2000 Manual of Regulations for Non-Bank Financial Institutions

2000 MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS BSP CIRCULAR NO. 204-99 The Monetary Board, in its Resolution No. 1034 dated July 22, 1998, adopted the new Manual of Regulations for Non-Bank Financial Institutions ("New Manual") as a code of Bangko Sentral regulations for non-bank financial institutions which shall be cited as authority for enjoining compliance with rules governing such institutions and as the basis for the imposition of sanctions for the violation hereof. The New Manual shall become effective fifteen (15) days after its complete publication in the Official Gazette: Provided, That non-bank financial institutions 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 non-bank financial institutions shall continue to be in force. On the date the New Manual becomes effective, the Manual of Regulations for Banks and Other Financial Intermediaries, Book IV, and the provisions of issuances existing as at December 31, 1996 which are inconsistent therewith shall be deemed repealed and/or suspended. Bangko Sentral regulations for non-bank financial institutions issued after December 31, 1996 shall be printed semestrally as updates or supplements to the New Manual. The New Manual and subsequent updates shall be 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. DaHSIT 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 to revise and regularly update the Manual of Regulations for Banks and Other Financial Intermediaries to enable the industry to better keep pace with the anticipated rapid regulatory changes that are unavoidable in a dynamic economic environment. A revised Manual would also be able to appropriately take into account the strengthened supervisory and regulatory arrangements set out in the BSP's new charter. aEcTDI This Manual of Regulations for Non-Bank Financial Institutions is one of the products of that effort. It benefits from the inputs of many concerned departments of the BSP as well as the various industry associations of non-bank financial institutions. 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 non-bank financial institutions. We also believe that it will be a especially useful tool at this time when the BSP has come up with many regulations and issuances in response to the unprecedented challenges posed by the Asian financial 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 more responsive services to the public. (SGD.) GABRIEL C. SINGSON Governor PREFACE The Manual of Regulations for Non-Bank Financial Institutions (the "New Manual") is not only an updated edition but also a revision of the present Manual of Regulations for Banks and Other Financial Intermediaries, Book IV (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 and (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. 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); 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. Under the aforesaid office order, the Ad Hoc Committee was instructed to examine, evaluate and review the provisions 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 tasks, 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 non-bank financial intermediary industries. Their valuable suggestions contributed 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 regulations for non-bank financial institutions 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 regulations for non-bank financial institutions will measure up to the expectations of these institutions. DCaSHI The Bangko Sentral ng Pilipinas INSTRUCTIONS TO USERS The Manual of Regulations for Non-Bank Financial Institutions (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. Non-bank financial institutions (NBFIs) governed by the Manual shall comply with the provisions thereof and any violation thereof shall be punishable under the specific and/or general provisions on sanctions. The Manual contains the rules and regulations on NBFIs subject to supervision by the Bangko Sentral ng Pilipinas (BSP) under the law. Specifically, these institutions are as follows: NBFIs performing quasi-banking functions, or quasi-banks, which are subject to BSP supervision under R.A. No. 7653, The New Central Bank Act; NBFIs performing trust and other fiduciary activities and building and loan associations (BLAs), under R.A. No. 337, as amended; non-stock savings and loans associations (NSSLAs), under R.A. 3779; and pawnshops, under P. D. No. 114. The regulations addressed to these institutions are grouped as follows: the Q Regulations, which are addressed to quasi-banks; the S Regulations, which are addressed to BLAs; the P Regulations, which are addressed to pawnshops; the B Regulations, which are addressed to BLAs; and N Regulations, which are addressed to other NBFIs subject to BSP supervision. As a code of regulations, the Manual contains the basic features of division into Parts, further subdivided into major topic headings which introduce the corresponding sections and subsections making up the provisions governing a major operation of the institutions subject to the regulations. Parts and major topic headings as well as coded section numbers and headings are made uniform for all the groups of regulations. Coding of sections utilizes six (6) digits; i.e., 41. 3Q.44. The first digit (4 in the example) refers to the type of financial institution (i.e., non-bank financial institutions as distinguished from banks or banking institutions, the regulations addressed to which institutions are contained in another Manual) to which the regulation is applicable; the second digit (1 in the example), to the Part number, and the third and fourth digits (23 in the example), to the section number. The other two (2) digits after the decimal point (44 in the example) refers to the subsection number. The letters Q, S, B, P and N are appended to the pertinent code numbers of the sections to indicate the particular category of NBFIs the regulations are addressed to, namely: quasi-banks, NSSLAs, BLAs, pawnshops and other NBFIs subject to BSP supervision, respectively. For example, Sections 4161Q, 4161S, 4161B and 4161P refer to provisions of reporting requirements of quasi-banks, NSSLAs, BLAs and pawnshops, in that order. To illustrate, the code number 4161Q.2 indicates: 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 require additional pages. Paging is further identified as to the group of regulations the particular page belong; for example, Q Regulations. To facilitate reference, running section headings consisting of the coded numbers of the sections/subsections whose provisions are contained in a particular page are indicated at either the upper right corner or left-hand corner of the page preceded by the symbols or . The cut-off date is indicated immediately below the running section heads, as: 96.12.31. Thereafter, the date of the pages affected by subsequent new issuances or amendments/repeals will be changed to the end of the semestral period during the semestral updating which shall reflect the changes that shall have occurred. Q REGULATIONS (Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions) TABLE OF CONTENTS BSP Circular No. 204-99 PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101Q Quasi-Banking Functions 4101Q.1 Financial intermediaries 4101Q.2 Guidelines on lender count 4101Q.3 Transactions not considered quasi-banking SECTION 4102Q Preconditions for the Exercise of Quasi-Banking Functions 4102Q.1 Minimum paid-in capital 4102Q.2 Citizenship requirements 4102Q.3 Managerial expertise SECTION 4103Q Documentary Requirements for Applications SECTION 4104Q Bangko Sentral Certificate of Authority SECTION 4105Q Licensing of an Investment House B. Capitalization SECTION 4106Q Minimum Capitalization SECTION 4107Q Minimum Capital of Investment House SECTION 4108Q Sanctions SECTIONS 4109Q-4110Q (Reserved) C. Merger or Consolidation SECTION 4111Q Merger or Consolidation Involving Quasi-banks SECTION 4112Q Merger or Consolidation Incentives SECTIONS 4113Q-4115Q (Reserved) D. Net Worth-to-Risk Assets Ratio SECTION 4116Q Minimum Ratio 4116Q.1 Definitions of terms SECTION 4117Q Treatment of Equity Investment with Reciprocal Stockholdings SECTION 4118Q Sanctions on Net Worth Deficiency SECTION 4119Q-4120Q (Reserved) E. (Reserved) SECTIONS 4121Q-4125Q (Reserved) F. Stock, Stockholders and Dividends SECTION 4126Q Dividends 4126Q.1 Definition of terms 4126Q.2 Liquidity standards/ratios; amounts available 4126Q.3 Reporting and verification 4126Q.4 Recording of dividends 4126Q.5 Rules on declaration of stocks dividends SECTIONS 4127Q-4140Q (Reserved) G. Directors, Officers and Employees SECTION 4141Q Definition and Qualifications of Directors SECTION 4142Q Definitions and Qualifications of Officers SECTION 4143Q Disqualifications of Directors or Officers 4143Q.1 Persons disqualified to become directors or officers 4143Q.2 Disqualification procedures 4143Q.3 Prohibition against foreign officers/employees of financing companies SECTION 4144Q Interlocking Directorships and/or Officerships SECTION 4145Q Profit Sharing of Directors, Officers and Employees SECTION 4146Q-4150Q (Reserved) H. Branches and Other Offices SECTION 4151Q Establishment 4151Q.1 Evaluation guideposts 4151Q.2 Additional capital, if required 4151Q.3 Other requirements/factors to be considered 4151Q.4 Conditions precluding processing of applications 4151Q.5 Documentary requirements 4151Q.6 Filing of applications 4151Q.7 Period within which to submit complete requirements 4151Q.8 Prohibition against operating without SEC license SECTIONS 4152Q-4155Q (Reserved) I. Reserved SECTIONS 4156Q-4160Q (Reserved) J. Records and Reports SECTION 4161Q Records 4161Q.1 Uniform System of Accounts 4161Q.2 Adoption of Statements of Financial Accounting Standards SECTION 4162Q Reports 4162Q.1 Categories and signatories of reports 4162Q.2 Manner of filing 4162Q.3 Sanctions in case of willful delay in the submission of reports/refusal to permit examination SECTION 4163Q-4170Q (Reserved) K. Internal Control SECTION 4171Q Internal Control Systems SECTION 4172Q Financial Audit 4172Q.1 Posting of audited financial statements SECTIONS 4173Q-4180Q (Reserved) L. Miscellaneous Provisions SECTION 4181Q Publication Requirements SECTION 4182Q Management Contracts SECTIONS 4183Q-4198Q (Reserved) SECTION 4199Q General Provision on Sanctions PART TWO Deposit and Borrowing Operations A.-D. (Reserved) SECTIONS 4210Q-4210Q (Reserved) E. Deposit Substitute Operations SECTION 4211Q Deposit Substitute Instruments 4211Q.1 Prohibition against use of certain instruments as deposit substitutes 4211Q.2 Negotiations of promissory notes 4211Q.3 Minimum features 4211Q.4 Physical delivery of instruments and underlying securities 4211Q.5 Regulation on additional stipulation 4211Q.6 Substitution of underlying securities 4211Q.7 Call slips/tickets for 24-hour loans 4211Q.8 Requirement to state nature of underlying securities 4211Q.9 Compliance with SEC rules SECTION 4212Q Recording Payment; Maturity; Renewal SECTION 4213Q Minimum Trading Lot SECTION 4214Q Interbank Borrowings SECTION 4215Q Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses SECTION 4216Q Money Market Placements of Rural Banks 4216Q.1 Definition of Terms 4216Q.2 Conditions required on accepted placements 4216Q.3 Sanctions SECTION 4217Q Bond Issues of NBQBs 4217Q.1 Definition of terms 4217Q.2 Underwriting of bonds 4217Q.3 Compliance with SEC rules 4217Q.4 Notice to Bangko Sentral 4217Q.5 Minimum features 4217Q.6 Reserve requirement 4217Q.7 Inapplicability of certain regulations SECTIONS 4218Q-4230Q (Reserved) F. (Reserved) SECTIONS 4231Q-4235Q (Reserved) G. Interest SECTION 4236Q Yield/Interest Rates SECTIONS 4237Q-4245Q (Reserved) H. (Reserves) SECTION 4246Q Reserves Against Deposit Substitutes 4246Q.1 Composition of Reserves 4246Q.2 Computation of reserve position 4246Q.3 Reserve deficiencies; sanctions 4246Q.4 Exemptions 4246Q.5 Matured and unclaimed deposit substitutes 4246Q.6 Book entry method for reserve securities 4246Q.7 Interest income on reserve deposit with Bangko Sentral SECTIONS 4247Q-4255Q (Reserved) I. Reserved SECTIONS 4256Q-4275Q (Reserved) J. Borrowings from the Bangko Sentral SECTION 4276Q Repurchase Agreements with the Bangko Sentral SECTIONS 4277-4277Q (Reserved) K. Other Borrowings SECTION 4281Q Borrowings from the Government 4281Q.1 Definition of Terms SECTIONS 4282Q-4298Q (Reserved) SECTION 4299Q General Provision on Sanctions PART THREE Loans, Investments and Special Credits SECTION 4301Q Management of Risk Assets/Minimum Guidelines on Lending Operations SECTION 4302Q Loan Portfolio and other Risk Assets Review System SECTIONS 4303Q-4305Q (Reserved) A. Loans in General SECTION 4306Q Loan Limit to a Single Borrower 4306Q.1 Exclusions from loan limit 4306Q.2 Contingent liabilities included in loan limit 4306Q.3 Sanctions SECTION 4307Q Interest and Other Charges 4307Q.1 Rate ceilings 4307Q.2 Floating rates of interest 4307Q.3 Effect of prepayment 4307Q.4 Loan prepayment 4307Q.5 Escalation clause; when allowable 4307Q.6 Rate of interest in the absence of stipulation 4307Q.7 Accrual of interest earned on loans SECTION 4308Q Past Due Accounts 4308Q.1 Accounts considered past due 4308Q.2 Renewal/extension 4308Q.3 Restructured loans SECTION 4309Q "Truth in Lending Act" Disclosure Requirement 4309Q.1 Definition of terms 4309Q.2 Information to be disclosed 4309Q.3 Inspection of contracts covering credit transactions 4309Q.4 Posters SECTIONS 4310Q-4320Q (Reserved) B. Reserved SECTIONS 4321Q-4335Q (Reserved) C. Unsecured Loan SECTION 4336Q Loans Against Personal Security 4336Q.1 General guidelines 4336Q.2 Proof of financial capacity of borrower 4336Q.3 Signatories 4336Q.4 Sanctions SECTION 4337Q-4350Q (Reserved) D. Restructured Loans SECTION 4351Q Restructured Loans, General Policy 4351Q.1 Definition 4351Q.2 Procedural requirements SECTION 4352Q-4355Q (Reserved) E. Loans/Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION 4356Q General Policy 4356Q.1 Definitions SECTION 4357Q Transactions Covered SECTION 4358Q Transactions not Covered SECTION 4359Q Direct or Indirect Borrowings SECTION 4360Q Individual Ceiling, Single-Borrower Limit SECTION 4361Q Aggregate Ceiling; Ceiling on Unsecured Loans SECTION 4362Q Exclusion from Aggregated Ceiling SECTION 4363Q Credit Accommodations Under Officer's Fringe Benefit Plans SECTION 4364Q Procedural Requirements SECTION 4365 Sanctions SECTIONS 4366Q-4370Q (Reserved) F. (Reserved) SECTIONS 4371Q-4375Q (Reserved) G. Special Types of Loans SECTION 4376Q Interbank Loans 4376Q.1 Systems and procedures for interbank call loan transactions 4376Q.2 Amounting procedures 4376Q.3 Transfer of excess funds SECTIONS 4377Q-4380Q (Reserved) H. Equity Investments SECTION 4381Q Investment in Non-Allied Undertakings SECTION 4382Q Investments Abroad SECTION 4383Q Underwriting Exempted SECTIONS 4384Q-4385Q (Reserved) I. (Reserved) SECTIONS 4386Q-4390Q (Reserved) J. Other Operations SECTION 4391Q Purchase of Receivables and Other Obligations 4391Q.1 Yield on purchase of receivables 4391Q.2 Purchase of commercial papers SECTION 4392Q Reverse Repurchase Agreements with the Bangko Sentral SECTIONS 4393Q-4395Q (Reserved) K. Miscellaneous Provisions SECTIONS 4396Q-4398Q (Reserved) SECTION 4399Q General Provisions on Sanctions PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION 4410Q Statement of Principles SECTION 4402Q Scope of Regulations SECTION 4403Q Definitions A. Trust and Other Fiduciary Business SECTION 4404Q Authority to Perform Trust and Other Fiduciary Business 4404Q.1 Prerequisites for engaging in trust and other fiduciary business 4404Q.2 Pre-operating requirements SECTION 4405 Security for the Faithful Performance of Trust and Other Fiduciary Business 4405Q.1 Basic security deposit 4405Q.2 Eligible securities 4405Q.3 Valuation of securities and basis of computation of the basic security deposit requirement 4405Q.4 Compliance period; sanctions 4405Q.5 Reserves against peso-denominated Common Trust and Other Fiduciary Accounts (TOFA) Others 4405Q.6 Composition of reserves 4405Q.7 Computation of reserve position 4405Q.8 Reserve deficiencies; sanctions 4405Q.9 Report of compliance SECTION 4406Q Organization and Management 4406Q.1 Organization 4406Q.2 Composition of trust committee 4406Q.3 Qualifications of committee members, officers and staff 4406Q.4 Responsibilities of administration SECTION 4407Q Non-Trust, Non Fiduciary and/or Non-Investment Management Activities SECTION 4408Q Unsound Practices SECTION 4409Q Trust and Other Fiduciary Business 4409Q.1 Minimum documentary requirements 4409Q.2 Lending and investment disposition 4409Q.3 Transactions requiring prior authority 4409Q.4 Ceilings on loans 4409Q.5 Funds awaiting investment or distribution 4409Q.6 Other applicable regulations on loans and investments 4409Q.7 Operating and accounting methodology SECTION 4410Q Common Trust Funds 4410Q.1 Establishment of common trust funds 4410Q.2 Minimum documentary requirements for common trust funds 4410Q.3 Management of common trust funds 4410Q.4 Trustee as participant in common trust funds 4410Q.5 Exposure limit of common trust fund to a single person or entity 4410Q.6 Operating and accounting methodology SECTION 4411Q Investment Management Activities 4411Q.1 Minimum documentary requirements 4411Q.2 Minimum size of each investment management account 4411Q.3 Commingling of funds 4411Q.4 Lending and investment disposition 4411Q.5 Transactions requiring prior authority 4411Q.6 Title to securities and other properties 4411Q.7 Ceilings on loans 4411Q.8 Operating and accounting methodology SECTION 4412Q (Reserved) SECTION 4413Q Required Retained Earnings Appropriation B. Investment Management Activities SECTION 4414Q Authority to Perform Investment Management 4414Q.1 Prerequisites for engaging in investment management activities 4414Q.2 Pre-operating requirements SECTION 4415Q Security for the Faithful Performance of Investment Management Activities 4415Q.1 Basic security deposit 4415Q.2 Eligible securities 4415Q.3 Valuation of securities and basis of computation of the basic security deposit requirement 4415Q.4 Compliance period; sanctions SECTION 4416Q Organization and Management SECTION 4417Q Non-Investment Management Activities SECTION 4418Q Unsound Practices SECTION 4419Q Conduct of Investment Management Activities SECTION 4420Q Required Retained Earnings Appropriation C. General Provisions SECTION 4421Q Books and Records SECTION 4422Q Custody of Assets SECTION 4423Q Fees and Commissions SECTION 4424Q Taxes SECTION 4425Q Reports Required 4425Q.1 To trustor, beneficiary, principal 4425Q.2 To the Bangko Sentral SECTION 4426Q Audits 4426Q.1 Internal Audit 4426Q.2 External Audit 4426Q.3 Board Action SECTION 4427Q Authority Resulting form Merger or Consolidation SECTION 4428Q Receivership SECTION 4429Q Surrender of Trust or Investment Management License SECTIONS 4430Q-4498Q (Reserved) SECTION 4499Q Sanctions PART FIVE Foreign Exchange Operations SECTION 4501Q Authority; Coverage SECTION 4502Q Specific Foreign Exchange Activities SECTION 4503Q Separate Department SECTION 4504Q Applicability of Pertinent Bangko Sentral Rules SECTION 4505Q Aggregate Ceiling on Issuance of Guarantees SECTION 4506Q-4598Q (Reserved) SECTION 4599Q General Provisions on Sanctions PART SIX Miscellaneous A. Other Operations SECTION 4601Q Open Market Operations SECTION 4602Q Repurchase Agreements with the Bangko Sentral 4602Q.1 Reverse repurchase agreements with Bangko Sentral SECTION 4603Q Derivatives 4603Q.1 Pre-qualification requirements 4603Q.2 Authorized transactions 4603Q.3 Risk management guidelines 4603Q.4 Accounting guidelines 4603Q.5 Sanctions SECTION 4604Q Underwriting by Investment Houses SECTIONS 4605Q-4650Q (Reserved) B. Sundry Provisions SECTION 4651Q Appreciation or Increase in Book Value of NBQB Premises and Other Fixed Assets SECTION 4652Q Annual Fees on Quasi-Banks SECTION 4653Q Payment of Fines SECTION 4654Q Examination by the Bangko Sentral 4654Q.1 Definitions SECTION 4655Q Applicability of Expanded Commercial Banking Rules on NBQBs SECTION 4656Q Basic Laws Governing Investment Houses and Financing Companies SECTIONS 4657Q-4698Q (Reserved) SECTION 4699Q General Provisions on Sanctions APPENDICES No . Subject Matter Q-1 Guidelines to Evaluate Investment Houses Q-2 Determination of Amount of Additional Capital The Entity Must Put Up Q-3 List of Reports Required from NBQBs Q-4 Guidelines on Prescribed Reports Signatories and Signatory Authorization Q-5 Minimum Internal Control Standards for NBQBs Q-6 Standardized Deposit Substitute Instruments Q-7 New Rules on Registration of Short-Term Commercial Papers Q-8 New Rules on Registration of Long-Term Commercial Papers Q-9 List of Reserves-Eligible and Non-Eligible Securities Q-10 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets and Setting Up of Allowances for Probable Losses Q-11 Format-Disclosure Statement of Loan Credit Transaction Q-12 Abstract of Truth in Lending Act (Republic Act No. 3765) Q-13 Agreement for an Interbank Call Loan Funds Transfer System Q-14 Sample Investment Management System Q-15 Risk Management Guidelines for Derivatives Q-16 Risk Disclosure Statement for Derivatives Activities Q-17 Accounting Guidelines for Derivatives Q-18 SEC Basic Rules and Regulations to Implement the Provisions of Presidential Decree No. 129, Otherwise Known As The Investment Houses Law Q-19 New Rules and Regulations to Implement the Provisions of Republic Act No. 5980 (The Financing Company Act), as Amended S REGULATIONS (Regulations Governing Non-Stock Savings and Loan Associations) PART ONE Organization, Management and Administration SECTION 4101S Scope of Authority of Non-Stock Savings and Loan Associations 4101S.1 Membership 4101S.2 Organizational requirements SECTIONS 4102S-4105S (Reserved) B. Capitalization SECTION 4106S Capital of NSSLAs SECTION 4107S-4110S (Reserved) C. (Reserved) SECTIONS 4111S-4115S (Reserved) D. Net Worth-to-Risk Assets Ratio SECTION 4116S Capital-to-Risk Assets SECTION 4117S Withdrawable Share Reserve SECTION 4118S Surplus Reserve for Ledger Discrepancies SECTION 4119S Reserved for Office Premises, Furniture, Fixtures and Equipment SECTION 4120S (Reserved) E. (Reserved) SECTIONS 4121S-4215S (Reserved) F. Dividends SECTION 4126S Limitations on Declaration of Dividends SECTIONS 4127S-4140S (Reserved) G. Directors, Officers and Employees SECTION 4141S Definition and Qualifications of Directors SECTION 4142S Definition and Qualifications of Officers SECTION 4143S Disqualification of Directors and Officers SECTION 4144S Compensation of Directors, Officers and Employees 4144S.1 Liability for loans contrary to law SECTION 4145S Bonding of Officers and Employees SECTIONS 4146S-4150S (Reserved) B. Branches and Other Offices SECTION 4151S Establishment of Branches/Other Offices 4151S.1 Application 4151S.2 Internal control system 4151S.3 Permit to operate SECTIONS 4152S-4155S (Reserved) I. Business Days and Hours SECTION 4156S Business Days and Hours SECTION 4157S-4160S (Reserved) J. Records and Reports SECTION 4161S Records 4161S.1 Uniform System of Accounts 4161S.2 Adoption of statements of financial accounting standards SECTION 4162S Reports 4162S.1 Categories of and signatories to reports 4162S.2 Manner of filing 4162S.3 Sanctions for willful delay in submission of reports/refusal to permit examination SECTIONS 4163S-4170S (Reserved) K. Internal Control SECTION 4171S External Control for NSSLAs SECTION 4172S-4180S (Reserved) L. Miscellaneous Provisions SECTION 4181S Publication Requirements SECTION 4182S Business Name SECTION 4183S Prohibitions SECTION 4184S-4198S (Reserved) SECTION 4199S General Provision on Sections PART TWO Deposit and Borrowing Operations A. Demand Deposits SECTION 4201S Checking Accounts SECTION 4202S-4205S (Reserved) B. Savings Deposit SECTION 4206S Definition SECTION 4207S Minimum Deposit SECTION 4208S Withdrawal SECTION 4209S-4215S (Reserved) C. (Reserved) SECTIONS 4216S-4220S (Reserved) D. Time Deposits SECTION 4221S Definition SECTION 4222S Minimum Size and Term of Time Deposits SECTION 4223S Withdrawal of Time Deposits SECTION 4224S Certificates of Time Deposits SECTION 4225S-4230S (Reserved) E.-F. (Reserved) SECTION 4231S-4240S (Reserved) G. Interest SECTION 4241S Interest on Savings Deposit SECTION 5353S Interest on Time Deposits 4242S.1 Time Payment 4242S.2 Treatment of matured time deposits SECTIONS 4243S-4250S (Reserved) H. Reserves Against Deposit Liabilities SECTION 4251S Reserve Fund SECTION 4252S Form and Composition of Reserves SECTION 4253S-4260S (Reserved) I. Sundry Provisions on Deposit Operations SECTION 4261S Opening and Operation of Deposit Accounts 4261S.1 Who may open deposit accounts 4261S.2 Identification of member-depositors 4261S.3 Number of deposit accounts 4261S.4 Signature card 4261S.5 Passbook and certificate of time deposit 4261S.6 Deposits of checks and other cash items SECTION 4262S-4280S (Reserved) J. (Reserved) SECTIONS 4281S-4285S (Reserved) K. Other Borrowings SECTION 4286S Borrowings SECTIONS 4287S-4298S (Reserved) SECTION 4299S General Provision on Sanctions PART THREE Loans and Investments A. Loans in General SECTION 4301S Authority; Loan Limits; Maturity of Loans SECTION 4302S Basic Requirements in Granting Loans SECTION 4303S Loan Proceeds SECTION 4304S Loan Repayment SECTION 4305S Interest and Other Charges 4305S.1 Rate Ceilings 4305S.2 Payment of loan before maturity 4305S.3 Interest in the absence of contract 4305S.4 Escalation clause; when allowable 4305S.5 Accrual of interest earned on loans SECTION 4306S Past Due Accounts 4306S.1 Accounts considered past due 4306S.2 Extension/renewal of loans 4306S.3 Write-off of loans as bad debts SECTION 4307S "Truth in Lending Act" Disclosure Requirements 4307S.1 Definition of terms 4307S.2 Information to be disclosed 4307S.3 Inspection of contracts covering credit transactions 4307S.4 Posters SECTIONS 4308S-4320S (Reserved) B. Secured Loans SECTION 4321S Kinds of Security SECTION 4322S-4335S (Reserved) C.-D. (Reserved) SECTION 4336S-4355S (Reserved) E. Loans/Credit Accommodations to Directors, Officers and Their Related Interests SECTION 4356S General Policy SECTION 4357S Direct/Indirect Borrowings; Ceilings SECTION 4358S Records; Reports SECTIONS 4359S-4369S (Reserved) SECTION 4370S Sanctions F.-I. (Reserved) SECTIONS 4371S-4390S (Reserved) J. Other Operations SECTION 4391S Funds Investments SECTION 4392S-4395S (Reserved) K. Miscellaneous Provisions SECTION 4396S-4398S (Reserved) SECTION 4399S General Provisions on Sanctions PART FOUR (Reserved) SECTIONS 4401S-4499S (Reserved) PART FIVE (Reserved) SECTIONS 4501S-4599S (Reserved) PART SIX Miscellaneous A. Other Operations SECTION 4601S Payment of fines SECTION 4602S-4650S (Reserved) B. Sundry Provisions SECTION 4651S Notice of Dissolution SECTION 4652S Confidential Information SECTION 4653S Examination by the Bangko Sentral SECTION 4654S Basic Law Governing Non-Stock Savings and Loan Associations SECTIONS 4655S-4698S (Reserved) SECTION 4699S General Provisions on Sanctions APPENDICES No. Subject Matter S-1 Safeguards in Bonding of NSSLA Accountable Officers and Employees S-2 List of Reports Required from NSSLAs S-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization S-4 Format Disclosure Statement on Loan/Credit Transactions S-5 Abstract of " Truth in Lending Act " P REGULATIONS (Regulations Governing Pawnshops) PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101P Scope of Authority of Pawnshops 4101P.1 Form of organization 4101P.2 Organizational requirements 4101P.3 Prior Bangko Sentral licensing to perform quasi- banking functions SECTION 4102P Definition of Terms SECTION 4103P-4105P (Reserved) B. Capitalization SECTION 4106P Capital of Pawnshops SECTION 4107P-4110P (Reserved) C.-F. (Reserved) SECTIONS 4111P-4140P (Reserved) G. Directors, Officers and Employees SECTION 4141P Bonding of Officers and Employees SECTIONS 4142P-4150P (Reserved) H. Branches and Other Offices SECTION 4151P Establishment of Branches 4151P.1 Definition of Terms 4151P.2 Operations and functions 4151P.3 Basis for establishment 4151P.4 Capital requirement 4151P.5 Documentary requirements 4151P.6 Date of opening for business SECTIONS 4152P-4155P (Reserved) I. Business Days and Hours SECTION 4156P Business Days and Hours SECTIONS 4157P-4160P (Reserved) J. Records and Reports SECTION 4161P Records 4161P.1 Uniform Systems of accounts 4161P.2 Adoption of Statement of Financial Accounting Standards SECTION 4162 Reports 4162P.1 Categories of and signatories to reports 4162P.2 Manner of filing 4162P.3 Sanctions SECTIONS 4163P-4170P (Reserved) K. Internal Control SECTION 4171P Safekeeping of Pawn and Records and Insurance of Office Building SECTION 4172P Separation of Pawnshop Business from other Businesses SECTIONS 4173P-4180P (Reserved) L. Miscellaneous Provisions SECTION 4181P Business Name SECTION 4182P Closing or Transfer of Business SECTIONS 4183P-4198P (Reserved) SECTION 4199P General Provisions on Sanctions PART TWO Borrowing Operations A.-J. (Reserved) SECTIONS 4201P-4285P (Reserved) K. Other Borrowings SECTION 4286 Borrowings Constituting Quasi-banking Functions SECTION 4287P-4298P (Reserved) SECTION 4299P General Provision on Sanctions PART THREE Loans and Investments A. Loans in General SECTION 4301P Loan Limits SECTION 4302P Interest and Other Charges SECTION 4303P Past Due Accounts; Renewal/Redemption of Pawns SECTIONS 4304P-4320P (Reserved) B. Secured Loans SECTION 4321P Kinds of Security SECTION 4322P Pawn Ticket 4322P.1 Contents of pawn ticket 4322P.2 Sanctions SECTION 4323P Reminder to Pawner; Notice to the Public SECTION 4324P Public Auction of Pawns SECTIONS 4325-4335P (Reserved) C.-J. (Reserved) SECTIONS 4336P-4395P (Reserved) K. Miscellaneous SECTION 4396P-4398P (Reserved) SECTION 4399P General Provisions on Sanctions PART FOUR (Reserved) SECTIONS 4401P-4499P (Reserved) PART FIVE (Reserved) SECTIONS 4501P-4599P (Reserved) PART SIX Miscellaneous A. (Reserved) SECTIONS 4601P-4650P (Reserved) B. Sundry Provisions SECTION 4651P Supervisory Powers of the Bangko Sentral SECTION 4652P Basic Law Governing Pawnshop SECTIONS 4653P-4698P (Reserved) SECTION 4699P Administrative Sanctions APPENDICES No. Subject Matter P-1 Chart of Accounts and Description of Loan Register of Pawnshops P-2 List of Reports Requires from Pawnshops P-3 Guidelines on Prescribed Report Signatories and Signatory Authorization P-4 Standard Pawn Ticket B REGULATIONS (Regulations Governing Building and Loan Association) PART ONE Organization, Management and Administration A. Scope SECTION 4101B Scope of Authority of Building and Loan Association 4101B.1 Prohibited activities 4101B.2 Organizational requirements SECTION 4102B Foreign Building and Loan Associations SECTIONS 4103B-4105B (Reserved) B.-E. (Reserved) SECTIONS 4106B-4125B (Reserved) F. Stock, Stockholders and Dividends SECTION 4126B Capital Stock 4126B.1 Par Value 4126B.2 Mode of payment 4126B.3 Certificates of stock 4126B.4 Membership/Entrance fees 4126B.5 Free and pledged shares 4126B.6 Payment of matured shares 4126B.7 Surrender/withdrawal of unmatured shares 4126B.8 Paid-up stock; Investment stock SECTION 4127B Arrearages in Payment of Dues 4127B.1 Arrearages on free shares 4127B.2 Arrearages on pledged shares SECTION 4128B Stockholders SECTION 4129B Reserve Account SECTION 4130B Dividends SECTIONS 4131B-4140B (Reserved) G.-I. (Reserved) SECTIONS 4141B-4160B (Reserved) J. Records and Reports SECTION 4161B Records 4161B.1 Uniform System of Accounts 4161B.2 Adoption of Statements of Financial Accounting Standards SECTION 4162B Reports 4162B.1 Categories of and signatories to reports 4162B.2 Manner of filing 4162B.3 Sanctions for willful delay in submission of reports SECTIONS 4163B-4170B (Reserved) K. Internal Control SECTION 4171B External Auditor for BLAs SECTION 4172B-4180B (Reserved) L. Miscellaneous Provisions SECTION 4181B Publication Requirements SECTIONS 4182B-4198B (Reserved) SECTION 4199B General Provision on Sanctions PART TWO Deposit and Borrowing Operations A.-H. (Reserved) SECTIONS 4201B-4260B (Reserved) I. Sundry Provisions on Deposit Operations SECTION 4261B Acceptance of Deposits SECTIONS 4262B-4280B (Reserved) J. (Reserved) SECTIONS 4281B-4285B (Reserved) K. Other Borrowings SECTION 4281B-4285B (Reserved) SECTION 4299B General Provisions on Sanctions PART THREE Loans and Investments A. Loans in General SECTION 4301B Loan Limits; Prohibited Loans 4301B.1 Loan limits 4301B.2 Prohibited loans SECTION 4302B Loan Documentation; Security; Surrender of Pledged Shares 4302B.1 Loan documentation 4302B.2 Security 4302B.3 Surrender of pledged shares SECTION 4303B Interest and Other Charges 4303B.1 Rate ceilings 4303B.2 Interest in the absence of contract 4303B.3 Escalation clause; when allowable 4303B.4 Fixing of interest 4303B.5 Accrual of interest earned on loans SECTION 4304B Past Due Accounts 4304B.1 Accounts considered past due 4304B.2 Write-off of loans as bad debts SECTION 4305B "Truth in Lending Act" Disclosure Requirements 4305B.1 Definition of terms 4305B.2 Information to be disclosed 4305B.3 Inspection of contracts covering credit transactions 4305B.4 Posters SECTIONS 4306B-4320B (Reserved) B.-D. (Reserved) SECTIONS 4321B-4355B (Reserved) E. Loans/Credit Accommodations to Directors, Officers and their Related Interest SECTION 4356B General Policy 4356B.1 Definitions SECTION 4357B Prior Board of Directors' Approval SECTION 4358B Security of Loan to Directors SECTION 4359B Records; Reports SECTIONS 4360B-4369B (Reserved) SECTION 4370B Sanctions F.-I. (Reserved) SECTIONS 4371B-4390B (Reserved) J. Other Operations SECTION 4391B Investments 4391B.1 Investment in government securities 4391B.2 Investment in real estate 4391B.3 Real estate for subdivision SECTIONS 4392B-4395B (Reserved) K. Miscellaneous Provisions SECTIONS 4396B-4398B (Reserved) SECTION 4399B General Provisions on Sanctions PART FOUR (Reserved) SECTIONS 4401B-4499B (Reserved) PART FIVE Reserved SECTIONS 4501B-4599B (Reserved) PART SIX Miscellaneous A. (Reserved) SECTIONS 4601B-4650B (Reserved) B. Sundry Provisions SECTION 4651B Basic Law Governing Building and Loans Associations SECTION 4652B BSP Supervision SECTION 4653B-4698B (Reserved) SECTION 4699 General Provision on Sanctions APPENDICES No. Subject Matter B-1 List of Reports Required from Building and Loan Associations B-2 Guidelines on Prescribed Report Signatories and Signatory Authorization B-3 Format of Disclosure Statement on Loan/Credit Transactions B-4 Abstract of Truth in Lending Act N REGULATIONS (Regulations Governing Other Non-Bank Financial Institutions) SECTION 4101N Applicable Regulations on Trust and Other Fiduciary Activities SECTION 4102N Minimum Capital for Investment Houses SECTION 4103N Prior Bangko Sentral Authority on Quasi Banking Functions 4103N.1 Quasi-Banking functions 4103N.2 Transactions not considered quasi-banking SECTIONS 4104N-4198N (Reserved) SECTION 4199.N General Provisions on Sanctions Q REGULATIONS Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions PART ONE Organization, Management And Administration A. Scope of Authority SECTION 4101Q. Quasi-Banking Functions . Quasi-banking functions consist of the following: a. Borrowing funds for the borrower's own account, b. Twenty (20) or more lenders at any one time; c. Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (1) acceptances; (2) promissory notes; (3) participations; (4) certificates of assignment or similar instruments with recourse; (5) trust certificates; (6) repurchase agreements; and (7) such other instruments as the Monetary Board may determine; and d. Purpose: (1) relending; or (2) purchasing receivables or other obligations. As used in the definition of quasi-banking functions , the following terms and phrases shall be understood, as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d above, whether the borrower's liability thereby is treated as real or contingent. For the borrower's own account shall refer to the consumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. 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 securities, of any amount and maturity, from domestic or foreign sources. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. SUBSECTION 4101Q.1 Financial intermediaries . Financial intermediaries shall mean persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them either for their own account or for the account of others. Principal shall mean chief, main, most considerable or important, of first importance, leading, primary, foremost, dominant or preponderant, as distinguished from secondary or incidental. Functions shall mean actions, activities or operations of a person or entity by which his/its business or purpose is fulfilled or carried out. The business or purpose of a person or entity may be determined from the purpose clause in its articles of incorporation/partnership, and from the nature of the business indicated in his/its application for registration of business filed with the appropriate government agency. To be considered a financial intermediary, a person or entity must perform any of the following functions on a regular and recurring, not on an isolated basis; a. Receive funds from one (1) group of persons, irrespective of number, through traditional deposits, or issuance of debt or equity securities; and make available/lend these funds to another person or entity, and in the process acquire debt or equity securities; b. Use principally the funds received for acquiring various types of debt or equity securities; c. Borrow against, or lend on, or buy or sell debt or equity securities; d. Hold assets consisting principally of debt or equity securities such as promissory notes, bills of exchange mortgages, stocks, bonds, and commercial papers; e. Realize-regular income in the nature of, but need not be limited to, interest, discounts, capital gains, underwriting fees, guarantees, fees, commissions, and service fees, principally from transactions in debt or equity securities or by being an intermediary between suppliers and users of funds. Non-banking financial intermediaries shall include the following: (1) A person or entity licensed and/or registered with any government regulatory body as a non-bank financial intermediary, such as investment house, investment company, financing company, securities dealer/broker, lending investor, pawnshop, money broker, fund manager, cooperative, insurance company, non-stock savings and loan association and building and loan association. cATDIH (2) A person or entity which holds itself out as a non-banking financial intermediary, such as by the use of a business name, which includes the term f inancing, finance, investment, lending and/or any word/phrase of similar import which connotes financial intermediation, or an entity which advertises itself as a financial intermediary and is engaged in the function(s) where financial intermediation is implied. (3) A person or entity performing any of the functions enumerated in Items a to e of this Subsection. SUBSECTION 4101Q.2 Guidelines on Lender Count . The following guidelines shall govern lender count on borrowings or funds mobilized by non-bank financial intermediaries: a. For purposes of ascertaining the number of lenders/placers to determine whether or not a non-bank financial intermediary is engaged in quasi-banking functions, the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , that a debt instrument issued in the name of a husband and wife followed by the word spouses, whether under an and, and/or or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement, shall be counted as one (1) borrowing/placement. b. Each debt instrument payable to bearer shall be counted as one (1) lender/placer except when the non-bank financial intermediary can prove that there is only one (1) owner for several debt instruments so payable. c. Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount shall be counted as one (1) borrowing or placement. d. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however ; That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. e. Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or indorsement of securities, or receivables on a without recourse basis, whenever the terms and/or attendant documentation, practice; or circumstances indicate that the sale, assignment, and/or indorsement thereof legally obligates the non-bank financial intermediary to repurchase or reacquire the securities/receivables sold, assigned, indorsed or to pay the buyer, assignee, or indorsee at some subsequent time. f. Funds obtained by way of advances from stockholders, directors, officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SUBSECTION 4101Q.3 Transactions Not Considered Quasi-Banking . The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies, through the means listed in Sec. 4101Q 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 Sec. 4101Q: Provided , That: (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s, as well as on the confirmation of sale, the phrase without recourse or sans recourse and the following statement: (Name of non-bank ) assumes no liability for the payment, directly or indirectly, of this instrument . (2) In the absence of the phrase without recourse or sans recourse and the above-required accompanying statement, the instrument so issued, endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking. Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. 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; ii. Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse; or iii. Payment with the funds of the 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. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P.D. No. 129, as amended. SECTION 4102Q. Preconditions for the Exercise of Quasi-Banking Functions . Only a duly incorporated financial intermediary organized as a stock corporation may undertake or perform quasi-banking functions as defined in Sec. 4101Q: Provided , That the following preconditions are complied with. HTDCAS SUBSECTION 4102Q.1 Minimum Paid-In Capital . The financial intermediary shall comply with the rules on minimum capitalization prescribed in Sec. 4106Q. SUBSECTION 4102Q.2 Citizenship Requirements . At least a majority of the voting stock in an investment house and at least sixty percent (60%) of the voting stock in other non-bank financial intermediaries authorized to engage in quasi-banking functions (NBQBs), shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in an NBQB, the basis for the computation shall be the citizenship of each stockholder and, with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in the applicant NBQB shall be the basis of computing the percentage. At least a majority of the members of the board of directors shall be citizens of the Philippines, except in the case of financing companies wherein at least two-thirds (2/3) of-the members of the board shall be Filipinos. SUBSECTION 4102Q.3 Managerial Expertise . The managerial staff shall possess the integrity, experience and expertise which provide reasonable assurance that the operations of the financial intermediary are being conducted with financial prudence. The board members and managerial staff must be actually elected/appointed or at least firmly designated before it can be granted a certificate of authority to engage in quasi-banking functions. SECTION 4103Q. Documentary Requirements for Applications . Duly incorporated stock corporations possessing the foregoing qualifications and desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the Bangko Sentral ng Pilipinas (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. An indicative borrowing-investment program for one (1) year, which should include, whenever applicable, planned distribution of portfolio as to (1) Underwriting; (2) Commercial paper market; (3) Stocks and bonds; (4) Government securities; (5) Receivable financing - discounting and factoring; (6) Leasing; and (7) Direct loans; and 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 4104Q. Bangko Sentral Certificate of Authority . The BSP shall issue a Certificate of Authority upon proof that the applicant has complied with the requirements of Secs. 4102Q and 4103Q and of pertinent laws and regulations. In the case of a merger or consolidation of two (2) or more NBQBs, the authority shall continue to have full force and effect. For documentation purposes, in the case of a merger, the Certificate of Authority of the absorbing corporation shall be maintained; and with respect to consolidation, a new certificate shall be issued to the new corporation. The Certificate of Authority of the absorbed corporation in a merger and the certificates of the consolidated corporations in a consolidation shall be surrendered to the appropriate department of the BSP. SECTION 4105Q. Licensing of an Investment House . Applications for license as an investment house referred to the BSP by the Securities and Exchange Commission (SEC) pursuant to P.D. No. 129 shall be evaluated in accordance with the Guidelines to Evaluate Investment Houses prescribed in Appendix Q-1 . B. Capitalization SECTION 4106Q. Minimum Capitalization . An NBQB shall have a minimum combined capital accounts of P50 million. Combined capital accounts shall mean the total of capital stock, retained earnings and profit and loss summary, net of (a) such unbooked valuation reserves and other capital adjustments as may be required by the BSP and (b) total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, all stockholders and their related interests (DOSRI). With respect Item (b) hereof, the provisions of Sec. 4356Q shall apply except that in the definition of stockholders in said Section, the qualification that his stockholdings, individually and/or together with his related interests in the lending NBQB, amount to ten percent (10%) or more of the total subscribed capital stock of the NBQB, shall not apply for purposes of this Item. Any appraisal surplus or appreciation credit as a result of appreciation or an increase in book value of the assets of the NBQB shall be excluded. Any foreign equity shall be registered with and approved by the Board of Investments and the appropriate department of the BSP. SECTION 4107Q. Minimum Capital of Investment House . The minimum paid-in capital requirement for an investment house to be established in Metro Manila shall be P200 million. Those to be established outside Metro Manila shall have a minimum initial paid-in capital of P100 million. However, when any branch is set up in Metro Manila, the P200 million minimum paid-in capital for Metro Manila must be complied with. DHEcCT Investment houses which are existing shall each have a minimum combined capital accounts as defined in Sec. 4106Q of P200 million or P100 million, depending on location. SECTION 4108Q. Sanctions . Any or all of the following sanctions may be imposed on any NBQB which fails to maintain at least the applicable minimum capital under Secs. 4106Q and 4107Q: (1) Suspension of authority to engage in quasi-banking functions; (2) Suspension of authority to engage in trust/investment management activities (in the case of an investment house); (3) Cease-and-desist order (in the case of an investment house); (4) No new/renewal/extension of credit accommodations to DOSRI; (5) Prohibition against declaration of cash dividends; (6) Suspension of the privilege to establish and/or open approved branches, agencies, offices, etc.; and (7) Other sanctions as may be imposed by the Monetary Board. SECTIONS 4109Q-4110Q ( Reserved ) C. Merger or Consolidation SECTION 4111Q. Merger or Consolidation Involving Quasi-Banks . The merger or consolidation of NBQBs is encouraged to meet minimum capital requirements and to develop larger and stronger financial institutions. NBQBs which are investment houses are likewise encouraged to merge with banks to obtain authority to perform expanded commercial banking functions. Mergers or consolidations involving NBQBs shall comply with the provisions of applicable law and shall be subject to approval by the BSP. SECTION 4112Q. Merger or Consolidation Incentives . Participants in mergers and consolidations of NBQBs 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 by 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 financial institution; c. Condonation of liquidated damages and/or penalties on loan arrearages to the BSP of rural banks which are parties to the merger or consolidation: Provided , That loan arrearages of rural banks 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 the BSP as of the date of 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 upon the BSP examination may be booked on staggered basis over a maximum period of five (5) years; g. If, in the process of merger or consolidation, the resulting NBQB 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 the required ratio; and h. 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 4113Q-4115Q ( Reserved ) D. Net Worth-To-Risk Assets Ratio SECTION 4116Q. Minimum Ratio . The net worth (or combined capital accounts) of each NBQB shall not be less than an amount equal to ten percent (10%) of its risk assets, which term is defined as total assets minus the following items: a. Cash on hand and in banks; b. Amounts due from the BSP; c. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations, including the earned portion of any interest or discount, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines: Provided , That such evidences of indebtedness or obligations subject of repurchase or resale agreements may be deducted by both the selling/borrowing and buying/lending financial intermediaries; d. NBQB premises, depreciated; e. Furniture, fixtures, and equipment, depreciated; f. Loans to the extent covered by hold-out on, or assignment of, deposit substitutes maintained with the lending NBQB; g. Loans or acceptances under domestic letters of credit to the extent covered by margin deposits as may be required by the NBQB; h. Loans to the extent covered by Industrial Guarantee and Loan Fund (IGLF) guarantee; i. 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; j. Real estate mortgage loans and related financing insured by the Home Insurance and Guaranty Corporation to the extent of the amount of the insurance or the outstanding loan, whichever is lower; TSCIEa k. Loans to the extent secured by assets listed in Item c above; l. Lease contracts receivable to the extent covered by guaranty deposits (for financing companies only); m. Referred income tax; and n. Other items which the Monetary Board may time to time declare as non-risk assets and authorize to be deducted from total assets. SUBSECTION 4116Q.1 Definition of Terms a. Total assets refers to the amount appearing in the balance sheet, excluding (1) all trust department accounts; (2) unutilized portions of letters of credit; and (3) all contingent accounts. b. Net worth (or combined capital accounts) shall mean the total of capital stock, retained earnings and profit and loss summary, net of deferred income tax, and such unbooked valuation reserves and other capital adjustments as may be required by the BSP; and excluding any appraisal surplus as a result of appreciation or an increase in the book value of assets of the NBQB, except in such cases as may be authorized by the Monetary Board. c. Cash on hand and in banks refers to total cash held and/or deposited in banking institutions by the NBQB consisting of both notes and coins in Philippine currency and, in accordance with BSP regulations, such foreign currencies acceptable as part of the international reserves. d. Amounts due from the BSP refers to all deposits of the reporting NBQB with the BSP. e. Loans to the extent covered by hold-out on, or assignment of, deposit substitutes maintained in the lending NBQB shall be considered as secured by hold-out on, or assignment of, deposit substitute, only if such deposit substitute is covered by a hold-out agreement or deed of assignment signed by the investor-borrower in favor of the NBQB, and maintained in the lending NBQB. 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, deposit substitutes. Loans transferred to/carried by the NBQB's trust department which are secured by deposit substitute hold-out/assignment are not deductible items. f. Loans or acceptance under domestic letters of credit to the extent covered by margin deposits as may be required by the NBQB refers to (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 a deductible item; and (2) margin deposits against loan or acceptance accounts which are fully liquidated shall not be deductible items. g. NBQB premises, depreciated refers to the cost of NBQB premises, including land owned by the NBQB, less the accumulated depreciation thereof. Property used as NBQB premises purchased by the NBQB in foreclosure or execution sale shall not be considered owned by the NBQB until title is consolidated in the NBQB. h. Furniture, fixtures and equipment depreciated refers to the cost of furniture and fixtures, including equipment owned by the NBQB, and used for its operations, less the accumulated depreciation thereon. i. Deferred income tax 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. SECTION 4117Q. Treatment of Equity Investment with Reciprocal Stockholdings . For purposes of computing the prescribed ratio of net worth (or combined capital accounts) to risk assets, equity investments of an NBQB in another NBQB shall be deducted from its net worth if the investee NBQB has a reciprocal equity investment in the investing NBQB, in which case the investment of the NBQB or the reciprocal investment of the other NBQB, whichever is lower, shall be deducted from the net worth of the NBQBs. SECTION 4118Q. Sanctions on Net Worth Deficiency a. Any NBQB which is deficient in the capital requirement under Sec. 4116Q shall be liable to the following sanctions: (1) In case of capital deficiency for five (5) or more times within a reporting period: (a) For the first offense a fine of P3,000. (b) For the second consecutive offense prohibition from extending new loans or making new investments for a period of thirty (30) calendar days. New loans and new investments shall refer to any loan or investment involving disbursement of funds, except government securities. (c) For the third consecutive offense extension of the penalty under the preceding paragraph for another thirty (30) calendar days. (d) For the fourth consecutive offense suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. The suspension shall be automatically be lifted if in the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period. (2) In case of continuous capital deficiency: (a) For two (2) consecutive reporting periods suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. (b) For every consecutive reporting period, the suspension shall extend for another thirty (30) calendar days. (c) The suspension shall be automatically lifted if on the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period. (3) In all of the cases above-mentioned, establishment of branches, agencies, extension offices, etc., shall be suspended. b For improperly accomplished report, NBQBs shall pay P600 per business day for every business day the report is not corrected, counted as of the date the error is brought to its attention until the corrected report is submitted. c. For willfully making false statements in the report or submitting a false report, the Certificate of Authority for quasi-banking functions shall be suspended/revoked. d. The Monetary Board may impose additional sanctions on the entity engaged in quasi-banking functions by: aITDAE (1) Revoking the Certificate of Authority to engage in quasi-banking functions; and (2) Such other sanctions as the BSP may deem necessary. SECTIONS 4119Q-4120Q ( Reserved ) E. ( Reserved ) SECTIONS 4121Q-4125Q ( Reserved ) F. Stock, Stockholders and Dividends SECTION 4126Q. Dividends . The following rules govern cash dividend declaration by NBQBs. SUBSECTION 4126Q.1 Definition of Terms . 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 installment with an automatic acceleration clause shall be considered a bad debt within the contemplation of this Section 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 installments 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 or personal properties, including securities. The outstanding debt, accrued interest and other pertinent fees and expenses thereon shall not be in excess of seventy percent (70%) of the appraised value of real estate, or fifty percent (50%) of the other personal properties offered as lien. c. In process of collection A debt due to an NBQB 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 NBQB and/or its lawyers before the interest or installments or amortizations on the debt 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 interests which may have accrued thereon, the same shall automatically be classified as bad debt 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 NBQB must be active in enforcing the judgment for the debt to continue to be considered in process of collection. SUBSECTION 4126Q.2 Liquidity Standards/Ratios; Amount Available a. Liquidity standards/ratios . For purposes of determining funds available for dividend declarations by NBQBs, the following liquidity standards/ratios shall be adopted: (1) The NBQB shall have sufficient legal reserves for deposit substitutes; and (2) The NBQB shall not have incurred net weekly deficiency in its required legal reserves for deposit substitutes during the last two (2) months immediately preceding the date of request for approval of declaration of dividends up to dividend payment date. b. Amount available . The net amount available for cash dividend declaration shall be the total of unrestricted or free retained earnings and profit and loss summary less: (1) Bad debts against which valuation reserves are not required to be set up; (2) Unbooked valuation reserves and other unbooked capital adjustments required by the BSP whether or not allowed to be set up on a staggered basis; (3) Deferred income tax as defined under Item i of Subsec. 4116Q.1; (4) Accumulated profits not yet received but already recorded by the NBQB representing its share in profits of its subsidiaries under the equity method of accounting. Said accumulated profits shall likewise be deducted for purposes of computing the amount available for stock dividends; (5) Accrued interest earned but not yet collected or received on loans or any installment thereon; and (6) Amount of net profits required to be transferred to retained earnings appropriated for trust business under Sec. 4413Q. SUBSECTION 4126Q.3 Reporting and Verification . Declaration of cash dividend shall be reported by the NBQB concerned to the appropriate supervising and examining department of the BSP within ten (10) business days from date of approval of the declaration by the NBQB's board of directors, in the prescribed form. Pending verification of above-mentioned report by the appropriate supervising and examining department of the BSP, the NBQB concerned shall not make any announcement or communication on the declaration of cash dividends nor shall any payment be made thereon. In any case, the declaration may be announced and the dividends paid, if, after thirty (30) business 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 NBQB concerned, subject to the condition that the record date for such dividends cannot be set earlier than thirty (30) business days after declaration. NBQBs whose shares are listed with any domestic stock exchange may give notice of cash dividend declaration in accordance with pertinent rules of the SEC. Provided , That no record date is fixed for such cash dividend, pending verification of the report on such declaration by the appropriate supervising and examining department of the BSP. SUBSECTION 4126Q.4 Recording of Dividends . The liability for cash 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) business days from the date required report on cash 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 cash dividends 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. TcEAIH Dividends of all kinds, whether on common or on preferred shares of stock, shall not be treated as interest expense, considering that as a general policy only irredeemable stock may be issued by NBQBs. SUBSECTION 4126Q.5 Rules on Declaration of Stock Dividends . The declaration of stock dividends shall be subject to the preceding regulations on declaration of cash dividends. Additional paid-in capital may be included in the amount available for stock dividends. SECTIONS 4127Q-4140Q ( Reserved ) G. Directors, Officers and Employees SECTION 4141Q. Definition and Qualifications of Directors . Directors shall refer to the incumbent directors of the NBQB duly holding their positions as such, in accordance with the corporate by-laws and pertinent provisions of law. 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 creditable experience or training in financial management, financial market operations, or related activities, or in a field related to his position and responsibilities. SECTION 4142Q. Definition and Qualifications of Officers . Officers shall include the President, Vice-President, (General Manager, Treasurer Secretary, and others mentioned as officers of the NBQB, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the NBQB (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 financial intermediary: Provided , That a person holding the position of Chairman or Vice-Chairman of the Board or another position in the board shall not be considered as an officer unless the duties of his position in the board include functions of management such as those ordinarily performed by regular officers: Provided , further , That 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 and are not purely recommendatory or advisory, shall likewise be considered as officers. An officer shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age at the time of his appointment or election; and b. He shall be at least a college graduate or have at least five (5) years creditable experience or training in financial management or related activities, or in a field related to his position and responsibilities. SECTION 4143Q. Disqualifications of Directors or Officers . The following regulations shall govern the disqualification of directors or officers. SUBSECTION 4143Q.1 Persons Disqualified to Become Directors or Officers . Without prejudice to the specific provisions of law prescribing disqualifications for directors and officers, the following persons are disqualified from becoming directors and officers: a. Persons who have been convicted of an offense involving moral turpitude or judicially declared insolvent, spendthrift, or incapacitated to contract; b. Persons removed by the Monetary Board pursuant to law or regulations; c. Persons who shall refuse to disclose the extent of their business interest to the appropriate department of the BSP when required, for the proper implementation of a provision of law, or of a circular, rule, regulation or policy 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 during their incumbency: Provided , That the disqualification shall apply for purposes of the immediately succeeding election; e. Persons delinquent in the payment of their obligations: Provided , That such delinquency shall operate as a disqualification as long as a delinquency persists. Delinquency , for purposes of this Subsection, shall mean that an obligation of a person with an NBQB 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 banks and with other NBQBs under different credit lines or loan contracts are past due as defined in Sec. 4308Q. Obligations shall include all borrowings from a bank or from an NBQB obtained by: (1) A director or officer for his own account or as the representative or agent of others or where he acts as a guarantor, indorser or surety for loans from such financial institutions; (2) The spouse or child under parental authority of the director or officer; (3) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of, a director or officer; (4) A partnership of which a director or officer, or his spouse is a managing partner, or a general partner owning a controlling interest in the partnership; and (5) A corporation, association, or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in Items (1), (2) and (4) above. f. Persons found by the Monetary Board to have willfully failed or refused to comply with any law, regulation, order or instruction of the Monetary Board or 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; g. Persons who have been dismissed for cause from any institution under the regulation or supervision of the BSP; h. Except as may be authorized by the Monetary Board or the Governor, any person who is a spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Chairman, Vice-Chairman, President, Executive Vice-President, General Manager, Treasurer, Chief Cashier, Chief Accountant, or equivalent positions is disqualified from holding or being elected or appointed to any of said positions in the NBQB; and any person who is the spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Manager, Cashier, Accountant or equivalent positions of a branch, extension or agency office of an NBQB is disqualified from holding or being appointed to any of said positions in the same branch, extension or agency office. The aforesaid qualifications and disqualifications for directors and officers shall be in addition to those already required by existing laws and other regulations. ESTDIA SUBSECTION 4143Q.2 Disqualification Procedures . a. Upon the establishment of any of the grounds for disqualification in Subsec. 4143Q.1, the NBQB shall cause the removal of the disqualified director or officer. b. All cases of disqualification reported to the board of directors of the institution concerned shall be acted upon 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 Governor of the BSP. SUBSECTION 4143Q.3 Prohibition Against Foreign Officers/Employees of Financing Companies . Except in the case of technical personnel whose employment may be specifically authorized by the Secretary of Justice, foreigners cannot be officers or employees of financing companies. SUBSECTION 4144Q. Interlocking Directorships and/or Officerships . In order to safeguard against the exercise by the same person or group of 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 NBQBs or between an NBQB and a bank performing quasi-banking functions. (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) a bank not performing quasi-banking functions and an NBQB; and (b) a bank and its subsidiary NBQBs. For purposes of the rules on interlocking directorships, 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 directorships and officerships between NBQBs or an NBQB and a bank. (2) Without the need for prior approval of the Monetary Board, concurrent directorship and officership in a bank and a subsidiary NBQB, other than an investment house, shall be allowed. c. Interlocking officerships . (1) There shall be no concurrent officerships between NBQBs or between a bank and an NBQB, except in the following instances: Provided , That prior approval of the Monetary Board is obtained: (a) Between a bank and its subsidiary NBQBs; (b) Between two (2) or more banks and NBQBs, other than investment houses, that are subsidiaries of a bank; or (c) Between NBQBs or between a bank and an NBQB, other than an investment house: Provided , further , That at least twenty percent (20%) but less than majority of the equity of each of the bank and NBQBs 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, subject to the following conditions: (1) that the positions do not involve any functional conflict of interest; (2) that the position of chief executive officer may be held by a person in only one (1) financial intermediary; (3) 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 (4) that where any of the positions involved is held on a full-time basis, adequate justification shall be submitted to the Monetary Board. 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 4145Q. Profit Sharing of Directors, Officers and Employees . Profit sharing programs adopted in favor of directors, officers and employees shall be reflected in the by-laws of NBQBs, subject to the following guidelines: a. The base in any profit sharing program shall be the net income for the year of the NBQB, 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 an 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 the current year's taxes; (5) Income tax deferred for the year: Provided, however , That in case of reversal of deferred income taxes excluded from net income in previous years' profit sharings, the deferred income tax reversed to expense shall be added back to net income to arrive at the basis for profit sharing for the year during which the reversal is made; (6) Accumulated profits not yet received but already recorded by an NBQB representing its share in profits of its subsidiaries under the equity method of accounting; and (7) Amount of net profits required to be transferred to retained earnings appropriated for trust business under Sec. 4413Q. b. The NBQB 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. SECTIONS 4146Q-4150Q ( Reserved ) H. Branches and Other Offices SECTION 4151Q. Establishment . Prior BSP authority shall be obtained before operating a branch, extension office or agency, including any arrangement whereby another person or entity is authorized to act as an agent for solicitation, issuance or servicing of deposit substitutes for the NBQB. Agency arrangements shall refer to all or any type of services to be performed by another party as an agent other than collection agency for loans payable in installments/amortization, and paying agency under a definite and specific period for purposes of redeeming long-term notes and/or bonds. SUBSECTION 4151Q.1 Evaluation Guideposts . The rate at which branches, agencies, extension offices, etc. are to be established shall depend upon the ability of the company to conduct operations from the head office, as well as correspondent/banking arrangements. SUBSECTION 4151Q.2 Additional Capital, if Required . An applicant NBQB may be required to put up additional capital in an amount to be determined by the appropriate supervising and examining department of the BSP, based on criteria which consider expected growth of risk assets and capital accounts and for this purpose, the methods of computing such additional capital, as shown in Appendix Q-2 , shall be used. SUBSECTION 4151Q.3 Other Requirements/Factors to be Considered . Other requirements/factors to be considered are the applicant NBQB's general compliance with laws, rules, and regulations, and policies of the BSP, such as: a. Capital adequacy and solvency; b. Profitability and capacity to absorb losses; and c. Reserve and liquidity position. SUBSECTION 4151Q.5 Conditions Precluding Processing of Applications . The existence of any of the following conditions shall preclude/suspend the processing of the application: a. The applicant has not complied with the ceilings on credit accommodations to DOSRI during the last sixty (60) days immediately preceding the date of application; b. The net worth of the applicant is found to be deficient during the last sixty (60) days immediately preceding the date of application; and c. The applicant has incurred net deficiencies in reserves against deposit substitute liabilities during the last eight (8) weeks immediately preceding the date of application. SUBSECTION 4151Q.5 Documentary Requirements . All applications shall be supported by the following documents: a. Ability to conduct operations from the head office as not to be a cause for delayed submission of reports to the BSP and/or recording of transactions in the head office; b. Correspondent banking and audit arrangements between the branch and the head office to ensure effective and efficient cash/money transactions; c. Certified true copy of the board resolution authorizing the establishment of a branch; d. Services to be offered, as well as any extension offices, etc. to be opened; e. Days and hours to be observed; f. Areas to be served; g. Bio-data of the proposed branch manager and organizational chart; h. Business and/or economic justifications (including data) for the establishment of the branch; and i. Number of financial institutions in the area (banks, investment houses, finance companies and pawnshops). SUBSECTION 4151Q.6 Filing of Applications . Applications for a certificate of authority to operate a branch, an extension office or an agency shall be filed with the SEC, which office shall refer the same to the appropriate supervising and examining department of the BSP for comments and recommendations. A copy of the application filed with the SEC, with the pertinent documents, shall simultaneously be furnished the appropriate supervising and examining department of the BSP for advance verification of the NBQB's compliance with the requirements under the provisions of Sec. 4151Q. SUBSECTION 4151Q.7 Period within which to submit complete requirements . The applicant NBQB shall have one (1) month from notice of the receipt of the SEC referral by the appropriate supervising and examining department of the BSP within which to submit/complete the requirements under this Section, after which the non-submission of complete documents shall cause the return of the application for the NBQB's lack of interest to pursue the same. HASDcC SUBSECTION 4151Q.8 Prohibition Against Operating Without SEC License . No branch, extension office or agency shall start operations unless the appropriate SEC license, which likewise serves as authorization for the branch/extension office/agency to perform quasi-banking functions, has been issued. SECTIONS 4152Q-4155Q ( Reserved ) I. ( Reserved ) SECTIONS 4156Q-4160Q ( Reserved ) J. Records and Reports SECTION 4161Q. Records . NBQBs shall have a true and accurate account, record or statement of their daily transactions. 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, without prejudice to the criminal liability of the director or officer responsible therefor under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. SUBSECTION 4161Q.1 Uniform System of Accounts . NBQBs shall strictly adopt/implement the Uniform System of Accounts prescribed for NBQBs in the recording of daily transactions including reportorial and publication requirements. SUBSECTION 4161Q.2 Adoption of Statements of Financial Accounting Standards . NBQBs shall adopt the Statements of Financial Accounting Standards (SFAS) in their 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 NBQBs. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162Q. Reports . NBQBs shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix Q-3 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws, or material documents to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162Q.1 Categories and Signatories of Reports . Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix Q-3. Appendix Q-4 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted by NBQBs in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. SUBSECTION 4162Q.2 Manner of Filing . The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162Q.3 Sanctions in Case of Willful Delay in the Submission of Reports/Refusal to Permit Examination . Definition of terms. For purposes of this Subsection, the following definitions shall reply: (1) Report shall refer to any report or statement required of an NBQB to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of an NBQB to submit a report on time. 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 an NBQB as defined in the Labor Code or national emergency affecting operations of NBQBs, 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 NBQB including the reproduction of its records, as well as the taking possession of the books and records and keeping them under the BSP's custody after giving proper receipt therefor. It shall also include the interview of the directors and personnel of the NBQB including its Electronic Data Processing (EDP) servicer. Books and records shall include, but not limited to, data and information stored in magnetic tapes, disks, printouts, logbooks and manuals kept and maintained by the NBQB or the EDP servicer, necessary and incidental to the use of EDP systems by the NBQB. (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 submission of reports . NBQBs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of default until the report is filed P600 II. For Category B reports Per business day of default until the report is filed P120 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 financial institution is situated, delay or default shall start to run on the day following the next working day. For purposes of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted, or the date of mailing postmarked on the envelope/the date of registry/special delivery receipt, as the case may be, shall be considered as the date of filing by the NBQB. Delayed schedules/attachments and amendments shall be considered late reporting subject to the above penalties. c. Fines for refusal to permit examination (1) Amount of fine Any NBQB 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) Procedures in imposing the fine (a) The BSP officer/examiner/employee shall report the refusal of the NBQB to permit examination to the head of the appropriate supervising and examining department, who shall forthwith make a written demand upon the NBQB concerned for such examination. If the NBQB continues to refuse said examination without any satisfactory explanation therefor, the BSP officer/examiner/employee concerned shall submit a report to that effect to the said department head. aSADIC (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 NBQB to permit the desired examination. d. Manner of payment or collection of fines The regulations embodied in Sec. 4653Q shall be observed in the collection of the fines from NBQBs. e. Other penalties The imposition of the foregoing penalties shall be without prejudice to the 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 Any aggrieved NBQB may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing a fine. SECTIONS 4163Q-4170Q ( Reserved ) K. Internal Control SECTION 4171Q. Internal Control Systems . The minimum internal control standards established in Appendix Q-5 shall guide all NBQBs. 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 profit, of all the institution's directors, officers, and major stockholders, as defined under Secs. 4141Q and 4142Q. e. Information/data pertaining to electronic data processing (EDP) department or service bureau of the NBQB particularly on organization, input control, processing control, output control, software, program and documentation standards, logs on the operations of mainframes and peripherals, hardware control and such other EDP control standards prescribed by the BSP in separate rules and regulations. SECTION 4172Q. Financial Audit . NBQBs shall cause an annual financial audit to be conducted not later than thirty (30) days after the close of the calendar year or the fiscal year adopted by the NBQBs. Reports of such audits 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) days after the start of such audit. For purposes hereof, an external independent auditor who may be engaged by an NBQB shall refer to one who does not by an NBQB shall refer to one who does not hold or own two percent (2%) or more of equity in the NBQB. In the case of a partnership, this limitation shall apply to the principal partners or associates. 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) days after receipt of the report, a copy of its resolution together with a copy of the auditor's letter of comments/findings and recommendations to the appropriate supervising and examining department of the BSP. The resolution shall show, among other things, the name of the directors present and absent, and the action(s) taken on the findings and recommendations. SUBSECTION 4172Q.1 Posting of Audited Financial Statements . The audited financial statements of the NBQB shall be posted in a conspicuous place in the premises of the NBQB and in its branches/other offices. Specifically, the NBQB shall post in its premises the (a) audited condition; (b) audited statement of income and expenses; (c) notes to financial statements, which shall include, among others, disclosure of the volume of past due loans as well as loan-loss provisions; and (d) auditor's certificate. SDHacT SECTIONS 4173Q-4180Q ( Reserved ) L. Miscellaneous Provisions SECTION 4181Q. Publication Requirements . NBQBs shall cause the publication of their quarterly Statements of Conditions as of such dates as the BSP may require, within twenty (20) working days from receipt of call, in any newspaper of general circulation in the country in the prescribed format. The names and positions/designations of: a. Members of the Board of Directors; and b. President and Executive Vice-Presidents (Senior Vice-Presidents, if there are no Executive Vice-Presidents). or equivalent positions shall be presented in the right side column of the published statement of condition as of June of every year. SECTION 4182Q. Management Contracts . Subject to existing laws, all agreements whereby the affairs or operations of an NBQB will be carried out by another corporation, person or group of persons, shall be subject to prior approval by the BSP. The agreements referred to in the preceding paragraph shall not be entered into for a period longer than five (5) years. Existing agreements shall be allowed up to the termination date thereof: Provided, however, That any renewal or extension upon termination date shall be subject to approval by the BSP. SECTIONS 4183Q-4198Q ( Reserved ) SECTION 4199Q. 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. D. ( Reserved ) SECTIONS 4201Q-4210Q ( Reserved ) E. Deposit Substitute Operations SECTION 4211Q. Deposit Substitute Instruments . Only the following types of Instruments may be issued by NBQBs as evidence of deposit substitute liabilities: a. Promissory notes; b. Repurchase agreements; and c. Certificates of assignment/participation with recourse. SUBSECTION 4211Q.1 Prohibition Against Use of Certain Instruments as Deposit Substitutes . Acceptances, bills of exchange and trust certificates shall not be used as evidence of substitute liabilities. 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 relationship. SUBSECTION 4211Q.2 Negotiations of Promissory Notes . Negotiable promissory notes acquired by NBQBs shall not be negotiated by mere indorsement and/or delivery, if they do not conform with the minimum features prescribed under Subsec. 4211Q.3. If these notes do not contain the features in said Subsection, their negotiation shall be covered by any of the appropriate deposit substitute instruments mentioned in Sec. 4211Q. SUBSECTION 4211Q.3 Minimum Features . Deposit substitute instruments issued by NBQBs 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/issuer, as well as attorney's fees and cost 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 Philippine Deposit Insurance Corporation. EDACSa 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/issuer. i. Each instrument shall be serially prenumbered. 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. 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 to the size and appearance of checks. Formats of standardized instruments in Appendices Q-6 to Q-6-k shall be followed. Rubber stamping, typewriting and handwriting some provision shall not be considered compliance with said regulations. Borrowings of NBQBs from the loans and discounts window of banks or NBQBs shall be exempted from the documentation requirements of this Section: Provided , That the exemption from the documentation requirements shall not be construed or interpreted as exemption of said borrowings from the other rules on borrowings by NBQBs and from other BSP regulations on deposit substitutes. SUBSECTION 4211Q.4 Physical Delivery of Instruments and Underlying 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 NBQB 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 4211Q.5 Regulation on Additional Stipulation . Stipulations between the maker/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. SUBSECTION 4211Q.6 Substitution of Underlying Securities . Any agreement allowing the issuer/maker to substitute the underlying securities shall further provide that the actual substitution shall be with the prior written consent of the payee. SUBSECTION 4211Q.7 Call slips/tickets for 24 hour loans . Call slips or tickets may be used to evidence call loan transactions of not more than twenty-four (24) hours maturity or to cover reserve deficiencies. In all other cases, call loan transactions shall be evidenced by a promissory note containing the minimum features prescribed in Subsec. 4211Q.3. SUBSECTION 4211Q.8 Requirement to State Nature of Underlying Securities . In case of repurchase agreements and certificates of assignment/participation with recourse, the stipulation shall clearly state either (a) that the underlying securities are being delivered to the buyer or assignee as collaterals or (b) that the ownership thereof is being transferred to the buyer or assignee. SUBSECTION 4211Q.9 Compliance with SEC Rules . NBQBs shall comply with the new rules on the registration of short-term and long-term commercial papers appended hereto as Appendices Q-7 and Q-8. SECTION 4212Q. Recording; Payment; Maturity; Renewal a. Deposit substitutes shall be recorded in the books at their respective principal amounts, and reported accordingly, regardless of whether the interest thereon has been paid in advance or not. b. 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/issuer of the instrument shall not be limited to the outstanding balance of said amount. c. The minimum maturity of any single deposit substitute transaction shall be fifteen (15) days. Interbank borrowings shall not be subject to the limitations in this Section. d. Automatic renewal from maturity of the instrument may be effected only under terms and conditions previously stipulated by the parties. SECTION 4213Q. Minimum Trading Lot . The minimum size of any single deposit substitute transaction shall be P50,000. In connection with the minimum trading lot rule above stated, no NBQB 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. SECTION 4214Q. Interbank Borrowings . The regulations on interbank loan transactions prescribed in Sec. 4376Q shall also apply to interbank borrowings. EScIAa SECTION 4215Q. Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses . Funds borrowed by NBQBs 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 4216Q. Money Market Placements of Rural Banks . NBQBs shall not accept money market placements from any rural bank 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 NBQBs sell receivables to rural banks without recourse. SUBSECTION 4216Q.1 Definition of Terms . As used in this Section, the following terms shall have the following meanings: Money market placements shall include investments in debt instruments, including purchases of receivables with recourse to the lending institution, except purchases of government securities on an outright basis. Government securities shall include evidences of indebtedness of the Republic of the Philippines and 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. SUBSECTION 4216Q.2 Conditions Required on Accepted Placements . Placements accepted must comply with the following conditions: a. That the total money market placements of a rural bank, as stated in the certification, including the placement being accepted by the entity concerned, shall not exceed the rural bank's combined capital accounts or net worth less current obligations with the BSP or other government financial institutions; 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 government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. SUBSECTION 4216Q.3 Sanctions . Violations of the provisions of this Section shall be subject to the following sanctions/penalties: a. Fines 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 4217Q. Bond Issues of NBQBs . The following guidelines shall govern the bond issues of NBQBs. SUBSECTION 4217Q.1 Definition of Terms . For purposes of this Section, the following terms shall mean: a. Government securities shall refer to the 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. d. Affiliate shall refer to an entity linked directly or indirectly to an NBQB by means of: (1) Ownership, control or power to vote, of ten percent (10%) or more of the outstanding voting stocks of the entity, or vice-versa; (2) Interlocking directorships or officerships; (3) Common stockholders owning ten percent (10%) or more of the outstanding voting securities; (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding ten percent (10%) or more of the outstanding voting securities; (6) Permanent proxy or voting trust constituting ten percent (10%) or more of the outstanding voting securities. e. Subsidiary shall refer 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 another. SUBSECTION 4217Q.2 Underwriting of Bonds . Bond issues may be underwritten by entities including those which are affiliates of subsidiaries of the issuer. The investment of affiliates or subsidiaries in said bond issue shall be subject to: (a) individual and aggregate ceilings of ten percent (10%) and thirty percent (30%), respectively, of the bond issue; and (b) the condition that the investing affiliate or subsidiary does not have any outstanding loan from the issuer or that it shall not incur any indebtedness from the issuer during the period that the investment remains outstanding. SUBSECTION 4217Q.3 Compliance with SEC rules . NBQBs issuing or intending to issue bonds shall comply with the new rules on the registration of long-term commercial papers ( Appendix Q-8 ). SUBSECTION 4217Q.4 Notice to Bangko Sentral . Within three (3) days from approval by the SEC of its bond issue, an NBQB shall notify the appropriate department of the BSP of the approval, attaching documents required by the SEC for the issuance and registration of the bond issue. SUBSECTION 4217Q.5 Minimum features . Bond issues by NBQBs 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 maturity 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. Interest paid in advance shall not exceed the interest for one (1) year: Provided , That interest shall not be paid in kind. 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: aHTCIc (1) Government securities Aggregate current market value of 100% (2) High-grade private securities Aggregate current listed in the market value of big board of 150% stock exchanges (3) Real estate Net book value of 100% (4) Unmatured receivables Net book value acquired with recourse; of 150% lease contracts receivable (5) Unmatured receivables Net book value acquired without of 200% 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 a 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, in initial and subsequent transfers, the names of transferees, date of transfer, purchase price and serial numbers of bonds transferred. SUBSECTION 4217Q.6 Reserve Requirement . A five percent (5%) reserve shall be maintained against all bond issues of NBQBs. The form/composition of reserves for bond issues shall be in accordance with the applicable rules on reserve against deposit substitute liabilities and borrowings. SUBSECTION 4217Q.7 Inapplicability of Certain Regulations . Sections 4211Q and 4213Q shall not apply to bonds issued under these guidelines. SECTIONS 4218Q-4230Q ( Reserved ) F. ( Reserved ) SECTIONS 4231Q-4235Q ( Reserved ) G. Interest SECTION 4236Q. Yield/Interest Rates a. Deposit substitutes of NBQBs shall not be subject to yield or interest rate ceilings. b. A matured and an unclaimed deposit substitute shall be payable on demand and shall earn 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. SECTIONS 4237Q-4245Q ( Reserved ) H. Reserves SECTION 4246Q. Reserves Against Deposit Substitutes . NBQBs shall maintain a fifteen percent (15%) reserves against deposit substitute liabilities as defined in Section 95 of R.A. No. 7653, regardless of maturities except: (a) borrowings from the BSP through the sale of government securities under repurchase agreements made in connection with the provisions of Sec. 4601Q; (b) deposit substitutes arising from special financing programs of the Government and/or international financial institutions; (c) interbank call loan transactions under Sec. 4376Q for which the reserve requirement shall be one percent (1%); and (d) bonds under Sec. 4217Q for which the reserve requirement shall be five percent (5%). The fifteen percent (15%) reserve requirement shall be reduced to fourteen percent (14%) effective January 3, 1997, and to thirteen percent (13%) effective July 4, 1997. On top of the reserve requirements, an additional two (2) percentage points required reserves against deposit substitute liabilities (except Items a to d above) of NBQBs 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 Item b of Subsec. 4246Q.1. SUBSECTION 4246Q.1 Composition of Reserves . The composition of the reserves shall be as follows: a. Not more than two percent (2%) of the combined deposit substitute liabilities may be maintained in the form of short-term market-yielding government securities purchased directly from the BSP; and b. The balance shall be as follows: (1) At least ten percent (10%) in the form of deposit balances with the BSP; (2) A maximum of seventy-five percent (75%) in the form of government securities; and (3) The balance in the form of demand deposit accounts with banks which are not restricted as to withdrawal or use of current operations but not with financial institutions which have been closed and are under receivership or liquidation. For purposes of this Subsection, government securities eligible as reserves against deposit substitute liabilities of NBQBs as referred to in Item b (2) above shall be limited to bonds or other evidences of indebtedness representing direct obligations of the government of the Republic of the Philippines having the following minimum features/conditions. (i) 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 (ii) The instrument must expressly state in its face the amount, maturity date and interest rate of the obligation. A list of reserves-eligible and non-eligible securities may be found in Appendix Q-9 . 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. Securities held as reserves shall be valued at cost of acquisition, and the NBQB may freely alter its composition: Provided , That any substitution or acquisition satisfies the eligibility requirements prescribed above: Provided , further , That the NBQB notifies the BSP of any such change not later than the reporting day following the change. Securities counted as reserves which are hypothecated or encumbered in any way or earmarked for any other purpose shall automatically lose their eligibility as reserves. Only the buying/lending NBQB in a resale agreement covering eligible government securities may use such securities as reserves against deposit substitute liabilities. Conversely, the selling/borrowing NBQB in a repurchase agreement covering eligible government securities may not use such securities as reserves against deposit substitute liabilities. The reserve eligibility of government securities under the reverse repurchase operations of the BSP shall be suspended during the term of the 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 4246Q.2 Computation of Reserve Position . The reserve position of any NBQB and penalty on reserve deficiency shall be computed based on a seven (7)-day week starting Friday and ending Thursday, including Saturdays, Sundays, holidays, non-business days and days when there is no clearing: Provided , That with reference to holidays, non-business 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-business days and days when there is no clearing, shall apply thereon. For this purpose, the principal office in the Philippines and all branches, and other offices/agencies located therein shall be treated as a single unit. SACEca SUBSECTION 4246Q.3 Reserve Deficiencies; Sanctions a. Whenever the reserve position of any NBQB computed in the manner specified in Subsec. 4246Q.2 is below the required minimum, the NBQB concerned 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 the NBQB 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, the NBQB 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 Subsection, 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. b. In cases where the NBQB has chronic reserve deficiency on deposit substitute liabilities, the Monetary Board may (1) limit or prohibit the making of new loans or investments by the NBQB concerned; (2) prohibit the declaration of cash dividends; and/or (3) impose such other sanctions, as it may deem necessary. The board of directors of such NBQB shall be notified of such chronic reserve deficiency and the penalties therefor, and shall be required to immediately correct the reserve position of the NBQB. As used in this Subsection, the following terms shall have the following meanings: Chronic reserve deficiency shall mean having net reserve deficiency for two (2) consecutive weeks. New loan and new investment shall refer to any loan and any investment involving disbursement of funds. aSIETH c. Fines on legal reserve deficiencies on deposit substitute liabilities shall be paid by the NBQB in accordance with Sec. 4653Q: Provided , That where the credit balance of the NBQB's demand deposit account with the BSP is insufficient and it fails to settle the assessment within fifteen (15) days from receipt, the Monetary Board may limit or prohibit the making of new loans or investments by the NBQB. SUBSECTION 4246Q.4 Exemptions . Certificates of assignment issued with recourse by NBQBs under the IGLF Program are not covered by the reserve requirements. SUBSECTION 4246Q.5 Matured and unclaimed deposit substitutes . Matured and unclaimed deposit substitutes shall continue to be subject to reserves. SUBSECTION 4246Q.6 Book entry method for reserve securities . Transactions concerning reserve-eligible securities shall be entered in the respective securities account of each NBQB with the BSP and shall be evidenced by securities account debit or credit advices to be promptly furnished the institution/s concerned. No certificates shall be issued for any purpose. Transactions with third parties other than the BSP shall not be recognized. SUBSECTION 4246Q.7 Interesting Income on Reserve Deposit with Bangko Sentral . Deposits maintained by NBQBs with the BSP up to forty percent (40%) of their reserve requirement (less the two percent (2%) of the deposit substitute liabilities of NBQBs 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. The forty percent (40%) limit shall be reduced to twenty-five percent (25%) effective January 3, 1997. SECTIONS 4247Q-4255Q ( Reserved ) I. ( Reserved ) SECTIONS 4256Q-4275Q ( Reserved ) J. Borrowings from the Bangko Sentral SECTION 4276Q. Repurchase Agreements with the Bangko Sentral . Repurchase agreements with the BSP under its open market operations shall be governed by the provisions of Sec. 4602Q. SECTIONS 4277Q-4280Q ( Reserved ) K. Other Borrowings SECTION 4281Q. Borrowings from the Government . NBQBs shall not borrow any fund or money from the Government and government entities, through the issuance or sale of its acceptances, notes or other evidence of debt, except as may be authorized by existing statutes. SUBSECTION 4281Q.1 Definition of Terms . For purposes of this Section, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a. Fund or money from the Government and government entities includes public moneys of every sort, whether pertaining the National Government, province, city, municipality, or other branch or agency of the Government, including government-owned or controlled corporations as defined herein, and shall comprise "revenue funds", "trust funds", and "depository funds" as these terms are defined in the Revised Administrative Code of 1987, and deposits of, borrowings from, and all other liabilities to, the Government and government entities. b. 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 the Development Bank of the Philippines, Land Bank of the Philippines and Al-Amanah Islamic Investment Bank of the Philippines, corporations which are organized as subsidiaries of government-owned or controlled corporations 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. SECTIONS 4282Q-4298Q ( Reserved ) SECTION 4299Q. 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 4301Q. Management of Risk Assets/Minimum Guidelines on Lending Operations . It shall be the responsibility of the board of directors of an NBQB 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 an NBQB is to perform its credit-extension 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 adequately action will be taken to maintain the quality of the loan portfolio and other risk assets. a. Requirement of Lending Policies NBQBs shall have well-defined lending policies which shall ensure that lending shall be upon terms which are in the best interest of the institution and in accordance with existing policy, rules and regulations of the Monetary Board. Such policies shall be in writing to form part of the institution's permanent records and shall be made available for inspection by the Bangko Sentral. b. Lending operations, definition Lending operations refer to any credit accommodation and purchase of receivables and commercial papers in the secondary market. HICEca c. Creditworthiness of borrowers Before extending credit in any form, the NBQB must exercise proper caution to ascertain that the debtors, co-makers, indorsers, sureties and/or guarantors are capable of fulfilling their commitments. For this purpose, credit investigations must be conducted and appropriate statements of assets and liabilities and of income and expenditures shall be required of credit applicants. d. Amounts, purpose and terms of credit accommodations . Loans/credit accommodations shall be granted only in amounts and for periods necessary for the completion of the operations to be financed, and for purposes which are attuned to government economic policies. 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 loan applied for. e. Documentation of Loans . All loans/credit extensions shall be supported by evidences of indebtedness and/or loan agreements which shall contain, among other things, a statement of the purpose of the loan and a program of repayment of the obligation. f. Credit Files . Adequate credit files of borrowers shall be maintained which shall contain documents such as credit investigation reports, balance sheets, statements of assets and liabilities, income and expense statements, income tax returns, bank and trade checkings, and other documents/papers showing information which form the bases for the credit extension. g. Periodic Review . A periodic review of the loan portfolio and the credit standing of borrowers shall be made. h. Arm's length transactions . An NBQB shall not relend to or purchase receivables or other obligations of other corporations, majority of the voting stock of which is owned by subject corporation, unless the terms of the transactions are not more favorable than those of other similar transactions. SECTION 4302Q. 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, NBQBs 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 NBQB's financial condition. The system of identifying and monitoring problem loans and other risk assets and setting up of allowance for probable losses shall include, but is not limited to, the criteria prescribed in Appendix Q-10 . Allowance for probable losses for loans and other assets classified as Substandard, Doubtful and Loss as required by the BSP shall be set up immediately. SECTIONS 4303Q-4305Q ( Reserved ) A. Loans In General SECTION 4306Q. Loan Limit to a Single Borrower . The total liabilities of any person, company, corporation or firm, excluding the government and its instrumentalities or agencies, to an NBQB 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 holdout on, or assignment of, deposit substitutes maintained in the lending NBQB 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 credit which the Monetary Board may, from time to time, specify as exclusions, shall at no time exceed twenty-five percent (25%) of the combined capital accounts as defined in Sec. 4106Q. The total liabilities of any borrower may amount to a further fifteen percent (15%) of the combined capital accounts of such NBQB: Provided , That the additional liabilities are adequately secured by real estate mortgage, assignment or pledge of readily marketable bonds and other high-grade debt securities, except those issued by the lending entity. For purposes of this Section, the term liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such NBQB and the liability of the indorser, drawer or guarantor who obtains a loan from or discounts paper with or sells papers under his guaranty to such NBQB 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 its subsidiaries: Provided , That even in cases where the parent corporation, co-partnership or association has no liability to the NBQB, the liabilities of subsidiary corporations or members of the co-ownership or association shall be combined for purposes of the single borrower's limit (SBL). SUBSECTION 4306Q.1 Exclusions from Loan Limit . In addition to those enumerated in Sec. 4306Q, the total liabilities of a commercial paper issuer for commercial papers held by an NBQB 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 an NBQB: Provided , That in no case shall such liabilities exceed five percent (5%) of the net worth of the selling agent beyond the normal applicable SBL. ACDTcE SUBSECTION 4306Q.2 Contingent Liabilities Included in Loan Limit . Outstanding foreign and domestic standby and deferred letters of credit less margin deposits, and outstanding guarantee, the nature of which requires the guarantor to assume the liabilities/obligations of this parties in case of their inability to pay, shall be included in determining the SBL except those fully secured by cash, hold-out on deposit substitutes, or government securities. SUBSECTION 4306Q.3 Sanctions . Violations of the provisions of the foregoing rules shall be subject to the following sanctions/penalties: a. Fines . Fines of one-tenth of one percent (1/10 of 1%) of the excess but not to exceed P30,000 a day for each violation, reckoned from the date the excess started up to the date when such excess was eliminated, shall be assessed on the NBQB. 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) For the duration of each violations, imposition of a fine of P500 a day for each of the directors/officers who approved the credit line or availment which resulted in an excess. (2) Suspension of the NBQB from branching privileges until the excess is eliminated. SECTION 4307Q. Interest and Other Charges . The following rules shall govern the rates of interest on loans by NBQBs. SUBSECTION 4307Q.1 Rate Ceilings . The rate of interest, including commissions, premiums, fees and other charges on loan transactions, regardless of maturity and whether secured or unsecured, shall not be subject to any ceiling. SUBSECTION 4307Q.2 Floating Rates of Interest . The rate of interest on a floating rate loan during each interest period shall be stated based on the Manila Reference Rate (MRR), Treasury Bill Rate (TBR) 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, in 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 agreement are not precluded from amending or modifying their loan agreements by adopting a floating rate of interest determined on the basis of 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. SUBSECTION 4307Q.3 Effect of Prepayment . If there is no agreement on the rebate of interest in the event of prepayment of the loan, the NBQB is not under any legal obligation to return the interest corresponding to the period from date of prepayment to the stipulated maturity date of the loan. Any prepayment made by the debtor should not, therefore, affect computation of the effective rate stipulated in the loan contract. SUBSECTION 4307Q.4 Loan Prepayment . The borrower of an NBQB shall not be prohibited from prepaying a loan. A stipulation requiring the consent of the lending NBQB to such prepayment shall be contrary to this provision. In case of prepayment in the loan contract, such prepayment shall not be subject to penalty in the absence of any stipulation as to penalty. However, the parties may stipulate that prepayment shall be subject to penalty: Provided , That the penalty is not excessive or unconscionable. SUBSECTION 4307Q.5 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 law or 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 4307Q.6 Rate of Interest in the Absence of Stipulation . The rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION 4307Q.7 Accrual of Interest Earned on Loans . NBQBs 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 in Sec. 4308Q. Likewise, interest income shall not be accrued for unmatured loans/receivables with indications that collectibility thereof has become doubtful. These indications 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. THEDCA Interest on past due accounts shall be taken up as income only when actual payments thereon are received. b. Interest earned on an 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. 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. d. A contra account to be designated Allowance for Uncollected Interest on Loans s hall be set up if accrued interest receivable on loans or loan installments as set up in Items 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. e. 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 NBQB's books over those recommended by the appropriate supervising and examining department of the BSP. The balance thereof, any, shall be chargeable against operations. f. For all purposes, the Allowance for Uncollected Interest on Loans shall be considered a valuation reserve/allowance against the Accrued Interest Receivable account. SECTION 4308Q. Past Due Accounts . Past due accounts of an NBQB 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 non-bank financial institutions, which are not paid at maturity. SUBSECTION 4308Q.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 in 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; TaDCEc c. Customers' 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 Number of Installments Mode of Payment in Arrears Monthly 6 Quarterly 2 Semestral 1 Annual 1 Provided , however , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan/receivable, 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, 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. Items in litigation as defined in the manual of accounts for non-bank financial institutions. For the purpose of determining delinquency in the payment of obligations as defined in Subsec. 4143Q.1(e), any due and unpaid loan installment or portion thereof, from the time the obligor defaults, shall be considered as past due. SUBSECTION 4308Q.2 Renewal/extension . No loan shall be renewed nor its maturity date extended unless the corresponding accrued interest receivable shall have been paid. SUBSECTION 4308Q.3 Restructured Loans . Restructured loans whose terms of payment have not been complied with and which have become past due in accordance with Subsec. 4308Q.1, shall be reverted to past due status and classification in accordance with Sec. 4302Q. SECTION 4309Q. "Truth in Lending Act" Disclosure Requirement . NBQBs 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 NBQBs 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 the 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 4309Q.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 the property (except money) or service purchased at the NBQB'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 NBQB and debtor, given at the time of the transaction as partial payment for the property or service purchased. e. Non-finance charges correspond to the amounts advanced by the NBQB for items normally associated with the ownership of the property or the availment of the service purchase which are not incidental to the extension of credit. For example, in the case of the purchase of an automobile on credit, the NBQB may advance the insurance premium as well as the registration fee for the account of the debtor. cDAISC f. Amount to be financed consists 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 incidental to the extension of credit such as interest or discount, collection fee, credit investigation fee, attorney's fee and other service charges. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) 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 amount to be financed. In the case of 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 maturity period financed 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: number of payments finance charge in a year R = 2 x x 10 amount to be total number financed of payments plus one In cases 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 number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. 1 In cases where credit terms provide for premium or penalty charges depending on, for instance, the timeliness of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SUBSECTION 4309Q.2 Information to be Disclosed . NBQBs shall furnish to 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 simple 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 the seven (7) items of information mentioned are 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 the form ( Appendix Q-11 ) prescribed by the Monetary Board, to be signed by the debtor and appended to the main contract. A copy of such disclosure statement shall be furnished the borrower. SUBSECTION 4309Q.3 Inspection of Contracts Covering Credit Transactions . NBQBs shall keep in their office or place of business copies of contracts which involve the extension of credit and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department of the BSP. SUBSECTION 4309Q.4 Posters . An abstract of R.A. No. 3765 ( Appendix Q-12 ) shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long and posted on a conspicuous place in the NBQB's place(s) of business. SECTIONS 4310Q-4320Q ( Reserved ) B. ( Reserved ) SECTIONS 4321Q-4335Q ( Reserved ) C. Unsecured Loans SECTION 4336Q. Loans Against Personal Security . The following guidelines shall be observed by NBQBs in the grant, renewal or extension of unsecured loans. SUBSECTION 4336Q.1 General Guidelines . Before granting credit accommodations against personal security, NBQBs must exercise proper caution by ascertaining that the borrowers, co-makers, indorsers, sureties and/or guarantors possess good credit standing and are financially capable of fulfilling their commitments to the NBQB. For this purpose, NBQBs shall keep records containing information on the credit standing and financial capacity of credit applicants. SUBSECTION 4336Q.2 Proof of Financial Capacity of Borrower . In addition to the usual personal information sheet about the borrower, NBQBs shall require that an application for a credit accommodation against personal security be accompanied by: cCTESa a. A copy of the latest income tax returns of the borrower and his co-maker duly stamped as received by the Bureau of Internal Revenue; 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 accommodation is outstanding. SUBSECTION 4336Q.3 Signatories . NBQBs 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 4336Q.4 Sanctions . NBQBs violating the provisions of this Section may be prohibited from extending additional credit accommodations against personal security. SECTIONS 4337Q-4350Q ( Reserved ) D. Restructured Loans SECTION 4351Q. Restructured Loans; General Policy . NBQBs 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 NBQBs financial interest, except in special cases approved by the Monetary Board such as loans funded partly or wholly by foreign currency obligations. However, the restructuring of loans granted to DOSRI shall be upon terms not less favorable to the NBQB than those offered to others. While agreements on loan restructuring should be considered as management tools to maintain or improve the soundness of the NBQB's lending operations, these should be drawn mainly to assist borrowers towards the settlement of their loan obligations, taking into account their capacity to pay. SUBSECTION 4351Q.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 4351Q.2 Procedural Requirements . A loan may be restructured subject to the approval of the NBQB'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 NBQB's exposure. The authority to approve the restructuring of loans may be delegated by the NBQB'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. SECTIONS 4352Q-4355Q ( Reserved ) E. Loans/Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION 4356Q. General Policy . Dealings of an NBQB with any of its DOSRI shall be in the regular course of business and upon terms not less favorable to the NBQB than those offered to others. No NBQB shall grant, renew or extend any credit accommodation to its DOSRI whenever its combined capital accounts is deficient relative to risk assets held under Sec. 4116Q, or whenever its paid-in capital is deficient relative to the required minimum capitalization. Neither shall it grant, renew or extend any credit accommodation to any of its DOSRI who has past due credit accommodations with the NBQB. SUBSECTION 4356Q.1 Definitions . For purposes of these regulations, the following definitions shall apply. a. Directors shall refer to NBQB directors as defined in Sec. 4141Q. b. Officers shall refer to NBQB officers as defined in Sec. 4142Q. c. Stockholders shall refer to (i) any stockholder of record in the books of the NBQB, acting personally, or through an attorney-in-fact, executor, 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 NBQB, 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. 4359Q (b)(3) amounting to ten percent (10%) or more of the total subscribed capital stock of the NBQB. d. Outstanding loans to and placements with the NBQB shall refer to loans to and deposit substitutes of the NBQB which are not subject of an assignment or hold-out agreement. e. Book value of the paid-in capital contribution shall mean the proportional amount of the NBQB's total capital accounts (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 NBQB: Provided , That as a basis for determining the individual ceiling referred to in Sec. 4360Q, 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. HacADE f. Secured loan, borrowing, or credit accommodation shall refer to any loan, discount, credit or advance, or portion thereof referred to in Sec. 4357Q which is secured by real estate mortgage, chattel mortgage on tangible assets, standby letters of credit issued by foreign banks, assignments of or hold-out on deposit substitutes issued by the lending entity, cash margin deposits, assignment or pledge of government securities or readily marketable bonds and other high-grade debt securities except those issued by the lending entity, or receivables arising from financial leases to the extent of the guaranty deposit plus sixty percent (60%) of the remaining value of the leased equipment. For this purpose, the remaining value of the equipment under lease shall be determined by dividing the acquisition cost by the original term of the lease and multiplying the resulting ratio by the unexpired portion of the term. For investment houses with quasi-banking functions, a secured loan, borrowing or credit accommodation shall likewise include: (1) Customer's liability under import bills outstanding for not more than thirty (30) days from date of original entry; (2) Sales contract receivable arising out of sale of real property on credit wherein title to the property is retained by the NBQB; and (3) 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 (31st) day from the date of original entry referred to in Sub-item (1) above. g. Unsecured loan, borrowing or credit accommodation shall refer to any loan, discount, credit or advance, or portion thereof referred to in Sec. 4357Q which is not secured in accordance with Item f above. SECTION 4357Q. Transactions Covered . The terms loan, borrow, money borrowed and credit accommodations as used herein shall refer to transactions which involve the grant, renewal, extension or increase of any loan, discount, credit or advance in any form whatsoever, and shall include: a. Outstanding availments under an established credit line; b. Drawing against an existing letter of credit; c. The acquisition by 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, indorser, guarantor, or surety; d. Any advance of unearned salary or unearned compensation for periods in excess of thirty (30) days; e. Loans or other credit accommodations granted by another financial institution to such director, officer or stockholder from funds of the NBQB invested in the other institution's trust or other department when there is a clear relationship between the transactions; f. The increase of an existing indebtedness, as well as additional availments under a credit line or additional drawings against a letter of credit; g. The sale of assets, such as shares of stock, on credit; h. Leasing transactions under R.A. No. 5980, as amended; and i. Any other transaction as a result of which a director, officer or stockholder becomes obligated or may become obligated to the lending NBQB, directly or indirectly, by any means whatsoever to pay money or its equivalent. SECTION 4358Q. Transaction Not Covered . The terms loan, borrow, money borrowed or credit accommodation as used herein shall not refer to the following transactions: 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 NBQB or for utilization of maternity and other leave credits; b. The increase in the amount of outstanding credit accommodation as a result of additional charges or advances made by the NBQB to protect its interests 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 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 ceiling as herein provided once the DOSRI who is a party to the transaction becomes directly liable to the NBQB; d. Transactions with a foreign bank or other financial institution which has stockholding in the NBQB where the foreign bank or other financial institution acts as guarantor through the issuance of letters of credit, guarantee letters 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 an NBQB with a bank, whether domestic or foreign, which has stockholdings in the NBQB. SECTION 4359Q. Direct or Indirect Borrowings . For purposes of this Section, 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 NBQB is a party to any of the transactions enumerated in Sec. 4357Q for himself or as a representative or agent of others, or if he acts as a guarantor, indorser or surety for loans from the NBQB, 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. 4357Q the borrower, guarantor, indorser, 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 NBQB; (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 NBQB, or his spouse is also a director or officer of such corporation, association or firm, except (i) where the securities of such corporation, association or firm are listed and traded in the domestic stock exchange and less than fifty percent (50%) of the voting stock thereof is owned by any one (1) person or by persons related to each other within the third degree of consanguinity or affinity; or (ii) where the director, officer or stockholder of the lending NBQB sits as a representative of the NBQB in the board of directors of such corporation: Provided , That the NBQB 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, to qualify a person as director of the corporation: Provided , further , That the borrowing corporation under (i) or (ii) is not among those mentioned in Items b(5) and b(6) of this Section; TADCSE (5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending NBQB 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 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 NBQB concerned to ascertain whether the borrower, guarantor, representative, indorser 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 NBQB 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 4360Q. Individual Ceiling; Single-Borrower Limit . The total outstanding direct credit accommodations to each of the NBQB's directors, officers or stockholders, excluding those granted under officers' fringe benefit plans, shall not exceed, at any time, an amount equivalent to the unencumbered portion of his loans to, and placements with, the NBQB and the book value of his paid-in capital contribution in the lending NBQB: Provided , That unsecured credit accommodations to each of the NBQB's directors, officers or stockholders shall not exceed thirty percent (30%) of his total credit accommodations. Notwithstanding the provisions of this Section, credit accommodations of an NBQB to any one of its directors, officers, stockholders or their related interests shall not exceed the SBL prescribed for NBQBs. SECTION 4361Q. Aggregate Ceiling, Ceiling On Unsecured Loans . Except with prior approval of the Monetary Board, the total outstanding borrowings of directors, officers, or stockholders, whether direct or indirect, shall not exceed 100% of combined capital accounts, net of deferred income tax as defined in Item i of Subsec. 4116Q.1 and such unbooked valuation reserves and other capital adjustments as may be required by the BSP: 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, NBQBs 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. SECTION 4362Q. Exclusions from Aggregate Ceiling . The following credit accommodations shall be excluded in determining compliance with the aggregate ceiling: a. Credit accommodations to the extent covered by a hold-out on, or assignment of, deposit substitutes in the lending NBQB, or covered by cash margin deposits or secured by evidences of indebtedness of the Republic of the Philippines or of the Bangko Sentral, or by other evidences of indebtedness or obligations, the servicing and repayment of 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 NBQB do not exceed thirty percent (30%) of the voting stock of the NBQB; 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; and c. Credit accommodations granted under officers' fringe benefit plans. SECTION 4363Q. Credit Accommodations Under Officers' Fringe Benefit Plans . The aggregate outstanding liabilities to an NBQB of its officers, extended under officers' fringe benefit plans for the purpose of house, car, and appliance financing, and meeting educational, medical, hospital, and other similar expenses, shall not exceed thirty percent (30%) of the combined capital accounts of the lending entity: Provided , That NBQBs shall submit, for record purposes, copies of their officers' fringe benefit plans to the appropriate department of the BSP. SECTION 4364Q. Procedural Requirements . The following provisions shall apply if a director or officer is a party, directly or indirectly, to, or acts as the representative or agent of, others in any of the transactions under Sec. 4357Q. a. Approval of the board of directors; when to obtain . Except with the prior written approval of the majority of the directors, excluding the director concerned, no loan or other credit accommodation shall be granted nor any of the transactions under Sec. 4357Q 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 the purpose and made of record. c. Majority of the directors; computation of . The computation of the majority of the directors, excluding the director concerned, shall be based on the total number of directors of the NBQB, 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, indorser, 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 the 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 a 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 of directors' approval; contents thereof. A copy of the written approval of the board of directors, as herein required, shall be submitted to the appropriate department of the BSP within twenty (20) business 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 4365Q. 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 NBQB 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 Sections 4360Q and 4361Q from participating in the approval of loans or credit to officers, directors, and stockholders of the NBQB: Provided , however, That the disqualification may be lifted by the BSP, as the circumstances warrant; c. Application of (1) the borrowing director's or officer's share in the NBQB'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 (1) the lending NBQB 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. 4360Q and 4361Q. aIcCTA The penalty for exceeding the individual ceiling, 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 4366Q-4370Q ( Reserved ) F. ( Reserved ) SECTIONS 4371Q 4375Q ( Reserved ) G. Special Types of Loans SECTION 4376Q. Interbank Loans . Interbank loan transaction 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 advices or repayment transfer tickets the settlement of which is effected by the BSP in the NBQBs' respective demand deposit accounts with the BSP shall be eligible to one percent (1%) reserve: Provided , further , That funds borrowed by NBQBs from trust departments of banks/investment houses shall be excluded from the herein definition of interbank loan transactions. Interbank loan transactions not evidenced by interbank loan advice or repayment transfer tickets and submitted to the BSP Accounting Department shall be reported to the BSP in the prescribed form. SUBSECTION 4376Q.1 Systems and procedures for interbank call loan transactions . IBCL transactions of NBQBs 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 Q-13 ) and any subsequent amendments thereto. NBQBs shall generate hard copies of the formats of the loan and repayment instructions 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 4376Q.2 Accounting procedures a. NBQBs 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 NBQB shall attach the same to the corresponding ticket debiting its Due from BSP account in its books and, in the case of the lending NBQB, to the same ticket passed in its books on the day payment is made. b. IBCL transactions shall be recorded by the borrowing NBQB as Bills Payable - Interbank Call Loans . c. NBQBs 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) business 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 and examining department. SUBSECTION 4376Q.3 Transfer of Excess Funds The prescribed "Authority to Debit Slip" shall be used by NBQBs in the transfer of their excess funds which are not otherwise lent out in the interbank loan market from their BSP reserve accounts to their operating accounts with their depository banks. The "Authority to Debit Slip" shall have a standard size of 4 3/4" x 8 1/2" and shall be orange in color. It shall contain the minimum data or information as required and shall be accomplished and submitted to the BSP Accounting Department in duplicate after having been duly signed and/or authenticated by authorized officers of the NBQB. SECTIONS 4377Q-4380Q ( Reserved ) H. Equity Investments SECTION 4381Q. Investment in Non-Allied Undertakings . In order to avoid undue concentration of economic power, the total equity investments in any single non-allied enterprise or industry of NBQBs, expanded commercial banks and their subsidiaries, whether or not the parent financial intermediaries have equity investments in the enterprise, shall, in any case, remain a minority in that enterprise, except as may be otherwise approved by the President of the Philippines. Non-allied enterprises are those allowed for expanded commercial banks in the Manual of Regulations for Banks. Equity investments as of April 1, 1980, which exceed the limitation under this Section, may be retained but shall not be increased percentage-wise, and whenever reduced, shall not thereafter be increased beyond the prescribed limitation. SECTION 4382Q. Investments Abroad . Except as may be authorized by the Monetary Board, the total equity investments in and/or loans to any single enterprise abroad by any NBQB shall not at any time exceed fifteen percent (15%) of the net worth of the investing NBQB. SECTION 4383Q. Underwriting Exempted . The limitations on equity investments under Sec. 4381Q shall not apply to inventories of equity securities arising out of firm underwriting commitments of investment houses: Provided , That such equity holding shall be disposed of within two (2) years from acquisition by the investment house. SECTIONS 4384Q-4385Q ( Reserved ) I. ( Reserved ) SECTION 43860-4390Q ( Reserved ) J. Other Operations SECTION 4381Q. Purchase of Receivables and Other Obligations . The following rules shall govern the purchase of receivables and other obligations. SUBSECTION 4391Q.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 NBQBs shall not be subject to any regulatory ceiling. Receivables and other obligations shall include claims collectible in money of any amount and maturity from domestic and foreign sources. The Monetary Board shall determine in doubtful cases whether a particular claim is included within said phrase. SUBSECTION 4391Q.2 Purchase of Commercial Paper . Before purchasing registered commercial paper, NBQBs shall: a. Require the issuing entity to submit 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. No NBQB shall sell, discount, assign, negotiate, in whole or in part such as thru syndications, participations and other similar arrangements, any note, receivable, loan, debt instrument and any type of financial asset or claim, except government securities, on a without recourse basis, or be a party in any capacity in any such transactions on a without recourse basis, unless such receivable, note, loan, debt instrument and financial asset or claim is registered with the SEC. This prohibition includes transactions between an investment house and its trust department. Unregistered commercial papers may be sold, discounted, assigned or negotiated by NBQBs to other financial intermediaries with quasi-banking functions. 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 and every officer of the NBQB involved in any capacity in any transaction violative of these regulations. SECTION 4392Q. Reverse Repurchase Agreements with the Bangko Sentral . Reverse repurchase agreements may be effected with the BSP under its open market operations, subject to the terms and conditions in Subsec. 4602Q.1. SECTIONS 4393Q-4395Q ( Reserved ) K. Miscellaneous Provisions SECTIONS 4396Q-4398Q ( Reserved ) SECTION 4399Q. General Provision on Sanctions . Unless otherwise provided for, 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 4401Q. 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 the 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. An institution incorporated or 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 service 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 4402Q. 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. 4403Q) of non-bank financial institutions (e.g., investment houses and trust corporations) allowed by law to perform such operations. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to institutions authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to institutions without trust authority but engaged in investment management activities; and C. General Provisions shall apply to both. SECTION 4403Q. 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. cCaSHA b. Other fiduciary business shall refer to any activity of trust-licensed institutions resulting from a contract or agreement whereby the institution binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administrator ship 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 such institution. 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 institution (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 person 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 an institution. 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 an institution authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participations 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 an institution 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 an institution 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 recorded. A. Trust and Other Fiduciary Business SECTION 4404Q. Authority to Perform Trust and Other Fiduciary Business . With prior approval of the Monetary Board, trust corporations and investment houses may engage in trust and other fiduciary business under Chapter VII of R.A. No. 337, as amended and Section 7 of P.D. No. 129, as amended. Entities whose articles of incorporation or any amendments thereto, include the purpose or power to engage in trust and other fiduciary business, shall secure the prior favorable recommendation of the Monetary Board pursuant to Section 17 of the Corporation Code. If an entity is found to be engaged in authorized 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 entity or its principal officers and/or majority stockholders or proceed against 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 entity 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 4404Q.1 Prerequisites for Engaging in Trust and Other Fiduciary Business . An institution, before it may engage in trust and other fiduciary business, shall comply with the following requirements: a. The applicant has combined capital accounts of not less than P250 million. For this purpose, combined capital accounts shall have the same meaning as in Sec. 4106Q; b. The applicant has been duly licensed or incorporated as a financial institution by the appropriate government agency or created by special law or charter; c. The articles of incorporation or charter of the institution 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 institution shall include, among other things, provisions on the following: (1) The organization plan or structure of the department, office, or unit 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. Where the applicant is authorized to engage in quasi-banking functions, it 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 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. DHacTC Where the applicant is not authorized to engage in quasi-banking functions: (i) The adoption of a formula or criteria for NBQBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI; and (ii) The substitution of the reserve and liquidity floor requirements with the cash ratio, as follows: (a) Primary reserves to Bills Payable; and (b) Primary and secondary reserves to Bills Payable; where primary reserves consist of cash on hand, cash in vault, checks and other cash items, due from the BSP and due from banks; and where secondary reserves consist of BSP-supported government securities, treasury bills and other government securities. 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. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION 4404Q.2 Pre-Operating Requirements . An institution 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. 4405Q.1; b. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the institution; 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 4405Q. Security for the Faithful Performance of Trust and Other Fiduciary Business SUBSECTION 4405Q.1 Basic Security Deposit . An institution 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 4405Q.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 maturities of not more than three (3) years from the date of deposit with the BSP. DHCSTa SUBSECTION 4405Q.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 4405Q.4 Compliance Period; Sanctions . The trustee or fiduciary shall have thirty (30) business days after the end of every calendar quarter within which to deposit with the BSP securities required under this Section. In case an institution fails to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and another fiduciary contracts. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of trust and other fiduciary business: a. On the institution: (1) First offense Penalty of P5,000 per business day to be reckoned from thirty (30) business 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. SUBSECTION 4405Q.5 Reserves against Peso-Denominated Common Trust Funds and Trust and Other Fiduciary Accounts (TOFA) Others a. Reserves against peso-denominated CTFs. In addition to the basic security deposit, and institution 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. CIScaA 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 institution out of said funds. b. Reserves against TOFA-Others . In addition to the basic security deposit, an institution authorized to engage in trust and other fiduciary business 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 and 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 institution out of said funds. SUBSECTION 4405Q.6 Composition of Reserves . a. The provisions of Subsec. 4246Q.1 shall govern the composition of reserves against peso-denominated CTFs and such other managed peso funds as well as TOFA-Others of institutions authorized to engage in trust and other fiduciary business. For purposes of this Subsection, a special deposit account shall be maintained by the institutions with the BSP exclusively for trust reserves which deposits 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 against 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. Likewise, institutions may also maintain a special demand deposit account with local banks exclusively for trust duties. 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 (1/2%) 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 institution and shall be evidenced by securities account debit or credit advice to be promptly furnished the institution 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 institution'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 4405Q.7 Computation of Reserve Position . An institution 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-business days and days when there is no clearing: Provided , That with reference to holidays, non-business days and days where there is no clearing, the reserve position at the close of business day immediately preceding such holidays, non-business days and days when there is no clearing, shall apply thereon. For the purpose of computing its reserve position, the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit. SUBSECTION 4405Q.8 Reserve Deficiencies; Sanctions . The provisions of Subsec. 4246Q.3 shall govern the computation of reserve deficiencies for peso-denominated CTFs and such other managed peso funds, as well as for TOFA-Others, of institutions authorized to engage in trust and other fiduciary business, including the sanctions provided in said Subsection. SUBSECTION 4405Q.9 Report of Compliance . Every institution shall make a weekly report to the BSP of its daily required and available reserves on peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others, to be submitted not later than the close of the third business day following reference week. SECTION 4406Q. Organization and Management SUBSECTION 4406Q.1 Organization . An institution authorized to engage in trust and other fiduciary business shall, pursuant to Subsec. 4404Q.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 an institution 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. An institution 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. aTIAES No institution 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 institution, such as the Treasury, Funds Management or any similar department; otherwise, any such business shall be considered part of the institution's real liabilities. The institution 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 institution's trust committee which shall, in turn, be only directly responsible to the institution'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 institution and vice versa. However, branch managers duly authorized by the board of directors may, for or on behalf of the 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 institution 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 4406Q.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 institution proper. No member of the audit committee, if the institution 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. 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 institution, or those whose duties as such are defined in the by-laws, or are generally known to be officers of the institution (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 institution. 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 4406Q.3 Qualifications of Committee Members, Officers and Staff. The institution'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 financial institutions, 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 4406Q.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 other fiduciary accounts; (b) proper administration and management of each trust and other fiduciary accounts; 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 institution'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 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 institution 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 institution 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 4407Q. 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/commissions, losses and other charges. Any agreement/arrangement that does not conform to these shall not be considered as trust, other fiduciary or investment management relationship. IDSaAH 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; and (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, and Sections 12 and 16 of P.D. No. 129, as amended. SECTION 4408Q. Unsound Practices . In line with the statement of principles governing trust and other fiduciary business under Sec. 4401Q, 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; c. Borrowing from, or selling trust, other fiduciary and/or investment management assets to, the trust corporation or investment house 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 institution itself or its trust department; and e. Requiring clients to sign documents in blank. SECTION 4409Q. Trust and Other Fiduciary Business . The conduct of trust and other fiduciary business shall be subject to the following regulations. SUBSECTION 4409Q.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 4409Q.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 deposit substitutes of the institution or deposits with other banks, or 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 4409Q.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 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 interests 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 a 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 relate 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; TaEIcS 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 of 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. 4409Q.2. Directors, officers, stockholders, and their related interest 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 relationship (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 4409Q.4 Ceilings on Loans . Loans funded by trust accounts shall be subject the single borrower's loan limit and DOSRI ceilings imposed on NBQBs under Part III-A and -E of this Manual. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the institution and its trust department to the same person, firm or corporation shall be combined. SUBSECTION 4409Q.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 4409Q.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 and NBQBs 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 the Registration of Long-Term Commercial Papers issued by the SEC (Appendices Q-7 and Q-8). c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provisions for probable losses in accordance with the criteria set in Appendix Q-10; and the corresponding allowance for probable losses booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. SUBSECTION 4409Q.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 4410Q. Common Trust Funds . The administration of CTFs shall be subject to the provisions of Subsecs. 4409Q.1 up to 4409Q.6 and to the following regulations. As an alternative compliance with the required prior authority and disclosure under Subsecs. 4409Q.2 and 4409Q.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 4410Q.1 Establishment of Common Trustfunds . Any trust company or investment house authorized to engage in trust business may establish, administer and maintain one (1) or more CTFs. SUBSECTION 4410Q.2 Minimum Documentary Requirements for Common Trust Funds . In addition to the trust agreement or indenture required under Subsec. 4409Q.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) business 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 and distribution dates of income, profit and losses; e. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participations 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 institution 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 participations 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) business 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 4410Q.3 Management of Common Funds . The trustee shall have the exclusive management and control of each administered by it, and the sole right at 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 particular asset or investment in the common trust fund but shall have only its proportionate beneficial interest in the fund as a whole. SUBSECTION 4410Q.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 4410Q.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 (1) 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 any 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 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. SUBSECTION 4410Q.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 participations in the fund; d. All such participations shall be pooled and invested as one (1) 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 4411Q. Investment Management Activities . The conduct of investment management activities shall be subject to the following regulations. SUBSECTION 4411Q.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. aASDTE 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 Q-14. SUBSECTION 4411Q.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 4411Q.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 fully disclosed and specifically agreed in writing by the clients. SUBSECTION 4411Q.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 fund 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 deposit substitutes maintained with the institution or deposits with banks, 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 4411Q.5 Transactions 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 of 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 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 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. 4411Q.4. Directors, officers, stockholders and their related interest covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI under 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 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 4411Q.6 Title to Securities and Other Properties . Securities such as promissory notes, shares of stocks, 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 4411Q.7 Ceilings on Loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on NBQBs in Part III E of this Manual. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the institution and its trust department to the same person, firm or corporation shall be combined. SUBSECTION 4411Q.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 4412Q. ( Reserved ) SECTION 4413Q. Required Retained Earnings Appropriation. An institution authorized to engage in trust and other fiduciary business shall, before the declaration of dividends, carry to retained earnings appropriated for trust business 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 retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends but losses accruing in the course of its business may be charged against surplus. aSATHE B. Investment Management Activities SECTION 4414Q. Authority to Perform Investment Management . An investment house may act as financial consultant, investment adviser or portfolio manager under Section 7 of P.D. No. 129, as amended. However, this shall not be construed as authority to engage in trust and other fiduciary business. Entities whose articles of incorporation or any amendments thereto, include the purpose or power to act as financial consultant, investment adviser or portfolio manager shall secure the prior favorable recommendation of the Monetary Board before the filing of said articles of incorporation or amendments thereto with the SEC. If an entity is found to be engaged in unauthorized investment management activities, whether as its primary secondary or incidental business the Monetary Board may impose administrative sanctions against such entity 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. An entity 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 4414Q.1 Prerequisites for Engaging Investment Management Activities . An entity before it may engage in investment management activities shall comply with the following requirements: a. It has been duly licensed by the appropriate government agency or created by special law or charter. b. The articles of incorporation or charter of the institution shall include among its powers or purposes the authority to engage in investment management activities. c. The by-laws of the institution 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 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. Where the applicant is authorized to engage in quasi-banking functions, the applicant shall also meet the following additional requirements: (1) It has continuously complied with the capital-to-risk assets ratio, reserve requirements against deposit substitutes, 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 deficiencies against 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/major violations or exceptions affecting its solvency, liquidity and profitability. Where the applicant is not authorized to engage in quasi-banking functions: (i) The adoption of a formula/criteria for NBQBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI; and (ii) The substitution of the reserve and liquidity floor requirements with the cash ratio, as follows: (a) Primary reserves to Bills Payable; and (b) Primary and secondary reserves to Bills Payable: where primary reserves consist of cash on hand, cash in vault, checks and other cash items, due from the BSP and due from banks; and where secondary reserves consist of BSP-supported government securities, treasury bills and other government securities. Compliance with the foregoing, as well as with other requirements under existing regulations, shall be maintained up to the time the authority is granted. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION 4414Q.2 Pre-operating requirements . An institution 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. 4415Q.1; b. Organization chart of the investment management department which shall carry out the investment management activities of the institution; 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 4415Q. Security for the Faithful Performance of Investment Management Activities SUBSECTION 4415Q.1 Basic Security deposit . An institution 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 volume of investment management assets: Provided, That at no time shall such deposit be less than P500,000. SUBSECTION 4415Q.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 maturities of not more than three (3) years from the date of deposit with the BSP. SUBSECTION 4415Q.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 4415Q.4 Compliance Period; Sanctions . The investment manager shall have thirty (30) business days after the end, of every calendar quarter within which to deposit with the BSP securities required under this Section. In case an institution fails to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new investment management accounts and from renewing expiring investment management contracts. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of investment management activity: a. On the institution: (1) First offense Penalty of P5,000 per business day to be reckoned from thirty (30) business 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 Fund Management Department: (1) First Offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent Offense s Suspension for ninety (90) days without pay. SECTION 4416Q. Organization and Management . The provisions under Sec. 4406Q up to Subsec. 4406Q.4 shall govern the organization and management of institutions 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 4417Q. Non-Investment Management Activities . The provisions of Sec. 4407Q shall apply in determining non-investment management activities except that the terms trust, other fiduciary, trustee and fiduciary shall be disregarded. SECTION 4418Q. Unsound Practices . The provisions of Sec. 4408Q shall govern the unsound practices for investment management accounts. SECTION 4419Q. Conduct of Investment Management Activities . The provisions of Sec. 4411Q shall govern the conduct of investment management activities of an institution without trust license that is engaged in investment management activities. SECTION 4420Q. Required Retained Earnings Appropriation . An institution authorized to engage in investment management activities shall, before the declaration of dividends, carry to retained earnings appropriated for trust business at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against retained earnings. C. General Provisions SECTION 4421Q. Books and Records . The institution'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 or 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 4422Q. Custody of Assets . All monies, properties or securities received by an institution 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. HaEcAC 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 4423Q. Fees and Commissions . An institution acting as trustee, fiduciary or investment manager shall be entitled to reasonable fees 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 all forms of advertising materials to market the fund 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 institutions, 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 4424Q. 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 4425Q. Reports Required SUBSECTION 4425Q.1 To Trustor, Beneficiary Principal . Every institution 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 4425Q.2 To the Bangko Sentral . An institution acting as trustee, fiduciary or investment manager shall submit periodic reports prescribed by the appropriate supervising and examining department of the BSP on the institution's trust and other fiduciary business and investment management activities within the deadline indicated in Appendix Q-3 . SECTION 4426Q. Audits SUBSECTION 4426Q.1 Internal Audit . The institution'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 4426Q.2 External Audit . The trust and other fiduciary business and investment management activities of an institution shall be included in the annual financial audit by independent external auditors required under Sec. 4172Q. aDHCEA The audit of the assets and accountabilities of the trust department/investment management department of an NBFI authorized 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. The audit of the trust/investment management department of an institution 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 institution's board of directors and to the BSP within the prescribed period containing, among other things, the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately, as well as the auditor's letter of comments/findings and recommendations. SUBSECTION 4426Q.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 institution. SECTION 4427Q. 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 4428Q. Receivership . Whenever a receiver is appointed by the Monetary Board for an institution that 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 4429Q. Surrender of Trust or Investment Management License . Any NBFI 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 institution's trust, other fiduciary business and investment management activities. If the institution 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 institution's authority to engage in trust and other fiduciary management activities. SECTIONS 4430Q-4498Q ( Reserved ) SECTION 4499Q. 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 an institution'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. CSAcTa PART FIVE Foreign Exchange Operations SECTION 4501Q. Authority; Coverage . With prior approval of the Monetary Board, and subject to the provisions of Article III, Chapter IV of R.A. No. 7653 and Section 7(13) of P.D. No. 129, as amended, an investment house may engage in foreign exchange operations which shall be limited to the servicing of project or program requirements of the following enterprises: a. BSP-certified export-oriented firms; b. Board of Investments-registered export-oriented firms; and c. Construction or service firms with overseas contracts approved by the Department of Labor and Employment. SECTION 4502Q. Specific Foreign Exchange Activities . The specific foreign exchange operations which investment houses may undertake in connection with the preceding Section are: a. Arranging or contracting of foreign loans for the account of the client firm, or contracting of foreign loans for the account of the investment house for relending to the client firm, subject to pertinent BSP rules and regulations; b. Providing import and export-related services to said firms such as letters of credit and other acceptable modes of payment, and the discounting of export drafts: Provided , That the total amount of foreign exchange transactions investment houses may deal in shall not exceed the amount of the financing arranged or provided by the investment house which involves the importation and exportation of related goods and services: Provided , further , That the amount of letters of credit outstanding of any investment house shall not exceed, at any given time, twice its net worth, except as may otherwise be specifically authorized by the Monetary Board; c. Holding foreign currency balances with foreign correspondents in connection with export-related services but in no case for speculative purposes; d. Entering into forward foreign exchange contracts with the BSP in connection with the foregoing activities; and/or e. Such other related foreign exchange activities as may be approved by the Monetary Board. SECTION 4503Q. Separate Department . Any investment house that may be authorized to engage in foreign exchange operations shall set up a separate department/unit to handle such operations. SECTION 4504Q. Applicability of Pertinent Bangko Sentral Rules . The foreign exchange operations of an investment house are subject to all applicable BSP rules and regulations on foreign exchange operations, including modifications thereof, considering the special nature of investment house operations, and the sanctions in connection therewith. cCAIES SECTION 4505Q. Aggregate Ceiling on Issuance of Guarantees . 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 NBQBs and outstanding at any given time, shall not exceed fifty percent (50%) of the NBQB's net worth, except those fully secured by cash, hold-out on deposits/deposit substitutes. SECTION 4599Q. 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 4601Q. Open Market Operations . The following rules and regulations shall govern securities in the open market pursuant to Section 91 of R.A. No. 7653: a. The BSP may buy and sell in the buying and sell in the open market for its own account: (1) Evidences of indebtedness issued directly by the Government of the Philippines or by 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 and must be available to the general public through banks, NBQBs and accredited government securities dealers. b. Outright purchases and sales of government securities shall be affected on the basis of the lowest price offered or the highest price bid. c. Repurchase agreements shall be open to banks (except rural banks), NBQBs and accredited government securities dealers and shall be made under the terms provided for in Sec. 4602Q and the following: (1) The repurchase agreement may be paid at any time before maturity at the option of the issuer of the repurchase agreement; (2) In the event the securities covered by the repurchase agreement are not repurchased by the issuer of such agreement, that may be sold in the open market or transferred to the BSP Portfolio; and (3) Should an issuer of a repurchase 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 repurchase agreements covering the sale of portion of the security holdings of the BSP portfolio may be made under the terms provided for in Subsec. 4602Q.1. SECTION 4602Q. Repurchase Agreements with the Bangko Sentral . Repurchase agreements may be effected with the BSP subject to the following terms and conditions: a. Rate . The rates on the repurchase 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 or 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 repurchase 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 repurchase 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 repurchase 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 repurchase 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 4602Q.1 Reverse repurchase agreements with Bangko Sentral . Reverse repurchase 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 4603Q. Derivatives . NBQBs and/or their subsidiaries/affiliates may engage in financial derivatives activities upon prior approval of the BSP. HcaDIA SUBSECTION 4603Q.1 Pre-qualification requirements . Approval by the BSP of an application to engage in derivatives activities shall be granted upon compliance with the following requirements: a. Required minimum capital for the specific category of NBQBs or net worth of P200 million, whichever is higher; b. Required net worth-to-risk assets ratio for the last sixty (60) days immediately preceding the date of application; c. Required reserves for the last eight (8) weeks immediately preceding the date of application; d. Electronic data processing capability including the appropriate computer hardware and software; e. Adequate internal control system and procedures including record keeping; f. 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; and g. Compliance with laws, orders, instructions and regulations issued by the Monetary Board and/or orders, instructions and rulings by the BSP Governor. The application to engage in derivatives activities shall be submitted to the Foreign Exchange Department of the BSP. SUBSECTION 4603Q.2 Authorized Transactions . Any NBQB 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 NBQB and/or its subsidiaries/affiliates shall not take an open position at any time. SUBSECTION 4603Q.3 Risk Management Guidelines . NBQBs and/or their subsidiaries/affiliates authorized to engage in derivatives shall adopt a policy manual that contains the minimum features and policies embodies in the Risk Management Guidelines for Derivatives ( Appendix Q-15 ). Risk at least contain the disclosure statements in Appendix Q-16 , shall be provided to the clients/customers of NBQBs and/or their 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 4603Q.4 Accounting Guidelines . In recording derivatives activities in the books, NBQBs and/or their subsidiaries/affiliates shall observe the guidelines enumerated in Appendix Q-17 . SUBSECTION 4603Q.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 an NBQB and/or its subsidiaries/affiliates: (i) has violated any provisions 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 when such reports are incomplete or erroneous in any material respect. SECTION 4604Q. Underwriting by Investment Houses . Underwriting commitments and fees of investment houses shall be subject to the rules issued by the SEC to implement the provisions of P.D. No. 129, as amended (Appendix Q-18) . SECTIONS 4605Q 4650Q ( Reserved ) B. Sundry Provisions SECTION 4651Q. Appreciation or Increase in Book Value of NBQB Premises and Other Fixed Assets . As a general rule, appreciation or increase in book value of NBQB 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: Provided , further , That the corresponding appreciation credit shall not form part of the combined capital accounts of NBQBs but lodged under a Revaluation Reserve account. SECTION 4652Q. Annual Fees on Quasi-Banks . NBQBs shall contribute to the BSP an annual fee to help defray the cost of maintaining the appropriate supervising and examining department. For purposes of computing the annual fees chargeable against NBQBs, 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-quarter 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 shall be the summation of end-of-quarter total assessable assets divided by the number of quarters in operation during the particular assessment period. Annual fees to be collected from NBQBs shall be debited to their respective deposits with the BSP upon receipt of the notice of the assessment from the appropriate supervising and examining department of the BSP. Where the deposit account is insufficient to cover the assessment fee, the BSP shall bill the NBQB 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 NBQB shall make the corresponding remittance to the BSP. Failure to pay the bill within the prescribed period shall subject the NBQB to administrative sanctions. SECTION 4653Q. Payment of Fines . NBQBs shall, within fifteen (15) calendar days from receipt of the statement of account from the BSP, pay the fines for reserve deficiency, reportorial delay/deficiency, refusal to permit examination, or failure to comply with, or violation of, any law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor. For NBQBs which maintain demand deposit accounts 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 NBQB concerned: Provided , That if the balance of the entity's account is insufficient to cover the fines due, such fines shall be paid not later than the following business day. For the purpose of this Section, business day means a day on which the BSP head office and the head office of the NBQB are open for business. SECTION 4654Q. Examination by the Bangko Sentral . The BSP shall have supervision over, and conduct periodic or special examinations of NBQBs, including their subsidiaries and affiliates in allied activities. The head and examiners of the appropriate supervising and examining department of the BSP are authorized to administer oaths to any director, officer, or employee of NBQBs, including their subsidiaries and affiliates engaged in allied activities, and to compel the presentation of all books, documents, papers or records necessary in their judgment to ascertain the facts relative to the true condition of the institution as well as the books and records of persons and entities relative to or in connection with the operations, activities or transactions of the institution under examination, subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of investments of private persons, natural or juridical, in debt instruments issued by the Government. SUBSECTION 4654Q.1 Definitions a. Subsidiary is a corporation 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 an NBQB. b. Affiliate is an entity linked directly or indirectly to an NBQB by means of: (1) Ownership, control or power to vote, of ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa; (2) Interlocking directorship or officership; (3) Common stockholders owning ten percent (10%) or more of the outstanding voting stock of each of the financial intermediary and the entity; (4) Management contract or any arrangement granting power to the financial intermediary to direct or cause the direction of management and policies of the entity, or vice-versa; or (5) Permanent proxy or voting trust in favor of the financial intermediary constituting ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa. CIAcSa c. Financial allied undertakings refer to enterprises or firms with homogeneous or similar activities/business/functions with the financial intermediary and may include, but not limited to, leasing companies, banks, investment houses, financing companies, credit card operations, financial institutions addressed/catering to small and medium scale industries, and such other similar activities as the Monetary Board may declare as appropriate from time to time. d. Non-financial allied undertakings may include, but not limited to, warehousing companies, storage companies, safe deposit box companies, companies engaged in the management of the mutual funds but not in the mutual funds themselves, management corporations engaged or to be engaged in activities similar to the management of mutual funds, insurance agencies, companies engaged in home building and home development and companies providing drying and/or including facilities for agricultural crops such as rice and corn and such other similar activities as the Monetary Board may declare as appropriate from time to time. SECTION 4655Q. Applicability of Expanded Commercial Banking Rules on NBQBs . In case of conflict between rules applicable to banks with expanded commercial banking authority and those applicable to NBQBs in activities where they perform the same functions, the rules governing banks with expanded commercial banking authority shall prevail. SECTION 4656Q. Basic Laws Governing Investment Houses and Financing Companies . The following are the basic laws governing investment houses and financing companies: a. Investment Houses . P.D. No. 129, as amended, known as The Investment Houses Law , governs the establishment, operation and regulation of investment houses. To effectively carry out the provisions of this Decree, the SEC, pursuant to the powers vested in it by said Decree, promulgated basic rules and regulations ( Appendix Q-18 ) to implement the provisions of the Decree. b. Financing Companies . R.A. No. 5980, as amended, known as The Financing Company Act , regulates the organization and operation of financing companies. To effectively carry out the provisions of this Act, the SEC, pursuant to the powers vested in it under said Act, promulgated basic rules and regulations to implement the provisions of the Act ( Appendix Q-19 ). SECTIONS 4657Q-4698Q ( Reserved ) SECTION 4699Q. General Provision on Sanctions Unless otherwise provided, any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. APPENDICES GUIDELINES TO EVALUATE INVESTMENT HOUSES ( Appendix to Sec . 4105Q ) 1. Capital The requirement is a minimum paid-in capital of P200 million for an investment house to be established in Metro-Manila and P100 million for all others. Foreign equity, if any, shall be registered with and approved by the Board of Investments and the Bangko Sentral. 2. Citizenship Majority (51%) of the voting stock shall be owned by Filipinos. 3. Directorship/Officership Majority of the board members shall be Filipinos. Resident foreign directors and technicians shall register with the Bureau of Immigration and Deportation. Compliance with the prohibition on interlocking directorship/officership between banks and investment houses and between NBQBs shall be observed. 4. Promotion of Public Interest and Economic Growth . a. Submission of a one (1)-year investment program indicating: (1) Underwriting and distribution activities . These shall show in details the various stages leading to the completion of an agreement. Target dates for each stage in the underwriting process shall be indicated which should serve as reference points in the event that an investment house is unable to bring the program and its components to fruition. Target volume of underwriting would be set initially at twenty-five percent (25%) of paid-in capital. (2) Fund mobilization . Emphasis shall be on maturities beyond one (1) year. Domestic and foreign sources shall be indicated and the latter shall be evaluated in terms of pertinent Bangko Sentral regulations. (3) Fund usage . Support of priority investment areas of the Government and other projects which may be determined by the Bangko Sentral shall be emphasized. Funds placed on maturities beyond one (1) year shall be preferred. (4) Planned distribution of portfolio . Activities indicating money-market services and investment in subsidiaries and affiliates, while necessary to sustain the investment house, shall be subordinated to the preferred activities above-indicated. Other activities as financial management, counseling, distribution of equity and debentures for "public" ownership, etc., shall be considered. b. The one (1)-year investment program of the investment house shall be related to the government development plan by indicating the portion of the investment and savings targets in the plan which would be supported by the investment house industry. c. A one (1)-year projected income statement showing major sources of income and expense items. d. Operational agreement with other financial institutions. e. A statement justifying the operation of the investment house as not in conflict with public interest and economic growth, taking into account the existing number of investment houses, indicating: (1) record of underwriting; (2) evidence of medium and long-term loans; (3) evidence of obtaining funds with maturity beyond one (1) year; and (4) equity investments which were subsequently distributed to the public. 5. Organization, Direction and Administration The organizational/functional chart should match the organization framework with operational objectives. The management of the company, board of directors and the managerial staff, must be firmly designated before it can be granted a license to operate as an investment house. 6. Integrity , Experience and Expertise of Board and Management Staff a. Formal training, academic or others; b. Experience along financial management, securities dealing, fund management, project evaluation and feasibility studies; c. Absence of administrative or criminal conviction; and d. Affiliation with professional organizations. 7. Branching The rate at which branch offices are to be established shall depend upon the ability of the company to conduct operations from headquarters/head offices as well as on correspondent (banking) arrangements. cSITDa Other factors to be considered are the following: a. Reserve and liquidity position; and b. Profitability and capacity to absorb losses. APPENDIX Q-2 DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL THE ENTITY MUST PUT UP (PROJECTION BASE LATEST AVAILABLE REPORT) (IN THOUSAND PESOS) (Appendix to Subsec. 4151Q.2) ____________________________ (Name of Entity) A. 1. Estimated Amount of Risk Assets of Present Office for the Next 12 Months a. Actual Risk Assets P xxx b. Add: xx% of (a) xxx Risk Assets (Base Period) P xxx Risk Assets (Previous Year) xxx Increase P xxx Rate of Increase = increase = xx% actual risk assets c. Total of (a) and (b) P xxx ===== 2. Maximum Possible Level of Risk Assets Based on the Base Period Figures: a. Net worth Less 30% of Paid-in Capital (Pxxx-xxx) P xxx b. 100% of Borrowings (Bills Payable) xxx c. 80% of Unutilized Acceptances or Credit Line with Foreign Bank(s) xxx P xxx ==== B. Estimated Risk Assets for the First 12 Months of Operation: 1. Branch Approved but not yet Opened: P xxx 2. Branch Being Applied for: xxx Add: Lower of A.1 or A.2 xxx C. Total Estimated Risk Assets for 12 Months P xxx ==== D. 10% of C (Minimum Paid-in Capital Required) P xxx E. Less: Present Combined Capital Accounts P xxx (Base Period Figures) xxx xxx Add: xx% of above xxx xxx Capital Accounts (Base Period) P xxx Capital Accounts (Previous Year) xxx Increase P xxx * Rate of Increase = Increase = xx% Capital Accounts of Previous Year F. Estimated Excess of Capital over Minimum Capital Required or Additional Amount of Capital Applicant Must Put Up, as the case may be P xxx APPENDIX Q-3 ANNEX Q-3-a INFORMATION ON ONE-YEAR BORROWING-INVESTMENT PROGRAM TO BE SUBMITTED BY NBQBs (Annex to Appendix Q-3) 1. Investment areas indicating industry direction of the corporation engaged in quasi-banking, indicating as a minimum, the following: (a) money market operations; (b) investments in stocks and bonds; (c) investments in government securities; (d) receivables financing; (e) leasing activities; and (f) direct loaning operations. Likewise to be disclosed are the other preferred areas of investment, e.g., real estate, condominium, and those related to the government programs and other projects which may be determined by the Bangko Sentral. For investment houses with quasi-banking functions, the proposed underwriting program, as well as the previous year's activities, shall also be submitted identifying debt and equity issues. 2. Borrowing operations to support the investment program indicating among others: (a) Maturity short-term: less than a year medium-term: one (1) year to five (5) years long-term: more than five (5) years (b) interest rate per annum for the above three types of borrowings (more indicatory than fixed). Individual or institutional source of funds; whether domestic or foreign, governmental or private, financial or non-financial. 3. Preference shall be given to fund usage and mobilization at terms beyond one (1) year. ANNEX Q-3-b GUIDELINES GOVERNING THE CONSOLIDATION OF FINANCIAL STATEMENTS OF FINANCIAL INTERMEDIARIES AND THEIR ALLIED UNDERTAKINGS/SUBSIDIARIES/AFFILIATES ( Annex to Appendix Q-3 ) I. Definitions . The following definitions of terms are hereby adopted: a. Consolidated Financial Statements shall refer to the combined statement of condition/balance sheet and statement of income and expenses of two or more corporate entities as they would appear if they were one organization, after eliminating the effects of inter-company transactions. b. Financial Allied Undertakings refer to enterprises or firms with homogenous or similar activities/business/functions with the financial intermediary and may include but not limited to leasing companies, banks, investment houses, financing companies, credit card operations, financial institutions addressed/catering to small and medium scale industries, and such other similar activities as the Monetary Board may declare appropriate from time to time. Non-financial allied undertakings may include but not limited to warehousing companies, storage companies, safe deposit box companies, companies engaged in the management of mutual funds but not in the mutual funds themselves, management corporations engaged or to be engaged in activities similar to the management of mutual funds, insurance agencies, companies engaged in home building and home development and companies providing drying and/or including facilities for agricultural crops such as rice and corn and such other similar activities as the Monetary Board may declare as appropriate from time to time. ECaScD c. 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. d. Subsidiary and Affiliate refer to a corporation, firm or entity as defined in Subsection 4654.1.a and b. e. 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 allied undertaking/affiliate/subsidiary. f. 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 resulting from earnings or losses of the allied undertakings/affiliate/subsidiary. II. Consolidation Requirements . a. The financial statements of allied undertakings shall be consolidated with those of the investing financial intermediary only when the allied undertaking is a subsidiary and a financial allied undertaking as defined herein. b. 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 Bangko Sentral. c. Financial statements of all domestic and foreign subsidiaries shall be consolidated with those of the investing financial intermediary (domestic parent), except (1) subsidiaries about to be disposed of; (2) subsidiaries where control is being exercised on a temporary basis; (3) subsidiaries whose financial statements bear a closing date different from that of the investing financial intermediary's financial statements and/or (a) the difference in closing dates exceeds three months or more; (b) the closing dates of all the statements are not expressly indicated; (c) the necessity of the difference to closing date is not explained; and (d) changes in accounting periods of the affiliate/constituent companies are not disclosed, together with their financial statements. (4) subsidiaries whose business activities are dissimilar from those of the investing financial intermediary that the presentation of separate financial statement would provide better information; and (5) foreign subsidiaries located in places where (a) there are foreign exchange restrictions; (b) the rates of exchange fluctuate widely; (c) there are unfavorable legislations in force; and (d) the foreign government concerned is undergoing a process of change. III. Consolidation Procedures . a. Consolidation of the financial statements shall involve the following procedures: (1) 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, revenues 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"; (2) The following are eliminated in consolidation: (a) All intercompany transactions; for instance, rental income of a subsidiary from its premises should be netted against rent expenses incurred by the investing financial intermediary for occupying said premises. (b) All intercompany accounts/transactions that reflect the existence of a debtor-creditor relationship between the investing financial intermediary and subsidiaries and/or between subsidiaries. (c) All asset accounts of the investing financial intermediary which represent ownership of investments in subsidiaries against the capital accounts of the consolidated subsidiaries. (3) All income and expense accounts shall be closed to the capital accounts of each subsidiary. (4) All the remaining assets and liabilities of the subsidiaries shall be transferred to appropriate accounts of the investing financial intermediary. (5) For not wholly-owned subsidiaries, segregate the share of minority stockholders/interest in the capital stock and retained earnings of such subsidiaries and lodge the same 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. (6) Other generally accepted consolidation principles/procedures not inconsistent herewith may be adopted. (7) Consolidating adjustments and eliminations shall appear only on working papers and shall not be recorded in the books of the individual entities concerned. b. 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: (1) "Excess of Cost Cover Book Value of Equity Investments" for excess of cost of equity investment over its book value (2) "Excess of Book Value Over Cost of Equity Investments" for the excess of book value of equity investments 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. c. The investments (which are recorded at the cost method) of the investing financial intermediary in allied undertakings/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/above. However, these adjustments shall appear only in working papers and shall be recorded in the books of the individual entities concerned. IV. Disclosures . The following schedules/disclosures shall be attached to/made in the consolidated financial statements: a. An appropriate list/schedule of the allied undertakings/subsidiaries/ affiliates showing the following information: (1) Name and nature of business; (2) Original cost of the investment; outstanding balance, book value and difference, if any; and accounting treatment of the difference; (3) Percentage of ownership/equity investment; (4) Differences in reporting dates from that of the reporting financial intermediary; (5) Whether or not their financial statements have been consolidated; and (6) Reasons for not consolidating in the case of the unconsolidated entities. b. Where the unconsolidated subsidiaries are, in the aggregate, material in relation to the consolidated financial-position or operating results, summarized information as to their assets, liabilities and operating statements should be presented/indicated, shown in footnotes, or separate financial statements should be presented for such subsidiaries, either individually or in groups, where appropriate. c. Any information on: (1) Exposure to exceptional risks of operating in other countries, including the risk of foreign currency exchange rate fluctuations. (2) The extent to which there are statutory or contractual restrictions on the distribution of the accumulated retained income of the group. ANNEX Q-3-c REPORTING GUIDELINES ON CRIMES/LOSSES ( Annex to Appendix Q-3 ) 1. NBQBs shall report on the following matters through 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 property of the NBQB when the amount involved in each crime is P20,000 or more. Crimes involving NBQB personnel, regardless of whether or not such crimes involve the loss/destruction of property of the NBQB, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. cHSTEA b. Incidents involving material loss, destruction or damage to the institution's properties/facilities, other than arising from a crime, when the amount involved per incident is P100,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5)-business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. ANNEX Q-3-d DOCUMENTARY REQUIREMENTS ON DIRECTORS/OFFICERS/MAJOR INDIVIDUAL STOCKHOLDERS ( Annex to Appendix Q-3 ) I. Directors and/or major individual stockholders owning 10% or more of the outstanding voting securities: (a) Statement of financial condition as of latest date under oath or certified by an independent CPA. Appropriate disclosures shall be made when necessary, specifically on encumbered assets and names of creditors; (b) Income tax return for the preceding year; (c) Tax clearance for business purposes; (d) Information on integrity, credit standing and business experience from Banking institutions in Manila/locality where firm operates and in places of residences or birth; and (e) Affidavit of two (2) persons of good standing other than the present employer or relatives within the third degree of affinity or consanguinity. For stockholders, information on credit standing is sufficient. II. Directors/Officers : (a) Bio-data sheet in the prescribed form accomplished under oath; (b) Clearances from the Criminal Investigation Services of the Philippine Constabulary, the National Intelligence and Security Authority, and such other relevant investigating agency as might be determined by the appropriate supervising and examining department; and (c) Certification under oath by each director/officer to the effect that he/she is not disqualified under Sec. 4143Q. III. Non-resident foreign directors shall be exempted from the documentary requirements enumerated above, except for the following: (a) Bio-data sheet in the prescribed form accomplished under oath; (b) Clearance from the National Bureau of Investigation (NBI) or the Department of Foreign Affairs; and (c) Certification under oath that the foreign director is not disqualified under Sec. 4143Q. ANNEX Q-3-e DOCUMENTS/INFORMATION ON ORGANIZATIONAL STRUCTURE AND OPERATIONAL POLICIES ( Annex to Appendix Q-3 ) I. Documents on organizational structure and operational policies 1. Chart of the firm's organizational structure or any substitute therefor; 2. Name of department/units/offices with their respective duties 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 operating 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 form/reports used by each office/unit/department other than those submitted to the Bangko Sentral; and 7. Such other documents/information which may be required from time to time. II. Other Data 1. Name of Institution 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 (f) Date of annual election of directors per By-Laws 6. Executive officers including Auditor: (a) Names and titles (b) Telephone number of each officer (office) (c) For the Executive Vice-President, state the names of corporations where he serves as Chairman of the Board and names of other business enterprises which he is proprietor or partner (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 (e) Include officers from President to Vice-President 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 number of: (1) Manager (2) Cashier (3) Accountant (d) For agencies and extension offices, indicate name of mother branch. APPENDIX Q-4 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION ( Appendix to Subsec. 4162Q . 1 ) Category A-1 reports shall be signed by the 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 by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/ officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex Q-4-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. ANNEX Q-4-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS ( Annex to Appendix Q-4 ) Resolution No. __ Whereas, it is required under Subsec. 4162Q.1 that Category A-1 reports be signed by the 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 by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ (Name of Institution) are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and __________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. ____________________ President _______________________ Specimen Signature or Executive 2. Mr. ____________________ Vice President _______________________ Specimen Signature and 3. Mr. ____________________ Comptroller _____________________ Specimen Signature or Chief 4. Mr. ____________________ Accountant ______________________ Specimen Signature are hereby authorized to sign Category A-1 reports of _________________. (Name of Institution) Done in the City of ______________ Philippines, this _____ day of _________________. 19____. ___________________________________ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ ATTESTED BY: ___________________________________ CORPORATE SECRETARY ANNEX Q-4-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS (Annex to Appendix Q-4) Resolution No. ___ Whereas, it is required under Subsec. 4162Q.1 that Category A-2 reports of head offices be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _________________ (Name of Institution) are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No . are hereby authorized to sign the Category A-2 reports of _________________________ (Name of Institution) Done in the City of ____________________, Philippines, this _____ day of ___________, 19___. _____________________________ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ ATTESTED BY: _____________________________ CORPORATE SECRETARY ANNEX Q-4-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS (Annex to Appendix Q-4) Resolution No. ____ Whereas, it is required under Subsec. 4162Q.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ________________ (Name of Institution) are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign the Categories A-3 and B reports of _________________ (Name of Institution) Done in the City of _________________, Philippines, this _____ day of _______________ ,19 ___ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ ATTESTED BY: ___________________________ CORPORATE SECRETARY APPENDIX Q-5 MINIMUM INTERNAL CONTROL STANDARDS FOR NBQBs ( Appendix to Sec . 4171Q ) I. Proper Accounting Records 1. NBQBs should maintain proper and adequate accounting records. 2. These records should be kept currently posted and should contain sufficient detail so that an audit trail is established. 3. All entries should bear official approval and should be initialed by the person originating and another person checking them. II. Independent Balancing 1. Independent balancing shall mean that records posted by a person or cash held by a cashier shall be balanced or counted by another person. 2. The minimum independent balancing procedures which should be adopted are the following: a. Monthly reconcilement of general ledger balances against their respective subsidiary and supporting records and documentations by someone other than the bookkeeper, the person handling the records, or the person directly connected with processing the transactions. b. Irregular and unannounced count of cashier's cash and checks and other cash items at least twice a month by the auditor/control officer or by an officer not connected with the treasurer's/cashier's office or its equivalent. c. Monthly reconcilement of cash in banks accounts (domestic and foreign) and due from/to head office/branches by someone other than the check custodian, the person posting the general ledger entries or the authorized signatory of the bank account. d. Periodic verification of securities and collaterals by someone other than their custodians. Verification should include both the physical inventory of securities and the record checking. caIEAD e. Periodic verification of the accuracy of the interest credits and payments to deposit substitute liabilities accounts. 3. All exceptions in the reconciliation/verification should be followed up immediately until satisfactorily corrected. III. Division of Duties and Responsibilities 1. The duties of all the officers and employees should be segregated, clearly defined, understood, documented and manualized if possible. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end. 2. The physical handling of a transaction should be separated from its recording and supervision as follows: a. A person handling cash should not be permitted to post the ledger records nor should posting of the general ledger be performed by an employee who posts the investor's/creditor's subsidiary ledgers; b. A loaning officer should never be allowed to disburse proceeds of notes, accept note payment nor process loan ledgers; c. The functions of issuing, recording and signing of checks should be separated; d. The receipt of statements from depository bank should be assigned to an employee other than the one connected with the preparation, recording and signing of checks; e. Custodians of securities should not be allowed to handle security transactions; f. Collateral appraisals should be done by an employee/officer other than the ones approving the loans; g. Incoming checks and other cash items should be recorded chronologically in a register by an employee other than the bookkeeper; h. Credit reports should be obtained by someone other than lending officers; i. Mailing of client's statements and delinquent notices should be done by an employee other than the one who granted the loan or the one handling the records; and j. Paid checks/drafts should be controlled and maintained by an officer/employee other than the authorized signatory or the cashier. 3. Extensive background checking of persons intended to be assigned to handle cash and securities should be conducted. Frequent follow-up checking after their employment should also be made. IV. Joint Custody 1. 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. 2. Physical protection should be deemed established through the use of two (2) locks or combinations on a file chest or vault compartment. 3. Two (2) or more persons should be assigned to each half of the control so that operating efficiency is not impaired if one person is not immediately available. 4. Persons who are related to each other within the third degree of consanguinity or affinity should not be made joint custodians. 5. The following should be under joint custody: a. Cash on hand or in vault b. All accountable forms c. Collaterals d. Securities e. Documents of title and/or ownership of properties or fixed assets f. Safekeeping items g. Vault doors and safe combinations. V. Signing Authorities 1. Signing authorities for the different levels of officers to sign for and in behalf of the institutions should be approved by the board of directors and the extent of each level of authority should be clearly defined. These signing authorities should include but need not be limited to the following: a. Lending; b. Borrowing; c. Investments; d. Approval of expenses; e. Various supervisory reports; and f. Checks. VI. Dual Control 1. Dual control shall mean the work of one (1) person is to be verified by a second person to determine (a) that proper authority has been given to handle the transaction, (b) that the transaction is properly recorded, and (c) that proper settlement of the transaction is made. 2. The routine of each transaction should be designed so that at least two (2) or more individuals are involved in the completion of every transaction. 3. The following accounts/transactions should be under dual control: a. Checks The signature of at least two (2) officers should be required in the issuance of checks. b. Borrowing The signature of at least two (2) authorized officers should be required. c. All transactions giving rise to "due to" or "due from" account and all instruments of remittances evidencing these transactions particularly those involving substantial amounts, should be approved by two (2) authorized officers. VII. Number Control 1. Sequence number controls should be incorporated in the accounting systems and should be used in registering notes, in issuing official checks and in other similar situations. Number control should be policed by a person designated by senior management who should be detached from the particular operations involved. TEHIaA 2. The following are the forms, instruments and accounts that should be number-controlled: a. Checks; b. Promissory notes and other Commercial papers; c. Official and provisional receipts; d. Certificate of stocks; e. Loan accounts; and f. Expense vouchers. VIII. Rotation of Duties 1. The duties of personnel handling cash, securities and bookkeeping records should be rotated. 2. Rotation assignment should be irregular, unannounced and long enough to permit disclosure of any irregularities or manipulations. IX. Independence of the Internal Auditor 1. The position of internal auditor should be provided for in the by-laws together with the duties and responsibilities, scope and objectives of internal auditing. 2. The internal auditor should report directly to the Board of Directors. 3. The internal auditor should not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. X. Direct Verification 1. Direct verification shall mean the confirmation of account or records by direct correspondence/visits with the institution's customers. 2. The following accounts, among others, should be subject to direct verification by the internal auditing staff at least once a year: a. Balances of loans and credit accommodations of borrowers b. Outstanding balances of borrowings and other liabilities c. Outstanding balances of receivables/payables d. Collaterals securing said accounts. XI. Other Internal Control Standards 1. Investments a. Investment limits and a list of accredited companies as approved by the Board of Directors or by its Credit Committee should be established as a guide for investing in any financial institution engaged in money market trading. b. Investments should be secured by assets approved by the Board of Directors or by its Credit Committee. c. Checks representing placements of investments should be released only upon receipt of either the deposit substitute instrument or the underlying securities or documents of title. 2. Miscellaneous a. Loan applications and related documents should be spot checked to insure their authenticity, including verification of name, residence, employment and current reputation of the borrowers. b. No employees should be permitted to process transaction affecting his own account. c. Cashiers and other employees having contact with customers should be prohibited from preparing deposit substitute tickets or other records for the customers. d. NBQBs should have a sound recruitment policy since internal control begins from point of hiring. e. NBQBs should secure adequate insurance coverages, fidelity and other indemnity protection, viz: (1) Insurance coverage for losses arising from calamities and theft/robberies. (2) Fidelity bonds for losses arising from dishonest, fraudulent and criminal acts of accountable officers/employees. APPENDIX Q-6 STANDARDIZED DEPOSIT SUBSTITUTE INSTRUMENTS ( Appendix to Subsec . 4211Q . 3 ) Serial No. ___________ _________________________________ (Name of NBQB) PROMISSORY NOTE Issue Date : __________, 19___ Maturity Date: ________, 19___ FOR PESOS _____________________________________ (P___________) (Present Value/Principal) RECEIVED, _______________________________________ promises to pay (Name of Issuer/Maker) ________________________________________________ or order, the sum (Name/Account Number of Payee) of PESOS ________________________________________ (P___________) (Maturity Value/Principal & Interest) subject to the terms and conditions on the reverse side hereof. ___________________________ (Duly Authorized Officer) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) 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 date 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 collateral ( ) Collateral/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 ____________________________________ (describe document) dated _______________________________________________ executed by ___________________________________ (name of party/ies) and made an integral part hereof. APPENDIX Q-6 Serial No. ___________ _________________________________ (Name of NBQB) REPURCHASE AGREEMENT Issue Date : __________, 19___ Repurchase Date: ______, 19___ FOR AND IN CONSIDERATION OF PESOS ___________________ (P_______) Vendor, __________________ (name of NBQB) hereby sells, transfers and conveys in favor of Vendee, _______________________ (name of Vendee) the security(ies) described below, it being mutually agreed upon that the same shall be resold by Vendee and repurchased by Vendor on the repurchase date indicated above at the price of PESOS ______________________ (P______), subject to the terms and conditions stated on the reverse side hereof. (Description of Securities) ____________________________________________________________________ Issuer Serial Number/s Maturity Date/s Face Value Interest/Yield ____________________________________________________________________ P P ____________________________________________________________________ TOTAL P P ____________________________________________________________________ CONFORME: ___________________________ (Duly Authorized Officer) ___________________________ (Signature of Vendee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT 1. Computation of Yield Yield 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 ____________________________________ (describe document) dated ____________, executed by ___________________________________ (name of party/ies) made an integral part hereof. Serial No. ___________ _________________________________ (Name of NBQB) CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date : __________, 19___ FOR AND IN CONSIDERATION OF PESOS ___________________ (P_______) __________________ (name of Assignor) hereby assigns, conveys, and transfers with recourse to ______________________ (name of Assignee) the debt of ____________________ (name of Principal Debtor) to the Assignor, specifically described as follows: (Description of Debt Securities) ____________________________________________________________________ Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield ____________________________________________________________________ P P ____________________________________________________________________ TOTAL P P ____________________________________________________________________ and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the face value of, and the interest/yield on, said debts securities. The assignment shall be subject to the terms and conditions on the reverse side hereof. CONFORME: ___________________________ (Duly Authorized Officer) ___________________________ (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF CERTIFICATE OAF 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 o %) 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. Serial No. ___________ CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date : __________, 19___ FOR AND IN CONSIDERATION OF PESOS ___________________ (Principal Value/Principal) (P_______) __________________ (name of Assignor) hereby assigns, conveys, and transfers with recourse to ______________________ (name of Assignee) the debt of ____________________ (name of Principal Debtor) to the Assignor, specifically described as follows: ____________________________________________________________________ Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield ____________________________________________________________________ P P ____________________________________________________________________ TOTAL P P ____________________________________________________________________ and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay the face value of, and the interest/yield on, said debt securities, subject to the terms and conditions on the reverse side hereof. CONFORME: ___________________________ (Duly Authorized Officer) ___________________________ (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND 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 of %) 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. Serial No. ___________ _________________________________ (Name of NBQB) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date : __________, 19___ FOR AND IN CONSIDERATION OF PESOS ___________________ (P_______), this certificate of participation is hereby issued to evidence the _____________ (Fraction or %) share of _______________ (name of Participant) in the loan/s of __________________ granted by/assigned to the herein issuer, specifically described as follows: (Description of Debt Securities) ____________________________________________________________________ Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield ____________________________________________________________________ P P ____________________________________________________________________ TOTAL P P ____________________________________________________________________ The issuer shall pay, jointly and severally with the Principal Debtor, ______________ (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: ___________________________ (Duly Authorized Officer) ___________________________ (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) 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 of %) 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. Serial No. ___________ _________________________________ (Name of NBQB) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date : __________, 19___ FOR AND IN CONSIDERATION OF PESOS ___________________ (P_______), this certificate of participation is hereby issued to evidence the _____________ (Fraction or %) share of _______________ (Participant) in the loan/s of __________________ granted by/assigned to the herein issuer, specifically described as follows: (Description of Debt Securities) ____________________________________________________________________ Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield ____________________________________________________________________ P P ____________________________________________________________________ TOTAL P P ____________________________________________________________________ In case of default of the Principal Debtor, the Issuer shall pay the ________________ (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: ___________________________ (Duly Authorized Officer) ___________________________ (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) 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. APPENDIX Q-7 NEW RULES ON REGISTRATION OF SHORT-TERM COMMERCIAL PAPERS ( Appendix to Subsec . 4211Q . 9 ) 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 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 paper 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 A to L, 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: HICSaD (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 ratio = Current Liabilities OR Average acid-test ratios shall be at least 0.5:1 computed as follows: Cash, receivables, and marketable securities Acid-test ratio = Current Liabilities 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 profit margin = Net sales or revenues 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 Return on equity = Total stockholders' 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 expense = 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 issuer, 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 connection with, among others, the use by the issuer of the proceeds of the bank committed credit line and the reportorial requirements under these rules; (vii) Other obligations of the commercial 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 that 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, 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, 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, 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 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, and financial intermediaries with quasi-banking functions; (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 Section 3, but shall be subject to payment of the exemption fee, as provided under Section 15, and to the reportorial requirements under Section 17, all under these Rules. SECTION 6. Prohibition . No commercial paper, except of a class exempt under Sections 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. IECcAT 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 three hundred per cent (300%) of networth, as contemplated in the preceding section, it shall be subject to compliance with the requirement under Section 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 three hundred sixty five (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 three hundred sixty-five (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 Section 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 Section 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 allowing the end of the reference quarter; and (3) For issuers whose application for registration was under Section 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 filled 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 Section 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 Paper. Such Cease-and-Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Section 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 Section 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 Paper, 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. (Editors Note: Annexes "A" and "B" are not reproduced in this Appendix.) APPENDIX Q-8 NEW RULES ON THE REGISTRATION OF LONG-TERM COMMERCIAL PAPERS ( Appendix to Subsecs. 4211Q . 9 and 4217Q . 3 ) Pursuant to Section 4(b) of the Revised Securities Act and other existing applicable laws, the Securities and Exchange Commission (SEC) 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 definitions 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 a 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 Current market the stock exchanges value of 200% 2) Registered real estate Appraised value mortgage of 150% 3) Registered chattel mortgage Appraised value on heavy equipment, of 200% 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 to 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 three hundred percent (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 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 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 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; ATDHSC 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 underwriting agreement and thereafter, the responsibility shall devolve upon this 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; 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; 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 where the requirements of applicable laws and regulations governing the issuance of long-term commercial papers have not been complied with, or for 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, building 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, and financial intermediaries with quasi-banking functions; SCHcaT g. Evidence of indebtedness, the total outstanding amount of which does not exceed Fifteen Million Pesos (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 (1) a disclosure statement prior to the issuance of any evidence of indebtedness; and (2) 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": and 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 Section 14, and to the reportorial requirements under Section 15 of these Rules: a. Long-term commercial papers issued by a financial intermediary authorized by the BSP to engage in quasi-banking functions; 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 Section 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. 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 longterm commercial paper, 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 Section 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 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 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 Section 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 Paper. c. Such Cease-and-Desist Order shall be confidential in nature, until after the imposition of the sanctions mentioned in Section 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 Section 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 Paper and Bonds dated October 15, 1976 and all the amendments to said Rules except as provided in Section 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 or Certificate of Exemption to Issue 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 issue 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. (Ed. Note: Annexes "A" and "B" are not reproduced in this Appendix.) APPENDIX Q-9 LIST OF RESERVE ELIGIBLE AND NON-ELIGIBLE SECURITIES ( Appendix to Subsec . 4246Q.1 ) 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: a. 4% PWED Bonds all outstanding series b. 4% NPC Bonds (26th-50th Series except 39th Ser. which bear 6%-obligation assumed by the National Government) c. 4% Treasury Bonds (30th S; 57th S; 59th-71st S; 78th-93rd S) 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 Release) 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 Release) 3- % T/Bond L of 1978/2003 54th Series (1st-3rd Release) d. 4% Treasury Notes L of 1980/1995 115th Series e. Bonds made specifically eligible to its holders only: 4% Treasury Capital Bonds DBP only 2% Capital Treasury Bonds PNB only 2. 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: 4% NAWASA Bonds (1st to 9th & 13th Series) 3. 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. 638, dated November 8, 1978, as amended: cCaSHA 6% PWED Bonds All outstanding 6% NPC Bonds -do- 7% NPC Bonds -do- 8-% NPC Bonds 13th-22nd Series 7% MWSS Capital All outstanding Bonds Issues 6% NIA Bonds -do- 4% Treasury Bonds -do- 4 7/10% Treasury Bonds 7th Series 4 7/10% Treasury Bonds 9th 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-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 10-1/2% 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, 31st- 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 21st Series 1st Release 3- % T/Bond L of 1977/2002 21st Series 2nd Release 3-% T/Bond L of 1977/2002 51st Series 1st & 2nd Release 3-% T/Bond L of 1978/2003 54th Series 1st & 34th Release 3-% T/Bond L of 1980/2005 58th Series 3-3/4% 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 APPENDIX 10-Q GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES ( Appendix to Sec . 4302Q ) 1. 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 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 are loans which possess the characteristics outlined hereunder. Classified loans are subdivided into (a) loans especially mentioned; (b) substandard; (c) doubtful; and (d) 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: (i) Unlocated collateral folders and documents including but not limited to title papers, mortgage instruments and promissory notes; (ii) Improper execution of the supporting deed of assignment/pledge agreement/chattel mortgage/ real estate mortgage; (iii) Unregistered and/or unnotarized mortgage instruments as required in the loan approval; (iv) Collaterals not covered by appraisal reports or appraisal reports of which are unlocated; (v) Collaterals not insured or with inadequate/ expired insurance policies; and (vi) 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: (i) Loans renewed without updated financial statements, income tax returns and/or statements of assets and liabilities; and (ii) 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: (i) Loan accounts wherein effort to collect is not evident or is deemed inadequate; (ii) Loans granted beyond the limits of approving authority; (iii) Availments against expired credit line; availments in excess of credit line; or availments against credit line without prior approval by appropriate authority; (iv) Demand loans outstanding for an unreasonable length of time; (v) Loans granted without compliance with conditions set forth in the approval; (vi) Loans with promissory notes signed by unauthorized officers of the borrowing firm; (vii) Loans secured by property the title to which bears an uncancelled annotation of lien or encumbrance; and (vii) 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 (i) Loans under litigation; (ii) 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; (iii) Past due for more than six (6) months without reduction in principal but in process of collection; and (iv) 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. (v) Past due well-secured loans and advances not in process of collection, interest of which is unpaid for a period of over six (6) months to one (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 (i) Items under litigation; (ii) Loans past due for more than ninety (90) days; (iii) Renewed/extended loans without at least twenty percent (20%) repayment of the principal before renewal or extension; (iv) 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 (v) 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 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. 2. 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. EaHATD 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 NBQB 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 Annual of Redemption Provision Period or to Cost Perfection of 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 Annual of Redemption Provision Period or to Cost Perfection of 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 shall 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. 3. Allowance for probable losses . An allowance for probable losses on the loan accounts and other risk assets shall be set up in accordance with the following: Classification Allowance a. Unclassified 0% b. Loans Especially 0% Mentioned c. Substandard (Unsecured Portion) 25% d. Doubtful 50% e. Loss 100% The allowance for probable losses shall be adjusted accordingly for additional allowance required by the BSP. CTHDcS 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. APPENDIX Q-11 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (Appendix to Subsec. 4309Q-2) _________________________ (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) (As required under R.A. 3765, Truth in Lending Act) Name of Borrower __________________________________________________ Address __________________________________________________________ 1. Cash/Purchase Price ____________ or Net Proceeds of Loan P ___________ (Item Purchased) 2. LESS: Down payment and/or Trade-in Value (not applicable for _____________ loan transaction 3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan ____________ 4. Non-Finance Charges [Advanced by Seller/Creditor]: a. Insurance Premium P _____________ b. Taxes _____________ c. Registration Fees _____________ d. Documentary/Science Stamps _____________ e. Notarial Fees _____________ f. Others: _____________ _____________ _____________ _____________ _____________ _____________ Total Non-Financial Charges _____________ 5. Amount to be Financed (Items 3 + 4) P ============ 6. Finance Charges * a. Interest ______% p.a. P _____________ from _______ to ________ [ ] Simple [ ] Monthly [ ] Compound [ ] Quarterly [ ] Semi-Annual [ ] Annual b. Discounts _____________ c. Service/Handling Charges _____________ d. Collection Charges _____________ e. Credit Investigation Fees _____________ f. Appraisal Fees _____________ g. Attorney's/Legal Fees _____________ h. Other Charges incidental to the _____________ extension of credit (specify): _____________ _____________ _____________ _____________ _____________ _____________ Total Finance Charges P ============ 7. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. 4309Q.1) _____% 8. Effective Interest Rate (Method of computation attached) _____% 9. Payment a. Single Payment due ______________ P ============ (Date) b. Total Installment Payments (Payable in _____ weeks/months @ P _______) P ============ * Time price differential should be disclosed as a finance charge. If an itemization cannot be made, a lump-sum figure may be reported among Other Charges incidental to the extension of credit in Item 6h . 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount ________________ ________________ ________________ ________________ ________________ ________________ ________________ ________________ ________________ CERTIFIED CORRECT: ___________________ (Signature of Creditor/ Authorized Representative Over Printed Name) ___________________ Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. ________________________ (Signature of Buyer/Borrower Over Printed Name) DATE _______________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. APPENDIX Q-12 ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. 3765) (Appendix to Subsec . 4309Q . 4) SECTION 1. This Act shall be known as the "Truth in 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 uniformed 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 consumption of the transaction, a clear statement in writing setting 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 the 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 nor more than one year or both. xxx xxx xxx (d) 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 matter 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. APPENDIX Q-13 AGREEMENT FOR AN INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (Appendix to Subsec . 4376Q . 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. V. de la Costa Street, Makati City (hereinafter referred to as the "BAP"); HcISTE 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 Bangko Sentral ng Pilipinas (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 one with the other, 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 1 1:00 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. DHIETc 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. 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 password/s 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 ) S.S. 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. aCcEHS 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__ APPENDIX Q-14 SAMPLE INVESTMENT MANAGEMENT AGREEMENT (Appendix to Subsec 4411Q . 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 _______________________, an institution 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 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 Sec. 78 of R.A. No. 337, as amended, and subject to the requirements of Secs. 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; DaECST 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 latter, 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 accumulated and added to the principal of the Portfolio for further investment and investment. 12. Non-alienation of Encumbrance of the Portfolio or Income During the effectivity of 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 Investment Manager. 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, stipulations 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: ______________________ __________________________ APPENDIX Q-15 RISK MANAGEMENT GUIDELINES FOR DERIVATIVES (Appendix to Subsec. 4603Q.3) I. 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. 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 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 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 need 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 11. 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. STECAc 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; 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. The 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 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. 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 over-all 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 counter-party. 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 Director's 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. EcAISC 2. 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. THADEI 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. cHAaCE 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. ScTaEA APPENDIX Q-16 RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES (Appendix to Subsec. 4603Q.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. HcTDSA 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. APPENDIX Q-17 ACCOUNTING GUIDELINES FOR DERIVATIVES (Appendix to Subsec. 4603Q.4) The following guidelines shall be observed by any NBQB 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 a 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 NBQB 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. APPENDIX Q-18 SEC BASIC RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF PRESIDENTIAL DECREE NO. 129, OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW" ( Appendix to Secs. 4604Q and 4656Q ) To effectively carry out the provisions of Presidential Decree No. 129, otherwise known as "The Investment Houses Law", the Commission, pursuant to the powers vested in it by said Decree, and by Republic Act Nos. 1143 and 5050, hereby promulgates the following rules and regulations for the information and guidance of the public: SECTION 1. Scope of Applicability . These rules and regulations shall apply to any enterprise which engages or purports to engage in the underwriting of securities. SECTION 2. Definitions . The following terms as used in Presidential Decree No. 129 and these rules shall be understood to mean as follows: a) Investment House is any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. b) Underwriting of securities is the act or process of guaranteeing the distribution and sale within the Philippines of securities issued by another person or enterprise, including securities of the Government or its instrumentalities. The distribution and sale may be on a public or private placement basis. c) Securities are written evidences of ownership, interest or participation, in any enterprise, or written evidences of indebtedness of a person or enterprise. It includes, but is not limited to, the instruments enumerated in Section 2 of the Securities Act. d) Guarantee is any commitment and/or undertaking made by a person, firm or entity to an issuer or holder of securities to raise funds for said issuer or holder, by the distribution of such securities for sale, resale, or subscription, either through an outright purchase or through a corresponding commitment to purchase the balance not subscribed or sold. e) Private placement refers to the underwritten sale of securities to less than 20 persons or enterprises. f) Public distribution refers to the underwritten sale of securities to at least 20 persons or enterprises. g) Voting stock is that portion of the authorized capital stock of an investment house, as are subscribed and entitled to vote. h) Paid-in capital are all payments on subscriptions to the authorized capital of an investment house, including premiums paid in excess of par. i) Officer shall be understood to mean a senior officer of an Investment House or bank, which includes the President, Executive Vice-President, General Manager, Vice-President, Assistant Vice-President, Corporate Secretary, Head of an Operating Department and Branch Manager and such other officers as the Commission, in consultation with the BSP, shall determine. j) Organizers are persons who undertake to form an Investment House, among themselves and others, and who are indicated in the Articles of incorporators and the incorporating directors. k) Managerial staff are the officers of an Investment House. Where an Investment House is under a management contract the terms shall be understood to include the officers of the management firm. l) Unimpaired capital and surplus means the total of the unimpaired paid-in capital, surplus, and undivided profits net of such valuation reserves as may be required by the Commission provided that the Commission may include such other items as it may deem appropriate. m) Quasi-banking functions shall refer to the functions defined as such by law and appropriate implementing rules and regulations. n) Commission shall mean the Securities and Exchange Commission. SECTION 3. Organization and Registration A. Investment Houses shall be organized in the form of stock corporations in accordance with the provisions of the Corporation Law, subject to the following requirements: 1) At least a majority of the voting stock of the corporation shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in an Investment House, the basis of the computation shall be the citizenship of each stockholder, and, with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in the Investment House; SIcEHD 2) The majority of the members of the Board shall be citizens of the Philippines; 3) Foreign equity participation shall be registered or reported with the Board of Investment in accordance with the rules and regulations of that Office, prior to or simultaneous with the registration with the Commission; 4) The corporation shall have a minimum initial paid-in capital of P20,000,000 at the time of incorporation; 5) Resident foreign directors or technicians of an Investment House, if any, shall register with the Bureau of Immigration and Deportation; 6) In no event shall an officer of an Investment House be at the same time an officer of a bank, as defined in Section 2 of R.A. 337, as amended; 7) No director or officer of an Investment House shall at the same time be a director of a bank, and no director of an Investment House shall at the same time be an officer of a bank, except as may be authorized as an exception by the Monetary Board of the BSP. B. Procedure The organizers shall file with the Commission, a sworn application for registration in accordance with the prescribed form, together with the following documents: (1) All documents required for registration as a stock corporation; (2) An information sheet of the registrant corporation; [SEC Form 129-2] (3) A statement under oath by the organizers and the proposed managerial staff, of their educational background and work experience, as well as information on any position currently held by them in banking and other financial institutions, if any (SEC Form 129-3); (4) A one-year projected statement of assets and liabilities of the proposed Investment House; (5) A tentative program of operation for one year, including its investment direction and volume, its expected sources and intended uses of funds and its quasi-banking functions, if any. C. Hearing on Application The Securities and Exchange Commission shall conduct a hearing to determine whether the establishment of the proposed Investment House will promote public interest and economic growth. The BSP shall be officially notified. The SEC Commissioner shall not register any articles of incorporation unless his Office shall have consulted the BSP and is satisfied on the basis of the evidence submitted that: (1) All the requirements of Presidential Decree No. 129 and of existing laws relative to the organization of an Investment House have been complied with, (2) Public interest and economic growth are promoted; (3) The amount of capital, the proposed organization, direction and administration, as well as the integrity, experience and expertise of the organizers and the proposed managerial staff, provide reasonable assurance that the enterprise will be conducted with financial prudence. D. Issuance of Certificate of Incorporation Upon compliance with all the requirements of law and implementing rules, and the Commission is satisfied that the formation of the Investment House will promote public interest and economic growth, a Certificate of Incorporation will be issued to it. A license to operate shall also be granted after it shall have adopted its by-laws, elected its directors and appointed its officers. E. Annual Fees On or before the fifteenth day of January of each year, and for as long as its license to operate remains in effect, each Investment House shall pay a fee of P200. At the time of payment, the Commission may require the licensee to appear and inform the Commission of the results of its operations. F. Branch Operations No Investment House shall open, maintain or operate a branch or agency without first securing from the Commission a license to operate a branch in a particular locality. All applications for a license to operate a branch shall be acted upon by the Commission within ninety (90) days after submission of such documents as may be required by the Commission in support of such application. G. Use of the Term "Investment House" No person, association, partnership or corporation other than those duly licensed as an Investment House in accordance with these rules and regulations, shall advertise or hold itself out as being engaged in the business of an Investment House. SECTION 4. Underwriting Requirements . Underwriting agreements entered into by an Investment House, with respect to public distribution of securities, including the fees to be charged in connection therewith, shall be subject to the approval of the Commission, it being understood that no public distribution of securities shall be made without such approval. The Commission may impose such terms and conditions as may be necessary in the public interest and for the protection of investors; and it may require the submission of such documents as may be necessary to ascertain compliance with such standards of operation as it may establish. Transactions which constitute quasi-banking functions shall be subject to BSP regulation. As a gesture of faith in the issue, an Investment House may take for its own account a portion of the securities it underwrites but shall sell such securities to the public. SECTION 5. Management of Funds . The Commission, by circular, shall provide limitations on investments of discretionary accounts under the management of an Investment House. Should the Investment House engage in the management of funds, it must at all times adhere to the prudent man's rule. The Investment House shall ensure that the interest of the funds managed is promoted and that the operation of the funds is undertaken on an arms' length basis. The Commission may require such documents and reports as may be necessary, in order to determine if prudence and safety of the principal have been paramount in the decision of the Investment House. SECTION 6. Underwriting Fees . Except in highly meritorious cases, as approved by the Commission, an Investment House shall not collect underwriting fees in excess of five percent (5%) of the amount generated by the underwriter for the issuer. SECTION 7. Contingency Reserves . An Investment House shall provide annually a reserve for contingencies in such reasonable amount as may be required by the Commission. SECTION 8. Prohibitions (1) No Investment House shall undertake underwriting commitments for its own account in an aggregate outstanding amount exceeding twenty (20) times its unimpaired capital and surplus. (2) An Investment House shall not at any time allow its unimpaired capital and surplus to fall below twenty million (P20,000,000) pesos; otherwise, it shall be prohibited from underwriting securities for so long as such deficiency remains. (3) Whenever an Investment House is engaged in the management of funds, its officers and other personnel directly involved in the management of funds are prohibited from simultaneously or concurrently buying or selling the shares of stock of the same firm that the funds are buying or selling. (4) No advance to directors, officers and stockholders owning at least 10% of the outstanding capital of an Investment House shall be allowed, unless sufficiently collateralized. SECTION 9. Reporting Requirements . Every registered Investment House shall file with the Commission the following periodic reports in triplicate: A. Progress Reports a quarterly report of the results of its underwriting operations and activities of funds managed on all commitments entered into in such form as may be provided for the purpose, within fifteen (15) days from the end of each quarter. B. Semi-Annual Financial Statement signed under oath by its chief accountant and verified by the president, within a period of sixty (60) days after the end of each semester containing such data, and in such form as the Commission shall require. A copy shall be filed with the BSP. C. Annual Report concerning its operational activities for the year just ended, signed by its president (SEC Form 129-1) within the month of March of each year. A copy shall be filed with the BSP. D. A Report on the composition of the board of directors or any resignation, dismissal, suspension, or filling of vacancies therein, or of any officers or managerial staff, signed under oath by the secretary, within fifteen days after occurrence of the event. DHcTaE Every registered Investment House shall maintain and preserve such records and documents as the Commission may prescribe by way of circulars. Such circulars shall provide for a reasonable degree of uniformity in accounting policies and principles to be followed by Investment Houses in maintaining their accounting records and in preparing statements as required by these rules. SECTION 10. Transitory Provisions A. All existing enterprises which have been operating as Investment Houses, prior to February 15, 1973, shall: (1) Within six (6) months from February 15, 1973 file an information sheet with the Commission in such form and containing such data as may be required, pay the required fee under Sec. 3-E of these rules, and the Commission in consultation with the Monetary Board, after determining compliance with the requirements of Presidential Decree No. 129 and of these Rules, shall issue a License to Operate an Investment House. (2) Within one (1) Year from February 15, 1973 comply with the requirement of a minimum paid-in capital of Twenty Million Pesos (P20,000,000), citizenship requirements, and the prohibition on interlocking directorate or officership. SECTION 11. Stockbrokerage or Dealership Functions . If an Investment House engaged in the business of a stockbroker or dealer pursuant to Presidential Decree No. 129, it shall comply with the provisions of C.A. No. 83, otherwise known as the Securities Act, and the rules and regulations of the Commission promulgated pursuant thereto: Provided , however , that an Investment House need not obtain a separate license under Section 14 of the Securities Act. SECTION 12. Bangko Sentral Rules . Investment Houses shall also be subject to the rules and regulations promulgated by the BSP for non-bank financial intermediaries as provided by law. SECTION 13. Visitorial Power The Commission may, at its discretion, make such investigations as it deems necessary to determine whether or not an Investment House is complying with any of the provisions of Presidential Decree No. 129 or of any applicable laws, rules and regulations. It shall determine all the facts and circumstances concerning the matter to be investigated for the imposition sanctions/penalties or remedial or preventive measures. SECTION 14. General Exemption Power . The Commission may, upon proper petition and payment of a fee of P100, grant an exemption from compliance with any requirements of these rules as may be consistent with public interest and the protection of investors. SECTION 15. Penalties . Any violation of Presidential Decree No. 129 or of these rules and regulations, shall be penalized by suspension or revocation of the License to Operate, after proper notice and hearing. In appropriate cases, a fine not exceeding P200 per day for every day during which such violation continues, shall be imposed upon the Investment House and the officer or director who ordered or authorized the violation, without prejudice to the criminal liabilities provided in the second paragraph of Section 16 of Presidential Decree No. 129. In the exercise of its regulatory powers under Section 12 of Presidential Decree No 129, the Monetary Board may issue a cease-and-desist order upon an Investment House which is not complying with BSP rules and regulations pertaining to non-bank financial intermediaries or, in appropriate cases, rules governing quasi-banking functions of Investment Houses. Failure to comply with the cease-and-desist order shall subject an Investment House to a fine to be imposed by the Monetary Board. SECTION 16. Effectivity These rules shall take effect immediately. They shall be published in a newspaper of general circulation in the Philippines and in the Official Gazette. Manila, Philippines, July 9, 1973. (SGD.) ARCADIO E. YABYABIN Securities and Exchange Commissioner APPROVED: (SGD.) TROADIO T. QUIAZON, JR. Acting Secretary of Trade Date: July 13, 1973 October 16, 1991 NEW RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF REPUBLIC ACT NO. 5980 (THE FINANCING COMPANY ACT), AS AMENDED To effectively carry out the provisions of Republic Act No. 5980 (The Financing Company Act), as amended, the Securities and Exchange Commission, pursuant to the powers vested in it under said Act, Republic Act No. 1143 and Presidential Decree No. 902-A, as amended, hereby promulgates the following rules and regulations: llcd SECTION 1. Definition of Terms . The following definition of terms shall apply for purposes of these Rules: a. "FINANCING COMPANIES" are corporations or partnerships, except those supervised by the Central Bank of the Philippines, Office of the Insurance Commissioner and the Bureau of Cooperative Development, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises by discounting or factoring commercial papers or accounts receivable; by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. b. "PRIMARILY ORGANIZED" shall mean organized for the primary purpose of operating as a financing company and that more than 50% of its funds shall be used or invested in financing company activities, provided that in the computation thereof direct loans and temporary investments in government securities shall be taken into account. c. "FUNDS" as used herein shall mean total assets inclusive of allowance for doubtful accounts and deferred income less investment in real estate, shares of stock in a real estate development corporation and real estate based projects which shall not exceed 25% of networth of the investing company, leasehold rights and improvements, fixed assets inclusive of appraisal surplus, foreclosed properties and prepayments. d. "COMMISSION" shall mean the Securities and Exchange Commission. e. "CREDIT" shall mean any loan, mortgage, deed of trust, advance or discount, any conditional sales contract, any contract to sell, or sale or contract of sale of property or service, 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, any rental-purchase contract, any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money, any purchase, or other acquisition of or any credit upon the security of any obligation or claim arising out of the foregoing; and any transactions having a similar purpose or effect. f. "PURCHASE DISCOUNT" is the difference between the value of the receivables purchased or credit assigned, and the net amount paid by the finance company for such purchase or assignment, exclusive of fees, service charges, interest and other charges incident to the extension of credit. g. "RECEIVABLES FINANCING" is a mode of extending credit through the purchase by, or assignment to, a financing company of evidences of indebtedness or open accounts by discounting or factoring. h. "DISCOUNTING" is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value. i. "FACTORING" is a type of receivables financing whereby open accounts, not evidenced by a written promise to pay supported by documents such as but not limited to invoices of manufacturers and suppliers, delivery receipts and similar documents, are purchased by, or assigned to, a financing company in an amount or for a consideration less than the outstanding balance of the open accounts. j. "LEASING" shall refer to financial leasing which is a mode of extending credit through a non-cancellable contract under which the lessor purchases or acquires at the instance of the lessee heavy equipment, motor vehicles, industrial machinery, appliances, business and office machines, and other movable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price or acquisition cost, including any incidental expenses and a margin of profit, over the lease period. The contract shall extend over an obligatory period during which the lessee has the right to hold and use the leased property and shall bear the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on the part of the lessee to purchase the leased property at the end of the lease contract. k. "PAID-UP CAPITAL" refers to the amount paid for the subscription of stock in a corporation including the amount paid in excess of par value, while CAPITAL CONTRIBUTION refers to the total contributions of the partners in a partnership. l. "NETWORTH" is the excess of assets over liabilities, net of appraisal surplus, unbooked valuation reserves, capital adjustments, overstatement of assets and unrecorded liabilities. SECTION 2. Form of Organization . Financing companies shall be organized in the form of: stock corporations in accordance with the provisions of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) or general partnerships pursuant to the provisions of the New Civil Code of the Philippines and subject to the following: a. At least sixty percentum (60%) of the outstanding capital stock of the corporation, and in case of a partnership, at least sixty percentum (60%) of the total capital contributions of the partners, shall be owned by citizens of the Philippines. b. A minimum paid-up capital, in case of corporations, and capital contribution in case of partnerships, that shall maintain their principal offices in the areas hereunder specified, shall be made in cash or in property of at least: 1.) P10,000,000.00 Metro Manila Areas 2.) P5,000,000.00 First Class Cities Outside Metro Manila 3.) P2,500,000.00 Second Class Cities and First Class Municipalities 4.) P1,000,000.00 Third Class Cities and Second Class Municipalities 5.) P500,000.00 Fourth Class Cities, Third Class Municipalities and below In case the area where the principal office of a financing company is located has been upgraded, the corresponding increase in capitalization requirement shall be undertaken within such period as the Commission shall fix. Unless otherwise authorized by the Commission, all financing companies with a paid-up capital or capital contribution less than that mentioned above shall be given five (5) years within which to build up their capital requirement according to the following schedule. First Second Third Class Class Class Cities Cities and Cities and Metro Outside First Class Second Class Manila Metro Municipalities Municipalities Area Manila June 30, 1992 2,000,000 1,000,000 500,000 500,000 June 30, 1993 4,000,000 2,000,000 1,000,000 625,000 June 30, 1994 6,000,000 3,000,000 1,500,000 750,000 June 30, 1995 8,000,000 4,000,000 2,000,000 875,000 June 30, 1996 10,000,000 5,000,000 2,500,000 1,000,000 Any existing and/or new branch, agency, extension office or unit may operate subject to the provision of Section 5 thereof. c. At least two-thirds of all the members of the board of directors in the case of a corporation and all the managing partners in case of a partnership shall be citizens and residents of the Philippines. Any change in the membership in, or composition of, the board of directors, officers from the rank of VP and up or their equivalent, branch manager, cashier and administrative officer, or in the managing partners, as the case may be, shall be reported to the Commission within seven (7) working days thereafter, and the requirements prescribed under Section 3.a.4 and 7 and Section 5.a.3. and 4 hereof, shall be submitted within thirty (30) working days from date of the aforesaid change. d. The corporate/partnership name of financing companies shall contain the term "financing company", "finance company", or "finance and investment company" or other title or word(s) descriptive of its operations and activities as a financing company. SECTION 3. Requirements for Registration . a. Registration pagers to be submitted to the Commission Any corporation or partnership may be registered as a financing company by filing with the Commission in five (5) copies an application to operate as a financing company under R.A. No. 5980, as amended, signed under oath by its President/Managing Partner, together with the following documents in the prescribed forms: 1) All documents required for registration as a corporation or partnership; 2) By-Laws; 3) Information Sheet of registrant company; 4) Personal Information Sheet of each of the directors, officers with the rank of Vice-President and up or their equivalent or managing partners; 5) Answers to the questionnaire of the Commission; 6) Projected balance sheet, income statement and cash flow statement for three (3) years, together with a schedule of discounting, factoring, leasing, and other financing activities and all related income therefrom. 7) Documents required of each director, officer to be appointed from the rank of Vice-President and up or their equivalent, or managing partner such as the following: a) Police clearance from local police of the city or municipality of which he is a resident; b) NBI clearance; c) Certificate of good moral character to be executed under oath by at least two (2) reputable and disinterested persons in the community; d) Bank credit information to be issued by his depository or creditor bank(s), if any; and 8) Such other documents as may be required by the Commission whenever it deems necessary. b. Publication and Posting of Notice and Order Upon receipt of the above registration papers of a proposed financing company, the Commission shall cause the notice and order to be published by the applicant company at its expense in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks, and the notice shall simultaneously be posted in a public and conspicuous place where the principal office of the company will be located and in the office of the Commission for the same period. The notice shall state, among others, the name of the proposed financing company, the capital structure in case of a corporation or the total capital contribution in case of a partnership, and the names and residences of its directors or managing partners. c. Opposition to Registration, if any Any interested party may oppose the registration of a financing company in writing, personally or through counsel, within fifteen (15) days after the last date of the publication of the notice. If after the hearing, the Commission finds that the requirements of R.A. No. 5980, as amended, its implementing rules and regulations and other pertinent laws have been complied with and that no valid reason exists for the disapproval of the application, the Commission shall take appropriate action on said application. SECTION 4. Issuance of Certificate of Filing of Articles of Incorporation and By-Laws; Certificate of Authority; Conditions for Commencement of Operations a. The Commission, in consultation with the Central Bank, shall register the articles of incorporation and by-laws or articles of partnership of, and issue the Certificate of Authority to Operate to, any proposed financing company if it is satisfied that the establishment of such company will promote public interest and convenience, and on the basis of the documents and/or evidences submitted, that; 1) All the requirements of R.A. No. 5980, as amended, other existing laws, and applicable rules and regulations to engage in the business for which the applicant is proposed to be incorporated, or organized, have been complied with; 2) The organization, direction and administration of the applicant, as well as the integrity and responsibility of the organizers and administrators, reasonably assure the protection of the interest of the general public; and 3) Proof of the publication and posting of the notice and order for registration is in accordance with Sec. 3.b. hereof. b. A corporation or partnership which has been duly registered, and granted a Certificate of Authority to Operate as a financing company in accordance with law and these Rules, shall commence operations within ninety (90) days from date of grant of such certificate. Failure to operate within the prescribed ninety (90) day period shall subject the financing company to a fine of not less than One Thousand (P1,000.00) Pesos unless its non-operation is reasonably justified, as determined by the Commission. c. The financing company may be granted a grace period of another ninety (90) days from the expiry date of the first ninety (90) days within which to commence operations notwithstanding its failure to operate as aforestated. Failure to operate within the extended period shall empower the Commission, after notice and hearing, to revoke its Certificate of Authority. SECTION 5. Branches, Agencies, Extension Offices or Units . a. Certificate of Authority No financing company shall establish or operate a branch, agency, extension office or unit without a prior certificate of authority to be issued by the Commission. The application for authority filed under this section shall be accompanied by the following documents: 1) Information sheet of the proposed branch; 2) Answer to SEC questionnaire; 3) Police clearance of the manager, cashier, and administrative officer from the local police of the city or municipality where they reside; 4) NBI clearance of the manager, cashier and administrative officer of the proposed branch; llcd 5) Copy of the proposed personnel chart; and 6) Such other documents as may be required by the Commission whenever it deems necessary. The above application shall be published in accordance with the provisions of Sec. 3.b. of these Rules. However, the Notice and Order shall be posted in a public and conspicuous place where the aforesaid branch, agency, extension office or unit shall be established. b. Evaluation Guideposts The number of branches, agencies, extension offices or units to be established shall depend upon the capacity of the company to conduct expanded operations and/or upon the capacity of the area wherein the proposed branch, extension office, agency or unit will be established, to absorb new entities engaged in financing, as may be determined by the Commission. c. Additional Capital Requirement A financing company may be required to put up additional capital for branches, agencies, extension offices or units in an amount to be determined by the Commission. d. Prescribed Period to Operate Such branch, agency, extension office or unit shall operate within ninety (90) days from the issuance of the certificate of authority and failure to operate within such period shall subject said branch, agency, extension office or unit to a fine of not less than one thousand (P1,000) pesos or revocation of the certificate of authority, after due hearing at the discretion of the Commission, unless its non-operation is reasonably justified as determined by the Commission. e. Term of Authority to Operate The certificate of authority to operate a branch, agency, extension office or unit shall be co-terminus with that of the head office. SECTION 6. Applicability of Central Bank Regulations . Financing companies duly licensed to operate as such, their branches, agencies, extension offices or units shall also be subject to applicable Central Bank regulations. SECTION 7. Licensing Fees . A fee of 1/10 of 1% of the minimum paid-up capital or capital contribution required under Section 2.b. shall be charged for the issuance of the Certificate of Authority to Operate as a financing company. A fee of 1/20 of 1% of the additional required capital under Sec. 5.c., but in no case less than P250.00 shall be charged likewise for the issuance of original Certificate of Authority of each branch, agency, extension office or unit of such financing company. An annual fee of the same rate shall likewise be charged and the same shall be paid not later than forty five (45) days before the anniversary date of the Certificate of Authority and for as long as its license to operate is in effect. SECTION 8. Loans and Investments . a. Financing companies may engage in direct lending if authorized by the secondary purposes in its articles of incorporation and in accordance with Section 42 of the Corporation Code of the Philippines (B.P. 68). b. Unless otherwise authorized by the Commission, the total investment in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25-%) per cent of the net worth of the investing financing company. SECTION 9. Conveyance of Evidences of Indebtedness and Financed Receivables . a. The negotiation, sale or assignment by financing companies of evidences of indebtedness shall be in accordance with the rules of the Commission on registration of commercial papers. b. Accounts which have been factored or discounted by, the lease receivables of, and other evidences of indebtedness (not covered in item a. above) issued or negotiated to, a financing company shall not be sold, assigned or transferred in any manner except to 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, insurance companies, government financial institutions, pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the National Government; Provided, That the negotiation of evidence of indebtedness to pension funds or educational assistance funds shall be on a recourse basis. SECTION 10. Other Activities . a. Financing companies not duly authorized to perform quasi-banking functions shall not act as dealers in commercial papers but may act as dealers in other securities provided they are duly licensed by the Commission as such. b. Financing companies shall not act as dealers of certificates of time deposit. c. Except in cases of issuances to primary institutional lenders, financing companies without quasi-banking license shall not issue instruments other than promissory notes, to cover placements with, or borrowings by, them. SECTION 11. Purchase Discounts/Fees/Service and Other Charges . The purchase discounts, fees, service and other charges of financing companies on assignments of credit, purchases of installment papers, accounts receivable and other evidences of indebtedness, factoring of accounts receivable or other evidences of indebtedness, or leasing transactions shall be in accordance with the rules prescribed by the Monetary Board, in consultation with the Commission, pursuant to the provisions of Section 5 of R.A. No. 5980, as amended by P.D. No. 1454. SECTION 12. Required Networth for Operating Financing Companies . The company's networth shall be maintained at an amount not less than that required under Sections 2.b. and 5.c. hereof. SECTION 13. Prohibitions . a. No corporation shall be allowed to include financing activities as herein defined as one of its secondary purposes. b. No person, association, partnership or corporation shall do or hold itself out as doing business as a financing company or finance and investment company or under any other title or name tending to give the public the impression that it is a financing company unless so authorized under R.A. No. 5980, as amended. SECTION 14. Periodic Reports . Every financing company shall file with the Commission the following quarterly reports: a) Statement of condition and Statement of Income and Expenses, together with the schedule of aging of receivables (indicating the maturity pattern of the aforesaid receivables under due within 1 year, due over 1 year to be applicable to long term receivables only, past due accounts to be subdivided further to past due accounts within 1 year, over 1 year and litigation items), payable (indicating likewise the same maturing pattern of within 1 year and over 1 year) and off-balance sheet items; Provided, however, that respective collaterals (if any) for past due accounts over 1 year and litigation items shall be adequately disclosed in the aforementioned schedules and b) list of officers, directors, and stockholders. These reports shall be signed under oath by the company's principal executive officer and principal financial officer and shall be submitted within thirty (30) calendar days after the end of each quarter. They shall, likewise, file four (4) copies of their audited financial statements within one hundred twenty (120) days after the end of their fiscal years and such other reports as may be required by the Commission. SECTION 15. Administrative Sanctions . If the Commission finds that there is a violation of these Rules and Regulations and their implementing circulars or any of the terms and conditions of the Certificate of Authority to operate as a financing company, or any Commission order, decision or ruling, or refuses to have its books of accounts audited, or continuously fail to comply with SEC requirements, the Commission shall, in its discretion, impose any or all of the following sanctions: a. Suspension or revocation of the certificate of authority to operate as a financing company after proper notice and hearing; b. A fine in accordance with the guidelines that the Commission shall issue from time to time; c. Other sanctions within the power of the Commission and the Central Bank under existing laws. The imposition of the foregoing administrative sanctions shall not preclude the institution of appropriate action against the officers and directors of the financing company or any person who might have participated therein, directly or indirectly, in violation of R.A. No. 5980, as amended, and these Rules and Regulations. SECTION 16. Cease and Desist Order . The Commission may, on its own motion or upon verified complaint of any aggrieved party, issue a Cease and Desist Order ex-parte, if the violation(s) mentioned in the preceding sections may cause grave or irreparable injury to the public or may amount to culpable fraud or violation of these Rules and Regulations, implementing circulars, certificates of authority issued by the Commission, or of any order, decision or ruling thereof. The issuance of such Cease and Desist Order automatically suspends the authority to operate as a financing company. 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 Section 16 not later than fifteen (15) days after service of notice. SECTION 17. Transitory Provision . Any corporation/partnership which at the time of the effectivity of these Rules has been registered and licensed by the Commission to operate as a financing company, shall be considered as registered and licensed under the provisions of these Rules, subject to the terms and conditions of the license, and shall be governed by the provisions hereof; Provided, however, that financing companies with existing Certificate of Authority shall surrender the same to the Commission upon payment of the annual fee pursuant to Section 7 hereof to be replaced by a new Certificate of Authority and, Provided, That where such corporation/partnership is affected by the new provisions hereof, said corporation/partnership shall, unless otherwise herein provided, be given a period of not more than one (1) year from the effectivity of these Rules within which to comply with the same. SECTION 18. Effectivity . These Rules and Regulations shall take effect fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines. (SGD.) ROSARIO N. LOPEZ Chairman S REGULATIONS Regulations Governing Non-Stock Savings and Loan Associations PART ONE Organization, Management and Administration A. Scope Of Authority SECTION 4101S. Scope of Authority of Non-Stock Savings and Loan Associations A non-stock savings and loan association (NSSLA) shall include any corporation engaged in the business of accumulating the savings of its members and using such accumulations for loans and/or investments in the securities of productive enterprises or in securities of the Government, or any of its political subdivisions, instrumentalities or corporations: Provided , That it shall be primarily engaged in servicing the needs of households by providing personal finance and long-term financing for home building and development. SUBSECTION 4101S.1 Membership a. NSSLAs organized under R.A. No. 3779, as amended, shall issue a certificate of membership to every qualified member and shall maintain a registry of their members. b. An NSSLA shall confine its membership to a well-defined group of persons and shall not transact business with the general public. It shall accept deposits from, and grant loans to, its members only. SUBSECTION 4101S.2 Organizational requirements a. Prior approval by the Monetary Board of articles of incorporation and by-laws or amendments thereto The articles of incorporation and by-laws of a proposed NSSLA, or any amendment thereto, shall not be registered with the Securities and Exchange Commission (SEC) unless accompanied by a certificate of approval from the Monetary Board. b. Application for approval The articles of incorporation and by-laws of a proposed NSSLA, both accomplished in the prescribed forms, shall be submitted to the Monetary Board through the appropriate supervising and examining department of the Bangko Sentral ng Pilipinas (BSP) together with a covering application for the approval thereof, signed by a majority of the members of the board of directors of the association and verified by one of them. The same procedure shall be observed in case of amendments to the articles of incorporation and by-laws of the NSSLA. c. Grounds for disapproval of application The application of a proposed NSSLA shall not be approved if, upon examination and/or investigation made by the appropriate supervising and examining department of the BSP, it is found that: (1) The NSSLA is to be formed for any business other than the legitimate savings and loan business; (2) The NSSLA's financial program is unsound; (3) Any of the directors or principal officers of the NSSLA does not possess the integrity or competence to manage a savings and loan association; or (4) There exist other reasons which the Monetary Board may consider as sufficient ground for such disapproval. d. Certificate of authority to operate; revocation or suspension thereof NSSLAs, prior to transacting business, shall procure a certificate of authority to transact business from the Monetary Board. After due notice, the Monetary Board may revoke or suspend, for such period as it may determine, the certificate of authority of any NSSLA the solvency of which is imperiled by losses or irregularities or which willfully violates any provision of R.A. No. 3779, as amended, these rules or any pertinent law or regulation. e. Filing fees An NSSLA shall pay to the appropriate supervising and examining department of the BSP a filing fee of five pesos (P5.00) for each application for the approval of its proposed articles of incorporation and by-laws. f. Entrance fees No entrance fees of any kind may be charged by any NSSLA without first securing the approval of the Monetary Board. In no case shall the total amount of such fees exceed one percent (1 %) of the amount deposited, contributed, or otherwise paid in by the particular member. SECTIONS 4102S-4105S ( Reserved ) B. Capitalization SECTION 4106S. Capital of NSSLAs Partial withdrawal of the amount paid by a member as capital contribution during his membership may be allowed unless the by-laws of the NSSLA provides otherwise, and subject to such rules and regulations as the Monetary Board may prescribe in the matter of such withdrawal of capital contributions. However, in no case, shall such partial withdrawal diminish the member's capital contribution to less than fifty pesos (P50). SECTIONS 4107S-4110S (Reserved) C. (Reserved) SECTIONS 4111S-4115S (Reserved) D. Net Worth-To-Risk Assets Ratio SECTION 4116S. Capital-to-Risk Assets The combined capital accounts of an NSSLA shall not be less than an amount equal to ten percent (10%) of its risk assets which is defined as its total assets minus the following assets: a. Cash on hand; b. Evidences of indebtedness of the Republic of the Philippines and of the BSP and other evidences of indebtedness of obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; c. Loans to the extent covered by hold-outs on, or assignments of, deposit maintained in the lending association and held in the Philippines; d. Office premises, depreciated; e. Furniture, fixtures and equipment depreciated; f. Real estate mortgage loans insurer by the Home Insurance Guarantee Corporation, to the extent of the amount of the insurance; and g. Other non-risk items as the Monetary Board may, from time to time authorize to be deducted from total assets. The Monetary Board shall prescribe the manner of determining the total assets of NSSLAs for the purpose of this Section, but the contingent accounts shall not be included among total assets. SADECI Whenever the capital accounts of NSSLA are deficient with respect to the requirement of this Section, the NSSLA shall not pay any dividends or distribute any profits to its members until the minimum requirement has been met. The Monetary Board may, if the amount of the deficiency justifies it, restrict or prohibit the making of new investments of any sort by the NSSLA with the exception of purchases of evidences of indebtedness included under Item b of this Section until the minimum required capital ratio has been restored. SECTION 4117S. Withdrawable Share Reserve NSSLAs shall create a withdrawable shall create a withdrawal share reserve which shall consist of three percent (3%) of the aggregate capital contributions of the members. An amount corresponding to the withdrawable share reserve shall be set up by the NSSLA, or such amount invested in bonds or evidences of indebtedness of the Republic of the Philippines or of its subdivisions, agencies or instrumentalities, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, and which are supported by the BSP. For a uniform interpretation of the provisions of this Section, the following shall serve as guidelines: a. The withdrawable share reserve shall be set up from the profits of the NSSLA and shall be funded in the form of cash deposited as a separate account and/or an investment allowed under this Section; b. Should there be an increase in the capital contribution, the said reserve shall be correspondingly adjusted at the end of each month from undivided profits, if any; and c. The reserve shall be adjusted first before the association may declare and pay out dividends at any time of the year. SECTION 4118S. Surplus Reserve for Ledger Discrepancies Whenever an NSSLA has a discrepancy between its general ledger accounts and their respective subsidiary ledgers, the board of directors of the NSSLA shall set up from the net profits of the NSSLA, if any, a surplus reserve, in an amount equivalent to the amount of the discrepancy, and this reserve shall not be available for distribution as dividends or for any other purpose unless and until the discrepancy is accounted for. The board of directors shall also direct the employee responsible for the discrepancy to account for said discrepancy Provided, That the failure of the employee to do so shall constitute as ground for his dismissal if the discrepancy is of serious or recurring nature. NSSLAs shall report such discrepancies to the appropriate supervising and examining department of the BSP within fifteen (15)days from discovery. SECTION 4119S. Reserve for Office Premises, Furniture, Fixtures and Equipment NSSLAs shall set aside five percent (5%) of their yearly net profits as reserve for a building fund to cover the cost of construction or acquisition of office premises, and of the purchase of office furniture, fixtures and equipment, until it amounts to at least five percent (5%) of total assets. An NSSLA which, as determined by its board of directors, has adequate office premises, furniture, fixtures and equipment necessary for the conduct of its business need not set up the reserve: Provided, That this fact should be certified to by its board of directors in a resolution to be submitted to the appropriate supervising and examining department of the BSP for verification and approval: Provided, furthe r, That in case a reserve had been set up, the NSSLA so exempted may, at its option, revert the same to free surplus. SECTION 4120S. (Reserved) E. (Reserved) SECTIONS 4121S-4125S (Reserved) F. Dividends SECTION 4126S. Limitations on Declaration of Dividends a. Basis for participation in profits Member-depositors of an NSSLA may participate in the profits of the NSSLA on the basis of their capital contributions on the date dividends are declared. b. Level of withdrawable share reserve NSSLAs shall not pay any dividends or distribute any profits to its members if the withdrawable share reserve required under Sec. 4117S is less than, or if by such payment or distribution would be reduced below, the amount specified in said Section. c. Capital-to-risk assets ratio NSSLAs shall not pay any dividends or distribute any profits to their members if their capital-to-risk assets ratio is below the level required under Sec. 4116S. d. Discrepancies between general ledger and subsidiary ledger accounts The surplus reserves set up as required under Sec. 4118S shall not be reverted for distribution as dividends unless and until the discrepancy between the general ledger accounts and their respective subsidiary ledgers for which the surplus reserve has been set up ceases to exist. SECTIONS 4127S - 4140S (Reserved) G. Directors, Officers and Employees SECTION 4141S. Definition and Qualifications of Director s Directors shall include: (1) those who are named as such in the articles of incorporation; (2) those duly elected in subsequent meetings of the NSSLAs' members; and (3) those elected to fill vacancies in the board of directors. No person shall be eligible as director of an NSSLA unless he is a member of good standing of such NSSLA. In addition, such person shall have the qualifications and none of the disqualifications as provided in pertinent laws and BSP rules. A director shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age at the time of his election/appointment; and b. He shall be at least a high school graduate or shall have at least one (1) year experience in a field related to his position/responsibilities, or shall have undergone any BSP training in banking operations. These qualifications shall not apply to directors of the association serving as such as of August 11, 1975 nor to persons who have previously served as directors and officers of NSSLAs or banks. SECTION 4142S. Definition and Qualifications of Officers Officers shall include the President, Vice-President, General Manager, Treasurer, Secretary, and others mentioned as officers of the NSSLA, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the association (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 financial intermediary: Provided , That a person holding the position of Chairman or Vice-Chairman of the Board or another position in the board shall not be considered as an officer unless the duties of his position in the board include functions of a management such as those ordinarily performed by regular officers: Provided , further, That 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, and are not purely recommendatory or advisory, shall likewise be considered as officers. The minimum qualifications for directors prescribed in Sec. 4141S are also applicable to officers. SECTION 4143S. Disqualifications of Directors and Officers The following persons are disqualified from becoming directors of an NSSLA: 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 found by the Monetary Board to have willfully failed or refused to comply with any 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; c. Directors who have been absent for whatever reason for more than fifty percent (50%) of the regular meetings of the board during the incumbency of the director concerned: Provided , That the disqualification shall apply for purposes of the immediately succeeding election; d. Persons who are delinquent in the payment of their obligations, and this disqualification shall operate as long as the ; delinquency persists. Delinquency shall mean that an obligation with an NSSLA where he is a director or officer, or where he may be elected or appointed as such, or at least two (2) obligations with banks and NBQBs under different credit lines or loan contracts, are past due as defined in Sec. 4306S. Persons disqualified to become directors are also disqualified to become officers except persons disqualified as directors due to absenteeism. Except as may be authorized by the Monetary Board or the Governor, any individual who is the spouse or a relative within the second degree of consanguinity or affinity of person holding the position of President, Executive Vice-President, General Manager, Treasurer, Chief Cashier, Chief Accountant or equivalent positions, is disqualified from holding or being elected/appointed to any of said positions in the same association. In any case, this disqualification, shall not apply to those already serving in any of the said positions as of August 11, 1975: Provided, however, That this exception shall apply only for as long as the director/officer continues to serve uninterruptedly as such . The foregoing qualifications and disqualifications for directors and officers shall be in addition to those already required/prescribed by R.A. No. 3779, as amended, and other existing applicable laws and regulations. SECTION 4144S. Compensation of Directors, Officers and Employee s No director, officer or employee of an NSSLA shall receive from such NSSLA, and no NSSLA shall pay to any director, officer, or employee of such NSSLA, any commission, emolument, gratuity or reward based on the volume or number of loans made, or based on the interest or fees collected thereon. Nothing in this Section, however, prohibits or limits any of the following: a. Receipt or payment of salaries of directors, officers and employees; b. Receipt or payment of commissions to agents, whether or not based on the volume or number of loans or on the interest or fees collected thereon; or c. Receipt or payment of bonuses to directors, officers or employees if such bonuses are based on the profits and not on the volume or number of loans made or on the interest or fees collected thereon. SUBSECTION 4144S.1 Liability for loans contrary to law NSSLAs shall not make or purchase any loan or investment not authorized or permitted under these regulations or R.A. No. 3779, as amended, and any director, officer or employee who, on behalf of any such NSSLA, knowingly makes or purchases any such loan or investment or who knowingly consents thereto shall be personally liable to the NSSLA for the full amount of any such loan or investment. SECTION 4145S. Bonding of Officers and Employees Officers and employees of an NSSLA who have access to money or negotiable securities of the NSSLA in the regular discharge of their duties shall, before assuming their duties, furnish to the employing NSSLA a good and sufficient bond indemnifying the NSSLA against loss of money or securities, by reason of their willful misconduct or gross negligence. The bond of the cashier, assistant cashier, treasurer, teller; and other employees of the NSSLA having money accountability shall be equivalent to, or not less than, their average daily cash accountability. The bonds must be issued by a reputable bonding company approved by the BSP. A cash bond may also be allowed provided such bond is deposited in a bank. The average daily cash accountability of an officer or employee of an NSSLA shall be computed by adding the amount of actual cash which he handles each day for a year, the total of which shall be divided by the number of days of the year said officer or employee receives or handles such cash. Checks and other cash items shall not be included in the computation of the average daily cash accountability: Provided, That proper and adequate safeguards, as prescribed by the appropriate supervising and examining department of the BSP and embodied in Appendix S-1 , are adopted by the NSSLA. If collections are made through the treasurer, cashier, or paymaster of the firm or office in which the NSSLA operates and such collections are paid by checks issued by the firm or office and payable to the NSSLA, such checks shall not be included in the computation of the average cash daily accountability of the officer concerned: Provided, That in no case shall the bond be less than P1,000. NSSLAs shall not act or sign as co-maker of the bonds for their accountable officers/employees. SECTIONS 4146S-4150S (Reserved) H. Branches and Other Offices SECTION 4151S. Establishment of Branches/Other Offices Prior BSP authority shall be obtained before operating a branch or other offices. SUBSECTION 4151S.1 Application The application shall be as prescribed by the appropriate supervising and examining department or the BSP and accompanied by the following as minimum requirements: a. Sketch of the location of the proposed office which shall be within the compound of the mother firm's branch office, as the case may be; b. Itemized statement of estimated receipts and expenses of the applicant NSSLA in connection with such branch or office; c. Description/enumeration of service facilities that will cater to the deposit and credit needs of members of the association; d. Financial statements for the year immediately preceding the date of application; and e. Certification as to the actual number of members that will be serviced by the branch/extension office. The application of an applicant-association which has not complied with any of the pertinent provisions of banking laws, rules, regulations and policies of the BSP shall not be accepted/processed. SUBSECTION 4151S.2 Internal Control System The applicant-association shall submit to the appropriate supervising and examining department of the BSP a system of internal safeguards and control measures to be adopted for compliance by the staff of the proposed branch/office. SUBSECTION 4151S.3 Permit to Operate Actual operation shall commence only after a permit to operate has been issued by the BSP. SECTIONS 4152S-4155S (Reserved) I. Business Days and Hours SECTION 4156S. Business Days and Hours NSSLAs may adopt such business days and hours as may be convenient for them: Provided , That the BSP shall be informed in writing of such business days and hours adopted upon start of operations and whenever there is a change thereof: Provided, further , That in the case of an NSSLA operating in a government office or private firm, its business hours shall have the prior approval of the head of the office or of the firm where such NSSLA operates. NSSLAs shall not transact business on legal holidays, but special public holidays proclaimed for local governments may be regular business days. NSSLAs shall be open for business during business hours and days as reported to the BSP except when extraordinary instances caused by unforeseen, unavoidable event directly affecting the association's ability to open for business. NSSLAs shall post conspicuously at all times in their places of business their schedule of regular business hours and days. SECTIONS 4157S - 4160S (Reserved) J. Records and Reports SECTION 4161S. Records NSSLAs shall have a true and accurate account, record or statement of their daily transactions. The making of any false entry or the willful omission of entries relevant to any transaction is a ground for the Monetary Board for the imposition of administrative sanctions under Section 37 of R.A. No. 7653, without prejudice to the criminal liability director or officer responsible therefor under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. SUBSECTION 4161S.1 Uniform System of Accounts NSSLAs shall strictly adopt/implement the Uniform System of Accounts prescribed for NSSLAs in the recording of daily transactions including reportorial and publication requirements. The voucher system, the ticket system or such other accounting systems acceptable to the BSP shall be adopted for use by NSSLAs. SUBSECTION 4161S.2 Adoption of Statements of Financial Accounting Standards NSSLAs shall adopt the Statements of Financial Accounting Standards (SFAS) in their 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 NSSLAs. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162S. Reports NSSLAs shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix S-2 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws or material documents to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162S.1 Categories of and Signatories to Report s Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix S-2. Appendix S-3 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. SUBSECTION 41625.2 Manner of filing The submission of the reports shall be effected by filing them personally with the appropriate department of the BSP or with the BSP Regional Offices/Units or by sending them by registered mail or special delivery through private couriers, unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162S.3 Sanctions for willful delay in submission of reports/refusal to permit examination a. Definition of terms For purposes of this Subsection, the following definitions shall apply: (l) Report shall refer to any report or statement required of an NSSLA to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of a NSSLA to submit a report on time. 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 the NSSLA as defined in the Labor Code or a national emergency affecting the operations of NSSLAs, 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 NSSLA including the reproduction of its records, as well as the taking possession of the books and records and keeping them under the BSP's custody after giving proper receipt therefor. It shall also include the interview of the directors and personnel of the NSSLA including its Electronic Data Processing (EDP) servicer. Books and records shall include, but not limited to, data and information stored in magnetic tapes, disks, printouts, log-books and manuals kept and maintained by the NSSLA or the EDP servicer, necessary and incidental to the use of EDP systems by the NSSLA. (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 submission of reports . NSSLAs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of default until the report is filed P 180 II. For Category B reports Per business day of default until the report is filed 60 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 NSSLA is situated, delay or default shall start to run on the day following the next working day. For the purpose of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope/the date of registry or special delivery receipt, as the case may be, shall be considered as the date of filing. Delayed schedules or attachments and amendments shall be considered late reporting subject to the above penalties. c. Fines for Refusal to Permit Examination (1) Amount of Fine Any NSSLA 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) Procedures in Imposing the Fine (a) The BSP officer/examiner/employee shall report the refusal of the NSSLA to permit examination to the head of the appropriate supervising and examining department, who shall forthwith make a written demand upon the NSSLA concerned for such examination. If the NSSLA continues to refuse said examination without any satisfactory explanation therefor, 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 NSSLA to permit the desired examination. d. Manner of Payment or Collection of Fines . The regulations embodied in Sec. 4601S shall be observed in the collection of the fines from NSSLAs. e. Other penalties . The imposition of the penalties shall be without prejudice to the 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 . NSSLAs may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing a fine. SECTIONS 4163S-4170S (Reserved) K. Internal Control SECTION 4171S. External Auditor for NSSLAs NSSLAs, except those with total resources of less than P500,000, shall engage the services of an independent certified public accountant to audit their books of accounts at least once a year. SECTIONS 4172S-4180S (Reserved) L. Miscellaneous Provisions SECTION 4181S. Publication Requirements NSSLAs with total resources of P500,000 or more shall, within 120 days after the close of their fiscal year, furnish the Monetary Board, through the appropriate supervising and examining department of the BSP, and mail to each of their members, a copy of their audited financial statements provided for in Sec. 4171S showing, in such form and detail as the Monetary Board may require, the amount and character of the assets and liabilities of the NSSLAs at the end of the preceding fiscal year. In the case of NSSLAs with resources below P500,000, they shall furnish each member and the Monetary Board, through the appropriate supervising and examining department of the BSP with a copy of their unaudited financial statements within sixty (60) days from the end of the fiscal year. NSSLAs may, in lieu of mailing, publish such financial statement in any newspaper of general circulation in the city or town where their principal office is located. The Monetary Board may, in addition to the foregoing, require the publication of such other information as it shall deem necessary for the protection of the members of the NSSLAs. SECTION 4182S. Business Name NSSLAs organized or operating under R.A. No. 3779, as amended, and licensed by the BSP shall include in their names the term "Savings and Loan Association." Such NSSLAs shall display in a conspicuous place at their business offices a sign including, among other things, the following words: " Authorized by the Bangko Sentral ng Pilipinas. " SECTION 4183S. Prohibitions a. No person, association, partnership or corporation shall do business or hold itself out as doing business as an NSSLA, or shall use the term "Savings and Loan Association" or any other title or name tending to give the public impression that it is engaged in the operations and activities of an NSSLA unless so authorized under R.A. No. 3779, as amended, and these regulations. b. The use by an association of any other name or title or combination of names and titles or any other deviation from the requirements of this Section shall not be authorized except upon prior approval of the Monetary Board. c. NSSLAs shall not issue or publish, or cause or permit to be issued or published, any advertisement that it is doing or permitted to do business which is prohibited by law to an NSSLA. d. No NSSLA shall advertise or represent itself to its members or to the public as a bank or as a trust company. SECTIONS 4184S-4198S (Reserved) SECTION 4199S. 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 4201S. Checking Accounts NSSLAs shall not have or carry upon their books for any person any demand, commercial or checking account, or any credit to be withdrawn upon the presentation of any negotiable check or draft. SECTIONS 4202S-4205S (Reserved) B. Savings Deposits SECTION 4206S. Definition Savings deposits are deposits evidenced by a passbook consisting of funds deposited to the credit of one (1) or more individuals with respect to which the depositor may withdraw at any time, unless prior notice in writing of an intended withdrawal is required by the NSSLA. SECTION 4207S. Minimum Deposit Savings deposits with NSSLAs may be opened with a minimum deposit of P100. SECTION 4208S. Withdrawal Withdrawal from a savings deposit shall be made by presenting to the NSSLA a duly accomplished withdrawal slip together with the depositor's passbook. NSSLAs shall reserve the right to require the depositor to give prior written notice of withdrawal of not more than thirty (30) days. An association may limit the number of withdrawals that a depositor may make: Provided, That the number of withdrawals allowed shall not be less than three (3) a month. A service charge of twenty pesos (P20) may be charged by the association for every withdrawal made in excess of the maximum number allowed in any one (1) month. SECTIONS 4209S-4215S (Reserved) C. (Reserved) SECTIONS 4216S-4220S (Reserved) D. Time Deposits SECTION 4221S. Definition Time deposits are deposits evidenced by a negotiable or non-negotiable instrument which provides on its face that the amount of such deposit is payable on a fixed date or at the expiration of a certain specified time. SECTION 4222S. Minimum Size and Term of Time Deposits The minimum size and term of time deposits shall be as follows: a. Term No time deposit shall be accepted for a term of less than thirty (30) days. AEIcTD b. Minimum size NSSLAs shall not require a minimum amount of time deposit greater than P1,000 SECTION 4223S. Withdrawal of Time Deposits The withdrawal of a time deposit can be made only by presentation of the certificate of time deposit. SECTION 4224S. Certificates of Time Deposit Certificates of time deposit shall be governed by the rules under Subsec. 4261 S.5. SECTIONS 4225S-4230S (Reserved) E. - F. (Reserved) SECTIONS 4231S-4240S (Reserved) G. Interest SECTION 4241S. Interest on Savings Deposits Savings deposits of NSSLAs shall not be subject to any interest rate ceiling. SECTION 4242S. Interest on Time Deposits Time deposits shall not be subject to any interest rate ceiling. SUBSECTION 4242S.1 Time of payment . Interest on time deposits may be paid at maturity or upon withdrawal or in advance: Provided , That interest paid in advance shall not exceed the interest for one (1) year. SUBSECTION 4242S.2 Treatment of matured time deposits . 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. SECTIONS 4243S-4250S (Reserved) H. Reserves Against Deposit Liabilities SECTION 4251S. Reserve Fund NSSLAs shall maintain a reserve fund to meet withdrawals against deposit liabilities equivalent to six percent (6%) of their savings and time deposit liabilities. SECTION 4252S. Form and Composition of Reserves The composition of the reserve fund shall be: (a) at least ten percent (10%) in the form of cash on hand/or cash in banks, and (b) the remaining ninety percent (90%), in the form of evidences of indebtedness or obligations of the government, its political subdivisions or instrumentalities. For the purpose of computing the reserve fund, the value of government securities shall be the cost of acquisition. The NSSLA may keep physical possession of such government securities, but shall supply the BSP with the following information: (i) Name of issuer (ii) Serial number (iii) Denominations (iv) Cost of acquisition (v) Maturity dates SECTIONS 4253S-4260S (Reserved) I. Sundry Provisions On Deposit Operations SECTION 4261S. Opening and Operation of Deposit Accounts The following rules shall govern the opening and operation of deposit accounts of NSSLAs. SUBSECTION 4261S.1 Who may open deposit accounts . Only members who have contributed fifty pesos (P50) or more to the capital of an NSSLA may open savings and/or time deposit accounts with the association. A member who is at least seven (7) years old and with sufficient discretion may open a savings or time deposit account for himself. However, parents may deposit for their minor children, and guardians for their wards. Notwithstanding the provisions of the preceding paragraphs, the cashier, bookkeeper and their assistants, and other employees of an association whose duties entail the handling of cash or checks are prohibited from opening deposit accounts with the head office/branch of the association in which they are assigned as such. SUBSECTION 4261S.2 Identification of member-depositors . An NSSLA shall be responsible for the proper identification of its member-depositors SUBSECTION 4261S.3 Number of deposit accounts . A member-depositor may open and have more than one (1) savings deposit in his own name in the same capacity, and he may open and have various deposits in different capacities such as guardian, agent, or trustee for others. SUBSECTION 4261S.4 Signature card . A signature card bearing at least three (3) specimen signatures of each member-depositor shall be required upon opening of a deposit account. SUBSECTION 4261S.5 Passbook and certificate of time deposit A savings deposit passbook, signed by the receiving teller and an authorized officer, shall be issued to a member-depositor showing, among other things, his name and address, account number, date, amount of deposit, interest credits and balance. In the case of a time deposit, a certificate of time deposit, signed by two (2) authorized officers, shall be issued to the member-depositor containing, among other things, his name, amount of deposit, date when the deposit was made, its due date and interest rate. NSSLAs shall pre-number their savings deposit passbooks and certificates of time deposit. SUBSECTION 4261S.6 Deposits of checks and other cash items . Checks and other cash items may be accepted for deposit by NSSLAs: Provided , That withdrawals from such deposits shall not be made until the check or other cash item is collected. SECTIONS 4262S-4280S (Reserved) J. (Reserved) SECTIONS 4281S-4285S (Reserved) K. Other Borrowings SECTION 4286S. Borrowings An NSSLA may borrow money or incur such obligation up to twenty percent (20%) of the total assets of the association, from any public lending institution, such as the Development Bank of the Philippines, the Government Service Insurance System, the Social Security System, private banking institutions, and such private lending institutions as may be approved by the Monetary Board: Provided , That the proceeds of such loan shall be used exclusively to meet the normal credit requirements of its members: Provided, further , That no part of the proceeds shall be used for the creation or acquisition of any fixed or capital assets or for operational expenses. The Monetary Board may, in meritorious cases, raise the ceiling on the borrowing capacity of an NSSLA to not more than thirty percent (30%) of its total assets. NSSLAs organized by employees of an entity or a corporation may borrow funds from said entity or corporation, but not vice-versa. SECTIONS 4287S-4298S (Reserved) SECTION 4299S. 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 and Investments A. Loans In General SECTION 4301S. Authority; Loan Limits; Maturity of Loans The board of directors of an NSSLA shall prescribe its own rules and regulations governing credit operations of the association within the framework of the terms and conditions embodied in this Section. a. Loan limit to a single borrower . An NSSLA may grant loans not exceeding the amount deposited and/or contributed by the member-borrower plus his four (4) months' salary or other regular income in the case of a permanent employee or wage earner, or seventy percent (70%) of the fair market value of any property acceptable as collateral on first mortgage that he may put up by way of security: Provided, That the direct indebtedness to an NSSLA of any member-borrower for money borrowed, with the exception of money borrowed against obligations of the BSP or of the Philippine Government, or borrowed with the full guarantee of the Philippine Government of payment of principal and interest, shall at no time exceed twenty-five percent (25%) of the unimpaired capital and surplus of the NSSLA. For purposes of this Section, regular income of persons who are self-employed shall be their average monthly income during the twelve (12)-month period immediately preceding the date of loan application. b. Limitations on lending authority . NSSLAs shall not commit to make any loans for amounts in excess of the total of the following amounts: (1) Amount of cash available for loan purposes; (2) Amount of cash which can be readily realized upon the sale or redemption of permissible investments made by the association; and (3) Amount of credit available for loan purposes from government or private financing institutions. c. Maximum loan maturity . No loans granted by an NSSLA shall have a maturity date of more than five (5) years except loans on the security of unencumbered real estate for the purpose of home building and home development which may be granted with maturities not exceeding thirty (30) years and medium- or long-term loans to finance agricultural projects, subject to regulations prescribed by the Monetary Board: Provided, That extensions or renewals of loans other than real estate loan may be allowed in accordance with the provisions of Sec. 4306S. d. Deposits in banks . NSSLAs may maintain deposits with banks: Provided, That the amount of such deposits shall be subject to the loan limit to a single borrower as prescribed herein or by other special laws or regulations. SECTION 4302S. Basic Requirements in Granting Loans a. Application . A member-borrower applying for a loan must submit an application stating the purpose of the loan and such other information as may be required by the association. The loan application and other required documents shall form part of the credit information file of the member-borrower in the association. b. Credit investigation . No loan shall be approved unless prior investigation has been made to determine the credit standing of the applicant and/or the fair market value of the property offered as security and the report thereon shall be made part of the loan application: Provided, That this requirement may be waived by an association in the case of a permanent employee or wage earner who is borrowing an amount not exceeding his deposit plus his four (4) months salary. c. Credit information file/collateral file . NSSLAs shall maintain a credit information file which shall contain, among other things, the member-borrower's application, financial record, the collateral and other loan documents and other information relative to the member-borrower. d. Loan approval s. Loans shall be approved by the association's board of directors or if approved by a body or officer/s duly authorized by the board, such loans must be confirmed by the board of directors. e. Loan agreements . For each loan granted by an NSSLA, a promissory note shall be executed by the member-borrower in favor of the association stating the amount of the loan, date granted, due date, interest rate and other information. f. Inscription of lien . In case of mortgage loans, no release against an approved loan shall be made before the inscription of the mortgage. SECTION 4303S. Loan Proceeds NSSLAs shall in no case require member-borrowers to deposit a portion of the loan proceeds, whether in the form of savings or time deposits. Where, subsequent to the release of the loan proceeds, member-borrowers open deposit accounts or make additional deposits to their existing accounts, no part of such new deposits shall be covered by a stipulation prohibiting or limiting withdrawal while new portion of their loans are outstanding: Provided, That this prohibition shall not apply in cases of loans secured by a hold-out on deposits to the extent of the unencumbered amount of the deposit existing at the time of the filing of the above-mentioned loan application. SECTION 4304S. Loan Repayment In the case of a member-borrower who is a permanent employee or wage earner, the treasurer, cashier or paymaster of the firm employing him shall be authorized, pursuant to R.A. No. 3779, as amended, to make deductions from his salary, wage or income in accordance with the terms of his loan, and to remit such deductions to the association. SECTION 4305S. Interest and Other Charges The following rules shall govern the rates of interest and other charges on loans granted by NSSLAs. SUBSECTION 4305S.1 Rate Ceilings . The rate of interest including commissions, premiums, fees and other charges on loans and forbearance of money, regardless of maturity and whether secured or unsecured, shall not be subject to any ceiling. SUBSECTION 4305S.2 Payment of Loan Before Maturity Should a member-borrower elect to pay the outstanding balance of his loan before maturity, the NSSLA may charge interest corresponding to the unused term of the loan, subject to a prior agreement to that effect between the NSSLA and its member-borrowers. SUBSECTION 4305S.3 Interest in the absence of contract The rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION 4305S.4 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 law or 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 4305S.5 Accrual of Interest Earned on Loans . NSSLAs shall not accrue interest income on loans which are already past due or on loan installments which are in arrears, regardless of whether the loans are secured or unsecured. Interest on past due loans or loan installments in arrears shall be taken up as income only when actual payments thereon are received. SECTION 4306S. Past Due Accounts Past due accounts of an NSSLA shall, as a general rule, refer to all accounts which are not paid at maturity. SUBSECTION 4306S.1 Accounts Considered Past Due The following shall be considered as past due: a. A loan or receivable payable on demand if not paid on the date indicated on the demand letter, or within six (6) months from date of grant or renewal, whichever comes earlier. b. The total outstanding balance of a loan or receivable payable in installments, in accordance with the following schedules: Minimum Number of Installments Mode of Payment in Arrears Monthly 6 Quarterly 2 Semestral 1 Annual 1 Provided , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan/receivable, 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; c. Any due and unpaid loan installment or portion thereof, from the time the obligor defaults for the purpose of determining delinquency in the payment of obligations as defined in Sec. 4143S(d); an d. All items in litigation as defined in the Manual of Accounts for NSSLAs. SUBSECTION 4306S.2 Extension/renewal of loans Extension of the period of payment of loans may be allowed under the following circumstances: a. For production loans, the extension shall not exceed one-half (1/2) of the original period: Provided, That thirty percent (30%) of the loan shall have been paid. A second extension shall not exceed one-half (1/2) of the period of the first extension . b. For consumer loans, the extension shall not exceed one-half (1/2) of the original period: Provided, That fifty percent (50%) of the loan shall have been paid. Loans payable in periodical installments may be renewed for the full amount of the loans: Provided , That at least fifty percent (50%) of the loan shall have been paid. SUBSECTION 4306S.3 Write-off of loans as bad debts The writing-off of loans by NSSLAs shall be governed by the following regulations: a. The term loans shall include all types of credit accommodations granted to, and advances made by, the association, including interest thereon recorded in the books; b. Writing-off of loans by an association shall be made not more than twice a year by its board of directors; and c. Notice/application for write-off of loans shall be submitted, in the prescribed form, to the appropriate supervising and examining department of the BSP at least thirty (30) days prior to the intended date of write-off: Provided, That no such loans with an individual outstanding amount of P15,000 or more, as certified in said notice/application, shall be written-off without the prior approval of: (1) The Monetary Board, in case of loans to directors and officers of the association, direct or indirect; or (2) The head of the appropriate supervising and examining department of the BSP, subject to confirmation by the Monetary Board, in the case of loans other than those mentioned in Item (1) above. SECTION 4307S. "Truth in Lending Act" Disclosure Requirements NSSLAs 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 NSSLAs engaged in the following types of credit transactions: a. Any loan mortgage, deed of trust, advances and discounts; 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 the 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. ASaTCE SUBSECTION 4307S.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 the property (except money) or service purchased at the NSSLA'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 NSSLA 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 NSSLA 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. Amount to be financed consists 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 discount, collection fee, credit investigation fee, attorney's fee, and other service charges. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) 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 single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: finance charge 12 R = x 100 amount to x maturity period be financed 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, R in percent is computed by the following method: number of payments finance charge in a year R = 2 x x x 100 amount to total number be financed of payments plus one In cases where the credit matures in less than one (1) year (e.g., installment payment are required every month for six (6) months the same formula will apply except that number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. 1 In cases where credit terms provide for premium or penalty charges depending on, say, the timeliness of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SUBSECTION 4307S.2 Information to Be Disclosed NSSLAs shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information to be disclosed: 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, individual 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 simple 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 the seven (7) items of information mentioned are 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 the form ( Appendix S-4 ) 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 the borrower. SUBSECTION 4307S.3 Inspection of contracts covering credit transaction s NSSLAs shall keep in their office or place of business copies of contracts which involve the extension of credit and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department of the BSP. SUBSECTION 4307S.4 Posters An abstract of R.A. No. 3765 ( Appendix S-5 ) shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long and posted on a conspicuous place in the NSSLA's place(s) of business. SECTIONS 4308S-4320S (Reserved) B. Secured Loans SECTION 4321S. Kinds of Securit y Loans by an NSSLA may be secured by any or all of the following: a. Mortgages on registered real estate; b. Chattel mortgages on harvested or stored crops of non-perishable character; c. Chattel mortgages on livestock, tools, equipment or machinery, supplies or materials, merchandise and such other property which may have been purchased or acquired out of the proceeds of the loan; d. Assignment of quedans which gives the right of disposal of readily marketable products; e. Time and/or savings deposits, f. Pledge of bonds, stocks and other securities of the government or government-owned or controlled corporations and other bonds, stocks or securities which are non-speculative in nature; g. Land Transfer Certificates issued by the Government to tenant farmers under the agrarian reform program to the extent of sixty percent (60%) of the value of the farm holdings: Provided, That a certification shall be first secured from the offices of the Register of Deeds to the effect that the Land Transfer Certificate being presented is valid; and h. Other securities as may be approved by the Monetary Board. SECTIONS 4322S-4335S (Reserved) C. - D. (Reserved) SECTIONS 4336S-4355S (Reserved) E. Loans/Credit Accommodations to Directors, Officers and their Related Interests SECTION 4356S. General Policy Dealings of an NSSLA with any of its directors, officers and their related interests shall be in the regular course of business and upon terms not less favorable to the NSSLA than those offered to others. SECTION 4357S. Direct/Indirect Borrowings; Ceilings NSSLAs shall not directly or indirectly make any loan to any director or officer of such associations, either for himself or as agent or as partner of another, except with the written approval of the majority of the directors of the associations, excluding the director concerned: Provided, That the aggregate loans to such directors and officers shall not exceed twenty percent (20%) of the total paid-up capital of the associations. SECTION 4358S. Records; Reports In all cases of accommodations granted to directors and officers, the written approval of the majority of the directors of the association, excluding the director concerned, shall be entered upon the records of the association and a copy of such entry, together with a Certification on Loans Granted to Directors/Officers, shall be transmitted forthwith to the appropriate supervising and examining department of the BSP within twenty (20) business days from the date of approval. SECTIONS 4359S-4369S (Reserved) SECTION 4370S. Sanctions The office of any director or officer of an association who violates the provisions of these rules on accommodations granted to directors and officers shall immediately become vacant. In addition, any violation of the ceiling prescribed in Sec. 4357S shall be subject to any or all of the following sanctions: a. Disqualification of the directors voting for the approval of the loan or credit in excess of any of the ceiling from participating in the approval of loans or credit to officers and directors of the association: Provided , That the disqualification may be lifted by the BSP, as the circumstances warrant. b. 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: (1) the association; and (2) each of the directors voting for the approval of the loan or credit accommodation in excess of the ceiling. The penalty for exceeding the ceiling shall be computed on the average amount of loans in excess of said ceiling during the same week. F. - I. (Reserved) SECTIONS 4371S-4390S ( Reserved ) J. Other Operations SECTION 4391S. Fund Investments NSSLAs may invest their funds in the following: a. In bonds, securities, and other obligations issued by the Government of the Philippines, or any of its political subdivisions, instrumentalities or corporations including government-owned or controlled corporations, subject to such rules and regulations as the Monetary Board may provide, in an aggregate amount not exceeding at any one time ten percent (10%) of the total assets of such association; b. In real property, in an aggregate amount not exceeding at any one time five percent (5%) of the total assets of such associations; c. In furniture, fixtures, furnishings, equipment, and leasehold improvements for their offices, in an amount not exceeding at any one time ten percent (10%) of the aggregate paid-up capital of such associations; and d. In sound, non-speculative enterprises in an aggregate amount not exceeding at any one time ten percent (10%) of the paid-up capital and surplus of such association: Provided, That in this case, prior approval of the appropriate supervising and examining department of the BSP shall be obtained. SECTIONS 4392S-4395S ( Reserved ) K. Miscellaneous Provisions SECTIONS 4396S-4398S ( Reserved ) SECTION 4399S. 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 SECTIONS 44015-4499S (Reserved) PART FIVE SECTIONS 4501S-4599S (Reserved) PART SIX Miscellaneous A. Other Operations SECTION 4601S. Payment of Fines . NSSLAs shall, within fifteen (15) calendar days from receipt of the statement of account from the BSP, pay the fines for reserve deficiency, reportorial delay, refusal to permit examination, or failure to comply with, or violation of, any law or any order, instruction or regulation issued by the Monetary Board or the Governor. SECTIONS 4602S-4650S (Reserved) B. Sundry Provisions SECTION 4651S. Notice of Dissolution NSSLAs contemplating to dissolve shall give written notice thereof to the Monetary Board through the appropriate supervising and examining department of the BSP at least thirty (30) days before taking steps to effect dissolution. SECTION 4652S. Confidential Information No director, officer or employee of an NSSLA or of the BSP shall disclose any information relating to member-borrowers and their applications or to the operations of the association unless permitted by the Monetary Board: Provided, That in the case of an association under examination, the director of the appropriate supervising and examining department of the BSP may furnish findings of examination to the office or firm where such association does business. All deposits of whatever nature with an NSSLA are considered absolutely confidential in nature, and may not be examined, inquired or looked into by any person or government official, bureau or office, except when the examination is conducted by the Monetary Board or the official of the appropriate supervising and examining department of the BSP, pursuant to the provisions of R.A. No. 3779, as amended, or upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation. No official or employee of an NSSLA shall disclose to any person any information concerning said deposits, except in cases mentioned in the immediately preceding paragraph. SECTION 4653S. Examination by the Bangko Sentral The head of the appropriate supervising and examining department of the BSP, personally or by deputy, shall make at least once a year and at such other times as he or the Monetary Board may deem necessary and expedient an examination, inspection or investigation of the books and records, business affairs, administration, and financial condition of any NSSLA. SECTION 4654S. Basic Law Governing Non-Stock Savings and Loan Associations R.A. No. 3779, as amended, known as the Savings and Loan Associations Act , regulates the organization and operation of NSSLAs. SECTIONS 4655S-4698S (Reserved) SECTION 4699S. 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. APPENDIX S-1 SAFEGUARDS IN BONDING OF NSSLA ACCOUNTABLE OFFICERS AND EMPLOYEES (Appendix of Sec. 4145S) 1. The Teller He should not be allowed to accumulate more than a specific maximum amount to be determined by the association but in no case to exceed P10,000 in cash at any given time while in the performance of his duties. The procedures in this regard are as follows: a. Cash . All cash in excess of the maximum amount determined by the association shall be turned over to the cashier. When deposits received by a teller will increase his cash in excess of the maximum limit, the teller shall immediately make a cash turn-over of, at least, the excess. Thus, although his transactions during the day may total more than the maximum limit, the amount of money directly in his custody at any given time will never exceed the limit. b. Checks and Other Cash Items (COCIs) . All COCIs received by a teller should be stamped as "NON-NEGOTIABLE" The stamping should be made diagonally on the face of the check. Thus, all checks that are received by the tellers lose their further negotiability. There should, however, be an agreement with the association's depository banks whereby they will accept for deposit only to the account of the association the COCI previously stamped by the tellers as "NON-NEGOTIABLE." Therefore, only the association and nobody else can further negotiate these checks, and only the association's depository bank will accept them and solely for deposit to its account. Thus, even in the remote possibility that someone presents a COCI stolen from the association to one of its depository banks, it will not be accepted for encashment. 2. The COCIs Clerk In view of the fact that all COCIs received by the tellers are stamped "NON-NEGOTIABLE" as detailed above, the COCIs clerk who records and processes these checks carries no accountabilities whatsoever. From the moment that a check is received up to the moment that it is deposited to the account of the association with one of its depository banks, that check is just a piece of paper to be processed and recorded. It will only reassume its negotiability upon its receipt by the association's depository bank. In cases, however, where checks are received by mail, the COCIs clerk shall be charged with the duty of stamping the checks as "NON-NEGOTIABLE." 3. As an added precautionary measure, the manager/accountant/loan officer should check from time to time whether all COCIs received are stamped "NON-NEGOTIABLE." In the event that a COCI is not so stamped and results in financial loss on the part of the association, the employee charged with the duty to stamp and who failed to do so, shall be held personally responsible, together with the manager/accountant/loan officer, for the loss. ANNEX S-2-a REPORTING GUIDELINES ON CRIMES/LOSSES (Annex to Appendix S-2) 1. NSSLAs shall report on the following matters through 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 property of the NSSLA when the amount involved in each crime is P20,000 or more. Crimes involving NSSLA personnel, regardless of whether or not such crimes involve the loss/destruction of property of the NSSLA, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's property/facilities, other than arising from a crime, when the amount involved per incident is P20,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5)-business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. APPENDIX S-3 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec . 4162S . 1) Category A-1 reports shall be signed by the 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 by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated by the board of directors. A copy of the board resolution, with format as prescribed in Annex S-3-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) business days from the date of resolution. ANNEX S-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS (Annex to Appendix S-3) Resolution No. _____ Whereas, it is required under Subsec. 4162S.1 that Category A-1 reports be signed by the 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 by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _________________ ( Name of Institution ) are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ___________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. ______________ President __________________________ Specimen Signature or 2. Mr. ______________ Executive Vice-Pres. _________________ Specimen Signature and 3. Mr. ______________ Comptroller _______________________ Specimen Signature 4. Mr. ______________ Chief Accountant ___________________ Specimen Signature are hereby authorized to sign Category A-1 reports of ____________________ ( Name of Institution ) Done in the City of ___________________, Philippines, this ________ day of ____________, 19_______. ______________________________ CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: ____________________________ CORPORATE SECRETARY ANNEX S-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS (Annex To Appendix S-3) Resolution No. _____ Whereas, it is required under Subsec. 4162S.1 that Category A-2 reports of head offices be signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of __________________ ( Name of institution ), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ________________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports indicated above of __________________________ ( Name of Institution ) ; Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY ANNEX S-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS (Annex to Appendix S-3) Resolution No. ______ Whereas, it is required under Subsec. 4162S.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _____________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ____________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign Categories A-3 and B reports _______________ ( Name of Institution ) . Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY APPENDIX S-4 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (Appendix to Subsec. 4307S.2) (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) ( As Required Under R.A. 3765, Truth In Lending Act ) Name of Borrower _________________________________________ Address _________________________________________________ 1. Cash/Purchase Price ________________ or Net Proceeds of Loan P __________ ( Item Purchased ) 2. LESS: Downpayment and/or Trade-in Value (Not applicable for loan transaction) ___________ 3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan ___________ 4. Non-Finance Charges [Advanced by Seller/Creditor]: a. Insurance Premium P ________________ b. Taxes ________________ c. Registration Fees ________________ d. Documentary/Science Stamps ________________ e. Notarial Fees ________________ f. Others: __________________ _________________ __________________ _________________ __________________ _________________ Total Non-Finance Charges _______________ 5. Amount to be Financed (Items 3 + 4) P ============= 6. Finance Charges* a. Interest ________% p.a. from __________ to __________ P _________________ [ ] Simple [ ] Monthly [ ] Compound [ ] Quarterly [ ] Semi-Annual [ ] Annual b. Discounts __________________ c. Service/Handling Charges __________________ d. Collection Charges __________________ e. Credit Investigation Fees __________________ f. Appraisal Fees __________________ g. Attorney's/Legal Fees __________________ h. Other charges incidental to the extension of credit (specify): __________________ __________________ __________________ __________________ __________________ __________________ Total Non-Finance Charges P ============= 7. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. 4307S.1) ______________ % 8. Effective Interest Rate ______________ % (Method of computation attached) 9. Payment P ______________ a. Single Payment due _________________ (Date) b. Total Installment Payments P ______________ (Payable in weeks/months @ P _________ ) 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ CERTIFIED CORRECT: _____________________________ (Signature of Creditor/ Authorized Representative Over Printed Name) _________________________ Position ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. ______________________________ (Signature of Buyer/Borrower Over Printed Name) DATE _____________________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. APPENDIX S-5 ABSTRACT OF "TRUTH IN LENDING ACT" (REPUBLIC ACT NO. 3765) (Appendix to Subsec. 4307s.4) SECTION 1. This Act shall be known as the "Truth in 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 charges 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 setting 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 the 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 (d) 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. P REGULATIONS Regulations Governing Pawnshop PART ONE Organization, Management and Administration A. Scope Of Authority SECTION 4101P. Scope of Authority of Pawnshops A duly organized and licensed pawnshop has, in general, the power to engage in the business of lending money on the security of personal property within the framework and limitations of P.D. No. 114 and the following regulations, subject to the regulatory and supervisory powers of the Bangko Sentral ng Pilipinas (BSP). SUBSECTION 4101P.1 Form of organization A pawnshop may be established as a single proprietorship, a partnership or corporation. Only Filipino citizens may establish and own a pawnshop organized as a single proprietorship. A pawnshop established as a single proprietorship by a non-Filipino owner prior to January 29, 1973 may continue as such during the lifetime of the registered owner. If a pawnshop is organized as a partnership, at least seventy percent (70%) of its capital shall be owned by Filipino citizens. Pawnshops established as partnerships prior to January 29, 1973, with non-Filipino partners whose aggregate holdings amount to more than thirty percent (30%) of the capital may retain the percentage of their aggregate holdings as of January 29, 1973, and said percentage shall not be increased, but may be reduced, and once reduced shall not be increased thereafter beyond thirty percent (30%) of the capital stock of such pawnshop. In the case of a pawnshop organized as a corporation, at least seventy percent (70%) of the voting stock therein shall be owned by citizens of the Philippines, or if there be no capital stock, at least seventy percent (70%) of the members entitled to vote shall be citizens of the Philippines. Pawnshops registered as a corporation with foreign equity participation in excess of thirty percent (30%) of the voting stock, or members entitled to vote, of the pawnshop may retain the percentage of foreign equity as of January 29, 1973, and said percentage shall not be increased, but may be reduced and once reduced, shall not be increased thereafter beyond thirty percent (30%) of the voting stock, or number of members entitled to vote, of such pawnshop. The percentage of foreign-owned voting stock in a pawnshop corporation shall be determined by the citizenship of its individual stockholders. If the voting stock in a pawnshop corporation is held by another corporation, the percentage of foreign ownership in that pawnshop, shall be computed on the basis of the foreign citizenship of the individuals owning voting stocks in, or members entitled to vote of, the stockholder corporation. SUBSECTION 4101P.2 Organizational requirements Any person or entity desiring to establish a pawnshop shall register with the Bureau of Trade Regulation and Consumer Protection (BTRCP), in the case of a single proprietorship, or with the Securities and Exchange Commission (SEC), in the case of a partnership/corporation. Pawnshops with foreign equity participation shall also register with the Board of Investments. After registering with the BTRCP or with the SEC, the single proprietorship or the partnership/corporation, as the case may be, shall secure a business license from the city or municipality where the pawnshop is to be established and operated, in accordance with the requirements of the pertinent ordinance in that city or municipality. The following documents shall be filed with the BTRCP, the SEC and/or the BSP in accordance with the forms prescribed by them: a. Application under oath (BTRCP) form; b. Articles of Partnership/Incorporation (for partnerships and/or corporations); c. List of partners/stockholders/directors/officers; d. Personal data sheet of owners/partners/incorporators/directors/ officers; e. Projected financial statements covering the first twelve (12) months of operations; f. Certificate of incorporation or registration with SEC or BTRCP; g. City/municipal license; and h. Such other documents as may be required by the BTRCP, the SEC, or the BSP. Before commencing actual business operations, the single proprietorship, partnership or corporation shall file with the BSP an information sheet signed by the proprietor, managing partner or president under oath. SUBSECTION 4101P.3 Prior Bangko Sentral licensing to perform quasi-banking functions Pawnshops desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the BSP pursuant to BSP regulations. ECaScD a. Definition of quasi-banking functions . Quasi-banking functions consist of the following: (1) Borrowing funds for the borrower's own account; (2) Twenty (20) or more lenders at any one time; (3) Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (a) acceptances; (b) promissory notes; (c) participations; (d) certificates of assignment or similar instruments with recourse; (e) trust certificates; (f) repurchase agreements; and (g) such other instruments as the Monetary Board may determine; and (4) Purpose: (a) relending, or (b) purchasing receivables or other obligations. As used in the definition of quasi-banking functions, the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in (3) and (4) above, whether the borrower's liability thereby is treated as real or contingent. 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. 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 securities, of any amount and maturity, from domestic or foreign sources. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. b. Guidelines on lender count The following guidelines shall govern lender count on borrowings or funds mobilized by pawnshops: (1) For purposes of ascertaining the number of lenders/placers to determine whether or not a pawnshop is engaged in quasi-banking functions. the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , That a debt instrument issued in the name of a husband and wife followed by the word spouses, whether under an and, and/or , or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one (1) borrowing/placement. (2) Each debt instrument payable to bearer, shall be counted as one (1) lender/placer, except when the pawnshop can prove that there is only one owner for several debt instruments so payable. (3) Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount, shall be counted as one (1) borrowing or placement. (4) Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best-efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however , That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. (5) Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or endorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation, practice, or circumstances indicate that the sale, assignment, and/or endorsement thereof legally obligates the pawnshop to repurchase or reacquire the securities/receivables sold, assigned, endorsed or to pay the buyer, assignee, or indorsee at some subsequent time. (6) Funds obtained by way of advances from stockholders, directors or officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SECTION 4102P. Definition of Terms a. Pawnshop shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans. The term shall be synonymous, and may be used interchangeably, with pawnbroker or pawnbrokerage . b. Pawner shall refer to the borrower from a pawnshop. c. Pawnee shall refer to the pawnshop or pawnbroker. d. Pawn is the personal property delivered by the pawner to the pawnee as security for a loan. e. Pawn ticket is the pawnbroker's receipt for a pawn. f. Property shall include only such personal property as may actually be delivered to the control and possession of the pawnee. g. Voting stock is that portion of the authorized capital which is subscribed and entitled to vote. h. Vital records shall consist of the Loans Extended/Paid Registers, General Ledger/Journal covering the current and at least the preceding two (2) years of operations, unused accountable forms and permanent pawnshop records, e.g., articles of incorporation/co-partnership, stock certificates, etc. i. Bulky pawns shall refer to household appliances, office machines and the like, which occupy considerable amount of space, i.e., measuring at least 1.5 x 1.5 x 0.5 feet. j. Premises shall refer to the area where the pawnshop conducts its business and maintains office. It includes office or storage spaces maintained and/or used by the pawnshop which are adjacent to the pawnshop's location. SECTIONS 4103P-4105P ( Reserved ) B. Capitalization SECTION 4106P. Capital of Pawnshops Pawnshops shall have a minimum paid-in capital of P100,000. Paid-in capital shall mean cash and other properties, including real estate and improvements thereon: Provided , That such properties are necessary for the conduct of the pawnshop business. Properties forming part of capital in accordance with the preceding paragraph may be valued at acquisition cost less depreciation or at any other value not exceeding the appraised value as fixed by an independent appraiser, at the option of the contributor, partner or proprietor. The value of properties forming part of capital in accordance with the immediately preceding two paragraphs shall not exceed twenty-five percent (25%) of paid-in capital and surplus: Provided, however , That for pawnshops existing as at 29 January 1973 whose value of properties exceeds the prescribed ratio, such percentage may be retained or reduced but shall not be increased thereafter. Should the ratio, on the other hand, fall below the prescribed level, it may be increased but not beyond twenty-five percent (25%). SECTIONS 4107P-4110P ( Reserved ) C. - F. ( Reserved ) SECTIONS 4111P-4140P ( Reserved ) G. Directors, Officers and Employees SECTION 4141P. Bonding of Officers and Employees Accountable officers and employees, especially those who have access to pawned articles, of pawnshops shall be required to post bonds of reputable companies accredited by the Insurance Commissioner. SECTIONS 4142P-4150P ( Reserved ) H. Branches and Other Offices SECTION 4151P. Establishment of Branches No pawnshop shall open, maintain or operate a branch office without first applying for and obtaining from the BSP, through the appropriate supervising and examining department authority to operate such branch which shall be processed in accordance with the following guidelines. SUBSECTION 4151P.1 Definition of term As used in these rules the term branch office shall include any place of business outside the main office of a pawnshop, where pawnshop operations or transactions or any phase thereof are conducted by said pawnshop under the control and supervision of a head or main office. SUBSECTION 4151P.2 Operations and functions The operations/transactions of a branch office shall likewise be governed by the provisions of P.D. No. 114 governing operations/transactions of a head office, as well as by other pertinent laws, BSP rules and regulations. The primary purpose of branching shall be to provide an additional source of credit to small borrowers left unserved by the banking and other financial institutions. SUBSECTION 4151P.3 Basis for establishment Branch offices shall be allowed on the basis of the head office's ability to conduct operations, as well as correspondent arrangements. The BSP department concerned shall not process an application for branching of a pawnshop which has an approved but unopened branch. SUBSECTION 4151P.4 Capital requirement Upon compliance with the minimum paid-in capital of P100,000, permission to open a maximum of one (1) branch may be granted, subject to the provisions of the rules on branching. Additional paid-in capital of P100,000 shall be required for each additional branch. SUBSECTION 4151P.5 Documentary requirements The following documents shall be filed with the appropriate supervising and examining department of the BSP in connection with an application to operate a branch a. Bank certification on paid-in capital deposit; b. Bio-data of the proposed manager and accountable employees; c. Information on branch location, facilities (such as vault), bonding and insurance; d. Certified true copy of the board resolution authorizing the establishment of the branch (in case of corporation); and e. Business and/or economic justification (including data) for the establishment of the branch, etc. SUBSECTION 4151P.6 Date of opening for business A branch office shall open for business within six (6) months from receipt of its authority to operate said branch, otherwise, the authority is automatically revoked. SECTIONS 4152P-4155P ( Reserved ) I. Business Days And Hours SECTION 4156P. Business Days and Hours Pawnshops shall transact business at a minimum of five (5) days a week, for a minimum of six (6) hours a day, both to be selected by them. They may, at their discretion, remain open beyond the above requirement for as long as they deem it, necessary. The business hours and business days shall be posted conspicuously at all times at the door of the pawnshop. Exemption from the above requirement shall be granted to pawnshops in troubled areas after due evaluation of their requests. Special public holidays proclaimed for local government shall be regular working days. SECTIONS 4157P-4160P ( Reserved ) I. Records and Reports SECTION 4161P. Records The accounting period of all pawnshops shall be on the calendar year basis. The accounting records of pawnshops shall consist of records of original entry and books of final entry. The records of original entry shall consist of pawn tickets, official receipts, vouchers and other supporting documents. The books of final entry shall consist of the general ledger, subsidiary ledgers and registers of loans extended and loans paid. Pawnshops may use any form of register: Provided , That (a) it contains spaces and columns adequate to substantially reflect the data required by the BSP, (b) said register is with a permanent binding, and (c) no register with loose leaves or detachable pages shall be allowed. The Chart of Accounts and Description of Loan Registers of Pawnshops provided in Appendix P-1 shall be followed. No pawnbroker or other persons shall alter or erase any entry made in the registers of a pawnshop. cDCEIA No pawnshop shall destroy or dispose of any record, ledger, book, or document for at least three (3) years from the date thereof. SUBSECTION 4161P.1 Uniform System of Accounts Pawnshops shall strictly adopt/implement the Uniform System of Accounts prescribed for pawnshops in the recording of daily transactions including reportorial requirements. SUBSECTION 4161P.2 Adoption of Statements of Financial Accounting Standards Pawnshops shall adopt the Statements of Financial Accounting Standards (SFAS) in their 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 pawnshops. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162P. Reports Pawnshops shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix P-2 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation/co-partnership, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws or material document to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162P.1 Categories of and signatories to reports Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix P-2. Appendix P-3 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having submitted. SUBSECTION 4162P.2 Manner of filing The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers, unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162P.3 Sanctions a. Definition of terms For purposes of these rules, the following definitions shall apply: (1) Report shall refer to any report or statement required of a pawnshop to be submitted to the BSP periodically or within a specified period. (2) Faulty report shall refer to an inaccurate/improperly accomplished report. (3) Willful delay or default in the submission of reports shall refer to the failure of a pawnshop to submit a report on time. 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 pawnshop as defined in the Labor Code or a national emergency affecting operations of pawnshops, shall not be considered as willful delay. (4) False Statement shall refer to any untruthful data or information or falsehoods made in a report to the BSP or its authorized agents, with intent to deceive or mislead. Any false statement which tends to favor the pawnshop submitting the report shall be prima facie evidence of intent to deceive or mislead. (5) Repeated violation shall mean the commission of the same offense for at least two (2) times. (6) Persistent violation shall mean the commission of the same offense for at least three (3) times. (7) Offense shall refer to submission of faulty report, willful delay in submission of reports, or making of false statements in reports. b. Fine for submission of faulty report Any pawnshop which submits a faulty report shall pay to the BSP a fine of P30 per business day which shall accrue beginning on the sixth business day from the day the written notice of faulty report is received by the pawnshop concerned until a correct report is submitted. c. Fines for willful delay in submission of reports Pawnshops incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of P 90 default until the report is filed II. For Category B reports Per business day of P 30 default until the report is filed 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 pawnshop is situated, delay or default shall start to run on the day following the next working day. For the purpose of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope or the date of registry or special delivery receipt, as the case may be, shall be considered as the date of filing. Delayed schedules or attachments and amendments shall be considered late reporting subject to the above penalties. d. Fines for making false statements Any pawnshop which makes a false statement in any of its reports to the BSP or its authorized agents shall pay to the BSP a fine in accordance with the following schedule: (1) On the first and P 300 and P 650 second offense, for every day a fine payable of delay of on the business payment until day following the fine is the receipt of fully paid BSP advice (2) On repeated P600 and violations P120 for every day of delay in payment until the fine is fully paid (3) On persistent Suspension, violations after due hearing, of the pawnshop's directors/ officers/ proprietor/ managing partner Any false statement made in a previous report which was not immediately known but was discovered only in later reports shall constitute only one (1) violation. The penalty shall operate on the sixth working day counted from receipt of notice of submission of a false statement from the BSP or its authorized agents until a correct statement is submitted. e. Manner of collection and payment of fines A pawnshop shall be billed by the appropriate supervising and examining department of the BSP. The pawnshop shall thereupon remit the amount of the fine to the BSP thru the appropriate supervising and examining department. Failure of a pawnshop to effect the settlement of the full amount of the fine within a period of fifteen (15) days from receipt of the bill shall subject it to other administrative sanctions and/or to the penal provisions of P.D. No. 114. f. Appeal to the Monetary Board A pawnshop may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing any penalty prescribed herein. g. Payment of the penalties by installments (1) The head of the appropriate supervising and examining department may approve requests for payment of penalties by installments: Provided, That the pawnshop's cash position is not sufficient to pay the penalty in full, as determined by that department based on the pawnshop's latest statement of condition duly certified by its president/manager/proprietor/ managing partner, as the case may be. The request shall be made in writing. (2) The maximum number of installment payments shall be in accordance with the following schedule: Amount of Penalty No . of Installments P500 and below Two (2) equal monthly installments P501 - 750 Three (3) equal monthly installments P751 - 1,000 Four (4) equal monthly installments P1,001 - 2,000 Six (6) equal monthly installments P2,001 - 5,000 Eight (8) equal monthly installments P5,001 and above Ten (10) equal monthly installments Default in payment of any installment shall render the unpaid amount payable in full. h. The appropriate supervising and examining department shall refuse registration of new pawnshops the owner(s) of which owned another pawnshop which closed or ceased operations without paying previously assessed penalties. SECTIONS 4163P - 4170P ( Reserved ) K. Internal Control SECTION 4171P. Safekeeping of Pawns and Records and Insurance of Office Building Pawns must be kept inside the safe or concrete vault; however, bulky pawns may be placed outside the safe or vault but within the pawnshop premises. Vital records must be kept inside the safe or vault when not in use. Other pawnshop records/documents may be placed in filing cabinets/shelves outside the vault or safe but within the pawnshop premises. The office building/premises and all pawns of the pawnshop, except those which are kept inside a fireproof vault, must be insured against fire. SECTION 4172P. Separation of Pawnshop Business from Other Businesses Any person or entity engaged in the pawnshop business and, at the same time, engaged in other businesses not directly related nor incidental to the business of a pawnshop, shall keep such businesses distinct and separate from the pawnshop operation. SECTIONS 4173P-4180P ( Reserved ) L. Miscellaneous Provisions SECTION 4181P. Business Name No person or entity shall advertise or hold itself out as being engaged in pawnshop operations or use in connection with its business title the words pawnshop, pawnbroker, pawnbrokerage, or words of similar import, or transact in any manner the business of a pawnshop without having first complied with the provisions of P.D. No. 114 and of these regulations. SECTION 4182P. Closing or Transfer of Business No pawnshop shall close or transfer its place of business within three (3) months following the maturity of any loan or pledge, or before any pawn shall have been sold or disposed of as provided for under existing regulations. Any pawnshop may transfer its place of business from one location to another within the territorial limits of the city or municipality upon compliance with the following requirements: a. Notice of transfer shall be published in English and in Pilipino or in the local dialect in two (2) daily newspapers of general circulation in the city or municipality where the pawnshop is closing business, and posted in a conspicuous place in the premises to be vacated and to be transferred to; b. The notice shall be published for at least three (3) consecutive days, the last day of which shall be five (5) days before the actual transfer; and c. Notice shall contain the following information: (1) Date of transfer; (2) Address of the premises to be vacated; and (3) Address of the premises to which the pawnshop intends to transfer. In remote areas where newspapers are not available, the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality where the pawnshop has its place of business. SECTIONS 4183P-4198P ( Reserved ) SECTION 4199P. General Provision on Sanctions Any violation of the provisions of this Part shall be subject to Section 18 of P.D. No. 114. PART TWO Borrowing Operations A. - J. ( Reserved ) SECTIONS 4201P-4285P ( Reserved ) K. Other Borrowings SECTION 4286P. Borrowings Constituting Quasi-Banking Functions Borrowing from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations, which constitutes quasi banking functions as defined in Subsec. 4101F.3, shall be subject to prior BSP authority on performance of quasi-banking functions under BSP regulations. SECTIONS 4287P-4298P ( Reserved ) SECTION 4299P. 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 and Investments A. Loans In General SECTION 4301P. Loan Limits Pawnshops may grant such amount of loans as may be agreed upon between the parties: Provided, That the amount of a loan shall in no case be less than thirty percent (30%) of the appraised value of the security offered for the loan, unless the pawner manifests in writing that he is applying for a lesser amount. Pawnshops shall not under-appraise the security offered for the loan for the purpose of defeating the restriction prescribed by this Section. SECTION 4302P. Interest and Other Charges The rate of interest, including commissions, premiums, fees and other charges, on any loan or forbearance of money extended by a pawnshop shall not be subject to any ceiling. No pawnshop shall collect interest on loans in advance for a period of more than one (1) year. SECTION 4303P. Past Due Accounts; Renewal/Redemption of Pawns A loan may be renewed for such amount and period as may be agreed upon between the pawnshop and the pawner, subject to the same conditions as are provided in this Part for new loans. A pawner who fails to pay or renew his obligation with a pawnshop on the date it falls due shall have ninety (90) days from the date of maturity of the loan within which to redeem the pawn by paying the principal amount of the loan plus the amount of interest that shall have accrued thereon. The amount of interest due and payable after the maturity date of the loan shall be computed upon redemption based on the sum of the principal loan and interest earned as of the date of maturity. The procedures to be followed in case the pawner fails to redeem his pawn are prescribed in Sec. 4323P. SECTION 4304P-4320P. ( Reserved ) B. Secured Loans SECTION 4321P. Kinds of Security Only personal property that is capable of being physically delivered to the control and possession of the pawnshop shall be accepted as security for loans. Certain specified chattels, such as guns, knives, or similar weapons, whose reception in pawn is expressly prohibited by other laws, decrees, or regulations, shall not be accepted by pawnshops as security for loans. SECTION 4322P. Pawn Ticket Pawnshops shall at the time of the loan, deliver to each pawner a pawn ticket which shall contain the following: a. Name and residence of the pawner; b. Date the loan is granted; c. Amount of the principal loan; d. Interest rate in percent; e. Period of maturity; f. Description of the pawn; g. Expiry date of redemption period; h. Signature of the pawnshop's authorized representative; i. Signature or thumbmark of the pawner or his authorized representative; and j. Such other terms and conditions as may be agreed upon between the pawnshop and the pawner. SUBSECTION 4322P.1 Contents of pawn ticket The contents of the face of the standard pawn ticket, prescribed for pawnshops pursuant to the requirements of P.D. No. 114, and the terms and conditions on the reverse side thereof, are prescribed in Appendices P4 and P-4-a . Surplusage data shall be avoided. Additional terms and conditions which pawnshops may wish to incorporate shall be subject to prior approval by the appropriate supervising and examining department of the BSP. Pawn tickets shall not be smaller than 8" x 5". Pawn tickets shall at least be in duplicate. The first copy shall contain the word "Original" and the second copy shall be marked "Duplicate". Pawn tickets shall be serially numbered. Pawnshops may choose the color and quality of the paper used as pawn ticket. SUBSECTION 4322P.2 Sanctions Any pawnshop which violates or fails to comply with the requirements of Subsec. 4322P.1 shall pay a fine of P500 and shall be liable for such other administrative sanctions as the BSP may impose. The owner, partner, manager, or officer-in-charge of the pawnshop responsible for the violation or non-compliance shall be jointly liable with the pawnshop. SECTION 4323P. Reminder to Pawner; Notice to the Public On or before the expiration of the ninety (90)-day grace period allowed in Sec. 4303P, the pawnshop shall duly notify the pawner in writing that the pawn shall be sold or otherwise disposed of in the event that the pawner fails to redeem the pawn within the ninety (90)-day grace period, specifying in the same notification the date, hour and place where the sale shall take place. If upon the expiration of the ninety (90)-day grace period, the pawner fails to redeem his pawn, the pawnshop may sell or dispose of the pawn only after it has published a notice of public auction of unredeemed articles held as security for loans in at least two (2) newspapers circulated in the city or municipality where the pawnshop has its place of business, six (6) days prior to the date set for the public auction. The notice shall be in English and in Pilipino or in the local dialect and shall contain the following: a. Name and address of the owner of the pawnshop; and b. Date and hour of the auction sale. In remote areas where newspapers are neither published nor circulated, the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality and in two (2) other conspicuous public places where the pawnshop has its place of business. SECTION 4324P. Public Auction of Pawns No pawnshop shall sell or otherwise dispose of any article or thing received as security for a loan except by public auction at any of the following places: a. Pawnshop's place of business; or b. Any public place within the territorial limits of the municipality or city where the pawnshop conducts its business. The auction shall be conducted under the control and direction of a duly licensed auctioneer. In cities and municipalities where there is no duly licensed auctioneer, the public auction may be conducted by a notary public of the city or province where the pawnshop has its place of business. The Auction Sheet/Book containing entries of auctioned pawned articles duly signed by the auctioneer or notary public under oath shall be maintained by the pawnshop. SECTIONS 4325P-4335P ( Reserved ) C. - J. ( Reserved ) SECTIONS 4336P-4395P ( Reserved ) K. Miscellaneous SECTIONS 4396P-4398P ( Reserved ) SECTION 4399P. General Provisions on Sanctions Any violation of the provisions of this Part shall be subject to Section 18 of P.D. No. 114. PART FOUR SECTIONS 4401P - 449P ( Reserved ) PART FIVE SECTIONS 4501P - 4599P ( Reserved ) PART SIX Miscellaneous A. ( Reserved ) SECTIONS 4601 P - 4650P ( Reserved ) B. Sundry Provisions SECTION 4651P. Supervisory Powers of the Bangko Sentral The head of the appropriate supervising and examining department of the BSP and his duly designated representatives are authorized to conduct an examination, inspection, or investigation of books, records, business affairs, administration, and financial condition of any pawnshop, whenever said official deems it necessary for the effective implementation of P.D. No. 114, and other pertinent rules and regulations. Said official and his duly designated representatives may administer oaths to any director, officer, or employee of the pawnshop. If, upon such examination, inspection, or investigation, the official or his deputies shall establish that the pawnshop is violating or is not complying with the requirements of P.D. No. 114 and of the provisions of other pertinent rules and regulations, said official shall immediately inform the Monetary Board of his findings and recommendations, and the Monetary Board shall take appropriate actions to stop such violation or non-compliance, and punish the persons responsible. SECTION 4652P. Basic Law Governing Pawn-shops P.D. No. 114, known as the Pawnshop Regulation Act, regulates the establishment and operation of pawnshops. SECTIONS 4653P - 4698P ( Reserved ) SECTION 4699P. Administrative Sanctions The Monetary Board shall impose upon pawnshops, their owners, partners, directors and officers for any violation of the provisions of the rules on pawnshops, P.D. No. 114, pertinent laws or any order or instruction of the Monetary Board or its authorized official; or any commission of irregularities in the conduct of its business, the following administrative sanctions: a. For a violation consummated at a single instance and not punishable on a per-day basis, a fine of not more than P500; or for a violation which is continuing and punishable on a per-day basis, a fine of not more than P600 for every day of violation or non-compliance; and/or b. Suspension or, after due hearing, removal of partners/directors or officers. For purposes of this Section, the phrase any commission of irregularities in the conduct of its business shall include any act or omission described hereunder. 1. Failure to produce pawn upon redemption or in any other case where the pawnshop has the obligation to produce the pawn. 2. Allowing the redemption of pawn without the surrender of the corresponding original pawn ticket/substitute pawn ticket/affidavit of loss. 3. Falsifying pawn tickets. 4. Actual collection of interest in advance and/or service charges without reflecting the same on the pawn ticket. 5. Tampering or substitution of pawn. 6. Failure to issue official receipts for amounts collected. 7. Any other act or omission analogous to the above-enumerated acts and omissions. APPENDIX P-1 CHART OF ACCOUNTS AND DESCRIPTION OF LOAN REGISTER OF PAWNSHOPS (Appendix to Sec . 4161p) A. General Ledger The General Ledger is the controlling record of all subsidiary ledger accounts. The general ledger accounts shall be grouped as follows: (1) Assets Asset accounts shall consist of the following: (a) Cash on hand and in banks; (b) Pledge loans; (c) Land; (d) Building; (e) Furniture and fixtures; (f) Office equipment; (g) Leasehold improvements; (h) Investment in securities; and (i) Other assets. Other assets shall include all assets not included in any of the above classification, such as prepaid expenses, advances, accounts receivables. (2) Liabilities Liabilities represent obligations of the pawnshop, such as: (a) Loans payable; (b) Accounts payable; and (c) Other liabilities. Other liabilities are liabilities not included in the above classification, such as SSS Premiums and medicare, tax withheld, accruals. (3) Capital Capital at the end of the year is the excess of assets over liabilities, or the sum of paid-in capital, surplus or retained earnings accounts and net income for the year. The accounts under this group shall consist of the following: (a) Capital/capital stock; (b) Drawings; (c) Retained earnings; and (d) Net income for the year. (4) Income This account represents the "general ledger control" account for all income of the pawnshop. An "Income Subsidiary Ledger" shall be maintained and the total of this ledger shall equal the balance of "Income Control" account of the general ledger at all times. The "Income Subsidiary Ledger" shall contain the following accounts: (a) Interest s pledge loans; (b) Service charges; (c) Gain or loss at auction sale; (d) Interests on securities; and (e) Other income (5) Expenses The expenses account shall include the following: (a) Salaries and allowances; (b) Interest on borrowed money; (c) Rental; (d) Depreciation; (e) Light and water; (f) Taxes and licenses; (g) SSS contribution; (h) Costs of telephone, postage and/or telegram; (i) Stationery and/or supplies; and (j) Miscellaneous expenses. B. Registers The following registers shall be maintained to trace loan transactions. (1) Loans Extended Register Every pawnbroker shall keep a "Loans Extended Register" in which shall be entered in ink, at the time of each loan or pledge transaction, an accurate account and description in English, with corresponding translation in the local dialect, the following minimum data: (a) Date of transaction; (b) Number of pawn ticket; (c) Amount of money loaned or principal; (d) Rate of interest to be paid, in percent; (e) Service charge collected; (f) Description of pawn; (g) Appraised value of pawn; (h) Name of pawner; (i) Address of pawner; (j) Description of the pawner, including: (i) Nationality; (ii) Sex; and (iii) General appearance; and (k) Signature or thumbmark of the pawner and the name of the pawner written by and signature of the witness to the thumbmarking. (2) Loans Paid Register A "Loans Paid Register" shall be maintained in which shall be entered in ink, the principal and interest payments of loans. It shall contain the following minimum data: (a) Date of payment; (b) Number of pawn ticket; (c) Name of pawner; (d) Principal amount; and (e) Amount of interest paid. APPENDIX P-2 ANNEX P-2-a REPORTING GUIDELINES ON CRIMES/LOSSES (Annex to Appendix P-1) 1. Pawnshops shall report on the following matters through the appropriate supervising and examining department: a. Crimes whether consummated, frustrated or attempted against pawned articles/property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of pawn/property of the pawnshop: Provided , That if no pawned article is involved, the amount involved in each crime is P20,000 or more. Crimes involving the pawnshop personnel, regardless of whether or not such crimes involve the loss/destruction of pawned articles/property of the pawnshop, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's pawned articles/property/facilities, other than arising from a crime: Provided , That if no pawned article is involved, the amount involved per incident is P20,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5) business day deadline may be accepted: Provided, That a complete report is submitted not later than fifteen (15) business days from termination of investigation. APPENDIX P-3 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec . 4162P . 1) Category A-1 reports shall be signed by the 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 by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex P-3-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. In the case of pawnshops organized as single proprietorship or partnership, the reports shall be signed by the proprietor or managing partner, as the case may be, in place of chief executive officer or president. Other signatories shall be authorized by the proprietor/managing partner in a letter of authority to be submitted to the appropriate supervising and examining department of the BSP indicating the names, positions and specimen signatures of the designated signatories as well as the reports they are to sign. ANNEX P-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS (Annex to Appendix P-3) Resolution No. ______ Whereas, it is required under Subsec. 4162P. 1 that Category A-1 reports be signed by the 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 by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and __________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; THaDAE Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. __________________, President ____________________________ Specimen Signature or 2. Mr. ________________, Executive Vice-Pres. ____________________ Specimen Signature and 3. Mr. ___________________, Comptroller ________________________ Specimen Signature or 4. Mr. ________________, Chief Accountant _______________________ Specimen Signature are hereby authorized to sign Category A-1 reports of ___________________ ( Name of Institution ). Done in the City of _________________, Philippines, this ______ day of ________________, 19______ _________________________ CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY ANNEX P-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS ( Annex to Appendix P-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162P.1 that Category A-2 reports of head offices be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of __________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _________________ ( Name of Institution ) ; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports indicated above of _________________ ( Name of Institution ) ; Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY ANNEX P-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS (Annex to Appendix P-3) Resolution No. ______ Whereas, it is required under Subsec. 4162S.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _______________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign Categories A-3 and B reports _______________ ( Name of Institution ) . Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY APPENDIX 4 Serial No. ___________ STANDARD PAWN TICKET ( Appendix to Subsec. 4322P . 1 ) _____________________ (Name of Pawnshop) ____________________ (Address of Pawnshop) Date Loan Granted: _________, 19 ___ Maturity Date _______________, 19 ____ Expiry Date of Redemption Period: ____________________, 19____ Mr./Mrs./Miss _____________________ a resident of ______________________ for a loan of PESOS ____________________________ (P_______) with an interest of __________ percent (_____%) P.M./P.A., has pledged to this Pawnee in security for the loan article(s) described below appraised at PESOS _____________________ (P _____) subject to the terms and conditions stated on the reverse side hereof. (Description of the pawn) ___________________ Principal P ____________ ___________________ Interest P ____________ ___________________ Service Charge P ____________ ___________________ Net Proceeds P ____________ ___________________________ ________________________________ (Signature or Thumbmark) (Signature or Thumbmark) Pawner Pawnshop's Authorized Representative PAWNER IS ADVISED TO READ AND UNDERSTAND THE TERMS AND CONDITIONS ON REVERSE SIDE HEREOF ANNEX P-4-a TERMS AND CONDITIONS OF STANDARD PAWN TICKET 1. The pawner hereby accepts the pawnshop's appraisal as proper. 2. The interest rate stipulated herein is in accordance with the existing policy of the Monetary Board. The pawnshop hereby agrees not to collect in advance interest for a period of more than one (1) year. 3. The service charge is equivalent to one percent (1%) of the principal loan, but not exceeding five pesos (P5.00). No other charges shall be collected. 4. This loan is renewable for such amount and period as may be agreed upon between the pawnshop and the pawner, subject to the requirements of P.D. No. 114 for a new loan. 5. Upon maturity of this loan, as indicated on the face of this ticket, the pawner still has ninety (90) days from maturity date within which to redeem the pawn by paying the principal loan plus the interest that shall have accrued thereon. The amount of interest due and payable after the maturity date of the loan and during the redemption period shall be computed upon redemption at the same rate of interest provided in No. 2 based on the sum of the principal loan and interest earned as of the date of maturity. 6. The pawnshop shall send a written reminder to pawner, before the expiration of the ninety (90)-day grace period, that the pawn shall be sold or disposed of in the event the pawner fails to redeem the pawn within the ninety (90)-day grace period. 7. The parties hereby agree that this ticket shall be surrendered at maturity date upon payment of the loan. In case of loss or destruction of this ticket, the pawner hereby undertakes to personally present an affidavit to the pawnshop before the redemption period expires. It is hereby agreed upon that the pawnshop has a period of two (2) days within which to verify from its records before (1) indicating on the affidavit that it shall take the place of the original pawn ticket for purposes of redemption; or (2) issuing a substitute ticket, the original pawn ticket thereby being deemed cancelled. 8. The pawner hereby agrees not to assign, sell or in any other way alienate the pawn securing this loan as evidenced by the pawn ticket without prior written consent of the pawnshop and subject to the terms and conditions of this contract. 9. In case of pre-payment of this loan by pawner, the interest collected in advance shall accrue in full to the pawnshop. 10. The pawner shall not be entitled to the excess of the public auction sale price over the amount of principal interest and service fee; neither shall the pawnshop be entitled to recover the deficiency from the pawner. B REGULATIONS Regulations Governing Building and Loan Associations PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101B. Scope of Authority of Building and Loan Associations Building and loan associations (BLAs) are corporations whose capital stock is required or is permitted to be paid in by the stockholders in regular, equal periodical payments and whose purposes are: a. To accumulate the savings of its stockholders; b. To repay to said stockholders their accumulated savings and profits upon surrender of their shares; c. To encourage industry, frugality and home building among its stockholders; and d. To loan its funds to stockholders on the security of unencumbered real estate and with the pledge of shares of the capital stock owned by such stockholders as collateral security. SUBSECTION 4101B.1 Prohibited activities BLAs shall not perform the following services: a. Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects; b. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; c. Make collections and payments for the account of others and perform such other services for their customers as are not compatible with the business of the BLA; and d. Act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts. SUBSECTION 4101B.2 Organizational requirements a. Prior approval by the Monetary Board of articles of incorporation and by-laws or amendments thereto The articles of incorporation and by-laws of a proposed BLA or any amendment thereto, shall not be registered with the Securities and Exchange Commission (SEC) unless accompanied by a certificate of approval from the Monetary Board. The articles of incorporation of a BLA shall state its purpose as set forth in Sec. 4101B. b. Application for approval The articles of incorporation and by-laws of a proposed BLA, both accomplished in the prescribed forms, shall be submitted to the Monetary Board through the appropriate supervising and examining department of the Bangko Sentral ng Pilipinas (BSP) together with a covering application for the approval thereof, signed by a majority of the members of the board of directors of the BLA and verified by one of them. The same procedures shall be observed in case of amendments of the articles of incorporation and by-laws of the BLA. c. Grounds for disapproval of application The application of a proposed BLA shall not be approved if, upon examination and/or investigation made by the appropriate supervising and examining department of the BSP, it is found that: (1) The BLA is to be formed for any business other than the legitimate business of a BLA; (2) The BLA's financial program is unsound; (3) Any of the directors or principal officers does not possess the integrity or competence to manage a BLA; or (4) There exist other reasons which the Monetary Board may consider as sufficient ground for such disapproval. d. Certificate of authority; revocation or suspension thereof All BLAs, prior to transacting business, shall procure a certificate of authority to transact business from the Monetary Board. After due notice, the Monetary Board may revoke, or suspend for such period as it determines, the certificate of authority of any BLA the solvency of which is imperiled by losses or irregularities or which willfully violates any provision of R.A. No. 337, as amended, these rules or any pertinent law or regulation. SECTION 4102B. Foreign Building and Loan Associations A BLA not formed, organized, or existing under the laws of the Philippines shall not be permitted to transact business in the Philippines. SECTIONS 4103 B - 4105 B ( Reserved ) B. - E. ( Reserved ) SECTIONS 4106B - 4125B (Reserved ) F. Stock, Stockholders and Dividends SECTION 4126B. Capital Stock The following rules govern the capital stock of a BLA. SUBSECTION 4126B.1 Par Value The capital stock of a BLA shall be divided into shares of the matured or par value of P200 each. SUBSECTION 4126B.2 Mode of payment The capital stock shall be paid in by the stockholders in regular, equal, periodical payments known as dues, at such times and in such amounts as shall be provided for in the by-laws of the BLA. The dues on each share of stock subscribed for by a stockholder shall continue to be paid by the stockholder to the BLA until the share has been duly withdrawn, canceled, or forfeited or until the share has reached its matured value, i.e., when the dues paid on each share and the net earnings thereof in accordance with the by-laws shall amount to the matured value of the share. Payment of dues on shares of stock shall commence from the time of issue of such shares. SUBSECTION 4126B.3 Certificates of stock Certificates of stock shall be issued to each stockholder upon the payment of the membership fee and first installment of the dues. SUBSECTION 4126B.4 Membership/Entrance fees BLAs may charge a membership or entrance fee not exceeding one peso (P1) on each share of stock issued and may also charge a transfer fee not exceeding twenty centavos (P0.20) on each share transferred, all of which shall be paid into the treasury and accounted for as funds of the BLA. SUBSECTION 4126B.5 Free and pledged shares Shares which have not been pledged as security for the payment of a loan shall be called free shares and shares which have been pledged shall be called pledged shares . SUBSECTION 4126B.6 Payment of matured shares When the stock shall have reached its matured value, payment of dues thereon shall cease and holders of such matured shares shall be paid out of the funds of the BLA the matured value of their shares with interest thereon at the rate prescribed in the by-laws, from the time the board of directors shall declare such shares to have matured until the payment is made. The order of payment of matured shares shall be prescribed in the by-laws and at no time shall more than one-third (1/3) of the receipts of the BLA be applied to the payment of matured shares without the consent of the board of directors and the approval of the Monetary Board: Provided, however, That if shares pledged to the BLA as security for loans shall mature before the loan is repaid, the matured value may be credited to the loan. The withdrawal value of the pledged shares shall not be returned to the stockholders unless such value is applied in liquidation of the loan which the shares secure. SUBSECTION 4126B.7 Surrender/withdrawal of unmatured shares Stockholders may surrender their shares and withdraw from the BLA after paying twelve (12) monthly installments of dues upon giving sixty (60) days' notice in writing to the board of directors, and the withdrawal value of such shares shall be the total sum of the dues paid thereon plus not less than ninety percent (90%) of all dividends earned by such shares up to the end of the last preceding fiscal period plus such interest for the time elapsed since the end of that period as shall be allowed by the board of directors. Stockholders who have not paid twelve (12) monthly installments of dues may, after giving sixty (60) days' notice in writing to the board of directors, surrender their shares and withdraw from the BLA, and the withdrawal value of such shares shall be the total sum of the dues paid thereon plus such dividend or interest as may be allowed by the board of directors. In no event, however, shall more than one-third (1/3) of the total receipts of the BLA be paid in any one (1) month to retire such assets. Payment for such surrendered shares shall be made in the order in which notices of withdrawal have been received by the board of directors: Provided , That should the business of the BLA during the period such withdrawing member has been a stockholder show a loss in excess of the reserve available for meeting such loss, the withdrawal value of such shares shall be charged with their proportion of such loss: Provided, further , That any fines or charges lawfully chargeable against such shares may be deducted before making payment to the stockholder. Except in cases of voluntary or forced liquidation of a BLA or forfeitures as provided in Subsec. 4127B.1, the board of directors of such BLA cannot force the surrender and withdrawal of unmatured shares. SUBSECTION 4126B.8 Paid-up stock; Investment stock BLAs may issue and sell paid-up stock for each share which has reached its matured value as provided in Subsec. 4126B.6 and also investment stock to be paid in installments. Either paid-up or investment stock may be surrendered by the holder at any time upon the giving of such notice as the BLA may require. Paid-up stock issued after the date when R.A. No. 337 became effective shall not be entitled to vote. SECTION 4127B. Arrearages in Payment of Dues The following rules govern the arrearages in payment of dues. SUBSECTION 4127B.1 Arrearages on free shares Whenever any stockholder shall be six (6) months in arrears in the payment of his dues upon free shares, the secretary or clerk of the BLA shall give him notice in writing of his arrearages by mailing to him at the last post office address given by him to the BLA a statement of all such arrearages. If the stockholder fails to pay within two (2) months after receipt of such notice the full amount of his arrearages, the board of directors may, at its option, declare his shares forfeited. At the time of the forfeiture, the withdrawal value of the forfeited shares shall be determined and stated by the board of directors and the defaulting stockholder shall be entitled to receive such value without interest upon such notice as is required of a withdrawing stockholder. SUBSECTION 4127B.2 Arrearages on pledged shares Whenever a borrowing stockholder shall be three (3) months in arrears in the payment of his dues on stock or in the interest or premium or installments of premium on any loan, the whole loan, at the option of the board of directors, shall become due and payable and the board may proceed by action to enforce collection upon the securities held by the BLA. The withdrawal value of all shares pledged as collateral security at the time of the commencement of the action shall be applied to the payment of the loan, and such shares from the time of such application shall be deemed surrendered to the SLA. SECTION 4128B. Stockholders Any person may become a stockholder of any BLA by subscribing for one (1) or more shares therein and signing the by-laws of the BLA, following his signature with his postal office address. SECTION 4129B. Reserve Account At least once a year, the profits on all business transacted shall be determined by the board of directors and apportioned to all the shares in each series outstanding at the time of such apportionment on the basis of the actual value of such shares, as distinguished from their withdrawal value, but in determining the profits which may be so apportioned, there shall be deducted from the gross earnings of the association all expenses and losses incurred in conducting its business. Five percent (5%) of the net earnings shall be credited to a reserve account until the reserve equals five percent (5%) of the total assets of the association. The reserve shall be maintained at five percent (5%) of the total assets and shall be available for meeting losses incurred by the association. The remainder of the net earnings shall be available for apportionment among the stockholders. In the event of the liquidation of a BLA, there shall escheat to the State any part of the reserve remaining after charging off all losses and defraying all expenses of liquidation. SECTION 4130B. Dividends BLAs may pay to the holders of paid-up stock out of the net profits such rates of dividends as may be fixed from time to time by the board of directors of the BLA, which shall be expressed in the stock certificates and shall not participate further in the profits or accretions of the BLA. Paid-up stock issued after the date when R.A. No. 337 became effective shall not be entitled to vote. The dividends payable upon such paid-up stock shall not be cumulative in the sense of being a charge upon the future earnings of the BLA should the earnings of the BLA not be sufficient in any particular year to meet the dividend requirements of such stock in that year. SECTIONS 4131B - 4140B ( Reserved ) G.- I. ( Reserved ) SECTIONS 4141B - 4160B ( Reserved ) I. Records and Reports SECTION 4161B. Records BLAs shall have a true and accurate account, record or statement of their daily transactions. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. SUBSECTION 4161B.1 Uniform System of Accounts BLAs shall strictly adopt/implement the Uniform System of Accounts prescribed for BLAs in the recording of daily transactions including reportorial and publication requirements. SUBSECTION 4161B.2 Adoption of Statements of Financial Accounting Standards BLAs shall adopt the Statements of Financial Accounting Standards (SFAS) in their 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 BLAs. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162B. Reports BLAs shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix B-1 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws or material documents to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162B.1 Categories of and signatories to reports Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix B-1 . Appendix B-2 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. SUBSECTION 4162B.2 Manner of filing The submission of the reports shall be effected by filing them personally with the appropriate department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers, unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162B.3 Sanctions for willful delay in submission of reports a. Definition of terms For purposes of this Subsection, the following definitions shall apply: (1) Report shall refer to any report or statement required of a BLA to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of a BLA to submit a report on time. 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 BLA as defined in the Labor Code or national emergency affecting operations of BLAs, shall not be considered as willful delay. b. Fines for willful delay in submission of reports BLAs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of default until the report is filed P180 II. For Category B reports Per business day of default until the report is filed 60 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 BLA is situated, delay or default shall start to run on the day following the next working day. For the purpose of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope/the date of registry or special delivery receipt, as the case may be, shall be considered as the date of filing. Delayed schedules or attachments and amendments shall be considered late reporting subject to the above penalties. c. Other penalties The imposition of the penalties shall be without prejudice to the imposition of the other administrative sanctions and to the filing of a criminal case as provided for in other provisions of law. d. Appeal to the Monetary Board Any aggrieved BLA may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing a fine. SECTIONS 4163B - 4170B ( Reserved ) K. Internal Control SECTION 4171B. External Auditor for BLAs BLAs, except those with total resources of less than P500,000, shall engage the services of an independent certified public accountant to audit their books of accounts at least once a year. SECTIONS 4172B - 4180B ( Reserved ) L. Miscellaneous Provisions SECTION 4181B. Publication Requirements BLAs with total resources of P500,000 or more shall, within 120 days after the close of their fiscal year, furnish the Monetary Board, through the appropriate supervising and examining department of the BSP, and mail to each of their stockholders, a copy of their audited financial statements provided for in Sec. 4171 B showing, in such form and detail as the Monetary Board may require, the amount and character of the assets and liabilities of the BLAs at the end of the preceding fiscal year. In the case of BLAs with resources below P500,000, they shall furnish each stockholder and the Monetary Board, through the appropriate supervising and examining department of the BSP, with a copy of their unaudited financial statements within sixty (60) days from the end of the fiscal year. BLAs may, in lieu of mailing, publish such financial statements in any newspaper of general circulation in the city or town where their principal office is located. The Monetary Board may, in addition to the foregoing, require the publication of such other information as it shall deem necessary for the protection of the stockholders of the BLAs. SECTIONS 4182B - 4198B ( Reserved ) SECTION 4199B. General Provision on Sanctions Any violation of the provisions of this Part shall be subject to Section 36 of R.A. No. 7653. PART TWO Deposit and Borrowing Operations A. - H. ( Reserved ) SECTIONS 4201B - 4260B ( Reserved ) I. Sundry Provisions On Deposit Operations SECTION 4261B. Acceptance of Deposits BLAs may accept deposits from their stockholders. SECTIONS 4262B - 4280B ( Reserved ) J. ( Reserved ) SECTIONS 4281 B - 4285B ( Reserved ) J. Other Borrowings SECTION 4286B. Borrowings A BLA, by the affirmative vote of a majority of all its directors, may borrow money for such temporary uses and purposes as the exigencies of the business may demand, subject to the following conditions: a. Such action is consistent with the objective of the association; and b. The aggregate amount of the outstanding indebtedness of such BLA shall not at any time exceed fifty percent (50%) of its capital stock actually paid in. SECTIONS 4287B - 4298B ( Reserved ) SECTION 4299B. General Provision on Sanctions Any violation of the provisions of this Part shall be subject to Section 36 of R.A. No. 7653. PART THREE Loans and Investments A. Loans In General SECTION 4301B. Loan Limits; Prohibited Loans The following rules shall govern the limitations and prohibitions on loans by BLAs. SUBSECTION 4301B.1 Loan limits No stockholder may borrow upon the security of real estate from any BLA having assets of P100,000 or more an amount in excess of ten percent (10%) of the total assets of the BLA, nor may such BLA make a loan upon any one (1) piece of real estate amounting to more than ten percent (10%) of the total assets of the association. In the case of a BLA having assets amounting to less than P100,000, no loan to any one (1) borrower and no loan upon any one (1) piece of real estate shall exceed P10,000. SUBSECTION 4301B.2 Prohibited loans BLAs shall not make any loan upon property that is suitable for use only as theater, public hall, church, convent, school, club, hotel, garage, or other public building: Provided, however , That to facilitate the investment of the idle funds of a BLA, the Monetary Board may, in special instances, waive the provisions of this paragraph, in cases of public hall, school, hotel and other public buildings. SECTION 4302B. Loan Documentation; Security; Surrender of Pledged Shares SUBSECTION 4302B.1 Loan documentation Every loan made by the BLA shall be properly evidenced by a note or other instrument in writing. SUBSECTION 4302B.2 Security Every loan shall be secured by a first mortgage or deed of trust on unencumbered real estate and also by the pledge to the association of shares of stock of the BLA the matured value of which shall at least equal the amount loaned: Provided, however , That loans may be made on the security of free shares pledged to the BLA for the payment of the loan in case, at the time the loan is made, the withdrawal value of such free shares under the by-laws shall exceed the amount borrowed and interest thereon for six (6) months. SUBSECTION 4302B.3 Surrender of pledged shares In the discretion of the board of directors, a loan may be repaid by the surrender of pledged shares whose withdrawal value equals the amount loaned and all interest and fines due thereon. Whenever a borrowing stockholder shall be three (3) months in arrears in the payment of his dues on stock or in the interest or premium or installments of premium on any loan, the whole loan, at the option of the board of directors, shall become due and payable and the board may proceed by action to enforce collection upon the securities held by the BLA. The withdrawal value of all shares pledged as collateral security at the time of the commencement of the action shall be applied to the payment of the loan, and such shares from the time of such application shall be deemed surrendered to the BLA. SECTION 4303B. Interest and Other Charges The following rules shall govern the rates of interest and other charges on loans granted by BLAs. SUBSECTION 4303B.1 Rate ceilings The rate of interest including commissions, premiums, fees and other charges on loans and forbearance of money, regardless off maturity and whether secured or unsecured, shall not be subject to any ceiling. SUBSECTION 4303B.2 Interest in the absence of contract The rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION 4303B.3 Escalation clause; when allowable Parties to an agreement pertaining to a loan of 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 law or 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 4303B.4 Fixing of interest The rates of interest on loans may be fixed in the by-laws or may be prescribed from time to time by the board of directors, subject to the provisions of the Usury Law and to any regulation which the Monetary Board may issue with respect thereto. SUBSECTION 4303B.5 Accrual of interest earned on loans No interest income shall be accrued on past due accounts. Interest on past due accounts shall be taken up as income only when actual payments thereon are received. SECTION 4304B. Past Due Accounts SUBSECTION 4304B.1 Accounts considered past due Loans granted by a BLA shall be considered past due if unpaid at maturity: Provided, That in the case of loans payable in installments, only the loan installment which is due and unpaid shall be considered. The foregoing does not preclude the BLA's board of directors from exercising its option under Subsec. 4302B.3 to enforce collection on the whole loan after the borrowing stockholders shall have been in arrears for three (3) months in the payment of his dues on stock or in the interest or premium or installments of premium on any loan: Provided, That the loan declared due and demandable by the board of directors shall be considered past due thirty (30) days after notice to the borrower. SUBSECTION 4304B.2 Write-off of loans as bad debts The writing-off of loans by BLAs shall be governed by the following regulations. a. The term loans shall include all types of credit accommodations granted to, and advances made by, the association, including interest thereon recorded in the books; b. Writing-off of loans by an association shall be made not often than twice a year by its board of directors; c. Notice/application for write-off of loans shall be submitted to the appropriate supervising and examining department of the BSP at least thirty (30) days prior to the intended date of write-off: Provided, That no such loans with an individual outstanding amount of P15,00 or more, as certified in said notice/application, shall be written-off without the prior approval of: (1) The Monetary Board, in case of loans to directors and officers of the association, direct or indirect; or (2) The head of the appropriate supervising and examining department of the BSP, subject to confirmation by the Monetary Board, in the case of loans other than those mentioned in (1) above. SECTION 4305B. " Truth in Lending Act" Disclosure Requirements BLAs 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 NSSLAs engaged in the following types of p credit transactions: a. Any loan mortgage, deed of trust, advances and discounts; 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 the 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 4307S.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 the property (except money) or service purchased at the NSSLA'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 NSSLA 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 NSSLA 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. Amount to be financed consists 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 discount, collection fee, credit investigation fee, attorney's fee, and other service charges. The total finance charge represents the difference between (i, the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) 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 single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: finance charge 12 R = x 100 amount to x maturity period be financed 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, R in percent is computed by the following method: number of payments finance charge in a year R = 2 x x x 100 amount to total number be financed of payments plus one In cases where the credit matures in less than one (1) year (e.g., installment payment are required every month for six (6) months the same formula will apply except that number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. 1 In cases where credit terms provide for premium or penalty charges depending on, say, the timeliness of the debtor's payments the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SUBSECTION 4305B.2 Information to be disclosed BLAs shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information to be disclosed: 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 simple 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 the seven (7) items of information mentioned are 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 the form ( Appendix B-3 ) 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 the borrower. SUBSECTION 4305B.3 Inspection of contracts covering credit transaction s BLAs shall keep in their office or place of business copies of contracts which involve the extension of credit and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department of the BSP. SUBSECTION 4305B.4 Posters An abstract of R.A. No. 3765 ( Appendix S-4 ) shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long and posted on a conspicuous place in the NSSLA's place(s) of business. SECTIONS 4306B-4320B ( Reserved ) B. - D. ( Reserved ) SECTIONS 4321B-4355B ( Reserved ) E. Loans/Credit Accommodations to Directors, Officers and their Related Interests SECTION 4356B. General Policy Dealings of a BLA with any of its directors, officers and their related interests shall be in the regular, course of business and upon terms not less favorable to the BLA than those offered to others. SUBSECTION 4356B.1 Definitions For purposes of these regulations, the following definitions shall apply: a. Directors shall refer to the BLA directors duly holding their positions as such in accordance with the corporate charter and by-laws and pertinent provisions of law; b. Officers shall include the President, Vice-Presidents, General Manager, Treasurer, Secretary, and others mentioned as officers of the BLA, or those whose duties as such are defined in the by-laws or are generally known to be the officers of the BLA (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 financial intermediary: Provided , That a person holding the position of Chairman or Vice-Chairman of the Board or another position in the board shall not be considered as an officer unless the duties of his position in the board include functions of management such as those ordinarily performed by regular officers: Provided, further , That 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. SECTION 4357B. Prior Board of Directors' Approval No director or officer of the BLA shall, either directly or indirectly, for himself or as the representative or agent of others, borrow from the BLA or in any manner be an obligor for money borrowed from the BLA or loaned by it, except with the written approval of the majority of the directors of the BLA, excluding the director concerned. SECTION 4358B. Security of Loans to Directors Loans to directors shall only be made upon the pledge of shares of the BLA having a total withdrawal value greater than the amount borrowed. SECTION 4359B. Records; Reports In all cases of accommodations granted to directors and officers under Sec. 4357B, the written approval of the majority of the directors of the BLA, excluding the director concerned, shall be entered upon the records of the BLA and a copy of such entry, together with a Certification on Loans Granted to Directors/Officers, shall be transmitted forthwith to the appropriate supervising and examining department of the BSP within twenty (20) business days from the date of approval. SECTIONS 4360B-4369B ( Reserved ) SECTION 4370B. Sanctions The office of any director or officer of a BLA who violates the rules on accommodations granted to directors and officers shall immediately become vacant. F. - I. ( Reserved ) SECTIONS 4371B-4390B ( Reserved ) J. Other Operations SECTION 4391B. Investments The following rules shall govern the investments of BLAs. SUBSECTION 4391B.1 Investment in government securities With the approval of the Monetary Board, BLAs may invest their idle funds in bonds and obligations of the Republic of the Philippines, or of any of its political subdivisions, or of any government-owned or controlled corporation, including the BSP. SUBSECTION 4391B.2 Investment in real estate BLAs may purchase, hold and convey real estate for the following purposes: a. Such as shall be necessary for its immediate accommodation in the transaction of its business: Provided, however , That the total investment in such real estate and improvements thereof, including the BLA's equipment, shall not exceed fifty per cent (50%) of net worth: Provided, further , That real estate used for the BLA's purposes, owned by another corporation in which the BLA owns equity, shall be considered as part of the BLA's total investment in real estate; b. Such as shall be mortgaged to it in good faith by way of security for debts; c. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; and d. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due to it. BLAs shall not hold the possession of any real estate under mortgage or trust deed, or the title and possession of any real estate purchased to secure any debt due to it, for a longer period than five (5) years. SUBSECTION 4391B.3 Real estate for subdivision A BLA may acquire real estate for subdivision into residential lots, on each of which it must construct and erect a residential house for disposition by sale or lease exclusively to its members. Such investment of the BLA shall be subject to the following conditions: a. The BLA shall not invest more than twenty-five percent (25%) of its paid-in capital and surplus in the acquisition of real estate for subdivision purposes; b. A stockholder of the BLA shall acquire not more than one (1) residential lot subdivided under this Subsection; and c. The acquisition and resale or lease of real estate shall be subject to the approval of two-thirds (2/3) of all the members of the board of directors of the BLA. SECTIONS 4392B-4395B ( Reserved ) K. Miscellaneous Provisions SECTIONS 4396B-4398B ( Reserved ) SECTION 4399B. General Provision on Sanctions Any violation of the provisions of this Part shall be subject to Section 36 of R.A. No. 7653. PART FOUR (RESERVED) SECTIONS 4601B-4650B ( Reserved ) PART FIVE (RESERVED) SECTIONS 4501B-4599B ( Reserved ) PART SIX Miscellaneous A. ( Reserved ) SECTIONS 4601B-4650B ( Reserved ) B. Sundry Provisions SECTION 4651B. Basic Law Governing Building and Loan Associations The basic law governing BLAs is R.A. No. 337, as amended, known as the "The General Banking Act". SECTION 4652B. BSP Supervision BLAs shall be supervised and regulated by the Monetary Board under the pertinent provisions of R.A. No. 337, as amended. SECTIONS 4653B-4698B ( Reserved ) SECTION 4699B. General Provision on Sanctions Any violation of the provisions of this Part shall be subject to Section 36 of R.A. No. 7653. APPENDIX B-1 ANNEX B-1-a REPORTING GUIDELINES ON CRIMES/LOSSES (Annex to Appendix B-1) 1. BLAs shall report on the following matters through 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 property of the BLA when the amount involved in each crime is P20,000 or more. Crimes involving BLA personnel, regardless of whether or not such crimes involve the loss/destruction of property of the BLA, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's property/facilities, other than arising from a crime, when the amount involved per incident is P20,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5) business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. APPENDIX B-2 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec . 4162B . 1) Category A-1 reports shall be signed by the 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 by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex B-2-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex B-2-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated by the board of directors. A copy of the board resolution, with format as prescribed in Annex B-2-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) business days from the date of resolution. ANNEX B-2-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS (Annex to Appendix B-2) Resolution No. _______ Whereas, it is required under Subsec. 4162B.1 that Category A-1 reports be signed by the 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 by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ____________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. ______________ President ________________________________ Specimen Signature or 2. Mr. ______________ Executive Vice-Pres. _______________________ Specimen Signature and 3. Mr. ______________ Comptroller ______________________________ Specimen Signature 4. Mr. ______________ Chief Accountant __________________________ Specimen Signature are hereby authorized to sign Category A-1 reports of ____________________. ( Name of Institution ) Done in the City of ___________________, Philippines, this ________ day of ____________, 19_______. _________________________ CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY ANNEX B-2-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS (Annex to Appendix B-2) Resolution No. _____ Whereas, it is required under Subsec. 4162B.1 that Category A-2 reports of head offices be signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ ( Name of Institution ), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _____________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No . are hereby authorized to sign the Category A-2 reports indicated above of ____________________ ( Name of Institution ) ; Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY ANNEX B-2-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS (Annex to Appendix B-2) Resolution No. ______ Whereas, it is required under Subsec. 4162B.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ____________________ ( Name of Institution ) are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and __________________ ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign Categories A-3 and B reports _________________ ( Name of Institution ) . Done in the City of _________________, Philippines, this _______ day of ___________, 19 _______. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY APPENDIX B-3 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (Appendix to Subsec . 4305B . 2) (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) ( As Required Under R . A . 3765, Truth In Lending Act ) Name of Borrower _________________________________________ Address _________________________________________________ 1. Cash/Purchase Price ________________ or Net Proceeds of Loan P __________ (Item Purchased) 2. LESS: Downpayment and/or Trade-in Value (Not applicable for loan transaction) ___________ 3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan ___________ 4. Non-Finance Charges [Advanced by Seller/Creditor]: a. Insurance Premium P ________________ b. Taxes ________________ c. Registration Fees ________________ d. Documentary/Science Stamps ________________ e. Notarial Fees ________________ f. Others: __________________ _________________ __________________ _________________ __________________ _________________ Total Non-Finance Charges _______________ 5. Amount to be Financed (Items 3 + 4) P_______________ 6. Finance Charges* a. Interest________% p.a. from __________ to __________ P _________________ [ ] Simple [ ] Monthly [ ] Compound [ ] Quarterly [ ] Semi-Annual [ ] Annual b. Discounts __________________ c. Service/Handling Charges __________________ d. Collection Charges __________________ e. Credit Investigation Fees __________________ f. Appraisal Fees __________________ g. Attorney's/Legal Fees __________________ h. Other charges incidental to the extension of credit (specify): __________________ __________________ __________________ __________________ __________________ __________________ Total Non-Finance Charges P _______________ 7. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. 4307S.1) ______________ % 8. Effective Interest Rate _______________ % (Method of computation attached) 9. Payment P ______________ a. Single Payment due _________________ (Date) b. Total Installment Payments P ______________ (Payable in weeks/months @ P _________ ) 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ CERTIFIED CORRECT: ___________________________ (Signature of Creditor/ Authorized Representative Over Printed Name) _________________________ Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. ______________________________ (Signature of Buyer/Borrower Over Printed Name) DATE _____________________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. APPENDIX B-4 ABSTRACT OF "TRUTH IN LENDING ACT" (REPUBLIC ACT NO. 3765) (Appendix to Subsec . 4305B . 4) SECTION 1. This Act shall be known as the "Truth in 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 charges 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 setting 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 the 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 (d) 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. REGULATIONS Regulations Governing Other Non-Bank Financial Institutions SECTION 4101N. Applicable Regulations on Trust and Other Fiduciary Activities Trust operations and investment management activities of non-bank financial institutions not performing quasi-banking functions shall be subject to the applicable regulations on such activities of non-bank financial institutions performing quasi-banking functions in Part IV of the Q regulations of this Manual and to the regulations implementing the Truth in Lending Act in Sec. 4309Q. SECTION 4102N. Minimum Capital for Investment Houses Investment houses not performing quasi-banking functions shall also be subject to the minimum capital requirement in Sec. 4107Q of this Manual. SECTION 4103N. Prior Bangko Sentral Authority on Quasi-Banking Functions Borrowing by non-bank financial institutions (NBFIs) from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations, which constitutes quasi-banking functions, shall be subject to prior Bangko Sentral ng Pilipinas (BSP) authority on performance of quasi-banking functions under BSP regulations. SUBSECTION 4103N.1 Quasi-banking functions Quasi-banking functions shall consist of the following: a. Borrowing funds for the borrower's own account; b. Twenty (20) or more lenders at any one (1) time; c. Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (1) acceptances; (2) promissory notes; (3) participations; (4) certificates of assignment or similar instruments with recourse; (5) trust certificates; (6) repurchase agreements; and (7) such other instruments as the Monetary Board may determine; and d. Purpose: (l) relending, or (2) purchasing receivables or other obligations. As used in the definition of quasi-banking functions , the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d , above whether the borrower's liability thereby is treated as real or contingent. 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. 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 securities, of any amount and maturity, from domestic or foreign sources. AEIDTc Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. The following guidelines shall govern lender count on borrowings or funds mobilized by NBFIs not performing quasi-banking functions: 1. For purposes of ascertaining the number of lenders/placers to determine whether or not an NBFI is engaged in quasi-banking functions, the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , That a debt instrument issued in the name of a husband and wife followed by the word spouses, whether under an and, and/or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one borrowing/placement. 2. Each debt instrument payable to bearer shall be counted as one (1) lender/ placer, except when the NBFI can prove that there is only one (1) owner for several debt instruments so payable. 3. Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount shall be counted as one (1) borrowing or placement. 4. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best efforts basis shall be counted on the basis of the number or purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however , That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. 5. Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or indorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation, practice, or circumstances indicate that the sale, assignment, and/or indorsement thereof legally obligates the NBFI not performing quasi-banking functions to repurchase or reacquire the securities/receivables sold, assigned, indorsed or to pay the buyer, assignee, or indorsee at some subsequent time. 6. Funds obtained by way of advances from stockholders, directors, or officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SUBSECTION 4103N.2 Transactions not considered quasi-banking The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies, through the means listed in Subsec. 4103N.1 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. 4103N.1: Provided , That: (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s, as well as on the confirmation of sale, the phrase without recourse or sans recourse and the following statement: ________________________ (Name of non-bank) assumes no liability for the payment, directly or indirectly, of this instrument . (2) In the absence of the phrase without recourse or sans recourse and the above required accompanying statement, the instrument so issued, endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking. Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. 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; ii. Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignments of debt instruments without recourse; or iii. Payment with the funds of the 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. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P.D. No. 129, as amended. SECTIONS 4104N-4198N ( Reserved ) SECTION 4199N. General Provision on Sanctions Any violation of the preceding provisions shall be subject to Section 36 of R.A. No. 7653. 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 payment. * The computation to arrive at the "rate of increase" in capital accounts shall only be considered if there is sufficient indication or evidence that the NBQB will continue to follow the same amount of increase in capital accounts for the succeeding year. If no evidence is found that the NBQB will continue to increase its capital accounts for the same amount for the succeeding year, then computations should consider only the amount of net profits (after dividends) plowed into the business for the year immediately preceding the date of application plus the amount of capital that the NBQB promised to put up per its schedule or program submitted to the Bangko Sentral. If no such schedule or program was submitted, then only the amount of net profits (after dividends) for the year immediately preceding the date of application should be considered. 1. Dynamic hedging refers generally to the continuous process of buying and selling of instruments to offset exposures as market conditions change (e.g., an option writer selling an underlying asset as its price falls ) 1. This can be determined by dividing twelve (12), the number of months in a year, by the number or fraction of months between installment payments. * Time price differential should be disclosed as a finance charge. If an itemization cannot be made, a lump-sum figure may be reported under Other charges incidental to the extension of credit in Item 6h.