Manual of Regulations for Banks

December 31, 2002 MANUAL OF REGULATIONS FOR BANKS TABLE OF CONTENTS PART ONE Organization, Management and Administration A. Classification and Powers of Banks SECTION X101 Definition, Classification, Powers and Scope of Authorities of Banks X101.1 Expansion of banking authorities X101.2 Prerequisites for the grant of a universal banking authority X101.3 - X101.5 (Reserved) X101.6 Conditions for the grant of authority to convert into a lower category. SECTION X102 Basic Guidelines in Establishing Banks X102.1 Suspension of the grant of new banking licenses on the establishment of new banks X102.2 Partial lifting of general moratorium on the licensing of new thrift banks and rural banks SECTION X103 Certificate of Authority to Register SECTIONS X104 - X105 (Reserved) B. Capitalization SECTION X106 Bank Capital X106.1 Minimum capitalization X106.2 Capital build-up program X106.3 Memorandum of Understanding; Prompt Corrective Action Program; sanctions SECTIONS X107 - X110 (Reserved) C. Merger or Consolidation of Banks SECTION X111 Merger or Consolidation to Meet Minimum Capital X111.1 Requirement of Bangko Sentral approval X111.2 Rules on exchange of shares SECTION X112 Merger or Consolidation Incentives SECTIONS X113 - X115 (Reserved) D. Risk-Based Capitol Ratio SECTION X116 Minimum Ratio X116.1 Qualifying capital X116.2 Risk-weighted assets X116.3 Definitions X116.4 Required reports X116.5 Market risk capital requirement X116.6 Sanctions X116.7 Temporary relief SECTIONS X117 - X120 (Reserved) E. Liberalized Entry and Scope of Operations of Foreign Banks SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks X121.1 Modes of entry of foreign banks X121.2 Qualification requirements X121.3 Guidelines for selection X121.4 Capital requirements X121.5 Composition of capital accounts; compliance with capital ratios X121.6 Prescribed ratio of Net Due to and permanently assigned capital X121.7 Head office guarantee X121.8 Scope of authority for locally incorporated subsidiaries of foreign banks as well as branches with full banking authority ISHCcT X121.9 Limitations X121.10 Change from one mode of entry to another X121.11 Listing of shares with the Philippine Stock Exchange X121.12 Applicability to Philippine corporations SECTIONS X122 - X125 (Reserved) F. Stock, Stockholders and Dividends SECTION X126 Shares of Stock of Banks X126.1 Limits of stockholdings in a single bank X126.2 Transfer of shares X126.3 Other foreign equity investment in domestic banks X126.4 Convertibility of preferred stock to common stock X126.5 Issuance of redeemable shares: conditions; certification and report; sanctions X126.6 Stock options/warrants X126.7 - X126.9 (Reserved) X126.10 Dealings with stockholders and their related interests SECTION 1127 Shares of Stock of Universal/Commercial Banks 1127.1 Limits on stockholdings in several banks 1127.2 - 1127.5 (Reserved) SECTION 2127 Shares of Stock of Thrift Banks 2127.1 Moratorium on ownership ceilings 2127.2 Preferred shares 2127.3 - 2127.5 (Reserved) SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks 3127.1 Moratorium on ownership ceilings 3127.2 Government-held shares 3127.3 Limits on stockholdings in several rural banks 3127.4 Convertibility of preferred stock to common stock 3127.5 Equity investment by holding corporations SECTIONS X128 - X135 (Reserved) SECTION X136 Dividends X136.1 Definitions X136.2 Requirements on the declaration of dividends X136.3 Net amount available for dividends X136.4 Reporting and verification X136.5 Recording of dividends X136.6 Issuance of fractional shares SECTION 1137 (Reserved) SECTION 2137 (Reserved) SECTION 3137 Limitations/Amount Available on Dividends Declared by Rural Banks and Cooperative Banks 3137.1 Dividends on government shares SECTIONS X138 - X140 (Reserved) G. Directors, Officers and Employees SECTION X141 Definition and Qualifications of Directors; Responsibilities and Duties of Board of Directors X141.1 Definition/limits X141.2 Qualifications of a director X141.3 Powers/responsibilities and duties of directors X141.4 Confirmation of directors of UBs, KBs and TBs X141.5 - X141.8 (Reserved) X141.9 Reports required X141.10 Sanctions SECTION X142 Definition and Qualifications of Officers X142.1 Definition of officers X142.2 Qualifications of an officer X142.3 Appointment of officers SECTION X143 Disqualification of Directors and Officers X143.1 Persons disqualified to become directors X143.2 Persons disqualified to become officers X143.3 Disqualification procedures X143.4 Effect of non-possession of qualification or possession of disqualifications X143.5 Confirmation of the election/appointments of directors and officers X143.6 Watchlisting SECTION X144 Bio-data of Directors and Officers SECTION X145 Interlocking Directorships and/or Officerships X145.1 Representatives of government SECTION X146 Profit Sharing Programs SECTION X147 Compensation and Other Benefits of Directors and Officers SECTION 1147 (Reserved) SECTION 2147 (Reserved) SECTION 3147 Bonding/Training of Directors, Officers and Employees SECTION X148 (Reserved) SECTION X149 Conducting Business in an Unsafe/Unsound Manner X149.1 - X 149.8 (Reserved) X149.9 Sanctions SECTION X150 (Reserved) H. Banking Offices SECTION X151 Establishment/Relocation/Voluntary Closure/Sale of Branch X151.1 Prior Monetary Board approval X151.2 Application for authority to establish branches X151.3 Prerequisites for the grant of authority to establish a branch/banking office X151.4 Branch location X151.5 Date of opening X151.6 Requirements for opening a branch X151.7 Relocation/transfer of branches X151.8 Voluntary closure/sale of banking offices X151.9 Sanctions X151.10 - X151.11 (Reserved) X151.12 Establishment of branches/loan collection and disbursement points of microfinance-oriented banks; establishment of microfinance-oriented branches/loan collection and disbursement points of banks that are not microfinance-oriented HSTAcI X151.13 - X151.14 (Reserved) X151.15 Relocation/Transfer of branch licenses of closed banks SECTION X152 Relocation/Transfer of Head Offices X152.1 Sanctions SECTION X153 Establishment of Additional Branches of Foreign Banks X153.1 Application for authority to establish additional branch X153.2 Requirements for establishment of additional branch X153.3 Date of opening X153.4 Requirements for opening a branch X153.5 Choice of locations for establishment of branches X153.6 Sanctions SECTION X154 Establishment of Offices Abroad X154.1 Application for authority to establish an office abroad X154.2 Requirements for establishing an office abroad X154.3 Conditions attached to the approved application X154.4 Date of opening X154.5 Requirements for opening an office abroad X154.6 Sanctions SECTION X155 Tellering Booths I. Banking Days and Hours SECTION X156 Banking Days and Hours X156.1 Banking hours beyond the minimum X156.2 Report of, and changes in, banking days and hours X156.3 Posting of schedule of banking days and hours SECTIONS X157 - X160 (Reserved) J. Records and Reports SECTION X161 Records X161.1 Adoption of the Manual of Accounts X161.2 Statements of Financial Accounting Standards X161.3 - X161.8 (Reserved) 1161.9 (Reserved) 2161.9 (Reserved) 3161.9 Retention and disposal of records of rural/cooperative banks SECTION X162 Reports X162.1 Categories and signatories of bank reports X162.2 Sanctions in case of willful delay in the submission of reports/refusal to permit examination X162.3 Submission of certain required information X162.4 Report on crimes/losses X162.5 Report on real estate/chattel transactions X162.6 Reconciliation of head office and branch transactions X162.7 List of stockholders and their stockholdings X162.8 Bangko Sentral offices, where reports are submitted X162.9 Publication/Posting of statement of condition X162.10 Consolidated financial statements of banks and their, subsidiaries engaged in financial allied undertakings X162.11 Reports of other banking offices X162.12 Reports required of foreign subsidiaries/affiliates/banking offices or non-bank entities of domestic banks 1162.13 Additional reports from UBs/KBs 2162.13 (Reserved) 3162.13 (Reserved) K. Internal Control SECTION X163 Internal Control System X163.1 Proper accounting records X163.2 Independent balancing X163.3 Division of duties and responsibilities X163.4 Joint custody X163.5 Signing authorities X163.6 Dual control X163.7 Number control X163.8 Rotation of duties X163.9 Independence of the internal auditor X163.10 Confirmation of accounts X163.11 Other internal control standards X163.12 Internal control procedures for dormant/inactive accounts SECTION X164 Audited Financial Statements of Banks X164.1 Financial audit X164.2 Posting of audited financial statements X164.3 Disclosure of external auditor's adverse findings to the Bangko Sentral; sanction X164.4 Disclosure requirement in the notes to the audited financial statements X164.5 Disclosure requirements in the annual report X164.6 Posting and submission of annual report SECTION X165 Bank Protection X165.1 Objectives X165.2 Designation of security officer X165.3 Security program X165.4 Security devices X165.5 Reports X165.6 Bangko Sentral inspection L. Miscellaneous Provisions SECTION X166 Place of Board of Directors' Meetings SECTION X167 Business Name SECTION X168 Management Contracts SECTION X169 Duties and Responsibilities of Banks and their Directors/Officers in All Cases of Outsourcing of Banking Functions X169.1 Prohibition against outsourcing certain banking functions X169.2 Outsourcing of information technology systems/processes X169.3 Outsourcing of other banking functions X169.4 Service providers X169.5 Review of subsisting outsourcing contracts X169.6 Penalties SECTION X170 Compliance System; Compliance Officer X170.1 Compliance system X170.2 Compliance officer SECTIONS X171 - X179 (Reserved) SECTION X180 Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity SECTIONS X181 - X198 (Reserved) SECTION X199 General Provision on Sanctions PART TWO Deposit And Borrowing Operations A. Demand Deposits SECTION X201 Authority to Accept or Create Demand Deposits X201.1 Prerequisites to accept or create demand deposits for Thrift Banks/Rural Banks/Cooperative Banks X201.2 Requirements for accepting demand deposits X201.3 Sanctions SECTION X202 Temporary Overdrawings; Drawings Against Uncollected Deposits SECTION X203 Checks Without Sufficient Funds SECTION X204 Current Accounts of Bank Officers and Employees SECTION 1205 (Reserved) SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to Accept Demand Deposits SECTION 3205 Check Clearing Rules for Rural Banks Who Are Members of the Philippine Clearing House Corporation SECTIONS X206 - X212 (Reserved) B. Savings Deposits SECTION X213 Servicing Deposits Outside Bank Premises SECTION X214 Withdrawals SECTION X215 Rental Deposits of Lessees SECTIONS X216 - X222 (Reserved) C. Negotiable Order of Withdrawal Accounts SECTION X223 Authority to Accept Negotiable Order of Withdrawal Accounts X223.1 Prerequisites to accept NOW accounts for thrift banks/rural banks/cooperative banks X223.2 Requirements for accepting NOW accounts X223.3 Sanctions SECTION X224 Rules on Servicing NOW Accounts SECTION X225 Minimum Features SECTION X226 Clearing of NOW SECTIONS X227 - X230 (Reserved) D. Time Deposits SECTION X231 Minimum Term of Time Deposits SECTION X232 Special Time Deposits SECTION X233 Certificates of Time Deposit X233.1 Prerequisites to issue NCTDs for thrift banks/rural banks/cooperative banks X233.2 Requirements for issuing NCTDs X233.3 Minimum features X233.4 Insurance coverage X233.5 Desistance from issuing new NCTDs X233.6 Sanctions X233.7 - X233.8 (Reserved) X233.9 Long-term negotiable certificates of time deposit X233.10 (Reserved) X233.11 Long-term non-negotiable tax-exempt certificates of time deposit E. Deposit Substitute Operations (Quasi-Banking Functions) SECTION X234 Scope of Quasi-Banking Functions X234.1 Elements of quasi-banking X234.2 Definition of terms and phrases X234.3 Transactions not considered quasi-banking X234.4 Pre-conditions for the exercise of quasi-banking functions X234.5 Certificate of Authority from the Bangko Sentral SECTION X235 Deposit Substitute Instruments X235.1 Prohibition against use of acceptances, bills of exchange and trust certificates X235.2 Negotiation of promissory notes X235.3 Minimum features X235.4 Interbank loan transactions X235.5 Physical delivery of securities X235.6 Other rules and regulations governing the issuance and treatment of deposit substitute instruments SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitute SECTION X237 Money Market Placements of Rural Banks X237.1 Definition of terms X237.2 Conditions required on accepted placements not covered by prohibition X237.3 Sanctions SECTION X238 Without Recourse Transactions X238.1 Sanctions SECTION X239 Issuance of Bonds X239.1 Definition of terms X239.2 Compliance with Securities and Exchange Commission rules on registration of bond issues X239.3 Notice to Bangko Sentral ng Pilipinas X239.4 Minimum features X239.5 Issuance of commercial papers F. Government Deposits SECTION X240 Statement of Policy X240.1 Prior Monetary Board approval X240.2 Banks which may accept government funds X240.3 Prerequisites for the grant of authority to accept deposits from the Government and government entities X240.4 Application for authority X240.5 Limits on funds of the Government and government entities that may be deposited with banks X240.6 Liquidity floor X240.7 Exempt transactions X240.8 Reports X240.9 Sanctions SECTION X241 (Reserved) G. Interest SECTION X242 Interest on Deposits/Deposit Substitutes X242.1 Time of payment of interest on time deposits/deposit substitutes X242.2 Treatment of matured time deposits/deposit substitutes SECTION X243 Disclosure of Effective Rates of Interest SECTIONS X244 - X252 (Reserved) H. Reserves Against Deposit And Deposit Substitute Liabilities SECTION X253 Accounts Subject to Reserves; Amounts Required X253.1 Regular reserves against deposit and deposit substitute liabilities X253.2 Liquidity reserves SECTION X254 Composition of Reserves X254.1 Allowable drawings against reserves X254.2 Exclusion of uncleared checks and other cash items X254.3 Interest income on reserve deposits X254.4 Book entry method for reserve securities SECTION X255 Exemptions from Reserve Requirements SECTION X256 Computation of Reserve Position X256.1 Measurement of reserve requirement SECTION X257 Reserve Deficiencies; Sanctions X257.1 Chronic reserve deficiency; penalties X257.2 Failure to cover overdrawings with the Bangko Sentral X257.3 Payment of penalties on reserve deficiencies SECTION X258 Report on Compliance SECTIONS X259 - X260 (Reserved) I. Sundry Provisions On Deposit Operations SECTION X261 Booking of Deposits and Withdrawals X261.1 Clearing cut-off time X261.2 Definitions X261.3 Booking of cash deposits X261.4 Booking of non-cash deposits X261.5 Booking of deposits after regular banking hours X261.6 Other records required X261.7 Notice required SECTION X262 Miscellaneous Rules on Deposits X262.1 Specimen signatures, ID photos X262.2 Insurance on deposits X262.3 Certification of compliance with Subsection 55.4 of R.A. No. 8791 SECTION X263 Disclosure of Service and Maintenance Fees on Dormant Accounts SECTION X264 Unclaimed Balances SECTION X265 Acceptance, Encashment or Negotiation of Checks Drawn in Favor of Commissioner/Collector of Customs SECTION X266 Deposit Pick-up/Cash Delivery Services X266.1 Operation of armored cars SECTION 1266 (Reserved) SECTION 2266 (Reserved) SECTION 3266 Qualifying Criteria Before a Rural/Cooperative Bank Engages in Deposit Pick-up Services SECTION X267 Automated Teller Machines J. Borrowings From The Bangko Sentral SECTION X268 Eligibility Requirements for Availment of the BSP Rediscounting Facility by Banks X268.1 Eligibility requirements for applicant banks X268.2 Eligible papers and collaterals X268.3 - X268.9 (Reserved) X268.10 Constitutional prohibition SECTION X269 Terms and Conditions of the BSP Loan X269.1 Rediscount ceiling X269.2 Rediscounting line X269.3 Loan Value X269.4 Maturities X269.5 Rediscount/lending rates and liquidated damages X269.6 Release of proceeds X269.7 Remittance of collections/repayments/arrearages X269.8 Prohibited transactions X269.9 Credit examination of borrowing banks X269.10 Penalties/sanctions X269.11 Interlocking directorship/officership X269.12 Transitory provisions SECTION X270 Repurchase Agreements with the Bangko Sentral SECTION X271 Bangko Sentral Liquidity Window X271.1 Nature of liquidity window X271.2 Terms of credit X271.3 Limit SECTION X272 Emergency Loans or Advances to Banking Institutions X272.1 Nature of emergency loans or advances X272.2 When an emergency loan or advance may be availed of X272.3 Procedures X272.4 Allowable amount of emergency loan or advance X272.5 Manner and conditions of release X272.6 Types of acceptable collaterals X272.7 Interest rate X272.8 Term X272.9 Other documentary requirements X272.10 General terms and conditions SECTION X273 Facility to Committed Credit Line Issuers X273.1 Nature of special credit accommodations X273.2 Conditions to access X273.3 Terms of credit X273.4 Ceiling SECTION 1274 (Reserved) SECTION 2274 Countryside Financial Institutions Enhancement Program for Thrift Banks (CFIEP) SECTION 3274 Countryside Financial Institutions Enhancement Program for Rural and Cooperative Banks SECTION X275 Recording and Reporting of Borrowings SECTION X276 Rediscounting Window for Low-Cost Housing as Defined by the Housing and Urban Development Coordinating Council (HUDCC) SECTION 1277 Rediscounting Window Available to All Universal and Commercial Banks for the Purpose of Providing Liquidity Assistance to Investment Houses SECTION 2277 Rediscounting Window Available to TBs for the Purpose of Providing Liquidity Assistance to Support and Promote Microfinance Programs SECTION 3277 Rediscounting Window Available to Rural and Cooperative Banks for the Purpose of Providing Liquidity Assistance to Support and Promote Microfinance Programs 3277.1 Eligibility requirements 3277.2 Microcredit (MCR) line 3277.3 Terms and conditions 3277.4 Documentary requirements 3277.5 Remittance of collections/payments/repayments 3277.6 Reports required 3277.7 Accounts verification 3277.8 Sanctions SECTIONS X278 - X280 (Reserved) K. Other Borrowings SECTION X281 Borrowings from the Government X281.1 Exemption from reserve requirement SECTION X282 Borrowings from Trust Departments or Investment Houses SECTION 1283 (Reserved) SECTION 2283 Mortgage/Chattel Mortgage Certificates of Thrift Banks SECTION 3283 (Reserved) SECTION 1284 (Reserved) SECTION 2284 (Reserved) SECTION 3284 Borrowings of Rural Banks/Cooperative Banks SECTIONS X285 - X298 (Reserved) SECTION X299 General Provision on Sanctions PART THREE Loans, Investments And Special Credits SECTION X301 Lending Policies SECTION X302 Loan Portfolio and Other Risk Assets Review System X302.1 Allowance for probable losses; booking X302.2 Sanctions A. Loans In General SECTION X303 Loan Limit to a Single Borrower X303.1 Definition of terms X303.2 Discounted/rediscounted papers included in loan limit X303.3 Contingent liabilities included in loan limit X303.4 Exclusions from loan limit X303.5 Sanctions X303.6 X303.7 (Reserved) X303.8 Limit for wholesale lending activities of government banks SECTION X304 Grant of Loans and Other Credit Accommodations X304.1 General guidelines X304.2 Purpose of loans and other credit accommodations X304.3 Prohibited use of loan proceeds SECTION X305 Interest and Other Charges X305.1 Rate of interest in the absence of stipulation X305.2 Escalation clause; when allowable X305.3 Floating rates of interest X305.4 Accrual of interest earned on loans SECTION X306 Past Due Accounts X306.1 Accounts considered past due X306.2 Demand loans X306.3 Renewals/extensions X306.4 Restructured loans X306.5 Writing-off of loans as bad debts SECTION X307 "Truth in Lending Act" Disclosure Requirement X307.1 Definition of terms X307.2 Information to be disclosed X307.3 Inspection of contracts covering credit transactions X307.4 Posters SECTION X308 Amortization on Loans and Other Credit Accommodations SECTION X309 Non-Performing Loans X309.1 Accounts considered non-performing; definitions X309.2 Reporting requirement SECTION X310 (Reserved) B. Secured Loans SECTION X311 Loans Secured by Real Estate Mortgages X311.1 Loans secured by junior mortgage on real estate 1311.2 (Reserved) 2311.2 (Reserved) 3311.2 Eligible real estate collaterals on rural/cooperative bank loans X311.3 Insurance on real estate improvements 1311.4 (Reserved) 2311.4 Foreclosure by thrift banks 3311.4 Foreclosure by rural/cooperative banks X311.5 Redemption of foreclosed real estate mortgage SECTION X312 Loans and Other Credit Accommodations Secured By Chattels and Intangible Properties SECTION X313 Loans and Other Credit Accommodations Secured By Personal Properties SECTION X314 Increased Loan Values and Terms of Loans for Home-Building SECTION X315 Loans Secured by Certificates of Time Deposit SECTIONS X316 - X318 (Reserved) C. Unsecured Loans SECTION X319 Loans Against Personal Security X319.1 General guidelines X319.2 Proof of financial capacity of borrower X319.3 Amounts and terms of credit accommodations; renewals X319.4 Signatories X319.5 Collateral requirements X319.6 Credit card receivables X319.7 Sanctions SECTIONS X320 - X321 (Reserved) D. Restructured Loans SECTION X322 Restructured Loans; General Policy X322.1 Definition; when to consider performing/non-performing X322.2 Procedural requirements X322.3 Restructured loans considered past due X322.4 Classification SECTIONS X323 - X325 (Reserved) E. Loans and Other Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION X326 General Policy X326.1 Definitions SECTION X327 Transactions Covered SECTION X328 Transactions Not Covered X328.1 Applicability to credit card operations SECTION X329 Direct or Indirect Borrowings SECTION X330 Individual Ceilings SECTION X331 Aggregate Ceiling; Ceiling on Unsecured Loans SECTION X332 Exclusions from Aggregate Ceiling SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks SECTION X334 Procedural Requirements SECTION X335 Reportorial Requirements SECTION X336 Availment of Credit Facility with the Bangko Sentral SECTION X337 Sanctions SECTION X338 Waiver of Secrecy of Deposits X338.1 Requisite elements X338.2 Definitions X338.3 Sanctions SECTION X339 Financial Assistance to Officers and Employees X339.1 Mechanics 1339.2 Funding by foreign banks 2339.2 (Reserved) 3339.2 (Reserved) X339.3 Other conditions/limitations X339.4 Reportorial requirements SECTION X340 (Reserved) F. Mandatory Credits SECTION X341 Agrarian Reform and Agricultural Credit X341.1 Definition of terms X341.2 Who may borrow; purposes X341.3 Required allocation for agrarian reform and agricultural credit in general X341.4 Computation of loanable funds X341.5 Allowable alternative compliance X341.6 Syndicated type of agrarian reform credit agricultural credit X341.7 Interest and other charges X341.8 Unused agri-agra funds to be utilized for socialized and low-cost housing X341.9 Submission of reports X341.10 - X341.11 (Reserved) X341.12 Consolidated compliance X341.13 - X341.14 (Reserved) X341.15 Sanctions SECTION X342 Mandatory Credit to Small Enterprises X342.1 Definition of terms X342.2 Mandatory allocation of credit resources to small and medium enterprises X342.3 Eligible investments X342.4 Ineligible instruments X342.5 Guarantee coverage X342.6 Submission of reports X342.7 Lendings to medium enterprises X342.8 Sanctions G. Special Types Of Loans SECTION X343 Interbank Loans X343.1 Systems and procedures for interbank call loan transactions X343.2 Accounting procedures X343.3 Settlement procedures for interbank loan transactions SECTION X344 Loans to Thrift/Rural/Cooperative Banks X344.1 Loans under Section 12 of R.A. No. 7353, Section 10 of R.A. No. 7906 and Article 108, R.A. No. 6938 X344.2 Loans under Section 14 of R.A. No. 7353 SECTIONS X345 - X346 (Reserved) SECTION X347 Standby Letters of Credit X347.1 Domestic standby letters of credit X347.2 Ceiling X347.3 Reports SECTION X348 Committed Credit Line for Commercial Paper Issues X348.1 Who may grant line facility X348.2 Ceilings X348.3 Terms; conditions; restrictions X348.4 Reports to the Bangko Sentral X348.5 Loan limit SECTION X349 Agriculture and Fisheries Projects with Long Gestation Periods X349.1 Definition of terms X349.2 Grace period X349.3 Responsibility of lending banks X349.4 Past due loans X349.5 Non-performing loans SECTIONS X350 - X360 (Reserved) SECTION X361 Microfinancing Loans X361.1 Definition X361.2 Loan limit; amortization; interest X361.3 Credit information X361.4 Exemptions from rules on unsecured loans SECTIONS X362 - X375 (Reserved) H. Equity Investments SECTION X376 Scope of Authority X376.1 Conditions for investment in equities X376.2 - X376.4 (Reserved) X376.5 Guidelines for major investments SECTION X377 Financial Allied Undertakings SECTION X378 Limits on Investment in the Equities of Financial Allied Undertakings SECTION X379 Investments in Venture Capital Corporations X379.1 Requirements for investors X379.2 Equity investments of venture capital corporations X379.3 Business name of venture capital corporations X379.4 Reportorial requirements; examination by Bangko Sentral X379.5 Interlocking directorships and/or officerships SECTION X380 Non-Financial Allied Undertakings SECTION 1381 Investments in Non-Allied or Non-Related Undertakings 1381.1 Non-allied undertakings eligible for investment by universal banks 1381.2 Limits on investments in non-allied enterprises 1381.3 Report on outstanding equity investments in and outstanding loans to non-allied enterprises SECTION X382 Investments in Subsidiaries and Affiliates Abroad X382.1 Application for authority to establish or acquire subsidiaries and affiliates abroad X382.2 Requirements for establishing subsidiaries or affiliates abroad X382.3 Conditions for approval of application SECTION X383 Other Limitations and Restrictions SECTION X384 (Reserved) SECTION X385 Sanctions I. (Reserved) SECTIONS X386 - X387 (Reserved) J. Other Operations SECTION X388 Purchase of Receivables and Other Obligations X388.1 Yield on purchase of receivables X388.2 Purchase of receivables on a "without recourse" basis X388.3 Purchase of commercial paper X388.4 Reverse repurchase agreements with Bangko Sentral X388.5 Investment in debt and readily marketable equity securities SECTIONS X389 - X392 (Reserved) K. Miscellaneous Provisions SECTION X393 Loans-to-Deposits Ratio X393.1 Statement of policy X393.2 Other methods of compliance X393.3 Geographical groupings X393.4 Lagged computation X393.5 ROPOA as part of compliance SECTION X394 Assets Acquired in Settlement of Loans X394.1 Posting X394.2 Booking SECTION X395 Credit Policies of Government-Owned Corporations SECTION X396 Parcellary Plans on Crop Loans SECTION 1397 Limits on Real Estate Loans of Universal Banks/Commercial Banks SECTION 2397 (Reserved) SECTION 3397 (Reserved) SECTION X398 Debt Service Limit on Local Government Borrowings SECTION X399 General Provision on Sanctions PART FOUR Trust, Other Fiduciary Business And Investment Management Activities SECTION X401 Statement of Principles SECTION X402 Scope of Regulations SECTION X403 Definitions A. Trust And Other Fiduciary Business SECTION X404 Authority to Perform Trust and Other Fiduciary Business X404.1 Application for authority to perform trust and other fiduciary business X404.2 Required capital X404.3 Prerequisites for engaging in trust and other fiduciary business X404.4 Pre-operating requirements SECTION X405 Security for the Faithful Performance of Trust and Other Fiduciary Business X405.1 Basic security deposit X405.2 Eligible securities X405.3 Valuation of securities and basis of computation of the basic security deposit requirement X405.4 Compliance period; sanctions X405.5 Reserves against peso-denominated Common Trust Funds and Trust and Other Fiduciary Accounts-Others X405.6 Composition of reserves X405.7 Computation of reserve position X405.8 Reserve deficiencies; Sanctions X405.9 Report of compliance SECTION X406 Organization and Management X406.1 Organization X406.2 Composition of trust committee X406.3 Qualifications of committee members, officers and staff X406.4 Responsibilities of administration SECTION X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities SECTION X408 Unsafe and Unsound Practices X408.1 - X408.8 (Reserved) X408.9 Sanctions SECTION X409 Trust and Other Fiduciary Business X409.1 Minimum documentary requirements X409.2 Lending and investment disposition X409.3 Transactions requiring prior authority X409.4 Ceilings on loans X409.5 Funds awaiting investment or distribution X409.6 Other applicable regulations on loans and investments X409.7 Operating and accounting methodology X409.8 Tax-exempt individual trust accounts SECTION X410 Common Trust Funds X410.1 Establishment of common trust funds X410.2 Minimum documentary requirements for common trust funds X410.3 Management of common trust funds X410.4 Trustee as participant in common trust funds X410.5 Exposure limit of common trust fund to a single person or entity X410.6 Operating and accounting methodology X410.7 Tax-exempt common trust funds SECTION X411 Investment Management Activities X411.1 Minimum documentary requirements X411.2 Minimum size of each investment management account X411.3 Commingling of funds X411.4 Lending and investment disposition X411.5 Transactions requiring prior authority X411.6 Title to securities and other properties X411.7 Ceilings on loans X411.8 Operating and accounting methodology X411.9 Tax-exempt individual investment management accounts SECTION X412 FCDU/EFCDU Trust Accounts X412.1 Banks with trust authority X412.2 Banks without trust authority X412.3 Additional deposit for the faithful performance of trust duties X412.4 Liquidity requirement for FCDU/EFCDU common trust funds X412.5 Applicability of rules and regulations SECTION X413 Required Surplus B. Investment Management Activities SECTION X414 Authority to Perform Investment Management X414.1 Prerequisites for engaging in investment management activities X414.2 Pre-operating requirements SECTION X415 Security for the Faithful Performance of Investment Management Activities X415.1 Basic security deposit X415.2 Eligible securities X415.3 Valuation of securities and basis of computation of the basic security deposit requirement X415.4 Compliance period; Sanctions SECTION X416 Organization and Management SECTION X417 Non-Investment Management Activities SECTION X418 Unsound Practices SECTION X419 Conduct of Investment Management Activities SECTION X420 Required Surplus C. General Provisions SECTION X421 Books and Records SECTION X422 Custody of Assets SECTION X423 Fees and Commissions SECTION X424 Taxes SECTION X425 Reports Required X425.1 To trustor, beneficiary, principal X425.2 To the Bangko Sentral SECTION X426 Audits X426.1 Internal audit X426.2 External audit X426.3 Board action SECTION X427 Authority Resulting from Merger or Consolidation SECTION X428 Receivership SECTION X429 Surrender of Trust or Investment Management License SECTIONS X430 - X498 (Reserved) SECTION X499 Sanctions PART FIVE Foreign Currency Deposit System And Other Operations In Foreign Currency SECTION X501 Foreign Currency Deposit System X501.1 Definition of terms X501.2 Qualification requirements X501.3 Authorized transactions X501.4 Foreign currency cover requirements X501.5 Foreign currency deposit with the Bangko Sentral X501.6 Currency composition of the cover X501.7 Secrecy of deposits X501.8 Numbered accounts X501.9 Withdrawability and transferability of deposits X501.10 Insurance coverage X501.11 Rates of interest X501.12 Eligibility as collateral X501.13 Taxes X501.14 Exemption from court order or process X501.15 Inapplicability of the Usury Law. X501.16 Accounting X501.17 Supervision X501.18 Sanctions SECTION X502 Other Transactions in Foreign Currency X502.1 Mobile foreign exchange booths X502.2 Off-site automatic multi-currency money changers SECTIONS X503 - X598 (Reserved) SECTION X599 General Provision on Sanctions PART SIX Miscellaneous A. Other Operations SECTION X601 Open Market Operations X601.1 Repurchase agreements with Bangko Sentral X601.2 Reverse repurchase agreements with Bangko Sentral X601.3 Settlement procedures on the purchase and sale of government securities under repurchase agreements with the Bangko Sentral SECTION X602 Derivatives X602.1 Scope and pre-qualification requirements X602.2 Authorized transactions X602.3 Renewals X602.4 Risk management guidelines X602.5 Accounting guidelines X602.6 Reporting requirements X602.7 Sanctions SECTION 1602 Forward Contracts With Non-Residents SECTION X603 Clearing Operations SECTION X604 Collection of Customs Duties/Taxes/Levies and Other Revenues X604.1 Coverage X604.2 Collection and reporting of internal revenue taxes X604.3 Collection and reporting of customs duties and import processing fees X604.4 Collection and reporting of export/premium duties X604.5 Remittances thru debit/credit advices X604.6 Reconciliation of revenue collections X604.7 Penalty for willful delay on the reporting of collections/remittances X604.8 Fines for delayed reports/remittances of collections X604.9 Liquidity floor requirement on revenue collections X604.10 Collection of import duties at the time of opening of letters of credit SECTION X605 Miscellaneous Operations X605.1 Collection and paying agents of the Social Security System X605.2 Commercial banks as depository of rediscounting proceeds X605.3 Collection agents of PhilHealth B. Sundry Provisions SECTION X606 Bank Premises and Other Fixed Assets X606.1 Appreciation or increase in book value X606.2 Ceiling on total investments X606.3 Reclassification of real and other properties owned or acquired as bank premises X606.4 Lease of bank premises SECTION X607 Bank Advertisements SECTION X608 Assessment Fees on Banks X608.1 Annual fees on banks SECTION X609 Collection of Fines and Other Charges from Banks X609.1 Payment of fines by banks X609.2 Cost of checks and documentary stamps X609.3 Check/demand draft payments to the Bangko Sentral of thrift, cooperative and rural banks SECTION X610 Philippine and Foreign Currency Notes and Coins X610.1 Definition of terms X610.2 Treatment and disposition of counterfeit Philippine and foreign currency notes and coins X610.3 Reproduction and/or use of facsimiles of legal tender Philippine currency notes X610.4 Reproduction and/or use of facsimiles of legal tender Philippine currency coins X610.5 Clean Note Policy X610.6 Replacement and redemption of mutilated or unfit legal tender Philippine currency notes and coins X610.7 Treatment of Philippine currency notes and coins called in for replacement X610.8 Sanctions SECTION X611 Real and Other Properties Owned or Acquired (ROPOA) X611.1 Booked valuation reserves while the account is in the non-performing portfolio X611.2 Appraisal of properties to be foreclosed or acquired X611.3 Non-cash payment for interest SECTIONS X612 - X620 (Reserved) SECTION X621 Electronic Banking Services X621.1 Application X621.2 Pre-screening of applicants X621.3 Approval in principle X621.4 Documentary requirements X621.5 Conditions for Monetary Board approval X621.6 Pending applications X621.7 Exemption X621.8 Transitory provision X621.9 - X621.11 (Reserved) X621.12 Sanctions SECTIONS X622 - X630 (Reserved) SECTION 1631 Financial Products of Allied Undertakings or Investment House Units of Banks 1631.1 Statement of principles 1631.2 Prior Monetary Board approval 1631.3 Minimum documentary requirements 1631.4 Financial ratios and other related requirements 1631.5 Promotional materials; stationeries and other paraphernalia 1631.6 Contracts/Information to be disclosed 1631.7 Training 1631.8 Other requirements 1631.9 - 1631.10 (Reserved) 1631.11 Sanctions SECTION 2631 (Reserved) SECTION 3631 (Reserved) SECTION X632 Prohibition on the Sale of Foreign-Based Mutual Funds by Banks SECTIONS X633 - X650 (Reserved) SECTION X651 Asset-Backed Securities X651.1 Definition of terms X651.2 Authority X651.3 Management oversight X651.4 Minimum documents required X651.5 Minimum features of ABS X651.6 Disclosures X651.7 Conveyance of assets X651.8 Representations and warranties X651.9 Third party review X651.10 Originator and seller X651.11 Trustee and issuer X651.12 Servicer X651.13 Underwriter X651.14 Guarantor X651.15 Credit enhancement X651.16 Clean-up call X651.17 Prohibited activities X651.18 Amendment X651.19 Miscellaneous provision X651.20 Report to BSP SECTIONS X652 - X690 (Reserved) SECTION X691 Anti-Money Laundering Regulations X691.1 Customer identification X691.2 Issuance of cashier's, manager's or certified checks X691.3 Programs against money laundering X691.4 Submission of plans of action X691.5 Required reporting of certain transactions X691.6 Certification of compliance with anti-money laundering regulations X691.7 Acceptance of second-endorsed checks X691.8 (Reserved) X691.9 Sanction and Penalties SECTIONS X692 - X698 (Reserved) SECTION X699 General Provision on Sanctions LIST OF APPENDICES No. Subject Matter 1 Guidelines for the Issuance of a Universal Banking Authority 2 Prescribed Application Forms for the Entry of Foreign Banks 3 Guidelines for the Issuance of an Expanded Commercial Banking Authority for Branches of Foreign Banks 4 Format of Affidavit on Transfer of Stocks 5 Standard Pre-qualification Requirements for the Grant of Banking Authorities 5a Prerequisites for the Grant of Authority to Operate FCDU 6 Reports Required of Banks 7 Certain Information Required from Banks 8 Documents/Information on Organizational Structure and Operational Policies 9 Guidelines for Consolidation of Financial Statements of Banks and their Subsidiaries Engaged in Financial Allied Undertakings 10 Format Certification on Compliance with Rules and Regulations on Bank Protection 11 Pro-Forma Order of Withdrawal for "NOW" Accounts 12 Samples of Standardized Instruments Evidencing Deposit Substitute Liabilities 13 New Rules on the Registration of Long-Term Commercial Papers 14 New Rules on the Registration of Short-Term Commercial Papers 15 List of Reserve-Eligible and Non-Eligible Securities 16 Implementing Guidelines of the Countryside Financial Institutions Enhancement Program 17 Rules Governing Issuance of Mortgage/Chattel Mortgage Certificate by Thrift Banks 18 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets and Setting Up of Allowance for Probable Losses 19 Format of Disclosure Statement on Loan/Credit Transaction 20 Format of Abstract of "Truth in Lending Act" (Republic Act No. 3765) 21 Agreement for the Enhanced Interbank Call Loan Funds Transfer System 21a Settlement Procedures for Interbank Loan Transactions and Purchase and Sale of Government Securities under Repurchase Agreements with the Bangko Sentral 21b Intraday Liquidity Facility for the Implementation of Settlement Procedures under Appendix 21a thru the Improved Interbank Call Loan Funds Transfer System (MIPS 2) 22 List of Non-Allied Undertakings where EKBs may Invest in Equities 23 Credit Priority Classification 24 Sample Investment Management Agreement 25 Risk Management Guidelines for Derivatives 26 Risk Disclosure Statement for Derivatives Activities 27 Accounting Guidelines for Derivatives 28 Clearing Procedures 28a Clearing Operations Between Regional Clearing Center and the Manila Clearing Center (Tarlac, Tarlac Used as Sample) 29 Procedures on Collection of Fines from Banks 30 Prescribed Format Memorandum of Understanding 31 Implementing Guidelines for Thrift Banks Authorized to Accept Demand Deposits and Rural Banks who are Members of the Philippine Clearing House Corporation 32 Illustrations when a Director, Officer and Stockholder (DOS) shall Waive the Secrecy of Deposits 33 Classification, Accounting Procedures, Valuation and Sales and Transfers of Investments in All Debt Securities and Marketable Equity Securities 33a Establishing the Market Benchmarks/Reference Prices and Computation Method Used to Mark-to Market Debt and Marketable Equity Securities 34 Guidelines on the Use of Scripless (RoSS) Securities as Security Deposit for the Faithful Performance of Trust Duties 35 Proforma Payment Form 36 Suggested Gestation/Grace Periods for Agriculture and Fisheries Projects 37 Basic Guidelines in Establishing Banks 38 Guidelines for the Organization of Cooperative Banks 39 Settlement of Interbank Transactions Vis-A-Vis Covering Reserve Requirement/Deficiency of Banks' DOA with BSP 40 Guidelines Governing the Rediscounting of Housing Loan Papers of Qualified Banks under HUDCC Program 41 Minimum Criteria for Accreditation of Participating Financial Institutions (PFIs) in Government Banks Wholesale Lending Program 42 Deed of Undertaking for the Issuance of Redeemable Preferred Shares 43 Guidelines to Govern the Selection and Appointment of and the Reporting Requirement for External Auditors of Universal Banks and Commercial Banks 44 Implementing Rules and Regulations of Republic Act No. 6848 (The Islamic Bank Charter) 45 Notes on Microfinance 46 Guidelines to Incorporate Market Risk in the Risk-Based Capital Adequacy Framework 47 Guidelines for the Establishment and Administration/Management of Sinking Fund for the Redemption of Redeemable Private Preferred Shares 48 Activities which may be Considered Unsafe and Unsound Banking Practices 49 Certification of Compliance with Section 55.4 of Republic Act No. 8791 50 Guidelines on Retention and Disposal of Records of Rural and Cooperative Banks 51 Format Certification on FCDU Lending to RBU 51a Sample Computation on FCDU Lending to RBU 52 Implementing Rules and Regulations - Republic Act No. 9160 Anti-Money Laundering Act of 2001 53 Certification of Compliance with Anti-Money Laundering Regulations PART ONE Organization, Management and Administration A. Classifications And Powers Of Banks SECTION X101. Classifications, Powers and Scope of Authorities of Banks . The following are the classifications, powers and scope of authorities of banks, as well as the prerequisites for the grant of banking authorities. a. Classifications of Banks . Banks are classified into the following subject to the power of the Monetary Board to create other classes or kinds of banks: (1) Universal banks (UBs); (2) Commercial banks (KBs); (3) Thrift banks (TBs), as defined in Republic Act (R.A.) No. 7906, which shall be composed of: (a) savings and mortgage banks, (b) stock savings and loan associations, and (c) private development banks; (4) Rural banks (RBs), as defined in R. A. No. 7353; (5) Cooperative banks (Coop Banks), as defined in R. A. No. 6938; and (6) Islamic banks (IBs), as defined in R. A. No. 6848. b. Powers and Scope of Authorities . The following are the powers and scope of authorities of banks. (1) UBs . A UB shall have the authority to exercise, in addition to the powers and services authorized for a KB as enumerated in Item " b(2) " and those provided by other laws, the following: (a) the powers, of an investment house (IH) as provided under existing laws; (b) the power to invest in non-allied enterprises; (c) the power to own up to one hundred percent (100%) of the equity in a TB, an RB, a financial allied enterprise, or a non-financial allied enterprise; and (d) in case of publicly-listed UBs, the power to own up to one hundred percent (100%) of the voting stock of only one (1) other UB or KB. A UB may perform the functions of an IH either directly or indirectly through a subsidiary IH; in either case, the underwriting of equity securities and securities dealing shall be subject to pertinent laws and regulations of the Securities and Exchange Commission (SEC): Provided , That if the IH functions are performed directly by the UB, such functions shall be undertaken by a separate and distinct department or other similar unit in the UB: Provided, further , That a UB cannot perform such functions both directly and indirectly through a subsidiary. (2) KBs . In addition to the general powers incident to corporations and those provided in other laws, a KB shall have the authority to exercise all such powers as may be necessary to carry on the business of commercial banking, such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board may promulgate. These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of such investment. SCaDAE It may also exercise or perform any, or all of the following: (a) invest in the equities of allied enterprises as provided in Sections 31 and 32 of R.A. No. 8791; (b) purchase, hold and convey real estate as specified under Sections 51 and 52 of R.A. No. 8791; (c) receive in custody funds, documents and valuable objects; (d) 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; (e) make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; (f) upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; (g) rent out safety deposit boxes; and (h) engage in quasi-banking functions. (3) TBs . In addition to the powers provided in other laws, a TB may perform any or all of the following services: (a) grant loans, whether secured or unsecured; (b) invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; (c) issue domestic letters of credit; (d) extend credit facilities to private and government employees; (e) extend credit against the security of jewelry, precious stones and articles of similar nature, subject to such rules and regulations as the Monetary Board may prescribe; (f) accept savings and time deposits; (g) rediscount paper with the Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP), and other government-owned or-controlled corporations; (h) accept foreign currency deposits as provided under R.A. No. 6426, as amended; (i) act as correspondent for other financial institutions; (j) purchase, hold and convey real estate as specified under Sections 51 and 52 of R.A. No. 8791; and (k) offer other banking services as provided in Section 53 of R.A. No. 8791. With prior approval of the Monetary Board, and subject to such guidelines as may be established by it, TBs may also perform the following services: (l) open current or checking accounts; (m) engage in trust, quasi-banking functions and money market operations; (n) act as collection agent for government entities, including but not limited to, the Bureau of Internal Revenue (BIR), Social Security System (SSS) and the Bureau of Customs (BOC); (o) act as official depository of national agencies and of municipal, city or provincial funds in the municipality, city or province where the TB is located; (p) issue mortgage and chattel mortgage certificates, buy, and sell them for its own account or for the account of others, or accept and receive them in payment or as amortization of its loan; and (q) invest in the equity of allied undertakings. (4) RBs . In addition to the powers provided in other laws, an RB may perform any or all of the following services: (a) extend loans and advances primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families as well as cooperatives, merchants, private and public employees; (b) accept savings and time deposits; (c) act as correspondent of other financial institutions; (d) rediscount paper with the LBP, DBP or any other bank, including its branches and agencies. Said banks shall specify the nature of paper deemed acceptable for rediscount, as well as the rediscount rate to be charged by any of these banks; (e) act as collection agent; (f) offer other banking services as provided in Section 53 of R.A. No. 8791. With prior approval of the Monetary Board, an RB may perform any or all of the following services: (g) accept current or checking accounts: Provided , That such RB has net assets of at least P5 million; (h) accept NOW accounts; (i) act as trustee over estates or properties of farmers and merchants; (j) act as official depository of municipal, city or provincial funds in the municipality, city or province where it is located; (k) sell domestic drafts; and (l) invest in allied undertakings. (5) Coop Banks . A Coop Bank shall be organized primarily to provide financial and credit services to cooperatives and may perform any or all of the services offered by RBs. (6) IBs . In addition to the general powers incident to corporations and those provided in other laws, as well as in Circular No. 105 ( Appendix 44 ), insofar as they are not inconsistent or incompatible with the provisions of R.A. No. 6848, an IB may perform any or all of the following services: IcEACH (a) open savings accounts for safekeeping or custody with no participation in profit and losses except unless otherwise authorized by the account holders to be invested; (b) accept investment account placements and invest the same for a term with the IB's funds in Islamically permissible transactions on participation basis; (c) accept foreign currency deposits from banks, companies, organizations and individuals, including foreign governments; (d) buy and sell foreign exchange; (e) act as correspondent of banks and institutions to handle remittances or any fund transfers; (f) accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of exchange and other evidence of indebtedness under the universally accepted Islamic financial instruments; (g) act as collection agent insofar as the payment orders, bills of exchange or other commercial documents are exclusive of riba or interest prohibitions; (h) provide financing with or without collateral by way of leasing, sale and leaseback, or cost plus profit sales arrangement; (i) handle storage operations for goods or commodity financing secured by warehouse receipts presented to the bank; (j) issue shares for the account of institutions and companies assisted by the bank in meeting subscription calls or augmenting their capital and/or fund requirements as may be allowed by law; (k) undertake various investments in all transactions allowed by the Islamic Shari'a in such a way that shall not permit the haram (forbidden), nor forbid the halal (permissible); (l) act as an official government depository, or its branches, subdivisions and instrumentalities and of government-owned or -controlled corporations, particularly those doing business in the autonomous region; (m) issue investment participation certificates, muquaradah (non-interest-bearing bonds), debentures, collaterals and/or the renewal and refinancing of the same, with the approval of the Monetary Board to be used by the IB in its financing operations for projects that will promote the economic development primarily of the Autonomous Region; (n) carry out financing and joint investment operations by way of mudarabh purchasing for others on a cost-plus financing arrangement, and invest funds directly in various projects or through the use of funds whose owners desire to invest jointly with other resources available to the IB on a joint mudarabh basis; and (o) invest in equities of the following allied undertakings: (1) Warehousing companies; (2) Leasing companies; (3) Storage companies; (4) Companies engaged in the management of mutual funds but not in the mutual funds themselves; and (5) Such other similar activities as the Monetary Board has declared or may declare as appropriate from time to time, subject to existing limitations imposed by law. SUBSECTION X101.1 Expansion of banking authorities (Superseded by Circular 271 dated 1.08.01) SUBSECTION X101.2 Prerequisites for the grant of a universal banking authority a. Compliance with guidelines . A domestic bank seeking authority to operate as a UB shall submit an application to the appropriate supervising and examining department of the BSP. The applicant shall comply with the guidelines for the issuance of a UB authority and shall submit all the documentary requirements enumerated in Appendix 1. b. Public offering of bank shares . A domestic bank applying for a UB authority shall, as a condition to the approval of its application, make a public offering of at least ten percent (10%) of the required minimum capital and this condition must be complied with before it can be granted the license for authority to operate as a UB. The term public offering shall mean the offer to sell equity shares to the public. Public shall refer to all prospective stockholders, excluding the bank's directors, shareholders owning twenty percent (20%) or more of the bank's subscribed capital stock, together with those of their relatives within the fourth degree of consanguinity or affinity, and corporations controlled or affiliated with them. 2004bspcd A bank whose shares of stock are already listed in the Philippine Stock Exchange (PSE) at the time of filing of its application for UB authority shall be deemed to have complied with the public offering requirement. Likewise, an applicant bank may opt to have its shares listed in the PSE directly instead of passing through the process of public offering. In either case, at least ten percent (10%) of the applicant bank's capital stock should be held by public stockholders before it can be granted the license for authority to operate as a UB. c. Listing of bank shares in the stock exchange . Domestic banks granted a UB license, existing or new, must list their shares in the PSE within three (3) years: Provided , That in the case of new UBs, the three (3) year period shall be reckoned from the date the license to operate as a UB was granted. In the case of existing UBs which have not listed their shares in the exchange, the three (3) year period lapsed on December 27, 1998. The guidelines on public offering and listing of bank shares are enumerated in Appendix 1. SUBSECTIONS X101.3-X101.5 (Reserved) SUBSECTION X101.6 Conditions for the grant of authority to convert into a lower category a. That the bank must have complied with the end-2000 minimum capital requirement and other laws/regulations applicable to the lower bank category into which it is converting. For this purpose, the term " capital " shall be as defined under Sec. X106; ICDcEA b. That the bank immediately upon receipt of notice of approval of conversion shall not engage in nor renew transactions under authorities not associated with those allowed for the lower bank category into which it is converting and within six (6) months from date of receipt of notice of approval of its application for conversion, the bank shall phase-out all inherent powers and activities under special authorities not normally associated to the lower bank category into which it is converting: Provided , That a TB (previously authorized by the Monetary Board to accept demand deposits) may be allowed to retain such authority when converting into an RB but may clear checks only through a correspondent bank and shall not be allowed to participate directly in the PCHC and the BSP check clearing operations: Provided, further , That for failure to comply with these requirements, the following monetary and non-monetary penalties shall be imposed reckoned from the set deadline until the bank has fully complied with the said requirements; (1) Monetary penalties From UB to KB P30,000/day From KB to TB 15,000/day From TB to RB Within Metro Manila P5,000/day Outside Metro Manila 500/day (2) Non-monetary penalties (a) Suspension of branching privileges; (b) Suspension of declaration of cash dividends; (c) Restriction on lending to affiliates; (d) Denial of access to BSP rediscounting facilities; (e) Suspension of authority to accept or handle government deposits; (f) Suspension of authority to engage in derivatives activities (for a UB converting into a KB); and (g) Suspension of authority to invest in allied undertakings. c. That a bank which has not corrected as of date of application the major findings/violations noted in its latest examination shall submit upon application a Memorandum of Understanding that it shall correct the same within a period of six (6) months from date of receipt of notice of approval of its application, otherwise, the same monetary and non-monetary penalties mentioned in Item " b " above shall be imposed; d. That the bank shall submit the pertinent amended Articles of Incorporation and By-Laws duly registered with the SEC within six (6) months from date of receipt of notice of approval of its application; e. That the bank shall fully disclose its new status in its signage, financial statements and stationeries; and f. That the bank shall start operation in the lower category into which it is converting after approval by the SEC of the bank's amended Articles of Incorporation and By-Laws, its compliance with all the conditions of approval of the conversion and the issuance by the BSP of a certificate of authority to operate. The same conditions and sanctions mentioned in Items "a" to "f" above shall apply to all banks which have downgraded or with approved downgrading prior to March 13, 2000: Provided , That the penalties mentioned in Items "b" and "c" above shall be reckoned from their respective prescribed deadlines or within six (6) months from March 13, 2000, if no such deadline is prescribed. SECTION X102. Basic Guidelines in Establishing Banks . In establishing a new banking organization and a Coop Bank, the basic guidelines shown in Appendix 37 and Appendix 38, respectively, shall be observed. bsp2004cda SUBSECTION X102.1 Suspension of the grant of new banking licenses on the establishment of new banks . Pending completion of a study, there shall be an indefinite moratorium on the establishment of new banks, except in cities and municipalities where there are no existing banking offices. The moratorium shall apply to all applications for establishment of new banks, including pending ones received prior to August 16, 1999. However, approved but not yet opened banks shall be exempted from the moratorium. Requests for extension of the period within which to open approved but not yet opened banks shall, however, be evaluated on a case-to-case basis depending, among others, on the bank's substantial compliance with the pre-operating requirements. 2004bspcd In the case of KBs, the following rules shall govern: a. No new KB shall be established within three (3) years from June 13, 2000 which is the date of effectivity of R.A. No. 8791 or until June 12, 2003. The moratorium as mandated by said law covers only KBs classified and defined as such under Sections 3.2(b) and 29 of R. A. No. 8791 as well as in Item "b.2" of Sec. X101 without prejudice, however, to existing or future moratoriums on other types of bank as has been or may be declared by the Monetary Board. b. The moratorium under Section 8 of R.A. No. 8791 shall cover all applications for issuance of new commercial banking licenses as well as upgrading or conversion of old banking licenses into commercial banking licenses, the organization and incorporation by foreign banks of new commercial banking subsidiaries and any and all other transactions that may result in the issuance of new commercial banking licenses. c. All such pending applications as of June 13, 2000, including those which have already been decided but with any incident thereto still unresolved or are on reconsideration or appeal, shall not be further acted upon by the BSP and shall be returned to the applicant banks without prejudice to the resubmission or re-filing thereof upon expiration of the moratorium at the option of the applicant banks. No such application shall be considered as automatically resubmitted or re-filed upon expiration of the moratorium. d. The moratorium under Section 8 of R. A. No. 8791 shall not be applicable to: (1) acquisition or purchase by foreign banks of up to one hundred percent (100%) of the voting stock of existing domestic KBs; (2) the transfer of license of an existing KB to another corporation, subject to prior approval of the Monetary Board; (3) new KBs resulting out of mergers or consolidations where at least one (1) of the banks involved in such merger or consolidation is a KB; and (4) downgrading or refocusing of UBs into KBs. ScAaHE SUBSECTION X102.2 Partial lifting of general moratorium on the licensing of new thrift banks and rural banks . The general moratorium on the licensing of new TBs and RBs is partially lifted to allow the entry of microfinance-oriented banks as follows: a. Microfinance-oriented banks may be established on a very selective basis, preferably in places not fully served by existing RBs or in areas not fully serviced by microfinance-oriented banks, subject to the following additional criteria (in addition to standard licensing requirements): (1) That the microfinance-oriented bank to be established shall either be a TB or an RB; (2) That the capital of the microfinance-oriented banks to be established should be owned by private persons, multilateral entities or a combination thereof; (3) That in the case of an RB to be established as a microfinance bank, the minimum paid-in capital shall be P5 million or the applicable existing capitalization requirement for a new RB, whichever is higher. The capitalization requirement under existing regulations shall apply to TBs; (4) That the organizers must have the capacity to engage in microfinancing, which may be indicated by the following: (a) At least twenty percent (20%) of the paid-in capital of the proposed bank must be owned by persons or entities with track record in microfinancing. (b) Majority of the members of the board of directors have experience in microfinancing with at least one (1) member having actual banking experience. (c) The proposed bank must have as a minimum, an adequate loan tracking system that allows daily monitoring of loan releases, collection and arrearages, and any restructuring and refinancing. (5) In addition to the requirements for the establishment of banks in Appendix 37 , the application for authority to establish a microfinance-oriented bank must be accompanied by the following documents: (a) A vision and mission statement with clear expression of the commitment to reach low-income clients. (b) A written manual of operations, which shall include the administrative and credit program systems and procedures. The Manual must be consistent with the core principles, characteristics and features of microfinance indicated in Sec. X361. (6) At least fifty percent (50%) of the bank's gross loan portfolio at all times shall consist of microfinance loans as defined in Sec. X361. b. The requirement that the President, Chief Operating Officer or General Manager of a TB or RB must have at least two (2) years experience in banking and/or finance may be substituted with microfinance experience in cases of officers of a microfinance organization applying for authority to establish, or convert into a TB or RB: Provided , That the concerned officer is a college graduate. c. Subject to the standard branching requirements, microfinance-oriented banks are also hereby exempted from the general moratorium on the establishment of bank branches, under Sec. X151. After one (1) year of profitable operations, a microfinance-oriented bank may apply for establishment of a branch but the Monetary Board may require additional capital to be put up for every branch in addition to the minimum capital of the TB/RB. d. Existing microfinance organizations applying for authority to establish, or convert into a TB or RB may be allowed to also convert their existing branches/offices into branches of the bank proposed to be established by simultaneously applying for authority for the purpose. However, the standard requirements for the establishment of branches, particularly the capitalization requirement, have to be complied with. Moreover, there must be a showing that the area is not fully served by any existing RB. SECTION X103. Certificate of Authority to Register . The SEC shall not register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the Monetary Board, under its seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it: a. That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with; b. That the public interest and economic conditions, both general and local, justify the authorization; and c. That the amount of capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest. The SEC shall not register the by-laws of any bank, or any amendment thereto, unless accompanied by a certificate of authority from the BSP. SECTIONS X104-X105 (Reserved) B. Capitalization SECTION X106. Bank Capital . The following provisions shall govern the capital requirements for banks. The term capital shall be synonymous to unimpaired capital and surplus , combined capital accounts and net worth and shall refer to the total of the unimpaired paid-in capital, surplus and undivided profits, less: a. Unbooked valuation reserves and other capital adjustments as may be required by the BSP; b. Total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, stockholders, and their related interests (DOSRI) granted by the bank proper; c. Deferred income tax; d. Appraisal increment reserve (revaluation reserve) as a result of appreciation or an increase in the book value of bank assets; e. Equity investment of a bank in another bank or enterprise, whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case, the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower; and cTESIa f. In the case of RBs/Coop Banks, the government counterpart equity, except those arising from conversion of arrearages under the BSP rehabilitation program. With respect to Item "b" hereof, the provisions in Subsec. X326.1 shall apply except that in the definition of stockholders in said Subsection, the qualification that his stockholdings, individually and/or together with his related interest in the lending bank should at least amount to two percent (2%) or more of the total subscribed capital stock of the bank shall not apply for the purpose of this Item. 2004bspcd SUBSECTION X106.1 Minimum capitalization . The minimum capital of banks shall be as follows: a. UBs P5.4 billion each b. KBs P2.8 billion each c. TBs (1) With head offices within Metro Manila P400 million each; and (2) With head offices outside Metro Manila P64 million each. d. RBs (1) An RB may be established in any city or municipality, except in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque; in the municipalities of Malabon, Navotas and San Juan; and in the cities of Cebu and Davao, with minimum capital requirements as follows: (a) In first, second and third class cities and in first class municipalities P8 million each; (b) In fourth, fifth and sixth class cities and in second, third, and fourth class municipalities P4.8 million each; and (c) In fifth and sixth class municipalities P3.2 million each. (2) Existing RBs within the excepted cities and municipalities shall maintain the following minimum capital requirements: (a) In the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque and in the municipalities of Malabon, Navotas and San Juan P32 million each; and (b) In the cities of Cebu and Davao P16 million each. e. Coop Banks Coop Banks that may be established shall have a minimum authorized capital of: (1) P200 million for national Coop Banks divided into such number of shares with a minimum par value of P1,000 per share, with a private paid-in capital of at least P20 million; and (2) P20 million for local Coop Banks divided into such number of shares, with a private paid-in capital of at least P1.25 million, except as follows: (a) P20 million minimum private paid-in capital for Coop Banks to be established in Metro Manila; (b) P10 million minimum private paid-in capital for Coop Banks to be established in the cities of Cebu and Davao; and (c) P5 million minimum private paid-in capital for Coop Banks to be established in other cities: Provided, however , That for the first Coop Bank organized in the province, although it will be located in a city, the minimum private paid-in capital shall be P1.25 million. The foregoing minimum capital requirements for UBs, KBs, TBs, and RBs shall immediately apply to applications filed after March 12, 1998. SUBSECTION X106.2 Capital build-up program a. UBs and KBs which are existing, or which are newly authorized but not yet operating, or banks from which completed applications to operate under an UB/KB authority have been received as of March 12, 1998 but pending action by the BSP, are hereby allowed the following time frame within which to meet the above minimum capital requirement: (1) P4.50 billion for UBs and P2.00 billion for KBs on or before December 24, 1998; (2) P4.95 billion for UBs and P2.40 billion for KBs on or before December 31, 1999; and (3) P5.40 billion for UBs and P2.80 billion for KBs on or before December 31, 2000: * Provided , That for the P4.95 billion/P2.40 billion and P5.40 billion/P2.80 billion minimum capital, UBs/KBs shall submit to the BSP a capital build-up program for this purpose within three (3) months from March 12, 1998. b. TBs which are existing, or which are newly authorized but not yet operating, or persons from whom completed applications to establish TBs have been received as of March 12, 1998 but pending action by the BSP, are hereby allowed the following time frame within which to meet the above minimum capital requirement: (1) With head office within Metro Manila: P250 million on or before December 24, 1998; P325 million on or before December 31,1999; and P400 million on or before December 31, 2000; * and (2) With head office outside Metro Manila: P52 million on or before December 31, 1999; and P64 million on or before December 31, 2000: * Provided , That for the P325 million, P400 million, P52 million and P64 million minimum capital, TBs shall submit to the BSP a capital build-up program for this purpose within three (3) months from March 12, 1998. c. RBs which are existing, or which are newly authorized but not yet operating, or persons from whom completed applications to establish RBs have been received as of March 12, 1998 but pending action by the BSP, are hereby allowed the following time frame within which to meet the above minimum capital requirement: TEHDIA (1) In the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque and in the municipalities of Malabon, Navotas and San Juan: P26 million on or before December 31, 1999; and P32 million on or before December 31, 2000; (2) In the cities of Cebu and Davao: P13 million on or before December 31, 1999; and P16 million on or before December 31, 2000; * (3) In first, second and third class cities and first class municipalities: P6.5 million on or before December 31, 1999; and P8.0 million on or before December 31, 2000; * (4) In fourth, fifth and sixth class cities and second, third and fourth class municipalities: P3.9 million on or before December 31, 1999; and P4.8 million on or before December 31, 2000; * (5) In fifth and sixth class municipalities: P2.6 million on or before December 31, 1999; and P3.2 million on or before December 31, 2000: * Provided , That RBs shall submit to the BSP a capital build-up program for this purpose within three (3) months from March 12, 1998: Provided, further , That if the prescribed minimum capital necessitates an increase in the authorized capital stock, the RB shall cause the corresponding amendments to its articles of incorporation and submit the same to the BSP together with its capital build-up program. The deadline of the second phase (1st phase for TBs outside Metro Manila and RBs) of the capital build-up program of banks is extended from December 31, 1999 to January 31, 2000. * For banks that have executed a Memorandum of Understanding (MOU) with the BSP, in compliance with Subsec. X106.3, the following guidelines shall apply: (a) For banks with capital deficiency but with capital-to-risk assets ratio within the minimum prescribed and with no weaknesses (i.e., high past due loans, DOSRI violations, etc.), the MOU may be set aside: Provided , That the bank will be able to comply with the minimum capital requirements as herein prescribed; and (b) For banks with capital deficiency but with significant weaknesses, (i.e., deficiency in capital-to-risk assets ratio, liquidity problems, high past due loans, etc.), the MOU, as executed, shall continue to be in full force and in effect until such time it shall be amended by mutual consent of the parties thereto; waived and/or terminated by the BSP. Non-compliance with the above capital requirements shall subject the bank to sanctions/penalties provided under existing banking laws and BSP rules and regulations. SUBSECTION X106.3 Memorandum of Understanding ; Prompt Corrective Action Program ; sanctions . The following are the policy guidelines and the corresponding sanctions for banks failing to comply with the minimum capital requirements and the corresponding sanctions: a. Memorandum of Understanding; Prompt Corrective Action Program (1) The adoption of the Memorandum of Understanding (format shown in Appendix 30) between the bank and the BSP; and (2) The implementation of the Prompt Corrective Action Program as detailed below: (a) For undercapitalized banks of up to 20% (i) Require the bank to execute a Memorandum of Understanding (MOU) with the BSP, binding itself, among others, to implement a viable capital restoration plan acceptable to the BSP within thirty (30) days from date of notice; (ii) Require the intensified monitoring by BSP of bank's financial condition; and (iii) BSP to conduct a special examination of the bank. (b) For significantly undercapitalized banks of up to 60% (i) BSP to call a meeting with bank directors/principal officers to discuss and agree on remedial measures to be taken and the timetable for implementation; (ii) Intensify monitoring by the Supervision and Examination Sector (SES) of the bank's financial condition; (iii) BSP to conduct immediately an extensive on-site examination; (iv) Require the bank to execute an MOU with the BSP, binding itself, among others, to implement a viable capital restoration plan acceptable to the BSP within thirty (30) days from date of discussion. Among the options to be considered are: disposition of a majority shareholder's interest; sale of assets; issuance of additional stock/capital infusion; sale of bank to highest bidder subject to terms set by BSP; and merger (assisted or unassisted) or consolidation with a stronger bank; DTIcSH (v) Require the creation of a separate unit in the bank remedial asset management group which will take care of bank's bad assets and make progress reports to the BSP; (vi) Appoint an external auditor at the expense of the bank to perform a financial or operational audit under the terms of reference provided by BSP; and (vii) If necessary, appoint a consultant specialist to diagnose the problem and to recommend the appropriate remedial measures (i.e., introduce new profit opportunities, improve internal and accounting controls, etc.) to restore bank's viability. (c) For critically undercapitalized banks of more than 60 % (i) Place the bank under Prompt Corrective Action Unit since this would require more than normal bank supervision; (ii) BSP to call a meeting with bank's principal shareholders/directors; (iii) BSP to conduct immediately an extensive on-site examination; (iv) BSP to conduct an intensive monitoring of bank's financial condition; (v) Require the bank to execute an MOU with the BSP, binding itself, among others, to implement a viable capital restoration plan acceptable to the BSP within thirty (30) days from date of meeting. Among the options to be considered are: disposition of a majority shareholder's interest; sale of assets; issuance of additional stock/capital infusion; sale of bank to highest bidder subject to terms set by BSP; and merger (assisted or unassisted) or consolidation with a stronger bank; (vi) Create a BSP Ad Hoc Committee to oversee the implementation of the action plan; (vii) Require the creation of a separate unit in the bank - remedial asset management group to take care of bank's bad assets and make progress reports to the BSP; (viii) Appoint an external auditor at the expense of the bank to perform financial or operational audit under the terms of reference of the BSP; (ix) If bank's condition further deteriorates to the extent that depositors and creditors protection is at stake and its capital base is already deficient by more than eighty percent (80%), appoint/assist a resident examiner/comptroller or conservator, if legally feasible, to oversee/take over management of the bank; and (x) If necessary, appoint a consultant specialist to diagnose the problem and to recommend the appropriate remedial measures (i.e., introduce new profit opportunities, improve internal and accounting controls, etc.) to restore bank's viability. b. Sanctions . The following sanctions for non-compliance with the minimum capital requirements are hereby prescribed: (1) Monetary Penalty For delayed or non-submission of the capital build-up program reckoned from the time bank was notified in writing up to the time the program has been submitted, per banking day of delay, a monetary penalty of: Type of Bank Amount of Penalty (a) UBs/KBs P10,000.00 (b) TBs 5,000.00 (c) RBs 1,000.00 (2) Non-Monetary Penalty Non-monetary penalties shall depend on the degree of capital deficiency incurred by the bank as follows: UBs/ RBs/ Penalty KBs TBs Coop Banks (a) Up to 20% Suspension of authority to NA NA invest in non-allied undertakings (for UBs only) Suspension of authority to NA NA invest in allied undertakings Suspension of securities NA NA and dealership functions (for UBs only) Suspension of branching privileges Suspension of declaration of cash dividends (b) Up to 40% Suspension of authority NA NA to invest in non-allied under- takings (for UBs only) Suspension of authority to NA NA invest in allied undertakings Suspension of securities NA NA and dealership functions (for UBs only) Restrictions on lending NA to affiliates Suspension of branching privileges Suspension of declaration of cash dividends Restrictions on overall loan growth/investments (new loans to the extent of collections only) Denial of access to BSP rediscounting facilities Suspension of authority NA to accept or create demand deposits or operate NOW accounts Suspension of authority to accept or handle government deposits (c) Up to 60% Suspension of authority to NA NA invest in non-allied under takings (for UBs only) Suspension off authority to invest in allied undertaking Suspension of securities NA NA and dealership functions (for UBs only) Suspension of branching privileges Suspension of declaration of cash dividends Restrictions on overall loan growth/investments (new loans to the extent of collections only) Restrictions on lending to NA affiliates Denial of access to BSP rediscounting facilities Suspension of authority to accept or handle government deposits Suspension of authority to NA engage in quasi-banking activities Suspension of authority to NA NA engage in derivatives activities Suspension of FCDU/ NA EFCDU activities Suspension of trust NA operations Suspension of authority to NA accept or create demand deposits or operate NOW accounts (d) Up to 80% Suspension of authority to NA NA invest in non-allied undertakings (for UBs only) Suspension of authority to invest in allied undertakings Suspension of securities NA NA and dealership functions (for UBs only) Suspension of branching privileges Suspension of declaration of cash dividends Denial of access to BSP rediscounting facilities Suspension of authority NA to accept or create demand deposits or operate NOW accounts Suspension of authority to accept or handle government deposits Suspension of authority to NA engage in quasi-banking activities Suspension of authority to NA NA engage in derivatives activities Suspension of FCDU/ NA EFCDU activities Suspension of trust NA operations Suspension of international NA NA banking activities Suspension of lending activities Suspension of issuance NA NA of domestic L/Cs (e) More than 80% Suspension of clearing privileges Suspension of granting of bonuses/profit-sharing not covered by existing contracts or By-Laws Cease and desist SECTIONS X107-X110 (Reserved) C. Merger or Consolidation of Banks SECTION X111. Merger or Consolidation to Meet Minimum Capital . The merger or consolidation of banks or of bank(s) and other financial intermediary(ies) to meet minimum capital requirements shall be allowed subject to the following regulations. IcSADC For purposes of merger and consolidation, the following definitions shall apply: a. Merger is the absorption of one (1) or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, and properties, and assumes all the liabilities and obligations of the absorbed corporation(s) in the same manner as if it had itself incurred such liabilities or obligations. The absorbing corporation continues its existence while the life or lives of the other corporation(s) is/are terminated. b. Consolidation is the union of two (2) or more corporations into a single new corporation, called the consolidated corporation, all the constituent corporations thereby ceasing to exist as separate entities. The consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities, franchises and properties, and assume all the liabilities and obligations of each of the constituent corporations in the same manner as if it had itself incurred such liabilities or obligations. SUBSECTION X111.1 Requirement of Bangko Sentral Approval . Mergers and consolidations including the terms and conditions thereof shall comply with the provisions of applicable law and are subject to approval by the BSP. SUBSECTION X111.2 Rules on exchange of shares . As a general rule, the ratio of exchange of shares between or among the participants in a bank merger or consolidation shall be based on mutual agreement of the parties concerned. However, any appraisal increment reserve (revaluation reserve) arising from the revaluation of the fixed assets, as may be agreed upon by the parties shall be limited to premises, improvement, and equipment which are necessary for its immediate accommodation in the transaction of the bank's business. Such revaluation should be based on fair valuation of the property which shall be subject to review and approval by the BSP. SECTION X112. Merger or Consolidation Incentives . In pursuance of the policy to promote mergers and consolidations among banks and other financial intermediaries as a means to develop larger and stronger financial institutions, constituent entities may, subject to BSP approval, avail themselves of any or all of the following incentives: a. Revaluation of premises, improvements and equipment of the institutions: Provided , That such revaluation shall be based on fair valuation of the property conducted by a reputable appraisal company which shall be subject to review and approval by the BSP. The following rules shall govern the revaluation of assets: (1) The revaluation of the premises, improvements and equipment shall be allowed only to all institutions participating in a merger or consolidation if all of them belong to the same category, or at least two (2) of them belong to the highest category among the merging or consolidating institutions; (2) In case the merging or consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category, all of them may be allowed to revalue their premises, improvements and equipment: Provided , That the amount of appraisal increment resulting from such revaluation shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. (3) The appraisal increment resulting from the revaluation shall form part of capital for purposes of determining the single borrower's limit and capital-to-risk assets ratio. The use of appraisal increment for cash dividend shall be governed by the provisions of the Corporation Code. (4) The revaluation of premises, improvements, and equipment of the institution as well as the recognition of goodwill as an incentive to mergers or consolidations as provided in item "e" hereof shall only be allowed if the following conditions are met: (i) The surviving or consolidated entity will meet the existing capital requirements after all adjustments are taken up in the books of accounts of the merging or consolidating entities but before considering appraisal increments and goodwill, or there will be infusion of fresh capital to meet said existing capital requirements; and (ii) The merger or consolidation will result in a more viable financial institution as a result of cost savings and improved competitive position. In case of purchase or acquisition of the majority or all of the outstanding shares of stocks of a bank, the same conditions must be satisfied. b. Unbooked valuation reserves based upon the BSP examination and other capital adjustments resulting from the merger or consolidation may be booked on staggered basis over a maximum period of five (5) years. The following guidelines shall govern the staggered booking of valuation reserves: (1) The booking on staggered basis over a maximum period of five (5) years of unbooked valuation reserves based upon examination by the BSP may be allowed to all institutions participating in a merger or consolidation if all of them belong to the same category, or at least two (2) of them belong to the highest category among the merging or consolidating institutions. (2) In case the merging or consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category, all of them may be allowed to book the required valuation reserves based upon examination by the BSP on a staggered basis over a maximum of five (5) years: Provided , That the aggregate amount of the required valuation reserves shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. c. Exemption from the forty percent (40%) and sixty percent (60%) ownership limits prescribed in Subsec. X126.1 in the new or surviving institution of any Filipino individual or domestic non-bank corporation: Provided , That this shall be allowed only if the bank that is being merged is distressed as may be determined by the Monetary Board and such merger is for the purpose of rehabilitating the bank: Provided, further , That whenever any of said stockholders exceed the prescribed limits, his holdings shall not be increased, but may be reduced and once reduced, shall not thereafter be increased beyond such limits. In the case of purchase or acquisition of majority or all of the outstanding shares of a bank/NBQB by another bank/NBQB, the revaluation of the assets and the booking of the required valuation reserves based upon examination by the BSP over a period of five (5) years shall be allowed only if such purchase or acquisition is for the purpose of rehabilitating the former bank/NBQB: Provided , That the revaluation of assets and staggered booking of valuation reserves shall be allowed in full only if both banks/NBQBs belong to the same category. Otherwise, only the bank/NBQB being acquired/rehabilitated shall be allowed to recognize in full the appraisal increment resulting from revaluation of assets and to book valuation reserves on a staggered basis, while in the case of the acquiring bank/NBQB, the appraisal increment resulting from revaluation of assets and the privilege of staggered booking of valuation reserves shall each be limited to the amount of the total resources of the bank/NBQB being acquired/rehabilitated. CaASIc The exemption from the ownership limits prescribed in Subsec. X126.1 on existing stockholdings of any Filipino individual or domestic non-bank corporation in a banking institution, as an incentive to purchase or acquisition of majority or all of the outstanding shares of stock of bank/NBQB shall be allowed only if the bank being purchased or acquired is distressed as may be determined by the Monetary Board and such merger is for the purpose of rehabilitating the bank/NBQB. d. If by reason of merger or consolidation, the resulting bank is unable to comply fully with the prescribed net worth-to-risk assets ratio, the Monetary Board may, at its discretion, temporarily relieve the bank from full compliance with this requirement under such conditions as it may prescribe; e. Amortization of goodwill up to a maximum period of forty (40) years if there are compelling reasons to extend for this long, otherwise the amortization shall not be longer than ten (10) years. The recognition of goodwill as an incentive to mergers or consolidations shall only be allowed subject to the conditions in Item "a (4)". f. 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 institutions; g. Condonation of liquidated damages and/or penalties on loan arrearages to the BSP of RBs which are parties to the merger or consolidation: Provided , That loan arrearages of RBs to the BSP are paid in full or covered by a plan of payment payable on an equal monthly amortization schedule over a period not exceeding ten (10) years; h. 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 service area, or in such other cases/circumstances ass may be prescribed by the Monetary Board; i. Outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP as of the date of the merger or consolidation may be paid in installments over a period of one (1) year; j. Rediscount ceiling of 150% of adjusted capital accounts for a period of one (1) year, reckoned from the date of merger or consolidation: Provided , That the merged/consolidated bank meets the required net worth-to-risk assets ratio and all of the other requirements for rediscounting; k. UBs/KBs whose total outstanding real estate loans exceed twenty percent (20%) of total loan portfolio may be given a period of one (1) year within which to comply with the prescribed twenty percent (20%) ratio reckoned from the date of merger or consolidation; l. Restructuring/plan of payment of past due obligations of the proponents with the BSP as of the date of merger/consolidation over a period not exceeding ten (10) years; m. In the case of RBs, grant of access to the rediscounting window of the BSP for a period of two (2) years from the date of merger or consolidation even if its past due ratio exceeds twenty-five percent (25%) of loan portfolio but not exceeding thirty percent (30%): Provided , That the merged/consolidated bank meets all the other requirements. During said period of two (2) years, its rediscounting limit per application may also be increased to an amount equivalent to the total of the rediscounting limit per application of each of the constituent banks before merger or consolidation; n. Subject to approval of the Monetary Board concurrent officerships between a merged or consolidated bank/financial institution and another bank/financial institution may be allowed; Likewise, with prior approval of the Monetary Board, concurrent directorships may be allowed in cases where a bank acquires shares of stock of another bank for the purpose of merging or consolidating the two (2) banks regardless of whether the banks belong to the same category or both have quasi-banking functions; o. Subject to other requirements on the establishment of branches, the merged/consolidated RBs may be allowed to establish a branch each in Cebu City and Davao City if it has put up the minimum capital requirement for these places; p. Grant of automatic extension of five (5) years for retirement of government preferred shares to be reckoned from the date of merger or consolidation; q. Training of officers and staff of the merging or consolidating RBs by the BSP; and r. Any right or privilege granted a merging bank under a rehabilitation program previously approved by the Monetary Board or under any special authority granted by the Monetary Board shall continue to be in effect. The revaluation of assets and staggered booking of valuation reserves shall be available for a period of two (2) years from February 19, 1999 while the rest of the incentives enumerated under Sec. X112 shall be available for a period of three (3) years from August 31, 1998. bspcd2004 The foregoing incentives may also be granted in cases of purchases or acquisitions of majority or all of the outstanding shares of stock of a bank/NBQB. SECTIONS X113-X115 (Reserved) D. Risk-Based Capital Ratio SECTION X116. Minimum Ratio . The risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to risk-weighted assets, shall not be less than ten percent (10%) for both solo basis (head office plus branches) and consolidated basis (parent bank plus subsidiary financial allied undertakings, but excluding insurance companies). The ratio shall be maintained daily. SUBSECTION X116.1 Qualifying capital . The qualifying capital shall be the sum of a. Tier 1 (core) capital (1) Paid-up common stock; (2) Paid-up perpetual and non-cumulative preferred stock; (3) Common stock dividends distributable; (4) Perpetual and non-cumulative preferred stock dividends distributable; (5) Surplus; aEAIDH (6) Surplus reserves; (7) Undivided profits (for domestic banks only); and (8) Minority interest in the equity of subsidiary financial allied undertakings which are less than wholly-owned: Provided , That a bank shall not use minority interests in the equity accounts of consolidated subsidiaries as avenue for introducing into its capital structure elements that might not otherwise qualify as Tier 1 capital or that would, in effect, result in an excessive reliance on preferred stock within Tier 1: Provided , further , That the following items shall be deducted from the total of Tier 1 capital: (a) Common stock treasury shares; (b) Perpetual and non-cumulative preferred stock treasury shares; (c) Net unrealized losses on underwritten listed equity securities purchased; (d) Unbooked valuation reserves and other capital adjustments based on the latest report of examination as approved by the Monetary Board; (e) Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI; (f) Deferred income tax; and (g) Goodwill; and b. Tier 2 (supplementary) capital which shall be the sum of (1) Upper Tier 2 capital (a) Paid-up perpetual and cumulative preferred stock; (b) Paid-up limited life redeemable preferred stock; (c) Perpetual and cumulative preferred stock dividends distributable; (d) Limited life redeemable preferred stock dividends distributable; (e) Appraisal increment reserve bank premises, as authorized by the Monetary Board; (f) Net unrealized gains on underwritten listed equity securities purchased: Provided , That the amount thereof that may be included in upper Tier 2 capital shall be subject to a fifty-five percent (55%) discount; (g) General loan loss provision: Provided , That the amount thereof that may be included in upper Tier 2 capital shall be limited to a maximum of one and one-fourth percent (1-1/4%) of gross risk-weighted assets, and any amount in excess thereof shall be deducted from the total risk-weighted assets in computing the denominator of the risk-based capital ratio; (h) With prior BSP approval, unsecured subordinated debt with a minimum original maturity of at least ten (10) years, subject to the following conditions: i. It must not be secured nor covered by a guarantee of the issuer or related party; ii. It must be subordinated in the right of payment of principal and interest to all depositors and other creditors of the bank, except those creditors expressed to rank equally with, or behind holders of the debt. Subordinated creditors must waive their right to set off any amount they owe the bank against subordinated amounts owed to them by the bank. The issue documentation must clearly state that the debt is subordinated; iii. It must be fully paid-up. Only the net proceeds actually received from debt issues can be included as capital. If the debt is issued at a premium, the premium cannot be counted as part of capital; iv. It must not be redeemable at the initiative of the holder; v. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency; vi. It must not be repayable prior to maturity without the prior consent of the BSP: Provided , That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if (1) the bank's capital ratio is at least equal to the required minimum capital ratio and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue; vii. It may allow a moderate step-up in the interest rate in conjunction with a call option, only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points: Provided , That only one (1) rate step-up shall be allowed over the life of the instrument; viii. It must provide for possible conversion into common shares or preferred shares or possible deferral of payment of principal and interest if bank's capital ratio becomes less than the required minimum capital ratio; ix. It must provide for the principal and interest on the debt to absorb losses where the bank would not otherwise be solvent; x. It must allow deferment of interest payment on the debt in the event of, and at the same time as, the elimination of dividends on all outstanding common or preferred stock of the issuer. It is acceptable for the deferred interest to bear interest, but the interest rate payable on deferred interest should not exceed market rates; xi. It must be underwritten by a third party not related to the issuer bank nor acting in reciprocity for and in behalf of the issuer bank; cSCADE xii. It must be issued in minimum denominations of at least P500,000 or its equivalent; and xiii. It must clearly state on its face that it is not a deposit and is not insured by the Philippine Deposit Insurance Corporation (PDIC): Provided , That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided , further , That where it is denominated in a foreign currency, it shall be revalued periodically (at least monthly) in Philippine peso at prevailing exchange rate using the same exchange rate used for revaluation of foreign currency-denominated assets, liabilities and forward contracts under existing regulations: Provided , furthermore , That, for purposes of reserve requirement regulation, it shall not be treated as time deposit liability, deposit substitute liability or other forms of borrowings; (i) Deposit for common stock subscription; and (j) Deposit for perpetual and non-cumulative preferred stock subscription: Provided , That the following items shall be deducted from the total of upper Tier 2 capital: i. Perpetual and cumulative preferred stock treasury shares; ii. Limited life redeemable preferred stock treasury shares; and iii. Sinking fund for redemption of limited life redeemable preferred stock; and (2) Lower Tier 2 capital (a) With prior BSP approval, unsecured subordinated debt with a minimum original maturity of at least five (5) years, subject to the following conditions: i. It must not be secured nor covered by a guarantee of the issuer or related party; ii. It must be subordinated in the right of payment of principal and interest to all depositors and other creditors of the bank, except those creditors expressed to rank equally with, or behind holders of the debt. Subordinated creditors must waive their right to set off any amounts they owe the bank against subordinated amounts owed to them by the bank. The issue documentation must clearly state that the debt is subordinated; iii. It must be fully paid-up. Only the net proceeds actually received from debt issues can be included as capital. If the debt is issued at a premium, the premium cannot be counted as part of capital; iv. It must not be redeemable at the initiative of the holder; v. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency; vi. It must not be repayable prior to maturity without the prior consent of the BSP: Provided , That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if (1) the bank's capital ratio is at least equal to the required minimum capital ratio; and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue; vii. It may allow a moderate step-up in the interest rate in conjunction with a call option, only if the step-up occurs at a minimum of five (5) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points or fifty percent (50%) of the initial credit spread, at the option of the bank: Provided , That only one (1) rate step-up shall be allowed over the life of the instrument; viii. It must be underwritten by a third party not related to the issuer bank nor acting in reciprocity for and in behalf of the issuer bank; ix. It must be issued in minimum denominations of at least P500,000 or its equivalent; and x. it must clearly state on its face that it. is not a deposit and is not insured by the PDIC: Provided , further, That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided , furthermore , That where it is denominated in a foreign currency, it shall be revalued periodically (at least monthly) in Philippine peso using the same exchange rate used for revaluation of foreign currency-denominated assets, liabilities and forward contracts under existing regulations: Provided , finally , That for purposes of reserve requirement regulation, it shall not be treated as equivalent to a time deposit liability, deposit substitute liability or other forms of borrowings; (2) Deposit for perpetual and cumulative preferred stock subscription; and (3) Deposit for limited life redeemable preferred stock subscription: Provided , That the total amount of lower Tier 2 capital that may be included in the Tier 2 capital shall be a maximum of fifty percent (50%) of total Tier 1 capital (net of deductions therefrom): Provided , further , That the total amount of upper and lower Tier 2 capital that may be included in the qualifying capital shall be a maximum of 100% of total Tier 1 capital (net of deductions therefrom); c. Less deductions from the total of Tier 1 and Tier 2 capital, as follows : (1) Investments in equity of unconsolidated subsidiary banks and other financial allied undertakings, but excluding insurance companies; DISHEA (2) Investments in debt capital instruments of unconsolidated subsidiary banks; (3) Investments in equity of subsidiary insurance companies and non-financial allied undertakings; (4) Reciprocal investments in equity of other banks/enterprises; and (5) Reciprocal investments in unsecured subordinated term debt instruments of other banks, in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the bank; or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank: Provided , That any asset deducted from the qualifying capital in computing the numerator of the risk-based capital ratio shall not be included in the risk-weighted assets in computing the denominator of the ratio. For foreign bank branches , Tier 1 capital elements shall consist of (1) Assigned capital; and (2) Net due "to" head office, branches, subsidiaries and other offices outside the Philippines (inclusive of earnings not remitted to head office per Subsec. X121.5.c), less the same deductions from Tier 1 capital of domestic banks: Provided , That the amount of "Net due to account" shall be limited to an amount prescribed under Subsec. X121.6: Provided , further , That should there be any "Net due from account", the same shall be deducted from the Tier 1 capital. In seeking prior approval of the BSP in the issuance of subordinated debt instrument to qualify as Tier 2 capital, the proponent shall submit complete details of the proposed transaction to the appropriate supervising and examining department. Failure to comply with prior approval requirement will result in automatic denial. SUBSECTION X116.2 Risk-weighted assets . The risk-weighted assets shall be determined by assigning risk weights to amounts of on-balance sheet assets and to credit equivalent amounts of off-balance sheet items (inclusive of derivatives contracts): Provided , That the following shall be deducted from the total risk-weighted assets: (1) general loan loss provision (in excess of the amount permitted to be included in upper Tier 2 capital) and unbooked valuation reserves and (2) other capital adjustments affecting asset accounts based on the latest report of examination as approved by the Monetary Board. a. On-Balance sheet assets . The risk-weighted amount shall be the product of the book value of asset multiplied by the risk weight associated with that asset, as follows: (1) Zero percent (0%) risk weight (a) Cash on hand; (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by i. Philippine National Government and BSP; and ii. Central governments and central banks of foreign countries with the highest credit quality as defined in Subsec. X116.3; (c) Loans to the extent covered by hold-out on, or assignment of, deposits/deposit substitutes maintained with the lending bank; (d) Loans or acceptances under letters of credit to the extent covered by margin deposits; (e) Portions of special time deposit loans covered by Industrial Guarantee and Loan Fund (IGLF) guarantee; (f) Real estate mortgage loans to the extent guaranteed by the Home Guaranty Corporation (HGC); (g) Loans to the extent guaranteed by the Trade and Investment Development Corporation of the Philippines (TIDCORP); (h) Loans to exporters to the extent guaranteed by the Guarantee Fund for Small and Medium Enterprises (GFSME); (i) Foreign currency notes and coins on hand acceptable as international reserves; and (j) Gold bullion held either in own vaults, or in another's vaults on an allocated basis, to the extent it is offset by gold bullion liabilities; (2) Twenty percent (20%) risk weight (a) Checks and other cash items (COCIs); (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government public sector entities of foreign countries with the highest credit quality as defined in Subsec. X116.3; (c) Claims on or portions of claims guaranteed by Philippine incorporated banks with the highest credit quality as defined in Subsec. X116.3; (d) Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality as defined in Subsec. X116.3; (e) Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development banks; (f) Loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation (SBGFC); and (g) Foreign currency COCIs denominated in currencies acceptable as international reserves; (3) Fifty percent (50%) risk weight (a) Loans for housing purpose, fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower; and SEcAIC (b) Local government unit (LGU) bonds which are covered by Deed of Assignment of Internal Revenue Allotment of the LGU and guaranteed by the LGU Guarantee Corporation. (4) One hundred percent (100%) risk weight All other assets including, among others, the following: (a) Claims on central governments and central banks of foreign countries other than those with the highest credit quality; (b) Claims on Philippine local government units; (c) Claims on non-central government public sector entities of foreign countries other than those with the highest credit quality; (d) Claims on government-owned or controlled commercial corporations; (e) Claims on Philippine incorporated banks other than those with the highest credit quality; (f) Claims on foreign incorporated banks other than those with the highest credit quality; (g) Loans to companies engaged in speculative residential building or property development; (h) Claims on the private sector (except those deducted from capital); (i) Equity investments (except those deducted from capital); (j) Bank premises, furniture, fixtures and equipment (net); (k) Appraisal increment bank premises, furniture, fixtures and equipment (net); (l) Real and other properties owned or acquired (net); (m) Foreign currency notes and coins on hand not acceptable as international reserves; (n) Gold bullion held in either own vaults, or in another's vaults on an allocated basis, that is not offset by gold bullion liabilities; and (o) Foreign currency COCIs not denominated in foreign currencies acceptable as international reserves, except those which are deducted from capital, as follows: (i) Unsecured credit accommodations, both direct and indirect, to DOSRI; (ii) Deferred income tax; (iii) Goodwill; (iv) Sinking fund for redemption of limited life redeemable preferred stock; (v) Equity investments in unconsolidated subsidiary banks and other financial allied undertakings, but excluding insurance companies; (vi) Investments in debt capital instruments of unconsolidated subsidiary banks; (vii) Equity investments in subsidiary insurance companies and non-financial allied undertakings; (viii) Reciprocal investments in equity of other banks/enterprises; (ix) Reciprocal investments in unsecured subordinated term debt instruments of other banks, in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the bank; or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank; and (x) Net due "from" head office, branches, subsidiaries and other offices outside the Philippines, if any (for foreign bank branches). b. Off-balance sheet items . The risk-weighted amount shall be calculated using a two (2)-step process. First , the credit equivalent amount of an off-balance sheet item shall be determined by multiplying its notional principal amount by the appropriate credit conversion factor, as follows: (1) One hundred percent (100%) credit conversion factor This shall apply to direct credit substitutes, e.g., general guarantees of indebtedness (including standby letters of credit, serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances), and shall include (a) Outstanding guarantees issued foreign loans; (b) Outstanding guarantees issued other than foreign loans and shipside bonds/airway bills; and (c) Export letters of credit confirmed. This shall also apply to sale and repurchase agreements and asset sales with recourse where the credit risk remains with the bank (to the extent not included in the balance sheet), as well as to forward asset purchases, forward deposits and partly-paid shares and securities which represent commitments with certain drawdown: Provided , That these items shall be weighted according to the type of asset and not according to the type of counterparty with whom the transaction has been entered into. (2) Fifty percent (50%)credit conversion factor This shall apply to certain transaction-related contingent items, e.g., performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions, and shall include (a) Standby letters of credit domestic (net of margin deposit) established as a guarantee that a business transaction will be performed; and (b) Standby letters of credit foreign (net of margin deposit). This shall also apply to (c) Note issuance facilities and revolving underwriting facilities; and (d) Other commitments, e.g., formal standby facilities and credit lines with an original maturity of more than one (1) year. This shall include underwritten accounts unsold. TcDHSI (3) Twenty percent (20%) credit conversion factor This shall apply to short-term, self-liquidating trade-related contingencies, e.g., documentary credits collateralized by the underlying shipments, and shall include (a) Outstanding guarantees issued shipside bonds/airway bills; (b) Domestic letters of credit outstanding (net of margin deposit); (c) Sight import letters of credit outstanding (net of margin deposit); (d) Usance import letters of credit outstanding (net of margin deposit); (e) Deferred letters of credit (net of margin deposit); and (f) Revolving letters of credit (net of margin deposit) arising from movement of goods and/or services. (4) Zero percent (0%) credit conversion factor This shall apply to commitments with an original maturity of up to one (1) year, or which can be unconditionally cancelled at any time, and shall include committed credit line for commercial paper issues. This shall also apply to those not involving credit risk, and shall include (a) Inward bills for collection; (b) Outward bills for collection; (c) Items held for safekeeping/custodianship; (d) Trust department accounts (e) Late deposits/payments received (f) Items held as collaterals; (g) Travelers' checks; etc. Second , the credit equivalent amount shall be treated like any on-balance sheet asset and shall be assigned the appropriate risk weight, i.e., according to the obligor, or if relevant, the qualified guarantor or the nature of collateral. c. Derivatives contracts . The credit equivalent amount shall be the sum of the current credit exposure (or replacement cost) and an estimate of the potential future credit exposure (or add-on): Provided , That the following shall not be included in the computation: (1) Instruments which are traded on exchange where they are subject to daily receipt and payment of cash variation margin; and (2) Exchange rate contracts with original maturity of fourteen (14) calendar days or less. The current credit exposure shall be the positive mark-to-market value of the contract (or zero if the mark-to-market value is zero or negative). The potential future credit exposure shall be the product of the notional principal amount of the contract multiplied by the appropriate potential future credit conversion factor, as indicated below: Interest Exchange Residual Maturity Rate Contract Rate Contract One (1) year or less 0.0% 1.0% Over one (1) year to five (5) years 0.5% 5.0% Over five (5) years 1.5% 7.5% Provided , That for contracts with multiple exchanges of principal, the factors are to be multiplied by the number of remaining payments in the contract: Provided , further , That for contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date, and in the case of interest rate contracts with remaining maturities of more than one (1) year that meet these criteria, the potential future credit conversion factor is subject to a floor of five tenths percent (0.5%): Provided , furthermore , That no potential future credit exposure shall be calculated for single currency floating/floating interest rate swaps, i.e., the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value. The credit equivalent amount shall be treated like any on-balance sheet asset, and shall be assigned the appropriate risk weight, i.e., according to the obligor, or if relevant, the qualified guarantor or the nature of collateral: Provided , That a fifty percent (50%) risk weight shall be applied in respect of obligors which would otherwise attract a one hundred percent (100%) risk weight. The extent to which a claim is guaranteed/collateralized shall be determined by the amount of guarantee coverage/current market value of securities pledged, in comparison with the book value of the on-balance sheet asset or the notional principal amount of the off-balance sheet exposure, except for derivatives contracts for which determination is generally made in relation to credit equivalent amount. SUBSECTION X116.3 Definitions a. Amount due from the BSP . This refers to all deposits of the reporting bank with the BSP. b. Appraisal increment reserve . This shall form part of capital only if authorized by the Monetary Board. c. Bank premises, furniture, fixtures and equipment net of depreciation . This refers to the cost of land and improvements used as bank premises, and furniture, fixtures and equipment owned by the bank. d. Cash on hand . This refers to total cash held by the bank consisting of both notes and coins in Philippine currency. e. Central government of a foreign country . This refers to the central government which is regarded as such by a recognized banking supervisory authority in that country. f. Claims . This refers to loans or debt obligations of the entity on whom the claim is held, and shall include, but shall not be limited to, the following accounts, inclusive of accumulated market gains/(losses) and accumulated bond discount/(premium amortization), and net of specific allowance for probable losses: (1) Due from BSP; TEHIaA (2) Due from other banks; (3) Interbank loans receivable; (4) Loans and discounts; (5) Agrarian reform and other agricultural credit loans P.D. 717; (6) Development incentive loans; (7) Bills purchased; (8) Customers' liability on bills/drafts under LCs/TRs; (9) Customers' liability for this bank's acceptances outstanding; (10) Restructured loans; (11) Trading account securities loans; (12) Underwriting accounts debt securities (for UBs); (13) Underwriting accounts equity securities (for UBs); (14) Trading account securities investments; (15) Trading account securities equity (for UBs); (16) Available for sale securities; (17) Investments in bonds and other debt instruments (IBODI); and (18) Others, e.g., accounts receivable and accrued interest receivable. Accruals on a claim shall be classified and risk weighted in the same way as the claim. Bills purchased shall be classified as claims on the drawee banks. g. Consolidated basis . This refers to combined statement of condition of parent bank and subsidiary financial allied undertakings, but excluding insurance companies. h. Debt capital instruments . This refers to unsecured subordinated term debt instruments qualifying as capital of banks. i. Equity investments . This refers to investments in capital stock of companies, firms or enterprises, made for purposes of control, affiliation or other continuing business advantage. j. Exchange rate contracts . This includes cross-currency interest rate swaps, forward foreign exchange contracts, currency futures, currency options purchased and similar instruments. k. Financial allied undertakings . This refers 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 companies, financial institutions catering to small and medium scale industries (including venture capital corporations), companies engaged in stock brokerage/securities dealership, companies engaged in foreign exchange dealership/brokerage, holding companies (for UBs), and such other similar activities as the Monetary Board may declare as appropriate from time to time, but excluding insurance companies; l. Foreign country/foreign incorporated bank and Philippine incorporated bank with the highest credit quality . This refers to a foreign country/foreign incorporated bank and Philippine incorporated bank given the highest credit rating of any two (2) of the following internationally accepted rating agencies: Rating Agency Highest Rating (1) Moody's "AA3" and above (2) Standard and Poor's "AA-" and above (3) Fitch IBCA "AA-" and above (4) Others as may be approved by the Monetary Board m. Forward asset purchases . This refers to a commitment to purchase a loan, security or other asset at a specified future date, usually on prearranged terms. n. Forward forward deposits . This refers to an agreement between two (2) parties whereby one (1) will pay and the other will receive an agreed rate of interest on a deposit to be placed by one (1) party with the other at some predetermined date in the future. o. Gold bullion held in another's vault on an allocated basis . This refers to gold bullion held by others to the order of the bank, and which is separately ascertainable. p. Goodwill . This refers to an intangible asset that represents the excess of the purchase price over the fair market value of identifiable assets acquired less liabilities assumed in acquisitions accounted for under the purchase method of accounting. q. Interest rate contracts . This includes single-currency interest rate swaps, basis swaps, forward rate agreements, interest rate futures, interest rate options purchased and similar instruments. r. Loans for housing purpose, fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower . This shall not include loans to companies engaged in speculative residential building or property development. s. Loans or acceptances under letters of credit to the extent covered by margin deposits . This shall not include the unnegotiated letters of credit or the unutilized portion thereof, or other items booked under contingent accounts. This shall also not include margin deposits against loans or acceptance accounts which are fully liquidated. t. Loans to the extent covered by hold-out on, or assignment of, deposits or deposit substitutes maintained in the lending bank . A loan shall be considered as secured by a hold-out on, or assignment of deposit or deposit substitute only if such deposit or deposit substitute account is covered by a hold-out agreement or deed of assignment signed by the depositor or investor/placer in favor of the bank. This shall not include loans transferred to/carried by the bank's trust department secured by deposit hold-out/assignment. u. Multilateral development banks . This refers to International Bank for Reconstruction and Development (IBRD), Inter-American Development Bank (IADB), Asian Development Bank (ADB), African Development Bank (AFDB), European Investment Bank and European Bank for Reconstruction and Development (EBRD). v. Non-central government public sector entity of a foreign country . This refers to entities which are regarded as such by a recognized banking supervisory authority in the country in which they are incorporated. THIcCA w. Note issuance facilities and revolving underwriting facilities . This refers to an arrangement whereby a borrower may drawdown funds up to a prescribed limit over an extended period by repeated issues to the market of promissory notes which the bank committed to underwrite. x. Other commitments . This includes undrawn portion of any binding arrangements which obligate the bank to provide funds at some future date. y. Other commitments with an original maturity of up to one (1) year . This includes any revolving or undated open-ended commitments, e.g., overdrafts or unused credit lines, providing that they can be unconditionally cancelled at any time and subject to credit revision at least annually. z. Partly-paid shares and securities . This arises where only a part of the issue price or nominal face value of a security purchased has been subscribed and the issuer may call for the outstanding balance (or a further installment), either on a date predetermined at the time of issue, or at an unspecified future date. aa. Perpetual preferred stock . This refers to preferred stock that does not have a maturity date, that cannot be redeemed at the option of the holder of the instrument, and that has no provision that will require future redemption of the issue. Consistent with these provisions, any perpetual preferred stock with a feature permitting redemption at the option of the issuer may qualify as capital only if the redemption is subject to prior approval of the BSP. bb. Philippine local government units . This refers to the Philippine government units below the level of national government, such as city, provincial, and municipal governments. cc. Philippine national government . This shall refer to the Philippine national government and their agencies such as departments, bureaus, offices, and instrumentalities, but excluding government-owned and -controlled commercial corporations. dd. Private sector . This refers to entities other than banks and governments. This shall also include commercial companies owned by the public sector, such as government-owned or -controlled commercial corporations. ee. Redeemable preferred stock . This refers to preferred stock which under existing regulation may be redeemed at the specific dates or periods fixed for redemption, only upon prior approval of the BSP and only if the shares redeemed are replaced with at least an equivalent amount of newly paid-in shares so that the total paid-in capital stock is maintained at the same level immediately prior to redemption: Provided , That redemption shall not be earlier than five (5) years after the date of issuance: Provided , further , That such redemption may not be made where the bank is insolvent or if such redemption will cause insolvency, impairment of capital or inability of the bank to meet its debts as they mature. ff. Sale and repurchase agreements and asset sales with recourse . This refers to arrangements whereby a bank sells a loan, security or fixed asset to a third party with a commitment to repurchase the asset after a certain time, or in the event to a certain contingency. gg. Solo basis . This refers to combined statement of condition of head office and branches. hh. Subsidiary . This refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a bank. ii. Treasury shares . This refers to shares of the parent bank held by a subsidiary financial allied undertaking in a consolidated statement of condition. SUBSECTION X116.4 Required reports . Banks shall submit a report of their risk-based capital adequacy ratio on a solo basis (head office plus branches) and on a consolidated basis (parent bank plus subsidiary financial allied undertakings, but excluding insurance companies) quarterly to the appropriate supervising and examining department of the BSP in the prescribed forms within the deadlines, i.e., fifteen (15) banking days and thirty (30) banking days after the end of reference quarter, respectively. Only banks with subsidiary financial allied undertakings (excluding insurance companies) which under existing regulations are required to prepare consolidated statements of condition on a line-by-line basis shall be required to submit report on a consolidated basis. The abovementioned reports shall be classified as Category A-2 reports. SUBSECTION 1116.5 Market risk capital requirement . UBs/KBs shall also measure and apply capital charges for market risk, in addition to the credit risk capital requirement in this Section, in accordance with the Guidelines to Incorporate Market Risk in the Risk-Based Capital Adequacy Framework in Appendix 46. SUBSECTION X116.6 Sanctions . Whenever the capital accounts of a bank are deficient with respect to the prescribed risk-based capital adequacy ratio (which for UBs/KBs shall pertain to adjusted capital adequacy ratio covering combined credit risk and market risk), the Monetary Board, after considering a report of the appropriate supervising and examining department of the BSP on the state of solvency of the institution concerned, shall limit or prohibit the distribution of the net profits and shall require that part or all of net profits be used to increase the capital accounts of the bank until the minimum requirement has been met. The Monetary Board may restrict or prohibit the making of new investments of any sort by the bank, with the exception of purchases of readily marketable evidences of indebtedness issued by the Philippine National Government and BSP included in Item "a(1)(b)i" of Subsec. X116.2, until the minimum required capital ratio has been restored. SUBSECTION X116.7 Temporary relief. In case of a bank merger, or consolidation, or when a bank is under a rehabilitation program approved by the BSP, the Monetary Board may temporarily relieve the surviving bank, consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio for a maximum period of one (1) year. SECTIONS X117-X120 (Reserved) E. Liberalized Entry and Scope of Operations of Foreign Banks SECTION X121. Liberalized Entry and Scope of Operations of Foreign Banks . The following rules shall govern the liberalized entry and scope of operation of foreign banks. SUBSECTION X121.1 Modes of entry of foreign banks . With prior approval of the Monetary Board, foreign banks may operate in the Philippines through any one of the following modes: a. By acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing domestic bank (including banks under receivership or liquidation, provided no final court liquidation order has been issued); b. By investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or TIDHCc c. By establishing branches with full banking authority. Interested foreign banks shall file with the Office of the Governor, BSP, their application for authority to operate in the Philippines through any of the modes of entry mentioned above. The application must be submitted in the prescribed forms shown in Appendix 2. SUBSECTION X121.2 Qualification requirements a. Investment in an existing domestic bank . A foreign bank seeking to acquire, purchase or own up to sixty percent (60%) of the voting stock of an existing domestic bank needs only to meet the selection criteria under Subsec. X121.3. b. Establishment of subsidiary or branch . Any foreign bank seeking to establish a new banking subsidiary or to establish branches with full banking authority, in addition to satisfying the criteria prescribed Subsec. X121.3, must be (1) Widely-owned and publicly-listed (listed in any stock exchange authorized by the government of the country of origin), unless more than fifty percent (50%) of the capital stock of said foreign bank applicant is owned by the government of its country of origin. The bank is considered as widely-owned if it has at least fifty (50) stockholders without any stockholder owning more than fifteen percent (15%) of its capital stock: Provided , That if the bank is owned/controlled by a holding company, this requirement shall apply to the holding company; and (2) Among the top 150 banks in the world or the top five (5) banks in its country of origin. The determination of the top 150 banks in the world may be based on lists prepared and published by reputable organizations/publications. The determination of the top five (5) banks in the country of origin shall be based on information supplied by the bank supervisory authorities in which country of origin as to the ranking of banks based on net worth. However, the Monetary Board may also use total assets as a criterion: Provided, That the same shall be based on book accounts only and on the consolidated balance sheet of the head office and all branches, excluding subsidiaries and affiliates. In addition to the foregoing requirements, the foreign bank applicant must be in compliance with capital requirements as prescribed by the laws and regulations of its country of origin. SUBSECTION X121.3 Guidelines for selection . The following factors shall be considered in selecting the foreign bank which will be allowed to invest in majority of the voting stock of an existing domestic bank or to establish a subsidiary or branch in the Philippines. a. Geographic representation and complementation . Representation from the different parts of the world and/or the international financial centers shall be ensured. b. Strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank . Consideration shall be given to the countries of origin of applicant foreign banks (1) With substantial financial assistance to, and loans and investments, past and present, in the Philippines; and (2) With which the Philippines has significant volume of trade especially to those with which the country has substantial net exports. c. Relationship between the applicant bank and the Philippines . Consideration shall be given to the capability of the foreign bank to promote trade with, and to bring foreign investments into, the Philippines. Long standing financial and commercial relationship with, and assistance extended to, the Philippines, shall likewise be taken into account. d. Demonstrated capacity, global reputation for financial innovations and stability in a competitive environment of the applicant . Demonstrated capacity and stability may be indicated by the fact that the applicant ranks among the top 150 in the world or top five (5) in its country of origin. Global reputation may be measured by international presence, e.g., number of branches with full banking authority outside of its country of origin. e. Reciprocity rights enjoyed by Philippine banks in the applicant's country . Philippine banks shall enjoy reciprocity rights in the applicant's country. f. Willingness to fully share technology . The applicant bank shall submit an undertaking to this effect together with its application. SAHIaD SUBSECTION X121.4 Capital requirements a. For locally incorporated subsidiaries The minimum capital required for locally incorporated subsidiaries of foreign banks shall be the same as that prescribed by the Monetary Board for domestic banks of the same category. b. For foreign bank branches with full banking authority A foreign bank authorized to establish branches with full banking authority in the Philippines shall inwardly remit and convert into Philippines currency, as permanently assigned capital, the U.S. Dollar equivalent of P210 million at the exchange rate prevailing on June 5, 1994 (the date of effectivity of R.A. No. 7721), i.e., P26.979 to US$1. The foreign bank shall thereby be entitled to establish three (3) branches in locations of its choice. For purposes of this Subsection, the same foreign bank may open three (3) additional branches in locations designated by the Monetary Board by inwardly remitting and converting into Philippine currency, as additional permanently assigned capital the U.S. Dollar equivalent of P35 million for every additional branch, computed at the same exchange rate of P26.979 to US$1. The Monetary Board, in determining the location of the next three (3) branches established pursuant to the provisions of R.A. No. 7721, shall consider, among other things, development requirements of a region and the contribution of a bank branch may make to regional development, expansion of basic financial services and enhanced access to credit by small and medium-scale enterprises: Provided, That the total number of branches for each new foreign bank entrant shall not exceed six (6). c. For foreign banks with existing branches in the Philippines (1) A foreign bank with existing branch or branches in the Philippines upon the effectivity of R.A. No. 7721 shall comply with the required permanently assigned capital by inwardly remitting and converting into Philippine currency the U.S. Dollar equivalent of P210 million computed at the same exchange rate of P26.979 to US$1, within a period of one and one-half (1) years from June 5, 1994. The said foreign bank may establish up to six (6) branches in addition to its branch or branches existing as June 5, 1994, the first three (3) additional branches in locations of its choice, and the next three (3) additional branches in locations designated by the Monetary Board: Provided , That upon establishing any additional branch, the bank shall comply immediately with the permanently assigned capital mentioned in the next preceding paragraph: Provided, further , That the said permanently assigned capital shall be the capital for the bank's first three (3) additional branches, including its existing branch or branches, and for each branch established in addition thereto, the U.S. Dollar equivalent of P35 million computed at the same exchange rate of P26.979 to US$1, shall be inwardly remitted and converted into Philippine currency. If the permanently assigned capital of the existing branch/es of said foreign bank that has been converted to Philippine currency is sufficient to cover the above-mentioned amount of assigned capital required for the additional branches, no additional assigned capital shall be required; otherwise, the foreign bank shall comply immediately with the capital requirements under the above paragraphs. (2) Foreign banks with existing branches in the Philippines on June 5, 1994 shall have a period of one and one-half (1) years from said date within which to comply with the ratio between the assigned capital and the Net due to head office, branches, subsidiaries and offices outside the Philippines prescribed in Subsec. X121.6: Provided, That upon establishing any additional branch pursuant to the provisions of this Section, the bank shall comply immediately with the aforesaid ratio. d. Capital of Foreign Bank Branch Authorized to Operate as Expanded Commercial Bank The capital of a Philippine branch of a foreign bank which is authorized to operate as an EKB may consist of its permanently assigned capital plus the Net due to account: Provided , That at no time shall the aggregate of said accounts fall below the amount required for EKB authority under Subsecs. X106.1 and X106.2: Provided, further , That the amount of the Net due to which may be added to permanently assigned capital shall not exceed the equivalent of three (3) times the amount of the permanently assigned capital. 2004bspcd The capital as described in the preceding paragraph shall be net of the items enumerated in Subsec. X121.5d. e. Applicable Exchange Rate It is understood that the exchange rate of P26.979 to US$1 mentioned hereinabove is applicable only to the minimum capital requirements provided in Items b and c of this Subsection. For other purposes, the exchange rate prevailing at the time of remittance shall be applicable. SUBSECTION X121.5 Composition of capital accounts; compliance with capital ratios a. Foreign bank branches shall comply with the same capital ratios applicable to domestic banks of the same category. b. For Philippine branches of foreign banks, the term capital shall include permanently assigned capital which shall be inwardly remitted and converted to Philippine currency and Net due to up to an amount prescribed under Subsec. X121.6. Should there be any Net due from head office, branches, subsidiaries and other offices outside the Philippines, the same shall be deducted from the capital accounts for purposes of determining compliance with the required capital ratios. c. Earnings not remitted to the head office shall constitute part of the Net due to of the local branch of a foreign bank: Provided , That said bank may elect to consider such earnings as part of the assigned capital, in which case said earnings may no longer be remittable to the head office. d. The term capital shall also be net of: (1) unbooked valuation reserves and other capital adjustments as may be required by the BSP; (2) total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI; (3) deferred income tax; and (4) equity investment of a bank in another enterprise, whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower, and (5) appraisal increment reserve (revaluation reserve) arising from appreciation or an increase in book value of bank assets. e. Where a foreign bank has more than one branch or banking office in the Philippines, all its branches and banking offices shall be treated as a unit for purpose of determining compliance with the legal reserve requirement and with capital requirement prescribed in laws/regulations. 2004bspcd SUBSECTION X121.6 Prescribed ratio of Net Due to and permanently assigned capital The amount of Net due to which may be added to permanently assigned capital for purposes of determining compliance with capital ratios prescribed in laws/regulations shall not exceed the equivalent of four (4) times the amount of permanently assigned capital: Provided , That for the purpose of a foreign bank branch seeking to operate as an EKB, the ratio shall not exceed three (3) times as provided in Item d of Subsec. X121.4. At least fifteen percent (15%) of the Net due to required to comply with the prescribed capital ratio shall be inwardly remitted and converted into Philippine currency: Provided , That amounts invested in productive enterprises or utilized by Philippine companies for export activities, including foreign currency denominated loans granted to Philippine exporters and loans for productive purposes such as the following: agriculture, fisheries and forestry; manufacturing; mining; public utilities; construction; and home building, need not be subject to conversion into Philippine currency. If there is non-compliance with the prescribed fifteen percent (15%) of Net due to required to be inwardly remitted and converted to pesos, the bank shall immediately inwardly remit and convert to Philippine currency the amount of the deficiency. Branches of foreign banks shall submit the reports prescribed in Appendix 6 to show compliance with the requirement that at least fifteen percent (15%) of its Net due to shall be inwardly remitted and converted into Philippine currency. SUBSECTION X121.7 Head office guarantee . The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches, as well as the observance of the constitutional rights of the employees of such branches. SUBSECTION X121.8 Scope of authority for locally incorporated subsidiaries of foreign banks as well as branches with full banking authority . Subsidiaries and branches of foreign banks established under Subsec. X121.1 shall be allowed to perform the same functions and enjoy the same privileges of, and be subject to the same limitations imposed upon, a Philippine bank of the same category. Privileges shall include the eligibility to operate under an expanded commercial banking authority subject to compliance with existing rules and regulations and the guidelines enumerated in Appendix 3 on the matter: Provided , That foreign bank branches authorized to operate under an expanded commercial banking authority shall be exempted from the requirement of publicly offering at least ten percent (10%) of its shares. The limitations include, among other things, the single borrower's limit, the capital-to-risk assets ratio, and the capitalization and other requirements under R.A. No. 337, as amended, and other related laws. bspcd2004 SUBSECTION X121.9 Limitations a. Limit on mode of entry for each foreign bank A foreign bank may avail itself of only one (1) mode of entry provided under Items a to c of Subsec. X121.1: Provided , That entry pursuant thereto shall not preclude investment in the equity of a domestic bank Pursuant to the Provisions of R.A. No. 337, as amended. A foreign bank that comes in via the establishment of branches under R.A. No. 7721 may still invest in the equity of a domestic bank subject to the provisions of R.A. No. 337, as amended. b. Limit on the number of foreign banks which may be allowed to establish branches . The Monetary Board may authorize up to six (6) new foreign banks to establish branches. However, upon recommendation of the Monetary Board, the President of the Republic of the Philippines may approve, as the national interest may require, four (4) additional new foreign banks to establish branches, subject to compliance with provisions of this Section. c. Limit on the period for entry through establishment of branches . Foreign banks shall be allowed entry under Item c of Subsec. X121.1 by establishing branches with full banking authority within five (5) years from June 5, 1994. The entry of foreign banks through the establishment of a new banking subsidiary and through investment in existing domestic banks shall not be subject to any time limitation. d. Control of the resources of the banking system . The Monetary Board shall adopt such measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by domestic banks more than fifty percent (50%) of the subscribed capital of which is owned by Filipinos. Said measures may include review of, among other things, the existing policies on (i) the granting of authority to establish additional subsidiaries and branches; (ii) the granting of authority to (a) engage in expanded commercial banking and trust activities; (b) open an FCDU; (c) collect taxes and customs duties; and (d) invest in the equity of other entities; and (iii) access to rediscounting facilities. SUBSECTION X121.10 Change from one mode of entry to another a. As a general rule, a foreign bank which has been authorized to operate in the Philippines through any one of the allowable modes of entry may change to another mode by giving up the first mode it availed of. b. A foreign bank which pursuant to Items "a" and "b" of Subsec. X121.1, has established or acquired a banking subsidiary may sell its stockholdings therein and may apply for authority to establish a branch subject to the provisions of Subsec. X121.9c and to the following conditions: (i) that the disposition/sake of its stockholdings in the subsidiary is done within five (5) years from June 5, 1994; (ii) that the foreign bank qualifies under the provisions of Subsec. X121.2b; and (iii) that the limit of ten (10) foreign banks establishing branches as a "mode of entry has not yet been reached. c. Foreign banks with. existing branches in the Philippines, as well as those that may be allowed to establish branches under R.A. No. 7721, may incorporate under Philippine laws, in which case said foreign banks may own up to sixty percent (60%) of the voting stock of the new bank. SUBSECTION X121.11 Listing of shares with the Philippine Stock Exchange . At least ten percent (10%) of the capital of banks in which foreign banks have invested under Subsec. X121.1 "a" and "b", shall be listed in the PSE within a reasonable period of time after the investment is made as may be determined by the Monetary Board. SUBSECTION X121.12 Applicability to Philippine corporations a. Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under R.A. No. 7721 shall be equally enjoyed by, and extended under the same conditions to, domestic banks. b. Philippine corporations, whose shares of stocks are listed in the PSE, or which are of long standing for at least ten (10) years, as determined by the Monetary Board, shall have the right to acquire, purchase or own up to sixty percent (60%) of the voting stock of a domestic bank: Provided , That said corporations, as well as foreign banks may own up to sixty percent (60%) of the voting stock of only one (1) domestic bank. SECTIONS X122-X125 (Reserved) F. Stock, Stockholders and Dividends SECTION X126. Shares of Stock of Banks . The following shall govern transactions affecting shares of stock of banks and the limits on stockholdings in a single bank or in several banks. SUBSECTION X126.1 Limits of stockholdings in a single bank . The stockholdings of an individual, family, corporate or business group in any bank shall be subject to the limits prescribed in Sections 11, 12, 13 and 14 of R.A. No. 8791. a. Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank: Provided , That the aggregate foreign-owned voting stock owned by foreign individuals and non-bank corporations in a domestic bank shall not exceed forty percent (40%) of the outstanding voting stock of the bank. The percentage of foreign-owned voting stock in a bank shall be determined by the citizenship of the individual stockholders in that bank. AaDSTH b. A Filipino individual and a domestic non-bank corporation may each own up to forty percent (40%) of the voting stock of a domestic bank. There shall be no ceiling on the aggregate ownership by such individuals and corporations in a domestic bank. c. A natural person and a corporation or corporations which are wholly-owned, or a majority of the voting stock of which is owned, by him may own only up to a combined forty-percent (40%) of the voting stock of a domestic bank. d. The right of Philippine corporations, however, under Section 8 of R.A. No. 7721, as implemented under Subsec. X121.12 shall continue to be in force and effect. e. Stockholdings of family groups or related interests. Individuals related to each other within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law, shall be considered family groups or related interests but may each own up to forty percent (40%) of the voting stock of a domestic bank: Provided , That said relationship must be fully disclosed in all transactions by such corporations or related groups or persons with the bank. f. Two (2) or more corporations owned or controlled by the same family group of same group of persons shall be considered related interests but may each own up to forty percent (40%) of the voting stock of a domestic bank: Provided , That said relationship must be fully disclosed in all transactions by such corporations or related groups of persons with the bank. g. Ceiling on stockholdings in a Coop Bank . The equity investment of any cooperative in any Coop Bank shall not exceed forty percent (40%) of the subscribed capital stock of such Coop Bank. h. Stockholdings in excess of ceilings. Unless otherwise allowed under existing laws, rules or regulations, any or all, as the case may be, of the above-mentioned stockholders owning more than forty percent (40%) of the voting stock of a KB or a UB shall comply with said ceiling within thirty (30) days from May 13, 2002. i. Determination of foreign-owned voting stock and citizenship of corporate stockholders in a bank as well as the relationship of stockholders of a bank. (1) The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of all the stockholders in that bank. (2) The citizenship of the corporation, which is a stockholder of a bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. For purposes hereof, the term "controlling stockholders" shall refer to stockholders holding more than fifty percent (50%) of the voting stock of the corporate stockholders of the bank. (3) The relationship of individuals who are stockholders of a bank shall be determined in accordance with the provisions of Articles 963 to 966 of the Civil Code of the Philippines. SUBSECTION X126.2 Transfer of shares . The following regulations shall govern transfer of voting shares of stocks in banks: a. Unlawful and void transactions involving voting stocks in banks . The following transactions, to the extent of the excess over any of the prescribed ceilings are hereby declared unlawful. DSATCI (1) The sale or transfer of voting stock of a UB, a KB or an RB 1 to any individual, if such sale or transfer, in itself, or in relation with another previous sale or transfer shall result in the ownership by an individual in excess of forty percent (40%) of the voting stock of the bank. (2) The sale or transfer of voting stock of banks to any individual or entity, if such sale or transfer, in itself, or in relation with another previous sale or transfer shall result in the ownership by foreign persons and/or foreign non-bank corporations in excess of forty percent (40%) of the voting stock in a UB or a KB and sixty percent (60%) in case of a TB. (3) The sale or transfer of voting stocks of UB or KB to any corporation, if such sale or transfer, in itself, or in relation with another previous sale or transfer shall result in the ownership by such corporation in excess of forty percent (40%) of the voting stock of the bank, unless allowed under R.A. No. 7721 and R.A. No. 8791. (4) The sale or transfer of voting shares of stocks of UBs or KBs or RBs 1 to (a) any natural person; and (b) any corporation or corporations which are wholly-owned or a majority of the voting stock of which is owned by such natural person if such sale of transfer in itself, or in relation with another previous sale or transfer, shall result in the combined ownership by such natural person and such corporations in excess of forty percent (40%) of the voting stock of the bank, unless allowed under R.A. No. 7721 and R.A. No. 8791. (5) Any arrangement, such as voting trust agreement or proxy, which vests in any person or corporation the right to vote or control voting stocks in banks, if such agreement in itself, or in relation with another previous similar agreement or previous sale or transfer shall result in the acquisition of control, in excess of the prescribed limitations. b. Duties of a corporate secretary . In all transactions, which may lawfully come to the knowledge of the corporate secretary involving transfer of voting shares of stock or registration of voting trust agreements, or any form of agreement vesting the right to vote the voting shares of stock of the bank, the corporate secretary shall: (1) ascertain the identity and citizenship of the transferee, voting trustee, proxy or person vested with the right to vote, and for this purpose, he should require the transferee, voting trustee, proxy or the person vested with the right to vote to submit proof of citizenship, which may consist, in case of a corporation, of a certified true copy of the articles of incorporation, accompanied by the affidavit of the corporate secretary of the corporation, certifying to the correctness and accuracy of the list of stockholders and the percentage of shares owned by them; (2) require the transferee, voting trustee, proxy or person vested with the right to vote, at the time of the receipt of the request for transfer or registration, or at any time thereafter, to disclose all information with respect to persons related to the transferee, voting trustee, proxy or person vested with the right to vote, within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law, as well as corporations, partnerships or associations where the transferee, voting trustee, proxy or person vested with the right to vote has controlling interest, and the extent thereof; (3) require the transferee to execute an affidavit (sample format shown in Appendix 4) stating, among other things, that the transferee is a bona fide owner of shares of stock and that he acknowledges full awareness of the requirements of the law and the prohibitions against exceeding ownership of voting stocks beyond the prescribed limitations. If the request for transfer or the arrangement sought to be registered will patently cause the voting stocks of a person or a corporation, to exceed the limits prescribed by law, the corporate secretary shall deny the transfer or registration and forthwith inform the parties to the transaction in writing. Simultaneous with the notice to the parties, the corporate secretary shall submit a written report to the Governor of the BSP of the attempted illegal transfer or arrangements, together with the names, addresses of parties and other pertinent data with respect to the particular stock transaction. In the event the corporate secretary has reason to doubt the legality of the transfer or of the arrangement sought to be registered, he may commence an action before the appropriate body; (4) promptly inform stockholders who have reached any of the ceilings imposed by law, of their ineligibility to own or control more than the applicable ceiling; and (5) disclose the ultimate beneficial owners of bank shares held in the name of Philippine Central Depository (PCD) Nominee Corporation in the quarterly report on Consolidated List of Stockholders and Their Stockholdings which report shall be made under oath by the authorized bank officers/signatories. Any violation of the provision of this Subsection shall be subject to a penalty of P30,000 per day until the correct report is submitted to the BSP. c. Transfers requiring prior Monetary Board approval (1) Prior approval of the Monetary Board shall be required on the following: (a) Any sale or transfer or series of sales or transfers which will result in ownership or control of more than twenty percent (20%) of the voting stock of a bank by any person whether natural or juridical or which will enable such person to elect, or be elected as, a director of such bank; and (b) Any sale or transfer or series of sales or transfers which will effect a change in the majority ownership or control of the voting stock of the bank from one (1) group of persons to another group: Provided , That in no case shall such sale or transfer be approved unless the bank concerned shall immediately comply with the prescribed minimum capital requirement for new banks, notwithstanding any approved capital build-up program. In the case of TBs, the foregoing requirements shall be suspended for the duration of the moratorium on ownership ceilings under Subsec. 2127.1 or until lifted by the Monetary Board. In lieu of prior Monetary Board approval, notice of the sale or transfer shall be given to the Monetary Board for its notation through the appropriate supervising and examining department. cSaADC (2) For purposes of these regulations, the sale or transfer of voting stock shall refer to sales or transfers of voting stock which are allowed under existing laws or BSP rules and regulations and which have not been registered/recorded in the transfer book/stock ledger or other records of banks. (3) Sanctions . Any violation of the provisions under Items "c(1)(a)" and "(b)" above shall be subject to the sanctions prescribed under Sections 36 and 37 of R.A. No. 7653, without prejudice to the appropriate legal actions for the rescission and invalidation of the sale or transfer. d. Requirement for newly established banks . Entities which may hereinafter apply for a license to engage in banking business shall, before being allowed to operate, submit (1) An alphabetical list of stockholders with the number and percentage of voting stock owned by them; and (2) A separate list containing the names of persons who own voting stocks in banks and who are related to each other within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law, with proper indication of the combined percentage of voting stocks held by them in the particular bank, as well as corporations which are wholly-owned or a majority of the stock of which is owned by any of such persons, including their subsidiaries. SUBSECTION X126.3 Other foreign equity investment in domestic banks . Except as otherwise covered under Sec. X121 and Subsec. X126.1, the following guidelines shall be observed on equity investments of foreigners in domestic banks: a. The prior authority of the Monetary Board shall be obtained by foreign banks, including their subsidiaries and their holding companies having majority holdings in such foreign banks, whenever acquiring more than forty percent (40%) of the voting stock of a domestic bank, including foreign-owned shares outstanding and foreign-held as of April 27, 1973 and which continued to be held by the foreign stockholder up to the date of the acquisition by the foreign banks. b. (Deleted by Cir. No. 256 dated 8.15.00) c. The prior authority of the Monetary Board is not required if the foreign investor is (1) an individual, (2) a non-financial entity, or (3) a non-bank financial entity which is not owned or controlled by a bank, its subsidiary or holding company, and the investor is acquiring foreign-owned shares in existing domestic banks: Provided , That said shares were outstanding and foreign-held as of April 27, 1973 and which continued to be foreign-held up to the date of acquisition by the foreign investor. d. The maximum stockholdings foreigners may own in domestic banks shall continue to be governed by existing provisions of law. e. Only foreign-owned shares directly funded by inward remittance of foreign exchange sold to the local banking system are qualified for registration with the BSP through its appropriate department for capital, repatriation and remittance of profits/dividends privileges, in accordance with existing BSP rules and regulations. SUBSECTION X126.4 Convertibility of preferred stock to common stock . Out of the convertible preferred shares of stock which KBs/TBs may henceforth be authorized to issue, at least fifty percent (50%) of each such issue, shall be convertible into common stock at the option of the holders thereof after five (5) years from date of issue: Provided , however , That: a. The bank concerned may allow the conversion of such preferred stock into common stock even before the lapse of five (5) years from date of issue; b. At the time of the sale of the preferred stock, both classes thereof (one with convertibility feature and the other without convertibility feature) shall be offered to the purchasers, with the purchasers having the option to acquire either or both classes of preferred stock; and c. Preferred shares of stock with a cumulative feature issued by banks shall automatically be convertible into common shares of stock at the option of the holders thereof whenever the right as may be acquired by the holders by virtue of such cumulative feature are not satisfied by the bank within a period of three (3) years from date of issue. SUBSECTION X126.5 Issuance of redeemable shares conditions; certification and report; sanctions a. Conditions . Banks may issue redeemable shares subject to the following conditions: (1) The applicant bank prior to the approval of the amendment of articles of incorporation to issue redeemable preferred shares, has complied with the requirements under Items "B1" to "B6", Appendix 5. The articles of incorporation of an applicant bank shall incorporate the conditions in Items "a (3)(a)", "a(3)(b)", "a(3)(c)" and "a(3)(d)" of this Subsection. (2) The applicant bank prior to the issuance of redeemable shares shall comply with, in addition to the conditions in Item "(1)" above, the requirements under Items "B7", "B8", and "B12" to "B16". Appendix 5. (3) The applicant bank after the issuance of redeemable shares shall comply with the following: (a) Redemption of shares shall be allowed at the specific dates or periods fixed for redemption only upon prior approval of the BSP and only if the shares redeemed are replaced with at least an equivalent amount of newly paid-in shares so that the total paid-in capital stock is maintained at the same level immediately prior to redemption: Provided , That the redemption shall not be earlier than five (5) years after the date of issuance: Provided , further , That such redemption may not be made where the bank is insolvent or if such redemption will cause insolvency, impairment of capital or inability of the bank to meet its debts as they mature; (b) A sinking fund for the redemption of preferred shares is to be created upon their issuance. This is to be effected by the transfer of free surplus to a restricted surplus account. The fund shall not be available for dividends. The guidelines for the establishment and administration/management of sinking fund for the redemption of redeemable private preferred shares are shown in Appendix 47. (c) The issuing bank shall not treat in any way redeemable preferred shares as time deposit, deposit substitute or other form of borrowings; SECIcT (d) No dividend shall be declared or paid on redeemable shares in the absence of sufficient undivided profits, free surplus and approval of the BSP; (e) The issuing bank shall execute within ten (10) days after the first issuance a Deed of Undertaking (see Appendix 42), to be signed by its directors and principal officers, binding them to comply with the requisites and conditions set forth in Items "(a)" to "(d)" above; and (f) The conditions in Items "(3)(a)", "(3)(b)", "(3)(c)" and "(3)(d)" above shall be incorporated in the certificates of stock. b. Certification and Report . The bank shall submit within fifteen (15) days after every issuance of at least twenty percent (20%) of the redeemable shares whether issued in series or at one time, a certification signed by its President/Chairman under oath, stating that the requirements under Items "a(1)" and "a(2)" above, including all other conditions that the BSP may impose, have been complied with. The applicant bank shall, not later than ten (10) banking days from the end of reference year, submit a yearly report of issuances of preferred shares to the appropriate supervising and examining department of the BSP indicating therein the name/s of the subscriber/s, the date the shares were issued and the number/amount of shares issued. c. Sanctions . Any violation of the foregoing provisions shall be subject to the following sanctions: (1) On the bank: (a) For failure to comply with Items "a(3)(a)" to "a(3)(d)" above: i. Suspension of branching privilege; ii. Prohibition against granting of new unsecured loans to DOSRI; iii. Prohibition against declaration of dividends; iv. Denial of access to BSP rediscounting facilities; v. Revocation of authority to accept government deposits and to handle government funds as a result of agency agreements with the BIR, SSS, etc. (b) For failure to infuse capital in an amount at least equivalent to amount of redeemed shares as required in Item "a(3)(a)": i. Sanctions in Item "(a)" above; ii. No new loans and investments, except in government securities; iii. P1,000 fine per banking day until the required infusion is made. (c) If the certification submitted by the bank required in these guidelines is found to be false, suspension of authority to issue preferred shares for one (1) year. (d) For failure to submit report of issuance of redeemable preferred shares, a fine of P1,200 for UBs/KBs; P600 for TBs; and P180 for RBs/Coop Banks per banking day of default until the report is submitted. (2) On the directors and officers: (a) For violation of any of the terms of the Deed of Undertaking, the following shall be imposed against the officers and directors of the bank who signed the deed: i. First offense A fine of P500 per day for each violation from the time the violation was committed or up to the time the violation is corrected; ii. Second and subsequent offenses A fine of P5,000 per day from the time the violation was committed up to the time the violation is corrected. (b) If the certification submitted by the bank as required in these guidelines is found to be false, a fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false, shall be imposed against the certifying officer. SUBSECTION X126.6 Stock options/warrants . A bank may grant options/warrants to subscribe at par to its capital stock: Provided , That: a. Provisions authorizing such options/warrants shall be embodied in its articles of incorporation and in its by-laws; and b. Such options/warrants may be granted for a maximum period of three (3) years from the date such options/warrants become effective. SUBSECTIONS X126.7-X126.9 (Reserved) SUBSECTION X126.10 Dealings with stockholders and their related interests . Dealings of a bank with any of its stockholders and their related interests shall be upon terms not less favorable to the bank than those offered to others. Towards this end, every natural person acquiring shares cumulatively amounting to at least two percent (2%) of the total subscribed capital of a domestic bank must disclose all relevant information on all persons related to him within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common law as well as corporations, partnership or associations where he has controlling interests. A corporation acquiring shares amounting to at least two percent (2%) of the total subscribed capital of a domestic bank must disclose its controlling stockholder or group of stockholders as-well as the corporations, partnerships or associations where such controlling stockholder or group of stockholders have controlling interest. The foregoing information shall also be disclosed in cases of the following transactions: availment of credit facility from the bank; purchase or sale of asset from/to the bank; leasing property from or to the bank; providing janitorial, messengerial, security and other services to the bank; and such other transactions as may be required to be disclosed by the Monetary Board. Where the stockholdings of such individual/organization together with his/its related interests amount to at least two percent (2%) of the, total subscribed capital stock of the bank, the foregoing transactions shall be subject to the procedural requirements and the reportorial requirements prescribed under Secs. X334 and X335, respectively. cHITCS SECTION 1127. Shares of Stock of Universal/Commercial Banks . The following guidelines shall also govern shares of stock in UBs and KBs. SUBSECTION 1127.1 Limits on stockholdings in several banks . Stockholders affiliated to each other through a common interest herein termed a business group or any corporation or association majority or all of the equity of which is owned by a business group may not control more than one (1) KB nor more than one (1) UB or both. Any natural person, or a family group, who, together, with any corporation majority or all of the equity of which is owned by such person or family group, owns more than forty percent (40%) of the voting stock of any UB or KB may not acquire more than forty percent (40%) of the voting stock in any other UB or KB, even if the shares of stock are being acquired from a natural person in a single transaction and the stockholding is in excess of forty percent (40%) of the bank's voting stock. For purposes of determining applicability of the limitations provided in this Section, stockholders shall be deemed as affiliated to each other through common business interest or a business group in cases where the holdings of such stockholders altogether constitute a majority or control in one (1) or more enterprises. SUBSECTIONS 1127.2-1127.5 (Reserved) SECTION 2127. Shares of Stock of Thrift Banks . The following regulations shall also govern shares of stock in TBs. SUBSECTION 2127.1 Moratorium on ownership ceilings . Stockholdings in a TB shall be exempt from the ownership ceilings prescribed under Subsec. X126.1 until March 16, 2005. SUBSECTION 2127.2 Preferred shares . Private development banks may also issue ordinary preferred shares of stock to private persons, other than the preferred stock representing government counterpart capital contribution: Provided , That said preferred stock sold to private persons shall be governed by the pertinent BSP regulations for preferred stock issued to private investors. Preferred shares of stock of private development banks held by DBP/LBP and sold thereafter to private persons may, at the option of the purchasers, be retained with the same rights as when such shares of stock were held by DBP/LBP, or converted at not less than par to common shares or to ordinary preferred shares of the class issued to private shareholders. SUBSECTIONS 2127.3-2127.5 (Reserved) SECTION 3127. Shares of Stock of Rural Banks and Cooperative Banks . The following rules shall govern stockholdings in RBs and Coop Banks. SUBSECTION 3127.1 Moratorium on ownership ceilings . Stockholdings in an RB shall be exempt from the ownership ceilings for a period of ten (10) years from April 2, 1992: Provided , That any exemption shall require the approval of the Monetary Board: Provided , further , That such exemption shall be valid up to April 2, 2002 only and therefore by such date, the stockholdings should have been reduced to within the prescribed ceilings under Section 11 of R.A. No. 8791, as provided for under Subsec. X126.1. Any request for exemption from the prescribed ownership ceilings of individual/non-bank/corporate stockholdings shall be submitted to the Monetary Board for approval through the appropriate supervising and examining department of the BSP and the exemption shall be reflected in the required report on stock transactions. In cases where unsubscribed shares of stock are sold to any person other than the existing stockholders, the bank's corporate secretary shall execute a certificate under oath that all the pertinent requirements of the Corporation Code on a valid stock transfer/subscriptions have been complied with. SUBSECTION 3127.2 Government-held shares . The articles of incorporation of RBs or the articles of cooperation of Coop Banks shall provide for: (a) common stock with the power to vote; (b) preferred stock to represent the counterpart capital of the LBP, DBP or any government-owned or controlled bank or financial institution, which shall be non-voting and preferred as to assets upon liquidation; and (c) preferred stock with such rights, voting powers, preferences and restrictions, as may be approved by the Monetary Board. Preferred and common stocks shall have a minimum par value of ten pesos (P10) per share: Provided , That this requirement shall not apply to existing RBs whose par value per share of stock is less than ten pesos (P10). An RB may not issue no-par value stock. For Coop Banks, preferred and common shares shall have a minimum par value of P1,000 per share for national Coop Banks; and P100 per share for local Coop Banks: Provided , That a Coop Bank may not issue no-par value shares. The LBP, the DBP, or any government-owned or controlled bank or financial institution, on representation of the said private shareholders but subject to the investment guidelines, policies and procedures of the bank or financial institution and upon approval of the Monetary Board, shall subscribe to the capital stock of any RB/Coop Bank, which shall be paid in full at the time of subscription in an amount equal to the fully paid subscribed and unimpaired capital of the private shareholders or such amount as the Monetary Board may prescribe as may be necessary to promote and expand rural economic development and/or cooperative movement. SUBSECTION 3127.3 Limits on stockholdings in several rural banks . Any individual and/or his wholly or majority-owned corporation or non-bank corporations may own up to 100% of the voting stock in three (3) RBs: Provided , That the individual and/or its subsidiary/ies, may thereafter own shares in any number of other RBs only to such an extent as would not enable this group of investors to elect by virtue of its shareholdings a director of each additional RB. SUBSECTION 3127.4 Convertibility of preferred stock to common stock . RBs may convert their unissued preferred shares into common stock. In the case of sale by the DBP, LBP or any government-owned or controlled bank or financial institution of preferred stock to private persons, such stock may be converted into common stock: Provided , That pending amendment of the bank's articles, of incorporation, if necessary for the purpose of reflecting the conversion, the transfer shall be recorded by the bank in its stock and transfer book and such shareholders shall thereafter enjoy all the rights and privileges appurtenant to the converted stock. The certificates for the government preferred stocks so transferred shall be surrendered and cancelled and the corresponding common stock certificates shall be issued. The corporate secretary of the bank shall submit to the appropriate supervising and examining department and the SEC a report of every transfer of preferred stock from the LBP, DBP or any government-owned or controlled bank or financial institution to private shareholders within five (5) banking days from the date of such transfer. When all the preferred shares of stocks held by the LBP, DBP or any government-owned or controlled bank or financial institution have been sold to private shareholders, the bank's articles of incorporation shall be amended to reflect the conversion, if any, of the preferred shares of stock into common stock. For this purpose, a certificate that all preferred shares have been sold and transferred to private shareholders shall be issued, duly signed by the president, the corporate secretary, and a majority of the board of directors. The bank shall submit copies of such certificate and the amended articles of incorporation to the BSP for the issuance of a certificate of authority for the purpose of registering the amended articles with the SEC. IDcAHT SUBSECTION 3127.5 Equity investment by holding corporations . With the exception of shareholdings of non-bank corporations in the equities in RBs as provided for under Section 11 of R.A. No. 8791, and of Filipino-controlled domestic banks, the capital stock of any RB shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock. The equity investment of any non-bank corporation in any RB shall not exceed forty percent (40%) of the voting stock of such RB. A holding corporation for purposes of this Subsection shall refer to a corporation primarily organized to hold equities in RBs. SECTION X128-X135 (Reserved) SECTION X136. Dividends . Pursuant to the first paragraph of Section 57 of R.A. No. 8791, and on the underlying principle that no bank shall, while it continues in operation, withdraw or permit to be withdrawn, either in the form of cash dividends or otherwise, any portion of its capital, the following regulations on the declaration of dividends by banks shall govern. SUBSECTION X136.1 Definitions . For purposes of this Section, the following definitions shall apply: a. Bad debts shall include any debt on which interest is past due for a period of six (6) months, unless it is well secured and in process of collection. A loan payable in installments with an automatic acceleration clause shall be considered a bad debt within the contemplation of this Subsection where installments or amortizations have become past due for a period of six (6) months, unless the loan is well secured and in process of collection. For a loan payable in installment without an acceleration clause, only the installments or amortizations that have become past due for a period of six (6) months and which are not well secured and in the process of collection shall be considered bad debts within the contemplation of this Section. b. Well secured A debt shall be considered well secured (or fully secured), if it is covered by collateral in the form of a duly constituted mortgage, pledge, or lien on real or personal properties, including securities, having a loan value sufficient to discharge the debt in full, including accrued interest and other pertinent fees and expenses. c. In process of collection A debt due to a bank shall be considered in process of collection when it is the subject of continuing extrajudicial or judicial proceedings aimed towards its full settlement or liquidation or otherwise to place it in current status. The extrajudicial proceedings, such as the writing of collection or demand letters, must have been initiated by the bank and/or its lawyers before the interest or installments or amortizations on the debt have become past due and unpaid for a period of six (6) months. The debt shall continue to be considered in process of collection for a period of six (6) months counted from date of the first collection or demand letter and if, within this period, the debtor fails to make a payment of at least twenty percent (20%) of the outstanding balance of the principal on his account, plus all interest which may have accrued thereon, the same shall automatically be classified as bad debts unless judicial proceedings are instituted. The debt shall continue to be considered in process of collection during the pendency of the judicial proceedings. When judgment against the debtor has been obtained, the bank must be active in enforcing the judgment for the debt to continue to be considered in process of collection. SUBSECTION X136.2 Requirements on the declaration of dividends . Before any declaration of dividends, banks shall comply with the following: a. Minimum capitalization requirement and net worth to risk assets ratio; b. Legal reserves; c. Liquidity floor; and d. EFCDU/FCDU cover. For purposes of this Subsection, the prescribed duration of compliance shall be reckoned from the last eight (8) weeks immediately preceding the date of dividend declaration up to the record date of said dividend. SUBSECTION X136.3 Net amount available for dividends . The net amount available for dividend shall be the total of unrestricted or free earned surplus and undivided profits less: a. Bad debts against which valuation reserves are not required to be set up; b. Unbooked valuation reserves, and other unbooked capital adjustments required by the BSP, whether or not allowed to be set up on a staggered basis; c. Deferred income tax as defined under item j of Subsec. X116.1; d. Accumulated profits not yet received but already recorded by a bank representing its share in profits of its subsidiaries under the equity method of accounting; e. Accrued interest as required to be excluded pursuant to Item d of Subsec. X305.4; and f. Amount required to be transferred to Surplus Reserves - Reserve for Trust Business account pursuant to Section 66 of R.A. No. 337, as amended. For purposes of this Subsection, any balance of Paid-in Surplus account may be included in the amount available for stock dividends. SUBSECTION X136.4 Reporting and verification Declaration of dividends shall be reported by the bank concerned to the appropriate supervising and examining department of the BSP in the prescribed form within the deadline indicated in Appendix 6 . Pending verification of above-mentioned report by the appropriate supervising and examining department of the BSP, the bank concerned shall not make any announcement or communication on the declaration of dividends nor shall any payment be made thereon. Banks, however, whose shares are listed with any domestic stock exchange may declare dividends and give immediate notice of such declaration to the SEC and the stock exchanges, in compliance with pertinent rules of SEC: Provided , That no record date is fixed for such dividend pending verification of the report on such declaration by the appropriate supervising and examining department of the BSP. In any case, the declaration may be announced and the dividends paid, if after thirty (30) banking days from the date the report required herein shall have been received by the BSP, no advice against such declaration has been received by the bank concerned. SUBSECTION X136.5 Recording of dividends The liability for dividends declared shall be taken up in the books upon receipt of BSP approval thereof, or if no such approval is received, after thirty (30) banking/business days from the date the required report on dividend declaration was received by the appropriate supervising and examining department of the BSP, whichever comes earlier. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors and for full disclosure purposes, the dividends declared may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the dividend declaration is subject to review by the BSP. Dividends of all kinds, whether on common or on preferred shares of stock, should not be treated as interest expense, considering that as a general policy, only irredeemable stock may be issued by banks. SUBSECTION X136.6 Issuance of fractional shares Whenever the declaration of stock dividend results in the issuance of fractional shares, banks may observe the following guidelines: a. The amount corresponding to the fraction should be given in the form of cash dividend; and b. The certificate of stock issued should be in whole numbers, and the fractional shares shall be issued in the form of scrip certificates. In no case shall the certificate of stock be issued including such fractional share. The scrip certificate is temporary in nature and should be redeemed in cash when the bank is in a position to do so, or stockholders holding such scrip certificates may negotiate with other stockholders for the purchase or sale of such shares to convert them into full shares, subject to the limitations on stockholdings as provided by law. SECTION 1137. ( Reserved ) SECTION 2137. ( Reserved ) SECTION 3137. Limitations/Amount Available on Dividends Declared by Rural Banks and Cooperative Banks . The following rules shall also govern the declaration of dividends by RBs and Coop Banks. a. RBs . In addition to the requirements prescribed in Sec. X136, an RB may declare cash dividends only if the amount of its reserve for retirement of government preferred stock is at least equal to the amount which should have been accumulated had the bank transferred annually to the reserve account from its undivided profits an amount equal to at least an average of one-tenth (1/10) of the total amount of preferred stock. In no case shall cash dividends be declared whenever any of the following circumstances is present: (i) Arrearages in its obligations with the BSP amount to P1 million or more unless covered by an approved plan of payment which is being fully complied with: Provided, however , That cash dividends shall not exceed ten percent (10%) per annum; and (ii) Past due loans comprise twenty-five percent (25%) or more of the total loan portfolio at any time during the last six (6) months prior to the dividend declaration. b. Coop Banks (1) Interest on share capital (a) Interest on share capital shall be declared only upon compliance with the requirements prescribed under Sec. 3137a. (b) Government preferred shares shall be entitled to interest as enumerated in Subsec. 3137.1: Provided, That no cumulative interest shall be allowed for any kind or class of share issued by the Coop Bank. Unless otherwise provided for in the by-laws of the Coop Bank, the share capital shall earn interest at the rate computed as follows: Rate of Interest = X (Net Surplus less Statutory Reserves) - (Total Average Share Month) where: (i) "X" shall be a percentage to be determined by the board of directors allocated for interest on share capital; and (ii) "Statutory Reserves" shall refer to Article 87 of R.A. No. 6938. No allocation of interest on share capital shall be made without the approval of the general assembly which may increase or decrease any or both. (2) Patronage refund (a) The amount allocated for patronage refund shall not be less than thirty percent (30%) of the net surplus after deducting the statutory reserves based on the principle of equity; (b) The rate of patronage refund shall not be more than twice the rate of interest on share capital; (c) The sum allocated for patronage refunds shall be made available at the same rate to all cooperative patrons of the Coop Bank in proportion to their individual patronage: Provided , That (i) In the case of a cooperative member patron with paid-up share capital contribution, its proportionate amount of patronage refund shall be paid unless it agrees to credit the amount to its account as additional share capital contribution; (ii) In the case of a cooperative member patron with unpaid share capital contribution, its proportionate amount of patronage refund shall be credited to its share capital contribution; (iii) In the case of a non-member patron, its proportionate amount of patronage refund shall be set aside in a general fund for such patrons and shall be allocated to non-member patrons only upon request and presentation of evidence of the amount of its patronage. The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership. When a sum equal to this amount has accumulated at any time within a period specified in the by-laws, such patron shall be deemed and become a member of the Coop Bank if it so agrees or requests and complies with the provisions of the bylaws for admission to membership; and (iv) If within any period of time specified in the by-laws, any subscriber who has not fully paid his subscribed share capital or any non-member patron which has accumulated the sum necessary for membership but does not request nor agree to become a member or fails to comply with the provision of the by-laws for admission to membership, the amount so accumulated or credited to their account together with any part of the general fund for non-member patrons shall be credited to the reserve fund or to the education and training fund of the Coop Bank. SUBSECTION 3137.1 Dividends on government shares a. Held prior to June 9, 1992 . Whenever dividend of not less than fourteen percent (14%) are declared on common stock, government preferred stock shall be entitled to a cash dividend not to exceed two percent (2%) of total outstanding preferred stock. Should the dividends declared on common stock be less than fourteen percent (14%), the dividend on preferred stock shall be proportionately reduced. b. Held on or after June 9, 1992 . Shares held by the LBP, DBP, or by any government-owned or -controlled bank or financial institution shall share in dividend distributions from the date of issuance in the amount of four percent (4%) on the first and second years; six percent (6%) on the third and fourth years; eight percent (8%) on the fifth and sixth years; ten percent (10%) on the seventh and eighth years; and twelve percent (12%) on the ninth to the fifteenth years, which shall be cumulative: Provided , That the RB and the government-owned or -controlled bank are not precluded from entering into an agreement providing for rates of dividends other than those prescribed by law. cIECTH SECTIONS X138-X140 (Reserved) G. Directors, Officers and Employees SECTION X141. Definition and Qualifications of Directors; Responsibilities and Duties of Board of Directors . For purposes of this Section, the following shall be the definition and qualifications, responsibilities and duties of directors and board of directors, respectively. SUBSECTION X141.1 Definition/limits a. Definition of directors . Directors shall include: (1) directors who are named as such in the articles of incorporation; (2) directors duly elected in subsequent meetings of the stockholders; and (3) those elected to fill vacancies in the board of directors. b. Limits on the number of the members of the board of directors . Pursuant to Sections 15 and 17 of R.A. No. 8791, there shall be at least five (5), and a maximum of fifteen (15) members of the board of directors of a bank two (2) of whom shall be independent directors: Provided , That in case of a bank merger or consolidation, the number of directors may be increased up to twenty-one (21). An independent director shall mean a person who (1) Is not or has not been an officer or employee of the bank its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election; (2) Is not a director or officer of the related companies of the institution's majority stockholder; (3) Is not a majority shareholder of the institution, any of its related companies, or of its majority shareholder; (4) Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any director, officer or majority shareholder of the bank or any of its related companies; (5) Is not acting as a nominee or representative of any director or substantial shareholder of the bank, any of its related companies or any of its substantial shareholders; and, (6) Is free from any business or other relationship with the institution or any of its major stockholders which could materially interfere with the exercise of his judgment, i.e., has not engaged and does not engage in any transaction with the institution, any of its related companies or any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and could not materially interfere or influence with the exercise of his judgments. Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank: Provided , That pursuant to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the directors must be residents of the Philippines. The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-conferencing as long as the director who is taking part in said meetings can actively participate in the deliberations on matters taken up therein: Provided , That every member of the board shall be physically present in at least fifty percent (50%) of all board meetings in every year. SUBSECTION X141.2 Qualifications of a director A director shall have the following minimum qualifications: a. He shall be at least twenty-five (25) years of age at the time of his election or appointment; b. He shall beat least a college graduate or have at least five (5) years experience in business; c. He must have attended a special seminar for board of directors conducted or accredited by the BSP: Provided , That incumbent directors as well as those elected after September 17, 2001 must attend said seminar on or before December 31, 2002 or within a period of six (6) months from date of election for those elected after December 31, 2002, as the case may be; and d. He must be fit and proper for the position of a director of the bank. In determining whether a person is fit and proper for the position of a director, the following matters must be considered: integrity/probity, competence, education, diligence and experience/training. The foregoing qualifications for directors shall be in addition to those required or prescribed under R.A. No. 8791 and other existing applicable laws and regulations. SUBSECTION X141.3 Powers/responsibilities and duties of directors a. Powers of the board of directors . The corporate powers of a bank shall be exercised, its business conducted and all its property shall be controlled and held by its board of directors. The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders. The directors hold their office charged with the duty to act for the bank in accordance with their best judgment. b. General responsibility of the board of directors . The position of a bank director is a position of trust. A director assumes certain responsibilities to different constituencies or stakeholders, i.e., the bank itself, its stockholders, its depositors and other creditors, its management and employees, and the public at large. These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. The board of directors is primarily responsible for the corporate governance of the bank. To ensure good governance of the bank, the board of directors should establish strategic objectives, policies and procedures that will guide and direct the activities of the bank and the means to attain the same as well as the mechanism for monitoring management's performance. While the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of directors is, however, responsible for monitoring and overseeing management action. c. Specific duties and responsibilities of the board of directors (1) To select and appoint officers who are qualified to administer the bank's affairs effectively and soundly and to establish adequate selection process for all personnel . It is the primary responsibility of the board of directors to appoint competent management team at all times. The board of directors should apply fit and proper standards on key personnel. Integrity, technical expertise and experience in the institution's business, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board's choice should share its general operating philosophy and vision for the institution. The board of directors shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders. cTaDHS (2) To establish objectives and draw up a business strategy for achieving them . Consistent with the institution's objectives, business plans should be established to direct its on-going activities. The board should ensure that performance against plan is regularly reviewed, with corrective action taken as needed. (3) To conduct the affairs of the institution with high degree of integrity . Since reputation is a very valuable asset, it is in the institution's best interest that in dealings with the public, it observes a high standard of integrity. The board of directors should prescribe corporate values, codes of conduct and other standards of appropriate behaviour for itself, the senior management and other employees. Among others, activities and transactions that could result or potentially result in conflict of interest, personal gain at the expense of the institution, or unethical conduct shall be strictly prohibited. It should provide policies that will prevent the use of the facilities of the bank in furtherance of criminal and other illegal activities. (4) To establish and ensure compliance with sound written policies . The board should adopt written policies on all major business activities, i.e., investments, loans, asset and liability management, business planning and budgeting. A mechanism to ensure compliance with said policies shall also be provided. (5) To prescribe a clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors . The board should establish in writing the limits of the discretionary powers of each officer, committee, sub-committee and such other group for the purpose of lending, investing or committing the bank to any financial undertaking or exposure to risk at any time. The board should have a schedule of matters and authorities reserved to it for decision; such as: major capital expenditures, equity investments and divestments. (6) To effectively supervise the bank's affairs . The board of directors should establish a system of checks and balances which applies in the first instance to the board itself. Among the members of the board, an effective system of checks and balances must exist. The system should also provide a mechanism for effective check and control by the board over the chief executive officer and key managers and by the latter over the line officers of the bank. (7) To monitor, assess and control the performance of management . The board shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. For this purpose, it may constitute a governance committee. (8) To adopt and maintain adequate risk management policy . The board of directors shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. The risk management policy shall include: (a) a comprehensive risk management approach; (b) a detailed structure of limits, guidelines and other parameters used to govern risk-taking; (c) a clear delineation of lines of responsibilities for managing risk; (d) an adequate system for measuring risk; and (e) effective internal controls and a comprehensive risk-reporting process. The board may constitute a committee for this purpose. (9) To constitute the following committees (optional for banks with net worth of less than P20 million but mandatory if a subsidiary of other banks) : (a) Audit committee, which shall be comprised of independent board members, preferably with accounting and finance experience. The audit committee provides oversight of the institution's internal and external auditors. It shall be responsible for the setting-up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. (b) Nomination committee. The nomination committee shall be composed of at least three (3) members of the board of directors, preferably all independent members. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors. (10) To meet regularly . To properly discharge its function, the board of directors shall meet regularly. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted. (11) To keep the individual members of the board and the shareholders informed . It is the duty of the board to present to all its members and to the shareholders a balanced and understandable assessment of the bank's performance and financial condition. It should also provide appropriate information that flows internally and to the public. All members of the board shall have reasonable access to any information about the institution. (12) To ensure that the bank has beneficial influence on the economy . The board has a continuing responsibility to provide those services and facilities which will be supportive of the national economy. (13) To assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the bank itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership. Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis. (14) To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations . To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer who shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee. EICSTa d. Specific duties and responsibilities of a director (1) To conduct fair business transactions with the bank and to ensure that personal interest does not bias board decisions . Directors should, whenever possible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality. (2) To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its depositors, investors, borrowers, other clients and the general public . A director must always act in good faith, with the care which an ordinarily prudent man would exercise under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders. (3) To devote time and attention necessary to properly discharge their duties and responsibilities . Directors should devote sufficient time to familiarize themselves with the institution's business. They must be constantly aware of the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations. If a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board. (4) To act judiciously. Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary. (5) To exercise independent judgment. A director should view each problem/situation objectively. When a disagreement with others occurs, he should carefully evaluate the situation and state his position. He should not be afraid to take a position even though it might be unpopular. Corollarily, he should support plans and ideas that he thinks will be beneficial to the institution. (6) To have a working knowledge of the statutory and regulatory requirements affecting the institution, including the content of its articles of incorporation and by-laws, the requirements of the BSP and where applicable, the requirements of other regulatory agencies . A director should also keep himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness. (7) To observe confidentiality . Directors must observe the confidentiality of non-public information acquired by reason of their position as directors. They may not disclose said information to any other person without the authority of the board. SUBSECTION X141.4 Confirmation of directors of UBs, KBs and TBs . The election/appointment of directors, whether incumbent or proposed, shall not be subject to Monetary Board approval but rather to Monetary Board confirmation. The election/appointment of the directors of UBs/KBs/TBs shall be deemed to have been confirmed by the BSP, if after sixty (60) banking days from receipt of the required reports, no advice against said election/ appointment is received by the bank concerned. In the case of RBs/Coop Banks, the appointment/election of directors shall require prior approval of the Monetary Board before they assume said positions. SUBSECTIONS X141.5-X141.8 (Reserved) SUBSECTION X141.9 Reports required . Banks shall furnish all of their directors with a copy of the specific duties and responsibilities of the board of directors prescribed under Items "b" and "c" Subsec. X141.3 within thirty (30) banking days from May 17, 2001 in cases of incumbent directors and at the time of election in cases of directors elected after such date. The directors concerned shall each be required to acknowledge receipt of the copies of such specific duties and responsibilities and shall certify that they fully understand the same. Copies of the acknowledgment and certification herein required shall be submitted in accordance with Appendix 6 . SUBSECTION X141.10 Sanctions . Without prejudice to the other sanctions prescribed under Section 37 of R.A. No. 7653 and to the provisions of Section 16 of R.A. No. 8791, any director of a bank who violates or fails to observe and/or perform any of the above responsibilities and duties shall for each violation or offense, be penalized as follows: For directors of Amount UBs/KBs P30,000 TBs/IBs 15,000 RBs/Coop Banks (national) 5,000 Coop Banks (local) 1,000 SECTION X142. Definition and Qualifications of Officers . For purposes of this Section, the following shall be the definition and qualification of officers. SUBSECTION X142.1 Definition of officers . Officers shall include the president, executive vice president, senior vice president, vice president, general manager, secretary, treasurer, trust officer and others mentioned as officers of the bank, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the bank (or any of its branches and offices other than the head office) either through announcement, representation, publication or any kind of communication made by the bank. A person holding the position of chairman, vice-chairman or any other position of the board who also performs functions of management such as those ordinarily performed by regular officers shall also be considered an officer. SUBSECTION X142.2 Qualifications of an officer . An officer shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age; and b. He shall be at least a college graduate, or have at least five (5) years experience in banking or trust operations or related activities or in a field related to his position and responsibilities, or have undergone training in banking or trust operations acceptable to the appropriate supervising and examining department of the BSP: Provided , however, That trust officers shall have at least two (2) years of actual experience or training in trust operations or fund management or other related fields; and ATaDHC c. He must be fit and proper for the position he is being proposed/appointed to. In determining whether a person is fit and proper for a particular position, the following matters must be considered: integrity/ probity, competence, education, diligence and experience/training. The foregoing qualifications for officers shall be in addition to those required or prescribed under R.A. No. 8791 and other existing applicable laws and regulations. SUBSECTION X142.3 Appointment of officers a. The appointment of officers of UBs/KBs/TBs with the rank of Senior Vice President (SVP) and above, whether incumbent or proposed, shall not be subject to Monetary Board approval but rather to Monetary Board confirmation. Appointment of officers below the rank of SVP shall be subject neither to Monetary Board approval nor Monetary Board confirmation. The appointment of above-mentioned officers shall be deemed to have been confirmed by the BSP, if after sixty (60) banking days from receipt of the required reports, no advice against said appointment has been received by the bank concerned. b. The appointment of officers of RBs/Coop Banks with the rank of Senior Vice President and up shall require prior approval of the Monetary Board before they assume said positions. SECTION X143. Disqualification of Directors and Officers . The following regulations shall govern the disqualification of bank directors and officers. SUBSECTION X143.1 Persons disqualified to become directors . Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from becoming directors: a. Permanently disqualified Directors/officers/employees permanently disqualified by the Monetary Board from holding director position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa, embezzlement, extortion, forgery, malversation, swindling and theft; (2) Persons who have been convicted by final judgment of the court for violation of banking laws; (3) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract; or (4) Directors, officers or employees of closed banks who were responsible for such institutions' closure as determined by the Monetary Board. b. Temporarily disqualified Directors/officers/employees disqualified by the Monetary Board from holding a director position for a specific/indefinite period of time. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate supervising and examining department when required pursuant to a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; (2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings, both regular and special, of the board of directors during their incumbency, or any twelve (12)-month period during said incumbency. This disqualification applies for purposes of the succeeding election; (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with a bank where he/she is a director or officer, or at least two (2) obligations with other banks/financial institution, under different credit lines or loan contracts, are past due pursuant to Sec. X306; (b) Obligations shall include all borrowings from a bank obtained by: (i) A director or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor, endorser or surety for loans from such financial institutions; (ii) The spouse or child under the parental authority of the director or officer; (iii) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director or officer; (iv) A partnership of which a director or officer, or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (v) 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 the foregoing Items "(i)", "(ii)" and "(iv)"; This disqualification shall be in effect as long as the delinquency persists. (4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not yet become final and executory; (5) Directors and officers of closed banks pending their clearance by the Monetary Board; (6) Directors disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such directors' election/reelection; (7) Directors who failed to attend the special seminar for board of directors required under Item "c" of Subsec. X141.2. This disqualification applies until the director concerned had attended such seminar; DIEcHa (8) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity; (9) Those under preventive suspension; and (10) Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a bank director/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. SUBSECTION X143.2 Persons disqualified to become officers a. The disqualifications for directors mentioned in Subsec. X143.1 shall likewise apply to officers, except those stated in Items "b(2)" and "b(7)". b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier or Chief Accountant is disqualified from holding or being elected or appointed to any of said positions in the same bank; and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch or office of a bank is disqualified from holding or being appointed to any of said positions in the same branch or office. c. In the case of UBs, KBs, and TBs, any appointive or elective official, whether full time or part time, except in cases where such service is incident to financial assistance provided by the government or government owned or -controlled corporations or in cases allowed under existing law. d. In the case of Coop Banks, any officer or employee of CDA or any elective public official, except a barangay official. e. Except as may otherwise be allowed under Commonwealth Act No. 108, otherwise known as "The Anti-Dummy Law", as amended, foreigners cannot be officers or employees of banks. SUBSECTION X143.3 Disqualification procedures a. Upon the establishment of any of the grounds for disqualification mentioned in Subsecs. X143.1 and X143.2, the office of the disqualified director or officer shall immediately become vacant, except in the case of delinquency in the payment of obligations wherein the director or officer concerned shall be given a grace period of thirty (30) days after such ground for disqualification has been established. b. All cases of disqualification shall be immediately reported to the board of directors of the institution concerned. If the ground for disqualification is delinquency in the payment of obligations, the report shall be made at the expiry of the thirty (30)-day grace period mentioned in Item "a" above. The board shall act on the report not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the Governor of the BSP through the appropriate supervising and examining department 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 bank only upon prior approval by the Monetary Board. SUBSECTION X143.4 Effect of non-possession of qualification or possession of disqualifications . Directors/officers elected or appointed without possessing the qualifications above-mentioned or possessing any of the disqualifications as enumerated herein, shall vacate their respective positions immediately. SUBSECTION X143.5 Confirmation of the election/appointments of directors and officers . The election/appointment of directors and officers of banks shall be subject to confirmation by the: Confirming Authority Position Level a. Monetary Board Directors, Senior Vice President and above of UBs and KBs, as well as Directors, Senior Vice President and above or equivalent rank of TBs, IBs, RBs and Coop Banks with total assets of at least P1 billion. b. A Committee to be Directors, Senior Vice composed of: President and above or The Deputy Governor- equivalent rank of TBs, IBs, SES RBs, and Coop Banks with Managing Directors total assets of less than of SE I and II P1 billion Directors of the concerned supervising and examining department of SES It is, however, understood that all cases of disqualification shall be elevated to the Monetary Board. If after evaluation, the Monetary Board finds grounds for disqualification, the director/officer so elected/appointed may be removed from office even if he/she has assumed the position to which he/she was elected. The election/appointment of all incumbent directors and officers of all types of banks as of September 17, 2001 not previously approved/confirmed by the Monetary Board shall be submitted to the BSP, through the appropriate supervising and examining department for confirmation. SUBSECTION X143.6 Watchlisting . To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as director or officer of a bank, the SES shall maintain a watchlist of disqualified bank/NBQB/trust entity directors/officers under the following procedures: a. Watchlist categories . Watchlisting shall be categorized as follows: (1) Disqualification File "A" (Permanent) Directors/officers/employees permanently disqualified by the Monetary Board from holding a director/officer position. (2) Disqualification File "B" (Temporary) Directors/officers/employees temporarily disqualified by the Monetary Board from holding a director/officer position. aTIEcA b. Inclusion of directors/officers/employees in the watchlist . Upon recommendation by the appropriate supervising and examining department, the inclusion of directors/officers/employees in watchlist disqualification files "A" and "B" on the basis of decisions, actions or reports of the courts, banks, NBQBs, trust entities, BSP, NBI or any other administrative agencies shall first be approved by the Monetary Board. c. Notification of directors/officers/employees . Upon approval by the Monetary Board, the concerned director/officer/employee shall be informed through registered mail, with registry return receipt card, at his/her last known address of his/her inclusion in the masterlist of watchlisted persons disqualified to be a director/officer in any financial institution under the supervision of the BSP d. Confidentiality . Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including banks, NBQBs and trust entities except with the authority of the person concerned and with the approval of the Deputy Governor, SES, the Governor, or the Monetary Board. e. Delisting . All delistings shall be approved by the Monetary Board upon recommendation of the appropriate supervising and examining department except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist Disqualification File "B" (Temporary) (a) After the lapse of the specific period of disqualification; (b) When the conviction by the court for crimes involving dishonesty, breach of trust and/or violation of banking laws becomes final and executory, in which case the director/officer/employee is re-listed to Watchlist Disqualification File "A" (Permanent); (c) Upon favorable decision or clearance by the appropriate body, i.e., court, NBI, bank, NBQB, trust entity or such other agency/body where the concerned individual had derogatory record; Directors/officers/employees delisted from the Watchlist Disqualification File "B" other than those upgraded to Watchlist Disqualification File "A" shall be eligible for reemployment with any bank. SECTION X144. Bio-data of Directors and Officers a. All banks shall submit to the appropriate supervising and examining department of the BSP a bio-data of their directors and officers after their election or appointment, in a prescribed form and within the deadline indicated in Appendix 6 . The bio-data shall be updated in any of the following instances: (1) Change in educational attainment, experience or additional qualifications in banking that will enhance the director's or officer's competence or will qualify him to his present position; (2) Promotion; and (3) Transfer to other banks. The bio-data shall be submitted only once. For purposes of updating, only the pertinent sections and pages shall be submitted to the BSP. b. Banks shall submit to the appropriate supervising and examining department of the BSP for evaluation, a list of the incumbent members of the board of directors and officers (chief executive officers down the line) after the annual election of the board of directors as provided in the bank's by-laws. Any change in the composition of the board of directors shall also be reported to the BSP after the election or appointment of a member. c. If after evaluation, the Monetary Board shall find grounds for disqualification, the director/officer so elected/appointed may be removed from office even if he/she has assumed the position to which he/she was elected/appointed pursuant to Section 9-A of R.A. No. 337, as amended. SECTION X145. 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 banks or between a bank and a non-bank financial intermediary; and (2) Without the need for prior approval of the Monetary Board, concurrent directorships between entities not involving an investment house shall be allowed in the following cases: (a) Banks not belonging to the same category: Provided , That not more than one (1) of the banks shall have quasi-banking functions; (b) A non-bank financial intermediary, other than an investment house, not performing quasi-banking functions, and a bank; (c) A bank not performing quasi-banking functions and an NBQB; and (d) A bank and one (1) or more financial institutions in each of which majority interest is held by the bank. For purposes of the foregoing, a husband and his wife shall be considered as one (1) person. b. Interlocking directorships and officerships (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder, there shall be no concurrent directorship and officership between banks or between a bank and a non-bank financial intermediary; and (2) Without need for prior approval of the Monetary Board, concurrent directorship and officership in a bank and one (1) or more of its subsidiary financial institutions other than an investment house, shall be allowed. c. Interlocking officerships (1) Except with prior approval of the Monetary Board, there shall be no concurrent officerships between banks or between a bank and non-bank financial intermediary, whether or not performing quasi-banking functions: HcSCED (a) Between a bank and one (1) or more of its subsidiary financial institutions; or (b) Between two (2) or more banks and their subsidiary non-bank financial intermediaries. (2) With prior approval of the Monetary Board, concurrent officerships may also be allowed between banks or between a bank and a non-bank financial intermediary other than an investment house: Provided , That at least twenty percent (20%) but less than majority of the equity of each of the banks and non-bank financial intermediaries is owned by a holding company or a bank and the interlocking arrangement is necessary for the holding company or the bank to provide technical expertise or managerial assistance to its affiliates and subject to the following conditions: (a) that the positions do not involve any functional conflict of interests; (b) that the position of chief executive officer may be held by a person in only one (1) financial intermediary; (c) that the officer involved, or his spouse or any of his relatives within the first degree of consanguinity or affinity or by legal adoption, or a corporation, association or firm wholly- or majority-owned or controlled by such officer or his relatives enumerated above, does not own in his/its own capacity more than twenty percent (20%) of the subscribed capital of the entities in which the bank has equity investments; and (d) that where any of the positions involved is held on full-time basis, adequate justification shall be submitted to the Monetary Board. For purposes of this Section, member of a group or committee, including sub-groups or sub-committees, whose duties include functions of management such as those ordinarily performed by regular officers, shall likewise be considered as officers. SUBSECTION X145.1 Representatives of government . The provisions of this Section shall not apply to persons appointed to such positions as representatives of the government or government-owned or controlled entities. SECTION X146. Profit Sharing Programs . Profit sharing programs adopted in favor of directors, officers and employees shall be reflected in the by-laws of the bank, subject to the following guidelines: a. The base in any profit sharing program shall be the net income for the year of the bank as shown in its Consolidated Statement of Income and Expenses for the year, net of the following: (1) All cumulative dividends accruing to preferred stock to the extent not covered by earned surplus; (2) Accrued interest receivable credited to income but not yet collected, net of reserves already set up for uncollected interest on loans; (3) Unbooked valuation reserves on loans or the amount required to update valuation reserves in accordance with the schedule approved by the Monetary Board, as well as all amortizations due on deferred charges; (4) Provisions for current year's taxes; (5) Income tax deferred for the year. Provided , however , That in case of reversal of deferred income taxes which were deducted from net income in computing for profit sharing of previous years, the deferred income tax reversed to expense shall be added back to net income to arrive at the base for profit sharing for the year during which the reversal is made; (6) Accumulated profits not yet received but already recorded by a bank representing its share in profits of its subsidiaries under the equity method of accounting; and b. The bank may provide in its by-laws for other priorities in the computation of net profits for purposes of profit sharing: Provided , That in no case shall profit sharing take precedence over any of the items in the preceding paragraph; and c. Prior approval of the Monetary Board shall be necessary before a bank which has received financial assistance from the BSP may implement its profit sharing program. Financial assistance shall refer to emergency loans and advances and such other forms of credit accommodations which are intended to provide banks with liquidity in times of need. SECTION X147. Compensation and Other Benefits of Directors and Officers . To protect the funds of depositors and creditors, the Monetary Board may regulate/restrict the payment by the bank of compensation, allowances, fees, bonuses, stock options, profit sharing and fringe benefits to its directors and officers in exceptional cases and when the circumstances warrant, such as, but not limited to, the following: a. When the bank is under controllership, conservatorship or when it has outstanding emergency loans and advances and such other forms of credit accommodation from the BSP which are intended to provide it with liquidity in times of need; b. When the institution is found by the Monetary Board to be conducting business in an unsafe or unsound manner; c. When it is found by the Monetary Board to be in an unsatisfactory financial condition such as, but not limited to, the following cases: (1) Its capital is impaired; (2) It has suffered continuous losses from operations for the past three (3) years; (3) Its composite CAMEL(S) rating in the latest examination is below "3"; and (4) It is under rehabilitation by the BSP/PDIC which rehabilitation may include debt-to-equity conversion, etc. In the presence of any one (1) or more of the circumstances mentioned above, the Monetary Board may impose the following restrictions in the compensation and other benefits of directors and officers: a. In the case of profit sharing, the provision of Sec. X146 shall be observed except that for purposes of this Section, the total amount of unbooked valuation reserves and deferred charges shall be deducted from the net income. b. Except for the financial assistance to meet expenses for the medical, maternity, education and other emergency needs of the directors or officers or their immediate family, the other forms of financial assistance may be suspended. STcDIE c. When the total compensation package including salaries, allowances, fees and bonuses of directors and officers are significantly excessive as compared with peer group averages, the Monetary Board may order their reduction to reasonable levels: Provided , That even if a bank is in financial trouble, it may nevertheless be allowed to grant relatively higher salary packages in order to attract competent officers and quality staff as part of its rehabilitation program. The foregoing provisions founded on Section 18 of R.A. No. 8791 shall be deemed part of the benefits and compensation programs of banks. SECTION 1147. (Reserved) SECTION 2147. (Reserved) SECTION 3147. Bonding/Training of Directors, Officers and Employees . Officers and employees handling funds or securities amounting to P5,000 or more in any one (1) year shall be bonded in an amount determined by the Monetary Board. Directors, officers and other personnel of RBs/Coop Banks shall undergo such training in banking as may be required by the BSP. SECTION X148. (Reserved) SECTION X149. Conducting Business in an Unsafe/Unsound Manner . Whether a particular activity may be considered as conducting business in an unsafe or unsound manner, all relevant facts must be considered. An analysis of the impact thereof on the bank's operations and financial conditions must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position. In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, may be deemed as conducting business in an unsafe or unsound manner, the Monetary Board, upon report of the head of the supervising or examining department based on findings in an examination or a complaint, shall consider any of the following circumstances: a. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; b. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders, or to the BSP, or to the public in general; c. The act or omission has caused any undue injury, or has given unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or d. The actor omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, whether or not the director or officer profited or will profit thereby. The list of activities which may be considered unsafe and unsound is shown in Appendix 48. SUBSECTIONS X149.1-X149.8 (Reserved) SUBSECTION X149.9 Sanctions . The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever a bank conducts business in an unsafe and unsound manner: a. Issue an order requiring the bank to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice; b. Fines in amounts as may be determined by the Monetary. Board to be appropriate, but in no case to exceed P30,000 a day on a per transaction basis taking into consideration the attendant circumstances, such as the gravity of the act or omission and the size of the bank, to be imposed on the bank, their directors and/or responsible officers; c. Suspension of interbank clearing privileges/immediate exclusion from clearing; d. Suspension of rediscounting privileges or access to BSP credit facilities; e. Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; f. Suspension of responsible directors and/or officers; g. Revocation of quasi-banking license; and/or h. Receivership and liquidation under Section 30 of R.A. No. 7653. All other provisions of Sections 30 and 37 of R.A. No. 7653, whenever appropriate, shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No. 7653. SECTION X150. (Reserved) H. Banking Offices SECTION X151. Establishment/Relocation/Voluntary Closure/Sale of Branch . The following rules shall govern the establishment, relocation, voluntary closure or sale of local branches of banks. For purposes of this Section, branches shall refer to branches, agencies or extension offices outside of a bank's head office. Pending issuance of a new set of guidelines on the establishment of new branches, there shall be a moratorium on the establishment of new branches, except as follows: (1) In cities and municipalities where there are no existing banking offices; (2) In any place in the Philippines by merged/consolidated banks as one of the incentives for consolidations and mergers: Provided , That merged/consolidated RBs may establish a branch each in Cebu City and Davao City only if they have put up the minimum capital requirement for these places, and a branch in Greater Manila Area only if their capital is at least equal to the capital requirements for new TBs in Metro Manila; and (3) Branches of microfinance-oriented banks. The moratorium shall apply to all applications for establishment of new branches, including pending ones received prior to August 16, 1999. It shall also apply to applications for (a) conversion of a branch of a subsidiary bank into a branch of a higher category parent bank and (b) conversion of an existing banking office (head office) into a branch as a result of the transfer of the head office to other places. HCSEcI Approved but not yet opened branches shall be exempted from the moratorium. Requests for extension of the period within which to open approved but not yet opened branches shall, however, be evaluated on a case-to-case basis depending, among others, on the bank's substantial compliance with the pre-operating requirements. SUBSECTION X151.1 Prior Monetary Board approval . No bank operating in the Philippines shall establish, open or operate branches, or transact business outside the premises of its duly authorized principal office without the prior approval of the BSP. SUBSECTION X151.2 Application for authority to establish branches . An application for authority to establish a branch shall be signed by the president of the bank and shall be accompanied by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment of the additional branch and indicating its proposed site; b. Banking facilities and services to be offered; c. Organizational set up of the proposed branch showing the proposed staffing pattern; and d. Certification signed by the president or the executive vice president that the bank has complied with all the requirements enumerated under Subsec. X151.3. No application for the establishment of branches shall be accepted by the BSP from a bank which has eight (8), five (5) and two (2) approved but unopened branches for UBs/KBs, TBs and RBs/Coop Banks, respectively. Applications which may be accepted at any given time from a bank shall be in such a number that if all these applications were approved, the applicant bank shall not have approved but unopened branches in excess of the limits herein prescribed. The herein prescribed limits shall be applied prospectively and shall not include branches approved and unopened prior to December 4, 1998: Provided , however , That any approved but unopened branches shall be opened within the six (6)-month period and failing which such branch/es shall be included for purposes of determining compliance with the prescribed limit. Nothing herein shall operate to bar substitution of applications within the prescribed limit. SUBSECTION X151.3 Prerequisites for the grant of authority to establish a branch/banking office a. Required capital . The capital requirements for each branch of a bank shall be as follows: (Amounts in Millions) Location UB/KB TB RB Coop Bank (1) National Capital Region P20 P10 NA NA (2) Greater Manila Area (GMA) * NA NA P5 P5.0 (3) Cities of Cebu and Davao P20 P10 P2.5 P2.5 (4) 1st, 2nd and 3rd class cities P10 P5 P1.25 P1.25 (5) 4th, 5th and 6th class cities P10 P5 P.5 P.5 (6) 1st class municipalities P10 P5 P1.25 P1.25 (7) 2nd, 3rd and 4th class municipalities P10 P3 P.5 P.5 (8) 5th and 6th class municipalities P10 None None None * GMA includes the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque and the municipalities of Malabon, Navotas and San Juan. Provided , however , That in no case shall the capitalization of the bank be less than the minimum capital required for UBs, KBs, TBs, RBs and Coop Banks under Subsecs. X106.1 and X106.2. A bank that has complied with the above minimum capital requirements or, if the bank has an approved capital build-up program and has complied with the terms thereof, as well as with all the other requirements of this Subsection, such bank may establish additional branches. The amount of capital, if any, to be put up by such bank in establishing additional branches shall be equal to the sum of the products of: (a) the number of existing branches of the bank each multiplied by the above-mentioned capital required for a branch depending on the location thereof; and (b) the number of branches to be established each multiplied by such capital required for a branch depending on its location, less the present total capital accounts of the bank. In the case of a TB with head office outside the National Capital Region (NCR), it may establish a branch in the NCR only after it has put up the minimum capital requirement for a new TB in the NCR. An RB establishing a branch in a place classified higher than that of the location of its head office shall comply with the minimum capital requirement for the place of a higher classification. After one (1) year of profitable operations, a microfinance-oriented bank may apply for establishment of a branch but the Monetary Board may require additional capital to be put up for every branch in addition to the minimum capital of the TB/RB. b. Compliance with standard pre-qualification requirements . The applicant bank shall also comply with the standard prequalification requirements for the grant of banking authorities in Appendix 5 . SUBSECTION X151.4 Branch location . UBs, KBs, and TBs may establish branches on a nationwide basis. RBs may establish branches in the Philippines except in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque; in the municipalities of Malabon, Navotas, and San Juan; and in the cities of Cebu and Davao, as follows: a. An RB with unimpaired paid-in capital of P20 million or more and a Coop Bank, with P10 million or more, net of government equity, may establish branches in any region; b. An RB and a Coop Bank with unimpaired paid-in capital of less than P20 and P10 million, respectively, net of government equity, may establish branches anywhere in the region where its head office is located as well as in the provinces adjacent to the province where its head office is located. If the head office of the said RB/Coop Bank which has an unimpaired paid-in capital of less than P20/P10 million, net of government equity, is located in the cities of Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati and Paraaque; and in the municipalities of Malabon, Navotas and San Juan, such bank may establish branches only in either Region III (Central Luzon) or Region IV (Southern Tagalog). If the head office of an RB/Coop Bank which has an unimpaired paid-in capital of less than P20/P10 million, net of government equity, is located in the cities of Cebu or Davao, such bank may establish branches only within its region. SUBSECTION X151.5 Date of opening . Approved branches shall be opened within six (6) months from the date of approval thereof: Provided , That an applicant bank may be given a final extension of another six (6) months by the Deputy Governor, Supervision and Examination Sector, subject to the presentation of justification and valid reason for the bank's failure to open within the six (6)-month period and proof that said branch/es can be opened within the succeeding six (6)-month period. SaAcHE SUBSECTION X151.6 Requirements for opening a branch . After a bank's application to establish a branch has been approved, it may open the same subject to the following conditions: a. Submission of the personal information sheet (bio-data) of the proposed manager and other officers of the branch at least thirty (30) days prior to the intended date of opening; and b. A certification signed by the officer-in-charge of the Branches Department with the rank of a vice president, or its equivalent or by a higher officer that: (1) Installation of the required security devices under Subsec. X165.4 have been complied with; and (2) Requirements enumerated under Subsec. X151.3 have been complied with up to the time of actual opening. A bank that fails to continuously comply with the requirements under Subsec. X151.3 shall be given an extension of time to open such branch after it has shown compliance for another test period of the same duration required of each requirement under said Subsection: Provided , That the provisions of Subsec. X151.5 shall be observed if the branch cannot open within six (6) months from the date of approval thereof: Provided , further , That before such branch opens for business, the bank shall submit to the BSP the requirements under Items "a" and "b(1)" of this Subsection; and a certification by the bank officer mentioned under Item "b" hereof to the effect that upon opening of the branch, the bank has complied within the period prescribed therein. Banks shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date of opening of their branches not later than ten (10) banking days from such opening. SUBSECTION X151.7 Relocation/transfer of branches a. Transfer of branches shall only be allowed within the same city or municipality where the branch to be transferred is located and such transfer shall not require prior BSP approval but shall be subject to the following conditions: (1) Notice of transfer to depositors and other creditors by registered mail and posters in conspicuous place in the premises of the banking office to be transferred at least three (3) months prior to the transfer; (2) Written notice to the appropriate supervising and examining department of the BSP of the transfer not later than five (5) banking days from the date of transfer. The notification shall be accompanied by a certified true copy of the resolution of the bank's board of directors authorizing the transfer; and (3) A certification signed by the officer-in-charge of the Branches Department with the rank of Vice President or its equivalent or by a higher ranking officer, that the above requirements have been complied with. The certification shall be submitted to the appropriate supervising and examining department of the BSP not later than five (5) banking-days from date of transfer. b. The relocation/transfer of banking offices outside the city or municipality where the branch/banking office to be transferred is located shall be allowed without prior BSP approval, subject to the same conditions set forth above and under the following conditions: (1) Relocation/transfer of Metro Manila branches can be anywhere in Metro Manila, in other provincial areas or in other areas other than Metro Cebu and Metro Davao; (2) Relocation/transfer of Metro Cebu branches can be anywhere in Metro Cebu, in other provincial areas or in other areas other than Metro Manila and Metro Davao; (3) Relocation/transfer of Metro Davao branches can be anywhere in Metro Davao, in other provincial areas or in other areas other than Metro Manila and Metro Cebu; and (4) Relocation/transfer of branches in provincial areas can be anywhere in other provincial areas. SUBSECTION X151.8 Voluntary closure/sale of banking offices a. Voluntary closure . Voluntary closure of banking offices may be effected only with prior approval of the Bangko Sentral and shall be subject to the conditions enumerated under Subsec. X151.7. b. Sale of branches . (1) Sale of branches may be allowed with prior approval of the Monetary Board and subject to the following conditions: (a) The selling and acquiring banks shall acquire the prior written consent of the PDIC in the transfer of assets and assumption of liabilities as provided under Section 16 of the PDIC Charter (R.A. No. 3591); (b) The selling bank shall get the prior approval of the BSP to close the branches to be sold. Its President or its Executive Vice President (EVP) shall certify, in addition to the certification required under Subsec. X151.7 on the closing of banking offices, that the bank gave the affected depositors the option to withdraw their deposits or to maintain the same with acquiring bank; and (c) The acquiring bank shall seek the prior approval of the BSP in the establishment of new banking offices in the areas where the branches to be acquired are located subject to existing BSP rules and regulations. In the opening of these branches, the President or the EVP of the bank shall certify, in addition to what is required under Subsec. X151.6 on the opening of new banking offices/branches, that the bank had conducted a review/evaluation of the assets to be acquired. (2) The acquiring bank shall pay a licensing fee per branch as follows: Within Outside Type of Bank Metro Manila Metro Manila UBs and KBs P1 million P500,000 TBs P500,000 P250,000 (3) Except as provided under Subsec. X151.7, relocation/transfer of branches may be allowed under the following terms and conditions: (a) Existing branch license in Metro Manila can be relocated anywhere in Metro Manila, in other provincial areas or in other areas other than Metro Cebu and Metro Davao; (b) Existing branch license in Metro Cebu can be relocated anywhere in Metro Cebu, in other provincial areas or in other areas other than Metro Manila and Metro Davao; IEHTaA (c) Existing branch license in Metro Davao can be relocated anywhere in Metro Davao, in other provincial areas or in other areas other than Metro Manila and Metro Cebu; and (d) Existing branch licenses in provincial areas can be relocated anywhere in other provincial areas. SUBSECTION X151.9 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the following sanctions shall be imposed: a. On the bank . Suspension for one (1) year of the privilege to establish and/or to open approved banking offices. b. On the certifying officer . A fine of P5,000 per day (P200 per day for RBs/Coop Banks) from the time the certification was made up to the time the certification was found to be false for each banking offices opened, transferred or closed without prejudice to the sanctions under Section 35 of R.A. No. 7653. SUBSECTIONS X151.10-X151.11 (Reserved) SUBSECTION X151.12 Establishment of branches/loan collection and disbursement points of microfinance-oriented banks; establishment of microfinance-oriented branches/loan collection and disbursement points of banks that are not microfinance-oriented a. Application for authority to establish branches . The application for authority to establish a branch/loan collection and disbursement point (LCDP) shall be signed by the president of the bank or officer of equivalent rank and shall be accompanied, as a minimum, by the following information/documents: (1) Certified true copy of the resolution of the bank's board of directors authorizing the establishment of the branch/LCDP and indicating the proposed site; (2) A feasibility study covering the first two (2) years of operations of the proposed branch/LCDP; (3) Organizational set-up of the proposed branch/LCDP showing the proposed staffing pattern; (4) Certification signed by the president or officer of equivalent rank that the bank has complied with the capital and standard pre-qualification requirements for the grant of banking authorities as well as with the additional requirements under Items "b(2)", "c(1)(iii)", "c(1)(iv)" and "c(5)(i)" of this Subsection; (5) A manual of operations on microfinancing duly approved by its board of directors (for a bank that is not microfinance-oriented); and (6) In the case of a bank that is not microfinance-oriented, a certification by the president or officer of equivalent rank that the bank has at least one (1) year track record in microfinancing together with the profile of its existing microfinance clients or has people with such experience. b. Capital requirements (1) Capital shall be assigned to each branch/LCDP to be established as follows (amounts in million pesos): Type of Bank Amount UBs/KBs P20 TBs/National Coop Banks 5 RBs/Local Coop Banks 2.5 (2) The bank's risk-based capital adequacy ratio at the time of filing the application is not lower than twelve percent (12%); and (3) RBs or local Coop Banks with unimpaired capital accounts of less than P10 million shall not be allowed to establish any branch/LCDP. The assigned capital required under Item "b(1)" above for each branch/LCDP to be established need not necessarily be infused but may consist of existing capital accounts if the applicant bank has excess capital. Said assigned capital shall, however, be theoretically deducted from existing qualifying capital accounts for purposes of determining compliance with the ten percent (10%) risk-based capital adequacy ratio and whether or not the applicant bank has to put up additional capital for the branch/LCDP proposed to be established. For this purpose, a bank applying for authority to establish a branch/LCDP need not infuse additional fresh capital if its risk-based capital adequacy ratio after theoretically deducting the required capital for the branch/LCDP proposed to be established will still be ten percent (10%) or more. Otherwise, it will be required to infuse fresh capital in such amount as may be necessary to restore its risk-based capital adequacy ratio to at least ten percent (10%). c. Additional requirements/restrictions . In addition to the standard pre-qualification requirements for the grant of banking authorities in Appendix 5, the establishment of a branch/LCDP shall be subject to the following conditions: (1) For all types of banks (i) The branch and/or office where the proposed LCDP will be attached shall have an adequate loan tracking system that allows daily monitoring of loan releases, collection and arrearages, and any restructuring and refinancing; (ii) The proposed branch shall be managed by a person with adequate experience or training in microfinancing; (iii) The bank has in place a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement system, appropriately structured risk limits, effective internal control and complete, timely and efficient risk reporting system; (iv) The bank's CAMELS composite rating in its latest examination is at least "3" with Management score of not lower than "3"; (v) The branch may only be established in places not fully served by existing microfinance banking office(s); (vi) LCDP may only be established within the region where the head office or a mother branch/unit is located and in any province adjacent to the province where such head office/mother branch/unit is located (for all types of banks except RBs and local Coop Banks); and (vii) The operations of LCDP shall be limited to collections, disbursement/releases of loans and acceptance of deposits from their microfinance borrowers. They shall not maintain cash and other cash items. The proceeds of their loan collection and accepted deposits net of disbursements shall be remitted on the same day to their respective head offices, mother branch/unit or deposited to any accessible bank. The security, infrastructure and other requirements on regular bank branch shall not be applicable to LCDPs. They are not, however, prohibited from implementing said requirements. TCcSDE (2) For TBs and national Coop Banks (i) A TB or national Coop Bank with unimpaired capital accounts of at least P650 million may establish branches on a nationwide basis while a TB or national Coop Bank with less than P650 million unimpaired capital accounts shall only be allowed to establish branches in the region where its head office is located and in any province adjacent to the province where such head office is located. (3) For RBs and local Coop Banks (i) An RB or local Coop Bank with unimpaired capital accounts of at least P10 million but less than P50 million shall be allowed to establish branches/LCDPs anywhere in the province where its head office is located and in municipalities or cities adjacent to the municipality or city where said head office is located; (ii) An RB or local Coop Bank with unimpaired capital accounts of at least P50 million shall be allowed to establish branches/LCDPs anywhere in the region where its head office is located and in any province adjacent and contiguous to the province where such head office is located. (4) For banks that are not microfinance-oriented (i) At least seventy percent (70%) of the deposits generated by the branch to be established shall be actually lent out to qualified microfinance borrowers and the microfinance loans of said branch shall at all times be at least fifty percent (50%) of its gross loan portfolio. (5) For microfinance-oriented banks (i) It has been in profitable operation for at least one (1) year. d. Opening a branch . The provision of the existing regulations on branching regarding the date of opening of approved branches in Subsec. X151.6 and the requirements for such opening in Subsec. X151.5 shall also apply to branches/LCDPs herein allowed to be established. The general moratorium on the establishment of regular branches/other offices by banks that are not microfinance-oriented shall, however, remain. e. Sanction . Any violation of the provisions of this Subsection shall be a ground for the cancellation of the franchise and closure of any branch/LCDP established hereunder without prejudice to the imposition of the applicable criminal and administrative sanctions prescribed under Sections 36 and 37, respectively, of R.A. No. 7653. SUBSECTIONS X151.13-X151.14 (Reserved) SUBSECTION X151.15 Relocation/Transfer of branch licenses of closed banks . Buyers of closed banks shall be allowed to relocate/transfer the branch licenses of the acquired closed banks under the terms and conditions indicated in Item "b(3)" of Subsec. X151.8. SECTION X152. Relocation/Transfer of Head Offices . Transfer of a head office or any of its departments shall require prior BSP approval and shall be subject to the conditions enumerated under Subsec. X151.7, except that the certification shall be signed by the officer with the rank of senior vice president or its equivalent or by a higher ranking officer. SUBSECTION X152.1 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the sanctions under Subsec. X151.9 shall be imposed. SECTION X153. Establishment of Additional Branches of Foreign Banks . The following guidelines shall govern the establishment of additional branches of foreign banks in the Philippines pursuant to R. A. No. 7721. For purposes of this Section, the term bank shall refer to the existing branches of the applicant bank in the Philippines reckoned as a single unit. SUBSECTION X153.1 Application for authority to establish additional branch . An application for authority to establish additional branch or branches shall be signed by the Country Manager or the highest ranking officer in the Philippines of the applicant foreign bank, and shall be accompanied by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment of the additional branch/es and indicating its proposed site/s and/or authority of the bank's Country Manager or highest ranking officer in the Philippines to apply for authority to establish additional branch/es and represent the bank in connection therewith; b. Banking facilities and services to be offered; c. Organizational set up of the proposed branch showing the proposed staffing pattern; and d. Certification signed by the bank's Country Manager that the bank's existing branches in the Philippines reckoned as a single unit, have complied with all the requirements enumerated under Subsec. X153.2. SUBSECTION X153.2 Requirements for establishment of additional branch . In addition to the standard prequalification requirement for the grant of banking authorities in Appendix 5 , the applicant bank shall comply with requirements prescribed in Subsecs. X121.4 b and c, and X121.6. SUBSECTION X153.3 Date of opening . The opening of approved branches shall be subject to the provisions of Subsec. X151.5. SUBSECTION X153.4 Requirements for opening branch . After a bank's application to establish a branch has been approved, it may open the same subject to the following conditions: a. Submission by the applicant bank of a written notice at least thirty (30) days prior to the intended date of opening, accompanied by the following: (1) Proof or evidence of inward remittance needed to meet the requirements prescribed in Subsecs. X121.4 b and c, and X121.6; (2) List of principal and junior officers of the proposed branch/es and their respective designations and salaries; and (3) Personal information sheet (Bio-data) for each of the officers to enable the BSP to evaluate their qualifications as officers; and b. A certification signed by the bank's president or executive vice president that the standard prequalification requirements enumerated in Appendix 5 have been complied with up to the date of the aforementioned written notice. A bank that fails to continuously comply with the requirements shall be given an extension of time to open such office after it has shown compliance for another test period of the same duration required of each requirement: Provided , That the provisions of Subsec. X151.5 shall be observed if the branch cannot open within six (6) months from the date of approval thereof: Provided , further , That before such branch opens for business, the bank shall submit to the BSP the requirements under Subsec. X154.5a together with a certification stating that the bank has complied with the standard prequalification requirements in Appendix 5 up to the date of the written notice within the period prescribed therein. SUBSECTION X154.6 Sanctions . If any part of the certification submitted by the bank as required in this Section is found to be false, the sanctions under Subsec. X151.9 shall be imposed. SECTION X155. Tellering Booths . The following rules shall govern the establishment of tellering booths in BIR offices: a. As a general policy, the establishment of tellering booths in BIR offices are not authorized. However, in cases where tellering booths in offices are needed as determined by the BIR, banks shall secure prior Monetary Board approval; b. A bank's application shall be accompanied by a letter from the BIR Commissioner or Deputy Commissioner or other officer specifically authorized by the Commissioner to sign such letter, stating that the BIR has agreed to allow the applicant bank to establish a tellering booth in the specified BIR office; ECDHIc c. The applicant bank has complied with the standard prequalification requirements prescribed in. Appendix 5; and d. Tax collections received shall be subject to rules on government deposits. I. Banking Days and Hours SECTION X156. Banking Days and Hours . All banks, including their branches and offices, doing business in the Philippines, shall observe for the conduct of their business, a regular banking week of five (5) days, except if, such days are holidays. The regular banking week should fall on Mondays to Fridays unless otherwise authorized by the BSP in the interest of the banking public. On these days, said institution shall transact business for at least six (6) hours each day. Subject to compliance with other relevant laws, banks, including their branches and offices, may opt to observe a banking week in excess of five (5) days after reporting to the BSP the additional days during which such banks or their branches or offices shall transact business for at least three (3) hours each day. SUBSECTION X156.1 Banking hours beyond the minimum . For purposes of servicing deposits and withdrawals, banks may, at their discretion, remain open beyond the minimum six (6) hours and for as long as they find it necessary, even before 8:00 AM or after 8:00 PM. Banks may, after prior written notice, also remain open beyond the minimum six (6) hours for banking services other than the servicing of deposits and withdrawals but in no case shall such banking hours start earlier than 8:00 AM nor extend beyond 8:00 PM: Provided , however , That branches of banks at any international airport or major fish port are allowed to operate on flexible banking hours within a twenty-four (24)-hour period, subject to the condition that the individual bank's management will inform the BSP of the schedule of its banking hours which shall in no case be less than six (6) hours a day. SUBSECTION X156.2 Report of, and changes in, banking days and hours . The banking days and hours selected for each of the offices of banks shall be reported in writing to the appropriate supervising and examining department of the BSP. Banks may change the banking days and hours previously reported to the BSP by giving prior written notice: Provided , That changes in banking days or hours shall not be made oftener than once every thirty (30) days, except during emergencies. Emergency shall mean (a) condition of an area or locality proclaimed by the President of the Philippines as in a state of emergency; or (b) an event or occasion or a combination of circumstances equivalent to a public calamity resulting from fire, flood, or like disaster, or through some unusual occurrence or pressing necessity not reasonably subject to anticipation calling for immediate action or remedy. The prior written notice to the BSP on changes in banking days and hours shall be given through the fastest means of communication, at least seven (7) banking days before the intended effectivity of the change in banking hours or days. In case a bank, due to an emergency, has to open outside, or close during, the banking hours or days reported to the BSP, a written report submitted within twenty-four (24) hours from opening or closing, as the case may be, will suffice. The report shall state the specific nature of the emergency and the period the bank opened or closed or shall open or close by reason of emergency. SUBSECTION X156.3 Posting of schedule of banking days and hours . The schedule of banking days and hours reported to the BSP shall be posted conspicuously at all times in the bank's premises. SECTIONS X157-X160 (Reserved) J. Records and Reports SECTION X161. Records . Banks shall have a true and accurate account, record or statement of their daily transactions, particularly those referring to their deposit liabilities. The making of any false entry or the willful omission of entries relevant to any transaction, is a ground for the imposition of administrative sanctions under Section 37 of R.A. No. 7653 and the disqualification from office of any director or officer responsible therefor under Section 9-A of R.A. No. 337, as amended. This is without prejudice to their criminal liability under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. SUBSECTION X161.1 Adoption of the Manual of Accounts . Banks shall strictly adopt the Manual of Accounts prescribed by the BSP for recording daily transactions including reportorial and publication requirements. Local branches of foreign banks may continue using their parent bank's general ledger accounts: Provided , That published statements and reports submitted to the BSP follow the account definitions in the BSP-prescribed Manual of Accounts: Provided , further , That the mathematical formulas for reconciling such published statements and submitted reports with the general ledger accounts of the bank are submitted to the appropriate supervising and examining department of the BSP: Provided , finally , That said banks prepare for BSP use, reconciliations of their ledger accounts with the BSP prescribed Manual of Accounts during regular or special bank examinations. Any bank which fails or refuses to adopt the prescribed Manual of Accounts, or any of the applicable accounts contained therein, or adopts any general ledger account not specified in the said Manual of Accounts without prior written approval of the Governor of the Bangko Sentral, shall be penalized by revocation or suspension of its authority to engage in quasi-banking function. SUBSECTION X161.2 Statements of Financial Accounting Standards . Banks shall adopt the Statements of Financial Accounting Standards (SFAS) which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to the BSP. However, in cases where there are differences between BSP regulations and SFAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the SFAS, the option or limit prescribed by BSP regulations shall be adopted by all banks. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council and approved by the Professional Regulation Commission. SUBSECTIONS X161.3-X161.8 (Reserved) SUBSECTION 1161.9 (Reserved) SUBSECTION 2161.9 (Reserved) SUBSECTION 3161.9 Retention and disposal of records of rural/cooperative banks . To guide RBs/Coop Banks in the disposition of their records and documents which no longer need to be retained and in determining which of the records are of permanent value and therefore should be preserved, RBs/Coop Banks shall follow the guidelines on retention and disposal of records in Appendix 50 . SECTION X162. Reports . Banks shall submit to the appropriate supervising and examining department of the BSP all their statements and/or periodic reports listed in Appendix 6 in such frequency and deadlines indicated therein. In the preparation of said statements/reports, banks shall use and strictly follow the forms prescribed by the BSP. ECaTDc In line with the policy direction of R.A. 8792 (E-Commerce Act), the BSP is strongly encouraging banks to submit their regular reports to the BSP in electronic form. However, the BSP cannot presently guarantee the security/confidentiality of data in the course of electronically transmitting reports to BSP. BSP recommends that sensitive or confidential information be provided by ordinary post or courier. The BSP will accept no responsibility for electronic messages/reports/information that may be hacked or cracked, intercepted, copied or disclosed outside BSP's information system. SUBSECTION X162.1 Categories and signatories of bank reports a. Categories of reports . Reports required to be submitted to the BSP by banks are grouped into Category A-1, Category A-2, Category A-3 and Category B reports as indicated in Appendix 6. b. Authorized signatories (1) Category A-1 reports shall be signed by the bank's chief executive officer or, in his absence, by the executive vice president, and by the comptroller or, in his absence, by the chief accountant, or officers holding equivalent positions. (2) Category A-2 reports shall be signed by the president, executive vice president, vice president or by an officer holding equivalent positions. (3) Category A-3 and Category B reports shall be signed by officers or their alternates, duly designated by the board of directors. The designated signatories of Categories A-1, A-2, A-3 and B reports including their specimen signatures shall be contained in a resolution approved by the board of directors. A copy of the board resolution covering the initial designation and subsequent change(s) in signatories as well as specimen signatures of the signatories and alternates, shall be submitted to the appropriate supervising and examining department of the BSP in such frequency and within the deadline indicated in Appendix 6. (4) Reports in computer media that are submitted by banks shall be subject to the same requirements regarding authorized signatories. (5) Any report submitted to the BSP that is signed by an officer who is not listed or included in any of the resolutions mentioned above, shall be considered as not having been submitted at all. (6) All authorized agent banks shall submit to the Director, Branch Operations, BSP, the updated specimen signatures of Senior Bank Officers in their respective Head Offices who are authorized to authenticate the signatures of their provincial branch officers transacting business with the BSP Regional Offices/Branches. The BSP Branch Operations shall be advised of any changes in authorized branch signatories, as well as authenticating Head Office Senior Officers. c. Deadline for submission of reports (1) Regular reports . Unless otherwise specified, the deadlines for submission of reports enumerated in Appendix 6, shall be reckoned on the basis of banking days. For this purpose, banking days shall be understood to mean Monday through Friday or banking days of the BSP. (2) Call Reports . The deadline of submission of call reports shall be specified in the letter calling for the report. SUBSECTION X162.2 Sanctions in case of willful delay in the submission of reports/refusal to permit examination . For willful delay in the submission of reports, specific sanctions shall be imposed in accordance with the following rules. a. Definitions . For purposes of this Subsection, the following definitions shall apply. (1) Report shall refer to any report or statement required to be submitted by a bank to the BSP. (2) Willful delay in the submission of reports shall refer to the failure of any bank to submit on time the report defined in Item a(1) above. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities, and public disorders including strike or lockout affecting a bank as defined in the Labor Code, or of a national emergency affecting operations of banks, shall not be considered as willful delay. (3) Examination shall include, but need not be limited to, the verification, review, audit, investigation and inspection of the books and records, business affairs, administration and financial condition of any bank including the reproduction of banking records, as well as the taking possession of the books and records and keeping them under BSP's custody after giving proper receipts therefor. It shall also include the interview of the directors and personnel of any bank including its Electronic Data Processing (EDP) servicer. Books and records shall include, but not limited to, data and information stored in magnetic tapes, discs, diskettes printouts, logbooks and manuals kept and maintained by the bank or by the EDP servicer, that are necessary and incidental to the use of EDP systems by the bank. (4) Refusal to permit examination shall mean any act or omission which impedes, delays or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination, including the act of refusing to accept or honor a letter of authority to examine presented by any officer/examiner/employee of the BSP. b. Fines for willful delay in the submission of reports . (1) Amount of fine . Any bank which shall incur willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: (a) For Category A-1, A-2 and A-3 reports (1) UBs/KBs P1,200; (2) TBs 600; (3) RBs/Coop Banks 180; per business day of default until the report is filed with the BSP: Provided , That for the report. on compliance with the mandatory credit allocation required under R.A. No. 6977 (as amended by R.A. No. 8289) the amount of fines shall be: (i) UBs/KBs/FXBs P1,000; (ii) TBs 500; (iii) RBs/Coop Banks 250; per business day of default until report is filed with the BSP; and (b) For Category B reports (i) UBs/KBs/FXBs P240; (ii) TBs 120; (iii) RBs/Coop Banks 60; per business day of default until report is filed with the BSP In the implementation of the foregoing rules, delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting bank is situated, delay or default shall start on the day following the next banking day. Delayed schedules/attachments and amendments shall be considered late reporting subject to the above penalties. (2) Manner of filing . For the purpose of establishing delay or default, the submission of reports shall be effected by filing them with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices, or by sending them by registered mail or by special delivery through a private courier, unless otherwise specified in the circular or memorandum of the BSP. In the first case, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Office appearing on the copies of such reports filed or submitted, and in the second case, the date of mailing postmarked on the envelope or the date of the registry receipt or the date of special delivery receipt, shall be considered as the date of filing. c. Fines for refusal to permit examination. (1) Amount of fine A bank which shall willfully refuse to permit examination shall pay a fine of P3,000 daily from the day of refusal and for as long as such refusal lasts. (2) Basis and effectivity of the imposition of fine. (a) The BSP officer/examiner/employee shall report the refusal of the bank to permit examination to the head of the appropriate supervising and examining department of the BSP, who shall forthwith make a written demand upon the bank concerned for such examination. If the bank continues to refuse said examination without any satisfactory explanation thereof, the BSP officer/examiner/employee concerned shall submit a report to that effect to the said department head. (b) The fine shall be imposed starting on the day following the receipt by the said department of the written report submitted by the BSP officer/examiner/employee concerned regarding the continued refusal of the bank to permit the desired examination. d. Manner of payment or collection of fines . The regulations embodied in Subsec. X609.1 shall be observed in the collection of fines from banks for willful delay in the submission of reports or for refusal to permit examination. e. Other penalties . The imposition of the foregoing penalties shall be without prejudice to imposition of the other administrative sanctions and to the filing of a criminal case as provided for in other provisions of law. f. Appeal to the Monetary Board . An aggrieved bank may appeal to the Monetary Board: any fine imposed by the BSP. SUBSECTION X162.3 Submission of certain required information . Banks shall submit to the appropriate supervising and examining department of the BSP the information on bank's profile required in Appendix 7 . Any change in any of the required information submitted, after the initial submission, shall be reported to the said department immediately. Banks shall likewise submit to the said department any or all of the documents/information on bank's organizational structure and operational policies enumerated in Appendix 8 . Any subsequent change/issuance should be furnished the department within fifteen (15) banking days from such change/issuance. SUBSECTION X162.4 Report on crimes/losses . Banks shall report on the following matters to the appropriate supervising and examining department. a. Crimes whether consummated, frustrated or attempted against property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of bank property when the amount involved, in each crime is P20,000 or more. Crimes involving bank personnel, regardless of whether or not such crimes involve the loss/destruction of bank property, even if the amount involved is less than P20,000, shall likewise be reported to the BSP b. Incidents involving material loss, destruction or damage to the bank's property/facilities, other than arising from a crime, when the amount involved per incident is P100,000 or more. c. The following guidelines shall be observed in the preparation and submission of the report: (1) The report shall be prepared in the prescribed form in two (2) copies and shall be submitted to the appropriate supervising and examining department and to the BSP Security Coordinator, thru the Director, Security, Investigation and Transport Department within the deadline stated in Appendix 6 ; (2) Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) banking days from termination of investigation; and (3) Proof of submission of the report within the deadline shall be determined by the date of postmark, if the report was sent by mail or by the date received, if handcarried to the appropriate supervising and examining department, Manila, or in applicable cases, to the unit of the supervising and examining department in any of the Regional Offices of the BSP. SUBSECTION X162.5 Report on real estate/chattel transactions . Banks shall within ten banking days from approval of the transaction: a. Report to the appropriate supervising and examining department of the BSP, any real estate/chattel transaction (such as, but not limited to, rentals or leases, purchases and sales, or foreclosed assets) between the bank and its director(s), officer(s), employees, stockholder(s) owning at least two percent (2%) of the bank's subscribed capital stock, or any firm substantially owned (in the aggregate of at least twenty percent (20%) of the paid-in capital of such firm) by one (1) or more of such directors/officers/stockholders; and b. Certify to the BSP that such transaction has been thoroughly reviewed and verified as having been entered into in the best interest of the bank. SUBSECTION X162.6 Reconciliation of head office and branch transactions . Banks shall prepare reconciliation statements covering transactions between the head office and all its branches within thirty (30) banking days after the end of each month. HIESTA All items which are unresponded or outstanding in the reconciliation statement for more than (6) months as of reconciliation statement date shall be reported, with explanations/reasons for their being outstanding, to the appropriate supervising and examining department of the BSP in such frequency and within the deadline set in Appendix 6 . The reconciliation statement shall be made available to any authorized bank examiner for inspection/examination without need of advance notice. A copy of the year-end reconciliation statement covering transactions between the bank's head office and all its branches shall be furnished the said department not later than the end of January of the following year. SUBSECTION X162.7 List of stockholders and their stockholdings a. Banks shall submit to the appropriate supervising and examining department of the BSP annually a complete list of stockholders and their stockholdings in the prescribed form within the deadline indicated in Appendix 6. b. Any change in the list shall also be reported to the said department in such frequency and within the deadline indicated in Appendix 6, indicating the name(s) and/or stockholdings involved which is/are to be cancelled or replaced, and the new name(s) and/or stockholdings which shall be included for that quarter. In case no change occurred during a particular quarter, the report shall provide a notation, viz " no change(s) since last report submitted for quarter ended , _________ ____, 20__". SUBSECTION X162.8 Bangko Sentral offices, where reports are submitted . Submission of BSP periodic or call reports shall be as follows: a. All banking offices shall submit the required reports in accordance with Appendix 6 to the BSP, Manila or to the nearest BSP Regional Offices: Provided , That the head office of a bank may submit to the SRSO in electronic form the batched copy of all its banking units' Quarterly Statement of Condition and Statement of Income and Expenses by Banking Unit in behalf of its branches and other offices; b. Where a particular report form calls for distribution of copies to other departments of the BSP, the bank concerned shall furnish said copies of the report direct to the respective departments of the BSP; and c. As an exception to Item "a" above, the duplicate copy of the bio-data for directors/officers shall be submitted to the SRSO of the BSP. SUBSECTION X162.9 Publication/Posting of statement of condition a. UBs/KBs and TBs with resources of P1 billion and above (1) Banks belonging to this category shall accomplish the prescribed form and publish their quarterly statements of condition (SOCs) as of the cut-off date indicated in the call letter of the appropriate supervising and examining department of the BSP. The Consolidated Statement of Condition (CSOC) of a bank and its subsidiaries and affiliates shall be published side by side with the SOC of its head office and its branches/other offices subject to the following guidelines: (a) The CSOC of the bank and its subsidiaries and affiliates shall conform with the guidelines under Appendix 9 . This means that the SOCs of the bank and its financial subsidiaries shall be consolidated on a line by line basis. In the case of non-financial subsidiaries and affiliates which are not consolidated with that of the bank, the SOC shall show the equity investment in such subsidiaries and affiliates using the equity method, i.e., at cost, as adjusted periodically to reflect any actual increase or decrease in the underlying value of the investments arising from earnings or losses of the non-financial subsidiary or affiliate; (b) The publication of the CSOC of a bank and its subsidiaries and affiliates shall start with the report as of December 2002; and (c) The published CSOC as of September 20, 2002 shall be that of a bank and its financial subsidiaries. (2) Such SOC shall be published in a newspaper of general circulation in the city/province where the principal office, in the case of a domestic bank, or the principal branch/office, in the case of a foreign bank, is located, but if no newspaper is published in the same province, then in a newspaper published in Metro Manila or in the nearest city/province. (3) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there are no executive vice president), shall be published and shown in the right side column of the published statement of condition as of June of every year; and (4) The original and a copy of the statement of condition shall be submitted to the appropriate supervising and examining department of the BSP before the publication and within twelve (12) banking days from receipt of the call letter. Thereafter, the published reports shall be submitted within twenty (20) banking days after the receipt of said call letter. b. TBs with resources of less than P1 billion (1) A TB belonging to this category may either publish its quarterly SOC as of the cut-off date indicated in the call letter of the appropriate supervising and examining department of the BSP, in a newspaper of general circulation as in Item "a" above or post the same in the most conspicuous area of its premises, in the municipal building, municipal public market, barangay hall and barangay public market where the head office and all its branches are located. The posting shall be printed on 12"x18" white paper, preferably white buff paper (cartolina) and shall be made within twenty (20) banking days from the end of every quarter and for a period of thirty (30) successive days; (2) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there is no executive vice president), shall be published and shown in the right side column of the published statement of condition as of June of every year; and (3) A copy of the posted statement of condition together with an affidavit executed by the president or, in his absence, the vice-president or manager shall be submitted to the appropriate supervising and examining department within twenty (20) banking days after the end of the quarter. (4) TBs shall comply with the following guidelines: (a) The duplicate published SOC shall be submitted electronically in accordance with existing deadlines using either cc:mail or E-mail with the same address at [emailprotected] ; (b) Amount shall be in absolute figures; (c) Existing regulations on imposition of penalties for delayed/erroneous reporting shall continue to apply; (d) Upon transmission of the published SOC template file, the bank shall also fax the notarized Control Prooflist on the contents of the data sent via electronic mail to BSP-SRSO. Original copy of the control prooflist, the published SOC and the Publisher's Certificate shall likewise be submitted to the appropriate supervising and examining department; and (e) SRSO shall run an official validation test on the reports submitted using the same program provided to banks. Banks shall be promptly advised on the validation results and shall be required to correct reports when necessary. c. RBs and Coop Banks (1) An RB/Coop Bank may either publish its statement of condition at the end of each quarter in a newspaper of general circulation as in Item "a" above or post the same in the most conspicuous area of its premises, in the municipal building, municipal public market, barangay hall and barangay public market where the head office and all its branches are located. The posting shall be printed on 12"x18" white paper, preferably white buff paper (cartolina) and shall be made within twenty (20) banking days from the end of every quarter and for a period of thirty (30) successive days; DaHSIT (2) The names and position/designation of the members of the board of directors, president and executive vice president (senior vice president, if there is no executive vice president), shall be published and shown in the right side column of the published statement of condition as of June of every year; and (3) A copy of the posted statement of condition together with an affidavit executed by the president or, in his absence, the vice-president or manager shall be submitted to the appropriate supervising and examining department within twenty (20) banking days after the end of the quarter. d. Additional information required Banks shall disclose the following information in the quarterly published/posted statements of condition: (1) Amount of non-performing loans and ratio to total loan portfolio; (2) Amount of classified loans and other risk assets; (3) General loan-loss reserves; (4) Specific loan-loss reserves; (5) Return on equity (ROE); (6) DOSRI loans/advances and ratio to total loan portfolio; and (7) Past due DOSRI loans/advances and ratio to total loan portfolio. For purposes of arriving at a uniform method of calculating the additional financial information required, all amounts and ratios to be reported shall be as of the same call date. However, the basis for computing the ROE shall be the latest quarter immediately preceding the call date using the following formula: Net Income/(Loss) After Return on Income Tax Average = X 100 Equity (%) Average Total Capital Accounts Where net income after tax and average capital accounts shall be: Net Income Average Total Capital After Tax Accounts March Quarter end net Sum of end-month capital income after tax accounts (December - multiplied by 4. March) divided by 4. June Semester end net Sum of end-month capital income after tax accounts (December - multiplied by 2. June) divided by 7. Sept. Nine (9) mos. net Sum of end-month capital income after tax accounts (December - multiplied by September) divided by 10. 1.33333. Dec. Year end net Sum of end-month capital income after tax. accounts (December - December) divided by 13. e. Deferment of publication requirement . The above-mentioned publication requirement may be deferred by the Monetary Board by at least five (5) affirmative votes upon application by the bank concerned during periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability. SUBSECTION X162.10 Consolidated financial statements of banks and their subsidiaries engaged in financial allied undertakings . Banks shall submit after the end of the calendar year or the end of the fiscal year adopted by the bank their consolidated financial statements and supported by the individual annual financial statements of their subsidiaries engaged in financial allied undertakings. For purposes of this Subsection, the consolidated financial statements shall be prepared in accordance with the guidelines in Appendix 9 on consolidation of financial statements of banks and their subsidiaries engaged in financial allied undertakings. The consolidated financial statements and the supporting individual financial statements of their subsidiaries shall be submitted to the appropriate supervising and examining department of the BSP within the deadline indicated in Appendix 6. SUBSECTION X162.11 Reports of other banking offices . Extension offices of banks which maintain separate books of accounts shall be subject to all reporting requirements of a regular branch. An extension office whose record of transactions/accounts is consolidated daily with its mother unit shall submit only the Selected Financial Accounts form as listed in Appendix 6 . SUBSECTION X162.12 Reports required of foreign subsidiaries/affiliates/banking offices or non-bank entities of domestic banks . The submission of periodic reports of a foreign subsidiary/affiliate/banking offices or non-bank entities of domestic banks shall be governed by the following rules: a. For foreign subsidiaries/affiliates of domestic banks, the local investor-bank(s) concerned shall regularly submit to the appropriate supervising and examining department of the BSP a quarterly statement of condition and quarterly/annual report of income and expenses concerning the operations of the foreign subsidiaries/affiliates, including such other periodic reports which may be required from time to time in the forms prescribed by the BSP for domestic financial intermediaries to the extent that their operations are applicable; b. For foreign subsidiaries/affiliates of domestic banks, the appropriate supervising and examining department shall be furnished by said domestic banks copies of the annual report prescribed by any of the supervisory/regulatory authorities in the country of operations; c. When material changes noted in the annual financial statements warrant an interim comprehensive evaluation, the foreign affiliate concerned shall be requested to submit to the appropriate supervising and examining department, through its domestic investor-bank, copies of its quarter/interim reports to stockholders or the call reports in the case of U.S. banks; d. Audited financial statements (AFS) of the foreign banking offices and subsidiaries; and e. Examination reports done by the foreign bank supervisory authority. The submission of the documents in Items "d" and "e" to BSP shall not be later than thirty (30) banking days from date of submission/release of said reports to the foreign banking offices and subsidiaries of Philippine banks. Material findings, if any, contained in said reports should be highlighted. SUBSECTION 1162.13 Additional reports from UBs/KBs a. Volume and weighted average interest rates of deposits and loans . Data on the volume of transactions and weighted average interest rates of certificates of time deposits and secured/unsecured loans granted, classified by maturity, and outstanding savings deposits classified by interest rates, shall be prepared daily (except data on savings deposits which shall be prepared weekly) and submitted weekly by all head offices of UBs/KBs to the Department of Economic Research of the BSP not later than 4:00 PM on Thursday after end of reference week. CTHaSD b. Short-term prime rates . All UBs and KBs shall submit in the prescribed form a report on the volume and interest rates on credit line availments under short-term prime rates in such frequency and within the deadline indicated in Appendix 6. c. Computation of Capital to Risk Assets Ratio in Accordance with the Basle Guidelines, as Modified . To prepare banks for the eventual adoption of the Basle risk-based capital adequacy standard and for monitoring purpose, all UBs and KBs shall submit starting September 30, 1993 and every quarter thereafter a quarter-end report of their capital adequacy under the modified Basle. Guidelines based on their consolidated statement of condition (bank and financial subsidiaries). The report shall be submitted in the format prescribed under Circular Letter dated July 13, 1993 within fifteen (15) banking days after the end of the reference quarter. d. Foreign Exchange Position Report . Banks may be allowed to submit on a weekly basis the notarized certification signed by the bank's President/CEO/Country Manager and the Treasurer to cover the daily hard copies of Schedule 13, FX Form I and CFXPR pertaining to each day of the week. Delayed submission of the notarized certification shall be subject to monetary penalty, as follows: Daily Penalty 1st banking day of P6,000.00 (equivalent delay P1,200.00 per day for five report dates covered by the certification on the assumption that the five (5) weekdays of the reference week are all banking days) 2nd banking day of P1,200.00/day delay and onwards SUBSECTION 2162.13 (Reserved) SUBSECTION 3162.13 (Reserved) K. Internal Control SECTION X163. Internal Control System . The following provisions are the minimum internal control standards for banks to help promote effective control system. For this purpose, the following records/data shall be compiled and made available for the inspection of BSP examiners: a. Records showing compliance with independent balancing procedures. These records should indicate the accounts and the periodic balancing procedures performed. b. Statements of actual duties of persons assigned to handle cash and securities. c. All internal control audit reports or their equivalent. d. Information/data on the direct and/or indirect equity holdings and/or connection with any firm, partnership or corporation organized for profits, of all the bank directors, officers and major stockholders as defined under Subsec. X326.1 should be maintained. e. Information/data pertaining to the electronic data processing (EDP) department or EDP servicer of the bank particularly on organization, input controls, processing controls, output controls, software controls, program and documentation standards, logs on the operation of mainframes and peripherals, hardware controls and such other EDP internal control standards prescribed by the BSP in separate rules and regulations. SUBSECTION X163.1 Proper accounting records a. All banks shall maintain proper and adequate accounting records. b. These records should be kept up-to-date and shall contain sufficient detail so that an audit trail is established. c. All tickets shall bear official approval and should be initiated by the person originating and another person by checking them. SUBSECTION X163.2 Independent balancing a. Independent balancing shall mean that records posted by a person or cash held by a teller or cashier shall be balanced or counted by another person. b. The following minimum independent balancing procedures shall be adopted. (1) Monthly reconciliation of general ledger balances against respective subsidiary and supporting records and documentation by someone other than the bookkeeper or the person handling the records. (2) Irregular and unannounced count of teller's cash and checks and other cash items at least twice a month and vault cash including Automated Tellering Machine's (ATM) cash dispensers at least once a month by the auditor/control officer or by an officer not connected with cash department. (3) Monthly reconciliation of due from banks, cash in bank accounts (domestic and foreign) and due from/to head office/branches by someone other than the person handling the records or posting the general ledger entries. (4) Periodic verification of securities and collaterals by someone other than their custodian. (5) Periodic verification of the accuracy of the interest credits to deposit liabilities accounts. SUBSECTION X163.3 Division of duties and responsibilities a. The duties of all the officers and employees shall be segregated, clearly defined, understood, documented and manualized. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end, without some check or balance from some other part of the organization. b. The physical handling of a transaction shall be separated from its recording and supervision as follows: (1) A person handling cash shall not be permitted to post the ledger records nor should posting the general ledger be performed by an employee who posts the depositor's subsidiary ledgers; (2) A lending officer shall never be allowed to disburse proceeds of notes, accept note payment nor post loan ledgers; (3) The functions of issuing, recording and signing of drafts/checks shall be separated; (4) Checks and other cash items shall be maintained either by an employee not handling cash or by the Rack/Distributing Department provided that adequate control as to custody and disposition of funds are properly maintained; (5) The receipt of statements from depository bank shall be assigned to an employee other than the one connected with the preparation, recording and signing of bank drafts; (6) Custodians of securities shall not be allowed to handle security transactions; (7) Collateral appraisal shall be done by an employee/officer who does not approve loans; (8) Incoming checks and other cash items shall be recorded chronologically in a register by an employee other than the bookkeeper before they are forwarded for posting purposes; (9) Credit reports shall be obtained by someone other than lending officers; (10) Mailing of customers' statements and delinquent notices shall be done by an employee other than the one who granted the loan or the one handling the records; and (11) Dispatching and delivery of current account statements shall be done by someone who is not involved in current account operations. c. Extensive background checking of persons intended to be assigned to handle cash and securities shall be conducted. Frequent follow-up checking after their employment shall also be made. SUBSECTION X163.4 Joint custody a. Joint custody shall mean the processing of transactions in the presence of and under the direct observation of a second person. Both persons shall be equally accountable for the physical protection of the items and records involved. b. Physical protection shall be deemed established through the use of two (2) locks or combinations on a file chest or vault compartment. c. Two (2) or more persons shall be assigned to each half of the control so that operating efficiency is not impaired if one (1) person is not immediately available. d. Persons who are related to each other within the third degree of consanguinity or affinity shall not be made joint custodians. e. The following shall be under joint custody: (1) Cash in vault and in ATM cash dispensers; (2) All accountable forms; (3) Collaterals; (4) Securities; (5) Documents of title and/or ownership of properties or fixed assets; (6) Dormant or inactive deposit ledgers/EDP print-outs and corresponding signature cards including on-line posting of dormant/inactive accounts; (7) Import documents; (8) Trust receipts; (9) Collection items; (10) Duplicate keys, safe deposit spare locks and keys, and keys to unrented safe deposit boxes; (11) Safekeeping items; (12) Vault door and safe combinations; (13) Unissued specimen signature books; (14) Correspondent's and bank's own telegraphic and/or electronic fund transfer system or cable test keys currently in use; (15) Test key fixed numbers unissued; (16) Unissued and captured ATM cards and similar devices; (17) Access locks and keys to on-line EDP terminals and similar devices; and (18) Access locks and keys to EDP mainframes and peripherals. SUBSECTION X163.5 Signing authorities . Signing authorities for the different levels of officers to sign for and in behalf of the banks shall be approved by the board of directors and the extent of each level of authority shall be clearly defined. These signing authorities shall include but need not be limited to the following: a. Lending; b. Investment; c. Approval of expense; d. Various supervisory reports; and e. Bank drafts, manager's/cashier's checks, bank money orders and certificates of time deposit. SUBSECTION X163.6 Dual control a. Dual control shall mean the work of one (1) person is to be verified by a second person to ensure that the transaction is properly authorized, recorded and settled. b. The routine and completion of each transaction shall involve at least two (2) or more individuals. c. Except as herein provided, the following accounts/transactions shall be under dual control: (1) Cashier's/manager's checks, telegraphic transfers (TTs) and electronic, fund transfer system (EFTS) The signature of at least two (2) officers should be required in the issuance of cashier's/manager's checks and payment orders (incoming and outgoing) of TTs and EFTS. The board of directors may, however, prescribe a predetermined amount by which one (1) senior officer can sign checks or payment orders, subject to appropriate control measures. (2) Certificates of Time Deposit The board of directors of a bank is given the discretion to determine the number of signatories for the issuance of certificates of time deposit (CTDs). For this purpose, all banks shall submit to the appropriate supervision and examination department of the BSP their respective internal control measures for the issuance of CTDs, the minimum of which shall include the following activities: (a) Joint custody of unissued CTD forms; (b) Accounting for all issued/cancelled CTDs; (c) Signature requirement for the issuance of CTDs; (d) Counterchecking of issued CTDs against the tellers' proofsheets/validated slips; (e) Recording of CTD transactions. Any change in the internal control measures shall be submitted to the appropriate supervising and examining department of the BSP not later than thirty (30) days prior to the implementation. For newly established banks, the requirement shall be submitted not later than a month from the start of banking operations. (3) Bank Drafts The signature of two (2) authorized officers should be required in the issuance of bank draft. (4) Borrowings The signature of at least two (2) authorized officers should be required. (5) All transactions giving rise to Due to or Due from accounts and all instruments of remittances evidencing these transactions particularly those involving substantial amounts should be approved by two (2) authorized officers. SUBSECTION X163.7 Number control a. Sequence number controls shall be incorporated in the accounting system and should be used in registering notes, in issuing official checks and in other similar situations. Bank management shall designate a person who is detached from the banking operations involved to monitor said sequence number controls. b. The following are the forms, instruments and accounts that shall be number-controlled: (1) Bank drafts; (2) Manager's and cashier's checks; (3) Promissory notes; (4) Savings deposit accounts; (5) Demand deposit accounts; (6) CTDs; (7) Letters of credit; (8) Collection items; (9) Official and provisional receipts; (10) Certificates of stocks; (11) Loan accounts; (12) Expense vouchers; (13) Payment orders (incoming and outgoing ) of TTs and EFTS; (14) Transfer requests through EFTS involving bank's accounts abroad; (15) EDP batch transmittal slips of documents; and (16) Due to/from head office/branches tickets. SUBSECTION X163.8 Rotation of duties a. The duties of personnel handling cash, securities and bookkeeping records shall be rotated. b. Rotation assignment shall be irregular, unannounced and long enough to permit disclosure of any irregularities or manipulations. c. Tellers/cashiers shall be temporarily relieved of their duties during the actual count of their cash accountabilities by BSP examiners or by internal/external auditors. SUBSECTION X163.9 Independence of the internal auditor a. The by-laws shall provide for the position of internal auditor together with the duties and responsibilities, scope and objectives of internal auditing. b. The internal auditor shall report directly to the board of directors or to an audit committee composed of directors who do not hold executive positions in the bank. c. The internal auditor shall not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. SUBSECTION X163.10 Confirmation of accounts At least once a year, the internal auditing staff shall confirm by direct verification with bank clients, the following: a. Balances of loans and credit accommodations of borrowers; b. Deposit account balances particularly new deposit accounts, inactive or dormant accounts and closed accounts; c. Outstanding balances of borrowings and other liabilities; and d. Outstanding balances of receivables/payables. SUBSECTION X163.11 Other internal control standards a. Deposit Accounts (1) Entries to dormant account ledgers shall be verified and approved by a designated officer. His initials shall be placed next to the entry on the ledger sheet. (2) Dormant accounts shall be segregated from active account ledgers with a separate subsidiary control. (3) Signature cards for dormant accounts shall be removed from active files. (4) All new current accounts shall be approved by a designated officer. (5) Signature cards and deposit ledger sheets shall be authenticated by some form of validation. Subsequent changes shall also be validated. (6) Signature cards and deposit ledger sheets shall be accessible only to authorized persons. (7) Deposit tickets shall be occasionally examined at irregular intervals to determine that postings are made on the actual date deposits are received. (8) Checks shall be canceled as soon as they have been paid and posted. (9) Reports on closed accounts and returned checks shall be prepared daily. (10) All current account statements shall be mailed direct to the depositors. Undelivered statements shall be retained by an organizational unit not responsible for demand deposit account processing. (11) An officer shall be designated to attend to customers who report differences on their statements. (12) Checkbooks shall be issued only against requisition forms signed by an authorized signatory to the account. (13) Banks shall adopt a system to establish the identity of their depositors. b. Miscellaneous (1) Loan applications and related documents shall be verified to ensure their authenticity particularly the name, residence employment and current reputation of the borrower. (2) Tellers paying checks to strangers shall obtain positive identification of the person and the account on which the checks are drawn should be verified. (3) No employee shall be permitted to process transaction affecting his own account. (4) Tellers and other employees having contact with customers shall be prohibited from preparing deposit ticket, withdrawal slip or other forms for the customer. (5) All banks shall have a sound recruitment policy. (6) In the case of TBs, all accountable officers and employees shall be bonded. SUBSECTION X163.12 Internal control procedures for dormant/inactive accounts a. Definition of dormant or inactive accounts (1) Current or checking accounts showing no activity (deposit or withdrawals) for a period of one (1) year. (2) Savings account showing no activity (deposit or withdrawals) for a period of two (2) years. b. Procedures for classification . Banks shall review and segregate dormant accounts as herein defined at least once in every semester. c. Internal control measures (1) As a matter of policy, banks shall exert all efforts to prevent checking and savings accounts from becoming dormant. When it becomes apparent that an account is inactive, a short letter should be sent to the depositor encouraging him to use his account. In case of checking accounts, the banks shall ensure that the monthly statement of accounts reach the depositors. If the depositors cannot be located, the following steps should be undertaken: (a) Check any significant changes or fluctuations in the depositors' account balances over a period of time with emphasis on accounts with decreasing balances; (b) Verify apparent reactivation entries, represented either by deposit or withdrawal, that appears to have prevented the account from being classified as dormant; and (c) Investigate any obvious alteration of the ledger records. (2) Segregated dormant accounts shall be placed under joint custody of two (2) responsible officers/employees. SHCaEA (3) A separate ledger control for dormant accounts shall be maintained. (4) Signature cards for dormant accounts shall also be segregated from active files and held under joint custody. (5) Entries to dormant account ledgers shall be verified and approved by a designated officer. His initials shall be placed next to the entry on the ledger sheet. (6) All inquiries on dormant accounts shall be coursed to one officer who should obtain sufficient identification from the inquirer to assure that he is entitled to the information. (7) A trial balance of dormant account ledgers shall be taken periodically and balances with the general control account by an employee other than the bookkeeper. (8) Dormant or inactive accounts shall be verified directly with depositors. (9) All transactions affecting dormant accounts shall be subject to audit by the internal auditor. (10) A semestral report on deposit accounts transferred to dormant shall be rendered to bank management. SECTION X164. Audited Financial Statements of Banks . The following rules shall govern the utilization and submission of audited financial statements (annual reports) of banks. For purposes of this Section, the audited financial statements (annual reports) of banks with subsidiaries shall be presented side by side on a solo basis and on a consolidated basis (bank and subsidiaries). SUBSECTION X164.1 Financial audit . Banks shall cause an annual financial audit to be conducted by an external independent auditor not later than thirty (30) calendar days after the close of the calendar year or the fiscal year adopted by the bank. Reports of such audit shall be made and submitted to the board of directors and the appropriate supervising and examining department of the BSP not later than ninety (90) calendar days after the start of such audit. For purposes hereof, an external independent auditor who may be engaged by a bank shall refer to one who does not hold or own two percent (2%) or more of equity in that bank. In the case of a partnership, this limitation shall apply to the principal partners or associates. The audit of a government-owned or controlled bank by an external independent auditor shall be in addition to that conducted by the Commission on Audit. The board of directors, in a regular or special meeting, shall consider and act on the financial audit report and shall submit, within thirty (30) banking days after receipt of the report, a copy of its resolution to the appropriate supervising and examining department of the BSP. The resolution shall show, among other things, the names of the directors present and absent. Further, the board shall also consider and act on the Letter of Comments (LOC) submitted by the external auditor and shall submit, within thirty (30) banking days after receipt of the report, a copy of its resolution together with the said LOC to the appropriate supervising and examining department of the BSP The resolution shall show, among other things, the names of the directors present and absent and the actions(s) taken on the findings and recommendations. SUBSECTION X164.2 Posting of audited financial statements . Banks shall post in a conspicuous place in all their branches and other banking offices, their latest audited financial statements consisting of the following: a. Balance sheet; b. Income statement; c. Notes to financial statements, which shall include, among other things, disclosure of the volume of past due loans as well as loan-loss provisions; and d. Auditor's certificate. SUBSECTION X164.3 Disclosure of external auditor's adverse findings to the Bangko Sentral; sanction a. Findings to be disclosed . Banks shall require their external auditors to report to the BSP any matter adversely affecting the condition or soundness of the bank, such as, but not limited to: (1) Any serious irregularity, including those involving fraud or dishonesty, that may jeopardize the interest of depositors and creditors; (2) Losses incurred which substantially reduce the capital funds of the bank; and (3) Inability of the auditor to confirm that the claims of creditors are still covered by the bank's assets. The disclosure of information by the external auditor to the BSP shall not be a ground for civil, criminal or disciplinary proceedings against the former. Bank management shall be present during discussions or at least be informed of the adverse findings in order to preserve the concerns of the supervisory authority and external auditors regarding the confidentiality of information. b. Sanction . The auditing firm(s) shall be blacklisted by the Monetary Board for a period as the Board may deem appropriate for their failure to perform their duty of reporting to the BSP any matter adversely affecting the condition or soundness of the bank. Banks shall not be allowed to engage the services of the blacklisted auditing firm. SECTION X165. Bank Protection . Banks shall observe the following rules and regulations on bank protection. SUBSECTION X165.1 Objectives . These regulations are designed to: a. Ensure maximum protection of life and property against bank robberies; b. Prevent and discourage bank robberies; and c. Assist law enforcement agencies in identifying, apprehending and prosecuting perpetrators of bank robberies. SUBSECTION X165.2 Designation of security officer . The board of directors of each bank shall appoint or designate a qualified security officer who shall be under the direct supervision of the president and shall be responsible for the development and administration of a security program and the installation, maintenance and operation of security devices in accordance with the standards prescribed by the BSP in separate rules and regulations. The security officer must be: (a) at least twenty-five (25) years of age; (b) a college graduate; (c) with at least two (2) years experience in law-enforcement or police matters; (d) of unquestionable integrity; and (e) of good moral character. SUBSECTION X165.3 Security program . The security program of each bank shall be in writing approved by its board of directors and retained in such form as will readily permit determination of its adequacy and effectiveness and shall contain provisions as may be prescribed by the BSP. SUBSECTION X165.4 Security devices . Within thirty (30) calendar days from the designation of the security officer in the case of a bank with less than ten (10) branches; sixty (60) calendar days in the case of a bank with ten (10) but less than twenty (20) branches; and ninety (90) calendar days in the case of a bank with twenty (20) or more branches, the security officer shall, under the direction of the bank's president, conduct a security survey and submit a report on the needed security devices in each of the bank's banking offices. Banks shall effect the installation, maintenance and operation, as individually appropriate, of the following in each banking office: a. A lighting system for illuminating, during the hours of darkness, the area around the vault, if the vault is visible from outside the bank premises; b. Time delay device to be installed in the cash vault or safe; c. Tamper-resistant locks on exterior doors and windows designed to be opened; ETAICc d. An alarm system or other appropriate device for promptly notifying the nearest law enforcement officers of an attempted or perpetrated robbery; and e. Such other devices as the security officer shall determine to be appropriate for discouraging robberies and for assisting in the identification and apprehension of persons who commit such acts: Provided , That the security officer shall consider, among other things, the following: (1) The incidence of crimes against banks and other business establishments in the area in which the banking office is located; (2) The amount of currency or other valuables exposed to robbery; (3) The distance of the banking office from the nearest law-enforcement officers and the time ordinarily required for such law-enforcement officers to arrive at the banking office; (4) The cost of the security devices; (5) Other existing security measures in effect at the banking office; and (6) The physical characteristics of the banking office structure and its surroundings. Each bank shall install, maintain and operate security devices which are expected to give a general level of bank protection equivalent, at least, to the standards prescribed by the BSP in separate rules and regulations. SUBSECTION X165.5 Reports . As of the last business day of December of every year, each bank shall submit not later than January 15 of the following year to the appropriate supervising and examining department of the BSP a certification of compliance with the requirements of BSP rules and regulations on bank protection in accordance with the format shown in Appendix 10 . SUBSECTION X165.6 Bangko Sentral inspection . Banks shall be subject to inspection by the BSP to determine if the security measures, devices or procedures used or adopted by a bank meet the requirements of these regulations and its supplementary regulations. If the bank fails to meet the standard herein set forth, the Governor may direct or require the bank to take necessary corrective actions. L. Miscellaneous Provisions SECTION X166. Place of Board of Directors' Meeting . Banks shall include in their by-laws a provision that meetings of their board of directors shall be held only within the Philippines. SECTION X167. Business Name a. UBs/KBs . Only a bank that is granted universal/commercial banking authority may represent itself to the public as such in connection with its business name. b. TBs . TBs may be allowed to adopt and use any name: Provided , That the words A Thrift Bank , A Savings Bank , A Private Development Bank or A Stock Savings and Loan Association , as the case may be, are affixed after its business name. c. RBs/Coop Banks . RBs/Coop Banks may adopt a corporate name or use a business name/style with the word Rural or Coop, as the case may be. Said banks may also adopt a name without such words: Provided , That the identifying phrase, A Cooperative Bank or A Rural Bank , as the case may be, is affixed after its business name: Provided , further , That where the name of the bank is shown on letterheads, billboards and other advertising materials, the size of the letters of such phrase shall be at least one-half (1/2) the size of the business name. SECTION X168. Management Contracts a. Management contracts of banks with management firms shall be limited to consultancy and advisory services; b. Only a natural person may be elected or appointed as an officer of a bank, without prejudice to such person being a nominee of a management corporation: Provided , That the responsibility and/or accountability of anyone elected or appointed to an officer position shall be personal in nature and cannot be delegated to a corporation; and c. Any bank that enters into contracts contrary to this policy shall be denied the credit facilities of the BSP. SECTION X169. Duties and Responsibilities of Banks and their Directors/Officers in All Cases of Outsourcing of Banking Functions . When outsourcing of banking functions is allowed by law, banks shall: a. Carry out the same in accordance with proper standards, ensuring the integrity of the data, systems and controls of the banks and subject to the supervisory, regulatory and administrative authority of the BSP over the banks and their directors/officers; b. Be responsible for the performance thereof in the same manner and to the same extent as it was before the outsourcing; c. Comply with all laws and regulations governing the banking activities/services performed by the qualified service providers in its behalf such as, but not limited to, keeping of records and preparation of reports, signing authorities, internal control and clearing regulations; and d. Manage, monitor and review on an ongoing basis the performance by the qualified service providers of the outsourced banking activities/services. SUBSECTION X169.1 Prohibition against outsourcing certain banking functions . No bank or any director, officer, employee, or agent thereof shall outsource inherent banking functions. For purposes of this Section, outsourcing of inherent banking functions shall refer to any contract between the bank and a service provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit transactions of the former. Banks cannot outsource management functions except as may be authorized by the Monetary Board when circumstances justify. SUBSECTION X169.2 Outsourcing of information technology systems/processes . Subject to prior approval of the Monetary Board, banks may outsource all information technology systems and processes except for functions excluded in Subsec. X169.1. a. Certain functions affecting the ability of the bank to ensure the fit of technology services deployed to meet its strategic and business objectives and to comply with all pertinent banking laws and regulations, such as, but not limited to, strategic planning for the use of information technology; determination of system functionalities; change management inclusive of quality assurance and testing; service level and contract management; and security policy and administration, may not be outsourced. Subject to prior approval of the Monetary Board and submission of the same documentary requirements in Item "b" hereof, consultants and/or service providers may be engaged to provide assistance/support to the bank personnel assigned to perform such functions. aHTEIA b. Documentary requirements . A bank intending to outsource information technology systems and processes shall submit the following documents to BSP which shall treat the same as strictly confidential: (1) Proposed contract between the bank and the service provider which should, at a minimum, include all the following: (a) Complete description of the work to be performed or services to be provided; (b) Fee structure; (c) Provisions regarding on-line communication availability, transmission line security, and transaction authentication; (d) Responsibilities regarding hardware, software and infrastructure upgrades; (e) Provisions governing amendment and pretermination of contract; (f) Mandatory notification by the service provider of all systems changes that will affect the bank; (g) Details of all security procedures and standards; (h) Responsibility, fines, penalties and accountability of the service provider for errors, omissions and frauds; (i) Confidentiality clause covering all data and information; solidary liability of service provider and bank for any violation of R.A. No. 1405 (the Bank Deposits Secrecy Law) actions that the bank may take against the service provider for breach of confidentiality or any form of disclosure of confidential information; and the applicable penalties; (j) Segregation of the data of the bank from that of the service provider and its other clients; (k) Disaster recovery/business continuity contingency plans and procedures; (l) Adequate insurance for fidelity and fire liability; (m) Ownership/maintenance of the computer hardware, software (program source code), user and system documentation, master and transaction data files; (n) Guarantee that the service provider will provide necessary levels of transition assistance if the bank decides to convert to other service providers or other arrangements; (o) Access to the financial information of the service provider; (p) Access of internal and external auditors to information regarding the outsourced activities/services which they need to fulfill their respective responsibilities; (q) Access of BSP to the operations of the service provider in order to review the same in relation to the outsourced activities/services; (r) Provision which requires the service provider to immediately take the necessary corrective measures to satisfy the findings and recommendations of BSP examiners and those of the internal and/or external auditors of the bank and/or the service provider; and (s) Remedies for the bank in the event of change of ownership, assignment, attachment of assets, insolvency, or receivership of the service provider. (2) Minutes of meetings of the board of directors of the bank concerned signed by majority thereof, certified by the secretary and attested by the President documenting their discussions on the following: (a) The benefits and advantages of outsourcing with respect to, among others, its role and contribution to the accomplishment of the strategic and business plans of the bank as well as the economy, efficiency and quality of its over-all operations; (b) The careful and diligent evaluation, prior to selecting the service provider with which it is entering into an outsourcing contract, by the bank of various service providers and their proposals, including their reputation, financial condition, cost for development, maintenance and support, internal controls, recovery processes, service level agreements, availability of competent, technically qualified and experienced personnel, strategic or convenient location of support services and such similar other considerations; (c) The creation, organization and membership of a senior management oversight committee to handle and oversee the efficient implementation and monitoring of the applications/operations of the service provider to ensure that the same is in accordance with the existing information technology initiatives, policies and guidelines of the bank; the list of the members of such committee, its organizational chart, and a detailed description of the roles and responsibilities of its members must be included in the minutes of the meeting or submitted as attachments thereto; (d) The creation, organization and membership of a help desk to resolve all queries, problems and other concerns arising from the applications/operations rendered by the service provider; and (e) The systems and user acceptance tests that will be conducted by the service provider before full implementation of the outsourced systems/processes and the unsatisfactory results of which shall be valid ground to rescind the contract with the service provider. (3) Profile of the selected service provider or the non-bank partner, in case of joint ventures and other similar arrangements, which should include: (a) Most recent and complete financial and operational information; (b) Track record; (c) List of clientele, particularly banks and the services provided thereto by the service provider; and (d) At the option of the service provider or non-bank partner, other documents demonstrative of its competence and reputation in the field of information technology as applied to banking operations. cAISTC SUBSECTION X169.3 Outsourcing of other banking functions Subject to prior approval of the Monetary Board, banks may outsource data imaging, storage, retrieval and other related systems; clearing and processing of checks not included in the Philippine Clearing House System; printing of bank deposit statements; and such other activities as may be determined by the Monetary Board. The bank concerned must submit the same documentary requirements listed in Subsec. X169.2b hereof, except where they exclusively pertain to information technology operations. Banks may outsource credit card services; printing of bank loan statements and other non-deposit records, bank forms and promotional materials; credit investigation and collection; processing of export, import and other trading transactions; transfer agent services for debt and equity securities; property appraisal; property management services; messenger, courier and postal services; security guard services; vehicle service contracts; janitorial services; and such other activities as may be determined by the Monetary Board. SUBSECTION X169.4 Service providers . When allowed by law, banks may enter into outsourcing contracts only with service providers with demonstrable technical and financial capability commensurate to the services to be rendered. SUBSECTION X169.5 Review of subsisting outsourcing contracts . Within six (6) months from December 5, 2000 a. Banks should submit a list of all their existing contracts with service providers, detailing the: (1) Services/activities being outsourced; (2) Terms of the contracts; (3) Measures, if any, undertaken by the bank and/or service provider to ensure the secrecy of bank deposits and confidentiality of all other data and information; and (4) Such other information as may be necessary to show compliance with the pertinent provisions of this Section or be required by the Monetary Board; and b. For outsourcing contracts not in accordance with this Section, the following alternative courses of action are available to the bank concerned: (1) preterminate said contracts; (2) renegotiate or remedy the same and submit the amendments thereto or new contracts to the BSP; or (3) submit a program of compliance to the BSP. SUBSECTION X169.6 Penalties . Violation of this Section shall be subject to Sections 34, 35, 36 and 37 of R.A. No. 7653, the New Central Bank Act. If the offender is a director or officer or a bank, the Monetary Board may also suspend or remove such director or officer. SECTION X170. Compliance System ; Compliance Officer . Banks shall develop and implement a compliance system and appoint/designate a compliance officer to oversee its implementation. SUBSECTION X170.1 Compliance system . The compliance system shall have the following basic elements. a. A written compliance program approved by the Board of Directors: (1) The compliance program shall enable the bank to identify the relevant Philippine laws and regulations, analyze the corresponding risks of non-compliance, and prioritize the compliance risks (e.g., low, medium, high). (2) The program shall provide for periodic compliance testing with applicable legal and regulatory requirements. Testing frequency shall be commensurate with identified risk levels (e.g., annual testing for low-risk, quarterly testing for medium-risk, monthly testing for high-risk). It shall also provide for the reporting of compliance findings noted to appropriate levels of management. (3) The program shall establish the responsibilities and duties of the compliance officer and other personnel (if any) involved in the compliance function. (4) A copy of the compliance program and the written approval of the Board of Directors shall be submitted to the appropriate supervising and examining department of the BSP within twenty (20) banking days from date of approval. (5) The program shall be updated at least annually to incorporate changes in laws and regulations. Any changes in the program shall likewise be approved by the bank's Board of Directors and submitted to BSP within twenty (20) banking days from the date of approval. b. A constructive working relationship with regulatory agencies. The bank, through its compliance officer, may consult the regulatory agencies for additional clarification on specific provisions of laws and regulations and/or discuss compliance findings with the regulatory authorities. A dialogue may also be initiated with respect to borderline issues. c. A clear and open communication process within the bank to educate and address compliance matters. Officers and staff shall be trained on the regulatory requirements through regular meetings, distribution of manuals and dissemination of regulatory issuance. d. Continuous monitoring and assessment of the compliance program. The program shall provide for the periodic review of the compliance function to measure its effectiveness. The review may be carried out by the internal audit department of the bank. The compliance program may operate parallel to or as part of a bank's internal control and auditing program. SUBSECTION X170.2 Compliance officer a. The principal function of the compliance officer is to oversee and coordinate the implementation of the compliance system. His responsibility shall include the identification, monitoring and controlling of compliance risk. b. The appointment/designation of a compliance officer shall require prior approval of the Monetary Board. The bio-data of the proposed compliance officer shall be submitted to the appropriate supervising and examining department of the BSP. AcHaTE c. The compliance officer shall have the skills and expertise to provide appropriate guidance and direction to the bank on the development, implementation and maintenance of the compliance program. d. For UBs/KBs, an independent full-time compliance officer, who shall have a rank of at least a Vice President, shall be appointed. However, they are allowed on a case-to-case basis, upon recommendation of the supervising and examining department concerned, to designate an incumbent officer (including the Internal Auditor) as the bank's compliance officer: Provided , (i) That such will not give rise to any conflict of interest situation, (ii) That the main function of the officer shall be that of a compliance officer and (iii) That he is considered a senior officer in the organizational set-up of the bank. e. For other types of banks, an incumbent senior officer may be designated concurrently as the bank's compliance officer: Provided , That such designation will not give rise to any conflict of interest situation. The internal auditor of a bank may also be designated as its compliance officer subject to the condition that his primary duty will be to act as compliance officer. SECTIONS X171 - X179 (Reserved) SECTION X180. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity . Under Section 58, R.A. No. 8791, the Monetary Board may require a bank to engage the services of an independent auditor to be chosen by the bank concerned from a list of certified public accountants acceptable to the Monetary Board. The adoption of a policy to select external auditors and, in connection thereto, prescribe appropriate selection criteria will ensure that the reliance by bank regulatory authorities on the opinion of external auditors is well-placed. In the long run, enhanced sharing of information between external auditors and the bank regulatory authorities will improve the effectiveness of bank audit and supervision as consistency in the approach of audit and bank examination is promoted and unnecessary duplication of efforts is avoided. a. Rules and regulations . The rules and regulations to govern the selection, appointment and the reporting requirements for external auditors of UBs and KBs are shown in Appendix 43 . b. Sanctions . The applicable sanctions/penalties prescribed under Sections 36 and 37 of R. A. No. 7653 shall be imposed on the bank and the director(s) approving the hiring of external auditors who are not in the BSP list of selected bank auditors. c. Effectivity . The selection, appointment and the reporting requirement for external auditors shall be applicable for audits to be conducted commencing the calendar/fiscal year 2000. SECTIONS X181 - X198 (Reserved) SECTION X199. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART TWO Deposit And Borrowing Operations A. Demand Deposits SECTION X201. Authority to Accept or Create Demand Deposits . Banks may accept or create demand deposits subject to withdrawal by check. A UB/KB may accept or create demand deposits subject to withdrawal by check, without prior authority from the BSP. A TB/RB/Coop Bank may accept or create demand deposits upon prior authority of the BSP. SUBSECTION X201.1 Prerequisites to accept or create demand deposits for Thrift Banks/Rural Banks/Cooperative Banks . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5, a TB/RB/Coop Bank applying for authority to accept or create demand deposits shall also comply with the following requirements: a. The applicant TB must have complied with the minimum capital required under Subsecs. X106.1 and X106.2. In the case of RB/Coop Bank, it must have net assets of at least 425 million: Provided, That RBs which have been authorized to accept or create demand deposits prior to the approval of R.A. No. 7353 (Rural Banks Act of 1992) shall be allowed to continue servicing such deposits. The terms capital and net assets shall have the same meaning as in Sec. X106. b. It must be a member of the Philippine Deposit Insurance Corporation (PDIC) in good standing. SUBSECTION X201.2 Requirements for accepting demand deposits . After a TB's/RB's/Coop Bank's application to accept demand deposits has been approved, it may actually accept such deposits, subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X201.1 have been complied with up to the day before the checking account services are actually offered/extended to the public; b. That if it is not a member of the Philippine Clearing House Corporation (PCHC), it has appointed a commercial bank, or a normally operating thrift bank which is a direct participant in clearing with the PCHC/BSP and has complied with the minimum capital required for commercial banks, thru which it shall participate in the check clearing system; and c. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the demand deposit service is offered to the public not later than ten (10) banking days from such offering of the service. SUBSECTION X201.3 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653. a. On the Bank Suspension of its authority to accept or create demand deposits for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. SECTION X202. Temporary Overdrawings; Drawings Against Uncollected Deposits . The following regulations shall govern temporary overdrawings and drawings against uncollected deposits (DAUDs). a. Temporary overdrawings . Temporary overdrawings against current account shall not be allowed, unless caused by normal bank charges and other fees incidental to handling such accounts. Banks which violate these regulations shall be subject to a fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed on the basis of the amount of overdrawing or fines in amounts as may be determined by the Monetary Board, but not to exceed P30,000 a day for each violation, whichever is lower. Technical overdrawings arising from "force posting " in-clearing checks shall be debited by banks under " Returned Checks and Other Cash Items Not in Process of Collection " which is part of " Other Assets " in the Statement of Condition. Items to be lodged under this account shall consist only of in-clearing checks which may result in " technical overdrawn " accounts and shall be immediately reversed the following day. SHECcD The checks lodged under " Returned Checks, etc. " shall either be returned or honored the following day before clearing. The items to be used as cover for the honored checks should only consist of any of the following: (1) Cash (2) Cashier's, Manager's or Certified Checks (3) Bank Drafts (4) Postal Money Orders (5) Treasury Warrants (6) Duly funded "On us" Checks (7) Fund transfers/credit memos within the same bank representing proceeds of loans granted under existing regulations. Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks shall not be subject to the above-mentioned regulations: Provided, That: (a) The maintenance of non-resident correspondent bank's peso checking accounts and overdrawings therefrom are covered by reciprocal arrangement; (b) Temporary overdrawings are covered within fifteen (15) days from the date overdrawings are incurred; and (c) Such accounts are credited only through foreign exchange inward remittance. b. Drawings against uncollected deposits . DAUDs shall be prohibited except when the drawings are made against uncollected deposits representing manager's/cashier's/treasurer's checks, treasury warrants, postal money orders and duly funded " on us " checks which may be permitted at the discretion of each bank. SECTION X203. Checks Without Sufficient Funds . To complement the provisions of Batas Pambansa Blg. 22, (An Act Penalizing the Making or Drawing and Issuance of a Check Without Sufficient Funds or Credit), the following regulations shall govern: a. The drawee bank shall stamp, write or print on a dishonored check or on a paper attached thereto the date the check is presented for payment and the reason for the refusal to pay the same to the holder thereof. b. Where the reason for the dishonor of a check is stamped, written or printed on a paper attached to the checks, the drawee bank shall indicate the pertinent details, such as the names of the drawer, the payee and the drawee bank, the date and amount of the check, the check number and the date of dishonor. c. The drawee bank shall use only the remark or notation " Drawn Against Insufficient Funds ", " No Funds ", or " Insufficient Funds " stamped, written, or printed on, or attached to the check dishonored or returned by reason of insufficiency of funds or credit. d. Notwithstanding receipt of an order to stop payment, the drawee bank shall likewise stamp, write, or print on, or attach to the check any of the remarks or notations mentioned in Item "c" hereof indicating that there were no sufficient funds in or credit with such bank for the payment in full of such check, if such be the fact. The bank shall also indicate receipt of a stop payment order. e. For local exchanges, a check dishonored by reason of insufficiency of funds or credit shall be returned by the drawee bank to the negotiating bank not later than the next regular clearing. For out-of-town exchanges, a check so dishonored shall be returned by the drawee bank to the negotiating bank within the period specified announcing the opening of clearing facilities in each of the authorized regional clearing centers. A check dishonored by reason of insufficiency of funds or credit which was not coursed through the clearing system shall be returned by the drawee bank to the holder or the negotiating bank, as the case may be, no later than the business day following the date the check is presented for payment with the drawee bank. The negotiating bank shall, in turn, return a check dishonored by reason of insufficiency of funds or credited to the holder not later than the business day following its receipt of the dishonored check from the drawee bank. SECTION X204. Current Accounts of Bank Officers and Employees . The following officers and employees of banks are prohibited from maintaining demand deposits or current accounts with the banking office in which they are assigned a. All officers; b. Employees of the bank's cash department/cash units; and c. Other employees who have direct and immediate responsibility in the handling of transactions and/or records pertaining to demand deposits or current accounts. The above-mentioned prohibition shall include the spouses and relatives within the second degree of consanguinity and affinity of the officers and employees covered by the prohibition, and the business interests of such officers and employees, their spouses and relatives within the second degree of consanguinity and affinity, in single proprietorships, or partnerships or corporations in which such officers and employees, individually or as a group, own or control at least a majority of the capital of the partnership or the outstanding subscribed capital stock (voting and non-voting) of the corporation. SECTIONS X205-X212 ( Reserved ) B. Savings Deposits SECTION X213. Servicing Deposits Outside Bank Premises . Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises, subject to the following conditions: a. The financial condition of the bank applying for authority to solicit and collect savings deposits outside its bank premises is sound and the operations and the quality of the management thereof could reasonably assure the safety of the funds which may be entrusted to its deposit collectors and/or solicitors; b. The proposed area where applicant bank intends to solicit shall be clearly defined; c. Solicitation of deposits shall only be confined within a locality where there are no other banks in operation, or where it can be clearly established that the deposit potentials of the said locality are still untapped; and d. Applicant bank shall institute and maintain the following minimum safeguards: (1) All deposit solicitors shall be initially bonded for at least P1,000 subject to the increase thereof to approximate their daily collections; (2) Deposit solicitors shall be provided with proper identification cards with photograph and signature of each respective solicitor, certified to by the appropriate officer of the bank. Said identification cards shall be worn by each solicitor at all times at the upper breast of his outer garment when soliciting deposits; (3) Adequate insurance coverage for funds in transit (representing deposits collected outside banking premises) shall be secured by applicant bank from insurance companies not included in the list of companies blacklisted by the Insurance Commissioner; (4) Deposit slips shall be in booklet form, prenumbered, in triplicate copies and in three (3) colors the original to be issued to the depositor, the second copy to be used for posting reference, and the third copy to be retained in the booklet; (5) All collections shall be turned over to the cashier at the end of each day accompanied by a "Collection Summary Report" to be accomplished in duplicate which shall contain the following minimum information: (a) Date of the report (b) Names and addresses of the depositors (c) Deposit slip numbers (d) Amounts of deposit (e) Savings account and passbook numbers (f) Name and signature of solicitor rendering the report (6) Depositors shall always be required to accomplish a "Signature Card" when opening an account, which card shall be used always as reference in checking the genuineness/authenticity of signatures affixed on withdrawal slips or authorizations for withdrawal; (7) Deposits/withdrawals shall be recorded by the bookkeeper or any ledger clerk, except any bank solicitor, in the depositor's ledger cards and passbooks on the same day that such deposits/withdrawals are accepted. Passbooks shall be returned to the depositors not later than the following business day; (8) At the end of each month, depositors shall be advised in writing of the balances of their deposits with the bank, the advise slips of which shall never be handcarried by the solicitors themselves; and (9) Places of assignments of bank solicitors shall be rotated at least quarterly. SECTION X214. Withdrawals . Banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments designed to effect withdrawals of savings deposits without requiring the depositors concerned to present their passbooks and accomplishing the necessary withdrawal slips, except for banks authorized by the BSP to adopt the no passbook withdrawal system: Provided , That banks which are already adopting the no passbook withdrawal system shall be given six (6) months from effectivity of this Manual of Regulations (MOR) to seek approval from the BSP. The provisions of Sec. X202b shall also, apply to withdrawals from savings deposits SECTION X215. Rental Deposits of Lessees . The following guidelines shall govern the opening and handling by banks of deposits made by lessees under Section 5(b) of Batas Pambansa Blg. 25, otherwise known as the Rent Control Law: a. The deposit made by the lessee shall only be accepted by the bank under a special savings account in the name of the lessor; b. The bank shall require the lessee to submit a copy of the written notice sent to the lessor for the deposit made, stating among other things, the date and amount of the deposit and the name and address of the lessor; c. The bank, at its option, may require the lessee to submit any supporting document, such as the lease contract or official receipts of previous rentals paid, which will show the specimen signature of the lessor, or other papers to identify the lessor; d. The bank shall segregate from its regular savings deposit accounts and maintain a separate subsidiary control ledger for deposits made under Section 5(b) of Batas Pambansa Blg. 25; e. Any withdrawal against these special savings deposit accounts may only be allowed in favor of the lessee concerned before the amount deposited under consignation has been accepted by the lessor, or when authorized by the lessor; f. The expenses which may be incurred by the bank with respect to such rental deposits shall be charged against the lessor; g. All the minimum internal control standards applicable to savings deposit accounts prescribed in Sec. X163 shall be complied with; and h. The acceptance of such rental deposits, however, shall be optional or discretionary only upon the bank concerned. SECTIONS X216 - X222 (Reserved) C. Negotiable Order Of Withdrawal Accounts SECTION X223. Authority to Accept Negotiable Order of Withdrawal Accounts . Negotiable Order of Withdrawal (NOW) accounts are interest-bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings accounts. A UB/KB may offer NOW accounts without prior authority of the Monetary Board. A TB/RB/Coop Bank may accept NOW accounts upon prior approval of the Monetary Board. SUBSECTION X223.1 Prerequisites to accept NOW accounts for thrift banks/rural banks/cooperative banks . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , a TB/RB/Coop Bank applying for authority to accept NOW accounts shall also comply with the following requirements: a. The applicant TB must have complied with the minimum capital required under Subsecs. X106.1 and X106.2. In the case of RB/Coop Bank, it must have net assets of at least P5 million: Provided, That RBs which have been authorized to accept or create NOW accounts prior to the approval of R.A. No. 7353 (Rural Banks Act of 1992) shall be allowed to continue servicing such deposits. The terms capital and net assets shall have the same meaning as in Sec. X106. b. It must be a member of the PDIC in good standing. SUBSECTION X223.2 Requirements for accepting NOW accounts . After a TB's/RB's/Coop Bank's application to accept NOW account has been approved, it may actually accept the same subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X223.1 have been complied with up to the day before the NOW account services are actually offered/extended to the public; and b. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the NOW account deposit service is offered to the public not later than ten (10) banking days from such offering of the service. SUBSECTION X223.3 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653: a. On the Bank Suspension of its authority to accept or create NOW accounts for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. SECTION X224. Rules on Servicing NOW Accounts . The following rules shall be observed in servicing NOW accounts: a. Prior to or simultaneous with the opening of a NOW account, the bank shall inform the depositor of its terms and conditions. b. The bank shall be responsible for the proper identification of its depositors; it shall require, among other things, two (2) specimen signatures and such other pertinent information. c. Deposits shall be covered by deposit slips in duplicate duly validated and initialed by the teller receiving the deposit. A copy of the deposit slip shall be furnished the depositor. d. NOW accounts shall be kept and maintained separately from the regular savings deposits. e. Blank NOW forms shall be prenumbered and shall be controlled as in the case of unissued blank checks. f. A bank statement shall be sent to each depositor at the end of each month for confirmation of balances. g. Banks must use the form prescribed by present rules for NOW accounts. Nothing herein shall be construed as precluding a TB, RB or Coop Bank from applying for authority to accept both demand deposits and NOW accounts. SECTION X225. Minimum Features . The order of withdrawal form shall have a size of three (3) inches by seven (7) inches, and shall be printed on security/check paper. It shall contain as a minimum the features of the proforma order of withdrawal shown in Appendix 11 . DcICEa SECTION X226. Clearing of NOW . Any NOW which may be deposited with a bank other than the drawee bank may be cleared through the PCHC in Manila and the Regional Clearing Units in regional clearing centers designated by the BSP in accordance with the clearing procedures. Nothing in this Section shall prevent direct settlement between the parties concerned. The provision of Sec. X202 shall also apply for withdrawals on NOW accounts. SECTIONS X227 - X230 (Reserved) D. Time Deposits SECTION X231. Minimum Term of Time Deposits . No time deposit shall be accepted for a term of less than thirty (30) days. SECTION X232. Special Time Deposits . Authority shall be automatically granted to any accredited banking institution which may participate in the supervised credit program to accept special time deposits from the Agrarian Reform Fund Commission with interest lower than the rate allowed on time deposits accepted from the general public. Such deposits shall be exempt from the legal reserve requirements, as an exception to the existing policies on the matter. SECTION X233. Certificates of Time Deposit . a. Negotiable Certificates of Time Deposit (NCTDs) 1. UBs/KBs may issue NCTDs without approval of the BSP 2. TBs/RBs/Coop Banks may issue NCTDs upon the prior approval of the BSP. b. Non-Negotiable Certificates of Time Deposit Banks may issue long-term non-negotiable tax-exempt certificates of time deposit without approval of the BSP. SUBSECTION X233.1 Prerequisites to issue NCTDs for thrift banks/rural banks/cooperative banks . In addition to the Standard Prequalification Requirements for the Grant of Banking Authorities enumerated in Appendix 5, a TB/RB/Coop Bank applying for authority to issue NCTDs shall also comply with the following requirements: a. Applicant's capital must be at least P150 million. For this purpose, capital shall have the same meaning as in Sec. X106; and b. It must be a member of the PDIC in good standing. SUBSECTION X233.2 Requirements for issuing NCTDs . After a TB's/RB's/Coop Bank's application to issue NCTDs has been approved, it may actually issue the same subject to the following conditions: a. Submission of a certification signed by the President/Chairman of the Board of the bank stating that the requirements enumerated under Subsec. X233.1 have been complied with up to the day before the NCTDs are actually issued to the public; and b. That it has complied with all other conditions that the BSP may impose. The applicant bank shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date when the NCTDs are actually issued to the public not later than ten (10) banking days from such issuance. SUBSECTION X233.3 Minimum features a. Form; denomination NCTDs may be issued in bearer or other form denoting negotiability and shall have a standard format to be prescribed by the BSP which shall be prenumbered serially and predenominated. The minimum denomination shall be at the discretion of the issuing bank. No certificate payable to bearer shall contain words prohibiting its negotiation. b. Term The minimum maturity of the certificates shall be 731 days. c. Manner of issuance The certificates shall be issued only upon receipt of funds equivalent to their face value. d. Manner of printing NCTDs shall be printed on security paper by the Security Printing Plant (SPP) of the BSP. Orders for the printing of the desired forms shall not exceed a total value equivalent to twenty percent (20%) of the issuing bank's capital accounts (based on the quarter immediately preceding the request for printing) at any one time. Additional orders for printing which shall result in an excess over the prescribed benchmark shall require prior BSP approval. SUBSECTION X233.4 Insurance coverage . The NCTDs shall be insured with the PDIC. Banks issuing bearer certificates shall imprint on the instrument the following: "For purposes of deposit insurance by the PDIC, the holder shall have his name registered in the books of the issuing bank." SUBSECTION X233.5 Desistance from issuing new NCTDs . Unless authorized by the BSP, TBs/RBs/Coop Banks with outstanding NCTDs shall immediately desist from issuing new NCTDs. All outstanding NCTDs shall be valid and negotiable up to their maturity dates and shall not be subject to renewal. SUBSECTION X233.6 Sanctions . If any part of the certification submitted by the bank as required in these guidelines is found to be false, the following sanctions shall be imposed, without prejudice to the sanctions under Section 35 of R.A. No. 7653. a. On the Bank Suspension of its authority to issue NCTDs for one (1) year. b. On the Certifying Officer A fine of P5,000 per day from the time the certification was made up to the time the certification was found to be false. SUBSECTIONS X233.7-X233.8 (Reserved) SUBSECTION X233.9 Long-term negotiable certificates of time deposit . The following guidelines shall govern the issuance of longterm negotiable certificates of time deposit (LTNCTD) with a minimum maturity of five (5) years: a. Prior BSP approval . No LTNCTD shall be issued without the prior approval of the BSP. b. Application for authority of the issuing bank . An application for authority on each issue/issue program of LTNCTD shall be filed with the appropriate supervising and examining department of the BSP: Provided , That the issue period of an issue program of two (2) or more tranches shall not exceed one (1) year from approval. The application shall be signed by the President/Country Manager (branch of a foreign bank) of the bank. It shall be accompanied by a certified true copy of the resolution of the bank's board of directors authorizing the issuance of LTNCTD indicating, among others, the issue size, offering period, purpose or intended use of proceeds thereof, Registry Bank, Underwriter/Arranger, Selling Agent(s) and Market Maker(s). c. Pre-qualification requirements (1) Issuing bank A bank applying for authority to issue an LTNCTD shall comply with the following requirements: (a) It has complied with the following capital adequacy requirements: (i) Minimum capitalization as defined under Section X106; and (ii) Risk-based capital adequacy ratio under Sec. X116 within the sixty (60) days immediately preceding the date of application. (b) It has not incurred net weekly reserve deficiencies within eight (8) weeks immediately preceding the date of application; (c) It has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management in the last two (2) preceding examinations prior to the date of application, more particularly: (i) The ceilings on credit accommodations to DOSRI; (ii) Liquidity floor requirements for government deposits; (iii) Single borrower's loan limit; and (iv) Investment in bank premises and other fixed assets. (d) It maintains adequate provisions for probable losses commensurate to the quality of its asset portfolio but not lower than the required valuation reserves as determined by the BSP; (e) It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Offices" accounts and the "Due From Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; EDACSa (f) It has no past due obligations with the BSP or with any government financial institution; (g) It has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls and complete, timely and efficient risk reporting system; (h) It has a CAMELS Composite Rating of at least "3" in the last regular examination; and (i) It is a member of PDIC in good standing. (2) Registry Bank (a) It may be a UB, a KB, or such other specialized entity that may be qualified by the Monetary Board; (b) In the case of a UB or a KB: (i) It must be a third party: (aa) with no subsidiary/affiliate relationship with the Issuing Bank; and (bb) which is not related to the Issuing Bank in any manner that would undermine its independence. (ii) It must have adequate facilities and the organization to do the following: (aa) Maintain the Electronic Registry Book (ERB); (bb) Deliver transactions within the agreed trading period; and (cc) Issue registry confirmations to holders of LTNCTDs. (iii) It must have a CAMELS Composite Rating of at least "3" in the last regular examination. (3) Underwriter/Arranger (a) It is either a UB or an IH: Provided , That if an offering is on a best-efforts basis, such Arranger may also be a KB; (b) It must be a third party, such that: (i) it has no subsidiary/affiliate relationship with the Issuing Bank; and (ii) it is not related in any manner that would undermine the objective conduct of due diligence. (c) Underwriters must be well-capitalized and must have adequate risk management as evidenced by compliance with Items " c(1)(a), (d), (g) and (h) " as may be applicable. (4) Selling Agent . It may be any financial institution, with dealership or brokering license, under the regulatory supervision of the BSP. (5) Market Maker (a) It must not be the Issuing Bank; (b) It must be a third party which is not related to the Issuing Bank in any manner that would undermine its independence; (c) It must be a financial institution, with dealership or brokering license, under the regulatory supervision of the BSP; and (d) It must be well-capitalized and must have adequate risk management as evidenced by compliance with Items "c(1)(a), (d), (g) and (h)" as may be applicable. d. Additional requirements for the issuance of LTNCTD. After a bank's application to issue an LTNCTD has been approved, it may issue the same, subject to the submission of the following additional requirements: (1) At least fifteen (15) days before the date of offering: (a) Written waiver of the secrecy of deposits on said LTNCTD by the Issuing Bank, its subsidiaries, affiliates and wholly or majority-owned or -controlled entities of such subsidiaries and affiliates; (b) Information disclosure and the terms and conditions of the LTNCTD issuance; (c) Promotional materials; and (d) Specimen of the proposed registry confirmation and purchase advice from each Selling Agent/Market Maker which will evidence sale of the LTNCTD. (2) Within ten (10) days after issuance of the initial and subsequent tranches: Written notice to the appropriate supervising and examining department of the actual date of initial/tranche offering accompanied by a certification by the President/Country Manager that the pre-qualification requirements under Item "c(1)" have been complied with up to the time of offering. e. Functions/responsibilities of the parties involved. The respective parties shall have, among others, the following functions/responsibilities: (1) Registry Bank (a) Generates and maintains the ERB; (b) Records any transfer of ownership; (c) Issues and sends registry confirmation to holders; (d) Functions as paying agent for periodic interest and principal payments; and (e) Monitors compliance with the prohibition on holdings of LTNCTD, as prescribed under Item "h" hereof. (2) Underwriter/Arranger (a) Conducts due diligence on the Issuing Bank and determines the valuation/pricing of the primary issue; (b) Prepares the prospectus/information disclosure/updates for multi-tranche issues; (c) Formulates the distribution/allocation plan for the initial offering and ensures proper and orderly distribution of the primary sale/issue of the LTNCTDs; (d) Disseminates information to prospective depositors/investors of LTNCTDs on the terms and conditions of the issue (including information of non-pretermination by the depositor prior to original maturity and the liquidity mechanism in secondary trades) and the rights and obligations of the holder, Issuer, Market Maker/Selling Agent, Underwriter/Arranger and Registry Bank; and (e) When selling to its clients, it must perform the functions/responsibilities of the Selling Agent under Items "e(3)(a) and (b)". (3) Selling Agent (a) Verifies identity of each investor and applies other standards to combat money laundering as required under Sec. X691; and (b) Issues the purchase advice for the primary offering of the LTNCTDs. (4) Market Maker (a) Sets independent pricing for the secondary trading of LTNCTDs; (b) Posts daily the bid and offer prices for the LTNCTDs on the screen of at least one (1) of the information providers until the operation of a fixed income exchange for LTNCTDs; ATcaID (c) Verifies identity of each investor and applies other standards to combat money laundering as required under Sec. X691; (d) Issues the purchase advice for the secondary sale of the LTNCTDs; and (e) Ensures secondary market transfers and registration in coordination with the Registry Bank. (f) Change of Underwriter/Arranger, Registry Bank, Selling Agent(s)/Market Maker(s) . After an application for authority to issue LTNCTDs has been approved by the BSP, the Issuing Bank cannot change its Underwriter/Arranger, Registry Bank, Selling Agent(s) and Market Maker(s) without the prior approval of the BSP. (g) Waiver of the secrecy of deposits for Market Makers . A market maker who holds an LTNCTD for its own account must issue a waiver of the secrecy of deposits in favor of the BSP for examination purposes. Any information obtained from an examination of said LTNCTD shall be held strictly confidential. (h) Prohibition on holdings of LTNCTDs . The Issuing Bank including its related companies (subsidiaries and affiliates and wholly or majority-owned or -controlled entities of such subsidiaries and affiliates) cannot be a holder of the LTNCTDs of the Issuing Bank. The Issuing Bank shall provide the Registry Bank with an updated list of all related companies. This report shall be a " Category B " report. For purposes of this Subsection, an affiliate is an entity, at least twenty percent (20%) but not exceeding fifty percent (50%) outstanding voting stock of which is, owned by the Issuing Bank. (i) Agreements between Issuing Bank and Registry Bank/Selling Agent(s)/Market maker(s) . The agreements between the Issuing Bank and the Registry Bank/Market Makers/Selling Agents shall comply with the provisions of Sec. X169 on bank service contracts. The Issuing Bank shall be liable for any damages to investors/depositors caused by actions of said Registry Bank, Selling Agent(s)/Market Maker(s) contrary to the agreements entered into. (j) Minimum features (1) Form; denomination An LTNCTD shall be in scripless form with a third party Registry Bank maintaining the ERB. To have legal effect, it shall comply with the provisions of R.A. No. 8792 (Electronic Commerce Act) particularly on the existence of an assurance on the integrity, reliability and authenticity of the LTNCTD in electronic form. LTNCTDs shall be registered in the name of individuals or corporations, negotiable and prenumbered serially. The minimum denomination shall be at the discretion of the Issuing Bank. (2) Currency Denomination shall be in Philippine pesos. (3) Term The minimum maturity of the LTNCTDs shall be five (5) years. (4) Primary Offering/Secondary Trading The initial offering shall be executed through an Underwriter or an Arranger. Subsequent negotiations in secondary trading must be executed through authorized Market Maker(s). (k) Purchase Advice and Registry Confirmation (1) The Purchase Advice and Registry Confirmation shall conspicuously contain the following caveat : (a) " This LTNCTD cannot be terminated by the holder nor the Issuing Bank before (maturity date). However, negotiations/transfers from one (1) holder to another do not constitute pretermination ." The caveat shall apply if the Issuing Bank commits no pretermination. Otherwise, it shall read as follows: " This LTNCTD cannot be terminated by the holder before (maturity date). However, it may be preterminated at the instance of the Issuing Bank upon prior notice to the holder on record. Negotiations/transfers from one (1) holder to another do not constitute pretermination ". and (b) " All negotiations/transfers of this LTNCTD prior to maturity must be coursed through a Market Maker ". (2) The Selling Agent/Market Maker shall issue a Purchase Advice to evidence initial purchase/secondary trading of LTNCTD with the original copy given to the holder. (3) The Registry Bank shall issue a Registry Confirmation to evidence ownership of the LTNCTD, with the original copy given to the holder. (l) Issue size and aggregate ceiling . An Issuing Bank can issue LTNCTDs up to 300% of its total capital accounts as defined under Subsec. X106/X121.5: Provided, that each issue/issue program size does not exceed P5 billion pesos. This ceiling shall be subject to a regular review by the BSP. (m) Deposit insurance coverage . The LTNCTDs shall be insured with the PDIC, subject to applicable rules and regulations, among others, on maximum insurance coverage. (n) Pretermination by the issuer . LTNCTDs may be preterminated by the Issuing Bank, subject to the following conditions: (1) The Information Disclosure, Purchase Advice and Registry Confirmation shall include the information that the LTNCTD may be preterminated by the Issuing Bank; (2) Thirty (30) days prior notification must be given to the appropriate supervising and examining department of the BSP together with the justification for the pretermination; (3) Thirty (30) days prior notification to holders of record; (4) Notwithstanding any agreement to the contrary, the Issuer shall shoulder the tax due on the interest income already earned by the holders; and (5) The Issuing Bank's reserve positions shall be recomputed retroactively based on the applicable reserve rate(s) for regular time deposits during the affected periods. If the recomputed amounts result in a reserve deficiency, the Issuing Bank shall be fined with the corresponding monetary penalties. The preceding monetary penalty, however, shall not be imposed if pretermination by the Issuer is due to a change in law or regulation that will increase the cost of maintaining the LTNCTDs. (o) Non-pretermination by the holder . Presentation of the LTNCTD to the Issuing Bank for payment before the maturity date is not allowed. However, negotiation or transfer-from one (1) holder to another shall not constitute pretermination of the LTNCTD. CAaSED (p) Sanctions . Without prejudice to the other sanctions prescribed under Section 37 of R.A. No. 7653 and the provisions of Section 16 of R.A. No. 8791, the following sanctions will be imposed on any Issuing Bank, Registry Bank and other parties for failure to perform their respective functions/responsibilities and for non-disclosure or misrepresentation of information: (1) On the Issuing Bank Suspension of its authority to issue LTNCTDs, disqualification from future issuance of LTNCTDs and a monetary penalty of P30,000 for each violation. (2) On the Registry Bank Disqualification to be a Registry Bank for one(1)-year and a monetary penalty of P30,000 for each violation. (3) On all authorized Selling Agents/Market Makers Disqualification to be appointed as Selling Agent/Market Maker for one (1) year and a monetary penalty of P30,000 for each violation. (4) On the Certifying Officer A fine of P5,000 per banking day from the time of required disclosure up to the time disclosure was made; or from the time misrepresentation was made up to the time the information was corrected. (5) On the Responsible Officer A fine of P30,000 for participating or confirming in the non-disclosure or misrepresentation of information. SUBSECTION X233.10 (Reserved) SUBSECTION X233.11 Long-term non-negotiable tax-exempt certificates of time deposit . The issuance of long-term non-negotiable tax-exempt certificates of time deposit shall be governed by the following rules. a. Minimum features (1) Form; denominations The certificate shall contain words denoting its non-negotiability and shall be issued by banks only in the name of individuals with denominations in increments of P1,000.00. (2) Term The minimum maturity of the certificate shall be five (5) years. (3) Manner of issuance The certificate shall be issued only upon receipt of funds equivalent to their face value. (4) Manner of printing The certificate shall be printed on security paper. (5) Pre-termination In case of pretermination, the deposit shall be subject to income tax as provided under Section 24(B)(1) of the Tax Reform Act of 1997 which states that "xxx a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: (a) Four (4) years to less than five (5) years 5% (b) Three (3) years to less than four (4) years 12% (c) Less than three (3) years 20% b. Insurance coverage . The deposits shall be insured with the PDIC, subject to applicable rules and regulations, among others, on maximum insurance coverage. c. Reserves against long-term nonnegotiable certificates of time deposit . The rate and form of required reserves on regular time deposit shall also apply to the required reserves on long-term non-negotiable tax-exempt certificates of time deposit. E. Deposit Substitute Operations (Quasi-Banking Functions) SECTION X234. Scope of Quasi-Banking Functions . The following rules and regulations shall govern the quasi-banking operations of banks. SUBSECTION X234.1 Elements of quasi-banking . The essential elements of quasi-banking are: a. Borrowing funds for the borrower's own account; b. Twenty (20) or more lenders at any one time; c. Methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as acceptances, promissory notes, participations, certificates of assignments or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as the Monetary Board may determine; and d. The purpose of which is (1) relending, or (2) purchasing receivables or other obligations. SUBSECTION X234.2 Definition of terms and phrases . The following terms and phrases shall be understood as follows: a. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in Subsec. X234.1 whether the borrower's liability thereby is treated as real or contingent. b. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. c. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institutions, or of acquisition of securities, of any amount and maturity, from domestic or foreign sources. d. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed, in the absence of express stipulations, when the institution is regularly engaged in lending. e. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, as distinguished from isolated lending transactions. SUBSECTION X234.3 Transactions not considered quasi-banking . The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies through any of the means listed in Subsec. X234.1 hereof, for the limited purpose of financing their own needs or the needs of their agents or dealers; and b. The mere buying and selling without recourse of instruments mentioned in Subsec. X234.1: Provided , That: (1) The institution buying and selling without recourse shall indicate in conspicuous print on its instrument the phrase without recourse, sans recourse or words of similar import that will convey the absence of liability or guarantee by said institution; and (2) In the absence of the phrase "without recourse", "sans recourse" or words of similar import, the instrument so issued, endorsed or accepted, shall automatically be considered as falling within the purview of these regulations: Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction is hereby prohibited: (i) Issuance of postdated checks by a financial intermediary, whether for its own account or as an agent of the debt instrument issuer, in payment of the debt instrument, sold, assigned or transferred without recourse; or (ii) Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse; and (iii) Payment with its own funds by a financial intermediary which assigned, sold or transferred the debt instrument without recourse, unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. SUBSECTION X234.4 Pre-conditions for the exercise of quasi-banking functions . Only banks authorized to engage in quasi-banking functions may undertake or perform quasi-banking functions as defined in Subsec. X234.1: Provided, That in addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , the bank must have a paid-in capital of at least P250 million. SUBSECTION X234.5 Certificate of Authority from the Bangko Sentral . Banks possessing the qualifications in Subsec. X234.4 and desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the BSP by filing: a. An information sheet; b. Individual bio-data of directors and members of the managerial staff, signed by them under oath; and c. A borrowing-investment program for one (1)year, which should include at the minimum: (1) planned distribution of portfolio as to (a) underwriting; (b) commercial paper markets; (c) stocks and bonds; (d) government securities; (e) receivables financing discounting and factoring; (f) leasing; and (g) direct loans; (2) expected sources of funds to support investment program classified as to (a) maturity: short, medium and long-term; (b) interest rates; and (c) domestic or foreign sources whether institutional or personal. SECTION X235. Deposit Substitute Instruments . Any deposit substitute transaction by a bank performing quasi-banking functions shall be limited to its own promissory notes, repurchase agreements, and certificates of assignment/participation with recourse. SUBSECTION X235.1 Prohibition against use of acceptances, bills of exchange and trust certificates . Acceptances, bills of exchange, and trust certificates shall not be used by banks as evidence of deposit substitute liabilities in connection with their quasi-banking functions. This prohibition shall not apply to the acceptance or negotiation of bills of exchange in connection with trade transactions, or to the issuance of trust certificates creating trust relationships. SUBSECTION X235.2 Negotiation of promissory notes . Negotiable promissory notes acquired by banks in connection with their quasi-banking functions shall not be negotiated by mere endorsements and/or delivery, if they do not conform with the minimum features prescribed under Subsec. X235.3. If these notes do not contain the features, their negotiation shall be covered by any of the appropriate deposit substitute instruments above-mentioned. SUBSECTION X235.3 Minimum features . Deposit substitute instruments issued by entities performing quasi-banking functions shall have the following minimum features: a. The present value and maturity value and/or the principal amount and interest rate and such other information as may be necessary to enable the parties to determine the cost or yield of the borrowing or placement shall be specified. b. The date of issuance shall be indicated at the upper right corner of the instrument, and directly below which shall be the maturity period or the word "demand", if it is a demand instrument. c. The payee may be identified by his trust account/deposit account number in both negotiable and non-negotiable instruments. d. Securities which are the subject of a repurchase agreement or a certificate of assignment/participation with recourse, shall be particularly described on the face of said instruments or on a separate instrument attached and specifically referred to therein and made an integral part thereof as to the maker, value, maturity, serial number, and such other particulars as shall clearly identify the securities. e. The instrument shall provide for the payment of liquidated damages in addition to stipulated interest, in case of default by the maker or issuer, as well as attorney's fees and costs of collection in case of suit. f. A conspicuous notice at the lower center margin of the face of the instrument that the transaction is not insured by the PDIC shall be indicated. g. The corporate name of the issuer shall be printed at the upper center margin of the instrument and directly below which shall be a designation of the instrument, such as "Promissory Note" or "Repurchase Agreement". h. The words "duly authorized officer" shall be placed directly below the signature of the person signing for the maker or issuer. i. Each instrument shall be serially pre-numbered. j. The copy delivered to the payee shall bear the word "Original" and the copies retained by the issuer shall be identified as "Duplicate", "File Copy" or words of similar import. k. Only security paper with adequate safeguards against alteration or falsification shall be used. Borrowings of banks from the loans and discounts window of other banks or non-bank financial intermediaries shall be exempted from the documentation requirements prescribed in this Subsection: Provided , That the exemption from the documentation requirements prescribed in this Subsection shall not be construed or interpreted as exempting said borrowings from other regulations standardizing deposit substitute instruments and from other BSP regulations on deposit substitutes. Deposit substitute instruments shall conform to the language prescribed by the BSP. Any substantial deviation therefrom or any additional stipulation therein shall be referred to the BSP for prior approval. The size and appearance of these instruments, shall not be similar to the size and appearance of checks. Rubber stamping, typewriting or handwriting some provisions shall not be considered compliance with said regulations. (Shown in Appendix 12 are the samples of standardized instruments as evidence of deposit substitute liabilities.) SUBSECTION X235.4 Interbank loan transactions . Except for interbank loan transactions evidenced by interbank loan advice or repayment transfer tickets settled thru the demand deposit accounts with the BSP, all interbank loan transactions shall be evidenced by a promissory note containing the minimum features prescribed in Subsec. X235.3. SUBSECTION X235.5 Physical delivery of securities . Securities, warehouse receipts, quedans and other documents of title which are the subject of quasi-banking functions shall be physically delivered to the lender/purchaser together with the principal/overlying borrowing instrument, or to a custodian bank as signified in writing by the lender/purchaser: Provided , That the custodian bank is not related directly or indirectly to the borrowing/selling entity: Provided, further , That a bank engaged in quasi-banking functions may not be allowed custodianship functions for securities issued or owned by said bank, or securities in bearer form. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by authorized officer/s of the entity performing quasi-banking functions and the lender/purchaser, or by the custodian bank. The principal borrowing instrument without underlying securities, warehouse receipts, quedans, or other documents of title shall likewise be physically delivered to the lender/purchaser. SUBSECTION X235.6 Other rules and regulations governing the issuance and treatment of deposit substitute instruments a. If there is any stipulation that payment of the deposit substitute shall be chargeable against a particular deposit account, it shall further provide that the liability of the maker or issuer of the instrument shall not be limited to the outstanding balance of said account. b. Any agreement allowing the issuer or maker to substitute the underlying securities shall further provide that the actual substitution shall be with the prior written consent of the payee. c. Automatic renewal upon maturity of the instrument may be effected only under terms and conditions previously stipulated by the parties. d. Stipulations between the maker or issuer and the payee which are embodied in separate instruments shall be specifically referred to in the deposit substitute instruments and made an integral part thereof. e. In the case of repurchase agreements and certificates of assignment/participation with recourse, the stipulation shall clearly state either (1) that the underlying securities are being delivered to the buyer or assignee as collaterals or (2) that the ownership thereof is being transferred to the buyer or assignee. SECTION X236. Minimum Trading Lot and Minimum Term of Deposit Substitute a. The minimum size of any single deposit substitute transaction shall be P50,000. No bank performing quasi-banking functions shall issue deposit substitute instruments in the name of two (2) or more persons or accounts except those falling under the following relationships in which cases, commingling may be allowed: (a) husband and wife; (b) persons related to each other within the second degree of consanguinity; and (c) "in trust for" (ITF) arrangements. b. The minimum term of any single deposit substitute transaction shall be fifteen (15) days except interbank borrowings, which shall not be subject to this limitation. SECTION X237. Money Market Placements of Rural Banks . Banks shall not accept money market placements from any RB unless the latter presents a certification under oath stating: (a) that it has no overdue special time deposits; (b) that it has no past due obligations with the BSP or other government financial institutions; (c) the amount of its current obligations, if any, with said government financial institutions; and (d) the amount of its total outstanding money market placements. However, in no case shall such banks sell receivables to RBs without recourse. SUBSECTION X237.1 Definition of terms . As used in this Section, the following terms shall have the following meanings: a. Money market placements shall include investments in debt instruments, including purchase of receivables with recourse to the lending institution, except purchase of government securities on an outright basis. b. Government securities shall include evidences of indebtedness of the Republic of the Philippines, the BSP and other evidences of indebtedness or obligations of government entities the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. c. Persistent violation shall mean the violation of any of the provisions of these rules by the director or officer concerned for four (4) or more times within a twelve (12)-month period from the date the first offense was committed. SUBSECTION X237.2 Conditions required on accepted placements not covered by prohibition . Placements accepted which are otherwise not covered by the above prohibition must comply with the following conditions: a. That total money market placements of an RB as stated in the certification, including the placement being accepted by the entity concerned, shall not exceed the RB's combined capital accounts or net worth less current obligations with the BSP or other government financial entities; b. The maturity of the money market placement shall not exceed sixty (60) days; and c. That placements shall be evidenced in all cases by promissory notes of accepting entities/repurchase agreements and/or certificates of participation/assignment with recourse and that underlying instruments shall be certificates of indebtedness issued by the BSP or other government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. SUBSECTION X237.3 Sanctions Violations of the provisions of this Section shall be subject to the following sanctions/penalties: a. Monetary Penalties First Offense Fines of P3,000 a day, reckoned from the date placement started up to the date when said placement was withdrawn, for each violation shall be assessed on the bank. Subsequent Offenses Fines of P5,000 a day, reckoned from the date placement started up to the date placement was withdrawn, for each violation shall be assessed on the bank. b. Other Sanctions First Offense Reprimand for the directors/officers who approved the acceptance/placement with a warning that subsequent violations will be subject to more severe sanctions. Subsequent offenses (1) Suspension for ninety (90) days without pay for directors/officers who approved the placement. (2) Suspension or revocation of the authority to engage in quasi-banking functions. SECTION X238. Without Recourse Transactions . No bank shall sell, discount, assign, or negotiate, in whole or in part, such as thru syndications, participations and other similar arrangements, any notes, receivables, loans, debt instruments and any type of financial asset or claim, except government securities, or be a party in any capacity in any of the above transactions, on a without recourse basis unless such receivables, notes, loans, debt instruments and financial assets or claims are registered with the SEC. This prohibition includes transactions between a bank and its trust department. Unregistered commercial papers may be sold, discounted, assigned, or negotiated by banks to other financial intermediaries with quasi-banking functions. SUBSECTION X238.1 Sanction . Any violation of the above rules and regulations shall be subject to any or all of the following sanctions: a. Suspension of quasi-banking authority for a period of six (6) months; and b. Monetary penalty of P500 per day per transaction for each officer of the bank involved in any capacity in any transaction violative of these regulations. SECTION X239. Issuance of Bonds . The following guidelines shall govern the issuance of bonds by banks with quasi-banking authority. SUBSECTION X239.1 Definition of terms . For purposes of this Section, unless the context clearly indicates otherwise, the following shall have the meaning as indicated: a. Government securities shall refer to evidences of indebtedness of the Republic of the Philippines or its instrumentalities, or of the BSP, and must be freely negotiable and regularly serviced. b. Net book value shall refer to the acquisition cost of property or accounts plus additions and improvements thereon less valuation reserves, if any. c. Current market value shall refer to the value of the property as established by a duly licensed and independent appraiser. SUBSECTION X239.2 C ompliance with Securities and Exchange Commission rules on registration of bond issues . All banks with quasi-banking authority issuing or intending to issue bonds shall comply with the New Rules on Registration of Long-Term Commercial Papers promulgated by the SEC (Appendix 13) . SUBSECTION X239.3 Notice to Bangko Sentral ng Pilipinas . Within three (3) days from approval by SEC of its bond issue, the bank concerned shall notify the appropriate supervision and examination department of the BSP of the approval attaching thereto the documents required by the SEC for the issuance and registration of the bond issue. SUBSECTION X239.4 Minimum features . Bonds issued by banks shall have the following minimum features: a. Form; issue price; denomination . The trust indenture and the name of the indenture trustee shall be indicated on the face of the bond certificate. The SEC-assigned bond registration number and expiry date, if any, shall likewise be indicated, stamped on the face of each bond certificate issued. Bonds may be issued at face value, at a discount or at a premium. Minimum denomination shall be P20,000. b. Term The minimum term of the bonds shall be four (4) years. No optional redemption before the fourth year shall be allowed. c. Interest; manner; form of payment . The bonds shall not be subject to interest rate ceilings prescribed by the Monetary Board or Act No. 2655, as amended. d. Trust indenture; collaterals; sinking fund A trust indenture shall be executed between the issuer and a qualified trust corporation as trustee, which shall neither be an affiliate nor a subsidiary of the issuer. The following shall be deemed as eligible collateral and shall be maintained at respective values indicated in relation to the face value of the bond issue: (1) Government - Aggregate securities current market value of 100% (2) Readily marketable - Aggregate private securities listed current market in the big board of value of 150% stock exchanges (3) Real estate - Net book value of 100% (4) Unmatured - Net book receivables acquire value of 150% with recourse (5) Unmatured - Net book receivables acquired value of 200% without recourse Government and private securities, certificates of title and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee. Substitution of collaterals shall be allowed provided that in no case shall the collateral fall below the herein required ratios. The issuer may, at his option, provide for the retirement at maturity of the bond issue through the sinking fund to be deposited with and managed by the indenture trustee. e. Bond registry The bonds shall be fully registered as to principal and interest. The issuer, its trustee, agent or underwriter must maintain a bond registry duly approved by the SEC for recording initial and subsequent transfers the names of transferees, date of transfer, purchase price and serial numbers of bonds transferred. SUBSECTION X239.5 Issuance of commercial papers . The issuance of other forms of commercial papers by banks with quasi-banking authority shall be subject to the new rules on registration of short-term and long-term commercial papers appended hereto as Appendices 13 and 14 . F. Government Deposits SECTION X240. Statement of Policy . As a general policy, cash balances of the Government, its political subdivisions and instrumentalities as well as of government-owned or controlled corporations shall be deposited with the BSP, with only minimum working balances to be held by government-owned banks and such other banks incorporated in the Philippines as the Monetary Board may designate: Provided , That such banks may be authorized by the Monetary Board to hold deposits of the political subdivisions and instrumentalities of the Government beyond their minimum working balances whenever such subdivisions and instrumentalities have outstanding loans with said banks. For purposes of this Section: a. The term government-owned or controlled corporations shall refer to government-owned or controlled corporations which are created by special laws. It shall exclude government financial institutions such as DBP, LBP and Al-Amanah Islamic Investment Bank of the Philippines, corporations which are created under the provisions of the Corporation Law (Act No. 1459, as amended) or the Corporation Code (BP Blg. 68) and private corporations which are taken over by government-owned or controlled corporations. b. Minimum working balances shall represent the minimum amounts necessary to enable the government instrumentality/political subdivision making the deposit to transact business efficiently and effectively as determined by the Department of Finance. SUBSECTION X240. 1 Prior Monetary Board approval. No private bank shall, without prior approval of the Monetary Board, accept, as depository, any fund or money from the Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations; nor shall a private bank borrow any fund or money therefrom, through the issuance or sale of its acceptances, notes or other evidences of indebtedness. SUBSECTION X240.2 Banks which may accept government funds a. Banks, the majority of the capital of which is owned by the Government, may act as depository of funds of the Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations. b. Private banks incorporated in the Philippines may act as depository of government funds only with the prior approval of the BSP. Local government units may maintain depository accounts preferably in government banks and, in exceptional cases and with the prior approval of the Monetary Board, in the name of their respective government units, in private banks located in or nearest to their respective areas of jurisdiction but the depository bank(s) must also seek the prior approval of the BSP: Provided; That a TB/RB/Coop Bank may only act as official depository of government funds pursuant to R.A. Nos. 7906, 7353 and 6938, as follows: (1) a TB may only act as official depository of national agencies, and of municipal, city or provincial funds in the municipality, city or province where the TB is located; (2) an RB may only act as official depository of municipal, city or provincial funds in the municipality, city or province where the RB is located; and (3) a Coop Bank may accept deposits of all government departments, agencies and units of the national and local governments including government-owned or controlled corporations. c. Where there is no government bank or BSP office in the province and the nearest government bank or BSP office is inaccessible by ordinary transportation, or transporting/withdrawing the government deposits to and from the said office is impractical or risky, the province, as well as cities and municipalities located therein, may seek approval of the Monetary Board to consider all their funds eligible for deposits with a qualified private depository bank within the province, city or municipality, as the case may be. d. Banks acting as official depository of government funds may accept demand, savings or time deposits. e. The authority of a bank to accept government deposits does not obligate the Government, its subdivisions and instrumentalities and government-owned or controlled corporations to deposit with that bank. Thus, even if a TB or RB is authorized by the Monetary Board to accept government deposits, a municipality is not obligated to deposit with that TB or RB. Similarly, a bank which is authorized to accept deposits of the Government or a government corporation because of outstanding loans granted by the bank cannot demand as a matter of right that the Government or government corporation make deposits unless there is a stipulation in the loan agreement. SUBSECTION X240.3 Prerequisites for the grant of authority to accept deposits from the Government and government entities . In addition to the Standard Pre-qualification Requirements for the Grant of Banking Authorities enumerated in Appendix 5 , private banks applying for authority to accept deposits from the Government, its, subdivisions and instrumentalities and government-owned or controlled corporations and government banks applying for authority to accept government deposits in excess of minimum working balances shall also comply with the following conditions: TcHCDI a. The applicant bank must have complied with the minimum capital required under Subsecs. X106.1 and X106.2; and b. It must be a member of the PDIC in good standing. SUBSECTION X240.4 Application for authority . An application for authority to accept government deposits shall be signed by the president of the bank and shall be filed with the appropriate supervising and examining department of the BSP. The application shall be accompanied by a certification by the bank president or executive vice-president that the bank has complied with all the requirements enumerated under Subsec. X240.3. Banks authorized to accept government funds as depository shall continuously comply with the conditions enumerated under Subsec. X240.3 even after the authority to accept government deposits has been granted and during the period while the banks actually hold government deposits, otherwise, any violation may be a basis for the imposition of sanctions against the bank, its directors and officers, or revocation of the authority to accept government deposits. Deposits maintained by the Government, its subdivisions and instrumentalities and government-owned or controlled corporations shall be supported by the following documents whenever applicable: a. A copy of the resolution of the barangay, municipal or city council (Sangguniang Bayan/Panlungsod) or the provincial board (Sangguniang Panlalawigan) authorizing the deposit of municipal, city or provincial funds; b. A copy of the resolution of the board of directors of the government-owned or controlled corporations authorizing the deposit of funds of said corporations; or c. In case of the National Government, its unincorporated branches, agencies and instrumentalities, a written authority to deposit government funds signed by the duly authorized official of the department, agency, office or unit making the deposit. The resolution or authority should state the name and location of the depository bank, type and terms of the deposit, and that the amount to be deposited represents working balances. SUBSECTION X240.5 Limits on funds of the Government and government entities that may be deposited with banks a. Funds of the Government, its subdivisions and instrumentalities and government-owned or controlled corporations, deposited with banks authorized to receive deposits shall be limited to the minimum working balance of the depositor. With prior Monetary Board approval, government or private banks may be authorized to accept amounts in excess of minimum working balances if the Government or government entity making the deposit has outstanding loan obligations to the depository bank but such amounts, shall not exceed the amount of its outstanding loan obligations to the depository bank. The amount of non-transferable and non-negotiable government securities with market or below market interest rate at the time of issue, issued by the National Government to the depository bank shall be considered as "outstanding loans" of the National Government to said bank within the meaning of Section 113 of R.A. No. 7653. b. The aggregate amount of government funds which a private bank can hold at any given time shall not exceed 200% of the bank's net worth. c. Where any director, officer or stockholder of a private bank, as defined under Subsec. X326.1, is also an elective or appointive official of a municipality, city or province, said bank is prohibited from accepting deposits from said municipality, city or province unless it is the only bank existing therein: Provided , That this provision shall not be construed as a grant of authority to such elective or appointive public official to act as director or officer of a private bank. SUBSECTION X240.6 Liquidity floor . Unless otherwise prescribed by the Monetary Board, authorized government depository banks other than the BSP, and authorized private banks shall, inclusive of the required reserves against deposits and/or deposit substitutes, maintain a fifty percent (50%) liquidity floor with respect to deposits of, borrowings from, and all other liabilities to, the Government and government entities, in the form of transferable government securities which represent direct obligations of the National Government. DTISaH Government securities representing direct obligations of the National Government regardless of maturity, issued pursuant to the provisions of R.A. No. 245, as amended by P.D. No. 142, which are not otherwise earmarked or used as part of other reserve requirements of the BSP, shall be eligible as liquidity reserves. Eligible securities being used as such reserve shall not in any way be encumbered or be subject to any transaction without prior approval of the BSP. Also eligible for liquidity floor are the following: a. The free portion of the " Due from Bangko Sentral Local Currency " after satisfying the legal and other reserve requirements; and b. NDC Agri-Agra ERAP Bonds, which are not being used as alternative compliance with PD 717. Such bonds shall not in any way be encumbered or be subject to any transaction without prior approval of the BSP. c. Securities backed by the unreleased Internal Revenue Allotments (IRA) of local government units (issued by a Special Purpose Trust administered by the DBP under the IRA Monetization Program of the Union of Local Authorities of the Philippines) the release of which IRA on scheduled date of payment has been certified by the DBM as not being subject to any conditionalities: Provided , That such securities shall be eligible only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date). For purposes of computing the fifty percent (50%) liquidity floor requirement on all government funds held by authorized banks, banks shall adopt a one (1)-week lag system, effective May 4, 2001. SUBSECTION X240.7 Exempt transactions . The following deposits of, borrowings from and/or liabilities to, the Government and government entities shall be exempt from the liquidity floor: a. Obligations to the BSP arising from rediscounting facilities and those through the sale of government securities under repurchase agreements made in connection with the provisions of Sec. X269 and Subsec. X601.1 of the MOR; b. Special time deposits (STDs) and deposit substitutes under the special financing program of the Government and/or international financial institution; c. Obligations to the BSP consisting of emergency advances, overdraft facilities, and those arising from peso swap differentials and supervision and examination fees; d. Marginal deposits on importations; e. Due to the Treasurer of the Philippines (unclaimed deposit balances); f. Funds held by participating financial institutions (PFIs) under the GSIS Housing Loan Programs: Provided , That the agreement between GSIS and the conduit banks specify that such funds may be held by the conduit banks for a period of not more than seven (7) calendar days prior to their release to the borrower and prior to the remittance by the conduit banks of payment to the GSIS; g. Deposits of the BIR and BOC; and h. Any other form of deposits, borrowings and/or liabilities specifically authorized by law or exempted by the Monetary Board. SUBSECTION X240.8 Reports . Banks shall submit to the appropriate supervising and examining department of the BSP a report of their government deposits from all sources in the aggregate in the prescribed form. SUBSECTION X240.9 Sanctions . Any violation of this Section shall be a ground for the imposition of the following sanctions: a. The deposit account with the BSP of the bank concerned shall be debited by the Accounting Department of the BSP in the amount of the unauthorized deposit or borrowing upon receipt of a report or notice from the appropriate supervising and examining department of the BSP and the deposit account of the government institutions with the BSP shall be credited for the same amount. A copy of said report or notice of the supervising and examining department shall be furnished each to the bank concerned and the government institutions. b. The withdrawal of previously granted authority to accept government funds; c. Without prejudice to the sanctions under Section 35 of R.A. No. 7653, the following administrative sanctions shall be imposed if any part of the certification as required in this Section is found to be false or misleading: On the Bank Cancellation of the authority to accept government deposits if one has already been granted and/or disqualification to act as a government depository for not more than one (1) year. On the Certifying Officer A fine of P5,000 per day from the time the certification was found to be false, for each application filed with the BSP. d. Any bank with deficiency in the required liquidity floor against deposits of, and/or borrowings from, the Government and government entities or with excess holdings of such deposits shall: (1) be denied the credit facilities of the BSP; and (2) if the deficiency lasts for four (4) consecutive weeks, the bank shall be prohibited from declaring cash dividends and making new loans and investments, except investments in government securities. The prohibition shall be lifted by the Governor of the BSP, upon certification by the appropriate supervising and examining department that the bank has had no deficiency in its liquidity floor and no excess holdings of government deposits for at least four (4) consecutive weeks. SECTION X241. (Reserved) G. Interest SECTION X242. Interest on Deposits/Deposit Substitutes . Demand, savings, NOW accounts, time deposits and deposit substitutes shall not be subject to interest ceilings. SUBSECTION X242.1 Time of payment of interest on time deposits/deposit substitutes . Interest or yield on time deposit/deposit substitute may be paid at maturity or upon withdrawal or in advance: Provided, however , That interest or yield paid in advance shall not exceed the interest for one (1) year. SUBSECTION X242.2 Treatment of matured time deposits/deposit substitutes a. A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable to savings deposits. b. A deposit substitute instrument not withdrawn or renewed on its maturity date shall from said date become payable on demand and shall earn an interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15) days. Banks performing quasi-banking functions shall continue to consider matured and unwithdrawn deposit substitutes as such and subject to reserves. SECTION X243. Disclosure of Effective Rates of Interest . Banks are required to disclose to depositors the following information on interest computation and payments: a. Type/kind of deposit; b. Nominal rate of interest and period covered; c. Manner of interest payment, i.e., whether credited in advance or otherwise; d. Basis of interest payment, i.e., whether based on average daily balance compounded quarterly or otherwise; e. Effective rate of interest expressed as a simple annual rate, on the basis of the information above given and indicating the formula used to arrive at the effective rate of interest; and f. Illustration of basis of computing interest on a hypothetical deposit account. Copies of the above-mentioned information shall be made available to each and every depositor by attaching these copies to savings deposit passbooks and time deposit certificates. Posters disclosing the above information and aggregate deposit rates shall also be displayed conspicuously within the bank premises. SECTIONS X244 - X252 (Reserved) H. Reserves Against Deposit And Deposit Substitute Liabilities SECTION X253. Accounts Subject to Reserves; Amounts Required . The following rules and regulations shall govern the reserves against deposit and deposit substitute liabilities. SUBSECTION X253.1 Regular reserves against deposit and deposit substitute liabilities . The rates of regular reserves against deposit and deposit substitute liabilities in local currency of banks shall be as follows: RBs/ UBs/KBs TBs Coop Banks a. Demand Deposits 9% 6% 6% b. NOW Accounts 9% 6% 6% c. Savings Deposits 9% 6% 2% d. Time Deposits, ) Negotiable CTDs, ) Long-Term Non- ) 9% 6% 2% Negotiable Tax- ) Exempt CTDs ) Long-term NCTDs 2% 2% 2% e. Deposit Substitutes 9% 6% NA f. IBCL 0% 0% 0% (Sec. X343) g. Bonds 5% 5% NA h. Mortgage/ CHM cert. NA 5% NA SUBSECTION X253.2 Liquidity reserves . On top of the regular reserve requirements, liquidity reserves against peso demand, savings, time deposit and deposit substitute liabilities shall be maintained, as follows: IHAcCS Liquidity Category of Banks Reserves a. UBs/KBs 7% 1 b. TBs 2/ c. RBs/Coop Banks: (1) Demand Deposits 0% (2) Savings/Time Deposits 0% The liquidity reserves for LTNCTDs shall be 0%. The required liquidity reserves may be maintained in the form of: a. Short-term market-yielding government securities purchased directly from the BSP-Treasury Department; b. NDC Agri-Agra ERAP Bonds which are not being used as alternative compliance with P.D. No. 717. Such bonds shall not in any way be encumbered or be subject to any transaction without prior approval of the BSP; and c. Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. Any deficiency shall be in the form prescribed in Items "a" and "b" of Sec. X254. SECTION X254. Composition of Reserves . The composition of the required reserves shall be as follows: a. Deposits with the BSP . At least twenty-five percent (25%) shall be in the form of deposits with the BSP. b. Government securities and cash in vault . The remaining portion of the required reserves may be held by all banks in the form of cash in vault and/or government securities or evidences of indebtedness of the Republic of the Philippines. To support the implementation of the provisions of Subsecs. X343.3 and X601.3, the cash-in-vault (CIV) component of available reserves shall be based on the actual CIV balance outstanding one (1) banking day lag, for purposes of computing the reserve position of the current day. For purposes of this Section, government securities which may form part of the reserves against deposits/deposit substitute liabilities of banks shall refer to bonds or other evidences of indebtedness representing direct obligations of the Government of the Republic of the Philippines: Provided , That such securities shall have the following minimum features/conditions: (1) The securities must bear an interest rate of not more than four percent (4%) per annum, must be non-negotiable and shall carry BSP support; and (2) The amount, maturity date and rate of interest must be definite and stated in the certificate itself. Other government securities being used for reserve purposes shall continue to be eligible as such: Provided , That whenever said securities shall have matured, they shall be replaced by securities carrying the above features. The securities held as reserves under Item "b" and last paragraph of Sec. X253 shall be valued at cost of acquisition and the bank may freely alter its composition: Provided , That any substitution or acquisition satisfies the eligibility requirements prescribed above: Provided, further , That the bank notifies the BSP of any such change in the prescribed forms not later than the reporting day following the change. Securities counted as reserves may not be hypothecated or encumbered in any way or earmarked for any other purpose without automatically losing their eligibility as reserves. Only the buying/lending bank in an agreement covering eligible government securities may use such securities as reserves against deposits/deposit substitutes: Conversely, the selling/borrowing bank in a resale agreement covering eligible government securities may not use such securities as reserves against deposits/deposit substitutes. The list of reserve-eligible and noneligible securities may be found in Appendix 15 . The reserve eligibility of government securities under the reverse repurchase operations of the BSP shall be suspended during the term of the reverse repurchase agreement. The phrase non-reserve eligible shall be stamped on the face of the custodian receipt being issued by the BSP to buyer financial institutions. SUBSECTION X254.1 Allowable drawings against reserves . Deposit with the BSP to comply with reserve requirements are not regular current accounts. The use, therefore, of BSP checks for drawings against reserve deposits shall be limited to (a) settlement of obligations with the BSP, and (b) withdrawals to meet cash requirements. SUBSECTION X254.2 Exclusion of uncleared checks and other cash items . Checks and other cash items which have not been cleared yet through the Clearing Office should not be debited to the account Due from the BSP and should not be considered as available reserves against deposit/deposit substitute liabilities. Such items shall be debited to the Checks and Other Cash Items account. Only after the checks and other cash items have been cleared through the Clearing Office can the bank debit the Due from the BSP account for said items. SUBSECTION X254.3 Interest income on reserve deposits . Deposits maintained by banks with the BSP up to forty percent (40%) of the reserve requirement (excluding the liquidity reserve mentioned in Subsec. X253.2 against the combined deposit and deposit substitute liabilities of banks allowed to be maintained in the form of short-term market yielding government securities purchased directly from the BSP-Treasury Department) shall be paid interest at four percent (4%) per annum based on the average daily balance of said deposits to be credited quarterly. SUBSECTION X254.4 Book entry method for reserve securities . In the implementation of the book entry system for transactions in government securities eligible for reserves, transactions concerning reserve-eligible securities shall be entered in the respective securities account of each bank with the BSP and shall be evidenced by securities account debit or credit advices to be promptly furnished the institution/s concerned. No certificate shall be issued for any purpose. Transactions with third parties other than the BSP shall not be recognized. SECTION X255. Exemptions from Reserve Requirements . The following shall be exempt from reserve requirements: a. All collections credited to the special account "Due to BSP Internal Revenue Account (Other Cities and Municipalities)"; b. Special time deposits from the Agrarian Reform Fund Commission and special savings deposits from farmer-borrowers; and c. Unclaimed balances of deposit liabilities already reported to the Treasurer of the Philippines in accordance with the Unclaimed Balances Act (Act No. 3936, as amended) and transferred/reclassified from the deposit liability/other credit accounts to the liability account " Due to the Treasurer of the Philippines ." Local banks may deduct from the amount of their gross demand deposits, the total of their Due from Local Banks Demand and Due from PNB Clearing in an amount not exceeding the total of their Demand Deposits-Banks and Due to Local Banks . As used herein, the term " gross demand deposits " shall mean the sum of all individual deposits, including deposits made by other local banks, the Philippine Government, its political subdivisions and instrumentalities, and government-owned or -controlled corporations. SECTION X256. Computation of Reserve Position . The reserve position of any bank and the penalty on reserve deficiency shall be computed based on a seven(7)-day week, starting Friday and ending Thursday, including Saturdays, Sundays, public special/legal holidays, non-banking days, unexpected declared non-banking days or declared half-day holidays and days when there is no clearing: Provided , That with reference to public special/legal holidays, non-banking days, unexpected declared non-banking days, declared half-day holidays and days when there is no clearing, the reserve position as calculated at the close of the business day immediately preceding such public special/legal holidays, non-banking days and unexpected declared non-banking days and declared half-day holidays and days when there is no clearing, shall apply thereon. For this purpose, the principal office in the Philippines and all other banking offices located therein shall be treated as a single unit. SUBSECTION X256.1 Measurement of reserve requirement . The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of deposit and deposit substitute liabilities of the prior week. CDAHIT SECTION X257. Reserve Deficiencies; Sanctions . Whenever the reserve position of any bank computed in the manner specified in Sec. X256 is below the required minimum, it shall pay the BSP one-tenth of one percent (1/10 of 1%) per day on the amount of the deficiency or the prevailing ninety-one (91) day Treasury Bill rate plus three (3) percentage points, whichever is higher: Provided, however , That a bank shall be permitted to offset any reserve deficiency occurring one (1) or more days of the week covered by the report against excess reserves which it may hold on other days of the same week, and shall be required to pay the penalty only on the average daily net deficiency during the week. In case of abuse, a bank shall automatically lose the privilege of offsetting reserve deficiency in the aforesaid manner until such time that it maintains its daily reserve position at the required minimum for at least two (2) consecutive weeks. As used in this Section, " abuse " * in the privilege of offsetting reserve deficiencies against excess reserves shall mean having reserve deficiencies occurring four (4) or more times during any given week for two (2) consecutive weeks, whether or not resulting in net weekly deficiencies. SUBSECTION X257.1 Chronic reserve deficiency; penalties . In cases where the bank has chronic reserve deficiency in deposit/deposit substitute liabilities, the bank shall be denied the credit facilities of the BSP; and the Monetary Board may: (a) limit or prohibit the making of new loans or investments by the bank; and (b) prohibit the declaration of cash dividends. The board of directors of said bank shall be notified of such chronic reserve deficiency and the penalties therefor, and be required to immediately correct the reserve position of the bank. As used in this Subsection, " chronic reserve deficiency " shall mean having net reserve deficiencies for two (2) consecutive weeks. SUBSECTION X257.2 Failure to cover overdrawings with the Bangko Sentral . Any bank which incurs an overdrawing in its deposit account with the BSP shall fully cover said overdraft not later than the next clearing day including interest thereon equivalent to one-tenth of one percent (1/10 of 1%) per day or the prevailing ninety-one (91) day Treasury Bill plus three (3) percentage points, whichever is higher. In case a bank fails to cover its overdrawings, it shall be excluded from clearing on such day and it shall also be denied the credit facilities of the BSP. Such exclusion from clearing shall continue for as long as it has not maintained credit balances with the BSP for at least five (5) consecutive banking days. If its clearing account is overdrawn for five (5) consecutive banking days, it shall be prohibited from (a) making new loans or investments, except investment in government securities with BSP support; (b) declaring cash dividends until it has maintained credit balances in its BSP clearing account for at least fifteen (15) consecutive banking days; and (c) establishing branches. The denial from availment of credit facilities of the BSP shall continue for as long as the bank maintained credit balances with the BSP for at least fifteen (15) consecutive banking days. For purposes of computing the total available reserves against deposit/deposit substitute liabilities, the total amount of overdrawing in the clearing account with the BSP shall be deducted from available reserves after the required reserves against deposit/deposit substitute liabilities shall have been satisfied. SUBSECTION X257.3 Payment of penalties on reserve deficiencies . Penalties if unpaid within fifteen (15) days from receipt of the assessment, shall be charged against the demand deposits of banks with the BSP: Provided , That where the bank's credit balance is insufficient and it fails to settle the assessment, the Monetary Board may limit or prohibit the making of new loans or investments by the bank. SECTION X258. Report on Compliance . Every bank shall make a weekly report to the BSP of its daily required and available reserves on deposit/deposit substitute liabilities in the prescribed forms. SECTIONS X259-X260 (Reserved) I. Sundry Provisions On Deposit Operations SECTION X261. Booking of Deposits and Withdrawals . The following regulations shall govern the booking of deposits and withdrawals of banks. SUBSECTION X261.1 Clearing cut-off time . As a general rule, all deposits and withdrawals during regular banking hours shall be credited or debited to deposit liability accounts on the date of receipt or payment thereof: Provided, however , That a bank may set a clearing cut-off time for its head office not earlier than two (2) hours before the start of clearing at the BSP, and not earlier than three and one-half (3) hours before the start of clearing for all its branches, agencies and extension offices doing business in the Philippines, after which time, deposits received shall be booked as hereinafter provided: Provided, further , That banks which are located in areas where there are no BSP regional/clearing arrangements may set a clearing cut-off time not earlier than two (2) hours before the start of their local clearing after which time, deposits received shall be booked likewise as hereinafter provided. SUBSECTION X261.2 Definitions . As used in this Section, the following terms shall have the following meanings: a. Regular banking hours shall refer to the banking hours reported to the BSP pursuant to Sec. X156, including the extended banking hours reported for servicing deposits and withdrawals; and b. Clearing cut-off time shall mean the bank's closing time for the acceptance of deposits in the form of checks, bills and other demand items for clearing on the day of their receipt. SUBSECTION X261.3 Booking of cash deposits . Cash deposits received after the selected clearing cut-off time until the close of the regular banking hours shall be booked as deposits on the day of receipt. SUBSECTION X261.4 Booking of non-cash deposits . Deposits of checks including " on us " checks, manager's/cashier's/treasurer's checks and demand drafts , which are drawn against the depository bank and all its offices, as well as treasury warrants and postal money orders, received after the selected clearing cut-off time until the close of the regular banking hours, may, at the option of the bank, be booked as deposits on the day of receipt. Other non-cash deposits received after the selected clearing cut-off time shall be treated as contingent accounts on the day of receipt and shall be booked as deposits the following banking day. SUBSECTION X261.5 Booking of deposits after regular banking hours . Deposits, whether cash or non-cash, received after the close of the regular banking hours shall be treated as contingent accounts on the day of receipt and shall be booked as deposits the following banking day. SUBSECTION X261.6 Other records required . For record and control purposes, banks shall prepare a daily abstract of deposit transactions treated as contingent accounts. SUBSECTION X261.7 Notice required . Banks shall post at a conspicuous place near each teller's window a notice to depositors indicating their selected clearing cut-off time and a statement to the effect that non-cash items deposited after said cut-off time shall be treated as transactions for the next banking day. SECTION X262. Miscellaneous Rules on Deposits . Banks shall also be governed by the following miscellaneous rules on deposits. SUBSECTION X262.1 Specimen signatures, ID photos . All banking institutions are required to set a minimum of three (3) specimen signatures to be simultaneously required from each of their depositors and to update the specimen signatures of their depositors every five (5) years or sooner, at the discretion of the bank. Banks may, at their option, require their depositors to submit ID photos together with the specimen signatures. SUBSECTION X262.2 Insurance on deposits . All banks shall indicate the coverage of the PDIC in each passbook, certificate of time deposit and/or cover of checkbook for demand deposit/NOW accounts stating, among other things, the maximum amount of insurance. SUBSECTION X262.3 Certification of compliance with Subsection 55.4 of R.A. No. 8791 . Banks shall submit to the appropriate supervising and examining department of the BSP, through the Deputy Governor of Supervision and Examination Sector, a statement every end of June and December, signed by the Vice-President for Administration or Human Resource or Personnel, or by any officer assuming equivalent responsibility, certifying their institution's compliance with Subsection 55.4 of R.A. No. 8791, which prohibits banks from employing casual, nonregular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. A format for the certification of compliance is shown in Appendix 49 . The definition contained in Articles 280281 of the Labor Code of the Philippines for private banks and Section 2 of the Civil Service Commission Memorandum Circular No. 40 and Rule VII of Civil Service: Laws and Rules for government banks shall apply in classifying employee/personnel as casual, regular or probationary. Personnel with too lengthy probationary status are employees who are allowed to work after a probationary period of six (6) months without being considered a regular/permanent employee. IEAHca SECTION X263. Disclosure of Service and Maintenance Fees on Dormant Accounts . Banks may impose service or maintenance fees on dormant or inactive savings and demand deposit accounts: Provided , That before such charges or fees may be imposed, the rate of service charges or maintenance fee, the period of dormancy as prescribed in Subsec. X163.12 and the minimum balance of deposits shall be properly disclosed among the terms and conditions of the deposit. SECTION X264. Unclaimed Balances . All unclaimed balances, which include credits or deposits of money, bullion, securities or other evidences of indebtedness of any kind, and interest thereon already reported to the Treasurer of the Philippines in accordance with the Unclaimed Balances Act (Act No. 3936, as amended) shall be transferred/reclassified from the deposit liability/other credit accounts to the liability account, " Due to the Treasurer of the Philippines ," until they are deposited with or turned over to the Treasurer of the Philippines upon order of the court that the same have been escheated in favor of the Government of the Republic of the Philippines and as such, the unclaimed deposit liabilities shall no longer be covered by reserves required of deposit liabilities. SECTION X265. Acceptance, Encashment or Negotiation of Checks Drawn in Favor of Commissioner/Collector of Customs . All checks payable to the Commissioner/Collector of Customs shall be accepted for deposit only to the account of the Commissioner/Collector of Customs. Banks where the Commissioner/Collector of Customs has no account shall not encash, accept nor negotiate checks payable to the Commissioner/Collector of Customs. Any attempt to defraud the government or the bank through the irregular or unauthorized encashment or deposit of these checks to accounts other than that of the Commissioner/Collector of Customs shall be reported immediately by the head of the banking office to the BOC, copy furnished the BSP. SECTION X266. Deposit Pick-up/Cash Delivery Services . The following are the guidelines on the deposit pick-up/cash delivery services of banks; a. As a general rule, deposit pick-up/cash delivery services shall be limited to the following: (1) To service the need of valued clients whose daily average deposit amounts to: P500 thousand for Metro Manila and Metro Cebu clients/depositors P300 thousand for outside Metro Manila and Metro Cebu clients/depositors (2) To be serviced during regular banking hours and days only, unless the nature of the business and the volume of the deposits/cash would warrant servicing beyond regular banking hours and days, in which case justification therefore should be submitted to the satisfaction of the appropriate supervising and examining department. b. Prior BSP authority is not required before banks can engage in deposit pickup/cash delivery services, provided, the following conditions are complied with: (1) Pick-up of deposits/cash delivery shall be made with the use of armored cars, which shall not be operated as a mobile bank used in soliciting deposits from the general public, or in any manner in carrying out banking transactions/services other than to afford security of deposit/cash items in transit; (2) Pick-up of deposits/cash delivery may be made with the use of non-armored vehicles on an unscheduled request; Provided , That : (a) all armored vehicles have already been fielded and the request has to be served immediately; and (b) it is within a five (5) kilometer radius of a servicing banking office. (3) The risk of loss involved in the pickup of deposits/cash delivery shall be adequately covered by insurance, and the armored car/non-armored car to be used shall be provided, with at least two (2) armed guards and supervised by at least two (2) officers of the bank; (4) The deposit/cash delivery transactions shall be booked in accordance with existing regulation; (5) Pick-up of deposits/cash delivery shall not be allowed on days other than the bank's regular banking days; (6) The strictest measure of safeguards, control and confidentiality will be adopted in implementing the services; (7) A separate record/log book for each armored car/non-armored car shall be maintained by the bank which shall contain the information on the deposit pick-up/cash delivery activities of the armored car/non-armored car to be supported by " trip tickets " signed by a responsible officer of the bank; (8) Records and/or such other reports that may be required of the bank from time to time shall be made available for examination/inspection by the authorized representative(s) of the appropriate supervising and examining department of the BSP; and c. If the use of the non-armored car under Item "b(2)" of this Section becomes regular, the bank shall engage an armored car to take its place. Regularity shall mean daily (i.e., regular banking days) or periodic (e.g., every 15th or end of the month) servicing of a valued client within a three (3) month period. d. If any of the above conditions are not met, the BSP may suspend the deposit pickup/cash delivery operations of the bank without prejudice to the imposition of sanctions under Section 37 of R.A. No. 7653. SUBSECTION X266.1 Operation of armored cars . Except for Item "b(2)" of this Section, banks shall use armored cars to afford security in collection and/or delivering cash or securities and other valuables from or to their clients, branch or extension offices or the BSP, provided such armored cars are not operated as mobile banks. SECTION 1266. (Reserved) SECTION 2266. (Reserved) SECTION 3266. Qualifying Criteria Before a Rural/Cooperative Bank Engages in Deposit Pick-up Services a. An RB/Coop Bank desiring to undertake deposit pick-up service must meet the following criteria: (1) Its total resources should not be less than P100 million and its net assets should be at least P10 million or the minimum capital required under Subsec. X106.1, whichever is higher; (2) It should not be deficient in its networth-to-risk assets ratio; (3) Its past due loan ratio should not be more than fifteen percent (15%); (4) It has no past due obligations with the BSP or with any government financial institution; (5) It should have continuous profitable operations; and (6) It must show adherence to law, and BSP rules and regulations. b. An RB/Coop Bank that meets the above criteria shall submit for evaluation, the following justifications on the need for the RB/Coop Bank and its branches to undertake such service which should contain, among other things, the following: (1) the names of clients/companies to be serviced, estimated daily average deposit and distance/proximity of client from applicant bank; (2) the names and number of banks, branches, if any, in the area where depositor is situated; (3) the arrangement in writing between the bank and the clients desiring to avail of the service, which arrangement shall define and specify the respective responsibilities of the parties; and (4) such other information pertinent to the application. SECTION X267. Automated Teller Machines . a. Off-site Automated Teller Machines (ATMs) . Banks may establish off-site ATMs, subject to the following conditions: (1) Banks shall submit a report to the appropriate department of the BSP on ATMs which they establish; (2) The off site ATMs shall be installed only in centers of activity like shopping centers, supermarkets, hospitals, university campuses: Provided , That adequate internal control and security measures shall be adopted and submitted to the BSP; and (3) Only banks which have shown general compliance with laws, rules and regulations shall be allowed to open off-site ATMs . b. Mobile ATMs . Banks may also establish mobile ATMs, subject to the following conditions: (1) The mobile ATMs should be allowed to visit only centers of activity as mentioned in Item a(2) above and should confine their itinerary to Metro Manila until further notice; (2) The bank shall secure insurance coverage or adopt a self-insurance scheme to protect itself against losses of whatever nature in its mobile ATM operations; and (3) The bank shall notify the supervising and examining department of the BSP of the actual date a mobile ATM becomes operational and when no longer in operation. J. Borrowings From The Bangko Sentral SECTION X268. Eligibility Requirements for Availment of the BSP Rediscounting Facility by Banks . The following are the eligibility requirements for availment of the BSP rediscounting facility. SUBSECTION X268.1 Eligibility requirements for applicant banks . Banks applying for availment of the BSP rediscounting facility must meet the following eligibility requirements at all times: a. Minimum capital prescribed under Subsecs. X106.1 and X106.2, as amended based on the latest available report submitted to SRSO. b. Risk-based capital adequacy ratio as required under Sec. X116 continuously for a period of thirty (30) days immediately preceding date of application based on latest available report submitted to SRSO. SEDaAH c. Required loan-loss provision and/or valuation reserves as determined in the last examination of the appropriate supervising and examining department. d. Required reserves against deposit liabilities/deposit substitutes for two (2) consecutive weeks immediately preceding the date of application based on latest available report submitted to SRSO. e. Past due direct and indirect loans to DOSRI to the aggregate past due loans of not more than five percent (5%) based on latest available report submitted to SRSO. f. Past due ratio not exceeding the industry average plus two percent (2%) as of the latest quarterly report released by the SRSO. g. Compliance with the loans-to-deposit ratio based on latest available report submitted to SRSO. h. Investment in bank premises not exceeding fifty percent (50%) of net worth based on the latest available report submitted to SRSO. i. Required liquidity floor for government deposits based on latest available report submitted to SRSO. j. Compliance with the mandatory allocation of credit to small and medium enterprises based on the latest available report submitted to SRSO. k. No overdrawings in its demand deposit accounts with the BSP. l. No past due obligations or collateral deficiencies on account of matured notes/unremitted collections/missing collaterals. m. A CAMELS composite rating of "3" or higher based on the latest general examination of the appropriate supervising and examining department. n. Submission of required reports on time to the departments and/or offices of the BSP. o. Compliance with other applicable laws, rules and regulations, and/or directives of the Monetary Board. SUBSECTION X268.2 Eligible papers and collaterals . The BSP shall accept loan papers covering all economic activities except the following: interbank loans, DOSRI loans, extended/restructured loans, past due loans, unsecured loans, other than microfinance loans, personal consumption loans and loans for capital assets acquisition. Credit instruments offered as collateral shall be subject to the eligibility requirements provided under Section 82 of R.A. No. 7653. a. Commercial credits . Bills, acceptances, promissory notes and other credit instruments with maturities of not more than 180 days from the date of their rediscount, discount or acquisition by the BSP and resulting from transactions related to: (1) the importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or (2) the storing of nonperishable goods and products which are duly insured and deposited, under conditions assuring their preservation, in authorized bonded warehouses or in other places approved by the Monetary Board. b. Production credits . Bills, acceptances, promissory notes and other credit instruments having maturities of not more than 360 days from the date of their rediscount, discount or acquisition by the BSP and resulting from transactions related to the production or processing of agricultural, animal, mineral, or industrial products. c. Other credits . Special credit instruments not otherwise rediscountable under the immediately preceding Items "a" and "b" such as agricultural loans for projects with long gestation period may be eligible for rediscounting in accordance with rules and regulations which the BSP shall prescribe. The promissory notes (PNs)/export bills (EBs) shall be endorsed in favor of the BSP and certified that the same are still outstanding as of the time of application, by at least two (2) responsible officers holding positions not lower than a manager or equivalent rank, authorized by the borrowing bank's board of directors. SUBSECTIONS X268.3-X268.9 (Reserved) SUBSECTION X268.10 Constitutional prohibition . The following regulations shall govern the implementation of Section 16, Article XI of the Constitution, which reads as follows: "Sec. 16. No loan, guaranty, or other form of. financial accommodation for any business purpose may be granted, directly or indirectly, by any government-owned or controlled corporation or financial institution to the President, the Vice-President, the Members of the Cabinet, the Congress, the Supreme Court, and the Constitutional Commissions, the Ombudsman, or to any firm or entity in which they have controlling interest, during their tenure." a. Definition (1) The terms " loan ", " guaranty " or " other form of financial accommodation " as used in these regulations shall refer to transactions which involve the grant, renewal or extension to a bank by the BSP of any loan, advance, discount, rediscount or credit in any form whatsoever. (2) Controlling interest in a bank . Any of the government officials mentioned in Section 16, Article XI of the Constitution (the "Official") shall be deemed to have a controlling interest in a bank if he owns more than fifty percent (50%) of the voting stock of such bank. For the purpose of this Subsection, the stockholdings of the spouse or minor child of the Official shall be included in determining if he has such controlling interest. b. Certification required . A bank applying for a loan or financial accommodation with the BSP shall submit, together with the application, a certification under oath of the President of the bank that the bank and/or any of its stockholders do not fall within the prohibition under Section 16, Article XI of the Constitution. SECTION X269. Terms and Conditions of the BSP Loan . The following are the terms and conditions which shall govern the grant of the BSP loan. SUBSECTION X269.1 Rediscount ceiling . The rediscount ceiling of banks shall be 100% of their net worth; for branches of foreign banks, the rediscount ceiling shall be twenty five percent (25%) of 'Net Due to Head Office" plus "Assigned Capital". Net worth shall be net of any unbooked valuation reserves and other capital adjustments recommended by the concerned BSP supervising and examining department. SUBSECTION X269.2 Rediscounting line . The rediscounting availments of all eligible banks shall be drawn against a rediscounting line. The application for availment shall be submitted to the Department of Loans and Credit (DLC) or to the Regional Loans and Credit Unit (RLCU), which will provide the borrowing bank with a checklist of the documents required. The term of the line shall be for one (1) year renewable annually upon submission of application at least one (1) quarter before expiry of said line. The approval of the line/renewal of the same shall be subject to the banks' full compliance with the prescribed eligibility requirements provided in Subsec. X268.1. The Director of the DLC shall approve the line, With prior approval of the MB, the rediscounting line may be increased beyond the rediscount ceiling on a case-to-case basis depending on the credit rating of the bank concerned. a. Basis . The DLC or the appropriate RLCU shall conduct a credit rating of all banks applying for a rediscounting line. The amount of the line shall be based on the credit rating of the bank, which shall be in accordance with the New Credit Rating Guidelines. b. Application procedure . Banks applying for a rediscounting line shall submit their application in the prescribed form to the DLC or the appropriate RLCU, together with the following documents: (1) Board Resolution duly signed by the board of directors of the applicant bank, authorizing the bank to apply for a rediscounting line with the BSP and designating at least two (2) officer authorized to endorse PNs/EBs and sign all papers pertaining to rediscounting in the prescribed BSP forms. (2) CSOC as of the end of month immediately preceding the date of application together with the related Statement of Income and Expenses. (3) Consolidated Daily Report of Condition (CDRC) covering the past two (2) consecutive weeks immediately preceding the date of application. (4) For RBs and Coop Banks, a tripartite depository agreement by and among the applicant RB/Coop Bank, designated depository bank (duly concurred by its Head Office) and the DLC/RLCU. (5) Rediscounting Line Agreement duly signed and executed by the designated authorized officers of the applicant bank. SUBSECTION X269.3 Loan value . The loan value of all eligible papers shall be eighty percent (80%) of the outstanding balance of borrower's PN/EB. SUBSECTION X269.4 Maturities . The maturity of BSP loans/advances/rediscounts are as follows: a. Commercial credits Not to exceed 180 days from the date the proceeds of such loans/advances/rediscounts are released to the applicant bank. b. Production credits Not to exceed 360 days from the date the proceeds for such loans/advances/rediscounts are released to the applicant bank. c. Other credits Not to exceed 360 days, including loans for agricultural purposes with long gestation periods. The maturity date of the bank's rediscounting loan from the BSP, as indicated in its PN, shall not be longer than the latest maturity date indicated in the borrower's collateral paper submitted by the bank to support its rediscounting availments. CITSAc SUBSECTION X269.5 Rediscount/lending rates and liquidated damages . The rediscount rates for peso loans shall be based on the applicable T-Bill rates for the preceding week as follows: Loan Maturity Applicable T-Bill Rate 90 days or less 91-day 91-180 days 182-day 181-360 days 364-day The rediscount rate shall continue to be one percentage (1%) point below the 91-day T-bill rate of the last auction week of the previous month. On October 4, 2003, the rediscount rate shall automatically revert to the market-based pricing mechanism provided under this Section. The lending rates that the banks may charge on their rediscounted papers shall not be subject to any ceiling. However, the spreads made by banks shall be closely monitored by the BSP to ensure that these are consistent with prevailing market rates. Past due BSP loans and unpaid matured notes shall be levied liquidated damages equivalent to five percent (5%) per annum. SUBSECTION X269.6 Release of proceeds . The proceeds of the rediscounting availment shall be credited to the borrower bank's demand deposit account or its depository bank's demand deposit account with BSP. SUBSECTION X269.7 Remittance of collections/repayments/arrearages . The following shall govern remittance of collections, repayments and arrearages: a. Total collections received by the borrowing bank before maturity of the rediscounted PN shall be remitted to the DLC or RLCU, not later than five (5) banking days following the date of receipt of collections. In the case of negotiated EBs when the bank receives the corresponding payment from its correspondent bank either through actual remittance or credit advice or through entry(ies), charging its correspondent bank before receipt of advice, the amount rediscounted plus interest and other charges due shall be remitted to the DLC not later than five (5) banking days following the date of receipt of payment and/or entry(ies) by Head Office/branches. The bank shall ensure that adequate records are maintained in its Head Office on the collections made by the branches. b. If the borrower's PN matures before the maturity date of the bank's rediscounting loans from the BSP, the loan value of the borrower's rediscounted PN, including the accrued interest thereon, shall be debited against the bank's demand deposit account with the BSP. c. The loan value of the unaccounted rediscounted PNs and/or underlying collaterals discovered during the credit examination, including the accrued interest thereon shall be debited against the bank's demand deposit account with the BSP. d. The BSP may execute all necessary collection measures allowed by law, such as foreclosure proceedings against banks with past due loans. SUBSECTION X269.8 Prohibited transactions . The following shall not be allowed: a. Substitution of rediscounted PNs or underlying collaterals on outstanding loans with BSP. b. Renewal of rediscounted PN without remitting payment while the loan released against the rediscounted PN is still outstanding with the BSP. c. Acceptance of properties as payment (dacion en pago) without prior approval of BSP. SUBSECTION X269.9 Credit examination of borrowing banks . The DLC or the appropriate RLCU shall undertake periodic credit examination of borrowing banks for the purpose of: a. determining the extent of their compliance with the terms and conditions of the loans granted to them and adherence to applicable laws, rules and regulations and credit policies of the BSP; and b. evaluating the effectiveness of their credit and collection system. DLC/RLCU shall obtain documents from other lending institutions and other departments of BSP to validate information. SUBSECTION X269.10 Penalties/sanctions . The following penalties and sanctions shall be imposed on the erring bank and/or the bank's authorized/certifying officers. a. Unremitted collections/delayed remittances . A penalty of one-tenth of one percent (1/10 of 1%) per day of delay on unremitted collections/delayed remittance of collections, commencing from the day following the deadline prescribed in Subsec. X269.7a, shall be imposed on the erring bank. Penalties imposed shall not, however, exceed P30,000 per day. In addition, the following non-monetary sanctions shall be imposed: 1st Offense Warning 2nd Offense If remittance is delayed, suspension of rediscounting privilege for fifteen (15) calendar days from date of discovery. If not remitted, suspension shall start on the date of DLC/RLCU discovery and end fifteen (15) calendar days after date of payment. 3rd Offense If remittance is delayed, suspension of rediscounting privilege for thirty (30) calendar days from date of DLC/RLCU discovery. If not remitted, suspension shall start on the date of DLC/RLCU discovery and shall end thirty (30) calendar days after date of payment. 4th Offense Cancellation of rediscounting privilege unless restored in the next review but in no case shall the period of suspension be less than ninety (90) calendar days. b. Non-negotiation of assigned Letters of Credits(LCs)/Purchase Orders(POs)/Sales Contracts (SCs) . A penalty of one-tenth of one percent (1/10 of 1%) per day of delay based on the face value/outstanding balance of the rediscounted PNs but not exceeding P30,000 per day shall be imposed on banks for non-negotiation of assigned LCs/POs/SCs reckoned from the date of the BSP grant to date of payment, unless the BSP has earlier received a written notice of extension of the expiry date/validity period of LCs/POs/SCs from the bank concerned. c. Collaterals with technical deficiency . A penalty of one-tenth of one percent (1/10 of 1%) per day for collaterals with technical deficiency (which will increase the credit risk, such as: expired insurance, unendorsed PN, etc.) but not exceeding P30,000 per day shall be charged to banks, if the deficiency is not corrected within fifteen (15) days from date of DLC examination. d. Other violations . In addition to the penalties prescribed herein, any misrepresentation, violation of the terms and conditions of the bank's PN and/or the rediscounting line agreement, and unauthorized withdrawal of collaterals from the depository bank, shall subject the borrowing bank to the following sanctions: 1st Offense Warning 2nd Offense Suspension of rediscounting privilege for fifteen (15) calendar days from date of discovery. 3rd Offense Suspension of rediscounting privilege for thirty (30) calendar days from date of discovery. 4th Offense Cancellation of the rediscounting privilege unless restored in the next review but in no case shall the period of suspension be less than ninety (90) calendar days. For this purpose, failure to account for missing rediscounted PN and/or underlying collateral shall constitute unauthorized withdrawals of rediscounted PNs and/or underlying collaterals. If any of the required documents submitted by the bank is discovered to be false/fake/spurious, a fine of P5,000 per day from the date of the release of the loan, up to the date of payment, shall be imposed separately on the bank and on the authorized/certifying responsible officers. ESITcH SUBSECTION X269.11 Interlocking directorship/officership . Banks owned or managed by the same owners, stockholders, directors, officers or family/business group shall be automatically suspended from availment of the rediscounting facility once the rediscounting privilege of any of the banks belonging to the same group is suspended, until, such time that the suspension of the erring bank has been lifted. SUBSECTION X269.12 Transitory provisions . The following shall apply to those banks which cannot comply with the required rediscount ceiling and past due ratio from October 4, 2002: a. Rediscount ceiling . Banks which have outstanding rediscounted loans-to-net worth ratio exceeding 100%, as required under Subsec. X269.1 shall be given five (5) years from October 4, 2002 to reduce their outstanding rediscounted loans and/or increase their net worth in order to attain the 100% required ratio of rediscounted loans to net worth, in accordance with the following schedule: Twenty-five percent (25%) yearly reduction in the ratio of rediscounted loans to net worth , starting end-October 2004 and the succeeding years thereafter until a 100% rediscounted loans-to-net worth ratio is reached by year 2007. b. Past due ratio . Banks with past due ratio exceeding the industry average ratio plus two percent (2%) as required under Subsec. X268.1f shall comply with the requirement by June 30, 2007. SECTION X270. Repurchase Agreements with the Bangko Sentral . Repurchase agreements with the BSP shall be governed by Sec. X601 of the MOR. SECTION X271. Bangko Sentral Liquidity Window . The following guidelines shall govern the grant by the BSP of credit accommodations through a liquidity window to banks. SUBSECTION X271.1 Nature of liquidity window . The window shall meet the liquidity needs of the financial system under normal conditions and shall be distinct from overdrafts and emergency advances. SUBSECTION X271.2 Terms of credit a. Interest rate . The rate of interest chargeable on availments under the liquidity window shall be the rate equivalent to the reference rate for ninety (90) days determined and announced by the BSP for floating rate loans, plus or minus a rate to be determined by the BSP on the basis of the prevailing monetary situation. The additional or discount rate established for any given time shall be made public by the BSP and applied uniformly to all borrowers during that period. The additional rate to be imposed over and above the reference rate shall not be less than two (2) percentage points, with the applicable additional rate to be determined by the BSP on the basis of the prevailing monetary situation. b. Security . Any paper, irrespective of maturity, eligible under Section 82 of R.A. No. 7653. c. Loan values . The loan values of the paper offered as collateral should be eighty percent (80%) of the amount still due outstanding on the paper offered as collateral. d. Repayment period . The term of the credit accommodation shall not exceed seven (7) days. SUBSECTION X271.3 Limit . Availment by any bank under this facility shall not exceed ten percent (10%) of its net worth, as defined under Sec. X106 as of the end of the quarter preceding the date of application. In the case of branches of foreign banks, the quota shall be ten percent (10%) of the assigned capital as of the date of application. Additionally, a bank or a branch of a foreign bank may avail itself of this facility to the extent equivalent to a further five percent (5%) of its net worth, as defined under Sec. X106 or assigned capital, as the case may be, as of the end of the quarter preceding the date of availment. Any availment of the liquidity window shall fall within the unavailed basic rediscount ceiling of the bank or the branch of a foreign bank as the case may be. SECTION X272. Emergency Loans or Advances to Banking Institutions . The following guidelines shall govern the grant by the BSP of emergency loans and advances to banking institutions. SUBSECTION X272.1 Nature of emergency loans or advances . An emergency loan or advance is a credit facility that is intended to assist a bank experiencing serious liquidity problems arising from causes not attributable to, or beyond the control of, the bank management. The grant of such facility is discretionary upon the Monetary Board, and is intended only as temporary remedial measure to help a bank overcome liquidity problems. No emergency loan or advance may be granted except on a fully secured basis. SUBSECTION X272.2 When an emergency loan or advance may be availed of . An emergency loan or advance may be granted only after the Monetary Board has ascertained that the bank is not insolvent and has the assets to fully secure the advances. a. During abnormal periods shall refer to periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability. b. During normal periods shall refer to situations where a particular bank is in a precarious financial condition or under serious financial pressures brought about by unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned. IDSaTE SUBSECTION X272.3 Procedures . An application shall be filed with the DLC, copy simultaneously furnished the appropriate supervising and examining department. An application during normal periods shall state the reasons and other details showing the precarious financial condition or the serious financial pressures being experienced by the bank, as well as a listing of the collaterals offered. The following shall be submitted together with the application: a. A resolution of the board of directors of the bank authorizing the availment by the bank of an emergency loan or advance from the BSP, signifying the bank's commitment to comply with the guidelines set forth herein and the terms and conditions that may be imposed by the Monetary Board, and designating the officers duly authorized to sign any and all requisite documents for the emergency loan or advance; b. The documents of title and/or evidences of ownership of the collaterals offered; and c. A resolution of the board of directors authorizing the BSP to evaluate other assets of the applicant bank which are available for collateral purposes should the release of subsequent tranches be applied for. The resolution shall be accompanied by a certification of the bank's external auditor that the said assets are good and available for collateral purposes. Prior to the release of the second and subsequent tranches, the principal stockholders of the applicant bank shall submit: (1) An acceptable undertaking to indemnify and hold harmless from suit a comptroller or conservator whose appointment the Monetary Board may find necessary at any time; and (2) The documents of title and/or evidences of ownership of the collaterals for the amount being applied for release and, where necessary, such other acceptable security which, in the judgment of the Monetary Board, would be adequate to supplement the assets tendered to collateralize the subsequent tranche. SUBSECTION X272.4 Allowable amount of emergency loan or advance . The maximum amount of an emergency loan or advance shall be limited to the amount needed by the applicant bank to overcome the emergency or financial predicament or the sum of fifty percent (50%) of the applicant bank's total deposits and deposit substitutes as of date of application for emergency loan or advance, whichever is lower: Provided , That in no case shall such maximum amount exceed the loan values of the collaterals submitted, as determined by the BSP. SUBSECTION X272.5 Manner and conditions of release a. The grant of any emergency loan or advance shall bear the concurrent vote of at least five(5) members of the Monetary Board. b. The proceeds of emergency loans or advances shall be released in two (2) or more tranches as the need of the bank will arise. The release of a second and subsequent tranches must have the authorization of the Monetary Board by a vote of at least five (5) of its members. c. The amount of the first tranche shall not exceed twenty-five percent (25%) of the total deposits and deposit substitutes of the bank and shall be released only after the required securities and collateral documents duly notarized have been submitted. However, an amount greater than twenty-five percent (25%) of the bank's total deposits and deposit substitutes may be released upon request of the applicant bank if, as determined by the Monetary Board, the circumstances surrounding the emergency or financial predicament warrant the release of such greater amount and the same is adequately secured by applicable loan values of government securities and unencumbered first class collaterals approved by the Monetary Board, and the principal stockholders of the applicant bank furnish an acceptable undertaking to indemnify and hold harmless from suit a comptroller or conservator of the bank who may be appointed by the Monetary Board. d. The release of a second and subsequent tranche(s) shall likewise be effected only after submission of the required securities and duly accomplished collateral documents, and upon compliance with the other requirements as stated in Subsec. X272.3. SUBSECTION X272.6 Types of acceptable collaterals . The amount of the first tranche shall be secured by government securities to the extent of their applicable loan values and/or unencumbered real estate and other first-class collaterals. For second and subsequent tranches, aside from the collaterals mentioned above, other assets previously certified by the bank's external auditor to be good and available for collateral purposes as provided in Subsec. X272.3 hereof, as evaluated by the BSP, may be considered. All collateralization expenses, such as registration fees, documentary stamps, etc., shall be borne by the applicant bank. SUBSECTION X272.7 Interest rate . The interest rate that shall be charged on loans or advances granted shall be the average ninety-one (91) day Treasury Bill rate as of the last auction immediately preceding the release of the tranche. SUBSECTION X272.8 Term . The term of any emergency loan or advance shall not exceed one (1)year. SUBSECTION X272.9 Other documentary requirements . Before release of any tranche, the applicant bank shall comply, aside from the documentary requirements already mentioned above, with such other requirements documentation as may be required by the DLC, e.g., promissory note in favor of the BSP. SUBSECTION X272.10 General terms and conditions a. A bank with an outstanding emergency loan or advance shall comply with the following conditions: (1) The bank shall not, without the prior authorization of the Monetary Board, expand its outstanding loans or investments as of the date of application for the loan, except for investments in government securities. (2) The bank shall not declare cash dividends. (3) No new loans to DOSRI and/or affiliates/subsidiaries shall be granted by the bank. (4) The BSP may designate a comptroller to be assisted by examiners to oversee the operations of the bank under terms of reference to be determined by the Governor. b. Any collection received on loan accounts/proceeds from the sale of properties assigned/mortgaged to BSP shall be held in trust for, and immediately remitted to, the BSP in payment of the bank's outstanding emergency loan or advance and corresponding accrued interests. c. Any other terms and conditions that may be imposed by the Monetary Board. Non-compliance with any of the above provisions shall automatically make the emergency loan or advance due and demandable and shall be sufficient cause for the BSP to stop further releases against the bank's approved emergency loan or advance, without prejudice to any action that the BSP may decide to take in accordance with R.A. No. 7653. SECTION X273. Facility to Committed Credit Line Issuers . The following guidelines shall govern the grant by the BSP of special credit accommodations to banks which establish committed credit line in favor of corporations proposing to issue commercial paper. SUBSECTION X273.1 Nature of special credit accommodations . The BSP may extend a loan to any bank which on its own or as a member of a group of banks, provides a committed credit line facility to a corporation proposing to issue commercial paper. SUBSECTION X273.2 Conditions to access . A bank applying for a loan pursuant to the provisions of this Section shall submit to the BSP documents showing that it has extended a committed credit line to a commercial paper issuer and that such issuer has availed itself of said credit line. SUBSECTION X273.3 Terms of credit . a. Interest Rate . The rate of interest chargeable on the availment of this credit facility shall be that which is equivalent to eighty percent (80%) of the total of interest and fees received by the bank from the issuer, net of provision for gross receipts tax paid by the bank on such income. b. Security . The promissory note executed by the commercial paper issuer in favor of the bank for the amount drawn against the committed credit line shall be the security for this credit facility. c. Loan values . The loan value of paper offered as collateral shall be eighty percent (80%) of the amount still due and outstanding on the paper offered as collateral. d. Repayment period . The term of the credit accommodation may not exceed ninety (90) days and shall be non-renewable. SUBSECTION X273.4 Ceiling . If availment of this credit facility is outside the other rediscount ceiling of the bank, it shall be limited to the extent of fifteen percent (15%) of the net worth of the bank. SECTION 1274. (Reserved) SECTION 2274. Countryside Financial Institutions Enhancement Program for Thrift Banks (CFIEP) . The CFIEP shall be implemented under the terms of reference indicated in Appendix 16 . SECTION 3274. Countryside Financial Institutions Enhancement Program for Rural and Cooperative Banks . The CFIEP shall be implemented under the terms of reference indicated in Appendix 16 . SECTION X275. Recording and Reporting of Borrowings . The bank's liability for papers discounted and/or rediscounted " with recourse " with the BSP and/or other financial institutions shall be recorded and shown as " Bills Payable " in all reports submitted to the BSP. The loans and discounts, bills purchased, acceptances and other accounts affected by such discounting and/or rediscounting transactions shall remain as part of the bank's loan portfolio. A footnote in the financial statement shall indicate the outstanding balances of the discounted and/or rediscounted loans. ICcaST SECTION X276. Rediscounting Window for Low-Cost Housing as Defined by the Housing and Urban Development Coordinating Council (HUDCC) The rules and regulations governing the rediscounting of housing loan papers of qualified banks under the low-cost housing program of the HUDCC are shown in Appendix 40. SECTION 1277. Rediscounting Window Available to All Universal and Commercial Banks for the Purpose of Providing Liquidity Assistance to Investment Houses The following implementing guidelines shall govern the new rediscount window available to all UBs and KBs under Section 82(c) of R.A. No. 7653, for the purpose of providing liquidity assistance to investment houses (IH): a. Criteria for eligibility (1) Eligible papers Promissory note of the UB/KB executed in favor of the BSP and secured by a Deed of Pledge or Assignment of unencumbered/unhypothecated commercial papers with a rating of triple "A" and double "A". (2) Loan limit Availments against this facility shall be charged against the rediscount ceiling of the borrowing bank (100% of net worth) as of the end of the quarter immediately preceding the date of application. b. Terms and conditions (1) The loan shall be assessed an annual interest rate equivalent to one percent (1%) below the weighted average of the ninetyone (91)-day Treasury Bill rate for the last auction of the immediately preceding month. (2) The loan shall have a term of 180 days from date of availment. (3) The loan value shall be ninety percent (90%) of the face value of the commercial paper. (4) The BSP will automatically debit the demand deposit account of the UB/KB upon maturity of the rediscounting loan. (5) The Chief Executive Officer of the bank or his equivalent must certify that the rediscounted commercial paper is still outstanding as of the time of assignment. (6) The UBs/KBs shall comply with the documentary requirements of the DLC. c. Duration Qualified UBs/KBs may avail of this facility until December 2000. SECTION 2277. Rediscounting Window Available to TBs for the Purpose of Providing Liquidity Assistance to Support and Promote Microfinance Programs . TBs availing of rediscounting facility for purposes of providing liquidity assistance to support and promote microfinance programs shall comply with the guidelines under Sec. 3277, except for the requirement of a custodian bank under Subsec. 3277.4a(6). SECTION 3277. Rediscounting Window Available to Rural and Cooperative Banks for the Purpose of Providing Liquidity Assistance to Support and Promote Microfinance Programs . The following guidelines shall govern the rediscounting facility available to RBs and Coop Banks for the purpose of providing liquidity assistance to support and promote microfinance programs. SUBSECTION 3277.1 Eligibility requirements a. Eligible borrowers . RBs and Coop Banks with at least one (1) year track record in microfinance and at least 500 active borrowers, ratio of past due microfinance loans to total outstanding microfinance loans of not more than five percent (5%) as of end of the month preceding loan application and collection ratio of not less than ninety-five percent (95%) based on ratio of total collections (excluding prepayments) during the preceding twelve (12)-month period to the sum of past due microfinance loans at the beginning of said period and amount of matured loans including principal amortizations during the same twelve (12)-month period. b. Eligible papers . Promissory Note (PN) of the RB or Coop Bank executed in favor of the BSP and secured by duly endorsed PN of microcredit borrowers. c. Manual of operations . Written policies on microfinance operations must be set forth and documented in a policy manual duly approved by the bank's board of directors. The manual should include the following minimum features: (1) Scope of microfinance activities and the types of services or products offered to clients; (2) Authorities and responsibilities of: (a) Board of directors; (b) Management; (c) Chief Executive Officer (CEO) or Its equivalent; (d) Credit officers; and (e) Other officers involved in the microfinance operations; (3) Policies and procedures covering microfinance program/project; (4) Client evaluation process which should involve at least: client orientation, pre-application, credit investigation, and loan application process; (5) Loan processing, documentation and release of proceeds; (6) Accounts monitoring system; (7) Accounts delinquency management; (8) Management Information System; (9) Accounting policies, systems and procedures; and (10) Internal controls and audit policies, systems and procedures. d. A copy of System of Reviewing Asset Accounts and Setting Up of Adequate Valuation Reserves submitted. e. Staff training and experience . Key officers and staff responsible for microcredit operations must have a minimum experience of one (1) year and have completed a training course in microlending activities. f. Prescribed financial ratios and regulations . Applicant' bank must comply with the following financial ratios and regulations: (1) Minimum capital prescribed under Subsec. X106.1; (2) Risk-based capital ratio of not less than ten percent (10%); (3) Reserves against deposit liabilities prescribed under existing regulations; (4) Ratio of past due direct and indirect loans to DOSRI to the bank's aggregate past due loans of not more than ten percent (10%); (5) Loans-to-deposits ratio of at least seventy-five percent (75%); (6) Reports required to be submitted to the various departments and/or offices of the BSP; (7) CAMELS rating of "3" or better; and (8) Ratio of past due loans to total loan portfolio of not more than the industry average for RBs as of the preceding quarter. SUBSECTION 3277.2 Microcredit (MCR) line a. Application for MCR Line shall be filed with the DLC, BSP at its head office in Manila or the appropriate BSP Regional Loans and Credit Unit (BSPRLCU). The term of the MCR line shall not exceed one (1) year from the date it is granted. The line may be renewed for another year upon submission of an application at least two (2) months before expiry, subject to full compliance with the prescribed eligibility requirements and the credit review by the DLC. b. Total availments against the facility, which shall be charged against the approved MCR line, shall form part of the total authorized rediscount ceiling of the borrowing bank. The rediscount ceiling for microfinance shall be equivalent to one hundred percent (100%) of the bank's net worth, net of valuation reserves and other capital adjustments as recommended by the DRB as of the last regular examination of the bank. c. The proceeds of availment or drawdown against the approved MCR line shall be credited to the account of the RB or Coop Bank maintained with the depository bank or with BSP. The RB or Coop Bank shall be notified in writing/electronically of the credit of such account on the same banking day that the proceeds are released. AHacIS SUBSECTION 3277.3 Terms and conditions a. The loan value shall be equivalent to eighty percent (80%) of the outstanding balance of the microfinance borrower's PN. b. The RB or Coop Bank's loan from the BSP shall have a term of not more than 360 days. The maturity date of the microfinance borrower's PN shall in no case be beyond the maturity date of the RB or Coop Bank's PN. c. The loan shall be assessed an annual interest rate equivalent to the 91-day Treasury Bill rate for the last auction date of the preceding month. d. The demand deposit account of the RB or Coop Bank will be automatically debited at the maturity date of the BSP loan for the full amount due excluding collections from microfinance borrowers which were credited to the Special Savings Account of the BSP with the borrowing bank. e. Any responsible officer who is holding a position that is not lower than manager or equivalent rank must, upon approval by the bank's Board, endorse the rediscounted PNs and certify that the same are still outstanding as of the time of application. f. Collections made on amortizations due and maturing PNs shall be remitted to the DLC not later than two (2) banking days following the date of receipt of collections by the Head Office/branches located within Metro Manila and not later than four (4) banking days following the date of receipt of collections by the Head Office/branches located outside Metro Manila as provided under Subsec. 3277.5. g. A penalty of five percent (5%) per annum shall be imposed on matured and unpaid bank PNs in favor of the BSP. Full compliance at all times with the eligibility requirements as prescribed under Subsec. 3277.1. SUBSECTION 3277.4 Documentary requirements a. Application for MCR Line . RBs or Coop Banks applying for an MCR line shall submit a letter of application to DLC or the appropriate BSPRLCU accompanied by the following documents: (1) Certificate of the Secretary (original) and copy of the resolution duly signed by the board of directors of the applicant bank, authorizing the bank to apply for an MCR line with the BSP and designating the officer authorized under Subsec. 3277.3(e) to endorse the PNs and sign all papers pertaining to the rediscounting line in the prescribed format. (2) Certification of the applicant bank that it has complied with the financial and regulatory ratios, conditions, and reportorial requirements prescribed under the eligibility requirements for rediscounting as provided under Subsec. 3277.1. (3) Consolidated Financial Statements . Statement of Condition as of the end of the month immediately preceding the date of application together with the corresponding Statement of Income and Expenses covering the results of operations for the last three (3) years. (4) Report on required and available reserves covering the past two (2) consecutive weeks immediately preceding the date of application. (5) Rediscounting Line Agreement executed by the CEO of the RB or Coop Bank. (6) Notarized custodian agreement executed among the CEO of the RB or Coop Bank, the third party custodian and the BSP b. Availment of MCR Line . For availment of MCR line, the RB or Coop Bank shall submit the following documents: (1) Application for MCR Line Availment original and one (1) copy in prescribed form duly accomplished and signed by the CEO of the applicant bank; (2) Rediscount Schedule (RS); and (3) Notarized PNs in favor of the BSP-original and two (2) copies. SUBSECTION 3277.5 Remittance of collections/payments/repayments . Collections made on amortizations due and maturing PNs shall be remitted to the DLC not later than two (2) banking days following the date of receipt of collections by the Head Office/branches located within Metro Manila and not later than four (4) banking days following the date of receipt of collections by the Head Office/branches located outside Metro Manila. As an alternative, collections may be deposited in a Special Savings Deposit Account (SSDA) which shall be maintained by the BSP with the borrower-bank and remitted to DLC or the appropriate BSPRLCU on the last banking day of every month. The SSDA shall earn interest of one percent (1%) lower than the 91-day Treasury Bill rate for the last auction date of the preceding month. On due date of the PN, the RB or Coop Bank shall remit to the BSP the unpaid balance of such PN: Provided , That any amount credited to the SSDA shall be applied as payment of the PN in favor of BSP. The remittance shall be reported under DLC Form No. 5. The remittance to BSP shall be in the form of cash, demand draft, manager's check or based on authority issued by the bank to debit its demand deposit account with BSP. Check payments and demand drafts shall be given value when cleared. SUBSECTION 3277.6 Reports required . A monthly report on microfinance transactions shall be submitted to DLC or the appropriate BSPRLCU within the deadline set in Appendix 6 . SUBSECTION 3277.7 Accounts verification . The microcredit accounts rediscounted shall be subject to verification and confirmation by authorized DLC or the appropriate BSPRLCU representatives to determine their eligibility and acceptability for rediscounting. SUBSECTION 3277.8 Sanctions . Any misrepresentation and/or violation of the provisions of this Section shall subject the RB or Coop Bank and/or the erring directors/officers to any of the following sanctions: a. Erring RB or Coop Bank (1) Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a day for each violation; (2) Suspension of rediscounting privileges or access to BSP credit facilities; and/or (3) Reduction of rediscounting line. b. Erring Directors/Officers For violation of any of the provisions of this Section the following shall be imposed against the directors and officers of the bank: (1) 1st Offense a warning that a repetition of the same or similar offense shall subject the erring director/officer to monetary penalties and/or sanctions; (2) 2nd Offense a fine of P500 per day for each violation from the time the violation was committed up to the time it is corrected without prejudice, however, to the imposition of higher penalties; and (3) 3rd and Subsequent Offenses a fine of p5,000 per day from the time the violation was committed up to the time it is corrected without prejudice, however, to the imposition of higher penalties. If any of the documentary requirements submitted by the bank as required under Subsec. 3277.4 is found to be false, a fine of P5,000 per day, from the time the certification was made up to the time the certification was found to be false, shall be imposed against the certifying officer. SECTIONS X278 - X280 (Reserved) K. Other Borrowings SECTION X281. Borrowings from the Government . Except as may be authorized by existing statutes, no private bank shall, whether or not performing quasi-banking functions, borrow any fund or money from the Government and government entities, through the issuance or sale of its acceptances, notes or other evidences of debt. SUBSECTION X281.1 Exemption from reserve requirement . The following borrowings shall not be subject to the reserve requirements: a. Special time deposits (STDs) and deposit substitutes of specialized government banks and private banks arising from their lending operations under the special financing programs of the Government and/or international financial institutions; and b. Funds held by participating financial institutions (PFIs) under the GSIS Housing Loan Programs: Provided , That the agreement between the GSIS and the conduit banks specify that such funds may be held by the conduit banks for a period of not more than seven (7) calendar days prior to their release to the borrower and prior to the remittance by the conduit banks of payments to the GSIS. SECTION X282. Borrowings from Trust Departments or Investment Houses . Funds borrowed by banks or non-bank financial intermediaries performing quasi-banking functions from trust departments or managed funds of banks or investment houses are not considered as interbank borrowings and therefore are subject to the: CAaDSI a. Reserve requirement on deposit substitutes; b. Minimum fifteen (15)-day maturity period; and c. Minimum trading lot rule. SECTION 1283. (Reserved) SECTION 2283. Mortgage/chattel Mortgage Certificates of Thrift Banks . With prior approval of the Monetary Board, TBs may issue and deal in mortgage and chattel mortgage certificates. The rules and regulations governing the issuance of said certificates is shown in Appendix 17 . SECTION 3283. (Reserved) SECTION 1284. (Reserved) SECTION 2284. (Reserved) SECTION 3284. Borrowings of Rural Banks/Cooperative Banks . RB's and Coop Banks may rediscount papers with any bank. SECTIONS X285 - X298 (Reserved) SECTION X299. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART THREE Loans, Investments and Special Credits SECTION X301. Lending Policies . It shall be the responsibility of the board of directors of a bank to formulate written policies on the extension of credit and risk diversification and to set the guidelines for evaluation of risk assets. Well-defined lending policies and sound lending practices are essential if a bank is to perform its lending function effectively and minimize the risk inherent in any extension of credit. The responsibility should be approached in a way that will provide assurance to the public, the stockholders and supervisory authorities that timely and adequate action will be taken to maintain the quality of the loan portfolio and other risk assets. SECTION X302. Loan Portfolio and Other Risk Assets Review System . To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets, each bank shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis- -vis prevailing circumstances and emerging portfolio trends. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the bank's financial condition. The system of identifying and monitoring problem loans and other risk assets and setting up of allowances for probable losses shall include, but is not limited to, the guidelines mentioned in Appendix 18 . SUBSECTION X302.1 Allowance for probable losses; booking . The specific allowance for probable losses for classified loans and other risk assets and the general loan loss provision as required in Appendix 18 shall be set up immediately. SUBSECTION X302.2 Sanctions . Non-compliance with the requirement to book valuation reserves required under the preceding Subsection shall be a ground for the imposition of any or all of the following sanctions: a. Denial of the request for authority to establish new banking offices regardless of type or category; b. Denial of access to BSP credit facilities except as may be allowed under Section 84 of R. A. No. 1653; and c. Fine of P10,000 a day for UBs and KBs, P5,000 for TBs and 8500 for RBs/Coop Banks, counted as follows: (1) from the date the bank has been informed that the recommendation of the appropriate supervising and examining department has been confirmed by the Monetary Board up to the date that said recommended valuation reserves had been actually booked, in the case of allowance for probable losses for loans and other risk assets classified as substandard unsecured, doubtful and loss as required by the BSP; and (2) from the dates prescribed under this Section up to the date of the actual booking in cases of the two percent (2%) general provision for probable losses, the twenty-five percent (25%) allowance for probable losses on secured loans classified as substandard, and the five percent (5%) allowance for probable losses on loans especially mentioned. A. Loans In General SECTION X303. Loan Limit to a Single Borrower . The total liabilities of any person, company, corporation or firm, to a bank for money borrowed, excluding (a) loans secured by obligations of the BSP or of the Philippine Government; (b) loans fully guaranteed by the government as to the payment of principal and interest; (c) loans to the extent covered by the hold-out on or assignment of, deposits maintained in the lending bank and held in the Philippines; (d) loans and acceptances under letters of credit to the extent covered by margin deposits; and (e) other loans or credits which the Monetary Board may, from time to time specify as non-risk assets, shall at no time exceed twenty-five percent (25%) of the unimpaired capital and surplus of the bank. HICSaD The total liabilities of any borrower may amount to a further fifteen percent (15%) of the unimpaired capital and surplus of such bank: Provided, That in the case of UBs, KBs, RBs and Coop Banks, the additional liabilities are adequately secured by shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable staples, which staples must be fully covered by insurance, and must have a market value equal to at least 125% of such additional liabilities: Provided, further , That in the case of TBs, the additional indebtedness is for the purpose of financing subdivision or housing development, medium and low-income borrowers and agriculture on a fully secured basis. Loan accommodations granted by banks to any other bank, as well as deposits maintained by them in any bank licensed to do business in the Philippines, shall be subject to the loan limit to any single borrower as herein prescribed. Deposits of RBs/Coop Banks with government-owned or -controlled financial institutions like the LBP and the DBP shall not be covered by the single borrower's limit (SBL). In municipalities or cities where there is no government bank, the deposits of RBs/Coop Banks in private banks in said areas shall not be subject to the SBL. Deposit in private banks located in other municipalities/cities shall be covered by the SBL. The outstanding balance of the deposit in a private depository bank being used by RBs/Coop Banks with authority to accept/create demand or current deposits, to fund checks cleared through the said private depository bank shall also be exempt from the SBL even if there is a government-owned or controlled financial institution in the area. However, said deposit shall be limited to the highest debit for the last three (3) months against the demand deposits of the RBs/Coop Banks maintained with the private depository bank concerned. Funds of an RB/Coop Bank, representing proceeds of special time deposits and rediscounting, deposited with any other bank shall be exempted from the SBL. SUBSECTION X303.1 Definition of terms . For purposes of this Section, the following definitions shall apply: a. Liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of the endorser, drawer or guarantor who obtained a loan from or discounts paper with or sells paper under his guaranty to such bank and shall include in the case of liabilities of a co-partnership or association, the liabilities of the several members thereof and shall include in the case of liabilities of a corporation, all liabilities of all subsidiaries thereof in which such corporation owns or controls a majority interest: Provided, That even in cases where the parent corporation, co-partnership or association has no liability to the bank, the liabilities of subsidiary corporations or members of the co-partnership or association shall automatically be combined for purposes of the SBL: Provided, further, That the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed for the purpose of this Item: Provided, finally, That certain types of contingent liabilities of borrowers may be included among total liabilities as may be determined by the Monetary Board. b. Money borrowed shall include the direct liability of the maker or acceptor of paper discounted with or sold to such bank, commercial or business paper actually owned and discounted by the person negotiating the same, which are either past due or renewed at maturity; and bills of exchange which exempt the drawer from liability and hold only the acceptor liable. c Unimpaired capital and surplus shall mean the combined capital accounts as defined under Sec. X106 and Subsec. X121.5. d. Readily marketable nonperishable staples shall mean articles of commerce, agriculture or industry of such uses as to make them the subject of constant dealings in ready markets with such frequent quotations as to make their prices easily and definitely ascertainable, or which lend themselves easily to disposal by sale at any time to pay the obligations secured by the said staples and which are non-perishable in character, and reasonably sure of maintaining their values as security at least for the duration of the obligation secured by the said staples or the use of the draft drawn against them. A staple is not-considered readily marketable if it is imported not for resale, but for the exclusive use of the buyer or the importer such as machinery, equipment and construction materials which are to be used exclusively for the construction of the factory or building belonging to the buyer or importer of the said staple. e. Bill of exchange drawn in good faith against actually existing values shall mean one which is drawn by a seller on the purchaser for the purchase price of commodities sold. A bill of exchange, whether drawn against goods for exports or against goods to be sold locally, which is discounted or purchased by a bank is a bill drawn against existing values only when it is accompanied by shipping documents, warehouse receipts or other papers, securing title to the goods sold. However, bills of exchange drawn in good faith against actually existing values as defined in this paragraph, which are past due or the maturities of which have been extended, shall be considered as additional loans authorized under the second paragraph of this Section and shall be subject to the fifteen percent (15%) limitation provided therein. f Commercial or business paper actually owned by the person negotiating the same shall mean a paper arising from an actual business transaction. A trade acceptance or promissory note actually owned by the person negotiating the same is a commercial or a business paper. However, if a bill is drawn against an agent or fictitious drawee, or if a promissory note is executed by an agent or fictitious drawee, neither is a commercial nor a business paper. Commercial or business papers actually owned and discounted by the person negotiating the same, which are past due or the maturity of which have been extended, shall be considered as money borrowed and shall be subject to the limitation of twenty-five percent (25%) provided in the first paragraph of this Section. SUBSECTION X303.2 Discounted/rediscounted papers included in loan limit . The liabilities to the bank of borrowers whose papers were discounted and/or rediscounted by banks with the BSP or any other institution shall not be deemed as having been extinguished by the discount and/or rediscount, but shall be considered as still existing and shall be included in determining the SBL until such papers are paid by the borrowers. SUBSECTION X303.3 Contingent liabilities included in loan limit . Outstanding foreign and domestic standby and deferred letters of credit less margin deposits; and outstanding guarantees, the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay, shall be included in the determination of the SBL, except those fully secured by cash, hold-out on deposits/deposit substitutes or government securities. SUBSECTION X303.4 Exclusions from loan limit . In addition to those enumerated in Sec. X303, the following loans or liabilities shall be excluded in determining the SBL prescribed under the first paragraph of said Section: a. The discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper which are actually owned by the person, company, corporation or association negotiating the same; b. The unused portion of letters of credit which is issued for the purpose of financing importation of goods; c. Credit accommodations to finance the importation of rice and corn to the extent of 100% of the unimpaired capital and surplus of the bank concerned, subject to the following conditions: (1) The importation shall be made in pursuance of a national policy duly enunciated by the National Government; (2) The importation shall have been approved by the National Economic Development Authority (NEDA); (3) The letter of credit shall specify that importation shall be trade with certification from the National Food Authority (NFA), or the consular establishment of the Philippine government at the source of any such shipment to the effect that the commodity being imported is either rice or corn; and (4) The related bills of lading shall specify in addition to the name of the importer concerned, that the NFA shall be the consignee of the shipment; d. The portions of the special time deposit loans covered by IGLF guarantee shall be excluded in the determination of the maximum aggregate loans which a bank may grant to a person, company, corporation or firm; e. The total liabilities of a commercial paper issuer for commercial paper held by an EKB as a firm underwriter shall not be counted in determining compliance with the SBL within a period of 180 days from the acquisition of the commercial paper by the EKB: Provided , That in no case shall such liabilities exceed five percent (5%) of the net worth of the EKB beyond the normal applicable SBL; SAaTHc f. Commitments under a committed credit line issued by the bank in favor of a registered commercial paper issuer as provided under Subsec. X348.2 and availments thereon under Subsec. X348.5; and g. The portions of the peso loans covered by guarantees of international/regional institutions where the Philippine Government is a member/shareholder, such as the International Finance Corporation and the Asian Development Bank. SUBSECTION X303.5 Sanctions . Violations of the provisions of the foregoing rules shall be subject to the following: a. Monetary Penalties Fines of one-tenth of one percent (1/10 of 1%) of the excess over the ceiling but not to exceed P30,000 a day for each violation shall be assessed on the bank to be reckoned from the date the excess started up to the date when such excess was eliminated: Provided , That a fine of P100.00 a day for each violation shall be imposed against banks with total resources of less than P50 million at the time of granting of loan/credit accommodation. b. Other Sanctions First Offense Reprimand for the directors/officers who approved the credit line or availment which resulted in the excess with a warning that subsequent violations will be subject to more severe sanctions. Subsequent Offenses (1) Fine of P500.00 a day for directors/officers who approved the credit line or availment which resulted in the excess. (2) Suspension of the bank from branching privileges and availment of BSP rediscounting facilities until the excess is eliminated. SUBSECTIONS X303.6-X303.7 (Reserved) SUBSECTION X303.8 Limit for wholesale lending activities of government banks . There shall be a separate SBL of thirty-five percent (35%) of unimpaired capital and surplus for the wholesale lending activities of government banks to participating financial institutions (PFIs) for relending to end-user borrowers, subject to the following guidelines: a. Government banks' SBL of thirty-five percent (35%) of unimpaired capital and surplus shall apply only to loans granted to PFIs on a wholesale basis for on-lending to end-user borrowers; b. The thirty-five percent (35%) SBL shall apply only to loan programs funded by multilateral, international or local developmental agencies, organizations or institutions specially designed for wholesale lending activities of government banks; c. The end-user borrowers of the PFIs shall be subject to the twenty-five percent (25%) SBL, not to the increased ceiling of thirty-five percent (35%); and d. Government banks shall observe the minimum criteria for accrediting PFIs and for the grant/renewal of credit lines to accredited PFIs as set forth in Appendix 41 . SECTION X304. Grant of Loans and Other Credit Accommodations . The following regulations shall be observed in the grant of loans and other credit accommodations. SUBSECTION X304.1 General guidelines . Banks shall grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operation to be financed. Such grant of loans and other credit accommodations shall be consistent with safe and sound banking practices. SUBSECTION X304.2 Purpose of loans and other credit accommodations . Before granting a loan or other credit accommodation, banks shall ascertain the purpose of the loan or other credit accommodation which shall be clearly stated in the application and in the contract between the bank and borrower. The proceeds of a loan or other credit accommodation shall be utilized only for the purpose(s) stated in the application and contract; otherwise, the bank may terminate the loan or other credit accommodation and demand immediate repayment of the obligation. Notwithstanding the preceding sentence, the proceeds of a loan or other credit accommodation may be utilized by the borrower for a purpose(s) other than that originally stated in the application and contract: Provided, That such other purpose(s) is/are among those for which the lending bank may grant loans and other credit accommodations under existing laws and regulations: Provided, further , That such utilization shall be with prior written approval of duly authorized officer(s)/committee/board of directors of the lending bank and such written approval shall form part of the contract between the bank and the borrower. SUBSECTION X304.3 Prohibited use of loan proceeds . Banks are prohibited from requiring their borrowers to acquire shares of stock of the lending bank out of the loan or other credit accommodation proceeds from the same bank. SECTION X305. Interest and Other Charges . The rate of interest, including commissions, premiums, fees and other charges, on any loan, or forbearance of any money, goods or credits regardless of maturity and whether secured or unsecured shall not be subject to any regulatory ceiling. SUBSECTION X305.1 Rate of interest in the absence of stipulation . The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of expressed contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION X305.2 Escalation clause; when allowable . Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board: Provided , That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further , That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. SUBSECTION X305.3 Floating rates of interest . The rate of interest on a floating rate, loan during each interest period shall be stated on the basis of Manila Reference Rates (MRRs), T-Bill Rates (TBRs) or other market based reference rates plus a margin as may be agreed upon by the parties. The MRRs for various interest periods shall be determined and announced by the BSP every week and shall be based on the weighted average of the interest rates paid during the immediately preceding week by the ten (10) commercial banks with the highest combined levels of outstanding deposit substitutes and time deposits, on promissory notes issued and time deposits received by such banks, of P100,000 and over per transaction account, with maturities corresponding to the interest periods for which such MRRs are being determined. Such rates and the composition of the sample commercial banks shall be reviewed and determined at the beginning of every calendar semester on the basis of the banks' combined levels of outstanding deposit substitutes and time deposits as of May 31 or November 30, as the case may be. SHCaEA The rate of interest on floating rate loans existing and outstanding as of December 23, 1995 shall continue to be determined on the basis of the MRRs obtained in accordance with the provisions of the rules existing as of January 1, 1989: Provided, however , That the parties to such existing floating rate loan agreements are not precluded from, amending or modifying their loan agreements by adopting a floating rate of interest determined on the basis of the TBR or other market based reference rates. Where the loan agreement provides for a floating interest rate, the interest period, which shall be such period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the parties. For the purpose of computing the MRRs, banks shall accomplish the report forms, RS Form 2D and Form 2E (BSP 5-17-34A). SUBSECTION X305.4 Accrual of interest earned on loans . Banks are allowed to accrue interest earned on loans, subject to the following guidelines and/or procedures. a. No accrual of interest income is allowed if a loan has become non-performing as defined under Sec. X309. Likewise, interest income shall not be accrued for unmatured loans/receivables with indications that collectibility thereof has become doubtful. These indications shall include declaration of bankruptcy, insolvency, cessation of operations, or such other conditions of financial difficulties or inability to meet financial obligations as they mature. Separate appropriate records shall be maintained for these non-accruing unmatured loans. b. Interest earned on extended or renewed loans may be accrued: Provided, That there is no previously accrued but uncollected interest thereon. Interest income on restructured loans (principal plus capitalized interest thereon) may be accrued: Provided , That these are: (1) In current status; and (2) Fully secured by real estate with loan value of up to sixty percent. (60%) of the appraised value of the real estate security and the insured improvements thereon, and such other first class collaterals as may be deemed appropriate by the Monetary Board. c. Interest on non-performing loan accounts shall be taken up as income only when actual payments thereon are received. d. Accrued interest earned but not yet collected/received shall not be considered as profits and/or earnings eligible for dividend declaration and/or profit sharing. e. A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up in accordance with Appendix 18 if accrued interest receivable on loans and loan installments is still uncollected after three (3) months from the date such loans and loan installments have become non-performing. f. The amount representing Allowance for Uncollected Interest on Loans may be chargeable against the excess of outstanding valuation reserves for loans and other risk assets as appearing in the bank's books, over those recommended by the appropriate supervising and examining department of the BSP. The balance thereof, if any, shall be chargeable against operations. g. For all purposes, the Allowance for Uncollected Interest on Loans shall be considered a valuation reserve/allowance against the Accrued Interest Receivable account . SECTION X306. Past Due Accounts . Past due accounts of a bank shall, as a general rule, refer to all accounts in its loan portfolio, all receivable components of trading account securities and other receivables, as defined in the Manual of Accounts for Banks , which are not paid at maturity. SUBSECTION X306.1 Accounts considered past due . The following shall be considered as past due: a. Loans or receivables payable on demand If not paid on the date indicated on the demand letter, or within three (3) months from date of grant, whichever comes earlier; b. Bills discounted and time loans, whether or not representing availments against a credit line If not paid on the respective maturity dates of the promissory notes; c. 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 No. of Installments Mode of Payment In Arrears Monthly 3 Quarterly 1 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, regardless of 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; DIESaC For this purpose, the term "installments" shall refer to principal and/or interest amortizations that are due on several dates as indicated/specified in the loan documents. 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. (Deleted by Circular No. 202 dated 5.27.99) For the purpose of determining delinquency in the payment of obligations as defined in Subsec. X143.1e, any due and unpaid loan installment or portion thereof, from the time the obligor defaults, shall be considered past due. SUBSECTION X306.2 Demand loans . Banks shall, in case of non-payment of a demand loan, make a written demand within three (3) months following the grant of such loan. The demand shall indicate a period of payment which shall not be later than three (3) months from date of said demand. SUBSECTION X306.3 Renewals/extensions . No loan shall be renewed or its maturity date extended unless the corresponding accrued interest receivable shall have been paid. SUBSECTION X306.4 Restructured loans . Restructured loans whose terms of payment hive not been complied with and which have become past due shall be governed by the provisions of Sec. X322. SUBSECTION X306.5 Writing-off of loans as bad debts a. Definition of loans and advances . The term loans and advances shall include all types of credit accommodations granted to, and advances made by the bank for the account of the borrower including interest thereon recorded in the books. Only loans and advances that have been past due for six (6) months or more and are justified to be uncollectible may be written-off. b. Frequency of write-off . The frequency of writing-off loans and advances shall be left to the discretion of the board of directors of the bank concerned: Provided , That charge-offs are made against allowance for probable losses (valuation reserves) or against current operations. c. Procedural requirements . Notice/application for write-off of loans and advances shall be submitted to the appropriate supervising, and examining department within the periods prescribed in Appendix 6: Provided , That no loans and, advances shall be written-off without the prior approval of: (1) the Monetary Board, in the case of loans and advances to DOSRI, whether direct or indirect; or (2) the head of the appropriate supervising and examining department, in the case of loans and advances other than those mentioned in (1) above with individual outstanding balances of P100,000 or more. SECTION X307. " Truth in Lending Act" Disclosure Requirement . Banks are required to strictly adhere to the provisions of R.A. No. 3765, otherwise known as the "Truth in Lending Act", and shall make the true and effective cost of borrowing an integral part of every loan contract. The following regulations shall apply to all banks engaged in the following types of credit transactions: a. Any loan, mortgage, deed of trust, advance and discount; b. Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; c. Any rental-purchase contract; d. Any contract or arrangement for the hire, bailment, or leasing of property; DAHSaT e. Any option, demand, lien, pledge, or other claim against, or for delivery of, property or money; f. Any purchase, or other acquisition of, or any credit upon security of any obligation or claim arising out of any of the foregoing; and g. Any transaction or series of transactions having a similar purpose or effect. The following categories of credit transactions are outside the scope of these regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor; and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. SUBSECTION X307.1 Definition of terms a. Person means any individual, partnership, corporation, association or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof or any other government, or any of its political subdivisions, or any agency of the foregoing. b. Cash price or delivered price , in case of trade transactions, is the amount of money which would constitute full payment upon delivery of property (except money) or service purchased at the bank's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended (if any). c. Down Payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. d. Trade-in represents the value of an asset agreed upon by the bank and debtor, given at the time of the transaction in partial payment for the property or service purchased. e. Non-finance charges correspond to the amounts advanced by the bank for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. For example, in the case of the purchase of an automobile on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. f. Amounts to be financed consist of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. g. Finance charge represents the amount to be paid by the debtor incident to the extension of credit such as interest or discounts, collection fees, credit investigation fees, attorney's fees and other service charges. The total finance charge represents the difference between (a) the aggregate consideration (down payment plus installments) on the part of the debtor and (b) the sum of the cash price and non-finance charges. h. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed. In the case of a single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: (finance charge) 12 R= x x 100 (amount to be financed) (maturity period in months) In the case of the normal installment type of credit of at least one (1) year in duration, where installment payments of equal amount are made in regular time periods spaced not more than one (1) year apart, the R in percent is computed by the following method: (finance charge) (no. of payments in a Year) R = 2 x x x100 (amount to be financed) (total no. of payments plus one) In case where the credit matures in less than one (1) year (e.g., installment payments are required every month for six (6) months) the same formula will apply except that the number of payments in a year would refer to the number of installment periods, as defined in the credit contract if the credit matures in one (1) year. For example, the number of payments a year would be twelve (12) for this purpose in case where six (6) monthly installment payments are called for in the credit transaction. 1 SUBSECTION X307.2 Information to be disclosed. Banks shall furnish each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information: a. The cash price or delivered price of the property or service to be acquired; b. The amounts, if any, to be credited as down payment and/or trade-in; c. The difference between the amounts set forth under Items a and b; d. The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; e. The total amount to be financed; f. The finance charges expressed in terms of pesos and centavos; and g. The percentage that the finance charge bears to the total amount to be financed expressed as a single annual rate on the outstanding unpaid balance of the obligation. The contract covering the credit transaction or any other document to be acknowledged and signed by the debtor shall indicate the above seven (7) items of information. In addition, the contract or document shall specify additional charges if any, which will be collected in case certain stipulations in the contract are not met by the debtor. In case any of the seven (7) items of information mentioned is not disclosed in the contract covering the credit transaction, all of the seven (7) items, to the extent applicable, shall be disclosed in another document in a form (Appendix 19) prescribed by the Monetary Board, to be signed by the debtor and appended to the main contract A copy of the disclosure statement shall be furnished by the borrower. SUBSECTION X307.3 Inspection of contracts covering credit transactions . Banks shall keep in their offices or places of business copies of contracts which involve the extension of credit by the bank and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department. SUBSECTION X307.4 Posters . Banks shall post in conspicuous places in their principal place of business and branches, if any, an abstract of the provisions of R.A. No. 3765 in the form prescribed by the Monetary Board (Appendix 20) which shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long; and b. Information regarding interest and other charges on loans: (1) Type of loan; (2) Simple annual rate of interest; (3) Manner of interest payment; i.e. whether collected in advance or otherwise; and (4) Other fees and charges imposed by the bank in connection with the loan. SECTION X308. Amortization on Loans and Other Credit Accommodations . The amortization schedule of bank loans and other credit accommodations shall be adapted to the nature of the operations to be financed. In case of loans and other credit accommodations with maturities of more than five (5) years, provisions must be made for periodic amortization payments, but such payments must be made at least annually: Provided, however, That when the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments, the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the initial amortization date be later than five (5) years from the date on which the loan or other credit accommodation is granted: Provided, further , That in the case of agriculture and fisheries projects with long gestation periods, the initial amortization payment may be deferred for a longer period based on the economic life of the project as provided under Section 24 of R.A. No. 8435 and implemented under Sec. X349. SECTION X309. Non-Performing Loans SUBSECTION X309.1 Accounts considered non-performing; definitions a. Non-performing loans shall, as a general rule, refer to loan accounts whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due in accordance with existing rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly, semi-annual or annual installments, in which case, the total outstanding balance thereof shall be considered non-performing. b. In the case of loans payable in monthly installments, the total outstanding balance thereof shall be considered non-performing when three (3) or more installments are in arrears. c. In the case of loans payable in daily, weekly or semi-monthly installments, the total outstanding balance thereof shall be considered non-performing at the same time that they become past due in accordance with Sec. X306, i.e. , 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. d. Restructured loans shall be considered non-performing in accordance with Subsec. X322.1. DTEHIA Banks which have no unbooked valuation reserves and capital adjustments required by the BSP are authorized to exclude from non-performing classification, loans classified as " Loss " in the latest examination of the BSP which are fully covered by allowance for probable losses: Provided , That interest on said loans shall not be accrued and that such loans shall also be deducted from total loan portfolio for purposes of computation. e. All items in litigation as defined in the Manual of Accounts for Banks shall be considered non-performing. SUBSECTION X309.2 Reporting requirement Banks shall report the following data, at the end of each month, as additional information in the monthly Consolidated Statement of Condition (CSOC): Total non-performing loans xxx a. Non-performing regular loans xxx b. Non-performing restructured loans xxx Loans classified as "Loss" which are fully covered by allowance for probable losses xxx SECTION X310. (Reserved) B. Secured Loans SECTION X311. Loans Secured by Real Estate Mortgages . Loans against real estate security shall not exceed seventy percent (70%) of the appraised value of the respective real estate security plus seventy percent (70%) of the appraised value of insured improvements, and such loans shall not be made unless title to the real estate is in the mortgagor. In the case of UBs/KBs, the loan values of real estate given as security for any loan granted shall be reduced from seventy percent (70%) to not more than sixty percent (60%) of the appraised value of the real estate security and the insured improvements, except the following which shall be allowed a maximum value of seventy percent (70%) of the appraised value: a. Any loan not exceeding P3.5 million to finance the acquisition or improvement of residential units; and b. Housing loans extended or guaranteed under the government's National Shelter Program (NSP) such as the Expanded Housing Loans Program (EHLP) of the Home Development. Mutual Fund (HDMF or Pag-IBIG Fund) and the mortgage and guaranty and credit insurance program of the Home Insurance and Guaranty Corporation (HIGC). SUBSECTION X311.1 Loans secured by junior mortgage on real estate . Banks may also grant loans on the security of junior mortgages on real estate: Provided, That for such loans to be considered as adequately secured under Sections 37 and 38 of R.A. No. 8791, the sum total of the loans to be granted and the outstanding balance of the loan granted on the senior mortgage shall not, at any time, exceed the loan value of subject real estate security based on the appraisal of the real estate by the junior mortgagee. A certified latest statement of account showing the outstanding balance of the loan including interest and arrearages, from the senior mortgagee shall be presented to the bank. In case several loans are granted on the security of the same property, the total amount of the loans shall not, at any time, exceed the total loan value of the said property. SUBSECTION 1311.2 (Reserved) SUBSECTION 2311.2 (Reserved) SUBSECTION 3311.2 Eligible real estate collaterals on rural/cooperative bank loans . Loans may be granted by RBs/Coop Banks on the security of lands without Torrens Title where the owner of private property can show five (5) years or more of peaceful, continuous and uninterrupted possession in the concept of an owner; or of portions of friar land estates or other lands administered by the Bureau of Lands that are covered by sales contracts and the purchasers have paid at least five (5) years installment thereon, without the necessity of prior approval and consent by the Director of Lands, or of portions of other estates under the administration of the Department of Agrarian Reform (DAR) or other governmental agency which are likewise covered by sales contracts and the purchases have paid at least five (5) years installments thereon, without the necessity of prior approval and consent of the DAR or corresponding governmental agency; or of homesteads or free patent lands pending the issuance of titles but already approved, the provisions of any law or regulations to the contrary notwithstanding: Provided, That when the corresponding titles are issued, the same shall be delivered to the Register of Deeds of the province where such lands are situated for the annotation of the encumbrance: Provided, further, That in the case of lands pending homestead or free patent titles, copies or notices for the presentation of the final proof shall also be furnished the creditor RB/Coop Bank and, if the borrower applicants fail to present the final proof within thirty (30) days from date of notice, the creditor RB/Coop Bank may do so for them at their expense: Provided, furthermore, That the applicant for homestead or free patent has already made improvements on the land and the loan applied for is to be used for further development of the same or for other productive economic activities: Provided, finally, That the appraisal and verification of the status of a land is a full responsibility of the RB/Coop Bank aid any loan granted on any land which shall be found later to be within the forest zones shall be for the sole account of the RB/Coop Bank. IECcaA SUBSECTION X311.3 Insurance on real estate improvements . The required insurance on improvements used as collateral for loan should be such as shall be sufficient to secure seventy percent (70%) 4 the appraised value of such improvements' or if inadequately insured, the loan value shall correspond to the extent of insurance taken on such improvements. SUBSECTION 1311.4 (Reserved) SUBSECTION 2311.4 Foreclosure by thrift banks . The foreclosure of mortgages covering loans granted by TBs and executions of judgment thereon involving real properties levied upon by a sheriff shall be exempt from the publications in newspapers now required by law where the total amount of loan, excluding interests due and unpaid, does not exceed P100,000 or such amount as the Monetary Board may prescribe as may be warranted by prevailing economic conditions and by the nature of service of customers served by each category of the TB. It shall be sufficient publication in such cases if the notices of foreclosure and execution of judgment are posted in the conspicuous area of the TB's premises, municipal building, municipal public market, the barangay hall, and the barangay public market, if there be any, where the land mortgaged is situated within a period of sixty (60) days immediately preceding the public auction of execution of judgment. Proof of publication as required herein shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be attached with the records of the case. A TB shall be allowed to foreclose lands mortgaged to it: Provided, That said lands shall be covered under R.A. No. 6657. SUBSECTION 3311.4 Foreclosure by rural/cooperative banks . The foreclosure of mortgages covering loans granted by RBs/Coop Banks and executions of judgment thereon involving real properties levied upon by a sheriff shall be exempt from the publications in newspapers now required by law where the total amount of loan, excluding interests due and unpaid, does not exceed P100,000 or such amount as the Monetary Board may prescribe as may be warranted by prevailing economic conditions. It shall be sufficient publication in such cases if the notices of foreclosure and execution of judgment are posted in the conspicuous area of the municipal building, the municipal public market, the barangay hall, and the barangay public market, if any, where the land mortgaged is situated during the period of sixty (60) days immediately preceding the public auction of execution of judgment. Proof of publication as required herein shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be attached with the records of the case: Provided, That when a homestead or free patent is foreclosed, the homesteader or free patent holder, as well as his heirs shall have the right to redeem the same within one (1) year from the date of foreclosure in the case of land not covered by a Torrens Title or one (1) year from the date of the registration of the foreclosure in the case of land covered by a Torrens Title. An RB/Coop Bank shall be allowed to foreclose lands mortgaged to it: Provided, That said lands shall be covered under R.A. No. 6657. SUBSECTION X311.5 Redemption of foreclosed real estate mortgage . In the event of foreclosure, whether judicially or extrajudicially, of any mortgage of real estate, the mortgagor or debtor shall have the right within one (1) year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all costs aid expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with the law. Juridical persons whose property is being sold pursuant to an extra-judicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, they registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three, (3) months after foreclosure, whichever is earlier. SECTION X312. Loans and Other Credit Accommodations Secured by Chattels and Intangible Properties . Loans and other credit accommodations on the security of chattels and intangible properties, such as, but not limited to, patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%) of the appraised value of the security, and such loans, and other credit accommodations may be made to the title-holder of the unencumbered chattels and intangible properties or his assignees: Provided, That in the case of intangible properties, appraisal thereof shall be conducted by an independent appraiser acceptable to the BSP. SECTION X313. Loans, and Other Credit Accommodations Secured By Personal Properties . Loans and other credit accommodations may be secured by unencumbered personal property which may consist of: a. Bonds and securities issued by the Government. Such bonds and securities may be given loan values equivalent to their face value or cash value, as the case may be; ATSIED b. Readily marketable bonds and other high-grade debt securities and "blue chip" stocks, except those issued by the lending entity: Provided, That (1) the issuer corporation must be a listed corporation with a net worth of at least P1 billion and with a record of at least five (5) consecutive years earnings reckoned from the immediately preceding five (5) years; and (2) the loan value shall be equivalent to fifty percent (50%) of their market value; c. Expected harvest from the project to be financed or growing crops, up to forty percent (40%) of the calculated market value of the crop for which the loan or other credit accommodation is sought, based on previous production records or, in the absence thereof, on production in the locality of similar plantations; d. Quedans or warehouse receipts issued by bonded warehouses covering stock deposited in said warehouses up to eighty percent (80%) of the calculated market value of the crop for which the loan or other credit accommodation is sought; and e. Any other personal property, up to fifty percent (50%) of the fair market value. If the property is newly purchased and the purchase price thereof appears in a bill of sale, then the above percentage shall be based on the price of the said bill of sale. SECTION X314. Increased Loan Values and Terms of Loans for Home-Building . Loans for home-building and subdivision development for low and middle-income families against real estate security and housing loans defined as loans granted for the purpose of constructing, improving or acquiring a residential property which is rented or is occupied or intended to be occupied by the borrower may be granted up to eighty percent (80%) of the appraised value of the real estate security: Provided, That: a. Such loans shall not be made unless the title to the real estate security is in the name of the borrower or mortgagor; and b. In case of subdivision/housing project, the same or its plan has been approved by the proper authorities; Provided, further, That the loans may be increased to ninety percent (90%) of the appraised value of the real estate security if such loans are fully guaranteed by the appropriate government agency, in addition to the foregoing conditions. SECTION X315. Loans Secured by Certificates of Time Deposit . The following rules shall govern the grant of loans secured by hold-out on and/or assignment of CTDs issued by the lending bank, as well as its branches or subsidiaries abroad: a. The original copy of the CTDs subject to hold-out or assignment shall be surrendered to the lending bank; b. The depository bank, other than the lending bank, shall be furnished a copy of the Deed of Assignment or hold-out agreement on the deposit used as collateral; c. If the term of the CTDs subject to hold-out or assignment is shorter than the term of the loan, there shall be an agreement in writing that renewal of the time deposit upon maturity shall be made at least co-terminus with the term of the loan; d. There shall be no pretermination of the time deposit without the consent of the lending bank and unless an acceptable substitute collateral for the loan has been made; e. The lending bank shall keep a complete record of all pertinent loan documents, such as, but not limited to, the original copy of the CTDs subject to assignment or hold-out agreement; deed of assignment or hold-out agreement; and written waiver of the depositor required in Item " f " below, which shall be made available for inspection and/or examination by the appropriate supervising and examining department of the BSP; and f. The loan documents shall include a waiver on the part of the depositor of his rights under existing law to the confidentiality of his deposits. SECTIONS X316-X318 (Reserved) C. Unsecured Loans SECTION X319. Loans Against Personal Security . The following regulations shall govern credit accommodations against personal security granted by banks. SUBSECTION X319.1 General guidelines . Before granting credit accommodations against personal security, banks must exercise proper caution by ascertaining that the borrowers, co-makers, endorsers, sureties and/or guarantors possess good credit, standing and are financially capable of fulfilling their commitments to the bank. For this purpose, banks shall keep records containing information on the credit standing and financial capacity of credit applicants. SUBSECTION X319.2 Proof of financial capacity of borrower . In addition to the usual personal information sheet about the borrower, banks shall require that an application for a credit accommodation against personal security be accompanied by: a. A copy of the latest income tax returns of the borrower and his co-maker duly stamped as received by the BIR; and b. If the credit accommodation exceeds P500,000, a copy of the borrower's balance sheet duly certified by an independent Certified Public Accountant (CPA), and in case he is engaged in business, also a copy of the profit and loss statement duly certified by a CPA. CIAacS The above documents shall be required to be submitted annually for as long as the credit accommodation is outstanding. SUBSECTION X319.3 Amounts and terms of credit accommodations; renewals . Banks shall grant credit accommodation against personal security only in the amounts and for the period of time essential for the completion of the operation to be financed. The amount and period of the loan shall be justified by the financial statements submitted or by specific feasibility/project studies for a particular operation to be financed by the loan applied for. Any extension or renewal of such credit accommodations shall be subject to the provisions of Subsec. X306.3 on renewals. SUBSECTION X319.4 Signatories . Banks shall require that credit accommodations against personal security be made under the signature of the principal borrower and at least one (1) co-maker, except in the case of a principal borrower whose responsibility and financial capacity are unquestionable in which case the signature of the borrower shall suffice. SUBSECTION X319.5 Collateral requirements . When circumstances so warrant, banks may require applicants for credit accommodations against personal security to furnish collaterals, without subjecting such collaterals to the maximum loan values prescribed under the first and second paragraphs of Section 78 of R.A. No. 337, as amended. Such credit accommodations shall continue to be subject to the provisions of this Section. SUBSECTION X319.6 Credit card receivables . In addition to the requirements under Subsecs. X319.1 and X319.2, banks and their subsidiary credit card companies, must ascertain that credit card applicants are capable of fulfilling their commitments by determining the net take home pay of those who are employed and the net monthly receipt of those engaged in trade or business. Credit limits should also be based on said take home pay or net receipts. SUBSECTION X319.7 Sanctions . Any violation of the provisions of this Section shall be subject to any or both of the following sanctions: a. Disqualification of the bank concerned from the credit facilities of the BSP; and b. Prohibition on the bank concerned from the extension of additional credit accommodation against personal security. SECTIONS X320-X321. (Reserved) D. Restructured Loans SECTION X322. Restructured Loans; General Policy . Banks shall have full discretion in the restructuring of loans in order to provide flexibility in arranging the repayment of such loans without impairing or endangering the lending bank's financial interest, except in special cases approved by the Monetary Board such as loans funded by foreign currency obligations. However, the restructuring of loans granted to DOSRI should be upon terms not less favorable to the bank than those offered to others. While agreements on loan restructuring should be considered as management tools to maintain or improve the soundness of the bank's lending operations, these should be drawn mainly to assist borrowers towards the settlement of their obligations, taking into account their capacity to pay. SUBSECTION X322.1 Definition; when to consider performing/non-performing . 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. A loan which is restructured shall be considered non-performing except when as of restructuring date- (1) with updated principal and interest payments; and (2) fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon, and such other first class collaterals as may be deemed appropriate by the Monetary Board: Provided, That a restructured loan, with or without capitalized interest, must be yielding a rate of interest equal to or greater than the bank's average cost of funds at the date of restructuring, otherwise, it shall be considered non-performing. The restoration to a performing loan shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. For this purpose, a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. However, in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals, six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. A restructured loan which has been restored to a performing loan status shall be immediately considered non-performing in case of default of any principal or interest payment. SUBSECTION X322.2 Procedural requirements a. A loan may be restructured, subject to the approval of the bank's board of directors in a resolution which shall embody, among other things: (1) the basis of or justification for the approval; (2) determination of the borrower's capacity to pay, such as viability of the business; and (3) the nature and extent of protection of the bank's exposure. The authority to approve the restructuring of loans may be delegated by the bank's board of directors to a committee or officer(s): Provided , That there are board-prescribed guidelines specifically on restructuring of loans: Provided, further, That said guidelines shall be submitted to the appropriate supervising and examining department of the BSP within thirty (30) days following the date of approval thereof. However, loans previously approved by the executive committee as well as those granted to DOSRI shall be subject to approval by the board as provided under existing rules and regulations. Loans restructured other than those approved by the board shall be reported to it for confirmation. b. A second restructuring of a loan shall be allowed only if there are reasonable justifications: Provided, That it shall be considered a non-performing loan and classified, at least, " Substandard ". The restoration to a performing loan status and/or upgrading of loan classification, e.g., from " Substandard " to " Loans Especially Mentioned ", if circumstances warrant an upgrading in accordance with the criteria under Appendix 18 , shall only be allowed after a satisfactory track record of at least six (6) consecutive payments of the required amortization of principal and/or interest has been established. c. In the restructuring process, the bank shall encourage the borrower to improve the quality of the loan either by strengthening financial capacity or providing additional collateral. The real estate security and/or other first class collaterals offered shall be appraised at the time of restructuring to ensure that current market values are being used. Real estate security shall be appraised by an independent appraisal company acceptable to the BSP and shall be reappraised every year thereafter. (1) For UBs/KBs a loan benchmark is set at P5 million, such that loans beyond this amount will require an independent appraisal company: Provided, That the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the UB/KB. (2) For TBs a loan benchmark is set at P1 million such that loans beyond this amount will require an independent appraisal company: Provided, That the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the TB. A TB may be allowed to use a UB/KB or another TB acceptable to the BSP to do the appraisal for it: Provided, That the TB requesting the appraisal is not a subsidiary or affiliate of the UB/KB/other TB contracted to do the appraisal. (3) For RBs/Coop Banks the benchmark is set at P500 thousand such that loans beyond this amount will require an independent appraisal company: Provided, That the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the RB/Coop Bank. An RB/Coop Bank may be allowed to use a UB/KB or a TB acceptable to the BSP to do the appraisal for it: Provided, That the RB requesting the appraisal is not a subsidiary or affiliate of the UB/KB/TB contracted to do the appraisal. IAaCST The term " first class collaterals " refers to assets and securities which have relatively stable and clearly definable value and/or greater liquidity and are free from lien/encumbrance, such as: (1) Real estate; (2) Evidences of indebtedness of the Republic of the Philippines and of the BSP, and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; (3) Hold-out on and/or assignment of deposits/deposit substitutes maintained in the lending institutions; (4) "Blue chip" shares of stock, except those issued by the lending entity. For this purpose, the issuer corporation must be a listed corporation with a net worth of at least P1 billion and with a record of at least five (5) consecutive years earnings reckoned from the immediately preceding five (5) years; and (5) Such other collaterals that the Monetary Board may declare as first class collaterals from time to time. It is understood that the loan value to be assigned the collateral shall be as prescribed under existing regulations. SUBSECTION X322.3 Restructured loans considered past due . Restructured loans shall be considered past due in case of default of any principal or interest and shall be subject to classification in accordance with Sec. X322.4. SUBSECTION X322.4 Classification. The classification of a loan prior to the restructuring, e.g., " Loans Especially Mentioned ", " Sub-Standard " or " Doubtful " shall be retained: Provided, That a loan that is not classified but which is non-performing prior to restructuring shall be classified, at least, " Loans Especially Mentioned ": Provided, further, That restructured loans with capitalized interest shall be classified, at least " Substandard " and the required valuation reserves shall be set up accordingly: Provided, finally, That more adverse classification may be given, i.e., " Substandard ", " Doubtful " or " Loss ", if the circumstances warrant it as provided under Appendix 18 . The upgrading of loan classification, e.g., from "Substandard" to "Loans Especially Mentioned", if circumstances warrant an upgrading in accordance with the criteria under Appendix 18, shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. For this purpose, a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. However, in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals, six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. SECTIONS X323 - X325. (Reserved) E. Loans and Other Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION X326. General Policy . Dealings of a bank with any of its DOSRI should be in the regular course of business and upon terms not less favorable to the bank than those offered to others. SUBSECTION X326.1 Definitions . For purposes of these regulations, the following definitions shall apply: a. Directors shall refer to the bank directors as defined in Subsec. X141.1. b. Officers shall refer to bank officers as defined in Subsec. X142.1. c. Stockholders shall refer to (i) any stockholder of record in the books of the bank, acting personally, or through an attorney-in-fact, executor, as administrator or guardian of a minor, incompetent and/or deceased stockholder or through a trustee designated by one (1) or more stockholders pursuant to a voting trust agreement, whose stockholdings in the lending bank, individually and/or together with his spouse or relative within the first degree of consanguinity or affinity or relative by legal adoption; (ii) a partnership in which the stockholder or his spouse or any of his relatives mentioned above is a general partner; and (iii) a co-owner with the stockholder or the stockholder's spouse or relative mentioned above of a property/right/interest referred to in Sec. X329b(3), amounting to two percent (2%) or more of the total subscribed capital stock of the bank. d. Outstanding deposits shall refer to savings, time and demand deposits which are not subject to an assignment or hold-out agreement. e. Book value of the paid-in capital contribution shall mean the proportional amount of the bank's total capital account (net of such unbooked valuation reserves and other capital adjustments as may be required by the BSP) as the corresponding paid-in capital contribution of each director, officer or stockholder concerned bears to the total paid-in capital of the bank: Provided , That as a basis for determining the individual ceiling referred to in Sec. X330, the corresponding book value of the shares of stock of such director, officer, or stockholder which are the subject of pledge, assignment or any other encumbrance shall be deducted therefrom. f. Total capital accounts of a Philippine branch of a foreign bank shall refer to the total capital accounts as defined under Subsec. X121.5. DaAISH g. Total loan portfolio shall refer to the sum of all loan accounts outstanding, gross of valuation reserves, as reflected in the bank's consolidated statement of condition, excluding loans financed by special/specific funds from the government financial institutions to the extent of the total outstanding loans granted from said special/specific funds. h. Secured loan, borrowing or credit accommodation shall refer to: (1) Any loan, discount, credit or advance or portion thereof referred to in Sec. X327 which is secured by real estate mortgage; chattel mortgage on tangible assets; standby letter of credit issued by foreign banks excluding Philippine branches of foreign banks; assignment of, or hold-out on, deposits or deposit substitutes maintained in the lending bank; cash margin deposit; or assignment or pledge of government securities or readily marketable bonds and other high-grade debt securities and "blue chip" stocks, except those issued by the lending entity: Provided, That in the case of blue chip stocks: (a) the issuer corporation must be a listed corporation with a net worth of at least P1 billion and with a record of at least five (5) consecutive years earnings reckoned from the immediately preceding five (5) years; and (b) the loan value shall be equivalent to fifty percent (50%) of the market value of the stocks. (2) Customer's liability under import bills outstanding for more than thirty (30) days from date of original entry; (3) Sales contract receivables arising from sale of real property on credit where title to the property is retained by the bank; and (4) Customer's liability-import bills under trust receipts outstanding for not more than thirty (30) days from date of booking: Provided, That the booking under trust receipts shall have been made not later than the thirty-first day from the date of original entry referred to in Sub-Item (2) above. i. Unsecured loan; borrowing or credit accommodation shall refer to any loan, discount, credit or advance or portion thereof referred in Sec. X327 which is not secured in accordance with Item "h" above. SECTION X327. Transactions Covered . The terms loan, borrow, money borrowed and credit accommodations as used herein shall refer to transactions which involve the grant, renewal or extension or increase of any loan, discount, credit or advance in any form whatsoever, and shall include: a. Any advance by means of an incidental or temporary overdraft, cash item, "vale", etc.; b. Outstanding availments under an established credit line; c. Drawings against an existing letter of credit; d. The acquisition of discount, purchase, exchange or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which a director, officer, or stockholder may be liable as a maker, drawer, acceptor, endorser, guarantor or surety; e. Any advance of unearned salary or other unearned compensation for periods in excess of thirty (30) days; f. Loans or other credit accommodations granted by another financial intermediary to such director, officer or stockholder from funds of the bank invested in the other institution's trust or other department when there is a clear relationship between the transactions; g. Any advance by means of DAUDs; h. The increase of an existing indebtedness, as well as additional availments under a credit line or additional drawings against a letter of credit; i. The sale of assets, such as shares of stock, on credit; and j. Any other transactions as a result of which a director, officer or stockholder becomes obligated or may become obligated to the lending bank, directly or indirectly, by any means whatsoever to pay money or its equivalent such as standby and deferred letters of credit. SECTION X328. Transactions Not Covered . The terms loans, borrowed, money borrowed or credit accommodations as used herein shall not refer to the following: a. Advances against accrued compensation, or for the purpose of providing payment of authorized travel, legitimate expenses or other transactions for the account of the bank or for utilization of maternity and other leave credits; b. The increase in the amount of outstanding credit accommodations as a result of additional charges or advances made by the bank to protect its interest such as taxes, insurance, etc.; c. The discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, including, but not limited to, the acquisition by a domestic bank of export bills from any of its DOSRI which are drawn in accordance with the terms and conditions of the covering letters of credit: Provided , That the transaction shall automatically be subject to the ceilings as herein provided once the DOSRI who is a party to the transaction becomes directly liable to the bank; d. Transactions with a foreign bank which has stockholdings in the local bank where the foreign bank acts as guarantor through the issuance of letters of credit or assignment of a deposit in a currency eligible as part of the international reserves and held in a bank in the Philippines to secure credit accommodations granted to another person or entity: Provided, That the foreign bank stockholder shall automatically be subject to the ceilings as herein provided in the event that its contingent liability as guarantor becomes a real liability; and e. Deposits of bank with another bank, whether domestic or foreign, which has stockholdings in the depositing bank. CSHEca SUBSECTION X328.1 Applicability to credit card operations . The credit card operations of banks shall not be subject to these regulations where the credit cardholder is a director, officer or stockholder of the bank or their related interests (DOSRI): Provided, That (a) the privilege of becoming a credit cardholder is open to all qualified persons on the basis of selective, criteria which are applied by the bank to all applicants thereof; and (b) the bank director, officer or stockholder/related interest concerned reimburses/pays the bank for the billed amount in full on or before the payment due date in the billing or statement of account, as set by the bank for all other qualified credit cardholders on availments made for the same period on their credit cards. However, the transaction shall be subject to applicable DOSRI regulations if the director, officer, or individual stockholder/related interest concerned: a. fails to reimburse/pay within the period mentioned herein; or b. on the outset, opts for deferred payment scheme, and the availment is booked by the bank. SECTION X329 Direct or Indirect Borrowings . For purposes of these rules on loans and other credit accommodations to DOSRI, a credit accommodation shall be considered a direct or indirect borrowing in accordance with the following criteria: a. Direct borrowing . If the director, officer or stockholder of the lending bank is a party to any of the transactions enumerated in Sec. X327 for himself, or as the representative or agent of others, or if he acts as a guarantor, endorser or surety for loans from the bank, or if the loan or credit accommodation to another party is secured by a property interest or right of the director, officer or stockholder. b. Indirect borrowing . If in any of the transactions in Sec. X327 the borrower, guarantor, endorser or surety is a: (1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or stockholder of the bank; (2) Partnership of which a director, officer, or stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, is a general partner; (3) Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner's undivided interest; (4) Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director or officer of such corporation, association or firm, except (a) where the securities of such corporation, association or firm are listed and traded in the big board or commercial and industrial board of domestic stock exchanges and less than fifty percent (50%) of the voting stock thereof is owned by any one person or by persons related to each other within the third degree of consanguinity or affinity; or (b) where the director, officer or stockholder of the bank sits as a representative of the bank in the board of directors of such corporation: Provided, That the bank representative shall not have any equity interest in the borrower corporation except for the minimum shares required by law, rules and regulations, or by the by-laws of the coloration: Provided, further, That the borrowing corporation under Item " a " or " b " is not among those mentioned in Items "b(5)" and "b(6)" of this Section; (5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or their spouses or relatives within the first degree of consanguinity or affinity, or relative by legal adoption, hold/own more than twenty percent (20%) of the Subscribed capital of such corporation, or of the equity of such association or firm; or (6) Corporation, association or firm wholly or majority-owned or controlled by any related entity or a group of related entities mentioned in Items "b(2)", "b(4)" and "b(5)" of this Section. Other cases of direct/indirect borrowing shall be resolved on a case-to-case basis. It shall be the responsibility of the bank concerned to ascertain whether the borrower, guarantor, endorser or surety is related to persons mentioned in Item "b(1)" of this Section or connected with any of the directors, officers or stockholders of the bank in any of the capacities mentioned in Items "b(2)", "b(3)", "b(4)", "b(5)" and "b(6)" of this Section. In determining indirect borrowings, as enumerated above, only those cases involving living relatives shall be considered. SECTION X330. Individual Ceilings . The total outstanding direct credit accommodations to each of the bank's directors or officers or stockholders shall not exceed, at any time, an amount equivalent to the unencumbered portion of his outstanding deposits and book value of his paid-in capital contribution in the lending bank: Provided, That unsecured credit accommodations to each of the bank's directors, officer or stockholder shall not exceed thirty percent (30%) of his total credit accommodations: Provided, further, That in the case of Coop Banks, unsecured credit accommodation to each of the bank's stockholders shall not be subject to the thirty percent (30%) ceiling. SECTION X331. Aggregate Ceiling; Ceiling on Unsecured Loans . Except with the prior approval of the Monetary Board, the total outstanding borrowings of directors, officers or stockholders, whether direct or indirect, shall not exceed fifteen percent (15%) of the total loan portfolio of the bank or 100% of combined capital accounts as defined in Sec. X106 and Subsec. X121.5 in the case of branches of foreign banks, whichever is lower: Provided, That in no case shall the total unsecured direct and indirect borrowings of directors, officers and stockholders exceed thirty percent (30%) of the aggregate ceiling or the outstanding direct/indirect loans thereto, whichever is lower. For the purpose of determining compliance with the ceiling on unsecured loans, banks shall be allowed to average their ceiling on unsecured loans and their outstanding unsecured loans every week. In evaluating requests for extension of loans in excess of the aggregate ceiling, the BSP shall consider the credit standing of the borrower, viability of the projects financed by such loans in relation to national objectives, collateral or security and other pertinent considerations. The ceilings provided in this Section shall not apply to unsecured loan accommodations granted by Coop Banks to their shareholders. HEScID SECTION X332. Exclusions from Aggregate Ceiling . The following credit accommodations shall be excluded in accommodations shall be excluded in determining compliance with the aggregate ceiling. a. Credit accommodations or portions thereof to the extent covered by a hold-out on deposits or deposit substitutes in the lending bank, or covered by cash margin deposits or secured by evidences of indebtedness of the Republic of the Philippines or of the BSP or by the other evidences of indebtedness or which are fully guaranteed by the Republic of the Philippines. b. Credit accommodations to a corporate stockholder which meets all the following conditions: (1) The corporation is a non-financial institution; (2) Its shares are listed and traded in the domestic stock exchanges; (3) Its stockholdings in the lending bank do not exceed thirty percent (30%) of the voting stock of the bank; and (4) No person or group of persons related within the first degree of consanguinity or affinity holds/owns more than twenty percent (20%) of the subscribed capital of the corporation. c. Credit accommodations to government-owned or controlled corporations, in cases where a director, officer or stockholder of the lending bank is a representative of the government in the borrowing corporation and does not hold any proprietary interest in such corporation: Provided, That other rules on loans to DOSRI, such as procedural and reportorial requirements under Section 83 of R.A. No. 337, as amended, are followed. SECTION X333. Applicability to Branches and Subsidiaries of Foreign Banks . The individual and aggregate ceilings, as well as ceilings on unsecured loans prescribed herein, shall also apply to a Philippine branch or subsidiary of a foreign bank. SECTION X334. Procedural Requirements . The following provisions shall apply if a director or officer is a party, directly or indirectly, to, or acts as representative or agent of others in, any of the transactions enumerated under Sec. X327. a. Approval of the board, when to obtain . Except with prior written approval of the majority of the directors, excluding the director concerned, no loan or other credit accommodation shall be granted nor shall any of the transactions enumerated under Sec. X327 be entered into. b. Approval by the board, how manifested . The approval shall be manifested in a resolution passed by the board of directors duly assembled during a regular or special meeting for that purpose and made of record. c. Determination of majority of the directors . The determination of the majority of the directors, excluding the director concerned, shall be based on the total number of directors of the bank as provided in its articles of incorporation and by-laws. d. Contents of the resolution . The resolution of the board of directors shall contain the following information: (1) Name of the director or officer concerned and his relationship as regards the credit accommodation, such as principal, endorser, spouse of borrower, etc.; (2) Nature of the Loan or other credit accommodation, purpose, amount, credit basis for such loan or credit accommodation, security and appraisal thereof, maturity, interest rate, schedule of repayment and other terms of the loan or credit accommodation; (3) Date of resolution; (4) Names of the directors who were present and who participated in the deliberations of the meeting; (5) Names in print and signatures of the directors approving the resolution: Provided, That the corporate secretary may sign, under a power-of-attorney, in behalf of a director who was present in the board meeting and who approved such resolution, in instances where such signature is necessary to indicate that such resolution was approved by majority of the directors; and (6) Such other information as may be required by the appropriate supervising and examining department of the BSP. e. Transmittal of copy of board approval; contents thereof. A copy of the written approval of the board of directors, as herein required, shall be submitted to the appropriate supervising and examining department of the BSP within twenty (20) banking days from the date of approval. The copy may be a duplicate of the original, or a reproduction copy showing clearly the signatures of the approving directors: Provided , That if a reproduction copy is to be submitted, it shall contain on its face or reverse side a signed certification by the secretary that it is a reproduction of the original written approval. SECTION X335. Reportorial Requirements . Banks shall maintain a record of loans covered by these regulations in a manner and form that will facilitate verification of such transactions by BSP examiners. The appropriate supervising and examining department may require banks to furnish such data or information as may be necessary for purposes of implementing the provisions of the foregoing rules. SECTION X336. Availment of Credit Facility with the Bangko Sentral . Whenever the total direct accommodations of a bank to the parties mentioned in Item a of Sec. X329 reach fifty percent (50%) of the prescribed aggregate ceiling and the bank is applying for a loan or advance with the BSP, the Monetary Board may, upon the recommendation of the appropriate supervising and examining department, require as a condition for the extension of the credit facility, the designation of a comptroller in the bank primarily ,'or the purpose of bringing about the reduction of such accommodations. SECTION X337. Sanctions . Any violation of the provisions of the foregoing rules shall be subject to any or all of the following sanctions: a. Restriction or prohibition on the bank from declaring dividends until the outstanding loans and other credit accommodations have been reduced to within the herein prescribed ceilings; b. Disqualification of the directors voting for the approval of the loan or credit in excess of any of the ceilings prescribed in Secs. X330 and X331, from participating in the approval of loans or credit to officers, directors and stockholders of the bank: Provided, however , That the disqualification may be lifted by the BSP as the circumstances may warrant; c. Application of (1) the borrowing director's or officer's share in the bank's profit sharing program; and (2) the share of the director voting for the approval of the loan or credit accommodation, against the excess of such loan or credit accommodation over any of the herein prescribed ceilings for such period of time as may be approved by the Monetary Board; and d. For the duration of each violation, imposition of a fine of one-tenth of one percent (1/10 of 1%) of the excess over the ceilings per day but not to exceed P30,000 a day on the following: (1) The lending bank and the director, officer or stockholder whose borrowing exceeds his individual ceiling; and (2) Each of the directors voting for the approval of the loan or credit accommodation in excess of any of the ceilings prescribed in Secs. X330 and X331. The penalty for exceeding the individual ceilings, aggregate ceiling and ceiling on unsecured loans shall be computed on the average amount of loans in excess of said ceilings during the same week. SECTION X338. Waiver of Secrecy of Deposits . Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: a. his bank; or b. from a bank (1) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries or (2) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. Any information obtained from an examination of his deposits shall be held strictly confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the BSP in an appropriate legal action it has initiated involving the deposit account. SECTION X339. Financial Assistance to Officers and Employees . Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet the housing, transportation, household and personal needs of their officers and employees. SUBSECTION X339.1 Mechanics . The mechanics of such financing plan shall have the following minimum features: a. Participation shall be limited to full-time and permanent officers and employees of the bank; b. Financial assistance shall only be for the following purposes: (1) The acquisition of a residential house and lot, or the construction, renovation or repair of a residential house on a lot owned and to be occupied by the officer or employee; (2) The acquisition of vehicles, household equipment and appliances for the personal use of the officer or employee or his immediate family; or (3) To meet expenses for the medical, maternity, education, emergency and other personal needs of the officer or employee or his immediate family; ACSaHc c. Financial assistance for purposes mentioned in Items b(l) and b(2) of this Subsection shall be granted in the form of a loan, advance or credit accommodation, installment sale, lease with option to purchase or lease-purchase arrangement where the lessee is obliged to purchase the real estate or equipment; d. The amount and maturity of financial assistance for each purpose shall be determined by the bank in consonance with the normal requirements thereof: Provided , That the maximum amount shall be stated as percentage or multiple of the total monthly compensation of the officer or employee and shall be within the paying capacity of the borrowing officer or employee. Total monthly compensation shall include the basic salary and all fixed and regular monthly allowances of the officer or employee. Payments for sickness benefits and other special emoluments which are not fixed or regular in nature, or the commutation into cash of unused leave credits shall not be included in the computation of total monthly compensation; e. The amortization payment shall include amounts necessary to cover mortgage redemption insurance and fire insurance premiums, taxes, special assessments, and other related fees and charges; f. Availment of the financing plan to construct or acquire a residential house and lot shall be allowed only once during the officer's or employee's tenure with the bank, except where the right over the real estate previously acquired or constructed under the financing plan is absolutely transferred or assigned to another officer or employee of the bank or to a third party: Provided , That such third party shall have fully reimbursed the bank for the outstanding availment on the financing plan before the officer/employee is allowed to re-avail himself of the same financing plan. An officer or employee (or his spouse) who already owns a residential house and lot shall not be qualified to avail himself of financial assistance for purposes of acquiring a residential house and/or lot. These prohibitions notwithstanding, financial assistance for the repair or renovation of a residential house may be allowed, subject to such limitation as may be prescribed by the bank pursuant to Item d of this Subsection; g. Availment of the financing plan for the acquisition of a specific type of equipment or appliance shall be allowed not oftener than once every three (3) years: Provided, That re-availment shall be allowed only after previous obligations in connection with the acquisition of the same type of equipment or appliances have been fully liquidated; and h. The bank shall adopt measures to protect itself from losses such as by incorporating in the plan or contract provisions requiring co-makers or co-signor, chattel or real estate mortgages, fire insurance, mortgage redemption insurance, assignment of money value of leave credits, pension or retirement benefits, including a provision for the restructuring of the loan under the bank's regular lending operations in case of termination or separation of the officer or employee for whatever cause. SUBSECTION 1339.2 Funding by foreign banks . In the case of local branches of foreign banks, financial assistance for their officers and employees may be funded, through any of the following means: a. Through a local affiliate by special arrangement with the head office abroad in any of the following forms: (1) Inward remittance from the head office of the affiliate; or (2) Assignment to the affiliate or equivalent amounts of profits otherwise remittable abroad under existing regulations; or (3) Direct loans by the foreign bank to the affiliate; or b. Through the local branch itself by: (1) Segregation or transfer of undivided profits normally remitted to the head office abroad equivalent to the loans to officers and employees which shall be lodged under "Other Liabilities-Head Office" accounts. This account shall at all times have a balance equivalent to the outstanding loans to officers/employees financed under this scheme; or (2) Inward remittance; or c. Through the local branch from local sources without earmarking an equivalent amount of undivided profits: Provided , That the aggregate ceilings on such loans as provided under existing regulations shall apply. Loans under Items b(1) and b(2) of this Subsection shall be treated in the branch books as loans granted by its head office. The documentation and collection of such loans shall be handled by the branch for the account of the head office. Loans financed under Items a and b shall be subject to the reporting requirements of Sec. X335 put not to the ceilings provided under Sec. X330 and X331. The same shall be excluded from the computation of the capital-to-risk assets ratio. SUBSECTION 2339.2 ( Reserved ) SUBSECTION 3339.2 ( Reserved ) SUBSECTION X339.3 Other conditions/limitations a. The investment by a bank in real estate, equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment of the bank in real estate and equipment for purposes of Section 25 of R.A. No. 337, as amended. b. The investment by a bank in real estate, equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank. c. All loans or credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 83 of R.A. No. 337, as amended and Secs. X326 to X336 but not to the individual ceilings where such loans or credit accommodations are obtained under the bank's fringe benefits program. The aggregate outstanding loans and credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio. SUBSECTION X339.4 Reportorial requirements. Financing plans and amendments thereto shall be submitted to BSP within thirty (30) calendar days from approval thereof by the bank's board of directors. The appropriate supervising and examining department of the BSP may require the banks concerned to submit a regular report monitoring the various transactions under the bank's financing plans for officers/employees. All banks providing financial assistance to bank officers/employees shall submit a report on "Availments of Financial Assistance to Officers and Employees" to the BSP within fifteen (15) banking days after end of reference semester. SECTION X340. (Reserved) F. Mandatory Credits SECTION X341. Agrarian Reform and Agricultural Credit . Pursuant to P.D. No. 717, the following guidelines shall govern the grant of agrarian reform credit and agricultural credit by banks, government or private. SUBSECTION X341.1 Definition of terms . For purposes of this Section, the following definitions shall apply: a. Loanable funds shall refer to total funds generated after the effectivity of P .D. No. 717, the computation of which is described in Subsec. X341.4. b. Agrarian reform credit shall refer to production and other types of loans granted to beneficiaries of agrarian reform for the following purposes: acquisition of work animals, farm equipment and machinery, seeds, fertilizers, poultry, livestock, feeds and other similar items; acquisition of lands authorized under existing laws; construction and/or acquisition of facilities for production, processing, storage and marketing; and efficient and effective merchandising of agricultural commodities stored and/or processed by the facilities aforecited in domestic and foreign commerce. c. Agricultural credit in general shall include all loans and/or advances granted to borrowers, whether beneficiaries of agrarian reform or not, to finance activities relating to agriculture, and for processing, marketing, storage, and distribution of products resulting from these activities. d. Agrarian reform beneficiaries shall include tillers, tenant-farmers, settlers, agricultural lessees, amortizing owners, owner-cultivators, farmers' cooperatives and compact farms, as determined by the DAR. DCTHaS The term shall likewise include agricultural enterprises registered under P.D. No. 1159 as well as projects undertaken pursuant to the Corporate Farming Program under General Order (G.O) No. 47: Provided, That the borrower submits the following documents to the lending bank: (1) A certification from the Board of Investments to the effect that the borrower is an agricultural enterprise duly registered under P.D. No. 1159; and (2) An endorsement of the DAR stating that land reform beneficiaries shall benefit from the agricultural enterprises' projects. SUBSECTION X341.2 Who may borrow; purposes a. All beneficiaries of agrarian reform credit mentioned under P.D. No. 717 and its implementing regulations which credit shall be used for agricultural production or for other purposes mentioned therein shall be qualified borrowers under agrarian reform credit. b. Qualified borrowers under agricultural credit in general are corporations, entities, or private individuals engaged in agricultural production, processing, storage, marketing, or exportation of agricultural products, and importation/manufacture/distribution of farm machineries and equipment, fertilizers, etc. used for agricultural production. SUBSECTION X341.3 Required allocation for agrarian reform and agricultural credit in general . Banks shall set aside an amount equivalent to at least twenty-five percent (25%) of their loanable funds for agricultural credit in general, of which an amount equivalent to at least ten percent (10%) of the loanable funds shall be made available for agrarian reform credit. a. Marketing credits considered as agrarian reform credits . (1) Agrarian reform beneficiaries as defined by P.D. No. 717; (2) Registered agricultural enterprises duly endorsed by the nearest office of the DAR per P.D. No. 1159; (3) G.O. No. 47 corporations or agro-service corporations employed by G.O. No. 47 corporation which are certified by the DAR as engaged in grains production through linkage arrangements with agrarian reform beneficiaries; (4) Area marketing cooperatives or Samahang Nayon duly registered with the Cooperative Development Authority (CDA); (5) Registered agrarian reform beneficiaries' associations/other farm groups respectively endorsed as agrarian reform beneficiaries by the nearest office of the DAR; CDA; or the Farm Systems Development Corporation (FSDC)) National Irrigation Administration (NIA); or (6) NFA-registered warehousemen/millers/wholesalers whose grains inventory, subject to a chattel mortgage, trust receipts or pledged quedan, are duly sworn to under oath by grains businessmen-borrowers concurred by the President of the Agrarian Reform Beneficiaries Association in the area as having been produced by agrarian reform beneficiaries; and (7) The NFA: Provided, That it certifies that its palay procurements are obtained through direct/indirect linkage arrangements with agrarian reform beneficiaries, subject to such ceilings as may be imposed by the BSP/Department of Finance (DOF) on the loans/advances to the NFA by banks; SacTCA b. Development loan incentives . [Transferred to Subsec. X341.5, Item "c(1)"]. c. Loans for high-value crops projects. [Transferred to Subsec. X341.5, Item "c(2)"] SUBSECTION X341.4 Computation of loanable funds . Loanable funds shall be: a. The net increase from May 29, 1975 to date of the report of the individual accounts which represent the following: (1) The total deposits (demand, savings, time and NOW accounts) excluding foreign currency deposits under Circular No. 1389 and deposits of the BTr representing revenue collections of the BIR and BOC; (2) Deposits of banks, net of due from other banks; (3) Bills payable (including borrowings from banks) net of: (a) Repurchase agreement by accredited government securities dealers if relent to banks; (b) Interbank call loans with maturities not exceeding fifteen (15) days; (c) Proceeds from special on-lending programs like the APEX; (d) Proceeds from BSP rediscounting (except special time deposits); and (e) Proceeds from special BSP credit accommodations in the form of emergency advances, overnight repurchase agreements and availment of overdraft facilities. (4) Total capital accounts. b. Total collections from the loan portfolio outstanding as of May 31, 1975 to date of the report; and c. The sum of Items "a" and "b" above, less the net increase of the following: (1) Bank premises, furniture and equipment (net book value); (2) Real and other property owned or acquired (representing properties acquired in satisfaction of debts); (3) Other assets; (4) Required reserves against: (a) deposit liabilities; (b) deposit substitutes; (c) others (excluding reserves for margin deposits); (5) Provisions for liquidity (fifteen percent (15%) of total deposits and demand liabilities); and (6) Loans to export-oriented small and medium-scale industries involving accounts not exceeding P1 million. SUBSECTION X341.5 Allowable alternative compliance . In the absence of qualified borrowers, the following shall apply: a. Agrarian reform credit (1) Eligibility of government securities; conditions . The amount set aside for agrarian reform credit not actually loaned out may be invested temporarily in government securities expressly declared eligible for the purpose by the BSP, subject to the following conditions: (a) Such securities shall be held to maturity without prejudice to the right of the holder bank to require the issuing government entity to monetize, encash or repurchase such securities whenever funds are needed by the bank for lending to the beneficiaries of agrarian reform; (b) Such securities shall not be hypothecated or encumbered in any way or earmarked for any other purposes; (c) Such securities shall be marked "for agrarian reform credit" and shall be segregated from the bank's investment portfolio; and (d) Only the buying/lending bank may use, during the holding period, eligible government securities subject of a resale/repurchase agreement between private entities for purposes of compliance with this Subsection, subject to the following: (i) The resale/repurchase should be for terms not less than thirty (30) days without pretermination during the first successive thirty (30) days, which condition shall be embodied in the resale/repurchase agreement; and (ii) The buying/lending bank, with the consent of the selling/borrowing entity, shall register with the BSP its holdings of government securities under repurchase/resale agreement. (2) Eligible securities/bonds (a) NDC Agri-Agra ERAP Bonds. Investment by banks in NDC Agri-Agra ERAP Bonds as well as the firm underwriting of said bonds by banks or by the subsidiary investment house of a UB. (b) Local Government Unit (LGU) Bonds. (c) Pag-IBIG P4.0 billion Bond issue (2000 Series). (d) Five (5)- and Ten (10)-year Special Purpose Treasury Bonds (SPTBs) to finance the Comprehensive Agrarian Reform Program (CARP)-related expenditures, provided the proceeds of the bonds will be exclusively used for the agrarian reform sector. DIESaC (e) Zero Coupon Bond Issue by the HGC of up to P7.0 billion 5-year regular series and up to P3.0 billion 7-year special series to finance its guaranty servicing of socialized and low-cost housing projects only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date). The eligibility of securities under Items " (2)(a) ", " (2)(b) ", " (2)(d) " and " 2(e) " shall be subject to the conditions in Items " a(1)(b) " and " a(1)(d) "; Item " (2)(c)" to the conditions in Items " a(1)(b) " and " a(1)(d)(i) ". b. Agricultural credit in general The amount set aside for agricultural credit in general not actually loaned out may be invested in commercial papers issued by entities engaged in agricultural production, processing, storage, marketing, or exportation of agricultural products; and importation, manufacture, distribution of farm machineries and equipment, fertilizers, etc. used for agricultural production: Provided, That for purposes of compliance with this Subsection, only the buying/lending bank may use commercial papers acquired in a resale/repurchase agreement during the holding period thereof subject to the conditions in Item "a(1)(d)" of this Subsection. c. Alternative compliance for both agri-agra credit (1) Development loans . Pursuant to Sections 8 and 9 of R.A. No. 7721 (An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes), loans extended by banks incorporated under the laws of the Philippines, whether Philippine or foreign-owned, to finance educational institutions, cooperatives, hospitals and other medical services, socialized or lowcost housing, and to local government units, without national government guarantee, shall be included for purposes of determining compliance with the provisions of P.D. No. 717, as amended. This provision shall, however, not apply to branches of foreign banks. For this purpose, the following definitions shall apply: (a) Educational institutions shall refer to all educational establishments duly authorized by or with permit to operate from the Department of Education, Culture and Sports (DECS), or created by special laws or charters. (b) Cooperatives shall refer to duly registered associations of persons with a common bond of interest who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles, as defined in R.A. No. 6938 (Cooperative Code of the Philippines). (c) Hospital shall refer t a place devoted primarily to the maintenance and operation of facilities for the diagnosis, treatment and care of individual suffering from illness, disease, injury or deformity, or in need of obstetrical or other medical and nursing care. It also refers to an institution, building or place where there are installed beds, or cribs, or bassinets for twenty-four (24)-hour use or longer by patients in the treatment of diseases, injuries, deformities or abnormal physical and mental state, maternity cases, and all institutions such as those for convalescence, sanitorial or sanitarial care, infirmaries, nurseries, dispensaries and such other shames by which they may be designated. (d) Medical services shall refer to various services like general treatment, physical examination, consultation, medication, dressing, suturing and surgical operation, all pertaining to or dealing with the healing art or the science of medicine, with license to operate from the Department of Health (DOH). (e) Socialized housing refers to housing programs and projects covering houses and lots or home lots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of R.A. No. 7279 (Urban Development and Housing Act). (f) Economic and socialized housing refers to housing units which are within the affordability level of the average and low-income earners which is thirty percent (30%) of the gross family income as determined by the National Economic Development Authority (NEDA) from time to time. It also refers to the government-initiated sites and services development and construction of economic and socialized housing projects in depressed areas. Socialized housing packages shall refer to housing loans not exceeding P225,000 and low-cost housing packages shall consist of Level 1 which shall refer to housing loans in excess of P225,000 but not more than P500,000 and Level 2 which shall refer to housing loans in excess of P500,000 but not more than P2.0 million, as, prescribed under existing guidelines of the Housing and Urban Development Coordinating Council (HUDCC) for the implementation of various government housing programs, or in such other amounts which HUDCC may prescribe in the future for said housing loans. (g) Local government unit refers to provinces, cities, municipalities and any other political subdivision created by law enacted by Congress and to barangays created by ordinance passed by the Sangguniang Panlalawigan or the Sangguniang Panlungsod that are located within its territorial jurisdiction, subject to such limitations and requirements prescribed in R.A. No. 7160 (Local Government Code of 1991). DISEaC (2) Loans for high-value crops projects . Pursuant to Section 8 of R.A. No. 7900, a bank participating in the High-Value Crops Development Program that shall lend a minimum of five percent (5%) of its loanable funds, without alternative compliance directly to farmers' associations or cooperatives for high-value crops projects shall be exempted from, or shall be deemed to have complied with the requirement of P.D. No. 717. For purposes of this item, high-value crops shall refer to crops that can be optimally and sustainably produced in key commercial crop production areas identified by the Department of Agriculture (DA) and which can generate revenue higher than that of traditional crops (which refer to rice, corn, coconut and sugar). Such high-value crops include, but are not limited to: coffee and cacao, fruit crops (citrus, cashew, guyabano, papaya, mango, pineapple, strawberry, jackfruit, rambutan, durian, mangosteen, guava, lanzones, and watermelon), root crops (potato and ubi), vegetable crops (asparagus, broccoli, cabbage, celery, carrots, cauliflower, radish, tomato, bell pepper, patola) legume, pole sitao (snap beans and garden pea), spices and condiments (black pepper, garlic, ginger and onion), and cutflower and ornamental foliage plants (chrysanthemum, gladiolus, anthuriums, orchids and statice). Farmers' associations/organizations shall refer to farmers' cooperatives, associations or corporations duly registered with appropriate government agencies and which are composed primarily of small agricultural producers, farmers, farm workers and other agrarian reform beneficiaries who voluntarily join together to form business enterprises which they themselves, own, control and patronize. A bank participating in the high-value crop development program shall refer to the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP) and any qualified lending institution which has been accredited/selected as provided in the Implementing Rules and Regulations of R.A. No. 7900 (Joint Administrative Order No. 1, series of 1996 of the DA dated April 23, 1996). (3) (Transferred to Item "a(2)a" above by CL dated 6.22.00). (4) Ten (10)-Year Agrarian Reform Bond issued by the Philippine Government thru the Land Bank of the Philippines, subject to the conditions prescribed in Subsec. X341.5(a) above. (5) Investments by banks in the authorized capital stock of Quedan and Rural Credit Guarantee Corporation (Quedancor); (6) Loans extended by banks to farmers, fishermen, cooperatives, rural workers and rural enterprises covered by the guarantees of Quedancor; and (7) Rediscounting by secondary banks of originating banks' loan receivables having the guarantee of Quedancor, subject to the condition that the originating bank may not use such loans as compliance with P.D. No. 717 and only the secondary (rediscounting) bank may claim such loans as compliance with P.D. No. 717. SUBSECTION X341.6 Syndicated type of agrarian reform credit/agricultural credit . Banks may grant a syndicated type of loan for agrarian reform credit/agricultural credit in general, either between or among themselves. The mechanics, including the recording of such syndicated type of loan transactions, shall follow existing practices and regulations applicable both to the lead bank and other participating bank(s). Accordingly, the booking of loans shall only be for the amount of actual participation of each syndicate bank concerned. Memorandum entries, references or notations shall be made for the other participating bank(s). SUBSECTION X341.7 Interest and other charges . Interest, service fees and other charges shall be governed by existing rules and regulations. SUBSECTION X341.8 Unused agri-agra funds to be utilized for socialized and low-cost housing . As a source of non-budgetary funding to augment the Comprehensive and Integrated Shelter and Urban Development Financing Program under R.A. No. 7835, all unused agri-agra allocation funds of banks in the preceding year shall be invested in socialized and low-cost housing if the utilized portion of the agri-agra funds of said banks was solely devoted to agricultural and agrarian reform credits. SUBSECTION X341.9 Submission of reports . A quarterly report on the following shall be submitted to the appropriate supervising and examining department of the BSP within twelve (12) banking days after the end of each reference quarter: a. Utilization of loanable funds set aside for agrarian reform credit and agricultural credit in general; b. Any change in the composition of government securities and commercial papers held as temporary investments for agrarian reform credit and agricultural credit in general, respectively; and c. A certification under oath by the duly designated officer of the bank of the absence of qualified borrowers for agrarian reform creditor agricultural credit in general shall be submitted to the appropriate supervising and examining department of the BSP together with the report as required in this Subsection. ASEIDH SUBSECTIONS X341.10-X341.11 (Reserved) SUBSECTION X341.12 Consolidated compliance. The compliance with agri-agra mandatory allocation of funds under P.D. No. 717 shall be allowed on a groupwide basis (based on consolidated financial statements of investor-financial institution or parent bank and its subsidiaries/affiliates): Provided , That the subsidiary banks are at least seventy-five percent (75%) owned/controlled by the parent bank, subject to the following conditions: a. The consolidated report shall be submitted by the bank in the prescribed form and shall be supported by the individual reports of the bank and its subsidiaries duly signed by each bank's authorized signatory. The subsidiaries shall continue with their respective submission of the subject report to their respective supervising and examining departments within the prescribed period; b. Either the parent bank or the subsidiary bank can exercise the right to avail itself of/use the excess of its subsidiary bank/parent bank for its own compliance; and c. In the event of a deficiency in compliance of any parent or subsidiary or all of these banks, the members of the board of directors and its president and the other officers of the parent bank shall be responsible for the group's compliance. SUBSECTIONS X341.13-X341.14 (Reserved) SUBSECTION X341.15 Sanctions . The following sanctions shall be applicable for any violation of this Section: a. For non-compliance/undercompliance / (1) Daily fine in proportion to degree of compliance shall be imposed depending on the total assets of the banks as of the reporting period: Maximum Daily Fine Total Assets Per Banking Day P100 million and below - P100 Above P100 million to P200 million - 200 Above P200 million to P500million - 300 Above P500 million to P1.00 billion - 500 Above P1.0 billion to P5.0 billion - 1,000 Above P5.0 billion to P10.0 billion - 3,000 Above P10.0 billion to P25.0 billion - 5,000 Above P25.0 billion to P50.0 billion - 10,000 Above P50.0 billion to P100.0 billion - 15,000 Over P100.0 billion - 30,000 Excess compliance in the ten percent (10%) agrarian reform credit may be used to offset a deficiency, if any, in the fifteen percent (15%) agricultural credit in general, but not vice versa. The daily fine shall be counted from the end of reference quarter until the date the bank has complied with the credit allocation requirements and files an amended report. In case of a violation noted during examination or verification, monetary penalty shall run from the date of findings until the violation is corrected. (2) Non-monetary mines In addition to the above daily monetary fines, any or all of the administrative sanctions as provided under Section 37 of R. A. No. 7653, may be imposed upon any bank for non-compliance/undercompliance, willful delay or refusal to submit reports without prejudice to criminal sanctions against culpable persons provided under Sections 34, 35 and 36 of R. A. No. 7653, as follows: (a) Suspension of rediscounting privileges or access to BSP facilities; (b) Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; (c) Suspension of interbank clearing privileges; and/or (d) Revocation of quasi-banking license. b. For non-submission and delayed/amended reports The following fines shall be imposed for non-submission and delayed/amended reports on compliance with the mandated credit allocations for agri-agra credit under P.D. No. 717, to be reckoned on the following day after due date of submission or until the proper report is filed with the BSP: (1) UBs/KBs/FXBs P1,200 per banking day (2) TBs 600 per banking day (3) RBs/Coop Banks 180 per banking day Non-submission or delayed submission of reports for two (2) or more times in any four (4)-quarter period shall be subject to twice the prescribed monetary penalty for willful delay or refusal to submit reports. SECTION X342. Mandatory Credit to Small Enterprises . The following rules shall govern the mandatory allocation of credit resources to small enterprises. SUBSECTION X342.1 Definition of Terms . For purposes of this Section, the following definitions shall apply: a. Lending institutions shall refer to all banks, namely: UBs, KBs, local branches of foreign banks, specialized government banks, TBs and RBs/Coop Banks. b. Loan portfolio shall include all loans and advances (net of valuation reserves) in the Statement of Condition/Balance Sheet excluding the following: interbank loan receivables; agrarian reform/other agricultural credit loans under P.D. No. 717; loans granted under special financing programs; foreign currency denominated loans and advances; and loans from multilateral and bilateral sources which are relent by a bank on a wholesale basis to conduit financial institutions. c. Small and medium enterprises shall refer to any business activity or enterprises engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation (1) whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, must have value falling under the following categories: Micro : less than P1,500,001 Small : P1,500,001 P15,000,000 Medium : P15,000,000 P100,000,000 In a generic sense, all enterprises with total assets of P15,000,000 and below shall be called small enterprises; (2) duly registered with the appropriate agencies as presently provided by law: Provided, That in the case of microenterprises as defined herein, registration with the office of the municipal or city treasurer shall be deemed sufficient compliance with this requirement; (3) one hundred percent (100%) owned and capitalized by Filipino citizens if a single proprietorship or partnership. If the enterprise is a corporation, at least sixty percent (60%) of its capital or outstanding stocks must be owned by Filipino citizens; (4) within the major sectors of the economy, namely: industry, services, including the practice of one's profession, the operation of tourism-related establishments, and agri-business, which for this purpose refers to any business activity involving the manufacturing, processing, and/or production of agricultural produce, excluding farm level agricultural/crop production; and (5) not a branch, subsidiary or division of a large scale enterprise nor its policies determined by a large scale enterprise or by persons who are not owners or employees of the enterprise. SUBSECTION X342.2 Mandatory allocation of credit resources to small and medium enterprises a. All lending institutions, whether public or private, shall set aside a portion of their total loan portfolio based on their Statement of Condition/Balance Sheet as of the end of the previous quarter, and make it available for small and medium enterprise credit. The portion mandated to be set aside for a period of ten (10) years starting on August 12, 1997 up to August 9, 2007 shall at least be six percent (6%) and two percent (2%) for small and medium enterprises, respectively, of the loan portfolio. Banks may, however, be allowed to report compliance on a groupwide basis (based on consolidated financial statements of investor-financial institution or parent bank and its subsidiaries/affiliates): Provided, That the subsidiary banks are at least seventy-five percent (75%) owned/controlled by the parent bank, subject to the following conditions: (1) The consolidated report shall be submitted by the bank in the prescribed form and which shall be supported by the individual reports of the bank and its subsidiaries duly signed by each bank's authorized signatory. The subsidiaries shall continue with their separate submission of the subject report to their respective supervising and examining departments within the prescribed period. (2) Only the parent bank can exercise the right to avail/use the excess of its subsidiaries for its own compliance. (3) In the event of a deficiency in compliance of any parent or subsidiary or all of these banks, the members of the board of directors and its president and the other officers of the parent bank shall be responsible for the group's compliance. b. For purposes of determining compliance with the mandated allocation, loans to small enterprises and such instruments mentioned in Item " c " of Subsec. X342.3 below which have been rediscounted with or funded by the SBGFC or the BSP shall be excluded. SUBSECTION X342.3 Eligible investments . Funds set aside in accordance with the foregoing requirement shall be made available for any of the following: a. Loans to small/medium enterprises; b. Committed credit lines: Provided, That the credit line is evidenced/supported by a credit line agreement or its equivalent executed between and signed by the bank and the borrower and is granted to an eligible small/medium enterprise as defined herein: Provided, further, That the use of unavailed portion of the committed credit line shall not exceed ten percent (10%) of direct loans actually extended to SMEs as indicated in the report for the period. acCTIS c. Instruments as may be offered by the SBGFC which do not pay market rates; d. Purchase of small/medium enterprises' promissory notes from lending institutions and/or non-government organizations (NGOs); e. Loans granted to export traders, including those not guaranteed by SBGFC and to domestic traders and import traders, subject to compliance with the total asset size requirement: Provided, further, That in case of import traders, the importation of raw materials form part of the raw material input to a finished product; f. Equity investments in venture capital corporations; g. Equity investments by member banks in, and loans by member banks to, the BAP Credit Guaranty Corporation (BCGC) to the extent of the member bank's proportionate share to total outstanding loans granted by BCGC to small/medium enterprises; and h. Microfinance loans. The funds set aside which have not been invested in any of the above may be held in the form of Cash on Hand and/or Due from BSP: Provided, That these are free, unencumbered, not hypothecated and not utilized or earmarked for other purposes. The Accounting Department or, if the Due From BSP is in foreign currency, the Treasury Department, shall maintain a special account for amounts deposited with the BSP for this purpose which deposits shall not earn interest and shall not form part of the banks' legal reserves. Deposits with the Treasury Department shall be in acceptable foreign currency and shall be converted into pesos anytime there is a need to fund small/medium enterprises/loans. SUBSECTION X342.4 Ineligible instruments . The purchase of government notes, securities and negotiable instruments other than the instruments offered by SBGFC shall not be deemed compliance with the foregoing requirement. SUBSECTION X342.5 Guarantee coverage . Loans granted in accordance with this Section shall be eligible for guarantee coverage by the SBGFC, subject to such rules and regulations as may be issued by the SBGFC. SUBSECTION X342.6 Submission of reports. Banks shall submit reports to the appropriate supervising and examining department of the BSP, copy furnished the Small and Medium Enterprise Development Council, showing compliance with the mandatory allocation as indicated in Appendix 6 . TBs and RBs/Coop Banks which are electronically linked with BSP are encouraged to submit electronically or to report in diskette form or via internet. Lending institutions shall maintain appropriate records/details of the reported loans to small/medium enterprises and shall make these available to BSP bank examiners. SUBSECTION X342.7 Lendings to medium enterprises . Lending institutions are encouraged to make available funds for lending to medium enterprise with total assets of more than P15 million but not more than P100 million or as may be determined under Section 3 of R.A. No. 6977. SUBSECTION X342.8 Sanctions . The following administrative sanctions shall be imposed on banks: a. For non-compliance/undercompliance with the prescribed ratio requirements [at least six percent (6%) for small enterprises and two percent (2%) for medium enterprises] of the mandated credit allocation to small and medium enterprises for each reporting period: (1) For zero compliance - not less than P500,000; (2) For undercompliance (a) UBs/KBs/FXBs - P5,000 per day (b) TBs - 2,500 per day (c) RBs/Coop Banks - 1,000 per day The reckoning period of the imposition of fines shall be from the end of the reference quarter until the date the bank has fully complied with the credit allocation requirements. The daily fines shall continue to run until the date of receipt by the appropriate supervising and examining department of the interim report accurately showing the bank's level of compliance with both the prescribed six percent (6%) and two percent (2%) credit allocation requirements. Violations uncovered, if any, at any time other than the quarter-end findings shall be subject to herein fines. (3) For willful making of a false or misleading statement to the BSP not less than P500,000. The imposition of the fines in Items "(1)" to "(3)" shall be without prejudice to the other administrative sanctions. b. For non-submission/delayed submission of reports on compliance with SME credit per business day of delay in the submission of report: (1) UBs/KBs/FXBs - P1,000 per day (2) TBs - 500 per day (3) RBs/Coop Banks - 250 per day G. Special Types Of Loans SECTION X343. Interbank Loans . Interbank loan transactions shall include, among other things, (a) interbank call loan (IBCL) transactions; (b) borrowings evidenced by deposit substitute instruments; and (c) purchases of receivables with recourse: Provided, however , That only IBCL transactions which are evidenced by interbank loan advice or repayment transfer tickets and settled through the banks' respective demand deposit accounts with BSP shall be eligible to the one percent (1%) reserve: Provided, further, That funds borrowed by banks from trust departments of banks or investment houses shall be excluded from the herein definition of interbank loan transactions. Interbank loan transactions not submitted to the BSP Comptrollership Department by means of interbank loan advice or repayment transfer tickets shall be reported to the BSP in the prescribed form. SUBSECTION X343.1 Systems and procedures for interbank call loan transactions . IBCL transactions of banks shall be governed by the Agreement for an Interbank Call Loan Funds Transfer System executed among the BSP, the Bankers Association of the Philippines and the Philippine Clearing House Corporation ( Appendix 21 ) and any subsequent amendments thereto. EaISTD Banks shall generate hard copies of the formats of the loan and repayment instruction in the form presented in Annexes A, B, C and D of the aforesaid agreement to be kept as documentary evidence of their matched and processed IBCL transactions. SUBSECTION X343.2 Accounting procedures a. Both lending and borrowing banks shall immediately pass the corresponding entries in their books and, upon receipt of a copy of the transfer instruction reported as matched in the Multi-Transaction Interbank Payment System (MIPS), the borrowing bank shall attach the same to the corresponding ticket debiting its Due from BSP account in its books and, in the case of the lending bank, to the same ticket passed in its books on the day payment is made. b. IBCL transactions shall be recorded by the borrowing bank as Bills Payable Interbank Call Loans . c. Banks shall reconcile their demand deposit accounts with the BSP against monthly statements of account to be furnished by the BSP Comptrollership Department. SUBSECTION X343.3 Settlement procedures for interbank loan transactions . Interbank loan transactions (call and term) among banks and NBQBs shall be settled gross with finality subject to the availability of balances in the deposit reserves maintained by banks in the BSP in accordance with the procedures in Appendix 21a . SECTION X344. Loans to Thrift/Rural/Cooperative Banks SUBSECTION X344.1 Loans under Section 12 of R.A. No. 7353, Section 10 of R.A. No. 7906 and Article 108, R.A. No. 6938 . Banks may rediscount papers of TBs/RBs/Coop Banks. Banks shall specify the nature of papers acceptable for rediscounting as well as the rediscount rate. SUBSECTION X344.2 Loans under Section 14 of R.A. No. 7353 . The following are the guidelines in the grant by the LBP, DBP or any commitments to a single issuer for more than twenty-five percent (25%) of its net worth exclusive of other exposures to the said issuer. SUBSECTION X348.3 Terms; conditions; restrictions . The committed credit line agreement shall incorporate the following terms, conditions and restrictions: a. That the credit line agreement is executed pursuant to the provisions of this Section; b. That the bank or banks are committed to make available to the issuer funds equivalent to at least twenty percent (20%) of the aggregate of the commercial paper issued and outstanding at any time; c. That the commitment of the bank or banks shall be firm and irrevocable and effective for as long as the issues under a particular permit are outstanding, subject to renewal by the bank; d. That availments pursuant to the credit line agreement shall be for the exclusive purpose of meeting obligations arising from commercial paper issues in accordance with the provisions of the Rules on Registration of Commercial Papers, which availments shall be honored not earlier than three (3) banking days prior to the date of payment of obligation arising from outstanding commercial paper; e. That the request to avail of the credit line agreement shall be addressed to the bank or to the lead bank acting for a group of banks, which request shall be duly signed by a member of the board of directors and a senior ranking officer of the commercial paper issuer duly authorized for the purpose through an appropriate board resolution, which resolution shall also provide for the designation of the alternate signatories who shall likewise be a member of the board of directors and a senior financial officer of the corporation; f. That the extent of the commitment of each participant in a group of banks under a credit line agreement shall be stipulated in the agreement; and g. That the commitment of the bank under the credit line agreement shall be a net risk to the bank and the practice of requiring the commercial paper issuer to maintain a compensating deposit with the bank shall be prohibited. SUBSECTION X348.4 Reports to the Bangko Sentral. The bank or the lead bank, as the case may be, shall report to the BSP: a. All commitments entered into with commercial paper issuers within ten (10) banking days after the issuer shall have been authorized by the SEC; and b. Any availment under the committed credit line agreement within three (3) banking days from date of drawdown. SUBSECTION X348.5 Loan limit . The liabilities of a commercial paper issuer to a bank arising from the availment by the issuer of the credit line agreement shall not be counted in determining compliance by the bank with the SBL: Provided, That in no case shall they exceed five percent (5%) of the net worth of the bank beyond the normal applicable SBL for a period of 180 days from each availment of the credit line. SECTION X349. Agriculture and Fisheries Projects with Long Gestation Periods . Pursuant to Section 24 of R.A. No. 8435 (Agriculture and Fisheries Modernization Act of 1997), agriculture and fisheries projects with long gestation periods shall be entitled to longer grace periods in repaying the loan based on the economic life of the project. For purposes of this Section, the following definitions and guidelines shall govern the grant of loans for long-gestating agriculture and fisheries projects. AHDTIE SUBSECTION X349.1 Definition of terms . a. Gestation period shall refer to the span of time from the commencement of the project to the time that it is economically productive and producing revenues; and b. Grace period under this Section shall refer to the period that the initial amortization payment on the loan is deferred. All payments, however, must be made on or before the maturity of the loan. SUBSECTION X349.2 Grace period . Banks are allowed to extend loans/guarantees with a grace period of up to seven (7) years to viable long-gestating agriculture and fisheries projects. Suggested gestation and grace periods for some of the long-gestating projects are in Appendix 36 . SUBSECTION X349.3 Responsibility of lending banks . Lending banks shall institute the necessary safeguards and precautions to ascertain the viability of the projects financed and the capability of the borrower in fulfilling his, commitments. SUBSECTION X349.4 Past due loans . The rule on past due accounts under Sec. X306 shall apply except that the reckoning date shall be the grace period and not the original maturity of the loan. SUBSECTION X349.5 Non performing loans . The rule on non-performing loans under Sec. X309 shall apply except that the reckoning date shall be the grace period and not the original maturity of the loan. SECTIONS X350-X360 (Reserved) SECTION X361. Microfinancing Loans . Pursuant to Sections 40, 43 and 44 of the General Banking Law of 2000, the following guidelines shall govern microfinancing loans. In the implementation of this Section, banks should be guided by the Notes on Microfinance in Appendix 45 . SUBSECTION X361.1 Definition . Microfinancing loans are small loans granted to the basic sectors, as defined in the Social Reform and Poverty Alleviation Act of 1997 (Republic Act No. 8425), and other loans granted to the poor and low-income households for their microenterprises and small businesses so as to enable them to raise their income levels and improve their living standards. These loans are granted on the basis of the borrowers' cash flow and are typically unsecured.' SUBSECTION X361.2 Loan limit; amortization; interest. a. The maximum principal amount of microfinance loans shall not exceed P150,000. This is equivalent to the maximum capitalization of a microenterprise under R.A. No. 8425. b. The schedule of loan amortization shall take into consideration the projected cash flow of the borrowers which is adopted into the terms and conditions formulated. Hence, microfinance loans may be amortized on a daily, weekly, bimonthly or monthly basis, depending on the cash flow conditions of the borrowers. c. Interest on such microfinancing loans shall be reasonable and just as may be determined by management to be consistent with its credit policies. The interest rate shall not be lower than the prevailing market rates to enable the lending institution to recover the financial and operational costs incidental to this type of microfinance lending. SUBSECTION X361.3 Credit information exemption . In cases of microfinancing loans which meet the criteria in Subsec. X361.2, a bank may not require from its credit applicants, a statement of assets and liabilities, and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the BIR, as prescribed under Section 40 of R.A. No. 8791. SUBSECTION X361.4 Exemptions from rules on unsecured loans . In view of the unique characteristics of microfinance loans, i.e. , small unsecured and based on cash flow of borrowers, these loans may be exempted from rules and regulations which may be issued by the Monetary Board with respect to unsecured loans under Section 41 of the General Banking Law of 2000: Provided , That the bank has: a. well-defined standards, credit policies and procedures for microfinance loans which are in conformity with microfinance international best practices; b. specific measures to be undertaken to ensure collection such as close supervision of borrowers' projects and operations; and c. Loan Portfolio and Other Risk Assets Review System required under Sec. X302 which would serve as: (1) An adequate loan tracking system that allows daily monitoring of the status of loan releases, collection and arrearages, any restructuring or refinancing; and (2) A regular monitoring of past due loans and portfolio at risk. SECTIONS X362-X375. (Reserved) H. Equity Investments SECTION X376. Scope of Authority . The following rules shall govern the investment of banks in the equities of allied undertakings, whether financial or non-financial, and non-allied undertakings, as well as the establishment/acquisition of subsidiaries and affiliates abroad. SUBSECTION X376.1 Conditions for investment in equities . A bank shall not invest in the equity of any enterprise, if the investing bank is in any of the following situations: a. Its capital is impaired, whether by actual losses or unbooked valuation reserves required by the BSP; b. Its lending operations had been suspended on account of reserve or capital deficiency, until such suspension shall have been lifted for at least one (1) year and sufficient reserves or capital shall have been maintained; c. It incurred losses from its operations during the preceding year; d. It has not fully booked the valuation reserves and other capital adjustments required by the BSP; e. It has exceeded the individual and aggregate ceilings as well as the ceiling on unsecured credit accommodations to DOSRI; and f. Its ratio of past due loans to total loan portfolio exceeds twenty percent (20%). SUBSECTIONS X376.2-X376.4 (Reserved) SUBSECTION X376.5 Guidelines for major investments . The following are the guidelines for major acquisitions or investments by a bank including corporate affiliations or structures to implement Section 50 of R.A. No. 8791. a. Definition . Major investments are those investments in allied or non-allied undertakings including corporate affiliations or structures that give the bank significant interest and/or control, such as stockholdings sufficient to elect one (1) member to the acquired entity's board of directors. b. Criteria for major investments . Any major investment by a bank should be approved by the bank's board of directors. In acting on such investments the Board shall consider the following: (1) Such investment must be in accordance with the bank's business plan and management objectives, taking into consideration the economic developments and future prospects. The interests of the different stakeholders of the bank shareholders, depositors and creditors should always be considered before any investment is made. (2) Such investments will complement/support the main business of the banks. Extra caution should be taken when investing in activities where the bank has no managerial or technical expertise, or businesses/industries, which are high-risk. (3) Bank management shall provide for an efficient and effective "exit mechanism" or contingency plan in case the investee's operations fail or do not prosper. c. Prior BSP approval; information/documents required . Subject to prior approval of the BSP, banks may invest in allied or non-allied undertakings, including corporate affiliations or structures. A bank intending to make such investment shall submit the following information/documents to the appropriate supervising and examining department of the BSP for evaluation: (1) Name of the company; (2) Type of business activities; (3) Board of directors' approval on such investments; (4) Certification from the bank's board of directors that the criteria enumerated in Item " b " are complied with; (5) Management contract; (6) Financial information and other information about financial strengths, e.g., projected balance sheet and income statements for the first three (3) years; (7) Members of the board and senior management; (8) Interest to be held by the bank and the manner in which such interest will be held; and (9) Conformity of the investee company for BSP to examine its books. The BSP may impose conditions on any approval, including conditions to address financial, managerial, safety and soundness, compliance, or other concerns. Further, the BSP may disapprove a proposed investment if it finds that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Monetary Board directive, or any condition imposed by, or written agreement with, the BSP. The BSP may prescribe other guidelines/regulations as it may consider necessary to ensure that banks' major investments do not expose the banks to undue risks or hinder effective supervision. Within six (6) months from September 7, 2001, banks shall provide the BSP reliable information on companies in which they have significant interest or control, such as but not limited to: (i) Name of the companies; (ii) Type of business activities; and (iii) Interest held by the bank and the manner in which such interest is held. d. Examination and inspection . Whenever deemed necessary, BSP shall have the authority to examine investee companies or to verify information provided by other supervisory authorities such as the SEC. DTAaCE The BSP shall have the authority to seek corrective action, to issue orders to terminate activities with or divest an interest in an investee company, if it believes that such action is necessary to prevent or redress unsafe or unsound practice by such company that poses a material risk to the financial safety, soundness or stability of a bank. SECTION X377. Financial Allied Undertakings. With prior BSP approval, banks may invest in equities of the following financial allied undertakings, subject to the limits prescribed under Sec. X378: a. Leasing companies including leasing of stalls and spaces in a commercial establishment: Provided, That bank investment in/acquisition of shares of such leasing company shall be limited/applicable only in cases of conversion of outstanding loan obligations into equity; b. Banks; c. Investment houses; d. Financing companies; e. Credit card companies; f. Financial institutions catering to small and medium scale industries including venture capital corporation (VCC), subject to the provisions of Sec. X379 and its subsections; g. Companies engaged in stock brokerage/securities dealership; and h. Companies engaged in foreign exchange dealership/brokerage. In addition, UBs may invest in the following as financial allied undertakings: (1) Insurance companies; and (2) Holding company: Provided , That the investments of such holding company are confined to the equities of allied undertakings and/or non-allied undertakings of UBs allowed under BSP regulations. The Monetary Board may declare such other activities as financial allied undertakings of banks. The determination of whether the corporation is engaged in a financial allied undertaking shall be based on its primary purpose as stated in its articles of incorporation and the volume of its principal business. SECTION X378. Limits on Investment in the Equities of Financial Allied Undertakings . The equity investment of a bank in a single financial allied undertaking shall be within the following ratios in relation to the total subscribed capital stock and to the total voting stock of the allied undertaking: UB KB Publicly- Not Publicly- Not listed listed listed listed Financial Allied Undertaking UBs 100% 49% 100% 49% KBs 100 49 100 49 TBs 100 100 RBs 100 100 Coop Banks NA NA Insurance 100 NA Companies VCCs 60 60 Others 100 40 TB RB Coop Bank Financial Allied Undertaking UBs 49% 49% 49% KBs 49 49 49 TBs 49 49 49 RBs 49 49 100 Coop Banks NA NA 30 Insurance NA NA 49 Companies VCCs 60 49 49 Others 40 40 40 To promote competitive conditions, the Monetary Board may further limit the equity investments in QBs of UBs and KBs to forty percent (40%). A publicly-listed UB or KB may own up to 100% of the voting stock of only one (1) other UB or KB. Otherwise, it shall be limited to a minority holding. The existing investment of a bank in another bank under R.A. No. 7721 shall be governed by Sec. X121 insofar as it is consistent with R.A. No. 8791. SECTION X379. Investments in Venture Capital Corporations . The following rules and regulations shall implement Presidential Decree No. 1688 entitled "Authorizing Banks to Invest in the Equity of Venture Capital Corporations to Assist Small and Medium-Scale Enterprises". For purposes of this Section, a venture capital corporation (VCC) shall refer to an entity organized jointly by private banks, the National Development Corporation and the Technology Livelihood and Resource Center and/or such other government agency as may be authorized by the appropriate authority, the primary purpose of which is to develop, promote and assist, thru debt or equity financing or any other means, any small and medium-scale enterprise in the country. SUBSECTION X379.1 Requirements for investors . Banks may invest in a VCC organized to assist small and medium-scale enterprises, subject to the following conditions: a. The bank shall have a minimum capital of P100 million as defined in Sec. X106; b. Two or more banks may own up to sixty percent (60%) of the total voting equity and of the total equity of a VCC. A bank shall not be allowed to invest in the equity of more than one VCC; c. The initial paid-in capital VCC shall not exceed P5 million. Any subsequent increase in paid-in capital of the VCC in which a bank owns equity shall be subject to prior approval of the Monetary Board; d. Loans which the investor bank may grant to a VCC shall be limited to such amounts as would enable the VCC to promote equity financing to viable small and medium scale enterprise: Provided, however, That unless otherwise authorized by the Monetary Board, the aggregate outstanding loans of such bank to a VCC shall not exceed twice the amount of its equity investment in the VCC: Provided, further, That loans to the VCC, or the small and medium-scale enterprises shall not be subject to the ceilings on DOSRI, except where bank DOSRI are likewise stockholders in the VCC or in the small and medium-scale enterprise; e. The combined equity investments in, and loans of, the bank to its VCC shall not exceed fifteen percent (15%) of the bank's net worth; and f. The aggregate investments in equities by a bank, including equity investments in a VCC, shall not exceed the prescribed ceiling of twenty-five percent (25%) of the bank's net worth. SUBSECTION X379.2 Equity investments of venture capital corporations . Equity investment of a VCC in small and medium-scale enterprises shall be subject to the following conditions: a. Equity financing by a VCC may be extended to a small and medium-scale enterprise engaged in an industry certified as desirable by the Department of Trade and Industry; and b. The total assets of the enterprises shall not exceed P4 million, including the VCC's equity investment. Should the total assets of the small and medium-scale enterprise subsequently exceed the prescribed P4 million maximum, the VCC equity investment therein made before the total assets of the enterprise exceeded P4 million, may be maintained but shall not be increased. SUBSECTION X379.3 Business name of venture capital corporations . A VCC shall be known by any name not otherwise appropriated: Provided, however, That the words "venture capital corporation" are made a part thereof. SUBSECTION X379.4 Reportorial requirements; examination by Bangko Sentral . A VCC in which a bank owns equity shall be subject to BSP reportorial requirements prescribed for non-bank financial intermediaries and may be subject to examination by the BSP. SUBSECTION X379.5 Interlocking directorships and/or officerships . Subject to prior approval of the Monetary Board, a person may concurrently hold the position of a director or officer in a bank and a VCC. SECTION X380. Non-Financial Allied Undertakings . A bank may acquire up to 100% of the equity of a non-financial allied undertaking: Provided, That the equity investment of a TB/RB in any single enterprise shall remain less than fifty percent (50%) of the voting shares in that enterprise: Provided, further, That prior Monetary Board approval is required if the investment is in excess of forty percent (40%) of the total voting stock of such allied undertaking. The determination of whether the corporation is engaged in a non-financial allied undertaking shall be based on the primary purpose as stated in its articles of incorporation and the volume of its principal business. a. UBs/KBs/TBs UBs/KBs and TBs may invest in equities of the following non-financial allied undertakings: (1) Warehousing companies; (2) Storage companies; (3) Safe deposit box companies; (4) Companies primarily engaged in the management of mutual funds but not in the mutual funds themselves; (5) Management corporations engaged or to be engaged in an activity similar to the management of mutual funds; (6) Companies engaged in providing computer services; (7) Insurance agencies/brokerages; (8) Companies engaged in home building and home development; (9) Companies providing drying and/or milling facilities for agricultural crops such as rice and corn; (10) Service bureaus, organized to perform for and in behalf of banks and non-bank financial institutions the services allowed to be outsourced enumerated in Sec. X169: Provided , That data processing companies may be allowed to invest up to forty percent (40%) in the equity of service bureaus; ScaATD (11) Philippine Clearing House Corporation (PCHC), Philippine Central Depository, Inc. and Fixed Income Exchange; and (12) Such other similar activities as the Monetary Board may declare as non-financial allied undertakings of banks. UBs may further invest in health maintenance organizations (HMOs). In addition, TBs may also invest in the equities of companies enumerated in Item "b" of this Section. b. RBs/Coop Banks RBs/Coop Banks may invest, as a non-financial allied undertaking, in the equities of companies engaged in the following: (1) Warehousing and other post harvest facilities; (2) Fertilizer and agricultural chemical and pesticides distribution; (3) Farm equipment distribution; (4) Trucking and transportation of agricultural products; (5) Marketing of agricultural products; (6) Leasing; and (7) Other undertakings as may be determined by the Monetary Board. SECTION 1381. Investments in Non-Allied or Non-Related Undertakings . Only UBs may invest in the equity of an enterprise engaged in non-allied or non-related activities. SUBSECTION 1381.1 Non-allied undertakings eligible for investment by universal banks . The broad category of non-allied undertakings in which a UB may invest directly or through its subsidiary shall require prior approval of the Monetary Board: Provided, That individual equity investments in the following broad categories shall not require prior Monetary Board approval, except as may be required in Subsec. X376.5: a. Enterprises engaged in physically productive activities in agriculture, mining and quarrying, manufacturing, public utilities, construction, wholesale trade and community and social services following the industrial groupings in the Philippine Standard Industrial Classification (PSIC) as enumerated in Appendix 22 ; b. Industrial park projects and/or industrial estate developments c. Financial and commercial complex projects (including land development and buildings constructed thereon) arising from or in connection with the Government's privatization program; and d. Such other broad categories as the Monetary Board may declare as appropriate: Provided, further, That the bank shall submit within thirty (30) banking days after the investment, the following information/documents to the appropriate supervising and examining department of the BSP: (1) The amount of investment; (2) The name of investee company; and (3) The nature of business, accompanied by such pertinent documents as articles of incorporation, articles of partnership or registration certificate, whichever may be applicable. SUBSECTION 1381.2 Limits on investments in non-allied enterprises . a. The equity of a UB or its subsidiaries, in any single non-allied enterprise shall not exceed thirty-five percent (35%) of the total subscribed capital stock nor shall it exceed thirty-five percent (35%) of the voting stock in the enterprise. For the purpose of determining compliance with the ceiling prescribed in the preceding paragraph, (i) the equity investment of the bank; (ii) the equity investment of the bank's subsidiaries; and (iii) the equity investment of directors, officers and stockholders owning at least two percent (2%) of the bank or of the bank's subsidiaries, shall be combined. b. In no case shall the total equity investments in a single non-allied enterprise of UBs, NBFIs performing QB functions and their subsidiaries, whether or not the parent financial intermediaries have equity investments in the enterprise, amount to fifty percent (50%) or more of the voting stock of that enterprise: Provided, however, That equity investments in excess of the ceilings prescribed herein as of April 1, 1980 may be maintained but may not be increased and if reduced, shall not be increased thereafter beyond the ceiling prescribed herein. SUBSECTION 1381.3 Report on outstanding equity investments in and outstanding loans to non-allied enterprises . UBs shall submit to the appropriate supervising and examining department of the BSP within fifteen (15) banking days, a report as of June 30 and December 31 of each year showing the following: a. Their outstanding equity investments in non-allied enterprises; b. Outstanding equity investments of their wholly or majority-owned subsidiaries in non-allied enterprises; c. Their outstanding loans to non-allied enterprises in which they have equity investments; d. Outstanding loans of their wholly or majority-owned subsidiaries to non-allied enterprises in which these wholly or majority-owned subsidiaries have equity investments; and e. Their outstanding loans to non-allied enterprises in which their wholly or majority-owned subsidiaries have equity investments. For purposes of this Subsection, a wholly-owned subsidiary is a corporation 100% of the voting stock of which is owned by the reporting bank while a majority-owned subsidiary is a corporation more than fifty percent (50%) but less than 100% of the voting stock of which is owned by the reporting bank. SECTION X382. Investments in Subsidiaries and Affiliates Abroad . The establishment or acquisition of subsidiaries or affiliates abroad shall require prior approval of the BSP. IcaHCS SUBSECTION X382.1 Application for authority to establish or acquire subsidiaries and affiliates abroad . The application for such authority shall be signed by the president of the bank and shall be accompanied, as a minimum, by the following information/documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the establishment or acquisition of a subsidiary or an affiliate abroad; b. Economic justification for such establishment, indicating the services to be offered, the minimum outlay for furniture, fixture and equipment, rental and other expenses; c. A certification that an application for such establishment has been filed with the appropriate government agency of the host country; d. Organizational set-up of the proposed banking office showing the proposed positions and the names, qualifications and experience of the proposed manager and other officers; and e. Certification signed by the president or the executive vice-president that the bank has complied with all the requirements enumerated under Subsec. X382.2. SUBSECTION X382.2 Requirements for establishing subsidiaries or affiliates abroad . In addition to the standard prequalification requirements for the grant of banking authorities in Appendix 5, the applicant bank shall comply with the following: a. The citizenship, ownership ceilings and other limitations on voting stockholdings in banks under existing laws and regulations; and b. The experience and expertise in international banking operations with proof to the effect that: (1) It must have conducted international banking for at least three (3) years prior to the date of application; and (2) Its international banking operations must have contributed a substantial portion to its total earnings. SUBSECTION X382.3 Conditions for approval of application . The approval of the application to establish or acquire a subsidiary of an affiliate abroad shall be subject to the following conditions: a. Without prejudice to the qualification requirements of the country where the subsidiary or the affiliate is to be established, the proposed officer(s), at the time of appointment, must be at least: (1) Twenty-five (25) years of age; (2) A college graduate, preferably with training and experience abroad; (3) With three (3) years experience in international banking; and (4) Must not be disqualified as an officer under existing regulations. b. The applicant shall also comply with the licensing requirements of the host country and the necessary license to operate shall be secured from the appropriate government agency of the host country; c. The outward investment representing initial capital outlay and other outlays shall be subject to existing regulations; d. All dividends earned shall be inwardly remitted to the Philippines within reasonable period after the date of payment; e. The proposed subsidiary or affiliate shall submit the reports required by the BSP; f. The proposed subsidiary or affiliate shall not carry any of the business of a bank contemplated within the context of the Philippine banking system; g. The proposed subsidiary or affiliate shall not engage in stock trading activity; h. The applicant shall submit a certification from the host country that the duly authorized personnel/examiners of the BSP will be authorized to examine the proposed subsidiary or affiliate; and i. The applicant shall defray the necessary cost and expenses to be incurred by the appropriate supervising and examining department of the BSP in the examination of the foreign subsidiary. SECTION X383. Other Limitations and Restrictions . The following limitations and restrictions shall also apply regarding equity investments of banks. a. In any single enterprise . The equity investments of UBs and KBs in any single enterprise shall not exceed at any time twenty-five percent (25%) of the net worth of the investing banks as defined in Sec. X106 and Subsec. X121.5. b. Aggregate limits . The total amount of investments in equities in all enterprises shall not exceed the following ratios in relation to the net worth of the investing bank: Coop UB KB TB RB Bank LIMIT: 50% 35% 25% 25% 25% c. Exclusion of underwriting exposure from ceiling . The exposure of a bank with UB authority arising from the firm underwriting of equity securities of enterprises shall not be counted in determining compliance with the ceilings prescribed in this Section and Subsec. X381.2 for a period of two (2) years from the acquisition of such equity securities. SECTION X384. (Reserved) SECTION X385. Sanctions . The following sanctions shall be imposed for equity investments made without prior Monetary Board approval: a. First Offense If the investment is not allowable under existing regulations, divestment of the investment and reprimand on officer/director who recommended/approved the investment. b. Subsequent Offense On the Bank . If the investment is not allowable under existing regulations, divestment of the investment. On the Director/Officer . Fine of P20,000 for each investment to be imposed on the members of the board and the executive officers who recommended/approved the investment per investment and to be shouldered personally by the officer/director: Provided, That if the subsequent offense is an investment in a non-allied enterprise, the fine shall be P40,000. I. ( Reserved ) SECTIONS X386-X587. (Reserved) J. Other Operations SECTION X388. Purchase of Receivables and Other Obligations . The following regulations shall govern the purchase of receivables and other obligations. TEAICc SUBSECTION X388.1 Yield on purchase of receivables . The rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations, regardless of maturity, that may be charged or received by banks shall not be subject to any regulatory ceiling. SUBSECTION X388.2 Purchase of receivables on a "without recourse" basis . The total exposure of a bank to a maker of promissory notes resulting from the purchase of receivables on a without recourse basis shall be subject to the SBL of the bank: Provided, That the bank shall evaluate the credit worthiness of the maker of such promissory notes. SUBSECTION X388.3 Purchase of commercial paper . Before purchasing registered commercial paper, banks authorized to engage in quasi-banking' functions shall a. Require the issuing entity to submit a duly certified true copy of its Certificate of Registration and Authority to Issue Commercial Paper; and b. Ascertain that the registration number and expiry date, indicated in the commercial paper are the same as those in the certificate of registration submitted. Any violation or failure to comply with the provisions of this Subsection shall subject the erring bank to suspension or revocation of its authority to engage in quasi-banking functions. SUBSECTION X388.4 Reverse repurchase agreements with Bangko Sentral . Reverse repurchase agreements with the BSP shall be governed by Subsec. X601.2. SUBSECTION X388.5 Investment in debt and readily marketable equity securities . The following rules and regulations shall govern investment in debt securities and marketable equity securities. a. Banks may invest in the following: (1) Readily marketable bonds and other debt securities which are of such use or demand as to make them the subject of constant dealings in securities markets, with such frequent quotations of price as to make the price easily and definitely ascertainable, and the security easy to realize upon sale at any time: Provided, That the bonds and other debt securities have complied with the new rules on registration of commercial papers: Provided, further, That in the case of RBs/Coop Banks, the bonds and other securities have been approved by the BSP TBs may invest in evidences of indebtedness which are registered with the SEC but are not readily marketable securities: Provided, That these evidences of indebtedness shall be acquired with recourse against a bank or an NBQB. It shall be the responsibility of the investing bank to undertake the necessary investigation to satisfy itself with regard to the particular security. (2) Evidences of indebtedness of the Republic of the Philippines or the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are guaranteed by the Republic of the Philippines. b. The classification, accounting procedures, valuation and sales and transfers of investments in all debt securities and marketable equity securities shall be in accordance with the guidelines in Appendices 33 and 33a . Delay or non-submission of the Operations Manual as required under Appendix 33 shall be subject to a penalty of P500 per banking day. SECTIONS X389-X392. (Reserved) K. Miscellaneous Provisions SECTION X393. Loans-to-Deposits Ratio . The following policies and guidelines shall govern the loans-to-deposits ratio of head offices, branches and other banking offices of banks in regions outside the National Capital Region. SUBSECTION X393.1 Statement of policy . At least seventy-five percent (75%) of total deposits, net of required reserves against deposit liabilities and total amount of cash in vault, accumulated by branches and other banking offices of banks in a particular geographical grouping shall be invested therein as a means to develop the area. For purposes hereof, deposits shall include "Time Certificates of Deposits-Special Financing", but shall exclude: (a) government deposits subject to the liquidity floor requirement, (b) FCDU deposits, and (c) deposits of banks maintained for clearing purposes in areas where there are no BSP clearing units. Loans shall exclude FCDU loans. SUBSECTION X393.2 Other methods of compliance . The policy shall be deemed complied with, if, in a geographical grouping, the bank's lending for the financing of agricultural and export industries constitutes sixty percent (60%) of its deposits. Loans granted by the heal office and other offices in a geographical grouping may be assigned and considered part of the loans of offices in another geographical grouping, subject to the presentation of acceptable proof that the end-users of the loan proceeds are located in the latter grouping. Acceptable proof may include, but need not be limited to: (a) ticket showing that the loan proceeds were released by an officer in that geographical grouping, and (b) cable advice from the lending office to the office in the geographical grouping where end-users are located relative to approval of loan and release thereof. SUBSECTION X393.3 Geographical groupings. For purposes of this policy, the geographical groupings shall be Luzon (Regions I, II, III, IV and V), Visayas (Regions VI, VII and VIII) and Mindanao (Regions IX, X, XI and XII). SUBSECTION X393.4 Lagged computation . For purposes of determining compliance with the loans-to-deposits ratio, a six (6)-month lagged computation shall be adopted, i.e. , the loans-to-deposits ratio as of reporting date shall be computed using levels of deposits as of two (2) previous quarter ends and loans as of the current quarter end. SUBSECTION X393.5 ROPOA as part of compliance . ROPOA shall be considered part of compliance with the required loans-to-deposits ratio subject to the following conditions: a. Only ROPOA by banks in settlement of loans shall be eligible; and b. The amount to be considered shall be limited to the net book value of the ROPOA, excluding capital gains tax, documentary stamp tax and such other capitalized expenses. SECTION X394. Assets Acquired in Settlement of Loans . The following rules shall govern assets acquired in settlement of loans. SUBSECTION X394.1 Posting . Banks shall post at all times in a conspicuous place in the premises of their head office and each of their branches and other banking offices a list of acquired assets together with the corresponding lowest price at which the bank is willing to sell such property. However, this requirement shall not relieve the bank from the requirement under Section 52 of R.A. No. 8791 to dispose of such acquired assets. SUBSECTION X394.2 Booking . Assets acquired in settlement of loans shall be booked in accordance with the Manual of Accounts for Banks . In addition, non-refundable capital gains tax and documentary stamp tax incurred in connection with a foreclosure may form part of the book value of such acquired real estate property: Provided, That the total book value does not exceed the appraised value of the foreclosed asset, as determined by an independent external appraiser acceptable to BSP SECTION X395. Credit Policies of Government-Owned Corporation . Government-owned corporations which perform banking or credit functions shall coordinate their general credit policies with the Schedule of Credit Priorities embodied in Appendix 23. Within the provision of their respective charters, these corporations shall limit their credits to the economic activities falling under Priority II of said schedule to fifty percent (50%) of their outstanding loans at any time. SECTION X396. Parcellary Plans on Crop Loans . Banks shall require the submission of parcellary plans a requisite for granting crop loans to sugarcane planters. SECTION 1397. Limits on Real Estate Loan of Universal Banks/Commercial Banks . UBs/KBs shall observe an aggregate limit on real estate loans to not more than twenty percent (20%) of the total loan portfolio. Excluded from this ceiling are loans no exceeding P3.5 million to finance the acquisition or improvement of residential units: Provided , however , That the aggregate real estate loans (inclusive of loans not exceeding P3.5 million to finance the acquisition or improvement of residential units) shall not exceed thirty percent (30% of the total loan portfolio. Housing loans extended or guarantee (under the government's National Shelter Program and loans considered non-risk assets under Section 22 of R.A. No. 337 as amended, and existing regulations an exempt from the ceilings prescribed in the preceding paragraph. SECTION 2397. (Reserved) SECTION 3397. (Reserved) SECTION X398. Debt Service Limit on Local Government Borrowings . To ensure the effective implementation of the debt service limit on local government borrowings as stipulated in Section 324 (b) of the Local Government Code of 1991, all banks shall require each borrowing Local Government Unit (LGU) to present a certificate of its debt service and borrowing capacity, duly certified by the Bureau of Local Government Finance-Department of Finance (BLGF-DOF). SECTION X399. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R. A. No. 7653. CTEaDc PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION X401. Statement of Principles . The cardinal principle common to all trust and other fiduciary relationships is fidelity. Policies predicated upon this principle are directed towards confidentiality, scrupulous care, safety and prudent management of property including reasonable probability of income with proper accounting and appropriate reporting thereon. Practices are designed to promote efficiency in administration and operation; to adhere and conform with the terms of the instrument or contract; and to maintain absolute separation of property free from any intrusion of conflict of interest. TIAEac A bank authorized to engage in trust and fiduciary business is under no obligation, either legal or moral, to accept any such business being offered nor has it the right to accept if the same is contrary to law, rules, regulations, public order and public policy. It shall advertise its services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation of the responsibilities involved. It shall be ready and willing to give full disclosure of the services being offered and shall conduct its dealing with transparency. Harmonious relationship shall likewise be pursued with other professions to achieve the common goal of mutual service to the public and protection of its interest. Banks may not receive or hold as trustee, agent, administrator, financial manager, or other similar capacity, any fund or money from the Government and government entities: Provided, however , That government-owned banks may receive or hold as trustee, agent, administrator, financial manager, or other similar capacity, the following: a. Funds of local government units (LGUs) which are expected to be available for investment purposes for a relatively long period of time: Provided, further , That the amounts held in trust of otherwise managed/advised for and in behalf of the LGUs shall be invested only in government securities, specifically, evidences of indebtedness of the National Government, the BSP and other evidences of indebtedness or obligations of government entities, the servicing and repayment of which are fully guaranteed by the National Government; and b. Funds of government and government entities which are authorized by special laws to be placed in trust. SECTION X402. Scope of Regulations . These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. X403) of banks. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to banks without trust authority but with authority to engage in investment management activities; and C. General Provisions shall apply to both. SECTION X403. Definitions . For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated. a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a contract or agreement whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of said bank. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. aCTcDS c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. d. Trust is a relationship or an arrangement whereby a person called a trustee is appointed by a person called a trustor to administer, hold and manage funds and/or property of the trustor for the benefit of a beneficiary. e. Trust Agreement is an instrument in writing covering the terms and conditions of the trust. f. Trustee is any person who holds legal title to the funds and/or property of a trust. g. Trustor is any person who creates a trust. h. Beneficiary is any person for whose benefit a trust is created. i. Fiduciary shall refer to any person or entity engaged in any of the other fiduciary business as herein defined where no trustor-trustee relation exists. j. Agency shall refer to a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. k. Principal shall refer to the person who grants authority to another person called an agent, under a contract to enter into transactions in his behalf. l. Agent shall refer to a person who acts in representation or on behalf of another with the latter's authority. m. Trust Department shall refer to the department, office, unit, group, division or any aggrupation which carries out the trust and other fiduciary business of a bank. n. Trust Officer shall refer to the designated head or officer-in-charge of the trust department. o. Trust account shall refer to an account where transactions arising from a trusteeship are kept and recorded. p. Common Trust Fund (CTF) shall refer to a fund maintained by a bank authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as the trustee. q. Fiduciary account shall refer to an account where transactions arising from any of the other fiduciary businesses are kept and recorded. r. Investment Manager shall refer to any person or entity engaged in investment management activities as herein defined. s. Investment Management Department shall refer to the department, unit, group, division or any aggrupation which carries out the investment management activities of a bank that does not have an authority to engage in trust and other fiduciary business. ADHCSE t. Investment Management Officer shall refer to the designated head or officer-in-charge of the investment management department of a bank which does not have the authority to engage in trust and other fiduciary business. u. Investment management account shall refer to an account where transactions arising from investment management activities are kept and recorded. A. Trust and Other Fiduciary Business SECTION X404. Authority to Perform Trust and Other Fiduciary Business . With prior approval of the Monetary Board, banks may engage in trust and other fiduciary business under Chapter VII of R.A. No. 337, as amended. If a bank is found to engage in unauthorized trust and other fiduciary business and/or investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such bank or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any trust and other fiduciary and/or investment management account to duly incorporated and licensed entities of the choice of the trustor, beneficiary or client, as the case may be. No bank shall advertise or represent itself as being engaged in trust and other fiduciary business or in investment management activities or represent itself as trustee or investment manager or use words of similar import; and/or use in connection with its business title the words trust, trust corporation, trust company, trust plan or words of similar import, without having obtained the required authority to do so. SUBSECTION X404.1 Application for authority to perform trust and other fiduciary business . Banks desiring to perform trust and other fiduciary business shall file an application with the appropriate supervising and examining department. The application shall be signed by the bank's president or officer of equivalent rank and shall be accompanied by the following documents: a. Certified true copy of the resolution of the institution's board of directors authorizing the application; and b. A certification signed by the president or the officer of equivalent rank that the institution had complied with all conditions/prerequisites for the grant of authority to perform trust and other fiduciary business. SUBSECTION X404.2 Required capital . Banks applying for authority to perform trust and other fiduciary business must have minimum capital accounts as follows: UBs/KBs . The amount required under Sec. X106 or such amount as may be required by the Monetary Board in the future. Branches of foreign banks . The amount required under Sec. X121 or such amount as may be required by the Monetary Board in the future. TBs . P650 million or such amounts as may be required by the Monetary Board in the future. Banks authorized to perform and are actually performing trust and other fiduciary business prior to August 20, 2002 whose capital accounts are lower than the above-prescribed minimum capital accounts shall, before declaring any dividend, carry to surplus at least fifty percent (50%) of their net income from all operations since the last preceding dividend until such time that their capital accounts meet the above requirement. SUBSECTION X404.3 Prerequisites for engaging in trust and other fiduciary business . Before it may engage in trust and other fiduciary business, a bank shall comply with the following requirements: a. The applicant has been duly licensed or incorporated as a bank or created as such by special law or charter; b. The articles of incorporation or governing 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; c. 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 of the institution; (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; d. The bank's operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable; e. The bank is well capitalized whose risk-based capital adequacy ratio is not lower than twelve percent (12%) at the time of filing the application; f. It has not incurred net weekly reserve deficiencies during the eight (8)-week period immediately preceding the date of application; g. It has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management in the last two (2) preceding examinations prior to the date of application, particularly on the following: (1) election of at least two (2) independent directors; (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP; (3) the ceilings on credit accommodations to DOSRI; (4) liquidity floor requirements for government deposits; (5) single borrower's limit; and (6) investment in bank premises and other fixed assets; h. It maintains adequate provisions for probable losses commensurate to the quality of its asset portfolio but not lower than the required valuation reserves as determined by the BSP; i. It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Other Offices" accounts and the "Due from Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; j. It has no past due obligations with the BSP or with any government financial institution; k. It has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls and complete, timely and efficient risk reporting system; l. It has a CAMELS composite rating of at least "3" in the last regular examination with management rating of not lower than "3"; and m. It is a member of the PDIC in good standing. Compliance with the foregoing as well as with other requirements under existing regulations shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. cdll SUBSECTION X404.4 Pre-operating requirements A bank authorized to engage in trust and other fiduciary business shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of trust and other fiduciary duties required under Subsec. X405.1; b. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the bank; and c. Names and positions of individuals designated as chairman and members of the trust committee, trust officer and other subordinate officers of the trust department with their respective bio-data and statement of duties and responsibilities. SECTION X405. Security for the Faithful Performance of Trust and Other Fiduciary Business SUBSECTION X405.1 Basic security deposit . A bank authorized to engage in trust and other fiduciary business shall deposit with the BSP eligible government securities as security for the faithful performance of its trust and other fiduciary duties equivalent to at least one percent (1%) of the book value of the total volume of trust, other fiduciary and investment management assets: Provided , That at no time shall such deposit be less than P500,000. Scripless securities under the Registry of Scripless Securities (RoSS) System of the Bureau of Treasury (BTr) may be used as basic security deposit for trust and other fiduciary duties using the Guidelines enumerated in Appendix 34 of this Manual. SUBSECTION X405.2 Eligible securities . Government securities which shall be deposited in compliance with the above basic security deposit shall consist of: 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; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided , That such securities shall be free, unencumbered, and not utilized for any other purpose: Provided, further , That such securities shall have remaining maturity of not more than three (3) years from the date of deposit with the BSP; and b. NDC Agri-Agra ERAP Bonds which are not being used as alternative compliance with P.D. No. 717. The requirement that the securities used shall have a remaining maturity of not more than three (3) years shall not apply. c. Five (5)- and Ten (10)-year Special Purpose Treasury Bonds (SPTBs) to finance the CARP-related expenditures, provided such bonds shall not be hypothecated in any way or earmarked for any other purpose and they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid. d. Securities backed by the unreleased Internal Revenue Allotments (IRA) of local government units (issued by a Special Purpose Trust administered by the DBP under the IRA Monetization Program of the Union of Local Authorities of the Philippines) the release of which IRA on scheduled date of payment has been certified by the DBM as not being subject to any conditionalities: Provided , That such securities shall be eligible only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date): Provided, further , That for reserve for trust and other fiduciary duties, the remaining maturities of the securities shall not exceed three (3) years; and e. Zero Coupon Bond Issue by the HGC of up to P7.0 billion five (5)-year regular series and up to P3.0 billion seven (7)-year special series to finance its guaranty servicing of socialized and low-cost housing projects: Provided , That they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid: Provided, further , That such bonds shall qualify as eligible reserve for trust and other fiduciary duties only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date). SUBSECTION X405.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of total trust, investment management and other fiduciary assets of the immediately preceding calendar quarter. SUBSECTION X405.4 Compliance period ; sanctions . The trustee or fiduciary shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the BSP the securities required under this Section. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of trust, investment management and other fiduciary activities: a. On the bank : (1) First offense Penalty of P5,000 per banking day to be reckoned from thirty (30) banking days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of trust license. b. On the Head of the Trust and Fund Management Department : (1) First offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for ninety (90) days without pay. In case a bank fails to comply with the basic security deposit, the Monetary Board may require the bank to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and other fiduciary contracts. ATcaEH SUBSECTION X405.5 Reserves against peso-denominated Common Trust Funds and Trust and Other Fiduciary Accounts Others a. Reserves against peso-denominated CTFs. In addition to the basic security deposit, a bank authorized to engage in trust and other fiduciary business shall maintain reserves on: (1) peso-denominated CTF; and (2) such other managed peso funds which partake the nature of collective investment of a peso-denominated CTF as may be indicated by the presence of the following features: (a) The funds are composed of contributions from two (2) or more investors; (b) The funds are managed/administered as a vehicle for collective investment and reinvestment; (c) The trustee/administrator/agent has the exclusive management and control over the funds and the sole right at any time to sell, convert, invest, exchange, transfer or otherwise change or dispose of the assets comprising the funds; and (d) Investments/contributions to, or withdrawals from, the funds are being allowed at anytime or as of a fixed date in the future, and/or the income, net of all expenses incurred in the management of the fund plus the fee of the trustee/administrator/agent, are being distributed among the participants of the funds, without the need to liquidate all assets of the funds. The required reserves against peso-denominated CTFs and such other managed peso funds which partake the nature of collective investment of peso-denominated CTFs shall be as follows: UBs/KBs - 6% TBs - 5% RBs - 4% In addition to the regular reserve requirement, the liquidity reserves against peso-denominated CTFs and such other peso funds which partake the nature of collective investment of peso-denominated CTFs shall be as follows: UBs/KBs - 8% 1 TBs - 4% The liquidity reserves may be held in the form of: (i) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department. (ii) NDC Agri-Agra ERAP Bonds which are not being used as alternative compliance with P.D. No. 717. The requirement that the securities used shall have a term of not more than one (1) year shall not apply. (iii) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. The reserves on peso-denominated CTFs and such other managed peso funds shall be provided out of such funds. b. Reserves against Trust and Other Fiduciary Accounts (TOFA) Others . In addition to the basic security deposit, banks shall maintain reserves on TOFA-Others, except accounts held under (1) Administratorship ; (2) Bond Issues/Other Obligations Under Deed of Trust or Mortgage ; (3) Custodianship and Safekeeping ; (4) Depository and Reorganization ; (5) Employee Benefit Plans Under Trust ; (6) Escrow ; (7) Personal Trust (testamentary or living trust); (8) Executorship ; (9) Guardianship ; (10) Life Insurance Trust ; and (11) Pre-need Plans (institutional/individual). The required reserves against TOFA-Others shall be as follows: UBs/KBs - 6% TBs - 5% RBs - 4% The liquidity reserve, which is in addition to the regular reserve, shall be as follows: UBs/KBs - 8% 1 TBs - 4% RBs - 0% The liquidity reserve may be held in the form of: (1) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department: Provided , That the reserves on TOFA-Others shall be provided out of such funds. (2) NDC Agri-Agra ERAP Bonds which are not being used as alternative compliance with PD. No. 717. The requirement that the securities used shall have a term of not more than one (1) year shall not apply. (3) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. SUBSECTION X405.6 Composition of reserves a. The provisions of Sec. X254 shall govern the composition of reserves against peso-denominated CTFs and such other managed peso funds, as well, as TOFA-Others, of banks authorized to engage in trust and other fiduciary business. For purposes of this Subsection, a special deposit account shall be maintained by banks with the BSP exclusively for trust reserves. Deposits maintained by banks authorized to engage in trust and other fiduciary business with the BSP up to forty percent (40%) of the required reserves against peso-denominated CTFs (less the percentage allowed to be maintained in the form of short-term market-yielding government securities), as well as the required reserves on TOFA-Others (less the percentage allowed to be maintained in the form of short-term market-yielding government securities), shall be paid interest at four and one-half percent (4 %) (for UBs/KBs and TBs) and four percent (4%) (for RBs) per annum effective October 9, 1998 based on the average daily balance of said deposits to be credited quarterly. b. The required reserves which may be in the form of short-term market-yielding government securities shall be 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. Such reserves in the form of government securities shall be in addition to other forms of eligible reserves such as cash in vault or on deposit with BSP. EaIDAT All purchases of said government securities shall be under the RoSS system of the BTr. Transactions covering said securities shall be recorded in accordance with the guidelines in Appendix 34 . SUBSECTION X405.7 Computation of reserve position . A bank authorized to engage in trust and other fiduciary business shall calculate daily the required and available reserves on the value per books of its peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others, based on the seven-day week, starting Friday and ending Thursday including Saturdays, Sundays, holidays, non-banking days or days when there is no clearing: Provided , That with reference to holidays, non-banking days and days where there is no clearing, the reserve position at the close of banking day immediately preceding such holidays, non-banking days or days where there is no clearing, shall apply. For the purpose of computing reserve position, the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit. The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others of the prior week. SUBSECTION X405.8 Reserve deficiencies; Sanctions . The provisions of Sec. X257 shall govern the computation of reserve deficiencies for peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others, of banks authorized to engage in trust and other fiduciary business, including the sanctions provided in said Section . SUBSECTION X405.9 Report of compliance . Every bank shall submit a report to the BSP of its daily required and available reserves on peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others, in such frequency and within the deadline stated in Appendix 6 . SECTION X406. Organization and Management SUBSECTION X406.1 Organization . A bank authorized to engage in trust and other fiduciary business shall, pursuant to Subsec. X404.1, include in its by-laws, provisions on the organization plan or structure of the department, office or unit which shall conduct such business. The by-laws shall also include provisions on the creation of a trust committee, the appointment of a trust officer and other subordinate officers and a clear definition of their duties and responsibilities as well as their line and staff functional relationships within the organization which shall be in accordance with the following guidelines. a. Trust and other fiduciary business of a bank shall be carried out through a trust department which shall be organizationally, operationally, administratively and functionally separate and distinct from the other departments and/or businesses of the institution. A bank which is also engaged in investment management activities, shall conduct the same only through its trust department and the responsibilities of the board of directors, trust committee and trust officer shall be construed to include the proper administration and management of investment management activities. No bank shall undertake any of the trust and other fiduciary business and, whenever applicable, investment management activities outside the direct control, authority and management of the trust department or through any department or office which is involved in the other businesses of the bank, such as the Treasury, Funds Management or any similar department, otherwise, any such business shall be considered part of the bank's real liabilities. The bank proper and the trust department may share the following activities: (1) electronic data processing; (2) credit investigation; (3) collateral appraisal; and (4) messengerial, janitorial and security services. b. The trust department, trust officer and other subordinate officers of the trust department shall only be directly responsible to the bank's trust committee which shall, in turn, be only directly responsible to the bank's board of directors. No director, officer or employee taking part in the management of trust and other fiduciary accounts shall perform duties in other departments or the audit committee of the bank and vice versa. However, branch managers duly authorized by the board of directors may, for or on behalf of the trust officer, sign predrawn trust instruments such as CTFs. c. The organization structure and definition of duties and responsibilities of the trust committee, officers and employees of the trust department shall reflect adherence to the minimum internal control standards prescribed by the BSP. d. Provisions shall be made by the bank to have legal assistance readily available in the review of proposed and/or-existing trust and fiduciary agreements and documents and in the handling of legal and tax matters related thereto. SUBSECTION X406.2 Composition of trust committee . The trust committee shall be composed of at least five (5) members including the president, the trust officer and directors who are appointed by the board of directors on a regular rotation basis and who are not officers of the bank proper. No member of the audit committee, if the bank has any, shall be concurrently designated as a member of the trust committee: Provided , That in the case of a trust committee composed of more than five (5) members, the appointment therein of an operating officer may be allowed only if the required balance in the membership of at least three (3) members of the board for every operating officer shall be maintained: Provided, further , That the Philippine branch of a foreign bank may appoint its resident manager or chief executive officer in lieu of the president while the positions allotted for members of the board may be filled up by the area manager and/or officers/representatives from the Head Office who are not involved in audit-related activities. For purposes of this Subsection, the term officer shall include the president, executive vice-president, general manager, corporate secretary, treasurer and others mentioned as officers of the bank, or those whose duties as such are defined in the by-laws, or are generally known to be officers of the bank (or any of its branches and offices other than the Head Office) either through announcement, representation, publication or any kind of communication made by the bank. The board of directors shall duly note in the minutes the committee members and designate the chairman who shall be one of the directors referred to above. SUBSECTION X406.3 Qualifications of committee members, officers and staff. The bank's trust department shall be staffed by persons of competence, integrity and honesty. Directors, committee members and officers charged with the administration of trust and other fiduciary activities shall, in addition to meeting the qualification standards prescribed for directors and officers of banks, possess the necessary technical expertise in such business: Provided , That trust officers who shall be appointed shall have at least two (2) years of actual experience or training in trust operations. SUBSECTION X406.4 Responsibilities of administration a. Board of Directors . The board of directors is responsible for the proper administration and management of trust and other fiduciary business. Funds and properties held in trust or in any fiduciary capacity shall be administered with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. The responsibilities of the board of directors shall include, but need not be limited to, the following: (1) It shall determine and formulate general policies and guidelines on the: (a) acceptance, termination, or closure of trust and other fiduciary accounts; (b) proper administration and management of each trust and other fiduciary account; and (c) investment, reinvestment and disposition of funds or property held in its capacity as trustee or fiduciary; (2) It shall direct and review the actions of the trust committee and all officers and employees designated to manage the trust and other fiduciary accounts, especially accounts without specific agreements on investments or discretionary accounts; (3) It shall approve or confirm the acceptance, termination or closure of all trust and other fiduciary accounts and shall record such in its minutes; (4) Upon the acceptance of an account, it shall immediately review all non-cash assets received for management. Likewise, it shall make a review of the trust and/or fiduciary assets at least once every twelve (12) months to determine the advisability of retaining or disposing of such assets; (5) It shall be responsible for taking appropriate action on the examination reports of supervisory agencies, internal and/or external auditors on the bank's trust and other fiduciary business and recording such actions thereon in the minutes; (6) It shall designate the members of the trust committee, the trust officer and subordinate officers of the trust department and shall be responsible for requiring reports from said committee and officers and recording its actions thereon in the minutes; and (7) It shall establish an appropriate staffing pattern and adopt operating budgets that shall enable the trust department to effectively carry out its functions. It shall likewise be responsible for providing the officers and staff of the bank with appropriate training programs in the administration and operation of all phases of trust and other fiduciary business. The board of directors may, by action duly entered in the minutes, delegate its authority for the acceptance, termination, closure or management of trust and other fiduciary accounts to the trust committee or to the trust officer, subject to certain guidelines approved By the board. b. Trust Committee . The trust committee duly constituted and authorized by the board of directors shall act within the sphere of authority which may be provided in the by-laws and/or as may be delegated by the board, such as, but not limited to, the following: (1) The acceptance and closing of trust and other fiduciary accounts; (2) The initial review of assets placed under the trustee's or fiduciary's custody; (3) The investment, reinvestment and disposition of funds or property; (4) The review and approval of transactions between trust and/or fiduciary accounts; and (5) The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets, and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship. For this purpose, the trust committee shall meet whenever necessary and keep minutes of its actions and make periodic reports thereon to the board. c. Trust Officer . The trust officer designated by the board of directors as head of the Trust Department shall act and represent the bank in all trust and other fiduciary matters within the sphere of his authority as may be provided in the by-laws or as may be delegated by the board. His responsibilities shall include, but need not be limited to, the following: (1) The administration of trust and other fiduciary accounts; (2) The implementation of policies and instructions of the board of directors and the trust committee; (3) The submission of reports on matters which require the attention of the trust committee and the board of directors; (4) The maintenance of adequate books, records and files for each trust or other fiduciary account; and (5) The maintenance of necessary controls and measures to protect assets under his custody and held in trust or other fiduciary capacity. SECTION X407. Non-Trust, Non-Fiduciary and/or Non-investment Management Activities . The basic characteristic of trust, other fiduciary and investment management relationship is the absolute non-existence of a debtor-creditor relationship, thus, there is no obligation on the part of the trustee, fiduciary or investment manager to guarantee returns on the funds or properties regardless of the results of the investment. The trustee, fiduciary or investment manager is entitled to fees/commissions which shall be stipulated and fixed in the contract or indenture and the trustor or principal is entitled to all the funds or properties and earnings less fees/commission, losses and other charges. Any agreement/arrangement that does not conform to these shall not be considered as trust, other fiduciary and/or investment management relationship. The following shall not constitute a trust, other fiduciary and/or investment management relationship: a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust, fiduciary and/or investment management; b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof; c. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the board of directors to represent the trust officer; d. Where there is a fixed rate or guaranty of interest, income or return in favor of its client or beneficiary: Provided, however , That where funds are placed in fixed income-generating investments, a quotation of income expectation or like terms, shall neither be considered as arrangements with a fixed rate nor a guaranty of interest, income or return when the agreement or indenture categorically states in bold letters that the quoted income expectation or like terms is neither assured nor guaranteed by the trustee or fiduciary and it does not, therefore, entitle the client to a fixed interest or return on his investments: Provided, further , That any of the following practices or practices similar and/or tantamount thereto shall be construed as fixing or guaranteeing the rate of interest, income or return: (1) Issuance of certificates, side agreements, letters of undertaking, or other similar documents providing for fixed rates or guaranteeing interest, income or return; (2) Paying trust earnings based on indicated or expected yield regardless of the actual investment results; (3) Increasing or reducing fees in order to meet a quoted or expected yield; (4) Entering into any arrangement, scheme or practice which results in the payment of fixed rates or yield on trust investments or in the payment of the indicated or expected yield regardless of the actual investment results; and e. Where the risk or responsibility is exclusively with the trustee, fiduciary or investment manager in case of loss in the investment of trust, fiduciary or investment management funds, when such loss is not due to the failure of the trustee or fiduciary to exercise the skill, care, prudence and diligence required by law. Trust, other fiduciary and investment management activities involving any of the foregoing which are accepted, renewed or extended after October 16, 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Sections 36 and 37 of R.A. No. 7653. SECTION X408. Unsafe and Unsound Practices . Whether a particular activity may be considered as conducting business in an unsafe or unsound manner all relevant facts must be considered. An analysis of the impact thereof on the bank's operations and financial conditions must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position. In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, may be deemed as conducting business in an unsafe or unsound manner, the Monetary Board, upon report of the head of the supervising or examining department based on findings in an examination or a complaint, shall consider any of the following circumstances: a. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the bank; b. The act or omission has resulted or may result in material loss or damage or abnormal risk to the bank's depositors, creditors, investors, stockholders or to the BSP or to the public in general; c. The act or omission has caused any undue injury, or has given unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or d. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, whether or not the director or officer profited or will profit thereby. The list of activities which may be considered unsafe and unsound is shown in Appendix 48 . In line with the statement of principles governing trust and other fiduciary business under Sec. X401, the trustee, fiduciary or investment manager shall desist from the following unsound practices: a. Entering in an arrangement whereby the client is at the same time the borrower of his own fund placement, or whereby the trustor or principal is a borrower of other trust, fiduciary or investment management funds belonging to the same family or business group of such trustor or principal; b. Granting loans or accommodations to any trust committee member, officer and employee of the trust department except where such loans are obtained by said persons as members of an employee benefit fund of the trustee's own institution; c. Borrowing from, or selling trust, other fiduciary and/or investment management assets to, the bank proper to cover portfolio losses and/or to guarantee the return of principal or income; d. Granting new loans to any borrower who has a past due and/or classified loan account with the bank proper or the trust department; and e. Requiring clients to sign documents in blank. SUBSECTIONS X408.1-X408.8 (Reserved) SUBSECTION X408.9 Sanctions . The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever a bank conducts business in an unsafe and unsound manner: a. Issue an order requiring the bank to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice; b. Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed P30,000 a day on a per transaction basis taking into consideration the attendant circumstances, such as the gravity of the act or omission and the size of the bank, to be imposed on the bank, their directors and/or responsible officers; c. Suspension of interbank clearing privileges/immediate exclusion from clearing; d. Suspension of rediscounting privileges or access to BSP credit facilities; e. Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; f. Suspension of responsible directors and/or officers; g. Revocation of quasi-banking license; and/or h. Receivership and liquidation under Section 30 of R.A. No. 7653. All other provisions of Sections 30 and 37 of R.A. No. 7653, whenever appropriate, shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No. 7653. SECTION X409. Trust and Other Fiduciary Business . The conduct of trust and other fiduciary business shall be subject to the following regulations. SUBSECTION X409.1 Minimum documentary requirements . Each trust or fiduciary account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by an order of the court or other competent authority, the written order of said court or authority. b. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories to, the trust or other fiduciary account. AHcaDC c. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or indenture shall include the following minimum provisions: (1) Title or nature of contractual agreement in noticeable print; (2) Legal capacities, in noticeable print, of parties sought to be covered; (3) Purposes and objectives; (4) Funds and/or properties subject of the arrangement; (5) Distribution of the funds and/or properties; (6) Duties and powers of trustee or fiduciary; (7) Liabilities of the trustee or fiduciary; (8) Reports to the client; (9) Termination of contractual arrangement and, in appropriate cases, provision for successor-trustee or fiduciary; (10) The amount or rate of the compensation of trustee or fiduciary; (11) A statement in noticeable print to the effect that trust and other fiduciary business are not covered by the PDIC and that losses, if any, shall be for the account of the client; and (12) Disclosure requirements for transactions requiring prior authority and/or specific written investment directive from the client, court of competent jurisdiction or other competent authority. SUBSECTION X409.2 Lending and investment disposition . Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. When a trustee or fiduciary is granted discretionary powers in the investment disposition of trust or other fiduciary funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank, or of mortgage and chattel mortgage bonds issued by the trustee or fiduciary; and d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76, and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) The borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION X409.3 Transactions requiring prior authority . A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client, beneficiary, other party-in-interest, court of competent jurisdiction or other competent authority: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders; or to any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders; or from any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of, or in securities underwritten by, the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; and d. Sell, transfer, assign, or lend money or property from one trust or fiduciary account to another trust or fiduciary account except where the investment is in any of those enumerated in Items a to d of Subsec. X409.2. Directors, officers, stockholders, and their related interests covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III - E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. cTEICD The disclosure required under this Subsection shall consist of the following minimum information: (1) The transactions to be entered into; (2) Identities of the parties involved in the transactions and their relationships (shall not apply to item "d" of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the trust or fiduciary relationship. SUBSECTION X409.4 Ceilings on loans . Loans funded by trust accounts shall be subject to the SBL and DOSRI ceilings imposed on banks under Secs. X303, X330 and X331. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank to the same person, firm or corporation shall be combined. SUBSECTION X409.5 Funds awaiting investment or distribution . Funds held by the trustee or fiduciary awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. SUBSECTION X409.6 Other applicable regulations on loans and investments . The loans and investments of trust and other fiduciary accounts shall be subject to pertinent laws, rules and regulations for banks that shall include but need not be limited to the following: a. Requirements of Sections 76 and 77 of R.A. No. 337, as amended; b. Provisions of Section 4(e) of the New Rules on Registration of Short-Term Commercial Papers and Section 7(f) of the New Rules on Registration of Long-Term Commercial Papers issued by the SEC (Appendices 13 and 14). c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provision for probable losses which shall be booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. SUBSECTION X409.7 Operating and accounting methodology . Trust and other fiduciary accounts shall be operated and accounted for in accordance with the following: a. The trustee or fiduciary shall administer, hold or manage the fund or property in accordance with the instrument creating the trust or other fiduciary relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting . SUBSECTION X409.8 Tax-exempt individual trust accounts . The following shall be the features/requirements of individual trust accounts which may be exempted from the twenty percent (20%) final tax under Section 24(B)(1) of R.A. No. 8424 (The Tax Reform Act of 1997): a. The tax exemption shall apply to trust indentures/agreements contracted on or after January 3, 2000; b. The trust indenture/agreement shall only be between individuals who are Filipino citizens or resident aliens and banks acting as trustee. The trust indenture/agreement shall be non-negotiable and non-transferable; c. The trust indenture/agreement shall indicate that pursuant to Section 24(B)(1) of R.A. No. 8424, interest income of the trust fund derived from investments in interest-bearing instruments (e.g., time deposits, government securities, loans and other debt instruments) which are otherwise subject to the twenty percent (20%) final tax shall be exempt from said final tax provided the fund was held by the trustee-bank for at least five (5) years. If said fund was held for a period less than five (5) years, interest income shall be subject to a final tax based on the following schedule Holding Period Rate of Tax Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% Less than three (3) years 20% Necessarily, the trust indenture/agreement shall clearly indicate the date when the trustee-bank actually received the trust funds which shall serve as basis for determining the holding period of the funds. d. A trustee may accept additional funds for inclusion in trust accounts which have been established as tax-exempt under R.A. No. 8424. However, the receipt of additional funds shall be properly documented by indicating that they are part of existing tax-exempt trust accounts and that the interest income of the additional funds derived from investments in interest-bearing instruments shall be exempt from the twenty percent (20%) final tax under the same conditions mentioned in the preceding item. The document shall also indicate the date when the funds were received by the trustee-bank to serve as basis for determining the minimum five (5)-year holding period for tax exemption purposes of the additional funds; and e. Tax-exempt individual trust accounts established under this Subsection shall be subject to the provisions of Subsecs. X409.1(c) and X409.2 up to X409.7. SECTION X410 Common Trust Funds . The administration of CTFs shall be subject to the provisions of Subsecs. X409.1 up to X409.6 and to the following regulations. As an alternative compliance with the required prior authority and disclosure under Subsecs. X409.2 and X409.3, a list which shall be updated quarterly of prospective and/or outstanding investment outlets may be made available by the trustee for the review of all CTF clients. SUBSECTION X410.1 Establishment of Common Trust Funds . A bank authorized to engage in trust business may establish, administer and maintain one (1) or more CTFs. STIcaE SUBSECTION X410.2 Minimum documentary requirements for common trust funds . In addition to the trust agreement or indenture required under Subsec. X409.1, each CTF shall be established, administered and maintained in accordance with a written declaration of trust referred to as the plan , which shall be approved by the board of directors of the trustee and a copy submitted to the appropriate supervising and examining department of the BSP within thirty (30) banking days prior to its implementation. The plan shall make provisions on the following matters: a. Title of the plan; b. Manner in which the plan is to be operated; c. Investment powers of the trustee with respect to the plan, including the character and kind of investments which may be purchased; d. Allocation, apportionment, distribution dates of income, profit and losses; e. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participation in the plan including the minimum initial placement and account balance to be maintained by the trustor; f. Auditing and settlement of accounts of the trustee with respect to the plan; g. Detailed information on the basis, frequency, and method of valuing and accounting of CTF assets and each participation in the fund; h. Basis upon which the plan may be terminated; i. Liability clause of the trustee; j. Schedule of fees and commissions which shall be uniformly applied to all participants in a fund and which shall not be changed between valuation dates; and k. Such other matters as may be necessary or proper to define clearly the rights of participants under the plan. The legal capacity of the bank administering a CTF shall be indicated in the plan and other related agreements or contracts as trustee of the fund and not in any other capacity such as fund manager, financial manager , or like terms. The provisions of the plan shall control all participations in the fund and the rights and benefits of all parties in interest. The plan may be amended by resolution of the board of directors of the trustee: Provided, however , That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participation if they are not in conformity with the amendments made: Provided, further , That amendments to the plan shall be submitted to the appropriate supervising and examining department of the BSP within ten (10) banking days from approval of the amendments by the board of directors. A copy of the plan shall be available at the principal office of the trustee during regular office hours for inspection by any person having an interest in a trust whose funds are invested in the plan or by his authorized representative. Upon request, a copy of the plan shall be furnished such person. SUBSECTION X410.3 Management of common trust funds . The trustee shall have the exclusive management and control of each CTF administered by it, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund. The trustee shall designate clearly in its records the trust accounts owning participation in the CTF and the extent of the interests of such account. The trustee shall not negotiate nor assign the trustor's beneficial interest in the CTF without prior written consent of the trustor or beneficiary. No trust account holding a participation in a CTF shall have or be deemed to have any ownership or interest in my particular asset or investment in the CTF but shall have only its proportionate beneficial interest in the fund as a whole. SUBSECTION X410.4 Trustee as participant in common trust funds . A trustee administering a CTF shall not have any interest in such fund other than in its capacity as trustee of the CTF nor grant any loan on the security of a participation in such fund: Provided, however , That a trustee which administers funds representing employee benefit plans under trust or investment management may invest funds in the CTF: Provided, further , That in the case of employee benefit plans under trust belonging to employees of entities other than that of the trustee, the trustee may invest such funds in its own CTF only on a temporary basis in accordance with Subsec. X409.5. SUBSECTION X410.5 Exposure limit of common trust fund to a single person or entity . No investment for a CTF shall be made in stocks, bonds, bank deposits or other obligations of any one person, firm or corporation, if as a result of such investment the total amount invested in stocks, bonds, bank deposits or other obligations issued or guaranteed by such person, firm or corporation shall aggregate to an amount in excess of fifteen percent (15%) of the market value of the CTF: Provided , That this limitation shall not apply to investments in government securities or other evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. SUBSECTION X410.6 Operating and accounting methodology . By its inherent nature, a CTF shall be operated and accounted for in accordance with the following: a. The trustee shall have exclusive management and control of each CTF administered by it and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund; b. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled-fund accounting ; c. Contributions to each fund by clients shall always be through participation in the fund; d. All such participations shall be pooled and invested as one account (referred to as collective investments); and e. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the CTF, and no participation shall be admitted to, or withdrawn from, the fund except on the basis of such valuation. STaCIA SUBSECTION X410.7 Tax-exempt common trust funds . The following shall be the features/requirements of CTFs which may qualify for exemption from the twenty percent (20%) final tax under Section 24(B)(1) of R.A. No. 8424 (The Tax Reform Act of 1997): a. The tax exemption shall apply to CTFs established on or after January 3, 2000; b. The CTF indenture or plan as well as evidences of participation shall clearly indicate that the participants shall be limited to individual trustors/investors who are Filipino citizens or resident aliens and that participation is non-negotiable and non-transferable; c. The date of contributions to the CTF shall be clearly indicated in the evidence of participation to serve as basis for the trustee-bank to determine the period of participation for tax exemption purposes; d. The CTF indenture/plan as well as the evidence of participation shall indicate that pursuant to Section 24(B)(1) of R.A. No. 8424, interest income of the CTF derived from investments in interest-bearing instruments (e.g., time deposits, government securities, loans and other debt instruments) which are otherwise subject to the twenty percent (20%) final tax, shall be exempt from said final tax provided participation in the CTF is for a period of at least five (5) years. If participation is for a period less than five (5) years, interest income shall be subject to a final tax which shall be deducted and withheld based on the following schedule Participation Period Rate of Tax Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% Less than three (3) years 20% Necessarily, the date of contribution shall be clearly indicated in the evidence of participation which shall serve as basis for determining the participation period of each participant; and e. Tax-exempt CTFs established under this Subsection shall be subject to the provisions of Subsecs, X409.1(c), X409.2 up to X409.7, and X410.1 up to X410.6. Regarding the required prior authority and disclosure under Subsecs. X409.2 and X409.3, a list of prospective and/or outstanding investment outlets that is made available by the trustee for the review of all CTF clients may serve as an alternative compliance, which list shall be updated quarterly. SECTION X411. Investment Management Activities . The conduct of investment management activities shall be subject to the following regulations. SUBSECTION X411.1 Minimum documentary requirements . An investment management account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of and designating the signatories to, the investment management account. b. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or contract shall include the following minimum provisions: (1) Pre-numbered contractual agreement form; (2) Title or nature of contractual agreement in noticeable print; (3) Legal capacities, in noticeable print, of parties sought to be covered; (4) Purposes and objectives; (5) The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; (6) Statement in underlined noticeable print that: (a) The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; (b) The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and (c) The investment management agreement is not covered by the PDIC and that losses, if any, shall be for the account of the client; (7) Duties and powers of the investment manager; (8) Liabilities of the investment manager; (9) Reports to the client; (10) The amount or rate of the compensation of the investment manager; (11) Terms and conditions governing withdrawals from the account; (12) Termination of contractual arrangement; and (13) Disclosure requirements for transactions requiring prior authority and/or specific written investment directives from the client. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix 24 . SUBSECTION X411.2 Minimum size of each investment management account . No investment management account shall be accepted or maintained for an amount less than P1 million. An investment management account reduced to less than P1 million due to investment losses shall be exempt from this requirement. ADSIaT SUBSECTION X411.3 Commingling of funds . Two (2) or more individual investment management accounts shall not be commingled except for the purpose of investing in government securities or in duly registered commercial papers: Provided , That the participation of each of the aforementioned accounts in the commingled account shall not be less than P1 million: Provided, further , That such commingling has been duly disclosed and specifically agreed in writing by the clients. SUBSECTION X411.4 Lending and investment disposition . Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. When an investment manager is granted discretionary powers in the investment disposition of investment management funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank, or mortgage and chattel mortgage bonds issued by the investment manager; and d. Loans fully secured by real estate or chattels in accordance with Sections 37 and 38 of R.A. No. 8791, and subject to the requirements of Sections 39 and 40 of R.A. No. 8791. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) Borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION X411.5 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 or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the 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. X411.4. cCAIES Directors, officers, stockholders, and their related interests covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III-E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transaction to be entered into; (2) Identities of the parties involved in the transaction and their relationships (shall not apply to Item "d" of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship. SUBSECTION X411.6 Title to securities and other properties . Securities such as promissory notes, shares of 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 X411.7 Ceilings on loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on banks and investment houses under Secs. X330 and X331. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank proper to the same person, firm or corporation shall be combined. SUBSECTION X411.8 Operating and accounting methodology . Investment management accounts shall be operated and accounted for in accordance with the following: a. The investment manager shall administer, hold, or manage the fund or property in accordance with the instrument creating the investment management relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting . SUBSECTION X411.9 Tax-exempt individual investment management accounts . The following shall be the features/requirements of investment management accounts of individuals which may be exempted from the twenty percent (20%) final tax under Section 24(B)(1) of R.A. No. 8424 (The Tax Reform Act of 1997): a. The tax exemption shall apply to investment management agreements contracted on or after January 3, 2000; b. The investment management agreement shall only be between individuals who are Filipino citizens or resident aliens and investment manager-banks. The agreement shall be non-negotiable and non-transferable; c. The minimum amount of investment for an investment management account shall be P1 million; d. The investment management agreement shall indicate that pursuant to Section 24(B)(1) of R.A. No. 8424, interest income of the investment management funds derived from investments in interest-bearing instruments (e.g., time deposits, government securities, loans and other debt instruments) which are otherwise subject to the twenty percent (20%) final tax, shall be exempt from said final tax provided the funds are held under investment management by the investment manager for at least five (5) years. If said funds are held by the investment manager for a period less than five (5) years, interest income shall be subject to a final tax which shall be deducted and withheld from the proceeds of the investment management account based on the following schedule Holding Period Rate of Tax Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% Less than three (3) years 20% Necessarily, the investment management agreement shall clearly indicate the date when the investment manager actually received the funds which shall serve as basis for determining the holding period of the funds; e. The investment manager may accept additional funds for inclusion in investment management accounts which have been established as tax-exempt under R.A. No. 8424. However, the receipt of additional funds shall be properly documented by indicating that they are part of existing tax-exempt investment management accounts and that the interest income of the additional funds derived from investments in interest-bearing instruments shall be exempt from the twenty percent (20%) final tax under the same conditions mentioned in the preceding item. The document shall also indicate the date when the additional funds were received by the investment manager-bank to serve as basis for determining the minimum five (5)-year holding period for tax exemption purposes of the additional funds; and f. Tax-exempt individual investment management accounts established under this Subsection shall be subject to the provisions of Subsecs. X411.1(b) and X411.2 up to X411.8. SECTION X412. FCDU/EFCDU Trust Accounts . Only a bank with authority to operate a foreign currency deposit unit (FCDU) or an expanded foreign currency deposit unit (EFCDU) under R.A. No. 6426, as amended, may accept foreign currency-denominated trust accounts. SUBSECTION X412.1 Banks with trust authority . A bank authorized to engage in trust business under Section 79 of R.A. No. 8791, which is also authorized to operate an FCDU or EFCDU under R.A. No. 6426, as amended, shall include FCDU/EFCDU trust accounts among those managed or administered by its trust department under the responsibility of the board of directors, the trust committee and the trust officer. SUBSECTION X412.2 Banks without trust authority . A bank not authorized to engage in the trust business under Section 79 of R.A. No. 8791, which accepts FCDU/EFCDU trust accounts under R.A. No. 6426, as amended, shall manage such trust accounts in its FCDU/ EFCDU as an exception to Item "a" of Subsec. X406.1. Pursuant to the provisions of Subsec. X406.4, the board of directors shall be responsible for the proper administration and management of FCDU/EFCDU trust accounts: Provided , That the board of directors may, by action duly entered in the minutes, constitute an FCDU or EFCDU trust committee to which the administration and management of such accounts may be delegated. The FCDU or EFCDU trust committee shall be composed of three (3) directors, who shall be appointed on a regular rotation basis, one of whom shall be designated as chairman. The three (3) directors shall meet the qualification requirements under Subsec. X406.3 and shall not be operating officers or members of the audit committee of the bank. SUBSECTION X412.3 Additional deposit for the faithful performance of trust duties . A bank authorized to engage in trust business that accepts FCDU/EFCDU trust accounts shall deposit with the BSP additional eligible government securities under Subsec. X405.2 as security for the faithful performance of trust duties equivalent to at least one percent (1%) of the value of the FCDU/EFCDU trust assets based on the average of the month-end balances of such assets during the immediately preceding quarter as converted in the local currency at the prevailing foreign exchange rate. Such securities shall be deposited within thirty (30) banking days after the end of every calendar quarter. SUBSECTION X412.4 Liquidity requirement for FCDU/EFCDU common trust funds . In addition to the basic security deposit, each FCDU/EFCDU CTF shall be required to set up at least ten percent (10%) of the book value of the fund for liquidity purposes: Provided , That such liquidity requirement shall be in any or a combination of the following: (a) readily marketable foreign currency securities with maturity of not more than three (3) years; and (b) foreign currency deposits with foreign banks: Provided, further , That the liquidity requirement of EFCDUs may, in addition to the foregoing, also be in the form of foreign currency deposits with other EFCDUs or resident offshore banking units. The base amount of the liquidity requirement shall be the average of the month-end balances of the CTFs within a given quarter. SUBSECTION X412.5 Applicability of rules and regulations . Unless otherwise revised by the provisions of this Section, the rules and regulations governing the administration of trust accounts, including CTFs, shall be observed, whether the FCDU/EFCDU trust accounts are administered by the bank's trust department or by its FCDU/EFCDU. Also applicable are rules and regulations on the operations of FCDUs/EFCDUs that include, among other things, regulations on acceptable foreign currencies, eligible and ineligible foreign currency sources; foreign currency cover requirements; and allowable loans and investments. SECTION X413. Required Surplus . A bank authorized to engage in trust and other fiduciary business shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its trust, investment management and other fiduciary business since the last preceding dividend declaration until the surplus shall amount to twenty percent (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends but losses accruing in the course of its business may be charged against surplus. B. Investment Management Activities SECTION X414. Authority to Perform Investment Management . Banks may be authorized by the Monetary Board to act as managing agent, adviser, consultant or administrator of investment management/advisory/ consultancy account under Section 53.4 of R.A. No. 8791. However, such authority shall not be construed to include the authority to engage in trust and other fiduciary business under Chapter IX of R.A. No. 8791. SAHIaD If a bank is found to engage in unauthorized investment management activities, the Monetary Board may impose administrative sanctions against such bank or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any investment management account to duly incorporated and licensed entities of the choice of the client. A bank not authorized to engage in investment management activities shall not advertise or represent itself as being engaged in investment management activities or represent itself as investment manager or use words of similar import. SUBSECTION X414.1 Prerequisites for engaging in investment management activities . A bank before it may engage in investment management activities shall comply with the following requirements: a. The bank has been duly licensed by the BSP or created by special law or charter. b. The articles of incorporation or charter of the bank shall include among its powers or purposes the authority to engage in investment management activities. c. The by-laws of the bank shall include, among other things: (1) The organization plan or structure of the department, office or unit which shall conduct the investment management activities of the institution; (2) The creation of an investment management committee, the appointment of an investment management officer and subordinate officers of the investment management department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. d. The applicant shall also meet the following additional requirements: (1) It has continuously complied with its net worth-to-risk assets ratio, liquidity floor, and ceilings on DOSRI loans for the last sixty (60) days immediately preceding the date of application; (2) It has not incurred net weekly reserve deficiency against deposit liabilities and deposit substitutes during the last eight (8) weeks immediately preceding the date of application; and (3) It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the BSP; and has not been cited for serious violations or exceptions affecting its solvency, liquidity and profitability. Compliance with the foregoing as well as with other requirements under existing regulations, shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION X414.2 Pre-operating requirements . A bank authorized to engage in investment management activities shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of investment management duties required under Subsec. X415.1; b. Organization chart of the investment management department which shall carry out the investment management activities of the bank; and c. Names and positions of individuals designated as chairman and members of the investment management committee, investment management officer and other subordinate officers of the investment management department. SECTION X415. Security for the Faithful Performance of Investment Management Activities SUBSECTION X415.1 Basic security deposit . A bank authorized to engage in investment management activities shall deposit with the BSP eligible government securities as security for the faithful performance of its investment management activities equivalent to at least one percent (1%) of the book value of the total investment management assets: Provided , That at no time shall such deposit be less than P500,000. Scripless securities under the RoSS system of the BTr may be used as basic security deposit for the faithful performance of investment management activities using the guidelines enumerated in Appendix 34 . SUBSECTION X415.2 Eligible securities . Securities enumerated in Subsec. X405.2 shall be eligible as security deposit for faithful performance of investment management activities. SUBSECTION X415.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of the total assets of investment management funds of the immediately preceding calendar quarter. SUBSECTION X415.4 Compliance period; Sanctions . The investment manager shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the BSP securities required under this Section. cIADaC The following sanctions shall be imposed for any deficiency in the security deposit for the faithful performance of investment management activity: a. On the bank: (1) First offense Penalty of P5,000 per banking day to be reckoned from thirty (30) banking days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of investment management license. b. On the Head of the Investment Management Department: (1) First offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for ninety (90) days without pay. In case a bank fails to comply with the basic security deposit, said bank shall desist from accepting new investment management accounts and from renewing expiring investment management contracts. SECTION X416. Organization and Management . The provisions under Sec. X406 up to Subsec. X406.4 shall govern the organization and management of banks without trust license which are engaged in investment management activities only. The following terms shall, however, be used: a. Investment management activities in lieu of trust and other fiduciary business; b. Investment management accounts in lieu of trust and other fiduciary accounts; c. Investment management committee in lieu of trust committee; d. Investment management officer in lieu of trust officer; and e. Investment management department in lieu of trust department. SECTION X417. Non-Investment Management Activities . The provisions of Sec. X407 shall apply in determining non-investment management activities except that the terms trust, other fiduciary, trustee and fiduciary shall be disregarded. SECTION X418. Unsound Practices . The provisions of Sec. X408 shall govern the unsound practices for investment management accounts. SECTION X419. Conduct of Investment Management Activities . The provisions of Sec. X411 shall govern the conduct of investment management activities of a bank without a trust license. SECTION X420. Required Surplus . A bank authorized to engage in investment management activities shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the surplus shall amount to twenty percent (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against surplus. C. General Provisions SECTION X421. Books and Records . The bank's trust department or investment management department shall keep books and records on trust, other fiduciary and investment management accounts separate and distinct from the books and records of its other businesses and shall follow the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities prescribed by the BSP. Each trust, other fiduciary or investment management account shall have a record separate from all other accounts except only in the case of CTFs where the trustee can maintain common records utilizing pooled fund accounting method for each fund: Provided , That the trustee shall clearly indicate in the records the trustors owning participation in the CTF and the extent of the interest of such trustors. Books and records shall contain full information relative to each trust, other fiduciary or investment management account and shall be supported by duplicate signed copies of related documents. Said records and duplicate signed copies of related documents shall be compiled and kept as to allow inspection by BSP examiners and submission of information or reports as may be required by competent authorities. The bank's trust department or investment management department shall maintain separate general ledger accounts and other relevant sub-accounts for tax-exempt individual trust accounts, CTFs and individual management accounts established under Section 24(B)(1) of R.A. No. 8424 and Subsecs. X409.8, X410.7 and X411.9. The bank's trust department or investment management department shall also adopt appropriate systems, internal control procedures and audit trail mechanisms to ensure that the correct amount of final tax is withheld or exempted from such accounts. SECTION X422. Custody of Assets . All moneys, properties or securities received by a bank in its capacity as trustee, fiduciary, or investment manager shall be kept physically separate and distinct from the assets of its other businesses and shall be under the joint custody of at least two (2) persons, one of whom shall be an officer of the trust or investment management department, designated for that purpose by the board of directors. The investment of each trust, other fiduciary or investment management account shall be kept physically separated from those of other trust, other fiduciary or investment management accounts, and adequately identified as the assets or property of the relevant account. SECTION X423. Fees and Commissions . A bank acting as trustee, fiduciary or investment manager shall be entitled to reasonable 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 in all forms of advertising materials to market the funds and in the documents given to clients as proof of participation in the fund. In no case shall such fees and commissions be based on the excess of the income of the trust, other fiduciary or investment management funds over a certain amount or percentage. DCIEac No trustee, fiduciary or investment manager shall solicit or receive rebates on commissions, fees and other payments for the services rendered to the trust, other fiduciary or investment management account or beneficiaries of the trust, other fiduciary or investment management account by stockbrokers, real estate brokers, insurance agents and similar persons or entities unless the rebates, fees and other payments shall accrue to the benefit of the trust, other fiduciary or investment management account or the beneficiaries thereof. Officers and employees of the trust department or investment management department of banks, while serving as such, shall be prohibited from retaining any compensation for acting as co-trustee or fiduciary in the administration of a trust, other fiduciary or investment management account. SECTION X424. Taxes . The terms and conditions of trust, other fiduciary or investment management agreements including CTF plans shall contain provisions regarding the applicability of regulations governing taxation on the income of trust, other fiduciary or investment management accounts. For this purpose, the trustee, fiduciary or investment manager shall maintain adequate records and shall include information such as the amount of final income tax withheld at source and the amount withheld by the trustee, fiduciary or investment manager in the periodic reports submitted to trustors, beneficiaries, principals and other parties in interest. With respect to tax-exempt CTFs, individual trust and investment management accounts established under Section 24(B)(1) of R.A. No. 8424, the bank's trust department or investment management department shall be responsible for obtaining the tax-exemption certifications which may be required by the BIR for the interest-bearing instruments where the CTFs, individual trust funds and investment management funds will be invested. Likewise, the banks shall ensure that the correct amount of final tax on the interest income on the interest-bearing instruments is withheld/deducted from the proceeds from the CTF participation, trust or investment management account and remitted to the BIR in the event said tax becomes due such as when funds are withdrawn before the required five (5)-year holding period or when corporations happen to invest in the tax-exempt trust instruments created within the purview of R.A. No. 8424. SECTION X425. Reports Required SUBSECTION X425.1 To trustor, beneficiary, principal . A bank acting as trustee, fiduciary or investment manager shall render reports on the trust, other fiduciary or investment management accounts to the trustor, beneficiary, principal or other party in interest or the court concerned or any party duly designated by the court order, as the case may be, under the following guidelines: a. The reports shall be in such forms as to apprise the party concerned of the significant developments in the administration of the account and shall consist of: (1) A balance sheet; (2) An income statement; (3) A schedule of earning assets of the account; and (4) An investment activity report. b. Items (3) and (4) above shall include at least the following: (1) Name of issuer or borrower; (2) Type of instrument; (3) Collateral, if any; (4) Amount invested; (5) Earning rate or yield; (6) Amount of earnings; (7) Transaction date; and (8) Maturity date; c. The reports shall be prepared in such frequency as required under the agreement but shall not in any case be longer than once every quarter; and d. The reports shall be made available to clients not later than twenty (20) calendar days from the end of the reference date/period in Item "c" above. SUBSECTION X425.2 To the Bangko Sentral . A bank acting as trustee, fiduciary or investment manager shall submit periodic reports prescribed by the appropriate supervising and examining department of the BSP on the bank's trust and other fiduciary business and investment management activities within the deadlines indicated in Appendix 6 . SECTION X426. Audits SUBSECTION X426.1 Internal audit . The bank's internal auditor shall include among his functions, the conduct of periodic audits of the trust department or investment management department at least once every twelve (12) months. The board of directors, in a resolution entered in its minutes, may also require the internal auditor to adopt a suitable continuous audit system to supplement and/or to replace the periodic audit. In any case, the audit shall ascertain whether the institution's trust and other fiduciary business and investment management activities have been administered in accordance with laws, BSP rules and regulations, and sound trust or fiduciary principles. SUBSECTION X426.2 External audit . The trust and other fiduciary business and investment management activities of a bank shall be included in the annual financial audit by independent external auditors required under Sec. X164. The audit of the assets and accountabilities of the trust department/ investment management department of a bank authorized to engage in trust and other fiduciary business, investment management activities, which shall cover at the minimum a review of the trust/investment management operations, practices and policies, including audit and internal control system, shall be subject to auditing standards to the extent necessary to express an opinion on the financial statements. ScaAET The audit of the trust/investment management department of a bank authorized to engage in trust and other fiduciary business/investment management activities shall be covered by a separate supplemental audit report to be submitted to the bank's board of directors and to the BSP within the prescribed period containing, among others things, the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately. SUBSECTION X426.3 Board action . A report of the foregoing audits, together with the actions thereon, shall be noted in the minutes of the board of directors of the bank. SECTION X427. Authority Resulting from Merger or Consolidation . In merger of financial institutions, the authority to engage in trust and other fiduciary business and in investment management activities shall continue to be in effect if the surviving institution has such authority and the same has not been withdrawn by the BSP. In case the surviving institution does not have previous authority but desires to engage in trust and other fiduciary business and in investment management activities, it shall secure the prior approval of the Monetary Board to engage in such business as part of its application for merger to enable it to incorporate such among its powers or purpose clause in its articles of incorporation, articles of merger, by-laws and such other pertinent documents. In the consolidation of financial institutions where the resulting entity is an entirely new one, it shall secure from the Monetary Board an authority to engage in trust and other fiduciary business or in investment management activities before it may engage in such business. SECTION X428. Receivership . Whenever a receiver is appointed by the Monetary Board for a bank which is authorized to engage in trust and other fiduciary business or in investment management activities, the receiver shall, pursuant to the instructions of the Monetary Board, proceed to close the trust, other fiduciary and investment management accounts promptly and/or transfer all other accounts to substitute trustees, fiduciaries or investment managers acceptable to the trustors, beneficiaries, principals or other parties in interest: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the receiver shall proceed pursuant to the instructions of said court. SECTION X429. Surrender of Trust or Investment Management License . Any bank which has been authorized to engage in trust and other fiduciary business or in investment management activities and which intends to surrender said authority shall file with the BSP a certified copy of the resolution of its board of directors manifesting such intention. The appropriate supervising and examining department of the BSP shall then conduct an examination of the bank's trust, other fiduciary business and investment management activities. If the bank is found to have satisfactorily discharged its duties and responsibilities as trustee, fiduciary or investment manager, and has provided for the orderly closure or transfer of its trust, fiduciary or investment management accounts, the Monetary Board, on the basis of the recommendation of the examining department, shall order the withdrawal of the bank's authority to engage in trust and other fiduciary management activities. IDTSEH SECTIONS X430-X498 (Reserved) SECTION X499. Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653 without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include the suspension or revocation of a bank's authority to engage in trust and other fiduciary business or in investment management activities, and such other sanctions as may be provided by law. PART FIVE Foreign Currency Deposit System and Other Operations In Foreign Currency SECTION X501. Foreign Currency Deposit System . The foreign currency deposit operations of banks under R.A. No. 6426, as amended, shall be governed by the following rules and regulations. SUBSECTION X501.1 Definition of terms . The following terms and phrases shall mean as follows: a. Foreign Currency Deposit Unit (FCDU) and Expanded Foreign Currency Deposit Unit (EFCDU) shall refer to a unit of a local bank or of a local branch of a foreign bank authorized by the BSP to engage in foreign currency-denominated transactions, pursuant to the provisions of R.A. No. 6426, as amended. b. Local bank shall refer to a KB, UB or TB organized under the laws of the Republic of the Philippines. c. Local branch of a foreign bank shall refer to a branch of a foreign bank doing business in the Philippines. d. Short-term loans and securities shall refer to those with maturities of one (1) year or less. e. Medium-term loans and securities shall refer to those with maturities of more than one (1) year but not more than five (5) years. f. Long-term loans and securities shall refer to those with maturities of more than five (5) years. SUBSECTION X501.2 Qualification requirements a. UBs/KBs may be authorized to operate an EFCDU or FCDU: Provided , That they meet the minimum capital requirements as prescribed under Sec. X106 and Subsecs. X106.1 and X106.2, and in the case of branches of foreign banks, Subsecs. X121.4 and X121.5. b. TBs with net worth or combined capital accounts of at least P650 million if located in Metro Manila or P150 million if located outside Metro Manila may, subject to prior Monetary Board approval, operate an FCDU. A TB desiring to operate an FCDU shall file an application with the appropriate supervising and examining department. The application shall be signed by the bank president or officer of equivalent rank and shall be accompanied by the following documents: a. Certified true copy of the resolution of the bank's board of directors authorizing the application. b. A certification signed by the president or the officer of equivalent rank that the bank has complied with all conditions/prerequisites for the grant of authority to operate FCDU in Appendix 5a . Transitory Provisions . TBs authorized to operate and are actually operating an FCDU are hereby given a period of two (2) years reckoned from March 7, 2002 within which to comply with the minimum capital requirements for FCDU: Provided , That this requirement may be substituted by a capital build-up program approved by the Monetary Board. Such capital build-up program shall be submitted to the appropriate supervising and examining department within three (3) months from March 7, 2002. TBs which failed to comply with the required capitalization upon expiration of said two (2)-year period given them or those which failed to comply with approved capital build-up program shall liquidate their FCDU business within one (1) year and shall surrender to the BSP their corresponding FCDU licenses. The license of TBs already authorized to operate FCDU but not yet operating the same shall be automatically revoked if they do not comply with the above minimum capital requirements as of March 7, 2002. In addition, the standard pre-qualification requirements prescribed under Appendix 5 shall be complied with by a bank applying for an EFCDU/FCDU license. SUBSECTION X501.3 Authorized transactions a. Banks which are granted a certificate of authority to operate an FCDU are authorized to engage in the following transactions in any acceptable foreign currency: (1) Accept deposits and trust accounts from residents and non-residents; (2) Deposit, on short-term maturity, with foreign banks abroad, offshore banking units (OBUs) and other EFCDUs/FCDUs; (3) Invest in foreign currency-denominated debt instruments, which are of short-term maturity and are readily marketable; (4) Grant short-term foreign currency loans as may be allowed by BSP regulations; (5) Borrow, on short-term maturity, from other EFCDUs/FCDUs and from foreign banks abroad and OBUs, subject to existing rules on foreign borrowings; and (6) Engage in foreign currency-foreign currency swap with the BSP, OBUs and other EFCDUs/FCDUs. b. UBs/KBs which are authorized to operate under the expanded foreign currency deposit system may engage in the following transactions in any acceptable foreign currency: (1) Accept deposits and trust accounts from residents and non-residents; (2) Deposit with foreign banks abroad, OBUs and other EFCDUs/FCDUs; (3) Invest in foreign currency-denominated debt instruments; (4) Grant foreign currency loans as may be allowed by the BSP; (5) Borrow from other EFCDUs/FCDUs and from non-residents and OBUs, subject to existing rules on foreign borrowings; (6) Engage in foreign currency-foreign currency swap; (7) Engage in foreign exchange trading and, with prior BSP approval, engage in financial futures and options trading; and (8) On request/instructions of its foreign correspondent bank: (a) issue letters of credit for a non-resident importer in favor of a non-resident exporter; (b) pay, accept or negotiate drafts/bills of exchange drawn under the letter of credit; and (c) make payment to the order of the non-resident exporter: Provided , That the foreign correspondent bank shall deposit sufficient foreign exchange with the EFCDU issuing the letter of credit to cover all drawings; (9) Engage in direct purchase of export bills of resident exporters, subject to the following conditions: (a) Export transactions covered by usance or sight letters of credit shall be allowed to be purchased by EFCDUs; and (b) Export bills negotiated/purchased by the bank's Regular Unit and outstanding in its books shall not be allowed to be purchased by its EFCDUs. HSIADc c. Excess EFCDU/FCDU funds of UBs and KBs may be lent to Regular Banking Unit (RBU) to fund the latter's on-balance sheet foreign exchange trade transactions, subject to the following conditions (1) EFCDU/FCDU may lend funds to RBU only after it has fully complied with the prescribed 100% asset cover/thirty percent (30%) liquidity cover on EFCDU/FCDU liabilities and only if RBU incurred an average net fund outflow on its foreign currency transactions as computed in Item " c(2)(a) ". (2) EFCDU/FCDU lending to RBU shall be (a) Capped at the lower of thirty percent (30%) of the level of RBU's on-balance sheet foreign currency trade assets 1 or the net fund outflow on RBU's foreign currency transactions 2 , computed at the average daily balance (using two [2]-month rolling data) as of end of week immediately preceding the reference week (refer to Appendix 51a for sample computation). Total outstanding balance of EFCDU/FCDU lending to RBU shall, at all times, be within the prescribed cap. (b) Charged interest at prevailing market rates, computed monthly at the average daily balance of the receivable from RBU. (c) On short-term maturity, or for a period of one (1) year or less. Balances shall be settled, within a year from availment, by way of actual transfer of foreign currency assets from the RBU books to the EFCDU/FCDU books. (3) The lending transaction shall be booked as "Lending-RBU" in the EFCDU/FCDU books and "Borrowing-EFCDU/FCDU" in the RBU books, which accounts shall be added to the MOR. (4) The "Lending-RBU" account balance (net of transactions outstanding for more than one (1) year) shall qualify as eligible asset cover, but not as liquidity cover, for EFCDU/FCDU liabilities. (5) Banks shall establish and maintain systems to (a) monitor the foreign currency funds flow of RBU and the average daily balances of foreign currency trade assets, with minimum database covering a two (2)-month rolling period; and (b) account for the utilization of funds borrowed from EFCDU/FCDU. The systems as well as periodic reports generated therefrom shall be made available to the BSP examiners for verification. (6) Banks shall submit to the appropriate supervising and examining department, within five (5) banking days from end of reference month, a certification under oath in Appendix 51 , signed by the Bank's President or Country Manager, in case of local branch/subsidiary of foreign banks, Compliance Officer and Head of Treasury, to the effect that, at any day of the reference month, funds borrowed from EFCDU/FCDU did not exceed the prescribed cap (i.e., lower of thirty percent (30%) of RBU's average on-balance sheet foreign currency trade assets or net fund outflow on RBU's foreign currency transactions) and were utilized by RBU solely for foreign currency trade transactions. The foregoing rule shall be subject to quarterly review by BSP. SUBSECTION X501.4 Foreign currency cover requirements . Depository banks under the foreign currency deposit and expanded foreign currency deposit systems shall maintain at all times a 100% cover for their foreign currency liabilities. For purposes of complying with this requirement, the principal offices in the Philippines of the authorized banks and all its branches located therein shall be considered as a single unit. The foreign currency cover shall consist of the following: a. For banks authorized to operate an FCDU (1) Foreign currency deposits with the BSP; (2) Foreign currency deposits of short-term maturity with foreign banks abroad, OBUs and other EFCDUs/FCDUs; (3) Short-term foreign currency loans authorized by the BSP, except those classified by the BSP as bad or uncollectible debts; (4) Investments in foreign currency-denominated debt instruments, which are of short-term maturities and are readily marketable; (5) Foreign currency notes and coins on hand; (6) Foreign currency-foreign currency swaps; (7) Foreign currency interests receivables; and (8) Such other assets as may be determined by the Monetary Board as eligible cover. b. For banks authorized to operate an EFCDU In addition to the above, the following shall also be considered as eligible asset cover: (1) BSP-authorized foreign currency loans maturing beyond one (1) year, except those classified by the BSP as bad or uncollectible debts. BSP-authorized foreign currency loans shall include those with specific approval by the BSP, as well as (a) loans of resident private sector borrowers from FCDUs/offshore sources, irrespective of maturity, to be serviced using foreign exchange purchased from outside of the banking system; (b) loans of non-residents from EFCDUs, irrespective of maturity, provided that (i) the loan shall be serviced using foreign exchange purchased from outside the banking system; and (ii) all applicable banking rules and regulations are complied with including Single Borrower's Limit which shall be defined to include lendings and guarantees issued to companies, their subsidiaries, affiliates and major stockholders all over the world. cSDIHT (2) Investments in foreign currency denominated debt instruments, irrespective of maturity. (3) All outstanding Export Bills Purchased in the EFCDU books, except those classified as bad or uncollectible accounts. For purposes of this Section, only real accounts shall qualify as eligible asset cover. c. Further, at least thirty percent (30%) of the cover requirement for foreign currency liabilities in the EFCDU shall be in the form of liquid assets as follows: (1) Due from other banks; (2) Interbank loans maturing within one (1) year; (3) Unmatured export bills purchased except those classified by BSP as bad or uncollectible; (4) Readily marketable foreign currency denominated instruments; (5) Foreign currency notes and coins on hand; (6) Foreign currency checks and other cash items; and (7) Due from BSP-EFCDU account with maturity of one (1) year or less regardless of funding: Provided , That such deposit/placement is not encumbered or is not being utilized for any other purposes. The one hundred percent (100%) cover and the thirty percent (30%) to be held in the form of liquid assets enumerated above, shall be unencumbered. d. The Due from Foreign Banks (DFFB) account representing cover for foreign currency liabilities of EFCDU shall be kept separate and distinct in correspondent banks abroad from the DFFB for the regular banking unit. SUBSECTION X501.5 Foreign currency deposit with the Bangko Sentral . Foreign currency deposit with the BSP equivalent to at least fifteen percent (15%) as a form of foreign currency cover referred to in Section 4 of R. A. No. 6426 shall be optional on FCDUs of UBs/KBs and TBs. The BSP may pay interest on the foreign currency deposit and if requested, shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks. SUBSECTION X501.6 Currency composition of the cover . FCDUs of TBs shall maintain the foreign currency cover in the same currency as that of the corresponding foreign currency deposit liability. EFCDUs/FCDUs of UBs/KBs shall maintain not less than seventy percent (70%) of the foreign currency cover in the same currency as that of the liability and thirty percent (30%) or less, at the option of the EFCDU/FCDU, may be denominated in other acceptable foreign currencies. SUBSECTION X501.7 Secrecy of deposits . All foreign currency deposits are absolutely confidential. Except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office, whether judicial, administrative or legislative, or any other entity, whether public or private. SUBSECTION X501.8 Numbered accounts . EFCDUs/FCDUs may adopt a numbered account system. SUBSECTION X501.9 Withdrawability and transferability of deposits . There shall be no restrictions on the withdrawal by the depositor of his deposit or on the transfer of the same abroad, except those arising from the contract between the depositor and the bank. SUBSECTION X501.10 Insurance coverage . Foreign currency deposits shall be insured under the provisions of R.A. No. 3591, as amended. Depositors are entitled to receive payment in the same currency in which the insured deposits are denominated. SUBSECTION X501.11 Rates of interest . Foreign currency deposits shall not be subject to interest ceilings. SUBSECTION X501.12 Eligibility as collateral . Deposits under the Foreign Currency Deposit System are eligible as collateral for peso loans or for foreign currency loans to residents and non-residents. SUBSECTION X501.13 Taxes . All foreign currency deposits, including interest and all other income or earnings of such deposits, are exempt from any and all taxes whatsoever, irrespective of whether or not these deposits are made by residents or non-residents, so long as the deposits are eligible or allowed under these rules, and in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines. SUBSECTION X501.14 Exemption from court order or process . Foreign currency deposits shall be exempt from attachment, garnishment or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. SUBSECTION X501.15 Inapplicability of the Usury Law . The provisions of R.A. No. 2655, as amended (Usury Law), shall not apply to banks in respect to their foreign currency transactions under this Section. SUBSECTION X501.16 Accounting . The foreign currency deposits and their corresponding cover shall be considered as funds separate and distinct from the regular assets and liabilities of the authorized banks. Authorized banks shall maintain a separate accounting for transactions covered by these rules that will enable preparation of the Balance Sheet and Profit and Loss Statement covering said funds. SUBSECTION X501.17 Supervision . The Governor and the head of the appropriate department of the BSP, personally or by deputies, are authorized to verify the books of account and transactions of each authorized bank, to verify the eligible cover, as well as review all other requirements under these regulations and the bank's compliance with the provisions of law and these regulations. SUBSECTION X501.18 Sanctions a. Any willful violation of R.A. No. 6426, as amended, or any regulation duly promulgated by the Monetary Board pursuant thereto, shall subject the offender upon conviction to an imprisonment of not less than one (1) year nor more than five (5) years or a fine of not less than P5,000.00 nor more than P25,000.00, or both such fine and imprisonment, at the discretion of the court. CaEIST The BSP may revoke or suspend the authority of a bank to accept new foreign currency deposits for violation of R.A. No. 6426 or these regulations, or if such bank ceases to possess the minimum qualifications required. b. Violation on the monthly reportorial requirement required under Subsec. X501.3c shall be subject to: (1) Maximum monetary penalty of P30,000 per day (reckoned from due date until date corrected) for any false/erroneous certification issued, without prejudice to the imposition, on the erring bank and/or the concerned bank officers, of the penal sanctions provided under Sections 35 and 36 of R.A. No. 7653. (2) Monetary penalty of P1,200 per day for delayed and/or incomplete certifications. c. Any deficiency in the 100% EFCDU/FCDU cover and/or thirty percent (30%) liquidity cover that may be incurred due to violation of the conditions in Subsec. X501.3c shall be subject to the imposition of a monetary penalty of one-tenth of one percent (1/10 of 1%) of the deficiency, converted to its peso equivalent at the exchange rate prevailing on the date the deficiency was incurred but not to exceed P30,000 per deficiency, per day. SECTION X502. Other Transactions in Foreign Currency . The operation of mobile foreign currency (FX) booths and off-site automatic multi-currency money changers (OAMMC) shall be governed by this Section. SUBSECTION X502.1 Mobile foreign exchange booths . Without prior authority from the BSP, banks may operate mobile FX booths, subject to the following guidelines: a. The bank shall advise the BSP of the number of mobile FX booths it will operate, the date it will start operations, the areas of operation and the branch where the foreign exchange acquisition will be turned over and booked; b. The services of the mobile FX booths shall be solely for changing foreign exchange currency into peso notes and coins, and not pesos to other foreign currency; c. The mobile FX booths shall not accept deposit or perform other banking functions other than purchase of foreign currencies; d. The internal control system of the proposed mobile FX booths shall be submitted to the appropriate supervising and examining department of the BSP, as well as other security measures adopted therein; and e. The mobile FX booths shall be covered by insurance to protect adequately the bank against losses of whatever nature arising from its operations. SUBSECTION X502.2 Off-site automatic multi-currency money changers . With prior approval of the BSP, banks which have shown general compliance with banking laws, rules and regulations may install an OAMMC, subject to the following conditions: a. The OAMMC shall be installed only in centers of activities like shopping centers, supermarkets, hotels and airports: Provided , That the site is within the area where the applicant bank has a regular branch to service the money changers; b. The applicant bank shall maintain adequate internal control and security measures, which shall include immediate rejection and detection of fake currencies by the machines; c. The transactions of the money changers shall be booked in specific branches which must be identified at the time of application for the putting up of an OAMMC; and d. The services of the OAMMC shall be solely for changing foreign exchange currency into peso notes and coins, and not pesos to other foreign currencies. SECTIONS X503 - X598 (Reserved) SECTION X599. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART SIX Miscellaneous A. Other Operations SECTION X601. Open Market Operations . The following rules and regulations shall govern the buying and selling of government securities in the open market, pursuant to Section 91 of R.A. No. 7653. a. The BSP may buy and sell in the open market for its own account: (1) Evidences of indebtedness issued directly by the Government of the Philippines or its political subdivisions; and (2) Evidences of indebtedness issued by government instrumentalities and fully guaranteed by the Government. The above evidences of indebtedness must be freely negotiable and regularly serviced. Purchases and sales in the open market shall be made through banks, NBQBs and accredited government securities dealers. b. Outright purchases and sales of government securities shall be effected at prevailing market prices. c. Repurchase (R/P) agreements shall be open to banks (except RBs), NBQBs, and accredited government securities dealers and shall be made under the terms provided for in Subsec. X601.1 and the following: (1) The R/P agreement may be paid at any time before maturity, subject to mutual agreement of both parties; (2) In the event the securities covered by the R/P agreement are not repurchased by the issuer of such agreement, the same may be sold in the open market or transferred to the BSP portfolio; and (3) Should an issuer of an R/P agreement become no longer qualified as such, its outstanding repurchase agreement shall immediately become due and payable. If settlement of the amount due is not made within three (3) days from the date of its disqualification, the BSP shall proceed to collect said amount in accordance with the preceding paragraph. d. Reverse R/P agreements covering the sale of portion of the security holdings of the BSP portfolio may be made under the terms provided for in Subsec. X601.2. e. The purchase and sale of government securities by the National Treasury and government-owned or controlled corporations shall be made only with (a) the BSP; (b) the DBP, the LBP, the SSS, the GSIS, the Al-Amanah Islamic Investment Bank of the Philippines and banks that are wholly-owned or controlled by these institutions; and (c) the Philippine Veterans Bank. Transactions shall be done with the bank proper and not through its trust department. SUBSECTION X601.1 Repurchase agreements with Bangko Sentral . R/P agreements may be effected with the BSP subject to the following terms and conditions. a. Rate . The rates on the R/P facility shall be set by the Treasury Department, with the concurrence of the Governor, taking into account prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of ninety-one (91) days. c. Security . Only obligations of the National Government and its instrumentalities and political subdivisions, which are fully guaranteed by the Government, with a remaining maturity of not more than ten (10) years and which are freely negotiable and regularly serviced, shall be eligible as underlying instruments for R/P agreements subject to the collateral requirement prescribed by the BSP. d. Delivery . Delivery of the underlying instruments shall be made to the BSP at the prescribed time. For overnight R/P agreements, delivery of the underlying instruments shall be made not later than 12:00 noon of the date of transaction. SDEITC Government securities which are held by the issuer of the R/P agreement under the book-entry system with the BSP may be used as underlying instruments only with the conformity of the BSP e. Upon termination of the R/P agreement, the issuer of such agreement shall claim and take delivery of the underlying instruments at the Treasury Department, BSP Failure to claim and take delivery of the underlying instruments immediately upon such termination shall relieve the BSP of any liability or responsibility for the loss or misplacement of said instruments. SUBSECTION X601.2 Reverse repurchase agreements with Bangko Sentral . Reverse R/P agreements may be effected with the BSP subject to the following terms and conditions: a. Rate . The rates shall be set by the Treasury Department, with the concurrence of the Governor, taking into account the prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of 364 days. c. Security . The collateral shall consist of obligations of the National Government and other freely negotiable securities in the BSP portfolio valued at 100%. d. Delivery . No delivery of the collateral shall be made, but a custody receipt shall be issued instead. e. Reservation . Prepayment may be made by the BSP at its option anytime before maturity. SUBSECTION X601.3 Settlement procedures on the purchase and sale of government securities under repurchase agreements with the Bangko Sentral . Purchase and sale of government securities under repurchase agreements (GS/RP) between and among banks and NBQBs and BSP in connection with the latter's open market operations shall be settled in accordance with Appendix 21a. SECTION X602. Derivatives . Any bank and/or its subsidiaries/affiliates may engage in financial derivatives activities upon prior approval of the BSP. SUBSECTION X602.1 Scope and pre-qualification requirements . The following provisions shall govern the scope and pre-qualification requirements for the grant of authority to engage in derivatives activities. a. For expanded derivatives authority (1) Scope . Only UBs and KBs may apply for an expanded derivatives license. The licensee may trade, sell, deal and take positions in currency swap and forward of any tenor as well as all other derivatives for their own account or on behalf of customers. (2) Pre-qualification requirements . A bank applying for expanded derivatives activities may be granted license only upon determination by the BSP that the applicant possesses: (a) Comprehensive risk management system approved by the bank's board of directors (or equivalent management committee in the case of foreign bank branches) containing clear delineations of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls, and efficient risk-reporting system as determined by the BSP, which should include a Board-approved Policy Manual. The Policy Manual shall have the following minimum features: (i) Scope of derivatives activities, types of services and products offered to clients; (ii) Authorities and responsibilities of board of directors; management committees; Chief Executive Officer; other senior officers; department managers; and trading or dealing officers/staff; (iii) Policies and procedures to govern trading and documentation; (iv) Policies and procedures for controlling and measuring risks including, as a minimum: (aa) Trading, exposure, counterparty, and gap limits; (bb) Earnings-or Capital-at-Risk and Value-at-Risk assumptions, calculations, and limits; and (cc) Mark-to-Market policies and procedures. (v) Internal control system and audit policies; (vi) Policy review; (vii) System of financial and regulatory reporting; (viii) Job description of and minimum qualification standards for key positions; and (ix) Procedure for evaluating client suitability. (b) Electronic data processing capability commensurate to the volume and complexity of the bank's derivatives activities; and (c) Technical competence of key officers/traders responsible for derivatives. (3) Other requirements . BSP shall evaluate bank's financial soundness and track record of compliance with major prudential requirements, such as, but not limited to: (a) CAMELS composite rating of at least "3" in the last regular examination; (b) Minimum applicable capital adequacy ratio; (c) Minimum reserves against deposit liabilities, deposit substitutes, CTFs and TOFA-Others; (d) Liquidity floor for government deposits; (e) FCDU/EFCDU foreign currency asset cover on FCDU/EFCDU foreign currency liabilities; and (f) Maximum allowable open foreign exchange position. b. For regular derivatives authority (1) Scope . Other financial institutions (FIs) supervised by the BSP may apply for a regular derivatives license. A licensed FI may sell derivatives products to its customers: Provided, That the FI shall hedge such derivatives: Provided, further, That the risk being hedged is already existing with the FI itself. TEHDIA (2) Pre-qualification requirements . An application to engage in a regular derivatives activities may be granted upon determination by the BSP that the applicant possesses: (a) The ability to account for its currency exposures on a per currency basis through its Multi-Currency Subsidiary Ledger; (b) The ability to account for swaps and forwards either through the accrual or net present value basis. Swaps and forwards designated as hedge only at inception may be accounted for using the accrual method. Forwards designated as trading shall be marked-to-market daily using the net present value methodology; (c) The ability to manage and monitor price risks for the whole derivatives portfolio to ensure continuous assessment of the effectiveness of the hedge. While the ideal method of measuring these risks is through "value-at-risk" methodology, alternative systems are acceptable: Provided , That these are: (i) Capable of measuring and aggregating risks across trading and non-trading activities; (ii) Approved by the FI's board of directors; (iii) Consistent with board-approved risk appetite; (iv) Consistent with the level and complexity of the institution's trading activities; and (v) Fully documented and independently validated. (d) The ability to monitor counterparty risks on outstanding contracts through a methodology that reflects changes in credit exposure as. market rates change; (e) The technical competence of key officers/traders responsible for the derivatives products; and (f) The procedures for evaluating client suitability. (3) Other requirements . BSP shall evaluate bank's and other BSP-supervised FI's financial soundness and track record of compliance with major prudential requirements, such as, but not limited to: (a) CAMELS composite rating of at least "3" in the last regular examination; (b) Minimum applicable capital adequacy ratio; (c) Minimum reserves against deposit liabilities, deposit substitutes, CTFs, and TOFA-Others; (d) FCDU/EFCDU foreign currency asset cover on FCDU/EFCDU foreign currency liabilities; and (e) Maximum allowable open foreign exchange position. c. No license derivatives (1) Scope . A UB/KB with no derivatives license may trade, sell, deal and take positions for their own account or in behalf of customers in currency swaps and forwards with tenor of one (1) year or less. The bank may also sell other derivatives products of licensed entities to its customers: Provided, That the customer currently has a risk with the bank it wishes to hedge. (2) Pre-qualification requirements . The bank shall submit a certification by its president or any officer of equivalent rank and function that the bank possesses: (a) The ability to account for its currency exposures on a per currency basis through their Multi-Currency Subsidiary Ledger; (b) The ability to account for swaps and forwards either through the accrual or net present value basis. Swaps and forwards designated as hedge only at inception may be accounted for using the accrual method. Forwards designated as trading shall be marked-to-market daily using the net present value methodology; (c) The ability to manage and monitor price risks for the whole derivatives portfolio to ensure continuous assessment of the effectiveness of the hedge. While the ideal method of measuring these risks is through "value-at-risk" methodology, alternative systems are acceptable: Provided, That these are: (i) Capable of measuring and aggregating risks across trading and nontrading activities; (ii) Approved by the bank's board of directors; (iii) Consistent with board-approved risk appetite; (iv) Consistent with the level and complexity of the institution's trading activities; and (v) Fully documented and independently validated. (d) The ability to monitor counterparty risks on outstanding contracts through a methodology that reflects changes in credit exposure as market rates change; (e) The technical competence of key officers/traders responsible for the derivatives products; and (f) Procedures for evaluating client suitability. d. For engaging in derivatives transactions as end-users (1) Scope . Banks/other BSP-supervised FIs may engage in derivatives transactions purely as end-users and do not need a license for such activities. (2) Requirements . The banks/other BSP-supervised FIs shall show proof of approval by their board of directors to use derivatives. Such approval must clearly specify the following as a minimum guidelines: (a) Derivatives products to be used and the type of transactions to be hedged shall be specified; (b) Transactions shall be limited to hedging purpose only; there shall be no speculative activity; (c) Dealings shall only be with licensed/authorized counterparties; and (d) Transactions shall be reported regularly to the board of directors. SUBSECTION X602.2 Authorized transactions . Any bank and/or its subsidiaries/affiliates authorized to engage in derivatives activities may enter into any derivatives contract, whether as end-user or in the capacity of dealer/trader or as agent/broker: Provided , That when such contract is entered as end-user or in the capacity of dealer/trader, either party to said contract enters into the same for hedging purposes: Provided, further , That in the case of commodity- or equity-based contracts, the bank and/or its subsidiary affiliates shall not take an open position at any time. HAISEa All derivatives transactions between banks and their subsidiaries/affiliates (e.g., Forex Corporation) shall be with prior BSP approval. SUBSECTION X602.3 Renewals . The license to engage in derivatives activities shall be for a period of one (1) year. a. The following guidelines shall be observed for the annual renewal of derivatives licenses of banks: (1) For derivatives granted before September 17, 2001, the licenses are operative only until September 17, 2002. Said licenses shall be renewed on or before said date. Subsequently, the licenses shall be renewed on or before September 17 of each year; (2) For derivatives granted after September 17, 2001, the licenses are operative for a period of one (1) year reckoned from the date of approval. The licenses therefore, shall be renewed on or before the end of the one (1)-year period; and (3) Banks shall submit a written request to renew their derivatives licenses at least forty-five (45) calendar days before the expiration of the existing licenses. The banks will be notified of the BSP action on their request. Until such notice is received, banks can continue to enter into new derivatives contracts as allowed under their previously approved licenses. Failure to submit said written request within the prescribed period shall be presumed not renewing said licenses. b. The license may be renewed subject to compliance with the following: (1) BSP standard of financial soundness and track record of compliance with major prudential regulations; (2) Adequate risk management systems; and (3) Adequate internal control system and procedures including record keeping for derivatives activities. SUBSECTION X602.4 Risk management guidelines . Any bank and/or its subsidiaries/affiliates authorized to engage in derivatives activities shall adopt a policy manual that contains the minimum features and principles embodied in the Risk Management Guidelines for Derivatives (Appendix 25) . Risk disclosure statements, which should at least contain the disclosure statements in Appendix 26 , shall be provided to the clients/customers of a bank and/or its subsidiaries/affiliates in order to advise the former of the risks involved in derivatives activities. A detailed statement on the position of the clients/customers must be sent to them periodically. SUBSECTION X602.5 Accounting guidelines . In recording derivatives activities in the books, a bank and/or its subsidiaries/affiliates shall observe the guidelines enumerated in Appendix 27 . SUBSECTION X602.6 Reporting requirements . Aside from the daily/monthly FX position reports, a monthly report on transaction/outstanding derivatives transaction shall also be required for banks which enter into derivatives contracts as end-user. SUBSECTION X602.7 Sanctions . Monetary penalties prescribed under Sections 35, 36 and 37 of R.A. No. 7653 and/or suspension of foreign exchange operations, shall be imposed on any bank, its subsidiaries/affiliates (including its directors or officers) that engage in derivatives activities without prior BSP approval. If the bank submits an erroneous written representation or certification, a cease and desist order shall be imposed, in addition to a monetary penalty of P10,000 per transaction. Bank's derivatives operations may only be resumed after the appropriate supervising and examining department has made a thorough validation of the bank's compliance with requirements. SECTION 1602. Forward Contracts With Non-Residents . In order to curb undue speculations in the foreign exchange markets, all forward contracts to sell foreign exchange to non-residents (including offshore banking units) with no full delivery of principal, including cancellations, roll-overs/renewals thereof shall be submitted for prior clearance to the BSP. Applications for such clearance shall be coursed through the International Operations Department (IOD) and actual transactions duly reported to the appropriate supervising and examining department. Only banks with expanded derivatives license may enter into transactions covered by forward contracts within the purview of this Section, subject to the prior clearance requirements. As an exception, banks are authorized to roll over, without prior BSP approval, short-term deliverable forward contracts with non-residents at every maturity during the tenor of the underlying long-term Philippine government securities, subject to the following conditions: a. The underlying transaction for each short-term deliverable foreign exchange (FX) forward contract should be a BSP-registered foreign investment in government securities for which a Bangko Sentral Registration Document (BSRD) has been issued; b. The actual delivery/settlement of the forward contract shall coincide with the date of the repatriation of the BSP-registered investments; c. The value of the forward contract shall not exceed the foreign currency equivalent of the maturity value/net proceeds of the BSP-registered investments computed based on the agreed forward exchange rate; d. The repatriation and remittance out of the country of the BSP-registered investments must comply with the documentary requirements under existing BSP rules; and e. The Bank concerned shall submit to the appropriate supervising and examining department, a weekly report of daily executed forward contracts to sell FX to non-residents with no full delivery of principal, including cancellations, rollovers/renewals thereof, within two (2) banking days after end of reference week, using the prescribed form duly signed by the Head of Settlements/Treasury Operations or by an officer of equivalent rank and countersigned by the Compliance Officer. ITAaHc Delayed, incomplete or erroneous reports shall be subject to a fine of P1,200 a day for each day of violation until the correct report is submitted to the appropriate supervising and examining department. SECTION X603. Clearing Operations . Banks shall observe the clearing procedures outlined in Appendix 28 for the clearing of checks and settlement of interbank balances through the clearing facilities. SECTION X604. Collection of Customs Duties/Taxes/Levies and Other Revenues . The following regulations shall govern the collection and reporting of customs duties, taxes, levies and other revenues through the banking system. SUBSECTION X604.1 Coverage . All presently accredited agent banks with demand deposit accounts with the BSP and government banks are authorized to collect (a) customs duties, taxes and other levies, (b) import processing fees, and (c) export/premium duties: Provided, however , That the collection of taxes from government-owned and -controlled corporations shall be made only through banking offices of government banks. SUBSECTION X604.2 Collection and reporting of internal revenue taxes . Banks which are duly accredited by the BIR to accept payment of internal revenue taxes shall be governed by the relevant BIR Revenue Regulations. Deposits of the BIR shall be limited to those arising from tax collection. The Authorized Agent Banks (AABs) shall transfer the deposit collection to the account of the Treasurer of the Philippines with the BSP on the sixth day from the day of deposit of the BIR collections. SUBSECTION X604.3 Collection and reporting of customs duties and import processing fees . Participating banks are authorized to accept payment of customs duties, taxes and other levies, and import processing fees under the following procedures: a. The collecting bank shall acknowledge receipt of payments of customs duties, taxes and other levies, and import processing fees by issuing Official Receipts (ORs) in forms to be requisitioned by the Head Office from the General Services Division, Bureau of Customs, Manila; b. The collecting bank shall book all such collections and credit the same to the special account " Due to BSP Bureau of Customs "; c. The branch shall report by telephone, telex or other means to its Head Office, at the end of each day, total collections for the day and the inclusive serial numbers of ORs issued, to be used as basis for the preparation by the Head Office of the Consolidated Report of Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-005) ; d. The Head Office and its branches shall accomplish the Abstract of Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-006) and submit the same, duly supported with copies of Orders Of Payment (OPs), ORs, Release Certificates (RCs) and commercial invoices on the same day to the offices indicated in the form; and e. The Head Office of the participating banks shall consolidate all reports of collections with those of its branches and submit the original of the Consolidated Report on Daily Collections of Customs Duties, Taxes and Other Levies (RC 82-005) to the Accounting Department, BSP, Manila on the 10th calendar day following the date of collection. Simultaneously, the remaining copies shall be distributed to the offices indicated in the form. Deposits of the BOC shall be limited to those arising from customs collection. The AABs shall transfer the deposit collection to the account of the Treasurer of the Philippines with the BSP on the eleventh day from the day of deposit of the BOC collections. LLphil SUBSECTION X604.4 Collection and reporting of export/premium duties . Participating banks are authorized to accept payment of export/premium duties under the following procedures: a. The collecting bank shall deduct from the export proceeds the estimated amount of export/premium duties due from the export shipment upon negotiation of the shipping documents but shall collect the exact and correct amount of such duties upon presentation of the OP issued by the Export Coordinating Division, Bureau of Customs (For Port of Manila) or the Collector of Customs concerned; b. The collecting bank shall issue the corresponding ORs in forms to be requisitioned by the Head Office from the General Services Division, Bureau of Customs, Manila; c. The collecting bank shall book all such collections and credit the same to the special account "Due to BSP-Export/Premium Duty"; d. The branch/extension office/agency shall: (1) Report by telephone, telex or other means to its Head Office, at the end of each day, total collections for the day and the inclusive serial numbers of ORs issued, to be used as basis for the preparation by the Head Office of the Consolidated Report on Daily Collections of Export/Premium Duty (RC 82-007); and (2) Accomplish the Abstract of Daily Collections of Export/Premium Duty (RC 82-008) and submit the same, duly supported with copies of OPs and ORs, within ten (10) calendar days from date of collection to the offices indicated in the form. e. The Head Office of the collecting bank shall: (1) Consolidate its report of collection with those of its branches/extension offices/agencies and submit to the Bureau of Customs the Consolidated Report of Daily Collections of Export/Premium Duty (RC 82-009) on the day following the date of collection; and (2) Consolidate the Abstract of Daily Collections of Export/Premium Duty (RC 82-010) with those received from branches /extension offices/agencies. The original of the Consolidated Abstract of Collection of Export/Premium Duty (RC 82-011) shall be submitted to the Accounting Department, BSP, Manila, on the 10th calendar day following the date of collection. The funds collected by banks shall be handled by the bank proper and not the trust department: Provided, however , That such deposits shall be subject to the reserve requirements and the liquidity floor requirements on government deposits.' SUBSECTION X605.2 Commercial banks as depository of rediscounting proceeds . Rediscounting proceeds for RBs situated outside the fifty (50)-kilometer radius from Manila shall be credited, for the account of the RB concerned, to the clearing account with the BSP of the depository KB to be designated by the borrowing RB. The contemplated depository relationship arrangement must be manifested to the BSP thru the submission by the RB of an authenticated copy of the letter of understanding between the RB and the KB showing such depository relationship. SUBSECTION X605.3 Collection agents of PhilHealth . Banks are authorized to act as collecting agents of the Philippine Health Insurance Corporation (PhilHealth) under which agency: a. PhilHealth members may pay their premium contributions to PhilHealth through the said banks and the funds thus collected shall be remitted to PhilHealth in accordance with PhilHealth's agreed remittance schedule which in no case shall exceed thirty (30) days from receipt thereof; b. During the period that such premium contributions are in the custody of banks, such funds shall not earn interest; and c. The banks shall not collect from PhilHealth any service charge for such agency. The funds collected by the banks shall be handled by the operating departments (cash departments) of the banks concerned and not their trust operations: Provided, however , That such funds shall be subject to the reserve requirement on deposits and to the liquidity floor on government deposits. B. Sundry Provisions SECTION X606. Bank Premises and Other Fixed Assets . The following rules shall govern the premises and other fixed assets of banks. SUBSECTION X606.1 Appreciation or increase in book value . As a general rule, appreciation or increase in book value of bank premises and other fixed assets is not allowed. However, in cases where the market value of the property has greatly increased since the original purchase, appreciation may be allowed: Provided , That the appropriate supervising and examining department of the BSP shall be notified in advance of the proposed increase in value and: Provided, further , That the corresponding appreciation credit shall not form part of the combined capital accounts of banks but lodged under a Revaluation Reserve account. ACDTcE SUBSECTION X606.2 Ceiling on total investments . The total investment of a bank in real estate and improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of the bank's net worth. In determining compliance with such ceiling, the following rules shall apply: a. The investment shall include all real estate and equipment necessary for the bank's immediate use in the transaction of its business, such as: (1) Bank Premises Land and Buildings, Buildings under Construction, Leasehold Rights and Improvements and Furniture, Fixtures and Equipment (as defined in the Manual of Accounts for All Banks), owned and used by the bank in the conduct of its business, including staff houses, recreational facilities and landscaping costs, net of accumulated depreciation: Provided, however, That appraisal increment on bank premises shall not be included in the total investment in real estate and improvements for purposes of these guidelines; and (2) Real properties, equipment or other chattels purchased by the bank in its name for the benefit of its officers and employees, net of depreciation and in the case of land or other non-depreciable property, net of payments already made to the bank by the officers and employees for whose benefits the property was bought, where such property has not yet been fully paid and ownership has not yet been transferred to them. b. The following shall be included in the computation of a bank's total investment in bank premises: (1) (a) The cost of real estate leased in whole or in part by the bank from a corporation, other than a corporation primarily engaged in real estate in which the bank has equity, equivalent to the amount obtained by applying the percentage of the equity of the bank in the lessor to the cost of that portion of the property being leased, or (b) the amount of equity in the lessor, whichever is lower, plus the amount obtained by applying the percentage of the equity of the bank in the lessor to any outstanding loans of the lessor with the bank, the proceeds of which were used to purchase, construct or develop the real estate used for the bank's purposes. (2) The lower of (a) the cost of real estate leased in whole or in part by the bank from a corporation in which any or a group of stockholders owning ten percent (10%) or more of the voting stock of the bank, directors and/or officers of the bank, hold or own more than fifteen percent (15%) of the subscribed capital stock of the lessor, equivalent to the amount obtained by applying the percentage of the equity of said stockholders/directors/officers in the lessor to the cost of that portion of the property being leased by the bank, or (b) the amount obtained by applying the percentage of the equity of the stockholders/directors/officers in the lessor to any outstanding loans of the corporation with the bank, the proceeds of which were used to purchase, construct or develop the real estate used for the bank's purposes. The equity investment of a bank in a corporation engaged primarily in real estate shall be included in the computation of the bank's total investment in real estate, unless otherwise provided by the Monetary Board. SUBSECTION X606.3 Reclassification of real and other properties owned or acquired as bank premises . Real and other properties owned or acquired (ROPOA) reclassified as bank premises shall be booked at their ROPOA balance, net of any valuation reserves: Provided , That only such acquired asset or a portion thereof that will be immediately used or earmarked for future use may be reclassified and booked as bank premises. DCcIaE Banks, prior to the reclassification of their ROPOA accounts to bank premises, shall first secure prior BSP approval before effecting the reclassification and shall submit, in case of future use, justification and plans for expansion/use. SUBSECTION X606.4 Lease of bank premises . No bank shall negotiate a contract to lease or sublease to third persons any portion or portions of its office premises without securing the prior approval of BSP. SUBSECTION X607. Bank Advertisements . The following rules and regulations shall govern bank advertisements. a. No bank shall publish, issue or distribute in any form, any advertisement that shall degrade, deprecate or otherwise prejudice other banking and financial institutions. b. No bank shall publish, issue or distribute in any form of advertisement (in newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any other medium) or allow itself to be used/mentioned in any form of advertisement unless such advertisement is in pursuance of its business or investment. c. No bank shall place or cause to be placed any advertisement tending to mislead a depositor into believing that he will get more in benefits than what the bank is legally authorized to give. No bank advertisement shall contain any false claim or exaggerated representation as to its liquidity, solvency, resources, deposits and banking services. d. No bank advertisement shall give the impression that the bank is engaged in a business other than banking. e. Banks shall inform their depositors and other clients by advertisement or publication of the termination of benefits previously advertised or publicized. f. Banks shall discontinue any advertisement whenever the same is deemed unethical/unwarranted or violative of the provisions of these regulations. The client banks and/or their advertising agencies shall incorporate in their contract/agreement for time and space with media the condition that such contract/agreement for time and space can be cancelled/terminated immediately whenever the client bank is directed by the BSP to desist or discontinue the particular-advertisement in question. g. Responsibility for compliance with the above rules and regulations rests with the bank officers or directors who caused the approval or placement of such advertisement. SECTION X608. Assessment Fees on Banks . Banks shall contribute to the BSP an annual fee to help defray the cost of maintaining the appropriate supervising and examining department in accordance with the following guidelines. SUBSECTION X608.1 Annual fees on banks . For purposes of computing the annual fees chargeable against banks, the term " Total Assessable Assets " shall be the amount referred to as the total' assets under Section 28 of R.A. No. 7653 (end-of-month total assets per balance sheet, after deducting cash on hand and amounts due from banks, including the BSP and banks abroad), plus trust department accounts. Average Assessable Assets (AAAs) shall be the summation of the end-of-month total assessable assets divided by the number of months in operation during the particular assessment period. The rates of annual fees for banks for the assessable years 1997, 1998, 1999, 2000 and 2001 shall be as follows: a. UBs/KBs 1/28 of 1% b. TBs 1/28 of 1% c. RBs/Coop banks 1/40 of 1% multiplied by their AAAs for 1997, 1998, 1999, 2000 and 2001: Provided , That the annual fees chargeable to RBs/Coop Banks shall be the lower of the amount computed based on the above rate or the cost of maintaining the appropriate supervising and examining department: Provided, further , That beginning the fiscal year 1999, the annual banking fees of RBs/Coop Banks shall be computed based on average total assets based on the bank's balance sheets as of month-end for the months of March, June, September and December and dividing by four (4) the sum of the end-of-month balances. RBs and Coop Banks shall compute and pay the supervisory fees on or before January 30 of each year starting 2003 and every year thereafter. The amount of the fee as computed by the banks shall be subject to BSP review and verification, and appropriate adjustment, as the case may be. Non-payment of the supervisory fee within the prescribed period shall subject the concerned bank to the sanctions prescribed under Sections 34, 35, 36 and 37 of R.A. No. 7653. Annual fees to be collected from banks shall be debited from their respective deposits with the BSP by the BSP Accounting Department upon receipt of the notice of the assessment from the appropriate supervising and examining department. Where the deposit account is insufficient to cover the assessment fee, the BSP Accounting Department shall bill the bank for the full amount of the annual fee or for the balance thereof not covered by its deposit account, as the case may be. Within thirty (30) calendar days from receipt of the bill, the bank shall make the corresponding remittance to the BSP Accounting Department. Failure to pay the bill within the prescribed period shall subject the institution to administrative sanctions. SECTION X609. Collection of Fines and Other Charges from Banks . The following regulations shall govern the payment of fines and other charges by banks. SUBSECTION X609.1 Payment of fines by banks . Banks shall pay the fines within fifteen (15) calendar days from receipt of the statement of account from the BSP. For banks which maintain demand deposit account with the BSP, fines which are unpaid after the lapse of the fifteen(15)-day period shall be automatically debited against the corresponding demand deposit account of the bank concerned: Provided , That if the balance of the bank's account is insufficient to cover the fines due, such fines shall be paid not later than the following banking day. For the purpose of this Subsection, banking day means a day on which the BSP head office and the head office of the bank are open for business. aCSHDI For uniform implementation of the above regulations, the procedural guidelines embodied in Appendix 29 shall be observed. SUBSECTION X609.2 Cost of checks and documentary stamps . Banks are given fifteen (15) days from receipt of invoice to settle their accounts with the BSP Security Printing Plant for transactions representing the cost of printed checks and documentary stamps. Accounts not settled within fifteen (15) days will be debited against the bank's corresponding demand deposit account with the BSP. A debit advice showing invoices paid shall be sent to the head office of the bank concerned. SUBSECTION X609.3 Check/demand draft payments to the Bangko Sentral of thrift, cooperative and rural banks . TBs, Coop Banks and RBs are required to make all check and demand draft payments for CB:IBRD, LC/STD, legal reserve, supervisory fees, fines or penalties, redemption of preferred shares and cash dividends for government held preferred shares, and collections or repayments of notes used as collateral for loans payable either to the Cash Department, Bangko Sentral ng Pilipinas, Mabini St., Malate, Manila or directly to BSP Regional Cash Units. Such payments shall be accompanied by appropriate payment form as shown in Appendix 35 . Payments not accompanied by the required payment forms shall be presumed to be additions to reserves and shall be credited to the demand deposit account of the paying bank. Check payments shall be value dated when the check is cleared. However, all assessments for annual supervisory fees, fines and penalties of TBs shall be debited from the respective demand deposit accounts with Bangko Sentral. SECTION X610. Philippine and Foreign Currency Notes and Coins . The following rules and regulations shall govern the treatment and disposition of counterfeit Philippine and foreign currency notes and coins, the reproduction and/or use of facsimiles of legal tender Philippine currency notes and coins, the replacement and redemption of legal tender Philippine currency notes and coins considered mutilated or unfit for circulation, and the treatment and disposition of Philippine currency notes and coins called in for replacement. SUBSECTION X610.1 Definition of terms . For purposes of this Section, the following terms are defined: a. Legal Tender Philippine Currency Notes and coins issued and circulating under the provisions of R.A No. 265 and/or R.A. No. 7653, which when offered for the payment of public or private debt must be accepted. b. Counterfeit Note An imitation of a legal and genuine note intended to deceive or to be taken for that which is original, legal and genuine. c. Counterfeit Coin An imitation or forged design of a genuine legal and authorized coin intended to deceive or pass for the genuine coin, regardless of its intrinsic value. d. Unauthorized Reproduction of Legal Tender Philippine Note A reproduction of a facsimile or any illustration or object bearing the likeness or similitude of legal tender Philippine currency note or any part thereof, without prior authority from the Governor of BSP or his duly authorized representative. e. Unauthorized Reproduction of Legal Tender Philippine Coin A reproduction of a facsimile or any object in metal form incurred shall be solely for the account of the bank concerned. For purposes of this Subsection, the Cash Department and the regional offices/units of BSP may refuse acceptance of cash deposits that do not conform with these guidelines and procedures. SUBSECTION X610.6 Replacement and redemption of mutilated or unfit legal tender Philippine currency notes and coins . The replacement and redemption of legal tender Philippine currency notes and coins considered mutilated or unfit for circulation shall be governed by the following rules. a. Unfit currency note . A currency note shall be considered unfit for circulation when: (1) It contains heavy creases which break the fiber of the paper and indicate that disintegration has begun: Provided, however that mere creasing or wrinkling which has not broken nor weakened the note does no render the note unfit for circulation; or (2) It is badly soiled/contaminated and/or with writings even if it has proper life or sizing; or (3) It presents a limp or raglike appearance. b. Mutilated currency note . A currency note shall be considered mutilated when: (1) Torn parts of banknote are joined together with adhesive tape in a manner which tries to preserve as nearly as possible the original design and size of the note; or (2) The original size of the note has been reduced/lost through wear and tear or has been otherwise torn, damaged, defaced or perforated through action of insects chemicals or other causes; or (3) It is scorched or burned to such an extent that although recognizable as such it has become frail and brittle as to render further handling thereof impossible without disintegration or breaking; or (4) It is split edgewise; or (5) It has lost all the signatures inscribed thereon. c. Unfit currency coin . A currency coin shall be considered unfit for circulation when: (1) It is bent or twisted out of shape or defaced, but its genuineness and/or denomination can still be readily and clearly determined/identified; or (2) It has been considerably reduced in weight by natural abrasion/wear and tear. d. Mutilated currency coin . A currency coin shall be considered mutilated when: (1) It shows signs of filing, clipping or perforation; or (2) It shows signs of having been burned or has been so defaced, that its genuineness and/or denomination cannot be readily and clearly identified. e. Currency notes and coins considered unfit for circulation shall not be re-circulated, but may be presented for exchange to or deposited with any bank. f. Currency notes and coins considered mutilated shall not be re-circulated nor deposited/exchanged, but may be presented or forwarded for determination of their redemption exchange value to: (1) The Cash Department Bangko Sentral ng Pilipinas A. Mabini St., Manila; or (2) The nearest BSP' Regional Office/Unit. g. The BSP shall replace or redeem notes and coins considered unfit for circulation or mutilated except when such notes and coins fall under any of the following classifications: (1) Notes and coins the identification of which is impossible; (2) Coins which show signs of filing, clipping or perforations; or (3) Notes which have lost more than two-fifths (2/5) of their surface or all of the signatures inscribed thereon. Notes and coins falling under any of the classifications mentioned under Item " g " above shall be withdrawn from circulation and demonetized without compensation to the owner/bearer. HcTSDa SUBSECTION X610.7 Treatment of Philippine currency notes and coins called in for replacement . Any person or entity, public or private, who receives, takes, holds or has in his possession Philippine currency notes and coins called in for replacement shall forward the same during the redemption period to: a. Any authorized agent banks of the BSP when the notes are still considered legal tender, within one (1) year from the date of call; or b. The BSP Cash Department or BSP Regional Offices/Cash Units, within the redemption period as may be determined by the Monetary Board. The BSP Cash Department or the BSP Regional Cash Units shall exchange the notes/coins called in for replacement if presented to the BSP within the redemption period as determined by the Monetary Board and subsequently dispose the same in accordance with BSP procedures for disposal. SUBSECTION X610.8 Sanctions . Any violation of the provisions of Subsecs. X610.3 and X610.4, shall subject the offender to imprisonment of not less than five (5) years, but not more than ten (10) years. In case the Revised Penal Code provides for a greater penalty, then that penalty shall be imposed. SECTION X611. Real and Other Properties Owned or Acquired (ROPOA) . The property acquired in settlement of loans through foreclosure or dation in payment shall be recorded at the balance of the loan (principal plus booked. accrued interest receivable for time loans, or principal less unamortized income for bills discounted) or bid/purchase price, whichever is lower: Provided , That where the booked amount of the ROPOA exceeds the appraised value of the acquired property, an allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall be set up. Non-refundable capital gains tax and documentary stamp tax paid in connection with foreclosure/purchase of the acquired real estate property may be included in the book value of the acquired real estate: Provided , That the total book value does not exceed the appraised value of the acquired real estate: Provided, further , That if the amount to be booked as ROPOA exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP. Any excess of loan balance over the amount booked shall be debited to " Miscellaneous Income/Loss " account. Claims arising from deficiency judgments rendered in connection with the foreclosure of mortgaged properties shall be lodged under the real account " Deficiency judgment Receivable ". While probable claims against the borrower-debtor arising from the foreclosure of mortgaged properties shall be lodged under the contingent account " Deficiency Claims Receivable ". SUBSECTION X611.1 Booked valuation reserves while the account is in the non-performing portfolio . The amount of allowance for probable loses already booked while the account is still in the non-performing portfolio shall be used to cover required valuation reserves for other accounts, if there are any, and if there is none, it may, subject to approval by the concerned supervising and examining department of BSP, be credited to income provided that the appraised value of the acquired property is not lower than the amount booked as ROPOA. SUBSECTION X611.2 Appraisal of properties to be foreclosed or acquired . Before foreclosing or acquiring any property in settlement of loans and other advances, it must be properly appraised to determine its true economic value. If the total amount to be booked as ROPOA exceeds P5 million, the appraisal must be conducted by an independent appraiser acceptable to the BSP. An in-house appraisal of such property shall be made at least every other year: Provided , That immediate re-appraisal shall be conducted on ROPOAs which materially decline in value. SUBSECTION X611.3 Non-cash payment for interest . Banks which accept non-cash payments for interest on their borrowers' loans shall defer recognition of income by virtue of such payments until such time that the property is sold. The account ROPOA shall be debited for the non-cash payment received subject to the rules governing the booking of ROPOA. The accrued interest already booked shall be reversed but there shall be no reversal of corresponding valuation reserves, if there are any. Pending the creation of a more appropriate account in the Manual of Accounts for Banks, the account " Other Deferred Credits " may be credited for non-cash payment corresponding to interest not yet accrued in the books. SECTIONS X612 - X620 (Reserved) SECTION X621 Electronic Banking Services . The following are the guidelines concerning electronic banking activities. SUBSECTION X621.1 Application. Banks wishing to provide and/or enhance existing electronic banking services shall submit to the BSP an application describing the services to be offered/enhanced and how it fits the bank's overall strategy. This shall be accompanied by a certification signed by its president or any officer of equivalent rank and function to the effect that the bank has complied with the following minimum pre-conditions: a. An adequate risk management process is in place to assess, control, monitor and respond to potential risks arising from the proposed electronic banking activities; b. A manual on corporate security policy and procedures exists that shall address all security issues affecting its electronic banking system, particularly the following: (1) Authentication establishes the identity of both the sender and the receiver; uses trusted third parties that verify identities in cyberspace; (2) Non-repudiation ensures that transactions can not be repudiated or presents undeniable proof of participation by both the sender and the receiver in a transaction; (3) Authorization establishes and enforces the access rights of entities (both persons and/or devices) to specified computing resources and application functions; also locks out unauthorized entities from physical and logical access to the secured systems; (4) Integrity assures that data have not been altered; and (5) Confidentiality assures that no one except the sender and the receiver of the data can actually understand the data. c. The system had been tested prior to its implementation and that the test results are satisfactory. As a minimum standard, appropriate systems testing and user acceptance testing should have been conducted; and d. A business continuity planning process and manuals have been adopted which should include a section on electronic banking channels and systems. AaSTIH SUBSECTION X621.2 Pre-screening of applicants . a. The BSP, thru the Technical Working Group on Electronic Banking, shall pre-screen the overall financial condition as well as the applicant-bank's compliance with BSP rules and regulations based on the latest available Bank Performance Rating (BPR) and Report of Examination (ROE) including CAMELS Rating. The Working Group shall ensure that the applicant bank's overall financial condition can adequately support its electronic banking activities and that it shall have complied with certain comprehensive prudential requirements such as, but not limited to, the following: (1) Minimum capital requirement and net worth to risk assets ratio; (2) Satisfactory solvency, liquidity and profitability positions; (3) CAMELS composite rating of at least 3, (this number, however can be flexible depending on other circumstances prevailing), and with at least a moderate risk assessment system (RAS) based on the latest regular examination. (4) There are no uncorrected major findings/exceptions noted in the latest BSP examination. SUBSECTION X621.3 Approval in principle . a. Based on the recommendation of the Technical Working Group on Electronic Banking, the Deputy Governor, SES, shall approve in principle the application so that banks may immediately launch and/or enhance their existing electronic banking services. b. Banks shall be informed of the conditional approval of the DG, SES and they shall in turn notify the BSP on the actual date of its launching/enhancement. AcSIDE SUBSECTION X621.4 Documentary requirements . a. Within thirty (30) calendar days from such launching/enhancement, banks shall submit to the BSP thru the SRSO for evaluation, the following documentary requirements: (1) A discussion on the banking services to be offered/enhanced, the business objectives for such services and the corresponding procedures, both automated and manual, offered through the electronic banking channels; (2) A description or diagram of the configuration of the bank's electronic banking system and its capabilities showing (i) how the electronic banking system is linked to other host systems or the network infrastructure in the bank; (ii) how transaction and data flow through the network; (iii) what types of telecommunications channels and remote access capabilities (e.g., direct modem dial-in, internet access, or both) exist; and (iv) what security controls/measures are installed; (3) A list of software and hardware components indicating the purpose of the software and hardware in the electronic banking infrastructure; (4) A description of the security policies and procedures manual containing (i) description of the bank's security organization, (ii) definition of responsibilities for designing, implementing, and monitoring information security measures; and (iii) established procedures for evaluating policy compliance, enforcing disciplinary measures and reporting security violations; (5) A brief description of the contingency and disaster recovery plans for electronic banking facilities and event scenario/problem management plan/program to resolve or address problems, such as complaints, errors and intrusions and the availability of back-up facilities; (6) Copy of contract with the communications carrier, arrangements for any liability arising from breaches in the security of the system or from unauthorized/fraudulent transactions; (7) Copy of the maintenance agreements with the software/hardware provider/s; and (8) Latest report on the periodic review of the system, if applicable. b. If after the evaluation of the submitted documents, the Working Group has still some unresolved issues and grey areas, the bank may be required to make a presentation of its electronic banking transactions to BSP. SUBSECTION X621.5 Conditions for Monetary Board approval . Upon completion of evaluation, the appropriate recommendation shall be made to the Monetary Board. The following shall be the standard conditions for approval: a. Existence at all times of appropriate top-level risk management oversight; b. Operation of electronic banking system outsourced to a third party service provider taking into consideration the existence of adequate security controls and the observance of confidentiality [as required in R.A. No. 1405 (Bank Secrecy Law)] of customer information; c. Adoption of measures to properly educate customers on safeguarding of user ID, PIN and/or password, use of bank's products/services, actual fees/bank charges thereon and problem/error resolution procedures; d. Clear communication with its customers in connection with the terms and condition which would highlight how any losses from security breaches, systems failure or human error will be settled between the bank and its customers; e. Customer's acknowledgement in writing that they have understood the terms and conditions and the corresponding risks that entail in availing electronic banking service; f. The bank's oversight process shall ensure that business expansion shall not put undue strains on its systems and risk management capability; g. The establishment of procedures for the regular review of the bank's security arrangements to ensure that such arrangements remain appropriate having regard to the continuing developments in security technology; h. Strict adherence to BSP regulations on fund transfers in cases where clients use the electronic banking services to transfer funds; i. The electronic banking service shall not be used for money laundering or other illegal activities that will undermine the confidence of the public; and j. The BSP shall be notified in writing thirty (30) days in advance of any enhancements that may be made to the online electronic banking service. SUBSECTION X621.6 Pending applications . The same procedure and requirements stated in the foregoing shall apply to all banks with pending applications with the BSP, except on the submission of the documents enumerated in Item "e", Subsec. X621.1, i.e., banks which have already submitted all the required information/documents need not comply with this requirement. SUBSECTION X621.7 Exemption . Electronic banking services that are purely informational in nature are exempted from these regulations: Provided, however , That should such services be upgraded to transactional service, then prior BSP approval shall be required. SUBSECTION X621.8 Transitory provision . Banks with existing electronic banking services but do not qualify as a result of the pre-screening process mentioned in Item "b", Subsec. X621.1, shall be given three (3) months from December 21, 2000, within which to show proof of improved overall financial condition and/or substantial compliance with BSP's prudential requirements, otherwise, their electronic banking activities will be temporarily suspended until such time that the same have been complied with. SUBSECTIONS X621.9-X621.11 (Reserved) SUBSECTION X621.12 Sanctions . For failure to seek BSP approval before launching/enhancing/implementing electronic banking services, and/or submit within the prescribed deadline the required information/documents, the following monetary penalties and/or suspension of electronic banking activities or both, shall be imposed on erring banks and/or its officers: Monetary penalties Amount a. For responsible officer/s a one time penalty of P200,000 and/or director/s for failure to seek prior BSP approval and/or for non-submission/delayed submission of required information/documents b. On the bank P300,000 per day starting from the for failure to seek prior day the offense was committed BSP approval and/or for up to the time the same was corrected non-submission/delayed submission of required information/documents SECTIONS X622-X630 (Reserved) SECTION 1631. Financial Products of Allied Undertakings or Investment House Units of Banks . The following guidelines shall govern the use of the head office and/or any or all branches of UBs and KBs as outlets for the presentation and sale of financial products of their allied undertakings (subsidiaries and affiliates as defined hereafter) or of their investment house (IH) units. In case of sale of insurance products of insurance company affiliates, said affiliates must be accredited or pre-cleared by the Insurance Commission (IC) to ensure that only stable and reputable insurance companies can sell their products through banks. aHcDEC a. Financial products covered by this Section are the following: (1) Credit cards; (2) Insurance products limited to: (a) Life insurance products; (i) Term insurance (including mortgage redemption insurance); (ii) Whole life insurance; (iii) Endowment; (iv) Health and accident policies; (v) Variable life insurance contracts; and (vi) Life annuities. (b) Non-life insurance; (i) Fire insurance; (ii) Marine cargo policies; (iii) Homeowners' policies; and (iv) Directors/officers liability insurance. (3) Such other products as may be authorized by the Monetary Board. b. For purposes of this Section, a "subsidiary" means a corporation more than fifty percent (50%) of the voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank while an " affiliate " means a corporation at least five percent (5%) but not exceeding fifty percent (50%) of the voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a bank. A domestic subsidiary or affiliate is any subsidiary or affiliate domiciled in the Philippines and incorporated under the laws of the Philippines, while a foreign subsidiary or affiliate is a subsidiary or affiliate incorporated and organized under the laws of the foreign country. SUBSECTION 1631.1 Statement of principles . The use of a bank's head office and/or any or all of its branches in the presentation and sale of financial products of allied undertakings or IH units could give the banking public the impression that these products are covered by the deposit insurance system or guaranteed by the parent bank. To enable the public to understand fully the attendant risks involved in these transactions, a clear and explicit distinction between financial products offered by a bank and those of its allied undertakings or IH units must be made in the presentation and sale of these products, whether through written or verbal communications. SUBSECTION 1631.2 Prior Monetary Board approval . The presentation and sale of financial products shall be made by the bank in its head office and/or any or all of its branches only upon prior approval of the Monetary Board. The bank's proposal on said presentation and sale shall provide information on the location of the office where financial products will be sold. Where possible, the office shall not be located in the main lobby of the bank's head office and/or its branches and should be clearly distinguishable by the public as a separate entity from the parent bank. The proposal shall likewise cover particulars on: a) personnel who will be involved in the marketing of the financial products; and b) promotional matters including safeguards that would ensure that the public will be able to differentiate readily the bank products from the non-bank products. The public should also be able to distinguish personnel marketing non-bank products from regular bank personnel. In case of sale of insurance products, the staff selling insurance policies must be duly licensed by the IC. SUBSECTION 1631.3 Minimum documentary requirements . The following documents shall be submitted as basis for the evaluation of a bank intending to sell financial products of its allied undertakings or its IH units: a. Latest information on the allied undertaking or IH unit: (1) Annual report; (2) List of directors and senior officers; and (3) Income and expense statement for the last three (3) years; b. Copy of the approval of the Board of Directors of both the parent bank and allied undertakings or IH units on the presentation and sale of financial products; c. justification of the presentation and sale of financial products; d. Detailed information on the financial products to be offered, including promotional materials which will be used; e. Outline of the content of the training materials for bank's staff and officers who will be involved in the handling of the sale of financial products; f. Sample contracts; and g. Such other information that may be required by the BSP. SUBSECTION 1631.4 Financial ratios and other related requirements . A bank intending to use its head office and any/or all its branches as outlets for the presentation and sale of financial products of its allied undertakings or IH units must comply with the following requirements to ensure that only financially viable institutions and complying with BSP rules and regulations are allowed to undertake cross-selling activities: a. The bank during the last ninety (90) days immediately preceding the date of application has complied with the following: (1) Ceilings on credit accommodations to DOSRI; (2) Liquidity floor on government deposits; (3) Minimum capitalization as defined under Sec. X106; (4) Risk-based capital adequacy ratio under Sec. X116 or as may be required by the Monetary Board in the future; (5) Single borrower's limit; (6) Investment in bank premises and other fixed assets; (7) Open foreign exchange position; and (8) Foreign exchange asset cover or FCDU/EFCDU foreign currency liabilities. b. It does not have float items outstanding for more than sixty (60 calendar days in the "Due from/to Head Office/Branches/Offices" accounts and the "Due from Bangko Sentral" account exceeding one percent (1%) of the total resources as of end of preceding month; c. It has no weekly reserve deficiency against deposit liabilities, deposit substitutes and CTFs during the last twelve (12)-week immediately preceding the date of application; d. It maintains adequate provisions for probable losses commensurate to the quality of its asset portfolio but not lower than the required valuation reserves as determined by the BSP; and e. It has a CAMELS Composite Rating of at least "3" in the last regular examination by the BSP. ECTSDa SUBSECTION 1631.5 Promotional materials; stationeries and other paraphernalia . a. The promotional materials used in the sale of these financial products, especially posters displayed in bank premises, shall contain the following: (1) The logo of the allied undertaking or IH unit promoting the financial product accompanied by the words "A subsidiary (or affiliate, as the case may be) of (name of parent bank); and (2) The words "financial product/s of (name of allied undertaking/investment house unit) is/are not insured by the Philippine Deposit Insurance Corporation and is/are not guaranteed by the (name of parent bank)" shall be printed in capital letters, black letters against light background/white letters against dark background with the following print size: Size of Promotional Print Size * Material Legal/Letter Size 12 15" X 20" 24 19" X 25" 36 * For other measurements of promotional materials, use of print size closest to indicated size of promotional material. b. Stationeries and other paraphernalia used in the sale of aforementioned products shall bear the logo of the allied undertaking or IH unit promoting the financial product and the words " a subsidiary (or affiliate, as the case may be) of (name of parent bank) " should appear visibly under the logo. SUBSECTION 1631.6 Contracts/Information to be disclosed . a. The following paragraph shall be printed at the end of the contract in the print size as the rest of the contract, or font size 12 whichever is bigger, in capital letters and in bold font: "This contract is between (name of client) and (name of allied undertaking or investment house unit), a subsidiary (or affiliate, as the case may be) of (name of parent bank). All transactions arising out of or related to this contract shall be binding only between these two (2) contracting parties. It is understood that this transaction is neither insured by the Philippine Deposit Insurance Corporation (PDIC) nor guaranteed by the parent bank." b. All other limitations that may affect the interest of the client shall also be disclosed in the contract. SUBSECTION 1631.7 Training . The bank shall conduct training for the officers and staff who will be involved in the handling of the sale of non-bank products to ensure that they do not unwittingly guarantee or give the impression that the financial products being offered are those of the parent bank. SUBSECTION 1631.8 Other requirements . a. Record-keeping and accounting for the financial products of the bank's allied undertaking or IH unit shall be separate from those of the parent bank. b. The bank, in coordination with its allied undertaking/IH unit, shall formulate the guidelines and establish clear procedures for evaluating client suitability. SUBSECTIONS 1631.9-1631.10 (Reserved) SUBSECTION 1631.11 Sanctions . a. Violations of the provisions of this Section shall constitute grounds for the imposition on the bank of the following: (1) Monetary fine Any amount as may be authorized by the Monetary Board not to exceed P30,000 a day for each violation from the time the violation was committed until it is corrected; (2) Non-monetary penalties (a) Suspension of rediscounting privileges or access to BSP credit facilities; and (b) Other sanctions as the Monetary Board may impose depending on the gravity of the offense. SECTION 2631. (Reserved) SECTION 3631. (Reserved) SECTION X632. Prohibition on the Sale of Foreign-Based Mutual Funds by Banks . Criminal and administrative sanctions prescribed under Sections 36 and 37, respectively, of R.A. No. 7653 shall be imposed on banks marketing/selling foreign-based mutual funds using any or all of their branches as outlets and/or selling such financial products without prior BSP approval. SECTIONS X633-X650 (Reserved) SECTION X651. Asset-Backed Securities . The following regulations shall govern the origination, issuance, sale, servicing and administration of asset-backed securities (ABS) by any bank including its subsidiaries and affiliates engaged in allied activities, which are domiciled in the Philippines. SECTION X651.1 Definition of terms . a. Assets shall mean loans or receivables existing in the books of the originator prior to securitization. Such assets are generated in the ordinary course of business of the originator and may include mortgage loans, consumption loans, trade receivables, lease receivables, credit card receivables and other similar financial assets. TECIHD b. Asset-backed securities shall refer to the certificates issued by a Special Purpose Trust (SPT) representing undivided ownership interest in the asset pool. c. Asset pool shall mean a group of identified, self-amortizing assets that is conveyed the SPT issuing the ABS and such other assets acquired as a consequence of the securitization. d. Clean-up call shall refer to an option granted to the seller to purchase the remaining assets in the asset pool. e. Credit enhancement shall refer to any legally enforceable scheme that is intended to enhance the marketability of the ABS and increase the probability that investors receive payment of amounts due them. f. Guarantor shall refer to an entity that guarantees the repayment of principal and interest on loans or receivables included in the asset pool in the event of default by the borrower. g. Investible funds shall refer to the proceeds of collection of loans or receivables included in the asset pool which are not yet due for distribution to investors. h. Issuer shall refer to the SPT that issues the ABS. i. Originator shall refer to a bank and/or its subsidiary or affiliate engaged in allied activities that grants or purchases loans or receivables and assembles them into a pool for securitization. j. Residual Certificates shall refer to certificates issued representing claims on the remaining value of the Asset Pool after all ABS holders are paid. k. Seller shall refer to the entity which conveys to the SPT the Assets that constitute the Asset Pool. l. Servicer shall refer to the entity designated by the Issuer primarily to collect and record payments received on the Assets, to remit such collections to the Issuer and perform such other services as may be specifically required by the Issuer excluding asset management or administration. lexlib m. Special Purpose Trust (SPT) shall refer to a trust administered by a trustee and created solely for the purpose of issuing and administering an ABS. n. Trustee shall refer to the entity designated to administer the Special Purpose Trust. o. Underwriter shall refer to the entity engaged in the act or process of distributing and selling of the ABS either on guaranteed or best effort basis. SECTION X651.2 Authority . Any bank, or NBQB, including its subsidiaries and affiliates engaged in allied activities, may securitize its Assets upon prior approval of the Bangko Sentral ng Pilipinas (BSP). SECTION X651.3 Management Oversight . The Originator/Seller shall have the securitization program approved by its board of directors. The Originator/Seller shall integrate such securitization program into its corporate strategic plan. The board of directors shall ensure that the securitization of assets is consistent with such program. SECTION X651.4 Minimum Documents Required . The application to securitize must be accompanied by the following documents as a minimum requirement: a. Trust Indenture evidencing the conveyance of the Assets from the Seller to the issuer or SPT, the features of which shall include the following: 1. Title or nature of the contract in noticeable print; 2. The parties involved, indicating in noticeable print, their respective legal capacities, responsibilities and functions; 3. Features and amount of ABS; 4. Purposes and objectives; cdll 5. Description and amount of Assets comprising the Asset Pool; 6. Representation and warranties; 7. Credit enhancements; 8. Distribution of funds; 9. Authorized investments of Investible Funds; 10. Rights of the investor; 11. Reports to investors; and 12. Termination and final settlement The trust indenture shall include as annexes the Servicing Agreement between the Trustee and the Servicer and the Underwriting Agreement between the Seller and the Underwriter. b. Prospectus As a minimum requirement, it shall contain the following: 1. Summary of the contents of the prospectus; 2. Description of each class of certificate, including such matters as probable yields, payment dates and priority of payments; dctai 3. Description of the Assets comprising the Asset Pool as well as the representations and warranties set forth by the Originator and/or Seller; 4. Assumptions underlying the cash flow projections for each class of certificate; 5. Description of any credit enhancement; 6. Identity of the Servicer; and 7. Disclosure statements as required under Section 6 of this Circular. c. Specimen of Application to Purchase ABS it shall include the terms and conditions of the purchase and the disclosures required under Section 6 of this Circular. d. Specimen of Certificate it shall indicate the features of the ABS and the disclosures required under Section 6 of this Circular. SECTION X651.5 Minimum Features of ABS . The ABS shall be pre-numbered and printed on security paper. The ABS shall be signed and authenticated by the Trustee. They are transferable by endorsement of the certificate. The transfer shall be recorded in the books of the Trustee, indicating the names of the parties to the transaction, the date of the transfer and the number of the certificate transferred. The minimum denomination of any ABS shall be P10,000. SECTION X651.6 Disclosures . The following disclosures must be provided in a conspicuous manner in any document inviting investment, application to purchase ABS and in the certificate itself: a. The ABS do not represent deposits or liabilities of the Originator, Servicer or Trustee and that they are not insured with Philippine Deposit Insurance Corporation (PDIC); b. The investor has an investment risk; c. The Trustee does not guarantee the capital value of the ABS or the collectibility of the Asset Pool; and d. The rights of an investor. The investors shall be required to sign an acknowledgment indicating that they have read and understood the disclosures. SECTION X651.7 Conveyance of Assets . a. That the conveyance of the Assets comprising the Asset Pool shall be done within the context of a true sale and, for this purpose, the Seller may not retain in its books the ABS, except the residual certificate, if any. b. The Seller shall have no obligation to repurchase or substitute an Asset or any part of the Asset Pool at any time, except in cases of a breach of representation or warranty, or under a revolving structure, to replace performing Assets which have been paid out in part or full. c. The Seller shall be under no obligation to provide additional Assets to the SPT to maintain a "coverage ratio" of collateral to outstanding ABS. A breach of this requirement will be considered a credit enhancement and should be charged against capital. However, this will not apply to an Asset Pool conveyed under a revolving structure such as the securitization of credit card receivables. d. Securitized Assets shall be considered the subject of a true sale between the Seller and the SPT. Sold Assets shall be taken off the books of the Seller and shall be transferred to the books of the SPT. For accounting purposes, the transfer shall only be considered a true sale if three (3) conditions have been satisfied: (1) the transferred Assets have been isolated and put beyond the reach of the Seller and its creditors; (2) the SPT has the right to pledge or exchange its interest in the Assets; and (3) the Seller does not effectively maintain control over the transferred Assets by any concurrent agreement. e. All expenses incidental to underwriting, conveyance of the Asset Pool including expenses for credit enhancement may be paid by the Originator/Seller: Provided, That no further expenses shall be borne by the Originator/Seller after the Asset Pool has been conveyed to the SPT. SECTION X651.8 Representations and Warranties . a. Standard representations and warranties refer to an existing state of facts that the Originator, Seller or Servicer can either control or verify with reasonable due diligence at the time the Assets are sold. Any breach of representation or warranty may give rise to legal recourse. b. The representations or warranties shall be clear and explicit and, in particular, shall not relate to the future creditworthiness of the Assets in the Asset Pool or the performance of the SPT or the securities issued. c. Any agreement to pay damages as a result of breach of warranties and representations shall hold only where: 1. there is a well-documented negotiation of the agreement in good faith; 2. the burden of proof for a breach of a representation or warranty rests with the other party; 3. damages are limited to the loss incurred as a result of the breach; and 4. there is a written notice of claim specifying the basis for the claim. The BSP shall be notified of any instance where a bank/NBQB or its subsidiaries/affiliates has agreed to pay damages arising out of any breach of representation or warranty. llphil SECTION X651.9 Third Party Review . A due diligence review by an independent entity mutually agreed upon by the Seller and the issuer shall be done before the Assets are sold. SECTION X651.10 Originator and Seller . a. The Seller may itself be the Originator, and may likewise be designated as the Servicer. b. The Seller or Originator shall deliver to the Trustee all original documents or instruments with respect to each Asset sold. SECTION X651.11 Trustee and Issuer . a. The Trustee shall be the trust department of a bank licensed to do business in the Philippines. b. The Trustee shall have the right to manage or administer the Asset Pool. The Trustee shall see to it that necessary measures are taken to protect the Asset Pool. c. The Trustee shall undertake a performance review of the Asset Pool at least quarterly and shall prepare a report to investors indicating, among others, collections, fees and other expenses as well as defaults, which report shall be made available to the investors at anytime after thirty (30) days from end of the reference quarter. d. The Trustee shall initiate all civil actions including foreclosure of mortgaged properties to effect collection of receivables in the Asset Pool. The Servicer or any other party may be designated by the Trustee to perform such function on a case-by-case basis. e. The Trustee may invest the Investible Funds only in obligations issued and/or fully guaranteed by the government of the Republic of the Philippines or by the Bangko Sentral ng Pilipinas and such other high-grade readily marketable debt securities as the Bangko Sentral may approve. f. The Trustee shall designate a replacement of the Servicer if the latter fails to satisfactorily perform its duties and responsibilities according to the terms and conditions of the Servicing Agreement. SECTION X651.12 Servicer . a. The Servicer shall perform its duties according to the terms and conditions of the Servicing Agreement and such other written instructions as the Trustee may issue on a case-by-case basis. Collections made by the Servicer shall be remitted promptly to the Trustee or as may be agreed upon by the parties in the Servicing Agreement, but in no case shall the remittance period be longer than one (1) month. b. The Servicer shall prepare periodic reports as may be required by the Trustee. c. The Servicer shall report to the Trustee within thirty (30) days, any borrower which fails to pay its debt at maturity date or any adverse development that may affect the collectibility of any loan account or receivable comprising the Asset Pool. d. The Servicer shall have no authority to waive penalties and charges except with a written authority from the Trustee. SECTION X651.13 Underwriter . a. An expanded commercial bank (EKB) or investment house (IH) shall have written policies and procedures on underwriting of ABS. b. The Underwriter shall perform its functions according to the terms and conditions of the underwriting agreement. c. An Underwriter may deal in ABS, except those administered by its trust department, the trust departments of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates. d. An EKB/IH may act as Underwriter, on a firm basis, of ABS except those administered by its trust department, the trust departments of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates. e. The Underwriter may not extend credit for the purpose of purchasing the ABS which such EKB/IH underwrites or that which is underwritten by its subsidiaries/affiliates, its parent bank or its parent bank's subsidiaries/affiliates. SECTION X651.14 Guarantor . a. Only an entity the regular business of which includes the issuance of guarantees or similar undertaking may act as Guarantor. b. The Guarantor must have the financial capacity to perform its responsibilities in accordance with the terms and conditions of the guarantee agreement. It shall submit to the Trustee at least once in every six (6) months such financial reports as the Trustee may require. aisadc c. The Originator or Seller may not issue a counter-guarantee in favor of the Guarantor. SECTION X651.15 Credit Enhancement . Credit enhancement may be provided in any of the following manner: a. Standby letter of credit issued by a commercial bank other than the Originator/Seller or its subsidiary/affiliate, its parent bank or the parent bank's subsidiary/affiliate, and Trustee or its subsidiary/affiliate. b. Surety bond issued by any insurance company other than the Originator's/Seller's subsidiary or affiliate, the subsidiary or affiliate of the Originator's/Seller's parent bank and the Trustee's subsidiary or affiliate. c. Guarantee issued by any entity other than the Originator/Seller or its subsidiary/affiliate, its parent bank or the parent bank's subsidiary/affiliate, and Trustee or its subsidiary/affiliate. d. Overcollateralization provided by the Originator/Seller wherein the assets conveyed to the SPT exceed the amount of securities to be issued. Losses arising from overcollateralization shall be recognized by the Originator/Seller upfront. Such losses shall be treated as capital charges. e. Spread account wherein the income from the underlying pool of receivables is made available to cover any shortfall in the repayment of ABS. The spread account shall be handled by the Trustee which shall account for it separately. If not needed, this "spread" generally reverts to the holder of the residual certificate. f. Subordinated securities that are lower ranking, or junior to other obligations and are paid after claims to holders of senior securities are satisfied. g. Other credit enhancements as may be approved by the Monetary Board. To be consistent with the concept of true sale, subordinated securities shall be sold to third party investors other than originator's/seller's parent company or its subsidiary/affiliate and the trustee or its subsidiary/affiliate or, if held by the seller, capital charges should be booked upfront. Otherwise, the subordinated securities shall be treated as deposit substitute subject to legal reserves. SUBSECTION X651.16 Clean-up call . A clean-up call may be exercised by the seller once the outstanding principal balance of the receivable component of the asset pool falls to ten percent (10%) or less of the original principal balance of the asset pool. Where the asset pool includes foreclosed and other assets, such assets shall be included in the clean-up call and the consideration thereof shall be at current market value. Such a clean-up call shall not be considered recourse or in violation of Subsec. X651.7 on conveyance of assets. SUBSECTION X651.17 Prohibited activities . a. The seller may not, under any circumstance, designate its trust department, the trust department of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates as trustee. b. Any director, officer or employee of the originator, seller or servicer may not serve as a member of the board of directors or trust committee of the trustee or vice versa for the duration of the securitization. c. The trust indenture shall not contain any stipulation whereby the seller, its subsidiaries/affiliates, its parent bank or the parent bank's subsidiaries/affiliates shall commit to extend any credit facility to the issuer and/or trustee. d. The ABS shall not be eligible as collateral for a loan extended by a bank which originated/sold the underlying assets of such ABS. e. The trust department of a bank that has discretion in the management of any trust or investment management account may not purchase for said trust/investment management account ABS administered by the trust department of the same bank, the trust department of such trustee's subsidiaries/affiliates, the trust department of such trustee's parent bank and the trust department of the parent bank's subsidiaries/affiliates. f. The trustee may not designate its subsidiary/affiliate, its parent or the parent's subsidiaries/affiliates as servicer or vice versa. SUBSECTION X651.18 Amendment . Any amendment to the trust indenture shall require the prior approval of the BSP. SUBSECTION X651.19 Miscellaneous provision . Without prior approval of the BSP, a bank or any entity supervised by the BSP may act as trustee or servicer in a securitization scheme originated by an entity not supervised by the BSP: Provided , That the assets which are the subject of such securitization are existing in the books of the entity prior to securitization: Provided, further , That such entity acting as trustee or servicer is not a subsidiary/affiliate of the originator/seller, its parent bank or the parent bank's subsidiaries/affiliates or vice versa: Provided, finally , That such entity acting as trustee may not designate its subsidiaries/affiliates, its parent or the parent's subsidiaries/affiliates as servicer or vice versa. SUBSECTION X651.20 Report to BSP . The trustee bank shall submit a report of every securitization scheme in formats to be prescribed by the BSP. The report shall be submitted to the appropriate supervising and examining department of BSP, within fifteen (15) banking days after end of every reference quarter. Such report shall be considered a Category A report for purposes of implementing fines in the submission of required reports pursuant to existing regulations. SECTIONS X652-X690 (Reserved) SECTION X691. Anti-Money Laundering Regulations . Banks, offshore banking units (OBUs), quasi-banks (QBs), trust entities, non-stock savings and loan associations (NSSLAs), pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the BSP, otherwise known as "covered institutions" shall comply with the provisions of R.A. No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001" and its Implementing Rules and Regulations (IRRs) ( Appendix 52 ). SUBSECTION X691.1 Customer identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. When establishing business relations or conducting transactions (particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting of safety deposit boxes, performing remittances and other large cash transactions) banks should take reasonable measures to establish and record the true identity of their clients. Said client identification may be based on official or other reliable documents and records. EHScCA a. In cases of corporate and other legal entities, the following measures should be taken, when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors, principal officers and provisions regulating the power behind the entity. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. b. In case of doubt as to whether their purported clients or customers are acting for themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. c. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. In case where numbered accounts is allowed (i.e. peso and foreign currency non-checking numbered accounts), bank should ensure that the client is identified in an official or other identifying documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. Banks shall phase out within a period of one (1) year from April 2, 2001 or upon their maturity, whichever is earlier, anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them, which are not expressly allowed under existing law. d. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the bank should be renewed/updated at least every other year. e. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal behaviour. f. Special attention should be given to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. g. Banks should not, or should at least avoid, transacting business with criminals. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crime and other illegal activities. SUBSECTION X691.2 Issuance of cashier's, manager's or certified checks . Banks may issue cashier's, manager's or certified checks or other similar instruments in blank or payable to cash, bearer or numbered account subject to the following conditions: a. The amount of each check shall not exceed P10,000; b. The buyer of the check is properly identified as required under this Section; c. A register of said checks shall be maintained with the following minimum information: (1) Date issued; (2) Amount; (3) Name of buyer; (4) Date paid; and (5) If the aggregate instruments purchased by the same person within any thirty (30) day period amounts to at least P50,000, the purpose of the buyer should be stated. d. Banks which issue as well as those which accept as deposits, said cashier's, manager's or certified checks or other similar instruments issued in blank or payable to cash, bearer or numbered account shall take such measure(s) as may be necessary to ensure that said instruments are not being used/resorted to by the buyer or depositor in furtherance of a money laundering activity; e. The deposit of said instruments shall be subject to the same requirements/scrutiny applicable to cash deposits; and f. Transactions involving said instruments should be accordingly reported to the BSP if there is reasonable ground to suspect that said transactions are being used to launder funds of illegitimate origin. SUBSECTION X691.3 Programs against money laundering . Programs against money laundering should be developed. These programs, should include, as a minimum: a. The development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees; b. An ongoing employee training program; and c. An audit function to test the system. SUBSECTION X691.4 Submission of plans of action . Banks shall submit a plan of action on how to comply with the requirements of Subsecs. X691.1, X691.3 and X691.5 within thirty (30) days from July 31, 2000 or from opening of the bank. SUBSECTION X691.5 Required reporting of certain transactions . If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.A. No. 9160 and/or its IRRs, the transactions involving such funds or attempts to transact the same, should be reported to the Anti-Money Laundering Council (AMLC) in accordance with Rules 5.2 and 5.3 of the AMLA IRRs. ScTIAH a. Report on covered and suspicious transactions . Banks shall report covered transactions and suspicious transactions, as defined in Rules 5.2 and 5.3 of the AMLA IRRs, to the AMLC using the forms prescribed by the AMLC. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose; (2) Inward remittances without visible lawful purpose or without underlying trade transactions; (3) Unusual purchases of foreign exchange without visible lawful purpose; (4) Unusual sales of foreign exchange whose sources are not satisfactorily established; (5) Complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose; (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities; and (7) All other suspicious transactions/activities which can be reported without violating any law. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (b) A brief description of the transaction or transactions. (c) Date or date the transaction(s) occurred. (d) Amount(s) involved in, every transaction. (e) Such other relevant information which can be of help to the authorities should there be an investigation. b. Exemption from Bank Secrecy Law . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended; R.A. No. 6426, as amended; R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under R.A. No. 9160 or any other Philippine law. c. Prohibition from disclosure of the covered transaction report . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. SUBSECTION X691.6 Certification of compliance with anti-money laundering regulations . Banks shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Appendix 53) signed by bank president or officer of equivalent rank and by their compliance officer to the effect that they have monitored compliance with existing anti-money laundering regulations. The certification shall be submitted in accordance with Appendix 6 and shall be considered a Category A-2 report. SUBSECTION X691.7 Acceptance of second-endorsed checks . Banks shall adopt stricter policy guidelines in the acceptance of second-endorsed checks to ensure that they are not being used as instruments for money laundering or other illegal activities. For this purpose, banks shall limit the acceptance of second-endorsed checks from properly identified clients and only after establishing that the nature of the business of said client justifies, or at least, makes practical the deposit of second-endorsed checks. In case of isolated transactions involving deposits of second-endorsed checks by clients who are not engaged in trade or business, the identity of the first endorser should be established and the record of the identification shall also be kept for five (5) years. It is also understood that banks shall at all times follow the Know-Your-Customer (KYC) rules whenever they handle or transact second-endorsed checks. SUBSECTION X691.8 (Reserved) SUBSECTION X691.9 Sanction and Penalties . a. Whenever a covered institution violates the provisions of Section 9 of R.A. No. 9160 or of this Section, the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50,000 nor more than P200,000 or by imprisonment of not less than two (2) years nor more than ten (10 years, or both, at the discretion of the court pursuant to Section 36 of R.A. No. 7653, otherwise known as "The New Central Bank Act". b. Without prejudice to the criminal sanctions prescribed above against the culpable persons, the Monetary Board may, at its discretion, impose upon any covered institution, its directors and/or officers for any violation of Section 9 of R.A. No. 9160, the administrative sanctions provided under Section 37 of R.A. No. 7653. SADECI SECTIONS X692 - X698 (Reserved) SECTION X699. General Provision on Sanctions . Except otherwise prescribed in Subsec. X691.9, any violation of the provisions of this Part shall be subject to Sections 36 and 37 o R.A. No. 7653. APPENDICES GUIDELINES FOR THE ISSUANCE OF A UNIVERSAL BANKING AUTHORITY ( Appendix to Subsec. X101.2 ) I. Qualification Requirements A. Minimum Capital Required A KB applying for a universal banking (UB) authority shall have capital equivalent to at least the amount prescribed by the Monetary Board for UBs. The term capital shall have the same meaning as defined in Sec. X106 prescribing the required minimum capitalization for each bank category. The merger or consolidation of banks, or that of a bank and an investment house as a means of meeting the minimum capitalization requirement for a UB is encouraged. The revaluation of the premises, improvements and equipment of the institutions involved in a merger or consolidation may be allowed under Sec. X112. B. Financial Resources, Past Performance and General Compliance with Banking Laws and Regulations 1. Applicant bank shall not have incurred any deficiency in the minimum capital to risk assets ratio prescribed by the Monetary Board pursuant to Section 34 of R.A. No. 8791 for the year preceding the filing of application. It shall have sufficient valuation reserves to cover estimated losses. 2. Applicant bank shall not have incurred net deficiencies in its reserves against deposit and deposit substitute liabilities for the three (3)-month period immediately preceding the filing of application. In addition, applicant bank's liquidity ratios such as primary reserves to deposit liabilities and primary and secondary reserves to deposit and demand liabilities shall at least be equal to the averages of the UB sector as of the end of the quarter immediately preceding the date of application. 3. Applicant bank shall show profitable operations for the past calendar year immediately preceding the filing of application. Its ratio of net earnings to average capital accounts should indicate satisfactory returns on stockholders' investments. 4. Applicant bank has substantially complied with banking laws or orders, instructions, or regulations issued by the Monetary Board or orders, instructions, or rulings by the Governor. Major/important exceptions and findings by BSP examiners have been corrected or satisfactorily explained. C. Banking Facilities, Managerial Capability, Competence, Experience and Integrity of Directors, Principal Officers and Key Personnel 1. The applicant bank shall manifest adequate banking facilities and managerial capability in commercial banking operations as shown by, among other things, its branch network, subsidiaries and allied undertakings, FCDU/EFCDU and foreign trade transactions, participation in syndicated lending, trust services, etc. 2. The applicant bank shall indicate in the application those officers and key personnel having the appropriate training and/or experience in investment banking and related functions are available/obtainable by the bank. The application shall be supported by the updated bio-data of the bank's directors and principal officers, including the officers and key personnel who will handle the investment banking and related functions. II. Feasibility Study The applicant bank shall submit a feasibility study, which shall include, in addition to the usual content of such study, the following information: A. Capitalization and Ownership 1. A schedule showing the computation of the applicant bank's capital accounts taking into consideration capital as defined under Sec. X106 and, if applicable, the merger or consolidation scheme to meet the capitalization requirement as allowed under Secs. X111 and X112. 2. A list of direct and indirect loans to DOSRI which are unsecured, indicating the original amount, date granted, outstanding balance and classification (i.e., whether current or past due) of each DOSRI loan. 3. A summary of holdings of stockholders classified as to citizenship and family/business group indicating the number of shares subscribed in the applicant bank and the corresponding percentage of each shareholding to total shareholdings. 4. A list of individual stockholders grouped according to family/business group, indicating the TIN, citizenship, type of shares held (whether voting or non-voting, common or preferred), number of shares subscribed and percentage of holdings to total of each shareholder. 5. A list of individual stockholders in the applicant bank with equity investment in other financial institutions, indicating the type and number of shares held in the other institution and the corresponding percentage of holdings to total of each shareholder. cSEaDA B. Organization and Management 1. The names of the members of the board of directors and principal officers of the applicant bank. 2. The proposed organization chart of the department within the applicant bank that will be responsible for the investment banking functions, indicating the designation of officers and other key positions and the names of persons proposed for appointment to those positions. C. Financial Capability and Previous Year's Operation A brief discussion of the applicant bank's general financial condition, operating performance, solvency and liquidity position, supported by appropriate financial ratios as seen from the latest condensed balance sheet and income statement. The discussion shall include major banking activities, exposure concentrations (in terms of top borrowers and major industries), equity and credit exposures in subsidiaries and affiliates, and other significant information. D. Corporate Strategy 1. The statement of corporate strategy of the proposed UB, its immediate and long-term goals and objectives. 2. The lending program and special policies lined up for the first five (5) years including details on guidelines and standards to be established on exposure limits, portfolio diversification, collateral requirements, geographical expansion, assistance to pioneer and priority areas of economic activities and relationship with clients. 3. The investment policies and programs to be implemented within the first five (5) years of operation including broad categories of undertakings in which the proposed UB will invest, the portfolio mix to be observed, the extent of control over subscribed capital stock and voting stock to be exercised in the financial allied undertakings, quasi-banks and non-financial allied undertakings. 4. The fund generation program for the first five (5) years of operation to support the expansion in loans and investments. 5. The quarterly underwriting program for one (1) year stating industry of issuer, the volume of underwriting business classified into equity and debt, public offering and private placement and other information. E. Financial Projections 1. The detailed statement of underlying assumptions made in projecting the financial statements and ratios. 2. The detailed projected statement of income and expenses for the first five (5) years of operation. 3. The projected operating ratios for the first five (5) years of operation. 4. The actual statement of condition of applicant bank at month-end before filing of application and the projected statement of condition as of the first five (5) years-end of operation. 5. The projected balance sheet ratios as of the first five (5) years-end of operation. 6. The projected funds flow for the first five (5) years of operation. III. Public Offering and Listing of Bank Shares A domestic bank applying for a UB authority shall cause the public offering and listing of its shares under the following terms and conditions: 1. The shares to be publicly offered may be voting or non-voting shares and may come from the bank's existing authorized and unsubscribed stock or from an increase in its authorized capital stock: Provided , That in the case of an applicant bank whose authorized capital has been fully subscribed and paid-up and that bank does not intend to increase its authorized capital stock, the shares to be publicly offered may come from existing stockholders who may be willing to divest themselves of such holdings. 2. The offering bank shall accept offers to buy or invest in its publicly offered shares of stock from new investors or from existing stockholders whose stockholdings, together with those of their relatives within the fourth degree of consanguinity or affinity or of firms, partnerships, corporations or associations, at least a majority of the voting stock of which are owned by such stockholders, constitute less than twenty percent (20%) of the bank's subscribed capital stock. The bank's articles of incorporation shall have an explicit provision stating that existing stockholders who are disqualified under these rules shall waive their pre-emptive rights to the additional shares to be publicly offered unless the articles of incorporation already provide that such stockholders do not have pre-emptive rights. The waiver may be limited to three (3) months after which period the disqualified stockholders may purchase shares from the unsubscribed/unsold publicly offered shares. The publicly offered shares of stock shall be sold to at least twenty-one (21) qualified buyers or group of buyers but the total shares of stock which may be purchased by any qualified buyer or group of buyers shall not exceed ten percent (10%) of the publicly offered shares of stock. Buyers of publicly offered shares shall in no case exceed the ownership ceilings under Sections 11, 12, and 13 of R.A. No. 8791 and Section 2 of R.A. No. 7721. 3. The bank shall fix the price of the shares of stock. In the case of subscribed and fully paid-up shares which shareholders are willing to divest, the price shall be set by agreement of the parties. 4. The offering bank shall submit to the appropriate supervising and examining department for evaluation, a prospectus containing the following minimum information: (a) Name and address of issuing bank; (b) A brief history of the bank's operations and a description of its premises and facilities; (c) The current authorized capital stock and the stock offered for subscription/sale to the public indicating the classes of stock and the amount for each class presented in tabular form; (d) Features of the offer: (i) The number and amount of each class of stock offered; (ii) The per share and aggregate offering price of each class of stock and the per share and aggregate proceeds to be received by the bank; (iii) The proposed means of distribution; (iv) Specific terms of the offer (minimum subscription, payment terms, etc.); and (v) The expiry date of the offer. (e) Audited statements of condition (format similar to published statement of condition) and earnings and expenses for the last three (3) calendar years; Provided , That banks in operation for less than three (3) years shall disclose their audited financial statements from the start of operations to the year last ended; (f) Names and addresses of all directors and principal officers and their respective designations, and stock options and other similar plans for directors and officers; and (g) A list of stockholders owning ten percent (10%) or more of the subscribed capital stock, the number of shares held by each, whether voting or non-voting, and the par value of such shares. The list shall likewise show the ratio of subscribed capital stock held by directors and principal officers to the authorized capital stock; the ratio of the publicly offered shares of stock to the authorized capital stock, the citizenship and family groupings of stockholders with their corresponding percentage of ownership. 5. The bank shall cause the publication of the public offering in a newspaper of general circulation at least twice within a period of one (1) month prior to the offering. 6. The provisions of the guidelines on public offering shall be deemed substantially complied with if the bank causes its shares of stock to be publicly offered in the manner and under the conditions herein prescribed for a period of three (3) months. In cases where there are no buyers willing and/or qualified to purchase or invest in the shares of stock being publicly offered within said period, the bank, after written notice to the appropriate supervising and examining department of the BSP, may sell said shares to its existing stockholders, subject to the limitations on equity holdings prescribed by law and regulations. The requirements of public offering and listing shall be complied with by all applicant banks including those that are able to meet the prescribed minimum capital requirement on their own or through merger/consolidation with other banks or non-bank financial intermediaries. TCDcSE FORMAT OF AFFIDAVIT ON TRANSFER OF STOCKS [ Appendix to Subsec. X 126.2b (3) ] REPUBLIC OF THE PHILIPPINES ) _____________________________) S.S. AFFIDAVIT I, __________________________________, also known as _______________________ with business address at ___________________________, after having been duly sworn to in accordance with law depose and state that: 1. I am the transferee of ( state quantity ) shares representing ____ percent of voting stocks of ( state name of bank ), hereinafter to be referred to as "Bank", by virtue of ( state instrument of transfer ) dated ______________. 2. In acquiring equity in the Bank, I acted with full awareness and understanding that the Bank is a duly organized domestic banking corporation, exercising and enjoying a right, franchise and privilege to engage in ________ banking business, decreed by law to be a nationalized industry, wherein at least __________ of the voting stock should be owned by citizens of the Philippines and that there exist prohibitions under the law against the holding by a corporation or any person of voting stocks in excess of _____ of the voting stock of the Bank. 3. Consonant with the policy of the Government as provided for in Commonwealth Act No. 108, as amended, otherwise known as the Anti-Dummy Law, and Republic Act No. 8791, otherwise known as the General Banking Law of 2000, I hereby declare as follows: a. The ( state instrument of transfer ) was not simulated to evade the provisions of the Constitution and Commonwealth Act. No. 108 or the provisions of Republic Act No. 8791 particularly Sections 11, 12 and 13 imposing maximum equity holdings by any natural or juridical persons; b. That I acquired said shares of stocks for valuable consideration from my own funds; c. As such transferee, I have title over said shares of stock; and d. That I undertake to dispose of the shares of stocks I may have acquired in excess of the prescribed ceilings. 4. This Affidavit is executed for the purpose of stating under oath my bona fide title over the shares of voting stocks of the Bank; that in acquiring title over said shares I gave valuable consideration; and that I shall comply with the requirements of all laws, rules and regulations with respect to my conduct as stockholder of the Bank. AIECSD IN WITNESS WHEREOF, I hereby affix my signature this ______ day of _______________, 20____ at ________________________. ___________________ Affiant SUBSCRIBED and sworn to before me this _______ day of ______ 20____, affiant exhibiting to me his Community Tax Certificate No. ________, issued at ____________ on 20____. Notary Public Doc. No. _____ Page No. _____ Book No. _____ Series of ______ PREREQUISITES FOR THE GRANT OF AUTHORITY TO OPERATE FCDU ( Appendix to Subsec. X501.2b ) A TB applying for authority to operate FCDU shall comply with the following requirements: a. The bank's operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable; b. The bank is well capitalized with risk-based capital adequacy ratio not lower than twelve percent (12%) at the time of filing the application; c. The officer who will be in charge of FCDU operations shall have at least one (1) year of actual experience in another bank as in-charge or assistant in-charge of the same operations; d. The bank has not incurred net weekly reserve deficiencies within eight (8) weeks immediately preceding the date of application; e. The bank has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management in the last two (2) preceding examinations prior to the date of application, more particularly on: (1) election of at least two (2) independent directors; (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP; (3) the ceilings on credit accommodations to DOSRI; (4) liquidity floor requirements for government deposits; (5) single borrower's loan limit; and (6) investment in bank premises and other fixed assets; f. The bank maintains adequate provisions for probable losses commensurate to the quality of its asset portfolio but not lower than the required valuation reserves as determined by the BSP; g. The bank has no float item outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Offices" accounts and the "Due From Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; h. The bank has no past due obligation with the BSP or with any government financial institution; i. The bank has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls and complete, timely and efficient risk reporting system; j. The bank has a CAMELS composite rating of at least "3" in the last regular examination with Management rating not lower than "3"; and aScITE k. The bank is a member of the PDIC in good standing. REPORTS REQUIRED OF BANKS ( Appendix to Sec. X162 ) A. UBsIKBs Submission Submission Category Form No. MOR Ref. Report Title Frequency Deadline Procedure A-1 DCB I/II Form 2B X162.9 Published Consolidated Statement of Quarterly Original and published Original and Published (BSP-7-16-03) Condition (Head Office, branches and other reports within Reports SED I/II banking offices, foreign or domestic or, a twelve (12) and Duplicate SRSO consolidated statement of all Philippine twenty (20) banking via CC:Mail branches/offices of foreign banks), showing days, respectively, other required disclosures prescribed in after receipt of call- Subsec. X162.9 letter A-1 DCB I/II Form 2B.1 X162.9 Published Consolidated Statement of Quarterly Same as in Form 2B Original and Published (BSP-7-16-03) Condition (Bank and Financial Subsidiaries) above Reports SED I/II showing below the statement, the names of Duplicate SRSO the individual financial subsidiaries via CC:Mail A-2 DCB I/II Form 1 X116.2 Consolidated Daily Report of Condition Weekly 3rd banking day after CC:Mail to SRSO (Revised June 01) X121.5 together with the following schedules: end of reference Sch. 1 X258 Other Non-Risk Assets week Sch. 2 Selected Domestic Accounts and Control Proofsheet Annexes Weekly Inventory of GS Held CARE Reports Reports on Required and Available Reserves Weekly Upon completion of (Note: CDRC-sourced on: processing by SRSO reports generated by KAR 230KB (BSP-SES 1.03) - Deposit Substitutes/Interbank Loans; and SRSO are furnished to KAR 240KB (BSP-SES 1.04) - Deposit Liabilities the respective operating KAR 250KB (BSP 7-16-07) Reports on Minimum Capital Required Under divisions of SED I/II Section 34 of R.A. No. 8791 weekly) KAR 260KB (BSP 7-16-01.1-.3) Summary Utilization of Available Reserves; & KUB 265DR Liquidity Floor on Govt. Funds Held A-2 BSP 7-16-01A X258 Report of Changes in the Composition of As changes Two (2) banking Original SRSO; and Securities Held as Reserves for Deposit occur days after date of duplicate SED I/II Liabilities change A-2 Unnumbered X405.9 Report on Peso-Denominated Common Weekly 3rd banking day In diskette format to Trust Fund and Other Similarly Managed after end of SRSO; and a copy each Funds reference week SED I/II and DER A-2 Unnumbered X405.9 -do- -do- -do- (Per CL dated 8-20-98) Report on Trust and Other Fiduciary Accounts (TOFA) - Others A-2 Unnumbered Quarterly Fifteen (15) banking Original copy to SED I/ Computation of the Adjusted Risk-Based days after end of II/III Capital Adequacy Ratio Covering Combined reference quarter Credit Risk and Market Risk (For UBs/KBs with (solo basis) expanded derivatives authority) Thirty (30) banking days after end of reference quarter (consolidated basis) A-2 Unnumbered Computation of the Adjusted Risk-Based Quarterly Fifteen (15) banking Original copy to SED I/ Capital Adequacy Ratio Covering Combined days after end of II/III Credit Risk and Market Risk (For UBs/KBs with reference quarter expanded derivatives authority but without (solo basis) option transactions) Thirty (30) banking days after end of reference quarter (consolidated basis) A-2 Unnumbered Computation of the Adjusted Risk-Based Quarterly Fifteen (15) banking Original copy to SED I/ Capital Adequacy Ratio Covering Combined days after end of II/III Credit Risk and Market Risk (For UBs/KBs reference quarter without expanded derivatives authority) (solo basis) Thirty (30) banking days after end of reference quarter (consolidated basis) A-2 DCB I/II Form 2A.1 X162 Consolidated Statement of Condition and Monthly Fifteen (15) CC:Mail to SRSO (Revised August 02) Additional Information as of September 9, banking days after 2002 (For UBs/KBs Without Overseas end of month Offices), with the following schedules together with Sworn Control Proof List duly signed by the President, EVP/SVP: Note: Consolidated Report on Compliance with EFCDU/FCDU Cover Requirement is incorporated in CSOC format under CL dated 4.12.02 (See Sch. 9) Sch. 1 - Due from Other Banks; -do- -do- -do- Sch. 2 (Amended by - Loan Portfolio and Other Accommodations; -do- -do- -do- CL dated 5.15.02) Sch. 2.1 (Amended by - Loans Portfolio and Other -do- -do- -do- CL dated 5.15.02) Accommodations (Borrowings of LGUs); Sch. 2.A (Retitled) - Schedule of Loan Portfolio and Other Credit -do- -do- -do- Accommodations (Gov't Corporation/ Subsidiaries); Sch. 3 (Amended by - Trading Account Securities Investments, -do- -do- -do CL dated 5.15.02) Available for Sale Securities and Investments in Bonds and Other Debt Instruments; Sch. 3a - EFCDU/FCDU Trading Account Securities- -do- -do- -do- Investments and IBODI; Sch. 3B - Trading Account Securities Investments, -do- -do- -do- Available for Sale Securities and Investments in Bonds and Other Debt Instruments (Government Issue - Local Government Units); Sch. 4 - Equity Investments in Allied and Non- Monthly Fifteen (15) banking CC:Mail to SRSO Allied Undertakings; days after end of month Sch. 4a - Equity Investments In and Outstanding -do- -do- -do- Loans to Allied and Non-Allied Undertakings; Sch. 5 - Deposit Liabilities; -do- -do- -do- Sch. 5a - Domestic Time Certificates of Deposits -do- -do- -do- (TCDs), Classified by Maturity and Interest Rate); Sch. 5b - EFCDU/FCDU TCDs Classified by -do- -do- -do- Maturity and by Interest; Sch. 5c - Consolidated Report on Deposit Liabilities -do- -do- -do- by Size of Account Excluding Deposits of Foreign Office/Branches; Sch. 6 - Deposits of Banks and Due to Banks; -do- -do- -do- Sch. 7 - Bills Payable, amended to include in Item 4 -do- -do- -do- the Lending Programs of GFIs exempt from reserve & liquidity requirements; Sch. 7a - Bills Payable Other than to BSP; -do- -do- -do- Sch. 8 - EFCDU/FCDU Other Assets and Other -do- -do- -do- Liabilities From/To Non-Residents; Sch. 8a - Report on Bank Liabilities to Non- -do- -do- CC: Mail to IOD (formerly Sch. 15) Residents; Sch. 9 (Amended by - Consolidated Report on EFCDU/FCDU Monthly Fifteen (15) banking CC:Mail to SRSO CL 4.12.02) Cover Requirement; days after end of month Sch. 10 - Selected EFCDU/FCDU Accounts, -do- -do- -do- Classified by Country; Sch. 10a Foreign Bills Payable Other than to BSP; -do- -do- -do- Sch. 10b - Spot and Forward Exchange Transactions -do- -do- -do- to EFCDU/FCDU; Sch. 11 X347.3 - Domestic Standby Letters of Credit; -do- -do- -do- Sch. 12 - Peso Deposits, Deposit Substitutes and -do- -do- -do- Bills Payable to Selected Government Corporations and their Subsidiaries; Sch. 13 X240.8 - Government Funds Held/Compliance with -do- -do- -do- Liquidity Floor Requirement; Sch. 14 X121.6 - Sworn Compliance with Section 4 of RA -do- -do- -do- No. 7721, Re: 15% Remittance of "Net Due to" account (for branches of foreign banks only); Sch. 15 - Report on Exposure to Real Estate Industry -do- -do- -do- (Bank Proper); Sch. 15a - Report on Exposure to Real Estate Industry -do- -do- -do- (Trust Department); Sch. 16 - Report on Exposures to Auto Loans and -do- -do- -do- Credit Card Receivables A-2 DCB2A14S Report on Exposures to Real Estate Industry Quarterly Ten (10) banking CC:Mail to SRSO (Bank Proper and Trust Department) days after end of reference quarter Sch. 1 - Housing Loans Extended or Guaranteed -do- -do- -do- Under the Government's National Shelter Program (NSP); Sch. 2 - Real Estate Loans Considered Non- -do- -do- -do- Risk Assets; Sch. 3 - Real Estate Loans with Original Amount -do- -do- -do- of P3.5M and Below to Finance Acquisitions or Improvement of Residential Units; Sch. 4 - Trust Department Clients Directed IMA Real -do- -do- -do- Estate Loans (Trust Dept. only) A-2 DCB I/Il Form 2A.2 X162 Consolidated Statement of Condition and Monthly Fifteen (15) banking CC:Mail to SRSO (SES I/VI Form 2A.2) Additional Information (For UBs/KBs with days after end of Overseas Offices) month Same Schedules as in DCB I/Il Form 2A.1 above A-2 Unnumbered X162 GL/SL Trust Template/Report on Trust and Quarterly Ten (10) banking CC:Mail transmission (Amended by MAB X425.2 Other Fiduciary Business and Investment days after end of to SRSO dated 3.1.02 and CLs Management Activities with prescribed reference quarter dated 11.12.02 schedules together with notarized control and 2.5.02) prooflist to be faxed to SRSO A-2 Unnumbered X162 GL/SL Trust Template/Report on Investment -do- -do- -do- (Amended by X425.2 Management Activities with prescribed MAB dated 3.1.02) schedules together with notarized control prooflist to be faxed to SRSO A-2 Unnumbered X691.5 Covered Transaction Report (CTR) As Five (5) banking days Original and duplicate to (Revised May 2002) Transaction from the occurrence Anti-Money Laundering occurs of the transaction Council (AMLC) A-2 Unnumbered X691.5 Suspicious Transaction Report (STR) -do- -do- -do- (Revised May 2002) A-2 Unnumbered X691.7 Certification on Compliance with Anti-Money Annually Twenty (20) banking Original and duplicate (Cir. 279 dtd 4.2.01) Laundering Regulations days after end of SED I/II reference year A-3 DCB I/II Form 2C X162 Statement of Condition (By Banking Unit) with Quarterly Fifteen (15) banking Original SRSO (BSP-7-16-02-KB) the prescribed schedules (including ROPOA days after end of Duplicate SED I/II by banks), to wit: reference quarter Sch. 1 - Loans-to-Deposit Ratio Supplementary -do- -do- -do- Information; Sch. 2 - Aging of Loans and Selected Receivables; -do- -do- -do- Sch. 3 X162.6 - Report on Reconciling Items of More than -do- -do- -do- Six (6) months in "Due From Head Office/ Branches/Agencies" accounts; Sch. 4 X162 - Breakdown of Due From/Due to Local -do- -do- -do- (BSP 7-16-02-KB.1) Banks and Domestic Deposit Liabilities; A-3 Sch. 5 X162 - Breakdown of Domestic Savings Deposits -do- -do- -do- (BSP 7-16-02-KB.2) A-3 BSP-7-16-02-KB-A X162.11 Selected Financial Accounts for extension Part I- Fifteen (15) banking Original and duplicate office, savings agency or sub-branch in lieu Quarterly; days after end of SED I/Il of SED I/II Form 2C and Part II- reference quarter/ Semestrally semester A-3 DCB I/II Form 3A X162 Consolidated Statement of Income, Quarterly Fifteen (15) banking CC:Mail transmission (BSP-7-16-04) Expenses and Surplus (Free) with Sworn days after end of to SED I/Il Sch. 1 Control Prooflist as Required in Form 2A reference quarter Analysis of Undivided Profits and Surplus (Free) Accounts (NOTE: Covering the periods: for the 1st Quarter, 1st Semester, Three Quarters and for the Year, respectively.) A-3 DCB I/II Form 3B X162 Statement of Income and Expenses (By Quarterly Fifteen (15) banking Original and duplicate (BSP-7-16-04-A) Banking Unit) days after end of SRSO (NOTE: Covering the periods: for the 1st reference quarter Quarter, 1st Semester, Three Quarters and for the Year, respectively.) A-3 DCB I/II Form 5 X331 Daily Report on Compliance with Aggregate Weekly Four (4) banking days Original and duplicate (BSP-7-16-07-A) X409.3 Ceiling on Direct/Indirect Credit after end of reference SED I/II Accommodations to Directors/Officers/ week Stockholders/Related Interests (DOSRI), secured and unsecured loans A-3 DCB I/II Form 5A X330 Daily Report on Compliance with Ceiling on Weekly Four (4) banking days Original and duplicate (BSP-7-16-07-B) X409.3 Outstanding Unsecured Direct and Indirect after end of reference SED I/II, as combined Credit Accommodations to Directors/ week report w/ Form 5 above Officers/ Stockholders (DOS) A-3 SES I/II Form 5A.1 X330 Daily Report on Compliance with Individual Weekly Four (4) banking days Original and duplicate (BSP-7-16.07B.1) X409.3 Ceilings on Direct Credit Accommodations to after end of reference SED I/II, as supporting DOS, secured and unsecured loans together week schedules to Form 5A with a Certification by authorized signatories above that no one has exceeded the prescribed individual ceilings A-3 DCB I/II Form 5B X335 Consolidated Report on Compliance With Semestral Fifteen (15) banking Original and duplicate (BSP-7-16-13) X409.3 Aggregate Ceiling on Credit Accommodations days after end of SED I/II to DOSRI reference semester A-3 DCB I/II Form 5C X335 Report on Stockholdings of Bank's Semestral Fifteen (15) banking Original and duplicate (BSP-7-16-13A) X409.3 Directors, Officers, Stockholders, Their days after end of SED I/Il Spouses/ Relatives in Borrowing Firms reference semester A-3 DCB I/II Form 5D X335 Report on Compliance with Section 36 of R.A. As loan to Twenty (20) banking Original and duplicate (BSP-7-16-17) No. 8791 director or days after approval of SED I/II officer is direct or indirect approved loan granted any director or officer (DO) A-3 DCB I/II Form 5E X162.5 Sworn Statement on Real Estate Transaction As Ten (10) banking days Original and duplicate (BSP-7-16-31) to DOS transaction after approval of the SED I/II is approved transaction A-3 Unnumbered X602 Outstanding Derivatives Contracts Under the Monthly Five (5) banking days Original and duplicate Regular Banking Unit after end of reference SED I/II month A-3 Unnumbered X602 Outstanding Derivatives Contracts Under the Monthly Five (5) banking days Original and duplicate Foreign Currency Deposit Unit after end of reference SED I/II month A-3 Unnumbered X602 Reports on Trading Gains/Losses on Monthly Five (5) banking days Original and duplicate Derivatives Transactions after end of reference SED I/ll month A-3 Unnumbered X602 Outstanding Peso Derivatives Contracts Monthly Five (5) banking days Original and duplicate after end of reference SED I/II month A-3 DCB I/II Form 6 X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day CC:Mail/e-Mail/Diskette Allocation Required by R.A. No. 6977 as after end of reference - SRSO/SED I/II; amended by R.A. No. 8289 quarter Hard copy SMED Council Control Prooflist (notarized) Quarterly Upon transmission/ Original - SRSO (by fax, submission of main if hard copy cannot be report submitted on deadline) A-3 DCB I/II Form 2D X162 Statement of Condition (For branches/ Quarterly 15th banking day Original and duplicate agencies/offices abroad of domestic after end of SED I/II banks) with schedules, as follows: reference quarter Sch. 1 Analysis of Due to Head Office/Branches/ Semestral Attached to Main Agencies Account ; and Report Sch. 2 Schedule of Selected Accounts-Classified Semestral Attached to Main by Country Report A-3 DCB I/II Form 2E X162.12 Statement of Condition (For subsidiaries/ Quarterly 15th banking day Original and duplicate affiliates abroad of domestic banks) with after end of SED I/II, and Triplicate schedules, as follows: reference quarter IOD Sch. 1 Analysis of Due to Parent Firm/Bank and/ Semestral Attached to Main or Other Subsidiaries/ Affiliates; and Report Sch. 2 Schedule of Selected Accounts - Classified Semestral Attached to Main by Country Report A-3 DCB I/II Form 3C X162 Statement of Income and Expenses (For Quarterly/ Fifteen (15) banking Original and duplicate branches/agencies/offices abroad of Annually days after end of SED I/II domestic KBs) calendar quarter/year A-3 DCB I/II Form 3D X162.12 Statement of Income and Expenses (For Quarterly/ Fifteen (15) banking Original and duplicate subsidiaries(affiliates abroad of domestic Annually days after end of SED I/II KBs) calendar quarter/year A-3 BSP-7-16-27 X341.8 Consolidated Report on the Utilization of Quarterly Fifteen (15) banking Electronic mail/ Loanable Funds Generated Which Were Set days after end of diskette: SRSO Aside for Agrarian Reform/Other Agricultural reference quarter Credits with prescribed schedules to wit: Sch. A Total Collections from Loan Portfolio as of Quarterly Fifteen (15) banking Electronic mail/ May 31, 1975 days after end of diskette: SRSO reference quarter Sch. B Direct Loans to Farmers' Association or -do- -do- -do- Cooperatives for High Value Crop Projects Under Sec. 8 of RA 7900 Sch. C Utilization of the 10% Loanable Funds -do- -do- -do- Generated for Agrarian Reform Credit Sch. D Utilization of the 15% Loanable Funds -do- -do- -do- Generated for Agricultural Credit Loans Sch. E Development Loan Incentives Under -do- -do- -do- Sec. 9, RA 7721 Sch. F Report on Compliance with P.D. 717 Under -do- -do- -do- Sec. 11 of RA 7835 Control Prooflist (notarized) -do- Upon transmission/ Original - SRSO (by fax, submission of main if hard copy cannot be report submitted on deadline) B DCB I/II Form 4 X162.7 Consolidated List of Stockholders and Their Annually/ Twelve (12) banking Original and duplicate (BSP 7-16-11) Stockholdings quarterly days after end of SED I/II when any calendar year and if change there are changes, occurs seven (7) banking days after end of quarter B DCB I/II Form 6A 1162.5 Report on Outstanding Loans Secured by Semestral Ten (10) banking days Original and duplicate Shares of Stocks of Other Banks/NBQBs after end of reference SRSO semester B DCB I/II Form 6C X339.4 Availments of Financial Assistance to Semestral/ Fifteen (15) banking Original and duplicate (BSP 7-16-15A) Officers and Employees Under an Approved As changes days after the end of SED I/II Plan/Report on Changes of Approved Plans occur reference semester/ As changes occur B DCB I/II Form 6D X136.4 Report on Dividends Declared On each Ten (10) banking Original and duplicate (BSP 7-16-12) declaration days after date of SED I/Il dividend declaration B DCB I/II Form 6E X156.2 Report on New Schedule of Banking Days/ As changes Seven (7) banking Original and duplicate (BSP 7-16-16) Hours occur days before the SED I/II intended effectivity of the change B DCB I/II Form 6F X144 Biographical Data of Directors/Officers When Seven (7) banking CC:Mail/Diskette: (BSP 7-16-18) elected or days as changes SRSO SED I/Il appointed occur or after and as chan- election/appoint- ges occur in ment bank's offi- cers/directors B Unnumbered List of Members of the Board of Directors Annually Twenty-five (25) Original and duplicate and Officers banking days after SED I/II annual election/ appointment B DCB VIl Form 6G X162.4 Report on Crimes/Losses As crimes or Five (5) banking days Original SED I/II (BSP 7-16-20) (Note: In cases involving bank personnel, the incidents from knowledge of Duplicate SITD prescribed submission deadline shall be five occur crimes or incidents (5) banking days after initiation of judicial or involving loss, des- extra-judicial action or after imposition of truction or damage administrative sanction, whichever is earlier.) to bank's property or facilities of P100 thousand or more B DCB I/III Form 6H X306.5c Notice/Application for Write-Off of Loans and As write-off Twenty-five (25) Original and duplicate (BSP-7-16-21) Advances occurs banking days prior SED I/II to the intended date of write-off B Unnumbered 1162.13c Report on Computation of the Capital to Risk Quarterly Fifteen (15) banking Original and duplicate Asset Ratio in Accordance with the Basle days after end of SED I/II Guidelines reference quarter B BSP-7-16-23-KB Report on Foreign Currency Counterpart Each time Within twelve (12) Original and duplicate Loans a foreign banking days from SED I/II equity date of foreign equity investment investment is made B BSP-7-16-32 A X162 Report on Credit and Equity Exposures to Quarterly Fifteen (15) banking Electronic submission/ (Amended by CL Individuals/Companies/Groups aggregating days after end of diskette SRSO dated 5.24.01) P1 million and above (Bank Proper and Trust reference quarter Department) B Unnumbered-UB X380 Report on Equity Investments in Non-Allied After each Thirty (30) banking Original and duplicate Enterprises investment days from investment SED I/II date B Unnumbered X162.10 Report on Consolidated Financial Statements Annually 120 calendar days Original and duplicate of Banks and their Subsidiaries Engaged in after the end of SED I/II Allied Financial Undertakings together with reference year or audited financial reports of such subsidiaries adopted fiscal period B Unnumbered X164.6 Annual Report of Management to Annually 180 calendar days Original and duplicate Stockholders Covering Results of Operations after the close of the SED I/II for the Past Year calendar fiscal year elected by the bank B Unnumbered X164 Audited Financial Statements of the Bank Annually Ninety (90) calendar Original and duplicate Proper and FCDU for the Past Year Prepared days after the start of SED I/II by the External Auditor and the corresponding the audit/Thirty (30) Auditor's Letter of Comments (LOC) on Bank's banking days after Internal Control receipt of such LOC B Unnumbered X426 Audited Financial Statements of Trust and Annually Ninety (90) calendar Original and duplicate Other Fiduciary Business and Fund days after the start of SED I/II Management Activities for the Past Year, the audit and Thirty Prepared by the External Auditor and the (30) banking days corresponding Auditor's Letter of Comments after receipt of such (LOC) on Trust/IMAs' Internal Control LOC B Unnumbered X162.12 Audited Financial Statements of the foreign Annually Thirty (30) banking Original and duplicate banking offices and subsidiaries days from date of SED I/II submission/release of said reports to the foreign banking offices and subsidiaries of Philippine banks B Unnumbered X162.12 Examination Reports done by the foreign As Thirty (30) banking Original and duplicate bank supervisory authority examination days from date of SED I/II occurs submission/release of said reports to the foreign banking offices and subsidiaries of Philippine banks B Unnumbered X162.6 Reconciliation Statement between Head Annually Not later than the Original and duplicate office and all its Branches end of January of the SED I/II following year B Unnumbered X162.3 Report on Change of Required Information As changes Fifteen (15) banking Original and duplicate on Bank's Profiles, Organizational Structure occur days from such SED I/II and Operating Policies change/issuance B Unnumbered X162.1 Report on Designation of Authorized As Three (3) banking Original and duplicate Signatories of Bank's Reports Classified designation days from date of SED I/II as Category A-1, A-2, A-3 and B by Bank's designation/and as board of di- changes occur rectors occurs B Unnumbered X343 Daily Report on Interbank Borrowings Not As To be submitted only Original and duplicate Effected Through Clearing Account with BSP transaction when there are trans- SED I/II occurs actions covered, by noon of banking day immediately following date of transaction B Unnumbered X162 Certification Under Oath for "No Transaction" As incident To be submitted not Original and duplicate Dates on Interbank Borrowings During a occurs later than five (5) SED I/II Calendar Quarter banking days from end of reference quarter B Unnumbered X165.6 Certification on Compliance with the Rules Annually To be submitted not Original and duplicate and Regulation on Bank Protection later than five (5) SED I/II banking days from end of reference year B Unnumbered X342.2c Report on Reconciliation Statement of Monthly Seven (7) banking Original and duplicate Demand Deposit Account with the BSP days from receipt of SED I/II BSP statement B Unnumbered X233.9 Registry Bank Report of Compliance with Monthly Ten (10) banking Original SED I/II Prohibition on Holdings of LTNCTDs days after end of reference month DER Reports: B RS Form 1A 1162.13 Report on the Amount and Weighted Weekly Not later than 4:00 Original DER (BSP 5-17-30) Average Interest Rates on Loans and P.M. Thursday after Discounts Granted end of reference week B RS Form 1A Report on Volume and Weighted Monthly Monthly Not later than 2:00 Original DER (BSP 5-17-33) Average Interest Rate on Savings Deposit P.M. on the following day after end of reference month B RS Form 1 B Report on Interest Income and Weighted Monthly Not later than 2:00 Original DER (BSP 5-17-30) Average Interest Rate on Outstanding Loans P.M. on the following day after end of reference month B RS Form 1B Daily Report on Volume of Money Market Daily Not later than 3:00 Original DER (BSP 5-17-27) Transactions P.M. on reference day B RS Form 2A Report on the Volume of and Weighted Weekly Not later than 4:00 Original DER (BSP- 5-17-33) 1162.13 Average Interest Rates on Deposits PM Thursday after end of reference week B BSP-5-17-35.A 1162.13 Report on the volume of and interest rates on Monthly Not later than five (5) Original DER credit line availments under Short Term Prime banking days after Rates end of reference month B RS Form 2C Weekly Report on Quoted Rates of Dollar Weekly Not later than 2:00 Original DER (BSP 5-17-36) Savings and Time Deposits P M. of every Thursday B RS Form 2D Daily Report on the Volume of and Daily 3:00 P.M. the Original DER (CBP 5-17-34A) Weighted Average Rates on Promissory following day of Notes Issued reference week B RS Form 2E Daily Report on the Volume of and Daily 3:00 PM. the Original DER Weighted Average Rates on Time Deposits following day of Received reference week B CBP 5-17-01 Report of Outstanding Loans, Advances, Quarterly Ten (10) banking Original DER Discounts and Trading Account Securities days after end of reference quarter (for banks located within Metro Manila area); and Fifteen (15) banking days after end of reference quarter (for banks located out- side Metro Manila area) B Combined Report on Credits Granted and Outstanding - Monthly 15th banking days In Diskette-format to BSP 5-17-02 and By Banking Units after end of reference DER BSP 5-17-31 month RBU/FCDU Reports: A-3 FX Form 1- Main Report Daily Consolidated Foreign Exchange (FX) Weekly Five (5) banking days CC: Mail to SED I/II/OID (Formerly FED Form 1) Assets and liabilities, with the following after transaction date and DER and hard Revised 2000 schedules: copy to IOD Sch.1 Daily Summary of FX Acquisitions and Daily -do- -do- Dispositions Sch. 2 Details of Foreign Exchange Acquisitions: -do- -do- -do- Interbank Interbank Transactions and Availment of Bankers Acceptance by Reporting Bank Sch. 3 Details of FX Acquisition from Loans Weekly Five (5) banking days CC:Mail to SED I/II/IOD after end of reference and DER and hard week copy to IOD Sch. 4 Details of FX Disposition for Loans -do- -do- -do- Sch. 5 Other Current Accounts and Transfers -do- -do- -do- Acquisitions/Dispositions Sch. 6 Investment Acquisition/Disposition -do- -do- -do- Sch. 7 Other Foreign Exchange Acquisitions/ -do- -do- -do- Dispositions Sch. 8 Details of Spot and Forward Foreign Daily Two (2) banking days -do- Exchange Transactions after end of reference day Sch. 9 Export Proceeds Weekly Five (5) banking days -do- after end of reference week Sch. 10 Import UCs opened and Records on Goods -do- -do- -do- Imported (RGIs) under DA/OA Sch. 11 Import Payments -do- -do- -do- Sch.12 Spot and Financial Derivatives Acquisition/ -do- -do- -do- Dispositions Sch.13 Foreign Exchange Position Report Daily Two (2) banking -do- days after end of reference day A-3 Unnumbered Consolidated Foreign Exchange Position Daily Three (3) banking CC:Mail to SED I/II/ (Per CL dated 9/05/97) Report of Bank's branches/offices, days after end of DER/IOD & hard copy (Rev. by CL 7.01.98) subsidiaries/affiliates, here and abroad reference banking to IOD with Certification of its CEO and Treasurer day at month-end A-3 FX Form 1, Sch. 14 Consolidated Foreign Exchange Assets and Monthly Fifteen (15) calendar CC:Mail to SED I/II (Formerly FED Form I, Liabilities in Original Currency - RBU & FCDU days after end of and a copy to DER/ Sch. 16) reference month IOD B Unnumbered FX Purchases and Sales of US $100,000 Monthly 12:00 Noon of the Original SED I/II (Per CL dated 9/05/97) and Above, or its Equivalent Outside the following banking Philippine Dealing System day B Unnumbered Report on Repatriation of Capital/Daily Daily Two (2) banking days Original IOD (Per CL dated 5/25/00) Outward Remittance of Cash Dividends, after repatriation/ Profits and Earnings to Registered Foreign remittance Portfolio Investments B Unnumbered Report on Outstanding Balances of Portfolio Daily Fifteen (15) calendar In Diskette and Hard Investments Registered in Behalf of BSP days after end of Copy IOD reference month B IOS Form 4 Consolidated Report on Loans Granted By Monthly Fifteen (15) banking Original SED I (BSP6.22-01) FCDUs/EFCDUs days after end of Duplicate IOD reference month B BSP 5-40-08 Report on Spot and Forward Foreign Monthly Fifteen (15) banking Original SRSO Exchange Transaction of EFCDUs/FCDUs days after end of reference month B Unnumbered Report on EFCDU/FCDU Long-Term Monthly Fifteen (15) banking Original SRSO Investment in Debt Instrument days after end of Duplicate SED I/II reference month B Unnumbered Report on Option Transactions Monthly Seven (7) banking Original SRSO days after end of Duplicate SED I/II reference period B Unnumbered Report on Financial Future Transactions Bi-monthly Fifteen (15) banking Original SRSO days after end of Duplicate SED I/II reference month B R-4 Report on Foreign Guarantees Securing Monthly Fifteen (15) banking Original lOD Loans of Residents From Local Banks and days after end of Financial Institutions reference quarter B R-1 Report on Guarantees Issued by Local Banks Quarterly Fifteen (15) banking Original IOD and Financial Institutions In Favor of Non- days after end of Residents reference quarter B BSP 6-40-04 Statement of Earnings and Expenses Semestral Fifteen (15) banking Original IOD days after end of reference semester B Unnumbered X162.2 Report on Daily Transactions on Weekly 3rd banking day after Original and duplicate Investments in Dollar-Linked Peso Notes end of reference week SED I/II B Unnumbered Non-deliverable Forward FX Sales Contract Weekly Two-banking days Original and duplicate with Non-Residents with Initial Delivarable after end of SED I/II Forward reference week B Unnumbered Certification on Funds Borrowed from Monthly Five (5) banking Original and duplicate FCDU/EFCDU days after end of SED I/II reference month Domestic Operation Sector Report DOS Form I (DLC Form G) Report on Negotiation of Accounts Monthly Fifteen (15) banking Original DLC Rediscounted with Bangko Sentral days after end of reference semester REPORTS REQUIRED OF BANKS ( Appendix to Sec. X162 ) B. TBs Submission Submission Category Form No. MOR Ref. Report Title Frequency Deadline Procedure PERIODIC REPORTS A-2 TB Form 1 X116.2 Consolidated Daily Report of Condition Weekly 6th banking day By electronic mail to X121.5 (CDRC) after end of week SRSO X258 Control Prooflist on the contents of the data Weekly Immediately after the SRSO sent via electronic mail, with certification and bank has received the and signature of the authorized officer of acknowledgment the bank receipt from the BSP Control Prooflist, together with the cover Weekly 6th banking day Appropriate BSP page of the report after end of week Supervising and Exami- ning Department (SED) A-2 TB Form 1 Weekly Inventory List of Govt. Securities Weekly 6th banking day after By electronic mail to Schedule Held On a Daily. Basis end of reference week SRSO A-2 Unnumbered Weekly Inventory List of Government Weekly Every Thursday By electronic mail to Securities Held Set Aside for the Intra Day SRSO Liquidity Facility from Week starting Monday to Friday A-2 B Form 1 Schedule of Other Non-Risk Assets Monthly 6th banking day after Appropriate BSP SED Schedule 1 B end of week wherein & SRSO month-end falls A-2 TB Form 2 X162 Consolidated Statement of Condition Monthly 15th banking day after By electronic mail or in end of reference diskette form to SRSO month Control Prooflist on the contents of the data Monthly Upon transmission Fax and copy to SRSO sent via electronic mail or in diskette form, of report to BSP with certification and signature of the authorized officer of the bank Control prooflist, together with the original Monthly 15th banking day Appropriate BSP SED notarized affidavit/cover page of the report after end of reference month A-2 TB Form 2 Schedule of Due From Other Banks Monthly 15th banking day By electronic mail or in Schedule 2A after end of diskette form to SRSO reference month A-2 TB Form 2 Schedule of Loan Portfolio and Other Monthly 15th banking day -do- Schedule 2B Accommodations after end of reference month A-2 TB Form 2 Schedule of Loan Portfolio and Other Monthly 15th banking day -do- Schedule 2B Accommodations (interbank Loans after end of page 1 classified as to type of borrowers, term; reference month Loans and Other Accommodations (Other than Interbank Loans) classified as to term, economic activity) A-2 TB Form 2 Schedule of Loan Portfolio and Other Monthly 15th banking day -do- Schedule 2B Accommodations (Classification as to after end of reference page 2 Security) month A-2 TB Form 2 Schedule of Loan Portfolio and Other Monthly 15th banking day -do- Schedule 2B Accommodations (Classification as to type after end of page 3 of borrowers, interest rate, size of firm) reference month A-2 TB Form 2 Schedule of Loan Portfolio and Other Monthly 15th banking day -do- Schedule 2B Accommodations (Borrowings of Local after end of page 4 Government Units) - Classification as to reference month Provincial, City, Municipal A-2 TB Form 2 Schedule of Microfinance Program Monthly 15th banking day -do- Schedule 2B (Classification of loans as to type of client, after end of reference page 5 business enterprise, interest rate, size of month loans, security) A-2 TB Form 2 Schedule of Microfinance Loans (Aging of Monthly 15th banking day By electronic mail or in Schedule 2B accounts, amount of loan releases, amount after end of diskette form to SRSO page 6 of deposits generated, results of operation) reference month A-2 TB Form 2 Schedule of Trading Account Securities - Monthly 15th banking day -do- Schedule 2C Investments, Available for Sale Securities after end of reference pages 1 and 2 and Investments in Bonds and Other Debt month Instruments A-2 TB Form 2 Schedule of Trading Account Securities - Monthly 15th banking day -do- Schedule 2C Investments and Investments in Bonds and after end of page 3 Other Debt Instruments (Government Issue reference month Local Government Units) A-2 TB Form 2 Schedule of Deposit Liabilities Monthly 15th banking day -do- Schedule 2D after end of page 1 reference month A-2 TB Form 2 Schedule of Deposit Liabilities (Time Monthly 15th banking day -do- Schedule 2D Deposits Classified by Maturity and by after end of page 2 Interest Rate Domestic) reference quarter A-2 TB Form 2 Schedule of Deposit Liabilities (Time Monthly 15th banking day -do- Schedule 2D Deposits Classified by Maturity and by after end of page 3 Interest Rate FCDU) reference month A-2 TB Form 2 Consolidated Report of Deposit Liabilities Monthly 15th banking day -do- Schedule 2D Classified by Size of Account after end of page 4 reference month A-2 TB Form 2 Schedule of Deposit of Banks and Due to Monthly 15th banking day -do- Schedule 2D Banks after end of page 5 reference month A-2 TB Form 2 Schedule of Bills Payable Monthly 15th banking day -do- Schedule 2E.1 after end of reference month A-2 TB Form 2 Schedule of Bills Payable Other than to Monthly 15th banking day By electronic maiI or in Schedule 2E.2 Bangko Sentral after end of reference diskette form to SRSO month A-2 TB Form 2 Schedule of FCDU Other Assets and Other Monthly 15th banking day -do- Schedule 2F Liabilities from/to Non-Residents after end of reference month A-2 TB Form 2 X240.8 Schedule of Government Funds Held/ Quarterly 15th banking day -do- Schedule 2G Compliance with Liquidity Floor Requirement after end of reference quarter A-2 TB Form 2 Currency Classification of FCDU Funds Monthly 15th banking day -do- Schedule 2H after end of reference month A-2 TB Form 2 Classification of Interbank FCDU Funds by Monthly 15th banking day -do- Schedule 2I Country after end of page 1 reference month A-2 TB Form Classification of Non-Bank FCDU Funds by Monthly 15th banking day -do- Schedule 2I Country after end of page 2 reference month A-2 TB Form FCDU Indebtedness among Philippine- Monthly 15th banking day -do- Schedule 2J Based Participating Banks after end of reference month A-2 TB Form FCDU Loans and Advances Monthly 15th banking day -do- Schedule 2K after end of reference month A-2 TB Form 2 Foreign Exchange Swapped/Sold for Monthly 15 banking days -do- Schedule 2L Philippine Peso after end of (M07-TB) reference month A-2 TB Form 2 Report on Exposure to Real Estate Industry Monthly 15th banking day By electronic mail or in Schedule 2M after end of diskette form to SRSO reference month A-2 TB Form 2 Housing Loans Extended or Guaranteed Monthly 15th banking day -do- Schedule 2M1 under the Government's National Shelter after end of - Schedule 1 Programs (NSP) reference month A-2 TB Form 2 Real Estate Loans Considered Non-Risk Monthly 15th banking day -do- Schedule 2M1 Assets under Section 22 of the General after end of - Schedule 2 Banking Act and Existing Regulations reference month A-2 TB Form 2 Real Estate Loans with Original Amounts Monthly 15th banking day -do- Schedule 2M1 of P23.5 Million and below to Finance after end of - Schedule 3 Acquisition or Improvement of Residential reference month Units A-2 TB Form 2 Trust Department Client Directed Monthly 15th banking day -do- Schedule 2M1 Investment Managed Account (IMA) Real after end of - Schedule 4 Estate Loans reference month A-2 TB Form 2 Report on Auto Loans and Credit Card Monthly 15th banking day -do- Schedule 2N Receivables after end of reference month A-2 TB Form 2 Schedule of Equity Investments in Allied Monthly 15th banking day -do- Schedule 20 Undertakings after end of page 1 reference month A-2 TB Form 2 Schedule of Equity Investments in Allied Monthly 15th banking day -do- Schedule 20 Undertakings after end of page 2 reference month A-2 TB Form 2 Computation of Compliance with Aggregate Monthly 15th banking day By electronic mail or in Schedule 2P Ceiling on Direct/indirect Credit after end of diskette form to SRSO Accommodations to DOSRI and Report of reference month Unsecured Accommodations to Stockholders (with less than 2% Stockholdings for Purposes of BSP Circular No. 3, Series of 1993) A-2 TB Form 2 Report on Foreign Exchange Liabilities to Monthly 15th banking day -do- Schedule 2Q Non-Residents after end of reference month A-3 TB Form 3 X162 Statement of Condition (By Banking Unit) Quarterly 15th banking day SRSO after end of reference quarter A-3 TB Form 3 Breakdown of Due from/Due to Other Quarterly 15th banking day SRSO Schedule 3A Banks and Deposit Liabilities - Banks after end of reference quarter A-3 TB Form 3 Breakdown of Deposits (Other than Banks) Quarterly 15th banking day SRSO Schedule 3B after end of reference quarter A-3 TB Form 3 X162.11 Selected Financial Accounts (Only for Quarterly 15th banking day SRSO Schedule 3C extension offices, savings agencies or after end of money shops not maintaining separate books; reference quarter in lieu of TB Form 3 and its other schedules) A-3 TB Form 3 Aging of Loans and Selected Receivables Quarterly 15th banking day SRSO Schedule 3D after end of reference quarter A-3 TB Form 3 Loans-to-Deposits Ratio Supplementary Quarterly 15th banking day SRSO Schedule 3E Information after end of reference quarter A-1 TB Form 4 X162.9 Published Statement of Condition (Advance 12th banking day Original to appropriate copy for publication/posting) from receipt of call BSP SED letter Copy to SRSO by electronic mail or in diskette form or hard copy Control Prooflist, notarized (only when 12th banking day Original to appropriate PSOC is submitted electronically or in from receipt of call BSP SED diskette form) letter Upon transmission Fax to SRSO of PSOC template file Statement of Condition (Published/Posted) 20th banking day Appropriate BSP SED from receipt of call letter Publishers' Certificate (for published SOC)/ -do- -do- Affidavit of posting executed by the president or officer of equivalent rank (for posted SOC) A-3 TB Form 5 X162 Consolidated Statement of Income/ Quarterly 15th banking day By electronic mail or in pages 1 and 2 Expenses and Surplus (Free) after end of diskette form to SRSO reference quarter A-3 TB Form 5 Analysis of Profits and Surplus (Free) Quarterly 15th banking day -do pages 3 and 4 Accounts after end of reference quarter Control Prooflist on the contents of the data Quarterly Upon transmission Fax and copy to SRSO sent via electronic mail, with certification and of report to BSP signature of the authorized officer of the bank Control prooflist, together with the original Quarterly 15 banking days Appropriate BSP SED notarized affidavit/cover page of the report after end of reference quarter A-3 TB Form 5A Consolidated Statement of Income and Quarterly 15th banking day By electronic mail or in Expenses on Microfinance Program after end of diskette form to SRSO reference quarter A-3 TB Form 6 X162 Statement of Income and Expenses by Quarterly 15th banking day SRSO Banking Unit after end of reference quarter B TB Form 7 X162.7 Consolidated List of Stockholders and their Annual 12th banking day Appropriate BSP SED (A03-TB) Stockholdings - Complete List after end of reference year B Changes Quarterly 7th banking day Appropriate BSP SED after end of reference quarter A-3 TB Form 8 X335 Consolidated Report on Compliance with Quarterly 7th banking day Appropriate BSP SED X409.3 Individual Ceiling on Direct Credit after end of & SRSO Accommodations to Directors/Officers/ reference quarter Stockholders A-3 TB Form 9 X335 Consolidated Report on Compliance with Semestral 15th banking day Appropriate BSP SED page 1 X409.3 Aggregate Ceiling on Credit after end of & SRSO Accommodations to Directors/Officers/ reference semester Stockholders/Related Interest A-3 TB Form 9 X339.4 Availments of Financial Assistance to Semestral 15th banking day Appropriate BSP SED page 2 Officers-and-Employees under Bangko after end of & SRSO Sentral Approved Plan reference semester A-3 TB Form 9A X335 Stockholdings of Bank's Directors/Officers/ Semestral 15th banking day Appropriate BSP SED (S04-TB) X409.3 Stockholders/Their Spouses/Relatives in after end of & SRSO Borrowing Firms reference semester A-3 TB Form 11 X342.6 Report on Compliance with Mandatory Quarterly 15th banking day By electronic mail to (S04-TB) Credit Allocation Required under R.A. 6977 after end of SRSO (As Amended by R.A. 8289) reference quarter A-3 Control Prooflist, notarized and signed by Quarterly Upon transmission SRSO the authorized officer of the bank of the report A-3 TB Form 11 Details of Loan Portfolio and Loans to Small Quarterly 15th banking day SRSO Schedules 1A & 1B and Medium Enterprises after end of reference quarter A-3 TB Form 11 Loans Granted under Special Financing Quarterly 15th banking day SRSO Schedule 1C after end of reference quarter A-3 TB Form 11 Schedule of Loans to Small Enterprises Quarterly 15th banking days SRSO Schedule 2A which have been Rediscounted after end of reference quarter A-3 TB Form 11 Schedule of Loans to Medium Enterprises Quarterly 15th banking days SRSO Schedule 2B which have been Rediscounted after end of reference quarter A-3 TB Form 11 Schedule of SFBFC Instruments which have Quarterly 15th banking days SRSO Schedule 2C been Rediscounted after end of reference quarter A-3 TB Form 12 X341.8 Consolidated Report on the Utilization of Loanable Funds Generated Which Were-Set Aside for Agrarian Reform/Other Agricultural Credit (Compliance with PD 717) solo basis (head office and branches) Quarterly 15th banking day SRSO after end of reference quarter TB Form 12 on a groupwide basis (based on Quarterly 15th banking day SRSO consolidated financial statements of after end of investor-financial institution or parent bank reference quarter and its subsidiaries/affiliates) to be supported by the individual reports of the bank and its subsidiaries duly signed by each bank's authorized signatory (Compliance on a groupwide basis allowed SRSO by Cir. 252 dated 7-18-00) Control Prooflist, notarized and signed by Quarterly Upon transmission SRSO the authorized officer of the bank of the report B TB Form 12 Schedule A Total Collections from Loan Portfolio as of Quarterly 15th banking day SRSO May 31, 1975 after end of reference quarter B TB Form 12 Schedule B Direct Loans to Farmers' Associations or Quarterly 15th banking day SRSO (Q10-TB) Cooperatives for High Value Crops Projects after end of under Sec. 8 of R.A. 7900 reference quarter B TB Form 12 Schedule C Utilization of 10% Loanable Funds Quarterly 15th banking day SRSO (Q03-TB) Generated for Agrarian Reform Credit after end of reference quarter B TB Form 12 Schedule D Utilization of 15% Loanable Funds Quarterly 15th banking day SRSO (Q04-TB) Generated for Other Agricultural Credit after end of Loans reference quarter B TB form 12 Schedule E Development Loans Incentives under Quarterly 15th banking day SRSO (Q11-TB) Section 9 of R.A. 7721 after end of reference quarter B TB Form 12 Schedule F Report on Compliance with P.D. 717 under Quarterly 15th banking day Appropriate BSP SED Section 11 of R.A. 7835 after end of & SRSO reference quarter A-3 TB Form 13 X162 Report on Trust and Other Fiduciary Quarterly 10th banking day Appropriate BSP SED X425.2 Business and Investment Management after end of & SRSO Activities reference quarter A-3 TB Form 14 X162 Report on Investment Management Quarterly 10th banking day Appropriate BSP SED X425.2 Activities after end of & SRSO reference quarter B TB Form 15 X162 Report on Credit and Equity Exposures to Quarterly 15th banking day Appropriate BSP SED Individuals/Groups/Companies after end of & SRSO aggregating P1M and above reference quarter B Control Prooflist, notarized and signed by Quarterly 15th banking day SRSO the authorized officer of the bank after end of reference quarter B TB Form 16 X162.6 Report on Reconciling Items Outstanding Quarterly 30th banking day Appropriate BSP SED for More than Six Months in the "Due from/ after end of Due to Head Office, Branches and reference quarter Agencies" accounts (by Banking Unit) B TB Form 16A X162.6 Reconciliation Statement between Head Annual 30th banking day Appropriate BSP SED Office and Branches (by Banking Unit) after end of & SRSO calendar year B TB Form 17 X162 Report on Outstanding Loans Secured by Semestral 15th banking day Appropriate BSP SED Pledges/Assignment of Shares of Stocks after end of reference of Other Banks/NBQBs semester B TB Form 18 X164.1 Audited Financial Statements by External. Annual 90th day after start of Appropriate BSP SED Auditor, showing additional disclosure audit requirements in the notes to the audited financial statements required under Cir. 212 dated 10-20-99 Board Resolution on Action Taken on Annual 30th banking day Appropriate BSP SED Financial Audit Report after receipt of the audit report Letter of Comments (LOC) submitted by the Annual 30th banking day Appropriate BSP SED External Auditor and Board Resolution on after receipt of the Action taken on such LOC audit report For thrift banks with at least P1 billion resources X164.6 Annual report which shall include, in addition Annual 180th calendar day Appropriate BSP SED to the audited financial statements and other after the close of the usual information contained therein, the calendar or fiscal additional disclosure requirements under year Subsec. X164.5 A-2 TB Form 20A X405.9 Report on Peso-Denominated Common Weekly 3rd banking day Appropriate BSP SED Trust Funds and Other Similarly Managed after end of & SRSO Funds (for TBs engaged in Trust and Other reference week Fiduciary Business, and submitting TB Form 1 in diskette form) Control Prooflist Immediately after Fax - SRSO receipt of BSP acknowledgment receipt Control prooflist, together with the cover Weekly 3rd banking day Appropriate BSP SED page of the report after end of reference week A-2 TB Form 20B Report on Trust and Other Fiduciary Weekly 3rd banking day Appropriate BSP SED Accounts (TOFA) - Others after end of & SRSO reference week Control Prooflist Immediately after Fax SRSO receipt of BSP acknowledgment receipt Control prooflist, together with the cover Weekly 3rd banking day Appropriate BSP SED page of the report after end of reference week B Unnumbered Report on Daily Transactions on Weekly 3rd banking day Appropriate BSP SED Investments in Weekly Dollar-Linked Peso after end of Notes reference week A-2 Unnumbered X116 Computation of the Risk-Based Capital Monthly 15th banking day Appropriate BSP SED Adequacy ratio covering Credit Risks after end of reference & SRSO Solo basis (Head Office and branches) month Consolidated basis (parent bank plus Quarterly 30th, banking day Appropriate BSP SED subsidiary financial allied undertakings, but after end of & SRSO insurance companies reference quarter A-2 Unnumbered Certification signed by the President or Annual 20th banking day Appropriate BSP SED (with suggested officer of equivalent rank and by Compliance after end of format under Memo Officer to the effect that they have monitored reference year to All Banks and NBFIs compliance with existing anti-money dated 2-21-02) laundering regulations Unnumbered Capital Build-Up Program, with Schedules Monthly 15th day after cut-off Appropriate BSP SED 1-3 month Schedule 1 General Loan Loss Provisioning Monthly 15th day after cut-off Appropriate BSP SED month Schedule 2 Specific Provisioning-Loans Monthly 15th day after cut-off Appropriate BSP SED month Schedule 3 Specific Provisioning-Other Assets Monthly 15th day after cut-off Appropriate BSP SED month Unnumbered Report on the Remedial Measures/Action Monthly 15th day after cut-off Appropriate BSP SED Taken on Double-Digit Non-Performing month Loan Ratios, on Increasing Levels of ROPOA and Restructured Loans and on Coverage Ratio of less than 25% B (QO1-TB) X162 Certification under oath for "No Transaction" Quarterly 5th banking day after Appropriate BSP SED dates on interbank borrowings during end of reference & SRSO calendar quarter quarter B --- X165.5 Certification of Compliance with BSP Annual January 15 of the Appropriate BSP SED Requirements on Bank Protection following year Unnumbered X602.1 Report on Transaction/Outstanding Monthly Derivatives Transaction (for banks which enter into derivatives contracts as end-user) NON-PERIODIC REPORTS B TB Form 19 X347.3 Schedule of Domestic Standby Letters of Monthly, 15th banking day Appropriate BSP SED, page 1 Credit whenever after end of SRSO & DER there is an reference month outstanding balance TB Form 19 Computation of Allowable Ceiling on Monthly, 15th banking day Appropriate BSP SED, page 2 Domestic Standby Letters of Credit/ whenever after end of SRSO & DER Guarantees there is an reference month outstanding balance B SES II Form 10 X334 Transmittal of Board Resolution/Written As any direct 20th banking day Appropriate BSP SED Approval on Credit Accommodations to or indirect from date of Directors/Officers in Compliance with Sec. loan to any approval 83, R.A. 337, as amended bank director/ officer is approved B SES II Form 12 Sworn Statements on Real Estate/Chattel As Within 10 banking Appropriate BSP SED (NP06-TB) Transactions to Directors, Officers and transaction days from approval Stockholders is approved of transaction B SES II Form 13 X136.4 Report on Dividends Declared (with On every 10th banking day Appropriate BSP SED Schedule of Bad Debts) dividend after end of declaration declaration SES Form 13A Certification (of bank president as to bad -do- -do- Appropriate BSP SED debts) B SES lI Form 14 X156.2 New Schedule of Banking Days/Hours As changes 7th banking day Appropriate BSP SED (NP04-TB) occur prior to effectivity of the change B SES II Form 15 X144 Biographical Data After 7th banking day Electronic mail or (NP08-TB) election or after election/ diskette form or hard appointment appointment/ copy to SRSO and as change Original to appropriate changes BSP SED occur Duplicate to SRSO Notarized first page of Biographical Data As Upon transmission SRSO sent via electronic mail or in diskette form necessary of the template file of bio-data Notarized first page of each of the directors'/ As 7th banking day SRSO officers' bio-data saved in diskette, control necessary after election/ prooflist appointment/ change B SES II Form 16 X162.4 Report on Crimes and Losses As crime/ 5th banking day Appropriate BSP SED incident from knowledge of & SITD occurs crime or in cases involving bank personnel, from initiation of judicial or extra-judicial action or from imposition of administrative sanctions, whichever is earlier B SES II Form 17 X306.5 Application for Write-Off of Loans and As write-off 25th banking day Appropriate BSP SED (NP07-TB) Advances (For DOSRI loans and advances occurs prior to the intended and non-DOSRI accounts with individual write-off outstanding balances of P100,000 and above) B SES II Form 18 X306.5 Notice of Write-Off of Non-DOSRI Loans As write-off 25th banking day Appropriate BSP SED (NP07-TB) and Advances with Individual Outstanding occurs prior to the intended Balance of below P100,000 write-off B SES II Form 26 X162.3 Information/Documents Required under Only once; 15th banking day Appropriate BSP SED Appendices 7 & 8 (MOR) as change from date of change occurs B SES II Form 27 X162.1 Specimen Signature of Authorized On every 3rd banking day Appropriate BSP SED Signatories and Board Resolution board from date of designating Authorized Signatories designation/ resolution as change occurs B Unnumbered X144 List of Members of the Board of Directors On every 12th banking day Appropriate BSP SED (NPO9-TB) and Officers board after annual board & SRSO election election B X343 Daily Report on Interbank Borrowings not As Noon of banking day Appropriate BSP SED Effected through Clearing Account with BSP transaction immediately & SRSO occurs following date of transaction B X151.7 Notice of transfer of branches/voluntary As transfer 5th banking day Appropriate BSP SED X151.8 closure of branches occurs from date of transfer B X153.4 Notice of Actual Date of Opening a Branch As it occurs 10th banking day Appropriate BSP SED after opening B X339 Financing Plans and Amendments Thereto As 30th calendar day Appropriate BSP SED amendment after board approval occurs A-2 Unnumbered Report on Suspicious Transactions As 5th day from the Appropriate BSP SED transaction date of the Anti-Money Laundering occurs transaction or from Council (AMLC) the date the bank concerned gained/ acquired information/ knowledge that the transactions were resorted to for the purpose of laundering proceeds of criminal or other illegal activities, or from the time the bank reasonably suspected that said transactions were entered into for the purpose of laundering proceeds of criminal and other illegal activities B Unnumbered X162.12 Audited financial statements of foreign 30th banking day Appropriate BSP SED banking offices and subsidiaries and from date of Examination reports done by foreign bank submission/ release supervisory authority of report to the foreign banking office/subsidiary DER Reports B FX Form 1A X162.2 Consolidated Foreign Exchange assets Monthly 10th banking day DER (Formerly FED and Liabilities after end of Form 1) reference month B FX Form 1A Monthly Summary of Foreign Exchange Monthly 10th banking day DER Schedule 1 Acquisitions/Dispositions after end of reference month B FX Form 1A Interbank Transactions Monthly 10th banking day DER Schedule 2 after end of reference month B FX Form 1A FX Acquisition from Loans (Of Resident Monthly 10th banking day DER Schedule 3 Clients) after end of reference month B FX Form 1A FX Disposition for Loans (Of Resident Monthly 10th banking day DER Schedule 4 Clients) after end of reference month B FXForm 1A Other Current Accounts and Transfers Monthly 10th banking day DER Schedule 5 Acquisition and Disposition after end of reference month B FX Form 1A Investments Acquisition and Disposition Monthly 10 banking day after DER Schedule 6 end of reference month B FX Form 1A Other Foreign Exchange Acquisitions/ Monthly 10th banking day DER Schedule 7 Dispositions after end of reference month B FX Form1A Export Proceeds (Directly Remitted to Monthly 10th banking day DER Schedule 9 Exporter) after end of reference month B Unnumbered Certification as to the veracity and accuracy Monthly Next banking day DER of the Consolidated Report on FX Assets following the and Liabilities and all supporting schedules, prescribed date of to be signed by an officer of the bank with submission of the the rank of AVP or equivalent rank report and schedules Unnumbered Reconciliation Statement of FX Form 1A with Monthly Following day after DER Consolidated Statement of Condition submission of CSOC RS Form 1 (TB) Summary Report of Transactions on TB Monthly for 15th banking day DER Loans by Banking Unit loans granted; after end of quarterly for reference period loans outstanding RS Form 2A-TB Survey on the Volume and Weighted Daily A daily survey report DER Average Interest Rates on Deposits only for banks notified by DER RS Form 1B (5-17-27) Report on Volume of Money Market As transaction 2nd banking day DER DER (TR-D01-TB) Transactions occurs after transaction date M02-TB Loans, Peso Deposits, Deposit Substitutes Monthly, 15th banking day DER and Bills Payable of Selected Government whenever after end of Corporations and their Subsidiaries there is an reference month outstanding balance S03-TB Compliance with the Program of Withdrawal Semestral, 10th banking day DER of Special Depository Privileges for banks after end reference with semester outstanding balances IOD Reports M01-TB Foreign Currency Cover Monthly 15th banking day IOD (For FCDUs) after end reference month M03-TB Report on Bank Liabilities to Non- Monthly 15th banking day IOD Residents [formerly, Schedule of Foreign after end reference Exchange Liabilities to Non-Residents (In month Original Currency) IOS Form 4 Consolidated Report on Loans Granted by Monthly 15th banking day IOD FCDUs after end reference month REPORTS REQUIRED OF BANKS ( Appendix to Sec. X162 ) C. RBs/Coop Banks Submission Submission Category Form No. MOR Ref. Report Title Frequency Deadline Procedure A-2 RB/COB X116.2 Consolidated Daily Report of Condition Weekly 4th banking day after cc:Mail to SRSO Form 1 (CDRC) end of reference week A-2 RB/COB X162 Consolidated Statement of Condition Monthly 15th banking day cc:Mail to SRSO/SED Form 2A Schedules: after end of reference DER 1 Due from/Due to Other Banks month 2 Loan Portfolio and Other Accommodations 2.1 Loans Portfolio and Other Accommodations (Borrowings of Local Government Units) 2.2 Schedule of Microfinance Loans 3 Investments in Bonds and Other Debt Instruments 3.1 Investments in Bonds and Other Debt Instruments (Government Issue - Local Government Units) 3A Equity Investments 4 Fixed and Other Assets 5 Deposit Liabilities 6 Bills payable A-3 RB/COB X162 Statement of Condition (by Banking Unit) Quarterly 15th banking day Original SRSO Form 2B including ROPOA by banks after end of reference Duplicate SED IV quarter Schedule: 1 Loans-to-Deposit Ratio Supplementary Information A-3 RB/COB X162 Consolidated Statement of Income and Quarterly 15th banking day cc:Mail/Diskette: SRSO/ Form 3A Expenses after end of reference SED IV/DER quarter A-3 RB Form 3A.1 X162 Consolidated Statement of Income and Quarterly 15th banking day after cc:Mail/Diskette: SRSO/ (Revised 2002) Expenses on Microfinance Program end of reference SED IV quarter A-3 RB/COB X162 Statement of Income and Expenses (by Quarterly 15th banking day Original and duplicate Form 3B Banking Unit) after end of SRSO reference quarter A-3 RB/COB X335 Consolidated Report on Compliance with Quarterly 15th banking day Original SED IV Form 4A X409.3 Individual Ceiling on Direct Credit after end of Accommodations to Directors/Officers/ reference quarter Stockholders/Related Interests (DOSRI) Schedule: 1. Compliance with Individual Ceiling on Credit Accommodations to DOSRI A-3 RB/COB X335 Consolidated Report on Compliance with Quarterly 15th banking day Original SED IV Form 4B X409.3 Aggregate Ceiling on Credit Accommodations after end of to DOSRI reference quarter Schedule: 1. Secured and Unsecured DOSRI Loans A-3 RB/COB X341.8 Consolidated Report on the Utilization of Quarterly 15th banking day Electronic mail/ Form 5A Loanable Funds Generated Which Were Set after end of Diskette: SRSO Aside for Agrarian Reform Credit/Other reference quarter Agricultural Credit Schedules: A Total Collections from Loan Portfolio as of May 31, 1975 B Direct Loans to Farmer's Assn. or Coop for High Value Crop Projects C Utilization of 10% Loanable Funds Generated for Agrarian Reform Credit D Utilization of 15% Loanable Funds Generated for Agricultural Credit E Development Loan Incentives F Report of Compliance with PD 717 Control Prooflist (notarized) Quarterly Upon transmission/ Original SRSO (by submission of main fax, if hard copy cannot report be submitted on deadline) A-3 RB/COB X342.6 Report on Compliance with Mandatory Credit Quarterly Upon transmission/ Original SRSO (by Form 5B Allocation Required under RA 6977, as submission of main fax, if hard copy cannot amended by RA 8289 report be submitted on deadline) Schedules: Quarterly 15th banking day Electronic mail/ 1. Details of Loan Portfolio and Loans to after end of diskette: SRSO Small and Medium Enterprises reference quarter 1.a Loans granted under Special Financing 2. Loans to Small Enterprises which have been Rediscounted 3. Loans to Medium Enterprises which have been Rediscounted Control Prooflist (notarized) Quarterly Upon transmission/ Original - SRSO (by fax, submission of main if hard copy cannot be report submitted on deadline) A-3 RB/COB Summary of Loans Granted Annually 15 banking days Original DER Form 6 after end of Duplicate SED IV reference year A-3 Unnumbered 3277.6 Report on Microfinance Transactions Monthly 5 banking days after Original - DLC/BSPRLC end of reference month A-2 RB/COB X254 Weekly Report on Required and Available Weekly 4 banking days after Electronic mail to SRSO Form 7 Reserves Against Deposit Liabilities (To be end of reference replaced with CDRC Form 1) week A-2 RB/COB X254 Control Prooflist of WRRAR Against Deposit -do- -do- -do- Form 7A Liabilities A-2 RB/COB X240.8 Government Funds Held/Compliance with Quarterly 15 banking days after Original SED IV Form 8 Liquidity Floor Requirement end of reference Duplicate SRSO quarter A-2 Unnumbered X691.5 Covered Transaction Report (CTR) As 5 banking days from Original and duplicate (Revised May 2002) transaction the occurrence of Anti-Money Laundering occurs the transaction Council (AMLC) A-2 Unnumbered X691.5 Suspicious Transaction Report (STR) -do- -do- -do- (Revised May 2002) A-1 RB/COB X162.6 Condensed Statement of Condition (Posted) Quarterly 20 banking days after Original SED IV Form 9 Attachments: end of reference A-1 9-A Affidavit of RB President or the Manager quarter of the Posting of Quarterly Statement of Condition A-1 9-B Affidavit of City/Municipal Mayor/ Treasurer of the Posting of Quarterly Statement of Condition B RB/COB X162.6 Reconciling Items Outstanding for More than Semestral 15 banking days after Original SED IV Form 10 Six Months on the Due from/Due to Head end of reference Office/Branches & Agencies Account (by semester Banking Unit) B RB/COB X162 Status Report on Past Due Accounts and Quarterly 15 banking days Original SED IV Form 11 Valuation Reserves after end of reference quarter (or as required by BSP) B RB/COB X409.3 Stockholdings of Bank's Directors/Officers/ Semestral 15th banking day Original SED IV Form 12 Stockholders/Their Spouses/Relatives in after end of reference Borrowing Firms semester B RB/COB X339.4 Report on Availment of Financial Assistance Upon 15th banking day Original SED IV Form 13 to Officers and Employees under an adoption or after end of reference Approved Plan as change semester occurs Financing Plans and Amendments Thereto Within 30 days from Original SED IV (no specific format) approval of BOD B RB/COB X162.6 Reconciliation Statement between Head Annually 30 banking days after Form 14 Office and Branches end of calendar year B RB/COB Analysis of Undivided Profits and Surplus Quarterly 15 banking days after Original SED IV Form 15 (Free) Accounts end of reference Duplicate SRSO quarter B RB/COB X162.7 Consolidated List of Stockholders and Their Annually 30 banking days after Original SED IV Form 16 Stockholdings and Changes Thereto end of calendar year B RB/COB X144 Plantilla of Organization Annually Every January 31 and Original SED IV Form 17 and as 10 days after change change occurs occurs B RB/COB X144 Biographical Data of Officers and Directors As change 10 days after election Electronic mail/ Form 18 occurs or appointment Diskette: SRSO/SED IV B RB/COB X156.2 New Schedule of Banking Days/Hours Upon 7 banking days Original SED IV Form 19 opening or prior to effectivity of as change change occurs B RB/COB X162.5 Sworn Statement of Real Estate Transactions As 10 banking days Original SED IV Form 20 transaction from approval of occurs transaction B RB/COB X162.4 Report on Crimes and Losses As incident 5 banking days Original SED IV Form 21 occurs from knowledge of Duplicate SITD crime or in cases involving bank personel, from initiation of judicial action or from imposition of admi- nistrative sanction, whichever is earlier X162.4 Summary Report on Crimes and Losses Upon Not later than 15 Original SED IV termination banking days from Duplicate SITD of investi- termination of the gation investigation B RB/COB Notification of Stolen/Destroyed/Loss of Stock As incident 5 banking days from Original SED IV Form 22 Certificates occurs occurrence of incident Duplicate SITD B RB/COB X306.5 Notice/Application for Write-off of Loans and As write-off Within 10 banking Original SED IV Form 23 Advances occurs days from the time a resolution is passed by board of directors B RB/COB X136.4 Reports on Dividends Declared Every 10 banking days after Original SED IV Form 24 Schedule A Schedule of Bad Debts dividend approval by board of declaration directors B RB/COB X144 List of Members of the Board of Directors and Annually 10 banking days after Original SED IV Form 25 Officers election or appointment B RB/COB X334 Written Approvals of DOSRI Loans by As 20 banking days from Original SED IV Form 26 Members of the Board of Directors transaction date of approval occurs B No Format X339.4 Annual Report of Management to Annually Within 60 days from Original SED IV Stockholders Covering Results of Operation end of reference year for the Previous Year B No Format X339.4 Audited Financial Statement for the Previous Annually Within 60 days from Original SED IV Year (Prepared by External Auditor) end of reference year B Unnumbered X233.9 Registry Bank Report of Compliance with Monthly 10 banking days after Original SED IV Prohibition on Holdings of LTNCTDs end of reference month PRO-FORMA ORDER OF WITHDRAWAL FOR "NOW" ACCOUNTS ( Appendix to Sec. X225 ) The order of withdrawal form shall have a size of three (3) inches by seven (7) inches, and shall be on security/check paper. It shall contain as a minimum the features contained in the following pro-forma order of withdrawal: FRONT Acct. No. ______________ No. __________ ORDER OF WITHDRAWAL "NOW" ACCOUNTS ________________, 20 __ Pay to ______________________ the amount of PESOS _____________________ (P________) NAME OF DRAWEE BANK Address _______________ Drawer/Depositor BACK Important 1. This order of withdrawal shall be payable only to a specific person, natural or juridical, and not to bearer nor to the order of a specific person. 2. Only the payee can encash this order of withdrawal with the drawee bank, or deposit it in his account with the drawee bank or with any other bank. GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES ( Appendix to Sec. X302 ) I. Classification of loans . In addition to classifying loans as either current or past due, the same should be qualitatively appraised and grouped as Unclassified or Classified. A. Unclassified loans . These are loans that do not have a greater-than-normal risk and do not possess the characteristics of classified loans as defined below. The borrower has the apparent ability to satisfy his obligations in full and therefore no loss in ultimate collection is anticipated. The following loans, among others, shall not be subject to classification: 1. Loans or portions thereof secured by hold-outs on deposits/deposit substitutes maintained in the lending institution and margin deposits, or government-supported securities; 2. Loans with technical defects and deficiencies in documentation and/or collateral requirements. These deficiencies are isolated cases where the exceptions involved are not material nor is the bank's chance to be repaid or the borrower's ability to liquidate the loan in an orderly manner undermined. These exceptions should be brought to management's attention for corrective action during the examination and those not corrected shall be included in the Report of Examination under " Miscellaneous Exceptions Loans ". Moreover, deficiencies which remained uncorrected in the following examination shall be classified as " Loans Especially Mentioned ". The following are examples of loans to be cited under " Miscellaneous Exceptions Loans ": a. Loans with unregistered mortgage instrument which is not in compliance with the loan approval; b. Loans with improperly executed supporting deed of assignment/pledge agreement/chattel mortgage/real estate mortgage; c. Loans with unnotarized mortgage instruments/agreements; d. Loans with collaterals not covered by appraisal reports or appraisal reports not updated; e. Loan availments against expired credit line; availments in excess of credit line; availments against credit line without prior approval by appropriate authority; f. Loans with collaterals not insured or with inadequate/expired insurance policies or the insurance policy is not endorsed in favor of the bank; g. Loans granted beyond the limits of approving authority; h. Loans granted without compliance with conditions stated in the approval; and i. Loans secured by property the title to which bears an uncancelled annotation or lien or encumbrance. B. Classified loans . These are loans which possess the characteristics outlined hereunder. Classified loans are subdivided into (1) loans especially mentioned; (2) substandard; (3) doubtful; and (4) loss. 1. Loans especially mentioned . These are loans and advances that have potential weaknesses that deserve management's close attention. These potential weaknesses, if left uncorrected, may affect the repayment of the loan and thus increase credit risk to the bank. Their basic characteristics are as follows: a. Loans with unlocated collateral folders and documents including, but not limited to, title papers, mortgage instruments and promissory notes; b. Loans to firms not supported by board resolutions authorizing the borrowings; c. Loans without credit investigation report/s; d. Loans with no latest income tax return and/or latest audited financial statements, except consumer and small and medium enterprises (SME) loans which are current, have not been restructured and are supported by latest income tax returns and/or latest audited financial statements at the time they were granted. For this purpose, consumer loans is defined to include housing loans not exceeding P5 million, loans for purchase of car, household appliance(s), furniture and fixtures, loans for payment of educational and hospital bills, salary loans and loans for personal consumption. e. 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 as evidenced by a declining trend in operations, illiquidity, or increasing leverage trend in the borrower's financial statements; f. Loans to borrowers whose properties securing the loan (previously well secured by collaterals) have declined in value or with other adverse information; g. Loans past due for more than thirty (30) days up to ninety (90) days; and h. Loans previously cited as Miscellaneous Exceptions still uncorrected in the current BSP examination. 2. Substandard . 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. Those classified as " Substandard " must have a well-defined weakness or weaknesses that jeopardize their liquidation. Such well-defined weaknesses may include adverse trends or development of financial, managerial, economic or political nature, or a significant weakness in collateral. Their basic characteristics are as follows: a. Secured loans (1) 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; (2) Past due loans to borrowers whose properties securing the loan have declined in value materially or have been found with defects as to ownership or other adverse information; and (3) Current loans to borrowers whose audited financial statements show impaired/negative net worth except for start-up firms which should be evaluated on a case-to-case basis. ISCDEA Loans and advances possessing any of the above characteristics shall be classified "Substandard" at the full amount except portions thereof secured by hold-outs on deposits, deposit substitutes, margin deposits, or government-supported securities. The portions so secured are not subject to classification. b. Unsecured loans (1) Renewed/extended loans of borrowers with declining trend in operations, illiquidity, or increasing leverage trend in the borrower's financial statements without at least twenty percent (20%) repayment of the principal before renewal or extension; and (2) Current loans to borrowers with unfavorable results of operations for two (2) consecutive years or with impaired/negative net worth except for start-up firms which should be evaluated on a case-to-case basis. c. Loans under litigation; d. Loans past due for more than ninety (90) days; e. Loans granted without requiring submission of the latest audited financial statements (AFS)/income tax returns and/or statements of assets and liabilities to determine paying capacity of the borrower; f. Loans with unsigned promissory notes or signed by unauthorized officers of the borrowing firm; and g. Loans classified as " Loans Especially Mentioned " in the last BSP examination which remained uncorrected in the current examination. 3. Doubtful . 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. Their basic characteristics are as follows: a. Past due clean loans classified as " Substandard " in the last BSP 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 and previously classified " Substandard " in the last BSP examination; c. Past due loans secured by real estate mortgage, the title to which is subject to an adverse claim rendering settlement of the loan through foreclosure doubtful; and d. Loans wherein the possibility of loss is extremely high but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until a more exact status is determined. 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 these basically worthless assets even though partial recovery may be obtained in the future. Their basic characteristics are as follows: a. Past due clean loans the interest of which is unpaid for a period of six (6) months; b. Loans payable in installments where amortization applicable to interest is past due for a period of six (6) months, unless well secured; c. 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; d. Where the collaterals securing the loans are considered worthless and the borrower and/or his co-makers are insolvent; e. Loans considered as absolutely uncollectible; and f. 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 have current unfavorable credit information which renders collection of the loan highly improbable. II. Investments and Other Risk Assets A. Investment in debt securities and marketable equity securities 1. Investment in bonds and other debt instruments (IBODI) shall be valued at cost adjusted for discount or premium through periodic amortization charges or credits to income. When the decline in fair market value below the amortized cost is other than temporary, i.e., full collection of principal and interest is not expected on a debt security, the amortized cost basis of the particular debt security shall be adequately provided with allowance for probable losses. The amount of investment loss provision shall be accounted for as a realized loss and charged to reported current income. 2. Trading account securities (TAS) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains and losses are recognized and booked against "Trading Gain/Loss" account. 3. Available for Sale Securities (ASS) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains or losses are excluded from reported income and reported as a separate component of stockholders' equity [Net Unrealized Gains/(Losses) on Securities Available for Sale] until realized. 4. Underwriting Accounts (UA) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains and losses are excluded from reported income and reported as a separate component of stockholders' equity [Net Unrealized Gains/(Losses) on Securities Available for Sale] until realized. UA account is applicable only to UBs. B. Equity investment in affiliates shall be booked at cost or book value whichever is lower on the date of acquisition. If cost is greater than book value, the excess shall be charged in full to operations or booked as deferred charges and amortized as expense over a period not exceeding five (5) years. Subsequent to acquisition, if there is an impairment in the recorded value, the impairment should adequately be provided with allowance for probable losses. C. Other property owned or acquired 1. The basic characteristics of real estate property acquired subject to " Substandard " classification are as follows: a. Acquired for less than five (5) years unless worthless. b. Converted into a Sales Contract Receivable. c. Sold subject to a firm purchase commitment from a third party before the close of the examination. 2. The basic characteristics of real estate property acquired subject to " Loss " classification are as follows: a. Foreclosure expenses and other charges included in the book value of the property, excluding the amount of non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase which meet the criteria for inclusion in the book value of the acquired property. b. The excess of the book value over the appraised value. c. Property whose title is definitely lost to a third party or is being contested in court. d. Property wherein the exercise of the right of usufruct is not practicable or possible as when it is eroded by a river or is under any like circumstances. Real estate property acquired are not sound bank assets. Because of their nature, that is, non-liquid and non-productive, their immediate disposal through sale is highly recommended. If such is not possible, they should be charged-off by annually providing a valuation reserve in accordance with the following schedule starting at the expiration of the statutory redemption period. End of Year After Expiry of Redemption Annual Period or Provision Perfection of to Cost of Accumulated Contract Acquisition Reserve 6th Year 10% 10% 7th Year 10% 20% 8th Year 10% 30% 9th Year 10% 40% 10th Year 10% 50% D. Acquired or repossessed personal property 1. All personal property owned or acquired held for three (3) years or less from date of acquisition shall be classified as " Substandard " assets. 2. The basic characteristics of acquired or repossessed personal property classified as " Loss " are as follows: a. Property not sold for more than three (3) years from date of acquisition; b. Property which is worthless or not salable; c. Property whose title is lost or is being contested in court; d. Foreclosure expenses and other charges included in the book value of the property; and e. The excess of the book value of the property over its appraised or realizable value. Valuation reserves shall also be provided for foreclosed personal property in accordance with the following schedule, reckoned from the date of foreclosure or from the perfection of the contract, if acquired through dation in payment. End of Year After Expiry of Redemption Annual Period or Provision Perfection of to Cost of Accumulated Contract Acquisition Reserve 1st Year 50% 50% 2nd Year 30% 80% 3rd Year 20% 100% E. Accounts Receivable 1. Accounts receivable arising from loan and investment accounts still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due shall be provided with a 100% allowance for uncollected accounts receivable. 2. All other accounts receivable should be classified in accordance with age as follows, unless there is good reason for non-classification: No. of Days Outstanding Classification 61180 Substandard 181360 Doubtful 361 or more Loss The classification according to age of accounts receivable should be used in classifying other risk assets not covered above. However, their classification should be tempered by favorable information gathered in the review. F. Accrued Interest Receivable 1. Accrued interest receivable on loans or loan installments still uncollected after three (3) months from the date such loans or loan installments have matured or have become non-performing shall be provided with a 100% allowance for uncollected interest on loans. EICSDT 2. All other accrued interest receivable on loans or loan installments shall be classified similar to the classification of their respective loan accounts. III. Allowance for probable losses An allowance for probable losses on the loan accounts shall be set up as follows: A. Specific allowance Allowance Classification (Percent) 1. Unclassified 0.0 2. Loans Especially Mentioned 5.0 3. Substandard (a) Secured 10.0 (b) Unsecured 25.0 4. Doubtful 50.0 5. Loss 100.0 B. General allowance . In addition to the specific allowance for probable losses required under Item "A", a general provision for loan losses shall also be set up a follows: (1) Five percent (5%) of the outstanding balance of unclassified restructured loans less the outstanding balance of restructured loans which are considered non-risk under existing laws, rules and regulations; (2) One percent (1%) of the outstanding balance of unclassified loans other than restructured loans less loans which are considered non-risk under existing laws, rules and regulations. The general loan loss provision shall be computed as follows: For Loans Not Restructured Gross Loan Portfolio (Excluding Restructured Loans) P xxx Less: Classified Loans (based on latest BSP examination) Loans especially mentioned P xxx Substandard Secured xxx Unsecured xxx Doubtful xxx Loss xxx xxx Unclassified Loans xxx Less: Loans considered non- risk under existing regulations xxx Loan Portfolio, net of exclusions xxx General Loan Loss Provision (1% of net loan portfolio) P xxx For Restructured Loans Restructured Loans (Gross) P xxx Less: Classified Restructured Loans (based on latest BSP examination) Loans especially mentioned P xxx Substandard Secured xxx Unsecured xxx Doubtful xxx Loss xxx xxx Unclassified Restructured Loans xxx Less: Rest. Loans considered non- risk under existing regulations xxx Restructured Loans, net of exclusions xxx General Loan Loss Provision (5% of net restructured loans) P xxx The excess of the booked general loan loss provisions over the amount required as a result of the reduction of the amount required to be set up to one percent (1%) shall first be applied to unbooked specific valuation reserves, whether authorized to be booked on a staggered basis or not and only the remainder can be considered as income. The specific and general allowances for probable losses shall be adjusted accordingly for additional allowance required by the BSP: Provided , That in cases of partially secured loans, only ten percent (10%) allowance shall be required for the portion thereof which are covered by the appraised value of the collateral: Provided further , That said collateral is re-appraised at least annually. Management is, however, encouraged to provide additional allowance as it deems prudent and to formulate additional specific guidelines within the context of the herein-described system. AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (Appendix to Subsecs. X343.1 and X601.3) KNOW ALL MEN BY THESE PRESENTS: This Agreement for an enhanced Interbank Call Loan Funds Transfer System (the "Agreement") entered into 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 known as the "BSP"); The BANKERS ASSOCIATION OF THE PHILIPPINES, an organization of duly licensed universal/commercial banks in the Philippines, with principal offices at the 11th floor, Sagittarius Building, H.V. dela Costa Street, Salcedo Village, Makati City (hereinafter referred to as the "BAP"); and The PHILIPPINE CLEARING HOUSE CORPORATION, an organization duly incorporated under the laws of the Republic of the Philippines, with principal offices at the Ground Floor, 5-Storey Building, Bangko Sentral ng Pilipinas, Manila (hereinafter referred to as the "PCHC"); WITNESSETH THAT: WHEREAS, presently, Interbank Call Loans (IBCLs) are transmitted to the BSP using the Multitransaction Interbank Payment System (MIPS) under an arrangement governed by the Memorandum of Agreement for Interbank Call Loan Funds Transfer System dated October 4, 1995; WHEREAS, the BSP and the BAP would like to improve the efficiency of the system by allowing a more direct interface to the BSP's own computer and accounting systems and achieve settlement finality through the gross settlement of IBCLs and thereby reduce systemic risk; WHEREAS, the BSP and the BAP would like to set up the foundation for a Real Time Gross Settlement (RTGS) system for the Philippine economy for all other high value payments; and WHEREAS, the BSP, the BAP, and the PCHC would like to lay down the parameters and the terms and conditions of a new and improved electronic funds transfer system; NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC mutually agree as follows: 1.0 APPOINTMENT The PCHC is hereby designated as the exclusive service provider for the front-end software, data communications facility, MIPS server system;, and the BSP gateway interface program for the new electronic IBCL Funds Transfer System (the "System") for all banks/financial institutions (the "Participants") participating in the said System. The BSP is hereby designated as the settlement bank for the settlement of all IBCL transactions transmitted through the System. Further, the BSP shall be the exclusive systems provider and operator for the BSP Gateway Server and Financial Accounting System (FAS) where the electronic settlement of IBCL transactions are processed, computed, and stored for the System. 2.0 DESCRIPTION OF THE SYSTEM 2.1 The System shall be composed of the following components: 2.1.1 Front-end software The front-end software shall be deployed at each Participant's offices. This software shall be developed and maintained by PCHC. The front-end software shall allow each Participant to enter its IBCL transactions (the "Electronic Transfer Instructions") and transmit these electronically to the BSP through the PCHC server in a secure manner. 2.1.2 The PCHC Server The PCHC Server shall receive the Electronic Transfer Instructions from the Participants through PCHC's telecommunications network, validate and authenticate each electronic transfer instruction, and immediately relay these to the BSP's FAS through the BSP Gateway. 2.1.3 The BSP Gateway Server The BSP Gateway Server shall act as a transit point for the Electronic Transfer Instructions and status files being transferred between the PCHC Server and the BSP's FAS. 2.1.4 The BSP's FAS The FAS of the BSP is the general ledger system of the BSP wherein all accounting entries to the BSP's books as well as the Participants' Demand Deposit Accounts (DDA's) are recorded electronically. The FAS also generates the statements of account for the DDA's which are sent electronically through the BSP cc:Mail System to the Participants on a regular basis. 2.1.5 The BSP's cc:Mail System The BSP's cc:Mail system shall be used as the main delivery facility for sending official DDA statements and for communicating messages to the Participants. 2.2 The System shall have the following security features: 2.2.1 Log-in ID's and passwords To ensure that only authorized personnel are able to enter and authorize transactions through the System; 2.2.2 Maker/Checker Functions To ensure that at least two (2) authorized personnel of each Participant are involved in the inputting, approval, and transmission of Electronic Transfer Instructions into the System; 2.2.3 Test Keys Authentication against PCHC and BSP To ensure that the Electronic Transfer Instructions received are coming from authorized sources; and 2.2.4 Firewalls To prevent unauthorized access to the BSP's internal systems. 3.0 MARKET CONVENTIONS The following market conventions shall be followed in the IBCL market: 3.1 IBCL Settlement Timeframe Transactions shall be concluded by and among Participants during the settlement timeframe prescribed by BSP Circular 266 series of 2000 dated November 7, 2000. The timelines for IBCL transactions shall be as follows: 7:30 A.M. 7:45 A.M. AM Returned Cash and Other Clearing Items (COCI) receiving window 7:46 A.M. 8:45 AM PCHC processing window 8:46 A.M 9:00 A.M. PCHC sends results to BSP; results ready for download by affected participants at 9:00 A.M. 9:01 A.M. 9:45 A.M. Morning IBCL window to cover returned COCI items (back- valued to previous day i.e. the same date as the date of original presentation of the returned COCI) 9:46 A.M. 10:00 A.M. BSP update of ledgers in FAS 10:01 A.M. 4:00 P.M. Regular IBCL window for trading of same-day funds. 4:01 P.M. PCHC Peso Netting cut-off System is temporarily closed to IBCL transactions 4:16 P.M. PCHC sends Peso Netting results to BSP 4:30 P.M. PCHC Electronic check clearing cutoff 5:00 P.M. PCHC sends check clearing to BSP 5:01 P.M. 5:30 P.M. BSP update and transmission of DDA statements which already includes all transactions for the day 5:31 P.M. 6:30 P.M. System is reopened to allow same-day value IBCL trading to cover funding/reserve shortfalls due to clearing results 3.1.1 From 7:30 to 7:45 A.M., the morning returned COCI receiving window shall be open for banks who are affected by returned COCI items where adjustments are made to the DDA's for value the previous day. In this case, it shall be necessary for the affected banks to either borrow or lend funds for value the previous day in order for their DDA's to be in compliance with the necessary reserve levels. This backvalue window shall be open from 9:01 A.M. and 9:45 A.M. 3.1.2 The regular trading window shall be from 10:01 A.M. to 4:00 P.M. for the trading and settlement of same-day value IBCL transactions. There shall be a temporary closure of the System at 4:01 P.M. to allow the BSP to post the results of the PCHC Peso Netting and Electronic Check clearing operations to the respective DDA's of individual Participants. The regular window shall be then reopened from 5:31 P.M. to 6:30 P.M. to allow IBCL trading for same-day funds to cover funding or reserve shortfalls resulting from check clearing results. 3.2 Confirmation Process The following procedures shall be used by Participants for confirming IBCL transactions: 3.2.1 IBCL transactions concluded during any of the trading windows shall be confirmed by telephone prior to settlement to ensure that all transaction details are in order. Responsibility for initiating the phone confirmation shall lie with the borrowing party. 3.2.2 Written confirmations shall also be sent by both parties for proper control and documentation. For SWIFT member institutions, it is strongly suggested that such confirmations be sent electronically through the SWIFT network using the SWIFT MT 320 format. 3.2.3 Discrepancies, if any, shall be resolved by both parties on mutually acceptable basis. Voice logs, if available, shall be resorted to in aid of resolution of the discrepancy. Any discrepancies not resolved shall be subjected to the process in Section 8.0 below entitled "Settlement of Disputes Among Participants". DEcSaI 3.3 Settlement Instructions Settlement instructions for IBCL transactions shall be initiated as follows: 3.3.1 For new IBCL transactions, the Lender shall be responsible for sending the proper Electronic Transfer Instructions on the given transaction date. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Lender's DDA account and credit the Borrower's DDA account. For transactions in the morning IBCL window that covers returned COCI items, the value date of the debit/credit shall be for the previous day, as defined in section 3.1. For transactions during the regular IBCL window, the value date shall be the same as the transaction date. 3.3.2 For maturing IBCL transactions, the Borrower shall be responsible for sending the proper Electronic Transfer Instructions on the maturity date of the transaction. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Borrower's DDA account and to credit the Lender's DDA account for the maturity value of the transaction. 3.3.3 Transactions with the BSP Participant's transactions with the BSP shall be handled as follows: Reverse Repurchase Agreements (RRP's) For RRP's, the lending Participant shall be responsible for sending the proper Electronic Transfer Instructions on the transaction date. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Lender's DDA account for the fund placement. On maturity date of the RRP, the BSP shall be responsible for crediting the DDA of the lender during the first hour that the System is up. Credit shall be performed using the BSP's FAS. Repurchase Agreements (RP's) For RP's, the BSP shall be responsible for crediting directly the borrower's DDA using the BSP's FAS. On maturity date, the BSP shall debit the borrower's DDA for principal plus interest using the BSP's FAS. Debits and credits to DDA of Participants resulting from RRP and RP transactions with the BSP shall be part of the statements of account broadcast by the BSP on an hourly basis under Section 3.6 below. 3.4 Transaction Status, Verification Participants shall be able to verify the status of their Electronic Transfer Instructions as follows: 3.4.1 Using the front-end software, the BSP Update Status Report may be downloaded by Participants to print the status of transactions. These transactions may have one of five (5) status: (R) Rejected Transaction has been rejected because it has failed BSP authentication; (C) Cancelled Transaction has been cancelled by the BSP because of insufficient funds by cutoff time; (P) Pending Transaction has been received at the BSP but has not yet been settled, temporarily queued; (S) Settled Transaction has been received at the BSP and corresponding debit and credit entries have already been posted on the respective DDA's. Blank Electronic Transfer Instruction has been sent to the BSP Gateway Server but has not yet been transferred to the FAS for processing. 3.4.2 Both the sending and receiving parties can view the status of their transactions. 3.4.3 It is recommended that Participants view their transaction status on an hourly basis. 3.4.4 Final and official DDA settlement reports shall be available from the BSP's cc:Mail server on an hourly basis. 3.5 S ettlement of IBCL transactions The following rules shall govern the settlement of IBCL transactions at the BSP. 3.5.1 Upon receipt of the Electronic Transfer Instructions through the System, settlement of IBCL transactions shall be performed with finality (i.e. cannot be reversed) by the BSP through the Participants' respective DDA's. These accounting entries shall be passed using the BSP's FAS. 3.5.2 Debit instructions shall be settled by the BSP on a gross, transaction-by-transaction, First-In-First-Out basis. The FAS timestamp shall be used for FIFO processing and settlement of the Electronic Transfer Instructions. The PCHC MIPS server timestamp shall be used as the official time of receipt of the Electronic Transfer Instructions into the System and shall be used to control the cut-off times. 3.5.3 It is understood that the BSP shall only post debit instructions if the sending Participant's DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be held in queue. 3.5.4 If a transaction is held in queue due to inadequate DDA balances, other succeeding transactions which are of lower value and which are within the available DDA balances shall be posted ahead of the transaction which was held in queue. 3.5.5 Transactions held in queue shall remain there until adequate funds are received by the DDA to allow posting. 3.5.6 Transactions that remain in queue until the IBCL window closes shall be cancelled from the System. For the back-value IBCL window, the cut-off shall be 9:45 A.M. For the regular same-day IBCL window, there shall be two cut-offs, one at 4:01 P.M. and the final cutoff at 6:30 PM. 3.5.7 The BSP reserves the right to withhold all or part of a Participant's DDA balances from settlement of IBCL transactions, subject to the Monetary Board's instructions. 3.5.8 Where applicable, the BSP's transactions with the Participants shall be posted in the BSP's FAS before the System opens for the regular IBCL window from 10:01 A.M. to 4:00 P.M. These transactions shall include tax payments, maturing rediscount loans, maturing repurchase agreements, maturing reverse repurchase agreements, and other transactions of Participants with the BSP. 3.5.9 Participants shall endeavor to transmit all repayment instructions for maturing IBCL borrowings during the first hour of operation of the System in order to improve liquidity in the System. 3.6 BSP Hourly Broadcast of DDA Statements: 3.6.1 BSP shall broadcast, on an hourly basis, each Participant's running DDA transactions and balances for the day using the cc:Mail system. 3.6.2 IBCL transactions reflected in the DDA statement retrieved from cc:Mail shall be considered as final and irrevocable. No unwinding of transactions shall be allowed except check clearing results which are reversed using the returned COCI window. 3.6.3 Participants shall be responsible for designating authorized personnel who shall have access to their DDA balance information from the BSP. The BSP shall open cc:Mail accounts for each of these designated personnel at the BSP's mail server. 3.6.4 Participants shall be responsible for reconciling their transactions against the DDA statements received from the BSP. Any discrepancies shall immediately be advised in writing or through cc Mail message to the BSP for correction/rectification. 4.0 AVAILABILITY OF SERVICES The services outlined in this Agreement shall be available at the PCHC as well as the BSP at a fixed hour on all banking days, including local holidays. For purposes of this Agreement, banking days refer to the days when the BSP is open for business and settlement of transactions contemplated herein. 4.1 The PCHC and the BSP shall endeavor to develop, test, and communicate to all Participants a Continuity of Business (COB) plan aimed at providing continuous operation of the System. This COB plan shall incorporate various scenarios that may occur such as but not limited to hardware failure, fire, power outage, telecommunications outage, typhoon, earthquake, flood, civil disturbances, or other events at either the BSP site or the PCHC site. 4.2 Each Participant shall be responsible for developing and testing its own COB plan and ensuring that back-up machines, backup files, telephone lines, and other necessary equipment are available at their site or back-up site to allow continuous operations under the various scenarios above. 4.3 The PCHC shall also make available a desktop PC as an input facility for the use of any Participant who is unable to enter data through its own facilities. 5.0 TRANSACTION FEES 5.1 PCHC shall charge the amount of P100.00 for each electronic funds transfer instruction sent by the remitting Participant. The transaction fee shall be subject to regular review by the PCHC for adjustment as may be deemed necessary. 5.2 BSP shall charge the amount of P20.00 for each Electronic Transfer Instruction received. 5.3 Both PCHC and BSP charges shall be debited from the Participants' DDA's on a monthly basis, based on the PCHC's monthly report of transactions. 5.4 The BSP shall not be subject to any fees or charges under this section. 6.0 PARTICIPATION AGREEMENT 6.1 Participating banks who are members of the BAP can avail themselves of the services provided by the System by executing the Participation Agreement which is attached hereto as Annex "A" and made an integral part hereof. Participating banks who formally join the System shall be considered bound by the terms and conditions hereof, and any amendments thereto, as if they had executed this Agreement. 6.2 Financial institutions who are non-BAP members may avail themselves of the services of the System by filing a Participation Agreement addressed to the PCHC, the BAP, and the BSP subject to the terms and conditions under the section Annex "A". Such financial institutions shall be considered bound by the. terms and conditions herein after written notification of the approval of the PCHC, the BAP, and the BSP, respectively. Non-BAP members shall be required to pay an admission fee in such sum or sums as the BAP and/or the PCHC shall impose before being formally admitted into the System. Participating banks/financial institutions who were previously Participants in MIPS shall be exempt from paying the admission fees. 7.0 RIGHTS AND OBLIGATIONS OF THE PARTIES AND PARTICIPATING BANKS/FINANCIAL INSTITUTIONS: 7.1 The PCHC shall be responsible for the development, testing, and maintenance of the software for both the Participants' front-end software, the PCHC MIPS server, and the interface software with the BSP's FAS. The PCHC shall provide updates to the software as may be required by the Participants and shall charge applicable one-time development fees accordingly. 7.2 The PCHC shall be responsible for providing, maintaining, and upgrading the PCHC MIPS server, including the necessary data telecommunications facility to access the server, and ensure that adequate COB plans are in place for uninterrupted operations. 7.3 The PCHC shall be responsible for exchanging authentication test keys with all Participants and implementing regular changes thereto. 7.4 The BSP shall be responsible for ensuring that the BSP Gateway Server is operative and that adequate backup facilities are made available to have continuous and efficient operation of the System. The BSP shall also be responsible for ensuring the integrity and continued operation of its FAS which is an integral part of the system. 7.5 The BSP shall be responsible for exchanging authentication test keys with all Participants and implementing regular changes thereto. 7.6 The BSP shall be responsible for settlement of IBCL transactions sent through the System. The settlement process involves receiving and authenticating the Electronic Transfer Instructions from the remitting bank through the System, checking if the remitting bank has sufficient DDA balances, and posting the debit entry in the remitting bank's DDA and the credit entry in the beneficiary bank's DDA through the BSP's FAS. For this purpose, the Participant hereby authorizes the BSP to execute said debit and credit instructions based on Electronic Transfer Instructions received through the System. 7.7 The BSP shall be responsible for providing all Participants hourly updates of their respective DDA balances through account statements sent out via cc:Mail. In this connection, the BSP shall be responsible for maintaining the cc:Mail server and in granting access to this server to duly authorized personnel as identified by each participating institution. 7.8 Each Participant shall be solely responsible for ensuring the confidentiality, safety, and security of its log-in IDs, passwords, and authentication keys for activating the system and initiating IBCL transactions. If it has reason to believe that the confidentiality or security of its log-in IDs, passwords, and authentication keys have been compromised, the Participant shall take immediate steps to have these disabled and changed to new passwords/keys. 7.9 Each Participant shall be legally bound by its Electronic Transfer Instructions which it sent through the System without need of any other manually prepared confirmation, paper, or instrument, provided that the same has been authenticated by the BSP and provided further that they comply with the terms and conditions set forth herein. 7.10 Each Participant shall be responsible for promptly checking the correctness and completeness of the debit/credit entries of the BSP under the System and to promptly notify the BSP of any errors discovered. 7.11 Each Participant shall be responsible for reclaiming funds erroneously sent by it through the System. The BSP and the PCHC shall not be responsible for undertaking the reclaim of funds. Participants who are recipients of funds erroneously sent shall endeavor to promptly return such funds upon notice by the sending institution and upon verification that the funds were indeed erroneously sent. In cases where the recipient of funds was not able to remit the funds back on the same value date as the erroneous remittance, due compensation shall be paid by the recipient for the use of funds for the applicable period. Interest rate applicable shall be the average interbank call loan rate for the period as published. Such erroneous receipt of funds shall in any case be subject to the provisions of Art. 22 of the Civil Code of the Philippines. 7.12. 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 improve the current electronic means of processing IBCL transactions. The PCHC and all participating banks/financial institutions who formally join the System and avail themselves of the services provided herein 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 Participants and shall be held free and harmless from claims, suits, costs, and damages attributing thereto. The BSP, as Settlement Bank, shall not be made a party to any dispute nor be held answerable for any liability by any transacting party to IBCL transactions. The BSP, when acting in accordance with the provisions of this Agreement, shall be kept free and harmless by all participating banks and financial institutions for executing and/or effecting settlement/payment instructions, or, as may be proper, making and implementing reclaiming transactions under par. 7.11 above. 8.0 SETTLEMENT OF DISPUTES AMONG PARTICIPANTS 8.1 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 institutions shall be referred to Voluntary Arbitration. Each party shall propose a Voluntary Arbitration Committee by listing five (5) names of reputable persons well-versed in the issue in dispute. Thereafter, the proponent to Voluntary Arbitration shall strike out one name and the respondent another and so on until only three names are left who shall comprise the Voluntary Arbitration Committee. DISEaC 8.2 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. 8.3 The Voluntary Arbitration Law shall apply in a suppletory character. 9.0 REVISIONS TO THE AGREEMENT 9.1 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. 9.2 Procedures, forms, automation programs, hardware specifications, and deadlines referred to herein may be changed or enhanced subject to mutual agreement in writing among the BSP, the PCHC, and the BAP. Such changes and enhancements, when executed by the BAP, shall be binding on all Participants whether BAP member banks or non-member financial institutions. 9.3 Without prejudice to the immediate implementation of this Agreement, the parties herein may establish such further rules and regulations that may be subsequently be needed to augment, implement, interpret and govern this Agreement. 10.0 CONTRACTUAL EFFECTIVITY This Agreement shall remain valid until terminated by mutual consent of the parties. 11.0 CONFIDENTIALITY The PCHC and the BSP agree to maintain strict confidentiality of all transactions, data, and/or information provided by, or pertaining to, each Participant under the System. Violation thereof shall subject the person or persons responsible therefor to the penalty provisions of Sec. 36 of RA 7653. IN WITNESS WHEREOF, the parties have hereunto set their hands this 5th day of July, 2001 at the City of Manila, Philippines. BANGKO SENTRAL BANKERS ASSOCIATION NG PILIPINAS OF THE PHILIPPINES By: ____________________ By: ____________________ PHILIPPINE CLEARING HOUSE CORPORATION By: ______________ WITNESSES: ________________ _________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S.S. BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally appeared: Name Community Tax Cert. No. Date & Place Issued known to me and to me known to be the same person who executed the foregoing Agreement for the Enhanced Interbank Call Loan Funds Transfer System and who acknowledged to me that the same is his free and voluntary act and deed and that of the institution he represents. This instrument consists of ____ ( ) pages including this page whereon the acknowledgment is written, is duly signed by the parties and their respective instrumental witnesses on each and every page thereof. WITNESS MY HAND AND SEAL this 5th day of July in the City of Manila, Philippines. NOTARY PUBLIC Doc. No. ______; Page No. ______; Book No. ______; SUPPLEMENTAL AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (Appendix to X343.1 and X601.3) KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement entered into by and among the following: The BANGKO SENTRAL NG PILIPINAS, a government corporation created under Republic Act No. 7653, otherwise known as the New Central Bank Act, with principal address at the BSP Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter known as the "BSP"); The BANKERS ASSOCIATION OF THE PHILIPPINES, an industry association of duly licensed universal and commercial banks in the Philippines, duly authorized by its member-banks to represent and bind them in this Supplemental Agreement, with principal offices at the 11th floor, Sagittarius Building, H.V. dela Costa Street, Salcedo Village, Makati, City (hereinafter referred to as the "BAP"); and The PHILIPPINE CLEARING HOUSE CORPORATION, a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal offices at the Ground Floor, 3-Storey Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter referred to as the "PCHC"); WITNESSETH THAT: WHEREAS, presently, Interbank Call Loans (IBCL's) are settled on a gross settlement basis at the BSP through the Enhanced Multitransaction Interbank Payment System (hereinafter referred to as "MIPS2") under an arrangement governed by the Agreement for the Enhanced Interbank Call Loan Funds Transfer System dated July 05, 2001 (the "MIPS2 Agreement"); WHEREAS, the BSP and the BAP would like to utilize MIPS2 to effect other types of interbank fund transfers such as settlement of FX transactions, settlement of securities transactions and other interbank payments and thereby reduce systemic risk by providing a means of making final and irrevocable payments among banks; NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC have mutually agreed to execute this Supplemental Agreement and add the following provisions as part of the MIPS2 Agreement: OPERATING HOURS AND SETTLEMENT CONVENTIONS 1. The MIPS2 System shall be open for operation from 10:00 A.M. to 4:00 P.M. for other types of interbank fund transfer transactions. Remitting/Paying banks shall enter orders through the Funds Transfer Screen of MIPS2. Each transaction shall be properly identified as to the type of interbank transaction being settled (e.g. FX Settlement, Securities Settlement). 2. Upon receipt of the electronic transfer instructions through the System, these shall be settled with finality by the BSP through the Participants' (as the term is defined in the MIPS2 Agreement) respective Demand Deposit Account (DDA). These accounting entries shall be passed using the BSP's Financial Accounting System (FAS). 3. Debit instructions shall be settled by the BSP on a gross, transaction by transaction, first-in-first out basis. The FAS timestamp shall be used for FIFO processing and settlement of the electronic transfer instructions. The PCHC MIPS server timestamp shall be used as the official time of receipt of the Electronic Transfer Instructions into the System and shall be used to control the cut-off times. 4. It is understood that the BSP shall only post debit instructions if the sending participant's DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be held in queue. 5. If a transaction is held in queue due to inadequate DDA balances, other succeeding transactions which are of lower value and which are within the available DDA balances shall be posted ahead of the transaction which was held in queue. 6. Transactions held in queue shall remain there until adequate funds are received by the DDA to allow posting. 7. All electronic fund transfer transactions that remain in queue until 4:00 P.M. shall be automatically cancelled from the System. 8. In order to ensure that there is sufficient liquidity in the system and that system gridlock does not occur, Participants shall submit their transactions at the early hours of operation of the system and not deliberately hold back payments. For payment of FX transactions, Participants shall transmit at least 70% of their obligations (based on total value) before 12 noon. For payment of securities transactions, Participants shall transmit at least 50% of their obligations before 2:00 p.m. 9. The BAP shall monitor these transmission times and shall exert every effort to ensure that these guidelines are complied with. In this regard, the PCHC shall provide to the BAP daily reports on the performance of all banks with regards to these rules. Such statistics shall show the proportion of payment orders (by value) sent in before the relevant times (12 noon for FX settlements and 2 p.m. for securities settlements). 10. Compensation charges for errors in processing/settlement instructions resulting in delayed payment/settlement of transactions shall be for the account of the party in error and shall be based upon the existing schedule for computing compensation charges for GS and FX settlements. 11. In the case of transactions with the BSP, for outright purchase/sale of government securities whether for investment or liquidity reserves as well as purchase and sale of foreign exchange, the BSP shall be responsible for crediting directly (in case of sale of securities/foreign exchange to the BSP)/debiting directly (in case of purchase of securities/foreign exchange from the BSP) the Participant's demand deposit account (DDA) using the BSP's FAS. Debits and credits to DDA of Participants resulting from outright purchase and sale of securities/foreign exchange transactions with the BSP shall be part of the statements of account broadcast by the BSP on an hourly basis under Section 3.6 of the MIPS2 Agreement. All other terms and conditions of the MIPS2 Agreement (hereto attached as Annex) which are not inconsistent with the provisions of this Supplemental Agreement and not otherwise modified or superseded thereby shall continue in full force and effect. IN WITNESS WHEREOF, the parties have hereunto set their hands this 13th day of November 2001 at the City of Manila, Philippines. BANGKO SENTRAL NG PILIPINAS BANKERS ASSOCIATION OF THE PHILIPPINES By: ____________________ By: _____________________ PHILIPPINE CLEARING HOUSE CORPORATION By: ____________________ WITNESSES: _______________ _______________ ______________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S.S. BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally appeared: Name Community Tax Cert. No. Date & Place Issued known to me and to me known to be the same person who executed the foregoing Supplemental Agreement and who acknowledged to me that the same is his free and voluntary act and deed and that of the institution he represents. This instrument consists of _____ ( ) pages including this page whereon the acknowledgment is written, is duly signed by the parties and their respective instrumental witnesses on each and every page thereof. WITNESS MY HAND AND SEAL this _____ day of _____ in the City of ___________, Philippines. NOTARY PUBLIC Doc. No. ______; Page No. ______; Book No. _____; Series of 2001 ANNEX 1 PARTICIPATION AGREEMENT MIPS2 PLUS (for BAP Members) _____________________________ Bankers Association of the Philippines 11/F Sagittarius Building H.V. de la Costa St. Salcedo Village, Makati City Gentlemen: Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer System (the "System") which is covered by the Agreement dated _______________, 2001 (the "Agreement) among yourselves, the BSP and the PCHC and its subsequent amendments or revisions as may be agreed upon by the parties thereto from time to time. We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part of this Participation Agreement, including the authority of the BSP to execute our credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our obligations as a participating bank as provided in the Agreement. Lastly, we agree to keep yourselves, the BSP and the PCHC free and harmless from any claim or liability arising from, or in connection with, our transactions transmitted through the System in accordance with the provisions of the Agreement. This participation will become effective upon our conformity hereto and your notification of the same to us, to the PCHC and the BSP. Very truly yours, _______________________________ Participating Bank/Financial Institution APPROVED: Bankers Association of the Philippines By: _______________________________ ANNEX 2 PARTICIPATION AGREEMENT MIPS2 PLUS (for non-BAP Members) _____________________________ Bankers Association of the Philippines 11/F Sagittarius Building H.V. de la Costa St. Salcedo Village, Makati City Philippine Clearing House Corporation Ground Floor, 5 Storey Bldg. Bangko Sentral ng Pilipinas Manila Gentlemen: Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer System (the "System") which is covered by the Agreement dated _______________, 2001 (the "Agreement) among yourselves, the BSP and the PCHC and its subsequent amendments or revisions as may be agreed upon by the parties thereto from time to time. We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part of this Participation Agreement, including the authority of the BSP to execute our credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our obligations as a participating bank/financial institution as provided in the Agreement. Lastly, we agree to keep yourselves, and the BSP free and harmless from any claim or liability arising from, or in connection with, our transactions transmitted through the System in accordance with the provisions of the Agreement. This participation will become effective upon our conformity hereto and your notification of the same to us, and the BSP. Very truly yours, _______________________________ Participating Bank/Financial Institution APPROVED: Bankers Association of the Philippines Philippine Clearing House Corporation By: By: ____________________________ _____________________________ SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND PURCHASE AND SALE OF GOVERNMENT SECURITIES UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL (Appendix to Subsecs. X343.3 and X601.3) Interbank loan transactions (call and term) among banks and NBQBs and purchase and sale of government securities under repurchase agreements (GS/RP) between and among banks and NBQBs and BSP in connection with the latter's open market operations shall be settled gross, on a trade-for-trade basis and with finality subject to the availability of balances in the deposit reserves maintained by banks in the BSP in accordance with the following procedures: DcaSIH 1. The lender, in the case of lending/borrowing and purchaser in GS/RP transaction, and the borrower, in the case of collection/payment and repurchaser in a GS/RP transaction, should transmit an IBCL-MIPS (System) Fund Transfer Instructions (Instruction) to the PCHC which shall forward the transaction electronically to BSP. Each transacting party shall use its confidential ID and password to activate the System and initiate/authorize its transaction. The electronic debit instruction shall undergo System authentication by the PCHC and BSP Authentication confirms that the Instructions contain the proper approvals from authorized officers of the originating institution. 2. BSP shall settle in the deposit reserves maintained by banks and NBQBs in the BSP the individual interbank loan and GS/RP transaction within the following settlement time frame: From 9:00 AM to 9:45 AM Only lending/borrowing to cover shortfall in deposit reserves with BSP arising from the results of the AM Returned COCIs Clearing conducted under Sec. X203, valued on the same date as the date of the original presentation of the COCI to PCHC and BSP regional clearing centers (RCCs). From 10:00 AM to 4:00 PM All interbank loan transactions and GS/RP transactions to be given value on the date of the loan grant/repayment and GS purchase/repurchase. From 5:30 PM to 6:30 PM Only lendings/borrowings to cover the shortfall in reserve deposits with BSP from losses arising from the regular afternoon check clearing to be given value on the date of the loan grant/repayment and GS purchase/repurchase. 3. BSP is not obliged to effect the transfer of funds in the deposit reserves maintained by banks and NBQBs in the BSP if there is no sufficient balance in said deposit reserves of the transacting party whose account shall be debited in the BSP books. To support the implementation of the provisions of this Appendix, the cash-in-vault (CIV) component of available reserves shall be based on the actual CIV balance outstanding two (2) banking days ago, for purposes of computing the reserve position of the current day. INTRADAY LIQUIDITY FACILITY FOR THE IMPLEMENTATION OF SETTLEMENT PROCEDURES UNDER APPENDIX 21a THRU THE IMPROVED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (MIPS 2) (Appendix to Subsecs. X343.1 and X601.3) The Intraday Liquidity Facility (ILF) shall be established to support the implementation of the settlement of transactions involving interbank loans and government securities (GS) under repurchase agreements (RPs) with the BSP in connection with its Open Market Operations (OMO). BSP recognizes that there are interbank transactions, other than check clearing, that are still settled on net basis. These interbank transactions include primary auction of government securities, secondary trading of GS, peso-netting arising from $-Peso swaps and lendings/borrowings among banks. The ILF provides the smoothening mechanism in the settlement of these interbank transactions which are not covered by App. 21a but could cause a failure of settlement of transactions under MIPS2. The operations of the ILF are considered part of the BSP's OMO. The basic features of ILF are described below. The timeline and procedures are shown in Annex "A". 1. Establishment of BSP ILF Sub Account with BTR-RoSS To establish the ILF, each bank/NBQB shall instruct the Bureau of Treasury (BTr) to move from their accounts with BTr-RoSS to the BSP ILF sub-account the pool of peso-denominated GS to be pledged as collaterals covered by a "Contract to Pledge/Sell under R/P". This sub-account is unique to ILF. 2. Access to the facility The ILF shall be accessed only within the 10:00 AM to 4:00 PM trading window of App. 21a. Whenever the reserve deposits of banks/NBQBs are not sufficient to cover the amount of eligible interbank transaction to be settled, the Financial Accounting System (FAS) of BSP shall automatically access the unutilized balance of ILF and move the funds to the Demand Deposit account (DDA) of the bank/NBQB, up to the amount not exceeding its intraday bank limit. 3. Eligible interbank transactions Only the following interbank transactions shall be eligible for settlement thru ILF: (a) Primary auction of GS (b) Secondary trading of GS (c) Peso netting from $-Peso swap (d) Lendings/borrowings and their collections/repayments 4. Intraday bank limit Banks/NBQBs shall set their individual ILF limits based on the amount of GS to be delivered to the pool and to be pledged. 5. Eligible collateral Similar to BSP's guidelines for RPs, peso-denominated issues of the National Government, with maturities of up to ten (10) years, are eligible. As such, these GS shall be free or unencumbered and dedicated for this specific purpose. The government securities to be pledged should be part of "Investments in Bonds and Other Debt Instruments" (IBODI) in the bank's books. 6. Valuation of collateral The GS shall be valued based on the 11:15 AM fixing rates on Friday of the week when pledged documents are submitted to BSP Treasury (from applicable Bloomberg's MART pages). 7. Margins Margins shall be applied based on the remaining life of the security and on existing procedures of BSP Treasury. 8. Changes in collateral Banks/NBQBs may increase or decrease their intraday facility limit by adjusting the amount of GS delivered to the pool no later than 10:00 AM each Thursday. BSP Treasury shall value the securities on Fridays, for use the following week, i.e., starting Monday. 9. Transaction fee In lieu of interest, BSP shall collect a transaction fee of P2,500 per ILF access to be debited to the DDA account of banks/NBQBs at the close of the transaction date. 10. Repayments of intraday availments a. The unsettled ILF utilization, after BSP Accounting has settled the check clearing results and the interbank lendings/borrowings among banks/NBQBs at 6:15 PM, shall be automatically converted into an overnight (O/N) RP at 600 basis points over the BSP's overnight lending rate for the day. b. Collaterals for the O/N RP shall be selected from the ILF pool based on the following criteria: i. Shortest remaining life ii. Value less than par and closest to par c. ILF utilizations that are converted into O/N RPs may be repaid the following banking day through the unutilized balance in the facility should there be a shortfall in the DDA balance. d. Unsettled O/N RP arising from ILF utilization due to insufficient DDA balance with BSP shall be converted automatically into an outright sale/purchase of the pledged collateral. e. Unsettled ILF utilization shall not be eligible for funding from the regular R/P window of BSP. 11. System for earmarking/unearmarking collaterals BSP Accounting shall maintain an ILF collateral file which shall function in tandem with the FAS system. The ILF collateral file shall be maintained for movement of collaterals from the ILF to O/N RPs and for unearmarking of government securities which are transferred to the BSP main account with BTR-RoSS on account of an absolute sale evidenced by the issue of Confirmation of Sale (COS) by the bank/NBQB and the Confirmation of Purchase (COP) by the BSP Treasury. 12. Availability of the facility The ILF shall be available in its fully automated form after completion of the user acceptance testing by market participants, BSP and the BTr. Prior to full automation, there shall be physical delivery of pledge documents to the BSP Treasury for GS to be utilized as collaterals for the ILF. AGREEMENT TO PLEDGE/SELL GOVERNMENT SECURITIES UNDER BANGKO SENTRAL NG PILIPINAS R/P WINDOW ____________________ (Date) TO: The BUREAU OF TREASURY In consideration for the establishment by the Bangko Sentral ng Pilipinas (BSP) Treasury Department of an Intraday Liquidity Facility in its favor, the _____________________ (Transferee) hereby assigns, conveys and transfers all its right, titles and interest in the government securities registered in its account with the BTR-RoSS and described hereinbelow, free from encumbrance and liens whatsoever, to the BSP to be credited to BSP's ILF sub-account with the BTR-RoSS. For this purpose, the Transferee hereby authorizes you to effect such transfers from/to the accounts mentioned. It is mutually agreed upon that said securities shall serve and constitute as collaterals for whatever availments obtained by the Transferee from the Intraday Liquidity Facility and granted by the BSP Treasury Department subject to the appropriate documentations covering the same. DETAILS OF THE SECURITIES DESCRIPTION FACE AMOUNT _______________________________ ______________________________ Conforme: Name(s) of Transferee's Authorized Name(s) of BSP's Authorized Officer/Position Title Officer/Position Title ___________________________ ____________________________ ___________________________ ____________________________ Terms and Conditions: CUSTODY OF SECURITIES Held in custody by the Bureau of Treasury under the RoSS OTHER STIPULATIONS a. Interest due or accruing on the aforesaid bonds/certificates of indebtedness is included in this Agreement b. The transferee will pay the taxes relevant to the transfer and availments. c. The transferee waives its right to the Secrecy of Deposits Law in regard to this transaction d. The transfer of securities and the availments of the Intraday Liquidity Facility are subject to the provisions of App. 21, App 21a and its implementing guidelines as they exist and as may be amended. ANNEX A TIMELINE, POLICIES AND PROCEDURES FOR IMPLEMENTATION OF INTRADAY LIQUIDITY FACILITY (ILF) TO SUPPORT MIPS 2 Date Time Participating Banks/FIs BSP Treasury Bureau of Treasury BSP Accounting Establish collateral Pool Including Subsequent Amendments One week Not later Instructs BTr to move to BSP ILF Instructs BTr to open sub- Implements instructions before than sub-account to be pledged as account for ILF of participating banks/ effectivity 10:00am collateral to a "Contract to 1. Unique to ILF NBQBs each Pledge/Sell under RP" 2. Securities are FREE OR Thursday UNENCUMBERED 3. Marked as non-tradeable 4. Remaining life not more than ten (10) years 5. Booked as IBODI in bank's Transmit Electronic file to books BSP Accounting 12:00 Using API of Bloomberg, Calls valuation program; noon downloads latest prices and Sets up Intraday Facility each send extracted prices file to File for following week's Friday BSP Accounting; should settlement operations show: 1. Par value 2. Remaining Life Total collateral value 3. Mark to Market value Individual bank/NBQB ILF limit Utilization of Intraday Liquidity Day 1 10:00 am Transact ILF eligible interbank Settles interbank to 4:00 transactions other than check transactions using pm clearing available DDA funds. In 1. Primary auction of GS case of NSF conditions, 2. Secondary trading of GS move funds from ILF 3. Peso netting form $-P swap 4. Lending/borrowing and Settles ILF cumulative collection repayments Prints transaction register availment thru DDA funds remaining at close of 10 to 4 window 11:30 am Using API of Bloomberg, downloads latest prices and send collateral file to BSP Accounting; should show: 1. Par value 2. Remaining Life 3. Mark to Market value 4:014:30 Prints register of unsettled ILF pm utilizations 4:455:00 Updates DDA for pm previous hours' transactions of BSP internal departments, including regional clearing results 5:00 pm Updates DDA for PCHC clearing results 5:306:15 Updates DDA for IBCL pm third trading window Settles outstanding ILF utilization thru DDA 6:15 pm Prints register of unsettled ILF Recognizes O/N RP utilization using the price fixed at 11:15am Recognizes O/N RP Selects securities based on following criteria and updates collateral file (mark) Prints transaction register 1. shortest remaining life 2. value less than and closest to par Day 2 10:00 am Sends maturing O/N RP to Implements transfer from Settles matured O/N to 4:00pm BSP Accounting BSP ILF sub-account to RP thru DDA balances BSP main account at the start of day, if sufficient 11:00 am Prints transactions register If DDA balance not sufficient, and there is an unutilized ILF, access the amount required. If settled, updates collateral file (unmark) If not settled, unmark and delist from collateral file Prints list of unsettled O/N RP 11:00 am Converts unsettled O/N RP to Implements transfer from Effects transfer from RP 12:00 nn absolute sale of GS using BSP ILF sub-account to to sale of GS at Confirmation of Sale (COS)/ BSP main account realizable proceeds Confirmation of Purchase (COP) provision in the standby contract LIST OF NON-ALLIED UNDERTAKING WHERE UBs MAY INVEST IN EQUITIES 1 (Appendix to Subsec. X381.1) PSIC CODE DESCRIPTION MAJOR GROUP GROUP I. Agriculture (Major Division 1) A. Agricultural crops production (Division 11) 111 Palay production 112 Corn production 113 Vegetable production, including root and tuber crops 114 Fruits and nuts (excluding coconut) production 115 Coconut production, including copra making in the farm 116 Sugarcane production, including muscovado sugar in the farm 118 Fiber crops production 119 Other agricultural crops production B. Production of livestock, poultry and other animals (Division 12) 121 Livestock and livestock products 122 Poultry and poultry products 123 Raising of other animals, including their products C. Agricultural services (Division 13) 130 Agricultural services II. Fishery and Forestry (Major Division 2) A. Fishery (Division 14) 141 Ocean (offshore) and coastal fishing 142 Inland fishing 143 Operation of fish farms 149 Other fishery activities B. Forestry (Division 15) 159 Other forestry activities (operation of forest tree nurseries; planting, replanting and conservation of forests; gathering of uncultivated forest materials; establishments primarily engaged in providing forestry services on a fee or contract basis) III. Mining and Quarrying (Major Division 3) A. Metallic ore mining (Division 21) 211 Gold ore mining 212 Other precious metal ore mining 213 Copper ore mining 214 Nickel ore mining 215 Chromite ore mining 216 Iron ore mining 217 Other base metal ore mining B. Non-metallic mining and quarrying (Division 22) 221 Coal mining 222 Exploration and production of crude petroleum and natural gas 223 Stone quarrying, clay and sand pits 229 Other non-metallic mining and quarrying IV. Manufacturing (Major Division 4) A. Manufacture of food (Division 31) 311-312 Food manufacturing B. Textile, wearing apparel and leather industries (Division 32) 321 Manufacture of textiles 322 Manufacture of wearing apparel, except footwear Manufacture of leather and leather products, leather substitutes, and fur, except footwear & wearing apparel 324 Manufacture of footwear, except rubber, plastic or wood footwear C. Manufacture of paper and paper products; printing and publishing (Division 34) 341 Manufacture of paper and paper products 342 Printing, publishing and allied industries D. Manufacture of chemicals and chemical, petroleum, coal rubber and plastic products (Division 35) 351 Manufacture of industrial chemicals 352 Manufacture of other chemical products 353 Petroleum refineries 354 Manufacture of miscellaneous products of petroleum and coal 355 Manufacture of rubber products 356 Manufacture of plastic products not elsewhere classified E. Manufacture of non-metallic mineral products, except products of petroleum and coal (Division 36) 361 Manufacture of pottery, china and earthenware 362 Manufacture of glass and glass products 363 Manufacture of cement 369 Manufacture of other non-metallic mineral products F. Basic metal industries (Division 37) 371 Iron and steel basic industries 372 Non-ferrous metal basic industries G. Manufacture of fabricated metal products, machinery and equipment (Division 38) 381 Manufacture of fabricated metal products, except machinery and equipment and furniture and fixtures primarily of metal 382 Manufacture of machinery except electrical 383 Manufacture of electrical machinery apparatus, appliances and supplies 384 Manufacture of transport equipmen t 385 Manufacture of professional and scientific and measuring and controlling equipment not elsewhere classified, and of photographic and optical instruments 386 Manufacture and repair of furniture and fixtures primarily of metal H. Other manufacturing industries (Division 39) 390 Other manufacturing industries V. Electricity, Gas and Water (Major Division 5) A. Electricity (Division 41) 411 Generating and distributing electricity 412 Distributing electricity to consumers B. Gas and steam (Division 42) 421 Gas manufacture and distribution through systems 422 Steam heat and power plants C. Waterworks and supply (Division 43) 430 Waterworks and supply VI. Construction (Major Division 6) 501 General building construction 502 General engineering construction 503 Special trade construction VII. Wholesale Trade and Retail Trade Repair of MV Motorcycles and Personal and Household Goods (Major Division 7) A. Wholesale trade (Division 61) 619 Wholesale trade not elsewhere classified Merchandise brokers, general merchants, importers and exporters VIII. Transport, Storage and Communication (Major Division 8) A. Transportation services (Division 71) 711 Railway transport 712 Road passenger and freight transport 713 Water transport 714 Air transport 719 Services allied to transport B. Communication (Division 73) 731 Mail and express services 732 Telephone services 733 Telegraph services 739 Communication services, non-essential commodities IX. Financial Intermediation (Major Division 9) X. Real Estate, Renting and Business Activities (Major Division 10) XI. Public Ad and Defense; Compulsory Social Security (Major Division 11) XII. Education (Major Division 12) XIII. Health and Social Work (Major Division 13) XIV. Other Community, Social, and Personal Service Activities (Major Division 14) A. Other social and related community services (Division 95) 951 Research and scientific institutions XV. Private Households with Employed Persons (Major Division 15) XVI. Extra-Territorial Organizations and Bodies (Major Division 16) XVII. Restaurant and Hotels (Major Division 17) 981 Restaurants, cafes and other eating and drinking places 982 Hotel, motels and other lodging places, non-essential commodities ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND COMPUTATION METHOD USED TO MARK-TO-MARKET DEBT AND MARKETABLE EQUITY SECURITIES (Appendix to Subsec. X388.5) General Principle As a general rule, to the extent a credible market pricing mechanism as determined by the Bangko Sentral ng Pilipinas (BSP) exists for a given security, that market price shall be the basis of mark-to-market. However, in the absence of a market price, a calculated price shall be used as prescribed herein. A financial institution may also be allowed, subject to the approval of the Deputy Governor, Supervision and Examination Sector, BSP, to use its own system for marking-to-market its securities holdings: Provided , That this can be shown to be sufficiently transparent, objective, reliable and consistent. The system should be approved by the financial institution's board of directors (or equivalent management committee in the case of foreign bank branches). The model should be vetted by the financial institution's risk management group, internal audit group and systems group, properly documented and such documentation available for review by external auditors and the BSP. TAcDHS Mark-to-Market Guidelines To ensure consistency, the following shall be used as bases in marking-to-market debt and equity securities: Type of Security Market Price Basis A. Equity Securities Listed in the Stock Exchange 1. Traded in the Philippines Same day closing price as quoted at the Philippine Stock Exchange. In case of halt trading/suspension or holidays, use the last available closing price. 2. Traded Abroad Latest available closing price from the exchange where the securities are traded. B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems (Bloomberg, Reuters, Bridge) 1. US Treasuries Price as of end of days Manila time. 2. US Agency papers such as Latest available price for the day, Fannie Maes, Freddie Macs, Manila time. In the absence of a price, Ginnie Maes, Municipal papers use average quotes of at least three (3) regular brokers/market makers. * 3. Brady Bonds Same as B.2. 4. For all US$-denominated Same as B.2. government and corporate securities 5. Other foreign-currency Same as B.2. securities C. Peso-Denominated Government Securities 1. Short - term Domestic Price as of end of day. Use the Government Securities following sources as discount rate/yield to maturity: a) Weighted average dealt rate for the day. b) In the absence of a same day dealt rate, use end of day indicative mid rate between best bid and best offer. c) In the absence of a same day indicative mid rate, use end of day best bid rate. 2. Long-term Domestic Same as C.1. Government Securities D. Peso-Denominated Private Debt Securities 1. Short-term securities Prices computed using the corresponding government security benchmark + short-term risk premium 2. Long-term Fixed Rate Prices computed using the Securities corresponding government security benchmark + long-term risk premium 3. Long-Term Securities Prices computed using the Floaters corresponding government security benchmark based on the reset period + risk premium. (Please refer to Technical Annex for pricing formula.) All the risk premia mentioned under Section D shall be recommended by a Risk Assessment Committee (RAC) and updated regularly. The RAC shall be convened by the Bankers Association of the Philippines (BAP) and composed of representatives from the BAP, Investment House Association of the Philippines (IHAP), Money Market Association of the Philippines (MART), rating agencies and the BSP. Other Guidelines In pricing debt securities, interpolated yields shall be used for securities with odd tenors. The mark-to-market rules prescribed for securities from Sections A to C (Equity Securities Listed in the Stock Exchange, Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems and Peso-Denominated Government Securities) shall take effect on April 1, 2001. The effectivity date of the mark-to-market rules prescribed for securities covered under Section D (Peso-Denominated Private Debt Securities) shall be announced later. Technical Annex: Valuation of Floaters Formula: Where: C1 = MV x Cpn x (1-Wht) x E/360 E = No. of days in a coupon period A = No. of accrued days DSC = No. of days from valuation date to next coupon date (DSC- E-A) F = No. of payments per year N = No. of coupon periods between valuation date and maturity date C = (Use the prevailing rate of the floating rate index + spread) x. (1-Wht) x MV x E/360 MV = Par value Cpn = Current Coupon Rate Yld = Corresponding government security benchmark based on reset or repricing + long-term risk premium (gross) Wht = Withholding tax MINIMUM CRITERIA FOR ACCREDITATION OF PARTICIPATING FINANCIAL INSTITUTIONS (PFIs) IN GOVERNMENT BANKS WHOLESALE LENDING PROGRAM (Appendix to Subsec. X303.8) I. Accreditation Criteria For accreditation purposes, PFIs shall initially be evaluated/appraised on the basis of the following pre-qualifying criteria: 1. The PFI shall submit a certification on the following: a. Compliance with the prescribed minimum capital to risk assets ratio of ten percent (10%), minimum capitalization, legal and liquidity reserve requirements for deposit liabilities, deposit substitutes, common trust funds (CTFs) and Trust and Other Fiduciary Accounts (TOFA)-Others, liquidity floor requirement for government funds held, and ceilings on credit accommodations to directors, officers, stockholders and their related interests (DOSRI), for six (6) consecutive months prior to the filing of application for accreditation. b. As of application date, the PFI has generally complied with the orders or instructions of the Monetary Board and/or BSP Management, more particularly: (i) Set-up of the required general loan loss and specific provisioning requirements.; and (ii) Correction of major violations and previous years' exceptions noted in the latest BSP examination. c. The PFI has no past due obligations with the BSP or with any government financial institution. d. The PFI's accounting records, systems, procedures and internal control systems are satisfactorily maintained. 2. Profitability a. For PFIs operating for more than three (3) years as of date of filing of the application for accreditation Operating profitably for three (3) consecutive years prior to the filing of application for accreditation. b. For PFIs operating for less than three (3) years as of date of filing of the application for accreditation Operating profitably for two (2) consecutive years prior to the filing of application for accreditation. 3. Capital Compliance with minimum capital accounts of P400 million or BSP required minimum capitalization applicable to the category where the PFI belongs, whichever is higher. 4. Non-performing loans ratio for six (6) consecutive months prior to the filing of application for accreditation shall not exceed the industry ratio which may be obtained from the SRSO of the BSP. 5. Ownership/Management For PFIs operating for less than three (3) years as of date of filing of the application for accreditation a. Domestic bank owned by reputable individuals/institutions and managed by reputable and experienced bankers. b. Philippine branch of a foreign bank carrying an international investment grade rating acceptable to the government bank with foreign bank's (Head Office/parent bank) unconditional and irrevocable guarantee on loan availments of Philippine branch or subsidiary. II. Grant and Renewal of Credit Lines to Accredited PFIs 1. Government banks shall provide credit lines for a specified term to each accredited PFI based on the results of the quantitative and qualitative evaluation guidelines to be formulated in accordance with credit policies and procedures approved by the bank's Board of Directors and/or as prescribed by the institutions, organizations or agencies which provide the funds. 2. PFIs shall be subject to quantitative and qualitative evaluation as well as the accreditation criteria when applying for renewal of credit lines. 3. Government banks may suspend the release of funds to PFIs that failed to meet any of the quantitative and qualitative evaluation guidelines and/or the accreditation criteria. DEED OF UNDERTAKING FOR THE ISSUANCE OF REDEEMABLE PREFERRED SHARES [Appendix to Subsec. X 126.5a(3)(e)] We, the majority of the members of the Board of Directors and key executive officers of ____________________, a banking corporation duly registered and organized under the laws of the Republic of the Philippines, with principal office and place of business at __________________________, by these presents do hereby obligate ourselves to undertake the following in the issuance of preferred stock: 1. That the issuance of preferred stock shall be in accordance with the terms and conditions of approval by the Bangko Sentral ng Pilipinas (BSP) and pertinent rules and regulations of the BSP and that of the Securities and Exchange Commission (SEC)/Cooperative Development Authority (CDA); 2. That any preferred shares so issued shall not be redeemed, retired, converted to any other kind of stocks or securities or paid back in cash or property without the prior approval of BSP in accordance with Subsection X126.5 and 3127.4 of the Manual of Regulations for Banks, Section 8, R.A. 7353 and other applicable regulations and banking laws; 3. That in no case shall the issuance of preferred shares be treated as similar to or as a substitute of other form of temporary investments of clients and depositors such as time deposits, savings deposits, money market placements or other form of investments subject to withdrawal; 4. That outstanding preferred shares may be redeemed or retired only if the shares redeemed or retired are replaced with at least an equivalent amount of newly paid-in shares so that the total paid-in capital stock is maintained at the same level immediately prior to redemption or retirement: Provided , That no outstanding preferred share shall be redeemed within five (5) years from full payment of the subscription or issuance of stock certificate therefor; 5. That we, the undersigned; shall ensure that the above undertakings are strictly complied with and observed at all times by the management of the bank; 6. That non-compliance with this undertaking shall subject the directors/officers involved liable to such administrative sanctions as the Monetary Board may impose and such other sanctions as may be provided pursuant to Section 37 of R.A. 7653, without prejudice to the criminal sanctions under Section 36 of the same Act. ESIcaC IN WITNESS WHEREOF, we have hereunto affix our signature on this ______ day of ________________, 20___. Directors: Officers; ________________________ ________________________ ________________________ ________________________ ________________________ ________________________ REPUBLIC OF THE PHILIPPINES ) PROVINCE/CITY OF ) S.S. BEFORE ME, a Notary Public, for and in the Province/City of __________ this ____________ day of ________________, 200__, personally appeared the herein named persons with their Community Tax Receipts, known to me to be the same persons who executed the foregoing instrument and acknowledged before me that the same is their own free and voluntary act and deed. Comm. Tax Cert. Name No. Date of Issue Place of Issue __________ ___________ ___________ _________ __________ ___________ ___________ _________ __________ ___________ ___________ _________ __________ ___________ ___________ _________ __________ ___________ ___________ _________ __________ ___________ ___________ _________ IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date and place above written. NOTARY PUBLIC Until December 31, 20___ PTR No. _____________ Issued at _______ on ________ Doc. No. ______; Page No. ______; Book No. ______; Series of _______. GUIDELINES TO GOVERN THE SELECTION AND APPOINTMENT OF AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF UNIVERSAL BANKS AND COMMERCIAL BANKS (Appendix to Sec. X180) A. GENERAL REQUIREMENTS Only external auditors who may be selected by the BSP shall be engaged by banks for regular audit or special engagements. The following are the requirements for external auditors: 1. No external auditor may be engaged by a bank if he had acquired or has committed to acquire any direct or material indirect financial interest in the bank, or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants (CPAs). In the case of a partnership, this limitation shall apply to the partners, associates and the auditor-in-charge of the engagement. 2. The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit accommodations (except credit card obligations) with any bank to be audited/being audited at the time of signing the engagement and during the engagement. 3. The external auditor and members of the audit team adhere to the highest standards of professional conduct, including integrity and objectivity. 4. The external auditor should have at least five (5) years track record in conducting external audits. 5. Other requirements: a. Must have at least twenty (20) existing corporate clients with resources of P50 million each; and b. Must have at least one (1) existing client UB/KB in the regular audit or in lieu thereof, the external auditor and the auditor who will head the team must have at least five (5) years experience in bank audit. B. PRE-QUALIFICATION REQUIREMENTS The application of external auditor together with the information/documents required hereunder shall be submitted to the appropriate SES department thru the concerned bank prior to engagement. 1. Notarized certification that the external auditor, partners, associates and the auditor-in-charge of the engagement did not have or are not committed to acquire any direct or material indirect financial interest in the bank and their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. 2. Notarized certification that the external auditor and the members of the audit team do not have/will not have outstanding loans or any credit accommodations (except credit card obligations) with any bank to be audited/being audited at the time of signing the engagement and during the engagement. 3. Notarized certification that the external auditor and members of the audit team shall adhere to the highest standards of professional conduct, including integrity and objectivity. 4. List of existing corporate clients or in lieu thereof, a notarized certification that the firm or auditor has at least twenty (20) corporate clients with resources of at least P50 million each. 5. Notarized certification that the external auditor has at least one (1) existing client UB/KB in the regular audit or in lieu thereof, a notarized certification that the external auditor and the auditor who will head the team have at least five (5) years experience in bank audit. 6. Updated Professional Regulation Commission (PRC) license (for individual auditors)/business license for partnership. 7. Notarized certification that the audit work will observe the BSP criteria for classifying accounts and setting-up reserves as provided in Appendix 18 . 8. Copy of the proposed engagement contract between the bank and the external auditor. 9. Certification from the PRC that the individual external auditor or the members of the audit team have no derogatory information, previous conviction or any pending investigation. However, in the event that the certification cannot be obtained because of the pendency of a case, the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question, or does not, in any way, negate the auditor's adherence to the highest standards of professional conduct and degrade his integrity and objectivity. An external auditor who has been selected by the BSP for a UB/KB is automatically qualified to audit other banks. The BSP will circularize to all UBs and KBs the list of selected external auditors once a year. The BSP, however, shall not be liable for any liability or loss that may arise from its selection of the external auditors to be engaged by banks for regular audit or special engagements. ICDSca C. REQUIRED REPORT To enable the BSP to take timely and appropriate remedial action, the bank engaging the services of an external auditor for a regular audit or special engagement shall include in every contract of engagement the provision that the external auditor must report to the BSP within thirty (30) calendar days of discovery, during his audit field work, the following cases which may be discovered based on generally accepted auditing standards: 1. Any material finding discovered during the period of audit involving fraud or dishonesty (including cases that were resolved during the period of audit) which will reduce the capital funds of the bank by at least one percent (1%); 2. Adjustments or potential losses the aggregate of which amounts to at least one percent (1%) of the capital funds of the bank; and 3. Any finding to the effect that the total bank assets, on a going concern basis, are no longer adequate to cover the total claims of creditors. The contract between the bank and the external auditor shall contain a provision that the disclosure of information by the external auditor to the BSP shall not be a ground for civil, criminal or disciplinary proceedings against the auditor. Bank management shall be informed of the adverse findings and the external auditor's report to the BSP shall include bank management's explanation and/or corrective action. Bank management should be present in the discussion of BSP and external auditor regarding the findings in order to preserve the concerns of the supervisory authority and external auditors regarding the confidentiality of information. The appropriate department of the BSP shall conduct the necessary investigation or special examination to substantiate the report of the external auditor. D. GROUNDS FOR DELISTING External auditors shall be delisted from the BSP selected bank external auditors under the following circumstances: 1. Failure to submit the required report under Item "C" above within the prescribed period; 2. Inability to follow or adopt the BSP standard for asset classification and setting-up of the required valuation reserves; 3. Any willful misrepresentation in the information/documents required under Items "A" and "B"; or 4. The external auditor commits an act discreditable to the profession as specified in the Code of Professional Ethics for CPAs. It is understood that the above shall be the basis for delisting after the external auditor is given the opportunity to be heard by the Monetary Board. Delisted external auditor may re-apply to audit banks after the period of suspension imposed by the Monetary Board. IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 6848 (THE ISLAMIC BANK CHARTER) (Appendix to Sec. X101) Pursuant to Section 43 of R. A. No. 6848, otherwise known as "The Charter of the Al-Amanah Islamic Investment Bank of the Philippines", the Monetary Board, in its Resolution Nos. 161 and 244 dated February 14 and March 6, 1996, respectively, approved the following Implementing Rules and Regulations: Sec. 1. Domicile and Place of Business The principal domicile and place of business of the Al-Amanah Islamic Investment Bank of the Philippines, hereinafter called the Islamic Bank, shall be in Zamboanga City. It may establish branches, agencies or other offices at such places in the Philippines or abroad subject to applicable laws, rules and regulations of the Bangko Sentral ng Pilipinas . Sec. 2. Purpose and Basis The primary purpose of the Islamic Bank shall be to promote and accelerate the socio-economic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking. IEcaHS All business dealing sand activities of the Islamic Bank shall be subject to the basic principles and rulings of Islamic Shari'a within the purview of the aforementioned declared policy. Any zakat or "tithe" paid by the Islamic Bank on behalf of its shareholders and depositors shall be considered as part of compliance by the Islamic bank with its obligation to appropriate said zakat fund and to disburse it in legitimate channels to be ascertained first by the Shari'a Advisory Council. Sec. 3. Shari'a Advisory Council The Shari'a Advisory Council of the Islamic Bank shall be composed of at least three (3) but not more than five (5) members, selected from among Islamic scholars and jurists of comparative law. The members shall be elected at a general shareholders' meeting of the Islamic Bank every three (3) years from a list of nominees prepared by the Board of Directors of the Islamic Bank. The Board is hereby authorized to select the members of the first Shari'a Advisory Council and to determine their remunerations. Sec. 4. Functions of the Shari'a Advisory Council The functions of the Shari'a Advisory Council shall be to offer advice and undertake reviews pertaining to the application of the principles and rulings of the Islamic Shari'a to the Islamic Bank's transactions, but it shall not directly involve itself in the operations of the Bank. Any member of the Shari'a Advisory Council may be invited to sit in the regular or special meetings of the Board of Directors of the Islamic Bank to expound his views on matters of the Islamic Shari'a affecting a particular transaction but he shall not be entitled to vote on the question presented before the board meetings. Sec. 5. Islamic Bank's Powers The Al-Amanah Islamic Investment Bank of the Philippines, upon its organization, shall be a body corporate and shall have the power: 1) To prescribe its by-laws and its operating policies; 2) To adopt, alter and use a corporate seal; 3) To make contracts, to sue and be sued; 4) To borrow money; to own real or personal property and to introduce improvements. thereon, and to sell mortgage or otherwise dispose of the same; 5) To employ such officers and personnel, preferably from the qualified Muslim sector, as may be necessary to carry Islamic banking business; 6) To establish branches, agencies and correspondent offices in provinces and cities in the Philippines, particularly where Muslims are predominantly located, or in other areas in the country or abroad as may be necessary to carry on its Islamic banking business, subject to the rules and regulations of the Bangko Sentral ; 7) To perform the following banking services: a) Open current or checking accounts; b) Open savings accounts for safekeeping or custody with no participation in profit and losses unless otherwise authorized by the account holders to be invested; c) Accept investment account placements and invest the same for a term with the IB's funds in Islamically permissible transactions on participation basis; d) Accept foreign currency deposits from banks, companies, organizations and individuals, including foreign governments; e) Buy and sell foreign exchange; f) Act as correspondent of banks and institutions to handle remittances or any fund transfers; g) Accept drafts and issue letters of credit or letters of guarantee, negotiable notes and bills of exchange and other evidence of indebtedness under the universally accepted Islamic financial instruments; h) Act as collection agent insofar as the payment orders, bills of exchange or other commercial documents are exclusive of riba or interest prohibitions; i) Provide financing with or without collateral by way of Al-Ijarah (leasing), Al-Bai ul Takjiri (sale and leaseback), or Al-Murabahah (cost-plus profit sales arrangement); j) Handle storage operations for goods or commodity financing secured by warehouse receipts presented to the Bank; k) Issue shares for the account of institutions and companies assisted by the Bank in meeting subscription calls or augmenting their capital and/or fund requirements as may be allowed by law; l) Undertake various investments in all transactions allowed by the Islamic Shari'a in such a way that shall not permit the haram (forbidden), nor forbid the halal (permissible); 8) To act as an official depository of the government or its branches, subdivisions and instrumentalities and of government-owned or controlled corporations, particularly those doing business in the Autonomous Region; IcHTAa 9) To issue investment participation certificates, muquaradah (non-interest bearing bonds), debentures, collaterals and/or the renewal or refinancing of the same, with the approval of the Monetary Board of the Bangko Sentral to be used by the Bank in its financing operations for projects that will promote the economic development primarily of the Autonomous Region; 10) To carry out financing; and joint investment operations by way of mudarabah partnership, musharaka joint venture or by decreasing participation, murabaha purchasing for others on a cost-plus financing arrangement, and to invest funds directly in various projects or through the use of funds whose owners desire to invest jointly with other resources available to the IB on a joint mudarabah basis; 11) To invest in the equity of allied undertakings, financial or non-financial, as well as in the equity of enterprises engaged in non-allied activities, as the Monetary Board has declared or may declare as appropriate from time to time, subject to the limitations and conditions provided for under the Manual of Regulations for Banks and Other Financial Intermediaries Book I (MRBOFI); and 12) To exercise the powers granted under R.A. No. 6848 and such incidental powers as may be necessary to carry on its business, and to exercise further the general powers mentioned in the Corporation Law and the General Banking Act, insofar as they are not inconsistent or incompatible with the provisions of R. A. No. 6848. Sec. 6. Authorized Capital Stock The authorized capital stock of the IB shall be One billion pesos (P1,000,000,000) divided into ten million (10,000,000) common shares with par value of One hundred pesos (P100.00) each. All share are nominative and indivisible. The subscription to and ownership of such shares, including the transfer thereof to third parties, shall be limited to persons and entities who subscribe to the concept of Islamic banking. Sec. 7. Classification of Shares The IB's authorized capital stock shall have the following classifications and features in relation to its Islamic banking operations: 1) Series "A" shares shall comprise five million one hundred thousand (5,100,000) shares equivalent to Five hundred ten million pesos (P510,000,000) to be made available for subscription by the present stockholders of the Philippine Amanah Bank namely: the National Government, and such other financial entities as it may designate. 2) Series "B" shares shall comprise nine hundred thousand (900,000) shares equivalent to Ninety million pesos (P90,000,000) to be made available for subscription by the Filipino individuals and institutions. 3) Series "C" shares shall comprise four million (4,000,000) shares equivalent to Four hundred million pesos (P400,000,000) to be made available for subscription by Filipino and foreign individuals and/or institutions or entities: Any shareholders may exercise his pre-emptive right to consolidate ownership of the outstanding shares as hereinafter increased: Provided , That the common shares of the Philippine Amanah Bank which have been issued and outstanding shall form part of the increased capitalization of the IB, subject to the concurrence of the existing shareholders of the Philippine Amanah Bank. The IB is authorized to reacquire its common shares that are held privately: Provided , That it has sufficient surplus and/or accumulated earnings for the purpose. The IB may take the necessary steps to have its Series "B" shares listed in any duly registered stock exchange. Sec. 8. Sale or Transfer of Shares The IB shall make a report to the Bangko Sentral whenever a charge is about to take place in relation to the ownership or control of the Bank. The approval of the Monetary Board shall be required in the following changes. 1) Any proposal for the sale or disposal of its share or business, or other matters related thereto, which will result in a change of the control of management of the IB in the following cases: a) Any sale or transfer of ownership or control of more than twenty percent (20%) of the voting stock of the Bank to any person whether natural or juridical; and b) Any sale or transfer or a series of sales or transfers which will effect a change in the majority ownership or control of the voting stock of the Bank from one group of persons to another group. 2) Any scheme for reconstruction or for consolidation or merger, or otherwise, between the IB and any other company wherein the whole or any part of the undertaking of the property of the IB is to be transferred to another corporation. 3) Acquisition by foreign banking institutions, including their wholly- or majority-owned subsidiaries and their holding companies having majority holdings in such foreign banking institutions. Sec. 9. Privatization The IB may privatize its ownership. For this purpose, any limitation on the transfer of shares shall not be applicable with respect to the shareholdings of the National Government, SSS, GSIS, PNB and DBP. Transactions affecting the shares of stocks of the IB shall be subject to existing rules and regulations governing transfer of shares and ceilings on stockholdings, insofar as they are not in conflict with any provisions of R. A. No. 6848 and other pertinent laws, rules and regulations. Sec. 10. Board of Arbitration The Board of Directors of the IB, acting as an arbitrator, shall settle by the majority decision of its members any dispute between and among shareholders of the IB, whether individuals or entities, where such dispute arises from their relations as shareholders in the IB. The Board shall be bound in this respect to the procedures of laws on civil and commercial pleadings, except in regard to the basic principles of due process. If the dispute is between the IB and any of the investors or the shareholders, a Board of Arbitration shall settle such dispute. In this case, the Board of Arbitration, consisting of three (3) members shall be formed by two (2) parties to the dispute within forty-five (45) days from receipt of written notice by either party to the dispute. The three (3) members shall be selected as follows: one (1) arbitrator from each party who shall then select a casting arbitrator as the third member of the board. The three (3) shall select one of them to preside over the Board of Arbitration. The selection by each party of its arbitrator shall be deemed as an acceptance of the arbitrator's decision and of its finality. In the event that one of the two parties shall fail to select its arbitrator or in the case of nonagreement on the selection of the casting arbitrator or the presiding member of the Board of Arbitration within the period specified in the preceding paragraph, the matter shall be submitted to the Shari'a Advisory Council which shall select the arbitrator, the casting arbitrator or the presiding member, as the case may be. The Board of Arbitration shall meet at the IB's principal office and shill set up the procedure of arbitration which it shall follow in hearing and deciding the dispute. The decision shall include the method of its execution and the party that shall incur the costs of arbitration. The final judgment shall be deposited with the Office of the Corporate Secretary of the Bank and the SEC. The Board of Arbitration's decision shall, in all cases, be final and executory. It shall be valid for execution in the same manner as final judgments are effected under R.A. No. 876 otherwise known as the Arbitration Law. Sec. 11. Incentives to Islamic Banking Subject to the provisions of Section 72 of the New Central Bank Act, the provisions of the Omnibus Investment Code on the basic rights and guarantees of investors are made applicable to the commercial operations of the IB in respect to repatriation or remittance of profits from investments, and to protection against nationalization, sequestrations, or expropriation proceedings. Any proceedings of judicial or administrative seizure may not be taken against the said property or investment except upon a final court judgment. Sec. 12. Grants and Donations The IB shall accept grants, donations, endowments, and subsidies, or funds and/or property offered by individuals and organization who may earmark such grants for a specific purpose or for such other purposes beneficial to the Muslim communities, without prejudice to the general objectives of the IB. The financial statement and books of accounts of such funds shall be maintained separately but may be supplemented to the IB's balance sheet. Under special circumstances in which the Board of Directors considers it advisable to promote or facilitate Islamic banking business and commercial operations, the IB may seek financing from governments, organizations, individuals or banks always without prejudice to the provisions of Section 43 of R. A. No. 6848. Sec. 13. Non-interest Bearing Placements The IB is authorized to accept deposits from governments, banks, organizations or other entities and individuals from within the Philippines or abroad which shall form under any of the following non-interest bearing placements: 1) Savings accounts 2) Investment participation accounts 3) Current accounts and other deposit liabilities. Any deposit received by the IB without authorization to invest shall be treated as current account and savings account, as the case may be, and may be withdrawn wholly or partly at any time, under the principle of Al-Wadiah (Safe Custody). The IB shall provide check books for its current account depositors and savings passbook for savings account depositors and other usual services connected therewith. The IB, at its absolute discretion, may reward the customers for the use of their funds. The Board of Directors shall formulate rules and guidelines which should be consistent with the Shari'a principle, in the giving of rewards to the customers. All deposits received with authorization to invest for a given period of time shall form part of the general pool of placements allocated for the investment portfolios of the IB and may be added to its working capital to be invested in any special projects or in general areas of investments or commercial operations of the Bank. These deposits shall be called as "Investment Participation Accounts" in which under the principle of Al-Mudarabah , the IB acts as the "entrepreneur" and the customers as the "Provider of Capital", and both shall agree through negotiation on the ratio of distribution of the profits generated from the investment of the funds. In the event of loss, the customers shall bear all the losses. Sec. 14. Investment of Funds The IB shall have the capacity of agent or attorney and shall act with full authority on behalf of the group of depositors in general in investing their commingled deposits without prejudice to the following sections and shall ensure a degree of liquidity to be determined by the Board of Directors to meet the current obligations of the IB including drawings from savings accounts and current accounts: Provided , That such degree of liquidity shall be subject to the reserve requirement as may be determined by the Bangko Sentral . The Board of Directors shall determine the period for an investment participation account. Investment of funds shall be undertaken by the IB acting on behalf of the group of depositors or investors in selected areas of investment under such terms and conditions as the Board of Directors may determine by way of mudarabah or other forms of joint investment permitted by Islamic Shari'a principle. SIcEHC Sec. 15. Return on Investment Funds The depositors or investors in joint investment participation accounts shall be entitled to a portion of the return on investment according to the deposit balances and its period. The profits on participation account with authorization to invest in specific transaction shall be calculated on the same basis as on the capital funds invested as determined by the Board of Directors pursuant to Section 35 of R. A. No. 6848. Sec. 16. Allocation of Resources The IB may allocate part of its own investible funds or of the deposits on hand to finance investment projects and carry on its Islamic banking business directly or indirectly under its own supervision. For this purpose, it may create and finance investment companies or affiliates which shall manage investment projects on behalf of and under the supervision of the IB and for its own account. The IB shall ascertain the viability and soundness of investment projects which it may directly supervise and those in which it may participate with part of its own funds, with the general pool of investors funds with authorization. The IB shall have the right to inspect and supervise the projects which it shall finance or in which it is the majority shareholder. The original capital and related profits shall be remitted in the same currency it was originally contributed or in one of the convertible currencies, as the Board of Directors shall determine in accordance with R. A. No. 6848. Sec. 17. Authorized Banking Services The IB shall exercise all the powers enumerated under Section 6 of R.A. No. 6848 and perform all the services of a bank, except as otherwise prohibited by R. A. No. 6848: Provided , That no transactions with any customer, company, corporation or firm shall be permitted for discounts by the Bangko Sentral . Sec. 18. Acceptance of Government Funds Pursuant to Sec. 6 (8) of R. A. No. 6848, the IB shall act as an official depository of the government or its branches, subdivisions and instrumentalities and of government-owned or controlled corporations, particularly those doing business in the autonomous region. Government funds placed with the IB shall be limited to working balances. All government deposits in excess of working balances shall be placed with the Bangko Sentral . Once privatized, acceptance by the IB of government funds or deposits shall be subject to existing laws and regulations governing the acceptance of such funds by private commercial banks which include prior Monetary Board approval. The government deposits held by the IB shall be subject to reserve and liquidity floor requirements as the Monetary Board may prescribe. Sec. 19. Authorized Commercial Operations The IB may operate as an Investment House pursuant to Presidential Decree no. 129, as amended, and as a Venture Capital Corporation pursuant to Presidential Decree No. 1688, and by virtue thereof, carry on the following types of commercial operations: 1) The IB may have a direct interest as a shareholder, partner, owner or any other capacity in any commercial, industrial, agricultural, real estate or development project under mudarabah form of partnership or musharaka joint venture agreement or by decreasing participation, or otherwise invest under any of the various contemporary Islamic financing techniques or modes of investment for profit sharing. 2) The IB may carry on commercial operations for the purpose of realizing its investment banking objectives by establishing enterprises or financing existing enterprises, or otherwise by participating in any way with other companies, institutions or banks performing activities similar to its own or which may help accomplish its objectives in the Philippines or abroad, under any of the contemporary Islamic financing techniques or modes of investment for profit sharing; and 3) The IB may perform all business ventures and transactions as may be necessary to carry out the objectives of its charter within the framework of the IB's financial capabilities and technical considerations prescribed by law and convention: Provided , That these shall not involve any riba or other activities prohibited by the Islamic Shari'a principles. The IB may likewise perform the functions of an investment house either directly or indirectly through a subsidiary investment house; in either case, the underwriting of equity securities and securities dealing shall be subject to pertinent laws and rules and regulations of the Securities and Exchange Commission: Provided , That the IB cannot perform such functions both directly and indirectly through a subsidiary: Provided , further , That if the investment house functions are performed directly by the IB, such functions shall be undertaken by a separate and distinct department or other similar unit in the bank: Provided , finally , That if the bank avails of the option of exercising the powers of an investment house indirectly through its subsidiary investment house, it may not directly exercise the powers which are exclusively reserved to investment houses. Sec. 20. Employee Share Schemes The Board of Directors may adopt an employee profit sharing Scheme under any of the following ways: 1) Any arrangement under which the directors, officers and employees of the IB receive, in addition to their salaries and wages, a share, fixed beforehand, in the profits realized by the Bank or by its affiliate companies to which the profit sharing scheme relates; and 2) Any arrangement under which the IB facilitates the acquisition by its directors, officers and employees of common shares of stock either as share-incentives, share-bonus options, or any other share-saving schemes as the Board of Directors may determine. No scheme shall be approved by the Board of Directors under this section unless it is satisfied that the participant in the profit sharing scheme is bound by a contract with the IB by virtue of which an appropriation of shares has been made for the purpose. The shares so purchased or appropriated shall be deposited in escrow with the Bank. The Board of Directors of the IB shall then constitute the trustee of the approved scheme, whose functions with respect to the common shares held by them are regulated by Chapter VII of the General Banking Act and other pertinent laws. The terms of the approved scheme shall be prescribed by the Board of Directors and embodied in a deed of instrument. The adoption of and any change in the employee profit sharing scheme shall be reported to the appropriate supervising and examining department of the Bangko Sentral within thirty (30) calendar days from the date of approval. Sec. 21. Investment Ceilings; Business Limits The IB shall observe the following investment ceilings and business limits in its operations: 1) The aggregate credit facilities or any other liabilities of any customer of the IB shall not exceed at all times fifteen percent (15%) of the unimpaired capital and surplus of the Bank. For purposes of determining compliance with this regulation, credit facilities shall refer to: a) Interbank Receivable b) Financing and Investment c) Trade Financing d) Agrarian Reform/Other Agricultural Financing P. D. No. 717 e) Bills Purchased f) Customer's Liability on Bills/Drafts under Letters of Credit and/or Trust Receipts g) Customer's Liability for this Bank's Acceptances Outstanding h) Trading Account Securities Financing i) Underwriting Accounts Debt Securities j) Stand-by Letters of Credit k) Such other facilities as may be determined by the Monetary Board Credit facilities granted by the IB to any other bank, as well as deposits maintained by it in any bank, shall be subject to the credit facility limit to any single borrower as herein prescribed. 2) The aggregate amount of investment portfolios for any single industry (following the major industry groupings in the 1977 Philippine Standard Industrial Classification) shall at no time exceed thirty percent (30%) of the IB's investment capacity. Investment capacity shall mean the total unimpaired capital and surplus plus deposits and borrowings minus the investment in bank premises. 3) The IB shall not grant unsecured loans except gardhasan (benevolent loans). Such outstanding unsecured loans or credit accommodations which the IB may extend at any time without security or in respect of any advance, loan or credit facility made with the security wholly or partly whenever at any time it exceeds the aggregate market value of the assets constituting the security, shall be limited to fifty thousand pesos (P50,000.00) to any person, company, corporation or firm. 4) A credit facility granted to any person for the purpose of financing the acquisition of shares in any company; corporation or firm shall not exceed fifty percent (50%) of the appraised value of the shares at the time the credit facility is granted. Appraised value, in the case of listed shares, shall mean the weighted average price in the stock exchange. For unlisted shares, the appraised value shall mean the book value of the shares. Sec. 22. Loans and Credit Facilities to Directors, Officers, Employees and Stockholders 1. General Policy . Except as otherwise provided in these regulations, the IB shall not directly or indirectly grant an advance, loan or credit facility to any of its directors, officers, employees or stockholders, or to any other person for whom any of them is a guarantor, or in any manner be an obligor for money granted by the IB. 2. Direct Loans to Officers, Employees and Stockholders . Whenever the IB is satisfied that special circumstances exist, a loan not exceeding at any one time an amount equivalent to six months remuneration, may be granted to an officer or employee on such terms and conditions as the IB deems fit: Provided , however , That loans and advances to officers and employees in the form of fringe benefits granted in accordance with the rules and regulations prescribed under Section 1337 of the MRBOFI shall not be subject to the preceding limitation, nor to the ceiling on unsecured loans prescribed in Section 21. The IB may extend credit facilities to stockholders owning two percent (2%) or more of the subscribed capital stock up to an amount equivalent to the outstanding deposits or the book value of his paid-in capital in the Bank, whichever is higher. 3. Indirect Credit Facilities to Directors and Auditors . No credit facility shall be granted by the IB to a company, corporation, partnership or firm wherein any member of the Board of Directors or auditors is a shareholder, partner, manager, agent or employee in any manner, except with the written approval of and by unanimous vote of not less than two-thirds of all the members of the Board of directors, excluding the director concerned: Provided , That the total liabilities of such company, corporation, partnership or firm to the IB shall be limited to the director's or auditor's outstanding deposits or the book value of his paid-in capital in the Bank, whichever is higher. 4. Aggregate Ceiling . Except with the prior approval of the Monetary Board, the total outstanding credit facilities of directors, officers, auditors and stockholders, whether direct or indirect, shall not exceed fifteen percent (15%) of the total credit facilities of the Bank or one hundred, percent (100%) of combined capital accounts, net of deferred income tax and such unbooked valuation reserves and other capital adjustments as may be required by the Bangko Sentral , whichever is lower. 5. Procedural Requirements . The following provisions shall apply to direct loans to officers and indirect credit facilities to directors and auditors, allowed under these regulations. a) Approval of the Board; when to obtain . Direct loans to officers shall require the prior written approval of the majority of the directors. Indirect loans to directors and auditors shall be allowed subject to the prior written approval, and by unanimous vote, of not less than two-thirds (2/3) of all the members of the Board of Directors, excluding the director concerned. b) Approval by the Board ; how manifested . The approval as required in item a above shall be manifested in resolution passed by the Board of Directors duly assembled during a regular or special meeting for that purpose and made of record. DAcSIC c) Determination of compliance with the required number of votes . The determination of the majority or two-thirds (2/3) of the directors, excluding the directors concerned, shall be based on the total number of directors of the Bank as provided in its Charter and By-Laws. d) Content of the resolution . The resolution of the Board of Directors shall contain the following information: i) Name of the director, officer or auditor concerned and his relationship as regards the credit facility, such as principal, indorser, guarantor, etc.; ii) Nature of the loan or credit facility, purpose, amount, credit basis for such loan or credit facility, security and appraisal thereof, maturity, schedule of repayment, and other terms of the loan or credit facility; iii) Date of the resolution; iv) Names of the directors who were present and who participated in the deliberations of the meeting; v) 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 or two-thirds of the directors; and vi) Such other information as may be required by the appropriate supervising and examining department of the Bangko Sentral . e) Transmittal of copy of board approval; contents thereof. A copy of the written approval of the Board of Directors, as herein required, shall be submitted to the appropriate supervising and examining department of the Bangko Sentral within twenty (20) banking days from the date of approval. The copy may be a duplicate of the original, or a reproduction copy showing clearly the signatures of the approving directors: Provided , That if a reproduction copy is to be submitted, it shall contain on its face or reverse side a signed certification by the Secretary that it is a reproduction of the original written approval. Sec. 23. Past Due Accounts Accounts considered past due. The following shall be considered as past due: 1) Loans or receivables payable on demand if not paid on the date indicated on the demand letter, or within six (6) months from date of grant, whichever comes earlier; 2) Financing and investment accounts not paid at maturity/expiry date or not paid in accordance with the terms of payment stipulated in the agreement/contract; 3) Customers' liability on drafts under LC/TR a) Sight Bills if dishonored upon presentment for payment or not paid within thirty (30) days from date of original entry, whichever comes earlier; b) Usance Bills if dishonored upon presentment for acceptance or not paid on due date, whichever comes earlier; and c) Trust Receipts if not paid on due date; 4) 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; 5) Credit facilities or receivables payable in installments the total outstanding balance thereof shall be considered past due in accordance with the following schedule: Minimum Number of Mode of Payment Installments in Arrears Monthly 6 Quarterly 2 Semestrally 1 Annually 1 Provided , however , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the credit facility/receivable, the total outstanding balance of the credit facility/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 receivable balance; 6) Credit card receivables if the amount due is not paid within then (10) days from the deadline indicated in the billing statement; and 7) All items in litigation as defined in the IB's Manual of Accounts. For the purpose of determining delinquency in the payment of obligations as a ground for disqualification of bank directors and officers, any due and unpaid loan/financing installment or portion thereof, from the time the obligor defaults, shall be considered as past due. Sec. 24. Equity Investments 1. Financial Allied Undertakings. With prior approval of the Monetary Board, the IB may invest in the equity of the following financial allied undertakings: a) Leasing companies; b) Banks; c) Investment houses; d) Financing companies; e) Credit card operations; f) Financial institutions addressed/catering to small and medium-scale industries; g) Companies engaged in stock brokerage/security dealership/brokerage; h) Foreign exchange dealers/brokers; and i) Insurance companies Provided , That any such undertaking is the primary purpose for which a particular enterprise was established and the volume of its business indicates that it is principally engaged in such undertaking. The equity investment of the IB in a single financial allied undertaking shall be, in relation to the total subscribed capital stock and in relation to the total voting stock_of the allied undertaking, within the following ratios: Allied Undertaking Limit KBs Up to 49% TBs and RBs Up to 100% Other financial allied Up to 100% without undertakings prejudice to the limitations prescribed in Subsec. 1378.1 (of the MRBOFI). Provided , That the equity investment in an insurance company of the IB, any of its wholly or majority-owned subsidiaries, its directors, officers and stockholders owning two percent (2%) or more of the bank's subscribed capital stock, shall not exceed fifty-one percent (51%) of the total subscribed capital stock and the total voting stock of such insurance company. The equity investment of the IB in a bank pursuant to R.A. No. 7721 shall be governed by the rules and regulations implementing said law. 2. Non-Financial Allied Undertakings. The IB may invest in the equity of the following non-financial allied undertakings: a) Warehousing companies; b) Storage companies; c) Safe deposit box companies; d) Companies engaged in the management of mutual funds but not in the mutual funds themselves; e) Management corporations engaged or to be engaged in activity similar to the management of mutual funds; f) Companies engaged in the provision of computer services; g) Insurance agencies: Provided , That no director, officer or stockholder of the bank and their related interests hold/own more than twenty percent (20%) of the subscribed capital stock or equity of the insurance company for which the affiliates insurance acts as agent; h) Companies engaged in home building and home development; i) Companies providing drying and/or milling facilities for agricultural crops such as rice and corn; j) Companies engaged in insurance brokerage: Provided , That no director, officer, stockholder of the IB or its related interests shall have financial interests in the insurance company/companies for which the affiliate insurance brokerage company acts as broker; k) Bank service corporations all of the capital of which is owned by one or more banks and organized to perform for and in behalf of banks the following services: i) data processing systems development and maintenance; ii) deposit and withdrawal recording; iii) computation and recording of interests, service charges, penalties and other fees; iv) check-clearing processing, such as the transmission and receipt of check-clearing items/tapes to and from the Bangko Sentral , collection and delivery of checks not included in the Philippine Clearing House System, as well as the recording of the same; and v) printing and delivery of bank statements. l) Clearing house companies such as the Philippine Clearing House Corporation and the Philippine Central Depository, Inc. Provided , further , That any such undertaking is the primary purpose for which a particular enterprise was established and the volume of its business indicates that it is principally engaged in such undertaking. The IB may acquire up to one hundred percent (100%) of the equity of a non-financial allied undertaking. However, prior Monetary Board approval is required if the investment is in excess of forty percent (40%) of the total subscribed capital stock or forty percent (40%) of the total voting stock of such allied undertaking. 3. Investments in Non-Allied or Non-Related Enterprises . The broad category of undertakings in which the IB may invest in directly or through its wholly or majority-owned subsidiary shall be subject to prior approval of the Monetary Board. Investments shall be allowed in enterprises engaged in certain activities in agriculture, mining and quarrying, manufacturing, public utilities, construction, wholesale trade and community and social services following the industrial groupings in the 1977 Philippine Standard Industrial Classification (PSIC) as enumerated in Annex I of Subsection 1380.1 of the MRBOFI, as amended. Individual equity investment in undertakings within these enumerated activities shall not require prior approval: Provided , however , That within thirty (30) days after the investment, the Bank shall furnish the appropriate supervising and examining department of the Bangko Sentral such relevant information on the investments made as amount invested, name of investee company, and nature of business, accompanied by such pertinent documents as Articles of Incorporation, Articles of Partnership or Registration Certificate, whichever may be applicable, and such other information which may be required: Provided , further , That said investment is within the limits and restrictions set forth in the succeeding paragraphs of this Section. The equity investment of the IB or of its wholly or majority-owned subsidiary, in any single non-allied enterprise shall not exceed thirty-five percent (35%) of the total subscribed capital stock nor shall it exceed thirty-five percent (35%) of the voting stock in the enterprise. For the purpose of determining compliance with the ceiling prescribed in the preceding paragraph, (i) the equity investment of the Bank; (ii) the equity investment of the Bank's wholly or majority-owned subsidiaries; and (iii) the equity investment of directors, officers and stockholders owning two percent (2%) or more of the subscribed capital stock of the Bank or of the Bank's wholly or majority-owned subsidiaries, shall be combined. In no case shall the total equity investments in a single non-allied enterprise of the IB, together with the investments of other expanded commercial banks, non-bank financial intermediaries performing quasi-banking functions, or their wholly or majority-owned subsidiaries, whether or not the parent financial intermediaries have equity investments in the enterprise, amount to fifty percent (50%) or more of the voting stock of that enterprise. 4. Other Limitations and Restrictions on Equity Investments . The following limitations and restrictions shall also apply regarding equity investments of the IB: a) The total equity investments of IB in any single enterprise, whether allied or non-allied, shall not at any time exceed fifteen percent (15%) of the Bank's net worth. b) The total amount of investment in equities made by the IB in all enterprises, whether allied or non-allied, shall not exceed fifty percent (50%) of its net worth. 5. Investments Abroad . The ceiling provided for in the preceding paragraph shall apply to equity investments in and/or credit facilities to any enterprise abroad. For purposes hereof, the phrase "equity investments in and/or credit facilities to shall include any accommodation that gives rise to a creditor/debtor relationship such as deposits, money market placements, loans or any advances or any amount of funds granted or remitted by the IB to its subsidiary/affiliate abroad including letters of comfort and deposits/placements abroad of the Bank which are hypothecated. 6. Exclusion of Underwriting Exposure from Ceiling . The exposure of the IB arising from the firm underwriting of equity securities of enterprises shall not be counted in determining compliance with the ceiling prescribed for equity investments for a period of two (2) years from the acquisition of such equity securities. Sec. 25. Special Cash Account The IB shall open a special cash account with the Bangko Sentral in which the liquid funds shall be deposited. Any transfer of funds from this account to other accounts shall be made only upon prior consultation with the IB. The Bank's Board of Directors shall make such representations with the Bangko Sentral as may be necessary to facilitate the opening of said account. Sec. 26. Capital Funds Requirements The IB shall maintain its combined capital accounts in proportion to its assets as prescribed by the General Banking Act and subject to the Rules and Regulations of the Bangko Sentral . Sec. 27. Investment Risk Fund 1. Creation. A reserve account, known as the Investment Risk Fund, shall be created in the books of the IB, by annually setting aside an amount equal to ten percent (10%) of the profits realized during the financial year from the investment of the customers' deposits in the following operations: a) Financing & Investment b) Foreign Exchange Transactions c) Investment in Bonds & Other Islamic Financial Instruments d) Trading Account Securities e) Investments in Stocks f) Equity Investments g) Placements with Treasury Department h) Others Should the accumulated reserves equal the authorized capital of the IB, the Board of Directors may reduce the amount of the annual deduction to a minimal percentage until the aggregate reserves become double the amount of the capital, after which the herein authorized deduction shall cease to accrue to the reserve account. 2. Determination of Profits and Losses. At the close of each financial year, the IB shall determine the results of its operation. The Board of Directors shall, after deducting the general and administrative expenses including remunerations of the Board of Directors and Shari'a Advisory Council, determine annually what part of the income shall be appropriated to reserves, investors and shareholders. All accounts relating to financing and joint investment operations shall be kept separate from the accounts of the other banking activities and services offered by the IB. The same rule with respect to the accounts of specific investments shall apply where such specific projects may have a separate account. SCaDAE Losses incurred, if any, shall be deducted from the total profits realized for the financial year in which such losses are incurred, but any excess of losses over the profits which have been actually realized during the year may be deducted from the Investment Risk Fund opened for covering the risks of investments: Provided , That should the total profits realized in the year be insufficient to cover the losses incurred, the IB shall carry out a comprehensive assessment to arrive at estimated profit and loss based on the market rates, from operations which are financed by the mudarabah funds and which have not reached the stage of final settlement by the end of the financial year. 3. Utilization. The Investment Risk Fund shall be invested for the benefit of the IB in safe non-interest bearing transactions only, as authorized by the Board of Directors. The Board of Directors shall adopt policies on the creation and utilization of the Investment Risk Fund and determination of profits and losses, within one (1) year from date of this Circular. Sec. 28. Periodic Reports The IB shall submit to the appropriate department/office of the Bangko Sentral the periodic reports enumerated under Annex "A" and such other reports as may be prescribed by the Monetary Board. Sec. 29. Manual of Accounts The IB shall adopt/implement the Manual of Accounts for Al-Amanah Islamic Investment Bank of the Philippines as approved by the Monetary Board in its Resolution No. 335 dated March 15, 1991. Sec. 30. Board of Directors The Board of Directors shall be composed of nine (9) members duly elected by the shareholders. The Board of Directors shall choose from among themselves the Chairman. The Board shall convene at the principal office once every three (3) months at the most upon due notice by the Chairman or, whenever the need arises, upon the request of three (3) members. The Board may convene outside the IB's principal office as the members shall determine in the by-laws of the Bank. Sec. 31. Power of the Board The Board of Directors shall have the broadest powers to manage the IB except such matters as are explicitly reserved for the shareholders. The Board shall adopt policy guidelines necessary to carry out effectively the provisions of R.A. No. 6848, as well as internal rules and regulations necessary for the conduct of its Islamic banking business and all matters related to: 1) credit and investment; 2) discretionary and delegated authorities 3) risk management; 4) investment risk fund; 5) qardhasan (benevolent loans); and 6) personnel policies The Board of Directors shall have the power to appoint managers, authorized agents or legal representatives and shall vest them with signing authority on behalf of the Bank either severally or jointly in accordance with the operational procedures of the Bank. The Board shall cause the preparation of the IB's balance sheet for each financial year within three (3) months at the latest from the end of each accounting period as well as the profit and loss statement according to accounting rules established and based on Islamic criteria. Copies of the audited annual balance sheet, profit and loss account, together with any note thereon, and the report of the auditor and the directors own report shall be provided to the shareholders before the date of the general meeting. The Board shall also cause the preparation of the annual revenue and expenditures budget as well as the annual business plan. Sec. 32. Chief Executive Officer; Other Officers and Employees The Chairman of the Board of the IB shall be the Chief Executive Officer of the Bank. He must have experience and training in Islamic banking. All other officers and employees of the IB shall, upon recommendation of the Chief Executive Officer, be appointed and removed by the Board which shall not be subject to Civil Service Law. The Chief Executive Officer of the IB shall, among others, execute and administer the policies, measures, orders and resolutions approved by the Board of Directors. In particular, he shall have the power and duty to execute all contracts in behalf of the IB, to enter into all necessary obligations required or permitted under R.A. No. 6848, to report weekly to the Board of Directors the main facts concerning the operations of the Bank during the preceding week, and to suggest changes in policy or policies which will serve the best interest of the Bank. Sec. 33. Qualifications and Disqualifications of Directors and Officers The provisions (of the MRBOFI Book I) regarding the qualifications and disqualifications of directors and officers shall be applicable to the directors and officers of the IB. Sec. 34. Business Development Office The IB shall have a Business Development Office which shall be responsible for the following: 1) To conduct periodic economic surveys and studies of the investment climate and opportunities in the IB's sphere of operations and identify the viable projects which may be sponsored by the people of the Autonomous Region; 2) To offer technical consultancy services in the preparation of project studies and in meeting other technical credit requirements of the IB, including the provision of the management consultants at rates to be determined by the Board of Directors to projects financially assisted by the IB; and 3) To perform such other functions as may be directed by the Board of Directors. Sec. 35. General Shareholder's Meeting The shareholders shall convene in a general meeting annually at the latest within six (6) months following the end of the financial year of the Bank at the place, date and time fixed in the notice. The attendance of shareholders representing at least sixty percent (60%) of the capital of the IB shall constitute a quorum to do business and voting shall be by shares of stocks. For purposes of this section, "Capital" shall refer to the Total Subscribed Capital, whether paid or unpaid. No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders' meeting, nor shall the holder thereof be entitled to any of the rights of a stockholder except the right to dividends until and unless he pays the amount due on his subscription, including the cost and expenses incurred thereon, if any. Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. Sec. 36. Purposes of General Meeting The general shareholders' meeting shall be convened purposely to hear the Board of Directors' report on the activities of the IB, its financial condition, the auditor's report and to approve the balance sheet for the financial year ended and the profit and loss statement, to determine the portion of dividends to be distributed to the shareholders and the method of distribution, to appoint the auditors, and to elect the members of the Board of Directors and the Shari'a Advisory Council. Sec. 37. Ordinary and Extraordinary Sessions The general shareholders' meeting shall be presided over by the Chairman of the Board of Directors. All resolutions adopted by the general meeting in ordinary session assembled shall be taken by a vote of majority of the shareholders represented therein and in case of votes being equal, the Chairman shall cast his vote to break the tie. The resolutions of the general meeting adopted in accordance therewith shall be binding on all shareholders including those not in attendance or opposing the resolution. An extraordinary general meeting shall be required to pass resolutions related to the increase or decrease of capital of the Bank, the extension of its legal existence or matters affecting amendment of R.A. No. 6848. Resolutions of the extraordinary general meeting shall be deemed adopted when a majority vote of at least sixty-six and two-thirds plus one percent (66 & 2/3 + 1%) of the capital shares shall have been cast. In no case shall the general meeting resolve to modify the object of the Bank as an Islamic investment bank. Sec. 38. Bank Auditor; Reports Subject to the approval by the shareholders, the IB shall appoint an external auditor, whose qualifications and remunerations shall be fixed by the Board of Directors. The external auditor shall assume his functions from the date of his appointment until the date of the next general shareholders' meeting. In case a vacancy occurs at any time during the year for any reason, the Board of Directors shall immediately appoint a replacement who shall serve until the next general shareholders' meeting. The external auditor shall conduct an annual financial audit not later than thirty (30) days after the close of the calendar year. Reports on such audit shall be made and submitted to the Board of Directors and the appropriate supervising and examining department of the Bangko Sentral not later than ninety (90) days after the start of the audit. For purpose hereof, an independent external auditor who may be engaged by the Bank shall refer to one who does not hold or own two percent (2%) or more of equity in the Bank. 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 to the appropriate supervising and examining department of the Bangko Sentral . The resolution shall show, among other things, the names of the directors present and absent, and the action(s) taken on the findings and recommendations. In the exercise of his auditing functions, all books, accounts and documents of the Bank shall be made available to the auditor for inspection to ascertain its assets and liabilities. Sec. 39. Confidential Information Banking transactions of the IB relating to all deposits of whatever nature are confidential and may not be examined, inquired or looked into by any person, government official, bureau or office except as provided in Sec. 38, or upon written permission by the depositor, or in cases where the money deposited or the transaction concerned is the subject of a court order. It shall be unlawful for any official or employee of the IB or any person as may be designated by the Board of Directors to examine or audit the books of the Bank to disclose or reveal to any person any confidential information except under the circumstances mentioned in the preceding paragraph. Sec. 40. Accounting Period The financial year of the IB shall be based on the Gregorian calendar, but the corresponding Islamic Hijra date shall be mentioned on all correspondences, contracts, printed materials, forms and records of the IB. The accounting period shall commence on the first day of January and close on the last day of December each year. Sec. 41. Sharing between the Bank and the Investors Not later than the 31st day of January of each financial year, the Board of Directors shall determine and publish the general percentages of profit to be allocated to the total funds participating in joint investments of the IB. The IB as a joint venturer ( Mudarib ) shall be entitled to certain percentage after deducting the amount allocated to investors. The Bank shall likewise be entitled to a share in the profits of joint investments in proportion to its own invested funds. For the purpose of calculating funds employed in financing operations, priority shall be given, to joint investment accounts and the holders of muquaradah (interest free) bonds. All zakat due in the shareholder's capital and reserves represented by the pecuniary value of shares and the zakat due on the investor's funds or profits accruing to every depositor shall be paid to the zakat fund, subject to their instructions. The Board of Directors shall adopt a policy on the sharing between the Bank and its investors which should be consistent with the Shari'a principle. Sec. 42. Training of Technical Personnel The IB shall promote and sponsor the training of technical personnel in the field of Islamic banking, finance and insurance. Towards this end, the IB may defray the costs of study, at home or abroad, of outstanding employees of the IB, of promising university graduates or of any other qualified persons who shall be determined by proper competitive examinations. The Board of Directors shall prescribe rules and regulations to govern the training program of the IB. aHECST Sec. 43. Definition of Terms For purposes of these Rules and Regulations, the following definition of term shall apply: 1) Islamic banking business means banking business whose aims and operations do not involve interest ( riba ) which is prohibited by the Islamic Shari'a principles. 2) Shari'a has the meaning assigned to it by Islamic law and jurisprudence as expounded by authoritative sources; in the context of R.A. No. 6848, it is construed by reference to pertinent Quranic ordinances and applicable rules in Islamic jurisprudence on business transactions. 3) Riba has the meaning assigned to it by Islamic law and jurisprudence as expounded by authoritative sources; in the context of banking activities, the term includes the receipt and payment of interest in the various types of lending and borrowing and in the exchange of currencies on forward basis. 4) Zakat has the meaning assigned to it by Islamic law and jurisprudence as expounded by authoritative sources; in the context of R.A. No. 6848, it represents annual an "tithe" payable by the Bank on behalf of its shareholders and investors in compliance with Islamic Shari'a principles. 5) Depositors means a person or entity who has an account at an IB, whether the account is a current account, a savings account, an investment account or any other deposit account; unless the context requires another meaning, a depositor corresponds to an investor in joint investment of the IB. 6) Current account liabilities in relation to Islamic banking services mean the total deposits at the Bank which are repayable on demand. 7) Savings account liabilities in relation to Islamic banking services mean the total deposits at the IB which normally require the presentation of passbooks or such other legally acceptable documents in lieu of passbooks as approved by the Bangko Sentral for the deposit or withdrawal of money; 8) Investment account liabilities in relation to Islamic banking services mean the total deposit liabilities at the IB in respect of funds placed by a depositor with the Bank for a fixed period of time under an agreement to share the profits and losses of that bank on the investment of such funds. 9) Other deposit liabilities in relation to an IB mean the deposit liabilities at the Bank other than savings account, investment account, current account liabilities and deposit liabilities from any IB or any other licensed bank. 10) Participation in relation to Islamic banking and commercial operations means any agreement or arrangement under which the mode of joint investments or specific transactions shall not involve the element of interest charge other than as percentage share in profits and losses of business. 11) Share means share in the capital of the Bank or a corporation and includes a stock, except where a distinction between stock and share is expressed or implied. 12) Muquaradah Bonds represent long term non-interest bearing bonds of definite denomination issued and floated by the bank on the basis of participation under the Mudarabah principle to be used in financing projects for economic development. Sec. 44. Statement of Principles For purposes of implementing these Rules and Regulations, the following Shari'a principles shall be observed: 1) Al-Bai Bithaman Ajil (Deferred Payment Sale) principle under which one sells to another by passing the ownership and delivery immediately but collects the payment later, usually by installments. This principle is applied in financing fixed asset acquisition, such as buying of houses, properties, plant and machinery, etc. 2) Al-Bai ul Takjiri (Leasing ending with ownership) principle under which the fund-owner may purchase the asset required by the fund-user with the right to use the services of the asset, but subsequently to own the asset. Thus, the fund-owner first purchased the asset required by the fund-user and subsequently lease the asset to the fund-user with the stipulation that at a point in time the fund-user will purchase from the fund-owner the asset concerned at an agreed price with all the lease rental previously paid constituting part of the purchase price. 3) Al-Ijarah (Leasing) principle under which the fund-owner purchases the asset required by the fund-user who acquires the right to use the services of said asset. The transaction is covered by a contract whereby the fund-owner first purchases the asset and subsequently leases the same to the beneficiary (fund-user) for a fixed, obligatory period, subject to lease rentals and other terms and conditions as may be agreed by both parties. 4) Al-Kafalah (Guarantee) principle under which one can provide guarantee to another on behalf of a third person. This principle is applied by IBs to issue Letters of Guarantee in respect of the performance of a task, or the settlement of a loan, etc. Where a security deposit is required, it is taken under the principle of Al-Wadiah . This principle also enables the IBs to take guarantees from others for the credit facilities granted. 5) Al-Mudarabah (Trust Financing) principle under which a fund-owner provides full financing to the fund-user who provides only entrepreneurship and labor. The fund-owner is not involved in the management of the funds at all. The return to the fund-owner and the fund-user is a share of profit at a rate or ratio agreed in advance. In case of a failure, the fund-owner bears the financial losses. This principle is applied by the IBs in both deposit taking and financing. It is mostly applied to support the investment (fixed) deposit accounts. 6) Al-Murabahah (Purchase and Sale or Cost-plus) principle under which the fund-owner purchases the goods or assets required by the fund-user and sells at an agreed mark-up to the fund-user. This principle is applied in Bills Receivable financing. If full financing is not to be given, the fund-user would be requested to place a margin deposit which will be used to pay for a portion of the cost of the goods or assets. 7) Al-Musharaka (Partnership Profit Sharing) principle under which a fund-owner and an entrepreneur can jointly contribute to the finance and the management of a business. Profits or losses from the joint venture are shared between them in the rate or ratio agreed in advance. This principle is applicable in both the areas of funding and financing. It is mostly applied by IBs to raise capital, to finance projects on a joint venture basis, and in Trust Receipt financing. 8) Al-Qardhasan (Benevolent Loan) principle under which one provides a direct loan, free of any charges, to another in need. Payment of dividend for the use of the loan is at the discretion of the user of the funds. Financing economic and business activities of the poor is sometimes extended under this principle. 9) Al-Rahan (Security) principle under which security can be given and taken for an outstanding obligation. Although IBs extend financing through partnership and trading assets, security is also taken as a precaution under this principle. 10) Al-Wadiah (Safe Custody) principle under which a trustee will safeguard the funds entrusted without any obligation to pay any dividend to the owners of the fund (depositors) as long as a guarantee is given to ensure the full refund of the money upon request of withdrawal. The trustee can have full discretion over the use of the funds. 11) Al-Wakalah (Agency) principle under which one acts as an agent for another for a fee. This principle is applied in the Letters of Credit (LCs) operations in which the IBs issue LCs on behalf of their importing costumers when only LC service is required. A 100% margin deposit is collected under the principle of Al-Wadiah . The deposit will be used ultimately to meet the full value of the inward bills. Sec. 45. Sanctions Any director, officer, employee, auditor or agent of the IB who violates or permits the violation of any provisions of these Rules and Regulations shall be subject to the criminal and administrative sanctions provided under Sections 36 and 37 of R.A. No. 7653 (The New Central Bank Act). Sec. 46. Supervision; Applicability of Banking Laws, Rules and Regulations The IB shall be under the supervision of the Bangko Sentral . The provisions of other banking laws, MRBOFI, as well as the existing Rules and Regulations of the Bangko Sentral , particularly those enumerated under Annex "B", and other pertinent laws insofar as they are not in conflict with any provisions of R.A. No. 6848 and these Rules and Regulations shall be applicable to the IB. Sec. 47. Transformation to Islamic Banking Business The IB shall transform its investment portfolios, accounts or assets for the conduct of full Islamic banking business within two (2) years from April 24, 1996. The Monetary Board may allow extension of the period as circumstances may warrant. If for any reason, such portfolios, accounts or assets granted under the authority of the Philippine Amanah Bank Charter are not eligible for this purpose, the same may be transferred, swapped, sold or otherwise disposed of in any manner deemed feasible. The Board of Directors of the IB shall formulate policies to transform the business of the Bank into an Islamic concept, and shall submit the same to the appropriate department of the Bangko Sentral within six (6) months from April 24, 1996. During the transformation period, the Bank may continue to perform conventional banking activities under R.A. No. 337, as amended, insofar as they are not in conflict with R.A. No. 6848, and the applicable rules and regulations of the Bangko Sentral . NOTES ON MICROFINANCE (Appendix to Subsec. X361) A. Definition of Microfinance Microfinance is the provision of a broad range of financial services, such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households, for their microenterprises and small businesses, to enable them to raise their income levels and improve their living standards. B. Core Principles for Microfinance 1. The poor needs access to appropriate financial services 2. The poor has the capability to repay loans, pay the real cost of loans and generate savings. 3. Microfinance is an effective tool for poverty alleviation 4. Microfinance institutions must aim to provide financial services to an increasing number of disadvantaged people 5. Microfinance can and should be undertaken on a sustainable basis 6. Microfinance non-governmental organizations (NGOs) and programs must develop performance standards that will help define and govern the microfinance industry toward greater reach and sustainability C. Characteristics and Features of Microfinance Characteristics Distinguishing Features Type of client Low income Employment in informal sector; low wage bracket Lack of physical collateral Closely interlinked household/business activities Lending Technology Prompt approval and disbursement of micro loans Lack of extensive loan records Collateral substitutes; group-based guarantees Conditional access to further micro-credits Information-intensive character-based lending linked to cash flow analysis and group-based borrower selection Loan Portfolio Highly volatile Risk heavily dependent on portfolio management skills Organizational Ideology Remote from/non-dependent on government Cost recovery objective vs. profit maximizing Institutional Structure Decentralized Insufficient external control and regulation Capital base is quasi-equity (grants, soft loans) D. Definition of Microfinance loans Microfinancing loans are small loans granted to the basic sectors, on the basis of the borrower's cash flow and other loans granted to the poor and low-income households for their microenterprises and small businesses to enable them to raise their income levels and improve their living standards. These loans are typically unsecured but may also be secured as the case may be. E. Level of Microfinance Loan Average microfinance loan of an NGO microfinance institution or of a Coop Bank or credit union in the Philippine case is about P25,000 (from a low of P2,000 to P5,000). To be realistic, the maximum principal amount of a microfinance loan can be pegged at P150,000. This is equivalent to the total resources of a microenterprise under R.A. 8425. F. Collateralization of Microfinance Loan A microfinance borrower is not likely to be able to borrow from a large commercial, thrift or rural bank but from an NGO microfinance institution or perhaps from a small rural or Coop Bank. Thus, microfinance loans are typically unsecured, for relatively short periods of time (180 days) with monthly (or more frequent) amortizations of interest and principal, and often featuring a joint and several guarantee of one (1) or more persons and, certainly, seldom with tangible collateral. But in some cases they can also be secured, depending on the capacity of the borrower to offer collaterals acceptable to the lending institutions. G. Interest on Microfinance Loans Great caution should be exercised in drawing up regulations about Interest rate ceilings on microfinance loans. The old (and by now highly discredited as ineffective) approach to loans for low-income borrowers emphasized subsidized interest rates. It did not recognize that subsidized below-market interest rates do not necessarily result in opening up access to financial services for low-income households and microenterprises. The new approach which has been demonstrated by global experience is characterized by a market-based interest rate regime which permits the institution providing microfinance services to cover administrative costs, provisions for loan losses and intermediation/funding costs. This basis is consistent with financially sustainable rural finance and microfinance. Invariably, the global experience continues to validate the proposition that what matters most to the poor and underserved segments is access to financial services rather than their interest-rate cost most especially because microenterprise and small business borrowers will take a microfinance loan whose repayment period (monthly repayment) match the additional cash flows they hope to generate. Therefore, interest on such microfinancing loans shall be reasonable but shall not be lower than the prevailing market rates. This is to enable the lending institution to recover the financial and operational costs incidental to this type of microfinance lending but also to realize some bottom line gains. H. Segments of Demand for Micro-credit 1. The landless who are engaged in agricultural work on a seasonal basis and manual laborers in forestry, mining, household industries, construction and transport; requires credit for consumption needs and also for acquiring small productive assets, such as livestock. 2. Small and marginal farmers, rural artisans, weavers and those self-employed in the urban informal sector as hawkers, vendors, and workers in household micro-enterprises: requires credit for working capital, including a small part for consumption needs. This segment largely comprises the poor but not the poorest . 3. Medium farmers/small entrepreneurs who have gone in for commercial crops and others engaged in dairy, poultry, etc. Among non-farm activities, this segment includes those in villages and slums engaged in processing or manufacturing activity. These persons live barely above the poverty line and also suffer from inadequate access to formal credit . GUIDELINES TO INCORPORATE MARKET RISK IN THE RISK-BASED CAPITAL ADEQUACY FRAMEWORK (Appendix to Subsec. 1116.5) Introduction 1. These guidelines describe the approach to be used by the BSP to determine the minimum level of capital to be held by a bank against its market risk. The guidelines are broadly consistent with the recommendations of the Basel Committee on Banking Supervision in a document entitled "Amendment to the Capital Accord to Incorporate Market Risks" issued in January 1996. 2. Under these guidelines, banks shall be required to measure and apply capital charges against their market risk, in addition to their credit risk. 3. Market risk is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. The risks addressed by these guidelines are: The risks pertaining to interest rate-related instruments and equities in the trading book; and Foreign exchange risk throughout the bank. Coverage of capital requirement for market risk 4. The capital requirement for market risk shall apply to all UBs and KBs. 5. The minimum capital adequacy ratio covering combined credit risk and market risk shall apply to banks which are subject to market risk capital requirement on both solo basis (i.e., head office plus branches) and consolidated basis (i.e., parent bank plus subsidiary financial allied undertakings, but excluding insurance companies). DEICaA Methods of measuring market risk 6. There are two (2) alternative methods recognized for the measurement of market risk, as follows: (a) The standardized approach shall be used by all banks which are subject to market risk capital requirement, except by those which may be allowed by BSP to use the alternative method described in paragraph (b) below. The method of measuring market risk under the standardized approach is set out in the Instructions for Accomplishing the Report on Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk. (b) The internal models approach allows banks with the necessary system to use their own internal risk management models to calculate market risk. The use of this approach is subject to prior BSP approval. Approval shall be based on meeting certain qualitative and quantitative conditions relating to the models themselves and the controls surrounding them, as set out in Annex "A". Banks may on a transitional basis be allowed to use a combination of the standardized approach and the models approach to measure their market risk, provided any such "partial" model shall cover a complete risk category (e.g., interest rate risk or foreign exchange risk). The reporting under the internal models approach is contained in the Instructions for Accomplishing the Report on Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk. Calculation of the capital adequacy ratio (CAR) 7. The adjusted capital adequacy ratio covering combined credit risk and market risk shall be calculated using the qualifying capital expressed as a percentage of the total risk-weighted assets (including credit risk and market risk-weighted assets). The components of this calculation are as follows: Market risk-weighted assets are the sum of the capital charges for all market risk categories calculated using either the standardized approach or the internal models approach [multiplied by 125% for those calculated using the standardized methodology to be consistent with the higher capital charge for credit risk, i.e., ten percent (10%) as opposed to BIS recommended eight percent (8%)] multiplied by 10. (The multiplier 10 is the reciprocal of the BSP required minimum capital adequacy ratio for credit risk of ten percent (10%). The effect is to convert the sum of the market risk capital charges into a risk-weighted assets equivalent which can then be directly added to the total credit risk-weighted assets.); Credit risk-weighted assets is the total risk-weighted assets calculated in accordance with Subsec. X116.2, less the part calculated for on-balance sheet debt securities and equities in the trading book. (The credit risk-weighted assets for on-balance sheet debt securities and equities are deducted because they represent an element now covered by the market risk capital charge); and Qualifying capital is the same as that calculated in accordance with Subsec. X116.1. 8. Banks shall maintain a minimum adjusted risk-based capital adequacy ratio covering combined credit risk and market risk of ten percent (10%) calculated in this manner on solo basis and on consolidated basis. The trading book 9. A key feature of the market risk framework is the definition of the trading book of a bank. This is set out in the Instructions for Accomplishing the Report on Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk. Banks are expected to adopt a consistent approach to allocating transactions into their trading and non-trading (i.e., banking book), and clear audit trail for this purpose should be created at the time each transaction is entered into. The BSP shall monitor banks' practices to ensure that there is no abusive switching between different books to inappropriately reduce capital charges. Required reports 10. Banks shall submit quarterly reports of their adjusted risk-based capital adequacy ratios covering combined credit risk and market risk on solo basis and on consolidated basis to the appropriate supervising and examining department of the BSP in accordance with the prescribed forms within fifteen (15) banking days and thirty (30) banking days after the end of reference quarter for solo report and consolidated report, respectively. These reports shall be in addition to the reports on risk-based capital adequacy ratio covering credit risk required to be submitted in Subsec. X116.4. 11. One (1) of three (3) alternative report forms prescribed, shall be used depending on the complexity of the bank's operations to wit: (a) For UBs/KBs with expanded derivatives authority; (b) For UBs/KBs with expanded derivatives authority but without option transactions; or (c) For UBs/KBs without expanded derivatives authority. 12. The abovementioned reports shall be classified as Category A-2 Reports. ANNEX A REQUIREMENTS FOR THE USE OF INTERNAL MODELS TO MEASURE MARKET RISK I. General Criteria 1. The use of internal models shall be conditional upon the explicit prior approval of the BSP. 2. The BSP will only give approval if at a minimum: It is satisfied that the bank's risk management system is conceptually sound and is implemented with integrity; The bank has in the BSP's view sufficient number of staff skilled in the use of sophisticated models not only in the trading area but also in the risk control, audit and if necessary, back office areas; The bank's models have in the BSP's judgment a proven track record of reasonable accuracy in measuring risk; and The bank regularly conducts stress tests along the lines discussed in Part V below. 3. The BSP may require a period of initial monitoring and live testing of a bank's internal model before it is used for supervisory capital purposes. 4. In addition to these general criteria, banks using internal models for capital purposes shall be subject to the requirements detailed in Parts II to VII below. II. Qualitative Standards 5. Banks using internal models must have market risk management systems that are conceptually sound and implemented with integrity. Accordingly, a number of qualitative criteria that banks would have to meet before they are permitted to use a. model-based approach are specified in paragraph 6 below. The extent to which banks meet the qualitative criteria may influence the level at which the BSP will set the multiplication factor referred to in Part IV, paragraph 8(j) below. Only those banks whose models are in full compliance with the qualitative criteria as listed in this section will be eligible for application of the minimum multiplication factor. 6. The qualitative criteria are: (a) The bank should have an independent risk control unit that is responsible for the design and implementation of the bank's risk management system. The unit should produce and analyze daily reports on the output of the bank's risk measurement model, including an evaluation of the relationship between measures of risk exposure and trading limits. This unit must be independent from business trading units and should report directly to senior management of the bank. (b) The unit should conduct a regular backtesting program, i.e. an ex-post comparison of the risk measure generated by the model against actual daily changes in portfolio value over longer periods of time, as well as hypothetical changes based on static positions. (c) The board of directors (or equivalent management committee in the case of Philippine branches of foreign banks) and senior management should be actively involved in the risk control process and must regard risk control as an essential aspect of the business to which significant resources need to be devoted. In this regard, the daily reports prepared by the independent risk control unit must be reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual traders and reductions in the bank's overall risk exposure. (d) The bank's internal risk measurement model must be closely integrated into the day-to-day risk management process of the bank. Its output should accordingly be an integral part of the process of planning, monitoring and controlling the bank's market risk profile. (e) The risk measurement system should be used in conjunction with internal trading and exposure limits. In this regard, trading limits should be related to the bank's risk measurement model in a manner that is consistent over time and that is well-understood by both traders and senior management. (f) A routine and rigorous program of stress testing should be in place as a supplement to the risk analysis based on day-to-day output of the bank's risk measurement model. The results of stress testing exercises should be reviewed periodically by senior management and should be reflected in the policies and limits set by management and the board of directors (or equivalent management committee in the case of Philippine branches of foreign banks). Where stress tests reveal particular vulnerability to a given set of circumstances, prompt steps should be taken to manage those risks appropriately (e.g., by hedging against that outcome or reducing the size of the bank's exposures). (g) Banks should have a routine in place for ensuring compliance with a documented set of internal policies, controls and procedures concerning the operation of the risk measurement system. The bank's risk measurement system must be well documented, for example, through a risk management manual that describes the basic principles of the risk management system and that provides an explanation of the empirical techniques used to measure market risk. (h) An independent review of the risk measurement system should be carried out regularly in the bank's own internal auditing process. This review should include both the activities of the business trading units and of the independent risk control unit. A review of the overall risk management process should take place at regular intervals (ideally not less than once a year) and should specifically address, at a minimum: the adequacy of the documentation of the risk management system and process; the organization of the risk control unit; the integration of market risk measures into daily risk management; the approval process for risk pricing models and valuation systems used by front and back-office personnel; the validation of any significant change in the risk measurement process; the scope of market risks captured by the risk measurement model; the integrity of the management information system; the accuracy and completeness of position data; the verification of the consistency, timeliness and reliability of data sources used to run internal models, including the independence of such data sources; the accuracy and appropriateness of volatility and correlation assumptions; the accuracy of valuation and risk transformation calculations; and the verification of the model's accuracy through frequent backtesting as described in paragraph (b) above. III. Specification of Market Risk Factors 7. A bank's internal market risk measurement system must specify an appropriate set of market risk factors, i.e., the market rates and prices that affect the value of the bank's trading positions. The risk factors contained in a market risk measurement system should be sufficient to capture the risks inherent in the bank's portfolio of on-and off-balance sheet trading positions. Although banks will have some discretion in specifying the risk factors for their internal models, the following guidelines should be fulfilled: (a) For interest rates, there must be a set of risk factors corresponding to interest rates in each currency in which the bank has interest rate-sensitive on- or off-balance sheet positions. The risk measurement system should model the yield curve using one (1) of a number of generally accepted approaches, for example, by estimating forward rates of zero coupon yields. The yield curve should be divided into various maturity segments in order to capture variation in the volatility of rates along the yield curve; there will typically be one (1) risk factor corresponding to each maturity segment. For material exposures to interest rate movements in the major currencies and markets, banks must model the yield curve using a minimum of six (6) risk factors. However, the number of risk factors used should ultimately be driven by the nature of the bank's trading strategies. For instance, a bank with a portfolio of various types of securities across many points of the yield curve and that engages in complex arbitrage strategies would require a greater number of risk factors to capture interest rate risk accurately; and The risk measurement system must incorporate separate risk factors to capture spread risk (e.g., between bonds and swaps). A variety of approaches may be used to capture the spread risk arising from less than perfectly correlated movements between government and other fixed-income interest rates, such as specifying a completely separate yield curve for non-government fixed-income instruments (for instance, swaps or local government unit securities) or estimating the spread over government rates at various points along the yield curve. ESacHC (b) For equity prices, there should be risk factors corresponding to each of the equity markets in which the bank holds significant positions. At a minimum, there should be a risk factor that is designed to capture market-wide movements in equity prices (e.g., a market index). Positions in individual securities or in sector indices could be expressed in "beta-equivalents" relative to this market-wide index; A somewhat more detailed approach would be to have risk factors corresponding to various sectors of the overall equity market (for instance, industry sectors or cyclical and non-cyclical sectors). As above, positions in individual stocks within each sector could be expressed in beta-equivalents relative to the sector index; and The most extensive approach would be to have risk factors corresponding to the volatility of individual equity issues. The sophistication and nature of the modeling technique for a given market should correspond to the bank's exposure to the overall market as well as its concentration in individual equity issues in that market. (c) For exchange rates, the risk measurement system should incorporate risk factors corresponding to the individual foreign currencies in which the bank's, positions are denominated. Since the value-at-risk (VaR) figure calculated by the risk measurement system will be expressed in Philippine peso, any net position denominated in a foreign currency will introduce a foreign exchange risk. Thus, there must be risk factors corresponding to the exchange rate between the Philippine peso and each foreign currency in which the bank has a significant exposure. IV. Quantitative Standards 8. Banks will have flexibility in devising the precise nature of their models, but the following minimum standards shall apply for the purpose of calculating their capital charge: (a) " Value-at-risk " (VaR) must be computed on a daily basis. (b) In calculating VaR, a 99th percentile, one-tailed confidence interval is to be used. (c) In calculating VaR, an instantaneous price shock equivalent to a 10-day movement in prices is to be used, i.e., the minimum " holding period " will be ten (10) trading days. Banks may use VaR numbers calculated according to shorter holding periods scaled up to ten (10) days by the square root of time. (For the treatment of options, also see paragraph (h) below.) (d) The choice of historical observation period (sample period) for calculating VaR will be constrained to a minimum length of one (1) year. For banks that use a weighting scheme or other methods for the historical observation period, the "effective" observation period must be at least one (1) year (that is, the weighted average time lag of the individual observations cannot be less than six (6) months). (e) Banks should update their data sets no less frequently than once every three (3) months and should also reassess them whenever market prices are subject to material changes. The BSP may also require a bank to calculate its VaR using a shorter observation period if in the BSP's judgment, this is justified by a significant upsurge in price volatility. (f) No particular type of model is prescribed. So long as each model used captures all the material risks run by the bank, as set out in Part III, banks will be free to use models based, for example on variance-covariance matrices, historical simulations, or Monte Carlo simulations. (g) Banks will have discretion to recognize empirical correlations within broad risk categories (e.g., interest rates, exchange rates and equity prices, including related options volatilities in each risk factor category). The BSP may also recognize empirical correlations across broad risk factor categories, provided that the BSP is satisfied that the bank's system for measuring correlations is sound and implemented with integrity. (h) For banks with option transactions, banks' models must accurately capture the unique risks associated with options within each of the broad risk categories. The following criteria apply to the measurement of options risk: Banks' models must capture the non-linear price characteristics of options positions; Banks are expected to ultimately move towards the application of a full 10-day price shock to options positions or positions that display option-like characteristics. In the interim, the BSP may require banks to adjust their capital measure for options risk through other methods, e.g., periodic simulations or stress testing; and Each bank's risk measurement system must have a set of risk factors that captures the volatilities of the rates and prices underlying option positions, i.e., vega risk. Banks with relatively large and/or complex options portfolios should have detailed specifications of the relevant volatilities. This means that banks should measure the volatilities of options positions broken down by different maturities. (i) Each bank must meet, on a daily basis, a capital requirement expressed as the higher of (i) last trading day's VaR number or (ii) an average of the daily VaR measures on each of the preceding sixty (60) trading days (both measured according to the parameters specified in this section) multiplied by a multiplication factor. (j) The multiplication factor shall be set by the BSP on the basis of its assessment of the quality of the bank's risk management system subject to an absolute minimum of three (3). Banks will be required to add to this factor a "plus" directly related to the ex-post performance of the model (to be determined on a quarterly basis), thereby introducing a built-in positive incentive to maintain the predictive quality of the model. The plus will range from 0 to 1 based on the number of backtesting exceptions (i.e., the number of times that actual/hypothetical loss exceeds the VaR measure) for the past 250 trading days of the reference quarter-end as set out in Table 5 of the Instructions for Accomplishing the Report on Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk. (Table 3 for banks with expanded derivatives authority but without option transactions, and banks without expanded derivatives authority.) (k) Banks using models will be subject to a separate capital charge to cover the specific risk of interest rate-related instruments and equity securities as defined in the standardized approach to the extent that this risk is not incorporated into their models. However, for banks using models, the total specific risk charge applied to interest rate-related instruments or to equities should in no case be less than half the specific risk charges calculated according to the standardized methodology. V. Stress Testing 9. Banks using internal models for measuring market risk capital requirements must have in place a rigorous and comprehensive stress testing program. Stress testing to identify events or influences that could greatly impact banks is a key component of a bank's assessment of its capital position. 10. Banks' stress scenarios should cover a range of factors that can create extraordinary losses or gains in trading portfolios, or to make the control of risks in those portfolios very difficult. These factors include low-probability events in all major types of risks, including the various components of market, credit, and operational risks. Stress scenarios should shed light on the impact of such events on positions that display both linear and non-linear price characteristics (i.e., options and instruments that have options-like characteristics). 11. Banks' stress tests should be both of a qualitative and quantitative nature, incorporating both market risk and liquidity aspects of market disturbances. Quantitative criteria should identify plausible stress scenarios to which banks could be exposed. Qualitative criteria should emphasize that two (2) major goals of stress testing are to evaluate the capacity of the bank's capital to absorb potential large losses and to identify steps the bank can take to reduce its risk and conserve capital. This assessment should be integral to setting and evaluating the bank's management strategy and the results of stress testing should be regularly reported to senior management and, periodically, to the board of directors (or equivalent management committee in the case of Philippine branches of foreign banks). 12. Banks should combine the use of supervisory stress scenarios with stress tests developed by banks themselves to reflect their specific risk characteristics. Specifically, the BSP may ask banks to provide information on stress testing in the following three (3) broad areas: (a) Supervisory scenarios requiring no simulation by the bank . Banks should provide the BSP information on the largest losses experienced during the reference quarter. This loss information could be compared to the level of capital that results from a bank's internal measurement system. For example, it could provide BSP with a picture of how many days of peak day losses would have been covered by a given VaR estimate. (b) Scenarios requiring a simulation by the bank . Banks should subject their portfolios to a series of simulated stress scenarios and provide BSP with the results. These scenarios could include testing the current portfolio against past periods of significant disturbance, for example, the early 80's banking crisis or the 1997 Asian financial crisis, incorporating both the large price movements and the sharp reduction in liquidity associated with these events. A second type of scenario would evaluate the sensitivity of the bank's market risk exposure to changes in the assumptions about volatilities and correlations. Applying this test would require an evaluation of the historical range of variation for volatilities and correlations and evaluation of the bank's current positions against the extreme values of the historical range. Due consideration should be given to the sharp variation that at times has occurred in a matter of days in periods of significant market disturbance. (c) Scenarios developed by the bank itself to capture the specific characteristics of its portfolio . A bank should also develop its own stress test which it identifies as most adverse based on the characteristics of its portfolio. It should provide the BSP with a description of the methodology used to identify and carry out the scenarios, as well as with the description of the results derived from these scenarios. The results should be reviewed periodically by senior management and should be reflected in the policies and limits set by management and the board of directors (or equivalent management committee in the case of Philippine branches of foreign banks). Moreover, if a bank's testing reveals particular vulnerability to a given set of circumstances, the BSP would expect the bank to take prompt steps to manage those risks appropriately (e.g., by hedging against that outcome or reducing the size of its exposures). VI. External Validation 13. The validation of models' accuracy by external auditors and the BSP should at a minimum include the following steps: (a) Verify that the internal validation processes described in Part II, paragraph 6 (h) are operating in a satisfactory manner; (b) Ensure that the formulae used in the calculation process, as well as for the pricing of options and other complex instruments, are validated by a qualified unit, which in all cases should be independent from the trading area; (c) Check that the structure of internal models is adequate with respect to the bank's activities and geographical coverage; (d) Check the results of the bank's backtesting of its internal measurement system (i.e., comparing VaR estimates with actual profits and losses) to ensure that the model provides a reliable measure of potential losses over time. This means that banks should make the results, as well as the underlying inputs to their VaR calculation, available to the BSP and/or external auditors on request; and (e) Make sure that data flows and processes associated with the risk measurement system are transparent and accessible . In particular, it is necessary that auditors or the BSP is in a position to have easy access, whenever they judge it necessary and under appropriate procedures, to the models' specifications and parameters. VII. Combination of Internal Models and the Standardized Methodology 14. Unless a bank's exposure to a particular risk factor is insignificant, the internal models approach will require banks to have an integrated risk measurement system that captures the broad risk factor categories (i.e., interest rates, exchange rates and equity prices, with related option volatilities being included in each risk factor category). A bank which has developed one or more models will no longer be able to revert to measuring the risk measured by those models according to the standardized methodology (unless the BSP withdraws approval for that model). 15. The following conditions will apply to banks using such combinations: (a) Each broad risk factor category must be assessed using a single approach (either internal models or the standardized approach), i.e., no combination of the two (2) methods will be permitted within a risk category or across banks' different entities for the same type of risk; (b) All the criteria laid down in this Annex will apply to the models being used; (c) Banks may not modify the combination of the two (2) approaches they use without justifying to the BSP that they have a good reason for doing so; (d) No element of market risk may escape measurement, i.e., the exposure for all the various risk factors, whether calculated according to the standardized approach or internal models, would have to be captured; and (e) The capital charges assessed under the standardized approach and under the models approach are to be aggregated according to the simple sum method. GUIDELINES FOR THE ESTABLISHMENT AND ADMINISTRATION/ MANAGEMENT OF SINKING FUND FOR THE REDEMPTION OF REDEEMABLE PRIVATE PREFERRED SHARES (Appendix to Subsec. X126.5) Sinking fund shall refer to a fund set aside in order to accumulate the amount necessary for the redemption of redeemable preferred shares. A. Establishment and Composition 1. Documentation a. A resolution by the bank's board of directors authorizing the Chief Executive Officer/President of the bank to establish a sinking fund equal to the reserve for retirement of preferred shares for the sole purpose of redemption of redeemable preferred shares at their maturity dates. cIHSTC b. Investment Plan. The plan shall be approved by the board of directors and should indicate the types/classes of investments for the sinking fund. The amount of initial/periodic contributions set forth in the Investment Plan shall be in accordance with Section B par. 1 below. A copy of the Plan shall be submitted to the BSP within thirty (30) calendar days from approval thereof by the bank's board of directors. 2. Eligible Securities and Investments The sinking fund may be invested in the following: a. Evidence of indebtedness of the Republic of the Philippines and/or the BSP, or any other evidence of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; b. Evidence of indebtedness or obligation of the central monetary authority of a foreign country, denominated in the national currency of the issuing country, the servicing and repayment of which are fully guaranteed by the government of such country;' c. Deposits with private and/or government banks to the extent covered by deposit insurance; and d. Such other securities as the Monetary Board may designate from time to time. Banks shall refrain from investing sinking fund resources in highly volatile, high-risk commercial instruments. B. Operation 1. Amount of Annual Investment The annual contribution to the sinking fund shall be equal to the reserve for retirement set up for the year, equivalent to the amount of redeemable shares issued divided by their respective terms, i.e., number of years from date of issue to date of maturity. 2. Accounting Entries please refer to Annex "A". 3. Administration a. Responsible Officer . The sinking fund shall be administered by the Chief Executive Officer or his duly authorized representative, who shall be an employee of the bank with a rank not lower than manager or its equivalent, preferably with experience in treasury operations. The administrator shall be responsible for investment decisions and the maintenance of records of the sinking fund. He shall be responsible for the execution of the Investment Plan, and may deviate from the Plan only upon the approval of the board of directors. In the case of RBs/Coop Banks, the bank president or the general manager or the officer-in-charge shall be designated as the administrator of the sinking fund. b. Sinking Fund Manager . The board of directors shall delegate the management of the fund to an independent fund manager, e.g., trust company, where the amount of the fund is equivalent to five percent (5%) or more of the authorized redeemable private preferred shares, in case of UBs and KBs, or when such fund amounts to P1 million or more in the case of TBs and RBs/ Coop Banks: Provided , That the sinking fund manager shall invest only in such securities as are prescribed in these guidelines: Provided , further , That a bank/financial institution acting as sinking fund manager may not designate the owner of the fund it manages as the sinking fund manager of its own sinking fund established for the same purpose. c. Reports . The administrator shall submit to the Board a quarterly report on the status of the Fund. The report shall include the to-date balance of the fund, its composition, income earned for the period, a reasonable forecast for the various financial instruments into which the fund has been placed, and the administrator's/fund manager's recommendations or proposals regarding the fund. In its evaluation of the report the Board shall ascertain the degree of risk that the sinking fund is exposed to and prescribe the appropriate corrective actions. The report of the administrator/fund manager shall be under oath and made available for examination by the BSP. d. Review of the Investment Plan . The Board shall conduct an annual evaluation of the Investment Plan and the performance of the administrator/fund manager, and may introduce amendments to or revisions of the Plan, a copy of which shall be submitted to the BSP. 4. Sanctions . Failure to comply with the guidelines shall subject the bank and its directors and officers to the sanctions prescribed in Item "c" of Subsec. X126.5 and Sections 36 and 37 of R.A. No. 7653. ANNEX A Summary of Pro-Forma Journal Entries to Record Sinking Fund Transactions a. Setting up the sinking fund. The initial contribution to the sinking fund shall be recorded as follows: a.1. To set up Reserve for Retirement of Preferred Stock Undivided Profits/Surplus Free xxx Other Surplus Reserves Reserve for Retirement of Preferred Stock xxx To transfer from free to restricted Surplus the amount set up as reserve for redemption of preferred shares . a.2. To set up the subsidiary account Sinking Fund (classified as Other Non-Current Assets) IBODI/Others Sinking Fund for Redemption of Preferred Shares xxx Cash/Due from Banks xxx To set up the Sinking Fund for the Redemption of Preferred Shares . b. Contributions to the sinking fund b.1. To set up the periodic Reserve for Retirement Undivided Profits/Surplus Free xxx Other Surplus Reserves Reserve for Retirement of Preferred Stock xxx To transfer from free to restricted Surplus reserve for redemption of preferred shares . c. Income/loss from the sinking fund. The recognition of income/loss from the investments shall follow the existing accounting treatment/procedures prescribed in the Manual of Accounts for Banks c.1. To record receipt or accrual of income due to the sinking fund Cash/Due from Banks/Accrued Other Income Receivable xxx Other Income/Accrued Other Income xxx To record income earned from sinking fund assets . d. Redemption d.1. Liquidation of sinking fund. Any gain or loss realized/incurred from liquidation of the sinking fund investments shall be credited/charged to operations. Undivided Profits/Surplus Free Cash xxx IBODI/Others Sinking Fund for Redemption of Preferred Shares xxx Other Income Gain on Sale of Sinking Fund Securities xxx To record the liquidation of sinking fund assets and recognize income therefrom . or: Cash xxx Loss from Sale of Sinking Fund Securities xxx IBODI/Others Sinking Fund for Redemption of Preferred Shares xxx To record the liquidation of sinking fund assets and loss incurred therefrom . d.2. Transfer to Undivided Profits/Surplus Free of the balance of the Restricted Surplus account Other Surplus Reserves Reserve for Retirement of Preferred Stock xxx Undivided Profits/Surplus Free xxx To close the restricted surplus account 'Other Surplus Reserves Retirement of Preferred Stock' and to revert the balance of the same to Undivided Profits/Surplus Free . d.3. Redemption of preferred shares, declaration of stock dividend equal to amount of preferred shares redeemed and payment of such dividend through the issuance of new shares of stock d.3.1. Capital Stock Preferred Shares xxx Cash/Due from Banks xxx To record the redemption of redeemable preferred shares . d.3.2. Undivided Profits/Surplus Free xxx Dividends Distributable xxx d.3.3. Dividends Distributable xxx Capital Stock Common Stock/Preferred Stock xxx To record payment of stock dividend (common stock) . e. Treatment of changes in the market of the sinking fund portfolio. Gains and losses arising from changes in market values of component securities shall be deferred (not recognized) until the securities are liquidated. ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE AND UNSOUND BANKING PRACTICES (Appendix to Secs. X149 and X408) The following activities are considered only as guidelines and are not irrebutably presumed to be unsafe or unsound. Conversely, not all practices which might under the circumstances be termed unsafe or unsound are mentioned here. The Monetary Board may consider any other acts/omissions as unsafe or unsound practices. IaHAcT a. Operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits. b. Operating with total adjusted capital and reserves that are inadequate in relation to the kind and quality of the assets of the bank. c. Operating in a way that produces a deficit in net operating income. d. Operating with a serious lack of liquidity, especially in view of the asset and deposit/liability structure of the bank. e. Engaging in speculative and hazardous investment policies. f. Paying excessive cash dividends in relation to the capital position, earnings capacity and asset quality of the bank. g. Excessive reliance on large, high-interest or volatile deposits/borrowings. h. Excessive reliance on letters of credit either issued by the bank or accepted as collateral to loans advanced. i. Excessive amounts of loan participations sold. j. Paying interest on participations without advising participating institution that the source of interest was not from the borrower. k. Selling participations without disclosing to the purchasers of those participations material, non-public information known to the bank. l. Failure to limit, control and document contingent liabilities. m. Engaging in hazardous lending and lax collection policies and practices, as evidenced by: (1) An excessive volume of loans subject to adverse classification; (2) An excessive volume of loans without adequate documentation, including credit information; (3) Excessive net loan losses; (4) An excessive volume of loans in relation to the total assets and deposits of the bank; (5) An excessive volume of weak and self-serving loans to persons connected with the bank, especially if a significant portion of these loans are adversely classified; (6) Excessive concentrations of credit, especially if a substantial portion of this credit is adversely classified; (7) Indiscriminate participation in weak and undocumented loans originated by other institutions; (8) Failing to adopt written loan policies; (9) An excessive volume of past due or non-performing loans; (10) Failure to diversify the loan portfolio/asset mix of the institution; and (11) Failure to make provision for an adequate reserve for possible loan losses. n. Permitting officers to engage in lending practices beyond the scope of their positions. o. Operating the bank with inadequate internal controls. p. Failure to keep accurate and updated books and records. q. Operating the institution with excessive volume of out-of-territory loans. r. Excessive volume of non-earning assets. s. Failure to heed warnings and admonitions of the supervisory authorities of the institution. t. Continued and flagrant violation of any law, rule, regulation or written agreement between the institution and the BSP. u. Any action likely to cause insolvency or substantial dissipation of assets or earnings of the institution or likely to seriously weaken its condition or otherwise seriously prejudice the interest of its depositors/investors/clients. CERTIFICATION OF COMPLIANCE WITH SECTION 55.4 OF REPUBLIC ACT NO. 8791 (Appendix to Subsec. X262.3) Name of Bank Address of Head Office Telefax/Fax Number The Deputy Governor Supervision and Examination Sector Bangko Sentral ng Pilipinas Manila, Philippines Sir: This is to certify that this bank, in the conduct of its business involving bank deposits, does not have in its employ any casual or nonregular personnel or employees/personnel who are working after a probationary period of six (6) months without being considered a regular/permanent employee. This certification is being submitted in compliance with Circular No. 336 implementing Section 55.4 of the General Banking Law of 2000. Very truly yours, Authorized Officer's Signature Over Printed Name Designation Compliance Officer GUIDELINES ON RETENTION AND DISPOSAL OF RECORDS OF RURAL AND COOPERATIVE BANKS (Appendix to Subsec. 3161.9) The following guidelines shall govern the retention and disposal of records of RBs/Coop Banks. A. Classification of Records and Documents Retention Period 1. Accounting Records (a) Books of accounts, audited financial/annual reports Permanent (b) Tickets and supporting papers 10 years (c) Official receipts (2nd or 3rd copy) 10 years 2. Organization papers for the establishment of RBs/Coop Banks, branches/offices 10 years (organizational file), special license/authority granted by BSP (e.g. authority to accept D/Ds, government deposits, fringe benefit plan) 3. Manual of operations, including Permanent compliance system, policies on personnel, security and other related matters 4. Stock and transfer book and related records and documents Permanent 5. Minutes of meeting (a) Stockholders/general assembly, board of directors Permanent (b) Other committees 10 years 6. Human resource files (a) Documents pertaining to members of the board of Permanent directors and stockholders (b) Bank officers and staff 10 years from resignation/separation retirement (c) Officers and staff with derogatory information Permanent 7. Correspondence (to and from) (a) BSP on examination findings/exceptions and directives; Permanent rediscounting, loans and advances (b) Other government regulatory/supervisory authorities, Permanent e.g. PDIC, BIR, DOLE, SSS (c) All other correspondence 6 years 8. Reports to BSP 6 years (Financial and non-financial reports) 9. Reports to other government and non-government Minimum of 6 years or institutions as prescribed by the institution concerned 10. Records and documents on court Permanent cases/complaints 11. Documents, certificates of ownership/titles on Permanent bank assets 12. All other records/documents of all transactions, 10 years from dates e.g. loans and investments, disposal of assets, when accounts were deposit liabilities and borrowings, expenditures closed/disposed/settle and income, disbursements, disposal of assets Notwithstanding the retention periods herein, RBs/Coop Banks may preserve for a longer period those records/documents they deem necessary. B. Procedural requirements on disposal of banks records and documents (1) No RBs/Coop Banks shall dispose of any records without the prior approval of its board of directors. (2) Notice for disposal of records and documents in the prescribed form (Annex A) which shall include the proposed date of disposal and list of the records and documents to be disposed of in accordance with the above guidelines shall be submitted to the appropriate supervising and examining department within ten (10) banking days from date of approval of the board of directors. A copy of the afore-cited board resolution duly certified by the bank's corporate/cooperative secretary should likewise be attached to the notice. The bank may proceed to dispose of the records and documents in the submitted list if after thirty (30) banking days from date the notice required herein shall have been received by the appropriate supervising and examining department, no advice against such notice has been received by the bank concerned. (3) All records and documents for disposal must be burned or shredded in the presence of a director of the bank duly designated by the board of directors, the Chief Operating Officer or equivalent rank and the Compliance Officer. (4) The designated director, the Chief Operating Officer (or its equivalent) and the Compliance Officer shall execute a joint affidavit (Annex B) attesting to the burning/shredding of the records/documents. The original and triplicate copies shall be kept permanently by the Treasurer or Cashier and the duplicate copy shall be submitted to the appropriate supervising and examining department within ten (10) banking days from date of actual disposal. ANNEX A ___________________________ Name of Rural/Cooperative Bank ___________________________ Address NOTICE OF DISPOSAL OF RECORDS/DOCUMENTS ____________ Date The Director Department of Rural Banks Bangko Sentral ng Pilipinas Manila The Board of Directors of the ______________________________ (Name of Rural/Cooperative Bank) under Board Resolution No. _____________ dated ___________ (copy of the resolution attached) approved the disposal of the following records/documents: Dates of Transactions/Records/Documents Classification of Records and Documents From To 1. Accounting Records: a. Tickets and supporting papers _____________ _____________ b. Official Receipts _____________ _____________ 2. Correspondence: _____________ _____________ 3. Reports to BSP _____________ _____________ 4. Other reports to government and non-government institutions _____________ _____________ 5. Other records/documents: (specify) ___________________________ _____________ _____________ ___________________________ _____________ _____________ The above-stated records/documents are to be disposed of thru __________________________ (manner of disposal: shredding or burning) in my presence and of _______________, Director, and _____________, Compliance Officer, on _______________ (date) at ____________ (time and place) . ________________________________ Signature over printed name of Chief Operating Officer (COO) or its equivalent) ANNEX B REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF ___________ ) S.S PROVINCE OF ____________________ ) JOINT AFFIDAVIT We, namely: ___________________, Director; ___________________, Chief Operating Officer (or Manager/equivalent rank); and ________________, Compliance Officer, all of legal ages, representing the Rural/Cooperative Bank of ________________, Inc. after having been sworn to in accordance with law do hereby depose and say: 1. That we are the bank officials of the Rural/Cooperative Bank of ________________, Inc., duly designated under Board Resolution No. ________ dated ____________, to ensure and witness the proper disposal of certain records, described in the attached Notice of Disposal of Bank Records/Documents dated ________ ("Annex A"). 2. That we have witnessed the burning/shredding of those records/documents described in the Notice of Disposal of Bank Records/Documents dated ________________ that took place on __________ 2002 at __________ am/pm at the premises of the Rural/Cooperative Bank of _______________. 3. That we have executed this Affidavit to attest to the truthfulness of the foregoing and in accordance with the rules prescribed by the Bangko Sentral ng Pilipinas (BSP) set forth under Circular-Letter No. ____ dated _________, 2002. IN WITNESS WHEREOF, we have set our hands this _______ day of _________ 2002 at ______________________, Philippines. ___________________ ___________________ ___________________ SUBSCRIBED AND SWORN TO BEFORE ME, this ________ day of _______ 2002 at _________________, the foregoing Affiants, exhibiting their respective Community Tax Certificates (CTC), to wit: Name CTC No. Date Issued Place Issued NOTARY PUBLIC My Commission expires on December 31, 2002 PTR No. ____ issued on _______ 2002 at ______ Doc. No. _____ Book No. _____ Page No. _____ Series of 2002 FORMAT CERTIFICATION ON FCDU LENDING TO RBU (Appendix to Subsec. X501.3c) ___________________________________________________ (Name of Bank) C E R T I F I C A T I O N Pursuant to the requirement under BSP Circular No. _____________, dated _____________, we hereby certify that on all banking days of the month ended ______________, 200____ : a) Total outstanding balance of foreign currency borrowings by the Regular Banking Unit (RBU) from the Foreign Currency Deposit Unit (FCDU)/Expanded FCDU (EFCDU) did not exceed the prescribed cap (i.e., lower of 30% of RBU's average on-Balance Sheet Foreign Currency Trade Assets or Net Fund Outflow on RBU's foreign currency transactions), and b) The borrowed foreign currency funds were utilized by RBU solely for its foreign currency trade transactions. We further certify that, to the best of our knowledge, the foregoing statements are true and correct. _________________ _________________ _________________ President or Country Compliance Officer Head of Manager (for FX Banks) Treasury Department TIN: TIN: TIN: Com. Tax Cert No.: Com. Tax Cert No.: Com. Tax Cert No.: Issued on: Issued on: Issued on: Issued at: Issued at: Issued at: Subscribed and sworn to before me, this __________ day of ________, 200___, affiants exhibiting their respective Community Tax Certificates as indicated above. ______________________ Person administering oath Sample Computation on FCDU Lending to RBU (Appendix to X501.3c) FCDU LENDING to RBU SAMPLE COMPUTATION 30% CAP (Amounts in Million USD) Average On-Balance Sheet Net FX Forex Trade Assets 1 Funds Flow "Lending to RBU" Amount 30% (RBU) 2 Debit Credit Balance March 29 100 30 (40) April 1 10 10 2 5 15 3 5 20 4 8 28 5 150 45 (42) 2 30 8 30 9 6 36 10 2 38 11 4 42 12 120 36 (38) 42 15 6 3 36 16 36 17 36 18 36 19 140 42 35 - 22 36 4 - 23 - 24 - 25 - 26 90 27 (30) - 29 12 12 30 8 20 May 2 5 25 3 2 27 1. Computed using 2-month rolling data (i.e., for week ended 29 March, average of daily data from 30 Jan. to 29 March; week ended 5 April, daily data from 6 Feb. to 5 April, etc.) 2. FX acquisitions less FX Dispositions (RBU only) per Schedule I (Daily Summary of Foreign Exchange Acquisitions/Dispositions) of FX Form I (Consolidated Report on Foreign Exchange Assets and Liabilities) 3. RBU should pay off to reduce outstanding balance to within prescribed limit, i.e., 30% of previous week's computed average daily balance of on-Balance Sheet Forex Trade Assets which is less than the net fund outflow on RBU's forex transactions. 4. RBU is not eligible to borrow since it had average net foreign exchange fund inflow on its foreign currency transactions during the preceding week. RBU should, therefore, pay off its outstanding balance. IMPLEMENTING RULES AND REGULATIONS REPUBLIC ACT NO. 9160 ANTI-MONEY LAUNDERING ACT OF 2001 (Appendix to Sec. X691) RULE 1 Title Rule 1.a. Title . These Rules shall be known and cited as the "Rules and Regulations Implementing Republic Act No. 9160", the Anti-Money Laundering Act of 2001 (AMLA). Rule 1.b. Purpose . These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA, taking into account R.A. No. 9160 and related laws of the Philippines for a comprehensive anti-money laundering regime. RULE 2 Declaration of Policy Rule 2. Declaration of Policy . It is hereby declared the policy of the State to, protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. RULE 3 Definitions Rule 3. Definitions . For purposes of the Act, the following terms are hereby defined as follows: Rule 3.a. "Covered Institution" refers to: Rule 3.a.1. Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP). EAcTDH (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank, quasi-bank, trust entity or any other institution supervised or regulated by the BSP. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervised and/or regulated by the BSP. Rule 3.a.2. Insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, holding companies, holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). (a) An insurance company includes those entities authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Transacting insurance business includes making or proposing to make, as insurer, any insurance contract, or as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety, doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Presidential Decree (PD.) No. 612, as amended, including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P.D. No. 612, as amended. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. (c) An insurance broker includes any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. (d) A professional reinsurer includes any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines, whether domestic, domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. (e) A reinsurance broker includes any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. Rule 3.a.3. (i) Securities dealers, brokers, salesmen, associated persons of brokers or dealers, investment houses, investment agents and consultants, trading advisors, and other entities managing securities or rendering similar services, (ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-need companies or issuers and other similar entities; (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (c) A securities salesman includes a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. (e) An investment house includes an 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. (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding, any redeemable security of which it is the issuer. (g) A closed-end investment company includes an investment company other than open-end investment company. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee, for the purpose of administration, holding or management of such funds and/or properties for the use, benefit or advantage of the trustor or of others known as beneficiaries. (i) A pre-need company or issuer includes any corporation supervised and/or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need, payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life, pension, education, internment and other plans, which the Commission may, from time to time, approve. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (k) Investment Advisor/Agent/Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of any security and as to the advisability of trading in any security; or (2) who for compensation and as part of a regular business, issues or promulgates, analyzes reports concerning the capital market, except: (a) any bank or trust company; (b) any journalist, reporter, columnist, editor, lawyer, accountant, teacher; (c) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees; (d) any contract market; (e) such other person not within the intent of this definition, provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (3) any person who undertakes the management of portfolio securities of investment companies, including the arrangement of purchases, sales or exchanges of securities. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. (m) A money payment, remittance and transfer company includes any person offering to pay, remit or transfer or transmit money on behalf of any person to another person. (n) "Customer" refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. (o) "Property" includes any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto. Rule 3.b. " Covered Transaction " means: (1) A single transaction involving an amount in excess of Four Million Philippine Pesos (Php 4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate where the client is not properly identified and/or the amount is not commensurate with his business or financial capacity. (2) A single transaction involving an amount in excess of Four Million Philippine Pesos (Php 4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate which has no underlying legal or trade obligation, purpose, origin, or economic justification. (3) A series or combination of transactions conducted within five (5) consecutive banking days aggregating to a total amount in excess of Four million Philippine pesos (Php 4,000,000.00) or an equivalent in foreign currency based on the prevailing exchange rate where the client is not properly identified and/or the amount is not commensurate with his business or financial capacity. (4) A series or combination of transactions conducted within five (5) consecutive banking days aggregating to a total amount in excess of Four Million Philippine Pesos (Php 4,000,000.00) or an equivalent in foreign currency based on the prevailing exchange rate exchange rate where most, if not all the transactions, do not have any underlying legal or trade obligation, purpose, origin, or economic justification. (5) A single unusually large and complex transaction in excess of Four Million Philippine Pesos (Php 4,000,000.00), especially a cash deposit or investment having no credible purpose or origin, underlying trade obligation or contract, regardless of whether or not the client is properly identified and/or the amount is commensurate with his business or financial capacity. (6) A series, combination or pattern of unusually large and complex transactions aggregating to, without reference to any period, a total amount in excess of Four Million Philippine Pesos (Php 4,000,000.00), especially cash deposits and/or investments having no credible purpose or origin, underlying trade obligation or contract, regardless of whether or not the client is properly identified and/or the amount is commensurate with his business or financial capacity. Rule 3.c. " Monetary Instrument " refers to: (1) Coins or currency of legal tender of the Philippines, or of any other country; (2) Drafts, checks and notes; (3) Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; (4) Contracts or policies of insurance, life or non-life, and contracts of suretyship; and (5) Other similar instruments where title thereto passes to another by endorsement, assignment or delivery. Rule 3.d. " Offender " refers to any person who commits a money laundering offense. Rule 3.e. " Person " refers to any natural or juridical person. Rule 3.f. " Proceeds " refers to an amount derived or realized from an unlawful activity. It includes: (1) All material results, profits, effects and any amount realized from any unlawful activity; (2) All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and (3) All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity. bspcd2004 Rule 3.g. " Supervising Authority " refers to the BSP, the SEC and the IC. Where the BSP, SEC or IC supervision applies only to the registration of the covered institution, the BSP, the SEC or the IC, within the limits of the AMLA, shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. IECAaD Rule 3.h. " Transaction " refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. Rule 3.i. " Unlawful activity " refers to any act or omission or series or combination thereof involving or having relation, to the following: (A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (1) Kidnapping for ransom (B) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as the Dangerous Drugs Act of 1972; (2) Importation of prohibited drugs; (3) Sale of prohibited drugs; (4) Administration of prohibited drugs; (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den, Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10) Possession of prohibited drugs (11) Use of prohibited drugs (12) Cultivation of plants which are sources of prohibited drugs (13) Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; (14) Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party, wherein the public officer in his official capacity has to intervene under the law; (15) Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or license, in consideration for the help given or to be given, without prejudice to Section 13 of R.A. 3019; (16) Causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence; (17) Entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; (19) Directly or indirectly becoming interested, for personal gain, or having material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercise of discretion in such approval, even if he votes against the same or he does not participate in the action of the board, committee, panel or group. (D) Plunder under Republic Act No. 7080, as amended; (20) Plunder through misappropriation, conversion, misuse or malversation of public funds or raids upon the public treasury; (21) Plunder by receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies, instrumentalities or government-owned or controlled corporations or their subsidiaries; (23) Plunder by obtaining, receiving or accepting, directly or indirectly, any shares of stock, equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking; (24) Plunder by establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; (25) Plunder by taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. IDcTEA (E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; (26) Robbery with violence or intimidation of persons; (27) Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of firearms on a street, road or alley; (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; (29) Jueteng; (30) Masiao. (G) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532; (31) Piracy on the high seas; (32) Piracy in inland Philippine waters; (33) Aiding and abetting pirates and brigands. (H) Qualified theft under Article 310 of the Revised Penal Code, as amended; (34) Qualified theft. (I) Swindling under Article 315 of the Revised Penal Code, as amended; (35) Estafa with unfaithfulness or abuse of confidence by altering the substance, quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so, even though such obligation be based on an immoral or illegal consideration; (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting, to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person; (38) Estafa by using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits; (39) Estafa by altering the quality, fineness or weight of anything pertaining to his art or business; (40) Estafa by pretending to have bribed any government employee; (41) Estafa by postdating a check, or issuing a check in payment of an obligation when the offender has no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; (42) Estafa by inducing another, by means of deceit, to sign any document; (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game; (44) Estafa by removing, concealing or destroying, in whole or in part, any court record, office files, document or any other papers. (J) Smuggling under Republic Act Nos. 455 and 1937; (45) Fraudulent importation of any vehicle; (46) Fraudulent exportation of any vehicle; (47) Assisting in any fraudulent importation; (48) Assisting in any fraudulent exportation; (49) Receiving smuggled article after fraudulent importation; (50) Concealing smuggled article after fraudulent importation; (51) Buying smuggled article after fraudulent importation; (52) Selling smuggled article after fraudulent importation; (53) Transportation of smuggled article after fraudulent importation; (54) Fraudulent practices against customs revenue. (K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; K.1. Hacking or cracking, which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system; or (56) any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including (57) the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document; K.2. Piracy, which refers to: (58) the unauthorized copying, reproduction, (59) the unauthorized dissemination, distribution, (60) the unauthorized importation, (61) the unauthorized use, removal, alteration, substitution, modification, (62) the unauthorized storage, uploading, downloading, communication, making available to the public, or (63) the unauthorized broadcasting, of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights; K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act; (65) Sale of any product that has been banned by a rule under the Consumer Act; (66) Sale of any adulterated or mislabeled product using electronic documents; (67) Adulteration or misbranding of any consumer product; (68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other identification device; (69) Revealing trade secrets; (70) Alteration or removal of the labeling of any drug or device held for sale; (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act; (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act; (73) Sale of any drug or device beyond its expiration date; (74) Introduction into commerce of any mislabeled or banned hazardous substance; (75) Alteration or removal of the labeling of a hazardous substance; (76) Deceptive sales acts and practices; (77) Unfair or unconscionable sales acts and practices; (78) Fraudulent practices relative to weights and measures; (79) False representations in advertisements as the existence of a warranty or guarantee; (80) Violation of price tag requirements; (81) Mislabeling consumer products; (82) False, deceptive or misleading advertisements; (83) Violation of required disclosures on consumer loans; (84) Other violations of the provisions of the E-Commerce Act; (L) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; (85) Hijacking; (86) Destructive arson; (87) Murder; (88) Hijacking, destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets; (M) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000 ; (89) Sale, offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC; (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe; (91) Violation of reportorial requirements imposed upon issuers of securities; (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market; (93) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that raises their prices to induce the purchase of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (94) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that depresses their price to induce the sale of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (95) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices; (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security; (97) Manipulation of security prices by making false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false and misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange; (98) Manipulation of security prices by effecting, alone or with others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC; (99) Sale or purchase of any security using any manipulative deceptive device or contrivance; (100) Execution of short sales or stop-loss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors; (101) Employment of any device, scheme or artifice to defraud in connection with the purchase and sale of any securities; (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (103) Engaging in any act, transaction, practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person; (104) Insider trading; (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer, or acting as a salesman, or an associated person of any broker or dealer without any registration from the Commission; (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman, not registered with the SEC; (107) Effecting any transaction in any security, or reporting such transaction, in an Exchange or using the facility of an Exchange which is not registered with the SEC; (108) Making use of the facility of a clearing agency which is not registered with the SEC; (109) Violations of margin requirements; (110) Violations on the restrictions on borrowings by members, brokers and dealers; (111) Aiding and Abetting in any violations of the Securities Regulation Code; (112) Hindering, obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC; (113) Violations of any of the provisions of the implementing rules and regulations of the SEC; (114) Any other violations of any of the provisions of the Securities Regulation Code. (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries . In determining whether or not a felony or offense punishable under the penal laws of other countries, is "of a similar nature", as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3.i. DCISAE RULE 4 Money Laundering Offense Rule 4.1. Money Laundering Offense Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the. proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), falls to do so. RULE 5 Jurisdiction over Money Laundering Cases and The Money Laundering Investigation Procedures Rule 5.1. Jurisdiction over Money Laundering Cases . The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. Rule 5.2. Investigation of Money Laundering Offenses . The AMLC shall initiate the investigation of covered transactions, money laundering activities and other violations of this Act, pursuant to Section 7 (5) of the AMLA, under any of the following circumstances: (a) On the basis of a mandatory filing of a covered transaction report, pursuant to Section 9 (c) of the AMLA, where the covered institution reports a transaction in excess of Four Million Pesos (Php4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate, and (i) The person involved in the transaction was not a properly identified client; and (ii) The amount is not commensurate with the business or financial capacity of the client; or (iii) There was no underlying legal or trade obligation, purpose, origin or economic justification. (b) On the basis of a mandatory filing of a covered transaction report, pursuant to Section 9 (c) of the AMLA, where the covered institution reports a transaction in excess of Four Million Pesos (Php4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate, in a single, series or combination or pattern of unusually large and complex transaction, especially cash deposits and investments having no credible purpose or origin, underlying trade obligation or contract. (c) On the basis of any report on any suspicious transaction, where the covered institution has reasonable ground to believe that any money laundering activities or any money laundering offense or any violation of this Act under Section 4 and Section 7(5) of the AMLA and defined under Rule 4 of these Rules is about to be, is being or has been committed. Rule 5.3. Suspicious Transactions . As may be directed by the AMLC and/or in the exercise of their supervisory and/or regulatory powers over covered institutions under their respective jurisdictions, supervising authorities may require all suspicious transactions with covered institutions, irrespective of the amounts involved, to be reported to the AMLC when there is reasonable belief that any money laundering activity or any money laundering offense or any violation of this Act under Section 4 and Section 7 (5) is about to be, is being or has been committed. Administrative sanctions for non-compliance with such suspicious transaction reporting requirements may be imposed by supervising authorities as authorized under their respective charters. Rule 5.4. Attempts at Transactions . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. Accordingly, the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity. RULE 6 Prosecution of Money Laundering Rule 6.1. Prosecution of Money Laundering . Rule 6.1.a. Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. Rule 6.1.b. Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the issuance by the AMLC of a freeze order with respect to the deposit, investment or similar account involved therein and resort to other remedies provided under the AMLA. Rule 6.2. When the AMLC finds, after investigation, that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA, it shall cause a complaint to be filed, pursuant to Section 7 (4) of the AMLA, before the Department of Justice or the Ombudsman, which shall then conduct the preliminary investigation of the case. Rule 6.3. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice, or the Ombudsman, as the case may be, and the latter should find probable cause of a money laundering offense, it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Rule 6.4. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan, as the case may be. Rule 6.5. Knowledge of the offender that any monetary instrument or property represents, involves, or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC, may be established by direct evidence or inferred from the attendant circumstances. Rule 6.6. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt, including the element of knowledge that the monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity. Rule 6.7. No element of the unlawful activity, however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. RULE 7 Creation of Anti-Money Laundering Council (AMLC) Rule 7.1.a. Composition . The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. Rule 7.1.b. Unanimous Decision . The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. However, in the case of the incapacity, absence or disability of any member to discharge his functions, the officer duly designated or authorized to discharge the functions of the Governor of the BSP, the Chairman of the SEC or the Insurance Commissioner, as the case may be, shall act in his stead in the AMLC. Rule 7.2. Functions . The functions of the AMLC are defined hereunder: (1) to require and receive covered transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered transaction report, suspicious transaction report as defined under Rule 5.3 or request for assistance from a foreign state, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever to led, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of justice or the ombudsman for the prosecution of money laundering offenses; (5) to initiate investigations of covered transactions, suspicious transactions, money laundering activities and other violations of this Act; (6) to freeze any monetary instrument or property alleged to be proceeds of any unlawful activity; (7) to implement such measures as may be inherent, necessary, implied, incidental and justified under the AMLA to counteract money laundering. Subject to such limitations as provided for by law, the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store, track and analyze money laundering transactions for the resolute prevention, detection and investigation of money laundering offenses. For this purpose, the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database; (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take Action in respect of any request of foreign states for assistance in their own anti-money laundering operations, in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provisions of the Constitution, or the execution thereof is likely to prejudice the national interest of the Philippines. (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations; which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. The AMLC may require the intelligence units of the Armed Forces of the Philippines, the Philippine National Police, the Department of Finance, the Department of Justice, as well as their attached agencies, and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may, in any way, facilitate the resolute prevention, investigation and prosecution of money laundering offenses and other violations of the AMLA. Rule 7.3. Meetings . The AMLC shall meet every first Monday of the month, or as often as may be necessary at the call of the Chairman. RULE 8 Creation of a Secretariat Rule 8.1. The Executive Director . The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age, must have served at least five (5) years either at the BSP, the SEC or the IC and of good moral character, unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor, and shall be entitled to such benefits and subject to such rules and regulations, as well as prohibitions, as are applicable to officers of similar rank. Rule 8.2. Composition . In organizing the Secretariat, the AMLC may choose from those who have served, continuously or cumulatively, for at least five (5) years in the BSP, the SEC or the IC. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. Rule 8.3. Detail and Secondment . The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP, the SEC or the IC, or any other branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations, in undertaking any and all anti-money laundering operations. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC, subject to existing laws and Civil Service Rules and Regulations. Detailed personnel shall continue to receive their salaries, benefits and emoluments from their respective mother units. Seconded personnel shall receive, in lieu of their respective compensation packages from their respective mother units, the salaries, emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. Rule 8.4. Confidentiality Provisions . The members of the AMLC, the Executive Director, and all the members of the Secretariat, whether permanent, on detail or on secondment, shall not reveal, in any manner, any information known to them by reason of their office. This prohibition shall apply even after their separation from the AMLA. In case of violation of this provision, the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. RULE 9 Prevention of Money Laundering; Customer Identification Requirements and Record Keeping Rule 9.1. Customer Identification Requirements Rule 9.1.a. Customer Identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. For this purpose, they shall develop clear customer acceptance policies and procedures when conducting business relations or specific transactions, such as, but not limited to, opening deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting safety deposit boxes, performing remittances and other large cash transactions. Rule 9.1.b. Trustee, Nominee and Agent Accounts . When dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions shall also establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws, it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Rule 9.1.c. Minimum Information/Documents Required for Individual Customers . Covered institutions shall require customers to produce original documents of identity issued by an official authority, bearing a photograph of the customer. Examples of such documents are identity cards and passports. The following minimum information/documents shall be obtained from individual customers: 1) Name; 2) Present address; 3) Permanent address; 4) Date and place of birth; 5) Nationality; 6) Nature of work and name of employer or nature of self-employment/business; 7) Contact numbers; 8) Tax identification number, Social Security System number or Government Service and Insurance System number; 9) Specimen signature; 10) Source of fund(s); and 11) Names of beneficiaries in case of insurance contracts and whenever applicable. Rule 9.1.d. Minimum Information/Documents Required for Corporate and juridical Entities . Before establishing business relationships, covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being, dissolved, wound up or voided, or that its business or operations has not been or is not in the process of being, closed, shut down, phased out, or terminated. Dealings with shell companies and corporations, being legal entities which. have no business substance in their own right but through which financial transactions may be conducted, should be undertaken with extreme caution. The following minimum information/documents shall be obtained from customers that are corporate or juridical entities, including shell companies and corporations: (1) Articles of Incorporation/Partnership; (2) By-laws; (3) Official address or principal business address; (4) List of directors/partners; (5) List of principal stockholders owning at least two percent (2%) of the capital stock; (6) Contact numbers; (7) Beneficial owners, if any; and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. Rule 9.1.e. Prohibition against Certain Accounts . Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Rule 9.1.f. Prohibition against opening of Accounts without Face-to-face Contact . No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.1.c of these Rules. Rule 9.1.g. Numbered Accounts . Peso and foreign currency non-checking numbered accounts shall be allowed: Provided , That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records, and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9.2. Record Keeping Requirements . Rule 9.2.a. Record Keeping : Kinds of Records and Period for Retention . All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation, in accordance with the aforementioned client identification requirements, on their customer accounts, relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the AMLC, and/or the courts to establish an audit trail for money laundering. Rule 9.2.b. Existing and New Accounts and New Transactions . All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from October 17, 2001 or from the dates of the accounts or transactions, whichever is later. Rule 9.2.c. Closed Accounts . With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Rule 9.2.d. Retention of Records in Case a Money Laundering Case has been Filed in Court . If a money laundering case based on any record kept by the covered institution concerned has been filed in court, said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules, as the case may be, until it is confirmed that the case has been finally resolved or terminated by the court. Rule 9.2.e. Form of Records . Records shall be retained as originals in such forms as are admissible in court pursuant to existing laws and the applicable rules promulgated by the Supreme Court. Rule 9.3. Reporting of Covered Transactions . Rule 9.3.a. Covered Transaction Report Form . The Covered Transaction Report (CTR) shall be in the form prescribed by the appropriate supervising authority and approved by the AMLC. It shall be signed by the employee(s) who dealt directly with the customer in the transaction and/or who made the initial internal report within the covered institution, the compliance officer or his equivalent, and a senior official of the covered institution with a rank not lower than senior vice-president. The CTR shall be filed with the AMLC in a central location, to be determined by the AMLC, as indicated in the instructions on the CTR form. Rule 9.3.b. Period of Reporting of Covered Transactions . Covered institutions shall report to the AMLC all covered transactions within five (5) working days from occurrence thereof, unless the Supervising Authority concerned prescribes a longer period not exceeding ten (10) working days. Rule 9.3.c. Exemption from Bank Secrecy Laws . When reporting covered transactions to the AMLC, banks and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and other similar laws. Rule 9.3.d. Confidentiality Provisions . When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, or the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation hereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. IcSADC Rule 9.3.e. Safe Harbor Provisions . No administrative, criminal or civil proceedings shall lie against any covered institution, their personnel, directors or officers or any person for having made a covered transaction report or a suspicious transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. RULE 10 Authority to Freeze Accounts Rule 10.1. When a Freeze Order may be Issued by the AMLC. Rule 10.1.a. The AMLC is authorized under Sections 7 (6) and 10 of the AMLA to freeze any account or any monetary instrument or property subject thereof, irrespective of the amount or value involved, upon determination that probable cause exists that the same is in any way related to any unlawful activity and/or money laundering offense. The AMLC may issue a freeze order on any account or any monetary instrument or property subject thereof prior to the institution, or in the course of, the criminal proceedings involving the unlawful activity and/or money laundering offense to which said account, monetary instrument or property is any way related. Rule 10.1.b. The freeze order on such account shall be effective immediately for a period not exceeding fifteen (15) days. Rule 10.2. Definition of Probable Cause . Probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Rule 10.3. Remedy when AMLC is Unable to Secure Addresses of Account Owners/Holders . If, after exercising diligence in obtaining the addresses of the owners or holders of the accounts sought to be frozen, the AMLC is not able to secure said addresses, and there is extreme urgency necessitating the immediate issuance of the freeze orders, the covered institution concerned shall, upon request of the AMLC, supply the needed addresses based on their updated records. If, notwithstanding this procedure, the needed addresses cannot be obtained, service of the freeze order on the owners or holders of the subject accounts shall be deemed made upon notice by the bank on them that their accounts have been frozen in accordance with the order of the AMLC. Rule 10.4. Procedure for Service of Freeze Order and Duty of Covered Institution upon Receipt Thereof. Rule 10.4.a. The AMLC shall serve notice of the freeze order upon the covered institution concerned and the owner or holder of the account, simultaneously with the issuance thereof. Rule 10.4.b. Upon receipt of the notice of the freeze order, the covered institution concerned shall immediately freeze the account and the monetary instrument or property subject thereof. Rule 10.4.c. Within twenty-four (24) hours from receipt of the freeze order, the covered institution concerned shall submit to the AMLC, by personal delivery, a detailed written return on the freeze order, specifying the account number, name of the account owner or holder, the balance of the account as of the time it was frozen, and the time when the freeze thereon was effectuated. Rule 10.4.d. The return shall likewise include the information on the web of subsequent accounts whose funds originate from the account(s) subject to the freeze order(s). Rule 10.4.e. Considering the intricate and diverse web of related and interlocking accounts that any person may open or create in the different covered institutions, their branches and/or other units, the AMLC may order the freezing, not only of the accounts in the names of the reported account owner(s)/holder(s), or accounts under the account numbers indicated in the freeze orders and/or resolution of the AMLC directing the issuance thereof, but also all other subsequent accounts whose funds originate from the account(s) subject to the freeze order(s). Rule 10.5. Notice to Account Owner/Holder. The owner/holder of the account or depositor so notified shall have a non-extendible period of seventy-two (72) hours upon receipt of the notice to explain why the freeze order should be lifted. Such explanation shall be in writing and verified. Failure of the owner or holder of the account to file such verified explanation shall be deemed a waiver of his right to question the freeze order. Rule 10.6. Filing and Service of Pleadings . 10.6.a. When to file . In computing any period of time prescribed or allowed by these Rules, if the last day of the period falls on a Saturday, a Sunday or a legal holiday, the time shall not run until the next working day. 10.6.b. Personal Service . Service of pleadings shall be made by delivering personally a copy to the party/ies involved or his/their counsel, or by leaving it in his office with his clerk or with a person having charge thereof. If no person is found in his office, or his office is not known, or he has no office, then by leaving the copy, between the hours of eight in the morning and six in the evening, at the party's or counsel's residence, if known, with a person of sufficient age and discretion then residing therein. Rule 10.7. Procedure for Determination of whether Freeze Order should be Lifted . The AMLC shall have seventy-two (72) hours to dispose of the depositor's explanation. If it fails to act within seventy-two (72) hours from receipt of the depositor's explanation, the freeze order shall automatically be dissolved. However, the covered institution shall not lift the effects of the freeze order without securing official confirmation from the AMLC. Before the fifteen (15)-day period expires, the AMLC may apply in court for an extension of said period. Upon the timely filing of such application and pending the decision of the court to extend the period, said period shall be suspended and the freeze order shall remain effective. Rule 10.8. Violation of Procedures . Any violation of any of the foregoing procedures shall constitute an unsafe and unsound business practice that may justify administrative sanctions to be imposed by supervising authorities on the covered institutions under their respective jurisdictions. Rule 10.9. Prohibition against Issuance of Temporary Restraining Orders . No court shall issue a temporary restraining order or writ of injunction against any freeze order issued by the AMLC or any court order extending period of effectivity of the freeze order except the Court of Appeals or the Supreme Court. Rule 10.10. Prohibition against Issuance of Freeze Orders against Candidates for an Electoral Office during Election Period . No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. RULE 11 Authority to Inquire into Bank Deposits Rule 11.1. Authority to Inquire into Bank Deposits . Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of this Act when it has been established that there is probable cause that the deposits or investments involved are in any way related to a money laundering offense. Rule 11.2. The AMLC may file the application for authority to inquire into or examine any particular deposit or investment of any banking institution or non-bank financial institution in court, regardless of the amount involved, prior to the institution or in the course of, the criminal proceedings involving the unlawful activity and/or money laundering offense to which said bank deposit or investment is in any way related. For purposes of this Rule, probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the bank deposit or investment sought to be inquired into or examined is in any way related to said unlawful activity and/or money laundering offense. Rule 11.2.a. Pursuant to Section 7 (2) of the AMLA, the AMLC may issue orders addressed to the BSP or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered transaction report or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity. Rule 11.2.b. Pursuant to Section 7 (2) of the AMLA and considering that no secrecy law applies to transactions with covered institutions under the jurisdiction of the SEC and the IC, the AMLC may issue orders addressed to the SEC or IC or the covered institution to make any kind of determination or inquiry or to require any kind of disclosure regarding any monetary instrument or property subject of a covered transaction report or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity. Rule 11.3. Limitation on Authority to Inquire into Bank Deposits . The provisions of Section 11 of the AMLA and Rule 11 of these Rules shall not apply to deposits and investments that were opened or created prior to the effectivity of the AMLA on October 17, 2001. Hence, no covered transaction reports, investigation and prosecution of money laundering cases, or any other action authorized under the AMLA, may be undertaken with respect to such deposits and investments as well as transactions or circumstances in relation thereto, that have been completed prior to October 17, 2001. However, the AMLA and these Rules shall apply to all transactions occurring, initiated or commenced on or after October 17, 2001, although said transactions relate to or involve deposit accounts and investment accounts opened or created prior to October 17, 2001. RULE 12 Forfeiture Provisions Rule 12.1. Authority to Institute Civil Forfeiture Proceedings . The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Rule 12.2. When Civil Forfeiture may be Applied . When there is a covered transaction report made pursuant to Section 9 (c) or a suspicious transaction report made pursuant to Section 7 (5) and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. Rule 12.3. Claim on Forfeited Assets . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him, and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. Rule 12.4. Payment in lieu of Forfeiture . Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. RULE 13 Mutual Assistance Among States Rule 13.1. Request for Assistance from a Foreign State . Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. EHSCcT Rule 13.2. Powers of the AMLC to Act on a Request for Assistance from a Foreign State . The AMLC may execute a request for assistance from a foreign state by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules; (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided , That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state, and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.3. Obtaining Assistance from Foreign States . The AMLC may make a request to any foreign state for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign state, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided, That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided , That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.4. Limitations on Requests for Mutual Assistance . The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines, unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. Rule 13.5. Requirements for Requests for Mutual Assistance from Foreign States . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by the requesting state; and (8) contain such other information as may assist in the execution of the request. Rule 13.6. Authentication of Documents . For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting state, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of state, or officer in or of, the government of the requesting state, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept, and authenticated by the seal of his office. Rule 13.7. Suppletory Application of the Revised Rules of Court . Rule 13.7.1. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA, execution and satisfaction of final judgments of forfeiture, application for examination of witnesses, procuring search warrants, production of bank documents and other materials and all other actions not specified in the AMLA and these Rules, and assistance for any of the aforementioned actions, which is subject of a request by a foreign state, resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. Rule 13.7.2. Authority to Assist the United Nations and other International Organizations and Foreign States . The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. Rule 13.8. Extradition . The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. With respect, however, to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on October 22, 2001, money laundering is deemed to be included as an extraditable offense in any extradition treaty existing between said state parties, and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. RULE 14 Penal Provisions Rule 14.1. Penalties for the Crime of Money Laundering . Rule 14.1.a. Penalties under Section 4 (a) of the AMLA . The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three Million Philippine Pesos (Php3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4 (a) of the AMLA. Rule 14.1.b. Penalties under Section 4 (b) of the AMLA . The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One Million Five Hundred Thousand Philippine Pesos (Php1,500,000.00) but not more than Three Million Philippine Pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4 (b) of the AMLA. Rule 14.1.c. Penalties under Section 4 (c) of the AMLA . The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of the AMLA. Rule 14.2. Penalties for Failure to Keep Records under Section 9 (b) of the AMLA . The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9 (b) of the AMLA. Rule 14.3. Penalties for Malicious Reporting . Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), at the discretion of the court: Provided , That the offender is not entitled to avail the benefits of the Probation Law. Rule 14.4. Where Offender is a Juridical Person . If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in the commission of the crime or who shall have knowingly permitted or failed to prevent its commission. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. Rule 14.5. Refusal by a Public Official or Employee to Testify . Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. Rule 14.6. Penalties for Breach of Confidentiality . The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five Hundred Thousand Philippine Pesos (Php500,000.00) but not more than One Million Philippine Pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c) of the AM LA. RULE 15 System of Incentives and Rewards Rule 15.1. Authority to Establish System of Incentives and Rewards . The AMLC is authorized under Section 15 of the AMLA to establish a system of special incentives and rewards to be given to the appropriate government agency and its personnel that led and initiated the investigation, prosecution, and conviction of persons involved in money laundering offenses under Section 4 of the AMLA. Rule 15.2. Establishment of System of Incentives and Rewards for Covered Institutions and their Personnel Pursuant to its powers under Section 7 (7) of the AMLA, the AMLC shall establish a system of special incentives and rewards to be given to the appropriate covered institutions and their personnel that led to the investigation, prosecution, and conviction of persons involved in money laundering offenses under Section 4 of the AMLA. RULE 16 Prohibitions Against Political Harassment Rule 16.1. Prohibition against Political Persecution . The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. Rule 16.2. Provisional Remedies Application; Exception . Rule 16.2.a. The AMLC may apply, in the course of the criminal proceedings, for provisional remedies to prevent the monetary instrument or property subject thereof from being removed, concealed, converted, commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. However, no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. Rule 16.2.b. Where there is conviction for money laundering under Section 4 of the AMLA, the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. However, no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. RULE 17 Restitution Rule 17. Restitution . Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 18 Implementing Rules and Regulations and Money Laundering Prevention Programs Rule 18.1. Implementing Rules and Regulations . Rule 18.1.a. Within thirty (30) days from the effectivity of these Rules, the BSP, the IC and the SEC shall promulgate the Implementing Rules and Regulations of the AMLA, which shall be submitted to the Congressional Oversight Committee for approval. Rule 18.1.b. The Supervising Authorities, the BSP, the SEC and the IC shall, under their own respective charters and regulatory authority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of the AMLA. Rule 18.2. Money Laundering Prevention Programs . Rule 18.2.a. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules, including, but not limited to, information dissemination on money laundering activities and their prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions, subject to such guidelines as may be prescribed by their respective supervising authority. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. Rule 18.2.b. Every money laundering program shall establish detailed procedures implementing a comprehensive, institution-wide "know-your-client" policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, designate compliance officers at management level, institute adequate screening and recruitment procedures, and set-up an audit function to test the system. SIEHcA Rule 18.2.c. Covered institutions shall adopt, as part of their money laundering programs, a system of flagging and monitoring transactions that qualify as suspicious transactions, regardless of amount or covered transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. All covered institutions, including banks insofar as non-deposit and non-government bond investment transactions are concerned, shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be, is being, or has been committed. Rule 18.2. Training of Personnel . Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. Rule 18.3. Amendments . These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of the AMLA. RULE 19 Congressional Oversight Committee Rule 19.1. Composition of Congressional Oversight Committee . There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. Rule 19.2. Powers of the Congressional Oversight Committee . The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. RULE 20 Appropriations For and Budget of the AMLC Rule 20.1. Budget . The budget of Php25,000,000.00 appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Appropriations for succeeding years shall be included in the General Appropriations Act. The BSP shall advance the funds necessary to defray the capital outlay, maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. Rule 20.2. Costs and Expenses . The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil, criminal or administrative action, suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the AMLC in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. RULE 21 Separability Clause Rule 21. Separability Clause . If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid, the other provisions of these Rules, and the application of such provision or Rule to other persons or circumstances, shall not be affected thereby. RULE 22 Repealing Clause Rule 22. Repealing Clause . All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of, Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended, and other similar laws, as are inconsistent with the AMLA, are hereby repealed, amended or modified accordingly. RULE 23 Effectivity of The Rules Rule 23.1. Effectivity . These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. Rule 23.2. Limitations of the Rules . The provisions of Section 11 of the AMLA and Rule 11 of these Rules shall not apply to deposits and investments that were opened or created prior to the effectivity of the AMLA on October 17, 2001. Hence, no covered transaction reports, investigation and prosecution of money laundering cases, or any other action authorized under the AMLA, may be undertaken with respect to such deposits and investments as well as transactions or circumstances in relation thereto, that have been completed prior to October 17, 2001. However, the AMLA and these Rules shall apply to al I transactions occurring, initiated or commenced on or after October 17, 2001, although said transactions relate to or involve bank accounts and investment accounts opened or created prior to October 17, 2001. DEHaTC CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS (Appendix to Subsec. X691.6) C E R T I F I C A T I O N Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we hereby certify: 1. That we have monitored (Name of Bank)'s compliance with R.A. No. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259 and 302; 2. That the Bank is complying with the required customer identification, documentation of all new clients, and continued monitoring of customer's activities; 3. That the Bank is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years; 4. That the Bank does not maintain anonymous or fictitious accounts; and 5. That we conduct regular anti-money laundering training sessions for all bank officers and selected staff members holding sensitive positions. _______________________ ____________________ (Name of President or officer (Name of Compliance of equivalent rank) Officer) SUBSCRIBED AND SWORN to before me, this _______ day of ____________, affiant/s exhibiting to me their Residence Certificates as follows: Community Date/Place Name Tax Cert . No . Issued Doc. No. ________; Notary Public Page No. ________; Book No. ________; Series of 2002 Footnotes Part One * The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization as of end-2000 shall be the same as that prescribed as of end-1999 . 1. Effective April 3, 2002. Part Two * The reserve weeks, December 20 to 26, 2002 and December 27, 2002 to January 2, 2003, shall be considered as a single reserve week for the purpose of determining "abuse" of the privilege of offsetting reserve deficiencies against excess reserves during the reserve week. 1. 9% under Cir. No. 286 dated 7.27.01; 11% under Cir. No. 288 dated 8.10.01; 9% under Cir. No. 312 dated 12.11.01; and 7% under Cir. No. 319 dated 2.15.02. Part Four 1. 10% under MAB dated 7.27.01; 12% under MAB dated 8.10.01; 10% under MAB dated 12.11.01; and 8% under MAB dated 2.15.02. Part Five 1. i.e., Customers' Liability on Import Bills-Foreign, Customers' Liability under Trust Receipts-Foreign, Customers' Liability for this Bank's Acceptances Outstanding-Foreign & Export Bills Purchased, excluding past due accounts and Items in Litigation. 2. i.e., Net FX Disposition (Regular Books only) in Schedule I (Daily Summary of Foreign Exchange Acquisitions/Dispositions) of FX Form I (Consolidated Report on Foreign Exchange Assets and Liabilities) Appendices 1. For purposes of identifying the classification of a certain enterprise or undertaking, the industrial groupings in the 1977 Philippine Standard Industrial Classification (PSIC) list shall be followed. * Based on done rates if available. If done rates are not available, use the mid rate between bid and offer. If no mid rates are available, use the bid rate.