Manual of Regulations on the Supervision of Financial Intermediaries - 1975 Book V

1975 MANUAL OF REGULATIONS ON THE SUPERVISION OF FINANCIAL INTERMEDIARIES - 1975 BOOK V TABLE OF CONTENTS PART 1. ORGANIZATION AND OPERATIONS IN GENERAL SEC. 511 Capitalization 511.1 Minimum paid-up capital requirement 511.2 Capital to assets ratio 511.21 Computation of required minimum capital accounts 511.22 Definition/clarification of terms 511.23 Report on compliance 511.24 Sanctions SEC. 514 Branches, Agencies, Extension and Other Offices SEC. 519 Sundry Provisions on Quasi-Banking Functions 519.1 Definition of quasi-banking functions 519.11 Elements of quasi-banking 519.12 Definition of terms and phrases 519.13 Transactions not considered quasi-banking 519.2 Pre-conditions for the exercise of quasi-banking functions 519.21 Minimum capitalization 519.22 Citizenship requirements 519.23 Managerial staff 519.3 Certificate of authority from the Central Bank 519.31 Procedural requirements 519.32. Submission and contents of borrowing-investment program 519.33 Operational and other agreements 519.34 Equity participation in applicant firm PART 2. MANAGEMENT AND ADMINISTRATION SEC. 521 Directors 521.1 Definition of terms 521.2 Qualifications of a director 521.3 Disqualifications for directors 521.31 Disqualification procedures 521.4 Evaluation of the capability and integrity of the board and the managerial staff 521.5 Interlocking directorates and officerships SEC. 522 Officers and Employees 522.1 Definition of terms 522.2 Qualifications of an officer 522.3 Disqualifications for officers 522.31 Disqualification procedures 522.4 Interlocking officerships and directorates SEC. 524 Internal Procedures 524.1 Recording of transactions 524.7 Internal control Appendix A Documentary Requirements for the Evaluation of the Integrity, Experience and Expertise of the Board of Directors and the Managerial Staff of Non-Bank Financial Intermediaries Desiring to Engage in Quasi-Banking Functions Appendix B Minimum Internal Control Standards for Non-Bank Financial Intermediaries Engaged in Quasi-Banking Functions PART 3. LENDING OPERATIONS SEC. 531 Loans in General 531.1 Single borrower limit 531.3 Interest, yield and other charges 531.31 Interest/Yield 531.32 Other charges 531.4 Past due accounts 531.41 Renewals/Extensions 531.42 Loans by type; when past due 531.43 Written demand 531.44 Accrual of interest 531.45 Reporting requirement 531.46 Allowance for doubtful accounts 531.5 Minimum guidelines on lending operations 531.9 Miscellaneous provisions 531.91 Transactions of financing companies SEC. 534 Loans/Credit Accommodations to Directors, Officers and Stockholders 534.1 Definition of terms 534.3 Indirect credit accommodations 534.4 Individual/aggregate ceilings 534.5 Transitory provision 534.6 Other requirements 534.8 Credit accommodations to officers under the fringe benefit program SEC. 535 Specific Types/Classes of Loans 535.1 IGLF loans Appendix A Rules and Regulations Governing the Implementation of the Industrial Guarantee and Loan Fund Accreditation System Appendix B Rules and Regulations Governing the Availment by Accredited Banks and Non-Bank Financial Intermediaries of Special Time Deposits/Deposit Substitutes under the IGLF Program Attachment B-1 List of Potential Small Industries for IGLF Financing Appendix C Guidelines in Granting IGLF Loans to Medium Scale Industries Appendix D Interest Rate and Yield Ceilings on Loans and Purchase of Instruments by Banks and Non-Bank Financial Intermediaries on Transactions Entered into Prior to January 1, 1978 Appendix E Computation of Proceeds/Discounts Rates of a Loan for Different Periods at Effective Rates of 12 and 14 Percent PART 4. INVESTMENT OPERATIONS SEC. 542 Investment in Other Enterprises 542.1 Investment in affiliates/subsidiaries 542.2 Investment in equities of other financial intermediaries engaged in quasi-banking functions 542.21 Prescribed ceilings 542.22 Investments not subject to ceilings 542.23 Clarification of term "investor" 542.24 Investments in excess of ceilings 542.25 Investments previously authorized by the Monetary Board 542.26 Sanctions PART 6. BORROWING OPERATIONS SEC. 567 Deposit Substitutes 567.1 Reserve requirements 567.11 Required reserves 567.12 Composition of reserves 567.13 Computation of reserve position 567.14 Reserve deficiencies: offset privilege 567.15 Abuse of offset privilege 567.16 Chronic reserve deficiency 567.17 Unpaid fines 567.2 Minimum maturity and trading lot 567.21 Minimum maturity 567.22 Minimum trading lot 567.3 Deposit substitute instruments; rules on issuance 567.31 Prescribed types of instruments 567.32 Minimum features of deposit substitute instruments 567.33 Standard instruments 567.34 Physical delivery 567.35 Other rules and regulations governing the issuance and treatment of deposit substitute instruments 567.36 Call loans as deposit substitutes 567.37 Sanctions 567.4 Effect of pretermination; use as collateral of deposit substitutes 567.5 Interest or yield on deposit substitutes 567.6 Repurchase agreements with the Central Bank 567.7 Borrowings by building and loan associations 567.8 Inter-bank and other borrowings 567.81 Borrowings from trust departments or investment houses 567.82 Borrowings from the government SEC. 568 Issuance of Bonds and Certificates 568.1 Bond issues of non-banks 568.11 Definitions of terms 568.12 Notice to the Central Bank 568.13 Minimum features 568.14 Underwriting 569.15 Incentives 568.16 Inapplicability of certain regulations 568.2 Issuance of mortgage and chattel mortgage certificates SEC. 569 Sundry Provisions 569.1 Campaigns to attract funds 569.2 Transactions with controlled corporations 569.3 Registration requirements of commercial papers; sanctions Appendix A SEC Rules on Registration of Commercial Papers Appendix B SEC Rules on Registration of Long Term Commercial Papers and Bonds Appendix C Additional Rules and Regulations on Money Market Activities (Rural Banks) INDEX OF ISSUANCES SUBJECT INDEX GUIDE TO ABBREVIATIONS PART 1 Organization and Operations in General SECTION 511. Capitalization SUBSECTION 511.1 Minimum paid-up capital requirement . Any financial intermediary, whether bank or non-bank, desiring to engage in quasi-banking functions, shall have a minimum paid-in capital of P10 million except where the general or special law governing the entity concerned requires a higher minimum paid-in capital for the said entity. LexLib If the paid-in capital of a non-bank financial intermediary engaged in quasi-banking functions is less than P10 million as of November 19, 1973 (the date of effectivity of Circular No. 387 on quasi-banking), the entity concerned shall submit a definitive capital build-up program by semester to meet the minimum capital requirement by November 19, 1976. It shall adhere strictly to the program of capital build-up and shall submit a certification of compliance as of the semester end. Investment in affiliates/subsidiaries shall be made with funds over and above the minimum required paid-in capital. Investments in affiliates/subsidiaries existing as of November 19, 1973 shall be included in the capital build-up program. Investments in affiliates/subsidiaries after November 19, 1973 shall be made with funds over and above the minimum requirement of P10 million, or in the case of entities with paid-in capital below the required minimum, with funds outside the capital build-up program. The entity concerned shall submit proof of ability to undertake such investments. [M.B. Res. 1355 7-11-75] Capital contributions under the capital build-up program shall not be funded by any loan or credit accommodation granted by the entity which is required to raise its paid-in capital. [CL 11-14-75] The equity investments by foreigners in non-bank financial intermediaries authorized to engage in quasi-banking functions shall be governed by the following rules: (a) The prior authority of the Monetary Board shall be obtained by foreign banking institutions, including their wholly or majority-owned subsidiaries and their holding companies having majority holdings in such foreign banking institutions, whenever acquiring shares of non-bank financial intermediaries authorized to engage in quasi-banking functions, 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 banking institution. (b) If the foreign investor in the equity of a non-bank financial intermediary authorized to engage in quasi-banking functions is (i) an individual, (ii) a non-financial entity, or (iii) a non-bank financial entity which is not owned or controlled by a banking institution, its subsidiary or holding company and the investor is acquiring shares which were not foreign-held as of April 27, 1973 nor continued to be held by the foreign stockholder up to the date of the acquisition by the foreign investor, the investment may be made only with the prior authority of the Monetary Board. (c) The maximum stockholdings foreigners may own in non-bank financial intermediaries authorized to engage in quasi-banking functions shall continue to be governed by existing provisions of law. [Circular 520 5-25-76] Foreign equity, if any, shall be registered with and approved by the Board of Investments and the Central Bank. [MB Res. 1355 7-11-75] SUBSECTION 511.2 Capital to assets ratio SUBSECTION 511.21 Computation of required minimum capital accounts . The combined capital accounts (net worth) of each non-bank financial intermediary engaged in quasi-banking functions shall not be less than an amount equal to eight per cent (8%) of its assets, which term is defined as total assets minus the following items: (a) Cash on hand and in banks; (b) Evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines: Provided , That such evidences of indebtedness or obligations subject of repurchase or resale agreements may be deducted by both the selling/borrowing and buying/lending financial intermediaries; (c) Property and equipment, net of depreciation; (d) Equipment under lease, net of depreciation; (e) Receivables with remaining maturities of more than 365 days; (f) Investments and/or loans arising out of underwriting commitments; and (g) Loans to the extent covered by hold-out on, or assignment of, deposit substitutes/placements maintained in the lending institution engaged in quasi-banking functions and held in the Philippines; plus the following contingent accounts: (1) Guaranteed loans with remaining maturities of 365 days or less; and (2) Instruments/accounts sold with recourse with remaining maturities of 365 days or less. [Circular 439 11-4-74 as amended by Circular 604 4-18-78] The cash deposit balances and/or Philippine Government securities with financial intermediaries that ceased or suspended operations and/or transactions with the public, voluntarily or involuntarily, including receivables with remaining maturities of more than 365 days, shall be booked under "Other Assets" and shall not be deducted from gross assets in the computation of the minimum capital required. All other assets and/or claims with such financial intermediaries shall be lodged under the "Other Assets" account. [CL 2-21-75] [For banking institutions, the pertinent provisions on the prescribed net worth to risk assets ratio in Part 1, Books One, Two or Three (depending on the particular type of bank concerned) shall apply.] SUBSECTION 511.22. Definition/clarification of terms (a) Combined capital accounts . This is synonymous with "net worth" or "unimpaired capital and surplus", and shall mean the total of unimpaired paid-in capital, surplus, and accumulated interim profits, net of such valuation reserves as may be required by the Central Bank/Securities and Exchange Commission. (b) Total assets . The term "total assets" shall be the amount appearing in the balance sheet, net of valuation reserves. (c) Cash on hand and in banks . Total cash held consisting of currency and coins and deposits in banking institutions other than deposit substitutes and/or placements. (d) Loans to the extent covered by hold-out on, or assignment of, deposit substitutes/placements maintained in the lending institution engaged in quasi-banking functions and held in the Philippines . (1) A loan shall be considered as secured by hold-out on or assignment of deposit substitutes/placements only if the same is under a hold-out agreement or deed of assignment and maintained in the lending institution engaged in quasi-banking functions and held in the Philippines. (2) The amount deductible from total assets shall be the outstanding balance of the loan to the extent covered by the corresponding hold-out agreement or deed of assignment. (e) Property and equipment . These refer to tangible physical properties, including land, furniture and fixtures, office equipment, leasehold improvements, which are to be used for more than one year in the regular operation of the business and normally not intended for resale. Such assets shall be unconditionally owned by the entity. Foreclosed property shall conform with the above requisites to qualify under this item. Basis of reporting is cost of acquisition minus allowance for depreciation. (f) Equipment under lease . These are heavy equipment, industrial machinery, business and office machineries and equipment, motor vehicles, appliances and other movable property purchased by the entity for the sole purpose of leasing them to clients as part of doing business. Basis of reporting is cost of acquisition minus allowance for depreciation. (g) Receivables . These refer to accounts, notes, loan receivables, placements in commercial papers and acceptances on deposit substitutes. (h) Investments and/or loans arising out of underwriting commitments . These investments and/or loans are inventories of securities arising out of the entity's underwriting commitment. Loans are the obligations of the entity incurred to meet an underwriting commitment. Stocks purchased from the stock exchanges are excluded. (i) Guaranteed loans . These pertain to contracts whereby the entity agrees to guarantee the obligation of another, e.g., signing as a co-maker or guarantor of a loan agreement. These are off-balance sheet items. (j) Instruments/accounts sold with recourse . These refer to commercial papers, etc., or deposit substitutes under straight sale and receivables discounted with recourse to the selling entity. (k) Remaining maturities . These refer to the remaining maturities, as distinguished from original maturities, of principal instruments, and not of the underlying papers. (l) New loans and new investments . These refer to any loan or investment involving disbursement of funds, except government securities. [Circular 439 11-4-74] (m) Affiliate . A concern linked directly or indirectly to another by means of: (1) Ownership, control and power to vote, of 10% or more of the outstanding voting securities; (2) Interlocking directorship/officership; (3) Common major stockholders; i.e., owning 10% or more of the outstanding voting securities; (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding 10% or more of the outstanding voting securities; and (6) Permanent proxy constituting 10% or more of the outstanding voting securities; (n) Subsidiary . This refers to a company 50% or more of the outstanding voting securities of which are directly or indirectly owned, controlled, or held with power to vote by another. [M.B. Res. 1355 7-11-75] SUBSECTION 511.23 Report on compliance . Every non-bank financial intermediary engaged in quasi-banking functions shall compute for every business day its capital required and capital accounts and a report thereon shall be submitted to the appropriate office of the Central Bank, not later than the close of the seventh business day following the 15th and end of each month. This report shall be prepared on a prescribed Central Bank form signed by a duly authorized officer of the entity. [Circular 439 11-4-74] The non-bank financial intermediary complying with the capital build-up program to increase paid-in capital to the required level as provided in Subsection 511.1 shall submit to the Department of Financial Intermediaries (Non-Bank) the names and extent of capital contribution of the proposed investors, both Filipino and foreign; and shall report as well any subsequent change in submitted data which will affect the participation of stockholders/investors in the equity of the entity. This requirement shall be part of the processing procedure before the entity may be issued an authority to perform quasi-banking functions; [CL 11-14-75] SUBSECTION 511.24 Sanctions . Any non-bank financial intermediary engaged in quasi-banking functions which is deficient in the capital requirement under this subsection shall be liable to the following sanctions starting immediately on the day following the reporting period without need of notice: (a) In case of capital deficiency for five or more times within a reporting period: (1) For the first offense a fine of P500; (2) For the second consecutive offense prohibition from extending new loans or making new investments for a period of thirty calendar days; (3) For the third consecutive offense extension of the penalty under the preceding paragraph for another thirty calendar days; (4) For the fourth consecutive offense suspension of the certificate of authority to engage in quasi-banking functions for a period of thirty calendar days. The suspension shall be automatically lifted if on the final reporting period of the period of suspension, the entity maintains the minimum capital required under this subsection for every day of such reporting period. (b) In case of continuous capital deficiency: (1) For two consecutive reporting periods suspension of the certificate of authority to engage in quasi-banking functions for a period of thirty calendar days; (2) For every consecutive reporting period, the suspension shall extend for another thirty calendar days; (3) The suspension shall be automatically lifted if on the final reporting period of the period of suspension, the entity maintains the minimum capital required under this sub-section for every day of such reporting period. In all of the cases abovementioned, establishment of branches, agencies, extension offices, etc., shall be suspended. (c) For default in the submission of reports, any non-bank financial intermediary engaged in quasi-banking functions, shall pay the following fines: (1) P100 per business day for the first five business days; (2) P150 per business day for the succeeding five business days; (3) P200 per business day thereafter until submitted. (d) For improperly accomplished reports, P100 per business day for every business day the report is not corrected, counted as of the date the error is brought to its attention until the corrected report is submitted. (e) For wilfully making a false statement in the report or submitting a false report, the certificate of authority for quasi-banking functions shall be suspended or revoked. (f) The Monetary Board may impose additional sanctions on the entity engaged in quasi-banking functions, by: (1) Relieving the chairman of the board of directors, the president, and the senior management officials, of their duties and responsibilities in the entity; (2) Revoking the certificate of authority to engage in quasi-banking functions; (3) Such other sanctions as the Central Bank may deem necessary. [Circular 439 11-4-74] SECTION 514. Branches, Agencies, Extension and Other Offices The rate at which non-bank financial intermediaries may establish branches, agencies and/or extension offices with quasi-banking functions shall depend upon the ability of the company to conduct operations from the head office, as well as correspondent arrangements. Prior Central Bank authority shall be obtained before operating a branch, extension office or agency. [For banking institutions and investment houses, the pertinent provisions on the establishment and operation of branches, agencies, extension and other offices in Part 1, Books One, Two, Three and Four (for investment houses) shall apply.] A maximum of five branches, agencies, extension offices, etc. may be permitted to be opened only after the minimum paid-in capital of P10 million has been complied with. Beyond five but not more than ten branches may be allowed: Provided, That additional capital of P2 million shall be required for every branch, agency or extension office to be established. Beyond ten, it shall be P3 million for every branch, agency or extension office to be opened. Branches existing on November 19, 1973 which exceed the proportion indicated herein may be maintained, but shall not be increased without additional paid-in capital, in the required proportion. A definite program of capital build-up shall, furthermore, be submitted by the entity concerned. [MB Res. 1355 7-11-75] Only one branch, agency, extension office, or unit outside of the head office shall be allowed to be established within the Metro Manila Area. [MB Res. 1355 7-11-75 as amended by MB Res. 2298 11-19-76] In processing applications of non-bank financial intermediaries with quasi-banking functions, for authority to open branches, other factors to be considered are: (1) reserve and liquidity positions and (2) profitability and capacity to absorb losses. [MB Res. 1355 7-11-75] The foregoing requirements shall apply to agency arrangements. Agency arrangements shall refer to all or any type of service to be performed by another party as an agent other than collection agency for loans payable in installments/amortization, and paying agency under a definite and specific period for purposes of redeeming long-term notes and/or bonds. [MB Res. 2298 11-19-76] The following documents shall be submitted by non-bank financial intermediaries applying for authority to establish branches, agencies, or extension offices: (a) Ability to conduct operations from Head Office as not to be a cause for delayed submission of reports to the Central Bank and/or recording of transactions in the Head Office; (b) Correspondent (banking) and audit arrangements between branch and head office to ensure effective and efficient cash/money transactions; (c) Certified true copy of the board resolution authorizing establishment of a branch; (d) Services to be offered, as well as any extension offices, etc. to be opened; (e) Days and hours to be observed; (f) Areas to be served; (g) Bio-data of proposed branch manager and the number of employees; and (h) Business and/or economic justifications (including data) for the establishment of the branch. [MB Res. 1355 7-11-75] Entities performing quasi-banking functions with existing branches, agencies, extension offices, any units outside of the head office, represented as not performing quasi-banking activities and/or agency arrangements with another party, shall have until 31 January 1977 within which to file an application for such units to discharge quasi-banking functions or such agency arrangements to be retained together with a definitive capital build-up program, if necessary, which program shall not extend beyond 31 December 1977 [MB Res. 2298 11-19-76; MB Res. 2496 12-20-76] In case of capital deficiency in connection with the prescribed capital to assets ratio in Subsec. 511.2, the establishment of branches, agencies, or extension offices by the non-bank financial intermediary concerned shall be suspended. [Circular 439 11-4-74] SECTION 519. Sundry Provisions on Quasi-Banking Functions SUBSECTION 519.1 Definition of quasi-banking functions . As defined in Section 2-D(b) of Republic Act No. 337, as amended, " Quasi-Banking Functions shall mean borrowing funds, for the borrower's own account, through the issuance, endorsement or acceptance of debt instruments of any kind other than deposits, or through the issuance of participations, certificates of assignment, or similar instruments with recourse, trust certificates, or of repurchase agreements, from twenty or more lenders at any one time, for purposes of relending or purchasing of receivables and other obligations: Provided, however, That commercial, industrial, and other non-financial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions." SUBSECTION 519.11 Elements of quasi-banking . The essential elements of quasi-banking are: (a) Borrowing funds for the borrower's own account; (b) Twenty or more lenders at any one time; (c) Any or all of the following methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as acceptances, promissory notes, participations, certificates of assignment or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as the Monetary Board may determine; and (d) Purpose, which may be for (1) relending and/or (2) purchasing receivables or other obligations. SUBSECTION 519.12 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. 519.11 hereof, 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 inter-bank borrowings or borrowings between financial institutions, or 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 stipulation, 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; continuous or consistent lending as distinguished from isolated lending transactions. SUBSECTION 519.13 Transactions not considered quasi-banking . The following shall not constitute quasi-banking functions: (a) Borrowing by commercial, industrial and other non-financial companies through any of the means listed in Subsec. 519.11 (c) 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 the said subsection 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 any combination of words of similar import that will convey the absence of liability or guarantee of liability 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. [Circular 387 11-19-73] SUBSECTION 519.2 Pre-conditions for the exercise of quasi-banking functions . Only duly incorporated stock corporations may undertake or perform quasi-banking functions as defined in Subsec. 519.1 hereof, provided the pre-conditions in subsections 519.21-519.23 are complied with. SUBSECTION 519.21 Minimum capitalization . The minimum paid-in capital of financial intermediaries desiring to engage in quasi-banking functions shall be P10 million except where the entity concerned is required to have a higher minimum paid-in capital under the general or special laws governing the said entity. SUBSECTION 519.22 Citizenship requirements (a) At least a majority of the voting stock shall be owned by citizens of the Philippines, except as otherwise provided in general or special laws governing the entity concerned, such as: (1) for investment houses, at least fifty-one per cent (51%) of the voting stock shall be owned by citizens of the Philippines (P.D. 129) and (2) for finance companies, at least sixty per cent (60%) of the capital stock shall be owned by citizens of the Philippines (R.A. 5980). cdpr The computation of the percentage of voting stock shall be based on the "Grand-father Rule, i.e., with respect to corporate owners of voting stock in applicant firm, the citizenship of the individual owners of the voting stock in the corporation shall be the basis for determining the citizenship of that corporation, which in turn will be the basis for the computation of the citizenship of the applicant firm. (b) At least a majority of the members of the board of directors shall be citizens of the Philippines, except as otherwise provided in general or special laws governing the entity concerned, such as, for finance companies, at least two-thirds (2/3) of the members of the board of directors shall be citizens of the Philippines. Resident foreign directors and technicians shall register with the Commission on Immigration and Deportation and the Department of Labor. [MB Res. 1355 7-11-75] SUBSECTION 519.23 Managerial staff . The managerial staff shall possess the integrity, experience and expertise, which provide reasonable assurance that the enterprise will be/is being conducted with financial prudence. [See also Subsec. 521.3 and 2. Appendix A] SUBSECTION 519.3 Certificate of Authority from the Central Bank SUBSECTION 519.31 Procedural requirements . Duly incorporated stock corporations possessing the qualifications enumerated under Subsec. 519.2 hereof and desiring to engage in quasi-banking functions shall obtain a Certificate of Authority from the Central Bank by filing: (a) An information Sheet (CBP-7-26-01); (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 year. [Circular 387 11-19-73] The management of the company board members and managerial staff must have been actually appointed or at least firmly designated before the applicant firm may be granted a Certificate of Authority to engage in quasi-banking functions. [MB Res. 1355 7-11-75] The organizational framework and functional chart of the company shall match the operational objectives and shall be submitted as changes are made not later than ten (10) days from the occurrence of the event. SUBSECTION 519.32 Submission and contents of borrowing-investment program . The borrowing-investment program which shall be submitted annually not later than the first working day in March shall cover a period of one year and shall include: (a) Investment direction of the corporation engaged in quasi-banking indicating as a minimum, planned distribution of portfolio as to: (a) Underwriting (for investment houses), (2) Money market operations, (3) Investments in stocks and bonds, (4) Investments in government securities, (5) Receivables financing, (6) Leasing activities, and (7) Direct loaning operations. The preferred areas of investment shall be disclosed, i.e., real estate, condominium and those related to the government program and other projects which may be determined by the Central Bank. (b) Borrowing operations to support investment program indicating, among others: (1) Maturity (i) short-term: less than a year (ii) medium-term: one to five years (iii) long-term: more than five years (2) Interest rate per annum for the above three types of borrowings (more indicatory than fixed); and (3) Individual or institutional sources of funds, whether domestic or foreign, governmental or private, financial or non-financial. Preference shall be given to fund usage and mobilization at terms beyond one year. [MB Res. 1355 7-11-75] SUBSECTION 519.33 Operational and other agreements . Applicant firm desiring to obtain a certificate of authority to engage in quasi-banking functions shall submit to the Central Bank for review, all operational/credit agreements with other financial institutions. Investment contracts, management agreements and similar contract shall likewise be submitted to the Central Bank for review. SUBSECTION 519.34 Equity participation in applicant firm . Preference is for equity (domestic and foreign) participation for the first time in a corporation engaged in quasi-banking functions. Any equity participation in other corporations engaged in quasi-banking functions shall be subject to the provisions of Central Bank Circular 449. Equity investment of a corporation engaged or proposing to engage in quasi-banking functions in other corporations engage/will engage in quasi-banking functions shall, in addition to the restrictions of Circular 449, not exceed 15% of the networth of the corporation accepting the subscription, whichever is lower. prcd [MB Res. 1355 7-11-75] PART 2 Management and Administration SECTION 521. Directors SUBSECTION 521.1 Definition of terms a) 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 of the non-bank financial intermediary performing quasi-banking functions; and (3) those elected to fill vacancies in the board of directors. cdtech b) Delinquency , for purposes of this Subsection, shall mean that an obligation of a person with a non-bank financial intermediary performing quasi-banking functions, where he is a director or officer, or where he may be elected or appointed to said position, or at least two obligations with banks and with other non-bank financial intermediaries performing quasi-banking functions, under different credit lines or loan contracts, are past due for at least three (3) months. c) Obligations shall include all borrowings from a bank or from a non-bank financial intermediary performing quasi-banking functions obtained by: (1) A director or officer for his own account or as the representative or agent of others or where he acts as a guarantor, indorser or surety for loans from such financial institutions; (2) The spouse or child under parental authority of the director or officer; (3) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director or officer; (4) A partnership of which a director or officer, or his spouse is the managing partner, or a general partner owning a controlling interest in the partnership; and (5) A corporation, association, or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in Items (1), (2) and (4) above. [Circular 644 12-27-78] SUBSECTION 521.2 Qualifications of a director . A director shall have the following minimum qualifications: (a) He shall be at least 26 years of age at the time of his election/appointment; and (b) He shall be at least a college graduate or have at least five (5) years creditable experience or training in financial management, financial market operations, or related activities, or in a field related to his position and responsibilities. The foregoing qualifications shall be in addition to those already required by existing laws and other regulations. SUBSECTION 521.3 Disqualifications for directors Without prejudice to the specific provisions of law prescribing disqualifications for directors, the following persons are disqualified from becoming directors: (a) Persons who have been convicted of a crime involving moral turpitude; (b) Persons found by the Monetary Board to have wilfully failed or refused to comply with any law, regulation, order or instruction of the Monetary Board or the Governor; or to have committed irregularities; or to have conducted business in an unlawful, unsafe or unsound manner as determined by the Monetary Board in any institution supervised or regulated by the Central Bank; (c) Persons removed by the Monetary Board pursuant to the provisions of Section 34-A of Republic Act 265 and other provisions of law or regulations; (d) Persons who shall refuse to disclose the extent of their business interests to the Department of Financial Intermediaries (Non-Bank) when required, for the proper implementation of a provision of law, or of a circular, rule, regulation or policy of the Central Bank; (e) Persons who have been dismissed for cause from any institution under the regulation or supervision of the Central Bank; (f) Persons who have derogatory information in PC, NBI or NISA records or are not issued any clearance by said agencies. For purposes of this Subsection, an information is considered derogatory if it involves violation of any law, rule or regulation of the Government or any of its instrumentalities and it adversely affects one's integrity or ability to discharge the duties of a director of officer; (g) Persons delinquent in the payment of their obligations: Provided , That such delinquency shall operate as a disqualification as long as the delinquency persists (See Subsec. 521.1 for definition of delinquency); and (h) Except as may be authorized by the Monetary Board or the Governor, any person who is a spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President, 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 financial intermediary; and any person who is the spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch, extension or agency office of a financial intermediary is disqualified from holding or being appointed to any of said positions in the same branch, extension or agency office. LLjur In any case, this disqualification shall not affect those holding said positions as of July 11, 1975 until the expiration of their respective terms of office. The foregoing disqualifications shall be in addition to those already required by existing laws and other regulations. [Circular 644 12-27-78] SUBSECTION 521.31 Disqualification procedures (a) Upon the establishment of any of the grounds for disqualification in Subsec. 521.3 above and Subsec. 121.3 of Book I, the office of the disqualified director shall immediately become vacant, except in the case of delinquency in the payment of obligations wherein the director 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 immediately be 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-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 Central Bank through the appropriate supervising and examining department the name of the director involved, the ground for his disqualification and the action taken by the board. (c) When the ground for disqualification ceases to exist, the director concerned shall be eligible to become director of any institution regulated or supervised by the Central Bank only upon prior approval of the Governor of the Central Bank. [CL 3-1-78] SUBSECTION 521.4 Evaluation of the capability and integrity of the board and the managerial staff For purposes of evaluating the integrity, experience and expertise of directors and managerial staff of non-bank financial intermediaries desiring to engage in quasi-banking functions, the pertinent documents enumerated in V.2. Appendix A shall serve as guide. In addition, a bio-data sheet (CBP-7-26-01.1) accomplished under oath shall be submitted by the directors and officers concerned reflecting data on relatives within the second degree of consanguinity or affinity who are holding officer positions in the same entity, branch, or extension office. For non-bank financial intermediaries with certificate of authority already granted by the Central Bank, any new director or officer elected or appointed for the first time in subject entity shall submit the documents referred to in V.2.Appendix A unless the same had been previously filed with the Department of Financial Intermediaries (Non-Bank), for not more than five years. [MB Res: 1355 7-11-75] SUBSECTION 521.5 Interlocking directorates and officerships . The following regulations shall govern interlocking directorates and officerships between banks and non-bank financial intermediaries: (1) Except as may be authorized by the Monetary Board, no person shall concurrently be a director and/or officer of two or more financial intermediaries performing quasi-banking functions, or a director and/or officer of a bank and an investment house: Provided, however , That in no event shall a person be concurrently an officer of two or more financial intermediaries performing quasi-banking functions, or an officer of a bank without quasi-banking functions and non-bank financial intermediary performing quasi-banking functions: Provided, further , That the foregoing prohibitions shall not apply to persons appointed to such positions as representatives of the Government or government-owned or controlled entities. (2) Directors or officers for this purpose shall be those as defined in Subsecs. 521.1 and 522.1; Provided , That a person holding the position of Chairman or Vice-Chairman of the board or another position shall not be considered as an officer unless the duties of his position include functions of management such as those ordinarily performed by regular officers; Provided, further , That members of a sub-body, group or committee, except those of sub-bodies, groups or committees, the functions of which are purely recommendatory or advisory, shall be subject to this Subsection as officers: and Provided, finally , That for purposes of the prohibition against interlocks among directors, a husband and his wife shall be considered as one person. (3) Incumbent directors and officers who as of January 18, 1978 are disqualified herein shall be allowed to serve until the end of their term of office or one year, whichever is shorter. [Circular 591 1-18-78 as amended by Circular 718 2-18-80] SECTION 522. Officers and Employees SUBSECTION 522.1 Definition of terms . Officers shall include the President, Vice President, General Manager, Secretary and others mentioned as officers of the non-bank financial intermediary performing quasi-banking functions, or whose duties as such are defined in the by-laws, or are generally known to be the officers of the financial intermediary (or of any of its branches/offices other than the head office) either thru announcement, representation, publication or any kind of communication made by the financial intermediary. SUBSECTION 522.2 Qualifications of an officer . An officer shall have the following minimum qualifications: (a) He shall be at least 21 years of age at the time of his appointment or election; and (b) He shall be at least a college graduate or have at least five (5) years creditable experience or training in financial management or related activities, or in a field related to his position and responsibilities. The foregoing qualifications shall be in addition to those already required by existing laws and other regulations. SUBSECTION 522.3 Disqualifications for officers Without prejudice to the specific provisions of law prescribing disqualifications for officers, the following persons are disqualified from becoming officers: (a) Persons who have been convicted of a crime involving moral turpitude; (b) Persons found by the Monetary Board to have wilfully failed or refused to comply with any law, regulation, order or instruction of the Monetary Board or the Governor; or to have committed irregularities; or to have conducted business in an unlawful, unsafe or unsound manner as determined by the Monetary Board in any institution supervised or regulated by the Central Bank; (c) Persons removed by the Monetary Board pursuant to the provisions of Section 34-A of Republic Act 265, as amended, and other provisions of law or regulations; (d) Persons who shall refuse to disclose the extent of their business interests to the Department of Financial Intermediaries (Non-Bank) when required for the proper implementation of a provision of law, or of a circular, rule, regulation or policy of the Central Bank; (e) Persons who have been dismissed for cause from any institution under the regulation or supervision of the Central Bank; (f) Persons who have derogatory information in PC, NBI, or NISA records or are not issued any clearance by said agencies. For purposes of this Subsection, an information is considered derogatory if it involves violation of any law, rule or regulation of the Government or any of its instrumentalities, and it adversely affects one's integrity or ability to discharge the duties of a director or officer; (g) Persons delinquent in the payment of their obligations: Provided , That such delinquency shall operate as a disqualification as long as the delinquency persists. (See Subsec. 521.1 for definition of delinquency ); and (h) Except as may be authorized by the Monetary Board or the Governor, any person who is a spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President, 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 financial intermediary; and any person who is the spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Manager, Cashier or Accountant of a branch, extension or agency office of a financial intermediary is disqualified from holding or being appointed to any of said positions in the same branch, extension, or agency office. In any case, this disqualification shall not affect those holding said positions as of July 11, 1975 until expiration of their respective terms of office. The foregoing qualifications shall be in addition to those already required by existing laws and other regulations. [Circular 644 12-27-78] SUBSECTION 522.31 Disqualification procedures . The disqualification procedures for directors stated in Subsec. 521.31 shall also be followed for officers. [CL 3-1-78] SUBSECTION 522.4 Interlocking officerships and directorates . The regulations on interlocking directors found in Subsec. 521.5 shall also govern interlocking officerships and directorates between banks and non-bank financial intermediaries. [Circular 591 1-18-78 as amended by Circular 718 2-18-80] SECTION 524. Internal Procedures SUBSECTION 524.1 Recording of transactions . Deposit substitutes shall be recorded in the books at their respective principal amounts, and reported accordingly, regardless of whether the interest thereon has been paid in advance or not. [CL 5-19-78] SUBSECTION 524.7 Internal control . As a guide to all non-bank financial intermediaries engaged in quasi-banking functions, particularly the smaller institutions, the Central Bank issued a set of minimum internal control standards as shown in 2.Appendix B. Relative thereto, the following records/data should be compiled and made available for the inspection of Central Bank examiners: LLphil (a) Records showing compliance with independent balancing procedures. These records should indicate the accounts and the periodic balancing procedures performed. (b) Statement 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 transactions with any firm, partnership or corporation organized for profit, of all the institution's directors, officers and major stockholders as defined under Subsec. 134.1 of Book I. [CL 9-16-77] APPENDIX A (Book V, Part 2) DOCUMENTARY REQUIREMENTS FOR THE EVALUATION OF THE INTEGRITY, EXPERIENCE AND EXPERTISE OF THE BOARD OF DIRECTORS AND THE MANAGERIAL STAFF OF NON-BANK FINANCIAL INTERMEDIARIES DESIRING TO ENGAGE IN QUASI-BANKING FUNCTIONS 1. Directors/Major Individual Stockholders Owning 10% or More of the Outstanding Voting Securities a. Statement of Financial Condition as of latest date under oath or certified by an independent CPA. Appropriate disclosures shall be made when necessary, specifically on encumbered assets and names of creditors; b. Income Tax Return for the preceding year; c. Tax Clearance for business purposes; and d. Information on integrity, credit standing and business experience from: (1) Banking institutions in Manila/locality where firm operates; (2) Banking institutions in places of residence and birth; and (3) Two (2) persons of good standing other than the present employer or relatives within the third degree of consanguinity or affinity. For stockholders, information on credit standing is sufficient. 2. Directors/Officers (Vice-President or equivalent rank). Clearance from the Criminal Investigation Service of the Philippine Constabulary. For non-bank financial intermediaries with Certificate of Authority already granted by the Central Bank, any new director/officer elected/appointed for the first time in subject entity shall submit the above-mentioned documents unless such have been previously filed with the Department of Financial intermediary (Non-Bank), Central Bank for not more than five years. A bio-data sheet (CBP-7-26-01.1) accomplished under oath shall be submitted by the directors and officers, reflecting data on relatives within the second degree of consanguinity or affinity who are holding officer positions in same entity/branch/extension office. Source: MB Res. 1355 dated 7-11-75 APPENDIX B (Book V, Part 2) MINIMUM INTERNAL CONTROL STANDARDS FOR NON-BANK FINANCIAL INTERMEDIARIES ENGAGED IN QUASI-BANKING FUNCTIONS I. Proper Accounting Records 1. All non-bank financial intermediaries engaged in quasi-banking functions should maintain proper and adequate accounting records. 2. These records should be kept currently posted and should contain sufficient detail so that an audit trail is established. 3. All entries should bear official approval and should be initialed by the person originating and another person checking them. II. Independent Balancing 1. Independent balancing shall mean that records posted by a person or cash held by a cashier shall be balanced or counted by another person. 2. The minimum independent balancing procedures which should be adopted are the following: a. Monthly reconcilement of general ledger balances against their respective subsidiary and supporting records and documentations by someone other than the bookkeeper, the person handling the records, or the person directly connected with processing the transactions. b. Irregular and unannounced count of cashier's cash and checks and other cash items at least twice a month by the auditor/control officer or by an officer not connected with the treasurer's/cashier's office or its equivalent. c. Monthly reconcilement of cash in banks accounts (domestic and foreign) and due from/to head office/branches by someone other than the check custodian, the person posting the general ledger entries or the authorized signatory of the bank account. d. Periodic verification of securities and collaterals by someone other than their custodians. Verification should include both the physical inventory of securities and the record checking. e. Periodic verification of the accuracy of the interest credits and payments to deposit substitute liabilities accounts. 3. All exceptions in the reconciliation/verification should be followed up immediately until satisfactorily corrected. III. Division of Duties and Responsibilities 1. The duties of all the officers and employees should be segregated, clearly defined, understood, documented and manualized if possible. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end. 2. The physical handling of a transaction should be separated from its recording and supervision as follows: a. A person handling cash should not be permitted to post the ledger records nor should posting of the general ledger be performed by an employee who post the investor's/creditor's subsidiary ledgers; b. A loaning officer should never be allowed to disburse proceeds of notes, accept note payment nor process loan ledgers; c. The functions of issuing, recording and signing of checks should be separated; d. The receipt of statements from depository bank should be assigned to an employee other than the one connected with the preparation, recording and signing of checks; e. Custodians of securities should not be allowed to handle security transactions. f. Collateral appraisals should be done by an employee/officer other than the ones approving the loans; g. Incoming checks and other cash items should be recorded chronologically in a register by an employee other than the bookkeeper; h. Credit reports should be obtained by someone other than lending officers; i. Mailing of client's statements and delinquent notices should be done by an employee other than the one who granted the loan or the one handling the records; and j. Paid checks/drafts should be controlled and maintained by an officer/employee other than the authorized signatory or the cashier. 3. Extensive background checking of persons intended to be assigned to handle cash and securities should be conducted. Frequent follow-up checking after their employment should also be made. IV. Joint Custody 1. Joint custody shall mean the processing of transactions in the presence of and under the direct observation of a second person. Both persons shall be equally accountable for the physical protection of the items and records involved. 2. Physical protection should be deemed established through the use of two locks or combinations on a file chest or vault compartment. 3. Two or more persons should be assigned to each half of the control so that operating efficiency is not impaired if one person is not immediately available. 4. Persons who are related to each other within the third degree of consanguinity or affinity should not be made joint custodians. 5. The following should be under joint custody: a. Cash on hand or in vault b. All accountable forms c. Collaterals d. Securities e. Documents of title and/or ownership of properties or fixed assets f. Safekeeping items g. Vault doors and safe combinations V. Signing Authorities 1. Signing authorities for the different levels of officers to sign for and in behalf of the institutions should be approved by the board of directors and the extent of each level of authority should be clearly defined. These signing authorities should include but need not be limited to the following: a. Lending b. Borrowing c. Investments d. Approval of expenses e. Various supervisory reports f. Checks VI. Dual Control 1. Dual control shall mean the work of one person is to be verified by a second person to determine (a) that proper authority has been given to handle the transaction, (b) that the transaction is properly recorded, and (c) that proper settlement of the transaction is made. 2. The routine of each transaction should be designed so that at least two or more individuals are involved in the completion of every transaction. 3. The following accounts/transactions should be under dual control: a. Checks The signature of at least two officers should be required in the issuance of checks. b. Borrowing The signature of at least two authorized officers should be required. c. All transactions giving rise to "due to" or "due from" account and all instruments of remittances evidencing these transactions particularly those involving substantial amounts, should be approved by two authorized officers. VII. Number Control 1. Sequence number controls should be incorporated in the accounting systems and should be used in registering notes, in issuing official checks and in other similar situations. Number control should be policed by a person designated by senior management who should be detached from the particular operations involved. 2. The following are the forms, instruments and accounts that should be number-controlled: a. Checks b. Promissory notes and other commercial papers c. Official and provisional receipts d. Certificate of stocks e. Loan accounts f. Expense vouchers VIII. Rotation of Duties 1. The duties of personnel handling cash, securities and bookkeeping records should be rotated. 2. Rotation assignment should be irregular, unannounced and long enough to permit disclosure of any irregularities or manipulations. IX. Independence of the Internal Auditor 1. The position of internal auditor should be provided for in the by-laws together with the duties and responsibilities, scope and objectives of internal auditing. 2. The internal auditor should report directly to the Board of Directors. 3. The internal auditor should not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. X. Direct Verification 1. Direct verification shall mean the confirmation of accounts or records by direct correspondence/visits with the institution's customers. 2. The following accounts among others, should be subject to direct verification by the internal auditing staff at least once a year: a. Balances of loans and credit accommodations of borrowers b. Outstanding balances of borrowings and other liabilities c. Outstanding balances of receivables/payables d. Collaterals securing said accounts. XI. Other Internal Control Standards 1. Investments a. Investment limits and a list of accredited companies as approved by the Board of Directors or by its Credit Committee should be established as a guide for investing in any financial institution engaged in money market trading. b. Investments should be secured assets approved by the Board of Directors or by its Credit Committee. c. Checks representing placements of investments should be released only upon receipt of either the deposit substitute instrument or the underlying securities or documents of title. 2. Miscellaneous a. Loan applications and related documents should be spot checked to insure their authenticity, including verification of name, residence, employment and current reputation of the borrowers. b. No employee should be permitted to process transaction affecting his own account. c. Cashiers and other employees having contact with customers should be prohibited from preparing deposit substitute tickets or other records for the customers. d. All non-bank financial intermediaries with quasi-banking functions should have a Sound Recruitment Policy since internal control begins from point of hiring. e. All non-bank financial intermediaries with quasi-banking functions should secure adequate insurance coverages, fidelity and other indemnity protection, viz: 1) Insurance coverage for losses arising from calamities and theft/robberies. 2) Fidelity bonds for losses arising from dishonest, fraudulent and criminal acts of accountable officers/employees. Source: Circular Letter dated 9-16-77 PART 3 Lending Operations SECTION 531. Loans in General . SUBSECTION 531.1 Single borrower limit . The total liabilities, real or contingent, of any person, company, corporation or firm, excluding the government and its instrumentalities or agencies, to a corporation performing quasi-banking functions, shall at no time exceed 100% of the combined capital accounts of the corporation performing quasi-banking functions. LexLib In the case of banking institutions performing quasi-banking functions, the provisions of Republic Act No. 337, as amended, and other pertinent Central Bank circulars with respect to the single borrower limit, shall govern. Corporations already engaging in quasi-banking functions on November 19, 1973, have until the maturity date of any outstanding liability which on November 19, 1973, exceeded the limitations of this Section, within which to comply with the limitations hereof. Any renewal or extension thereof shall comply with said limitations. [Circular 387 11-19-731 SUBSECTION 531.3 Interest, yield and other charges SUBSECTION 531.31 Interest/Yield (a) Interest on loan transactions (i) The effective rate of interest, excluding commissions, premiums, fees and other charges on loan transactions with maturities of seven hundred thirty (730) days or less, that may be charged or received by all banks or by non-bank financial intermediaries authorized to engage in quasi-banking functions shall not exceed sixteen per cent (16%) per annum for unsecured loans and fourteen per cent (14%) per annum for secured loans as defined by Section 2 of the Usury Law, as amended. The charges herein authorized to be collected exclusive of interest shall be governed by the provisions of Subsec. 531.32. (ii) The effective rate of interest, including commissions, premiums, fees and other charges, on loan transactions with maturities of more than seven hundred thirty (730) days, that may be charged or received by all banks or by non-bank financial intermediaries authorized to engage in quasi-banking functions shall not exceed twenty-one per cent (21%) per annum, for both unsecured and secured loans as defined by the Usury Law, as amended. (iii) Except as provided for in this Subsection and Subsec. 567.5, loans or renewals thereof shall continue to be governed by the Usury Law, as amended. (iv) The maximum interest/yield rate for interbank loan transactions between and among banks, between banks and non-bank financial intermediaries performing quasi-banking functions, and among non-bank financial intermediaries performing quasi-banking functions, is eighteen per cent (18% per annum, inclusive of commissions, premiums, fees and other charges. [Circular 732 5-5-80] (b) Yield on purchase of receivables (i) The effective rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations with remaining maturities of seven hundred thirty (730) days or less, that may be charged or received by all banks or by non-bank financial intermediaries authorized to engage in quasi-banking functions, shall not exceed eighteen per cent (18%) per annum. (ii) The effective rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations with remaining maturities of more than seven hundred thirty (730) days, that may be charged or received by all banks or by non-bank financial intermediaries authorized to engage in quasi-banking functions, shall not exceed twenty-one per cent (21%) per annum. [Circular 705 12-1-79 as amended by Circular 725 4-8-80] (c) Effective rate defined . For purposes of this Subsection, effective rate shall mean, the price paid for the use of money expressed as a percentage, on an annual basis, of the amount actually received. In case the principal is amortized, the rate shall be computed on the basis of the outstanding balance. The computation assumes that interest is paid at maturity, or at the end of one (1) year, if the maturity of the loan exceeds one (1) year. [Circular 705 12-1-79] (d) Computation . In the computation of interest on loans and other credit accommodations as mentioned in Subsec. 531.31, the number of days comprising a year shall be based on the following: (i) when the term is one (1) year or more, a year shall mean 365 days; and (ii) when the term is less than one (1) year, the interest or yield shall be computed on the basis of 360 days in a year. Examples and formulas for the computation of proceeds and discounts rates on loans at effective rates of 12 and 14 per cent per annum are embodied in V.3.Appendix E. [MABNBFI 12-29-78 effective 4-1-79 per MABNBFI 1-16-79] (e) Sanctions . Whenever any person or entity violates any of the provisions of Subsec. 531.3, the person or persons responsible for such violation shall be subject to the penalty prescribed in the first paragraph of Section 34 of Republic Act No. 265, as amended, and/or the penalty prescribed in Section 10 of Act No. 2655, as amended without prejudice to any action under the provisions of the second paragraph of Section 34 of Republic Act No. 265, as amended, and the imposition of administrative sanctions under Section 34-A of said Republic Act. [Circular 589 12-24-77] SUBSECTION 531.32 Other charges . Non-bank financial intermediaries authorized to engage in quasi-banking functions shall be allowed to collect charges including commissions, premiums, fees other than pure interest on loans with a maturity of seven hundred thirty (730) days or less on a per annum basis on the loan principal or outstanding balance thereof whichever is lower, not exceeding the following rates: Maximum Amount Rate per annum Not over P500,000 2.00% Over P500,000 but not over P1,000,000 1.75% Over P1,000,000 but not over P2,000,000 1.50% Over P2,000,000 but not over P3,000,000 1.25% Over P3,000,000 but not over P5,000,000 1.00% Over P5,000,000 .75% A minimum charge of P20.00 per annum may however be collected for loans below P1,000.00. No person or corporation shall require charges to be paid in advance for a period of more than one year. In the case of a credit line and other similar credit accommodations, the charges shall be computed on the amount of each availment. Charges under this Subsection shall include commissions, premiums, fees, such as commitment fees, and other similar charges, but it shall not include registration fees, mortgage redemption insurance, documentary and science taxes and such other expenses independently determinable and which do not accrue to the lending entity, its affiliates/subsidiaries, and other personnel. All banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of R.A. 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. Charges on loans with a maturity of more than seven hundred thirty (730) days shall be governed by Subsec. 531.31 (a) (ii). [Circular 504 2-6-76 as amended by Circular 727 4-8-80] SUBSECTION 531.4 Past due accounts . Past due accounts of non-bank financial intermediaries performing quasi-banking functions shall, as a general rule, refer to all accounts in its loan portfolio, all receivable components of trading accounts securities, and other receivables, as defined in the Manuals of Accounts for banks and non-bank financial intermediaries, which are not paid at maturity. SUBSECTION 531.41 Renewals/Extensions . Except as may be authorized by existing regulations on renewal, no loan shall be renewed or its maturity date extended unless the corresponding accrued interest receivable shall have been paid. SUBSECTION 531.42 Loans by type ; when past due The following shall be considered as past due: (a) A loan or receivable payable on demand not paid upon written demand as required in Subsec. 531.43 hereof or within one (1) year from date of grant or renewal, which ever comes earlier. (b) Bills purchased and other negotiable instruments not paid at maturity, or dishonored upon presentment for acceptance or payment, whichever comes earlier: Provided, however , That out-of-town checks lodged under "Bills Purchased (Domestic Bills Purchased Clean)" shall be considered past due thirty (30) days from purchase; (c) The total outstanding balance of a loan or receivable payable in installments, in accordance with the following schedules: Mode of Payment Installment in Arrears Monthly 10 or more Quarterly 4 or more Semestrally 3 or more Annually 2 or more (d) Any due and unpaid loan installment or portion thereof, from the time the obligor defaults, for the purpose of determining delinquency in the payment of obligations as defined in Subsec. 521.1; and (e) All items in litigation as defined in the Manuals of Accounts for banks and non-bank financial intermediaries. SUBSECTION 531.43 Written demand . Banks and non-bank financial intermediaries performing quasi-banking functions shall, in case of non-payment of a demand loan, make a written demand within six (6) months following the grant of such loan. The demand shall indicate a period of payment which shall not be later than six (6) months from date of said demand. SUBSECTION 531.44 Accrual of interest . No interest income shall be accrued on past due accounts. Interest on past due accounts shall be taken up as income only when actual payments thereon are received SUBSECTION 531.45 Reporting requirements . Banks and non-bank financial intermediaries performing quasi-banking functions shall report (CBP 7-26-13, see IV.2.Appendix C) the end-of-month level of their past due accounts and installments in arrears for less than the number indicated in Subsec. 531.42(c), and for those using the accrual basis of accounting, accrued interests thereon, subject to Subsec. 531.44. [Circular 645 12-27-78, MABNBFI-QBF 10-16-78 and 8-22-79] SUBSECTION 531.46 Allowance for doubtful accounts . A full 100% reserves shall be established on loss accounts and 50% on doubtful accounts. Non-bank financial intermediaries are not precluded from setting up reserves for other accounts. A statement of the criteria on policies adopted by an institution in establishing its reserves shall be furnished the Department of Financial Intermediaries (Non-Bank) on or before January 31, 1977. [CL 106-77] SUBSECTION 531.5 Minimum guidelines on lending operations a. Requirement of lending policies . Non-bank financial intermediaries with quasi-banking functions shall have well-defined lending policies which shall ensure that lending shall be upon terms which are in the best interest of the institution and in accordance with existing policy, rules and regulations of the Monetary Board. Such policies shall be in writing to form part of the institution's permanent records and shall be made available for inspection by the central Bank. b. Lending operations ; definition . Lending operations refer to any type of credit accommodations, purchase of receivables and commercial papers, including purchase of commercial papers in the secondary market. c. Credit worthiness of borrowers . Before extending credit in any form, the financial institution must exercise proper caution to ascertain that the debtors, co-makers, indorsers, sureties and/or guarantors are capable of fulfilling their commitments. For this purpose, credit investigations must be conducted and appropriate statements of assets and liabilities and of income and expenditures shall be required of credit applicants. d. Amounts, purpose and period of loan . Loans/credit accommodations shall be granted only in amounts and for periods necessary for the completion of the operations to be financed, and for purposes which are attuned to government economic policies. e. Documentation of loans . All loans/credit extensions shall be supported by evidences of indebtedness and/or loan agreements which shall contain, among others, a statement of the purpose of the loan and a program of repayment of the obligation. f. Credit files . Adequate credit files of borrowers shall be maintained which shall contain documents such as credit investigation reports, balance sheets, statements of assets and liabilities, income and expense statements, income tax returns, bank and trade checkings, and other documents/papers showing information which form the bases for the credit extension. g. Periodic review . A periodic review of the loan portfolio and the credit standing of borrowers shall be made. [MANBFIQBF 6-4-80] SUBSECTION 531.9 Miscellaneous provisions SUBSECTION 531.91 Transactions of financing companies . The following transactions which are peculiar to financing companies with quasi-banking functions which involve the financing of consumer durable goods and capital goods shall be governed by R.A. No. 5980: (a) Financing of receivables and other evidences of indebtedness through discounting, factoring, purchase or assignment; and (b) Leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. All other transactions of financing companies performing quasi-banking functions, such as the following: (a) Purchase of government securities for money market operations. (b) Purchase of commercial papers or private securities to accommodate temporary liquidity or for money market purposes; and (c) Purchase of government securities and private securities under resale agreements, certificates of assignment, and certificates of participation with recourse shall be governed by Subsec. 531.31 and the Usury Law, whichever is applicable. Financing companies which are not engaged in quasi-banking functions shall not be covered by the second and third paragraphs of Subsec. 567.5 and Subsec. 531.31. [CL 1-9-78] SECTION 534. Loans/Credit Accommodations to Directors, Officers and Stockholders . As a matter of policy, dealings of a non-bank financial intermediary engaged in quasi-banking functions, with any of its directors, officers, stockholders, or their relatives, or with any of its subsidiaries and affiliates, should be in the regular course of business and upon terms not less favorable to such non-bank financial intermediary than those offered to others. SUBSECTION 534.1 Definition of terms . For purposes of this section, the following definitions are hereby adopted, unless the context otherwise indicates: (a) Credit accommodations refer to transactions which include, but shall not be limited to, the grant or extension of a loan, discount, or advance, in any form whatsoever; the sale of assets, such as shares of stock, on credit; and the acquisition by discount, purchase or exchange or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which a person incurs a liability, whether real or contingent, to the non-bank financial intermediary performing quasi-banking functions. (b) Stockholder is a person, natural or juridical, owning 10% or more of the outstanding voting stock of a non-bank financial intermediary performing quasi-banking functions. (c) Director is a person who is a member of the governing board of a non-bank financial intermediary performing quasi-banking functions. (d) Officer is a person appointed or elected to discharge the functions of any of the positions defined as officer in the by-laws of a non-bank financial intermediary performing quasi-banking functions or appointed as member of any sub-body, group or committee whose functions are not purely advisory in nature, whether provided for in the by-laws or created by the governing board, or held out as such officer by said entity. (e) Relative is a person related to a stockholder, director or officer of a non-bank financial intermediary performing quasi-banking functions within the first degree of consanguinity or affinity or within the same degree by legal adoption, and includes, for purposes of these regulations, the spouse of such stockholder, director or officer. (f) Subsidiary is a corporation more than 50% of the outstanding voting stock of which is directly or indirectly owned, controlled, or held with power to vote by a non-bank financial intermediary performing quasi-banking functions. (g) Affiliate is an entity linked directly or indirectly to a non-bank financial intermediary performing quasi-banking functions by means of: (1) Ownership, control or power to vote, of 10% or more of the outstanding voting stock of the entity, or vice-versa; (2) Interlocking directorship or officership; (3) Common stockholders owning 10% or more of the outstanding voting stock of each of the financial intermediary and the entity; (4) Management contract or any arrangement granting power to the financial intermediary to direct or cause the direction of management and policies of the entity, or vice-versa; (5) Permanent proxy or voting trust in favor of the financial intermediary constituting 10% or more of the outstanding voting stock of the entity, or vice-versa. (h) Book value of the paid-in capital contribution shall be a proportional amount of the lending entity's combined capital accounts (net of such valuation reserves as may be required by the Central Bank/Securities and Exchange Commission) as the corresponding paid-in capital contribution of each stockholder concerned bears to total paid-in capital of the lending entity. SUBSECTION 534.3 Indirect credit accommodations . A director, officer, stockholder, subsidiary or affiliate of a non-bank financial intermediary performing quasi-banking functions or a relative of such director, officer or stockholder shall be considered a party to a credit accommodation if he or it is a party to the credit accommodation as the representative or agent of others, or if he or it acts as a guarantor, endorser or surety therefor. SUBSECTION 534.4 Individual/aggregate ceilings (a) Individual ceiling for directors, stockholders, or their relatives . The total outstanding liabilities, real and contingent, to a non-bank financial intermediary performing quasi-banking functions of any of its directors, stockholders, or their relatives shall not exceed an amount equivalent to the book value of the paid-in capital contributed by such director, or stockholder, or relative, plus the outstanding balance of his loans to and placements with the lending entity, if any. (b) Individual ceiling for subsidiaries or affiliates . The total outstanding liabilities, real and contingent, to a non-bank financial intermediary performing quasi-banking functions of any of its subsidiaries and affiliates, whether or not they are concurrently its stockholders, shall not exceed an amount equivalent to 50% of the combined capital accounts of the lending entity. (c) Aggregate ceiling for directors, stockholders and their relatives, relatives of officers, subsidiaries and affiliates : exclusions . The outstanding liabilities, real and contingent, to a non-bank financial intermediary performing quasi-banking functions of its directors, stockholders, subsidiaries and affiliates, and the relatives of its directors, officers and stockholders shall not exceed 100% of the combined capital accounts of the lending entity: Provided, however, That the following shall be excluded in determining compliance with the aggregate ceiling: (1) Credit accommodations to the extent secured by evidences of indebtedness of the Republic of the Philippines or of the Central Bank or by other evidences or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; (2) Credit accommodations to a corporation in which only one director or officer of the lender is a director or officer, for the sole purpose of protecting the credit exposure of the non-bank financial intermediary performing quasi-banking functions, or by reason of his expertise and professional management capabilities in the highly specialized or technical field of borrower's operations: Provided , That the representative of such non-bank financial intermediary shall not have any equity interest in the borrowing entity except the minimum shares required by law, rules and regulations, or the by-laws of the corporation to qualify a person as director: Provided, further , That the borrowing entity is not: (i) A corporation more than 15% of the subscribed capital stock of which is held or owned by any or a group of directors, officers, stockholders of the lending entity, and/or their spouses or relatives within the first degree of consanguinity or affinity, or relatives within the same degree by legal adoption; (ii) A corporation wholly or majority-owned or controlled by any or a group of the following entities: corporation mentioned under item (2) (i) and/or a partnership in which a director, officer, or stockholder of the lending entity (or his spouse or relative within the first degree of consanguinity or affinity, or relative within the same degree by legal adoption) is a general partner; (iii) A subsidiary, or an affiliate of the lender other than thru director/officer interlock; (3) Credit accommodations to a corporation in which a director or officer of the non-bank financial intermediary performing quasi-banking functions, or his spouse, is also a director or officer, the securities of which corporation are listed and traded in the big board or commercial and industrial board of domestic stock exchanges and not more than 50% of the subscribed capital thereof is owned by any one person or by persons related to each other within the third degree of consanguinity or affinity. [Circular 698 10-5-79] (4) Credit accommodations to a corporation engaged in a preferred area of investment and registered with the Board of Investments: Provided , That the exclusion shall be allowed for a period not exceeding five (5) years from the date of registration of the borrower; (5) Credit accommodations to a subsidiary or affiliate bank or non-bank financial intermediary performing quasi-banking functions the proceeds of which are used exclusively for liquidity or reserve purposes: Provided , That there is immediate notification to the appropriate department of the Central Bank: Provided, further , That the exclusion is subsequently confirmed by the Deputy Governor, in-charge of the supervision and examination sector of the Central Bank; and (6) Savings, time and demand deposits of the non-bank financial intermediary performing quasi-banking functions with a subsidiary or affiliate bank. [Circular 575 7-28-77 as amended by Circular 600 3-27-78] (d) Aggregate ceiling on credit accommodations to officers . The aggregate outstanding liabilities, real and contingent, to a non-bank financial intermediary performing quasi-banking functions, of its officers, extended under officers' fringe benefits plans for the purpose of house, car and appliance financing and meeting educational, medical, hospital, and other similar expenses shall not exceed 30% of the combined capital accounts of the lending entity: Provided, however , That officers, whether or not they are concurrently directors or stockholders, are absolutely prohibited from obtaining credit accommodations other than for the purposes above-mentioned: Provided, further , That non-bank financial intermediaries performing quasi-banking functions shall submit, for record purposes, copies of their officers' benefit plan to the Department of Financial Intermediaries (Non-Bank) of the Central Bank. (e) Application of single borrower limit . Notwithstanding the provisions of this Sub-section, credit accommodations of a non-bank financial intermediary performing quasi-banking functions to any one of its directors, officers, stockholders, their relatives or any one of its subsidiaries and affiliates shall not exceed the single borrower limit prescribed under Subsec. 531.1. SUBSECTION 534.5 Transitory provisions . Existing credit accommodations to directors, officers, stockholders, their relatives, subsidiaries and affiliates which at the time of the promulgation of this regulation exceed the ceilings prescribed under Subsec. 534.4 shall be allowed up to maturity in accordance with their respective contracts: Provided, however , That such credit accommodations maturing within three (3) years from July 28, 1977 may be renewed or extended to the same borrower, to the extent of 90% thereof. The term of subsequent renewals or extensions of a credit accommodation to the extent of 90% thereof to reduce the credit accommodation within the prescribed ceiling should not be beyond the said three (3) year period; Provided, further , That once reduced within the prescribed ceilings such credit accommodation shall not thereafter be increased beyond such ceilings. SUBSECTION 534.6 Other requirements (a) Approval of board of directors . Credit accommodations extended by a non-bank financial intermediary performing quasi-banking functions to any of its directors, stockholders, subsidiaries and affiliates and the relatives of such directors and stockholders shall be approved by the majority of the board of directors of the lending institution in a regular or special meeting excluding the directors concerned: Provided , That the approval shall be manifested in a resolution signed by the directors approving the credit accommodation: Provided, further , That the computation of the majority vote shall be based on the total number of directors provided for in the articles of incorporation and by-laws of the non-bank financial intermediary. (b) Collateral requirements . Credit accommodations of a non-bank financial intermediary performing quasi-banking functions to any of its directors, stockholders, subsidiaries and affiliates, and relatives of its directors, officers, and stockholders shall be fully secured by a mortgage on real estate or securities issued by the National Government, or by the Central Bank of the Philippines or securities issued by other government entities, including government-owned and controlled corporations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, or pledge of high grade securities other than those issued by the lender, its affiliates or subsidiaries: Provided, however, That the lender may accept collaterals other than those enumerated in this Section as security for credit accommodations to corporations whose only linkage with the lending entity is thru a single director/officer interlock for the sole purpose of protecting the credit exposure of the non-bank financial intermediary performing quasi-banking functions, or by reason of his expertise and professional management capabilities in the highly specialized or technical field of borrower's operations: Provided, further , That the representative of such non-bank financial intermediary shall not have any equity interest in the borrowing entity except the minimum shares required by law, rules and regulations, or by-laws of the corporation to qualify as director. [Circular 698 10-5-79] (c) Suspension of credit accommodation . No non-bank financial intermediary performing quasi-banking functions shall grant, renew or extend any credit accommodation to its directors, stockholders, subsidiaries and affiliates, and relatives of its directors, officers and stockholders, whenever its combined capital accounts is deficient relative to net assets held under Subsec 511.21, or whenever its paid-in capital is deficient relative to the required minimum capitalization. Neither shall it grant, renew or extend any credit accommodation to any of its directors, stockholders, subsidiaries and affiliates, and relatives of its directors, officers and stockholders, who have past due credit accommodations or arrearages of thirty (30) days or more with such non-bank financial intermediary. (d) Reporting requirements . All non-bank financial intermediaries performing quasi-banking functions shall submit to the Department of Financial Intermediaries (Non-Bank) within thirty (30) days from July 28, 1977, a list of all existing credit accommodations affected by this Section, indicating the type of accommodation, outstanding amount, terms and maturity of each credit accommodation. Thereafter, a monthly report of such credit accommodations shall be submitted in the prescribed format (See App. C, Book IV, Part 2) not later than fifteen (15) days from end of reference month. SUBSECTION 534.8 Credit accommodations to officers under the fringe benefit program . Credit accommodations extended by a non-bank financial intermediary performing quasi-banking functions to its officers under the fringe benefit plans for the purpose of house, car and appliance financing and meeting educational, medical, hospital and other similar expenses shall follow the prescribed ceiling and other requirements of Subsec. 534.4(d). [Circular 575 7-28-77] SECTION 535. Specific Types/Classes of Loans SUBSECTION 535.1 IGLF loans . Under the revised lending program of the Industrial Guarantee and Loan Fund (IGLF), eligible banks and non-bank financial intermediaries performing quasi-banking functions which qualify under the IGLF accreditation program (shown in 3.Appendix A) shall be solely responsible for the evaluation and approval of applications for IGLF financing. Availments by duly accredited banks and non-bank financial intermediaries of special time deposits and deposit substitutes under the IGLF Program shall be governed by the Rules and Regulations found in 3.Appendix B while the guidelines in granting IGLF loans to medium scale industries are found in 3.Appendix C. [MC 8-10-76, 10 25-76 and 10-28-77] APPENDIX A (Book V, Part 3) RULES AND REGULATIONS GOVERNING THE IMPLEMENTATION OF THE INDUSTRIAL GUARANTEE AND LOAN FUND ACCREDITATION SYSTEM To promote and further accelerate the development and dispersal of small (scale) sized industries under the revised lending program of the Industrial Guarantee and Loan Fund (IGLF), eligible commercial and thrift banks and non-bank financial intermediaries which qualify under the IGLF accreditation program shall be solely responsible for the evaluation and approval of applications for IGLF financing. A. General Procedure 1. Commercial and thrift banks and non-bank financial intermediaries may apply for accreditation with the Industrial Guarantee and Loan Fund (IGLF). 2. All applications for accreditation shall be in the prescribed form and shall be filed in quadruplicate with the Department of Loans and Credit, Central Bank. 3. As IGLF Administrator for NEDA, the Central Bank (Department of Loans and Credit) shall evaluate applications for accreditation in accordance with the criteria below. 4. The Central Bank's Department of Loans and Credit shall communicate to the applicant commercial bank, thrift bank or non-bank financial intermediary the action taken by the Governor/Senior Deputy Governor on its application for accreditation copy furnished NEDA. cdpr B. Accreditation Criteria 1. Commercial and Thrift Banks The accreditation criteria for participating banks under the IGLF scheme consist of compliance with the following requirements in addition to the Central Bank's normal criteria for credit availment: a. Minimum paid-in capital; b. Sound and efficient management and an adequate number of qualified staff to carry out the institution's normal business; c. Capability for satisfactorily appraising the technical, marketing and financial viability of small industry projects together with satisfactory systems and procedures for regularly following up on the progress of project implementation and operation; d. An overall level of arrearages (amounts over four months overdue) of no more than 15% of the total outstanding loans of the institution. In any financial year, actual collections would be no less than 70% of amounts overdue and amounts falling due in that financial year as applied to the IGLF loan portfolio only; e. Non-arrearages with the Central Bank/IGLF. 2. Non-Bank Financial Intermediaries a. A non-bank financial intermediary which has been issued a certificate of authority to engage in quasi-banking functions may participate in the IGLF Program, provided it has complied with the minimum paid-in capital requirement and with existing rules and regulations of the Central Bank, such as, but not limited to: (1) Submission of the required reports on time; (2) Matching requirements under Subsec. 531.3(b)(ii); (3) Reserve requirement against deposit substitute liabilities; (4) Capital-to-asset ratio. b. In addition, it must have complied with its letters of undertaking with the Central Bank, if any, as well as with the following requirements: (1) Sound and efficient management and an adequate number of qualified staff to carry out its normal business: (2) Capability for satisfactorily appraising the technical, marketing and financial viability of small industry projects together with satisfactory systems and procedures for regularly following up on the progress of project implementation and operation; (3) An overall level of arrearages (amounts over four months overdue) of no more than 15% of its total loans/receivables. In any financial year, actual collections would be no less than 70% of amounts overdue and amounts falling due in that financial year as applied to the IGLF loan portfolio only; (4) Non-arrearages with the Central Bank/IGLF. It is understood that a duly accredited bank/non-bank financial intermediary shall at all times meet the foregoing criteria. C. Guidelines for Loan Evaluation . The accredited sponsoring banks/non-bank financial intermediaries should follow all the policies, guidelines and procedures set by the IGLF in the evaluation and approval of loan applications. D. Release of Funds . Upon submission of the required documents and other papers by an accredited bank/non-bank financial intermediary, an initial 50% of the total amounts for approved project(s) shall be released in the form of Special Time Deposit for banks, and Deposit Substitute (Certificate of Assignment with Recourse) for non-bank financial intermediaries, by the Central Bank. The remaining 50% shall be released to the accredited bank/financial intermediary upon submission of evidence of disbursement of the initial funding to the borrowers, in accordance with the purposes for which the IGLF facility is secured. However, requests for releases by a duly accredited bank/non-bank financial intermediary may be held in temporary abeyance by the Central Bank in case of non-compliance with any of the foregoing criteria. This accommodation does not apply to straight guarantee scheme, which is subject to prior approval by the IGLF Review Committee. E. Post Audit . The Central Bank's Department of Loans and Credit shall undertake the post-audit (end-use verification survey) of IGLF-assisted projects on a periodic basis and submit the corresponding reports to the IGLF Review Committee. The sponsoring bank/non-bank financial intermediary shall see to it that the Special Time Deposit for banks, and Deposit Substitute for non-bank financial intermediaries, shall be used exclusively for the purposes for which the loan was granted. Loan diversion shall constitute sufficient cause for the automatic immediate withdrawal of the Special Time Deposit for banks, and Deposit Substitute for non-bank financial intermediaries, by the IGLF Review Committee. F. Limit on Loans . In order to comply with the objectives of industrial dispersal, it shall be required that during a 6-month period an accredited bank/non-bank financial intermediary shall channel to rural areas (outside Metro Manila), a minimum of 60% of the total amount of approved applications. (Source: Memorandum Circular to All Commercial and Thrift Banks and Non-Bank Financial Intermediaries dated 8-10-76) APPENDIX B (Book V, Part 3) RULES AND REGULATIONS GOVERNING THE AVAILMENT BY ACCREDITED BANKS AND NON-BANK FINANCIAL INTERMEDIARIES OF SPECIAL TIME DEPOSITS/DEPOSIT SUBSTITUTES UNDER THE IGLF PROGRAM A. Eligible Projects . Projects eligible for IGLF financing shall include: a) Projects of manufacturing industries enumerated in 3. Attachment 1, and b) Tourist inns outside Metro Manila Area with the required indorsement/certificate from the Department of Tourism: Provided , That the total assets of the prospective IGLF grantee shall not exceed P1 million as of the date of application. B. Purpose of Financing . The IGLF facility which should not exceed P500,000 may be utilized for any or a combination of the following purposes: a) Working capital requirements; b) Fixed assets costs, such as the acquisition of factory site, which shall be strictly on a case-by-case basis, building construction and improvements, purchase of machinery, equipment or spare parts and installation costs. C. Papers Required 1. The application of an accredited bank/non-bank financial intermediary for initial release (50% of amount approved) against an approved project shall be filed in duplicate with the Industrial Loans Division (IGLF Unit), Department of Loans and Credit, Central Bank, together with the following supporting papers: a) A certification that both the borrower-firm and the project being financed meet the eligibility requirements of IGLF and that the approved loan has been processed/evaluated in accordance with IGLF rules and regulations. b) Original and two (2) copies of Deed of Undertaking (assurance of Peso Payment/Deposit Substitute Utilization) duly accomplished and signed by an authorized officer of the financial institution. c) Original and three (3) copies of Guarantee Agreement, duly accomplished and signed by an authorized officer of the financing institution with its seal affixed thereto as indicated in the Agreement. (d) Borrower-firm's request for release of the approved IGLF facility duly endorsed by the applicant financing institution. (e) Whenever applicable, an insurance policy on the life of the proponent (single proprietor) in an amount equal to 60% of the approved loan, duly endorsed/assigned in favor of the CBP-IGLF. (This is required where the applicant is a single proprietorship and the approved loan is P100,000.00 or more). This old policy is amended so as to make the said insurance requirement optional rather than mandatory on the part of the borrower. f) Certification on non-arrearages with the DBP, PNB, GSIS and SSS on behalf of the following: For single proprietorship the proprietor Partnership the partnership and all partners Corporation the corporation, officers and directors The certifications may be issued by the agencies or may be in the form of a sworn statement executed by the aforementioned parties. g) Certificate of Time Deposit or Certificate of Assignment with Recourse corresponding to the amount release signed by authorized officer(s) of the financial institution. Separate certificates shall be submitted for the working capital and fixed asset portion of the approved loans. 2. The subsequent application of the accredited financial institution for the final release (balance of 50%) against an approved project shall be supported by the following: a) A duplicate of the borrower-firm's promissory note covering the initial release. b) A copy of the corresponding credit advice/memo or check stub evidencing release to the borrower-firm of the initial funding from IGLF. c) Certificate of Time Deposit or Certificate of Assignment with Recourse covering the final release of the 50% balance signed by authorized officer(s) of the financial institution. 3. Under the sponsorship scheme for rural banks: Eligible rural banks shall continue to file applications for IGLF STDs in the prescribed forms, with the National Economic and Development Authority (NEDA), in quadruplicate. Other supporting papers shall be submitted as indicated in the notice of approval of the application for IGLF facility. Applications may no longer be submitted through a consortium of rural banks. The minimum STD loan that a rural bank may extend to a single borrower shall be P20,000. prcd D. Criteria for Project Evaluation . The criteria in the evaluation of projects shall be as follows: 1. Project feasibility it must be economically, technically and financially feasible. 2. Foreign exchange earnings/savings It should contribute to the reduction of trade imbalance through the manufacture of export products and the utilization of indigenous raw materials. 3. Regional dispersal Priority shall be given to industries located outside Metro Manila. Only expansion and new export-oriented projects within the Metro Manila Area will qualify. 4. Employment generation Priority shall be given to projects which are labor-intensive. 5. Equitable distribution of income To spread the benefits of IGLF financing to as broad a base as possible, the prospective IGLF grantee shall not be shareholder of another IGLF beneficiary firm(s). Where the project is a spin-off or subsidiary of another firm(s), the combined assets should not exceed P1 million. 6. Compliance with existing requirements of other government agencies, e.g., pollution control. The prospective borrower shall have complied with all the requirements in connection with the project to be financed. E. Debt-Equity Requirement . The maximum amount of financing that may be extended shall not exceed 80% of the total long-term debt (inclusive of the amount applied for) and equity of the applicant-firm such that the resulting debt-equity ratio would be 80:20. F. Maturity Period . The Special Time Deposits/Deposit Substitutes shall have maturities not exceeding three (3) years for working capital and ten (10) years for fixed assets. For new projects, STD/DS loans for working capital and fixed assets shall have a grace period of one (1) year and two (2) years, respectively, in payment of principal amortization inclusive of the approved term. G. Interest Rate . IGLF Special Time Deposits/Deposit Substitutes in favor of financial institutions shall be assessed interest at seven per cent (7%) per annum with a maximum spread of five per cent (5%) per annum, such that the interest which shall be charged by the lending bank for IGLF loans to its borrowers shall not exceed twelve per cent (12%) per annum and shall not be discounted. H. Guarantee Coverage 1. All IGLF Special Time Deposits/Deposit Substitutes availed of shall be covered by an automatic 60% guarantee for which a guarantee fee of 2% per annum shall be assessed, in addition to interest. The guarantee fee shall be equal to 2% of 60% of the outstanding balance, per annum, payment of which shall follow the schedule of payments on principal and interest. The financial institutions may pass on to its borrowers the 2% guarantee fee. 2. Straight guarantee of industrial loans for projects eligible under the IGLF program may be allowed up to a maximum of 80%, subject to approval by the IGLF Review Committee. The guarantee fee shall be equal to 2% of the approved guarantee coverage. I. Amortization Payments . Accredited financial institutions/eligible rural banks shall submit a schedule of equal amortization payments (principal and interest) computed on a quarterly basis. J. Releases on Approved IGLF Facility . All amounts released to accredited financial institutions/eligible rural banks shall immediately be released to the project proponent and no part thereof shall be retained in the form of deposits/compensating balances. Special Time Deposits approved in favor of eligible rural banks (under the sponsorship scheme) shall be effected upon the request of the financial institutions and submission of all the required documents as indicated in the letter of advice. Failure to submit these documents within one hundred twenty (120) days from receipt of such advice shall be sufficient cause for reversion of the approved amount to the uncommitted resources of the IGLF. K. Service Charges . The maximum charges, including commissions, premiums and services fees other than interests and guarantee fees, regulation fees, mortgage redemption insurance, documentary and science taxes and similar expenses that financial institutions may collect on loans granted under the Program shall be as follows: a) Charges on the loan principal which shall be collected only once and only upon the full releases of the loan shall not exceed the following rates: Over P250,000 1-1/2% P250,000 and below 1% b) On the second year and every year thereafter, and for as long as the loan or any portion thereof remains unpaid, a service fee on the outstanding balance may likewise be collected in accordance with the following schedules: Over P250,000 P200.00 Over P100,000 to P250,000 P100.00 P100,000 and below P50.00 L. Default in Amortization Payments . A financial institution is considered in default upon failure to pay the amortization on its IGLF special time deposits/deposit substitutes as they fall due. llcd In case of default, its demand deposit account with the Central Bank and/or its duly designated depository bank shall be debited for the equivalent amount in default, plus the corresponding interests and guarantee fees due thereon: Provided , That such debit shall not result in overdrawings; otherwise, the financial institution binds itself to remit directly to the Central Bank the total amount due. Failure to remit the amortization(s) due within a specified period may temporarily disqualify the financial institution from availing itself of the privilege of access to the rediscounting facilities of the Central Bank subject to approval of the Monetary Board and/or participating in the IGLF Program. M. Violations by the Financial Institution/IGLF Grantee . Any violation or infraction of these regulations, including loan diversion and misrepresentation in the application, will serve as sufficient basis for the recall of the special time deposit/deposit substitutes within thirty (30) days from receipt of notice and/or to the imposition of administrative sanctions as provided for under existing laws, rules and regulations insofar as these are applicable. N. Supplementary Rules . The Central Bank may from time to time issue additional rules and regulations to supplement, complement or amend rules and regulations as may be initiated by the National Economic and Development Authority. O. Effectivity . These rules and regulations shall take effect immediately. [Source: Memorandum Circular to All Commercial, Thrift Banks and Non-Bank Financial Intermediaries and Rural Banks dated 10-25-76, as amended by Memorandum Circular to All Commercial, Thrift Banks and Non-Bank Financial Intermediaries and Rural Banks dated 10-28-77] ATTACHMENT B-1 (Book V, Part 3) LIST OF POTENTIAL SMALL INDUSTRIES FOR IGLF FINANCING Food Products 1. Processed meat and seafoods including canned or packaged, dehydrated 2. Processed fruits and vegetables including juices, canned, dehydrated 3. Coffee, processed 4. Spices such as processed ginger, pepper, onion, garlic 5. Cereal preparations 6. Starches 7. Processed seaweeds 8. Sauces and salad dressings 9. Processed cheese 10. Confectionery 11. Cocoa and cocoa preparations such as cocoa butter 12. Chocolate and chocolate preparations 13. Noodles 14. Catsup 15. Baking powder 16. Peanut butter 17. Coco products 18. Fruits and flower wine 19. Castor oil Wood Products 1. Parquet tiles 2. Mouldings 3. Doors and fixtures 4. Shelves and cabinets 5. Caskets 6. Carvings and lattice works 7. Pallets 8. Bamboo products 9. Sandals and shoes 10. Gun stocks 11. Furniture, complete or knocked down parts 12. Toys and sporting goods 13. Household utensils of wood Paper Products 1. Boxes and packaging materials 2. Carbon paper including diazo paper, electrostatic copy papers 3. Pulp from indigenous raw materials Fiber Products 1. Coconut coir 2. Carpets and rugs 3. Cordage, twines, rope, fishing nets, abaca and synthetic Processed Rubber Products 1. Adhesives 2. Rubber latex 3. Crumb rubber 4. Camel back 5. Gums 6. Rubber tiles 7. Tubes and hoses 8. Rubber gloves 9. Rubber tires and inner tubes 10. Curing tube and sectional air bag 11. Rubber automotive parts such as vibration dampers caps; weather strips, handles and pedals, carpet underlay made of rubber 12. Rubber toys and sporting goods 13. Rubber belts Chemicals and Chemical Products 1. Almaciga resin (processed) 2. Silica gel 3. Iron oxide 4. Enzymes (from substantially domestic sources) 5. Glazing putty 6. Ink 7. Cosmetics, perfumery 8. Wax and wax products 9. Glues 10. Photographic chemicals 11. Mosquito coils 12. Modified hard resins LLpr 13. Chemical solvents 14. Charcoal 15. Refined glycerine 16. Alcohol 17. Blowing agents from rubber and plastic compound 18. Essential oils 19. Disposable hypodermic needle and syringe 20. Fiber-tipped pens 21. Chemical gypsum 22. Organic fertilizer Pharmaceutical Products 1. Pharmaceuticals 2. Wadding, gauze, bandages, adhesives, similar articles 3. Dentures and fillings Textile Products 1. Fabrics of abaca, sinamay, burlap, jusi, pineapple and other bast fibers 2. Specialty garments such as laces, garters, band, towels 3. Embroideries 4. Non-woven fabrics and articles thereof 5. Other made-up articles of textiles, plastic, rubber and leather 6. Garments (at least 70% of production must be exported) only for Mindanao 7. Tablecloths 8. Mosquito nets 9. Processed abaca fiber Non-Metallic Products 1. Marble slabs, tile chips and curios 2. Cement additives 3. Asphalt batching 4. Reinforced fiber glass products 5. Processed marble blocks 6. Cement floor tiles 7. Asbestos tiles 8. Pipes and tubes, asbestos cement 9. Roofing tiles and fire bricks 10. Clay products such as pottery roofing tiled and paste frits 11. Ceramic products such as tiles (glazed, vitrified), sanitary ware sinks, bidets, etc., except dinnerware 12. Safety glass 13. Asbestos fibers 14. Coal, limestone, clay, marble 15. Silicon metal 16. Silicon carbide 17. Hollow blocks Metallic Products 1. Pyrite (roasted and unroasted) 2. Pyrite cinders on iron sulfite 3. Manganese concentrates 4. Silver concentrates and bars 5. Prefabricated and fabricated structural products made of iron and steel and cement and other materials (except ordinary hollow blocks) 6. Steel drums 7. Pails 8. Bolts and nuts 9. Household utensils made of metal including enamelled utensils 10. Kitchen appliances and tools hand-operated such as meat grinders, coconut graters 11. Cutlery such as scissors, blades, tailor's shears, shovels, spades, rakes, saws, knives 12. Razor blades 13. Building hardware such as hinges, door knobs, door bolts and window rotor-operators 14. Safes (e.g. record safes and tapeguards) 15. Strong boxes, armored and reinforced strong room doors and compartments and fittings (e.g. insulated filing cabinets) 16. Filing cabinets, racks, sorting boxes, paper trays, paper rests and similar office equipment of base metal 17. Gas lamps 18. Metallic closures and screw caps 19. Toys and sporting goods 20. Flatware 21. Locks 22. Buckles and metal plated accessories Machinery and Equipment and Parts 1. Parts of trucks, passenger trucks, automobiles and other commercial vehicles 2. Rice mill parts 3. Tractor parts 4. Bicycles and parts 5. Loom reeds 6. Grain dryers 7. Palay thresher (power operated) 8. Disc plows, disc harrows and roto tillers cdtech 9. Sewing machines and parts Electrical Machinery Equipment and Parts 1. Formed aluminum parts such as door shelves, food shelves and/or parts thereof 2. Welding electrodes 3. Motor control center 4. Hermetic compressors 5. Evaporators 6. Condensers and heat exchangers 7. Fire alarm systems 8. Fluorescent and mercury lamp ballasts 9. Storage batteries 10. Electrical and electronic machinery, equipment, apparatus, parts, components 11. Bus ducts 12. Light dimmers 13. Graphite electrodes 14. Magnetic starters 15. Flashlights 16. Ignition coils 17. Transceivers 18. Electrical tape 19. Film capacitors Transport Equipment and Parts 1. Motor vehicle transmission 2. Automotive propeller shafts 3. Automotive clutches 4. Camshafts for engines 5. Electric motors for automotive use 6. Motorcycle parts Other Products 1. Animal feeds (outside Metro Manila) 2. Garment hangers of wood, plastic or metal 3. Plastic products such as light diffusers, footwear, containers, sheets, raincoats, packaging materials, brushes, brooms, gloves, toothbrushes, toys and sporting goods, optical frames 4. Tanned leather 5. Leather products such as purses, wallets, belts, straps, gloves, footwear 6. Handicrafts such as lampshades, placemats, shellcraft, hats, household utensils, toys and sporting goods 7. Umbrellas 8. Jewelry (except precious stones) 9. Pins 10. Clasps, hooks, eyes, buckles, etc. of base metal 11. Musical instruments and parts 12. Buttons 13. Zippers 14. School and office supplies such as fasteners, pencils, folders, paper clips, pens and holders, bookbinders, rulers, desk pieces, etc. 15. Wastes recycling 16. Threads of cotton or synthetic fiber 17. Cufflinks 18. Plaques and trophies [Source: Memorandum Circular To Commercial, Thrift Banks and Non-Bank Financial Intermediaries and Rural Banks dated 10-25-76] APPENDIX C (Book V, Part 3) GUIDELINES IN GRANTING IGLF LOANS TO MEDIUM SCALE INDUSTRIES All duly accredited commercial and thrift banks and non-bank financial intermediaries may grant IGLF loans to medium scale industries not exceeding P500,000. The total amount of loans an institution can grant to medium scale industries shall not, however, exceed the total IGLF loans granted to small scale industries in the preceding twelve (12)-month period. A. Eligible Projects . Projects eligible for financing shall include non-traditional export manufacturing industries as defined by the BOI and CB's Export Department: Provided , That: 1. Total assets must not exceed P4 million as of the date of application; 2. New projects located within the Metro Manila Area must comply with the requirements of the National Pollution Control Commission (NPCC); 3. The project is a labor-intensive enterprise that employs at a ratio of one (1) worker for every thirty thousand (P30,000) pesos or less of its total asset. B. Purpose of Financing . The IGLF facility which should not exceed P500,000 may be utilized for any or a combination of the following purposes: 1. Working capital requirements; and 2. Fixed assets costs, such as the acquisition of factory site, which shall be strictly on a case-by-case basis, building construction and improvements, purchase of machinery, equipment or spare parts and installation costs. C. Papers Required 1. The application (CB-DLC-IGLF Form Nos. 1-A, 1-B and 2-A) of an accredited bank/non-bank financial intermediary for initial release (50% of amount approved) against an approved project shall be filed in duplicate with the Industrial Loans Division (IGLF Unit), Department of Loans and Credit, Central Bank, together with the following supporting papers: prLL a. A certification that both the borrower-firm and the project being financed meet the eligibility requirements of IGLF and that the approved loan have been processed/evaluated in accordance with IGLF rules and regulations; b. Original and two (2) copies of Deed of Undertaking (assurance of Peso Payment/Deposit Substitute Utilization) duly accomplished and signed by an authorized officer of the financial institution (CBP-DLC-IGLF Form Nos. 3-A and 3-B); c. Original and three (3) copies of Guarantee Agreement (CB-DLC-IGLF Form No. 4) duly accomplished and signed by an authorized officer of the financing institution with its seal affixed thereto as indicated in the Agreement; d. Borrower-firm's request for release of the approved IGLF facility duly endorsed by the applicant financing institution; e. Certification on non-arrearages with the DBP, PNB, GSIS and SSS on behalf of the following: For single proprietorship the proprietor Partnership the partnership and all partners Corporation the corporation, officers and directors The certification may be issued by the agencies or may be in the form of a sworn statement executed by the aforementioned parties; and f. Certificate of Time Deposit or Certificate of Assignment with Recourse corresponding to the amount released signed by authorized officer(s) of the financial institution. Separate certificates shall be submitted for the working capital and fixed asset portion of the approved plan. 2. The subsequent application (CB-DLC-IGLF Form No. 2-B) of the accredited financial institution for the final release (balance of 50%) against an approved project shall be supported by the following: a. A duplicate of the borrower-firm's promissory note covering the initial release; b. A copy of the corresponding credit advice/memo or check stub evidencing release to the borrower-firm of the initial funding from IGLF; and c. Certificate of Time Deposit or Certificate of Assignment with Recourse covering the final release of the 50% balance signed by authorized officer(s) of the financial institution. D. Criteria for Project Evaluation . The criteria in the evaluation of projects shall be as follows: 1. Project feasibility It must be economically, technically and financially feasible; 2. Foreign exchange earnings/savings it should contribute to the reduction of trade imbalance through the manufacture of export products and the utilization of indigenous raw materials; 3. Regional dispersal Priority shall be given to industries located outside Metro Manila; 4. Projects must be labor intensive with a minimum capital/labor ratio of P30,000; 5. Equitable distribution of income To spread the benefits of IGLF financing to as broad a base as possible, the prospective IGLF grantee shall not be a shareholder of another IGLF beneficiary firm(s). Where the project is a spin-off or subsidiary of another firm(s), the combined assets should not exceed P4 million; and 6. Compliance with existing requirements of other government agencies, e.g., pollution control. The prospective borrower shall have complied with all the requirements in connection with the project to be financed. E. Debt-Equity Requirement . The maximum amount of financing that may be extended shall not exceed 80% of the total long-term debt (inclusive of the amount applied for) and equity of the applicant-firm such that the resulting debt-equity ratio would be 80:20. F. Maturity Period . The Special Time Deposit/Deposit Substitute shall have maturities not exceeding three (3) years for working capital and ten (10) years for fixed assets. STD loans for working capital and fixed assets shall have a grace period of one (1) year and two (2) years, respectively, in payment of principal amortization inclusive of the approved term. G. Interest Rate . IGLF Special Time Deposits/Deposit Substitutes in favor of financial institutions shall be assessed interest at seven per cent (7%) per annum with a maximum spread of five per cent (5%) per annum, such that the interest which shall be charged by the lending bank for IGLF loans to its borrowers shall not exceed twelve per cent (12%) per annum. Discounting of interest is not allowed. aisadc H. Guarantee Coverage 1. All IGLF Special Time Deposits/Deposit Substitutes availed of shall be covered by an automatic 60% guarantee for which a guarantee fee of 2% per annum shall be assessed, in addition to interest. The guarantee fee shall be equal to 2% of 60% of the outstanding balance, per annum, payment of which shall follow the schedule of payments on principal and interest. The financial institutions may pass on to its borrowers the 2% guarantee fee; 2. Straight guarantee of industrial loans for projects eligible under the IGLF program may be allowed up to a maximum of 80%, subject to approval by the IGLF Review Committee. The guarantee fee shall be equal to 2% of the approved guarantee coverage. I. Amortization Payments . Accredited financial institutions shall submit a schedule of equal amortization payments (principal and interest) computed on a quarterly basis. J. Releases on Approved IGLF Facility . All amounts released to accredited financial institutions shall immediately be released to the project proponent and no part thereof shall be retained in the form of deposits/compensating balances. K. Service Charges . The maximum charges, including commissions, premiums and service fees other than interests and guarantee fees, regulation fees, mortgage redemption insurance, documentary and science taxes and similar expenses that financial institutions may collect on loans granted under the Program shall be as follows: a. Charges on the loan principal which shall be collected only once and only upon the full releases of the loan shall not exceed the following rates: Over P250,000 1-% P250,000 and below 1% b. On the second year and every year thereafter, and for as long as the loan of any portion thereof remains unpaid, a service fee on the outstanding balance may likewise be collected in accordance with the following schedules: Over P250,000 P200.00 Over P100,000 to P250,000 P100.00 P100,000 and below 50.00 L. Default in Amortization/Payments . A financial institution is considered in default upon failure to pay the amortization on its IGLF special time deposits/deposit substitutes as they fall due. In case of default, its demand deposit account with the Central Bank and/or its duly designated depository bank shall be debited for the equivalent amount in default, plus the corresponding interests and guarantee fees due thereon: Provided , That such debit shall not result in overdrawings; otherwise, the financial institution binds itself to remit directly to the Central Bank the total amount due. Failure to remit the amortization(s) due within a specified period may temporarily disqualify the financial institutions from availing itself of the privilege of access to the rediscounting facilities of the Central Bank subject to approval of the Monetary Board and/or participating in the IGLF Program. M. Violations by the Financial Institution/IGLF Grantee . Any violation or infraction of these regulations, including loan diversion and misrepresentation in the application, will serve as sufficient basis for the recall of the special time deposit/deposit substitutes within thirty (30) days from receipt of notice and/or to the imposition of administrative sanctions as provided for under existing laws, rules and regulations insofar as these are applicable. N. Supplementary Rules . The Central Bank may from time to time issue additional rules and regulations to supplement, complement or amend rules and regulations as may be initiated by the National Economic and Development Authority. O. Effectivity . These rules and regulations shall take effect immediately. [Source: Memorandum Circular to All Commercial and Thrift Banks and Non-Bank Financial Intermediaries dated 10-28-77] APPENDIX D (Book V, Part 3) INTEREST RATE AND YIELD CEILINGS ON LOANS AND PURCHASE OF INSTRUMENTS BY BANKS AND NON-BANK FINANCIAL INTERMEDIARIES ON TRANSACTIONS ENTERED INTO PRIOR TO JANUARY 1, 1978 1. The maximum rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations with remaining maturity of seven hundred thirty (730) days or less, that may be charged or received by a banking institution authorized to engage in quasi-banking functions, shall be seventeen per cent (17%) per annum. 2. The maximum rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations with a remaining maturity of seven hundred thirty (730) days or less, that may be charged or received by a non-bank financial intermediary authorized to engage in quasi-banking functions, shall be seventeen per cent (17%) per annum. 3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with a maturity of more than seven hundred thirty (730) days by banking institutions, including thrift banks and rural banks, or by financial intermediaries authorized to engage in quasi-banking functions, shall be nineteen per cent (19%) per annum. 4. There shall be no ceiling on the yield from the purchase of receivables and other obligations with a remaining maturity of more than seven hundred thirty (730) days by banking institutions, including thrift banks and rural banks, or by financial intermediaries authorized to engage in quasi-banking functions. 5. Except as provided herein, loans and renewals thereof shall be governed by the Usury Law. [Source: Circular 494 dated 1-2-76] APPENDIX E (Book V, Part 3) COMPUTATION OR PROCEEDS/DISCOUNT RATES OF A LOAN FOR DIFFERENT PERIODS AT THE EFFECTIVE RATES OF 12 AND 14 PERCENT BASIS: 365-DAY YEAR A. FORMULA: (For the computation of B. FORMULA: (For the computation of d, proceeds of a loan): discount rate): L L - P P = d = x 100 n n I + ( i ) L () 365 365 Where P Proceeds of the loan L Face Value of the loan i Effective rate of interest n Term in days EXAMPLE I A loan of P1,000 discounted at an effective rate of interest of 12% per annum. cdll A. PROCEEDS B. DISCOUNT RATE P1,000 P1,000 - P892.86 n = 365 days P = = P892.86 d = x 100 = 10.714% 365 365 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P894.17 n = 360 days P = = P894.17 d = x 100 = 10.730% 360 360 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P918.47 n = 270 days P = = P918.47 d = x 100 = 11.022% 270 270 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P926.87 n = 240 days P = = P926.87 d = x 100 = 11.122% 240 240 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P935.42 n = 210 days P = = P935.42 d = x 100 = 11.225% 210 210 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P944.13 n = 180 days P = = P944.13 d = x 100 = 11.329% 180 180 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P953.00 n = 150 days P = = P953.00 d = x 100 = 11.437% 150 150 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P962.05 n = 120 days P = = P962.05 d = x 100 = 11.543% 120 120 1 + (.12) P1,000 ( ) 365 365 P1,000 P1,000 - P971.26 n = 90 days P = = P971.26 d = x 100 = 11.655% 90 90 1 + (.12) P1,000 ( ) 365 365 EXAMPLE II A loan of P1,000 discounted at an effective rate of interest of 14% per annum. A. Proceeds B. Discount Rate P1,000 P1,000 - P877.19 n = 360 days P = = P877.19 d = x 100 = 12.281% 360 360 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P904.98 n = 270 days P = = P904.98 d = x 100 = 12.669% 270 270 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P914.64 n = 240 days P = = P914.64 d = x 100 = 12.804% 240 240 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P924.50 n = 210 days P = = P924.50 d = x 100 = 12.943% 210 210 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P934.58 n = 180 days P = = P934.58 d = x 100 = 13.084% 180 180 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P944.88 n = 150 days P = = P944.88 d = x 100 = 13.229% 150 150 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P955.41 n = 120 days P = = P955.41 d = x 100 = 13.377% 120 120 1 + (.14) P1,000 ( ) 360 360 P1,000 P1,000 - P966.18 n = 90 days P = = P966.18 d = x 100 = 13.528% 90 90 1 + (.14) P1,000 ( ) 360 360 APPENDIX E CASE I. If a loan of P1,000 with a term of 360 days is discounted and it is to be paid in equal quarterly installments, the proceeds can be computed as follows if the effective rate is 12%: P = 250 250 250 250 + + + = P929.28 1 + (.12) 1/4 [1 + (.12) 1/4]2 [1 + (.12) 1/4]3 [1 + (.12) 1/4]4 Therefore d = 1,000 - 929.28 x 100 = 7.072% 1,000 (360/360) and P = 1,000 7.072 360) = P929.28 (1 - x 100 360 To check the results of the above computations: Outstanding Installment Payments to cover Principal Interest Principal Q1 929.28 27.88 222.12 Q2 707.16 21.21 228.79 Q3 478.37 14.35 235.65 Q4 242.72 7.28 242.72 CASE II. If the loan is to be paid in equal monthly installments, the proceeds for the loan are computed as follows if the effective rate is 12%: P = 1,000/12 1,000/12 1,000/12 x + = P937.92 1 + (.12) 1/12 [1 + (.12) 1/12] 2 [1 + (.12) 1/12] 12 Therefore d = 1,000 - 937.92 x 100 = 6.208% 1,000 (360/360) also P = 1,000 6.208 360) = P937.92 (1 - x 100 360 COMPUTATION OF PROCEEDS/DISCOUNT RATES OF A LOAN FOR DIFFERENT PERIODS AT THE EFFECTIVE RATES OF 12 AND 14 PERCENT BASIS: 360 DAY YEAR A. FORMULA: (For the computation of B. FORMULA: (For the computation proceeds of loan): of d, discount rate): P = L d = L - P x 100 1 + ( i ) n/360 L (n/360) Where P - Proceeds of the loan L - Face Value of the loan i - Effective rate of interest n - Term in days EXAMPLE I A loan of P1,000 discounted at an effective rate of interest of 12% to per annum. cdta A. Proceeds B. Discount Rate P1,000 P1,000 - P892.86 n = 360 days P = = P892.86 d = x 100 = 10.714% 360 360 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P917.43 n = 270 days P = = P917.43 d = x 100 = 11.009% 270 270 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P925.93 n = 240 days P = = P925.93 d = x 100 = 11.110% 240 240 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P934.58 n = 210 days P = = P934.58 d = x 100 = 11.215% 210 210 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P943.40 n = 180 days P = = P943.40 d = x 100 = 11.320% 180 180 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P952.38 n = 150 days P = = P952.38 d = x 100 = 11.429% 150 150 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P961.54 n = 120 days P = = P961.54 d = x 100 = 11.538% 120 120 1 + (.12) P1,000 () 360 360 P1,000 P1,000 - P970.87 n = 90 days P = = P970.87 d = x 100 = 11.652% 90 90 1 + (.12) P1,000 () 360 360 EXAMPLE II A loan of P1,000 discounted at an effective rate of interest of 14% per annum. A. Proceeds B. Discount Rate P1,000 P1,000 - P877.19 n = 365 days P = = P877.19 d = x 100 = 12.281% 365 365 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P878.67 n = 360 days P = = P878.67 d = x 100 = 12.302% 360 360 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P906.16 n = 270 days P = = P906.16 d = x 100 = 12.686% 270 270 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P915.71 n = 240 days P = = P915.71 d = x 100 = 12.819% 240 240 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P925.46 n = 210 days P = = P925.46 d = x 100 = 12.956% 210 210 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P935.42 n = 180 days P = = P935.42 d = x 100 = 13.095% 180 180 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P945.60 n = 150 days P = = P945.60 d = x 100 = 13.237% 150 150 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P956.00 n = 120 days P = = P956.00 d = x 100 = 13.383% 120 120 1 + (.14) P1,000 () 365 365 P1,000 P1,000 - P966.63 n = 90 days P = = P966.63 d = x 100 = 13.533% 90 90 1 + (.14) P1,000 () 365 365 CASE I. If a loan of P1,000 with a term of 360 days is discounted and it is to be paid in equal quarterly installments, the proceeds can be computed as follows if the effective rate is 14%: LibLex P = 250 250 250 250 + + + = P929.28 1 + (.14) 1/4 [1 + (.14) 1/4] 2 [1 + (.14) 1/4] 3 [1 + (.14) 1/4] 4 Therefore d = 1,000 - 918.27 x 100 = 8.173% 1,000 (360/360) and P = 1,000 8.173 360) = P918.27 (1 - x 100 360 To check the results of the above computations: Outstanding Installment Payments to cover Principal Interest Principal Q1 918.27 32.14 217.86 Q2 700.41 24.51 225.49 Q3 474.92 16.62 233.38 Q4 241.54 8.46 241.54 CASE II. If the loan is to be paid in equal monthly installments, the proceeds for the loan are computed as follows if the effective rate is 14%: P = 1,000/12 1,000/12 1,000/12 x + = P928.17 1 + (.14) 1/12 [1 + (.14) 1/12] 2 [1 + (.14) 1/12] 12 Therefore d = 1,000 - 928.17 x 100 = 7.183% 1,000 (360/360) also P = 1,000 7.183 360) = P928.17 (1 - x 100 360 Table of Interest on P1.00 Based on a 360-day Period Discount Rates At an Effective Rate of Interest of 14% per Annum Table of Interest on P1.00 Based on a 365-day Year Discount Rates At an Effective Rate of Interest of 12% per Annum Table of Interest on P1.00 Based on a 365-day Period Discount Rates At an Effective Rate of Interest of 14% per Annum PART 4 Investment Operations SECTION 542. Investment in Other Enterprises . SUBSECTION 542.1 Investment in affiliates/subsidiaries . Investment of non-bank financial intermediaries engaged in quasi-banking functions in their affiliates/subsidiaries shall be made with funds over and above the minimum required paid-in capital. Those investments existing as of November 19, 1973 shall be included in the capital build-up program (see Subsec. 511.1). After November 19, 1973, investments in affiliates/subsidiaries shall be made with funds over and above the minimum requirement of P10 million, or in the case of entities with paid-in capital below the required minimum, with funds outside the capital build-up program. Proof of ability to undertake such investments shall be submitted to the Department of Financial Intermediaries (Non-Bank) by the entity concerned. [MB Res. 1355 7-11-75] SUBSECTION 542.2 Investment in equities of other financial intermediaries engaged in quasi-banking functions . In order to minimize excessive concentration of control through stockholdings in related financial intermediaries engaged in quasi-banking functions and within the financial system as a whole, the following rules shall govern equity investments by financial intermediaries, both banks and non-banks, authorized to engage in quasi-banking functions, their stockholders, their wholly or majority-owned subsidiaries and/or its minority-owned affiliates in which their stockholdings exceed forty per cent (40%) of the voting stock and/or holding companies, as well as by foreign financial aggrupations in other financial intermediaries authorized to engage in quasi-banking functions. SUBSECTION 542.21 Prescribed ceilings . Subject to existing laws, investors specified in Subsec. 542.23 shall not own more than forty per cent (40%) of the voting stock of a financial intermediary authorized to engage in quasi-banking functions, nor own more than thirty per cent (30%) of the voting stock in a second investment in another financial intermediary authorized to engage in quasi-banking functions. These two investments may not be in the same category or type of financial intermediary, such as investment houses or commercial banks. [Circular 449 2-3-75] Investments in commercial banks of a financial intermediary authorized to engage in quasi-banking functions, made pursuant to the increased capitalization program of banks, which investments were otherwise prohibited under the preceding paragraph were it not for the exemption under Subsec. 542.22 (b) and/or which it could have legally made even without said exemption, shall be included in determining whether or not it can still invest in another financial intermediary authorized to engage in quasi-banking functions. [CL 10-20-75] SUBSECTION 542.22 Investments not subject to ceilings . The following shall not be subject to the limitations in Subsec. 542.21: (a) An investment in any financial intermediary authorized to engage in quasi-banking functions of such percentage as would not enable the investor to elect a director of the board by virtue of its own shareholdings; [Circular 449 2-3-75] (b) Investments in the equity of commercial banks made pursuant to the increased capitalization program. Effective September 30, 1975, however, investments in the equity of commercial banks made pursuant to the increased capitalization program shall cease to be exempted and shall be subject to the limitations set forth in Subsec. 542.21. cdtech Exemption shall however continue for investments after September 30, 1975, in a bank which resulted from a merger or consolidation effected pursuant to the increased capitalization program, the paid-in capital of which bank is less than P100 million, for the sole purpose of increasing the paid-in capital thereof to P100 million; [Circular 449 2-3-75 and CL 10-20-75] (c) Investments in the equity of financial intermediaries without quasi-banking functions. SUBSECTION 542.23 Clarification of term "investor" Each of the following investors and/or any combination of investors shall be considered as one: (a) Any financial intermediary authorized to engage in quasi-banking functions, including its wholly or majority-owned subsidiaries, and/or its minority-owned affiliates in which its shareholdings exceed forty per cent (40%) of the voting stock and/or its holding companies, and any of its stockholders within the coverage of Item (c) of this subsection; and/or (b) Any foreign financial intermediary, with or without local branches, including its wholly or majority-owned subsidiaries and/or its minority-owned affiliates in which its shareholdings exceed forty per cent (40%) of the voting stock and/or its holding companies; and/or (c) (1) Any individual stockholder, and/or stockholders related to each other within the third degree of consanguinity or affinity, and/or corporations wholly or majority-owned by such individuals, or (2) any corporation together with its wholly or majority-owned subsidiary and/or minority-owned affiliate in which its shareholdings exceed forty per cent (40%) of the voting stock and/or holding companies, provided the stockholders specified in (1) and (2) of this subparagraph own more than twenty per cent (20%) of the voting stock of a financial intermediary authorized to engage in quasi-banking functions, even if such financial intermediary may have no direct investments in the other financial intermediary in which said stockholders have investments. SUBSECTION 542.24 Investments in excess of ceilings Investments duly recorded in the stock and transfer books of financial intermediaries as of February 3, 1975 which exceed the limitations of Subsec. 542.21 may be retained but shall not be increased percentagewise, and whenever reduced, shall not thereafter be increased beyond the limitations herein established. Equity transactions between or among the investors defined in Subsec. 542.23 may be construed as neither a decrease nor an increase, but a retention, of the original equity interest. [Circular 449 2-3-75 as amended by Circular 541 9-13-76] Within fifteen days following February 3, 1975, all banks and non-bank financial intermediaries performing quasi-banking functions shall submit their corporate secretary's certification under oath of a list of stockholders and/or groups of stockholders, as specified in Subsec. 542.23, exceeding the limits prescribed under Subsec. 542.21, for purposes of exemption under this subsection. Failure to submit such a list or submission of an incomplete or inaccurate list shall subject the stockholders omitted or inaccurately submitted to the limitations of Subsec. 542.21. [CL 10-20-75] SUBSECTION 542.25 Investments previously authorized by the Monetary Board . Any investment previously authorized by the Monetary Board, wherein a condition had been imposed that both the investor and the financial intermediary in which the investment is made shall comply with whatever policy decisions the Monetary Board may promulgate regarding equity investments of financial intermediaries in allied undertakings performing quasi-banking functions, shall comply with the provisions of this subsection within such period as the Central Bank may prescribed. SUBSECTION 542.26 Sanctions . Any person or corporation violating these rules shall be subject to such sanctions as the Monetary Board may impose. aisadc [Circular 449 2-3-75] PART 6 Borrowing Operations SECTION 567. Deposit Substitutes . SUBSECTION 567.1 Reserve requirements SUBSECTION 567.11 Required reserves . All financial intermediaries authorized to engage in quasi-banking functions, both banks and non-banks, shall maintain a twenty per cent (20%) reserve against deposit substitute liabilities except borrowings from banks and non-bank financial intermediaries authorized to engage in quasi-banking functions which shall be subject to a five per cent (5%) reserve. LLjur [Circulars 552 and 553 1-17-77, as amended by Circulars 593 and 594 1-25 78] The reserve shall be effected as follows: five and one-half per cent (5 %) effective April 1, 1976 which shall be raised at the rate of one-half percentage (%) point every month thereafter until the total of twenty per cent (20%) requirement shall have been reached. Exempt from the reserve requirement are deposit substitute liabilities with remaining maturities of more than 730 days. [Circulars 552 and 553 1-17-77] Certificates of assignment issued with recourse by non-bank financial intermediaries with quasi-banking functions under the IGLF Program are not covered by the reserve requirements, the relationship established between the Central Bank and the institutions being that of principal and agent. [MANBFIQBF 1-23-79] Funds borrowed by banks or non-bank financial intermediaries performing quasi-banking functions from trust departments of banks or investment houses in the latter's capacity as fund managers are not considered as inter-bank borrowings and, therefore, are subject to the 20% reserve requirement on deposit substitutes. [MABNBFIQBF 5-28-79] SUBSECTION 567.12 Composition of reserves (a) Banks . For banking institutions authorized to engage in quasi-banking functions, effective April 1, 1976, the composition of the reserve shall be (i) at least twenty-five per cent (25%) in the form of deposit balances with the Central Bank, and (ii) the remaining seventy-five per cent (75%), in the form of cash in vaults and/or evidences of indebtedness or obligations of the government, its political subdivisions or instrumentalities. The required reserves against marginal deposits shall first be satisfied before any of the available reserves can be utilized in complying with the reserves on deposit substitute liabilities. [Circular 552 1-17-77] Deposits maintained by banks with the Central Bank as part of their reserve requirement shall be paid an interest at the rate of three per cent (3%) per annum, effective January 1, 1978, based on the average daily balance of said deposits, to be credited quarterly. [Circular 588 12-24-77] (b) Non-bank financial intermediaries . For non-bank financial intermediaries authorized to engage in quasi-banking functions, effective April 1, 1976, the composition of the reserve requirement shall be (i) at least twenty-five per cent (25%) in the form of cash on hand and/or cash in banks, and (ii) up to seventy-five per cent (75%), in the form of evidences of indebtedness or obligations of the government, its political subdivisions or instrumentalities. Cash in banks eligible as reserves for non-bank financial intermediaries authorized to engage in quasi-banking functions shall refer only to savings, time and demand deposits whose balances are not restricted as to withdrawals or use for current operations or with financial institutions which have been closed, under the receivership of the Central Bank or under liquidation. [Circular 553 1-17-77] Time deposits of more than seven hundred thirty (730) days are eligible to form part of reserves for deposit substitutes on account of the lifting of the no-pretermination prohibition by Subsec. 567.4. [CL 1-17-78] For purposes of putting up the 75 percent portion which may form part of the reserve against deposit substitute liabilities of banks and non-bank financial intermediaries, government securities eligible as reserves shall be limited to bonds or other evidences of indebtedness representing direct obligations of the Government of the Republic of the Philippines having the following minimum features/conditions: (a) The securities must bear an interest rate of not more than 4 per cent per annum, and must be non-negotiable: Provided , That they shall carry Central Bank support; and (b) The instrument must expressly state in its face the amount, maturity date and interest rate of the obligation. 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. LexLib [Circular 638 11-8-78] Only the buying/lending financial intermediary in a resale agreement covering eligible government securities may use such securities as reserves against deposit substitute liabilities. Conversely, the selling/borrowing financial intermediary in a repurchase agreement covering eligible government securities may not use such securities as reserves against deposit substitute liabilities. SUBSECTION 567.13 Computation of reserve position Each bank and non-bank financial intermediary shall calculate its reserve position daily on the basis of its reserves and its deposit substitute liabilities against which said reserves are required to be maintained, as of the close of each banking day or business for the day. For the purpose of computing its reserve position, the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit. Securities held as reserves shall be valued at cost of acquisition and the bank/non-bank financial intermediary may keep physical possession of such securities. It may freely alter its composition: Provided , That any substitution or acquisition satisfies the eligibility requirements prescribed in Subsec. 567.12: Provided, further , That the bank/non-bank financial intermediary notifies the Central Bank of any such changes not later than the reporting day following the change as provided in I.2.Appendix A for commercial banks, II.2.Appendix C for thrift banks, III.2.Appendix A for rural banks, and IV-2.Appendix C for non-bank financial intermediaries. 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. [Circulars 552 and 553 1-17-77, as amended by Circulars 605 and 606 4-18-78] SUBSECTION 567.14 Reserve deficiencies; offset privilege . Whenever the reserve position of any bank or non-bank financial intermediary, computed in the manner specified in Subsec. 567.13 hereof, is below the required minimum, the bank or non-bank financial intermediary concerned shall pay the Central Bank one-tenth of one per cent (1/10 of 1%) per day on the amount of the deficiency: Provided, however , That said bank or non-bank financial intermediary shall be permitted to offset any reserve deficiency occurring on one or more days of the reporting week 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. SUBSECTION 567.15 Abuse of offset privilege (a) Banks . In case of abuse of the offset privilege, a bank shall automatically lose the privilege of offsetting reserve deficiency in the manner as provided for in Subsec. 567.14 until such time that it maintains its daily reserve position at the required minimum for at least four consecutive weeks. (b) Non-bank financial intermediaries . In case of abuse of offset privilege, a non-bank financial intermediary performing quasi-banking functions shall automatically lose the privilege of offsetting reserve deficiency in the manner as provided for in Subsec. 567.14 for the succeeding four consecutive weeks and until such time that the non-bank financial intermediary concerned maintains its daily reserve position at the required minimum for at least one week after the penalty period of four weeks. Abuse in the privilege of offsetting reserve deficiencies against excess reserves shall mean having reserve deficiencies occurring three or more times during any given week for four consecutive weeks, whether or not resulting in net weekly deficiencies. [Circulars 552 and 553, both dated 1-17-77] SUBSECTION 567.16 Chronic reserve deficiency (a) Banks . In the case of banking institutions with chronic reserve deficiency, the pertinent provisions of Part 5, Books One, Two or Three, depending on the particular type of bank concerned, shall apply. (b) Non-bank financial intermediaries . In cases where the non-bank financial intermediary chronically has reserve deficiency in deposit substitute liabilities, the Monetary Board may (a) limit or prohibit the making of new loans or investments by the non-bank financial intermediary concerned; (b) require that all or part of the net profit of the non-bank financial intermediary concerned be assigned to surplus; or (c) impose such other sanctions as it may deem necessary, for the succeeding four consecutive weeks. The board of directors of such non-bank financial intermediary shall be notified of such chronic reserve deficiency and the penalties therefor, and shall be required to immediately correct the reserve position of the non-bank financial intermediary. Penalties herein specified shall be lifted by the Department of Financial Intermediaries (Non-Bank) after the non-bank financial intermediary shall have maintained a daily reserve position at the required minimum for at least one week after the penalty period of four weeks. The non-bank financial intermediary with chronic reserve deficiency shall submit together with the report on required and available reserves, a certification under oath that it has not granted any new loan or made any new investment during the period covered by the suspension. Chronic reserve deficiency shall mean having a net reserve deficiency for four consecutive weeks. New loan and new investment shall refer to any loan and any investment involving disbursements of funds. [Circular 553 1-17-77] SUBSECTION 567.17 Unpaid fines (a) Banks . Where a bank maintains a demand deposit account with the Central Bank, fines, if unpaid within fifteen days from receipt of the assessment, shall be charged against its demand deposits with the Central Bank: Provided , That where the bankers credit balance is insufficient and it fails to settle the assessment within fifteen days from receipt, the Monetary Board may limit or prohibit the making of new loans or investments by the bank. [Circular 552 1-17-77] (b) Non-bank financial intermediaries Fines on legal reserve deficiencies on deposit substitute liabilities shall be paid by the non-bank financial intermediary within fifteen days from receipt of the assessment: Provided , That where the non-bank financial intermediary fails to settle the unpaid fines within fifteen days from the receipt of the assessment, the Monetary Board may limit or prohibit the making of new loans or investments by the non-bank financial intermediary. [Circular 553 1-17-77] SUBSECTION 567.2 Minimum maturity and trading lot SUBSECTION 567.21 Minimum maturity . The minimum maturity for any single deposit substitute transaction shall be fifteen (15) days: Provided, however , That inter-bank borrowing shall not be subject to this limitation. [Circular 387 11-19-73, as amended by Circular 495 1-2-76] Funds borrowed by banks or non-bank financial intermediaries performing quasi-banking functions from trust departments of banks or investment houses in the latter's capacity as fund managers are not considered as inter-bank borrowings and therefore are subject to the minimum 15-day maturity period required in the immediately preceding paragraph. [MABNBFIQBF 5-28-79] SUBSECTION 567.22 Minimum trading lot . The minimum size of any single deposit substitute transaction by any financial intermediary authorized to engage in quasi-banking functions, whether bank or non-bank, shall be Two Hundred Thousand Pesos (P200,000.00) for maturities of seven hundred thirty (730) days or less, and One Hundred Thousand Pesos (P100,000.00) for maturities of more than seven hundred thirty (730) days. No financial intermediary performing quasi-banking functions, whether bank or non-bank, shall issue deposit substitute instruments in the name of two or more persons or accounts. However, the following shall be considered as one person or account: (1) husband and wife, followed by the word "spouses" and (2) "in trust for" (ITF) arrangements. [Circular 614 7-7-79] Certificates of assignment issued with recourse by non-bank financial intermediaries with quasi-banking functions under the IGLF Program are not covered by the minimum trading lot rule, the relationship established between the Central Bank and the institutions being that of principal and agent. [MABNFQBF 1-23-79] Fund borrowed from trust departments of banks or investment houses in the latter's capacity as fund managers are not considered as inter-bank borrowings and, therefore, are subject to the minimum trading lot rule above. [MNBFIQBF 1-23-79] SUBSECTION 567.3 Deposit substitute instruments ; rules on issuance SUBSECTION 567.31 Prescribed types of instruments Only the following types of instruments may be issued by financial intermediaries, both banks and non-banks, as evidence of deposit substitute liabilities in connection with their quasi-banking functions: (a) promissory notes; (b) repurchase agreements; and (c) certificates of assignment/participation with recourse. [Circular 438 11-4-74] Any deposit substitute transaction by a bank authorized to engage in quasi-banking functions shall be limited to its own promissory notes, repurchase agreements, and certificates of assignments/participation with recourse. [Circular 387 11-19-73, as amended by Circular 495 1-2-76] Acceptances, bills of exchange, and trust certificates shall not be used by financial intermediaries, banks and non-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, or to the issuance of post dated checks that may be attached to the deposit substitute instruments. Negotiable promissory notes acquired by banks and non-banks in connection with their quasi-banking functions, shall not be negotiated by mere indorsement and/or delivery, if they do not conform with the minimum features prescribed under Subsec. 567.32 hereof. If these notes do not contain the features, their negotiation shall be covered by any of the appropriate deposit substitute instruments above-mentioned. SUBSECTION 567.32 Minimum features of deposit substitute instruments . 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 Philippine Deposit Insurance Corporation 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. [Circular 438 11-4-74] SUBSECTION 567.33 Standard instruments . Deposit substitute instruments shall conform to the form and substance prescribed by the Central Bank for the following types of instruments: (a) Promissory note; (b) Repurchase agreement; (c) Certificate of assignment with recourse, where liability of financial intermediary is primary; (d) Certificate of assignment with recourse, where liability of financial intermediary is secondary; (e) Certificate of participation with recourse, where liability of financial intermediary is primary; and (f) Certificate of participation with recourse, where liability of financial intermediary is secondary. Any substantial deviation therefrom, or any additional stipulation or notice therein, shall be referred to the Central Bank for prior approval. The size of these instruments should not be less than five by eight inches (5" x 8") in order that they may not have the appearance of checks. They should be printed on security/safety paper. [CL 12-10-74] Financial intermediaries performing quasi-banking functions shall issue only deposit substitute instruments which conform to the Central Bank-prescribed provisions. Rubber stamping, type-writing or handwriting some provisions shall not be considered compliance with Central Bank regulations. [CL 8-29-75] SUBSECTION 567.34 Physical delivery . 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 the same, 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. [Circular 437 11-4-74] SUBSECTION 567.35 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 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. [Circular 438 11-4-74] Placements of rural banks shall be governed by the rules in V.6.Appendix C. [Circular 574 7-28-77] The following regulations shall govern the treatment of matured and unclaimed deposit substitutes by banks and non-bank financial intermediaries performing quasi-banking functions in the absence of any written agreement between the lender and borrower as to withdrawal, renewal or roll-over or other disposition thereof: (a) Banks and non-bank financial intermediaries performing quasi-banking functions shall continue to hold such matured and unclaimed liabilities as deposit substitutes subject to reserves. (b) A matured and unclaimed deposit substitute shall be payable on demand and shall earn interest at the rate applicable to a deposit substitute with a maturity of fifteen (15) days. Such rate when added to the thirty five per cent (35%) transaction tax on money market placements, commissions, premium fees and other charges shall not exceed the effective rate of interest of seventeen per cent (17%) per annum, as provided under the third paragraph of Subsec. 567.5. (c) Violation of these regulations shall be subject to the sanctions prescribed in Sections 34 and 34-A of Republic Act No. 265, as amended, and in case of investment houses, to the sanctions in Sections 12 and 16 of Presidential Decree No. 129. [Circular 675 5-11-79 as amended by Circular 706 12-1-79] SUBSECTION 567.36 Call loans as deposit substitutes Call slips or tickets may be used to evidence call loan transactions of not more than twenty-four hours maturity or to cover reserve deficiencies. In all other cases, call loan transactions shall be evidenced by promissory notes containing the minimum features prescribed in Subsec. 567.32 hereof. [See also Subsec. 163.4, Part 6 of Book One] [Circular 438 11-4-74] SUBSECTION 567.37 Sanctions . Any entity performing quasi-banking functions which violates or fails to comply with these regulations on the standardization and issuance of deposit substitute instruments shall be liable to such administrative sanctions as the Central Bank shall determine, in addition to the penalties provided for under Section 34 of Republic Act No. 265, as amended. [Circular 438 11-4-74] SUBSECTION 567.4 Effect of pretermination ; use as collateral of deposit substitutes . A deposit substitute of more than seven hundred thirty (730) days issued prior to, and outstanding as of January 1, 1978, need no longer be subject to the prohibition against withdrawal or pretermination before maturity date, or the use thereof as collateral for a loan from the depository banking institution or financial intermediary concerned. If withdrawn before maturity date fixed in the instrument, the interest or yield of a deposit substitute shall be reduced by not more than three per cent (3%) for deposit substitutes with maturities of seven hundred thirty (730) days or less. For deposit substitutes with maturities of over seven hundred thirty (730) days, the interest or yield shall not be lower than those indicated in the following schedule of rates: Interest/Yield Rate Per Annum If Terminated Before maturity Original 730 Maturity or Period 0-89 90-179 180-359 360-539 540-729 over Over 730 days 4-% 5% 6% 7% 8% 9% [Circular 583 12-24-77] Whenever any person or entity violates any of the provisions of Subsec. 567.4, the person or persons responsible for such violation shall be subject to the penalty prescribed in the first paragraph of Section 34 of Republic Act No. 265, as amended, and the penalty prescribed in Section 10 of Act No. 2655, as amended, without prejudice to any action under the provisions of the second paragraph of Section 34 of Republic Act No. 265, as amended, and the imposition of administrative sanctions under Section 34-A of said Republic Act. LLcd [Circular 589 12-24-77] SUBSECTION 567.5 Interest or yield on deposit substitutes . Banking institutions and non-bank financial intermediaries performing quasi-banking functions shall not pay interest in kind on deposit substitutes. Interest on deposit substitutes paid in advance shall not exceed the interest for one year. The term interest shall include yield . [Circular 461 4-21-75] A deposit substitute of a financial intermediary authorized to engage in quasi-banking functions, both bank and non-bank, with a maturity of more than seven hundred thirty (730) days shall not be subject to yield ceilings or to the interest rate ceilings prescribed in the Usury Law, as amended. Deposit substitutes of financial intermediaries authorized to engage in quasi-banking functions with a maturity of seven hundred thirty (730) days or less, shall have an effective rate of interest or yield, including commissions, premiums, fees and other charges, which when added to the thirty-five per cent (35%) transaction tax on money market placements, shall not exceed seventeen per cent (17%) per annum. [Circular 585 12-24-77 as amended by Circular 706 12-1-79] Violation of any provisions of the immediately preceding two paragraphs is subject to the sanctions in Subsec. 567.4 [Circular 589 12-24-77] In the computation of interest on deposit substitutes, the number of days comprising a year shall be based on the following: When the term is one (1) year or more, a year shall mean 365 days; and When the term is less than one (1) year, the interest/yield shall be computed on the basis of 360 days in a year. Examples and formulas for the computation of proceeds and discounts rates on loans at effective rates of 12 and 14 per cent per annum are embodied in V.3.App.E. [MABNBFI 12-29-78 effective 4-1-79 per MABNBFI 1-16-79] SUBSECTION 567.6 Repurchase agreements with the Central Rank . Banks, investment houses and other non-bank financial institutions performing quasi-banking functions are allowed to enter into repurchase agreements with the Central Bank on their holdings of CBCIs and other government securities. Such repurchase agreements shall be reported by the non-bank financial intermediary in the Consolidated Report of Required and Available Reserves Against Deposit Substitutes (CBP-7-26-05, Revised February 1975) under Item I-e(3) "Other Borrowings: Bills Payable Central Bank" and simultaneously deducted under Item II giving same particulars. For purposes of the Consolidated Balance Sheet (CBP-7-26-02) and the published statement required of investment houses, the transaction shall be booked under "Short-term borrowings and instruments sold under agreements to repurchase", current liabilities category. [CL 4-1-75] SUBSECTION 567.7 Borrowings by building and loan associations . If all the elements of quasi-banking (as defined in Subsec. (b) of Section 2-D of Republic Act No. 337, as amended) are present, including the borrowing from twenty or more lenders (stockholders of the association or otherwise) for purposes of relending or purchasing of receivables and other obligations, the building and loan association shall be deemed engaged in quasi-banking functions and subject to the provisions of this Book on quasi-banking functions. [MB Res 1200 6-20-75] SUBSECTION 567.8 Inter-bank and other borrowings SUBSECTION 567.81 Borrowings from trust departments or investment houses . Funds borrowed by banks or non-bank financial intermediaries performing quasi-banking functions from trust departments of banks or investment houses in the latter's capacity as fund managers are not considered as inter-bank borrowings and, therefore, are subject to: a. 20% reserve requirement on deposit substitutes under Subsec. 567.11; b. Minimum 15-day maturity period under Subsec. 567.21; c. Minimum trading lot rule under Subsec. 567.22; and d. 35% transaction tax. [MABNBFIQBF 5-28-79] SUBSECTION 567.82 Borrowings from the government . As a general rule, no non-bank financial intermediary, whether or not performing quasi-banking functions, shall borrow funds through the issuance or sale of its acceptances, notes or other evidences of debt, from the Government and government entities. (a) Liquidity floor . Unless otherwise provided by the Monetary Board, non-bank financial intermediaries shall, in addition to the required reserves against deposit substitutes, maintain a thirty per cent (30%) liquidity floor with respect to deposits of, and/or borrowings from, the Government and government entities in the form of Central Bank-supported securities, separate and distinct from those used by them for other specific purposes required by law/rules and regulations. (b) Exempt transactions . Compliance with the provisions of Subsecs. 567.82 and 567.82 (a) is not required with respect to the following borrowings. (1) Borrowings from PNB, DBP, LBP and PAB; (2) Proceeds of DBP bonds sold by DBP accredited sales and service agencies for the bond marketing operations of DBP; (3) Borrowings from the Central Bank for purposes of relending in connection with CB administered funds; (4) Any other form of borrowings specifically authorized by law or exempted by the Monetary Board. (c) Sanctions . Any violation of this Subsection shall subject the financial intermediary to the suspension of its authority to engage in quasi-banking functions for a period to be determined by the Monetary Board, but in no case shall the period of suspension be less than thirty (30) calendar days from receipt of advice to this effect; and withdrawal of previously granted authority to accept government funds. The foregoing sanctions shall be without prejudice to the imposition of other administrative sanctions prescribed under Section 34-A of Republic Act No 265, as amended, and the penalties as prescribed under Section 34 of the same Act. [Circular 673 4-17-79] SECTION 568. Issuance of Bonds and Certificates . SUBSECTION 568.1 Bond issues of non-banks . The following guidelines shall govern the bond issues of non-bank financial intermediaries performing quasi-banking functions. SUBSECTION 568.11 Definition of Terms (a) Government Securities shall refer to the evidences of indebtedness of the Republic of the Philippines or its instrumentalities, or of the Central Bank and must be freely negotiable and regularly serviced. (b) Net Book Value shall refer to the acquisition cost of property or accounts plus additions and improvements thereon less valuation reserves, if any. (c) Current Market Value shall refer to the value of the property as established by a duly licensed and independent appraiser. (d) Affiliate shall refer to a concern linked directly or indirectly to another by means of: (1) Ownership, control and power to vote, of 10% or more of the outstanding voting securities; (2) Interlocking directorship/officership; (3) Common major stockholders, i.e., owning 10% or more of the outstanding voting securities; (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding 10% or more of the outstanding voting securities; (6) Permanent proxy constituting 10% or more of the outstanding voting securities. (e) Subsidiary shall mean a company 50% or more of the outstanding voting securities of which are directly or indirectly owned, controlled, or held with power to vote, by another. SUBSECTION 568.12 Notice to Central Bank . Within three (3) days from approval by SEC of its bond issue, a non-bank financial intermediary performing quasi-banking functions shall notify the Department of Financial Intermediaries (Non-Bank) of the approval, attaching documents required by the SEC for the creation and registration of the bond issue. SUBSECTION 568.13 Minimum features . Subject to Presidential Decree No. 678 and its implementing rules and regulations and for purposes of this Section, bond issues by non-bank financial intermediaries performing quasi-banking functions shall have the following minimum features. (a) Form ; issue price ; denomination . The bonds shall be fully registered as to principal and interest. The issuer must maintain a bond registry duly approved by SEC for recording initial and subsequent transfers, the names of transferees, date of transfers, purchase price and serial numbers of bonds transferred. Bonds may be issued at face value, at a discount, or at a premium. Minimum denomination shall be P20,000.00. (b) Term . The minimum maturity of the bonds shall be four (4) years. No optional redemption before the fourth year shall be allowed. (c) Interest ; manner and form of payment The bonds shall not be subject to interest rate ceilings prescribed by the Monetary Board or Act No. 2655, as amended. Interest paid in advance shall not exceed the interest for one (1) year: Provided , That interest shall not be paid in kind. (d) Trust indenture ; collaterals ; sinking fund . A trust indenture shall be executed between the issuer and a qualified trust corporation as trustee, which shall neither be an affiliate nor a subsidiary of the issuer. The following shall be deemed as eligible collateral and shall be maintained at respective values indicated in relation to the face value of the bond issues: (1) Government Securities, Aggregate Current including Central Bank Market Value of 100% Certificate of Indebtedness (CBCIs) (2) High-grade Private Securities Aggregate Current listed in the big board of stock Market Value of 150% exchanges (3) Real Estate Net Book Value of 100% (4) Unmatured Receivables Net Book Value of 150% Acquired with Recourse; Lease Contracts Receivable (5) Unmatured Receivables Net Book Value of 200% Acquired without Recourse Government securities including CBCIs, private securities, certificates of title and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee. The issuer may, at his option, provide for the retirement at maturity of the bond issue through a sinking fund to be deposited with and managed by the indenture trustee. (e) Provision on the face of the certificate A provision on the face of the bond certificate shall refer to the trust indenture and shall state the name of the indenture trustee. SUBSECTION 568.14 Underwriting . Bond issues may be underwritten by entities including those which are affiliates or subsidiaries of the issuer. The investment of affiliates or subsidiaries in said bond issue shall be subject to: (1) individual and aggregate ceilings of 10% and 30%, respectively, of the bond issue; and (2) the condition that the investing affiliate or subsidiary does not have any outstanding loan from the issuer or that it shall not incur any indebtedness from the issuer during the period that the investment remains outstanding. SUBSECTION 568.15 Incentives . Notwithstanding the provisions of existing regulations, bonds issued under this Section shall be subject to a minimum trading lot of twenty thousand pesos (P20,000.00) and bonds so issued with remaining maturities of seven hundred and thirty (730) days and below, shall be subject to a reserve requirement of five percent (5%). SUBSECTION 568.16 Inapplicability of certain regulations . The provisions of Subsec 567.22 and 567.11 shall not apply to bonds issued under this Section. [Circular 659 3-6-79, as amended by Circular 681 6-21-79] SUBSECTION 568.2 Issuance of mortgage and chattel mortgage certificates . The Monetary Board authorized savings and mortgage banks and private development banks which are authorized to engage in quasi-banking functions to issue mortgage and chattel mortgage certificates, buy and sell them for their own account or for the account of others, or accept and receive them in payment or as amortization of their loans as provided in Section 33 of R.A. No. 337, as amended, under the following terms and conditions: (a) The bank shall strive to coordinate the amounts and maturities of its certificates with those of its loans, so as to ensure adequate cash receipts for the payment of principal and interest at the time they become due; (b) The maximum aggregate amount of mortgage and chattel mortgage certificates that may be issued at any one time shall not exceed 25% of the average collections during the year on loans granted under sub-sections (b-2), (c) and (d) of Section 31 of R.A. No. 337, as amended; (c) Denomination: Minimum of P20,000; (d) Term: Minimum of four years; (e) Interest shall be governed by the applicable provisions of Subsec. 567.5 and the provisions of other pertinent regulations and any subsequent amendments thereto; (f) Purpose: Exclusively for the financing of the loans enumerated in sub-sections (b-2), (c) and (d) of Section 31 of R.A. No. 337, as amended; (g) The mortgage and chattel mortgage certificates shall be in a form and tenor to be prescribed by the Central Bank; (h) The amount issued and outstanding shall be subject to 5% reserve requirement; and (i) The issuance of the certificates shall be subject to such rules and regulations that may be issued later by the Monetary Board. Savings and mortgage banks and private development banks desirous of availing this privilege shall submit their application with the Department of Commercial and Savings Banks, Central Bank. [Circular 700 10-30-79] SECTION 569. Sundry Provisions . SUBSECTION 569.1 Campaigns to attract funds . Programs, plans, benefits or incentives designed to attract placement of funds in banks and non-bank financial intermediaries performing quasi-banking functions, to provide sufficient time for processing thereof, must be received by the Central Bank at least thirty days before the scheduled launching date of the plan or program for institutions in the Greater Manila Area, and at least forty days for those outside this area. No such program, plan, benefit or incentive shall be advertised, disseminated, or implemented prior to Central Bank approval. For purposes of this rule, Greater Manila Area shall consist of Manila, Quezon City, Pasay City and Caloocan City and the municipalities of Makati, Malabon, Mandaluyong, Marikina, Navotas, Paraaque, Pasig, and San Juan. 1. Raffles, lotteries, contests . Raffles, lotteries or contests shall be subject to the following conditions: (a) They must not be held more than once every quarter; (b) They must not be tied up with the size of the placement/investment; (c) They must not provide placers/investors with financial compensation for the use of their investments; (d) New and old placers/investors are qualified, but shall be entitled to only one prize of the contests of any kind, including raffles and lotteries; (e) Accounts of personnel of the sponsoring non-bank financial intermediary and those of their relatives within the first degree of affinity or consanguinity are disqualified; (f) Total value of prizes, including donated prizes, for promotions in the form of raffles or lotteries for each non-bank financial institution, branch or agency shall not be more than P10,000 for entities located in the Greater Manila Area and all other cities, and P5,000 for those in other areas; (g) The results of the raffle, lottery or contest shall be appropriately announced, the list of the winners with the corresponding prizes shall be posted in a conspicuous place within the entity's premises, and the winners shall be notified; and (h) The results of such raffle, lottery or contest shall be attested to by two authorized officers of the concerned institution and reported to the Central Bank. 2. Gifts or give-aways . Promotional plans involving gifts or give-aways shall be subject to the following terms and conditions: (a) The period for the distribution of the gifts or give-aways shall not exceed thirty days and only in connection with (1) the inauguration or transfer of office, (2) anniversary celebration, and (3) the Christmas season; LLpr (b) No cash, or certificate, check or instrument which can be exchanged for cash, except government securities, shall be allowed as gift or give-away; (c) The cost of the gift or give-away to be offered shall not exceed P10 for each account; (d) The money value of the gift or give-away shall not be credited to the investor/placer's account; and (e) Each account shall be entitled to only one gift or give-away. As used in this subsection, the term "gift" or "give-away" shall mean anything of value given at no charge to a placer or investor by the non-bank financial intermediary, including donations, as an inducement for the placement or investment of a new account or the maintenance of an existing account. Violations of these rules and regulations on campaigns to attract funds shall subject the institution concerned to a fine of not more than P100 per day until the violation ceases. Directors and/or officers responsible for the violation shall be jointly liable for the payment of the fine. An entity which persistently violates any of these rules and regulations shall be liable to such other administrative actions as the Central Bank may impose. [Circular 441 11-19-74] SUBSECTION 569.2 Transactions with controlled corporations . A corporation performing quasi-banking functions shall not relend to or purchase receivables or other obligations of other corporations majority of the voting stock of which is owned by subject corporation, unless the terms of the transactions are not more favorable than those of other similar transactions. Corporations already engaging in quasi-banking functions on November 19, 1973, shall have until the termination of the terms of the transactions within which to comply with the limitations hereof. Any renewal or extension thereof shall comply with said limitations. [Circular 387 11-19-73] SUBSECTION 569.3 Registration requirements of commercial papers ; sanctions . All banks and non-bank financial intermediaries which have outstanding commercial paper issues or are issuing or intending to issue commercial papers shall comply with the Rules on Registration of Commercial Papers of the Securities and Exchange Commission, as approved by the Monetary Board (6.Appendix A). When the issuance of commercial papers amounts to the performance of quasi-banking functions, the issuer shall first obtain a certificate of authority from the Central Bank. [Circular 489 12-15-75] All banks and non-bank financial intermediaries which have outstanding issues of, or are issuing or intending to issue, commercial papers with maturities of 366 days or more and bonds shall comply with the Rules on Registration of Long-Term Commercial Papers and Bonds promulgated by the Securities and Exchange Commission and approved by the Monetary Board (6.Appendix B). When the issuance of said commercial papers and bonds amounts to the performance of quasi-banking functions, the issuer shall first obtain a certificate of authority from the Central Bank. [Circular 545 11-22-76] All banks performing quasi-banking functions are hereby required to furnish the Department of Commercial and Savings Banks a copy each of their respective registration statements (bookbound) under both Rules, duly filed with the Securities and Exchange Commission, together with the respective duly signed copy or certified copy of the registration authority issued by the Securities and Exchange Commission within five (5) banking days after the issuance of the respective registration authority. [CL 9-19-77] All financial intermediaries authorized to engage in quasi-banking functions, both banks and nonbanks: (a) shall be required to present evidence to the prospective investor of authority from SEC to issue or sell commercial papers or exemption thereof before such entities can issue or sell commercial papers; or (b) shall require evidence that the issuing entity has authority from SEC to issue or sell commercial papers or has exemption from SEC registration requirements before such entities can purchase or hold such papers. [Circular 500 2-2-76] A sworn certificate of exemption from the registration requirement under the SEC Rules on Registration of Commercial Papers, duly executed by the President of the corporate issuer of commercial papers, stating clearly such facts and/or attaching thereto pertinent papers shall suffice as evidence of the exemption. [CL 6-29-76] Any bank or non-bank financial intermediary authorized to engage in quasi-banking functions (a) as issuer or seller of commercial papers, shall post in a conspicuous place within its premises its provisional permit/regular authority to issue or sell commercial papers or a true copy thereof and stamp on each instrument issued or sold the assigned registration number and expiry date, if any, of said registration, or (b) as holder or buyer of commercial papers, shall require that each instrument held or purchased bear a stamped registration number of the issuing or selling entity and expiry date, if any, of said registration. [Circular 500 2-2-76] Any bank or non-bank financial intermediary covered by this subsection found violating or not complying with the provisions hereof and the Rules on Registration of Commercial Papers of the Securities and Exchange Commission as approved by the Monetary Board may be subject to the following sanctions/penalties: (a) Suspension or revocation of the authority to engage in quasi-banking functions; (b) Penalties prescribed under Section 34 of Republic Act No. 265, as amended; (c) In the case of banking institutions and their directors and officers, the administrative sanctions authorized under Section 34-A, Republic Act No. 265, as amended; and (d) Such other penalties/sanctions authorized by law. [Circular 489 12-15-75; Circular 500 2-2-76 and Circular 545 11-22-76] APPENDIX A (Book V, Part 6) SEC RULES ON REGISTRATION OF COMMERCIAL PAPERS Pursuant to Presidential Decree No. 678 and existing laws, the Commission hereby promulgates the following rules and regulations covering the issue of commercial papers in the interest of full disclosure and protection of investors and lenders. SECTION 1. Scope . Any person, firm or entity which issues commercial papers shall be subject to the provisions of these rules. Initially, only corporations shall be covered by these regulations. Separate regulations covering non-corporate issuers of commercial paper shall be issued at such time as the Commission deems necessary and appropriate in the public interest. SECTION 2. Definitions . For the purpose of these rules, unless the context otherwise indicates, the following definition of terms is hereby adopted: (a) Commercial Paper is an instrument evidencing indebtedness of any person or entity, especially banks and non-banks performing quasi-banking functions, irrespective of maturity, which is issued, endorsed, sold, transferred or in any manner conveyed to another person or entity, either with or without recourse. Examples of commercial papers are promissory notes, repurchase agreements, certificates of assignments, certificates of participations, trust certificates and/or similar instruments. (b) Interbank Call Loan is a loan extended by a bank to another bank, demandable within 24 hours, and evidenced by an inter-bank call loan advice form, in accordance with Subsec. 135.5 of Book I. (c) Issue means creation of real or contingent liability relative to commercial papers. It includes the roll-overs and/or extension of maturing commercial papers. (d) Negotiation is the transfer of an instrument or of any underlying rights/interests thereof with the necessary formality as to constitute the transferee a holder or payee thereof. (e) Affiliate is a concern linked directly or indirectly to another by means of: (1) Ownership, control and power to vote, of 10% or more of the outstanding voting securities; (2) Interlocking directorship/officership; (3) Common major stockholders; i.e., owning 10% or more of the outstanding voting securities: (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding 10% or more of the outstanding voting securities; (6) Permanent proxy constituting 10% or more of the outstanding voting securities. (f) Subsidiary means a company 50% or more of the outstanding voting securities of which are directly or indirectly owned, controlled, or held with power to vote, by another. SECTION 3. Registration (a) The following corporate issuers of commercial paper are required to file a registration statement with the Securities and Exchange Commission, on or before January 1, 1976: (1) Every financial intermediary, bank or non-bank which performs quasi-banking functions; (2) Every corporate issuer of commercial paper aggregating P1 million or more outstanding: (i) which would be negotiated; or (ii) which would be issued to twenty (20) or more lenders/investors. It is understood that any corporation performing quasi-banking functions shall, in addition to the registration requirement of these rules, be subject to the provisions of Subsec. 519.3 on securing a certificate of authority to perform quasi-banking functions. (b) The applicant for registration under this Section shall submit the following documents: (1) Application and Registration Statement, in the prescribed form and with the prescribed Annexes thereto; (2) Audited financial statement as of at least three (3) months prior to 1 January 1976 or audited financial statement as of more than three (3) months but not beyond twelve (12) months prior to 1 January 1976 accompanied by an audited financial statement as of at least 3 months prior to 1 January 1976, the latter financial statement, however, shall be substituted with an audited financial statement three (3) months following the end of applicant's fiscal year. (3) A copy of any prospectus, brochure, advertisement or letter of communication which the registrant intends to issue in connection with the registration. (c) The Commission may waive the need for the disclosure of any portion of a material instrument and/or contract if the registrant requests and the Commission agrees that disclosure of such portion would impair the value of the instrument or contract and would not be necessary for the protection of investors. (d) The registration of commercial papers with maturity of more than one year shall be governed by the procedure for close-end registration of securities under the Securities Act, as prescribed by the Commission. (e) The acceptance of the registration application is not a guarantee that the Commission has evaluated the registration papers. SECTION 4. Negotiation . No commercial paper shall be negotiated without first having been registered in accordance with these rules, unless it is exempt from registration, as provided under Sec. 5. SECTION 5. Exemption from Registration . The following need not be registered under these rules: (a) Interbank call loans as herein defined; (b) Loans and advances of the Central Bank under its open market and/or rediscounting operations; (c) Commercial papers issued by the National and Local Governments, Central Bank of the Philippines, Philippine National Bank, Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System, Social Security System and such other financial entities as may be determined by the Commission, upon the recommendation of the Central Bank; and (d) Commercial papers issued by corporations, the total outstanding amount of which is less than P1 million at any one time, or P1 million or more but neither negotiated nor issued to twenty (20) or more lenders/investors: Provided, however , that any corporation performing quasi-banking functions shall still be subject to the requirements of Subsecs. 519.2 and 519.3: Provided, further , that for purposes of determining exemption under this sub-paragraph, papers of subsidiaries, affiliates, holding companies or any other related companies shall be aggregated and considered as one issue. SECTION 6. Reports of Exempted Corporate Issuer . Other than those indicated in Sec. 5 (a) to (c), every corporate issuer of commercial paper exempted under these rules shall file an information sheet, in such form and content prescribed by the Commission, under oath, upon effectivity of these regulations and thereafter not later than January 31 of every year. SECTION 7. Open-end Registration . Registration of commercial paper as required under Sec. 3 hereof shall authorize the registered issuer to issue commercial papers: Provided, however , that the aggregate outstanding issues at any one time shall not exceed the debt ceiling of commercial papers with maturities of one year or less, determined and authorized by its Board of Directors and disclosed in the registration statement. SECTION 8. Notice and Hearing . (a) For registrants who have commercial paper outstanding prior to the effectivity of these regulations . (1) Upon receipt of the registration statement duly accomplished and with the required annexes, the Commission shall publish an omnibus notice thereof in a newspaper of general circulation throughout the Philippines. The cost of publication shall be borne proportionally by applicants concerned. (2) Seven (7) days after such publication, the Commission shall issue a provisional permit authorizing the sale of commercial papers in the Philippines. This permit shall be valid for a period of 90 days. (3) During this period, the Commission shall review the registrant's application. If necessary, the Commission may call the officers of the registrant to a closed door conference-hearing. (4) Within said period of ninety (90) days, the Commission shall issue a regular authority to sell unless it needs additional information or materials; in which case the Commission shall issue its decision not later than ten (10) days after submission of the additional information or materials beyond the said 90-day period. (5) The registrant shall publish the fact that a regular authority has been issued by the Commission in a newspaper of general circulation throughout the Philippines in a form and content as approved by the Commission. (6) This regular authority shall be subject to the annual renewal requirements. (b) For registrants which do not have any commercial paper outstanding prior to the effectivity of these regulations . (1) The Commission shall issue its decision to register not later than ninety (90) days after submission of the completed application for registration. In the event the Commission should require additional information, the Commission's decision shall in no case be issued later than ten (10) working days after submission of the additional information beyond the aforestated 90-day period. (2) During this period, the Commission shall review the registrant's application. If necessary, the Commission may call the officers of the registrant for a closed door conference-hearing. (3) After the Commission issues the registration authority, the registrant shall publish notice thereof in a newspaper of general circulation throughout the Philippines in such form and content as prescribed by the Commission. (4) Seven (7) days after publication, the regular authority issued shall be automatically in force. SECTION 9. Return of Registration Applications . (a) The Commission shall return any application for Registration, unless it is satisfied that: (1) all the requirements of applicable laws and regulations governing the issuance of commercial papers have been complied with; (2) the issuance of the commercial papers will not be in conflict with public interest and national policies; and (3) all information necessary for a proper evaluation of the worthiness of the commercial paper have been disclosed in the registration statement. (b) The Commission shall return applications upon finding that the information disclosed by the registrant in its application for registration is erroneous or may result in a misleading conclusion. SECTION 10. Basic Features of Commercial Papers . (a) All registered commercial papers of registered issuers shall be pre-numbered. It shall state, among others, the debt ceiling of the registrant and a notice that all information about the registrant is available at the Commission. (b) The Commission may, at some future date, require the standardization of commercial paper format. SECTION 11. Filing Fees . Every registrant shall pay the following fees: (a) Upon registration, an initial fee of 1/50th of 1% or P1,000, whichever is higher, but not to exceed P10,000 based on the total commercial paper registered. (b) On the anniversary month of registration, a renewal fee of fifty (50) percentum of the original filing fee, plus 1/50th of 1% of any increase from the last previous registered amount, with a maximum of P10,000 and a minimum of P500.00. SECTION 12. Submission of Inventories . The following inventories as of October 31, November 30 and December 31, 1975 shall be submitted to the Commission not later than fifteen (15) days from end of the reference month: (a) A list of the outstanding commercial papers held by each financial intermediary engaged in quasi-banking functions, showing the name of the issuer, date of maturity and amount, thereof. (b) A list of outstanding commercial papers issued by corporations covered under Sec. 3 by type, date of maturity and amount thereof. LLphil SECTION 13. Periodic Reports . Every registered issuer of commercial papers shall file with the SEC a quarterly statement, signed under oath by its President, specifying any changes in their original registration statement. These documents shall be filed within thirty (30) days following the end of each quarter. SECTION 14. Central Bank Supervisory Powers . The Monetary Board shall also have the power of supervision in the enforcement of these rules, concurrent with the Commission and, without prejudice to the provisions of the succeeding paragraph, impose administrative sanctions as circumstances warrant. SECTION 15. Administrative Sanctions . If after due notice and hearing, the Commission finds that there was a willful intent to submit inadequate disclosures or to deceive through the filing of inaccurate information in the registration statements and/or the periodic reports, or there is a violation of any of the above regulations, the Commission may subject the violator to any of the following penalties: (a) Suspension or revocation of selling authority; (b) A fine of not less than P200 for every day the violation persists; (c) Other penalties within the power of the Commission under existing laws; and (d) The filing of criminal charges against the corporation and its principal officers. SECTION 16. Effectivity . These rules shall take effect immediately. Manila, Philippines, December 10, 1975 (SGD.) ANGEL L. LIMJOCO, JR. Chairman Securities and Exchange Commission APPROVED: (SGD.) TROADIO T. QUIAZON, JR. Secretary Department of Trade (SGD.) G. S. LICAROS Chairman Monetary Board of the Central Bank of the Philippines [Source: Circular 489 12-15-75] APPENDIX B (Book V, Part 6) SEC RULES ON REGISTRATION OF LONG TERM COMMERCIAL PAPERS AND BONDS Pursuant to Presidential Decree No. 678 and existing laws, the Securities and Exchange Commission hereby promulgates the following rules on close-end registration of commercial papers with face maturities of 366 days or more and bonds, referred to in Section 3(d) of the Rules on Registration of Commercial Papers dated December 10, 1975, in the interest of full disclosure and protection of investors and lenders. SECTION 1. Scope . These rules shall cover the following corporations issuing commercial papers with face maturities of 366 days or more and bonds: (1) Financial intermediaries, banks and non-banks performing quasi-banking functions; (2) Other corporate issuers of long term commercial papers and bonds the aggregate amount to be issued or the outstanding issue of which is P1 million or more: (i) Which will be negotiated to any number of persons; or (ii) Which will be primarily issued to twenty (20) or more lenders/investors. No commercial papers with face maturities of 366 days or more and bonds shall be issued or negotiated unless the same have been registered or are exempt pursuant to these rules. It is understood that any corporation performing quasi-banking functions shall, in addition to the registration requirement of these rules, be subject to the provisions of Subsec. 519.3, on securing a certificate of authority to perform quasi-banking functions. Regulations prescribing the registration of commercial papers by issuers not otherwise covered by these rules shall be promulgated at such time as the Commission deems necessary and appropriate in the public interest. SECTION 2. Definitions . For the purpose of these rules, unless the context otherwise indicates, the following definition of terms is hereby adopted: (a) Commercial Paper is an instrument evidencing indebtedness of any person or entity, specifically banks and non-banks performing quasi-banking functions, which is issued, endorsed, sold, transferred or in any manner conveyed to another person or entity, either with or without recourse. Examples of commercial papers are promissory notes, repurchase agreements, and/or similar instruments. (b) Issue means creation of real or contingent liability relative to commercial papers. It includes the roll-overs and/or extension of maturing commercial papers. (c) Negotiation is the transfer including the assignment of an instrument whether negotiable or non-negotiable or of any underlying rights/interests thereof with the necessary formality so as to constitute the transferee a holder or payee thereof. (d) Affiliate is a concern linked directly or indirectly to another by means of: (1) Ownership, control and power to vote, of 10% or more of the outstanding voting securities; (2) Interlocking directorship/officership; (3) Common major stockholders; i.e., owning 10% or more of the outstanding voting securities; (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding 10% or more of the outstanding voting securities; (6) Permanent proxy constituting 10% or more of the outstanding voting securities. (e) Subsidiary means a company 50% or more of the outstanding voting securities of which are directly or indirectly owned, controlled, or held with power to vote, by another. SECTION 3. Registration . (a) Requirements The applicant for the registration of commercial papers with face maturities of 366 days or more and bonds shall submit the following documents in quintuplicate: 1. Registration Statement, in the prescribed form and with the prescribed annexes thereto: a) LT 10 Commercial and Industrial Corporations b) LT 20 (A) Banks authorized to engage m quasi-banking functions c) LT 20 (B) Banks not authorized to engage in quasi-banking functions d) LT 30 (A) Non-bank financial intermediaries authorized to engage in quasi-banking functions aisadc e) LT 30 (B) Non-bank financial corporations not authorized to engage in quasi-banking functions f) LT 40 Exempt issuers; 2. Resolution approved by the stockholders owning at least a majority of the subscribed capital stock certified under oath by the corporate secretary, authorizing the issuance and creation of said commercial papers and bonds, respectively; 3. Immediately preceding three (3) years financial statements certified by an independent Certified Public Accountant; 4. A cash flow and projected balance sheet/income statement certified under oath by the Treasurer or any Senior Financial Officer covering the period during which said commercial papers and bonds shall be outstanding; 5. Sample form of the debt instruments in accordance with SEC Memorandum Circular No. 5, Commercial Paper Series, dated June 10, 1976; 6. A copy of any prospectus, brochure, advertisement, letter or communication which the applicant intends to circulate in connection with the issue; 7. Certificate of Creation of bonded indebtedness as approved by the Commission pursuant to Section 17 of the Corporation Law; 8. Trust Indenture, the terms and conditions of which shall be on an arm's length basis executed by and between the applicant and a qualified trust corporation which is neither an affiliate nor a subsidiary of the applicant; 9. A schedule of the assets to be used as collateral certified under oath by the Treasurer or any Senior Financial Officer of the applicant, in case of mortgage or collateral bonds; 10. In case of financial intermediaries not authorized to engage in quasi-banking functions, a board resolution to the effect that the applicant will not engage in such activity as defined under Subsec. 519.1. Compliance with Nos. 7, 8, 9 shall only be required of issuers of Bonded Indebtedness: Provided , That issuers of long term commercial papers which are secured either by mortgage or pledge of real and personal properties shall likewise comply with requirement No. 9. (b) The Commission may waive the need for the disclosure of any portion of a material instrument and/or contract if the applicant requests and the Commission agrees that disclosure of such portion would impair the value of the instrument or contract and would not be necessary for the protection of lenders/investors. (c) The acceptance of the registration application is not a guarantee that the Commission has evaluated the registration papers. SECTION 4. Close-End Registration . Registration of commercial papers with face maturities of 366 days or more and bonds as herein required shall be a close-end process. This means that the principal amount of any outstanding issue in any manner re-acquired, pursuant to the terms and conditions of the issue cannot be resold or reissued but has to be retired and deducted from the aggregate amount which the issuer is authorized to borrow under the registration statement filed by such issuer. Nothing herein shall authorize financial intermediaries engaged in quasi-banking functions to pre-terminate their commercial paper issue in violation of applicable Central Bank regulations. SECTION 5. Notice and Hearing (a) For applicants which have commercial papers with maturities of 366 days or more and bonds outstanding prior to the effectivity of these rules: 1. Upon submission and receipt of the registration statement duly accomplished together with all the required annexes and supporting documents, the Commission shall publish once at the expense of the applicant, such fact of filing in a newspaper of general circulation in the Philippines reciting that a registration statement for the sale of such commercial papers and bonds has been filed with it, and that the said Registration Statement, as well as all the other requisite papers attached thereto, are open to inspection during business hours by interested parties. 2. Seven days after such publication, the Commission shall issue a provisional permit authorizing the sale of such commercial papers and bonds in the Philippines, which shall be valid for a period of 90 days. 3. During this period, the Commission shall review and evaluate the applicant's application. The Commission may, if it finds necessary, call the officers of the applicant to a closed-door conference-hearing. 4. On or before the expiration of the period of 90 days, the Commission shall issue an Order authorizing the sale of said commercial papers and bonds unless it needs additional information or materials in which event, the Commission shall issue its decision not later than 10 days after the submission thereof, beyond the said 90-day period. 5. The applicant shall publish ONCE, the fact that a regular authority has been issued by the Commission in a newspaper of general circulation throughout the Philippines in such size, form and content as prescribed by the Commission. (b) For applicants which do not have any commercial paper with face maturities of 366 days or more and bonds outstanding prior to the effectivity of these rules: 1. The Commission shall issue its decision not later than 90 days after submission of the completed application for registration. In the event the Commission shall require additional information, the Commission's decision shall in no case be issued later than ten (10) days after submission of the additional information beyond the aforesaid 90-day period. 2. During this period, the Commission shall review and evaluate the application. If necessary, the Commission may call the officers of the applicant for a closed-door conference-hearing. 3. After the Commission issues the registration authority, the applicant shall publish notice thereof ONCE in a newspaper of general circulation throughout the Philippines, in such size, form and content as prescribed by the Commission. (c) The Commission shall return any application for registration, if: 1. The requirements of applicable laws and regulations governing the issuance of long term commercial papers and bonds have not been complied with; 2. The issuance of the long term commercial papers and bonds will be in conflict with public interest and national policies; 3. Not all information necessary for a proper evaluation of the worthiness of the long term commercial papers and bonds have been disclosed in the registration statement; and 4. The information disclosed by the applicant in its application for registration is erroneous or may result in a misleading conclusion. SECTION 6. Exemption from Registration . The following need not be registered under these rules: (a) Loans and advances of the Central Bank under its open market and/or rediscounting operations; (b) Long-term commercial papers and bonds issued by the National and Local Governments, Central Bank of the Philippines, Philippine National Bank, Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System, Social Security System; (c) Long-term commercial papers and bonds issued by such other government financial entities as may be determined by the Commission upon the recommendation of the Central Bank; and (d) Commercial papers with face maturities of 366 days or more and bonds issued by corporate issuers other than financial intermediaries, banks or non-banks performing quasi-banking functions, the total amount to be issued or the outstanding amount of which is less than a million or P1 million or more but is neither negotiated to any number of persons, nor primarily issued to twenty (20) or more lenders: Provided, however, That said corporate issuers shall, prior to issuance of its long-term commercial papers and bonds, file an information statement (LT-40) with the Commission: Provided, further, that for purposes of determining exemption under this sub-paragraph, papers of subsidiaries, affiliates, holding companies or any other related companies shall be aggregated and considered as one issue. SECTION 7. Submission of Inventories . The following inventories as at July 31, August 31 and September 30, 1976 shall be submitted to the Commission not later than the thirtieth day of October 1976: (a) A list of outstanding commercial papers with face maturities of 366 days or more and bonds issued or held by each financial intermediary authorized to engage in quasi-banking functions covered by LT 20(A) and LT 30(A) in the prescribed form and content (CP Form QB 2-3-01); (b) A list of the outstanding commercial papers with face maturities of 366 days or more and bonds issued by corporations covered by LT 10, LT 20(B) and LT 30(B) by accomplishing CP Form 101; CP Form 102. SECTION 8. Periodic Reports . Monthly and quarterly reports in quintuplicate, shall be submitted on or before the 15th day following the end of each month and within thirty (30) days following the end of each quarter, respectively, in the prescribed forms herein indicated, as follows: I. Monthly Reports of long term commercial papers and bonds outstanding, declared overdue and/or restructured, money serviced where paying agent function is retained and other off-balance sheet items serviced: A. CP Form M-2-3-01 for financial intermediaries engaged in quasi-banking functions covered by LT 20 (A) and LT 30 (A); B. CP Form M-101 or CP Form M-102 for other issuers covered by LT 10, LT 20 (B) and LT 30 (B). II. Quarterly Report signed under oath by the President or any other officer duly authorized to do so by the Board of Directors, specifying any change in the original registration statement or information statement of the corporations: A. CP Form Q-2-3-01 for financial intermediaries covered by LT 20 (A) and LT 30 (A); B. CP Form Q-1 for all registered issuers covered by LT 10, LT 20 (B) and LT 30 (B); C. CP Form Q-40-1 for all exempt issuers covered by LT 40. The Commission may require the submission of such other pertinent reports or statements as it may deem necessary in the interest of the public. SECTION 9. Filing Fees . Every applicant shall pay a minimum fee of P1,000.00 or 1/50th of 1%, whichever is higher, based on the total commercial papers and bonds registered but not to exceed P10,000.00. SECTION 10. Central Bank Supervisory Powers . The Monetary Board shall also have the power of supervision in the enforcement of these rules, concurrent with the Commission and, without prejudice to the provisions of the succeeding paragraph, impose administrative sanctions as circumstances warrant. SECTION 11. Administrative Sanctions . If after due notice and hearing, the Commission finds that there was a willful intent to submit inadequate disclosures or to deceive through the filing of inaccurate information in the registration statements and/or the periodic reports, or there is a violation of any of the above regulations, the Commission may subject the violator to any of the following penalties: (a) Suspension or revocation of selling authority; (b) A fine of not less than P200 for everyday the violation persists; (c) Other penalties within the power of the Commission under existing laws; and (d) The filing of criminal charges against the corporation and its principal officers. SECTION 12. Effectivity . These rules shall take effect on October 15, 1976. Ortigas Avenue, Pasig, Metro-Manila, Philippines. October 15, 1976 Approved: (SGD.) ANGEL L. LIMJOCO, JR. Chairman Securities & Exchange Commission (SGD.) G. S. LICAROS Chairman Monetary Board of the Central Bank of the Philippines [Source: Circular 545 dated 11-22-76] APPENDIX C (Book V, Part 6) ADDITIONAL RULES AND REGULATIONS ON MONEY MARKET ACTIVITIES (RURAL BANKS) All banks and non-bank financial intermediaries performing quasi-banking functions shall not accept money market placements of rural banks unless the latter present a certification under oath stating (a) that they do not have overdue special time deposits; (b) that they have no past due obligations with the Central Bank or other government financial entities; (c) the amount of their current obligations, if any, with said government financial entities; and (d) the amount of their total outstanding money market placements. However, in no case shall such financial intermediaries sell receivables to rural banks without recourse. A. Definition of terms . As used in this Appendix, the following terms shall have the following meanings: (1) 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. (2) Government securities shall include evidences of indebtedness of the Republic of the Philippines, the Central Bank of the Philippines 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. (3) Persistent violation shall mean the violation of any of the provisions of these rules by the director or officer concerned for four or more times within a 12-month period from the date the first offense was committed. B. Conditions required on placements accepted which are not covered by this prohibition . Placements accepted which are otherwise not covered by the above prohibition must comply with the following conditions: (1) that total money market placements of rural bank as stated in the certification, including the placement being accepted by the entity concerned shall not exceed the rural bank's combined unimpaired capital accounts or networth less current obligations with the Central Bank or other government financial entities. (2) the maturity of the money market placement shall not exceed sixty (60) days; and (3) 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 Central Bank Certificates of Indebtedness or other government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. C. Transition period . Outstanding money market placements of rural banks covered by this prohibition as of July 28, 1977 may be allowed until the maturity dates of the placements but shall not be subsequently renewed. D. Reporting requirements . The monthly sworn statement of Quasi-Banking Operations for banks and non-banks shall henceforth include a certification to the effect that the entity has not accepted money market placements as herein defined from rural banks covered by the prohibition and that said money market placements comply with the conditions prescribed in Paragraph B of this Appendix. E. Sanctions . Violation of the provisions of this Appendix shall be a ground for suspension or after due hearing, removal from office of the directors/officers of banking institutions responsible therefor, without prejudice to the imposition of the other sanctions provided in Sections 34 and 34-A of R.A. No. 265, as amended. For purposes of this Appendix, the penalty of suspension and removal from office shall be imposed as follows: a) 1st offense suspension between 15 days to one month b) 2nd offense suspension between one to three months c) 3rd offense suspension between four to six months c) Persistent violation removal from office Any bank or non-bank financial intermediary performing quasi-banking functions found violating or not complying with the provisions hereof may be subject to the following sanctions or penalties: cdtech a) Suspension or revocation of the authority to engage in quasi-banking functions; b) Penalties prescribed under Section 34 or 34-A of Republic Act. No. 265, as amended. [Source: Circular 574 dated 7-28-77] Book V SUBJECT INDEX References are to section/subsection numbers and appendices Accreditation IGLF accreditation system, V.3.App.A Affiliate definition, 511.22(m); V.6.App.A. [Sec. 2(e)]; 534 1(g) Agencies (See also Branches/Other Offices ) agency arrangements, defined, 514 Assets capital to assets ratio, computation, 511.21 cdi Bond Issues incentives, 568.15 minimum features, 568.13 trust indenture, 568.13 underwriting, 568.14 Borrowings borrower's own account, defined, 519.12(b) borrowing-investment program, 519.32 by building and loan associations, 567.7 definition of, 519.12(a) deposit substitutes, 567 from the government, 567.82 from trust departments or investment houses, 567.81 Branches capital build-up, 514 criteria for establishment, 514 documentary requirements, 514 maximum number, 514 Building and Loan Associations borrowings, when deemed qbf, 567.7 Call Loans as deposit substitutes, 567.36 Campaigns to attract funds, 569.1 gift, give-away, definition, terms and conditions, 569.1 raffles, lotteries, contests, conditions, 569.1 sanctions, 569.1 Capital Accounts, Combined book value of paid-in, defined, 534.1(h) computation of required minimum capital accounts, 511.21 definitions, 511.22 reporting requirements, 511.23 Capitalization capital to assets ratio; computation, 511.2 capital build-up program 511.1 capital requirements for branching, 514 equity investments by foreigners, 511.1 investments in affiliates/subsidiaries, 511.1 minimum paid-up capital for a qb, 511.1 reporting requirements, 511.23 sanctions for deficiency, 511.24 Certificates of Assignment not covered by reserve requirements, 567.11 not covered by minimum trading lot, 567.22 Certificate of Authority procedural requirements for licensing qbf, 519.31 Charges/Other Charges definition, 531.32 on loans of NBFIs in qbf, 531.32 Chattel Mortgage Certificates , 568.2 Citizenship Requirements in the establishment of a qb for FCs, 519.22 for IHs, 519.22 Commercial Papers basic features of, V.6.App.A (Sec. 10) definition, V.6.App.A [Sec. 2(a)] exemption from registration requirements, 569.3; V.6.App.A [Sec. 2(a)] other requirements before issuance or sale, 569.3 registration requirements, 569.3 sanctions, 569.3 SEC rules on long-term CP registration, V.6.App.B administrative sanctions, Sec. 11, ib. CB supervisory powers, Sec. 10, ib. close-end registration, Sec. 4, ib. definitions of terms, Sec. 2, ib. exemption from registration, Sec. 6, ib filing fees, Sec. 9, ib. notice of hearing, Sec. 5, ib. registration requirements, Sec. 3, ib. reports, Sec. 8, ib. scope of rules, Sec. 1, ib. submission of inventories, Sec. 7, ib. SEC Rules on Registration, V.6.App.A administrative sanctions, Sec. 15, ib. CB supervisory powers, Sec. 14, ib. corporate issuers to file registration statement, Sec. 3, ib. exemption from registration, Sec. 5, ib. filing fees, Sec. 11, ib. negotiation of CP, Sec. 4, ib. notice of hearing, Sec. 8, ib. open-end registration, Sec. 7, ib. reportorial requirements, Secs. 6 and 13, ib. submission of inventories, Sec. 12, ib. when issuance amounts to qbf, 569.3 Commingling of Funds prior CB approval of plan, 567.22 prohibition against, 567.22 rules for trust funds, 567.22 Controlled Corporations limitations on transactions with qb corporations, 569.2 Credit Accommodations definition, 534.1(a) delinquency in payment of, 521.1 indirect accommodations, defined, 534.3 policy on DOSRAS, 534 ceilings on, 534.4 single borrower limit, 531.1 procedural requirements, 534.6(s) collateral requirements, 534.6(b) suspension of, 534.6(c) reporting requirements, 534.6(d) for fringe benefit program, 534.8 Delinquency definition, 521.1; 522.1 Deposit Substitutes as collateral, 567.4 call loans, 567.36 commingling of trust funds, 567.22 interest/yield, 567.35 instruments form and substance, 567.33 issuance of, types, 567.31 minimum features, 567.32 physical delivery requirement, 567.34 other rules on issuance of, 567.35 matured and unclaimed, 567.35 minimum maturity, 567.21 minimum trading lot, size, maturities, 567.22 pretermination of, 567.4 prohibition against commingling of funds, 567.22 required reserves, 567.11 Directors credit accommodations to, 534 definition, 521.1; 534.1(c) disqualifications for, 521.3 disqualification procedures, 521.31 documentary requirements for evaluating integrity, V.2.App.A evaluation of capability 521.4 interlocking directors, 521.5 qualifications of, 521.2 Disqualifications for directors, 521.3 for officers, 522.3 procedures, 521.31 Documentary Requirements for branching, 514 for evaluating directors/managerial staff, V.2.App.A for issuance of certificate of authority for qbf, 519.31; 519.33 Effective Rate definition, 531.31(c) Equity Investments by foreigners, 511.1 investments in excess of ceilings, 542.24 investments not subject to ceilings, 542.22 "investor" clarified, 542.23 prescribed ceilings 542.21 in a quasi-bank, 519.34 rules on, 542.2 submission of list of stockholders, 542.24 Extension Offices (See Branches/Other Offices ) Financing Companies transactions of, 531.91 Fines unpaid fines for reserve deficiencies, 567.17 Foreign Equity (See Equity Investments ) Fringe Benefits credit accommodations to officers, 534.8 Giveaways (See Campaigns ) Government Securities as reserve against deposit substitute liabilities, 567.12 minimum features, 567.12 repurchase agreements with CB, 567.6 aisadc value when held as reserve. 567.13 Grandfather Rule (See Voting Stock ) IGLF Loans accreditation program, V.3.App.A guidelines on loans to medium-scale industries, V.3.App.C industries for IGLF financing, V.3.Att. B-1 rules on availment of special time deposits/deposits substitutes, V.3.App.B rules implementing IGLF accreditations system, V.3.App.A Instruments for Deposit Substitutes minimum features, 567.32 other rules on issuance of, 567.35 prescribed types, 567.31 requirement for physical delivery, 567.34 sanctions, 567.37 standard form and substance, 567.33 Interbank and Other Borrowings borrowings from the government, 567.82 borrowings from trust departments and investment houses, 567.81 Interbank Call Loan definition, V.6.App.A [Sec. 2(b)] Interlocks directors, 521.5 officers, 522.4 Interest interest/yield on deposit substitutes advance payment, 567.5 ceiling for deposit substitutes of more than 730 days, 567.5 computation of, 567.5 effective rate for deposit substitutes of 730 days or less, 567.5 maximum rate on purchase of instruments, V.3.App.D preterminated deposit substitutes, 567.4 Usury Law applicability, 531.31 interest on loans computation of, 531.31 effective rate, 531.31 (a) maximum rate, V.3.App.D payment in kind, 567.5 Internal Procedures internal control standards, 524.7; V.2.-V.2.App.B recording of transactions, 524.1 Investments in affiliates/subsidiaries, 511.1; 542.1 equity investment by foreigners, 511.1 equity investment in qb, 519.34 investment-borrowing program, 519.32 investment in equity (see Equity Investment ) "investor" clarified, 542.23 rules on equity investments of other qbs, 542.2 Lending/Relending definition of relending, 519.12(d) regular lending, defined, 519.12(e) Licensing (See Certificate of Authority ) Liquidity Floor on borrowings from the government, 567.82 Loans in General ceiling on amount of loans subject to authorized yields, 531.3(b) (iii) credit accommodations to directors, officers and stockholders, 534 IGLF loans, 535.1 Interest, yield and other charges, 531.3 lending/relending, defined, 519.12(d) and (e) past due accounts, 531.4 qualitative appraisal of outstanding loans, 531.4 reserves on loss, doubtful loans, 531.4 single borrower limit, 531.1 Truth in Lending Act, applicability, 531.3(c) Usury Law, applicability, 531.3(b) Lotteries (See Campaigns ) Managerial Staff (See Organization ) Minimum Maturity of Deposit Substitutes , 567.2 Minimum Trading Lot Rule , 567.2 Mortgage Certificates , 568.2 Officers credit accommodation to, 534, 534.4(d); 534.8 definition, 522.1; 534.1(d) disqualifications, 522.3 disqualification procedures, 522.31 documentary requirements for evaluating integrity, V.2.App.A interlocking officers, 522.4 managerial staff, 519.23 qualifications, 522.2 Organization capital requirements to engage in qbf, 511.1 Other Offices (See Branches ) Past Due Accounts accrual of interest, 531.44 allowance for doubtful accounts, 531.46 definition, 531.4 renewals/extension, 531.41 reporting, 531.45 types, 531.42 written demand, 531.43 Procedural Requirements for licensing of qbs, 519.31 Promotional Plans (See Campaigns ) Quasi-Banking building and loan borrowings, when deemed qbf, 567.7 certificate of authority; procedural requirements, 519.31 citizenship requirements, 519.2 definition, 519.1 elements of; definitions, 519.11; 519.12 minimum capitalization, 511.1; 519.21 non-quasi banking transactions, 519.13 preconditions for the exercise of, 519.2 Raffles (See Campaigns ) Registration close-end registration, V.6.App.B (Sec. 4) of commercial papers (See Commercial Papers ) open registration, V.6.App.A (Sec. 7) Records recording of transactions, 524.1 Relative Definition, 534.1(e) Reports/Reporting Requirements capitalization, 511.23 commercial paper issuers, V.6.App.A (Sec. 13) corporations exempted from SEC registration requirements re issue of CP, V.6.App.A (Sec. 6) credit accommodation to DOSRAS, 534.6(d) long-term commercial papers, V.6.App.B (Sec. 8) past due accounts, 531.45 policy criteria for establishing reserves, 531.4 sanctions, 511.24 stockholders' equity investments, 542.24 Repurchase Agreements with CB on CBCIs and other government securities, 567.15 Reserves abuse defined, 567.15 abuse of offset privilege, 567.15 against deposit substitute liabilities, 567.11 against marginal reserves, 567.12 chronic reserve deficiency; definition, 567.16 composition of, for banks, 567.12(a) composition of, for non-banks, 567.12(b) computation of, 567.13 deficiencies, offset privilege, 567.14 government securities as reserves, 567.12 interest payment on, 567.12 on loss accounts, doubtful accounts, 531.46 required on funds from trust departments, 567.11 submission of criteria on policies, 531.46 time deposits as reserves, 567.12 unpaid fines, 567.17 Single Borrower Limit , 531.1 Sinking Fund on bond issues, 568.13(d) Stockholders definition, 534.1(b) Subsidiary definition, 511.22(n); V.6.App.A [Sec. 2(f)]; 534.1(f) Time Deposits as reserves, 567.12 Trading Lot Rule minimum trading lot, 567.22 Trust Indenture on bond issues, 568.13(d) Truth in Lending Act (See Loans in General ) Usury Law (See Loans in General ) Voting Stock computation of; "grandfather rule," 519.22 Yield (See Also Interest ) ceiling on receivables with remaining maturity of more than 730 days, 531.31 computation, 567.5 effective rate on receivables, 531.1(b) effective rate on deposit substitutes with maturity of 730 days or less, 567.5 maximum ceilings on loans and purchase of instruments, V.3.App.D