CBP Memorandum

January 29, 1981 CBP MEMORANDUM TO : All Non-Bank Financial Intermediaries Performing Quasi-Banking Functions The Monetary Board, in its Resolution No. 2180 dated November 21, 1980, approved the following guidelines to evaluate applications of non-bank financial intermediaries authorized to perform quasi-banking functions for authority to operate a branch, an agency, or an extension office. A. Prior Central Bank Authority Prior Central Bank authority shall be obtained by a non-bank financial intermediary authorized to perform quasi-banking functions (NBQB) before operating a branch, an extension office or an 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. B. 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. C. Applications by NBQBs Subject to Capital Build-up Requirements Applications to establish a branch, an agency or an extension office by an NBQB whose paid-in capital is less than P20 million as of the effectivity of Circular No. 742 may be considered provided that it has submitted and complied with its capital build-up program as of the date of application. D. Additional Capital, if Required An applicant NBQB may be required to put up additional capital in an amount to be determined by the Department of Financial Intermediaries (Non-Bank) (DFI-NB) of the Central Bank based on criteria which consider expected growth of risk assets and capital accounts and for this purpose, the method of computing such additional capital as shown in Annex "A" to these Guidelines shall be used. E. Other Requirements/Factors to be Considered Other requirements/factors to be considered are the applicant NBQB's general compliance with laws, rules, regulations and policies of the Central Bank such as: (1) Capital adequacy and solvency; (2) Profitability and capacity to absorb losses; and (3) Reserve and liquidity position. F. Conditions Precluding Processing of Applications The existence of any of the following conditions shall preclude/suspend the processing of the application: (1) The applicant's operation during the year immediately preceding the filing of the application was unprofitable; (2) The applicant has not complied with the ceilings on credit accommodations to directors, officers, stockholders and their related interests; (3) The net worth of the applicant is found to be deficient for five (5) or more times within a reporting period during the last six (6) months immediately preceding the date the application was received, in which case its privilege to establish NBQB offices shall be suspended for the next sixty (60) calendar days without prejudice to the re-submission of its application after said period; (4) The networth of the applicant is found to be deficient continuously for a period of thirty (30) days or more during the last twelve (12) months immediately preceding the date the application was received, in which case its privilege to establish NBQB offices shall be suspended for the next twelve (12) months without prejudice to the re-submission of its application after said period; (5) The applicant has incurred net deficiencies in reserves against deposit substitute liabilities for four (4) consecutive weeks, in which case its application shall be processed only after it shall have had no net reserve deficiencies for eight (8) consecutive weeks: Provided , That in case the applicant had incurred net deficiencies in reserves for eight (8) consecutive weeks during the last twelve (12) months immediately preceding the date the application was received, its privilege to establish NBQB offices shall be suspended for the next twelve (12) months without prejudice to the re-submission of its application after said period. G. Documentary Requirements All applications shall be supported by the following documents: (1) Ability to conduct operations from the head office as not to be a cause for delayed submission of reports to the Central Bank and/or recording of transactions in the head office; (2) Correspondent (banking) and audit arrangements between the branch and the head office to ensure effective and efficient cash/money transactions; (3) Certified true copy of the board resolution authorizing the establishment of a branch; (4) Services to be offered, as well as any extension offices, etc. to be opened; (5) Days and hours to be observed; (6) Areas to be served; (7) Bio-data of the proposed branch manager and organizational chart; (8) Business and/or economic justifications (including data) for the establishment of the branch; and (9) Number of financial institutions in the area (banks, investment houses, finance companies and pawnshops). H. Filing of Applications All NBQB applications for a certificate of authority to operate a branch, an extension office or an agency with QBF shall be filed with the Securities and Exchange Commission (SEC), which office shall refer the same to DFI-NB for comments and recommendations. A copy of the application filed with the SEC, with the pertinent documents, shall simultaneously be furnished DFI-NB for advance verification of the NBQB's compliance with the requirements under these Guidelines. I. Period Within Which to Submit/Complete Requirements The applicant NBQB shall have one month from notice of the DFI-NB's receipt of the SEC referral within which to submit/complete the requirements under these Guidelines, after which the non-submission of complete documents shall cause the return of the application for NBQB's lack of interest to pursue the same. J. 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. (SGD.) JAIME C. LAYA Governor