Insurance Trust ; and (11) Pre-need Plans (institutional/individual) , as the accounts are defined in the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. The reserves to be maintained shall be as follows: (i) Four percent (4%) (3% plus 1% in the form of market-yielding government securities) effective January 3, 1997; (ii) Eight percent (8%) (6% plus 2% in the form of market-yielding government securities) effective February 28, 1997; (iii) Twelve percent (12%) (9% plus 3% in the form of market-yielding government securities) effective May 2, 1997; and (iv) Thirteen percent (13%) (10% plus 3% in the form of market-yielding government securities) effective July 4, 1997. The reserves on TOFA-Others shall be provided by the bank out of said funds. SUBSECTION X405.6 Composition of reserves a. The provisions of Sec. X254 shall govern the composition of reserves against peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others, of banks authorized to engage in trust and other fiduciary business. For purposes of this Subsection, a special deposit account shall be maintained by banks with the BSP exclusively for trust reserves which deposit up to twenty five percent (25%) of the required reserves against peso-denominated CTFs and such other managed peso funds (less the percentage allowed to be maintained in the form of market yielding government securities), as well as the required reserves on TOFA-Others (less the percentage allowed to be maintained in the form of market yielding government securities), shall be paid interest at four percent (4%) per annum effective January 3, 1997 based on the average daily balance of said deposits to be credited quarterly. b. The portion of reserves that may be maintained in the form of market-yielding government securities refers to government securities purchased directly from the BSP Treasury Department at one-half percent (%) below the prevailing market rate for an equivalent term and volume and subject to BSP's firm commitment to buy back at any time at prevailing market rates. All purchases of said government securities shall be under the Book Entry System (BES). Transactions covering said securities shall be entered in the respective securities account of each bank and shall be evidenced by securities account debit or credit advice to be promptly furnished by the bank concerned. No physical certificate shall be issued for any purpose and transactions with third parties other than the BSP shall not be recognized. Interest and redemption payments on said book entry securities shall be made by BSP on interest payment date and at maturity through automatic credit to the bank's demand deposit account with the BSP. All concerned are advised, where applicable, to coordinate with the BSP's Government Securities Department or with the Bureau of Treasury for the Reporting of Scripless Securities for the required documentation. SUBSECTION X405.7 Computation of reserve position . A bank authorized to engage in trust and other fiduciary business shall calculate daily the required and available reserves on the value per books of its peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others, based on the seven-day week, starting Friday and ending Thursday including Saturdays, Sundays, holidays, non-banking days or days when there is no clearing: Provided , That with reference to holidays, non-banking days and days where there is no clearing, the reserve position at the close of banking day immediately preceding such holidays, non-banking days or days where there is no clearing, shall apply. For the purpose of computing reserve position, the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit. SUBSECTION X405.8 Reserve deficiencies; Sanctions . The provisions of Sec. X257 shall govern the computation of reserve deficiencies for peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others, of banks authorized to engage in trust and other fiduciary business, including the sanctions provided in said Section . SUBSECTION X405.9 Report of compliance . Every bank shall submit a report to the BSP of its daily required and available reserves on peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others, in such frequency and within the deadline stated in Appendix 6 . SECTION X406. Organization and Management SUBSECTION X406.1 Organization . A bank authorized to engage in trust and other fiduciary business shall, pursuant to Subsec. X404.1, include in its by-laws, provisions on the organization plan or structure of the department, office or unit which shall conduct such business. The by-laws shall also include provisions on the creation of a trust committee, the appointment of a trust officer and other subordinate officers and a clear definition of their duties and responsibilities as well as their line and staff functional relationships within the organization which shall be in accordance with the following guidelines. a. Trust and other fiduciary business of a bank shall be carried out through a trust department which shall be organizationally, operationally, administratively and functionally separate and distinct from the other departments and/or businesses of the institution. A bank which is also engaged in investment management activities, shall conduct the same only through its trust department and the responsibilities of the board of directors, trust committee and trust officer shall be construed to include the proper administration and management of investment management activities. No bank shall undertake any of the trust and other fiduciary business and, whenever applicable, investment management activities outside the direct control, authority and management of the trust department or through any department or office which is involved in the other businesses of the bank, such as the Treasury, Funds Management or any similar department, otherwise, any such business shall be considered part of the bank's real liabilities. The bank proper and the trust department may share the following activities: (1) electronic data processing; (2) credit investigation; (3) collateral appraisal; and (4) messengerial, janitorial and security services. b. The trust department, trust officer and other subordinate officers of the trust department shall only be directly responsible to the bank's trust committee which shall, in turn, be only directly responsible to the bank's board of directors. No director, officer or employee taking part in the management of trust and other fiduciary accounts shall perform duties in other departments or the audit committee of the bank and vice versa. However, branch managers duly authorized by the board of directors may, for or on behalf of the trust officer, sign predrawn trust instruments such as CTFs. c. The organization structure and definition of duties and responsibilities of the trust committee, officers and employees of the trust department shall reflect adherence to the minimum internal control standards prescribed by the BSP. d. Provisions shall be made by the bank to have legal assistance readily available in the review of proposed and/or-existing trust and fiduciary agreements and documents and in the handling of legal and tax matters related thereto. SUBSECTION X406.2 Composition of trust committee . The trust committee shall be composed of at least five (5) members including the president, the trust officer and directors who are appointed by the board of directors on a regular rotation basis and who are not officers of the bank proper. No member of the audit committee, if the bank has any, shall be concurrently designated as a member of the trust committee: Provided , That in the case of a trust committee composed of more than five (5) members, the appointment therein of an operating officer may be allowed only if the required balance in the membership of at least three (3) members of the board for every operating officer shall be maintained: Provided, further , That the Philippine branch of a foreign bank may appoint its resident manager or chief executive officer in lieu of the president while the positions allotted for members of the board may be filled up by the area manager and/or officers/representatives from the Head Office who are not involved in audit-related activities. For purposes of this Subsection, the term officer shall include the president, executive vice-president, general manager, corporate secretary, treasurer and others mentioned as officers of the bank, or those whose duties as such are defined in the by-laws, or are generally known to be officers of the bank (or any of its branches and offices other than the Head Office) either through announcement, representation, publication or any kind of communication made by the bank. The board of directors shall duly note in the minutes the committee members and designate the chairman who shall be one of the directors referred to above. SUBSECTION X406.3 Qualifications of committee members, officers and staff. The bank's trust department shall be staffed by persons of competence, integrity and honesty. Directors, committee members and officers charged with the administration of trust and other fiduciary activities shall, in addition to meeting the qualification standards prescribed for directors and officers of banks, possess the necessary technical expertise in such business: Provided , That trust officers who shall be appointed shall have at least two (2) years of actual experience or training in trust operations. SUBSECTION X406.4 Responsibilities of administration a. Board of Directors . The board of directors is responsible for the proper administration and management of trust and other fiduciary business. Funds and properties held in trust or in any fiduciary capacity shall be administered with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. The responsibilities of the board of directors shall include, but need not be limited to, the following: (1) It shall determine and formulate general policies and guidelines on the: (a) acceptance, termination, or closure of trust and other fiduciary accounts; (b) proper administration and management of each trust and other fiduciary account; and (c) investment, reinvestment and disposition of funds or property held in its capacity as trustee or fiduciary; (2) It shall direct and review the actions of the trust committee and all officers and employees designated to manage the trust and other fiduciary accounts, especially accounts without specific agreements on investments or discretionary accounts; (3) It shall approve or confirm the acceptance, termination or closure of all trust and other fiduciary accounts and shall record such in its minutes; (4) Upon the acceptance of an account, it shall immediately review all non-cash assets received for management. Likewise, it shall make a review of the trust and/or fiduciary assets at least once every twelve (12) months to determine the advisability of retaining or disposing of such assets; (5) It shall be responsible for taking appropriate action on the examination reports of supervisory agencies, internal and/or external auditors on the bank's trust and other fiduciary business and recording such actions thereon in the minutes; (6) It shall designate the members of the trust committee, the trust officer and subordinate officers of the trust department and shall be responsible for requiring reports from said committee and officers and recording its actions thereon in the minutes; and (7) It shall establish an appropriate staffing pattern and adopt operating budgets that shall enable the trust department to effectively carry out its functions. It shall likewise be responsible for providing the officers and staff of the bank with appropriate training programs in the administration and operation of all phases of trust and other fiduciary business. The board of directors may, by action duly entered in the minutes, delegate its authority for the acceptance, termination, closure or management of trust and other fiduciary accounts to the trust committee or to the trust officer, subject to certain guidelines approved By the board. b. Trust Committee . The trust committee duly constituted and authorized by the board of directors shall act within the sphere of authority which may be provided in the by-laws and/or as may be delegated by the board, such as, but not limited to, the following: (1) The acceptance and closing of trust and other fiduciary accounts; (2) The initial review of assets placed under the trustee's or fiduciary's custody; (3) The investment, reinvestment and disposition of funds or property; (4) The review and approval of transactions between trust and/or fiduciary accounts; and (5) The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets, and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship. For this purpose, the trust committee shall meet whenever necessary and keep minutes of its actions and make periodic reports thereon to the board. c. Trust Officer . The trust officer designated by the board of directors as head of the Trust Department shall act and represent the bank in all trust and other fiduciary matters within the sphere of his authority as may be provided in the by-laws or as may be delegated by the board. His responsibilities shall include, but need not be limited to, the following: (1) The administration of trust and other fiduciary accounts; (2) The implementation of policies and instructions of the board of directors and the trust committee; (3) The submission of reports on matters which require the attention of the trust committee and the board of directors; (4) The maintenance of adequate books, records and files for each trust or other fiduciary account; and (5) The maintenance of necessary controls and measures to protect assets under his custody and held in trust or other fiduciary capacity. SECTION X407. Non-Trust, Non-Fiduciary and/or Non-investment Management Activities . The basic characteristic of trust, other fiduciary and investment management relationship is the absolute non-existence of a debtor-creditor relationship, thus, there is no obligation on the part of the trustee, fiduciary or investment manager to guarantee returns on the funds or properties regardless of the results of the investment. The trustee, fiduciary or investment manager is entitled to fees/commissions which shall be stipulated and fixed in the contract or indenture and the trustor or principal is entitled to all the funds or properties and earnings less fees/commission, losses and other charges. Any agreement/arrangement that does not conform to these shall not be considered as trust, other fiduciary and/or investment management relationship. The following shall not constitute a trust, other fiduciary and/or investment management relationship: a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust, fiduciary and/or investment management; b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof; c. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the board of directors to represent the trust officer; d. Where there is a fixed rate or guaranty of interest, income or return in favor of its client or beneficiary: Provided, however , That where funds are placed in fixed income-generating investments, a quotation of income expectation or like terms, shall neither be considered as arrangements with a fixed rate nor a guaranty of interest, income or return when the agreement or indenture categorically states in bold letters that the quoted income expectation or like terms is neither assured nor guaranteed by the trustee or fiduciary and it does not, therefore, entitle the client to a fixed interest or return on his investments: Provided, further , That any of the following practices or practices similar and/or tantamount thereto shall be construed as fixing or guaranteeing the rate of interest, income or return: (1) Issuance of certificates, side agreements, letters of undertaking, or other similar documents providing for fixed rates or guaranteeing interest, income or return; (2) Paying trust earnings based on indicated or expected yield regardless of the actual investment results; (3) Increasing or reducing fees in order to meet a quoted or expected yield; (4) Entering into any arrangement, scheme or practice which results in the payment of fixed rates or yield on trust investments or in the payment of the indicated or expected yield regardless of the actual investment results; and e. Where the risk or responsibility is exclusively with the trustee, fiduciary or investment manager in case of loss in the investment of trust, fiduciary or investment management funds, when such loss is not due to the failure of the trustee or fiduciary to exercise the skill, care, prudence and diligence required by law. Trust, other fiduciary and investment management activities involving any of the foregoing which are accepted, renewed or extended after October 16, 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Sections 36 and 37 of R.A. No. 7653. SECTION X408. Unsound Practices . In line with the statement of principles governing trust and other fiduciary business under Sec. X401, the trustee, fiduciary or investment manager shall desist from the following unsound practices: a. Entering in an arrangement whereby the client is at the same time the borrower of his own fund placement, or whereby the trustor or principal is a borrower of other trust, fiduciary or investment management funds belonging to the same family or business group of such trustor or principal; b. Granting loans or accommodations to any trust committee member, officer and employee of the trust department except where such loans are obtained by said persons as members of an employee benefit fund of the trustee's own institution; CAScIH c. Borrowing from, or selling trust, other fiduciary and/or investment management assets to, the bank proper to cover portfolio losses and/or to guarantee the return of principal or income; d. Granting new loans to any borrower who has a past due and/or classified loan account with the bank proper or the trust department; and e. Requiring clients to sign documents in blank. SECTION X409. Trust and Other Fiduciary Business . The conduct of trust and other fiduciary business shall be subject to the following regulations. SUBSECTION X409.1 Minimum documentary requirements . Each trust or fiduciary account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by an order of the court or other competent authority, the written order of said court or authority. b. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories to, the trust or other fiduciary account. c. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or indenture shall include the following minimum provisions: (1) Title or nature of contractual agreement in noticeable print; (2) Legal capacities, in noticeable print, of parties sought to be covered; (3) Purposes and objectives; (4) Funds and/or properties subject of the arrangement; (5) Distribution of the funds and/or properties; (6) Duties and powers of trustee or fiduciary; (7) Liabilities of the trustee or fiduciary; (8) Reports to the client; (9) Termination of contractual arrangement and, in appropriate cases, provision for successor-trustee or fiduciary; (10) The amount or rate of the compensation of trustee or fiduciary; (11) A statement in noticeable print to the effect that trust and other fiduciary business are not covered by the PDIC and that losses, if any, shall be for the account of the client; and (12) Disclosure requirements for transactions requiring prior authority and/or specific written investment directive from the client, court of competent jurisdiction or other competent authority. SUBSECTION X409.2 Lending and investment disposition . Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. When a trustee or fiduciary is granted discretionary powers in the investment disposition of trust or other fiduciary funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank, or of mortgage and chattel mortgage bonds issued by the trustee or fiduciary; and d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76, and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) The borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION X409.3 Transactions requiring prior authority . A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client, beneficiary, other party-in-interest, court of competent jurisdiction or other competent authority: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders; or to any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders; or from any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of, or in securities underwritten by, the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; and d. Sell, transfer, assign, or lend money or property from one trust or fiduciary account to another trust or fiduciary account except where the investment is in any of those enumerated in Items a to d of Subsec. X409.2. Directors, officers, stockholders, and their related interests covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III - E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transactions to be entered into; (2) Identities of the parties involved in the transactions and their relationships (shall not apply to Item d of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the trust or fiduciary relationship. SUBSECTION X409.4 Ceilings on loans . Loans funded by trust accounts shall be subject to the SBL and DOSRI ceilings imposed on banks under Secs. X303, X330 and X331. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank to the same person, firm or corporation shall be combined. SUBSECTION X409.5 Funds awaiting investment or distribution . Funds held by the trustee or fiduciary awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. SUBSECTION X409.6 Other applicable regulations on loans and investments . The loans and investments of trust and other fiduciary accounts shall be subject to pertinent laws, rules and regulations for banks that shall include but need not be limited to the following: a. Requirements of Sections 76 and 77 of R.A. No. 337, as amended; b. Provisions of Section 4(e) of the New Rules on Registration of Short-Term Commercial Papers and Section 7(f) of the New Rules on Registration of Long-Term Commercial Papers issued by the SEC (Appendices 13 and 14). c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provision for probable losses which shall be booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. SUBSECTION X409.7 Operating and accounting methodology . Trust and other fiduciary accounts shall be operated and accounted for in accordance with the following: a. The trustee or fiduciary shall administer, hold or manage the fund or property in accordance with the instrument creating the trust or other fiduciary relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting . SECTION X410. Common Trust Funds . The administration of CTFs shall be subject to the provisions of Subsecs. X409. 1 up to X409.6 and to the following regulations. As an alternative compliance with the required prior authority and disclosure under Subsecs. X409.2 and X409.3, a list which shall be updated quarterly of prospective and/or outstanding investment outlets may be made available by the trustee for the review of all CTF clients. SUBSECTION X410.1 Establishment of common trust funds . A bank authorized to engage in trust business may establish, administer and maintain one (1) or more CTFs. SUBSECTION X410.2 Minimum documentary requirements for common trust funds . In addition to the trust agreement or indenture required under Subsec. X409.1, each CTF shall be established, administered and maintained in accordance with a written declaration of trust referred to as the plan, which shall be approved by the board of directors of the trustee and a copy submitted to the appropriate supervising and examining department of the BSP within thirty (30) banking days prior to its implementation. The plan-shall make provisions on the following matters: a. Title of the plan; b. Manner in which the plan is to be operated; c. Investment powers of the trustee with respect to the plan, including the character and kind of investments which may be purchased; d. Allocation, apportionment, distribution dates of income, profit and losses; e. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participation in the plan including the minimum initial placement and account balance to be maintained by the trustor; f. Auditing and settlement of accounts of the trustee with respect to the plan; g. Detailed information on the basis, frequency, and method of valuing and accounting of CTF assets and each participation in the fund; h. Basis upon which the plan may be terminated; i. Liability clause of the trustee; j. Schedule of fees and commissions which shall be uniformly applied to all participants in a fund and which shall not be changed between valuation dates; and k. Such other matters as may be necessary or proper to define clearly the rights of participants under the plan. The legal capacity of the bank administering a CTF shall be indicated in the plan and other related agreements or contracts as trustee of the fund and not in any other capacity such as fund manager, financial manager , or like terms. The provisions of the plan shall control all participations in the fund and the rights and benefits of all parties in interest. The plan may be amended by resolution of the board of directors of the trustee: Provided, however , That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participation if they are not in conformity with the amendments made: Provided, further , That amendments to the plan shall be submitted to the appropriate supervising and examining department of the BSP within ten (10) banking days from approval of the amendments by the board of directors. A copy of the plan shall be available at the principal office of the trustee during regular office hours for inspection by any person having an interest in a trust whose funds are invested in the plan or by his authorized representative. Upon request, a copy of the plan shall be furnished such person. SUBSECTION X410.3 Management of common trust funds . The trustee shall have the exclusive management and control of each CTF administered by it, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund. The trustee shall designate clearly in its records the trust accounts owning participation in the CTF and the extent of the interests of such account. The trustee shall not negotiate nor assign the trustor's beneficial interest in the CTF without prior written consent of the trustor or beneficiary. No trust account holding a participation in a CTF shall have or be deemed to have any ownership or interest in any particular asset or investment in the CTF but shall have only its proportionate beneficial interest in the fund as a whole. SUBSECTION X410.4 Trustee as participant in common trust funds . A trustee administering a CTF shall not have any interest in such fund other than in its capacity as trustee of the CTF nor grant any loan on the security of a participation in such fund: Provided, however, That a trustee which simultaneously administers funds for its employees may invest such funds in the CTF. SUBSECTION X410.5 Exposure limit of common trust fund to a single person or entity . No investment for a CTF shall be made in stocks, bonds, bank deposits or other obligations of any one person, firm or corporation, if as a result of such investment the total amount invested in stocks, bonds, bank deposits or other obligations issued or guaranteed by such person, firm or corporation shall aggregate to an amount in excess of fifteen percent (15%) of the market value of the CTF: Provided , That this limitation shall not apply to investments in government securities or other evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. SUBSECTION X410.6 Operating and accounting methodology . By its inherent-nature, a CTF shall be operated and accounted for in accordance with the following: a. The trustee shall have exclusive management and control of each CTF administered by it and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund; b. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled-fund accounting ; c. Contributions to each fund by clients shall always be through participation in the fund; d. All such participations shall be pooled and invested as one account (referred to as collective investments); and e. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the CTF, and no participation shall be admitted to, or withdrawn from, the fund except on the basis of such valuation. SECTION X411. Investment Management Activities . The conduct of investment management activities shall be subject to the following regulations. SUBSECTION X411.1 Minimum documentary requirements . An investment management account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of and designating the signatories to, the investment management account. b. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or contract shall include the following minimum provisions: (1) Pre-numbered contractual agreement form; (2) Title or nature of contractual agreement in noticeable print; (3) Legal capacities, in noticeable print, of parties sought to be covered; (4) Purposes and objectives; (5) The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; (6) Statement in underlined noticeable print that: (a) The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; (b) The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and (c) The investment management agreement is not covered by the PDIC and that losses, if any, shall be for the account of the client; (7) Duties and powers of the investment manager; (8) Liabilities of the investment manager; (9) Reports to the client; (10) The amount or rate of the compensation of the investment manager; (11) Terms and conditions governing withdrawals from the account; (12) Termination of contractual arrangement; and (13) Disclosure requirements for transactions requiring prior authority and/or specific written investment directives from the client. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix 24 . SUBSECTION X411.2 Minimum size of each investment management account . No investment management account shall be accepted or maintained for an amount less than P1 million. An investment management account reduced to less than P1 million due to investment losses shall be exempt from this requirement. SUBSECTION X411.3 Commingling of funds . Two (2) or more individual investment management accounts shall not be commingled except for the purpose of investing in government securities or in duly registered commercial papers: Provided , That the participation of each of the aforementioned accounts in the commingled account shall not be less than P1 million: Provided, further , That such commingling has been duly disclosed and specifically agreed; in writing by the clients. SUBSECTION X411.4 Lending and investment disposition . Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. When an investment manager is granted discretionary powers in the investment disposition of investment management funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank or mortgage and chattel mortgage bonds issued by the investment manager and d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) Borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION X411.5 Transaction requiring prior authority An investment manager shall not undertake any of the following transactions for the account of a client unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders, or employees of the investment manager or relatives within the first degree of consanguinity or affinity or the related interests of such directors, officers and stockholders; or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the department, directors, officers, stockholders, or employees of the investment manager or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders or from any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of or in securities underwritten by, the investment manager or a corporation in which the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; and d. Sell, transfer, assign or lend money or property from one trust, fiduciary or investment management account to another trust, fiduciary or investment management account except where the investment is in any of those enumerated in Items a to d of Subsec. X411.4. Directors, officers, stockholders, and their related interests covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III-E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transaction to be entered into; (2) Identities of the parties involved in the transaction and their relationships (shall not apply to Item d of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship. SUBSECTION X411.6 Title to securities and other properties . Securities such as promissory notes, shares of rocks, bonds and other properties of the portfolio shall be issued or registered in the name of the principal or of the investment manager: Provided , That in case of the latter, the instrument shall indicate that the investment manager is acting in a representative capacity and that the principal's name is disclosed thereat. SUBSECTION X411.7 Ceilings on loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on banks and investment houses under Secs. X330 and X331. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank proper to the same person, firm or corporation shall be combined. SUBSECTION X411.8 Operating and accounting methodology . Investment management accounts shall be operated and accounted for in accordance with the following: a. The investment manager shall administer, hold, or manage the fund or property in accordance with the instrument creating the investment management relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting . SECTION X412. FCDU/EFCDU Trust Accounts . Only a bank with authority to operate a foreign currency deposit unit (FCDU) or an expanded foreign currency deposit unit (EFCDU) under R.A. No. 6426, as amended, may accept foreign currency-denominated trust accounts. SUBSECTION X412.1 Banks with trust authority . A bank authorized to engage in trust business under Section 57 of R.A. No. 337, as amended, which is also authorized to operate an FCDU or EFCDU under R.A. No. 6426, as amended, shall include FCDU/EFCDU trust accounts among those managed or administered by its trust department under the responsibility of the board of directors, the trust committee and the trust officer. SUBSECTION X412.2 Banks without trust authority . A bank not authorized to engage in the trust business under Section 57 of R.A. No. 337, as amended, which accepts FCDU/EFCDU trust accounts under R.A. No. 6426, as amended, shall manage such trust accounts in its FCDU/EFCDU as an exception to Item a of Subsec. X406.1. Pursuant to the provisions of Subsec. X406.4, the board of directors shall be responsible for the proper administration and management of FCDU/EFCDU trust accounts: Provided , That the board of directors may, by action duly entered in the minutes, constitute an FCDU or EFCDU trust committee to which the administration and management of such accounts may be delegated. The FCDU or EFCDU trust committee shall be composed of three (3) directors, who shall be appointed on a regular rotation basis, one of whom shall be designated as chairman. The three (3) directors shall meet the qualification requirements under Subsec. X406.3 and shall not be operating officers or members of the audit committee of the bank. SUBSECTION X412.3 A dditional deposit for the faithful performance of trust duties . A bank authorized to engage in trust business that accepts FCDU/EFCDU trust accounts shall deposit with the BSP additional eligible government securities under Subsec. X405.2 as security for the faithful performance of trust duties equivalent to at least one percent (1%) of the value of the FCDU/EFCDU trust assets based on the average of the month-end balances of such assets during the immediately preceding quarter as converted in the local currency at the prevailing foreign exchange rate. Such securities shall be deposited within thirty (30) banking days after the end of every calendar quarter. SUBSECTION X412.4 Liquidity requirement for FCDU/EFCDU common trust funds . In addition to the basic security deposit, each FCDU/EFCDU CTF shall be required to set up at least ten percent (10%) of the book value of the fund for liquidity purposes: Provided , That such liquidity requirement shall be in any or a combination of the following: (a) readily marketable foreign currency securities with maturity of not more than three (3) years; and (b) foreign currency deposits with foreign banks: Provided, further , That the liquidity requirement of EFCDUs may, in addition to the foregoing, also be in the form of foreign currency deposits with other EFCDUs or resident offshore banking units. The base amount of the liquidity requirement shall be the average of the month-end balances of the CTFs within a given quarter. SUBSECTION X412.5 Applicability of rules and regulations . Unless otherwise revised by the provisions of this Section, the rules and regulations governing the administration of trust accounts, including CTFs, shall be observed, whether the FCDU/EFCDU trust accounts are administered by the bank's trust department or by its FCDU/EFCDU. Also applicable are rules and regulations on the operations of FCDUs/EFCDUs that include, among other things, regulations on acceptable foreign currencies, eligible and ineligible foreign currency sources; foreign currency cover requirements; and allowable loans and investments. SECTION X413. Required Surplus . A bank authorized to engage in trust and other fiduciary business shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its trust, investment management and other fiduciary business since the last preceding dividend declaration until the surplus shall amount to twenty percent (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends but losses accruing in the course of its business may be charged against surplus. B. Investment Management Activities SECTION X414. Authority to Perform Investment Management . Banks may be authorized by the Monetary Board to act as managing agent, adviser, consultant or administrator of investment management/advisory/ consultancy account under Section 72(d) of R.A. No. 337, as amended. However, such authority shall not be construed to include the authority to engage in trust and other fiduciary business under Chapter VII of R A. No. 337, as amended. If a bank is found to engage in unauthorized investment management activities, the Monetary Board may impose administrative sanctions against such bank or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any investment management account to duly incorporated and licensed entities of the choice of the client. A bank not authorized to engage in investment management activities shall not advertise or represent itself as being engaged in investment management activities or represent itself as investment manager or use words of similar import. SUBSECTION X414.1 Prerequisites for engaging in investment management activities . A bank before it may engage in investment management activities shall comply with the following requirements: a. The bank has been duly licensed by the BSP or created by special law or charter. b. The articles of incorporation or charter of the bank shall include among its powers or purposes the authority to engage in investment management activities. c. The by-laws of the bank shall include, among other things: (1) The organization plan or structure of the department, office or unit which shall conduct the investment management activities of the institution; (2) The creation of an investment management committee, the appointment of an investment management officer and subordinate officers of the investment management department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. d. The applicant shall also meet the following additional requirements: (1) It has continuously complied with its net worth-to-risk assets ratio, liquidity floor, and ceilings on DOSRI loans for the last sixty (60) days immediately preceding the date of application; (2) It has not incurred net weekly reserve deficiency against deposit liabilities and deposit substitutes during the last eight (8) weeks immediately preceding the date of application; and (3) It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the BSP; and has not been cited for serious violations or exceptions affecting its solvency, liquidity and profitability. Compliance with the foregoing as well as with other requirements under existing regulations, shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION X414.2 Pre-operating requirements . A bank authorized to engage in investment management activities shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of investment management duties required under Subsec. X415.1; b. Organization chart of the investment management department which shall carry out the investment management activities of the bank; and c. Names and positions of individuals designated as chairman and members of the investment management committee, investment management officer and other subordinate officers of the investment management department. SECTION X415. Security for the Faithful Performance of Investment Management Activities SUBSECTION X415.1 Basic security deposit . A bank authorized to engage in investment management activities shall deposit with the BSP eligible government securities as security for the faithful performance of its investment management activities equivalent to at least one percent (1%) of the book value of the total investment management assets: Provided , That at no time shall such deposit be less than P500,000. SUBSECTION X415.2 Eligible securities . Government securities which shall be deposited in compliance with the above basic security deposit shall consist of evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided , That such securities shall be free, unencumbered, and not utilized for any other purpose: Provided, further , That such securities, shall have remaining maturity of not more than three (3) years from the date of deposit with the BSP. SUBSECTION X415.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of the total assets of investment management funds of the immediately preceding calendar quarter. SUBSECTION X415.4 Compliance period; Sanctions . The investment manager shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the BSP securities required under this Section. The following sanctions shall be imposed for any deficiency in the security deposit for the faithful performance of investment management activity: a. On the bank: (1) First offense Penalty of P5,000 per banking day to be reckoned from thirty (30) banking days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of investment management license. b. On the Head of the Investment Management Department: (1) First Offense Reprimand with a stem warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for 90 days without pay. In case a bank fails to comply with the basic security deposit, said bank shall desist from accepting new investment management accounts and from renewing expiring investment management contracts. SECTION X416. Organization and Management . The provisions under Sec. X406 up to Subsec. X406.4 shall govern the organization and management of banks without trust license which are engaged in investment management activities only. The following terms shall, however, be used: a. Investment management activities in lieu of trust and other fiduciary business; b. Investment management accounts in lieu of trust and other fiduciary accounts; c. Investment management committee in lieu of trust committee; d. Investment management officer in lieu of trust officer; and e. Investment management department in lieu of trust department. SECTION X417. Non-investment Management Activities . The provisions of Sec. X407 shall apply in determining non-investment management activities except that the terms trust, other fiduciary, trustee and fiduciary shall be disregarded. SECTION X418. Unsound Practices . The provisions of Sec. X408 shall govern the unsound practices for investment management accounts. SECTION X419. Conduct of Investment Management Activities . The provisions of Sec. X411 shall govern the conduct of investment management activities of a bank without a trust license. SECTION X420. Required Surplus . A bank authorized to engage in investment management activities shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the surplus shall amount to twenty percent (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against surplus. C. General Provisions SECTION X421. Books and Records . The bank's trust department or investment management department shall keep books and records on trust, other fiduciary and investment management accounts separate and distinct from the books and records of its other businesses and shall follow the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities prescribed by the BSP. Each trust, other fiduciary or investment management account shall have a record separate from all other accounts except only in the case of CTFs where the trustee can maintain common records utilizing pooled fund accounting method for each fund: Provided , That the trustee shall clearly indicate in the records the trustors owning participation in the CTF and the extent of the interest of such trustors. Books and records shall contain full information relative to each trust, other fiduciary or investment management account and shall be supported by duplicate signed copies of related documents. Said records and duplicate signed copies of related documents shall be compiled and kept as to allow inspection by BSP examiners and submission of information or reports as may be required by competent authorities. SECTION X422. Custody of Assets . All moneys, properties or securities received by a bank in its capacity as trustee, fiduciary, or investment manager shall be kept physically separate and distinct from the assets of its other businesses and shall be under the joint custody of at least two (2) persons, one of whom shall be an officer of the trust or investment management department, designated for that purpose by the board of directors. The investment of each trust, other fiduciary or investment management account shall be kept physically separated from those of other trust, other fiduciary or investment management accounts, and adequately identified as the assets or property of the relevant account. SECTION X423. Fees and Commissions . A bank acting as trustee, fiduciary or investment manager shall be entitled to reasonable few and commissions which shall be determined on the basis of the cost of services rendered and the responsibilities assumed: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the compensation shall be that allowed or approved by the court: Provided, further , That in the case of CTFs, the fee which a trustee may charge each participant shall be fully disclosed by the trustee in the CTF plan, prospectus, flyers, posters and in all forms of advertising materials to market the funds and in the documents given to clients as proof of participation in the fund. In no case shall such fees and commissions be based on the excess of the income of the trust, other fiduciary or investment management funds over a certain amount or percentage. No trustee, fiduciary or investment manager shall solicit or receive rebates on commissions, fees and other payments for the services rendered to the trust, other fiduciary or investment management account or beneficiaries of the trust, other fiduciary or investment management account by stockbrokers, real estate brokers, insurance agents and similar persons or entities unless the rebates, fees and other payments shall accrue to the benefit of the trust, other fiduciary or investment management account or the beneficiaries thereof. Officers and employees of the trust department or investment management department of banks, while serving as such, shall be prohibited from retaining any compensation for acting as co-trustee or fiduciary in the administration of a trust, other fiduciary or investment management account. SECTION X424. Taxes . The terms and conditions of trust, other fiduciary or investment management agreements including CTF plans shall contain provisions regarding the applicability of regulations governing taxation on the income of trust, other fiduciary or investment management accounts. For this purpose, the trustee, fiduciary or investment manager shall maintain adequate records and shall include information such as the amount of final income tax withheld at source and the amount withheld by the trustee, fiduciary or investment manager in the periodic reports submitted to trustors, beneficiaries, principals and other parties in interest. SECTION X425. Reports Required SUBSECTION X425.1 To trustor, beneficiary, principal . A bank acting as trustee, fiduciary or investment manager shall render reports on the trust, other fiduciary or investment management accounts to the trustor, beneficiary, principal or other party in interest or the court concerned or any party duly designated by the court order, as the case may be, under the following guidelines: a. The reports shall be in such forms as to apprise the party concerned of the significant developments in the administration of the account and shall consist of: (1) A balance sheet; (2) An income statement; (3) A schedule of earning assets of the account; and (4) An investment activity report. b. Items (3) and (4) above shall include at least the following: (1) Name of issuer or borrower; (2) Type of instrument; (3) Collateral, if any; (4) Amount invested; (5) Earning rate or yield; (6) Amount of earnings; (7) Transaction date; and (8) Maturity date; c. The reports shall be prepared in such frequency as required under the agreement but shall not in any case be longer than once every quarter; and d. The reports shall be made available to clients not later than twenty (20) calendar days from the end of the reference date/period in Item c above. SUBSECTION X425.2 To the Bangko Sentral . A bank acting as trustee, fiduciary or investment manager shall submit periodic reports prescribed by the appropriate supervising and examining department of the BSP on the bank's trust and other fiduciary business and investment management activities within the deadlines indicated in Appendix 6. SECTION X426. Audits SUBSECTION X426.1 Internal audit . The bank's internal auditor shall include among his functions, the conduct of periodic audits of the trust department or investment management department at least once every twelve (12) months. 'The board of directors, in a resolution entered in its minutes, may also require the internal auditor to adopt a suitable continuous audit system to supplement and/or to replace the periodic audit. In any case, the audit shall ascertain whether the institution's trust and other fiduciary business and investment management activities have been administered in accordance with laws, BSP rules and regulations, and sound trust or fiduciary principles. SUBSECTION X426.2 External audit . The trust and other fiduciary business and investment management activities of a bank shall be included in the annual financial audit by independent external auditors required under Sec. X164. The audit of the assets and accountabilities of the trust department/investment management department of a bank authorized to engage in trust and other fiduciary business, investment management activities, which shall cover at the minimum a review of the trust/investment management operations, practices and policies, including audit and internal control system, shall be subject to auditing standards to the extent necessary to express an opinion on the financial statements. HEDCAS The audit of the trust/investment management department of a bank authorized to engage in trust and other fiduciary business/investment management activities shall be covered by a separate supplemental audit report to be submitted to the bank's board of directors and to the BSP within the prescribed period containing, among others things, the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately. SUBSECTION X426.3 Board action . A report of the foregoing audits, together with the actions thereon, shall be noted in the minutes of the board of directors of the bank. SECTION X427. Authority Resulting from Merger or Consolidation . In merger of financial institutions, the authority to engage in trust and other fiduciary business and in investment management activities shall continue to be in effect if the surviving institution has such authority and the same has not been withdrawn by the BSP. In case the surviving institution does not have previous authority but desires to engage in trust and other fiduciary business and in investment management activities, it shall secure the prior approval of the Monetary Board to engage in such business as part of its application for merger to enable it to incorporate such among its powers or purpose clause in its articles of incorporation, articles of merger, by-laws and such other pertinent documents. In the consolidation of financial institutions where the resulting entity is an entirely new one, it shall secure from the Monetary Board an authority to engage in trust and other fiduciary business or in investment management activities before it may engage in such business. SECTION X428. Receivership . Whenever a receiver is appointed by the Monetary Board for a bank which is authorized to engage in trust and other fiduciary business or in investment management activities, the receiver shall, pursuant to the instructions of the Monetary Board, proceed to close the trust, other fiduciary and investment management accounts promptly and/or transfer all other accounts to substitute trustees, fiduciaries or investment managers acceptable to the trustors, beneficiaries, principals or other parties in interest: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the receiver shall proceed pursuant to the instructions of said court. SECTION X429. Surrender of Trust or Investment Management License . Any bank which has been authorized to engage in trust and other fiduciary business or in investment management activities and which intends to surrender said authority shall file with the BSP a certified copy of the resolution of its board of directors manifesting such intention. The appropriate supervising and examining department of the BSP shall then conduct an examination of the bank's trust, other fiduciary business and investment management activities. If the bank is found to have satisfactorily discharged its duties and responsibilities as trustee, fiduciary or investment manager, and has provided for the orderly closure or transfer of its trust, fiduciary or investment management accounts, the Monetary Board, on the basis of the recommendation of the examining department, shall order the withdrawal of the bank's authority to engage in trust and other fiduciary management activities. SECTIONS X430 - X498 ( Reserved ) SECTION X499. Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653 without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include the suspension or revocation of a bank's authority to engage in trust and other fiduciary business or in investment management activities, and such other sanctions as may be provided by law. PART FIVE Foreign Currency Deposit System and Other Operations in Foreign Currency SECTION X501. Foreign Currency Deposit System . The foreign currency deposit operations of banks under R.A. No. 6426, as amended, shall be governed by the following rules and regulations. SUBSECTION X501.1 Definition of terms . The following terms and phrases shall mean as follows: a. Foreign Currency Deposit Unit (FCDU) and Expanded Foreign Currency Deposit Unit (EFCDU) shall refer to a unit of a local bank or of a local branch of a foreign bank authorized by the BSP to engage in foreign currency-denominated transactions; pursuant to the provisions of R.A. No. 6426, as amended. b. Local bank shall refer to a KB, EKB or TB organized under the laws of the Republic of the Philippines. c. Local branch of a foreign bank shall refer to a branch of a foreign bank doing business in the Philippines. d. Short-term loans and securities shall refer to those with maturities of one (1) year or less. e. Medium-term loans and securities shall refer to those with maturities of more than one (1) year but not more than five (5) years. f. Long-term loans and securities shall refer to those with maturities of more than five (5) years. SUBSECTION X501.2 Qualification requirements a. KBs/EKBs may be authorized to operate an FCDU or EFCDU: Provided, That they meet the minimum capital requirements as prescribed under Sec. X106 and Subsecs. X106.1 and X106.2, and in the case of branches of foreign banks, Subsecs. X121.4 and X121.5. b. TBs may also be authorized to operate an FCDU: Provided, That they have a net worth or combined capital accounts of at least P50 million. In addition, the standard pre-qualification requirements prescribed under Appendix 5 shall be complied with by a bank applying for an FCDU/EFCDU license. SUBSECTION X501.3 Authorized transactions a. Banks which are granted a certificate of authority to operate an FCDU are authorized to engage in the following transactions in any acceptable foreign currency: (1) Accept deposits and trust accounts from residents and non-residents; (2) Deposit, on short-term maturity, with foreign banks abroad, offshore banking units (OBUs) and other FCDUs/EFCDUs; (3) Invest in foreign currency-denominated debt instruments, which are of short-term maturity and are readily marketable; (4) Grant short-term foreign currency loans as may be allowed by BSP regulations; (5) Borrow, on short-term maturity, from other FCDUs/EFCDUs and from foreign banks abroad and OBUs, subject to existing rules on foreign borrowings; and (6) Engage in foreign currency-foreign currency swap with the BSP, OBUs and other FCDUs/EFCDUs. b. KBs/EKBs which are authorized to operate under the expanded foreign currency deposit system may engage in the following transactions in any acceptable foreign currency: (1) Accept deposits and trust accounts from residents and non-residents; (2) Deposit with foreign banks abroad, OBUs and other FCDUs/EFCDUs; (3) Invest in foreign currency-denominated debt instruments; (4) Grant foreign currency loans as may be allowed by the BSP; (5) Borrow from other FCDUs/EFCDUs and from non-residents and OBUs, subject to existing rules on foreign borrowings; (6) Engage in foreign currency-foreign currency swap; (7) Engage in foreign exchange trading and, with prior BSP approval, engage in financial futures and options trading; and (8) On request/instructions of its foreign correspondent bank: (a) issue letters of credit for a non-resident importer in favor of a non-resident exporter; (b) pay, accept or negotiate drafts/bills of exchange drawn under the letter of credit; and (c) make payment to the order of the non-resident exporter: Provided , That the foreign correspondent bank shall deposit sufficient foreign exchange with the EFCDU issuing the letter of credit to cover all drawings; (9) Engage in direct purchase of export bills of resident exporters, subject to the following conditions: (a) Export transactions covered by usance or sight letters of credit shall be allowed to be purchased by EFCDUs; and (b) Export bills negotiated/purchased by the bank's Regular Unit and outstanding in its books shall not be allowed to be purchased by its EFCDUs. SUBSECTION X501.4 Foreign currency cover requirements . Depository banks under the foreign currency deposit and expanded foreign currency deposit systems shall maintain at all times a 100% cover for their foreign currency liabilities. For purposes of complying with this requirement, the principal offices in the Philippines of the authorized banks and all its branches located therein shall be considered as a single unit. The foreign currency cover shall consist of the following: a. For banks authorized to operate an FCDU (1) Foreign currency deposits with the BSP; (2) Foreign currency deposits of short-term maturity with foreign banks abroad, OBUs and other FCDUs/EFCDUs; (3) Short-term foreign currency loans authorized by the BSP, except those classified by the BSP as bad or uncollectible debts; (4) Investments in foreign currency-denominated debt instruments, which are of short-term maturities and are readily marketable; (5) Foreign currency notes and coins on hand; (6) Foreign currency-foreign currency swaps; (7) Foreign currency interests receivables; and (8) Such other assets as may be determined by the Monetary Board as eligible cover. b. For banks authorized to operate an EFCDU In addition to the above, the following shall also be considered as eligible asset cover: (1) BSP-authorized foreign currency loans maturing beyond one (1) year, except those classified by the BSP as bad or uncollectible debts. BSP-authorized foreign currency loans shall include those with specific approval by the BSP, as well as loan of the private sector from FCDUs/offshore sources, irrespective of maturity, to be serviced using foreign exchange purchased from outside of the banking system. (2) Investments in foreign currency-denominated debt instruments, irrespective of maturity. (3) All outstanding Export Bills Purchased in the EFCDU books, except those classified as bad or uncollectible accounts. For purposes of this Section, only real accounts shall qualify as eligible asset cover. SUBSECTION X501.5 Foreign currency deposit with the Bangko Sentral . Foreign currency deposit with the BSP equivalent to at least fifteen percent (15%) as a form of foreign currency cover referred to in Section 4 of R.A. No. 6426 shall be optional on FCDUs of KBs/EKBs and TBs. The BSP may pay interest on the foreign currency deposit and if requested, shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks. SUBSECTION X501.6 Currency composition of the cover . FCDUs of TBs shall maintain the foreign currency cover in the same currency as that of the corresponding foreign currency deposit liability. FCDUs/EFCDUs of KBs/EKBs shall maintain not less than seventy percent (70%) of the foreign currency cover in the same currency as that of the liability and thirty percent (30%) or less, at the option of the FCDU/EFCDU, may be denominated in other acceptable foreign currencies. SUBSECTION X501.7 Secrecy of deposits . All foreign currency deposits are absolutely confidential. Except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office, whether judicial, administrative or legislative, or any other entity, whether public or private. SUBSECTION X501.8 Numbered accounts . FCDUs/EFCDUs may adopt a numbered account system. SUBSECTION X501.9 Withdrawability and transferability of deposit s. There shall be no restrictions on the withdrawal by the depositor of his deposit or on the transfer of the same abroad, except those arising from the contract between the depositor and the bank. SUBSECTION X501.10 Insurance coverage . Foreign currency deposits shall be insured under the provisions of R.A. No. 3591, as amended. Depositors are entitled to receive payment in the same currency in which the insured deposits are denominated. SUBSECTION X501.11 Rates of interest . Foreign currency deposits shall not be subject to interest ceilings. SUBSECTION X501.12 Eligibility as collateral. Deposits under the foreign currency deposit system are eligible as collateral for peso loans or for foreign currency loans to both domestic juridical entities and/or resident individuals. SUBSECTION X501.13 Taxes . All foreign currency deposits, including interest and all other income or earnings of such deposits, are exempt from any and all taxes whatsoever, irrespective of whether or not these deposits are made by residents or non-residents, so long as the deposits are eligible or allowed under these rules, and in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines. IaSCTE SUBSECTION X501.14 Exemption from court order or process . Foreign currency deposits shall be exempt from attachment, garnishment or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. SUBSECTION X501.15 Inapplicability of the Usury Law . The provisions of R.A. No. 2655, as amended (Usury Law), shall not apply to banks in respect to their foreign currency transactions under this Section. SUBSECTION X501.16 Accounting . The foreign currency deposits and their corresponding cover shall be considered as funds separate and distinct from the regular assets and liabilities of the authorized banks. Authorized banks shall maintain a separate accounting for transactions covered by these rules that will enable preparation of the Balance Sheet and Profit and Loss Statement covering said funds. SUBSECTION X501.17 Supervision . The Governor and the head of the appropriate department of the BSP, personally or by deputies, are authorized to verify the books of account and transactions of each authorized bank, to verify the eligible cover, as well as review all other requirements under these regulations and the bank's compliance with the provisions of law and these regulations. SUBSECTION X501.18 Sanctions . Any willful violation of R.A. No. 6426, as amended, or any regulation duly promulgated by the Monetary Board pursuant thereto, shall subject the offender upon conviction to an imprisonment of not less than one (1) year nor more than five (5) years or a fine of not less than P5,000.00 nor more than P25,000.00, or both such fine and imprisonment, at the discretion of the court. The BSP may revoke or suspend the authority of a bank to accept new foreign currency deposits for violation of R.A. No. 6426 or these regulations, or if such bank ceases to possess the minimum qualifications required. SECTION X502. Other Transactions in Foreign Currency . The operation of mobile foreign currency (FX) booths and off-site automatic multi-currency money changers (OAMMC) shall be governed by this Section. SUBSECTION X502.1 Mobile foreign exchange booths . Without prior authority from the BSP, banks may operate mobile FX booths, subject to the following guidelines: a. The bank shall advise the BSP of the number of mobile FX booths it will operate, the date it will start operations, the areas of operation and the branch where the foreign exchange acquisition will be turned over and booked; b. The services of the mobile FX booths shall be solely for changing foreign exchange currency into peso notes and coins, and not pesos to other foreign currency; c. The mobile FX booths shall not accept deposit or perform other banking functions other than purchase of foreign currencies; d. The internal control system of the proposed mobile FX booths shall be submitted to the appropriate supervising and examining department of the BSP, as well as other security measures adopted therein; and e. The mobile FX booths shall be covered by insurance to protect adequately the bank against losses of whatever nature arising from its operations. SUBSECTION X502.2 Off-site automatic multi-currency money changers . With prior approval of the BSP, banks which have shown general compliance with banking laws, rules and regulations may install an OAMMC, subject to the following conditions: a. The OAMMC shall be installed only in centers of activities like shopping centers, supermarkets, hotels and airports: Provided , That the site is within the area where the applicant bank has a regular branch to service the money changers; DCcAIS b. The applicant bank shall maintain adequate internal control and security measures, which shall include immediate rejection and detection of fake currencies by the machines; c. The transactions of the money changers shall be booked in specific branches which must be identified at the time of application for the putting up of an OAMMC; and d. The services of the OAMMC shall be solely for changing foreign exchange currency into peso notes and coins, and not pesos to other foreign currencies. SECTIONS X503 - X598 ( Reserved ) SECTION X599. General Provision on Sanctions. Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R. A. No. 7653. PART SIX Miscellaneous A. Other Operations SECTION X601. Open Market Operations . The following rules and regulations shall govern the buying and selling of government securities in the open market, pursuant to Section 91 of R.A. No. 7653. a. The BSP may buy and sell in the open market for its own account: (1) Evidences of indebtedness issued directly by the Government of the Philippines or its political subdivisions; and (2) Evidences of indebtedness issued by government instrumentalities and fully guaranteed by the Government. The above evidences of indebtedness must be freely negotiable and regularly serviced. Purchases and sales in the open market shall be made through banks, NBQBs and accredited government securities dealers. b. Outright purchases and sales of government securities shall be effected at prevailing market prices. c. Repurchase (R/P) agreements shall be open to banks (except RBs), NBQBs, and accredited government securities dealers and shall be made under the terms provided for in Subsec. X601.1 and the following: (1) The R/P agreement may be paid at any time before maturity, subject to mutual agreement of both parties; (2) In the event the securities covered by the R/P agreement are not repurchased by the issuer of such agreement, the same may be sold in the open market or transferred to the BSP portfolio; and (3) Should an issuer of an R/P agreement become no longer qualified as such, its outstanding repurchase agreement shall immediately become due and payable. If settlement of the amount due is not made within three (3) days from the date of its disqualification, the BSP shall proceed to collect said amount in accordance with the preceding paragraph. d. Reverse R/P agreements covering the sale of portion of the security holdings of the BSP portfolio may be made under the terms provided for in Subsec. X601.2. e. The purchase and sale of government securities by the National Treasury and government-owned or controlled corporations shall be made only with (a) the BSP; (b) the DBP, the LBP, the SSS, the GSIS, the Al-Amanah Islamic Investment Bank of the Philippines and banks that are wholly-owned or control led by these institutions; and (c) the Philippine Veterans Bank. Transactions shall be done with the bank proper and not through its trust department. SUBSECTION X601.1 Repurchase agreements with Bangko Sentral . R/P agreements may be effected with the BSP subject to the following terms and conditions. a. Rate . The rates on the R/P facility shall be set by the Treasury Department, with the concurrence of the Governor, taking into account prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of ninety-one (91) days. c. Security . Only obligations of the National Government and its instrumentalities and political subdivisions, which are fully guaranteed by the Government, with a remaining maturity of not more than ten (10) years and which are freely negotiable and regularly serviced, shall be eligible as underlying instruments for R/P agreements subject to the collateral requirement prescribed by the BSP. d. Delivery . Delivery of the underlying instruments shall be made to the BSP at the prescribed time. For overnight R/P agreements, delivery of the underlying instruments shall be made not later than 12:00 noon of the date of transaction. Government securities which are held by the issuer of the R/P agreement under the book-entry system with the BSP may be used as underlying instruments only with the conformity of the BSP. e. Upon termination of the R/P agreement, the issuer of such agreement shall claim and take delivery of the underlying instruments at the Treasury Department, BSP. Failure to claim and take delivery of the underlying instruments immediately upon such termination shall relieve the BSP of any liability or responsibility for the loss or misplacement of said instruments. SUBSECTION X601.2 Reverse repurchase agreements with Bangko Sentral . Reverse R/P agreements may be effected with the BSP subject to the following terms and conditions: a. Rate . The rates shall be set by the Treasury Department, with the concurrence of the Governor, taking into account the prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of 364 days. c. Security . The collateral shall consist of obligations of the National Government and other freely negotiable securities in the BSP portfolio valued at 100%. d. Delivery . No delivery of the collateral shall be made, but a custody receipt shall be issued instead. e. Reservation . Prepayment may be made by the BSP at its option anytime before maturity. SECTION X602. Derivatives . Any bank and/or its subsidiaries/affiliates may engage in financial derivatives activities upon prior approval of the BSP. SUBSECTION X602.1 Pre-qualification requirements. Approval by the BSP of an application to engage in derivatives activities shall be granted upon compliance with the standard pre-qualification requirements prescribed in Appendix 5 and to the following: a. Required minimum capital for the specific category of banks or net worth of P200 million, whichever is higher; b. Required FCDU/EFCDU foreign currency asset cover on FCDU/EFCDU foreign currency liabilities for the last six (6) months immediately preceding the date of application; c. Limits on bank's allowable open foreign exchange position for the last six (6) months immediately preceding the date of application; and d. Key officers/traders responsible for derivatives must have a minimum experience of two (2) years as officer/trader in treasury, international operations and/or risk management. The application to engage in derivatives activities shall be submitted to the Foreign Exchange Department of the BSP. SUBSECTION X602.2 Authorized transactions Any bank and/or its subsidiaries/affiliates authorized to engage in derivatives activities may enter into any derivatives contract, whether as end-user or in the capacity of dealer/trader or as agent/broker: Provided, That when such contract is entered as end-user or in the capacity of dealer/trader, either party to said contract enters into the same for hedging purposes: Provided, further That in the case of commodity- or equity-based contracts, the bank and/or its subsidiary/affiliates shall not take an open position at any time. SUBSECTION X602.3 Risk management guidelines . Any bank and/or its subsidiaries/affiliates authorized to engage in derivatives activities shall adopt a policy manual that contains the minimum features and principles embodied in the Risk Management Guidelines for Derivatives (Appendix 25) . Risk disclosure statements, which should at least contain the disclosure statements in Appendix 26 , shall be provided to the clients/customers of a bank and/or its subsidiaries/affiliates in order to advise the former of the risks involved in derivatives activities. A detailed statement on the position of the clients/customers must be sent to them periodically. SUBSECTION X602.4 Accounting guidelines . In recording derivatives activities in the books, a bank and/or its subsidiaries/affiliates shall observe the guidelines enumerated in Appendix 27. SUBSECTION X602.5 Sanctions . In addition to the penalties prescribed in Sections 36 and 37 of R.A. No. 7653, the BSP may a. Suspend or revoke the authority to engage in derivatives activities if a bank and/or its subsidiaries/affiliates: (i) has violated any provision of this Section; or (ii) is in imminent danger of insolvency; or (iii) will probably incur continuous losses if it does not stop/suspend its derivatives activities. b. Impose fines for any delay in the submission of Category A-3 reports required in this Section or when such reports are incomplete or erroneous in any material respect. SECTION X603. Clearing Operations . Banks shall observe the clearing procedures outlined in Appendix 28 for the clearing of checks and settlement of interbank balances through the clearing facilities. SECTION X604. Collection of Customs Duties/Taxes/Levies and Other Revenues . The following regulations shall govern the collection and reporting of customs duties, taxes, levies and other revenues through the banking system. SUBSECTION X604.1 Coverage . All presently accredited agent banks with demand deposit accounts with the BSP and government banks are authorized to collect (a) customs duties, taxes and other levies, (b) import processing fees, and (c) export/premium duties: Provided, however , That the collection of taxes from government-owned and controlled corporations shall be made only through banking offices of government banks. SUBSECTION X604.2 Collection and reporting of internal revenue taxes . Banks which are duly accredited by the Bureau of Internal Revenue (BIR) to accept payment of internal revenue taxes shall be governed by the relevant BIR Revenue Regulations. SUBSECTION X604.3 Collection and reporting of customs duties and import processing fees . Participating banks are authorized to accept payment of customs duties, taxes and other levies, and import processing fees under the following procedures. a. The collecting bank shall acknowledge receipt of payments of customs duties, taxes and other levies, and import processing fees by issuing Official Receipts (ORs) in forms to be requisitioned by the Head Office from the General Services Division, Bureau of Customs, Manila. b. The collecting bank shall book all such collections and credit the same to the special account "Due to BSP - Bureau of Customs". c. The branch shall report by telephone, telex or other means to its Head Office, at the end of each day, total collections for the day and the inclusive serial numbers of ORs issued, to be used as basis for the preparation by the Head Office of the Consolidated Report of Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-005) . d. The Head Office and its branches shall accomplish the Abstract of Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-006) and submit the same, duly supported with copies of Orders of Payment (OPs), ORs, Release Certificates (RCs) and commercial invoices on the same day to the offices indicated in the form. e. The Head Office of the participating banks shall consolidate all reports of collections with those of its branches and submit the original of the Consolidated Report on Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-005) to the Accounting Department, BSP, Manila on the 10th calendar day following the date of collection. Simultaneously, the remaining copies shall be distributed to the offices indicated in the form. SUBSECTION X604.4 Collection and reporting of export/premium duties . Participating banks are authorized to accept payment of export/premium duties under the following procedures. a. The collecting bank shall deduct from the export proceeds the estimated amount of export/premium duties due from the export shipment upon negotiation of the shipping documents but shall collect the exact and correct amount of such duties upon presentation of the OP issued by the Export Coordinating Division, Bureau of Customs (For Port of Manila) or the Collector of Customs concerned. b. The collecting bank shall issue the corresponding ORs in forms to be requisitioned by the Head Office from the General Services Division, Bureau of Customs, Manila. c. The collecting bank shall book all such collections and credit the same to the special account "Due to BSP-Export/Premium Duty" . d. The branch/extension office/agency shall: (1) Report by telephone, telex or other means to its Head Office, at the end of each day, total collections for the day and the inclusive serial numbers of ORs issued, to be used as basis for the preparation by the Head Office of the Consolidated Report on Daily Collections of Export/Premium Duty (RC 82-007) ; and (2) Accomplish the Abstract of Daily Collections of Export/Premium Duty (RC 82-008) and submit the same, duly supported with copies of OPs and ORs, within ten (10) calendar days from date of collection to the offices indicated in the form. e. The Head Office of the collecting bank shall: (1) Consolidate its report of collection with those of its branches/extension offices/agencies and submit to the Bureau of Customs the Consolidated Report of Daily Collections of Export/Premium Duty (RC 82-009) on the day following the date of collection; and (2) Consolidate the Abstract of Daily Collections of Export/Premium Duty (RC 82-010) with those received from branches/extension offices/agencies . The original of the Consolidated Abstract of Collection of Export/Premium Duty (RC 82-011) shall be submitted to the Accounting Department, BSP, Manila, on the 10th calendar day following the date of collection. Simultaneously, the remaining copies, with the supporting OPs and ORs, shall be submitted to the Bureau of Customs. SUBSECTION X604.5 Remittances thru debit/credit advices . The Accounting Department, BSP, Manila, shall debit the demand deposit accounts of the banks concerned for the total daily collection, which is due for remittance on the 10th calendar day from the date of collection (based on either forms RC 82-005, L RC 82-007 or RC 82-011). Said Department shall also credit on the same day the account of the Treasurer of the Philippines for all such remittances of tax collections, duties, fees and other levies. Copies of debit/credit advices to Authorized Agent Banks (AABs) shall be furnished by the Accounting Department, BSP. SUBSECTION X604.6 Reconciliation of revenue collections . The Bureau of Customs shall report to the appropriate supervising and examining department, BSP, Manila, any unreported collection or other discrepancies discovered for proper examination. The BSP shall take appropriate action, through the Accounting Department, either by debiting or crediting the demand deposit account of the bank concerned, upon advice by the appropriate supervising and examining department on the results of the investigation. SUBSECTION X604.7 Penalty for willful delay on the reporting of collections/remittances . In the event the Bureau of Customs shall discover, in the course of its verification, any willful delay in the reporting of collections and remittances by banks, said Bureau shall advise the Accounting Department of the BSP to debit the demand deposit account of the bank concerned with the corresponding penalty therefor, in accordance with Subsec. X604.8. SUBSECTION X604.8 Fines for delayed reports/remittances of collections . Any bank authorized to collect customs duties, taxes and other levies and export/premium duty, which shall willfully delay the submission of reports and remittance of its collection to the BSP within the period prescribed thereon, shall pay fines in accordance with the following schedule: For delay in For delay in submission remittance of report of collection a. Per banking day P60 plus 1/30 of 1% of default for on the the first 5 amount of banking days delayed of default remittance b. Per banking day P90 plus 1/15 of 1% of default for the on the next 5 banking amount of days of default delayed remittance c. Per banking day P120 plus 1/10 of 1% of default for the on the succeeding amount of banking days of delayed default remittance Provided , That: (1) Fines imposed above shall not be in excess of P30,000 a day; (2) The default shall start to run on the day following the last day required for submission of the report or remittance, as the case may be. However, should the last day of filing fall on a non-banking day in the locality where the reporting bank is situated, the default shall start on the day following the next banking day; and (3) The manner of payment or collection of fines enumerated under Subsec. X609.1 shall apply. SUBSECTION X604.9 Liquidity floor requirement on revenue collections . Revenue collections of authorized agent banks shall be subject to the liquidity floor requirement under Subsec. X240.6. SUBSECTION X604.10 Collection of import duties at the time of opening of letters of credit . The following rules and regulations shall govern the collection of import duties at the time of opening of letters of credit covering imports and for other purposes: a. Collection of deposits for import duties . All financial institutions shall, upon opening of the letters of credit covering imports, collect from the applicant/importer a deposit equivalent to the full amount of import duties due on the importation covered by such letters of credit. The deposit shall not be withdrawable and shall be utilized only by crediting the same to the import duties due on the importation. b. Amount of import duties . The import duties due shall be determined and declared by the applicant for the letter of credit subject to the penalties prescribed under the Tariff and Customs Code. c. Other payment arrangements . The requirement of a deposit shall likewise apply even if the importation is effected under other types of payment arrangements or on a deferred payment basis. The deposit should be made upon presentation of the import documents to the agent bank. d. Validation of official receipt . Such deposits shall be validated by official receipts of the financial institutions concerned and shall be credited in the final computation of the import duties, taxes and other charges due on the importation, upon the filing of the corresponding import entry. e. Collection of deficiency and refund of excess deposits . Any deficiency in the deposit made as against the actual import duties, taxes and other charges due on the importation shall be collected by the Bureau of Customs from the importer prior to the release or withdrawal of the shipment. Any excess deposit shall be refunded by the Bureau of Customs to the importer. f. Remittance of collection . The BSP demand deposit account of the financial institutions concerned shall be debited for the deposits collected, in accordance with Subsec. X604.5 g. Violation . Violation of the provisions of this Section shall be penalized under the pertinent provisions of the Tariff and Customs Code and/or under Sections 36 and 37 of R.A. No. 7653. SECTION X605. Miscellaneous Operations . The following rules and regulations shall apply to operations specified herein. SUBSECTION X605.1 Collection and paying agents of the Social Security System . Banks duly accredited by the SSS are authorized to act as collecting and paying agents under which agency, employer-members of the SSS may pay their premium contributions to the SSS through the said banks and the funds thus collected shall be remitted to the SSS within thirty (30) days from receipt thereof. Such banks are also authorized to receive amortization payments by SSS members, individuals and entities on commercial, industrial, housing, salary and educational loans granted by the SSS. During the thirty (30)-day period that such premium contributions are in the custody of the banks, such funds shall not earn interest. The banks shall not collect from the SSS any service charge for such agency. The funds collected by banks shall be handled by the bank proper and not the trust department: Provided, however , That such deposits shall be subject to the reserve requirements and the liquidity floor requirements on government deposits. SUBSECTION X605.2 Commercial banks as depository of rediscounting proceeds . Rediscounting proceeds for RBs situated outside the fifty (50)-kilometer radius from Manila shall be credited, for the account of the RB concerned, to the clearing account with the BSP of the depository KB to be designated by the borrowing RB. The contemplated depository relationship arrangement must be manifested to the BSP thru the submission by the RB of an authenticated copy of the letter of understanding between the RB and the KB showing such depository relationship. B. Sundry Provisions SECTION X606. Bank Premises and Other Fixed Assets . The following rules shall govern the premises and other fixed assets of banks. SUBSECTION X606.1 Appreciation or increase in book value . As a general rule, appreciation or increase in book value of bank premises and other fixed assets is not allowed. However, in cases where the market value of the property has greatly increased since the original purchase, appreciation may be allowed: Provided , That the appropriate supervising and examining department of the BSP shall be notified in advance of the proposed increase in value and: Provided, further , That the corresponding appreciation credit shall not form part of the combined capital accounts of banks but lodged under a "Revaluation Reserve" account. SUBSECTION X606.2 Ceiling on total investments . The total investment of a bank in real estate and improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of the bank's net worth as defined in Sec. X106 and Subsec. X121.5. In determining compliance with such ceiling, the following rules shall apply: a. The investment shall include all real estate and equipment necessary for the bank's immediate use in the transaction of its business, such as: (1) Bank Premises Land and Buildings, Buildings under Construction, Leasehold Rights and Improvements and Furniture, Fixtures and Equipment (as defined in the Manual of Accounts for All Banks), owned and used by the bank in the conduct of its business, including staff houses, recreational facilities and landscaping costs, net of accumulated depreciation: Provided, however, That appraisal increment on bank premises shall not be included in the total investment in real estate and improvements for purposes of these guidelines; and (2) Real properties, equipment or other chattels purchased by the bank in its name for the benefit of its officers and employees, net of depreciation and in the case of land or other non-depreciable property, net of payments already made to the bank by the officers and employees for whose benefits the property was bought, where such property has not yet been fully paid and ownership has not yet been transferred to them. b. The following shall be included in the computation of a bank's total investment in bank premises. (1) The cost of real estate leased in whole or in part by the bank from a corporation in which the bank has equity, equivalent to the amount obtained by applying the percentage of the equity of the bank in the lessor to the cost of that portion of the property being leased, or (b) the amount of equity in the lessor, whichever is lower; plus the amount obtained by applying the percentage of the equity of the bank in the lessor to any outstanding loans of the lessor with the bank, the proceeds of which were used to purchase, construct or develop the real estate used for the bank's purposes. (2) The lower of (a) the cost of real estate leased in whole or in part by the bank from a corporation in which any or a group of stockholders owning 10% or more of the voting stock of the bank, directors and/or officers of the bank, hold or own more than 15% of the subscribed capital stock of the lessor, equivalent to the amount obtained by applying the percentage of the equity of said stockholders/directors/officers in the lessor to the cost of that portion of the property being leased by the bank, or (b) the amount obtained by applying the percentage of the equity of the stockholders/directors/officers in the lessor to any outstanding loans of the corporation with the bank, the proceeds of which were used to purchase, construct or develop the real estate used for the bank's purposes. SUBSECTION X606.3 Lease of bank premises . No bank shall negotiate a contract to lease or sublease to third persons any portion or portions of its office premises without securing the prior approval of BSP. SECTION X607. Bank Advertisements . The following rules and regulations shall govern bank advertisements. a. No bank shall publish, issue or distribute in any form, any advertisement that shall degrade, deprecate or otherwise prejudice other banking and financial institutions. b. No bank shall publish, issue or distribute in any form of advertisement (in newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any other medium) or allow itself to be used/mentioned in any form of advertisement unless such advertisement is in pursuance of its business or investment. c. No bank shall place or cause to be placed any advertisement tending to mislead a depositor into believing that he will get more in benefits than what the bank is legally authorized to give. No bank advertisement shall contain any false claim or exaggerated representation as to its liquidity, solvency, resources, deposits and banking services. d. No bank advertisement shall give the impression that the bank is engaged in a business other than banking. e. Banks shall inform their depositors and other clients by advertisement or publication of the termination of benefits previously advertised or publicized. f. Banks shall discontinue any advertisement whenever the same is deemed unethical/unwarranted or violative of the provisions of these regulations. The client banks and/or their advertising agencies shall incorporate in their contract/agreement for time and space with media the condition that such contract/agreement for time and space can be cancelled/terminated immediately whenever the client bank is directed by the BSP to desist or discontinue the particular advertisement in question. g. Responsibility for compliance with the above rules and regulations rests with the bank officers or directors who caused the approval or placement of such advertisement. SECTION X608. Assessment Fees on Banks Banks shall contribute to the BSP an annual fee to help defray the cost of maintaining the appropriate supervising and examining department in accordance with the following guidelines. SUBSECTION X608.1 Annual fees on banks . For purposes of computing the annual fees chargeable against banks, the term Total Assessable Assets shall be the amount referred to as the total assets under Section 28 of R. A. No. 7653 (end-of-month total assets per balance sheet, after deducting cash on hand and amounts due from banks, including the BSP and banks abroad), plus trust department accounts. Average Assessable Assets (AAAs) shall be the summation of the end-of-month total assessable assets divided by the number of months in operation during the particular assessment period. The rates of annual fees for banks shall be as follows: a. EKBs/KBs - 1/28 of 1% b. (1) TBs, except SSLAs - 1/28 of 1% (2) SSLAs - 1/20 of 1% c. RBs/Coop banks - 1/40 of 1% Above rates multiplied by the corresponding AAAs shall be the amount of annual fees: Provided , That these rates are chargeable to SSLAs and RBs/Coop Banks for the cost of maintaining the appropriate supervising and examining department, whichever is lower. Annual fees to be collected from banks shall be debited to their respective deposits with the BSP by the BSP Accounting Department upon receipt of the notice of the assessment from the appropriate supervising and examining department. Where the deposit account is insufficient to cover the assessment fee, the BSP Accounting Department shall bill the bank for the full amount of the annual fee or for the balance thereof not covered by its deposit account, as the case may be. Within thirty (30) calendar days from receipt of the bill, the bank shall make the corresponding remittance to the BSP Accounting Department. Failure to pay the bill within the prescribed period shall subject the institution to administrative sanctions. SECTION X609. Collection of Fines and Other Charges from Banks . The following regulations shall govern the payment of fines and other charges by banks. SUBSECTION X609.1 Payment of fines by banks Banks shall pay the fines within fifteen (15) calendar days from receipt of the statement of account from the BSP. For banks which maintain demand deposit account with the BSP, fines which are unpaid after the lapse of the fifteen(15)-day period shall be automatically debited against the corresponding demand deposit account of the bank concerned: Provided, That if the balance of the bank's account is insufficient to cover the fines due, such fines shall be paid not later than the following banking day. For the purpose of this Subsection, banking day means a day on which the BSP head office and the head office of the bank are open for business. For uniform implementation of the above regulations, the procedural guidelines embodied in Appendix 29 shall be observed. SUBSECTION X609.2 Cost of checks and documentary stamps . Banks are given fifteen (15) days from receipt of invoice to settle their accounts with the BSP Security Printing Plant for transactions representing the cost of printed checks and documentary stamps. Accounts not settled within fifteen (15) days will be debited against the bank's corresponding demand deposit account with the BSP. A debit advice showing invoices paid shall be sent to the head office of the bank concerned. SECTION X610. Philippine and Foreign Currency Notes and Coins . The following rules and regulations shall govern the treatment and disposition of counterfeit Philippine and foreign currency notes and coins, the reproduction and/or use of facsimiles of legal tender Philippine currency notes and coins, the replacement and redemption of legal tender Philippine currency notes and coins considered mutilated or unfit for circulation, and the treatment and disposition of Philippine currency notes and coins called in for replacement. SUBSECTION X610.1 Definition of terms . For purposes of this Section, the following terms are defined . a. Legal Tender Philippine Currency Notes and coins issued and circulating under the provisions of R.A No. 265 and/or R.A. No. 7653, which when offered for the payment of public or private debt must be accepted. b. Counterfeit Note An imitation of a legal and genuine note intended to deceive or to be taken for that which is original, legal and genuine. c. Counterfeit Coin An imitation or forged design of a genuine legal and authorized coin intended to deceive or pass for the genuine coin, regardless of its intrinsic value. d. Unauthorized Reproduction of Legal Tender Philippine Note A reproduction of a facsimile or any illustration or object bearing the likeness or similitude of legal tender Philippine currency note or any part thereof, without prior authority from the Governor of BSP or his duly authorized representative. e. Unauthorized Reproduction of Legal Tender Philippine Coin A reproduction of a facsimile or any object in metal form bearing the likeness or similitude of legal tender Philippine currency coin or any part thereof, without prior authority from the Governor of BSP or his duly authorized representative. SUBSECTION X610.2 Treatment and disposition of counterfeit Philippine and foreign currency notes and coins . Any person or entity, public or private, who receives or takes hold of a note or coin which is counterfeit or whose genuineness is questionable, whether Philippine or foreign currency, shall issue a temporary receipt to its owner/holder and must indicate therein his name, address and community tax certificate number or the passport number, in case of a foreigner, the date of receipt, the denomination, serial number of the note or the coin series as the case may be. The owner/holder shall be required to countersign the receipt and in case of refusal, the reasons thereof shall be stated in the receipt. Any person or entity, public or private, who receives, takes hold or has in his possession a note or a coin which is counterfeit or whose genuineness is questionable, whether Philippine or foreign currency, shall forward the same within five (5) working days from date of receipt/possession thereof, together with a copy of the temporary receipt required herein for examination to: The Cash Department Bangko Sentral ng Pilipinas A. Mabini St., Manila In cases where personal delivery to the Cash Department, BSP, Manila, is not feasible, delivery of the afore-stated notes or coins may be made through any of the following agencies: (1) The BSP Regional Offices/Units; or (2) Any banking institution. Any law enforcement agency which conducted any seizure of notes and coins, whether Philippine or foreign, which are counterfeits or suspected to be counterfeit currency, shall within five (5) working days from date of seizure, advise in writing the Cash Department, BSP, Manila of said seizure enclosing therewith a copy of the receipt and inventory taken on the seized items. All seized notes or coins which are not or no longer needed as evidence in any investigation/legal proceedings shall be immediately turned over to the Cash Department, BSP, for proper disposition. The Cash Department, BSP, after examining all notes and coins submitted to it for examination and/or determination as to its genuineness, shall: (a) Issue a corresponding certification for the currency examined, if needed; (b) Stamp the word "COUNTERFEIT" on both the face and the back of each note found to be counterfeit; and (c) Return to the owner/holder, and/or sender the Philippine or foreign currency notes or coins-found to be genuine in accordance with existing accounting and auditing regulations. All notes and coins, whether Philippine or foreign, determined by the BSP to be counterfeit currency, shall not be returned to the owner/holder, but shall be retained and later disposed of in accordance with such guidelines as may be adopted by the BSP, except those which will be used as evidence in an investigation or legal proceedings, in which case, the same shall be retained and preserved by the BSP for evidentiary purposes. The BSP shall extend assistance as may be requested of it in the investigation, apprehension and/or prosecution of person/s responsible for counterfeiting of notes and coins, both Philippine or foreign. SUBSECTION X610.3 Reproduction and/or use of facsimiles of legal tender Philippine currency notes . No person or entity, public or private, shall design, engrave, print, make or execute in any other manner, or utter, issue, distribute, circulate or use any handbill, advertisement, placard, circular, card, or any other object whatsoever bearing the facsimile, likeness or similitude of any legal tender Philippine currency note, or any part thereof, whether in black and white or any color or combination of colors, without prior authority therefor having been secured from the Governor, BSP or his duly authorized representative. The reproduction and/or use of facsimiles or any illustration bearing the likeness or similitude of legal tender Philippine currency notes may be authorized by the Governor, BSP or his duly authorized representative, for printed illustrations in articles, books, journals, newspapers, or other similar materials and strictly for numismatic, educational, historical, newsworthy or other purposes which will maintain, promote or enhance the integrity and dignity of said note: Provided, however , That any such facsimile or illustration shall be of a size less than three-fifths (3/5) or more than one and one-half (1-) times in size of the currency note being illustrated and that there will be no deviation from the purpose for which the notes will be used. SUBSECTION X610.4 Reproduction and/or use of facsimiles of legal tender Philippine currency coins . No person or entity, public or private, shall design, engrave, make or execute in any other manner, or use, issue, or distribute any object whatsoever bearing the likeness or similitude as to design, color or the inscription thereon of any legal tender Philippine currency coin or any part thereof, in metal form, irrespective of size and metallic composition, without prior authority from the Governor, BSP or his duly authorized representative. The reproduction and/or use of facsimiles or of any object bearing the likeness or similitude of legal tender Philippine currency coins referred to in the foregoing section may be authorized by the Governor, BSP or his duly authorized representative, strictly for numismatic, educational, historical and other purposes which will maintain, promote or enhance the integrity and dignity of said coins. SUBSECTION X610.5 Clean note policy . When making cash deposits with the Cash Department or any of the Regional Offices/Units of the BSP, banks and their branches shall observe the following guidelines and procedures. a. Banks shall classify their cash deposits into: (1) clean or fit notes and (2) dirty or unfit notes, in accordance with the Currency Guide for Bank Tellers, Money Counters and Cash Custodians prepared by Cash Department, BSP. The notes thus classified shall be further sorted by series and by denomination. b. Banks shall provide securely sealed bags or containers separately for the clean or fit notes and for the dirty or unfit notes accompanied by a deposit slip for each type/category. The deposit slip for unfit currency notes shall be clearly labelled as unfit . c. To facilitate handling of deposits, bank deposits shall be packed in sealed bags or containers in standard quantity of twenty (20) full bundle per denomination (each bundle containing 1,000 notes in ten (10) equal straps, each strap containing 100 notes). d. Provincial branches of banks may make direct deposits of currency notes duly identified and sorted, with the nearest BSP Regional Office/Unit. In areas where there are no BSP Regional Office/Unit, provincial branches of banks shall arrange with their respective head offices the shipment of their unfit or dirty notes for deposit with the BSP Cash Department in Manila. Cost of shipment and other related expenses to be incurred shall be solely for the account of the bank concerned. For purposes of this Subsection, the Cash Department and the regional offices/units of BSP may refuse acceptance of cash deposits that do not conform with these guidelines and procedures. SUBSECTION X610.6 Replacement and redemption of mutilated or unfit legal tender Philippine currency notes and coins . The replacement and redemption of legal tender Philippine currency notes and coins considered mutilated or unfit for circulation shall be governed by the following rules. a. Unfit currency note . A currency note shall be considered unfit for circulation when: (1) It contains heavy creases which break the fiber of the paper and indicate that disintegration has begun: Provided, however , that mere creasing or wrinkling which has not broken nor weakened the note does not render the note unfit for circulation; or (2) It is badly soiled/contaminated and/or with writings even if it has proper life or sizing; or (3) It presents a limp or raglike appearance. b. Mutilated currency note . A currency note shall be considered mutilated when: (1) Torn parts of banknote are joined together with adhesive tape in a manner which tries to preserve as nearly as possible the original design and size of the note; or (2) The original size of the note has been reduced/lost through wear and tear or has been otherwise torn, damaged, defaced or perforated through action of insects, chemicals or other causes; or (3) It is scorched or burned to such an extent that although recognizable as such, it has become frail and brittle as to render further handling thereof impossible without disintegration or breaking; or (4) It is split edgewise; or (5) It has lost all the signatures inscribe thereon. c. Unfit currency coin . A currency coin shall be considered unfit for circulation when: (1) It is bent or twisted out of shape or defaced, but its genuineness and/or denomination can still be readily and clearly determined/identified; or (2) It has been considerably reduced in weight by natural abrasion/wear and tear. d. Mutilated currency coin . A currency coin shall be considered mutilated when: (1) It shows signs of filing, clipping or perforation; or (2) It shows signs of having been burned or has been so defaced, that its genuineness and/or denomination cannot be readily and clearly identified. e. Currency notes and coins considered unfit for circulation shall not be re-circulated, but may be presented for exchange to or deposited with any bank. f. Currency notes and coins considered mutilated shall not be re-circulated nor deposited/exchanged, but may be presented or forwarded for determination of their redemption exchange value to: (1) The Cash Department Bangko Sentral ng Pilipinas A. Mabini St., Manila; or (2) The nearest BSP Regional Office/Unit. g. The BSP shall replace or redeem notes and coins considered unfit for circulation or mutilated except when such notes and coins fall under any of the following classifications; (1) Notes and coins the identification of which is impossible; (2) Coins which show signs of filing, clipping or perforations; or (3) Notes which have lost more than two-fifths(2/5)of their surface or all of the signatures inscribed thereon. Notes and coins falling under any of the classifications mentioned under item g above shall be withdrawn from circulation and demonetized without compensation to the owner/bearer. SUBSECTION X610.7 Treatment of Philippine currency notes and coins called in for replacement . Any person or entity, public or private, who receives, takes, holds or has in his possession Philippine currency notes and coins called in for replacement shall forward the same during the redemption period to: (1) Any authorized agent banks of the BSP when the notes are still considered legal tender, within one (1) year from the date of call; or (2) The BSP Cash Department or BSP Regional Offices/Cash Units, within the redemption period as may be determined by the Monetary Board. The Cash Department or the BSP Regional Cash Units shall exchange the notes/coins called in for replacement if presented to the BSP within the redemption period as determined by the Monetary Board and subsequently dispose the same in accordance with BSP procedures for disposal. SUBSECTION X610.8 Sanctions . Any violation of the provisions of Subsecs. X610.3 and X610.4, shall subject the offender to imprisonment of not less than five (5) years, but not more than ten (10) years. In case the Revised Penal Code provides for a greater penalty, then that penalty shall be imposed. SECTIONS X611-X698 (Reserved) SECTION X699. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. GUIDELINES FOR THE ISSUANCE OF AN EXPANDED COMMERCIAL BANKING AUTHORITY FOR DOMESTIC BANKS (Appendix to Subsec . X101 . 2) I. Qualification Requirements A. Minimum Capital Required A domestic bank applying for an expanded commercial banking (EKB) authority shall have capital equivalent to at least the amount prescribed for expanded commercial banks under Subsecs. X106.1 and X106.2 . The term capital shall have the same meaning as defined in Sec. X106. The merger or consolidation of banks, or the merger or consolidation of a bank and an investment house as a means of meeting the minimum capitalization requirement for an EKB is encouraged. The revaluation of the premises, improvements and equipment of the institutions involved in a merger or consolidation may be allowed under Sec. X112. B. Financial Resources, Past Performance and General Compliance with Banking Laws and Regulations 1. Applicant bank shall not have incurred any deficiency in the required capital to risk assets ratio of ten percent (10%) under Section 22 of R.A. No. 337, as amended, for the year preceding the filing of application. It shall have sufficient valuation reserves to cover estimated losses. 2. Applicant bank shall not have incurred net deficiencies in its reserves against deposit and deposit substitute liabilities for the three (3) month period immediately preceding the filing of application. In addition, applicant bank's liquidity ratios such as primary reserves to deposit liabilities and primary and secondary reserves to deposit and demand liabilities shall at least be equal to the averages of the EKB sector as of the end of the quarter immediately preceding the date of application. 3. Applicant bank shall show profitable operations for the past calendar year immediately preceding the filing of application. Its ratio of net earnings to average capital accounts should indicate satisfactory returns on stockholders' investments. 4. Applicant bank has substantially complied with banking laws or orders, instructions, or regulations issued by the Monetary Board or orders, instructions, or rulings by the Governor. Major/important exceptions and findings by BSP examiners have been corrected or satisfactorily explained. C. Banking Facilities, Managerial Capability, Competence, Experience and Integrity of a Directors, Principal Officers and Key Personnel 1. The applicant bank shall manifest adequate banking facilities and managerial capability in commercial banking operations as shown by, among other things, its branch network, subsidiaries and allied undertakings, FCDU/EFCDU and foreign trade transactions, participation in syndicated lending, trust services, etc. 2. The applicant bank shall indicate in the application those officers and key personnel having the appropriate training and/or experience in investment banking and related functions are available/obtainable by the bank. The application shall be supported by the updated bio-data of the bank's directors and principal officers, including the officers and key personnel who will handle the investment banking and related functions. II. Feasibility Study The applicant bank shall submit a feasibility study, which shall include, in addition to the usual content of such study, the following information: A. Capitalization and Ownership 1. A schedule showing the computation of the applicant bank's capital accounts taking into consideration the definition of capital under Sec. X106 and, if applicable, the merger or consolidation scheme to meet the capitalization requirement as allowed under Secs. X111 and X112. 2. A list of direct and indirect loans to DOSRI which are unsecured, indicating the original amount, date granted, outstanding balance and classification (i.e., whether current or past due) of each DOSRI loan. 3. A summary of holdings of stockholders classified as to citizenship and family/business group indicating the number of shares subscribed in the applicant bank and the corresponding percentage of holdings to total. 4. A list of individual stockholders grouped according to family/business group, indicating the TIN, citizenship, type of shares held (whether voting or non-voting, common or preferred), number of shares subscribed and percentage of holdings to total of each shareholder. 5. A list of individual stockholders in the applicant bank with equity investment in other financial institutions, indicating the type and number of shares held in the other institution and the corresponding percentage of holdings to total of each shareholder. B. Organization and Management 1. The names of the members of the board of directors and principal officers of the applicant bank. 2. The proposed organization chart of the department within the applicant bank that will be responsible for the investment banking functions, indicating the designation of officers and other key positions and the names of persons proposed for appointment to those positions. C. Financial Capability and Previous Year's Operation A brief discussion of the applicant bank's general financial condition, operating performance, solvency and liquidity position, supported by appropriate financial ratios as seen from the latest condensed balance sheet and income statement. The discussion shall include major banking activities, exposure concentrations (in terms of top borrowers and major industries), equity and credit exposures in subsidiaries and affiliates and other significant information. D. Corporate Strategy 1. The statement of corporate strategy of the proposed EKB, its immediate and long-term goals and objectives. 2. The lending program and special policies lined up for the first five (5) years including details on guidelines and standards to be established on exposure limits, portfolio diversification, collateral requirements, geographical expansion, assistance to pioneer and priority areas of economic activities and relationship with clients. 3. The investment policies and programs to be implemented within the first five (5) years of operation including broad categories of undertakings in which the proposed EKB will invest, the portfolio mix to be observed, the extent of control over subscribed capital stock and voting stock to be exercised in financial allied undertakings, quasi-banks and non-financial allied undertakings. 4. The fund generation program for the first five (5) years of operation to support the expansion in loans and investments. 5. The quarterly underwriting program for one (1) year stating industry of issuer, the volume of underwriting business classified into equity and debt, public offering and private placement and other information. E. Financial Projections 1. The detailed statement of underlying assumptions made in projecting the financial statements and ratios. 2. The detailed projected statement of income and expenses for the first five (5) years of operation. 3. The projected operating ratios for the first five (5) years of operation. 4. The actual statement of condition of applicant bank at month-end before filing of application and the projected statement of condition as of the first five (5) years-end of operation. 5. The projected balance sheet ratios as of the first five (5) years-end of operation. 6. The projected funds flow for the first five (5) years of operation. III. Public Offering and Listing of Bank Shares A domestic bank applying for an EKB authority shall cause the public offering and listing of its shares under the following terms and conditions: 1. The applicant bank, shall, as a condition to the approval of its application, make a public offering of at least ten percent (10%) of such required minimum capital and this condition must be complied with before it can be granted the license for authority to operate as an expanded commercial bank. The term public offering shall mean the offer to sell equity shares to the public stockholders. Public stockholders shall refer to all stockholders, but excluding the bank's directors, shareholders owning twenty percent (20%) or more of the bank's subscribed voting stock together with those of their relatives within the third degree of consanguinity or affinity and corporations controlled by or affiliated with them. 2. The shares to be publicly offered may be voting or non-voting shares and may come from the bank's existing authorized and unsubscribed stock or from an increase in its authorized capital stock: Provided , That in the case of an applicant bank whose authorized capital has been fully subscribed and paid-up and that bank does not intend to increase its authorized capital stock, the shares to be publicly offered may come from existing stockholders who may be willing to divest themselves of such holdings. 3. The offering bank shall accept offers to buy or invest in its publicly offered shares of stock from new investors or from existing stockholders whose stockholdings, together with those of their relatives within the third degree of consanguinity or affinity or of firms, partnerships, corporations or associations, at least a majority of the voting stock of which are owned by such stockholders, constitute less than twenty percent (20%) of the bank's subscribed capital stock. The bank's articles of incorporation shall have an explicit provision stating that existing stockholders who are disqualified under these rules shall waive their pre-emptive rights to the additional shares to be publicly offered unless the articles of incorporation already provide that such stockholders do not have pre-emptive rights. The waiver may be limited to three (3) months after which period the disqualified stockholders may purchase shares from the unsubscribed/unsold publicly offered shares. The publicly offered shares of stock shall be sold to at least twenty-one (21) qualified buyers or group of buyers but the total shares of stock which may be purchased by any qualified buyer or group of buyers shall not exceed ten percent (10%) of the publicly offered shares of stock. Buyers of publicly offered shares shall in no case exceed the ownership ceilings under Sections 12, 12-A, 12-B, 12-C and 12-D of R.A. No. 337, as amended and Section 2 of R.A. No. 7721. 4. The bank shall fix the price of the shares of stock. In the case of subscribed and fully paid-up shares which shareholders are willing to divest, the price shall be set by agreement of the parties. 5. The offering bank shall submit to the appropriate supervising and examining department for evaluation, a prospectus containing the following minimum information: (a) Name and address of issuing bank; (b) A brief history of the bank's operations and a description of its premises and facilities; (c) The current authorized capital stock and the stock offered for subscription/sale to the public indicating the classes of stock and the amount for each class presented in tabular form; (d) Features of the offer: (i) The number and amount of each class of stock offered; (ii) The per share and aggregate offering price of each class of stock and the per share and aggregate proceeds to be received by the bank; (iii) The proposed means of distribution; (iv) Specific terms of the offer (minimum subscription, payment terms, etc.); and (v) The expiry date of the offer. (e) Audited statements of condition (format similar to published statement of condition) and earnings and expenses for the last three (3) calendar years; Provided , That banks in operation for less than three (3) years shall disclose their audited financial statements from the start of operations to the year last ended; (f) Names and addresses of all directors and principal officers and their respective designations, and stock options and other similar plans for directors and officers; and (g) A list of stockholders owning ten percent (10%) or more of the subscribed capital stock, the number of shares held by each, whether voting or non-voting, and the par value of such shares. The list shall likewise show the ratio of subscribed capital stock held by directors and principal officers to the authorized capital stock; the ratio of the publicly offered shares of stock to the authorized capital stock, the citizenship and family groupings of stockholders with their corresponding percentage of ownership; and 6. The bank shall cause the publication of the public offering in a newspaper of general circulation at least twice within a period of one month prior to the offering. 7. The provisions of the guidelines on public offering shall be deemed substantially complied with if the bank causes its shares of stock to be publicly offered in the manner and under the conditions herein prescribed for a period of three (3) months. In cases where there are no buyers willing and/or qualified to purchase or invest in the shares of stock being publicly offered within said period, the bank, after written notice to the appropriate supervising and examining department of the BSP, may sell said shares to its existing stockholders, subject to the limitations on equity holdings prescribed by law and regulations. A bank whose shares of stock are already listed in the Philippine Stock Exchange (PSE) at the time of filing of its application for an EKB authority shall be deemed to have complied with the public offering requirement. Likewise, an applicant bank may opt to have its shares listed in the PSE directly, in lieu of the public offering requirement. In either case, public stockholders should hold at least ten percent (10%) of the applicant bank's capital stock before it can be granted the license for authority to operate as an EKB. 8. The applicant bank shall list its shares in the PSE within a period of three (3) years from the date its license to operate as an expanded commercial bank is granted. The requirements of public offering and listing shall be complied with by all applicant banks including those that are able to meet the prescribed minimum capital requirement on their own or through merger/consolidation with other banks or non-bank financial intermediaries. CHIEDS PRESCRIBED APPLICATION FORMS FOR THE ENTRY OF FOREIGN BANKS (Appendix to Subsec X121 . 1) A. Sample Application for Authority to Invest in an Existing Domestic Bank in the Philippines Name of Applicant Address of Head Office Cable Address Telefax/Fax Number The Governor Date Bangko Sentral ng Pilipinas Manila, Philippines Sir: We hereby apply for authority to invest in _________ percent (___%) of the voting stock of ______________________, an existing domestic bank in the Philippines. In support of this application, we submit the following documents: 1. A copy of the Memorandum of Understanding between the bank and the investee domestic bank; 2. A copy of the Board Resolution authorizing the bank to invest in such domestic bank, and designating the person who will represent the bank in connection therewith; 3. Historical background of the bank, as follows: (a) Date and place of incorporation; (b) Number of branches and agencies in the home country; (c) List of foreign branches, agencies, other offices, parent (if any), subsidiaries and affiliates, and their location and line of business (if different from banking); (d) Range of banking services offered; and (e) Financial and commercial relationship with the Philippine Government, local banks, business entities and residents, past or present; 4. A copy each of the latest amended articles of incorporation and by-laws; 5. List of the bank's directors and their citizenship; 6. List of principal officers of the head office; 7. Number of stockholders and list of stockholders owning more than fifteen percent (15%) of the voting stock, if any; 8. A copy each of the bank's audited financial statements (i.e., statement of condition and statement of income and expenses) for the last two (2) years prior to the filing of application; 9. A copy of the bank's annual report to the stockholders for the year immediately preceding the date of filing of application; 10. A certification from the bank's home country supervisory authority that: (a) The bank's home country supervisory authority has no objection to the bank's investment in an existing domestic bank in the Philippines; (b) Adequate information on the bank and its subsidiaries will be provided to the Bangko Sentral ng Pilipinas to the extent allowed under existing laws; and (c) The Philippine banks may likewise be allowed to establish subsidiaries and/or branches in the bank's home country, subject to compliance with the rules and regulations governing admission which are applicable to all foreign banks; 11. If the investment will constitute majority ownership or give the investor bank control of management, business plan supported by projected financial statements for one (1) year, and how such business plan can accomplish the policy objectives of R.A. No. 7721; and 12. Undertaking to fully share technology, e.g. services/products and facilities such as computer hardware/software. Should this application be approved, the following additional documents shall be submitted: 1. Bio-data sheet for each of the new directors and new principal officers; 2. Evidence of citizenship for each of the new directors and new principal officers in the investee domestic bank, such as: (a) Passport; (b) Birth certificate; or (c) Naturalization certificate; 3. National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances or similar police and tax clearances for each of the new directors and new principal officers who are Filipino citizens or residents of the Philippines; 4. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to obtain information from other sources in order to establish the authenticity of information/representations submitted; and 5. Other relevant information as the Bangko Sentral ng Pilipinas may require. Very truly yours. Signature of Authorized Officer Over Printed Name Designation Attachments B. Sample Application for Authority to Establish a Subsidiary in the Philippines Name of Applicant Address of Head Office Cable Address Telex/Fax Number Date The Governor Bangko Sentral ng Pilipinas Manila, Philippines Sir: We hereby apply for authority to establish a ______ percent (___%)-owned _____________________ ( Specify the type of bank ) banking subsidiary in the Philippines. In support of this application, we submit the following information/documents: 1. A copy of the board resolution authorizing the bank to establish such subsidiary, and designating the person who will represent the bank in connection therewith; 2. Historical background of the bank, as follows: (a) Date and place of incorporation; (b) Number of domestic branches and agencies in the home country; (c) List of foreign branches, agencies, other offices, subsidiaries and affiliates, and their location and line of business (if different from banking); (d) Range of banking services offered; and (e) Financial and commercial relationship with the Philippine Government, local banks, business entities and residents, past or present; 3. A copy each of the bank's latest amended articles of incorporation and by-laws; 4. List of the bank's directors and their citizenship; 5. List of principal officers of the head office; 6. A certification from the bank's Corporate Secretary that the bank or its holding company has at least fifty (50) stockholders and that no stockholder owns more than fifteen percent (15%) of the capital stock of the bank or its holding company, or that more than fifty percent (50%) of the capital stock of said bank or its holding company is owned by the government; 7. A certification from the bank's home country stock exchange authorized by the government that the bank is listed therein; 8. A copy each of the audited financial statements (i.e., statement of condition and statement of income and expenses) for the last two (2) years prior to the filing of application of the applicant bank, and other corporate stockholders, if any, in the proposed subsidiary; 9. Statement of Assets and Liabilities of each of the non-corporate subscribers/stockholders * as of a date not earlier than ninety (90) days prior to the filing of application, duly certified by a Certified Public Accountant or sworn to by the subscriber/stockholder * himself, with supporting schedules; 10. A copy of the bank's annual report to the stockholders for the year immediately preceding the date of filing of application; 11. Certified photo copies of income tax returns of each of the subscribers/stockholders * for the last two (2) calendar/fiscal years; 12. A certification from the bank's home country supervisory authority: (a) That the bank's home country supervisory authority has no objection to the bank's establishment of a subsidiary in the Philippines; (b) That adequate information on the bank and its subsidiaries will be provided to the Bangko Sentral ng Pilipinas to the extent allowed under existing laws; (c) That the Philippine banks may likewise be allowed to establish subsidiaries and/or branches in the bank's home country, subject to compliance with the rules and regulations governing admission which are applicable to all foreign banks; (d) As to the ranking of the applicant bank in the home country on the basis of net worth as well as on the basis of on-book total assets of the head office and all branches, excluding subsidiaries and affiliates; and (e) That the bank complies with the capital requirements as prescribed by the laws and regulations of the home country; 13. Business plan supported by projected financial statements for one (1) year, and how such business plan can accomplish the policy objectives of R.A. No. 7721; 14. National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances or similar police or tax clearance for each of the non-corporate subscribers/stockholders and proposed directors who are Filipino citizens or residents of the Philippines; 15. Undertaking to fully share technology, e.g. services/products and facilities such as computer hardware/software; 16. Agreement to Organize a ________________________ ( specify type of bank ) Bank in the Philippines (See prescribed format in Item C below); and 17. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to obtain information from other sources in order to establish the authenticity of information/representations submitted. Should this application be approved, we shall submit the articles of incorporation of the proposed subsidiary together with an application for authority to register the same with the Securities and Exchange Commission (SEC) the Articles of Incorporation (See prescribed format in Item D below). Very truly yours, Signature of Authorized Officer Over Printed Name Designation Attachments C. Sample Agreement to Organize a Subsidiary Bank AGREEMENT TO ORGANIZE A ______________________ ( Specify type of Bank ) BANK An agreement, made this _____ day of ____________, 19___ by and among the following: Name Residence Citizenship Whereas, the parties hereto are desirous of forming a corporation under the following terms: 1. That a corporation to be known as ____________ shall forthwith be formed for the purpose of carrying on the business of a ___________ bank as provided for by law; 2. That the place where the principal office of the corporation is to be established or located is in ___________________; 3. That the number of directors of the said corporation shall be and that the names, residences and citizenship of the proposed directors of the corporation are, as follows: Name Residence Citizenship 4. That the capital stock of said corporation is ____________ pesos (_______) Philippine Currency, and said capital shall be divided into _________ ( number ) preferred shares with a par value of each share: (If there are preferred shares, their preferences should be described.) 5. That the amount of said capital stock which is proposed to be subscribed initially by the stockholders is ______________ pesos (P______) and the amount proposed to be paid thereof upon organization is _________________________ pesos (P______), as follows: Amount to be Name Residence Citizenship Subscribed Paid-In Total 6. That _________________, one of the organizers, is hereby authorized to sign the application to the Bangko Sentral ng Pilipinas for the issuance of the certificate of authority to establish a __________ bank. IN WITNESS WHEREOF, we have hereunto set our hands this ______ day of ____________, 19___ in the _________________, Philippines. SIGNATURES SIGNED IN THE PRESENCE OF: Witness Witness NOTARIAL ACKNOWLEDGMENT D. Sample Letter to BSP Submitting Bank's Articles of Incorporation for Issuance of the Certificate of Authority for SEC Registration Date The Governor Bangko Sentral ng Pilipinas Manila, Philippines Sir: I have the honor to submit herewith the Articles of Incorporation of _______________________. By way of supporting documents, I am also submitting the following: 1. Names of the proposed principal officers with their proposed designations and duties; 2. Bio-data sheet for each of the incorporators, proposed directors and principal officers; 3. Evidence that at least 40% of the voting stock of the corporation is owned by citizens of the Philippines; 4. Evidence of citizenship for each of the directors and principal officers in the banking subsidiary, such as: (a) Passport; (b) Birth certificate; or (c) Naturalization certificate; 5. National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances or similar police or tax clearance for each of the proposed principal officers who are Filipino citizens or residents of the Philippines; and 6. Location and banking premises, as follows: (a) Proposed location; and (b) Bank premises (indicate if purchased, built, or leased). If you find the Articles of Incorporation in order, we are requesting for the issuance of the necessary certificate of authority for its registration with the Securities and Exchange Commission. Very truly yours, Authorized Representative of the Organizers Attachments E. Sample Application for Authority to Establish Branch/es in the Philippines Name of Applicant Address of Head Office Cable Address Telex/Fax Number Date The Governor Bangko Sentral ng Pilipinas Manila, Philippines Sir: We hereby apply for authority to establish branch/es with full banking authority in the Philippines. In support of this application, we submit the following information/documents: 1. A copy of the board resolution authorizing the bank to establish such branch/es in the Philippines, and designating the person who will represent the bank in connection therewith; 2. Historical background of the bank; as follows: (a) Date and place of incorporation; (b) Number of branches and agencies in the home country; (c) List of foreign branches, agencies, other offices, subsidiaries and affiliates, and their location and line of business (if different from banking); (d) Range of banking services offered; and (e) Financial and commercial relationship with the Philippine Government, local banks, business entities and residents, past or present; 3. A copy each of the latest amended articles of incorporation and by-laws; 4. List of directors and their citizenship; 5. List of principal officers of the head office; 6. A certification from the bank's Corporate Secretary that the bank or its holding company has at least fifty (50) stockholders and that no stockholder owns more than fifteen percent (15%) of the capital stock of the bank or its holding company, or that more than fifty percent (50%) of the capital stock of said bank or its holding company is owned by the government; 7. A certification from the bank's home country stock exchange authorized by the government that the bank is listed therein; 8. A copy each of the bank's audited financial statements (i.e., statement of condition and statement of income and expenses) for the last two (2) years prior to the filing of application; 9. A copy of the bank's annual report to the stockholders for the year immediately preceding the date of filing of application; 10. A certification from the bank's home country supervisory authority; 11. Business plan supported by projected financial statements for one (1) year, and how such business plan can accomplish the policy objectives of R.A. No. 7721; 12. Undertaking to fully share technology, e.g. services/products and facilities such as computer hardware/software; and 13. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to obtain information from other sources in order to establish the authenticity of the information/representations submitted. Should this application be approved, we undertake to submit another application for the issuance of the necessary certificate of authority to obtain license from the Securities and Exchange Commission (SEC) to operate branch/es in the Philippines (See prescribed format in Item E below). Very truly yours, Signature of Authorized Officer Over Printed Name Designation Attachments F. Sample Request for BSP Authority to Obtain License from SEC to Establish Branches of Foreign Banks Date The Governor Bangko Sentral ng Pilipinas Manila, Philippines Sir: I have the honor to request for a certificate of authority to obtain license from the Securities and Exchange Commission (SEC) for the establishment of branch/es in the Philippines. In support of this request, I am pleased to submit the following papers/documents and other information: 1. Names of the proposed principal officers with their proposed designation and duties; 2. Bio-data sheet for each of the proposed principal officers; 3. Evidence of citizenship for each of the proposed principal officers, such as: (a) Passport; (b) Birth certificate; or (c) Naturalization certificate; 4. National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances or similar police or tax clearances for each of the proposed principal officers who are Filipino citizens or residents of the Philippines; 5. Location and banking premises, as follows: (a) Proposed location; and (b) Bank premises (indicate if purchased, built or leased); and 6. Head office guarantee (See suggested format in Item G below). Very truly yours, Name of Bank By: Signature of Authorized Officer Over Printed Name Designation Attachments G. Sample Guarantee Undertaking to Establish Branches of Foreign Banks GUARANTEE KNOW ALL MEN BY THESE PRESENTS: WHEREAS, under the provisions of Republic Acts No. 337, as amended, and No. 7721 of the Republic of the Philippines, the licensing, supervision and regulation of banks, both foreign and domestic, are vested with the Bangko Sentral ng Pilipinas; WHEREAS, under said Republic Act No. 7721, entitled: "An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes", ________________________ ( Name of Bank ) (hereinafter called Guarantor) has been authorized to operate a branch or branches in the Philippines. WHEREAS, under the provisions of Republic Act No. 7721, banks organized under laws other than those of the Republic of the Philippines shall guarantee the full payment of all liabilities of its branch or branches in the Philippines for the purpose of providing effective protection and security to the interests of the depositors and other creditors of said branch or branches; and WHEREAS, Guarantor is willing, desirous and ready at any time to give such full guarantee as well as to comply with whatever conditions required in said Republic Act No. 7721. NOW, THEREFORE, for the purpose above mentioned, Guarantor hereby agrees that in the event any branch of Guarantor located in the territory of the Republic of the Philippines should fail to promptly pay any lawful debt, claim or liability of any kind or character, due and payable under the laws of the Republic of the Philippines and pursuant to the terms of said debt, claim or liability, then Guarantor upon the demand of the Bangko Sentral shall promptly pay said debt, claim or liability to the person or persons entitled thereto under the laws of the Republic of the Philippines. Any such debt, claim or liability, not so promptly paid, shall bear interest at a rate per annum as may be prescribed by the Monetary Board. Said debts, claims or liabilities, interest thereon and any cost or expenses incidental to the collection thereof, shall be paid in the currency in which the obligations are expressed, or in which the costs or expenses were incurred. The obligation of Guarantor upon default of any of its branches located in the territory of the Republic of the Philippines is primary, direct and immediate and not contingent on any remedy or recourse upon any asset, property or right which its branch or branches within the territory of the Republic of the Philippines may have, in such a way that any depositor or creditor of its branch or branches in the Philippines may take, at any time, any action on this Guaranty whether or not said depositor or creditor has simultaneously taken or will thereafter take, any direct or indirect action under the laws of the Philippines against said branch or branches, or against any assets, property or rights thereof: Provided, however, That Guarantor shall have the right to set-off should it have any claim or claims against any depositor or creditor taking any action by virtue of the provisions of its Guarantee. The right on this Guarantee is independent of and separate from whatever right, security or action which any depositor or creditor of said branch or branches in the Philippines may have, take or pursue to protect his interest, and whatever action or measure the Bangko Sentral ng Pilipinas may adopt in the exercise of its supervisory and regulatory powers allowed and provided for in said Republic Acts No. 337, as amended, and No. 7721 of the Republic of the Philippines, such as requiring Guarantor to assign to its Philippine Branch or Branches an amount of capital sufficient to meet the minimum capital required in said Republic Act No. 7721, or any measure it may be authorized to take under the provisions of said Republic Act No. 337, as amended, in the case of capital deficiencies; in such case or cases, the liability created hereunder shall not in the least be minimized or affected, it being the purpose of this undertaking that Guarantor shall at all times be responsible and obligated for any such obligations or liabilities of its branch or branches in the Philippines, and to the extent that the same has been fully paid or satisfied only will said Guarantor be relieved from its primary obligations hereunder. No technicality in the law or in the language of this Guarantee or in any contract, agreement or security, held by or with said branch or branches in the Philippines, shall defeat the nature and purpose of this Guarantee as a primary and direct obligation of Guarantor to the end that the interest of the depositors and creditors of the said branch or branches in the Philippines may be fully protected and satisfied in accordance with Section 5 of Republic Act No. 7721. Guarantor hereby acknowledges having full knowledge of said Republic Act No. 7721 in accordance with which this primary and principal obligation is given. Guarantor hereby recognizes the jurisdiction of Philippine Courts and hereby authorizes its branch office and/or offices in the Philippines to accept summons, processes and notices from the Philippine courts. The Guarantee shall be governed by Philippine law. IN WITNESS WHEREOF, this Guarantee has been executed by Guarantor acting by and through its Officers thereunto duly authorized this ________ day of ____________, 19____. GUIDELINES FOR THE ISSUANCE OF AN EXPANDED COMMERCIAL BANKING AUTHORITY FOR BRANCHES OF FOREIGN BANKS (Appendix to Subsec . X121 . 8) I. Qualification and Documentation Requirements A. Minimum Capital Required A branch of a foreign bank applying for an expanded commercial banking (EKB) authority shall have capital equivalent to at least the amount prescribed for EKBs under Subsecs. X106.1 and X106.2, The capital of a Philippine branch of a foreign bank which is authorized to operate as an EKB shall consist of its permanently assigned capital plus Net Due to account: Provided , That at no time shall the aggregate of said accounts fall below the amount prescribed under Subsec. X106.1: Provided further , That the amount of the Net Due to which may be added to permanently assigned capital shall not exceed the equivalent of three (3) times the amount of the permanently assigned capital. The capital as described in the immediately preceding paragraph shall be net of (a) such unbooked valuation reserves and other capital adjustments as may be required by the BSP; (b) total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, stockholders, and their related interests (DOSRI); (c) deferred income tax; (d) equity investment of a bank in another bank or enterprise whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case, the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower; and (e) appraisal increment reserves (revaluation surplus) arising from an appreciation or an increase in the book value of bank assets. The list of direct and indirect loans to DOSRI which are unsecured, the original amount of the loan and date granted and the outstanding balance classified into current and past due shall be submitted by the applicant banks to the BSP. B. Financial Resources, Past Performance and General Compliance with Banking Laws and Regulations Applicant bank shall not have incurred deficiency in the required capital-to-risk assets ratio (10%) under Section 22 of R.A. No. 337, as amended, and Subsecs. X121.5 and X121.6, for the year preceding the filing of application. It shall have sufficient valuation reserves to cover estimated losses. Applicant bank shall not have incurred net deficiencies in its reserves against, deposit liabilities and/or deposit substitute liabilities for the three (3)-month period immediately preceding the filing of the application. In addition, such ratios as primary reserves to deposit liabilities and primary and secondary reserves to deposit and demand liabilities shall show that applicant bank is in a liquid position. Applicant bank has substantially complied with banking laws or orders, instructions or regulations issued by the Monetary Board or orders, instructions or rulings by the Governor. Major/important exceptions and findings by BSP examiners have been corrected or satisfactorily explained. C. Knowledge, Competence, Experience and Integrity of Officers and Key Personnel The applicant shall indicate in the application that officers and key personnel having the appropriate training and/or experience in investment banking and related functions are available/obtainable by the bank. An updated bio-data shall be submitted by each of the officers and key personnel who will handle investment banking and related functions. II. Project Feasibility Study The project feasibility study to be submitted by the applicant bank shall include, in addition to the regular content of such study, the following information in the format prescribed. A. Organization and Management 1. The proposed organization (position) chart of department within the applicant bank which shall be responsible for the investment banking functions, indicating for each position the name of the personnel proposed for appointment. 2. Bio-data that should be prepared for each of the proposed key personnel in the investment banking department. B. Corporate Strategy 1. The statement of corporate strategy of EKB and the immediate and long-term goals and objectives. 2. The lending program and special policies lined up for the first five (5) years including details on guidelines and standards to be established on exposure limits, portfolio diversification, collateral requirements, geographical expansion assistance to pioneer and priority areas of economic activities and relationship with clients. 3. Investment policies and program to be implemented within the first five (5) years of operation including the broad categories of undertakings in which EKB may invest, the portfolio mix to be observed, the extent of control over subscribed capital stock and voting stock to be exercised in financial allied undertakings, quasi-banks and non-financial allied undertakings. 4. Local branches of foreign banks may invest in the equity of financial as well as non-financial allied undertakings and non-allied undertakings wherein locally incorporated commercial banks with EKs authority are allowed to invest. However, the branches' equity investments shall be subject to equity ceilings set in pertinent laws. 5. Fund generation program for the first five (5) years of operation to support the expansion in loans and investments. 6. Quarterly underwriting program for one (1) year stating industry of issuer, the volume of underwriting business classified into equity and debt, public offering and private placement and other information. C. Financial Projections 1. The detailed statements of the underlying assumptions made in projecting the financial statements and ratios. 2. The detailed projected statement of income and expenses for the first five (5) years of operation. 3. The projected operating ratios for the first five (5) years of operation. 4. The actual statement of condition of EKB at month-end before filing of application and the projected statement of condition as of the first five (5) years-end of operation. 5. The projected balance sheet ratios as of the first five (5) years of operation. 6. The projected funds flow for the first five (5) years of operation. FORMAT OF AFFIDAVIT ON TRANSFER OF STOCKS (Appendix to Subsec X126 . 2 c(3)) REPUBLIC OF THE PHILIPPINES) ) S.S. AFFIDAVIT I, __________________________________________, also known as ________________________, with business address at _________________, after having been duly sworn to in accordance with law depose and state that: 1. I am the transferee of ____________________ (state quantity) shares of voting stocks of _____________________ (state name of bank) hereinafter to be referred to as "Bank", by virtue of __________________ (state instrument of transfer) dated ___________________. SECIcT 2. In acquiring equity in the Bank, I acted with full awareness and understanding that the Bank is a duly organized domestic banking corporation, exercising and enjoying a right, franchise and privilege to engage in commercial banking business, decreed by law to be a nationalized industry, wherein at least seventy percent (70%), or with the authority of the Monetary Board and the approval of the President of the Philippines, sixty percent (60%) of the voting stock should be owned by citizens of the Philippines and that there exist prohibitions under the law against the holding by a corporation of voting stocks in excess of thirty percent (30%), or by any person or group of persons who are related to each other within the third degree of consanguinity or affinity or by corporations wholly-owned or majority of the voting stock of which is owned by such person or group of persons, in excess of twenty percent (20%) of the voting stock of the Bank. 3. Consonant with the policy of the Government as provided for in Commonwealth Act No. 108, as amended, otherwise known as the Anti-Dummy Law, and Republic Act No. 337, as amended, otherwise known as the General Banking Act, I hereby declare as follows: a. The _______________________ (state instrument of transfer) was not simulated to evade the provisions of the Constitution and Commonwealth Act No. 108 or the provisions of Republic Act No. 337, as amended, particularly Sections 12, 12-A, 12-B and 12-D imposing maximum equity holdings by any person or persons related to each other within the third degree of consanguinity or affinity, or corporations; b. The said shares of stock were acquired by me for valuable consideration from funds provided by me; and c. As such transferee, I have title over the said shares of stock. 4. This Affidavit is executed for the purpose of stating under oath my bona fide title over the shares of voting stocks of the Bank; that in acquiring title over said shares I gave valuable consideration; and that I shall comply with the requirements of all laws, rules, regulations and circulars with respect to my conduct as stockholder of the Bank. IN WITNESS WHEREOF, I hereby affix my signature this ____________________ day of ___________________, 19____ at _______________. Affiant SUBSCRIBED and sworn to before me this ___________ day of ___________ 19_____, affiant exhibiting to me his Community Tax Certificate No. _________, issued at ________________ on _____________, 19_____. Notary public Doc. No. ________ Page No. ________ Book No. ________ Series of 19_______ STANDARD PRE-QUALIFICATION REQUIREMENTS FOR THE GRANT OF BANKING AUTHORITIES (Appendix to Subsecs . Indicated Below) A. Banks Applying For 1. The establishment of branches and other banking offices (Subsec. X151.3); 2. The establishment of additional branches of foreign banks (Subsec. X153.2); 3. The establishment of offices abroad (Subsec. X154.2); 4. Authority to accept government deposits, demand, NOW and NCTD accounts (Subsec. X233.1); 5. A quasi-banking license (Subsec. X234.4); 6. EFCDU/FCDU license (Subsec. X501.2); and 7. Authority to engage in derivatives transactions (Subsec. X602. 1). B. Standard Pre-qualification Requirements 1. The bank has met the prescribed net worth to risk asset ratio during the sixty (60) days immediately preceding the date of application; 2. The bank has not incurred net weekly reserve deficiencies during the eight (8)-week period immediately preceding the date of application; 3. The applicant bank has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management, more particularly: (a) The ceilings on credit accommodations to DOSRI; (b) Loans-to-deposit ratio as of the quarter immediately preceding the date of application; and (c) Liquidity floor requirements for government deposits; 4. The bank's past due loans do not exceed twenty percent (20%) of its total loan portfolio as of the date of application; 5. The bank has corrected as of date of application the major violations noted in its latest examination particularly relating to (a) single borrower's loan limit, and (b) investment in bank premises and other fixed assets; 6. The bank's accounting records, systems, procedures and internal control systems are satisfactorily maintained; 7. The bank does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Offices" accounts and the "Due From Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; 8. The bank has no past due obligations with the BSP or with any government financial institutions; 9. The bank's facilities pertinent to the authority applied for are adequate; 10. The officers who will be in-charge of the operation relating to the authority applied for have actual experience of at least two (2) years in another bank as in-charge (or at least as assistant-in-charge) of the same operation; and 11. The bank personnel who will handle the operation relating to the authority applied for, have attended appropriate seminars, workshops or on-the-job training or have experience of at least six (6) months. CERTAIN INFORMATION REQUIRED FROM BANKS (Appendix to Subsec . X162 . 3) 1. Name of bank 2. Address 3. P.O. Box Number 4. Cable address or cable code 5. Board of Directors including Corporate Secretary: a. Names of Chairman, Vice-Chairman and Directors; b. Number of directors per by-laws; c. Number of vacancies in the Board; d. Names of corporations where they serve as Chairman of the Board or as President and names of other business enterprises of which they are proprietors or partners; e. For the Corporate Secretary, indicate if he is also a Director; and f. Date of annual election of directors per by-laws. 6. President to Department Heads, including Auditor: a. Names and titles; b. Telephone number of each officer (office); c. For Executive Vice Presidents, state the names of corporations where they serve as Chairman of the Board and names of other business enterprises of which they are proprietors or partners; and d. For Vice Presidents and other officers with non-descriptive titles, indicate area of responsibility, e.g., Vice President for Operations or Vice President, International Department. 7. Branches, agencies and extension offices: a. Name of branch, agency or extension office, e.g., Quiapo Branch or Makati Agency; b. Address; c. Names and telephone numbers of: (1) Manager (2) Cashier (3) Accountant; and d. For agencies and extension offices, indicate name of mother branch. DOCUMENTS/INFORMATION ON ORGANIZATIONAL STRUCTURE AND OPERATIONAL POLICIES (Appendix to Subsec . X162 . 3) 1. Chart of the firm's organizational structures or any substitute therefor; 2. Name of departments/units/offices with their respective functions and responsibilities; 3. Designations of positions in each department/unit/office with the respective duties and responsibilities; 4. Manual of instructions or the like embodying the operation policies/procedures of each department/unit/office, covering such areas as: a) Signing/delegated authority; b) Procedure/flow of paper work; and c) Other matters; 5. Memoranda-Circulars or the like issued covering organizational and operational policies; 6. Sample copies of each of the forms/reports used by each office/unit/department other than those submitted to the Bangko Sentral; and 7. Such other documents/information that may be required from time to time by the supervisory/regulatory department concerned. GUIDELINES FOR CONSOLIDATION OF FINANCIAL STATEMENTS OF BANKS AND THEIR SUBSIDIARIES ENGAGED; IN FINANCIAL ALLIED UNDERTAKINGS (Appendix to Subsec . X162 . 10) A. Definitions 1. Consolidated financial statements shall refer to the combined statement of condition/balance sheet and statement of income and expenses of two (2) or more corporate entities as they would appear if they were one (1) organization, after eliminating the effects of intercompany transactions. 2. Equity investments refer to investments in the capital stock of companies, firms or enterprises, made for purposes of control, affiliation or other continuing business advantage. ESTaHC 3. Subsidiary refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank. A domestic subsidiary is any subsidiary domiciled in the Philippines and incorporated under the laws of the Philippines, while a foreign subsidiary is a subsidiary incorporated and organized under the laws of a foreign country. 4. Affiliate refers to an entity linked directly or indirectly to a bank by means of: (a) Ownership, control or power to vote, of ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa; (b) Interlocking directorship or officership; (c) Common stockholders owning ten percent (10%) or more of the outstanding voting stock of each financial intermediary and the entity; (d) Management contract or any arrangement granting power to the bank to direct or cause the direction of management and policies of the entity, or vice-versa; and (e) Permanent proxy or voting trusts in favor of the bank constituting ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa. 5. Cost method refers to the accounting method of recording at cost, and continuously carrying at cost, equity investment, regardless of increases or decreases in the underlying value of the investments resulting from earnings or losses of the affiliate/subsidiary. 6. Equity method refers to the accounting method of recording equity investments at cost and adjusting the balance of the account to reflect increases or decreases in the underlying value of the investments arising from earnings or losses of the affiliate or subsidiary. B. Consolidation Requirements 1. The financial statements of allied undertakings shall be consolidated with those of the investing bank only when the allied undertaking is a subsidiary and a financial allied undertaking. 2. In the case of non-financial allied undertakings and affiliates, consolidation may be required on a case-to-case basis as may be determined by the appropriate supervising and examining department of the BSP. 3. Financial statements of all domestic and foreign subsidiaries shall be consolidated with those of the investing domestic parent bank, except: (a) Subsidiaries about to be disposed of; (b) Subsidiaries where control is being exercised on a temporary basis; (c) Subsidiaries whose financial statements bear a closing date different from that of the investing bank's financial statements and/or (i) The difference in closing days exceeds three (3) months or more; (ii) The closing date of all the statements are not expressly indicated; (iii) The necessity of the difference to closing dates is not explained; and (iv) Changes in accounting periods of the affiliate/constituent companies are not disclosed, together with their financial statements; (d) Subsidiaries whose business activities are dissimilar from those of the investing bank that the presentation of separate financial statement would provide better information; and (e) Foreign subsidiaries located in places where (i) There are foreign exchange restrictions; (ii) The rates of exchange fluctuate widely; (iii) There are unfavorable legislation in force; and (iv) The foreign government concerned is undergoing a process of change. C. Consolidation Procedures 1. Consolidation of financial statements shall involve the following procedures: (a) Consolidation shall be on a line-by-line basis; i.e., accounts of the investing financial intermediary and its subsidiaries to be consolidated are combined by adding together like items of assets, liabilities, revenue and expenses, except in the case of foreign currency of the host country where the allied undertaking/subsidiary/affiliate is located which shall be shown under "Other Assets"; (b) The following are eliminated in consolidation: (i) All intercompany transactions; for instance, rental income of a subsidiary from its premises should be netted against rent expense incurred by the investing bank for occupying said premises; (ii) All intercompany accounts/transactions that reflect the existence of a debtor-creditor relationship between the investing bank and its subsidiaries and/or between subsidiaries; and (iii) All assets accounts of the investing bank, which represent ownership of investments in subsidiaries against the capital accounts of the consolidated subsidiaries; (c) All income and expense accounts shall be closed to the capital accounts of each subsidiary; (d) All the remaining assets and liabilities of the subsidiaries shall be transferred to appropriate accounts of the investing bank; (e) For not wholly-owned subsidiaries, the share of minority stockholders/interest in the capital stock and retained earnings of such subsidiaries shall be segregated and lodged under Minority Interest in Subsidiary account which shall be shown as a separate section between the Liabilities and Stockholders' Equity sections of the Consolidated Statement of Condition; (f) Other generally accepted consolidation principles/procedures not inconsistent herewith may be adopted; and (g) Consolidating adjustments and elimination's shall appear only on working papers and shall not be recorded in the books of the individual entities concerned. 2. For consolidated statement/report purposes, the following accounts shall be used for the differences between cost and book value of equity investments on date of acquisition: (a) Excess of Cost over For excess of cost of Book Value of Equity equity investments Investments over its book value (b) Excess of Book For the excess of Value over Cost of book value of equity Equity Investments investment over its cost The first account shall be shown under "Other Assets" caption while the second account shall be shown under the caption "Unearned Income and Other Deferred Credits" in the Consolidated Statement of Condition. 3. The investments (which are recorded at the cost method) of the investing bank in allied undertaking/subsidiaries/affiliates whose financial statements are not consolidated shall be adjusted for their share in the earnings or losses of such entities, with the use of the equity method as defined in Item A above. However, these adjustments shall appear only in working papers and shall not be recorded in the books of the individual entities concerned. D. Disclosures The following schedules/disclosures shall be attached to/made in the consolidated financial statements: 1. An appropriate list/schedule of the allied undertaking/subsidiaries/ affiliates showing the following information: (a) Name and nature of business; (b) Original cost of the investment, outstanding balance, book value and difference, if any, and accounting treatment of the difference; (c) Percentage of ownership/equity investment; (d) Differences in reporting dates from that of the reporting financial intermediary; (e) Whether or not their financial statements have been consolidated; and (f) Reasons for not consolidating in the case of the unconsolidated entities. 2. Where the unconsolidated subsidiaries are, in the aggregate, material in relation to the consolidated financial position or operating results, summarized information on their assets, liabilities and operating statements should be shown in footnotes, or separate financial statements should be presented for such subsidiaries, either individually or groups, where appropriate. 3. Any information on: (a) Exposure to exceptional risks of operating in other countries, including the risk of foreign currency exchange rate fluctuations; and (b) The extent to which there are statutory or contractual restrictions on the distribution of the accumulated retained income of the group. FORMAT CERTIFICATION ON COMPLIANCE WITH RULES AND REGULATIONS ON BANK PROTECTION (Appendix to Subsec . X165 . 5) I hereby certify to the best of my knowledge and belief that the security program that this Bank has developed and is administering equals or exceeds the standards prescribed by the Bangko Sentral rules and regulations and that such security program has been reduced in writing, approved by this Bank's Board of Directors in Resolution No. ________ dated _________ and retained by this Bank in such form as will readily permit determination of its adequacy and effectiveness. I hereby further certify that the Bank's Security Officer has provided for the installation, maintenance and operation of appropriate security devices as prescribed by the aforementioned rules and regulations. President or Authorized Officer Date PRO-FORMA ORDER OF WITHDRAWAL FOR "NOW" ACCOUNTS (Appendix to Sec . X225) The order of withdrawal form shall have a size of three (3) inches by six and three eight (6-3/8) inches, and shall be on security/check paper. It shall contain as a minimum the features contained in the following pro-forma order of withdrawal: TERMS AND CONDITIONS OF A PROMISSORY NOTE 1. Computation of Yield Interest is hereby stipulated/computed at _____% per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) Others. 2. No Pretermination This promissory note shall not be honored or paid by the issuer/maker before the maturity dated indicated on the face hereof. 3. Liquidated Damages In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated damages of _____________ (amount or %), plus attorney's fees of ______________ (amount or %) and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal. ( ) Automatic renewal under the following terms: ________________________________________________________ ________________________________________________________ 5. Collateral/Delivery ( ) No automatic renewal. ( ) Collateralized/secured by _____________________ (describe collateral) ( ) Physically delivered to payee ( ) Evidenced by Custodian Receipt No. _______________ dated __________________________ issued by _______________. ( ) Collateralized/secured by _________ (fraction or %) share of __________ (describe collateral) as evidenced by Custodian Receipt No. ________ dated _________ issued by ______________________. 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ______________ (described document) dated ______________, executed by ______________ (name of party/ies) and made an integral part hereof. TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT 1. Computation of Yield Interest is hereby stipulated/computed at _____% per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) Others 2. No Pretermination Vendor shall not repurchase subject security/ies before the repurchase date stipulated on the face of this document. 3. Liquidated Damages In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated damages of __________ (amount or %), plus attorney's fees of ____________ (amount or %) and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal. ( ) Automatic renewal under the following terms: ________________________________________________________ ________________________________________________________ 5. Delivery/Custody of Securities ( ) Physically delivered to payee ( ) Evidenced by Custodian Receipt No. _____________, dated _________________, Issued by _________________. 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ______________ (described document) dated ______________, executed by ______________ (name of party/ies) and made an integral part hereof. TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of _________ (amount or %) plus attorney's fees of ________ (amount or %) and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. _________ dated ____________, issued by _____________. 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ______________, dated ___________ executed by ______________ (name of party/ies) and made an integral part hereof. TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of _________ (amount or %) plus attorney's fees of ________ (amount or %) and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. _________ dated ____________, issued by _____________. 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ______________, dated ___________ executed by ______________ (name of party/ies) and made an integral part hereof. TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). cACHSE 2. Liquidated Damages In case of default, the issuer of this instrument shall be liable, in addition to interest, for liquidated damages of __________ (amount or %), plus attorney's fees of ____________ (amount or %) and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. __________ dated ___________, issued by _______________________. 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of _____________ (describe document) __________ dated __________ executed by ________________ name of party/ies) and made an integral part hereof. TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). 2. Liquidated Damages In case of default, the issuer of this instrument shall be liable, in addition to interest, for liquidated damages of __________ (amount or %), plus attorney's fees of ____________ (amount or %) and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. __________ dated ___________, issued by _______________________. 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of _____________ (describe document) __________ dated __________ executed by ________________ (name of party/ies) and made an integral part hereof. NEW RULES ON THE REGISTRATION OF LONG-TERM COMMERCIAL PAPERS (Appendix to Subsecs. X239 . 2 and X239 . 5) Pursuant to Section 4(b) of the Revised Securities Act and other existing applicable laws, the Securities and Exchange Commission hereby promulgates the following New Rules and Regulations governing long-term commercial papers, in the interest of full disclosure and protection of investors and lenders, in accordance with the monetary and credit policies of the BSP: SECTION 1. Scope . These Rules shall apply to long-term commercial papers issued by corporations. SECTION 2. Definitions . For purposes of these Rules, the following definition shall apply: a. Long-term commercial papers shall refer to evidence of indebtedness of any corporation to any person or entity with maturity period of more than 365 days. b. Interbank loan transactions shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi-banking functions. c. Issue shall refer to the creation of commercial paper and its actual or constructive delivery to the payee. d. Appraised value shall refer to the value of chattel and real property as established by duly licensed and independent appraiser. e. Current market value shall refer to the value of the securities at current prices as quoted at the stock exchanges. f. Recomputed debt-to-equity ratio shall refer to the proportion of total outstanding liabilities, including the amount of long-term commercial papers applied for, and any unissued authorized commercial papers to net worth. g. Specific person shall refer to a duly named juridical or natural person as an investor for its or his own account, a trustee for one or more trustors, an agent or fund manager for a principal under a fund management agreement, and does not include numbered accounts. h. Net worth shall refer to the excess of total assets over total liabilities, net of appraisal surplus. i. Subsidiary shall refer to a company more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled, or held with power to vote by another company. j. Affiliate shall refer to a concern linked, directly or indirectly, to another by means of: 1) Ownership, control and power to vote of 10% but not more than 50% of the outstanding voting stock. 2) Common major stockholders; i. e. owning 10% but not more than 50% of the outstanding voting stock. 3) Management contract or any arrangement granting power to direct or cause the direction of management and policies. 4) Voting trustee holding 10% but not more than 50% of the outstanding voting stock. 5) Permanent proxy constituting 10% but not more than 50% of the outstanding voting stock. k. Underwriting shall refer to the act or process of distributing and selling of any kind of original issues of long-term commercial papers of a corporation other than those of the underwriter itself, either on guaranteed or best-effort basis. l. Trust accounts shall refer to those accounts with a financial institution authorized by the BSP to engage in trust functions, wherein there is a trustor-trustee relationship under a trust agreement. SECTION 3. Conditions for Registration . Long-term commercial papers shall be registered under any of the following conditions: a. Collateral The amount of long-term commercial papers applied for is covered by the following collaterals which are not encumbered, restricted or earmarked for any other purpose and which shall be maintained at their respective values at all times, indicated in relation to the face value of the long-term commercial paper issue: 1) Securities listed in the - Current market stock exchanges value of 200% 2) Registered real estate - Appraised value mortgage of 150% 3) Registered chattel - Appraised value mortgage on heavy equipment, of 150% machinery, and similar assets acceptable to the Commission and registrable with the appropriate government agency b. Financial Ratios A registrant who meets such standard, as may be prescribed by the Commission, based on the following complementary financial ratios for each of the immediate past three (3) fiscal years: 1) Ratio of (a) the total cash, marketable securities, current receivables to (b) the total of current liabilities; 2) Debt-to-equity ratio, with debt referring to all kinds of indebtedness, including guarantees; 3) Ratio of (a) net income after taxes to (b) net worth; 4) Net profits to sales ratio; and 5) Such other financial indicators, as may be required by the Commission. c. Debt-to-equity The recomputed debt-to-equity ratio of the applicant based on the financial statements required under Sec. 4.c. hereof shall not exceed 4:1: Provided , That the authorized short-term commercial papers do not exceed 300% of net worth and upon compliance with the registration requirements specified in Sec. 4 hereof. The conditions under which the commercial papers of a registrant were registered shall be strictly maintained during the validity of the Certificate of Registration. SECTION 4. Registration Requirements . Any corporation desiring to issue long-term commercial papers shall apply for registration with, and submit to, the Commission the following: a. Sworn Registration Statement in the form prescribed by the Commission; b. Board resolution signed by a majority of its members 1) authorizing the issue of long-term commercial papers; 2) indicating the aggregate amount to be applied for; 3) stating purpose or usage of proceeds thereof; 4) providing that the registration statement shall be signed by any of the following: the principal executive officer, the principal operating officer, the principal financial officer, the comptroller or principal accounting officer, or persons performing similar functions; and. 5) designating at least two (2) senior officers with a rank of vice-president, or higher of their equivalent, to sign the commercial paper instruments to be issued. c. The latest audited financial statements and should the same be as of a date more than three (3) months prior to the filing of the registration statements, an unaudited financial statement as of the end of the immediately preceding month: Provided , however , That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant duly authorized for the purpose and substituted with an audited financial statement within 105 days after the end of the applicant's fiscal year; d. Schedules A to L based on subsection c above, in the form attached as Annex "A"; e. Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided , That if the applicant has been in operation for less than three (3) years, it shall submit income statements for such number of years that it has been in operation; f. An underwriting agreement for the long-term commercial paper issues with an expanded commercial bank or an investment house, or any other financial institution which may be qualified subsequently by the BSP with minimum condition, among others, that the underwriter and the issuer shall be jointly responsible for complying with all reportorial requirements of the Commission and the BSP in connection with the long-term commercial paper issue, it being understood that the primary responsibility for the submission of the report to these regulatory agencies is upon the underwriter during the effectivity of the underwriting agreement and thereafter, the responsibility shall devolve upon the issuer: Provided , however , That if the issuer is unable to provide the information necessary to meet such reportorial requirements, the underwriter shall, not later than two (2) working days prior to the date when the report is due, notify the Commission of such inability on the part of the issuer: Provided , further , That if the underwriting agreement is with a group composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the BSP, there shall be a syndicate manager acting and responsible for the group: Provided , finally , That the underwriter may be changed subject to prior approval by the Commission; g. A typewritten copy of a preliminary prospectus approved by the applicant's Board of Directors which, among others, shall contain the following: 1) A statement printed in red on the left-hand margin of the front page, to wit: "A registration statement relating to these long-term commercial papers has been filed with, but has not yet been approved by, the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These long-term commercial papers may not be sold nor may offers to buy be accepted prior to the approval of the registration statement. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these long-term commercial papers in the Philippines as such offer, solicitation or sale is prohibited prior to registration under the Revised Securities Act." 2) Aggregate maximum amount applied for, stated on the front page of the prospectus; 3) Description and nature of the applicant's business; 4) Intended use of proceeds; 5) Provisions in the underwriting agreement, naming the underwriter and its responsibilities in connection with, among others, the reportorial requirements under these Rules; 6) Other obligations of the applicant classified by maturities maturing within six (6) months; from six (6) months to one (1) year; and one (1) year and past-due amounts; 7) List of assets which are encumbered, restricted or earmarked for any other purposes; 8) List of directors, officers and stockholders owning two percent (2%) or more of the total outstanding voting stock of the corporation, indicating any advance to said directors, officers and stockholders; and 9) List of entities where it owns more than 33-1/3% of the total outstanding voting stock, as well as borrowings from, and advances to, said entities. h. Projected annual cash flow statement presented on a quarterly basis as of the approximate date of issuance for a period co-terminus with the life time of the issue, indicating the basic assumptions thereto and supported by schedules on actual maturity patterns of outstanding receivables and liabilities (under six (6) months, six (6) months to one (1) year, over one (1) year, and past-due accounts) and inventory turnover; and i. Data on financial indicators as may be prescribed by the Commission for each of the immediate past three (3) fiscal years, such as on solvency, liquidity and profitability. The Commission may, whenever it deems necessary, impose other requirements in addition to those enumerated above. SECTION 5. Action on Application for Registration a. Within sixty (60) days after receipt of the complete application for registration, the Commission shall act upon the application and shall, in the appropriate case, grant the applicant a Certificate of Registration and Authority to Issue Long-Term Commercial Papers valid for one (1) year, which may be renewed annually with respect to the unissued balance of the authorized amount upon showing that the registrant has strictly complied with the provisions of these Rules and the terms and conditions of the Certificate of Registration. b. The Commission shall return any application for registration, in cases were the requirements of applicable laws and regulations governing the issuance of long-term commercial papers have not been complied with, or for other reasons which shall be so stated. SECTION 6. Close-end Registration . Registration of long-term commercial papers under these Rules shall be a close-end process whereby the portion of the authorized amount already issued shall be deducted from the authorized amount and may no longer be reissued even if reacquired in any manner, pursuant to the terms and conditions of issue. SECTION 7. Long-Term Commercial Papers Exempt Per Se . The following specific long-term debt instruments are exempt per se from the provisions of these Rules: a. Evidence of indebtedness arising from interbank loan transactions; b. Evidence of indebtedness issued by the national and local governments; c. Evidence of indebtedness issued by government instrumentalities, the repayment and servicing of which are fully guaranteed by the National Government; d. Evidence of indebtedness issued to the BSP under its open market and/or rediscounting operations; e. Evidence of indebtedness issued by the BSP, Philippine National Bank, Development Bank of the Philippines and Land Bank of the Philippines; f. Evidence of indebtedness issued to the following primary institutional lenders: banks including their trust accounts, trust companies non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses including their trust accounts, financing companies, investment companies, non-stock savings and loan associations, venture capital corporations, special purpose corporations referred to in Central Bank Monetary Board Resolution No. 1051 dated June 19, 1981, insurance companies, government financial institutions, pawnshops, pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the national government and other entities that may be classified as primary institutional lenders by the BSP, in consultation with the Commission: Provided , That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the BSP and the Development Bank of the Philippines, with respect to private development banks in connection with their rediscounting privileges; g. Evidence of indebtedness, the total outstanding amount of which does not exceed P15,000,000 and issued to not more than Fifteen (15) primary lenders other than those mentioned in subsection (f) above, which evidence of indebtedness shall be payable to specific persons, and not to bearers, and shall neither be negotiated nor assigned but held on to maturity: Provided , That the aggregate amount of P15,000,000 shall include outstanding short-term commercial-papers: Provided , further , That in reckoning compliance with the number of primary lenders under this section, holders of such papers exempt under Sec. 4(f) of the Rules on Registration of Short-Term Commercial Papers, as amended, shall be counted: Provided , furthermore , That such issuer shall: 1) File a disclosure statement prior to the issuance of any evidence of indebtedness; and a quarterly report on such borrowings in the forms prescribed by the Commission; and 2) Indicate in bold letters on the face of the instrument the words "NON-NEGOTIABLE, NON-ASSIGNABLE": Provided , finally , That any issuer, in accordance with the Rules on Registration of Long-Term Commercial Papers and Bonds dated October 15, 1976 and with outstanding long-term commercial papers falling under this subsection as of the effectivity date hereof, shall likewise file the prescribed disclosure statement and the quarterly report on such borrowings; h. Evidence of indebtedness denominated in foreign currencies; and i. Evidence of indebtedness arising from bonafide sale of goods or property. SECTION 8. Other Long-Term Commercial Papers Exempt from Registration . The following long-term commercial papers shall be exempt from registration under Secs. 3 and 4 hereof, but shall be subject to the payment of the exemption fee, as prescribed under Sec. 14, and to the reportorial requirements under Sec. 15 of these Rules: a. Long-term commercial papers issued by a financial intermediary authorized by the BSP to engage in quasi-banking functions; and b. Long-term commercial papers fully secured by debt instruments of the National Government and the BSP and physically delivered to the trustee in the Trust Indenture. SECTION 9. Prohibitions a. No long-term commercial papers shall be issued or negotiated or assigned unless the requirements of these Rules shall have been complied with: Provided , That no registered long-term commercial paper issuer may issue long-term commercial paper exempt per se under Sec. 7(g) hereof. b. There shall be no pretermination of long-term commercial papers either by the issuer or the lender within 730 days from issue date. Pretermination shall include optional redemption, partial installments, and amortization payments; however, installment and amortization payments may be allowed, if so stipulated in the loan agreement. SECTION 10. Compliance with Bangko Sentral Quasi-Banking Requirements . Nothing in these Rules shall be construed as an exemption from, or a waiver of, the applicable BSP rules and regulations governing the performance of quasi-banking functions. Any violation of said BSP rules and regulations shall be considered a violation of these Rules. SECTION 11. Conditions of the Authority to Issue Long-Term Commercial Papers a. During the effectivity of the underwriting agreement, should the issuer fail to pay in full any interest due on, or principal of long-term commercial paper upon demand at stated maturity date, the Authority to Issue Long-Term Commercial Papers shall be automatically suspended. The underwriter shall, within the next working day, notify the Commission thereof, and the Commission shall forthwith issue a formal Cease and Desist Order enjoining both the issuer and the underwriter from further issuing or underwriting long-term commercial papers. DHECac b. Upon the expiration of the underwriting agreement, it shall be the responsibility of the issuer to notify the Commission that it failed to pay in full any interest due on, or principal of, long-term commercial paper upon demand at stated maturity date and has accordingly Automatically suspended the issuance of its long-term commercial papers. Within the next working day, the Commission shall forthwith issue a formal Cease and Desist Order enjoining the issuer from further issuing long-term commercial papers. c. Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the BSP, the Commission may suspend the Authority to Issue Long-Term Commercial Papers, or reduce the authorized amount thereunder, or schedule the maturities of the registered long-term commercial paper to be issued. SECTION 12. Basic Features of Registered Commercial Papers a. All registered commercial paper instruments shall have a standard format, serially pre-numbered, and denominated. The instrument shall state, among others, the debt ceiling of the registrant and a notice that information about the registrant submitted in connection with the registration and other reportorial requirements from the issuer is available at the Commission and open to public inspection and that the issuer is not authorized by the BSP to perform quasi-banking functions. b. A specimen of the proposed commercial paper instrument shall be submitted to the Commission for approval of the text thereof. c. The instrument approved by the Commission shall be printed by an entity authorized by the Commission and shall be released by the Commission to the issuer. SECTION 13. Minimum Principal Amount . The minimum principal amount of each registered long-term commercial paper instrument shall not be lower than the amounts indicated in the following schedule: a. Up to two years P100,000 b. Over two years but less than four years 50,000 c. Four years or more 20,000 SECTION 14. Fees . Every registrant shall pay the following fees: a. Upon application for registration, a filing fee of 1/20 of 1% based on total commercial paper proposed to be issued, but not to exceed P75,000. b. For issuers of commercial papers exempt under Section 8 hereof, an annual exemption fee of P10,000. SECTION 15. Periodic Reports a. Issuers of registered long-term commercial papers, through their underwriters and those exempt under Sec. 8 hereof, shall submit the following reports in the form prescribed by the Commission: 1) Monthly reports on long-term commercial papers outstanding as at the end of each month to be submitted within ten (10) working days following the end of the reference month; 2) Quarterly reports on long-term commercial paper transactions, accompanied by an interim quarterly financial statement to be submitted within thirty (30) calendar days following the end of the reference quarter; and 3) Actual quarterly cash flow statement to be submitted within ten (10) working days following the end of the reference quarter. b. These periodic reports shall be signed under oath by the corporate officers authorized, pursuant to a board resolution previously filed with the Commission. c. Issuers whose offices are located in the provinces may, through their underwriters, submit their reports to the nearest extension office of the Commission. SECTION 16. Administrative Sanctions . If the Commission finds that there is a violation of any of these Rules and Regulations and implementing circulars or that any issuer, in a registration statement and its supporting papers, as well as in the periodic reports required to be filed with the Commission and the BSP, has made any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion, impose any or all of the following sanctions: a. Suspension or revocation, after proper notice and hearing, of the Certificate of Registration and Authority to Issue Commercial Papers; b. A fine in accordance with the guidelines that the Commission shall issue from time to time: Provided , however , That such fine shall in no case be less than P200 nor more than P50,000 for each violation, plus not more than P500 for each day of continuing violation. Annex "B" hereof shall initially be the guidelines on the scale of fines; c. Other penalties within the power of the Commission under existing laws; and d. The filing of criminal charges against the individuals responsible for the violation. SECTION 17. Cease and Desist Order a. The Commission may, on its own motion or upon verified complaint by an aggrieved party, issue a Cease and Desist Order ex parte , if the violation(s) mentioned in Sec. 16 hereof may cause great or irreparable injury to the investing public or will amount to palpable fraud or violation of the disclosure requirements of the Revised Securities Act and of these Rules and Regulations. b. The issuance of such Cease and Desist Order automatically suspends the Authority to Issue Long-Term Commercial Papers. c. Such Cease and Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Sec. 16 hereof shall have become final and executory. d. Immediately upon the issuance of an ex parte Cease and Desist Order, the Commission shall notify the parties involved, and schedule a hearing on whether to lift such order, or to impose the administrative sanctions provided for in Sec. 16 not later than fifteen (15) days after receipt of notice. SECTION 18. Repealing Clause . These Rules and Regulations supersede the Rules on Registration of Long-Term Commercial Papers and Bonds dated October 15, 1976 and all the amendments to said Rules except as provided in Sec. 19 hereof. All other rules, regulations, orders, memoranda circular of the Commission, which are inconsistent herewith are likewise hereby repealed or modified accordingly. SECTION 19. Transitory Provision a. Any Authority to Issue or Certificate of Exemption to Register Long-Term Commercial Papers, granted under the Rules on Registration of Long-Term Commercial Papers dated October 15, 1976, valid and subsisting as of the date of the effectivity of these Rules, shall remain valid with respect only to all outstanding issues until such issues are retired or redeemed. b. The Commission may, at its discretion and subject to such conditions it may impose, authorize issuance of any unissued portion of the issuer's approved long-term debt ceiling solely for refinancing of maturing long-term commercial paper issue for a period not beyond fifteen (15) months from the effectivity date of these Rules. SECTION 20. Effectivity . These Rules and Regulations shall take effect fifteen (15) days after publication in two newspapers of general circulation in the Philippines. Mandaluyong, Metro-Manila, Philippines, May 17, 1984. (SGD.) MANUEL G. ABELLO Chairman Securities and Exchange Commission APPROVED: (SGD.) JOSE B. FERNANDEZ Chairman Monetary Board of the Central Bank of the Philippines (SGD.) CESAR E. A. VIRATA Minister Ministry of Finance (Ed. Note: Annexes "A" and "B" are not reproduced in this Appendix.) NEW RULES ON REGISTRATION OF SHORT-TERM COMMERCIAL PAPERS (Appendix to Secs. X234.8/X3483) Pursuant to Presidential Decree No. 678, as amended by Presidential Decree No. 1798, and other existing applicable laws, the Securities and Exchange Commission hereby promulgates the following new Rules and Regulations governing short-term commercial papers, in the interest of full disclosure and protection of investors and lenders, in accordance with the monetary and credit policies of the Bangko Sentral. SECTION 1. Scope . These Rules and Regulations shall apply to short-term commercial papers issued by corporations. SECTION 2. Definition . For the purpose of these Rules, the following definitions shall apply: (a) Commercial paper is an evidence of indebtedness of any corporation to any person or entity with a maturity of three hundred sixty-five (365) days or less. (b) Interbank loan transactions shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi-banking functions. (c) Issue means creation of a commercial paper and its actual or constructive delivery to the payee. SECTION 3. Registration of Commercial Papers . Any corporation desiring to issue commercial papers shall apply for registration with, and submit to, the Commission the following: (a) Ordinary Registration ; (1) Sworn Registration Statement in the prescribed form; (2) Board resolution signed by majority of its members (a) authorizing the issue of commercial paper, (b) indicating the aggregate amount to be applied for, (c) providing that the registration statement shall be signed by the principal executive officer, the principal operating officer, the principal financial officer, the comptroller, or principal accounting officer, or persons performing similar functions, and (d) designating at least two senior officers with a rank of vice-president or higher, or their equivalent, to sign the commercial paper instrument to be issued; (3) The latest audited financial statements; and should the same be as of a date more than three (3) months prior to the filing of the registration statement, an unaudited financial statement as of the end of the immediately preceding month: Provided, however, That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant, duly authorized for the purpose, and substituted with an audited financial statement within 120 days after the end of the applicant's fiscal year. (4) Schedules, based on sub-section (3) above, in the form attached as Annex "A"; (5) A committed credit line agreement with a bank, or any financial institution which may be qualified subsequently by the Bangko Sentral, earmarked specifically for repayment of aggregate outstanding commercial paper issues on a pro-rata basis, with the following features: (i) A firm, irrevocable commitment to make available funds to cover at least 20% of the aggregate commercial papers outstanding at any time: Provided , That if the commitment is extended by a group, there shall be a lead bank or any financial institution which may be qualified subsequently by the Bangko Sentral acting for the group; (ii) The commitment shall be effective for as long as the issues are outstanding and may be renewed by the bank or any financial institution which may be qualified subsequently by the Bangko Sentral; (iii) The request for drawdown shall be addressed to the bank or any financial institution which may be qualified subsequently by the Bangko Sentral, which request shall be duly signed by a member of the board of directors and a senior financial officer of the commercial paper issuer, duly authorized for the purpose by an appropriate board resolution, which shall also provide for the designation of the alternate signatories (likewise a member of the board of directors and a senior financial officer); (iv) A provision that availments shall be allowed only for repayment of commercial papers which are due and payable in accordance with the terms of the commercial paper; (v) Notwithstanding the foregoing requirements for a committed credit line with a bank, or any financial institution which may be qualified subsequently by the Bangko Sentral ng Pilipinas, any corporation desiring to issue commercial papers may be exempted from compliance therewith by the Securities and Exchange Commission, should it meet all of the following financial ratios based on consolidated audited financial statements for the immediate past three (3) years: 1) Average current ratio shall be at least 1.2:1 computed as follows: Current Assets Current Liabilities Current ratio = Average acid-test ratios shall be at least 0.5:1 computed as follows: Cash, receivables, and marketable securities Current Liabilities Acid-test ratio = 2) Average solvency position shall be one whereby total assets must not be less than total liabilities; 3) Average net profit margin shall be at least 3% computed as follows: Net income after income tax, corporate development taxes, and other non-cash charges Net sales or revenues Acid-test ratio = OR Average annual return on equity shall be at least 8% computed as follows: Net income after income tax, corporate development taxes, and other non-cash charges Total stockholders' equity Return on equity = 4) Average interest service coverage ratio shall be at least 1.2:1 computed as follows: Net income-before-interest expense, income tax, corporate development taxes, and other non-cash charges Interest service = coverage ratio Interest expense 5) Debt-to-equity ratio shall not exceed 2.5:1. The Securities and Exchange Commission may, in its discretion, consult with industry organization(s) such as Investment Houses Association of the Philippines (IHAP) and Bankers Association of the Philippines (BAP) and/or the Credit Information Bureau, Inc. 6) A selling agreement for the commercial paper issues with an expanded commercial bank or an investment house, or any financial institution which may be qualified subsequently by the Bangko Sentral, with minimum conditions that the selling agent, among others, shall be responsible for ensuring that the issuer observes the provisions of these rules pertaining to the use of proceeds of the committed credit line and, with the issue shall be jointly responsible for complying with all reportorial requirements of the Commission and the Bangko Sentral in connection with the commercial paper issue, it being understood that the primary responsibility for the submission of the report to said regulatory agencies is upon the selling agent: Provided, however, That if the commercial paper issuer is unable to provide the information necessary to meet such reportorial requirements, the selling agent shall, not later than two (2) working days prior to the date when the report is due, notify the Commission of such inability on the part of the issuer: Provided, finally, That if the selling agreement is with a group, composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the Bangko Sentral, there shall be a syndicate manager acting and responsible for the group. (7) Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided , That if the applicant has been in operation for less than three years, it shall submit income statements for such number of years that it has been in operation. (8) A printed copy of a preliminary prospectus approved by the applicant's Board of Directors which, among others, shall contain the following: (i) A statement printed in red on the left-hand margin of the front page of the following tenor: "A registration statement relating to these short-term commercial papers has been filed with, but has not yet been approved by, the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These short-term commercial papers may not be sold nor may offer to buy be accepted prior to the time the registration statement is approved. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these commercial papers in the Philippines as such offer, solicitation, or sale is prohibited prior to registration under the Securities Act, as amended by P.D. No. 678 and P.D. No. 1798." (ii) Aggregate maximum amount applied for, stated on the front page of the prospectus; (iii) Description and nature of the applicant's business; (iv) Intended use of proceeds; (v) The nature of the firm, irrevocable, and committed credit line, the amount of the line which shall be at least 20% of the aggregate outstanding-commercial paper issues, proceeds of which shall be allocated on a pro-rata basis to the aggregate outstanding commercial paper issue (regardless of the order of their maturities), and the manner of availments, as stipulated in the credit line agreement between the bank and the issuer; (vi) The provision in the selling agreement naming the selling agent and the responsibilities of the selling agent in the issuer of the proceeds of the bank committed credit line and the reportorial requirements under these rules; (vii) Other obligations of the commercial paper issuer classified by maturities (maturing within six (6) months; from six (6) months to one (1) year; over one (1) year; and past-due amounts); (viii) Encumbered assets; (ix) Directors, officers, and stockholders owning 2% or more of the total subscribed stock of the corporation, indicating any advance to said directors, officers and stockholders; (x) List of entities where it owns more than 33-1/3% of the total equity, as well as borrowings and advances to said entities; (xi) Financial statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided , That if the applicant has been in operation for less than three (3) years, it shall submit financial statements for such number of years it has been in operation. (b) Special Registration In the case of special registration provided for under Section 10 hereof, the following shall, in addition to the immediately preceding requirements, be prepared and submitted by the selling agent on behalf of the applicant: (1) Projected annual cash flow statement as of the date of filing, presented on a quarterly basis, supported by schedules on actual maturity patterns of existing receivables and liabilities (under six (6) months, six (6) months to one (1) year, over one (1) year, and past-due amounts) and inventory turnover as of the end of the month prior to the filing of the registration statement; and (2) Complementary financial ratios for each of the immediate past three (3) fiscal years: (i) Ratio of (a) the total of cash on hand, marketable securities, current receivables to (b) the total of current liabilities; (ii) Debt-to-equity ratio, with debt referring to all kinds of indebtedness, including guarantees; (iii) Ratio of (a) net income after taxes to (b) net worth; (iv) Net profits-to-sales ratio; and (v) Such other financial indicators as may be prescribed by the Commission. These additional data shall likewise be incorporated in the prospectus. (c) The Commission may, whenever it deems necessary, impose other requirements in addition to those enumerated in subsections (a) and/or (b) above. SECTION 4. Commercial Papers Exempt Per Se . The following specific debt instruments are exempt per se from the provisions of these Rules: (a) Evidence of indebtedness arising from interbank loan transactions; (b) Evidence of indebtedness issued by the national and local governments; (c) Evidence of indebtedness issued to the Bangko Sentral under its open market and/or rediscounting operations; (d) Evidence of indebtedness issued by the Bangko Sentral ng Pilipinas, Philippine National Bank, Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System, and the Social Security System; (e) Evidence of indebtedness issued to the following primary institutional lenders: banks, non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses, financing companies, investment companies, non-stock savings and loan associations, building and loan associations, venture capital corporations, special purpose corporations referred to in Central Bank Monetary Board Res. No. 1051 dated June 19, 1981, insurance companies, government financial institutions, and pawnshops; and other entities that may be classified as primary institutional lenders by the Bangko Sentral, in consultation with the Securities and Exchange Commission: Provided , That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the Bangko Sentral and the Development Bank of the Philippines with respect to private development banks in connection with their rediscounting privilege; (f) Evidence of indebtedness the total outstanding amount of which does not exceed P5,000,000 and issued to not more than ten (10) primary lenders other than those mentioned in subsection (e) above, which evidence of indebtedness shall be payable to a specific person and not to bearer and shall neither be negotiated nor assigned but held on to maturity; (g) Evidence of indebtedness denominated in foreign currencies; and (h) Evidence of indebtedness arising from bonafide sale of goods or property. SECTION 5. Other Commercial Papers Exempt from Registration . Commercial papers issued by any financial intermediary authorized by the Bangko Sentral to engage in quasi-banking functions shall be exempt from registration under Sec. 3, but shall be subject to payment of the exemption fee, as provided under Sec. 15, and to the reportorial requirements under Sec. 17, all under these Rules. SECTION 6. Prohibition . No commercial paper, except of a class exempt under Secs. 4 and 5 hereof, shall be issued unless such commercial paper shall have been registered under these Rules: Provided , That no registered commercial paper issuer may issue commercial paper exempt per se under Section 4(f) hereof. SECTION 7. Compliance with Bangko Sentral Quasi-Banking Requirements . Nothing in these Rules shall be construed as an exemption from or a waiver of the applicable Bangko Sentral rules/regulations or circulars governing the performance of quasi-banking functions or financial intermediaries duly authorized to engage in quasi-banking activities. Any violation of said Bangko Sentral rules/regulations or circulars shall be considered a violation of these rules and regulations. SECTION 8. Action on Application for Registration (a) Within sixty (60) days after receipt of the complete application for registration, the Commission shall act upon the application and shall, in the appropriate case, grant the applicant a Certificate of Registration and Authority to Issue Commercial Papers. (b) The Commission shall return any application for registration, in cases where the requirement of applicable laws and regulations governing the issuance of commercial papers have not been complied with, or for reasons which shall be so stated. SECTION 9. Ordinary Registration If the value of commercial papers applied for, when added to the total outstanding liabilities of the applicant, does not exceed three hundred percent (300%) of networth based on the financial statements referred to under Section 3(a) (3), the commercial papers shall be registered upon compliance with the requirements specified in Section 3(a) hereof. The same principle shall apply in the case of renewal of the Authority to Issue Commercial Paper. SECTION 10. Special Registration If the value of commercial paper applied for exceeds 300% of networth, as contemplated in the preceding section, it shall be subject to compliance with the requirement under Sec. 3(b) hereof. SECTION 11. Validity Period of the Authority to Issue Commercial Paper . The authority to issue commercial papers shall be valid for a period of 365 days which shall be indicated in the Authority to Issue Commercial Paper, provided that renewal thereof, upon application filed at least forty five (45) days prior to its expiry date, may be for a period shorter than 365 days. SECTION 12. Conditions of the Authority to Issue Commercial Paper (a) In the event that the commercial paper issuer fails to pay in full any commercial paper upon demand at stated maturity date, the Authority to Issue Commercial Paper is automatically suspended. The selling agent shall, within the next working day, notify the Commission thereof, and the Commission shall forthwith issue a formal Cease and Desist Order, enjoining both the issuer and the selling agent from further issuing or selling Commercial papers. (b) Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the Bangko Sentral, the Commission may suspend the Authority to Issue Commercial Paper, or reduce the authorized amount thereunder, or schedule the maturities of the registered commercial paper to be issued. SECTION 13. Basic Features of Registered Commercial Papers (a) All registered commercial paper instruments shall have a standard format, serially pre-numbered, and denominated. The instrument shall state, among others, the debt ceiling of the registrant and a notice that information about the registrant submitted in connection with the registration and other reportorial requirements from the issuer is available at the Commission and open to public inspection and that the issuer is not authorized by the Bangko Sentral to perform quasi-banking functions. (b) A specimen of the proposed commercial paper instrument shall be submitted to the Commission for approval of the text thereof. (c) The approved instrument shall be printed by the Bangko Sentral Security Printing Plant pursuant to a prior authorization from the Commission, and shall be released by the Commission to the issuer. SECTION 14. Minimum Maturity Value . The maturity value of each registered commercial paper instrument shall not be lower than P300,000. SECTION 15. Fees . Every registrant shall pay the following fees: (a) Upon application for registration, and for renewals thereof, a filing fee of not more than 1/50th of 1% based on the total commercial paper proposed to be issued. (b) For issuers of commercial paper exempt under Sec. 5 hereof, an annual exemption fee of P10,000. SECTION 16. Notice of Availment . Whenever the credit line is drawn upon, the selling agent and/or issuer shall, within two (2) working days immediately following the date of drawdown, notify the Commission of such event, indicating the amount availed of and the total availment as of that given time. SECTION 17. Periodic Reports (a) Issuers of registered commercial papers and those exempt under Sec. 5 hereof shall submit to the Commission and the Bangko Sentral the following reports in the prescribed form: (1) Monthly reports on commercial papers outstanding as at the end of each month, to be submitted within ten (10) working days following the end of the reference month; (2) Quarterly reports on commercial paper transactions accompanied by an interim quarterly financial statement to be submitted within thirty (30) calendar days following the end of the reference quarter; and (3) For issuers whose application for registration was under Sec. 10 hereof, the projected quarterly cash flow statements with the corresponding quarter's actual figure to be submitted within ten (10) working days following the end of the reference quarter; (b) These periodic reports shall be signed under oath by the corporate officers authorized pursuant to a board resolution previously filed with the Commission; (c) Issuers whose offices are located in the provinces may submit their reports to the nearest extension offices of the Commission. SECTION 18. Administrative Sanctions . If the Commission finds that there is a violation of any of these Rules and Regulations and implementing circulars or that any issuer, in a registration statement and its supporting papers, as well as in the periodic reports required to be filed with the Commission and the Bangko Sentral, has made any untrue statement of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion, impose any or all of the following sanctions: (a) Suspension or revocation, after proper notice and hearing, of the Certificate of Registration and Authority to Issue Commercial Paper; (b) A fine in accordance with the guidelines that the Commission shall issue from time to time: Provided, however, That such fine shall in no case be less than P200 or more than P50,000 for each violation, plus not more than P500 for each day of continuing violation. Annex "B" hereof shall initially be the guideline on the scale of fines; (c) Other penalties within the power of the Commission under existing laws; and (d) The filing of criminal charges against the individuals responsible for the violation. SECTION 19. Cease and Desist Order . The Commission may, on its own motion or upon verified complaint by an aggrieved party, issue a Cease and Desist Order ex parte if the violation(s) mentioned in Sec. 18 may cause great or irreparable injury to the investing public or may amount to palpable fraud, or violation of the disclosure requirements of the Securities Act and of these Rules and Regulations. The issuance of such Cease and Desist Order automatically suspends the Authority to Issue Commercial Papers. Such Cease and Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Sec. 18 shall have become final and executory. Immediately upon the issuance of an ex parte Cease and Desist Order, the Commission shall notify the parties involved, and schedule a hearing on whether to lift such order, or to impose the administrative sanctions provided for in Sec. 18 not later than fifteen (15) days after receipt of notice. SECTION 20. Repealing Clause . These Rules and Regulations supersede the Rules on Registration of Commercial Papers dated December 10, 1975, and all the amendments to said Rules. All other rules, regulations, orders, and memoranda circular of the Commission which are inconsistent herewith are likewise hereby repealed or modified accordingly. SECTION 21. Transitory Provision . Any Authority to Issue Commercial Papers, valid and subsisting as of the date of the effectivity of these Rules and Regulations, shall remain valid and upon its expiration may, at the discretion of the Commission and subject to such conditions as it may impose, be renewed on the basis of the Rules of Registration of Commercial Papers dated December 10, 1975 for an aggregate period not exceeding fifteen (15) months from its expiry date. SECTION 22. Effectivity . These Rules and Regulations shall take effect on December 11, 1981. Mandaluyong, Metro Manila, Philippines December 8, 1981 (SGD.) MANUEL G. ABELLO Chairman Securities and Exchange Commission APPROVED: (SGD.) JAIME C. LAYA Chairman Monetary Board of the Central Bank of the Philippines (SGD.) ALFREDO PIO de RODA, JR. Acting Minister Minister of Finance LIST OF RESERVE ELIGIBLE AND NON-ELIGIBLE SECURITIES (Appendix to Sec . X254) A. Government securities ELIGIBLE as reserves 1. Direct obligations of the Government of the Republic of the Philippines eligible as reserve against peso deposit liabilities and deposit substitute liabilities: 1.1 4% PWED Bonds all outstanding series 2.1 4% NPC Bonds (26th - 50th Series except 39th Ser: which bear 6% obligation assumed by the National Government) 3.1 4% Treasury Bonds (30th S; 57th S; 59th-71st S; 78th-93rd S) 3.2 Treasury Bonds with less than 4% per annum interest considered eligible by reason of expressed BSP limited support to original purchaser: 2% T/Bond L of 1973/2003 1st Series (1st & 2nd Rel.) 3% T/Bond L of 1978/2008 55th Series (1st Release) 4% T/Bond L of 1979/2009 55th Series (2nd Release) 3-% T/Bond L of 1974/1999 6th Series (1st. & 2nd Rel.) 3-% T/Bond L of 1978/2003 54th Series (1st 3rd Rel.) 4.1 4% Treasury Notes L of 1980/1995 115th Series 5.1 Bonds made specifically eligible to its holders only: 4% Treasury Capital Bonds DBP only 2% Capital Treasury Bonds PNB only II. Bonds and other evidences of indebtedness bearing interest rate of four percent (4%) per annum, issued by government-owned or controlled corporations, political subdivisions and instrumentalities likewise eligible as reserves against peso deposit liabilities and deposit substitute liabilities: 1.1 4% NAWASA Bonds (1st to 9th & 13th Series) III. The following government securities bearing more than four percent (4%) per annum interest, whether Bangko Sentral supported or not, if BEING USED BY BANKS/NBQBs as reserve against deposit substitute liabilities as of January 17, 1977 shall continue to be eligible as such: Provided , That whenever said securities shall have matured, they shall be replaced by securities carrying the features/conditions enumerated under Circular No. 630, dated November 8, 1978, as amended: 6% PWED Bonds All outstanding issues 6% NPC Bonds -do- 7% NPC Bonds -do- 8-% NPC Bonds 13th-22nd Series 7% MWSS Capital Bonds All outstanding issues except 15th Series 6% NIA Bonds -do- 4 % Treasury Bonds -do- 4 7/10% Treasury Bonds 7th Series 5% Treasury Bonds 9th Series 6% Treasury Bonds 8th Series 7% Treasury Bonds all outstanding issues except 15th Series 10-% Treasury Bonds All outstanding issues 9% Treasury Notes 60th and 65th Series 10-% Treasury Notes 101st Series (1st & 2nd Release) 10- Treasury Notes 56th and 61st Series 11- Treasury Notes 59th Series 6% NAWASA Bonds 11th, 12th and 1st Series 10% EPZA Bonds 9th-11th Series 10- EPZA Bonds 3rd-8th Series B. The following government securities are NOT ELIGIBLE: whatsoever for reserve purposes: Negotiable Land Certificate (NLC) Cultural Center of the Philippines (CCP) Bonds Philippine Charity Sweepstakes Office (PCSO) Bonds Public Estate Authority (PEA) Bonds National Development Company (NDC) Bonds National Housing Authority (NHA) Bonds National Food Authority (NFA) Bonds NHMFC Bahayan Certificates Light Rail Transit Authority (LRTA) Notes CBCIs (Auctioned/discounted) - 24th -29th Series CBCIs (Negotiated) A to D-1 Series and 5th to 7th Series (18 months) CBCIs 10-% Special Series 1st-32nd Series Central Bank Bills (Negotiated/discounted) Treasury Bills (Negotiated/discounted) Treasury Notes and Treasury Bonds bearing less than four percent (4%) per annum, but not given BSP support as follows: Treasury Bonds 2% T/Bond L of 1973/2003 4th Series 2-% T/Bond L of 1974/1986 7-A & 7-B Series 3% T/Bond L of 1976/2001 26th, 27th, 31 st - 34th 46th & 47th Series 3% T/Bond L of 1977/2002 49th Series 3-% T/Bond L of 1974/1999 6th Series 3rd & 4th Release 3-% T/Bond L of 1977/2002 6th Series 5th Release 3 % T/Bond L of 1975/2000 21 st Series 1st Release 3-% T/Bond L of 1977/2002 21 st Series 2nd Release 3-% T/Bond L of 1977/2002 51st Series 1st & 2nd Release 3-%T/Bond L of 1978/2003 54th Series 1 st & 34th Release 3-% T/Bond L of 1980/2005 58th Series 3-% T/Bond L of 1973/2003 2nd Series Treasury Notes 2% T/Notes L of 1976/1991 79th Series 3% T/Notes L of 1982/1997 128th Series 3% T/Notes L of 1981/1986 120th Series & 125th Series 3-% T/Notes L of 1982/1997 Special Series 1st-24th Release IMPLEMENTING GUIDELINES OF THE COUNTRYSIDE FINANCIAL INSTITUTIONS ENHANCEMENT PROGRAMS (Appendix to Sections 2274 and 3274) SECTION 1. Statement of Policy Objectives The CFIEP aims to: 1.1 raise the capital base of the countryside financial institutions by encouraging existing and new investors to infuse fresh equity into said institutions and thereby accelerate the government's economic development efforts. 1.2 reduce the debt burden of eligible countryside financial institutions and the corresponding financial strain on the government in continually assisting them; and 1.3 improve the long-term viability of the countryside financial institutions and establish such institutions as an effective means to mobilize savings and credit. SECTION 2. Qualified Participants The Program shall be open to the following: 2.1 All operating rural banks except those with serious irregularities based on the examination findings of the Bangko Sentral ng Pilipinas (BSP). 2.2 Thrift banks as may be determined by the Task Force which have their main operations in the countryside. 2.3 Individuals, cooperatives and/or corporations as may be qualified to make an investment in the rural bank or qualified thrift bank. SECTION 3. Coverage of the Program All past due borrowings (principal and interest) with the BSP of rural banks and qualified thrift banks as of August 31, 1991 in the form of rediscounted loans, CB:IBRD loans including those under plans of payment, and arrearages converted into Land Bank of the Philippines (LBP) equity under BSP Circulars 1143/1172. SECTION 4. CFIEP Task Force To effectively attain the objectives hereinabove cited, a Task Force composed of the Governor of the BSP, the President of the LBP, the President of the PDIC, has been constituted to coordinate all activities relating to, and oversee the implementation of the CFIEP. SECTION 5. Incentives As the Task Force may allow, participants to the Program are entitled to the following incentives approved by the Monetary Board: a. Exemption of voting stock holdings of any person or persons related to each other within the third degree of consanguinity or affinity, cooperatives, or corporations participating in the program, from the application of prescribed equity ceilings, as may be warranted, and for a period not to exceed twenty (20) years; and b. Waiver of penalties and other charges due on arrearages covered by the program. SECTION 6. Definition of Terms As used in these Guidelines: 6.1 Investor shall refer to qualified individual, group of individuals, cooperative, and/or corporation making an investment in a qualified rural bank/thrift bank. 6.2 Arrearages shall refer to all past due borrowings (principal and interests) of rural banks/thrift banks as may be qualified, with the BSP as of August 31, 1991, in the form of rediscounted notes, special time deposits (STD), emergency loans, CBP-IBRD loans including those under plans of payment, and other arrearages as the Task Force may determine. 6.3 Converted Shares shall refer to the arrearages converted into LBP equity in the form of common and preferred shares pursuant to BSP Circular Nos. 1143 and 1172. SECTION 7. Components of the Program The components of the Program are as follows: 7.1 Purchase of Rural Bank Arrearages (Module I) The investor makes a deposit with the rural bank/thrift bank which shall be used to purchase negotiable promissory notes (NPN) with the LBP valued at twice the amount actually deposited by the investor. The NPNs, in turn, will be used to redeem arrearages with the BSP through the PDIC. The investor will then be issued shares of stocks in the rural bank/thrift bank equivalent to the actual amount invested and the difference credited to Paid-In Surplus account. 7.2 Land Bank Counterpart Capital (Module II) An eligible rural bank is provided access to LBP's capital infusion program which essentially involves the matching on a one-to-one basis of rural bank's fresh capital infusion. The LBP's matching equity shall be in preferred shares redeemable throughout a period of ten years. The cumulative dividend rates shall depend on the time when redemption takes place. Other terms of LBP's investment will be determined by its Board and operational details will be announced to the rural banks accordingly. 7.3 Merger and Consolidation incentives (Module III) Eligible rural banks can avail of incentives aimed at promoting mergers and consolidations among banks as a means to develop larger and stronger CFIs which may include the following: a. Counterpart capital infusion by the LBP by a ratio of more than one-to-one of the merged or consolidated bank's total fresh equity; b. PDIC Credit Facility for qualified merging or consolidating banks to augment the capital infusion required to absorb the adverse impact of asset write-downs and other costs of merger and consolidation. The credit line shall be based on the unimpaired capital of the merged or consolidated bank and the unbooked valuation reserves as determined by the BSP. c. Other forms of incentives under BSP Circular No. 1312 dated October 15, 1991. SECTION 8. Qualification to the Program Rural banks and thrift banks as may be qualified, except these with serious irregularities based on the examination findings of the BSP may participate in the Program. 8.1 Under Module I, rural banks and thrift banks with arrearages as defined in sections 6.2 and 6.3 hereof may qualify. 8.2 To avail of equity matching program of the LBP under Module II, the rural bank must meet the following minimum requirements: a. a past due ratio of not more than 50%; and b. a loan portfolio with at least 60% in agriculture or rural-based production activities. 8.3 Under Module III, PDIC credit facility shall be available to merging and consolidating rural/thrift banks involving at least one undercapitalized bank. Separate memorandum shall be issued on the guidelines for the LBP equity matching program and PDIC credit facility. 8.4 Investors will be evaluated based on the depth and quality of professional experience, financial standing, creditworthiness, ability to own and manage a bank, and other criteria that the Task Force may set. Rural Banks investing in other rural banks should have a minimum unimpaired capital of three million (P3,000,000) and a history of sustained profitability. 8.5 Fresh investments should at least cover the additional capital required to achieve the statutory requirement of a Risk Assets ratio of 10% after adequate provision for losses based on latest examination findings of the BSP. SECTION 9. Application Procedures * 9.1 Purchase of Arrearages under Module I a. Investor files application (CFIEP Form No. 1-A) with the LBP together with the following requirements: (1) a proposal for financial strengthening accompanied by a one-year financial projection and a subsequent two-year business plan; (2) the designation of PDIC by the rural bank/thrift bank as the attorney-in-fact to receive the NPN from LBP and to exchange the NPN for arrearages of the rural bank/thrift bank. (3) other requirements as the Task Force may deem necessary. b. Simultaneously, the investor deposits cash with the LBP in amount equivalent to 50% of the arrearages to be redeemed, which shall be placed in a special account pending approval of application by the Task Force. c. Upon approval of the application, the rural bank/thrift bank shall be duly notified by the Task Force directly or through the LBP Regional Office. d. The LBP shall issue a Negotiable Promissory Note, with a seven-year term with a maturity value equivalent to twice the amount invested, in favor of the rural/thrift bank. e. The rural bank/thrift bank, through the PDIC as attorney-in-fact, shall exchange the NPN for the rural/thrift bank's arrearages equivalent to the amount of the NPN. f. The rural/thrift bank shall issue stock certificates in favor of the investor/s equivalent to the total fresh cash investment. The difference shall be credited to Paid-In Surplus account. g. Applicants who do not qualify shall be reimbursed for their deposits including accrued interest earned. 9.2 LBP Counterpart Capital under Module II Interested rural bank shall submit the requirements listed in CFIEP Form No. 2-B to the LBP. 9.3 Merger and Consolidation under Module III The merging/consolidating banks shall formulate a merger/consolidation plan which shall be an integral component of the CFIEP application documents to be submitted to the LBP regional offices. SECTION 10. Availability of the CFIEP to Thrift Banks To improve the delivery of financial services to the countryside in general, the Program will also be available to thrift banks, as may be determined by the Task Force, which have their main operations in the countryside. SECTION 11. Applicability of Relevant Laws Nothing herein shall be construed as a waiver by the BSP from proceeding under Section 30 of R.A. No. 7653 or other pertinent provisions in said Act and the Rural Banks Act, as amended, in the event that circumstance shall exist as would warrant action under such provision of law. RULES GOVERNING ISSUANCE OF MORTGAGE/CHATTEL MORTGAGE CERTIFICATE BY THRIFT BANKS (Appendix to Subsec . 2283) A. With prior approval of the Monetary Board, thrift banks, whether or not authorized to engage in quasi-banking functions, may issue and deal in mortgage and chattel mortgage certificates exclusively for the purpose of financing the following loans: 1. Equipment loans; 2. Mortgage loans for acquisition of machinery and other fixed installations; 3. Loans for the conservation, enlargement or improvement of productive properties; and 4. Real estate mortgage loans (a) for the construction, acquisition, expansion or improvement of rural and urban properties; (b) for the refinancing of similar loans and mortgages; and (c for such other purposes as may be authorized by the Monetary Board. B. The certificates shall be issued at a minimum denomination of P20,000 for a term of at least four (4) years. C. The amount of certificates which a thrift bank may issue shall not exceed an amount equivalent to fifty percent (50%) of the total amortizations falling due during the projected term of the certificates on the mortgages/chattel mortgages pooled for the purpose of the issue. D. The maturity of the certificates shall in no case be later than any of the maturities of the mortgages/chattel mortgages constituting the pool. Mortgages and chattel mortgages on "past due loans" as defined under existing regulations shall not be eligible for the pool. E. All outstanding certificates shall constitute a prior preferred lien on payments or amortizations on the mortgages and chattel mortgages constituting the pool. F. If at any time, during the term of the certificates, the aggregate outstanding amount thereof should exceed the ceiling as provided in Item C above on account of any deficiency or inadequacy of the mortgages or chattel mortgages resulting from prepayments by the mortgage or chattel mortgages becoming past due as determined by existing regulations, the issuing bank shall provide additional mortgages or chattel mortgages as are current necessary to cover the deficiency. G. The issuing thrift bank shall enter into an agreement with another bank which shall constitute the latter as custodian of the mortgages/chattel mortgages pooled for the purpose of the issue, as transfer agent of the certificates, and as its paying and securing agent, and in general shall specifically state (a) the rights, obligations and liabilities of the issuing bank and custodian banks; and (b) the rights of the holders of the certificates; (c) the mortgages making up the pool; and (d) the aggregate value of the certificates that may be issued. H. The agreement shall be available for inspection at reasonable hours during business days to the holders of the certificates, or their duly authorized representatives. I. The certificates shall have the following minimum features: 1. The certificate shall be 13 inches in length and 8.5 inches in width, and shall be serially pre-numbered and printed on security paper with safeguards against alterations and/or falsifications; 2. The description of the certificate, i.e., "Mortgage Certificate" or "Chattel Mortgage Certificate", shall be printed on the upper center margin of the certificate; 3. The certificate shall indicate its date of issuance, the amount or denomination thereof, the rate of interest expressed as a percentage on an annual basis, and the term or maturity thereof; 4. The certificate shall contain a conspicuous notice at the lower margin thereof that the same is not insured by the Philippine Deposit Insurance Corporation (PDIC); and 5. The copy of the certificate to be issued to the investor shall be stamped or printed with the word "Original" and the copies retained by the issuer as "Duplicate copy", "File copy", or words of similar import. J. A five percent (5%) reserve shall be maintained against all issues of mortgage/chattel mortgage certificates. The Monetary Board may change the required reserves as may be necessary. K. Any thrift bank desiring to apply for authority to issue mortgage/chattel mortgage certificates may submit its application to the appropriate supervising and examining department of the Bangko Sentral duly accompanied by the following documents: 1. Pro-forma copies of the mortgage/chattel mortgage certificates proposed to be issued and the agreement referred to in Item G thereof; 2. Statement setting forth the details or particulars of the mortgages/chattel mortgages to be pooled for purposes of the issue and the purpose for which the proceeds will be used; and 3. Other records or data as the appropriate supervising and examining department may deem necessary for the proper evaluation of the bank's application. GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES (Appendix to Sec . X302) I. Classification of loans . In addition to classifying loans as either current or past due, the same should be qualitatively appraised and grouped as Unclassified or Classified. A. Unclassified loans . These are loans that do not have a greater-than-normal risk and do not possess the characteristics of classified loans as defined below. The borrower has the apparent ability to satisfy his obligations in full and therefore no loss in ultimate collection is anticipated. B. Classified loans . These are loans which possess the characteristics outlined hereunder. Classified loans are subdivided into (1) loans especially mentioned; (2) substandard; (3) doubtful; and (4) loss. 1. Loans especially mentioned . These are loans or portions thereof which are superior in quality to those classified Substandard, but which are potentially weak, e.g., where there is lack of collateral, credit information or documentation and thus require closer management supervision. These loans do not have sufficient adverse information to warrant Substandard classification. This category may include the following: a. Loans with technical defects and collateral exceptions, such as: (1) Unlocated collateral folders and documents including but not limited to title papers, mortgage instruments and promissory notes; (2) Improper execution of the supporting deed of assignment/pledge agreement/chattel mortgage/real estate mortgage; (3) Unregistered and/or unnotarized mortgage instruments as required in the loan approval; (4) Collaterals not covered by appraisal reports or appraisal reports of which are unlocated; (5) Collaterals not insured or with inadequate/expired insurance policies; and (6) Loans to firms not covered by board resolutions authorizing the borrowings. b. Loans not supported by up-to-date and adequate financial statements or adequate credit information. Regardless of the size of the financial intermediary, it is important that all available credit information on its borrowers be compiled in the credit folders/files for effective credit supervision. Included in this group are: (1) Loans renewed without updated financial statements, income tax returns and/or statements of assets and liabilities; and (2) Loans without credit investigation reports or updated credit information. c. Loans which need the attention of management for special and/or corrective action. Common to this group of loans are: (1) Loan accounts wherein effort to collect is not evident or is deemed inadequate; (2) Loans granted beyond the limits of approving authority; (3) Availments against expired credit line; availments in excess of credit line; or availments against credit line without prior approval by appropriate authority; (4) Demand loans outstanding for an unreasonable length of time; (5) Loans granted without compliance with conditions set forth in the approval; (6) Loans with promissory notes signed by unauthorized officers of the borrowing firm; (7) Loans secured by property the title to which bears an uncancelled annotation of lien or encumbrance; and (8) Loans to firms with profitable operations but belonging to a distressed industry. d. Loans the repayment of which may be endangered by economic or market conditions that in the future may affect the borrower's ability to meet scheduled repayments such as declining or fluctuating operation, illiquidity, or increasing leverage trend in the borrower's financial statements. 2. Substandard Loans . These are loans or portions thereof which appear to involve a substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics. There exists in such loans the possibility of future loss to the institution unless given closer supervision. No loan should be classified Substandard if repayment seems reasonably assured. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize their liquidation. Such well-defined weakness may include adverse trends or development of financial, managerial, economic or political nature, or a significant weakness in collateral. The basic characteristics of loan accounts subject to Substandard classification are as follows: a. Secured loans (1) Loans under litigation; (2) Past due and circumstances are such that there is an imminent possibility of foreclosure or acquisition of the collateral because of failure of all collection efforts; (3) Past due for more than six (6) months without reduction in principal but in process of collection; and (4) Current loans to borrowers with inadequate net worth, poor earnings, or whose properties securing the loan have declined in value materially or have been found with defects as to ownership or other adverse information. (5) Past due well-secured loans and advances not in process of collection, interest of which is unpaid for a period of over 6 months to 1 year. Loans possessing any of the above characteristics should be classified Substandard at the full amount except portions thereof secured by hold-outs on deposit substitutes, margin deposits or government-supported securities. The portions so secured are not subject to classification. b. Unsecured loans (1) Items under litigation; (2) Loans past due for more than ninety (90) days; (3) Renewed/extended loans without at least twenty percent (20%) repayment of the principal before renewal or extension; (4) Unmatured loans which have become unsound due to unfavorable results of operations of the borrower, minimal capitalization of the borrower in relation to the loan and/or project financed, weaknesses inherent to conduit loans or loans availed of for the benefit of another party, or absence of favorable track record showing borrower's financial responsibility; and (5) Loans to distressed industries repayments of which are imperiled. 3. Doubtful loans . These are loans or portions thereof which have the weaknesses inherent in those classified as Substandard, with the added characteristics that existing facts, conditions, and values make collection or liquidation in full highly improbable and in which substantial loss is probable. The basic characteristics of loan accounts subject to Doubtful classification are as follows: a. All past due clean loans classified as Substandard in the last Bangko Sentral examination without at least twenty percent (20%) repayment of principal during the succeeding twelve (12) months or with current unfavorable credit information; b. Past due loans secured by collaterals which have declined in value materially such as inventories, receivables, equipment, and other chattels without the borrower offering additional collateral for the loans coupled by the weakened financial condition of the borrower; c. Past due loans secured by real estate mortgage title to which is subject to an adverse claim rendering settlement of the loan through foreclosure doubtful; d. Loans the possibility of loss of which is extremely high but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until a more exact status may be determined. e. Past due well-secured loans and advances not in process of collection, interest of which is unpaid for a period of over one (1) year to two (2) years. 4. Loss . These are loans or portions thereof which are considered uncollectible or worthless and of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value. The amount of loss is difficult to measure and it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be obtained in the future. Also included under this category are statutory bad debts defined as any debt on which interest is past due for a period of six (6) months, unless it is well-secured and in process of collection. The basic characteristics of loan accounts subject to Loss classification are as follows: a. Past due clean loans and advances the interest of which is unpaid for a period of six (6) months; b. Past due well-secured loans and advances not in process of collection, interest of which is unpaid for a period of over two (2) years; c. Loans payable in installments where amortization applicable to interest is past due for a period of six (6) months, unless the loan is well secured and in process of collection; d. When the borrower's whereabouts is unknown, or he is insolvent, or his earning power is permanently impaired and his co-makers or guarantors are insolvent or that their guaranty is not financially supported; e. Where the collateral securing the loan is considered worthless and the borrower and/or his co-makers are insolvent; f. Loans considered as absolutely uncollectible; and g. Loans classified as Doubtful in the last BSP examination and without any payment of interest or substantial reduction of principal during the succeeding twelve (12) months or has current unfavorable credit information which renders collection of the loan highly improbable. II. Investments and other risk assets A. Temporary investments in stocks and bonds should be valued at lower of cost or market. The lower of cost or market should be applied to the portfolio in its entirety. A valuation reserve account should be set up to reflect a material or major market decline equivalent to at least ten percent (10%) of the book value. B. Equity investment in affiliates shall be booked at cost or book value whichever is lower on the date of acquisition. If cost is greater than book value, the excess shall be charged in full to operations or booked as deferred charges and amortized as expense over a period not exceeding five (5) years. Subsequent to acquisition, if there is an impairment in the recorded value, the impairment should adequately be provided with allowance for probable losses. C. Other Property Owned or Acquired 1. The basic characteristics of real estate property acquired subject to Substandard classification are as follows: a. Acquired for less than five (5) years unless worthless. b. Converted into a Sales Contract Receivable. c. Sold subject to a firm purchase commitment from a third party before the close of the examination. 2. The basic characteristics of real estate property acquired subject to loss classification are as follows: a. The accrued interest, foreclosure expenses, and other charges included in the book value. b. The excess of the book value over the appraised value. c. Property whose title is definitely lost to a third party or is being contested in court. d. Property wherein the exercise of the right of usufruct is not practicable or possible as when it is eroded by a river or is under any like circumstances. Real estate property acquired are not sound bank assets. Because of their nature, that is, non-liquid and non-productive, their immediate disposal through sale is highly recommended. If such is not possible, they should be charged-off by annually providing a valuation reserve in accordance with the following schedule starting at the expiration of the statutory redemption period. End of Year After Expiry of Redemption Annual Period or Provision to Perfection of Cost of Accumulated Contract Acquisition reserve 6th Year 10% 10% 7th Year 10% 20% 8th Year 10% 30% 9th Year 10% 40% 10th Year 10% 50% D. Acquired or Repossessed Personal Property 1. All personal property owned or acquired held for three (3) years or less from date of acquisition shall be classified as Substandard assets. 2. The basic characteristics of acquired or repossessed personal property classified as Loss are as follows: a. Property not sold for more than three (3) years from date of acquisition; b. Property which is worthless or not salable; c. Property whose title is lost or is being contested in court; d. The accrued interest, foreclosure expenses and other charges included in the book value of the property; and e. The excess of the book value of the property over its appraised or realizable value. Valuation reserves shall also be provided for foreclosed personal property in accordance with the following schedule, reckoned from the date of foreclosure or from the perfection of the contract, if acquired through dation in payment. End of Year After Expiry of Redemption Annual Period or Provision to Perfection of Cost of Accumulated Contract Acquisition reserve 1st Year 50% 50% 2nd Year 30% 80% 3rd Year 20% 100% E. Accounts Receivable 1. Accounts receivable arising from loan and investment accounts still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due shall be provided with a 100% allowance for uncollected accounts receivable. 2. All other accounts receivable should be classified in accordance with age as follows, unless there is good reason for non-classification: No . of Days Outstanding Classification 61-180 Substandard 181-360 Doubtful 361 or more Loss The classification according to age of accounts receivable should be used in classifying other risk assets not covered above. However, their classification should be tempered by favorable information gathered in the review. F. Accrued Interest Receivable 1. Accrued interest receivable on loans or loan installments still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due shall be provided with a 100% allowance for uncollected interest on loans. 2. All other accrued interest receivable on loans or loan installments shall be classified similar to the classification of their respective loan accounts. III. Allowance for probable losses . An allowance for probable losses on the loan accounts and other risk assets should be set up in accordance with the following: Classification Allowance 1. Unclassified 0% 2. Loans Especially Mentioned 0% 3. Substandard (Unsecured Portion) 25% 4. Doubtful 50% 5. Loss 100% The allowance for probable losses shall be adjusted accordingly for additional allowance required by the BSP. Management is encouraged to provide additional allowance as it deems prudent and to formulate additional specific guidelines within the context of the herein-described system . FORMAT OF ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. 3765) (Appendix to Subsec . X307 . 4) SECTION 1. This Act shall be known as the "Truth i n Lending Act. " SECTION 2. Declaration of Policy . It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. xxx xxx xxx SECTION 3. As used in this Act, the term xxx xxx xxx (3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may by regulation prescribe. xxx xxx xxx SECTION 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing stating forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in: (3) the difference between the amounts set forth under clauses (1)and (2); (4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (5) the total amount to be financed; (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. xxx xxx xxx SECTION 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. xxx xxx xxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both. xxx xxx xxx (e) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. SECTION 7. This Act shall become effective upon approval. Approved, June 22, 1963. AGREEMENT FOR AN INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (Appendix to Subsec . X343 . 1) KNOW ALL MEN BY THESE PRESENTS: This Agreement for an Interbank Call Loan Funds Transfer System (the "Agreement") entered by and among the following: The BANGKO SENTRAL NG PILIPINAS, a public corporation duly organized and existing under the laws of the Republic of the Philippines, with principal address at the BSP Building, Roxas Boulevard, Manila, (hereinafter referred to as the "BSP"); The BANKERS ASSOCIATION OF THE PHILIPPINES, an organization of duly licensed commercial banks in the Philippines, with principal offices at the 11th Floor, Sagittarius Building, H. Y. de la Costa Street, Makati City (hereinafter referred to as the "BAP"); and The PHILIPPINE CLEARING HOUSE CORPORATION, an organization duly incorporated under the laws of the Republic of the Philippines, with principal offices at the Ground Floor, 5 Storey Building, Bangko Sentral ng Pilipinas, Manila (hereinafter referred to as the "PCHC"); WITNESSETH THAT: WHEREAS presently, Interbank Call Loans (IBCLs) are paper-based and transmitted physically by the counterparties to and from each other and to the BSP; WHEREAS, the BAP would like to improve the efficiency and productivity of its member banks, as well as other participating financial institutions, reduce the operational risks involved in paper-based transactions and transpose IBCL transactions into a fully automated environment; WHEREAS, the BSP, the BAP and the PCHC would like to lay down the parameters and the terms and conditions of such IBCL Funds Transfer System for availment by BAP members, as well as by financial institutions who are non-BAP members; NOW THEREFORE, premises considered, the BSP, the BAP and the PCHC mutually agree, as follows: 1.0 APPOINTMENT The PCHC is hereby appointed as the exclusive processor, provider and clearing house of the electronic IBCL Funds Transfer System hereafter described (the "System") for all banks/financial institutions participating in the said System. For the purpose of this Agreement, the interbank transactions herein shall refer only to call loans described hereunder and does not include cash withdrawals from the participating institutions' Demand Deposit Accounts (DDAs) at the BSP, Repurchase Agreements, Reverse Repurchase Agreements of Government Securities (GS) with the BSP's Treasury Department. 2.0 CONCEPT AND NATURE OF SERVICES Beginning on the effectivity hereof and the submission of participation letter agreements by each bank and financial institution under Secs. 8.1 and 8.2, all BAP member banks and non-member financial institutions will be required to send their IBCL Funds Transfer Instructions (the "Instructions") electronically to the PCHC instead of by physical delivery to the BSP as presently practiced. Hard copies of the formats of said loan and repayment instructions are hereto attached as Annexes "A, B, C and D" to this Agreement. All additional data related to the collaterals for secured IBCLs should also be keyed in to the System by participating banks and financial institutions irrespective of the manner of processing their collaterals, whether in the manual stage or in the process of migration to the automation stage. Each participating bank and financial institution will use confidential login IDs and passwords and authentication keys known only to itself to authorize debit and credit Instructions to its DDAs at the BSP. Each such advice when authenticated with the authentication key of a participating bank/financial institution shall be deemed a legally executed Instruction by the transacting parties. The PCHC will authenticate and match transfer Instructions sent by IBCL Borrowers and Lenders. The PCHC does not guarantee nor does it confirm the ownership/existence of collaterals including but not limited to the nominal sale and/or purchase of Government Securities (GS). A summary report of all matched IBCL Funds Transfer Instructions received and authenticated are forwarded by 1:00 o'clock P.M. by the PCHC to the BSP for settlement. At End-Of-Day ("EOD"), the BSP will post the appropriate net result of IBCL transactions in the participants' respective DDA and GS accounts. Subject to the provisions of Sec. 4.0, the BSP is not obliged to effect the transfer of funds if there is no sufficient balance in the DDA of the Borrower or Lender, as the case may be, per BSP's books. The PCHC will provide participating banks/financial institutions with a MIPS (Multitransaction Interbank Payment System) IBCL System software (loaded in each participant's Personal Computer-PC) and a User Guide that will allow them to transmit their IBCL Funds Transfer Instructions electronically. The required modems, PCs and communication lines to the central system will be provided by each participating bank/financial institution. 3.0 MATCHING AND AUTHENTICATION Under the System, IBCL Borrowers and Lenders will transact with each other following the IBCL Trading Guidelines and Procedures of MART (Money Market Association of the Philippines), as may be amended from time to time, which are hereto attached as Annex "E" and made an integral part hereof. 3.1 Both the Borrower and the Lender should transmit separate IBCL Funds Transfer Instructions to the PCHC. Each Borrower and Lender shall use its confidential ID and password to activate the System and initiate/authorize its transaction. The electronic debit and credit Instructions (Annexes "A and C" for the Borrower, Annexes "B and D" for the Lender) shall undergo System authentication and matching by the PCHC. Authentication confirms that the instructions contain the proper approvals from authorized officers of the originating institution. The System then compares the Instructions sent by the Borrower and the Lender to ensure that there are no discrepancies in details (amount, interest rate, tenor, maturity date, value date, and collaterals, if any) of the transactions as communicated by the two parties. There shall be three cut-off times wherein PCHC will have fifteen minutes to authenticate and match the transactions as follows: Schedules for PCHC to authenticate and match: 10:00 - 10:15 A.M. 11:00 - 11:15 A.M. 12:15 - 12:30 P.M. During the authentication and matching process, no Interbank Funds Transfer Instructions may be sent by participating banks/financial institutions to the PCHC. 3.2 Borrowers and Lenders will have the time windows detailed below to verify whether their transaction Instructions have matched or not by accessing the System. Matched transactions shall not be disauthorized. Compensating IBCL transactions may be entered into by the parties to increase or reduce any IBCL transactions already matched by the system. If unmatched, both parties have the first two schedules within which to resend their unmatched Instructions with the correct information. The deadline for sending corrected Instructions by participants is 12:15 P.M. Schedule for banks to verify deals and correct unmatched transactions: 10:15 - 11:00 A.M. First time window 11:15 - 12:15 P.M. Final time windows The final report of matched transactions for the day will be available for verification from the PCHC System by 12:30 P.M. 3.3 It shall be the responsibility of both Borrower and Lender to access the System to check for unmatched transactions and correct these within the specified time windows of correction. Any unmatched transaction after the 12:15 P.M. final cutoff shall be rejected by the system and will be unprocessed. The PCHC has no obligation to prompt transacting parties concerning unmatched transactions. 3.4 The official time which will govern the cut-off times for sending instructions to the PCHC shall be the System time which appears upon log in to the System. 4.0 SETTLEMENT The BSP will only act upon the automated summary of IBCL Funds Transfer Instructions signed by an authorized officer/s of the PCHC. Upon receipt, the BSP will post the net results of the summary of IBCL Instructions received from the PCHC immediately so that the updated abstract (DDA Statement) of each bank reflecting the entire day's transactions will be available by 2:00 o'clock P.M. on the business day following the value date of the transaction. Business day for the purpose of this agreement shall be a day on which services are available as provided in Section 5 of this Agreement. If the Borrower or Lender, as the case may be, does not have enough balances in its DDA, the BSP may not effect transfer of funds from the institution to be debited with respect to the transactions affected on a Last In, First Out (LIFO) basis. In implementing the LIFO method of unwinding inadequately funded transactions, lending instructions shall be unwound by the BSP ahead of repayment transactions through such LIFO method based on the automated summary provided by the central system to PCHC and confirmed by PCHC's authorized signers. In case transactions have to be unwound because of the insufficiency of DDA balances of the Borrower or Lender with the BSP, fines and/or penalties will be imposed against the institution to be debited, as the case may be, in accordance with a schedule to be drawn up by the PCHC and the BAP board of directors. 5.0 AVAILABILITY OF SERVICES The services outlined in this Agreement shall be available on all banking days when the Bangko Sentral Accounting Department and the PCHC are open for operations. 5.1 PCHC shall maintain a PC to serve as an input facility. 6.0 TRANSACTION FEES The following shall be assessed by the PCHC against all participating banks and financial institutions: 6.1 IBCL Interbank Funds Transfer Instructions P50/item/participant 6.2 Escalation IBCL advice fees are fixed up to February 28, 1997. All participating banks and financial institutions shall pay transaction fees according to such rules and regulations and subsequent schedules which shall be promulgated by the PCHC. 7.0 SERVICE AND OTHER CHARGES These may or may not be charged by the Lender against non-BAP members. If not charged, no indication will be made in the appropriate Transfer Instructions. Rates shall be subject to agreement between the transacting parties. 8.0 PARTICIPATION AGREEMENT 8.1 Participating banks who are members of BAP can avail of the services provided by the System by accomplishing the Participation Agreement to avail of the System which is attached hereto as Annex "F" and made an integral part hereof. Participating banks who formally join the System shall be considered bound by the terms and conditions hereof as if they had executed this Agreement. 8.2 Financial institutions who are non-BAP members may avail of the services of the system by filing a Participation Agreement addressed to the PCHC and the BAP subject to the terms and conditions herein stated (Annex "F-1"). Such financial institutions shall be considered bound by the terms and conditions herein after written notification of the approval of the PCHC and the BAP, respectively. Non-BAP members shall be required to pay an admission fee in such sum or sums as the BAP and/or the PCHC will impose before being formally admitted into the System. 9.0 RIGHTS AND OBLIGATIONS OF THE PARTIES AND PARTICIPATING BANKS/FINANCIAL INSTITUTIONS: 9.1 The PCHC is responsible for the development/testing/approval of the software for the automated processing of IBCL transactions for both the central system and the participants' front-end IBCL PC software. The PCHC will provide participating banks and financial institutions with continuing updates on their IBCL PC software. 9.2 The PCHC shall be responsible for the authentication and matching of IBCL Funds Transfer Instructions, for making available the matching results to participants and for summarizing and authenticating in writing all matched IBCL transactions for submission to the BSP as provided herein. 9.3 The BSP shall be responsible for executing matched credit and debit Instructions of all participating banks/financial institutions by EOD of the indicated transaction day conditioned on the existence of EOD balances on the DDAs of each lending/repaying banks, as the case may be, per BSP's books. For this purpose, the participating banks/financial institutions hereby authorize the BSP to execute said credit and debit Instructions based on the authenticated summary reports of the PCHC. The BSP shall also be the institution responsible for unwinding any debit Instructions according to the terms and conditions of this Agreement when such transactions will result in an overdraft condition. 9.4 The BAP, being a mere negotiating and signing agent for participating banks, shall not be made a party to any dispute nor be held answerable for any liability by any transacting parties to IBCL transactions. Its role is to be a catalyst in framing and structuring this Agreement which aims to provide a viable and efficient alternative to paper-based, manual inter-bank call loan transactions. The PCHC and all participating banks/financial institutions who formally join the System and avail of the services provided hereunder shall have no cause of action or right of relief whatsoever against the BAP in connection with, arising out of or in relation to any transactions covered by the Agreement. The PCHC shall not be held responsible for any loss, liability or damage caused by errors and mistakes of participating banks and financial institutions and shall be held free and harmless from claims, suits, costs, and damages attributable thereto. The BSP shall not be made a party to any dispute not be held answerable for any liability by any transacting party to IBCL transactions. The BSP shall be kept free and harmless by all participating banks and financial institutions for executing and/or effecting settlement instructions or, as may be proper, making and implementing unwinding decisions based on the summary report of the PCHC. 9.5 The BSP shall have the right to rely on the correctness of the authenticated summary of IBCL transactions from the PCHC. 9.6 Each participating bank/financial institution shall be solely responsible for the establishment, confidentiality, safety and security of its passwords for activating the System and initiating IBCL transactions. If it has reason to believe that the confidentiality or security of its login ID's, passwords, and authentication keys has been compromised, each participating bank/financial institution shall take immediate steps to have the same disabled and changed to a new password/s. 9.7 Each participating bank/financial institution shall be legally bound by the IBCL Funds Transfer Instructions, credit and debit as the case may be, which it sends through the System without need of any other manually prepared confirmation, paper or instrument, provided that the same has been matched and authenticated by the PCHC and provided further that they comply with the terms and conditions set forth herein. 9.8 Each participating bank/financial institution shall be responsible for establishing its own backup/contingency plans to ensure that electronic instructions are sent in the event of failure of its primary hardware. 9.9 Each participating bank/financial institution shall have the responsibility of promptly checking the correctness of the debit and credit entries of the BSP under the system as well as notifying the BSP, the PCHC and its counterparty of any errors so discovered. Participating banks/financial institutions shall not be allowed to question alleged erroneous entries of the BSP after the lapse of 10 banking days after transaction date from the standpoint of the complaining party. 9.10 The PCHC shall implement regular changes in authentication keys and passwords. 9.11 In the event of any generalized problems affecting the central system or communication facilities linking participants to the said central system, the PCHC shall have the prerogative to extend any or all of the authentication, matching and verification schedules specified in Secs. 3.1 and 3.2. 10.0 SETTLEMENT OF DISPUTES 10.1 Due compensation for errors committed by one or both parties shall be as stipulated in Section VII of the MART Trading Guidelines for Interbank Call Loan Transactions. Unresolved disputes involving participating banks will be referred to Voluntary Arbitration. Each party will propose a Voluntary Arbitration Committee by listing 5 names of reputable persons well-versed in the issue in dispute. Thereafter, the proponent to Voluntary Arbitration will strike out one name and the respondent another and so on until only three names are left who will compose the Voluntary Arbitration Committee. 10.2 The decision of the Voluntary Arbitration Committee shall be final and executory in accordance with law. There shall be no appeal unless the decision is tainted with fraud and/or with apparent bias in favor of one party. 10.3 The Voluntary Arbitration law shall apply in a suppletory capacity. 10.4 The Rules of Evidence need not be strictly applied but will be left to the discretion of the Voluntary Arbitration Committee whether they will be resorted to in aid of resolving the dispute. 11.0 REVISIONS TO AGREEMENT 11.1 Terms and conditions contained in this Agreement shall be subject to the regulations of the BSP and the provisions of existing laws of the Republic of the Philippines. 11.2 Procedures, forms, automation programs, hardware specifications and deadlines referred to herein may be changed or enhanced subject to mutual agreement among the BSP, the PCHC and the BAP in writing. 11.3 Without prejudice to the immediate implementation of this Agreement, the parties herein may establish such further rules and regulations which may be subsequently needed to augment, implement, interpret and govern this Agreement. 12.0 PERIOD OF CONTRACT This contract shall remain valid until February 28, 1997. 13.0 CONFIDENTIALITY PCHC agrees to maintain strict confidentiality of all transactions, data and/or information provided by or pertaining to each participating bank under the System. IN WITNESS WHEREOF, the parties have hereunto set their hands this day of September, 1995 at the City of Makati, Metro Manila. BANGKO SENTRAL BANKERS ASSOCIATION NG PILIPINAS OF THE PHILIPPINES By: ___________________ By: ___________________ PHILIPPINE CLEARING HOUSE CORPORATION By: ____________________________ SIGNED IN THE PRESENCE OF: ___________________________ _________________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES) CITY OF MAKATI ) SS METRO MANILA ) BEFORE ME, a Notary Public in and for the City of Makati, Metro Manila, Philippines, personally appeared: NAME COMMUNITY TAX CERT. NO. DATE & PLACE ISSUED all known to me and by me known to be the same persons who executed the foregoing Agreement for an Interbank Call Loan Funds Transfer System and who acknowledged to me that the same is their voluntary act and deed and the voluntary act and deed of the organizations which they respectively represent. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial seal this day of , at the City of Makati, Metro Manila, Philippines. NOTARY PUBLIC Until December 31, 19__ Doc. No. : _________ Page No. : _________ Book No. : _________ Series of 199__ LIST OF NON-ALLIED UNDERTAKING WHERE EKBs MAY INVEST IN EQUITIES 1 ( Appendix to Subsec . X381 . 1 ) PSIC CODE DESCRIPTION MAJOR GROUP GROUP I. Agriculture, Fishery and Forestry (Major Division 1) A. Agricultural crops production (Division 11) 111 Palay production 112 Corn production 113 Vegetable production, including root and tuber crops 114 Fruits and nuts (excluding coconut) production 115 Coconut production, including copra making in the farm 116 Sugarcane production, including muscovado sugar in the farm 118 Fiber crops production 119 Other agricultural crops production B. Production of livestock, poultry and other animals ( Division 12 ) 121 Livestock and livestock products 122 Poultry and poultry products 123 Raising of other animals, including their products C. Agricultural services (Division 13) 130 Agricultural ,services D. Fishery (Division 14) 141 Ocean (offshore) and coastal fishing 142 Inland fishing 143 Operation of fish farms 149 Other fishery activities E. Forestry (Division 15) 159 Other forestry activities (operation of forest tree nurseries; planting, replanting and conservation of forests; gathering of uncultivated forest materials; establishments primarily engaged in providing forestry services on a fee or contract basis) II . Mining and Quarrying (Major Division 2) A. Metallic ore mining (Division 21) 211 Gold ore mining 212 Other precious metal ore mining 213 Copper ore mining 214 Nickel ore mining 215 Chromite ore mining 216 Iron ore mining 217 Other base metal ore mining B. Non-metallic mining and quarrying (Division 22) 221 Coal mining 222 Exploration and production of crude petroleum and natural gas 223 Stone quarrying, clay and sand pits 229 Other non-metallic mining and quarrying III . Manufacturing (Major Division 3) A. Manufacture of food (Division 31) 311 - 312 Food manufacturing B. Textile, wearing apparel and leather industries (Division 32) 321 Manufacture of textiles 322 Manufacture of wearing apparel, except footwear 323 Manufacture of leather and leather products, leather substitutes, and fur, except footwear & wearing apparel 324 Manufacture of footwear, except rubber, plastic or wood footwear C. Manufacture of paper and paper products; printing and publishing (Division 34) 341 Manufacture of paper and paper products 342 Printing, publishing and allied industries D. Manufacture of chemicals and chemical, petroleum, coal rubber and plastic products (Division 35) 351 Manufacture of industrial chemicals 352 Manufacture of other chemical products 353 Petroleum refineries 354 Manufacture of miscellaneous products of petroleum and coal 355 Manufacture of rubber products 356 Manufacture of plastic products not elsewhere classified E. Manufacture of non-metallic mineral products, except products of petroleum and coal (Division 36) 361 Manufacture of pottery, china and earthenware 362 Manufacture of glass and glass products 363 Manufacture of cement 369 Manufacture of other non-metallic mineral products F. Basic metal industries (Division 37) 371 Iron and steel basic industries 372 Non-ferrous metal basic industries G. Manufacture of fabricated metal products, machinery and equipment (Division 38) 381 Manufacture of fabricated metal products, except machinery and equipment and furniture and fixtures primarily of metal 382 Manufacture of machinery except electrical 383 Manufacture of electrical machinery apparatus, appliances and supplies 384 Manufacture of transport equipment 385 Manufacture of professional and scientific and measuring and controlling equipment not elsewhere classified, and of photographic and optical instruments 386 Manufacture and repair of furniture and fixtures primarily of metal H. Other manufacturing industries (Division 39) 390 Other manufacturing industries IV . Electricity, Gas and Water (Major Division 4) A. Electricity (Division 41) 411 Generating and distributing electricity 412 Distributing electricity to consumers B. Gas and steam (Division 42) 421 Gas manufacture and distribution through systems 422 Steam heat and power plants C. Waterworks and supply (Division 43) 430 Waterworks and supply V . Construction (Major Division 5) 501 General building construction 502 General engineering construction 503 Special trade construction VI . Wholesale Trade (Major Division 6) A. Wholesale trade (Division 61) 619 Wholesale trade not elsewhere classified 61901 Merchandise brokers, general merchants, importers and exporters VII . Transportation and Communication (Major Division 7) A. Transportation services {Division 71) 711 Railway transport 712 Road passenger and freight transport 713 Water transport 714 Air transport 719 Services allied to transport B. Communication (Division 73) 731 Mail and express services 732 Telephone services 733 Telegraph services 739 Communication services, non-essential commodities VIII . Community and Social Services (Major Division 9) A. Other social and related community services (Division 95) 951 Research and scientific institutions B. Restaurants and hotels (Division 98) 981 Restaurants, cafes and other eating and drinking places 982 Hotel, motels and other lodging places, non-essential commodities CREDIT PRIORITY CLASSIFICATION (Appendix to Sec . X395) Priority I a. Production of agricultural, including forestry and fishery, and industrial goods which (1) possess growth potential in competitive domestic and world markets, (2) contribute most to the development of the economy, (3) provide for the satisfaction of basic wants of the population as a whole, and (4) require resources in addition to their self-financing capabilities. b. Marketing export products, primarily those goods that contain the maximum possible domestic processing and labor content. c. Marketing in the international market of domestic products which fall under Priority I and imported basic consumer goods by Filipino merchandisers. d. Importation and marketing of capital equipment, raw materials and supplies for the production and distribution of Priority I products. e. Public utilities which are not overcrowded and are necessary to support the production and distribution of Priority I goods or to satisfy basic wants. f. Other services which are not overcrowded and which are necessary for (1) the development of desirable knowledge and skills, (2) the support of the production and distribution of Priority I products, and (3) the promotion of tourism and cultural pursuits. g. Construction of (1) infrastructure projects, (2) physical plants necessary for the production and distribution of Priority I products and services, and (3) individual low cost housing for the lower income groups of the population. Priority II a. Production and distribution of goods and services which do not qualify under the Priority I category. b. Real estate loans (construction, acquisition, development and refinancing of real estate) other than those specified under Priority I. c. Consumption. d. Other non-productive and speculative activities. ECONOMIC ACTIVITIES FALLING UNDER PRIORITY I A. Economic activities eligible for credits up to eighty percent (80%) of loan value of credit instrument 1. Agriculture, Fisheries and Forestry a. Agricultural (1) Abaca (2) Cassava (3) Cattle and dairy farms (4) Coconut (5) Coffee and cocoa (6) Corn (7) Palay or rice (8) Piggery (9) Poultry (10) Ramie (11) Rubber plantation (12) Other fruits and vegetables b. Fisheries (1) Fishponds and inland fishing (2) Marine fishing c. Forestry (1) Forest nurseries and reforestation projects 2. Mining and quarrying a. Metal mining (1) Chromite (2) Copper (3) Iron (4) Lead (5) Manganese (6) Mercury and quicksilver (7) Nickel (8) Zinc b. Non-metallic mining (1) Asbestos (2) Sulphur (3) Coal (4) Gypsum 3. Manufacturing a. Basic metal industries (1) Blast furnaces, steel works and rolling mills (2) Iron and steel basic industries (3) Iron and steel foundries (4) Non-ferrous metal basic industries b. Chemical and chemical products (1) Basic chemicals (2) Drugs (3) Fertilizer c. Coconut products and their preparation (1) Coconut oil, edible (2) Coconut oil, inedible (3) Copra meal and cake d. Electrical machinery, apparatus and appliances (1) Transmissions and distribution equipment e. Food manufacturing (1) Canning and preserving of fish and other sea foods (a) Fish canning (2) Canning and preserving of fruits and vegetables (a) Canning, drying, brining, pickling or otherwise preserving or preparing vegetables (b) Canning, drying or otherwise preparing and preserving fruits (3) Slaughtering, preparation and preserving of meat (4) Miscellaneous food preparation (a) Prepared feeds for animals and fowls f. Furniture and fixtures manufacture (1) Rattan and bamboo furniture g. Leather and leather products (1) Tanning and finishing h. Lumber and wood products (1) Veneer, plywood and prefabricated products i. Machinery, equipment, accessories and parts (1) Agricultural machinery (2) Engines and turbines (3) Industrial, construction and mining machinery j. Non-metallic products (1) Cement k. Paper and paper products (1) Pulp, paper and paperboard l. Petroleum and coal products (1) Coke m. Textile, cordage and twines manufactures (1) Cordage, rope, twines and nets 2) Hemp milling, abaca stripping and baling establishments (3) Knitting mills (4) Spinning, weaving and finishing of textiles n. Transportation equipment and parts (1) Aircrafts and parts (2) Motor vehicles, equipment and parts (3) Motorcycles, bicycles and parts (4) Railroad equipment (5) Ships and boats o. Miscellaneous manufacturing industries (1) Laboratory, engineering and medical 4. Construction a. Contract (1) Building construction (a) Commercial and industrial projects * 5. Public Utilities a. Ice and ice refrigeration plants b. Operation of wharves, dry docks, etc. c. Warehousing d. Water supply and sanitary services (1) Irrigation systems (2) Water supply systems 6. Commerce a. Export products * b. Importation of capital goods and raw materials * c. Domestic trade (Filipino only) wholesales and retail B. Economic activities eligible for credits up to sixty percent (60%) of the loan value of the credit instrument ** 1. Agriculture, fisheries and forestry a. Agricultural (1) Citrus (2) Cotton (3) Salt farming (4) Soybean (5) Other root crops 2. Mining and quarrying a. Metal mining (1) Gold (2) Silver b. Non-metallic mining (1) Asphalt (2) Marble 3. Manufacturing a. Chemical and chemical products (1) Dyeing and tanning materials (2) Explosives (excluding firecrackers) b. Coconut products and their preparations (1) Desiccated coconut c. Electrical machinery, apparatus and appliances (1) Communication equipment (2) Dry cells and storage batteries d. Food manufacturing (1) Canning and preserving of fruits and vegetables (a) Fruits and vegetables, sauces and seasoning (2) Dairy products (a) Milk processing (3) Miscellaneous food preparations (a) Coffee roasting, grinding and/or processing e. Furniture and fixture manufacture (1) Wood furniture f. Lumber and wood products (1) Cork (2) Sashes and doors (3) Sawn and planed lumber (4) Wooden box (5) Wood chips g. Machinery, equipment, accessories and parts (1) Office and store machines and devices h. Metal industries (1) Cutlery, handtools and general products (2) Fabricated structural and metal (3) Tin and aluminum ware i. Non-metallic products (1) Glass and glass products (2) Structural clay products j. Textile, cordage and twines manufactures (1) Jute bags and sacks k. Miscellaneous manufacturing industries (1) Cottage native handicraft industries (2) Footwear (other than rubber) (3) Photographic and optical goods 4. Construction a. Contract (1) Building construction (a) Commercial and industrial projects * (2) Highway and street construction (including road building) 5. Public utilities a. Common carriers (1) Airlines and other air transportation (2) Motor vehicles (3) Railroad and railway companies (4) Steamboats and steamship lines b. Communication (1) Telecommunication (cable, mail and express, telegraph, telephone) c. Electricity, gas and steam (1) Electric, light, heat and power d. Water supply and sanitary services (1) Garbage, sewerage and disposal system 6. Services a. Business and professional services (1) Engineering and technical services b. Educational services (1) Private vocational and trade schools (2) Public universities and higher educational institutions (3) Public vocational and trade schools c. Medical and other health services (1) Public health services d. Recreation services (1) Theatrical production (i.e., all performing arts) e. Research and scientific institutions 7. Financial a. Banks (1) Private development banks (2) Rural banks/Cooperative banks 8. Commerce a. Export products * b. Importation of capital goods and raw materials * c. Domestic trade (Filipino only) wholesale and retail * 9. Other activities a. Loans for other dollar-earning purposes not elsewhere classified (included in this category are the construction, development and operations of first-class hotels which cater to the needs of the tourist industry). C. Economic activities eligible for credits up to sixty percent (60%) of the loan value Public universities and higher of the credit instrument ** 1. Agriculture, Fisheries and Forestry a. Agricultural (1) Pineapple (2) Tobacco, native b. Fisheries (1) Fishery services (2) Pearl fishing and culture, shell gathering and other marine products c. Forestry (1) Forest services (2) Timber tracts 2. Mining and quarrying a. Non-metallic mining (1) Mineral salt (2) Silica 3. Manufacturing a. Apparel and other finished products made from fabrics and similar materials (1) Embroidery shops (2) Wearing apparel b. Chemicals and chemical products (1) Paints, varnishes and lacquers (2) Soaps and other cleansing preparations c. Coconut products and their preparations (1) Copra d. Electrical machinery, apparatus and appliances (1) Electric lamp (2) Household appliances (3) Radio, television, telephone receiving sets, electronic tubes and components e. Food manufacturing (1) Canning and preserving of fish and other sea foods (a) Fish sauce (patis) manufacture (b) Shellfish curing, smoking, salting or pickling (2) Cocoa and chocolate and sugar confectionery (a) Cocoa and chocolate processing factories (3) Grain mill products (a) Corn mills (b) Rice mills (c) Tuber flour mills (d) Wheat flour (4) Miscellaneous food preparations (a) Salt manufacture (b) Starch and its products (c) Vegetable lard and margarine manufacture (d) Vermicelli and noodles manufacture f. Lumber and wood products (1) Creosoting and other wood treating g. Metal industries (1) Fabricated wire products (2) Metal stamping, coating and engraving (h) Non-metallic products (1) Plastic products (2) Pottery, china, earthenware (3) Concrete aggregates (4) Concrete products (a) Cement products light weight aggregate i. Paper and paper products (1) Coated and glazed paper products j. Printing, publishing and allied industries (1) Book publishing and printing (2) Newspaper and periodical publishing k. Tobacco (1) cigar and cigarette factories (native) i. Miscellaneous manufacturing industries (1) Oxygen, acetylene and similar products (2) Silver and gold work without precious stones (3) Musical instruments and parts (a) Blank recording discs (b) Metal stampers 4. Construction a. Contract (1) Building construction (a) Government projects (b) Commercial and industrial projects * (2) Heavy construction (including bridges and irrigation projects) b. Personal (1) Construction (2) Reconstruction 5. Public utilities a. Electricity, gas and steam (1) Gas manufacture and distribution (2) Steam heat and power b. Water supply and sanitary services (1) Drainage system 6. Services a. Medical and other health services (1) Private health services b. Recreation services (1) Motion picture production 7. Financial a. Banks (1) Commercial banks (2) Savings and mortgage banks 8. Commerce a. Export products * b. Importation of capital goods and raw materials * c. Domestic trade (Filipino only) wholesale and retail * SAMPLE INVESTMENT MANAGEMENT AGREEMENT (Appendix to Subsec . X411 . 1) IMA No. (prenumbered) INVESTMENT MANAGEMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, made and executed this _____ day of _________ at __________________, ______________, Philippines by and between: ___________________________________ (Hereinafter referred to as the " PRINCIPAL ") And ________________ , a banking corporation authorized to perform trust functions, organized and existing under and by virtue of the laws of the Philippines, with principal office and place of business at _____________, ____________, Philippines. (Hereinafter referred to as the " INVESTMENT MANAGER" ) WITNESSETH: THAT WHEREAS, the Principal desires to avail of the services of the Investment Manager relative to the management and investment of Principal's investible funds; WHEREAS, the Investment Manager is willing to render the services required by the Principal relative to the management and investment of Principal's investible funds, subject to the terms and conditions hereinafter stipulated; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to the following terms and conditions: INVESTMENT PORTFOLIO 1. Delivery of the Fund Upon execution of this Agreement, the Principal shall deliver to the Investment Manager the amount of PHILIPPINE PESOS: ________________________________ (P ______________). 2. Composition The cash which the Principal has delivered to the Investment Manager as well as such securities in which said sums are invested, the proceeds, interest, dividends and income or profits realized from the management, investment and reinvestment thereof, shall constitute the managed funds and shall hereafter be designated and referred to as the Portfolio. For purposes of this Agreement, the term securities shall be deemed to include commercial papers, shares of stock and other financial instruments. 3. Delivery of Additional Funds At any time hereafter and from time to time at the discretion of the Principal, the latter may deliver additional funds to the Investment Manager which shall form part of the Portfolio and shall be subject to the same terms and conditions of this Agreement. No formalities other than a letter from the principal and physical delivery to the Investment Manager of cash will be required for any addition to the Portfolio. 4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE TO FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. POWERS 5. Powers of the Investment Manager The Investment Manager is hereby conferred the following powers: a. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral ng Pilipinas, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; (2) Loans fully guaranteed by the government as to the payment of principal and interest; (3) Loans fully secured by hold-out on, assignment or pledge of deposits or of deposit substitutes, or mortgage and chattel mortgage bonds; (4) Loans fully secured by real estate and chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended; and (5) Such other investments or loans as may be directed or authorized by the Principal in a separate written instrument which shall form part of this Agreement: Provided , That said written instrument shall contain the following minimum information: (a) The transaction to be entered into; (b) The amount involved; and (c) The name of the issuer, in case of securities and/or the name of the borrower and nature of security, in the case of loans; b. To endorse, sign or execute any and all securities, documents or contracts necessary for or connected with the exercise of the powers hereby conferred or the performance of the acts hereby authorized; c. To cause any property of the Portfolio to be issued, held, or registered in the name of the Principal or of the Investment Manager: Provided , That in case of the later, the instrument shall indicate that the Investment Manager is acting in a representative capacity and that the Principal's name is disclosed thereat; d. To open and maintain savings and/or checking accounts as may be considered necessary from time to time in the performance of the agency and the authority herein conferred upon the Investment Manager; e. To collect and receive matured securities, dividends, profits Interest and all other sums accruing to or due to the Portfolio; f. To pay such taxes as may by due in respect of or on account of the Portfolio or in respect of any profit, income or gains derived from the sale or disposition of securities or other properties constituting part of the Portfolio; g. To pay out of the Portfolio all costs, charges and expenses incurred in connection with the investments or the administration and management of the Portfolio including the compensation of the Investment Manager for its services relative to the Portfolio; and h. To perform such other acts or make, execute and deliver all instruments necessary or proper for the exercise of any of the powers conferred herein, or to accomplish any of the purposes hereof. LIABILITY OF INVESTMENT MANAGER 6. Exemption from Liability In the absence of fraud, bad faith, or gross or willful negligence on the part of the Investment Manager or any person acting in its behalf, the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or performed or caused to be done or performed by the Investment Manager pursuant to the terms and conditions herein agreed, to carry out the powers, duties and purposes for which this Agreement is executed. 7. Advice of Counsel The Investment Manager may seek the advice of lawyers. Any action taken or suffered in good faith by the Investment Manager as a consequence of the opinion of the said lawyers shall be conclusive and binding upon the Principal , and the Investment Manager shall be fully protected from any liability suffered or caused to be suffered by the Principal by virtue hereof. ACCOUNTING AND REPORTING 8. The Investment Manager shall keep and maintain books of accounts and other accounting records as required by law. The Principal or the authorized representative of the Principal shall have access to and may inspect such books of accounts and all other records related to the Portfolio, including the securities held in custody by the Investment Manager for the Portfolio. 9. Reporting Requirements The Investment Manager shall prepare and submit to the Principal the following reports within _______________: (a) Balance Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity Report; and (e) ( such other reports as may be required by the Principal ). INVESTMENT MANAGER'S FEE 10. Investment Fee The Investment Manager , in addition to the reimbursement of its expenses and disbursements in the administration and management of the Portfolio including counsel fees, shall be entitled to receive as compensation for its services a management fee of ________________ (Specify amount or rate) WITHDRAWALS FROM THE PORTFOLIO 11. Withdrawal of Income/Principal Subject to availability of funds and the non-diminution of the Portfolio below P1 million, the Principal may withdraw the income/principal of the Portfolio or portion thereof upon written instruction or order given to the Investment Manager . The Investment Manager shall not be required to see as to the application of the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment. 12. Non-alienation of Encumbrance of the Portfolio or Income During the effectivity of this Agreement, the Principal shall not assign or encumber the Portfolio or its income or any portion thereof in any manner whatsoever to any person without the prior written consent of the Investment Manager . EFFECTIVITY AND TERMINATION 13. Term This Agreement shall take effect from the date of signing hereof and shall be in full force and effect until terminated by either party by giving written notice thereof to the other at least _______ (___) days prior to the termination date. 14. Powers upon Liquidation The powers, duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue for the purpose of liquidation and return of the Portfolio, after the notice of termination of this Agreement has been served in writing, until final delivery of the Portfolio to the Principal . 15. Accounting of Transaction Within ____(__) days after the termination of this Agreement, the Investment Manager shall submit to the Principal an accounting of all transactions effected by it since the last report up to the date of termination. Upon the expiration of the _______ (___) days from the date of submission, the Investment Manager shall forever be released and discharged from all liability and accountability to anyone with respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting, except with respect to those objected to in writing by the Principal within the _____(__) day period. 16. Remittance of Net Assets of the Portfolio Upon termination of the Agreement, the Investment Manager shall turn over all assets of the Portfolio which may or may not be in cash to the Principal less the payment of the fees provided in this Agreement in carrying out its functions or in the exercise of its powers and authorities. This Agreement or any specific amendments hereto constitute the entire agreement between the parties, and the Investment Manager shall not be bound by any representation, agreement, stipulation or promise, written or otherwise, not contained in this Agreement or incorporated herein by reference, except pertinent laws, circulars or regulations approved by the Government or its agencies. No amendment, novation, modification or supplement of this Agreement shall be valid or binding unless in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and at the place first above set forth. ____________________________ ________________________ (PRINCIPAL) (INVESTMENT MANAGER) By: SIGNED IN THE PRESENCE OF: ____________________________ ________________________ RISK MANAGEMENT GUIDELINES FOR DERIVATIVES (Appendix to Subsec . X602 . 1) 1. Foreword These guidelines, which are based on the "Risk Management Guidelines For Derivatives" issued by the Basle Committee on Banking Supervision in July 1994, are expected to facilitate the further development of a prudent approach to the risk management of derivatives. SaITHC The Bangko Sentral recognizes that sound internal risk management is essential to the prudent operations of financial institutions and that supervisory tools, such as capital requirements, are not by themselves sufficient. Sound internal risk management is also essential to promoting stability in the financial system as a whole. While the precise applicability of these guidelines will depend on the size and complexity of an institution's derivatives activities, we believe that the application of the basic principles embodied therein are very relevant even for risks inherent in more traditional activities. II. Introduction and Basic Principles 1. Derivatives instruments have become increasingly important to the overall risk profile and profitability of banking organizations throughout the world. Broadly defined, a derivatives instrument is a financial contract whose value depends on the values of one or more underlying assets or indices. Derivatives activities include a wide assortment of financial contracts, including forwards, futures, swaps and options. In addition, other traded instruments incorporate derivatives characteristics, such as those with embedded options. While some derivatives instruments may have very complex structures, all of them can be divided into the basic building blocks of options, swaps, futures and forwards or some combination thereof. The use of these basic building blocks in structuring derivatives instruments allows the transfer of various financial risk to parties who are more willing, or better suited, to take or manage them. 2. Derivatives are used by banking organizations both as risk management tools and a source of revenue. From a risk management perspective, they allow financial institutions and other participants to identify, isolate and manage separately the market risks in financial instruments and commodities. When used prudently, derivatives can offer managers efficient and effective methods for reducing certain risks through hedging. Derivatives may also be used to reduce financing costs and to increase the yield of certain assets. For a growing number of banking organizations, derivatives activities are becoming a direct source of revenue through "market-making" functions, and "position-taking". "MARKET-MAKING" functions involve entering into derivatives activities with customers and with other market-makers while maintaining a generally balanced portfolio with the expectation of earning fees generated by a bid/offer spread; and POSITION-TAKING, on the other hand, represents efforts to profit by accepting the risk that stems from taking outright positions in anticipation of price movements. 3. Participants in the derivatives markets are generally grouped into two categories based primarily on their motivations for entering into derivatives contracts. End-users typically enter into derivatives activities to achieve specified objectives related to hedging, financing or position-taking on the normal course of their business operations. A wide variety of business enterprises are end-users. They include, but are not limited to, a broad range of financial institutions such as banks, securities firms and insurance companies; funds and specialized investment partnerships; and corporations, local and state governments, government agencies and international agencies. 4. Intermediaries, which are sometimes referred to as "Dealers", cater to the needs of end-users by "making markets" in over-the-counter derivatives instruments. In doing so, they expect to generate income from transaction fees, bid/offer spreads and their own trading positions. Important intermediaries, or derivatives dealers, include major banks and securities firms. As intermediaries, banks have traditionally offered foreign exchange and interest rate risk management products to their customers and generally view derivatives products as a financial risk management service. 5. The basic risks associated with derivatives activities are not new to banking organizations. In general, these risks are credit risk, market risk, liquidity risk, operations risk and legal risk. Because they facilitate the specific identification and management of these risks, derivatives have the potential to enhance the safety and soundness of financial institutions and to produce a more efficient allocation of financial risks. However, since derivatives also have these basic risks in combinations that can be quite complex, they can also threaten the safety and soundness of institutions if they are not clearly understood and properly managed. 6. Recognizing the importance of sound risk management to the effective use of derivatives instruments, the following guidelines are intended to highlight the key elements and basic principles of sound management practice for both dealers and end-users of derivatives instruments. These basic principles include: a. appropriate oversight by Boards of Directors and/or Management Committee and Senior Management; b. adequate risk management process that integrates prudent risk limits, sound measurement procedures and information systems, continuous risk monitoring and frequent management reporting; and c. comprehensive internal controls and audit procedures. III. Oversight of the Risk Management Process Written policies and procedures on derivatives activities must be set forth and documented in a policy manual duly approved by its Board of Directors. The manual should include the following minimum features: 1. Scope of derivatives activities and types of services and products offered to clients; 2. Authorities and Responsibilities of: a. Board of Directors b. Management Committees c. Chief Executive Officer d. Other Senior Officers e. Department Managers f. Trading or Dealing Officers/Staff 3. Policies and procedures to govern trading, including trading, exposure and gap limits and documentation of transactions; 4. Policies and procedures for controlling and measuring risk; 5. Accounting policies and procedures; 6. Internal control system; 7. Internal audit policies; 8. Policy review; 9. Reporting requirements; 10. Job description of key position and minimum qualification standards; and Client-oriented safety nets. A. Oversight by Board of Directors and/or Management Committee 1. The Board of Directors or appropriate Management Committee should approve all significant policies relating to the management of risks throughout the institution. These policies, which should include those related to derivatives activities, should be consistent with the organization's broader business strategies, capital strength, management expertise and overall willingness to take risk. 2. The Board of Directors or appropriate management committee shall structure a compensation package for risk management officers and staff in such a way that the said package is sufficiently independent of the performance of trading activities. B. Oversight by Senior Management 1. Senior management should be responsible for ensuring that there are adequate policies and procedures for conducting derivatives operations on both a long-range and day-to-day basis. This responsibility includes: (a) ensuring that there are clear delineations of lines of responsibility for managing risk, adequate systems for measuring risk, appropriately structured limits on risk taking, effective internal controls and a comprehensive risk-reporting process; and (b) ensuring that all appropriate approvals are obtained and that adequate operational procedures and risk control systems are in place. 2. Any significant changes in any derivatives activities or any new derivatives activities should be approved by the Board of Directors or an appropriate level of senior management as designated by the Board of Directors. 3. Senior management should regularly evaluate the procedures in place to manage risk to ensure that those procedures are appropriate and sound. C. Independent Risk Management Functions 1. An independent body shall manage the measurement, monitoring and control of risks consistent with established policies and procedures. It shall directly report to the Board of Directors or to the appropriate management committee. 2. The personnel performing independent risk management functions should have a complete understanding of the risks associated with all of the bank's derivatives activities. Accordingly, compensation policies for these individuals should be adequate to attract and retain personnel qualified to assess these risks. IV. Risk Management Process 1. The primary components of a sound risk management process are: comprehensive risk measurement approach; detailed structure of limits, guidelines and other parameters used to govern risk-taking; and strong management information system for controlling, monitoring and reporting risks. 2. To enable an institution to manage its risk exposure more effectively, its risk management process for derivatives activities should be integrated into its overall risk management system using a conceptual framework common to its other activities. 3. The risk exposures in derivatives activities should be fully supported by an adequate capital position. A. Risk Measurement 1. Risk should be measured and aggregated across trading and non-trading activities on an institution-wide basis to the fullest extent possible. In derivatives activities, assessment of the following risks should be included: credit risk, market risk, liquidity risk, operations risk and legal risk (Section VI of these Guidelines). 2. Risk measurement procedures should be understood by all relevant personnel from individual traders to the Board of Directors. 3. Mark-to-Market valuation of derivatives positions is fundamental to measuring and reporting exposures accurately and on a timely basis. A daily report to management indicating the gain or loss on derivatives activities should be submitted. Monitoring of credit exposures, trading positions and market improvements should be done at least daily. 4. Sound risk measurement practices include analysis of stress situations and identification of changes in market behavior that could have unfavorable effects on the institution and assessment of the ability of the institution to withstand them. B. Limiting Risks 1. A sound system of integrated institution-wide limits should set boundaries for organizational risk-taking and should ensure that position which exceeds pre-determined levels receive prompt management attention. Such a system should define, among others, the following limits: a. Earnings or capital-at-risk limits This defines the limit on potential loss which could be expressed as a percentage of projected earnings or capital; and b. Exposure limits This defines maximum exposure to the various derivatives products. 2. Should pre-determined limits be exceeded, a report to senior management must be made for information and appropriate action. C. Reporting An accurate, informative and timely reporting system to the appropriate level of management is essential to the prudent operation of derivatives activities. Top management should be provided with adequate and timely information, on a regular basis, to judge the changing nature of the institution's risk profile. D. Management Evaluation and Review 1. Risk management guidelines should be evaluated and reviewed regularly since any change in either the institution's activities or the market environment may have created exposure that requires additional attention. 2. The review should include assessment of the methodologies, models and assumptions used in measuring risk. Limit structures should be altered whenever necessary to reflect the institution's past performance and current position. These reviews should be made at least annually, or as more often as market conditions dictate, to ensure that they are appropriate and consistent. 3. Before being involved in new products, all relevant personnel (including those in risk management, internal control, legal, accounting and auditing) should understand the product and should be able to integrate it into the institution's risk measurement and control systems. HSIDTE V Internal Controls and Audit 1. A sound system of internal controls should promote effective and efficient operations, reliable financial and regulatory reporting, and compliance with relevant laws, regulations and policies of the institution. In determining whether internal controls meet those objectives, the institution should consider the overall control environment of the organization; the process of identifying, analyzing and managing risk; the adequacy of management information systems; and adherence to control activities such as approvals, confirmations and reconciliations. Reconciliation control is particularly important where there are differences in the valuation methodologies or systems used by the front and back offices. 2. Internal auditors should audit and test the risk management process and internal controls on a periodic basis, with the frequency based on a careful risk assessment. The depth and frequency of internal audits should be increased if weaknesses and significant issues are discovered, or if significant changes have been made to product lines, modeling methodologies, the risk oversight process, internal controls or the overall risk profile of the institution. To facilitate the development of adequate controls, internal auditors should be brought into the product development process at the earliest possible stage. 3. The institution should develop internal controls for key activities which should include the following features: a. A chart of subsidiary accounts adequately describing each account and designed to complement the Manual of Accounts prescribed by the BSP; and b. Written policies/procedures for handling/recording confirmation, and settlement of transactions; segregation of duties between the front office and back room personnel; revaluation of positions indicating sources of revaluation rates; documentation of review and approval, of limits and sub-limits; and evaluation and reporting to the Board of Directors/Senior Management of audit findings/exceptions; and such other key activities the institution is engaged in. 4. Internal auditors are expected to continuously evaluate the independence and overall effectiveness of the institution's risk management functions. They should be involved in the periodic review and evaluation of all bank policies, limits, internal controls and procedures developed for the institution's key activities. 5. Bank management should ensure that a mechanism exists whereby financial derivatives contract documentation is confirmed, maintained, and safeguarded. Documentation exceptions should be properly monitored and resolved. Controls must be in place to ensure that the appropriate contract documentation is timely and properly executed and maintained. The bank should establish a process through which documentation exceptions are monitored and appropriately reviewed by senior management and legal counsel. Banks with more active derivatives businesses may consider establishing a separate documentation unit to control financial derivatives contracts and supporting documents. Such a unit may be a part of a broader documentation unit of the legal department. VI Sound Risk Management Practices for Each Type of Risk A. Credit Risk is the risk that a counterparty will fail to perform on an obligation to the institution. Credit risk management should parallel the prudent controls expected in traditional lending activities. Policies and procedures should be formalized to address concerns such as significant counterparty exposures, concentration of credit, risk ratings, non-performing contracts and allowance allocations. An institution should include in its credit risk policy, the credit exposures to an individual counterparty. Internal limits that are prudent in the light of its financial condition and management expertise should be established. Policies and procedures should reflect the Board of Directors' risk tolerance for concentration of credit. Policies addressing credit management functions, such as risk ratings, non-performing contracts and allowance allocations should be consistent. Credit Approval Function 1. Management should make sure that credit authorizations are provided by personnel independent of the trading unit to ensure safe and sound management of derivatives credit risk exposure. Credit officers and approving officers should be: familiar with credit risk; able to analyze the impact of proposed derivatives activities on the financial condition of the customer; responsible for establishing and changing financial derivatives credit lines; and able to understand the applicability of financial derivatives instruments to the risks the bank customer is attempting to manage. 2. Credit analysis should be documented and necessary information should be provided to customer/s. Pre-settlement Risk 1. The system to be used to quantify the pre-settlement credit risk exposure should: a) take into account current exposure ("mark-to-market") as well as potential credit risk due to possible future changes in applicable market rates or prices ("add-on"); b) use a reliable source for determining the credit risk factor used to calculate the credit risk add-on; and c) produce a number representing a reasonable approximation of loan equivalency, that is, the amount of credit exposure inherent in a comparable extension of credit. The mark-to-market calculation should incorporate the same controls as the mark-to-market calculation used to identify profits and losses. Prices should be obtained independently from qualified sources on a periodic basis. The traders should not be used as the source of market valuations. The sophistication of credit risk measurement system should be consistent with the level of activity and degree of risk assumed in derivatives activities. An internal control system to determine potential credit risk should be in place. Settlement Risk This is the risk that an institution faces when it has performed its obligations under a contract, but has not yet received value from its counterparty. Management should establish limits and monitoring procedures for settlement risk exposures. Settlement risk limits should be established separately from pre-settlement credit limits and should consider capital adequacy, operations efficiency and credit analysis expertise. Monitoring reports should provide sufficient detail to identify credit risk arising from settlement versus pre-settlement exposure. Credit Risk Monitoring 1. Credit risk monitoring should be independent of the units that create financial derivatives exposures. The risk monitoring unit should be responsible for producing and distributing timely and accurate information about credit exposures, such as concentration of credit, credit quality, limit exceptions and significant counterparty exposures. 2. This methodology adopted to measure and monitor credit risk should be controlled by personnel independent of the trading unit. B. Market Risk is the risk that adverse movements in the level or volatility of market prices will affect the institution's financial condition. Dealers and Active Position-Takers 1. There should be a risk measurement system that can quantify risk exposures arising from changes in market factors. This system should be structured to enable management to initiate prompt remedial action, facilitate stress testing, and assess the potential impact of various changes in market factors on earnings and capital. At a minimum, all risk measurement applications and models should be reviewed and validated annually, and management should maintain adequate documentation to support the reliability of the validation process. 2. Statistical analyses should be used to characterize market scenarios and price behavior. Before they are used, and whenever market conditions change significantly, the analyses should be validated by a source independent of the trading desk or risk assumption unit. Limited End-Users The senior management should ensure that all significant risks arising from their derivatives activities can be quantified, monitored and controlled. At a minimum, risk management systems should evaluate the possible impact of derivatives activities on earnings and capital which may result from adverse changes in interest rates and other market conditions that are relevant to risk exposure and the effectiveness of financial derivatives activities. C . Liquidity Risk is the risk that an institution will not be able to, or cannot easily, exit or unwind its position at a desired market price (market/product liquidity risk); or to meet its cash flow obligations as they fall due or upon margin calls (cash flow/funding liquidity risk). 1. Management should evaluate these risks in the broader context of the institution's overall liquidity because neither type of liquidity risk is necessarily unique to derivatives activities. 2. In developing guidelines for controlling liquidity-risks, an institution should consider the possibility that it could lose access to one or more markets, either because of concerns about the institution's own credit worthiness, the credit worthiness of a major counterparty or because of generally stressful market conditions. At such times, the institution may have less flexibility in managing its market, credit and liquidity risk exposures. An institution that makes markets in over-the-counter derivatives or that dynamically hedges 1 its positions requires constant access to financial markets and that need may increase in times of market stress. The institution's liquidity plan should reflect its ability to turn to alternative markets, such as futures or cash markets, or to provide sufficient collateral or other credit enhancements in order to continue trading under a broad range of scenarios. 3. An institution that participates in over-the-counter derivatives markets should assess the potential liquidity risks associated with the early termination of derivatives contracts. Many forms of standardized contracts for derivatives activities allow counterparties to request collateral or to terminate their contracts early if the institution experiences an adverse credit event or a deterioration in its financial condition. In addition, under conditions of market stress, customers may ask for the early termination of some contracts within the context of the dealer's market making activities. In such situations, an institution that owes money on derivatives activities may be required to deliver collateral or settle a contract early and possibly at a time when it may face other funding and liquidity pressures. Early terminations may also open up additional, unintended, market positions. Management and directors should be aware of these potential liquidity risks and should address them in the institution liquidity plan and in the broader context of the institution's liquidity management process. D. Operations Risk is the risk that an institution will suffer an unexpected loss due to deficiencies in information systems or internal controls. 1. The Board of Directors/Management Committee and senior management should ensure the proper dedication of resources to support operations and systems development and maintenance. The operation unit should report to an independent unit and should be managed independently of the business unit. The sophistication of the systems support and operational capacity should be commensurate with the size and complexity of the derivatives business activity. 2. Systems support and operational capacity should be adequate to accommodate the types of derivatives activities in which the institution engages. This includes the ability to efficiently process and settle the volume transacted through the business unit, to provide support for the complexity of the transactions booked and to provide accurate and timely input. Support systems and the systems developed to interface with the official databases should generate accurate information sufficient to allow business unit management and senior management to promptly monitor risk exposures. 3. Segregation of operational duties, exposure reporting and risk monitoring from the business unit is critical to proper internal control. 4. Management should ensure that a mechanism exists whereby derivatives contract documentation is confirmed, maintained and safeguarded. An institution should establish a process through which documentation exceptions are monitored and resolved and appropriately reviewed by senior management and legal counsel. The institution should also have approved policies that specify documentation requirements for derivatives activities and formal procedures for savings and safeguarding important documents that are consistent with legal requirements and internal policies. E. Legal Risk is the risk that contracts are not legally enforceable or correctly documented. 1. Before engaging in derivatives activities, an institution, in consultation with its legal counsel, should be satisfied that its counterparties have the legal authority to engage in such activities. 2. The terms of any contract governing derivatives activities should be legally sound. 3. The institution should use the International Swap Dealers Association, Inc. (ISDA) Master Agreement insofar as the same is not inconsistent with existing laws, rules and regulations. RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES (Appendix to Subsec . X602 . 3) Similar to other financial transactions, derivatives activities may provide significant benefits and involve a variety of significant risks. Before entering into any derivatives activity, you should carefully consider whether the transaction is appropriate for you in light of your objectives, experience, financial and operational resources, and other relevant circumstances. You should ensure that you fully understand the nature and extent of your exposure to risk of loss, which may significantly exceed the amount of any initial payment by or to you. In general, all derivatives activities involve risks, which include, among others, the risk of adverse or unanticipated market, financial or political developments, risk of counterparty or issuer default and other credit and enforcement risks, and risk of illiquidity and related risks. In addition, you may be subject to operational risks in the event that you do not have in place appropriate internal systems and controls to monitor the various risks, funding and other requirements to which you may be subject by virtue of your activities in derivatives and other financial markets. As in any financial transaction, you should ensure that you understand the requirements applicable to you that are established by your regulators or by your board of directors or other governing body. You should also consider the legal, tax and accounting implications of entering into any derivatives activity. In entering into any derivatives activity with, or arranged by, us or any of our subsidiaries/affiliates, you should also understand that ________________ is acting solely in the capacity of an arm's length contractual counterparty and not in the capacity of your financial adviser or fiduciary unless _____________ has so agreed in writing and then only to the extent so provided. Whether or not you and have established a written financial advisory or fiduciary relationship, ________________ may, from time to time, have substantial long or short positions in, and may make a market in or otherwise buy or sell instruments identical or economically related to, the derivatives activity entered into with you; _____________ may also have an investment banking, corporate advisory, or other commercial relationship with the issuer of any security or financial instrument underlying the derivatives activity entered into with you. THIS BRIEF STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR OTHER RELEVANT CONSIDERATIONS OF ENTERING INTO DERIVATIVES ACTIVITIES. YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU FULLY UNDERSTAND ALL SUCH RISKS AND HAVE INDEPENDENTLY DETERMINED THAT THE ACTIVITY IS APPROPRIATE FOR YOU. ACCOUNTING GUIDELINES FOR DERIVATIVES (Appendix to Subsec X602 . 4) The following guidelines shall be observed by any bank and/or its subsidiaries/affiliates authorized to engage in derivatives activities: a. Derivatives contracts shall be recorded in the books of accounts as contingent items using the accounts prescribed in the Revised Manual of Accounts, whenever applicable. The amounts to be recorded shall either be notional or actual, depending on the nature of the contract. The purpose of the contract shall be specifically stated, i.e., for trading or for hedging. At maturity of the contract the recorded entries shall be reversed. b. Recognition of gains or losses shall be as follows: 1. For derivatives contracts entered into for trading purposes, gains and losses shall be recognized/recorded in the books at the end of every month. 2. For derivatives contracts entered into for hedging purposes: (a) During the life of the underlying contract/transaction, unrealized gains and losses resulting from marking-to-market shall be recorded under "Deferred Hedging Gain/Loss" account, and shall serve as an adjustment to the gain/loss of the underlying contract/transaction. Upon maturity of the underlying contract/transaction, the deferred gain/loss shall be realized, and shall then be recorded as trading gain/loss. (b) After the life of the underlying contract/transaction, gains and losses shall be recorded directly as trading gain/loss. A contract should be accounted for as a hedge when the following conditions are met: (1) The underlying contract/transaction exposes the institution to risk/s (e.g., interest rate risks, exchange rate risks, market risks). (2) The institution designates the product as a hedge. (3) The derivatives contract entered into is effective as a hedge, meaning that there must be a high correlation between the gains or losses on the derivatives contract and the gains or losses caused by the change of interest rates or exchange rates on the underlying contract/transaction. For derivatives contract to qualify as a hedge of an anticipated transaction, the following two (2) additional criteria must be met. i) Significant characteristics and expected terms of the anticipated transaction must be identified; and ii) The occurrence of the anticipated transaction must be probable. 3. For derivatives contracts entered into as agent/broker, the notional amount shall be recorded as a contingent item. Income therefrom shall be in the form of fees, commissions or spreads only. c. Any bank and/or its subsidiaries/affiliates shall disclose, by way of footnotes to its audited financial statements, the following: 1. Accounting policy on derivatives; 2. Mark-to-market policy; and 3. Notional amount of outstanding contracts. CLEARING PROCEDURES (Appendix to Sec . X603) a. Clearing regulations in general . (1) Time and place of exchanges . The clearing of checks, bills and other demand items herein contemplated shall be conducted in the BSP-designated clearing centers. The hour for making such exchanges shall be at 4:00 p.m. on each business day as well as on all local holidays in the clearing centers and/or at such other times as may be fixed by the BSP. (2) Settling clerks . The head office of each bank, together with all its branches within the designated clearing areas, shall be considered as a unit and shall be represented by one (1) or more [but not exceeding six (6)] competent clerks/representatives to deliver and receive the items to be exchanged. The facsimile signatures and NBI clearances of these clerks/representatives shall be submitted to the Accounting Department. All settling clerks/representatives shall be issued their respective ID cards which shall be presented for admission in the clearing office or regional units. (3) Items for clearing . All checks and documents payable on demand and drawn against a bank/branch allowed to clear may be exchanged through clearing centers designated by the BSP. As evidence of the channel through which they were negotiated, all items to be exchanged shall be properly endorsed and guaranteed before being sent to the Clearing Office/Unit and shall bear the name of the bank/branch, institution or entity to which they belong. Likewise, they shall be impressed by the sending bank/branch, institution or entity with a special stamp to the effect that they have been cleared through the clearing facilities of the BSP. The Clearing Office/Unit of the BSP shall in no way be responsible for any flaw or defect in the items or for any irregularity whatsoever in any of their features. (4) Clearing procedures . (a) Procedure for regular clearing . Each bank/branch through its representative/s, shall deliver their respective demands in sealed envelopes made out separately against the other banks/branches, institutions or entities allowed to clear: Provided , That Negotiable Orders of Withdrawal shall be contained in an envelope exclusively for the purpose: Provided , further , That the BSP may, at its discretion, verify the contents of sealed envelopes. The total of each demand shall be listed in a certified adding machine tape attached to the sealed envelope. In the acknowledgment of receipt of the demands against the bank/branch, institution or entity he represents, the settling clerk concerned shall prepare and sign a Clearing Office Statement (Clearing Form No. 4) in duplicate for local clearing. The original and duplicate of the statement shall be submitted to the clearing office in Manila or the regional clearing centers. The original shall be retained and shall be the basis for settlement of clearing balances in the respective deposit accounts with the BSP. The duplicate, duly authenticated by the Manila or the Regional Clearing Officer concerned, shall be returned to the bank/branch, institution or entity concerned through their clearing representatives. The duplicate shall be the basis of each bank/branch, institution or entity for taking up corresponding entries in their respective books of accounts on the date of clearing. For out-of-town clearing, the Clearing Office Statement (Clearing Form No. 4-A) shall be prepared in quadruplicate for authentication by the Clearing Officer who retains one copy. The third copy shall be returned to the sending bank/branch, institution or entity coursed through their respective clearing representatives. The original and duplicate shall be shipped to, or retained in, the Manila Clearing Office as the case may be. Out-of-town demands presented in a clearing center against a bank without any branch in that particular clearing area shall be delivered to the Clearing Officer who shall prepare a debit advice (Clearing Form No. 4-B) for the Head Office of the drawee bank/branch concerned in the Manila clearing area. In the acknowledgement of receipt of out-of-town demands, the duplicate of the Clearing Office Statement and/or the original of the debit advice/s, the settling clerks of respective drawee banks/branches in each clearing center shall sign the shipping manifest. These clearing office statements and/or the debit advice/s shall serve as bases for the Head Offices in the Manila clearing area to record the result of out-of-town exchanges in their books on the date of receipt. Clearing operations between regional clearing centers and the Manila Clearing Center is shown in Appendix 28a (Tarlac, Tarlac used as sample). (b) Procedure for special clearing . Demands may be presented directly to the drawee banks/branches concerned at times other than that specified in Item a. For this purpose, the Special Clearing Receipt (Cash Form No. 10) shall be used. The original and duplicate copies of the receipt shall be retained by the sending bank/branch, and the triplicate shall be delivered to the drawee bank/branch. At the following clearing season, the original of the Special Clearing Receipt shall be presented as a demand against the bank/branch, institution or entity concerned. Nothing in this section shall prevent direct settlement between the parties concerned. (c) Procedure for returned items . Items which should be returned for any reason whatsoever shall be presented not later than the next regular clearing for local exchanges. Out-of-town exchanges shall be returned within the period specified in the Memorandum to Authorized Agent Banks announcing the opening of clearing facilities in each of the authorized regional clearing centers. Items for return shall be sealed in special red envelopes and shall be considered and accounted for as debits to the demanding banks/branches, and credits to the returning banks/branches. Nothing in this paragraph shall prevent direct settlement of returned items between the parties concerned. Mis-sorts or items misdirected through clearing shall be returned at the next clearing session in special yellow envelopes and shall be accounted for as debits to the bank/branch which had misdirected the items. (d) Procedure for excluded member(s) . In case any bank/branch is excluded from clearing on any day on account of tardiness or absence, value shall be given to the deliveries of the others present for credit to their accounts in accordance with normal settling procedures. The total of said deliveries shall be debited to the account of the excluded bank/branch. The bank/branch excluded from clearing shall, as heretofore, send its representative to the Clearing Office /Unit to prepare the clearing statement and accept deliveries on it. In case of failure to send its representative, the Clearing Office/Unit shall, in the meantime, receive such deliveries which should be picked up by the excluded bank/branch not later than 5:30 p.m. on the same day. In the event of a strike or force majeure which prevents a bank/branch allowed to clear from having access to its representative records or otherwise ascertaining whether checks delivered to its representatives shall be honored or returned, notice of such circumstances shall immediately be given to the BSP Clearing Office/Unit. In such cases, items drawn against the bank/branch concerned shall not be presented for clearing. (5) Loss of clearing items . Any loss or damage arising from theft, pilferage, or other causes affecting items in transit shall be for the account of the sending bank/branch concerned. b. Inter-regional clearing operations in Visayas and Mindanao . Inter-regional clearing operations shall be conducted in Visayas and Mindanao through the facilities of BSP Regional Clearing Units. Checks received by banks/branches in one clearing area against banks/branches located in the other clearing areas may be presented for clearing in accordance with these rules. (1) Items for clearing . Items for clearing shall consist of demand items consisting of checks and/or other documents drawn against banks/branches located in each of the clearing areas. The special brown envelope for demands against banks located in the four (4) regional clearing centers shall bear one (1) inch stripe on the left side according to the following color scheme: Regional Clearing Unit Color Dumaguete Brown General Santos Pink Ozamis Orange Surigao Black The color code of clearing envelopes for other regional clearing centers invoiced in inter-regional clearing as specified in Circular Letter dated September 20, 1978, shall continue to be observed. (2) Settlement of clearing balances . Clearing balances of participating banks/branches shall be debited or credited, as the case may be, to the clearing accounts of their respective head offices in Manila in the afternoon of the same date the demands are presented for clearing. (3) Miscellaneous provisions . Checks for inter-regional clearing shall be sealed in special brown envelope measuring 7" x 1" with the destination "To Cebu" or "To Zamboanga", etc., as the case may be, properly stated in bold letters of not less than one (1) inch. The left side of the envelope shall bear one (1) inch stripe according to the following color scheme: Regional Clearing Unit Color Bacolod Green Cagayan de Oro White Cebu Blue Davao Red Iloilo Violet Tacloban Royal Blue Zamboanga Gray All participating banks shall keep photo copies/microfilms of checks presented for clearing. Any loss or damage arising from theft, pilferage, or other causes affecting items in transit shall be for the account of the sending bank/branch concerned. (4) Guidelines for inter-regional clearing (a) For an orderly process of exchanges, each bank/branch representative shall deposit the demand envelopes against drawee banks/ branches located in other regional clearing areas in the respective compartments assigned to each of the participating banks/branches. (b) The bank/branch representative shall sort the demand envelope received according to destination. Amount of demands shall be posted as Debits (Items Received) in their respective Clearing Statements (Clearing Form 4-A) to be prepared in four (4) copies for distribution as follows: Original Sending Clearing Unit Duplicate Sending Bank/Branch Triplicate Head Office of Drawee Bank Branch Quadruplicate Drawee Bank/Branch (c) The Regional Clearing Officer shall sort according to bank/branch and destination the demand envelopes delivered for the account of banks without branches in his clearing area. Corresponding Debit Statement (Clearing Form 4-B) shall be prepared in three (3) copies for distribution as follows: Original Head Office of Drawee Bank/Branch Duplicate Drawee Bank/Branch Triplicate Sending BSP Clearing Unit (d) The quadruplicate of the Clearing Statements and duplicate of the Debit Statements shall be attached to the demand envelopes for shipment to the Regional Clearing Units concerned. In acknowledgment of receipt of inter-regional demands, clearing representatives of respective bank/branch at destination shall sign the covering manifest (in duplicate). The original shall be returned to the sending clearing unit. (e) In the Regional Clearing Unit where the demands are presented, a Clearing Advice (Form 4-B(a)) shall be prepared for inter-regional as well as local and out-of-town (Manila) clearing results reflected in clearing statements and debit statements. After the 9:00 A.M. clearing session, the results of the inter-regional clearing transactions shall be posted in the Clearing Advice, striking a subtotal to determine that it is in balance. In the same Clearing Advice, the results of local and " on Manila " clearing shall be posted after the 4:00 p.m. session to complete the transactions for the day. The original of the clearing advice shall be sent to the Head Office of the Drawee Bank Division, Manila, bound together with: (1) The duplicate of the local and out-of-town (Manila) clearing statements; (2) Triplicate of inter-regional clearing statements; (3) The original of the debit statements; and (4) The demand envelopes containing " on Manila " checks/returns. The Clearing Advice shall be the basis for entries in the books of accounts of the bank Head Offices concerned. The duplicate of the Clearing Advice shall be forwarded to the Drawee Bank/Branch while the third copy shall be retained as office file of the Regional Clearing Unit. (f) The daily results of both local, out-of-town (Manila) and inter-regional clearing shall be summarized in the consolidated clearing proof sheet. For purposes of transmission to the Head Office through the DEX machine, the results of clearing as reflected in the consolidated proof sheet shall be condensed in Clearing Form 4-C (a). Any exception or observation which required immediate attention shall be explained in the memorandum portion. (g) All Regional Clearing Officers shall acknowledge receipt of all incoming pouches and/or shall give notice of delay/non-arrival of pouch/es or other exception/s to the sending clearing unit concerned on the Confirmation Slip not later than the following business day. If for any reason, clearing is suspended or there is no demand against any of the other clearing unit and as no pouch will be send to all or any of the clearing units, the Confirmation Slip, which shall be placed in an envelope properly addressed to the clearing unit concerned and duly marked in bold letters "CONFIRMATION SLIP FOR IMMEDIATE TRANSMITTAL TO ADDRESSEE", shall be sent through the pouch to Manila. A duplicate of the Confirmation Slip for the file of the Clearing Operations Division, Manila Office shall be stapled to the envelope. (h) All shipments of pouches shall be accompanied by a check and manifest which shall be properly acknowledged by the receiving clearing unit. A separate transmittal letter shall be prepared in duplicate for all communications addressed to other departments which are sent through the general-purpose pouch under the responsibility of the Administrative Department, Manila. The original shall be properly marked "for the Communications Center" while the duplicate shall be returned to the sending Regional Clearing Unit with the acknowledgment of the personnel in-charge of opening the pouch in the Communications Center. (i) All clearing pouches arriving late in the afternoon and in the evening may be picked up from the airport in the morning of the following day for delivery to the drawee bank at 9:00 A.M. clearing session. For security reasons, those arriving on Friday night shall be picked up on Saturday morning. c. Treasury warrants . Types "A" and "B" treasury warrants in Manila and in areas served by the BSP Regional Clearing Offices are governed by the following rules issued by the National Treasurer: (1) Effectivity . Types "A" and "B" treasury warrants shall be accepted as clearing items for regional clearing in areas served by the BSP Regional Clearing Offices. The branches or agencies of banks may avail of this facility of the BSP by following the procedures prescribed hereunder. These treasury warrants shall be carried in the BSP pouches from their regional offices to Manila. (2) Treatment of Types "A" and "B" treasury warrants . Types "A" and "B" treasury warrants with circular holes already punched at the designated field by the bank branches or agencies in accordance with Treasury Circular dated July 7, 1969 shall be placed in separate sealed envelopes or packages, together with their respective run-up tapes. The outside of the envelopes must clearly indicate the type of treasury warrants contained therein, the number of pieces, and the total amount per tape. When the pouch is received in Manila, these envelopes or packages shall be turned over by the BSP unopened to the representative of the sending bank's Manila office. The Manila office of a bank shall gather all treasury warrants it receives from its various branches and agencies in a single day, and submit them to the Bureau of Treasury for special clearing on the next day. The treasury warrants must be endorsed by the Manila office, stating, among other things, the date of clearing and that they are being presented for special clearing. These treasury warrants, as well as those paid at the main offices and suburban branches or agencies of banks shall be presented to the Bureau of Treasury by the banks concerned between the hours of 8:00 A.M. and 10:00 A.M. during banking days, supported by run-up tapes and the usual clearing receipt. The special clearing receipt may be cleared on the same day through the BSP Clearing House and shall be accounted as debit against the demand of the National Treasurer. (3) Period within which treasury warrants may be dishonored . The Bureau of Treasury may dishonor a Type "B" treasury warrant found defective within (2)-working days, while Type "A" treasury warrants may be dishonored within sixty (60) working days. In both cases, the period shall be reckoned from the date the special clearing receipt is coursed through the BSP. The foregoing time limit will not apply to treasury warrants found to have been paid to the wrong party, tampered, and otherwise tainted with fraud. (4) Dishonored, miscleared and other returnable items . These items will be returned directly to the presenting bank. The accepting bank shall issue the corresponding credit ticket in favor of the Bureau of Treasury, which ticket shall be cleared by the Bureau of Treasury through the BSP. If the bank to which a treasury warrant is dishonored, refuses to accept or recognise the action taken by the Bureau of Treasury for a valid reason, the bank may return the controversial items, or evidences thereof, directly to the National Treasurer, together with required run-up tapes and a concise but comprehensive statement of such reason. The return must be made not later than 10:00 A.M. on the next banking day, otherwise the member bank shall be deemed to have accepted and recognized the validity of the returned item, and it is therefore, left without further recourse. The Bureau of Treasury shall issue the corresponding credit ticket for those returned items accepted, and the same shall be taken up in the manner set forth above. (5) Compliance . Banks participating in the Bureau of Treasury special clearing operations bind themselves to conform, without reservation, to the regulations promulgated herein, or which may henceforth be promulgated relative to special clearing operations. Any bank has the option to present their paid treasury warrants to the National Treasurer for collection. (6) Bangko Sentral responsibility . Any treasury warrant lost or pilfered from the BSP pouch shall be the responsibility of the sending bank, and such responsibility ends only after the National Treasurer has taken physical possession of the treasury warrants. Lost or pilfered treasury warrants must be reported to the National Treasurer in accordance with Treasury Memorandum Circular No. 13-69 dated October 1, 1969. d. Handling of checks drawn against out-of-town accounts . The following regulations shall govern the handling of checks drawn against demand deposits maintained in out-of-town banks: (1) The bank which accepted for deposit/collection a check drawn against a demand deposit maintained in an out-of-town bank must send the same for collection within twenty-four (24) hours (non-regular banking days excluded) counted from the time of its receipt. Sending the check for collection means sending it directly to the drawee bank or thru the collecting bank's branch, agency or extension office/correspondent bank/collecting, agent in or near the locality to the drawee bank by registered mail with return receipt or by other equivalent means. Checks drawn against drawee banks located in places where the BSP maintains clearing offices shall be cleared directly with the said clearing offices. (2) Upon receipt of a check from the collecting bank, the drawee bank carrying the demand deposit against which the check is drawn (if cleared through means other than the clearing facilities of the BSP), must indicate the date and time of receipt of the check on the registered mail return receipt, if the item is sent by registered mail, or on the duplicate copy of the collecting bank's letter of instruction, if the item is sent through means other than by registered mail. (3) The drawee bank should maintain a register of all checks received for settlement which should be separate and distinct from the register of incoming mails or messages. This register must indicate in chronological order all checks received for settlement with information such as, but not limited to, the date and time the check was received, the name and address of the collecting bank, the current account number against which check is drawn, the date and amount of the check and the date the proceeds thereof were remitted or the date the check was returned, as the case may be. (4) The drawee bank or office carrying the demand deposit against which the check is drawn must dispose of such item within twenty-four (24) hours (non-regular banking days of the drawee bank excluded) counted from the time it received the check. Disposing of such item means remitting the proceeds to the collecting bank if the check is honored, or returning the check with the reason for the return, in the event of dishonor. (5) The date of disposition of the check shall be determined by the date of mailing of the instrument of payment, say demand draft, or date or dispatch of telegraphic transfer, if the check is honored, or by the date of mailing of the return slip attached to the item, if it is dishonored. (6) All checks received for payment but not acted upon at the end of the day must be recorded by the drawee bank on the same day as part of its contingent account Inward Bills for Collection . CLEARING OPERATIONS BETWEEN REGIONAL CLEARING CENTER AND THE MANILA CLEARING CENTER (Tarlac, Tarlac Used as Sample) (Appendix to Subsec . X603) Exchanges of clearing items among branches of commercial and thrift banks in Tarlac, Tarlac, will be conducted at 4:00 P.M. on each business day as well as on all local holidays in the premises of the Tarlac Regional Clearing Unit in accordance with the clearing regulations embodied in Appendix 28. Simultaneously, "On Tarlac" checks and "On Manila" checks may be presented for clearing through the Manila Clearing Office and the Tarlac Regional Clearing Unit, respectively. In Manila 4:00 P.M. Manila banks deliver "On Tarlac" checks and dishonored "On Manila" checks picked up at 4:00 P.M. of the previous day. Manila banks pick-up "On Manila" checks and returned "On Tarlac" checks delivered at 4:00 P.M. at Tarlac the previous day. In Tarlac 4:00 P.M. Tarlac banks deliver "On Manila" checks and dis-honored "On Tarlac" checks picked up at 4:00 P.M. of the previous day. Tarlac banks pick up "On Tarlac" checks and returned "On Manila" checks delivered at 4:00 P.M. at Manila the previous day. If not returned on schedule, it is understood that "On Tarlac" and "On Manila" checks delivered to the Manila Clearing Office and Tarlac Regional Clearing Unit, respectively, will be considered "good" after 4:00 P.M. On the third business day following the date of delivery. Items for Clearing Items for clearing shall consist of checks and documents payable on demand and drawn against banks in Manila and its suburbs (Quezon City, Pasay City, Kalookan City, San Juan, Mandaluyong, Makati, Paraaque, Navotas, Malabon, Marikina and Pasig-Metro Manila) on one hand and banks in Tarlac, Tarlac on the other. Settlement of Balances Clearing balances of participating banks in Tarlac, Tarlac, shall be debited or credited, as the case may be, to the clearing accounts of their respective head offices with the Bangko Sentral in the afternoon of the date of clearing. Miscellaneous Out-of-town checks shall be sealed in special brown envelope measuring 7" x 11" with the destination "To Tarlac" or "To Manila", as the case may be, properly stamped in bold letters of not less than one (1) inch and three (3) orange stripes, 1/1" wide on the right edge. Banks shall microfilm all out-of-town checks. PROCEDURES ON COLLECTION OF FINES FROM BANKS (Appendix to Subsec X609.1) For uniform implementation of the regulations on collection of fines from banks, the following procedures shall be observed: 1. The department or office imposing the fine shall furnish the Accounting Department a copy of its notice to the bank for the fines imposed indicating therein the date said notice was received by the bank. This shall serve as basis for entries to Accounts Receivable and debit against the bank's demand deposit account after the lapse of thirty (30) days. 2. In the case of fines which the department/office concerned requests the Accounting Department to bill the bank, the date the bill sent by the Accounting Department is received by the bank shall serve as basis for entries to Accounts Receivable and debit against the bank's demand deposit account after the lapse of thirty (30) days. 3. If the fine is not paid voluntarily within the 30-day period, the Accounting Department shall debit the demand deposit account of the bank, provided, the balance of said demand deposit account is sufficient to cover the fines due. Fines that cannot be debited against the bank's demand deposit account due to insufficiency of balance shall be reported by the Accounting Department to the department/office concerned which shall then recommend the appropriate sanctions against the bank, its directors and/or officers. Footnotes 1. now Director, Department of Commercial Banks II 2. Retired 3 Deceased 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. * Application deadline March 31, 1992 1. For purposes of identifying the classification of a certain enterprise or undertaking, the industrial groupings in the 1977 Philippine Standard Industrial Classification (PSIC) list shall be followed. * To follow rating of economic activities included in the list. ** For updated loan values, see Subsec X269.5 1. Dynamic hedging refers generally to the continuous process of buying and selling of instruments to offset open exposures as market conditions change (e.g. an option writer selling an underlying asset as its price falls). * Owning at least 2% of the subscribed capital stock