Manual of Regulations on the Supervision of Financial Intermediaries — Book III

July 11, 1975 MANUAL OF REGULATIONS ON THE SUPERVISION OF FINANCIAL INTERMEDIARIES IMPORTANT This Manual is a compilation in convenient form of all Central Bank Circulars, memoranda and other issuances on force, from January 1949 to June 1975, and is intended as a systematic guide for the user. However, should a conflict arise between any provision herein and the original text of the pertinent CB issuances, the latter shall prevail. MESSAGE Since the Central Bank of the Philippines started operations in January 1949, various attempts have been made to compile and/or codify the different issuances through which the Central Bank exercised its responsibility over the monetary and banking system of the Republic. These efforts proved to be largely unavailing. It is therefore with a sense of accomplishment that the Central Bank presents this compilation of Central Bank regulations which encompasses all its regulatory issuances and amendments, revisions, and repeals effected through the years and by now numbering more than a thousand. This work was undertaken by the Commission on the Supervision of Financial Intermediaries created by Monetary Board Resolution No. 40 dated January 10, 1975. The work embodies the joint efforts of the Central Bank staff and the private sector. It is hoped that this codification of Central Bank rules and regulations will assist the Central Bank staff in the exercise of their work and thus contribute towards the further strengthening of the Philippine financial system. (SGD.) G. S. LICAROS Governor July 11, 1975 FOREWORD [Addendum] This first issue of Book III (Regional Unit Banks) of the Manual of Regulations already incorporates Central Bank regulatory issuances up to 29 February 1976, as indicated in the upper right hand/left hand corner of each page of the Manual. Subsequently, however, this Book will be updated on a semestral basis, as of every 30 June and 31 December of the year, together with the other Books of the Manual, namely, Book I (Commercial Banks), Book II (Thrift Banks), Book IV (Non-Bank Financial Intermediaries) and Book V (Quasi-Banking Functions). COMMISSION ON THE SUPERVISION OF FINANCIAL INTERMEDIARIES 29 February 1976 Manila, Philippines FOREWORD The Central Bank of the Philippines was created by Republic Act No. 265 and was organized in January 1949. Charged with the responsibility of administering the monetary, banking and credit system of the Republic, the Central Bank has issued a total of more than four hundred circulars. Various memoranda and circular-letters have also been issued throughout the years which must have passed the one-thousand mark a long time ago. In recommending to the Monetary Board the creation of the Commission on Supervision of Financial Intermediaries, Governor G. S. Licaros accentuated the need for a "review of existing Central Bank regulations affecting supervision and examination as formulated in existing circulars, memoranda, and other orders, with the intention of recommending improvements consistent with effective supervision and implementation, including the codification of said regulations and possible measures for strengthening internal controls and management of financial intermediaries." The contents of this Manual is the end result of about six months' work. It is a modest approach towards codification and is intended for the use of Central Bank staff, as a systematic guide in the discharge of their examination and supervisory functions. The Manual is divided into five books grouped on the basis of categories of banks and non-bank financial intermediaries under the General Banking Act. It is a compilation of all existing regulatory issuances which are being implemented principally by the Supervision and Examination Sector of the Central Bank, up to June 30, 1975, the cut-off date of this inaugural issue. It is envisioned that the Manual will be up-dated at least every six months in order to incorporate new issuances and otherwise reflect revisions and/or amendments. The Commission made it a working policy to delete statutory provisions since regulations are intended to be implementory and not to be mere repetitions of what are already in the law. Procedural guidelines, as a general rule, were also not incorporated. It is to be emphasized that existing issuances which, for one reason or another, have not been reproduced in this Manual are not to be taken as having been amended, repealed or otherwise superseded . In the preparation of this Manual, valuable assistance was extended by the Department of Loans and Credit, the Accounting Department and the Revenue Collection Office, aside from the departments in the Supervision and Examination Sector; namely: the Department of Commercial and Savings Banks, the Department of Rural Banks and Savings and Loan Associations, and the Office of Non-Bank Financial Intermediaries [now Department of Financial Intermediaries (Non-Bank)]. The Commission members advising on this undertaking were Mr. Armand V. Fabella, Chairman of the Reorganization Commission and Mrs. Carlota P. Valenzuela, Special Assistant to the Governor, Supervision and Examination Sector. Over-all coordination and review was undertaken by Dr. Jaime C. Laya, Commission Chairman and Mrs. Mercedes C. Paderes, Technical Staff Coordinator. The technical staff team that worked on this project was headed by Miss Dominadora C. Suga, Bank Executive Assistant III, Office of the Governor, and included Iigo B. Regalado, Jr., Bank Executive Assistant III, Office of the Deputy Governor and General Counsel; Ludivina V. Andaya, Assistant Director, Feliciano L. Miranda, Jr., Assistant Director, Isabel V. Rimando, Assistant Regional Coordinator, Carlos M. Lacanilao, Supervising Bank Examiner, all of the Department of Commercial and Savings Banks; Jose R. Gonzalez, Assistant Director, Corazon C. Vibar, Bank Examiner A, both of the Department of Rural Banks and Savings and Loan Associations; Candon B. Guerrero, Staff Assistant on Non-Bank Operations and Milagros F. Dumpit, Senior Analyst, both of the Department of Financial Intermediaries (Non-Bank). The Commission secretariat and staff consisted of Alberto R. Enriquez, Teresita S.M. Santos, Ofelia C. Arenas, Carol Blando, Fidel Cabingao, Remedios M. Cochico, Leticia M. Hidalgo, Aurea Perez and Corazon Zapanta. THE COMMISSION ON THE SUPERVISION OF FINANCIAL INTERMEDIARIES June 1975 COMMISSION ON THE SUPERVISION OF FINANCIAL INTERMEDIARIES Chairman (SGD.) JAIME C. LAYA Deputy Governor Supervision and Examination Sector Central Bank of the Philippines Members (SGD.) BASILIO ESTANISLAO (SGD.) ARMAND V. FABELLA President Chairman Land Bank of the Philippines Presidential Commission on Reorganization (SGD.) JOSE F. UNSON CARLOTA P. VALENZUELA Representative Special Assistant to the Governor Bankers Association of the Philippines Supervision and Examination Sector Central Bank of the Philippines (SGD.) EDUARDO M. VILLANUEVA Vice-Chairman, Management Committee Sycip, Gorres, Velayo and Company Technical Staff Coordinator (SGD.) MERCEDES C. PADERES Director Department of Commercial and Savings Banks Central Bank of the Philippines To Users of this Manual of Regulations: The Manual of Regulations is divided into five Books corresponding to the different categories of banks and non-banks under the General Banking Act. Each Book is divided uniformly into nine (9) Parts. Certain Parts not at present applicable to particular Books are merely skipped so as to maintain uniformity in Part number and subject matter for all Books. Each Part will further be subdivided into nine (9) sub-headings which will also be uniform for all Books. For the present, not all nine possible sub-headings have been utilized. The numbering system for the provisions in the Manual has been so devised as to facilitate identification of provisions and comparison between regulations applicable to the different types of banks and non-banks. Thus, the first digit of the Section number refers to the financial institution (which also coincides with the Book number), the second to the Part number and the third to the sub-heading. All provisions for commercial banks, therefore, begin with "1"; for thrift banks, "2"; for regional unit banks (rural banks), "3"; for non-bank financial intermediaries, "4"; and for financial intermediaries performing quasi-banking functions, "5". Regulations on capitalization which is sub-heading 1 of Part 1 will thus be found under Sections 111, 211, 311, 411 and 511. Slight deviations from this pattern had to be made, however, in the case of Book III for Regional Unit Banks. Details of each provision are represented by the numbers after the decimal point following the first three digits of the section number, and are not necessarily uniform for all Books. Thus, Sub-sec. 111.1 for Book One may not have exactly the same title as Sub-sec 211.1 of Book Two, but both provisions will deal with some aspect of capitalization. The same holds true for sub-sections under the other Parts. The pagination for all Books is by Section. Each Section starts with page 1, with an indication of the number of pages constituting said Section, thus: page 1 of _______ pages, and so on. For easy reference, the contents of each page are indicated at either the upper right- or left-hand corners, thus: subsection number(s) preceded by the symbol or . The date 75.06.30 found below each subsection number refers to the cut-off date of this inaugural issue of the Manual, which is June 30, 1975. Thereafter, the date will be changed to the end of the semestral period during which subsequent revisions/amendments and/or new regulations will have been issued. TABLE OF CONTENTS PART 1 ORGANIZATION AND OPERATIONS IN GENERAL SECTION 311. Capitalization 311.1 Minimum paid-up capital requirement 311.2 Net worth to risk asset ratio 311.21 Effect of deficiency 311.3 Supplemental capital from the government SECTION 312. Stock and Stockholders 312.1 Kinds of stock; rights, privileges, and par value 312.2 Limitations on shares of stock 312.21 Limitations on preferred stock 312.22 Limitations on common stock 312.3 Ceilings on voting equity 312.4 Certificates of transfers; cancellation and issuance of duplicate 312.5 Unpaid subscriptions 312.6 Retirement and sale of preferred stock; pre-emption rights 312.7 Acquisition by small farmers of equity in rural banks 312.71 Procedure for acquisition of shares of stock 312.72 Shares of stock; sources; limitations 312.73 Determination of cost of acquisition 312.74 Posting of notices SECTION 313. Dividends 313.1 Frequency and limitations 313.2 Amounts not eligible for dividend declaration SECTION 314. Extension Offices, Money Shops, Savings Agencies and Other Offices 314.1 Prior approval of the Monetary Board required 314.11 General guidelines in chartering agencies/ extension offices 314.2 Establishment of extension offices; guidelines 314.21 Basic conditions for extension offices 314.22 Conditions for processing applications 314.3 Money shops 314.4 Savings agencies SECTION 315. General Requirements on Organization and Operation 315.1 Qualification requirements 315.11 Who may be organizers of a rural bank 315.12 Qualifications of natural persons to be organizers of a rural bank; disqualifications 315.13 Qualifications of cooperatives as organizers of a rural bank 315.14 Qualifications of corporations to be organizers of a rural bank 315.15 Residence requirements for organizers/ key officers 315.2 Procedural requirements 315.21 Application for permit to organize 315.22 Economic survey and credit investigations 315.23 Submission of application to the Monetary Board for approval 315.3 Formal organization 315.31 Form of organization 315.32 Requisites in the formal organization and opening for business of proposed rural bank 315.4 Name of rural bank; prohibition 315.5 Supplementary rules and procedures 315.6 Rural bank office and premises; prohibition against transfer 315.61 Limitations on investment in fixed assets 315.62 Insurance of office budding, furniture and funds 315.7 Rural bank's seal, equipment and furniture 315.8 Security for funds and records Appendix A Revised Procedure in Organizing Rural Banks Appendix B Guidelines/Criteria in the Establishment of Money Shops Appendix C Guidelines/Criteria for the Establishment of Savings Agencies by Rural Banks Appendix D Guidelines for the Organization of Rural Banks by Cooperatives Appendix E Pro-Forma Articles of incorporation Appendix F Pro-Forma Code of By-Laws PART 2 MANAGEMENT AND ADMINISTRATION SECTION 321. Directors 321.1 Definition of terms 321.2 Qualifications and disqualifications of directors 321.21 Qualifications 321.22 Disqualifications 321.23 Interlocking directorates 321.3 Disqualifying interest 321.4 Bio-data of directors 321.5 Honoraria and allowances 321.6 Credit Committee 321.7 Audit/Examination by board of directors 321.71 Balance sheet audit/examination 321.72 Financial statements/accounts examination SECTION 322. Officers and Employees 322.1 Definition of terms 322.2 Qualifications and disqualifications of officers 322.21 Qualifications 322.22 Disqualifications 322.23 Interlocking officership 322.3 Disqualifying interest 322.4 Bio-data of officers 322.5 Compensation of officers and employees 322.51 Cost of living allowances 322.6 Bonding of officers and employees SECTION 323. Banking Days and Hours 323.1 Banking Days 323.2 Minimum banking hours 323.3 Extension of banking hours beyond required minimum 323.4 Reporting of banking time selected 323.5 Posting of banking hours and days SECTION 324. Supervision by the Central Bank 324.1 Examination by the Central Bank 324.11 General examination 324.12 Special examination 324.13 Report on general/special examination 324.14 Annual fee 324.2 Recording of transactions 324.3 Submission of reports/certain information required 324.31 Specific sanctions for willful delay in submission of reports; refusal to permit examination 324.4 Signatories on required bank reports 324.5 Report on real estate transactions between a rural bank and its directors, officers, stockholders or any firm substantially owned by one or more of such directors, officers or stockholders 324.6 Failure or refusal to call meeting 324.7 Prohibition against officers and employees of the Central Bank Appendix A Reports Required to be Submitted by Rural Banks to the Central Bank thru the Appropriate Supervising and Examining Department Appendix A-1 Category B Reports of Rural Banks 2 Format of Resolution for Signatories Category A-1 Reports 3 Format of Resolution for Signatories Category A-2 Reports 4 Format of Resolution for Signatories of Category B Reports Appendix B Report on Crimes/Incidents Involving Loss or Destruction of property of Rural Banks Appendix C Information Under CB Memorandum to all Banks and Non-banks Financial Intermediaries dated October 28, 1975 Appendix D Salary Ceilings, Allowances and Per Diems for Different Positions in Rural Banks PART 3 LENDING OPERATIONS SECTION 331. In General 331.1 Basic lending policies 331.11 Eligible/ineligible borrowers of rural banks; prohibitions 331.12 Application for loan 331.13 Amount of loan; how determined 331.14 Collateral security 331.15 Co-makers, sureties and guarantors 331.16 Loan ceiling on single borrower 331.17 Loans/credit accommodations to directors, officers and stockholders 331.18 Approval of loans 331.2 Loan proceeds 331.21 Prohibition against retention 331.22 Diversion of loan proceeds 331.3 Interest and other charges 331.31 Interest rates 331.32 Service fees and other charges 331.4 Collection and past due loans 331.41 When rural banks must collect 331.42 Prohibition on accrual of interest income on past due loans 331.43 Duty of directors to protect rural bank's interest 331.44 Application for payments 331.45 Renewal of loans; requisites 331.46 Write-offs of loans by rural banks 331.5 Truth in Lending Act disclosure requirements SECTION 332. Kinds of Loans 332.1 Agricultural loans 332.11 Who may borrow; purposes 332.12 Amount of loan; limitations; security 332.13 Period of loan; renewals 332.2 Agrarian reform and agricultural credits 332.21 Definitions; qualified borrowers; security 332.22 Required allocation for agrarian reform and agricultural credits 332.23 Syndicated type of agrarian reform credit/agricultural credit 332.24 Interest and other charges 332.25 Submission of reports 332.26 Penal and administrative sanctions 332.3 Commercial loans 332.31 Who may borrow; purposes 332.32 Amount of loan; security 332.33 Period of loans; renewals 332.4 Industrial loans 332.41 Who may borrow; purposes 332.42 Amount of loan; security 332.43 Period of loans; renewals 332.5 Loans to cooperatives 332.51 Kinds of loans; purposes 332.52 Qualifications of a cooperative 332.53 Terms and conditions of loans 332.6 Term loans 332.61 Authority to grant medium and long term loans 332.62 Purposes 332.63 Loan limits; security 332.64 Maximum maturity periods; amortization requirement 332.65 Miscellaneous conditions SECTION 333. Supervised Credit System 333.1 Concept 333.2 Steps in supervised credit system 333.3 Requirement for supervised credit technician 333.4 Applicability of supervised credit SECTION 334. Special Financing Programs 334.1 Requirements for participation in special financing programs 334.2 Special time deposits 334.21 Application for special time deposits 334.22 Utilization of special time deposits 334.3 Rediscounting 334.4 Kinds of loans under special financing program 334.5 Security 334.6 Requirements for production loans 334.61 Conversion of production loans into a commodity loan 334.7 Marketing tie-up 334.8 Integrated agricultural financing; cottage and small-scale industries financing SECTION 335. Agricultural Guarantee Fund Appendix A Interest Rates on Loans Pursuant to Sections 1 and 2 of the Usury Law (Act No. 2655, as amended) Appendix B Rules and Regulations Implementing Republic Act No. 3765, Otherwise Known as The Truth in Lending Act Appendix C Format Disclosure Statement on Loan/ Credit Transaction Appendix D Format of Abstract of "Truth in Lending Act" PART 4 INVESTMENT OPERATIONS SECTION 341. Investments in Equities of Allied/Related Undertakings 341.1 Authorized allied/related undertakings 341.2 Rural banks disqualified from investing in allied/related undertakings 341.3 Application requirements 341.4 Requirements in the grant of authority to invest in allied/related undertakings PART 5 DEPOSIT OPERATIONS SECTION 351. Savings and Time Deposits 351.1 Savings and time deposits distinguished 351.2 Requisites for the grant of authority to accept savings and time deposits 351.21 Application for authority to accept savings and time deposits 351.22 When a rural bank may be granted authority to accept deposits simultaneously with authority to operate 351.23 Bonds for manager, cashier, and other accountable personnel 351.3 Opening of deposit accounts; prohibitions 351.31 Right of bank to reject deposit 351.32 Number of deposit accounts 351.33 Procedure in opening deposit accounts 351.34 Depositor's signature card and deposit slip 351.35 Verification of deposit; issuance or loss of savings passbook/certificate of time deposit 351.36 Deposit in checks and other cash items 351.4 Interest rates 351.41 Savings deposits 351.42 Time deposits 351.43 Interest payment in kind prohibited 351.44 Special time deposit under IGLF 351.45 Special time deposit for special financing programs 351.46 Special savings deposit of farmers-borrowers 351.5 Barrio Savings and Barrio Guarantee Funds 351.51 Barrio Savings Fund 351.52 Barrio Guarantee Fund 351.6 Withdrawals from savings deposits 351.61 Manner and requirements 351.62 Notice of withdrawal SECTION 352. Demand or Current Deposits 352.1 Distinguished from savings and time deposits 352.2 Limitation on authority to accept demand deposits 352.3 Regulations applicable to demand or current deposits 352.4 Who may open demand or current deposits; minimum deposit requirement; issuance of passbook; serial number of checks 352.5 Withdrawal from current deposits 352.6 Crossed check; effect and purpose 352.7 Required minimum daily balance; service charges 352.8 Monthly statement; right of depositor to inquire on status of his account; prohibition SECTION 353. Reserve Requirements 353.1 Required reserves 353.11 Form of reserves 353.12 Temporary use of CBCIs 353.2 Where reserve in cash may be deposited; withdrawable by check; report of deposits and withdrawals to the Central Bank 353.3 Computation of reserve position; effect of deficiencies 353.4 Required reserves in bonds or securities SECTION 354. Government Deposits 354.1 Authority to accept government deposits 354.2 Types of deposits covered 354.3 Effectivity of withdrawal of authority; transitory period 354.4 Sanctions SECTION 355. Schemes to Attract Deposits 355.1 Contests, raffles or lotteries 355.2 Gifts and giveaways 355.3 Applications 355.4 Extension of existing promotional schemes SECTION 356. Solicitation of Deposits 356.1 Conditions under which banks may solicit deposits 356.2 Solicitation of deposit under the TIPID Movement Appendix A Implementing Guidelines for Collection of Barrio Savings Fund Appendix B Guidelines on Barrio Savings Fund and Barrio Guarantee Fund Appendix C Government Bonds and Securities Eligible as Reserves for Deposit Liabilities Appendix D Withdrawal of Authority of Banks to Accept Government Deposits; Exceptions Appendix E Rules and Regulations Governing the Solicitation of Deposits under the TIPID Movement PART 6 BORROWING OPERATIONS SECTION 361. Rural Bank's Authority to Borrow Money SECTION 362. Borrowings from the Development Bank of the Philippines 362.1 Requisites for loan 362.2 Application for loan; investigation 362.21 Supporting papers and documents 362.22 Investigation by Central Bank; grant of loan by Development Bank of the Philippines 362.3 Contract of loan 362.4 Separate account SECTION 363. Rediscounting 363.1 Papers eligible for rediscounting 363.2 Basic terms and conditions for rediscounting 363.3 Credit limit 363.4 Temporary disqualification of rural banks 363.5 Effects of natural calamities 363.6 Number of rediscount or loan availments 363.7 Credit rating plan 363.8 Procedures in obtaining and repaying a rediscount or loan with the Central Bank 363.81 Application to rediscount 363.82 Rediscount schedule 363.83 Deposit of collaterals 363.84 Maximum amount of loan application 363.85 Release of loans 363.86 Credit examination of borrowing rural banks 363.87 Repayment of loans with the Central Bank and release of collateral 363.88 Other requisites Appendix "A" Maximum Maturity of Loans from the Central Bank to Institutional Borrowers PART 9 OTHER OPERATIONS AND MISCELLANEOUS PROVISIONS SECTION 391. Other Operations 391.1 Rural bank as correspondent and collection agent of other financial institutions 391.11 Authority to act as correspondent and collection agent of other financial institutions and to sell domestic drafts; requisites 391.12 Agreement to act as correspondent and collection agents; contents; approval of the Central Bank 391.13 Collection of checks, drafts and other bills of exchange 391.14 Collection of loans and other claims 391.15 Failure to collect; return of checks and other evidences of credit 391.16 Extension of time; modification of instrument 391.17 Credit investigation 391.18 Investigation of securities 391.2 Acceptance of U.S. treasury warrants, checks and U.S. postal money orders for deposit or repayment of loans 391.3 Sale of Philippine National Bank money orders 391.31 Application for authority 391.32 Qualification requirements 391.4 Authority to act as foreign exchange dealers of the Central Bank SECTION 392. Bank Advertisements SECTION 398. Other Miscellaneous Provisions 398.1 Posting of statement of condition of rural banks 398.2 Prescribed educational and training program for rural bank personnel 398.3 Facsimiles of government securities SECTION 399. Sanctions in General Appendix A Procedural Guidelines Implementing Circular No. 482 PART 1 Organization and Operations in General SECTION 311. Capitalization SUBSECTION 311.1 Minimum paid-up capital requirement . Except in areas where the Monetary Board has prescribed a lesser amount, a rural bank shall have a minimum paid-up capital of One Hundred Thousand Pesos (P100,000.00). (Revised Procedure in Organizing Rural Banks, see Appendix A). [MB Res. No. 1896 10-13-72] SUBSECTION 311.2 Net worth to risk assets ratio . The capital account of any rural bank authorized to receive current, savings or time deposits, or to rediscount its eligible papers, shall not be less than an amount equal to ten per cent (10%) of its risk assets which is defined as total assets minus the following: (a) Cash on hand; (b) Amount due from the Central Bank; (c) 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; (d) Loans to the extent covered by hold-out on, or assignment of, deposits maintained in the lending bank and held in the Philippines; (e) Bank premises, depreciated; (f) Furniture, fixtures and equipment, depreciated; (g) Balances maintained with the Philippine National Bank or any of its branches for clearing checks drawn on banks located in places not serviced by the Central Bank Clearing Offices; (h) The AGLF portion of CB:IBRD/AGLF Special Financing Program and loans granted under the supervised credit scheme to the extent covered by guarantees; and (i) Contingent assets. [MCRB 73-20 3-16-73] SUBSECTION 311.21 Effect of deficiency . A rural bank which fails to maintain the required minimum ratio is prohibited from making any investment, except the purchase of securities of the kind mentioned in item (c) of Sec. 311.2. Until the minimum capital ratio is attained, all net profits shall be assigned to surplus and no dividend shall be declared. [MB Res. No. 439 3-9-73] SUBSECTION 311.3 Supplemental capital from the Government . Where private capital is not sufficient to meet the normal credit needs of the area served by a rural bank, a petition for Government counterpart financial assistance may be filed by the rural bank with the Central Bank. The petition shall be supported by the following papers and documents: (a) Resolution of the board of directors requesting financial assistance in the form of supplemental capital; (b) List of stockholders indicating their paid and unpaid subscriptions and a schedule for the payment of the unpaid subscriptions within a period of not longer than five (5) years; (c) List of approved loans which are unreleased because of lack of funds of the rural bank; (d) Financial statements; and (e) Affidavit of the president or manager of the rural bank justifying the need for capital assistance and the amount thereof; describing the steps taken by the directors and officers of the rural bank to raise the needed amount of capital from private sources: and stating the reasons why the amount could not be raised from private capital. The Monetary Board may certify to the Development Bank of the Philippines the need of the rural bank for supplemental capital and the amount thereof if such Board is satisfied that: (a) The rural bank is operating fairly in accordance with law and Central Bank rules, regulations and directives; (b) The rural bank is being run and managed wisely and prudently; (c) The rural bank is in need of funds and there is no private capital which can be drawn upon to meet such need; and (d) There is no internal dissension in the rural bank which would jeopardize the Government investment therein. The Development Bank of the Philippines shall provide the supplemental capital, and the rural bank shall issue the corresponding preferred stock at the same par value as the common stock, SECTION 312. Stock and Stockholders SUBSECTION 312.1 Kinds of stock ; rights, privileges, and par value . The articles of incorporation of a rural bank shall provide for only two (2) kinds of stock: (a) common stock, representing private capital, and (b) preferred stock which shall be issued only against government investments in the capital stock of the bank. If there are no government investments, only common stock shall be provided for. Only common stock shall have voting rights; preferred stock shall be non-voting. The Central Bank may request the Development Bank of the Philippines to appoint or designate an officer or employee of the Development Bank of the Philippines or any officer or employee of the Government, its agency or instrumentality, to represent the preferred stock of the Government, but without power to vote. In case of sale by the Government of its preferred stock to private persons, such stock shall automatically become common stock with voting rights. Preferred stock shall have preference over common stock in the assets of the corporation in the event of liquidation. Preferred and common stock shall have a minimum par value of One Peso (P1.00) and a maximum par value of One Hundred Pesos (P100.00) per share. A rural bank is prohibited from issuing no-par value stock. SUBSECTION 312.2 Limitations on shares of stock SUBSECTION 312.21 Limitations on preferred stock . The equity investment of the Government in a rural bank in the form of preferred stock shall in no case exceed the outstanding common stock representing private capital; neither shall such preferred stock in any rural bank be in excess of One Million Pesos (P1,000,000.00). (Sec. 12 Revised Rules and Regulations Governing Rural Banks and Sec. 7, RA No. 720). SUBSECTION 312.22 Limitations on common stock . Ownership of common stock in rural banks shall be subject to the following limitations: (a) Any person, or persons related to each other within the third degree of consanguinity or affinity who, upon the effectivity of Presidential Decree No. 71, own more than 20% of the voting stock of any rural bank, shall not increase their equity holdings in said bank. However, these holdings may be reduced and, once reduced, shall not be increased thereafter beyond twenty per cent (20%) of the voting stock of the bank. [Sec. 12-D, R.A. No. 337, as amended] Notwithstanding the provisions of the next preceding paragraph, a person, or persons related to each other within the third degree of consanguinity or affinity, may own not more than 35% of the voting stock of a rural bank which is under organization: Provided, that, upon registration of the rural bank's articles of incorporation with the Securities and Exchange Commission, holdings which are in excess of twenty per cent (20%) of the voting stock of the rural bank shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond 20% of the voting stock of the rural bank. (b) The total voting stock which any corporation, including its wholly or majority-owned subsidiaries, may own in a rural bank shall not exceed thirty per cent (30%) of the voting stock of said bank: Provided, that, a corporation which is wholly-owned, or the majority of the voting stock of which is owned by any one person or by persons related to each other within the third degree of consanguinity or affinity, may own not more than twenty per cent (20%) of the voting stock of the rural bank. However, the aggregate corporate holdings in one rural bank shall be without limit: Provided, that if two or more corporations are owned or controlled by the same group of persons, the aggregate voting stock which these corporations may own in any single rural bank shall not exceed thirty per cent (30%) of the voting stock of that bank: Provided, further, that if these corporations are owned or controlled by one person or by groups of persons related to each other within the third degree of consanguinity or affinity, the aggregate voting stock which these corporations may own in any single rural bank shall not exceed twenty per cent (20%) of the voting stock of that bank. [Sec. 12-B, RA No. 337, as amended by PD 71] Any corporation owning more than thirty per cent (30%) of the voting stock of any rural bank upon the effectivity of PD No. 71 shall not increase such equity holdings in that bank, but these holdings may be reduced, and, once reduced, shall not be increased thereafter beyond thirty per cent (30%) of the voting stock of the bank. [Sec. 12-B, RA No. 337, as amended] For purposes of this section, the term "corporation" shall include partnerships, cooperatives, and associations. However, with prior approval of the Monetary Board, the extent of the equity investment in any rural bank of corporations primarily organized to hold equities in rural banks located within a particular region as may be defined by the Central Bank, shall not be subject to any limitation. [Sec. 4, RA No. 720, as amended] SUBSECTION 312.3 Ceilings on voting equity (a) Individual/family group/corporate ceiling . Except as provided for in paragraph (b) below, the stockholdings in any bank of any of the following shall not exceed twenty per cent of the voting stock of the bank: (1) Any natural person; or (2) Persons related to each other within the third degree of consanguinity or affinity, herein termed a family group: or (3) Any corporation or corporations which are wholly-owned or a majority of the voting stock of which are owned by a natural person such as in (1) above, or by a family group, such as in (2) above, including their wholly-or majority-owned subsidiaries: Provided, that, where (3) together with (1) or (2) own or desire to own equity in any bank, their combined voting stockholding shall be the basis for the computation of the twenty per cent ceiling. (b) Stockholdings in excess of ceiling . Any or all, as the case may be, of the abovementioned stockholders owning more than twenty per cent of the voting stock of any bank on the date of the effectivity of Presidential Decree No. 71 amending Republic Act No. 337, may maintain but may not increase such holdings in percentage terms; and once reduced, the same may not thereafter be increased beyond twenty per cent of the bank's voting stock. Stockholders falling under categories (1) or (2) of paragraph (a) of this subsection who are presently allowed to own up to thirty-five per cent (35%) of the voting stock in a newly organized rural bank shall be covered by this rule. (c) Determination of (1) relationship within the third degree of consanguinity or affinity, and (2) a "family group" subject to the twenty per cent ceiling . (1) Relationship of persons to each other within the third degree of consanguinity or affinity shall be determined in accordance with the provisions of Articles 963 to 966 of the Civil Code of the Philippines. (2) Persons owning voting stock in a bank who are related to each other within the third degree of consanguinity or affinity shall comprise a family group whose combined holding is subject to the twenty per cent ceiling. Persons who are related to each other but not within the third degree, such as first cousins, do not form a family group. In determining whether the prospective transferee or purchaser is part of a family group subject to the twenty per cent limit/ceiling, the degree of relationship shall be counted from the transferee or purchaser. It is possible for a person to belong to several family groups, and in such a case, it is enough that the percentage limit of twenty per cent for one family group is exceeded for the acquisition/transfer of shares to be considered a violation, even if the transaction may not violate the limit for all of the other possible family groups. (d) Transfers and acquisitions of shares within a family group . Transfers of ownership of shares of stock within a family group, which do not thereby increase but merely maintain the aggregate percentage holdings of the group beyond twenty per cent of the bank's voting stock, shall be allowed: Provided that, no stockholder-member of a family group may acquire additional shares from any other member of that group, if such acquisition would increase his holdings of voting stock beyond the twenty per cent ceiling on individual holdings. (e) Transfers to new investors . Any stockholder may transfer in one transaction to a new investor who is a natural person his entire stockholdings of voting stock, even if it is in excess of the twenty per cent ceiling. However, if the new investor belongs to any family group already holding voting stock in the same bank, his capacity to acquire new shares shall be limited to an extent which is within the individual/family group/corporate ceiling set forth in paragraph (a) of this subsection. Furthermore, if the new investor acquires twenty per cent or more of the voting stock of the bank in that single transaction, he shall thereafter be subject to the provisions of paragraph (b) of this subsection. In any case, the new investor shall not acquire more than twenty per cent of the bank's voting stock from two or more stockholders. [Circular 483 10-20-75] SUBSECTION 312.4 Certificates of transfers ; cancellation and issuance of duplicate . To insure that existing laws and regulations on stock ownership and transfer are complied with, all transfers of common shares shall be reported to the Central Bank. The Central Bank must also be notified in case a stock certificate is lost, stolen or destroyed. This notification may be used as basis for issuance of duplicate certificate in accordance with Republic Act No. 201. The report or notification mentioned hereinabove shall be submitted not later than five (5) days from the time the transfer or loss is reported to the rural bank. Any delay in the report or notification shall subject the rural bank to the corresponding administrative penalties. [MB Res. No. 1191 6-20-75] SUBSECTION 312.5 Unpaid subscriptions . Unpaid subscriptions to the capital stock of a rural bank shall be paid within a period of five (5) years or earlier from the date of opening for business of the rural bank, in five (5) equal yearly installments. Before a rural bank may be authorized to apply for government assistance, it must present a plan or schedule for the payment of unpaid subscriptions, which may be effected in installments within a period of not longer than five (5) years. [Circular 502 2-2-76] SUBSECTION 312.6 Retirement and sale of preferred stock; pre-emption rights . The preferred shares representing government investment in the capital stock of a rural bank shall be retired in whole or in part by the Central Bank so as to be made available to other rural banks if any of the following circumstances occur: (a) In the opinion of the Monetary Board, the rural bank has accumulated enough capital strength to permit such retirement. A reserve for retirement of preferred stock shall be set up by setting aside annually an amount equal to one-tenth (1/10) of the preferred stock of the government. No dividend shall be declared unless the total accumulated reserve requirement for retirement of preferred stock is complied with. A rural bank which has been in operation for a period of at least three (3) years shall set up a sinking fund from the reserve mentioned in the next preceding paragraph for the specific purpose of retiring the preferred stock of the rural bank. The yearly installment to be set aside in the sinking fund shall be sufficient to retire all the preferred stock within a period of ten (10) years, to be reckoned from the date of each release of counterpart funds. Any income of the fund shall be used to increase the sinking fund. The fund shall either be invested in the form of evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, or be placed on time deposit with the Philippine National Bank or the Development Bank of the Philippines. (b) An offer is received from private sources to replace the equity investment of the government with at least an equivalent investment in the common stock of the rural bank. The sale, in this case, shall be made at par to private individuals who are Filipino citizens: Provided, however, that the stockholders on record who are Filipino citizens shall have the right of pre-emption for one (1) year from the date of the offer in proportion to their respective holdings; but, if there are no such buyers, the right of pre-emption may be exercised by the residents of the locality or province where the rural bank is located. [RA No. 720, as amended by PD No. 122] SUBSECTION 312.7 Acquisition by small farmers of equity in rural banks It shall be obligatory upon an existing rural bank to accept offers to invest in the equity of the rural bank from farmers who are its clients and who are members of a Samahang Nayon , or from a Samahang Nayon of which said farmers are members, in the form of common shares of stock of the rural bank representing in the aggregate up to forty per cent (40%) of the voting stock of the bank. [P.D. 584 11-16-74] For purposes of this Section, "client" shall mean any farmer-member of a Samahang Nayon who is a depositor or borrower of the rural bank. SUBSECTION 312.71 Procedure for acquisition of shares of stock (a) The farmer-member or the Samahang Nayon shall make a written offer to the rural bank for the purchase of the shares of stock. The offer of the farmer-member shall be accompanied by a certification from his Samahang Nayon that he is a member in good standing. The offer of a Samahang Nayon shall be accompanied by a certification from the Bureau of Cooperatives Development, DLGCD, that it is a Samahang Nayon in good standing. (b) In the acceptance of offers, the rural bank shall apply the "first come, first served" basis, to be reckoned by the day (all offers received on the same day, regardless of time, shall be considered as received simultaneously). In cases where the number of remaining available shares is insufficient to satisfy two or more offers on any given day, the offer of a Samahang Nayon shall be given priority over that of an individual farmer-member, while the offer of a farmer-member who is a resident of the locality where the rural bank is situated shall be given priority over that of a farmer-member who is not a resident. If the offers received on the same day have the same priority, the remaining available shares shall be equally divided between them. (c) Before any transfer or issue of stock under this Section is entered in the books of the rural bank, there should be full compliance with the provisions of Subsections 312.2 and 312.3. SUBSECTION 312.72 Shares of stock ; sources ; limitations (a) The shares of stock to be made available by the rural bank shall come from shares of stockholders who are willing to sell and/or from the unissued common shares of stock of the bank. If these are inadequate for the purpose, the necessary increase in capitalization shall be effected by the rural bank. Whenever the capital stock is increased for this purpose, the additional shares of stock shall be to satisfy the offers of qualified farmer-members or Samahang Nayon . (b) In the disposition of voting shares under this subsection, sales shall be made to as many Samahang Nayon as possible within the area of operation of the rural bank concerned. Priority shall be given to Class "A" Samahang Nayon as certified by the Bureau of Cooperatives Development, DLGCD. (c) The disposition of the shares of stock by the rural bank to the farmer-members or Samahang Nayon shall be by purchase and not by subscription, and the sale shall be on a cash basis only. (d) The acquisition of shares of stock in existing rural banks by the farmer-members or by the Samahang Nayon shall be subject to the limitations on individual, family group, or corporate holdings established under Section 12 of RA No. 337, as amended. [Circular 467 6-2-75] SUBSECTION 312.73 Determination of cost of acquisition . The price of the share of stock shall be agreed upon between the parties. Where no agreement is reached on the price, it shall be the fair market value of the share of stock at the time of the proposed purchase, to be determined by the Department of Rural Banks and Savings and Loan Associations, Central Bank, on the basis of the following guidelines: (1) The number of shares of common stock outstanding shall be ascertained. (2) The total surplus available, consisting of earned surplus, capital surplus, and surplus reserve except for the reserve for bad and doubtful account, shall likewise be ascertained. (3) The "Appraisal Surplus" arrived at in the revaluation of the fixed assets which shall be conducted by a duly licensed expert or specialist not in any way connected with the rural bank, shall also be included in the computation. The appraisal value of the fixed assets shall be disclosed in the statement of financial condition of the rural bank together with the accumulated depreciation on appraisal values, depreciation on appraisal, excess of appraised values over actual or historical cost, the date of appraisal and the name of the licensed appraiser. "Appraisal Surplus" shall be shown in the Net Worth Section and shall not be made available for dividends except the portion thereof that is absorbed through accumulated depreciation charges on appraisal increment which may be declared as stock dividends. (4) The total of Nos. 2 and 3 above plus the total paid-in common stock, divided by the total number of shares of common stock outstanding (No. 1 above) equals the fair market value per share. [Circular 467 6-2-75] SUBSECTION 312.74 Posting of notices . Every rural bank shall post a notice within the bank's premises and in three (3) conspicuous places in the locality where the rural bank is situated, to the effect that common shares of stock of the rural bank representing in the aggregate up to forty per cent (40%) of the voting stock of the bank are available for sale to farmers who are clients of the bank and who are members of a Samahang Nayon or to any Samahang Nayon of which said farmers are members. Within thirty (30) days from the effectivity of Central Bank Circular 467, the president of each rural bank shall submit to the Department of Rural Banks and Savings and Loan Associations, Central Bank, a certification signed by him that the required notices have been posted, stating therein the places where such notices have been posted. [Circular No. 467 6-2-75] SECTION 313. Dividends If losses have at any time been sustained by any rural bank equal to or exceeding the undivided profits on hand, no dividend shall be declared; and no dividend shall ever be declared by any such bank while it continues in banking operations to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts. All debts due to any such bank on which interest is past due and unpaid for a period of six (6) months, unless the same are well secured and in process of collection, shall be considered bad debts within the meaning of this Section. [Section 84, RA No. 337, as amended] SUBSECTION 313.1 Frequency and limitations . A rural bank may declare cash and stock dividends as many times during a year as it may deem wise to make, after complying with the required reserves and provisions on surplus. At the end of each year, at least twenty per cent (20%) of the credit balance appearing in the undivided profits account, after providing for all required reserves, shall be transferred to a surplus account until such surplus account is equal to at least fifty per cent (50%) of the total paid-in capital, both common and preferred. Dividend declaration for common stockholders shall not exceed fourteen per cent (14%) per annum: Provided, however, that when the surplus (retained earnings not available for dividend declaration) shall have reached fifty per cent (50%) of the private paid-in capital of the rural bank, the rural bank may declare dividends in excess of said percentage. Whenever dividends of not less than fourteen per cent (14%), whether cash or stock, are declared on common stock, government preferred stock shall receive a cash dividend not exceeding two per cent (2%) thereof. Should the declaration be less than fourteen per cent (14%), the dividend for preferred stock shall be proportionately reduced. [Circular 502 2-2-76] SUBSECTION 313.2 Amounts not eligible for dividend declaration . For purposes of dividend declaration, rural banks shall not consider as profits interests due on loans and/or investments not actually collected, except interest due on evidences of indebtedness of the Republic of the Philippines and of the Central Bank of the Philippines, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. [MAB 6-25-62; 10-14-70] SECTION 314. Extension Offices, Money Shops, Savings Agencies and Other Offices SUBSECTION 314.1 Prior approval of the Monetary Board required . No rural bank operating in the Philippines shall establish, open and/or operate branches, extension offices, sub-offices, mobile banks, or any office, or transact business (such as the receipt and payment of deposits) outside the premises of its duly authorized principal office, without the prior approval of the Monetary Board. [Circular 176 6-3-64] SUBSECTION 314.11 General guidelines in chartering agencies/extension offices . In the chartering of agencies or extension offices of rural banks, the following guidelines shall be observed: (a) The maximum number of applications which may be accepted at any given time shall be such that if all these applications are approved, the bank concerned shall not have a number of authorized but unopened offices in excess of the following limits: (1) Extension office or agency 6 (2) Savings agency 6 (3) Money shop 4 Provided: That an application for a given type of office shall not be accepted if there are two or more approved but unopened offices of the same type in the same area or locality belonging to the same category of bank. (b) The ceiling on applications that may be considered by the Central Bank for the establishment of savings agencies and/or money shops may be increased on a case to case basis upon approval of the Governor, on the basis of resources, personnel capability, and, generally, a demonstration of the capability of the bank to organize and staff an increased number of savings agencies and/or money shops within a reasonable time; Provided, however, That no extension shall be allowed of the approved time of opening, for offices approved in excess of the ceding established in item (a) hereof. [Circular 476 7-14-75] SUBSECTION 314.2 Establishment of extension offices ; guidelines . Rural banks are not allowed to operate branches but they may open extension offices, subject to the guidelines hereunder specified. SUBSECTION 314.21 Basic conditions for extension offices . A rural bank may be authorized to open extension offices, subject to the following conditions: (a) That there is justification for the establishment of the extension office; (b) That the applicant bank is in sound financial condition and that it has substantially corrected the deficiencies in its operations; (c) That the applicant bank has complied with the law and the rules and regulations of the Central Bank; and (d) That the extension office shall be located within the same municipality/city where the principal office is located: Provided, that said extension office shall be at least ten (10) meters away from any existing bank or branch thereof or from any approved but not yet opened bank/branch, except where they are separated by a street. SUBSECTION 314.22 Conditions for processing applications . The application to open an extension office shall be processed only if: (a) The applicant bank has had at least one (1) year of profitable operations; (b) The applicant bank has no past due obligations with the Central Bank, both rediscounting and special financing; and (c) The applicant bank has had no reserve deficiency for the last three (3) months preceding the filing date of the application. If it has, it must show excess reserves for the next succeeding three (3) months. [MB Res. No. 2380 12-21-73] SUBSECTION 314.3 Money Shops . Rural banks may be authorized to engage in money shop operations, and applications for authority to operate money shops shall be processed in accordance with the guidelines/criteria on the establishment of money shops (Appendix B). SUBSECTION 314.4 Savings Agencies . Rural banks are authorized to establish savings agencies within the municipality/city where their principal office is located, subject to the same guidelines/criteria as those for the establishment of extension offices of rural banks provided for in subsection 314.2 hereof. (Shown in Appendix C). [Circular No. 471 6-10-75] A savings agency is a mini-extension office of the head office, or of an existing extension office, of a rural bank. A savings agency shall offer banking services to the public, such as servicing deposits and withdrawals and accepting small loan applications subject to the limitations of Sections 5 and 6 of RA No. 720, as amended, for rural banks. A savings agency shall observe banking hours and banking days similar to, or within the banking hours of, its extension office/head office. [Memorandum to All Thrift Banks 5-12-75, as modified by Circular 471 6-10-75] SECTION 315. General Requirements on Organization and Operation SUBSECTION 315.1 Qualification requirements SUBSECTION 315.11 Who may be organizers of a rural bank . The following may be organizers (incorporators or subscribers) of a rural bank: (a) Natural persons who meet the qualifications prescribed in subsection 315.12 hereof; (b) Duly registered cooperatives, i.e., registered or re-registered under Presidential Decree No. 175; and (c) Corporations primarily organized to hold equities in rural banks in accordance with Sec. 4 of the Rural Banks Act, as amended. SUBSECTION 315.12 Qualifications of natural persons to be organizers of a rural bank; disqualifications . To be an organizer of a rural bank, a natural person must be a Filipino citizen who is of good moral character and integrity, possessed of good credit standing, and with the financial capacity to meet his commitments in the proposed rural bank. Persons who have been convicted of any crime involving moral turpitude, or who are officers or employees of a government agency, instrumentality, department or office charged with the supervision of, or the granting of loans to, rural banks, are disqualified from becoming organizers of rural banks. SUBSECTION 315.13 Qualifications of cooperatives as organizers of a rural bank . In order to be an organizer of a rural bank, a cooperative must be duly established and registered or re-registered with the Bureau of Cooperatives Development of the Department of Local Government and Community Development (DLGCD) in accordance with Presidential Decree No. 175 and Letter of Implementation No. 23. For purposes hereof, the following shall be considered cooperatives: (a) Kilusang bayan (cooperatives as defined in Presidential Decree No. 175, and Letter of implementation No. 23); (b) All samahang nayon (barrio associations) and other registered pre-cooperative organizations which enjoy the status of provisional cooperatives, as certified to by the Bureau of Cooperatives Development, DLGCD; and (c) Credit cooperatives registering as rural banks under Letter of implementation No. 23. [Circular 403 5-8-74; Appendix D] SUBSECTION 315.14 Qualifications of corporations to be organizers of a rural bank . In order to be qualified as an organizer of a rural bank, a corporation must be: (a) primarily organized to purchase equities in rural banks located within a particular region as stated in the purpose clause of its articles of incorporation; (b) one hundred per cent (100%) Filipino-owned; and (c) partly owned by the residents of the region where the rural bank is to be established. The term "region"' as used herein shall refer to any of the administrative regions defined in Presidential Decree No. 1. [Sec. 12-C, R.A. No. 337, as amended by PD No. 71] SUBSECTION 315.15 Residence requirement for organizers/key officers . The following are the residence requirements in the organization of a rural bank: (a) Organizers majority, if not all, of the incorporators and subscribers must be residents of the place where the rural bank is to be sited and must own at least majority or controlling voting shares. The term "residents of the place" insofar as natural persons are concerned, shall include the following: (i) persons who are actual residents of the municipality, city or locality where the proposed rural bank is to be established for at least one (1) year prior to the filing of the application; (ii) persons who are registered property owners or who are engaged in business in the municipality, city or locality where the proposed rural bank is to be established for at least one (1) year prior to the filing of the application; and (iii) persons born in the municipality, city or locality where the proposed rural bank is to be established. For purposes hereof, the residence of a cooperative organizer shall be the place of its principal office as indicated in its articles of incorporation. (b) Key Officers The president and at least majority of the key executive officers of the rural bank must be actual residents of the locality where the rural bank is to be established. By locality is meant the municipality/city and its environs where the rural bank is to be established. (c) Exception to residence requirement . In the absence of any other applicant, despite proper notice, the application of a group with majority of the members not residents of the place and/or already owning shares of stock in an existing rural bank may be considered: Provided, that in case members of an applicant group own shares of stock in an already existing rural bank, the province where the proposed rural bank will be established must be different from that where the existing rural bank operates. [Circular 502 2-2-76] SUBSECTION 315.2 Procedural requirements . Before a rural bank can be formally organized, a permit therefor must be obtained from the Monetary Board, through the appropriate department in the Central Bank which shall conduct necessary economic survey and credit investigations. SUBSECTION 315.21 Application for permit to organize . The following documents, which shall be filed with the Central Bank, shall constitute the formal application for a permit to organize a rural bank: (a) Articles of incorporation properly accomplished and duly notarized in five (5) copies in the prescribed form (Appendix E); (b) Information sheets accomplished in the prescribed forms under oath and in triplicate by each of the incorporators and subscribers; and (c) List in triplicate of proposed principal officers of the rural bank. [Rev. Procedure in Organizing Rural Banks issued under MB Res. 1896 10-13-72] SUBSECTION 315.22 Economic survey and credit investigations . Upon submission by the applicants of the required application papers and documents provided for in the next preceding subsection, the appropriate supervising department of the Central Bank shall conduct an economic survey of the locality where the rural bank is proposed to be organized, including its surrounding areas, to determine whether there is economic justification for the establishment of a rural bank. The Central Bank shall likewise conduct credit investigations of the incorporators, subscribers, and proposed officers and directors to determine whether they meet the requisite qualifications and possess the integrity and responsibility to carry out the objectives of the Rural Banks Act, as amended, and to reasonably assure the safety of the interest which the government and the public may entrust to them. SUBSECTION 315.23 Submission of application to the Monetary Board for approval . It the results of the economic survey show that there is a need and economic justification for the establishment of a rural bank in the locality where it is proposed to be established, and if the results of the credit investigations are favorable and the organizers and proposed directors have sufficiently met the requirements in subsections 315.12, 315.13, 315.14, and 315.21 hereof, the application shall be submitted to the Monetary Board for final action. However, before the application is submitted to the Monetary Board for its action, the organizers shall be required to: (a) Deposit in full with the Central Bank or the Philippine National Bank the amount representing the initial paid-up capital of the proposed rural bank; and (b) Submit the plans and specifications, location plan and cost estimates of the proposed bank building and the proposed lease contract and/or deed of sale for the bank premises in accordance with subsection 315.16 hereof. Upon approval of the application by the Monetary Board, the Central Bank shall inform the applicants to proceed with the organization of the rural bank in accordance with law and provisions of these rules and regulations. Upon request of the applicants, the Central Bank shall extend all necessary technical assistance free of charge toward the successful organization of the bank. For this purpose, the Central Bank may request the services and facilities of the other instrumentalities of the Government. [Circular 502 2-2-76] SUBSECTION 315.3 Formal organization SUBSECTION 315.31 Form of organization . Rural banks shall be organized in the form of a stock corporation in accordance with Republic Act No. 720, as amended, and the Corporation Law. SUBSECTION 315.32 Requisites in the formal organization and opening for business of proposed rural bank (a) Within thirty (30) days from receipt of advice of approval by the Monetary Board of their application for permit to organize, the organizers shall effect the registration of the proposed rural bank's articles of incorporation with the Securities and Exchange Commission. (b) Within thirty (30) days from the date of registration of the articles of incorporation, the organizers shall register the rural bank's by-laws. (Appendix F) (c) Within eight (8) months from receipt of advice of approval by the Monetary Board of their application, the organizers shall: (i) Complete construction and furnishing of the rural bank building which shall be equipped with the necessary vault, facilities, furniture, forms and stationeries; (ii) Effect and complete the training of officers and employees of the rural bank; and (iii) Inaugurate and open the rural bank for business. (d) If the rural bank is not organized and opened for business within eight (8) months after receipt by the organizers of the notice of approval by the Monetary Board of their application, the permit to organize the rural bank shall be automatically cancelled. Upon such cancellation, the next qualified application for the area may be considered if the organizers are still interested; otherwise, the area shall again be open for applications. (e) Before the certificate of authority to operate may be issued to a rural bank, all the incorporators and initial subscribers shall execute a certificate under oath to the effect that all the conditions imposed in the Monetary Board resolution approving their application for permit to organize the rural bank have been complied with or have not been violated. [Rev. Procedure in Organizing Rural Banks issued under MB Res. No. 1896 10-13-72] SUBSECTION 315.4 Name of rural bank; prohibition . The name of the rural bank shall include the term "Rural Bank." For purposes of uniformity, the name of a rural bank shall begin with the words "Rural Bank of" to be followed by the name of the town, locality or community where its principal office is located and the name of the province in parenthesis. In case of similarity of names of towns, localities, or communities in the same province, the Central Bank shall see to it that rural banks subsequently established therein are properly identified and distinguished. The unauthorized use of the words "Rural Bank" by any person, association or corporation doing the business of banking not authorized under Republic Act 720 as amended shall, in accordance with said Act, be punished by a fine of not less than fifty pesos (P50.00) for each day that said words are used. SUBSECTION 315.5 Supplementary rules and procedures . Supplementary to the foregoing rules and regulations, the appropriate supervising department of the Central Bank shall, in the organization of rural banks, apply and enforce the Revised Procedure in Organizing Rural Banks issued by the Monetary Board under Resolution No. 1896 dated October 13, 1972 (Appendix A). Similarly, the guidelines set under MB Res. No. 830 dated April 26, 1974 shall be applied and enforced in the organization of rural banks by cooperatives. (Appendix B) SUBSECTION 315.6 Rural bank office and premises; prohibition against transfer . Every rural bank shall hold its offices and conduct its business in an adequate and respectable building of strong materials located in a suitable and accessible place in the locality where the bank is authorized to operate. A rural bank may initially hold its offices in leased premises on a five (5) year term, renewable for the same period at the option of the bank. However, before the rural bank may enter into the contract of lease, it shall submit the following to the Central Bank for approval: (a) Vicinity and location plan of the place where the rural bank building will be situated; (b) Floor plan of the building; (c) Plans, specifications and bill of materials for the renovation, if necessary, of the building; (d) Itemized cost of renovation, whenever applicable; and (e) Proposed lease contract. If a rural bank has sufficient funds for the purpose, or can secure funds on reasonable loan terms approved by the Central Bank, it may construct its own building on a land acquired or leased by it. For this purpose, the rural bank shall submit the following to the Central Bank for approval: (a) Vicinity and location plan of the lot/place where the rural bank building will be situated; (b) Plans, specifications and bill of materials of the proposed building; (c) Itemized cost of building; and (d) Proposed deed of sale of bank lot, if it is to be purchased, or proposed lease contract, if it is to be leased. In each case, the bank office shall be provided with a vault of reinforced concrete with a steel two-hour fire resistant door in accordance with the specifications of the Central Bank. A rural bank shall not transfer its offices to another location nor conduct its business outside the bank offices without the prior written authority from the Central Bank. [Circular 502 2-2-76] SUBSECTION 315.61 Limitations on investment in fixed assets . The maximum amount which a rural bank may invest in fixed assets shall be as follows: (a) Bank building and lot thirty-five per cent (35%) of the bank's private paid-up capital and surplus; and (b) Furniture, fixtures, and equipment, including motor vehicles fifteen per cent (15%) of the bank's private paid-up capital and surplus. However, the above limitations on each category of fixed assets may, upon prior written authority from the Central Bank, be exceeded: Provided, that the aggregate investment of the rural bank in such fixed assets shall in no case be in excess of fifty per cent (50%) of its private paid-up capital and surplus. [Circular 502 2-2-76] SUBSECTION 315.62 Insurance of office building, furniture, and funds . The offices of a rural bank, or its building if owned by it, and its equipment and furniture must be insured against fire in an amount, and by an insurance company, approved by the Central Bank. Insurance of its funds against burglary or loss shall also be obtained. SUBSECTION 315.7 Rural bank's seal, equipment and furniture . Before a rural bank may be granted a certificate of authority to operate, it must have a seal and be provided with suitable equipment and furniture to meet the needs of its business. The seal of the bank may be in any form, but the name of the rural bank, its location, and year of incorporation must be inscribed on it. A rural bank may, without prior approval of the Central Bank, purchase essential and necessary office furniture, fixtures, and equipment for the conduct of its business, subject to the limitations provided for in Subsection 315.61. For this purpose, the Department of the Central Bank charged with the supervision and examination of rural banks shall, with the approval of the Monetary Board/Governor, issue a list of essential and necessary furniture, fixtures, equipment, and other similar types of asset, which a rural bank may purchase without prior authorization of the Central Bank. However, office furniture, fixtures and equipment and other similar types of asset, including motor vehicles, not within the contemplation of the next preceding paragraph, shall not be purchased or acquired by a rural bank without prior written authority from the Central Bank. [Circular 502 2-2-76] SUBSECTION 315.8 Security for funds and records . Every rural bank must provide adequate security for the safekeeping of its funds and all its corporate and accounting records from loss due to fire, burglary, and other causes. For this purpose, the bank must be provided with a steel safe, where its funds and records shall at all times be kept, embedded in concrete or placed in a concrete vault with fire-burglar-proof doors. APPENDIX A REVISED PROCEDURE IN ORGANIZING RURAL BANKS I. THE APPLICATION 1. Any person or group of persons may inquire from the Department of Rural Banks, (now Department of Rural Banks and Savings and Loans Associations) Central Bank, by letter or in person as to how to apply for a permit to organize a rural bank. 2. Inquiries on how to apply for a permit to organize a rural bank shall be acted upon immediately and a responsible official of the Department of Rural Banks, (now Department of Rural Banks and Savings and Loans Associations) preferably an Assistant Director, shall attend to such inquiries. All parties making such inquiries shall be furnished with an Instruction Sheet of the basic application requirements. 3. The following documents shall constitute the formal application for a permit to organize a rural bank: a) Articles of incorporation properly accomplished and duly notarized in five (5) copies in the prescribed form; b) Information sheets accomplished in the prescribed forms under oath and in triplicate by each of the incorporators and subscribers; and c) List in triplicate of proposed principal officers of the rural bank. II. FILING AND ACCEPTANCE OF APPLICATION 1. A municipality/city shall be informed by the Department of Rural Banks and Savings and Loan Associations of the opening of the area for applications for permit to organize a rural bank by telegram to the Municipal/City Treasurer concerned which shall also request said Treasurer to acknowledge it by telegram (collect) addressed to the Director, Department of Rural Banks and Savings and Loan Associations, Central Bank. The telegram to the Municipal/City Treasurer shall immediately be followed by the distribution of copies of a printed notice announcing the opening of the municipality/city to applications for permit to organize a rural bank. The telegram and the notice shall be given wide publicity by having copies thereof posted in bulletin boards of the municipality/city government and sent to the Provincial Governor and Municipal/City Mayor, the Secretary of the Provincial Board/Municipal/City Council, each barrio captain of the municipality/city, parish priests, presidents of civic, religious and parent-teachers associations. 2. Applications shall be filed personally by the organizers or by their duly accredited representative, with the Department of Rural Banks and Savings and Loan Associations. Only applications personally filed with the Department of Rural Banks and Savings and Loan Associations within 60 days after the date the acknowledgment telegram from the Municipal/City Treasurer is received in the Department of Rural Banks and Savings and Loan Associations, shall be registered and considered. However, if no applications have been filed with the Department of Rural Banks and Savings and Loan Associations personally by the organizers or by their representative, applications received through the mail by the Department of Rural Banks and Savings and Loan Associations within the 60-day period may, if they are properly accomplished and complete, be registered and considered. 3. Applications received by the Department of Rural Banks and Savings and Loan Associations prior to the issuance of notice of opening of the area for applications for permits to organize a rural bank shall be returned, if lacking required documents and such actions shall be duly recorded by the Department of Rural Banks and Savings and Loan Associations. If the application is complete and properly accomplished in accordance with these rules, the same shall be registered at 8:00 A.M. on the first working day immediately after the date of receipt by the Department of Rural Banks and Savings and Loan Associations of the acknowledgment telegram mentioned in Item II.3 hereof. 4. Upon receipt of an application at the Department of Rural Banks and Savings and Loan Associations, the applicant's copies of all the documents comprising the application shall be stamped indicating the date and time of receipt and signed by the receiving officer of the Department. Upon receipt of an application, whether filed personally by organizers or through the mail, a telegram and a registered letter from the Director, Department of Rural Banks and Savings and Loan Associations or his duly designated senior representative, formally acknowledging such receipt shall be sent by the Department of Rural Banks and Savings and Loan Associations to the applicant(s) within 48 hours after receipt of the application. 5. The Department of Rural Banks and Savings and Loan Associations shall maintain a Registry of Applications in which shall be recorded the date and time each formal complete application for permit to organize a rural bank has been received by the receiving officer who shall sign each entry. 6. If within the 60-day period no qualified application is filed with the Department of Rural Banks and Savings and Loan Associations, the first qualified application received thereafter may be considered. III. PROCESSING AND INVESTIGATION OF APPLICATIONS 1. Applications received by the Department of Rural Banks and Savings and Loan Associations shall be processed within 48 hours from date of receipt. 2. Within 30 days immediately after the 60-day period in which applications for a municipality/city may be filed and registered, the Department of Rural Banks and Savings and Loan Associations shall effect and complete the investigation (including submission of report) of the character, capacity and capital of each of the organizers indicated in qualified applications. 3. A team of at least two investigators shall be assigned to each qualified application. One investigator shall investigate in the locality where the rural bank is to be established and the other investigator, in Manila or suburbs, to check with the National Bureau of Investigation or credit references mentioned by organizers in their application. 4. Investigation of qualified applications shall be done in accordance with the guidelines and check list which the Department of Rural Banks and Savings and Loan Associations shall prepare for the purpose. 5. Every memorandum to the Monetary Board/Governor from the Department of Rural Banks and Savings and Loan Associations recommending approval of an application for permit to organize a rural bank shall be accompanied by an Action Sheet in which are indicated the various actions taken on the application by personnel of the Department and the dates and time of said actions. 6. The following are the basic requirements which shall be checked and verified in the processing/investigation of qualified applications: a) A rural bank must be organized in the form of a stock corporation with not less than five nor more than fifteen incorporators. In case there are more than fifteen persons initially interested in organizing and investing in the proposed rural bank, the others may be recorded among original subscribers. b) All the incorporators and subscribers must be Filipino citizens; must be of good moral character and integrity; must have financial capacity to meet their commitments in the proposed rural bank; must have good credit standing; and must not have been convicted of any crime involving moral turpitude. Incorporators and subscribers who are not actively engaged in partisan political activity shall be preferred. c) Majority, if not all, of the incorporators and subscribers must be actual residents of the place where the rural bank is to be sited and must own at least majority or controlling voting shares. "Actual residents" shall be understood as those who have been actually living in the place where the rural bank is to be established for at least one year prior to the filing of the application. (See also Subsec. 315.15) d) The proposed rural bank shall have an initial paid-up capital of not less than P100,000.00, except in areas where the Monetary Board has prescribed a lesser amount of paid-up capital. e) The number of members of the board of directors of the proposed rural bank shall not be less than five nor more than eleven. f) Majority of the key executive officers of the rural bank must be actual residents of the locality where the rural bank is to be established. However, the president must always be an actual resident of the locality. Key officers of the rural bank such as president, manager, treasurer, cashier and accountant must not be related to one another within the second degree of consanguinity or affinity. g) No individual or family group (those related to one another within the third degree of consanguinity or affinity) shall own or control more than 35% of the voting shares. h) No officer or director of an existing rural bank can be officer or director of the proposed rural bank. i) The articles of incorporation of the rural bank shall provide that within three (3) years after commencement of its operation, it shall set up a sinking fund for retirement of Government preferred shares of stock in the bank and that not later than ten (10) years from start of operation the bank shall have retired all such Government shares or sold them to private investors. IV. RULES IN CASES WHERE THERE ARE TWO OR MORE CONTENDING APPLICANT GROUPS In cases where there are two or more applicant groups for a particular municipality/city, the selection of the applicant group to be given preferential consideration shall be made by process of elimination in the following order: 1. Where there are two or more applicant groups, the group wherein none of the incorporators and subscribers owns any shares of stock in any existing rural bank or none of them is an officer or director thereof shall be given preferential consideration. 2. Among applicant groups equal under (1) above, preference shall be given to the group in which owners of the greater majority shares of stock are actual residents of the area where the proposed rural bank is to be sited (province). If they are also equal in this respect, the group in which owners of the greater majority shares of stock are actually residing in the municipality/city where the rural bank is to be established shall be preferred. 3. Among applicant groups equal under (1) and (2) above, the group with the greater number of incorporators and subscribers who are actual residents of the municipality/city where the rural bank is to be established shall be given preferential consideration. 4. Among applicant groups equal in (1), (2), and (3) above, the group whose members among themselves are not related, or are less related, by consanguinity or affinity shall be given preferential consideration. 5. Among applicant groups equal in (1), (2), (3) and (4) above, the group with organizers having less equity holdings shall be preferred. 6. If two or more applicant groups are equal in (1), (2), (3), (4) and (5) above, the group whose formal application had been registered first shall be given preferential consideration. 7. The guidelines in these rules do not require or contemplate the use of any point system. V. WHERE NO APPLICATION IS RECEIVED DESPITE NOTICE In the absence of any other application despite proper notice, the application of a group with majority of the members not residents of the place and/or already owning shares of stock in an existing rural bank may be considered; provided that no individual or family group shall own or control more than 35% of the voting shares; and provided, further, that in case members of an applicant group own shares of stock in an already existing rural bank, the province where the proposed rural bank will be established must be different from that where the existing rural bank operates. VI. DEVELOPMENT AND PROMOTIONAL CAMPAIGN 1. Where there is no application received for a locality, particularly in a remote area, the Department of Rural Banks and Savings and Loan Associations shall undertake promotional campaign to develop an application therein for the establishment of a rural bank the initial paid-up capital of which may be less than P100,000. The Department of Rural Banks and Savings and Loan Associations shall formulate the necessary guidelines for this promotional campaign. 2. The Development Program of the Department of Rural Banks and Savings and Loan Associations shall state: a) The municipalities/cities which will be opened for applications during the next year, including, if warranted, the organization of second rural banks; and b) The inclusive dates of development/acceptance of such applications for each municipality/city. VII. ORGANIZATION OF RURAL BANKS 1. Within 30 days from receipt of advice of approval by the Monetary Board of their application, the organizers shall deposit with the Central Bank or Philippine National Bank the initial paid-up capital of the rural bank and effect the registration of their articles of incorporation with the Securities and Exchange Commission. 2. Within 30 days from the date of registration of the articles of incorporation, they shall register the corporation's by-laws. 3. Within eight (8) months from receipt of advice of approval by the Monetary Board of their application, the organizers shall: a) Complete construction and furnishing of the rural bank budding which shall be equipped with necessary vault, facilities furniture, forms and stationeries; b) Effect and complete the training of officers and employees of the rural bank; and c) Inaugurate and open the rural bank for business. 4. The permit to organize a rural bank shall be automatically cancelled and no extension of the period within which the bank shall be organized shall be granted, if the rural bank is not organized and opened for business within eight (8) months after receipt by the organizers of the notice of approval by the Monetary Board of their application. 5. When a permit to organize a rural bank is automatically cancelled for failure of organizers to organize and open the bank for business within the said 8-month period, the next qualified application for the area may be considered if the organizers are still interested; otherwise, the area shall again be open for application. 6. Before the Certificate of Authority to operate may be issued to a rural bank, all the incorporators and initial subscribers shall execute a certificate under oath to the effect that all the conditions imposed under the Monetary Board resolution approving their application for permit to organize the rural bank have been complied with or have not been violated. VIII. SCOPE OF THE REVISED PROCEDURE These rules shall be applicable to the following cases: 1. All applications filed and registered with the Department of Rural Banks and Savings and Loan Associations on or after the date of effectivity of these rules, including applications developed by the Department before said date of effectivity but filed by organizers on or after these rules have been effective; 2. All applications for contested localities, i.e., localities where there are two or more contending applicant groups, filed with the Department of Rural Banks and Savings and Loan Associations before the date of approval by the Monetary Board of Resolution No. 1290 dated July 14, 1972 wherein neither the Monetary Board/Governor/Department of Rural Banks and Savings and Loan Associations has made any decision on which of the contending groups shall be favorably considered; 3. All applications for the establishment of rural banks in Lanao del Sur, investigation of which has been suspended pursuant to Monetary Board Resolution No. 722 dated May 11, 1972; 4. All applications filed before the date of effectivity of these rules which may be disapproved but which may be refiled by the applicants; 5. All applications for the establishment of second or additional rural bank in a municipality/city where the existing rural bank cannot meet the normal credit requirements of the community. IX. REPEALING CLAUSE All rules and regulations relative to the procedure of organizing rural banks which are inconsistent herewith are deemed repealed. Sources: M.B. Resolution No. 1896 dated October 13, 1972, as amended by M.B. Resolution No. 1949, dated September 6, 1974. [Source: M.B. Resolution No. 1896 dated October 13, 1972, as amended by M.B. Resolution No. 1949 dated September 6, 1974.] APPENDIX B GUIDELINES/CRITERIA ON THE ESTABLISHMENT OF MONEY SHOPS Rural banks may be authorized to engage in money shop operations in accordance with the following guidelines: 1. The bank must have completed one year of profitable operations from the date it opened for business; 2. In case the combined capital accounts of the applicant bank are found to be deficient for five or more times within a 30-day period during the last 6 months immediately preceding the date the application was received, the privilege to establish money shops shall be suspended for the next 60 days; Provided, That the bank may re-submit its application after said period; if the deficiency is continued for a period of 30 days or more during the last 12 months immediately preceding the date the application was received, the privilege to establish money shops shall be suspended for the next 12 months provided that the bank may re-submit its application after said period; 3. Applications of banks for authority to establish money shops shall not be processed until the bank concerned, having incurred net deficiencies in reserves against deposit liabilities, shall have had no net reserve deficiencies for eight consecutive weeks; Provided, That, in case the bank incurred net deficiencies in reserves for eight consecutive weeks during the last 12 months immediately preceding the date the application was received, the privilege to establish money shops shall be suspended for the next 12 months, in which case, the bank may re-submit its application after said period; 4. Money shops shall be allowed to be established only upon prior approval by the Central Bank and inside the markets; 5. Money shops may be established by a rural bank only in markets within the municipality or area of operation of the rural bank establishing such money shops; 6. The number of money shops which may be allowed to be established in any one market shall be determined on the basis of the number of stall-owners in the market, i.e., one (1) money shop for every 400 stall-owners or fraction thereof; provided that only one (1) money shop shall be allowed for each bank in any one market; 7. In cases where there are two or more applications of banks for authority to establish money shops in the same market, the following priorities shall govern: a. First priority Banks which have already achieved the required minimum paid-in capital; b. Second priority Banks which have an approved program or plan to increase their paid-in capital with up-dated build-up of paid-in capital in accordance with the bank's approved program; c. Third priority Banks which have an approved program or plan to increase their paid-in capital, installments on capital build-up of which are not yet due; and d. Fourth priority Banks which have an approved program or plan to increase their paid-in capital, installments on which are not up-to-date. In any of the priority level, the "first come, first served basis" shall apply; however, as stated earlier, the applications shall likewise not be processed under the usual criteria for branching. 8. Foreign banks shall not be allowed to established money shops; and 9. Money shops authorized to be established shall observe banking hours for not less than seven (7) hours a day, for seven days a week, between 4:30 A.M. and 8:00 P.M., the opening and closing hours to be selected by banking institutions depending upon the conditions prevailing in each individual market for purposes of offering working capital or inventory financing to market stallowners and for providing deposit/withdrawal services. Any change in moneyshop banking hours must be reported in writing to the Monetary Board through the appropriate supervising and examining department seven (7) banking days prior to the effectivity of the proposed change except in case of an emergency where a twenty-four (24) hour notice will suffice. Banking institutions may, at their discretion and after prior seven (7) banking day or twenty-four (24) hour written notice, as the case may be, to the Monetary Board through the appropriate supervising and examining department, open their moneyshops beyond the minimum seven (7) hours and for as long as they find it necessary even before 4:30 A.M. or after 8:00 P.M., subject to the following conditions: a. The money shop shall (1) be a sub-office of the nearest existing extension office, and (2) observe security measures in maintaining a banking office; b. All transactions of the money shop shall be taken up and recorded daily by the "mother" extension office; and c. Loans to a single stallholder shall not exceed P10,000.00 and shall be charged interest not higher than 14% per annum plus handling charges not exceeding 2% a month. In implementing the provisions of this Memorandum Circular, particularly of 9(c.) above, rural banks shall observe the limitations under Sections 4, 5 and 6 of Republic Act No. 720, as amended. [Sources: MCARB No. 74-77 10-22-74 and Circular 479 9-4-75] APPENDIX C GUIDELINES/CRITERIA ON THE ESTABLISHMENT OF SAVINGS AGENCIES BY RURAL BANKS The guidelines/criteria used in processing applications of rural banks to establish extension offices shall be applicable in case of applications to establish savings agencies, as follows: A rural bank may be allowed to open an extension office only, subject to the following conditions: 1. That there is a justification for the establishment of said extension office; 2. That the applicant bank is in a sound financial condition; it has substantially corrected the deficiencies noted in its operations; 3. That the applicant bank has complied with other laws, rules and regulations of the Central Bank; and 4. That the extension office shall be located within the same municipality where the principal office is located; provided that said extension office shall be at least ten (10) meters away from any existing bank/branch or from any approved but not yet opened bank/branch, except where they are separated by a street. The application to open an extension office shall be processed only if: 1. The applicant bank has had at least one year of profitable operations; 2. The applicant bank has no past due obligations with the Central Bank, both rediscounting and special financing; and 3. The applicant bank has had no reserve deficiency for the last three (3) months preceding the filing date of application. If it has, it must show excess reserves for the succeeding three (3) months. [Sources: Circular 471 dated 6-10-75 and MARB 74-6 dated 1-29-75] APPENDIX D GUIDELINES FOR THE ORGANIZATION OF RURAL BANKS BY COOPERATIVES Pursuant to Monetary Board Resolution No. 830 dated April 26, 1974 and in line with the provisions of Presidential Decree No. 175, the Rural Banks Act (Republic Act No. 720 as amended) and other related laws, the following rules and regulations governing the establishment of rural banks by cooperatives are hereby promulgated: SECTION 1. Cooperative Defined . Cooperatives shall mean only organizations composed primarily of small producers and of consumers who voluntarily join together to form business enterprises which they themselves own, control and patronize. A small producer shall mean a self-employed individual who, by himself or with his family, provides the primary labor requirements of his business enterprise or one who earns at least fifty per cent of his gross income from the payment, proceeds or income of the labor he provides. For purposes of these Rules and Regulations, the following shall be considered Cooperatives: 1. All kilusang bayan (cooperatives) as defined in Presidential Decree No. 175 and Letter of Implementation No. 23; and 2. All samahang nayon (barrio associations) and all other registered pre-cooperative organizations which enjoy the status of provisional cooperatives, as certified by the Bureau of Cooperatives Development. SECTION 2. Organization of Rural Banks by Cooperatives . Duly established cooperatives, i.e., registered or re-registered under Presidential Decree No. 175, including credit cooperatives registering as rural banks under Letter of Implementation No. 23, may organize rural banks in accordance with the provisions of these guidelines. SECTION 3. Organization Requirements The requirements for the establishment of rural banks by cooperatives shall be the same as those prescribed in the Central Bank guidelines for the establishment of rural banks by natural persons, except as otherwise specified in these guidelines. SECTION 4. Applications to be Given Priority Consideration . Priority consideration shall be given to applications for permits to organize rural banks in municipalities where there are no existing rural banks and in areas where banking facilities are inadequate, as may be determined by the Central Bank. SECTION 5. Application Documents . In addition to the regular documents required under existing Central Bank rules and regulations, a cooperative-organizer shall submit the following documents to the Department of Rural Banks and Savings and Loan Associations: a. Resolution of the Board of Directors of the cooperative authorizing said cooperative to be an incorporator or subscriber of the proposed rural bank and indicating the name of the authorized representative of the cooperative in the proposed bank as well as the amount the cooperative will invest in the proposed rural bank; b. Proof of due registration of the cooperative with the Bureau of Cooperatives Development, DLGCD; c. Certified statements of condition of the cooperative for one year immediately preceding the filing of the application to organize the rural bank: Provided, however, that in the case of a cooperative which has been in operation for less than one year, a statement of condition for the period covering its initial stage of operation shall be sufficient; d. A certificate of good standing of the cooperative-organizer from the Bureau of Cooperatives Development, DLGCD; and c. Such other documents as the DRBSLA may deem necessary. SECTION 6. Limitation on Shareholdings of Cooperatives . Ownership of stock in a rural bank shall be as widely dispersed as possible. Pursuant to Section 12-B of the General Banking Act (R.A. No. 337, as amended), no cooperative shall own or control more than 30% of the voting shares of a rural bank. This limitation shall also apply to cooperatives purchasing government-held preferred shares which are converted into common stock. In the case of credit cooperatives registering as rural banks, no member or group of members related to one another by consanguinity or affinity within the third degree, shall own more than 35% of the voting stock of the rural bank. SECTION 7. Residence of Cooperative . For the purpose of determining the residence of a cooperative-organizer, the place of its principal office as indicated in its articles of incorporation shall be considered its place of residence. SECTION 8. Rules in Cases Where There are Two or More Applicant Groups Organizing a Rural Bank in the Same Locality . In cases where there are two or more groups applying for a permit to organize a rural bank in the same locality, the selection of the applicant group to be given priority shall be determined as follows: a. As between an existing credit cooperative registering as a rural bank and a cooperative applying for the organization of a rural bank in the same locality, preference shall be given to the former. In case there are two or more credit cooperatives located in the same locality applying for registration as rural banks, preference shall be based on the criteria prescribed in letters (d) and (e), below. b. Preference shall be given to the applicant group where one or some of the incorporators or subscribers are cooperatives duly registered or re-registered with the Bureau of Cooperatives Development, DLGCD and with a total capital participation in the proposed rural bank of not less than 20% of the bank's voting shares. c. If the applicant groups possess the same qualifications as prescribed in item (b) above, preference shall be given to the group with the greater number of cooperatives as incorporators/subscribers. d. If the applicant groups equally possess the qualifications prescribed in items (b) and (c) above, the group which has a greater total capital participation of cooperative-organizers shall be preferred. e. If the applicant group to be given preference cannot be determined on the basis of item (d) above, preference shall be based on such point system as may be prescribed by the Central Bank in the determination of preferences in the case of natural persons applying for the organization of a rural bank. [Source: MB Res. 830 dated 4-26-74] APPENDIX E Pro-Forma ARTICLES OF INCORPORATION OF THE RURAL BANK OF ________________________ (__________________) INC. KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, all of whom are of legal age and residents of the Philippines, have this day voluntarily associated ourselves together for the purpose of forming a corporation under the laws of the Philippines. AND WE HEREBY CERTIFY FIRST. That the name of this corporation shall be: RURAL BANK OF _______________________ (________________), INC. SECOND. That the objects and purposes for which said corporation is formed are: To carry and engage in the business of extending rural credit to small farmers and tenants and to deserving rural industries or enterprises; to have and exercise all authority and powers; to do and perform all acts; and to transact all business which may legally be had or done by rural banks organized under and in accordance with the Rural Bank's Act, as it exists or may be amended; and to do all other things incident thereto and necessary and proper in connection with said purpose within such territory, as may be determined by the Monetary Board of the Central Bank of the Philippines. THIRD. That the principal office of the corporation is to be located at ______________, Philippines. FOURTH. That the term of existence of the corporation is fifty (50) years from and after the date of incorporation. FIFTH. That the names, residence, and citizenship of the incorporators of said corporation are as follows: NAME RESIDENCE CITIZENSHIP ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ SIXTH. That the number of directors of said corporation shall be __________ and that the names, citizenship, and addresses of the directors of the corporation who are to serve until their successors are elected and qualified as provided by the by-laws are as follows: NAME RESIDENCE CITIZENSHIP ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ SEVENTH. That the capital stock of the corporation is ______________ PESOS (P___) Philippine currency, divided into _______ shares of Common Stock with voting rights, and shares of Preferred Stock, both at the par value of __________ PESOS (P____) each. (a) Preferred stock shall be issued only against government investment in the capital stock of the Bank. Preferred stock so issued shall have preference over common stock in the assets of the corporation in the event of liquidation, as provided hereunder. (b) Only one kind of common stock that is with voting rights shall be provided for by the Bank. Preferred stock shall be non-voting; but in case of sale by the government of its preferred stock to private shareholders, such stock automatically become common stock with voting rights, thereby reducing the number of outstanding preferred stock and increasing the number of outstanding common stock. Preferred stock shall share in dividend distribution at a rate not exceeding two per centum (2%) thereof without preference. The amount of any dividends payable to any holder of stock may be applied to the repayment of the stockholder's indebtedness to the Bank. As soon as the Bank has resources available for the purpose, the equity investment of the government, as evidenced by outstanding preferred stock, shall be reduced by retirement of such stock at its par value and its sale to private investors, in the manner provided for in Section 7 of Republic Act No. 720, as amended (Rural Banks Act), and implementing rules and regulations. No retirement or purchase by the Bank of its shares subscribed by private shareholders shall be made unless an equal amount of preferred shares is retired or purchased so long as the government holds preferred shares in the Bank. In the event of liquidation, dissolution, receivership, bankruptcy, or winding up of the affairs of the Bank, voluntary or involuntary, the assets of the Bank remaining after payments have been made to the creditors, shall be distributed in the following order: First recipient shall be the holders of the preferred stock to the full par value of the preferred stock, or ratably, insofar as the assets of the Bank will permit; then, the holders of the common stock to the full par value of the common stock, or ratably, insofar as the assets of the Bank will permit; and thereafter any sums remaining shall be distributed equally to holders of common and preferred stocks alike. In the absence of preferred shares, common stockholders shall share in proportion to their respective holdings in the assets available for distribution. The above rights, preferences, and restrictions shall be printed on the back of the stock certificate to be issued by the Bank. EIGHTH. That within three (3) years after commencement of its operation, the Bank shall set up a sinking fund for retirement of government preferred shares of stock in the bank and that not later than ten (10) years from start of operation the bank shall have retired all such government shares or sold them to private investors. NINTH. That the amount of Common Stock which has been actually subscribed is _____________ PESOS (P____), and the following persons have subscribed for the number of shares and amount of common stock set out after their respective names. No. of Amount of Common Name Residence Citizenship Shares Stock Subscribed __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ TOTAL ========= ========= TENTH. That the following persons have paid on the share of Common Stock for which they have subscribed the amount set out after their respective names: Amount Paid on Subscription Name to Common Stock _____________________________ __________________________________ _____________________________ __________________________________ _____________________________ __________________________________ _____________________________ __________________________________ _____________________________ __________________________________ ___________________ TOTAL P ================= ELEVENTH. That ________________ has been elected by the subscribers as Treasurer of the Corporation to act as such until his/her successor is duly elected and qualified in accordance with the by-laws, and that as such Treasurer, he/she has been authorized to receive for the Corporation and to receipt in its name for all subscriptions paid in by said subscribers. IN WITNESS WHEREOF, we have hereunto set our hands this _____ day of __________ at __________________________________. (Print name of Incorporators under their respective signature) INCORPORATORS: _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ SIGNED IN THE PRESENCE OF: ______________________ ______________________ ______________________ (N.B. Only incorporators shall sign this Articles of Incorporation) REPUBLIC OF THE PHILIPPINES ) PROVINCE OF ) S. S. MUNICIPALITY OF ) Before me, the undersigned, a Notary Public in and for the Province of ____________ Philippines, personally appeared: Place & Date of Name Res. Cert. No. Issue ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ ____________________ ___________________ ___________________ known to me to be the same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal this ______ day of _________, A. D. 19____. Notary Public Until December 31, 19 ____ Doc. No. ___________ Page No. ___________ Book No. ___________ Series of ____________ Name of Taxpayer Marital Incorporators/ Account Consent of Subscribers Number Husband 1. __________________ _____________________ ____________________ 2. __________________ _____________________ ____________________ 3. __________________ _____________________ ____________________ 4. __________________ _____________________ ____________________ 5. __________________ _____________________ ____________________ 6. __________________ _____________________ ____________________ 7. __________________ _____________________ ____________________ 8. __________________ _____________________ ____________________ 9. __________________ _____________________ ____________________ 10. __________________ _____________________ ____________________ 11. __________________ _____________________ ____________________ 12. __________________ _____________________ ____________________ 13. __________________ _____________________ ____________________ 14. __________________ _____________________ ____________________ 15. __________________ _____________________ ____________________ TREASURER'S SWORN STATEMENT REPUBLIC OF THE PHILIPPINES ) PROVINCE OF ) S. S. MUNICIPALITY OF ) _______________________________________, being duly sworn, depose and says: That on the ____ day of _____________, 19 ____, he/she was duly elected by the incorporators named in the foregoing articles of incorporation as treasurer of the corporation, to act as such until his/her successor has been duly elected and qualified in accordance with the by-laws of the Corporation, and that as such treasurer he/she has been authorized by the incorporators to receive for the corporation all subscriptions paid in by them for the capital stock; that of the authorized number of shares, ____________ (______) shares of common stock worth ______________ PESOS (P______) have been subscribed and of said subscription _____________ PESOS (P_______) in cash has been actually paid to him/her for the benefit and to the credit of the corporation; and that at least twenty per centum (20%) of the capital stock has been subscribed and the amount actually paid to him/her as stated above is at least twenty-five per centum (25%) of said subscription. And that he/she further certifies that one hundred per centum (100%) of the capital stock is owned by citizens of the Philippines and that all the members of the incorporating board of directors are citizens of the Philippines. ______________________ Treasurer SUBSCRIBED AND SWORN TO before me this ___________ day of ___________ 19 ______ at _________________; affiant exhibited to me his/her Residence Certificate No. A-________________, issued at ___________ on, ____________, 19 _____. NOTARY PUBLIC Until December 31, 19 ____ Doc. No. ___________ Page No. ___________ Book No. __________ Series of 19 _________ CENTRAL BANK OF THE PHILIPPINES Manila DEPARTMENT OF RURAL BANKS AND SAVINGS AND LOAN ASSOCIATIONS LIST OF PROPOSED PRINCIPAL OFFICERS Relation Name of with other Position Officer Residence officers President: ________________ ________________ ________________ Vice-President: ________________ ________________ ________________ Treasurer: ________________ ________________ ________________ Manager: ________________ ________________ ________________ Secretary: ________________ ________________ ________________ Accountant: ________________ ________________ ________________ Submitted by: __________________ President __________________ Date Majority of the key executive officers of the rural bank must be actual residents of the locality where the rural bank is to be established. However, the President must always be an actual resident of that locality. Key executive officers of the rural bank such as the President, Vice-President, Manager, Treasurer, Cashier and Accountant must not be related to one another within the second degree of consanguinity or affinity. APPENDIX F Pro-Forma BY-LAWS OF THE RURAL BANK OF ________________________ (__________________) INC. ARTICLE I Office SECTION 1. Principal Office . The principal office of the Bank shall be in the Municipality/City of ______________ Province of __________________, Philippines. ARTICLE II Stock And Stockholders SECTION 1. Certificates of Stock . Ownership or proprietary interest in the assets of the Rural Bank shall be evidenced by certificates of shares of the capital stock which shall be recorded in the books of the Bank, and shall be in such form as the Monetary Board of the Central Bank of the Philippines may prescribe. Certificates of stock shall be issued by the Secretary only after full payment of the value thereof, and shall be signed by the President or the Vice-President, countersigned by the Secretary and sealed with the corporate seal. SECTION 2. Lost or Destroyed Certificate . In case of loss or destruction, a duplicate may be issued in accordance with Republic Act No. 201. SECTION 3. Transfer of Stock . Transfer of stock shall be made only upon the books of the Bank, and before a new certificate is issued, the old certificate must be surrendered for cancellation. If less than the entire number of shares represented by the certificate is assigned, the new certificates shall be issued, one in the name of the transferee for the number of shares assigned, and the other in the name of the transferor for the balance of the shares. The stock books of the Bank shall be closed for transfer twenty (20) days before the general election and ten (10) days before dividend days. No transfer of stock shall be effected which will violate the legal requirements that 100% of the voting stock of a Rural Bank shall be owned by citizens of the Philippines. Transfers of shares shall be reported to the appropriate supervising department of the Central Bank. ARTICLE III Meeting of Stockholders SECTION 1. Annual Meetings . The annual meetings of the stockholders shall be held at the principal office of the Bank on ________________ in each year at _______________ o'clock, or if such day be a legal holiday, then on the first full business day thereafter, at the same hour and place. The Board of Directors, however, by resolution adopted 15 days before the regular holding of such annual meeting, and with proper notice to stockholders, may vary either the date, place (which must not be outside the municipality where the principal office is located) or hour or all of them for holding such annual meeting in which case, the annual meeting shall be held at the place, date, and time so fixed by the Board of Directors on any day not earlier than the fifteenth day after the adoption of such resolution. If for some reason, any annual meeting cannot take place, any such meeting may thereafter be called in the manner provided for the calling of special meetings. SECTION 2. Special Meetings . Special meetings of the stockholders may be called by the President or Secretary upon written request of the stockholders holding a majority of the subscribed and outstanding shares or by resolution of the Board of Directors. The President shall cause written notice of the time, place, and date of such meeting to be mailed at least five (5) days before the date of such meeting to each stockholder of record at the close of business day at the, address of each stockholder as the same appears on the record of the corporation. Such notice shall state the purpose or purposes of such special meeting. SECTION 3. Quorum . A majority of the subscribed capital stock entitled to vote not declared delinquent shall constitute a quorum at meetings of stockholders. If at a meeting a quorum is not present, the chairman of the meeting or a majority of the voting stockholders present may adjourn the meeting from time to time until a quorum is reached. SECTION 4. Waiver of Notice . Any meeting may be validly held without notice if each stockholder shall sign a written waiver of such notice. SECTION 5. Organization . The President of the Bank shall preside at the meeting of stockholders. The Secretary of the Bank acts as Secretary at all meetings of stockholders, provided, that in the absence of or inability of the Secretary, the presiding officer may designate some other person to act as secretary of such meetings. SECTION 6. Right to Vote by Proxies . Every stockholder entitled to vote shall have the right to vote in person or by proxy. A proxy may be entitled to vote provided he is authorized by the stockholder in writing, properly witnessed, acknowledged, and filed with the records of the corporation. SECTION 7. Order of Business . a. Regular The order of business at the regular meeting shall be as follows: (1) call to order by the president (2) proof of notice (3) roll call (4) reading and disposition of the minutes of the previous meeting (5) annual reports of the: a) president b) manager and/or other officers c) committees, standing and special (6) election of the members of the board of directors (7) unfinished business (8) new business (9) announcements (optional) (10) adjournment b. Special The order of business at a special meeting shall be as follows: (1) call to order by the president (2) proof of notice (3) roll call (4) reading and disposition of the minutes of the previous meeting (5) business for which the meeting has been called (6) announcements (optional) (7) adjournment ARTICLE IV Directors SECTION 1. Election . The business affairs of the Bank shall be conducted under the supervision and control of a Board of directors [not less than five (5) nor more than eleven (11) directors, which shall at all times be in the odd number]. The holders of common stock entitled to vote shall elect such directors in the manner provided in Section 31 of Act 1459 as amended (Corporation Law) whose qualifications shall be subject to the approval of the Monetary Board of the Central Bank of the Philippines. SECTION 2. Eligibility . Only Filipino citizens are eligible for election to the Board. No individual shall be eligible to become or be a director if he is or becomes a candidate for or holder of any public office. Eligibility of directors shall be subject to Central Bank regulations. SECTION 3. Term . The regular term of a director shall be from the date of his election to the regular annual meeting of the stockholders of the Bank or until his successor shall have been elected and qualified to take his place at said annual meeting. Unless a director shall sooner resign, be removed from office, or becomes unable to act by reason of death, disqualification, or otherwise, he shall hold office during the term for which he is elected and until his successor is elected and qualified. Any director who ceases to be the owner of at least one share of the capital stock of the bank of which he is a director shall thereby cease to be a director. The Board of Directors shall serve for one (1) year. SECTION 4. Prohibition . No individual shall become or be a director if he is or becomes a director or employee of any other financial or banking institutions under the supervision of the Central Bank when said financial or banking institutions are of the same type of classification. This prohibition shall not apply where the positions (directors and officers) are occupied by persons appointed thereto as representatives of the Government or of government-owned or controlled banks. For purposes of this prohibition, a husband and his wife shall be treated as one and the same person. SECTION 5. Quorum . A majority of the directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but less than a quorum may adjourn from time to time until a quorum is acquired. SECTION 6. Filing of Vacancy . If vacancies occur in the Board of Directors, the remaining directors constituting a quorum shall, by majority vote, elect persons to fill such vacancies for the unexpired term. In case of resignation or death of all or a majority of the directors, any stockholder may call a special meeting in the same manner that the President may call such meeting, and the directors of the unexpired term may be elected at any such special meeting in the manner provided for their election at annual meetings. SECTION 7. Removal . A director may be removed in the manner provided for by law at a regular or special meeting called for that purpose, by a vote of stockholders holding or representing two-thirds (2/3) of the subscribed capital stock entitled to vote. SECTION 8. Regular Meetings . There shall be a regular meeting of the Board of Directors at least once a month at such hours and on such days as shall be fixed by either the Board of Directors or by the President of the Bank in written notice mailed to each director or by the President of the Bank in written notice mailed to each director at least seven (7) days before the date of the scheduled meeting. SECTION 9. Special Meetings . The President of the Bank may call a special meeting of the Board of Directors to be held at the place where the office of the Bank is located at any time, and may preside at such meetings or designate a presiding officer. Notice of such meetings shall be given by the President to each director at least three (3) days before date thereof. SECTION 10. Waiver . Any meeting may be validly held without notice if all the directors shall sign a written waiver of such notice. SECTION 11. Compensation . No compensation shall be paid any director as such, but the director of the Bank may be allowed reasonable honoraria for actual attendance at meetings, which shall include fare and other actual expenses incurred in connection thereto. Salaries of the executive officers of the Bank shall be fixed by the Board of Directors subject to the approval of the Monetary Board of the Central Bank, and in accordance with such rules as the Monetary Board may prescribe. SECTION 12. Order of Business . The order of business at its annual meeting, and as far as possible, at all other meetings of the Board of Directors shall be: 1. Calling of roll; 2. Proof of due notice of meeting; 3. Reading and disposal of any unapproved minutes; 4. Reports of officers and committees; 5. Election of officers; 6. Unfinished business; 7. New business; and 8. Adjournment. ARTICLE V Committees of Directors SECTION 1. Credit Committee . The Board of Directors shall elect from their number two directors who with the Bank Manager as permanent member shall act as a Credit Committee. The Secretary shall serve as an ex-officio secretary of the committee. The Board of Directors may also elect one additional director to serve as an alternate on the Credit Committee in the absence or inability of any director-member thereof. Any member of the Credit Committee may be removed at any time by a majority vote of the entire membership of the Board of Directors. SECTION 2. Duties of the Credit Committee . The Credit Committee shall meet as frequently as necessary and, acting as an loan committee, shall process, scrutinize, and recommend the approval or rejection of applications for loans. No loan shall be made unless the application has received the unanimous approval of the qualified membership of the Credit Committee present at the meeting at which such action is taken, and provided, further that no loan shall be granted in violation of the Rural Bank's Act (Republic Act No. 720, as amended) and implementing rules and regulations approved by the Monetary Board. SECTION 3. Special Committee . The Board of Directors may designate one or more committees in addition to the Credit Committee. Each Committee shall consist of at least two directors of the Bank who shall be elected by the Board of Directors. Each Committee shall possess and exercise such powers and authority as the Board of Directors may delegate. Any member of any committee may be removed at any time by the Board of Directors. SECTION 4. Quorum . A majority of the members of any committee shall constitute a quorum. SECTION 5. Keeping of Records . All committees shall keep records of their proceedings and submit the same to the Board of Directors at its next meeting or earlier, if required. ARTICLE VI Officers SECTION 1. Executive Officers . The executive officers of the Bank shall be the President, Vice-President, Secretary, Bank Manager, and the Cashier who shall be elected by a majority vote of the entire membership of the Board of Directors at its first meeting held after the annual stockholders meeting, and at such other times during the year as may be required to fill vacancies. The positions of Secretary and Cashier may be combined in one person. SECTION 2. President . The President shall be the Chief Executive Officer of the Bank. He shall see to it that all orders and resolutions of the Board of Directors, all orders of the Monetary Board of the Central Bank of the Philippines, and all rules and regulations governing rural banks are carried into effect, and shall exercise such other powers and perform such other duties as are prescribed for the office of the President in these by-laws. SECTION 3. Vice-President . The Vice-President shall exercise the powers, authority and duties of the President during the absence of the latter or in his inability to act. SECTION 4. Secretary . The Secretary shall provide for the keeping of the records of the Bank and shall have the custody of the seal of the corporation. The Secretary shall, in addition, exercise such other powers and perform such other duties as are prescribed for the office of the Secretary in these by-laws, and all other duties usually pertaining to that office, and such other duties as may be prescribed from time to time by the Board of Directors. SECTION 5. Cashier . The Cashier shall have the custody of all funds, securities, and other assets of the corporation; shall provide full and complete record of all assets and liabilities of the Bank, and shall make such reports with respect thereto as may be required by the Board of Directors. The Cashier shall, in addition, exercise such other powers and perform such other duties as are prescribed by these by-laws for the office of the Cashier, and all other duties usually pertaining to that office, and such other duties as may be prescribed by the Board of Directors. SECTION 6. Bank Manager . The Board of Directors shall provide for the position of a Bank Manager who shall have, subject to the control of the Boards of Directors, general management of the business affairs of the Bank. SECTION 7. Other Officers, Employees and Agents . The Board of Directors may elect or employ and, subject to the general supervision of the Monetary Board, fix the compensation of such other officers, employees, and agents as the Board of Directors may deem necessary, to perform such duties as may be prescribed from time to time by the Board of Directors. SECTION 8. Eligibility . The President and Vice-President of the Bank must be directors; the secretary or the cashier need not be a director or stockholder of the Bank, but he must be a citizen and resident of the Philippines. For reasons of economy, the offices of the president and vice-president may be combined with that of the manager. No individual shall be eligible to become an officer or employee if he is also or becomes a candidate for, or holder of any public office. SECTION 9. Residence of Officers . Majority of the key executive officers of the rural bank shall be actual residents of the locality where the rural bank is established. SECTION 10. Removal . Any officer, employee or agent of the Bank may be removed at any time by a majority vote of the entire membership of the Board of Directors. ARTICLE VII Miscellaneous Provisions SECTION 1. Report . Annually, the Board of Directors shall render an annual financial report, including a statement of income and expenses and a balance sheet, at the annual stockholders' meeting, and said report and financial statements shall be open to the scrutiny of all stockholders of the Bank at all times. Each stockholder is entitled to a copy of the annual financial report and statement. SECTION 2. Disbursement . All current expenses of the Bank shall be paid, and all checks and vouchers shall be signed by the Cashier or by the Assistant Cashier or other employee specifically authorized to do so by the Board of Directors, provided, that all checks of the Bank must be countersigned by the President or in his absence or inability, by the Vice-President, or in the absence or inability of both, by the Manager or in the absence or inability of the latter, by the Assistant Manager. Vouchers shall be properly filed and numbered. At every meeting of the Board of Directors, a summary report of such indorsements shall be submitted and reported. SECTION 3. Records . Copies of the articles of incorporation and by-laws of the Bank, proceedings of stockholders and directors, amendments to the articles of incorporation and by-laws, reports of committees of directors and election returns, shall be recorded in the minutes book of the Bank. The minutes of the meetings of the committees and of the Board of Directors shall be signed by their respective chairman or presiding officer and attested by the person acting as secretary of the meeting. SECTION 4. Inspection and Examination of Books . The books, accounts and records of the Bank shall be open to inspection and examination by any stockholder of the Bank or any duly authorized representative of the Central Bank on any working day during office hours. SECTION 5. Earnings . The Bank shall, at the end of each fiscal year, apply the amount of its earnings in excess of operating expenses during such fiscal year to: a) A capital retirement fund to provide for the gradual retirement of the government's equity investment in the Bank, in the manner and at such rate, as the Rural Banks' Act (Republic Act No. 720, as amended) and the implementing rules and regulations of the Central Bank may provide: b) Establishing and maintaining a reserve for bad and/or doubtful accounts; and c) Replenishing any impairment of its capital. Any sums remaining shall be distributed as dividends to stockholders, either in cash or stock or both, subject to the policy and pertinent rules and regulations of the Central Bank of the Philippines. SECTION 6. Investments . Sums in the surplus, reserves and capital retirement funds may be invested in securities issued by the Government of the Philippines or by any Philippine Government instrumentality, and such other securities as may be approved by the Monetary Board as eligible for investments. SECTION 7. Fiscal Year . The fiscal year shall end on the 31st day of December each year. SECTION 8. Seal . The Corporate seal of the corporation shall be circular in form, and shall bear the words "______________" and the following is an impression of the seal of the "Rural Bank of _________________, Inc." as adopted by the Board of Directors. SECTION 9. Execution of Documents a) All documents required to be executed in connection with a banking transaction and releases of security, may be executed in the name of the Bank by the President or Bank Manager or by any other employee specifically designated for the purpose by the Board of Directors. b) All other documents, including bonds, contracts and conveyances, except checks and vouchers, shall be signed by the President, and shall be attested by the Secretary or Cashier or, in the absence of or due to the inability to act of the Secretary or Cashier, shall be attested by an Assistant Secretary or an Assistant Cashier. SECTION 10. Disqualification for Interest . No director, officer, employee or agent of the bank shall in any manner, directly or indirectly participate in the deliberation, or the determination of any bank matter affecting his pecuniary interest, or the pecuniary interest of any enterprise in which he is directly or indirectly interested. A member of the Board of Directors or of any committee shall withdraw from the meeting of the board or committee during its deliberation or determination of any matter with respect to which he is disqualified. When a member of any committee is disqualified, the remaining members who are directors may select another director to serve in the place of the disqualified member. SECTION 11. Bonding . The Manager and the Cashier shall post a bond in an amount not less than P5,000.00 each. The Assistant Cashier shall be bonded in an amount equivalent to his accountability. All other officers and employees holding cash, security or property in an amount not less than P1,000.00 in any one year belonging to the rural bank must also be bonded in an amount approved by the Central Bank. Adjustment of the bonds shall be made from time to time as necessity arises. All such accountable officers and employees of the rural bank may post up real estate bonds or surety bonds of reputable companies duly approved by the Central Bank. SECTION 12. Dissolution . The Bank may be dissolved in any of the manners provided for by law for the purpose. SECTION 13. Amendments . Subject to the approval of the Monetary Board of the Central Bank of the Philippines, these by-laws may be amended, repealed or altered in whole or in part by a vote of the owners of a majority of the subscribed capital stock entitled to vote at any regular or special meeting of the stockholders called for the purpose. The owners of two-thirds of the subscribed capital stock may delegate to the Board of Directors the power to amend or repeal these by-laws: Provided, however, that any power delegated to the Board of Directors to amend and repeal these by-laws shall be considered as revoked whenever a majority of the stockholders shall so vote at a regular or special meeting called for the purpose. SECTION 14. Rules and Regulations . All rules and regulations promulgated by the Monetary Board of the Central Bank in accordance with Republic Act No. 720, as amended, are hereby made a part of this Code of By-Laws. Voted upon and adopted this _____ day of ____________, 19____, in _________________ by the undersigned stockholders owning/representing at least a majority of the subscribed capital stock entitled to vote. 1. __________________ 2. ________________________ 9. ________________________ 3. ________________________ 10. ________________________ 4. ________________________ 11. ________________________ 5. ________________________ 12. ________________________ 6. ________________________ 13. ________________________ 7. ________________________ 14. ________________________ 8. ________________________ 15. ________________________ We, the undersigned, the Secretary and a majority of the directors of the "Rural Bank of _________________, Inc.", do hereby certify that the foregoing instrument is a true and correct copy of the by-laws of said corporation, as approved by the stockholders holding at least a majority of the subscribed capital stock entitled to vote at the meeting of the stockholders held on ___________________, 19_____, at the Province of ________________. 1. ________________________ 3. ________________________ 2. ________________________ 4. ________________________ 5. ________________________ Countersigned: ________________________ (Secretary) PART 2 Management and Administration SECTION 321. Directors . SUBSECTION 321.1 Definition of terms . For purposes hereof, the term directors shall include (a) those duly elected and named as such in the rural bank's articles of incorporation; (b) those duly elected in subsequent meetings of the bank's stockholders; and (c) those elected or appointed to fill up vacancies in the board of directors. LLphil SUBSECTION 321.2 Qualifications and disqualifications of directors SUBSECTION 321.21 Qualifications . To be a director of a rural bank, a person shall have the following minimum qualifications: (a) He shall be a Filipino citizen and a holder of at least one (1) voting stock in the rural bank; (b) He shall be at least twenty-five (25) years of age at the time of his election/appointment: Provided, that the minimum age requirement shall not apply to directors elected/appointed before January 8, 1973 nor to persons who have previously served as directors; (c) He shall be at least a college graduate, or with at least five (5) years experience in business, or has undergone training in banking acceptable to the department of the Central Bank charged with the duty of supervising and examining rural banks. The foregoing minimum qualifications shall be in addition to those already prescribed in Republic Act No. 337 and Republic Act No. 720, both as amended, and other applicable laws and regulations. [Circular 356 1-8-73, as amended on 8-17-73] SUBSECTION 321.22 Disqualifications . Without prejudice to provisions of existing laws prescribing disqualifications for directors, the following persons are disqualified from becoming directors of a rural banks: (a) Full-time appointive or elective public officials, except in cases where their service in the rural bank is incident to financial assistance provided by the Government or government-owned or controlled corporation to the bank. [Section 4, Republic Act No. 720, as amended] (b) Persons who have been convicted judicially or administratively of an offense involving moral turpitude, or judicially declared insolvent, spendthrift, or incapacitated to contract; (c) Those who are engaged in, or shall take, active participation in politics. For purposes hereof, active participation in politics shall consist of, among others, candidacy for elective public office; being a delegate to any political club or other similar political organization; making political speeches; canvassing or soliciting votes for political purposes, either directly or indirectly; or becoming prominently identified with the success or failure of any candidate for election to public office; (d) Directors, bank officers and employees who have been removed by the Monetary Board in accordance with the provisions of Section 34-A of Republic Act No. 265, as, amended, and other provisions thereof; LLphil (e) Persons who shall refuse to disclose the extent of their business interest to the department of the Central Bank charged with the supervision and examination of rural banks, when such disclosure is required for the proper implementation of a provision of law or of a circular, memorandum, rule or regulation of the Central Bank; and this disqualification shall be in effect for as long as the refusal persists; (f) Directors who have been absent for whatever reason for more than fifty per cent (50%) of the regular meetings of the board of directors for a two-year period reckoned from the date of the election of the director concerned: Provided, that this disqualification shall apply for purposes of the succeeding election; (g) Persons found by the Monetary Board to have wilfully failed or refused to comply with any banking law, order, instruction or regulation issued by the Monetary Board or by the Governor, or to have committed irregularities or to have conducted business in an unlawful, unsafe or unsound manner as determined by the Monetary Board in any institution supervised by the Central Bank; (h) Those who are delinquent in the payment of their obligations or who are stockholders/managing partners owning a controlling equity interest in a corporation or partnership delinquent in the payment of its obligations, and this disqualification shall be in effect for as long as the delinquency persists. "Delinquency in the payment of obligations" shall mean that three (3) or more obligations with a bank or other financial institutions under different credit lines or loan contracts become past due, as the term is defined under Central Bank regulations, for six (6) months or more. [Circular 356 1-8-73, as amended on 8-17-73] SUBSECTION 321.23 Interlocking directorates . As a general policy, there shall be no interlocking directorates/officership in rural banks. A person who is a director/officer of a rural bank shall not at the same time serve as director/officer of any other rural bank except where such positions are occupied by persons appointed thereto as representatives of the Government or of government-owned or controlled banks. For this purpose, a husband and his wife shall be treated as one person. SUBSECTION 321.3 Disqualifying interest . A director of a rural bank is prohibited from participating in the deliberation or decision on matters affecting his pecuniary interest, or the pecuniary interest of any enterprise in which he is directly or indirectly interested, which are presented before the board of directors, except when he is called upon to explain his side or give his testimony, after which he shall leave in order to enable the board to deliberate and decide freely and impartially on the merits of the case. When a matter before a committee involves a disqualifying interest on the part of any member thereof, a substitute member shall be appointed by the board to act in his stead. SUBSECTION 321.4 Bio-data of directors . Any change in the composition of the board of directors, together with the bio-data of the new directors, shall be reported within thirty (30) days to the Monetary Board through the department of the Central Bank charged with the duty of supervising and examining rural banks. [Circular 356 1-8-73, as amended] SUBSECTION 321.5 Honoraria and allowances . A director shall not be entitled to compensation but he may be granted a reasonable honorarium for actual attendance at meetings, which shall include fare and other actual expenses in connection therewith. Honoraria and allowances fixed by the board must be in accordance with the standard scale set therefor by the Monetary Board (shown in Appendix D) and any honorarium or allowances which is in excess of such scale shall be governed by the rules set forth in said Appendix. Honoraria and allowances fixed by the rural bank's board shall be reported immediately to the Central Bank. [Circular 502 2-2-76 and Circular 507 2-23-76] SUBSECTION 321.6 Credit committee . The board of directors shall create a credit committee to be composed of the following: (a) one director as chairman: (b) another director, with an alternate who must also be a director, as member; and (c) the manager of the rural bank as ex-officio member. The credit committee shall meet at least once a week, or as frequently as may be necessary, to process, evaluate and recommend to the board the approval or rejection of applications for loans: Provided, however, that the board may delegate to said committee the power to act on applications involving amounts of more than P5,000 but not more than P10,000, or in accordance with such guidelines which the Central Bank may prescribe: Provided, further, that loans granted under this delegated authority shall be subject to confirmation of the board. cdlex The board may likewise delegate to the manager of the rural bank the power to act on loan applications involving amounts up to P5,000, subject likewise to confirmation of the board. The committee shall not favorably consider any loan application if it violates any provision of the Rural Banks Act and other pertinent laws and the rules and regulations promulgated by the Central Bank. No loan application may be favorably considered by the committee unless such action is with the unanimous assent of all its members. Any member of the credit committee may be removed at any time by a majority vote of the entire membership of the board of directors. All actions of the credit committee must be reported to the board of directors at its next regular or special meeting or as may be required by the board. [Circular 502 2-2-75] SUBSECTION 321.7 Audit/Examination by board of directors SUBSECTION 321.71 Balance sheet audit/examination a) The board of directors of rural banks shall cause an annual balance sheet audit/examination, including a review of the internal audit and control system of their respective banks; deliberate and act upon the audit/examination report; and report to the Central Bank the board's action thereon. b) The audit/examination may be conducted by the bank's internal auditor or other responsible employees of the bank, or by an external auditor: Provided, that the Monetary Board may, at its discretion, require the bank's board of directors to engage the services of an independent auditor acceptable to the Monetary Board for the purpose of conducting said audit/examination. c) The audit/examination shall cover, at the minimum, the following, which should be contained in the audit engagement contract or in the written instructions of the board to the party commissioned to conduct the audit/examination: (i) A review of each loan and investment account amounting to at least P100,000 or one per cent (1%) of the loan portfolio, whichever is lower, and said review should include, but not be limited to, a determination of: whether the established loan or investment procedures were followed in granting the loan or making the investment; whether the loan or investment was granted or made within the capacity or authority of the person or body granting the loan or making the investment; whether the requirements on collaterals have been observed; (ii) A test check of income and expense accounts; and (iii) A review of accounting procedures and records as well as the internal control system of the bank. d) The audit/examination report shall contain at least the following (and this requirement shall also be mentioned in the audit engagement contract or instructions of the board): (i) A discussion of the balance sheet items (especially the loan and investment accounts, in the light of the terms of reference for the review as given in par. c)-(i) hereof; and of operating results; (ii) Procedural steps undertaken in the audit; (iii) Comments on the adequacy of the accounting system, financial records, and internal control system, of the bank; (iv) Appropriate recommendation. e) The audit/examination shall be started not later than thirty (30) days after the close of each calendar year of the bank, and the same shall be submitted to the board of directors not later than ninety (90) days after the start of the audit/examination. f) Within thirty (30) days after receipt of the report, the board of directors of the bank, at a regular or special meeting, shall consider and act upon the findings and recommendations contained in the report. g) Within thirty (30) days after said meeting, the following papers shall be transmitted to the appropriate supervising and examining department of the Central Bank: (i) Copy of the audit/examination report; (ii) Copy of the engagement contract or instructions; (iii) Copy of the board resolution, giving the names of those present and absent, and which shall contain, among others, the action taken on the findings and recommendations contained in the audit/examination report as well as the measures/internal safeguards adopted by the board of directors, if necessary, to improve and/or update the internal audit and control system of the bank. (h) Rural banks whose total resources net of capital accounts do not exceed P5,000,000 shall be exempt from the provisions of this subsection unless the Monetary Board, in the exercise of its discretion, and upon due notice, expressly requires the board of directors any or all such banks to conduct such audit/examination. [Circular 380 8-22-73] SUBSECTION 321.72 Financial statements/accounts examination . Supplementary to the next preceding subsection, the board of directors of a rural bank (a) whose total resources net of capital accounts amount to P3,000,000 or more; or (b) whose past due accounts with the Central Bank reach fifteen per cent (15%) or more at any time during the year; or (c) with Central Bank exposure in the form of counterpart capital, outstanding rediscounting, and special time deposits (STDs) totalling P1,000,000 or more, shall cause an annual audit/examination of its financial statements/accounts. The director of the department of the Central Bank charged with the supervision and examination of rural banks shall have the authority to require the board of directors of any rural bank found to have unreconciled books of accounts to similarly cause an audit of its financial statements/accounts. The audit/examination shall be conducted by an external auditor, who must be a reputable and independent Certified Public Accountant, and should be completed not later than sixty (60) days after the end of the rural bank's accounting period. The board of directors of the rural banks covered by this subsection shall deliberate and act upon the audit/examination report and shall submit to the Central Bank within thirty (30) days of the completion of the audit report, a copy thereof and a report of the board's action thereon [Circular 458 4-4-75] SECTION 322. Officers and Employees . SUBSECTION 322.1 Definitions of terms . For purposes hereof (a) Officers shall include the President, Vice President, General Manager, Secretary, and others mentioned as officers of the rural bank or whose duties as such are defined in the by-laws, or are generally known to be the officers of the bank, its agencies or offices, either through announcement, representation, publication or any kind of communication made by the rural bank. (b) Senior officers are the President, Vice President, Assistant Vice President, Corporate Secretary, Treasurer and other officers with similar responsibilities. LibLex SUBSECTION 322.2 Qualifications and disqualifications of officers SUBSECTION 322.21 Qualifications . An officer of a rural bank shall have the following minimum qualifications: (a) He must be a Filipino citizen; (b) He must be at least twenty-one (21) years of age, except for senior officers who shall be at least twenty-five (25) years of age at the time of his election/appointment: Provided, that the foregoing minimum age requirement shall not apply to officers elected/appointed to their positions before August 17, 1973 nor to persons who have previously served as officers of a rural bank; (c) He must be at least college graduate or have at least five (5) years experience in business, or undergone training in banking acceptable to the department of the Central Bank charged with the supervision and examination of rural banks; (d) He must possess such other specific qualifications as may be required by the Central Bank for the particular office; and (e) Majority of the key executive officers of the rural bank must be actual residents of the locality where the rural bank is to be established. However, the President must always be an actual resident of that locality. [MB Res. 1949 9-6-74] The foregoing qualifications shall be in addition to those already prescribed under existing applicable laws and regulations. SUBSECTION 322.22 Disqualifications . The grounds stated in subsection 321.22 for disqualifications of directors of rural banks shall also be grounds for disqualification of officers, with the exception of that stated in par. (f) of said subsection. Except as may be authorized by the Monetary Board or the Central Bank Governor, a person who is the spouse of, or who is related within the second degree of consanguinity or affinity to, any person holding the position of President, Executive Vice-President, General Manager, Treasurer, Chief Cashier, or Chief Accountant is disqualified from holding or being elected/appointed to any of the other said positions in the same rural bank. SUBSECTION 322.23 Interlocking officership . The restriction against interlocking directorates in rural banks shall also apply to the positions of officers of such banks. SUBSECTION 322.3 Disqualifying interest . An officer, employee or agent of a rural bank is prohibited from participating in the deliberation or decision on matters affecting his pecuniary interest, or the pecuniary interest of any enterprises in which he is directly or indirectly interested, which are presented before the board of directors, except when he is called upon to explain his side or give his testimony, after which he shall leave in order to enable the board to deliberate and decide freely and impartially on the merits of the case. SUBSECTION 322.4 Bio-data of officers . Any change in the composition of the officers of a rural bank, together with the bio-data of the new officers shall be reported within thirty (30) days to the Monetary Board through the department of the Central Bank charged with the supervision and examination of rural banks. [Circular 356 as amended 1-8-73] SUBSECTION 322.5 Compensation of officers and employees . Salaries and allowances of the president, manager, and other executive officers, as well as of all other employees of the rural bank shall be fixed by the board of directors in accordance with the scale set therefor by the Monetary Board as shown in Appendix D. Any salary or allowance in excess of such scale shall be governed by the rules set forth in said Appendix. Salaries and allowances fixed by the rural bank's board of directors shall be reported immediately to the Central Bank. [Circular 502 2-2-76 and Circular 507 2-23-76] SUBSECTION 322.51 Cost of living allowance . In line with the policy granting emergency allowances to employees in the government and the private sectors, rural banks are authorized to grant all their employees whose salaries or wages are below P600 per month an emergency cost of living allowance, in addition to their respective salaries or wages, in accordance with the following scale: Amount of Allowance Capitalization Per Month (a) Rural banks capitalized at more than P1 million P50.00 or higher (b) Rural banks capitalized at P100,000 to P1 million P30.00 or higher (c) Rural banks capitalized at less than P100,000 P15.00 or higher However, no employee receiving less than P600 a month covered by this emergency allowance scheme, shall by reason of the receipt of such allowance, receive more than P600 a month as straight time pay. If the allowance to be granted by the rural bank is more than the minimum of P50, P30 and P15 provided for in the above scale under the three categories, then prior approval of the department of the Central Bank charged with the supervision and examination of rural banks shall first be secured. The above emergency allowance scheme shall be without prejudice to the extension by rural banks of similar allowance to their employees receiving P600 a month or more: Provided, that said allowance shall not exceed the maximum allowance granted to their employees receiving less than P600 per month, and, Provided, further, that prior approval of the department of the Central Bank charged with the supervision and examination of rural banks shall first be secured. [MCRBSLA 74-18 4-15-74] SUBSECTION 322.6 Bonding of officers and employees . At the initial stage of operation of the rural bank, the Manager and the Cashier shall post a bond in an amount not less than P5,000 each. Thereafter, the Cashier's bond shall be in an amount equivalent to his average daily cash accountability but in no case lower than P5,000. The Assistant Cashier shall be bonded in an amount equal to his accountability. All other officers and employees holding cash, security, or property accountability in an amount not less than P1,000 in any one year belonging to the rural bank shall also be bonded in an amount approved by the Central Bank. All accountable officers and employees of the rural bank may post real estate or surety bonds of reputable companies duly approved by the Central Bank. SECTION 323. Banking Days and Hours . SUBSECTION 323.1 Banking days . Rural banks, including their agencies and extension offices, shall observe a six-day banking week, Monday to Saturday, with the option to open on Sundays. No rural bank shall close for business during the banking hours and days as reported to the Monetary Board except on bank holidays declared by appropriate authorities or in extraordinary instances brought about by unforeseen, unavoidable events which directly affect the bank's ability to open for business. [Circular 368 5-14-73] SUBSECTION 323.2 Minimum banking hours . Rural banks, including their extension offices and agencies, shall transact business for not less than six hours a day, to be selected by the rural bank, between eight o'clock in the morning and eight o'clock in the evening, which time shall be reported in writing to the Monetary Board. [Circular 353 12-29-72] SUBSECTION 323.3 Extension of banking hours beyond required minimum . Rural banks may, at their discretion and after prior written notice to the Monetary Board, remain open beyond the minimum six hours and for as long as they find it necessary even before eight o'clock in the morning or after eight o'clock in the evening for the purpose of servicing deposits and withdrawals. If the exigencies of banking services, other than the servicing of deposits and withdrawals, require the extension of banking hours beyond the minimum six hours, prior permission shall be sought from the Monetary Board, through the department of the Central Bank charged with the supervision and examination of rural banks. The request for the extension of banking hours beyond the minimum of six hours shall state the nature of the services to be rendered and a justification therefor. Previous specific authorization from the Monetary Board allowing, in view of certain exceptional conditions, certain banking institutions to open for business on Sundays and holidays, and/or on a 24-hour basis, or allowing certain banking institutions to be closed during certain religious holidays, shall remain in force. [Circular 353 12-29-72] Banks which opt to open on Saturdays purely for servicing deposits and withdrawals are authorized to open for less than six hours, subject to the requirement that the schedule of banking hours and days reported to the Central Bank shall be posted conspicuously at all times in the premises of the banks concerned. [MB Res. 361 2-14-75] SUBSECTION 323.4 Reporting of banking time selected . Rural banks shall report in writing to the Monetary Board through the department of the Central Bank charged with the supervision and examination of rural banks the banking time selected for each of their offices not later than January 31, 1973. Subsequent changes in such time shall likewise be reported in writing each time the change occurs. The required prior written notice to the Monetary Board shall be given at least seven days, through the fastest means of communication, before the intended change of business hours takes effect, except in cases of emergency where a 24-hour notice will suffice. In submitting the emergency notice, the specific nature of the emergency shall be stated. In no case, however, shall changes in banking hours be made oftener than thirty days. [Circular 353 12-29-72] SUBSECTION 323.5 Posting of banking hours and days . The schedule of banking hours and days reported to the Monetary Board shall be posted conspicuously at all times in the rural bank's premises. [Circular 353 12-29-72] SECTION 324. Supervision by the Central Bank . SUBSECTION 324.1 Examination by the Central Bank The department of the Central Bank supervising and examining rural banks shall conduct an examination of every rural bank at least once a year or as often as it may deem necessary to preserve, protect and promote the interests of depositors and creditors and those of the government and the general public. SUBSECTION 324.11 General examination . The department of the Central Bank charged with the supervision of rural banks shall conduct a general examination of every rural bank at least once a year for the purpose of determining: (a) Whether the rural bank is solvent; (b) Whether it is operating in accordance with existing laws and the orders, instructions and rules and regulations promulgated by the Monetary Board; and (c) Whether it observes and applies the fundamental principles of safe and sound banking practices in its operations. The general examination shall review and scrutinize the business affairs, the operation, administration and condition of the rural bank and shall include a review of the lending policies and procedures, audits, test checks of cash and other transactions of said bank, and the determination of the regularity of its accounts, including the proper accounting of every financial transaction in accordance with generally accepted banking practices. SUBSECTION 324.12 Special examination . Special examinations shall be conducted for the purpose of investigating complaints or reports of alleged irregularities in the operation and administration of rural banks; to prevent the commission of anomalies and irregularities; to find out whether the corrective measures recommended in previous examinations have been implemented; to determine whether rural banks may be authorized to exercise any of the additional powers provided for in Republic Act No. 720, as amended, and for other specific purposes. The examiners of the appropriate supervising and examining department of the Central Bank may require the production of the books, papers, letters, records, and documents pertaining to the bank's business and corporate operations from any of its officers, employees, and stockholders. SUBSECTION 324.13 Report on general/special examination . Within a reasonable time after the date of completion of a general examination, the appropriate supervising and examining department of the Central Bank shall submit to the Monetary Board a complete and thorough report on the results of said examination together with its recommendations thereon. Whenever necessary, results of a special examination of rural banks shall be reported to the Monetary Board. Upon termination of the examination, the examiners shall furnish the board of directors of the rural bank examined a list of their findings together with suggestions and/or recommendations which shall be subject to confirmation and/or modification by the higher authorities of the Central Bank. SUBSECTION 324.14 Annual fee . Every rural bank shall contribute to the Central Bank an annual fee to help defray the cost of maintaining the appropriate supervising and examining department of the Central Bank in accordance with the following guidelines: (a) Assessment . The fee shall be assessed at the rate of one-twentieth of one per cent (1/20 of 1%) of the average total assets during the preceding year, as shown in the end-of- month balance sheets of each rural bank, minus cash on hand and amounts due from banks including the Central Bank. Contingent accounts, should there be any, except instruments received by rural banks on consignment like PNB Bank Money Orders and Central Bank Certificates of Indebtedness, shall be included in the total assessable assets of rural banks. The assessment shall cover all rural banks regardless of the dates when they were organized, except in the case of rural banks under liquidation or receivership to which actual liquidation or receivership expenses incurred by the Central Bank shall be charged. The initial assessment shall be made in January, 1974, to cover the assessable assets for the year 1973. (b) Manner of collection . Where the rural bank maintains a deposit account with the Central Bank, its deposit account shall be debited by the Central Bank Accounting Department upon receipt of assessment from the department of the Central Bank charged with the supervision of rural banks. The rural bank shall be advised accordingly. Where the rural bank does not maintain a deposit account with the Central Bank, or where its deposit is insufficient to cover the assessment fee, the Accounting Department of the Central Bank shall bill said bank for the full amount of the fee or for the balance thereof not covered by its deposit account, as the case may be. [Circular 390 11-19-73, as amended by Circular 423 8-12-74] SUBSECTION 324.2 Recording of transactions (a) True and accurate record, required . All rural banks shall have a true and accurate account, record or statement of their daily transactions in accordance with the uniform accounting system prescribed by the Central Bank for use of rural banks. The commission of any false entry or the omission to make an entry on any such transactions shall be a ground for the Monetary Board to order the removal from office of any officer, director, agent or employee responsible therefor, without prejudice to their criminal liability under Section 22 of Republic Act No. 720, as amended, and Sections 33 and 34 of Republic Act No. 265, as amended, and/or the applicable provisions of the Revised Penal Code. [Circular 307 8-3-70] b) Unclaimed balances already reported ; booking . All unclaimed balances, which include credits or deposits of money, bullion, securities or other evidences of indebtedness of any kind, and interest thereon, already reported to the Treasurer of the Philippines in accordance with the Unclaimed Balances Act (Act No. 3936, as amended by Presidential Decree No. 679 dated April 2, 1975) shall be transferred/reclassified from the deposit liability/other credits accounts to the liability account, "Due to the Treasurer of the Philippines," until they are deposited with or turned over to the Treasurer of the Philippines upon order of the court that the same have been escheated in favor of the Government of the Republic of the Philippines and, as such, the unclaimed balances-deposit liabilities shall no longer be covered by reserves required of deposit liabilities. [MAB 2-6-76] SUBSECTION 324.3 Submission of reports/certain information required . All rural banks are required to use and follow strictly the forms prescribed by the Central Bank for the use of rural banks for their statements and/or periodic reports required to be submitted to the department of the Central Bank supervising rural banks. (Appendices A and B) Any wilful delay in the submission of reports/refusal to permit examination shall subject the erring rural bank to the specific administrative sanctions. LLjur [Circular 301 6-23-70] All rural banks shall also submit within ten (10) days from receipt of CB Memorandum to All Banks and Non-Bank Financial Intermediaries dated October 28, 1975, the information required in Appendix C. Any changes in any of the required information submitted, after the initial submission, shall be reported to the concerned department of the Central Bank immediately. [Circular 301 6-23-70; MAB-NBFI 10-28-75] SUBSECTION 324.31 Specific sanctions for wilful delay in submission of reports ; refusal to permit examination a) Definition of terms . For purposes of this subsection, the following definition shall apply: (i) Report shall refer to all written reports/statements, (such as report on required and available reserves against deposit liabilities, annual statement of condition) required of a banking institution to be submitted to the Central Bank periodically or within a specified period. (ii) Wilful delay in submission of reports shall refer to the failure of any banking institution to submit on time the report defined in number (i) above, except when on the day a report is due for submission, the bank is closed for business because of extraordinary circumstances brought about by unforeseen, unavoidable events which directly affect the bank's ability to open for business as contemplated in Part 2 of this Book. (iii) Examination shall include, but need not be limited to, the verification, review, audit, investigation and inspection of the books and records, business affairs, administration, and financial condition of any banking institution including the reproduction of banking records as well as the taking possession of the books and records and keeping them under Central Bank's custody after giving proper receipts therefor. It shall also include the interview of the directors and personnel of any banking institution. (iv) Refusal to permit examination shall mean any act which impedes, delays or obstructs the duly authorized Central Bank officer/examiner/employee from conducting an examination or from attaining any of the purpose or purposes defined in number (iii) above; or any form of denial by the directors/officers/employees of any banking institution of access to books, documents, and records of the bank, upon demand by any Central Bank officer/examiner, including any refusal to accept or honor a letter of authority to examine presented by any officer/examiner/employee of the Central Bank; as well as refusal of the directors/personnel of any banking institution to be interviewed or to answer verbally or in writing matters pertaining to the operations/transactions of the bank under examination. b) Fines for wilful delay in the submission of reports (i) Amount of fine . Any rural bank which shall wilfully delay the submission of reports as defined above within the periods prescribed for each particular report, shall pay a fine in accordance with the following schedule: P10 per banking day of default for the first five successive banking days of default; and thereafter; P20 per banking day of default for the next five successive banking days of default, and thereafter; P30 per banking day of default for the succeeding banking days of default until the particular report has been filed in accordance with number (ii) below. In the implementation of the foregoing rules, delay or default shall start to run on the day following the last day required for submission of the reports. However, should the last day of filing fall on a non-working day in the locality where the reporting bank is situated, delay or default shall start to run on the day following the next working day. (ii) Manner of filing . The submission of the reports shall be effected by filing the same directly with the appropriate department or with the Central Bank regional offices, or by sending them by registered mail or special delivery, unless otherwise specified in the circular or memorandum of the Monetary Board of the Central Bank. In the first case, the date of acknowledgment by the appropriate department of the Central Bank or the Central Bank regional office, appearing on the copies of such reports filed or submitted, and in the second case, the date of mailing postmarked on the envelope or the registry receipt, shall be considered as the date of filing. (iii) Manner of payment or collection of fines. Where the bank maintains a deposit account with the Central Bank, its deposit account shall be debited by the Accounting Department of the Central Bank upon receipt of notice from the appropriate department of the Central Bank. A copy of said notice shall be furnished the bank concerned. Where the bank does not maintain a deposit account with the Central Bank, it shall be billed by the Central Bank Accounting Department, upon receipt of notice from the appropriate department of the Central Bank. Failure to pay the bill within fifteen days from receipt thereof shall subject the bank to further administrative sanctions. c) Fine for refusal to permit examination (i) Amount of fine . Any banking institution which shall wilfully refuse to permit examination as defined above, shall pay a fine of P500 daily from the day of refusal and for as long as such refusal lasts. (ii) The refusal of the banking institution to permit any duly authorized officer/examiner/employee of the Central Bank to conduct an examination of its affairs after receipt of the written demand of the head of the appropriate department of the Central Bank based on the written report submitted by such officer/examiner/employee that said banking institution has refused to allow such examination under any of the circumstances stated in par. a)-(iv) of this subsection shall be the basis for the imposition of the fine. (iii) The fine shall be imposed starting on the day following the receipt by the banking institution of the written demand above-mentioned if the bank has not yet complied therewith and has not given any satisfactory explanation therefor. (iv) Manner of payment or collection of fine . The same procedure as in par. b)-(iii) hereof shall be followed. d) Other penalties . The foregoing penalties shall not preclude the application of, or be without prejudice to, the other administrative sanctions as well as to the filing of criminal cases as provided for in other provisions of law, and as may be warranted by the nature of the offense. e) Appeal to the Monetary Board . Any aggrieved banking institution may appeal to the Monetary Board from a ruling of the appropriate department of the Central Bank imposing a fine. [Circulars 359 1-22-73 and 399 3-25-74] SUBSECTION 324.4 Signatories on required bank reports . Certain weekly, monthly, quarterly, semi-annual and annual statements/reports required to be submitted to the Central Bank by rural banks are grouped into Category A-1, Category A-2, and Category B. (a) Categories of reports (1) Category A-1 report is the quarterly published/condensed statement of condition [CBP 7-19-08A]. (2) Category A-2 report is the consolidated monthly statement of condition [CBP 7-19-04A]. (3) Category B reports are those required to be submitted to the Central Bank and which are not included in Categories A-1 and A-2. For a complete listing of these reports, please refer to Appendix A-1 hereof. (b) Authorized signatories (1) Category A-1 reports shall be signed by the institution's president or senior executive vice-president, and by the chief finance officer (i.e., chief accountant), who shall be authorized under a resolution approved by the board of directors (sample form of resolution is shown as Appendix A-2). (2) Category A-2 reports of head offices of financial intermediaries shall be signed by the institution's president or senior executive vice-president. Reports of offices/units (such as branch, sub-branch, agency, etc.) in this category shall be signed by its respective manager/officer-in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors (sample of resolution is shown as Appendix A-3). (3) Category B reports (Appendix A-1) shall be signed by officers or their alternates, who shall be duly designated by the board of directors. A copy of the board resolution (sample form is shown as Appendix A-4) covering the initial designation and subsequent change(s) in signatories as well as specimen signatures of the signatories and alternates, shall be submitted to the appropriate supervising and examining department of the Central Bank of the Philippines within three (3) days from date of resolution. (c) Sanctions If a report is submitted to the Central Bank under the signature of an officer who is not listed or included in any of the resolution(s) mentioned above, the supervising and examining department shall refuse to acknowledge the report as valid or consider the report as not having been submitted at all. If such a report is not re-submitted by the institution under the signature of a duly authorized signing officer, administrative sanctions/penalties shall be imposed on the erring institution for late reporting or failure to submit the required reports, as the case may be. [CL 12-3-75] SUBSECTION 324.5 Report on real estate transactions between a rural bank and its directors, officers, stockholders or any firm substantially owned by one or more of such directors, officers or stockholders . The board of directors of the bank shall, through the appropriate supervising and examining department of the Central Bank: (a) Report to the Monetary Board any real estate transaction (such as, but not limited to, rentals or leases, purchases, and sales, or foreclosed assets) by and between the bank and its director/s, officer/s, stockholder/s owning at least two per cent (2%) of the bank's subscribed capital stock or any firm substantially owned (in the aggregate of at least twenty per cent (20%) of the paid-in capital of such firm) by one or more of such directors/officers/stockholders; and (b) Certify to the Monetary Board that such transaction has been thoroughly reviewed and verified as having been entered into in the best interest of the bank. [CL 2-11-75] SUBSECTION 324.6 Failure or refusal to call meetings As a matter of policy, meetings of the rural bank's board of directors shall be held only within the Philippines. [CL 12-4-74] When a person or body authorized to call a meeting under the by-laws fails or refuses to do so, the Central Bank shall call the same, if necessary, in the exercise of its supervisory powers under paragraph 2 of Section 10 of Republic Act No. 720, as amended, in the manner provided for in the by-laws, or in the absence of provisions therein, in the manner provided for in the manual of operations prescribed by the Central Bank, and may direct a director, officer or stockholder to preside at the meeting in the interim until a presiding officer is elected. SUBSECTION 324.7 Prohibition against officers and employees of the Central Bank . The director of the Central Bank department charged with the supervision and examination of rural banks, or any officer or employee of such department is prohibited from directly or indirectly being a stockholder, director, officer or employee of any rural bank. APPENDIX A REPORTS REQUIRED TO BE SUBMITTED BY RURAL BANKS TO THE CENTRAL BANK THRU THE APPROPRIATE SUPERVISING AND EXAMINING DEPARTMENT Form No. Subject of Report Frequency Deadline CBP-7-19-01 A Weekly Report on Required and Available Weekly Tuesday following reference Reserves against Deposit Liabilities week CBP-7-19-45 A Application for the Availment of the Privilege Every time an Not later than the banking to use CBCI and Other Government Securities application is day immediately following with Remaining Maturities of Less than Two (2) made the day when the bank incurred Years, not Otherwise Eligible, as Reserve a reserve deficiency Against Deposit Liabilities CBP-7-19-45 A1 Investment in Securities (attachment to Weekly CBP-7-19-45 A) CBP-7-19-46 A Sworn Statement on Real Estate Transaction Every time a 10 days after approval of transaction is transaction approved CBP-7-19-04 A Statement of Condition Monthly 10th day after end of reference month CBP-7-19-04 A.1 Monthly Schedule of Savings and Time Deposits Monthly 10th day after end of reference month CBP-7-19-04 A.2 Schedule of Agricultural and Industrial Loans Monthly 10th day after end of reference Outstanding by Crops and Industry month. CBP-7-19-04 A.3 Schedule of Agricultural and Industrial Loans Monthly 10th day after end of reference Outstanding month. CBP-7-19-05 A Statement of Income and Expenses Monthly 10th day after end of reference month. CBP-7-19-06 A Summary Report of Loans Granted (Non-Supervised Monthly 10th day after end of reference Credit month. CBP-7-19-06 A.1 Summary Report of Loans Granted (Supervised Monthly 10th day after end of reference Credit) month. CBP-7-19-06 A.2 Monthly Report on Masagana 99 Rice Production Monthly 5th day after end of reference Program * month CBP-7-19-06 A.2.1(a) Monthly Report on Past Due Accounts M-99 Rice Monthly 10th day following end of Production Program under Phase I reference month CBP-7-19-06 A.2.1(b) Phase II Monthly CBP-7-19-06 A.2.1(c) Phase III Monthly CBP-7-19-06 A.2.1(d) Phase IV Monthly CBP-7-19-06 A.3(a) Monthly Report on Masaganang Maisan * Monthly 5th day after end of reference White Corn month CBP-7-19-06 A.3(b) Monthly Report on Masaganang Maisan Monthly 5th day after end of reference Yellow Corn month CBP-7-19-06 A.3(c) Monthly Report on Masaganang Maisan Monthly 5th day after end of reference Sorghum month CBP-7-19-06 A.3(d) Monthly Report on Masaganang Maisan Monthly 5th day after end of reference Soy bean month CBP-7-19-06 A.6 Monthly Report on Vegetables and Fruits Monthly 10th day after end of reference Production Program month CBP-7-19-06 A.7 Monthly Report on Poultry and Livestock Monthly 10th day after end of reference Financing Program month CBP-7-19-09 A Consolidated Report on the Utilization of Monthly Twelve(12) days after end of Loanable Funds Generated which were Set Aside reference month for Agrarian Reform/Agricultural Credit Report on CB: IBRD Arrearages Monthly 10th day following reference month or for every CB: IBRD loan application, whichever is less frequent. CBP-7-19-10 A.2 Report on Beneficiaries' Loan (Sub-Loan) Quarterly 10th day after end of reference Application quarter CBP-7-19-10 A.3 Loan (Sub-Loan) Portfolio Quarterly 10th day after end of reference quarter CBP-7-19-04 A.4 Loan (Sub-Loan) Portfolio by Size Quarterly 10th day after end of reference quarter CBP-7-19-10 A.5 Recoveries and Maturity Extension Quarterly 10th day after end of reference quarter CBP-7-19-10 A.6 Quarter-end Status of Overdue Loan Principals Quarterly 10th day after end of reference and interests quarter CBP-7-9-08 A Condensed Statement of Condition (attachment Quarterly 60th day after the end of the to CBP-7-19-44 A) reference quarter CBP-7-19-44 A Affidavit of Rural Bank President or Manager Quarterly 60th day after end of the (of the Posting of Quarterly Statement of reference quarter Condition) CBP-7-19-44 A1 Affidavit of City/Municipal Treasurer of the Quarterly 60th day after the end of the Posting Quarterly Statement of Condition reference quarter CBP-7-19-41 A Plantilla of Organization Annually and every January 31 of each year and 10 time changes occur days after any change in the composition of plantilla CBP-7-19-42 A Bio-Data of Officers/Directors As changes occur Seventh day from date of election/appointment/change CBP-7-19-43 A Report on Change in Schedule of Banking Hours As changes occur 7th day before intended change except in case of emergency where a 24-hour notice suffices * To be submitted directly to the reporting centers designated by the Central Bank Agricultural Credit Supervisor having jurisdiction over the areas within 5 days after end of reference month. Sources: MCRB 74-63A dated 8-30-74 MCRBSLA 74-37 dated 6-21-74 MCRB 74-56 dated 9-16-74 MCRBSLA 74-67 dated 9-18-74 MCRB 74-71 dated 10-10-74 MCRBSLA 74-93 dated 12-16-74 MCRBSLA 74-5 dated 1-9-74 Circular 353 dated 11-19-72 MCRBSLA 74-32 dated 5-27-74 Circular 422 dated 8-8-74 CL 7-15-75 MAB dated 7-28-75 Footnotes * To be submitted to the reporting centers designated by the Central Bank Agricultural Credit Supervisor having jurisdiction over the areas within 5 days after end of reference month. APPENDIX A-1 CATEGORY B REPORTS OF RURAL BANKS Report Title Report Number Report Title Report Number Weekly Report on Required and Monthly Report on Poultry and Available Reserves Against Deposit Livestock Financing Program CBP-7-19-06A.7 Liabilities CBP-7-19-01A Consolidated Report on the Statement of Income & Expenses CBP-7-19-05A Utilization of Loanable Funds Summary Report of Loans Generated which are set aside Granted (NSC) CBP-7-19-06A for Agrarian Reform Credit/ Summary Report of Loans Granted Agricultural Credit CBP-7-19-09A (SC) CBP-7-19-06A.1 Quarterly Report on CB: CBP-7-19-10A.2 to Monthly Report on Masagana 99 IBRD Lending Operation CBP-7-19-10A.6 Rice Production Program CBP-7-19-06A.2 Monthly Report of Arrearages on Report on Past Due Accounts CBP-7-19-06A.2.1(a) CB: IBRD Loans CBP-7-19-10A.7.1 Under Masagana 99 Rice to Loans/Credits Granted to Builders or Production Program (Phase Purchasers of Units/Shares in I to IV) CBP-7-19-06A.2.1(d) Condominium Projects, Monthly Report on Vegetable Country Clubs, and Fruit Production Sports Clubs and Other Real Program CBP-7-19-06A.6 Property Developments CBP-7-19-11A [Source: CL 12-3-75] APPENDIX A-2 Whereas, under its Circular-Letter dated December 3, 1975 to all Banks and Non-Bank Financial Intermediaries, the Central Bank of the Philippines requires Category A-1 reports to be signed by the institution's President, and by the Chief Finance Officer (i.e., Chief Accountant); Whereas, the same Circular-Letter requires that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ______________ (Name of institution) are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors i n particular and _________________ (Name of institution) in general; Whereas, this Board has full faith and confidence in the institution's President and its Chief Finance Officer (Chief Accountant) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under its delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Specimen Name of Officer Position Title Signature 1. Mr. ___________________, President ____________________ 2. Mr. ___________________, Chief Finance _________________ Officer (Chief Accountant) are hereby authorized to sign the Bank's published/condensed statement of condition of __________________. (Name of Institution) Done in the City of _____________, Philippines, this _____ day of ___________ 19 ___. ___________________________ CHAIRMAN OF THE BOARD __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY [Source: CL 12-3-75] APPENDIX A-3 FORMAT OF RESOLUTION FOR SIGNATORIES CATEGORY A-2 REPORTS OF RURAL BANKS RESOLUTION NO. Whereas, under its Circular-Letter dated December 3, 1975 to all Banks and Non-Bank Financial Intermediaries, the Central Bank of the Philippine requires Category A-2 reports to be signed by the institution's President; Whereas, the same Circular-Letter requires that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ (Name of institution), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _________________ (Name of institution) in general; Whereas, this Board has full faith and confidence in the institution's President and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under its delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Name of Report Officer Signature Title Banking Office No . (For Consolidated Statement and H. O. Quarterly Statement of Condition) 1. Mr. _________________________ President (For reports of Banking Office/Unit other than Head Office) 2. _____________________________ Manager/Officer-in-Charge etc. are hereby authorized to sign Category A 2 reports, of _______________________. (Name of Institution) Done in the City of _______________, Philippines, this ____ day of _____________ 19 ___. ___________________________ CHAIRMAN OF THE BOARD __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY [Source: CL 12.3.75] APPENDIX A-4 FORMAT OF RESOLUTION FOR SIGNATORIES CATEGORY B REPORTS OF RURAL BANKS RESOLUTION NO. ___ Whereas, under its Circular-Letter dated December 3, 1975 to all Banks and Non-Bank Financial Intermediaries, the Central Bank of the Philippines requires Category B reports to be signed by the institution's authorized signatory or alternate; Whereas, the same Circular-Letter requires that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we the members of the Board of Directors of ________________ (Name of institution) are conscious that, in designating the officials who would sign said Category B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and _________________ (Name of institution) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatory or alternate/equivalent positions for specific types of non-bank financial intermediaries and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under its delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Specimen Position Report Signatory Signature Title No . Alternate 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign the named reports. Done in the City of _______________, Philippines, this ____ day of ______________, 19 ___. ___________________________ CHAIRMAN OF THE BOARD __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR __________________________ ________________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY [Source: CL 12-3-75] APPENDIX B REPORT ON CRIMES/INCIDENTS INVOLVING LOSS OR DESTRUCTION OF PROPERTY OF RURAL BANKS Every rural bank is required to report to the Central Bank thru the appropriate supervising and examining department (a) crimes (whether consummated, frustrated or attempted) involving their property such as robbery, theft, swindling (estafa), forgery and other deceits; and other crimes involving loss/destruction of their property; and (b) incidents involving material loss/destruction/damage to their property caused by fortuitous events. [CL 1-15-73] The report should be submitted within forty-eight hours from knowledge of the crime/incident with the following particulars: a. Name and location of bank/branch/agency/extension office where are crime/incident took place; b. Nature and brief description of crime(s)/incident(s); c. Person/s involved in the crime(s)/incident(s); d. Date and time of crime(s)/incident(s); c. Amount/s involved (state whether actual or estimated); f. Amount/s and kind of insurance/bond/surety, if any; and g. Any other relevant information regarding the crime(s)/incident(s). [Source: CL 1-15-73] APPENDIX C INFORMATION REQUIRED UNDER CB MEMORANDUM TO ALL BANKS AND NON-BANK FINANCIAL INTERMEDIARIES DATED OCTOBER 28, 1975 1. Name of Institution 2. Address 3. P. O. Box Number 4. Cable address or cable code 5. Board of Directors including Corporate Secretary: a. Names of Chairman, Vice-Chairman and Directors b. Number of directors per By-Laws c. Number of vacancies in the Board d. Names of corporations where they serve as Chairman of the Board or as President and names of other business enterprises of which they are proprietors or partners e. For the Corporate Secretary, indicate if he is also a Director f. Date of annual election of directors per By-Laws 6. Executive officers including Auditor: a. Names and titles b. Telephone Number of each officer (office) c. For the Executive Vice-President, state the names of corporations where he serves as Chairman of the Board and names of other business enterprises of which he is proprietor or partner d. For Vice-Presidents and other officers with non-descriptive titles, indicate area of responsibility, e.g., Vice-President for Operations or Vice-President, International Department e. For rural banks, stock savings and loan associations, non-stock savings and loan associations and budding and loan associations, include from President to Accountant 7. Branches, agencies and extension offices: a. Name of branch, agency or extension office, e.g., Quiapo Branch or Makati Agency b. Address c. Names and telephone numbers of: (1) Manager (2) Cashier (3) Accountant d. For agencies and extension offices, indicate name of mother branch. Henceforth, any changes in any of the foregoing should be reported to the appropriate supervising department immediately. [Source: MAB NBFI 10-28-75] APPENDIX D SALARY CEILINGS, ALLOWANCES AND PER DIEMS FOR DIFFERENT POSITIONS IN RURAL BANKS For purposes of establishing salary ceilings, allowances and per diems for different positions in rural banks the following guidelines are adopted: A. Classification of Rural Banks Rural banks are classified in accordance with their resources as follows: Class A Rural banks with resources of over P5 million; B Rural banks with resources of over P4 million but not exceeding P5 million; C Rural banks with resources of over P3 million but not exceeding P4 million; D Rural banks with resources of over P2 million but not exceeding P3 million; E Rural banks with resources of over P1 million but not exceeding P2 million; and F Rural banks with resources not over P1 million. B. Salary Ceiling 1. The salary rate ceiling as to pay ranges shall be as follows: Pay Range Salary Rate Ceiling 1 P350 2 420 3 500 4 590 5 690 6 800 7 920 8 1,050 9 1,190 10 1,340 11 1,500 12 1,670 13 1,850 14 2,040 Pay Range Salary Rate Ceiling A P2,400 B 2,000 C 1,800 D 1,400 E 1,000 F 800 2. Pay Ranges for the Different Positions by Classes of Rural Banks Position A B C D E F President A B C D E F Vice-President/Manager Manager 14 12 10 8 6 4 Assistant Manager 13 11 9 7 Treasurer-Cashier 12 10 8 6 5 3 Accountant 11 9 7 5 Assistant Cashier 10 8 6 4 Assistant Accountant 9 7 Bookkeeper 8 6 5 4 3 2 Assistant Bookkeeper 7 5 4 Agricultural Technician 5 4 3 3 3 3 Inspector Appraiser 5 4 3 3 2 1 Senior Teller 5 Teller 4 3 3 3 Collector 3 2 2 2 Senior Clerk/Secretary 3 2 1 Clerk-Typist 3 2 1 1 1 1 Guard/Driver/ Messenger/Janitor 1 1 1 1 1 1 3. Salary Ceiling for New Rural Banks The salaries for the essential positions shall not exceed the salary ceilings applicable for Class F rural banks, as follows: Position Salary Manager P590/month Cashier 500/month Bookkeeper 420/month Inspector/Appraiser 350/month Should additional positions of Teller and Security Guard be necessary due to exigencies of the operations, the maximum salary shall not exceed P350 a month. However, a new rural bank which had profitably operated during the first or second year of operations may adopt the salary ranges under which the rural bank is classified immediately after the year it has met with the provisions under Item F of this Appendix. Subject to prior approval of the DRBSLA and depending upon the earning capacity of a rural bank, the Board of Directors may also provide salary/allowances for the Bank President (not holding concurrent position of Manager) if he/she shall have such powers and full operational duties as may be prescribed in the By-Laws or assigned to him by resolution of the Board of Directors. C. Allowances and Per Diems The President, Vice-President or any other officer, who holds the position purely in an honorary capacity shall not be entitled to allowances. For purposes of this Circular, the term "honorary capacity" shall mean that the officer concerned is not actively and directly participating in the management, or business operations, or day to day activities of the bank. The maximum rates for monthly transportation/representation allowances and per diems in amounts not exceeding the following schedule may be adopted in accordance with the guidelines herein stated: Transportation/ For Representation Per Diem President (full time and not concurrently acting as Manager) P500.00 P75/meeting but not exceeding P300/month President (honorary capacity) P75/meeting but not exceeding P300/month Vice-President (honorary capacity P75/meeting but not exceeding P300/month Vice-President/Manager or Manager 300.00 P75/meeting but not exceeding P300/month Director P75/meeting but not exceeding P300/month Secretary P30/meeting In this connection, officers who are presently receiving allowances exceeding the above amounts may continue to do so unless the privilege is otherwise revoked/amended by the rural bank's board of directors. For specific official travels, officers and employees may be allowed per diems for actual and necessary expenses as follows: For officers Up to P50/day For employees Up to P30/day The per diem for specific official travels (like conferences and conventions) requiring amounts exceeding the above schedule, will be specified in Memorandum Circulars to be issued by the Central Bank. aisadc The grant of the above excess per diems for a particular rural bank shall however require prior approval of the DRBSLA on a case to case basis. D. Guidelines in the Implementation of the Standardization of : 1. Salaries a. An employee who is receiving more than the maximum of the pay range to which his present position is allocated shall continue receiving his present salary. b. An employee whose present position has been downgraded in pay range as a result of this standardization shall continue receiving his present salary. c. Adjustments in salaries in accordance with proposed ceilings may be made at the discretion of Bank Management. d. Where the President holding such position in an honorary capacity is concurrently the Manager, he/she shall receive salary appertaining to the latter position. e. Where the Vice-President, holding such position on in an honorary capacity is concurrently the Manager, he/she shall receive the salary appertaining to the latter position. 2. Allowances and Per Diems a. The President, who is holding the position in an honorary capacity and not performing any operational duties shall not be entitled to monthly representation/transportation allowances but may be allowed per diems for attending board meetings and for actual and necessary expenses during specific official travels. b. Where the President holding such position in an honorary capacity is concurrently the Manager, he/she shall be entitled to representation/transportation allowances and to per diems for attendance in board meetings. c. The Vice-President who is not holding a concurrent operational position shall not be entitled to a representation/transportation allowances but may be allowed per diems for attendance in board meetings. d. Where the Vice-President, holding such position in an honorary capacity, is concurrently the Manager, he/she may be entitled to representation/transportation allowances and to per diems for attendance in board meetings. e. Other corporate officers and directors who are not rendering/performing full-time service to the rural bank but are only attending board meetings shall be entitled to such per diems stated above. f. Where other corporate officers/directors are performing operational duties, they shall receive the salaries corresponding to the positions they respectively occupy. In addition, they shall be entitled to per diems for attendance in board meetings. g. Allowances to officers and employees already authorized under existing Memorandum Circular implementing Letter of Instructions No. 174, may continue to be paid unless such regulation is amended or revoked. E. Requirement of a Budget All rural banks are required to provide for a yearly budget for operations which shall always be available at the start of every year. Rural banks shall operate within these budgets. F. Constraints/Limitations Salary increases/per diems/allowances, creation of new positions and promotions of rural bank personnel shall take into account the following: 1. That the total operating expenses of the rural bank during the preceding year does not exceed 75% of the gross income; 2. That the increase shall not be more than 20% of its actual expenses for such salaries, allowances and per diems during the preceding year; 3. That the salary expense portion including transportation/representation allowances and per diems shall not exceed 45% of the operating expenses; 4. That the proposed increases in salaries, allowances, per diems and other operating expenses shall not exceed estimated income. [Source: Circular 507 dated 2-23-76] PART 3 Lending Operations SECTION 331. In General . SUBSECTION 331.1 Basic lending policies SUBSECTION 331.11 Eligible/ineligible borrowers of rural banks ; prohibitions a) Eligible borrowers . The following are eligible to borrow from a rural bank: (i) A farmer, who may be an individual or a duly organized cooperative, owning or cultivating, as tenant, lessee, etc., not more than fifty (50) hectares of land dedicated to agricultural production; (ii) A retail or wholesale merchant whose capital investment does not exceed P50,000.00; (iii) An operator of a rural industry or enterprise whose capital investment does not exceed P50,000.00; (iv) An operator of an essential rural industry or enterprise. A rural industry or enterprise is essential if the goods it produces are those ordinarily purchased by the low-income groups and are useful or necessary in their daily economic activities. [RA 720 as amended by PD 122] b) Prohibitions . The following are, prohibited from borrowing from a rural bank: (i) Officers and employees of the supervising and examining department of the Central Bank, only with respect to the particular rural bank to which they are assigned, or in which they are conducting an examination; (ii) Officers and employees of other departments, offices or units of the Central Bank during the period of time that an application or any paper of such rural bank is being evaluated, processed or acted upon by such personnel. [Sec. 27 R.A. No. 265, as amended] Similarly, no rural bank shall grant any loan/accommodation (as the term is defined in subsection 331.17, sub-paragraph (a)(iv) and further limited to the types of credit a rural bank may extend) to any examiner, officer or employee of any department, bureau, office or agency of the government, who is assigned to examine, supervise, assist or render technical service to said bank. [Circular 506 2-23-76] c) Loans/Credit accommodations to directors, officers and stockholders . As a matter of policy, a rural bank should not extend any loan or credit accommodation to its directors, officers and stockholders. Any loan or credit accommodation which may be extended by a rural bank to any of its directors, officers or stockholders shall comply with the requirements specified in subsection 331.17 hereof. However, a rural bank is prohibited from granting any loan or credit accommodation to its directors, officers and stockholders if such rural bank is suffering from any of the following deficiencies; (i) Capital impairment, whether by actual losses or valuation reserves recommended by the Central Bank; (ii) Lending operations under suspension on account of reserve or capital deficiency, until such suspension shall have been lifted for at least one year and sufficient reserves or capital shall have been maintained; (iii) Losses incurred from operation during the preceding year; (iv) Whenever the required valuation reserves as recommended by the Central Bank have not been fully booked; cdpr (v) Whenever the rural bank has past due obligations with the Central Bank; (vi) Whenever the ratio of past due loans to the total loan portfolio of the bank exceeds the reasonable or acceptable levels; and (vii) Unbalanced books of accounts. [Circular 502 2-2-76] d) Credit worthiness of applicant for loans . As a general rule, to be worthy of credit, an applicant must possess: (i) Character which includes integrity of purpose, and is evidenced by promptness in paying debts and fulfilling obligations and the observance of proper business ethics and practices which establish a reputation for honesty. (ii) Capacity which is management ability or competence, and is measured by reasonably fair and stable profits over a period of years, as shown by production records, statement of financial condition, and other proofs. (iii) Capital which is the excess of assets over liabilities. SUBSECTION 331.12 Application for loan . Persons eligible to borrow from a rural bank must submit a duly accomplished application in the form prescribed by the Central Bank, stating the amount applied for, term desired, securities offered, and specific purpose for which the loan shall be used, with itemized, detailed estimates of disbursements or expenses intended to be covered by the loan applied for. Upon receipt of the loan application, the rural bank shall conduct proper credit investigation which shall include the verification of the existence of the project intended to be financed by the loan and of the property offered as security, and the determination of the actual credit needs and repayment capacity of the borrower. The management shall process and pass upon all applications for loan and shall gather information and report to the Credit Committee and/or board of directors the following: a) The applicant's qualification to borrow with special reference to subsections 331.11 and 331.15; b) The purpose of the loan applied for, with special reference to subsection 332.51 as to the kind of the loan whether agricultural, commercial, or industrial; and c) The applicant as a credit risk, with special reference to the provisions of sub-sections 331.11 (d) and 331.14. Each applicant must be interviewed and required to submit a statement of assets and liabilities and sources of income. Whenever feasible, further information may be obtained from those well informed in the community on the credit standing of the applicant to reduce risks as much as possible. In every case, field investigation shall be conducted to establish the actual purpose of the loan application and to verify the securities offered. The facts gathered must be attached to the original of the loan application for proper guidance of the board. SUBSECTION 331.13 Amount of loan; how determined . The amount of loan shall be determined on the basis of the actual needs and viability of the project to be financed, but the loan shall be granted only to the extent of the amount applied for taking into consideration the applicant's capacity to pay. In the case of special financing programs under supervised credit, the amount or size of loans shall be determined in accordance with the rules and regulations implementing such programs. SUBSECTION 331.14 Collateral security . Whenever necessary and to insure reasonable safety, loans shall be secured by: a) Unencumbered real property, which may be: (i) Private lands with Torrens title. (ii) Private lands, not registered under the Torrens system, where the owner can show five (5) years or more of peaceful, continuous and uninterrupted possession in the concept of owner: Provided, that, when such lands are subsequently titled, the encumbrance shall be annotated on the title. (iii) Portions of friar land estates and other lands administered by the Bureau of Lands that are covered by sale contracts and the purchasers have paid at least five (5) years installment thereon, without the necessity of prior approval and consent by the Director of Lands; or portions of other estates under the administration of the Department of Agrarian Reform or other government agency, which are likewise governed by sales contracts and the purchasers have paid at least five (5) years installment thereon, without the necessity of prior approval and consent by the said Department or corresponding government agency: Provided, that, when the corresponding titles are issued, the same shall be delivered to the registry of deeds of the province where such lands are situated for the annotation of the encumbrance. (iv) Homesteads and free patent land covered by applications which have been approved but issuance of title to which is pending: Provided, that, copies of notices for the presentation of the final proof of titles shall also be furnished the creditor-rural bank; and, if the borrower-applicants fail to present the final proof within thirty (30) days from date of the notice, the creditor-rural bank may do so for them at their expense: Provided, further, that the applicant for homestead or free patent has already made improvements on the land, and the loan applied for is to be used for further development of the land or for other productive activities; Corresponding titles, when issued, shall be delivered to the register of deeds of the province where such lands are situated for the annotation of the encumbrance. [Sec. 5 R.A. 720 as amended] (v) Duly registered land transfer certificates issued by the Government, through the Department of Agrarian Reform, to tenant-farmers in an amount not less than sixty percent (60%) of the value of the farm holdings as determined by Presidential Decree No. 27: Provided, that the loan shall be guaranteed by the Samahang Nayon (barrio association) in which the tenant-farmer is a full-fledged member: Provided, further, that the loans obtained shall be used in the improvement or development of the farm holdings of the tenant-farmer or the establishment of facilities that will enhance production or marketing of agricultural products or increase farm income therefrom. [PD 315] If the security consists of land and building thereon, the building must be insured in an amount equal to the excess of the amount of the loan over the loan value of the land as mentioned above: Provided, however, that if the amount of the loan does not exceed one thousand pesos (P1,000.00), the building need not be insured. b) Unencumbered personal property which may consist of: (i) Bonds and securities issued by the Government, or by any of its agencies and instrumentalities which are fully guaranteed by the Government. Such bonds and securities may be accepted at their face value; (ii) Stocks and other securities issued by reputable commercial, industrial and other private companies or entities engaged in non-speculative business, up to fifty per cent (50%) of their market value; (iii) Expected harvest from the project to be financed or growing crops, up to the extent allowed under item (b) of subsection 332.12 hereof; (iv) Quedans or warehouse receipts issued by bonded warehouses covering stock deposited in said warehouses to the extent allowed under item (b) of subsection 332.12 hereof; and (v) Any other personal property, up to fifty per cent (50%) of the fair market value. If the property is newly purchased and the purchase price thereof appears in a bill of sale, then the above percentage shall be based on the price in said bill of sale. The appraisal and verification of the status of a land is the full responsibility of the rural bank and loans granted on any land which shall be found later to be within a forest zone shall be for the sole account of the rural bank to the exclusion of the Central Bank counter-part. LLphil In case the security is land covered by Torrens title, the amount of loan shall not exceed seventy per cent (70%) of the fair market value of such land and improvements thereon, if any. However, if the security is land not covered by Torrens title, the amount of the loan shall not exceed fifty per cent (50%) of the fair market value of such land and improvements thereon, if any. [Circular 502 2-2-75] SUBSECTION 331.15 Co-makers, sureties and guarantors (a) To be eligible as co-maker, surety, or guarantor, a person must have the essentials of credit provided for in subsection 331.11(d). Loans granted under supervised credit may be secured by at least two (2) co-makers acceptable to the bank: Provided, that, in case a farmer is a member of a cooperative or selda/damayan , the cooperative or selda/damayan may act as co-maker: Provided, further, that, in case of multi-purpose cooperatives, no co-maker shall be required. The term, selda/damayan , as used herein, shall refer to a joint liability group consisting of from five (5) to fifteen (15) eligible farmer-borrowers owning/cultivating farm-lands in the same area. The members of the selda shall be liable jointly and severally for any loan obtained from a rural bank by any of its member. [RA 6390, as amended] The barrio guarantee fund of the samahang nayon shall guarantee payment up to thirty per cent (30%) of loans obtained by its members from rural banks in accordance with the guidelines issued by DLGCD. [Regulation 9, LOI 23] Guarantee funds for special financing programs shall be governed by the rules and regulations implementing such programs. (b) The following persons cannot sign as co-maker, surety, guarantor, or indorser: (i) A director, manager, officer, employee or agent of a rural bank with respect to loans granted by said bank; (ii) Any officer, examiner or employee of the Central Bank, or of any department, bureau, office, branch, or agency of the Government, assigned to examine, supervise, grant loans, assist or render technical service to rural banks; and (iii) Corporations, except when authorized by their articles of incorporation. SUBSECTION 331.16 Loan ceiling on single borrower . A rural bank shall extend loans to as many qualified borrowers as possible, preference to be given to borrowers whose credit requirements are small. However, in the case of special financing programs under supervised credit, preference shall be determined in accordance with the rules and regulations implementing such programs. Notwithstanding the borrower's capacity to pay and the collateral he may be able to offer, the maximum aggregate loans which a rural bank may grant to a single borrower shall not exceed fifteen per cent (15%) of its unimpaired capital and surplus. [MB Res 1250 8-11-70] The liabilities to the bank of borrowers whose papers were discounted and/or rediscounted by banks with the Central Bank or any other institution shall not be deemed as having been extinguished by the discount and/or rediscount, but shall be considered as still existing and shall be included in determining the total loans to a single borrower for purposes of compliance with Section 32 of the General Banking Act until such papers are paid by the borrowers. [MAB 3-17-64] SUBSECTION 331.17 Loans/Credit accommodations to directors, officers and stockholders . As a matter of policy, dealings of a bank with any of its directors, officers or stockholders should be in the regular course of business and upon terms not less favorable to the bank than those offered to others. a) Definition of terms (i) Directors shall refer to the incumbent bank directors duly holding their positions as such in accordance with the corporate by-laws and pertinent provisions of law; (ii) Officers shall include the president, vice president, general manager, secretary and others mentioned as officers of the bank, or whose duties as such are defined in the by-laws; or are generally known to be the officers of the bank (or of any of its agencies/offices other than the head office) either thru announcement, representation, publication or any kind of communication made by the bank; (iii) Stockholders shall include any stockholder of record in the books of the bank, acting personally, or through an attorney-in-fact, executor, administrator or guardian of a minor, incompetent and/or deceased stockholder or through a trustee designated by one or more stockholders pursuant to a voting trust agreement, whose stockholdings in the bank, individually and/or together with those enumerated in b)-(ii)-a, b, and c hereof, amount to two per cent (2%) or more of the total subscribed capital stock of the bank. (iv) The terms loans , borrow , money borrowed, and credit accommodations as used in Section 83 of RA No. 337, as amended, have reference to the grant, renewal or extension of any loan, discount, credit or advance in any form whatsoever, and shall include a. Any advance by means of an incidental or temporary overdraft, cash item, vale, etc.; b. The acquisition by discount, purchase, exchange or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which a director, officer or stockholder may be liable as a maker, drawer, acceptor, indorser, guarantor or surety; c. Any advance of unearned salary or other unearned compensation for periods in excess of thirty (30) days; d. Any other transactions as a result of which a director, officer or stockholder becomes obligated or may become obligated to the bank, directly or indirectly, by any means whatsoever to pay money or its equivalent; and e. The increase of an existing indebtedness. [Circular 357 1-22-73] b) Direct/Indirect borrowings . A director, officer or stockholder of a rural bank is directly or indirectly a party to a credit accommodation in any of the following capacities/instances: (i) If the director, officer or stockholder is a party to any of the transactions enumerated in item (a)-(iv) of subsection 331.17 for himself or as representative or agent of others, or if he acts as guarantor, indorser or surety for loans from the bank. (ii) If in any of the transactions enumerated in item (a)-(iv) of subsection 331.17 the borrower, guarantor, representative, indorser or surety is a a. Wife, husband, or minor child under the parental authority of the director, officer or stockholder; b. Partnership (or a partner for the account of the partnership) of which a director, officer or stockholder (or his wife/her husband) is a general partner; c. Co-owner with the director, officer or stockholder (or with his wife/her husband) of the property or interest or right mortgaged, pledged or assigned to secure the loans or credit accommodations; except when the mortgage, pledge or assignment covers only said co-owner's undivided interest; d. Corporation, association or firm of which a director or officer of the bank is also a director or officer of such corporation, association or firm; e. Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or their wives/husbands or minor children under their parental authority hold/own more than fifteen per cent (15%) of the subscribed capital of such corporation, or of the equity of such association or firm. Other similar circumstances shall be resolved on a case-by-case basis to determine direct or indirect borrowings. It shall be the responsibility of the rural bank concerned to ascertain whether the borrower, guarantor,. representative, indorser or surety is related to persons mentioned in item (ii)-a, above, or connected with any of the directors, officers or stockholders of the bank in any of the capacities mentioned in (ii)-b, -c, -d, and -e, above. dctai c) Procedural requirements . The following procedural requirements shall be observed in the grant of any loan or credit accommodation contemplated in the preceding paragraphs of this subsection. (i) Approval by the Board : when to obtain . No loan, shall be granted or any of the transactions mentioned in subparagraph (a)-(iv) established, without the prior approval of the directors as required under Section 83 of R.A. 337, as amended. (ii) Approval by the Board : how manifested . The approval of the majority of the directors must be manifested in a resolution passed by the board of directors duly assembled during a regular or special meeting for that purpose, and made of record and such approval shall also be manifested by the signatures of the directors approving the accommodation. (iii) Majority of directors: computation of . The computation of the "majority of the directors of the bank" should be based on the total directors of the bank, i.e., the entire membership as provided for in the articles of incorporation and by-laws of the bank. (iv) Contents of the resolution . The resolution of the board of directors should contain the following information. a. Name(s) of the director, officer or stockholder concerned, and in what capacity he is interested in relation to the credit accommodation (e.g., principal, indorser, husband/wife of borrower, etc.); b. Nature of the loan, purpose, amount, credit basis for the loan, security and appraisal thereof, maturity, interest rate, schedule of repayment and other terms of the credit accommodation; c. Date of the resolution; d. Names of the directors who were present and who participated in the deliberations of the meeting; e. Names in print and signatures of the directors approving the resolution: Provided, that the corporation secretary may sign, under a power of attorney, in behalf of a director who was present in the board meeting and approved such resolution, in instances where such signature is necessary to indicate that such resolution was approved by a majority of the directors; and f. Other pertinent information. (v) The "copy of such entry" required to be transmitted to the department of the Central Bank charged with the supervision and examination of rural banks in compliance with Section 83 of R.A. No. 337, as amended, is a copy of the written approval as mentioned in item c)-(ii) above showing the names in print and signatures of the directors approving the credit accommodation. The copy may be signed carbon copy or duplicate-original; or in lieu thereof, a photostatic copy of the written approval. Such copy should contain on its face or reverse side a signed certification by the secretary that it is a photostatic copy of the original written approval. The "copy of such entry," as defined herein, should be transmitted to the department of the Central Bank charged with the supervision and examination of rural banks within twenty (20) days from the date of the subject approval; and such copy should contain all the information mentioned in item (iv) above. [Circular 357 1-22-73, as modified by Circular 455 3-17-75] SUBSECTION 331.18 Approval of loans . The board of directors shall act on all loan applications. However, the board may delegate to the manager and to the Credit Committee the authority to act on loan applications, in accordance with subsection 321.6 hereof, and subject to such guidelines as the board may prescribe. All loans approved by the Manager or the Credit Committee under this delegated authority shall be subject to the confirmation by the Board. (a) Promissory note ; form ; requisites ; penalty and attorney's fees . The promissory note shall be in the form prescribed by the Central Bank and shall state, among others, the following: (i) Date and place of execution; (ii) Rate of interest (not to exceed 12% p.a.); (iii) Waiver of demand, presentment, protest, dishonor and venue; and (iv) Attorney's fees (the maximum shall not exceed 10% of the total amount due and payable), in case of extrajudicial or judicial proceedings to enforce the note. The note must bear the full signature of the borrower; and, if the borrower cannot read or write, he shall place his right and left thumb marks before and after his full name, written below the body of the note after the contents of the note have been read and explained to him. In either case, the note must have at least two (2) witnesses, one of whom must be a responsible officer of the bank, who must sign the note as such below the signature or thumb marks of the borrower. Rural banks may impose a penalty of not more than 2% per annum on past due loans of farmer-borrowers whose failure to pay their loans on time is due to inexcusable neglect. Such penalty shall be included in the promissory note. [MB Res. 1121 6-6-75] (b) Release of loans . The proceeds of a loan shall, as far as practicable, be released on staggered basis as the specific needs of the project to be financed will require to prevent diversion of such proceeds to purposes other than those for which the loans have been granted. Where the loan is obtained for the purpose of purchasing materials, merchandise, equipment, seeds, animal for breeding, supplies and the like, arrangements must be made for the delivery of such materials or things to the borrower, and payment therefor shall be effected by the bank either in cash or check direct to the suppliers of such materials or things. SUBSECTION 331.2 Loan Proceeds SUBSECTION 331.21 Prohibition against retention . Rural banks shall not require borrowers to leave behind or deposit back with them (lending banks) a portion of the loan proceeds, whether in the form of demand, savings or time deposit. Where, subsequent to the release of the loan proceeds, the borrower opens a deposit account with the bank, no part of such deposit shall be covered by a stipulation prohibiting or limiting withdrawal while any portion of the loan is outstanding. [Circular 326 10-18-74] However, pursuant to Regulation No. 9 of LOI 23 (Implementing PD 175), rural banks shall automatically deduct from every production loan of members of the samahang nayon an amount equivalent to five per cent (5%) of such loans to implement the barrio savings fund program. [MCRB 74-1 & 74-27] SUBSECTION 331.22 Diversion of loan proceeds . The proceeds of the loan shall be used by the borrower only for the purposes for which it was granted as stated in the loan application. If the borrower uses the proceeds of the loan for purposes other than those for which it was granted, the contract of loan shall be deemed canceled and the bank shall immediately demand repayment of the amounts released without prejudice to the criminal prosecution of the borrower concerned under Section 22 of the Rural Banks Act, as amended. SUBSECTION 331.3 Interest and Other Charges SUBSECTION 331.31 Interest rates . Except as may otherwise be expressly provided in this Book, the maximum rate of interest that a rural bank may charge on a loan shall be twelve per cent (12%) per annum, or one per cent (1%) per month; Provided, however, That the maximum interest rate including commissions, premiums and other charges that may be charged on a loan with a maturity of over 730 days shall be nineteen per cent (19%) per annum; Provided, further, That interest shall be collected in accordance with the provisions of the Usury Law, as amended. (Appendix A) [Revised Rules and Regulations governing Rural Banks: Circular 494 1-2-76] (a) Preferential rates . To encourage the development of certain types of agricultural, commercial, or industrial activities and to achieve a balanced and progressive economy, a rural bank may establish a scale of preferential rates of interest for loans: Provided, that such rates do not exceed the limits fixed in the preceding paragraph. (b) Computation . Interest shall be computed on daily basis. The date the loan is released shall be excluded while the day of maturity if paid on said day or the day when the loan is actually paid, shall be included. For purposes hereof, a year or annum consists of three hundred sixty-five (365) days; and a month is the actual number of days in the calendar month referred to. If a loan with a maturity date of over 730 days is prepaid, interest shall be recomputed so as not to exceed the applicable interest rate ceilings. [Circular 494 1-2-76] (c) Interest rate on IGLF loans . The revised interest rate of ten per cent (10%) per annum shall apply to all IGLF loans approved on or after May 21, 1970. [MAAB 6-18-70] SUBSECTION 331.32. Service fees and other charges . Rural banks may collect charges other than pure interest up to three per cent (3%) per annum of the loan principal or the outstanding balance thereof, whichever is lower: Provided, however, that a minimum charge of P20.00 per annum may be collected for loans below P2,000.00. No charges shall be required to be paid in advance for a period of more than one year. [Circular 415 7-29-74 as amended by Circular 435 10-18-74] For this purpose, charges shall include commissions, premiums, fees, such as commitment fees, and other similar charges. 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 their personnel. [Circular 504 2-6-76] Rural banks may, upon release of each loan granted on an individual who is a beneficiary of land reform under the supervised credit system, collect exclusive of interest on such loan, service fees and other charges not exceeding two per cent (2%) or one hundred fifty pesos (P150.00) per annum, whichever is lower. [Circular No. 436, 10-22-74] SUBSECTION 331.4 Collection and past due loans SUBSECTION 331.41 When rural banks must collect . A rural bank must collect its loans on the day of maturity; however, borrowers may pay before the maturity date with right to reimbursement for the unearned interest, if interest had been paid in advance. Notice should be given to the borrower at least fifteen (15) days in advance of the date when his loan shall become due, with a warning that, in case of default, the bank shall take such legal steps as may be necessary to enforce collection of the loan with interest, costs of suit and attorney's fees. (a) Collection proceedings . Efforts must be exerted by the rural bank to see to it that the borrower pays his loan on time so that the institution of collection proceedings may be avoided. However, when it is necessary that proceedings for collection of a loan be instituted by the rural bank, such proceedings should be commenced without unnecessary delay for the recovery of the loan, including interest, expenses, and other amounts due in accordance with the loan contract and the law. Before a loan may be referred to a lawyer for collection, the bank management must send by registered mail with return card at least two (2) demand or collection letters, at an interval of one (1) month each, to the borrower in his last known address. If, despite said notices, the borrower fails to pay or to make arrangements for the eventual liquidation of the loan acceptable to the bank, the loan may then be referred to a lawyer for whatever action he may be deem appropriate and necessary to effect a collection of the loan. A lawyer who is not a regular salaried legal counsel of the rural bank shall be entitled to collect attorney's fees for collection cases as provided for in the loan contract. (b) Disposition of assets acquired in settlement of loans . All assets acquired in settlement of loans should be sold to the highest bidder in an auction sale after the necessary publication of the sale is undertaken. It shall be sufficient publication in such cases if notices of the sale are posted in at least three of the most conspicuous public places in the municipality/city where the property to be sold is situated, in the municipality/city where the rural bank is located, and in the adjoining localities. The auction sale shall be held in the office of the rural bank not earlier than a period of thirty (30) days after the posting of notices in the aforementioned places. The department of the Central Bank charged with supervising and examining rural banks and the former owner/mortgagor of the property shall likewise be notified of the projected sale at least thirty (30) days prior to the date of sale. However, with prior approval of the said department of the Central Bank, the rural bank may sell the property foreclosed to the former owner-mortgagor by negotiated sale at its fair market value. [Circular 502 2-2-76] SUBSECTION 331.42 Prohibition on accrual of interest income on past due loans . Interest income shall not be accrued on loans which are already past due or on loan installments which are in arrears, regardless of whether the loans are secured or unsecured. Interest on past due loans or loan installment in arrears shall be taken up as income only when actual payments thereon are received. For purposes of this requirement, loans shall be considered past due if not fully paid after maturity date, and a loan installment shall be considered in arrears if not fully paid after the date the installment is due. [Circular 487 11-10-75] SUBSECTION 331.43 Duty of directors to protect rural bank's interest . A borrower loses his right to the term of the loan and the rural bank must demand immediate payment without waiting for the due date of the promissory note if: (a) The borrower attempts to abscond; (b) The borrower violates any provision of the loan contract, or any undertaking in consideration of which the loan has been granted, such as when he diverts the proceeds of the loan to purposes other than those for which it was granted; (c) The borrower by his act has impaired any of the securities given by him; (d) The securities given by the borrower are impaired or destroyed because of fortuitous events unless he substitutes the same with equally safe securities; and (e) The borrower and co-makers/guarantors become insolvent unless other safe and sufficient guaranty is given. SUBSECTION 331.44 Application for payments . Any payment made by a borrower to a rural bank shall first be applied to the interest due and payable, and the balance thereof to the principal of the loan. In case the loan is in litigation, payments made thereon shall first be applied to the costs of the suit and other legal expenses including attorney's fees, then to the interest; and finally, to the principal of the loan. SUBSECTION 331.45 Renewal of loans ; requisites . Renewal of loans shall be subject to confirmation by the rural bank's board of directors and shall be granted only in highly meritorious cases: Provided, that: (a) It will, in no way, prejudice the interest of the bank; (b) It will improve the borrower's financial position and enable him to pay within the period of the renewal; (c) At least thirty per cent (30%) of the loan, including interest, is paid; and (d) The securities for the loan are not diminished or impaired in any manner whatsoever. SUBSECTION 331.46 Write-offs of loans by rural banks . The following regulations shall govern the writing-off of loans as bad debts: (a) Definition of loans and advances . The term "loans and advances" shall include all types of credit accommodations granted to, and advances made by the bank for the account of the borrowers/debtors, including interest thereon recorded in the books. (b) Frequency of write-off . Writing-off of loans and advances by rural banks shall be made not oftener than twice a year by its board of directors. (c) Procedural requirements . Notice/application for write-off of loans and advances shall be submitted, on the prescribed form, to the appropriate supervising and examining department of the Central Bank at least thirty (30) days prior to the intended date of write-off: Provided, that, no such loans and advances with an aggregate outstanding amount of P100,000.00 or more, as certified in said notice/application, shall be written off without the prior approval of (i) The Monetary Board, in case of loans, advances and all types of credit accommodations granted to directors, officers, and stockholders of the rural bank, direct, or indirect, as defined under subsection 331.17; (ii) The head of the appropriate supervising and examining department of the Central Bank, subject to confirmation by the Monetary Board, in the case of loans and advances other than those mentioned above. LexLib [Circular 358 1-2-73] SUBSECTION 331.5 Truth in Lending Act disclosure requirements . Rural Banks are required to strictly adhere to the provisions of RA 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. [Circular 415 7-29-74] For this purpose, rural banks shall observe the rules and regulations implementing the Act (Appendix B). A disclosure statement on loan/credit transactions must be furnished each borrower (format in Appendix C).An abstract of R.A. 3765 is required to be reproduced at a size of 60 cms. by 75 cms., and posted in a conspicuous place in the creditor's place(s) of business (format in Appendix D). [Circular 485 10-30-75] SECTION 332. Kinds of loans . SUBSECTION 332.1 Agricultural loans SUBSECTION 332.11 Who may borrow ; purposes . Agricultural loans may be granted to a farmer or a duly registered cooperative owning or cultivating as tenant, lessee, etc., not more than fifty (50) hectares of land dedicated to agricultural production, for the following purposes: (a) Farm expenses, like labor, in connection with the preparation, planting and cultivation of the farm and the harvesting, transportation, storage and marketing of products; (b) Purchase of seeds, fertilizers, work animals, implements and equipment necessary for the operation of the farm, or for the hire of such work animals, implements, and equipment; (c) Purchase of animals, such as poultry or fish, for breeding purposes; (d) Minor repairs, constructions or improvements in the farm or fishpond which are necessary and proper to maintain or increase productivity; and (e) Payment for current taxes and irrigation fees. During the period between production and marketing of farm products, limited amounts which should always be covered with proper security, may also be granted for food, clothing and shelter, and for basic elementary and vocational education of the members of a farm family. SUBSECTION 332.12 Amount of loan ; limitations ; security . The maximum amount of agricultural loan that may be granted to an eligible borrower shall be subject to the provisions of subsection 331.13 hereof and to the following rules: (a) Production of corn and palay . Fifty per cent (50%) of the value of the borrower's established production in the previous year or, if this is not available, not more than forty per cent (40%) of the estimated market value of the expected harvest from the project to be financed. This amount may be increased to fifty per cent (50%) of the market value of the estimated harvest from such project during the month immediately preceding harvesting time; (b) Production of coconut , sugar , coffee , cacao , ramie , abaca , and other non-perishable crops . Forty per cent (40%) of the estimated market value of the expected harvest from the project to be financed based on previous production records or in the absence thereof, on production records of similar plantations in the locality. (c) Production of perishable crops . Thirty per cent (30%) of the production of the previous year or, if this is not available, of the estimated market value of expected harvest from the project to be financed: Provided, that, in case of loans for fruit production, like mangoes, citrus, and others, in the absence of previous production records, a loan shall not be granted until sufficient fruits shall have attained such sizes as to provide a safe basis for reasonable calculation; (d) Livestock , poultry , and fish production . Forty per cent (40%) of the appraised value of the stock existing at the time the loan is granted; and (e) Storage , transportation , and marketing of farm products . To the extent actually necessary for the purpose. Where the rural bank has taken possession or has effective control of the agricultural products given as security, the amount of loan may be increased to the extent of seventy per cent (70%) of the market value in the case of rice, corn and sugar, and sixty per cent (60%) of the market value of the stored crop in the case of coconut, ramie, abaca, and other non-perishable crops. The loans referred to in the preceding paragraphs may be secured by chattel mortgage on the stored products and/or pledge or assignment of quedans issued for such products without prejudice to the right of a rural bank to demand additional securities. SUBSECTION 332.13 Period of loan ; renewals . Agricultural loans shall be granted for a period not exceeding three hundred sixty (360) days. However, such loans may be renewed in accordance with subsection 331.44. SUBSECTION 332.2 Agrarian reform and agricultural credits . The following guidelines shall govern the grant of agrarian reform credit and agricultural credit by banking institutions under Presidential Decree No. 717 dated May 29, 1975. SUBSECTION 332.21 Definitions ; qualified borrowers; security . For purposes of this subsection, the following definitions shall apply: (a) Loanable funds ; computations shall refer to total funds generated after the effectivity of Presidential Decree No. 717, the composition of which shall be as herein determined by the Central Bank. Computation of loanable funds shall be based on the net increase from date of effectivity of the Decree to date of the report of the individual accounts which represent the following: the total banks' funds consisting of deposits (demand, savings, and time) excluding foreign currency deposits under Circular No. 343; deposits of banks, net of due from other banks; bills payable, including borrowings from banks; total capital accounts; and added to the net increase is the total collection from the loan portfolio outstanding as of May 31, 1975 to date of the report less net increase of the following: bank premises, furniture and equipment (net book value); other property owned or acquired (representing properties acquired in satisfaction of debts); other assets; required reserves such as reserves against deposit liabilities, etc. excluding provision for liquidity (15% of total deposits and demand liabilities). [MAB 7-28-75] (b) Agrarian reform credit ; qualified borrowers . shall refer to production and other types of loans granted to beneficiaries of agrarian reform for the following purposes: (i) Acquisition of work animals, farm equipment and machinery, seeds, fertilizers, poultry, livestock, feeds and other similar items; (ii) Acquisition of lands authorized under the Agrarian Reform Code of the Philippines and its amendments; (iii) Construction and/or acquisition of facilities for production, processing, storage and marketing; (iv) Efficient and effective merchandising of agricultural commodities stored and/or processed by the facilities aforecited in domestic and foreign commerce. All beneficiaries of agrarian reform credit mentioned under P.D. 717 and those embraced in the definition in the succeeding paragraph where the credit obtained shall be used for agricultural production or for purposes mentioned in the Decree and as specified herein, shall be qualified borrowers under agrarian reform credit. [MAB 7-28-75] (c) Agrarian reform beneficiaries ; basis of determining . agrarian reform beneficiaries shall include tillers, tenant-farmers, settlers, agricultural lessees, amortizing owner-cultivators, farmers' cooperatives and compact farms, as determined by the Department of Agrarian Reform. Agrarian reform beneficiaries shall be determined on the basis of: a) Documentary evidence, namely, certificate of land transfer or order of approval of application from the Department of Agrarian Reform (DAR) or agreement to sell/order of award from DAR or its predecessors such as LTA and NARRA (in case of settlers); or b) In the absence of documentary evidence under (a) above, a certification from the nearest DAR office that borrower is an agrarian reform beneficiary. [MAB 7-28-75] (d) Agricultural credit in general ; qualified borrowers . Agricultural credit in general small include all loans and/or advances granted to borrowers, whether beneficiaries of agrarian reform or not, to finance activities relating to agriculture, and for processing, marketing, storage, and distribution of products resulting from these activities. All corporations, entities, or private individuals engaged in agricultural production; processing, storage, marketing, or exportation of agricultural products; and, importation/manufacture/distribution of farm machineries and equipment, fertilizers, etc., used for agricultural production shall be qualified borrowers under agricultural credit in general. [MAB 7-28-75] For purposes of the agrarian reform credit, securities for loans may be any or a combination of: 1) real estate property owned by the borrower or his co-maker, not necessarily the same real estate property used by the borrower for his agricultural or farm project; 2) poultry; 3) stored crops in bonded warehouse; 4) assets acquired with the proceeds of the loan, such as farm machinery; 5) one co-maker acceptable to the bank; provided, that in case a borrower is a member of a cooperative, the cooperative may act as a co-maker, and provided further, that in case the borrower is a farmers' cooperative, no co-maker shall be required; 6) other collateral acceptable to the bank, such as, but not limited to, standing crops, livestock or work animal, etc., credit in general, the usual collateral required by banks shall be also acceptable as securities. [MAB 7-28-75] SUBSECTION 332.22 Required allocation for agrarian reform and agricultural credits . Every rural bank shall set aside at least 25% of its loanable funds, of which: (a) Not less than ten per cent (10%) shall be made available for agrarian reform credit; and (b) The balance shall be made available for agricultural credit in general. In the absence of qualified borrowers, the amount set aside for agrarian reform credit not actually loaned out may be invested in accordance with P.D. 717 and temporarily in the following government securities: 1) Issues of the Central Bank Certificates of Indebtedness (CBCI) under Memorandum to Authorized Agent Banks (MAAB No. 119) dated December 16, 1974; 2) DBP Countryside Bills; 3) Other government securities expressly declared eligible by the Central Bank. [MAB 7-28-75] SUBSECTION 332.23 Syndicated type of agrarian reform credit/agricultural credit . Rural banks may grant a syndicated type of loan for agrarian reform credit/agricultural credit in general, either between or among themselves. The mechanics, including the recording of such syndicated type of loan transactions shall follow existing practices and regulations applicable both to the lead bank and other participating bank(s). Accordingly, the formal booking of loans shall only be for the amount of actual participation of each syndicate bank concerned. Memorandum entries, references or notations shall be made for the other participating bank(s). SUBSECTION 332.24 Interest and other charges . Interest on agrarian reform credit shall not exceed twelve per cent (12%) per annum; service fees and other charges shall not exceed two per cent (2%) or P150.00 per annum, whichever is lower. For agricultural credit in general, interest, service fees and other charges shall be governed by the rules and regulations provided in this Book. SUBSECTION 332.25 Submission of Reports (a) All banking institutions shall submit to the appropriate supervising and examining department of the Central Bank a monthly report, within twelve (12) banking days after the end of each reference month, on the utilization of their loanable funds set aside for agrarian reform credit/agricultural credit: Provided, that, the first report, for June, 1975, shall be submitted on or before July 31, 1975. (b) The required monthly reports shall be in accordance with such forms prescribed by the Central Bank. SUBSECTION 332.26 Penal and administrative sanctions . Violations of any of the provisions under this subsection shall be subject to the provisions of Sections 34 and/or 34-A of Republic Act No. 265, as amended. [Circular 473 6-30-75] SUBSECTION 332.3 Commercial Loans SUBSECTION 332.31 Who may borrow ; purposes . Commercial loans may be granted to a retail or wholesale merchant whose capital investment does not exceed fifty thousand pesos (P50,000.00), for the purpose of purchasing commodities for resale which are considered necessities or semi-necessities, and are of general acceptability and quick turn-over. SUBSECTION 332.32 Amount of loan ; security . The amount or size of a commercial loan shall be governed by the provisions of subsection 331.13 and shall not exceed fifty per cent (50%) of the market price of commodities to be purchased for resale. A commercial loan may be secured by chattel mortgage on the merchandise to be purchased, without prejudice to the right of the rural bank to require additional securities. SUBSECTION 332.33 Period of loans ; renewals . Commercial loans shall be granted for a maximum period of one hundred eighty (180) days, renewable for another period not exceeding ninety (90) days, subject to the provisions of subsection 331.44 hereof. SUBSECTION 332.4 Industrial Loans SUBSECTION 332.41 Who may borrow ; purposes . Industrial loans may be granted to an operator of a rural industry or enterprise whose capital investment does not exceed fifty thousand pesos (P50,000.00) or to an operator of an essential rural industry or enterprise as defined under paragraph (iv) of subsection 331.11-(a), exclusively for the following purposes: (a) Expenses for labor in connection with the manufacture of goods which are in demand and readily saleable, or have quick turn-over, considered necessities or semi-necessities, essentials or semi-essentials; (b) Purchase of raw materials for the manufacture and processing of the goods mentioned in paragraph (a); and (c) Marketing of the goods manufactured or processed mentioned in paragraph (a). SUBSECTION 332.42 Amount of loan ; security . The amount or size of an industrial loan shall be subject to the provisions of subsection 331.13: Provided, however, that it shall not exceed fifty per cent (50%) of the market value of the products financed. The loan may be secured by chattel mortgage on the goods to be manufactured or processed without prejudice to the right of the rural bank to require other securities. SUBSECTION 332.43 Period of loans ; renewals . Industrial loans may be granted for a period of not more than three hundred sixty (360) days, renewable for another period not exceeding one hundred eighty (180) days, subject to the provisions of subsection 331.44. SUBSECTION 332.5 Loans to Cooperatives SUBSECTION 332.51 Kinds of loans ; purposes . The kinds of loans that may be granted to cooperatives are as follows: Missing pages 5-6 SECTION 333. Supervised Credit System . SUBSECTION 333.1 Concept . Under the supervised credit system, the farmer-borrower agrees in writing that he will apply proven farm practices necessary to conserve the land, improve its fertility and increase its production, and abide by the approved farm plan and budget jointly prepared by him and a duly accredited supervised credit technician. It is a system of lending which combines adequate and timely credit with farm and home management guidance under a trained technician. SUBSECTION 333.2 Steps in supervised credit system . The steps involved in supervised credit are the following: (a) Analysis of the project to be financed to determine the resources of the farm project, the necessary changes which must be made to make the farmer-borrower more productive and efficient, and the additional facilities and/or financing required to improve his operations; (b) Preparation of a farm plan and budget which shall include a modern farm schedule which sets down in specific terms the day-to-day farming activities of the farmer-borrower under modern cultural practices; (c) Periodic inspection and follow-up of the project by the technician of the rural bank and/or of the government assigned to the bank to see to it that the farmer is operating strictly in accordance with the farm plan and budget and to provide the necessary technical assistance; (d) Evaluation of the farm project at the end of the crop season or when such project has been completed to identify any problem that the farmer-borrower may have encountered during his operations and to see to it that such problem is avoided in the next project. SUBSECTION 333.3 Requirement for supervised credit technician . In order that a rural bank may participate in the supervised credit program, it must hire as a member of its regular staff a supervised credit technician trained and duly accredited by the Central Bank who shall be responsible for providing supervised credit services to farmer-borrowers. However, the services of production or farm management technicians of government agencies may be temporarily utilized by the rural bank in case trained private technicians are not available. SUBSECTION 333.4 Applicability of supervised credit . Rural banks shall grant loans under the supervised credit system in their ordinary or special lending operations regardless of the source of funds, whether from the bank's own funds, from special time deposits, rediscounting, etc.: Provided, that the loan papers are supported by duly accomplished farm plan and budget prepared under the supervision of a qualified production or farm technician. [Circular 502 2-2-76] Missing pages 2-4 (a) Agricultural Loans for meeting the credit needs of members of cooperatives of small farmers in accordance with the purposes specified in subsection 332.11; (b) Commercial loans for the purchase of commodities for resale to members of the cooperative. This loan may be granted to all types of cooperatives. prLL (c) Industrial loans to meet the credit needs of the members of cooperatives of small artisans, jobbers, and manufacturers according to purposes specified in subsection 332.41. SUBSECTION 332.52 Qualifications of a cooperative . In order that a cooperative may be eligible to borrow from a rural bank, it must be duly registered or re-registered under Presidential Decree No. 175 and Letter of Implementation No. 23 and must meet the requirements under subsections 331.11 (d) and 331.14 hereof. For purposes hereof, the following shall be considered cooperatives: (a) Kilusang bayan (Cooperatives as defined in PD No. 175 and LOI No. 23); and (b) All samahang nayon (barrio associations) and all other registered pre-cooperative organizations which enjoy the status of provisional cooperatives, as certified to by the Bureau of Cooperatives, Department of Local Government and Community Development. SUBSECTION 332.53 Terms and conditions of loan . Loans to cooperatives shall be subject to the same terms and conditions imposed on other borrowers of a rural bank under Part 3 of this Book, depending on the kind of loan, whether agricultural, commercial, or industrial. SUBSECTION 332.6 Term Loans SUBSECTION 332.61 Authority to grant medium and long term loans . A rural bank may, with prior approval of the director of the department of the Central Bank charged with the supervision and examination of rural banks, grant medium and long term loans: Provided, that its unimpaired capital plus savings and time deposits total not less than two hundred thousand pesos (P200,000.00): Provided, further, that such unimpaired capital is not less than one hundred thousand pesos (P100,000.00). For purposes of classification, a medium term loan is one with a maturity period of more than one (1) year but not exceeding five (5) years, while a long term loan is one with a maturity period of more than five (5) years but not exceeding twenty (20) years. SUBSECTION 332.62 Purposes . Rural banks may grant medium and long term loans for the following purposes: (a) Purchase of farmland, improved or unimproved, to be devoted to agricultural production; (b) Improvement of agricultural, commercial, industrial, or residential real estate for the borrower's own use and not for speculation; (c) Acquisition of agricultural or industrial machinery, tools, and other equipment needed in the farm or necessary to set up an essential or semi-essential rural industry, or for improvement or expansion of an industry already in operation; (d) Purchase of equipment and materials, for livestock and poultry raising, fish culture, and coastal fishing; and (e) Production and harvesting needs of agricultural crops which have production cycles of more than one year. SUBSECTION 332.63 Loan limits ; security . All loans which may be granted for the purposes mentioned in the preceding subsection shall not be in excess of fifty per cent (50%) of the amount necessary to finance the project for which the loan is granted and shall be secured by a first mortgage on the land, machinery, equipment or real estate purchased, without prejudice to the right of the rural bank to require additional collaterals acceptable to it. The maximum amount of loan that a rural bank may grant to a single borrower shall be subject to the provisions of subsection 331.16. SUBSECTION 332.64 Maximum maturity periods ; amortization requirement (a) Maximum maturity periods for medium and long term loans shall be as follows: (i) Long term loans for the purchase of farm land, improved or unimproved: not exceeding twenty (20) years; (ii) Long term loans for the improvement of agricultural, commercial, industrial, or residential real estate: not longer than ten (10) years. (iii) Medium term loans for agricultural or industrial machinery, tools, and other equipment needed in the farm or necessary to put up an essential or semi-essential rural industry or to improve or expand one already in existence: not exceeding five (5) years; (iv) Medium term loans for the purchase or acquisition of work animals for use in the farm owned and/or operated by the borrower: not exceeding three (3) years; (v) Medium term loans for agricultural crops with production cycles exceeding one (1) year: not exceeding eighteen (18) months. (b) Loans granted for the above purposes shall be amortized annually, unless the borrower elects to pay the same monthly, quarterly, or semi-annually. The foregoing limitations may not apply when loans contemplated under this Section are insured under the Home Financing Act or any other similar laws. SUBSECTION 332.65 Miscellaneous conditions . A rural bank authorized to grant medium and long term loans shall comply with the following additional conditions: (a) Aside from the legal reserve requirements against its savings and time deposit liabilities, the rural bank shall maintain sufficient working reserves to be determined by the department charged with the supervision and examination of rural banks, and which shall consist of cash in vault, government securities and net due from other banks; (b) The maximum interest that the rural bank may charge on medium and long term loans shall not exceed twelve per cent (12%) per annum; Provided, however, that the maximum interest rate including commissions, premiums and other charges that may be changed on a loan with a maturity of over 730 days shall be nineteen per cent (19%) per annum; [Circular 494 1-2-76] (c) The rural bank shall require its medium and long term borrowers to submit their financial statements at least once a year and give the rural bank's representatives access to their accounting records for the purpose of audit and verification; (d) The rural bank shall extend long term loans only when it has adequate and competent personnel, which shall include the services of a properly trained agricultural credit technician; and (e) The rural bank may extend medium and long term loans not exceeding a total of thirty per cent (30%) of its savings and time deposits. [Revised Rules and Regulations Governing Rural Banks] (f) Total loans with maturities of over 730 days and with maximum interest rate including commissions, premiums and other charges of not over 19% per annum shall not exceed 100% of total time deposits with maturities of over 730 days and which are not subject to interest rate ceilings. Compliance with this requirement shall be determined on the basis of daily averages computed monthly, effective on July 1, 1976. [Circular 494 1-2-76] SECTION 334. Special Financing Programs . Special financing programs of the government for agricultural production, except those covered by agreements with foreign countries and/or international financial institutions, shall as far as practicable be undertaken under a special financing scheme in accordance with the provisions of this Section. The fund established for the special financing program shall be under the administration of the Central Bank and shall be channeled through rural banks in the form of special time deposits to provide them with seed funds for initial loan releases to finance specific projects under the program and to enable these banks to generate more funds through rediscounting with the Central Bank. The lending operations of rural banks under the special financing programs shall be governed by the respective project agreement and implementing rules and regulations for such programs, by the provisions hereof and other provisions of this Book insofar as they are applicable and not inconsistent with such implementing rules and regulations, and by such rules and regulations as may be issued by the Central Bank. The Central Bank International Bank for Reconstruction and Development (CB: IBRD) rural credit projects under supervised credit to provide financing for machinery and equipment for small farmers, including facilities for irrigation, storage, refrigeration and processing shall be governed by the project agreement entered into between the Central Bank and the International Bank for Reconstruction and Development and the implementing rules and regulations. The rules and regulations issued by the Central Bank shall be suppletory to such implementing rules and regulations. SUBSECTION 334.1 Requirements for participation in special financing programs . In order that a rural bank may participate in the special financing program, it must meet the following conditions: (a) The rural bank must be operating in accordance with law and the regulations, instructions, and directives of the Monetary Board; (b) It is being managed wisely and prudently; (c) There is no internal dissension in the rural bank which may jeopardize government investment and financial assistance to said bank; (d) It is eligible to rediscount with the Central Bank; and (e) It is authorized to accept and service savings and time deposits. Furthermore, a rural bank with past due or matured obligations with the Central Bank which are overdue for more than one (1) month but not exceeding two (2) months, except obligations covered by a duly approved plan of payment whose terms and conditions are faithfully complied with, may be allowed to participate in the Masagana 99 and other food production programs under the supervised credit scheme; Provided, That the total rediscounting obligations of a rural bank with the Central Bank shall not exceed five hundred per cent (500%) of its net worth plus fifty per cent (50%) of its monthly average savings and time deposit liabilities during the four (4) months' period immediately preceding the date of its loan application. [MCRB 8-12-75] SUBSECTION 334.2 Special time deposits . The funds for the special financing program shall be deposited with the participating rural bank in the form of special time deposits to be utilized for extending agricultural production and commodity loans to eligible borrowers. Such special time deposits shall be placed in rural banks for a period of three (3) years or as may be determined by the Monetary Board, subject to recall at any time in case the rural bank violates any of the terms and conditions in the grant of said deposit or any provision of law or the rules, regulations, and instructions promulgated by the Monetary Board. Rural banks shall pay interest on special time deposits at the rate prescribed by the Monetary Board. Every rural bank shall at all times keep special time deposits under separate deposit account. SUBSECTION 334.21 Application for special time deposits . Rural banks desiring to participate in the special financing program shall file an application for special time deposits with the Central Bank in the form prescribed for the purpose, together with the following supporting documents and papers: (a) One set of blank special time deposit certificates, duly signed by the manager and other authorized officers of the rural bank; (b) Certification of the rural bank that it has availed itself of the services of supervised credit technicians hired by it or of government production technicians assigned to it, who are competent and qualified to supervise the project to be financed; (c) Statement of utilization of outstanding special time deposit, if any; (d) Financial statements of the rural bank; (e) A certification of the rural bank technician or government technician assigned to the rural bank stating that the farm plan and budget of the borrowers had been duly accomplished. In case of livestock, poultry, fishery, and other similar projects, a list of borrowers to be financed, and the number of stock and the loan amount applied for; and (f) Other documents and papers as may be required by the Central Bank. All loan applications must be endorsed by the Central Bank agricultural credit supervisor or examiner assigned in the area. SUBSECTION 334.22 Utilization of special time deposits . The rural bank shall utilize the special time deposits only for the purpose stated in the application, except when otherwise authorized by the Central Bank. Any unused portion of the special time deposit shall be returned by the rural bank to the Central Bank within thirty (30) days from receipt of such deposit. A rural bank which fails to return the unused portion of the special time deposit within the period mentioned above shall pay interest on the amount unreturned at the rate of fourteen per cent (14%) per annum until said amount is remitted in full to the Central Bank. Similarly, any unauthorized use of the special time deposit by any rural bank shall subject such bank to interest on the amount involved at the rate of fourteen per cent (14%) per annum for the duration of such unauthorized use. SUBSECTION 334.3 Rediscounting . Papers covering loans granted out of the special time deposits under the special financing program shall be rediscountable with the Central Bank, subject to the rules and regulations issued by the Central Bank governing the rediscounting of rural bank papers. SUBSECTION 334.4 Kinds of loans under special financing program . The following are the kinds of loans that may be granted under the special financing program: (a) Short term loans with maturities not exceeding one (1) year for: (i) Rice production; (ii) White corn and feed grains production; (iii) Livestock fattening; (iv) Poultry (broilers and layers); (v) Vegetable production; (vi) Fisheries (inputs for fishponds); (vii) Native and Virginia tobacco production; (viii) Cotton production; and (ix) Other products as may be determined by the Central Bank; (b) Commodity loans with maturities of not more than one hundred eighty (180) days; and (c) Medium term loans with maturities not exceeding three (3) years for the purchase of work and dairy animals, handtractors (power tillers), livestock for breeding, farm implements, and other similar equipment. SUBSECTION 334.5 Security . Loans granted under this special financing program shall be secured by any or a combination of the following: (a) Real estate, if available; (b) Chattel mortgage on standing crops, existing poultry or livestock or on the object financed; (c) Stored crops in bonded warehouses; (d) Two co-makers acceptable to the bank: Provided, that, in case a farmer is a member of a group or selda/damayan , the cooperative or selda may act as co-maker and: Provided, further, that in case of a multi-purpose cooperative, no co-maker shall be required. SUBSECTION 334.6 Requirements for production loans (a) Supervised credit system , required . Loans for production under the special financing program shall be granted under the supervised credit system wherein the farmer-borrower shall agree in writing that he will apply proven farm practices necessary to conserve the land, improve its fertility and increase its productivity and abide by the approved farm plan and budget jointly prepared by him and the supervised credit technician. (b) Loan proceeds ; special savings deposits . The proceeds of the loan granted out of the special time deposits shall be placed by the rural bank in a special savings deposit in the name of the farmer-borrower. Releases from said deposit shall be made from time to time in accordance with the schedule in the farm plan and budget. (c) Amount and size of loan . The amount or size of the loan shall depend on the actual needs and viability of the project to be financed and the capacity of the borrower to repay the loan. Rural banks may grant at any one time loans in excess of P5,000.00 to any individual borrower who is a beneficiary of agrarian reform on the basis of actual need and viability of the project to be financed under the supervised credit system and on the capacity of the borrower to repay such loans. [Circular 436 10-22-74] (d) Loan priority . Priority in the grant of loans shall be given to (i) cooperative, (ii) a farmer with a leasehold contract, (iii) a farmer who is a member of a cooperative, samahang nayon , selda/damayan , and who is a beneficiary of agrarian reform: Provided, however, that the farmer-borrower shall be tilling not more than six (6) hectares. (c) Interest rate; service fees and other charges . Production loans shall be charged an interest rate not exceeding twelve per cent (12%) per annum, excluding service fees and other charges. Commodity loans shall earn interest at the rate of ten per cent (10%) per annum. Service fees and other charges which rural banks may collect on loans granted under special financing programs shall be in accordance with the provisions of subsection 331.32. SUBSECTION 334.61 Conversion of production loan into a commodity loan . If a farmer decides not to sell his crop at harvest, he may convert his production loan into a commodity loan with the written consent of the marketing agent or, in the event he has financed his crop from his own resources, he may apply directly for a commodity loan. A rural bank may, at its discretion, extend a commodity loan to a farmer in an amount equivalent to eighty per cent (80%) of the current market value of the produce deposited in a bonded warehouse, secured by warehouse receipts: Provided, however, that, in securing a commodity loan, the farmer must first liquidate his production loan, if he has any. A commodity loan shall fall due upon the sale of the commodity but shall in no case exceed one hundred and eighty (180) days. SUBSECTION 334.7 Marketing tie-up . A three-party marketing agreement appropriate for the products financed shall be executed between: (a) The borrower who shall undertake to deliver immediately to the marketing agent an agreed quantity of his produce which value is at least equivalent to the amount of the outstanding loan and the interest thereon; (b) The marketing agent who shall undertake to purchase the borrower's produce at a specified minimum price and to pay the borrower through the rural bank within a specified number of days from actual delivery of the produce; and (c) The rural bank which shall undertake to provide the borrower's credit requirements and to accept payment thereof from the marketing agent and, apply the same to the borrower's account and release the excess to him or deposit the same in his savings account with the rural bank. SUBSECTION 334.8 Integrated agricultural financing ; cottage and small-scale industries financing . In line with the policy and objectives of the government and conformably with the provisions of the Rural Banks Act as amended, rural banks shall participate in the following special financing programs: (a) Integrated agricultural financing under supervised credit to maximize the income of the small farmers through multiple cropping, fish, livestock, and poultry production under a credit-line system of lending; and (b) Cottage and small-scale industries financing under supervised credit for working capital, purchase of land, installations, machineries and equipment, construction of building for new industries or for the expansion of existing ones. The program is intended to encourage entrepreneurship, increase production and productivity and create employment opportunities. [Circular 502 2-2-76] SECTION 335. Agricultural Guarantee Fund . Rural banks may avail themselves of the guarantee coverage of eligible loans under the Agricultural Guarantee Fund, created under Republic Act No. 6390, as amended, and administered by the Land Bank, in accordance with the rules and regulations governing such fund. [Circular 502 2-2-76] APPENDIX A Interest Rate on Loans Implementing Sections 1 and 2 of the Anti-Usury Law (Act No. 2655, as amended) Pursuant to Section 2 of Act 2655, as amended, otherwise known as the "Usury Law", the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that a loan or renewal thereof or forbearance of money, goods or credits secured in whole or in part by government securities shall not earn a higher rate of interest or greater sum or value, including commissions, premiums, fines and penalties, than twelve per centum (12%) per annum. Government securities shall include only the following: 1. Securities issued by the National Government; 2. Securities issued by the Central Bank; and 3. 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 [Sources: Circulars 417 dated 7-29-74 and 433 date 10-14-74] APPENDIX B Rules and Regulations Implementing Republic Act No. 3765 Otherwise Known as the Truth in Lending Act Pursuant to the provisions of Section 5 of Republic Act No. 3765, otherwise known as the "Truth in Lending Act," the following rules and regulations are hereby promulgated: SECTION 1. Requirement of Disclosure . Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information: (a) The cash price or delivered price of the property or service to be acquired; (b) The amounts, if any, to be credited as down payment and/or trade-in; (c) The difference between the amounts set forth under clauses (a) and (b); (d) The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (e) The total amount to be financed; (f) The finance charges expressed in terms of pesos and centavos; and (g) The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor, shall indicate the above seven items of information. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor. SECTION 2. Definition of Terms . (a) Creditor (who shall furnish the information) means any person engaged in the business of extending credit (including any person who as a regular business practice makes loans or sells or rents property or services on a time, credit, or installment basis, either as principal or agent) who requires as an incident to the extension of credit, the payment of a finance charge. (b) Person means any individual, corporation, partnership, association, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or any of its political subdivisions, or any agency of the foregoing. (c) Cash price or delivered price , in case of trade transactions, is the amount of money which would constitute full payment upon delivery of the property (except money) or service purchased at the creditor's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended (if any). (d) Down Payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. (e) Trade-in represents the value of an asset, agreed upon by the creditor and debtor, given at the time of the transaction in partial payment for the property or service purchased. (f) Non-finance charges correspond to the amounts advanced by the creditor for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. For example, in the case of the purchase of an automobile on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. (g) Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. (h) Finance charge represents the amount to be paid by the debtor incident to the extension of credit such as interest or discounts, collection fees, credit investigation fees, attorney's fees, and other service charges. The total finance charge represents the difference between (1) the aggregate consideration (down payment plus installments) on the part of the debtor, and (2) the sum of the cash price and non-finance charges. (i) Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed. aisadc In the case of a single payment upon maturity, the simple annual rate in per cent is determined by the following method: (Amount to be finance) ( 12 ) R = x x 100% (finance charge) (maturity period in months In the case of the normal installment type of credit of at least one year in duration, where installment payments of equal amounts are made in regular time periods spaced not more than one year apart, the simple annual rate (R), in per cent, is computed by the following method: (number of payments (finance charge) (in a year) R = x x 100% (amount to be) (total number of pay- financed ments plus one In cases where the credit matures in less than one year (e.g., installment payments are required every month for six months ), the same formula will apply except that: the number of payments in a year would refer to the number of installment periods, as defined in the credit contract, if the credit matures in one year. For example, the number of payments a year would be twelve for this purpose in cases where six monthly installment payments are called for in the credit transaction. In cases where credit terms provide for premium or penalty charges depending on say, the timeliness of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SECTION 3. Scope of Requirements . The above regulations shall apply to all creditors engaged in the following type of credit transactions: (a) Any loan, mortgage, deed of trust, advance and discount: (b) Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; (c) Any rental-purchase contract; (d) Any contract or arrangement for the hire, bailment, or leasing of property; (e) Any option, demand, lien, pledge, or other claim against, or for delivery of, property or money; (f) Any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; and (g) Any transaction or series of transactions having a similar purpose or effect. Considering that the specific purpose of the law is the full disclosure of the true cost of credit, the following categories of credit transactions are outside the scope of the above regulations: (a) Credit transactions which do not involve the payment of any finance charge by the debtor, and (b) Credit transactions in which the debtor is the only one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. SECTION 4. Penal Provision . - Section 6 of Republic Act No. 3765 provides that: "(a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable for reasonable attorney's fees and court costs as determined by the court. "(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation thereunder shall affect the validity or enforceability of any contract or transaction. "(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than six months, nor more than one year or both. "(d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision thereof. "(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto." SECTION 5. These Rules and Regulations shall take effect 30 days after publication in the Official Gazette. APPENDIX C Format of Disclosure Statement on Loan/Credit Transaction _________________________________ (Business Name of Creditor) DISCLOSURE STATEMENT ON LOAN/CREDIT TRANSACTION (As Required under R.A. 3765, Truth in Lending Act) NAME OF BORROWER _________________________________________________________ ADDRESS ___________________________________________________________________ 1. LOAN GRANTED (Amount to be financed) ........................................ P ___________(A) 2. FINANCE CHARGES: Not Deducted Deducted From From Proceeds of Loan a. Interest ____% p.a. from ____to ____ P _________ P_________ ( ) Simple ( )Monthly ( ) Compound ( ) Quarterly ( ) Semi-Annual ( ) Annual b. Non-Interest charges _________ _________ c. Commitment fee _________ _________ d. Guarantee fee _________ _________ e. Other charges incidental to the extension of credit (Specify): ___________________________ _________ _________ ___________________________ _________ _________ Total finance charges P P ========= ========= (B) 3. NON-FINANCE CHARGES a. Insurance Premium P _________ P_________ b. Taxes _________ _________ c. Documentary/Science Stamps _________ _________ d. Notarial fees _________ _________ e. Others (Specify): ___________________________ _________ _________ ___________________________ _________ _________ Total finance charges P P ========= ========= (C) 4. TOTAL DEDUCTIONS FROM PROCEEDS OF LOAN (B plus C) .............. (D) P ______ (D) 5. NET PROCEEDS OF LOAN (A less D) ................................................................. P ======== 6. PERCENTAGE OF FINANCE CHARGES TO TOTAL AMOUNT FINANCED (Computed in accordance with Sec. 2(i) of CB Circular 158) .............................................................. ____________% 7. EFFECTIVE INTEREST RATE ............................. ____________% p.a. (Method of computation attached) 8. SCHEDULE OF PAYMENT a. Single payment due on ______________ P (date) ======== b. Total Installment Payments Payable in __________________ months/year (no. of payments) at P __________ each installment. 9. COLLATERAL, This loan is wholly/partly secured by (check) real estate chattels government securities UNSECURED 10. ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE BORROWER Nature Amount __________________________________ _____________________ __________________________________ _____________________ __________________________________ _____________________ CERTIFIED CORRECT: ______________________________ (Signature of Creditor/Authorized Representative Over Printed Name ______________________________ (Position) I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. ____________________________ (Signature of Borrower over Printed Name) DATE _______________ NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. APPENDIX D Format of Abstract of " Truth in Lending Act " ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. 3765) SECTION 1. This Act shall be known as the "Truth in Lending Act." SECTION 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. xxx xxx xxx SECTION 3. As used in this Act, the term. xxx xxx xxx (3) "Finance charge" includes interest, fees, service charges discounts, and such other charges incident to the extension of credit as the Board may by regulation prescribe. xxx xxx xxx SECTION 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; dctai (3) the difference between the amounts set forth under clauses (1) and (2); (4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (5) the total amount to be financed; (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. xxx xxx xxx SECTION 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction . . . xxx xxx xxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both. xxx xxx xxx (e) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. SECTION 7. This Act shall become effective upon approval. Approved, June 22, 1963. PART 4 Investment Operations SECTION 341. Investments in Equities of Allied/Related Undertakings SUBSECTION 341.1 Authorized allied/related undertakings . The businesses of warehousing companies, processing mills, drying facilities, and storage companies shall be considered allied/related to rural banking as provided for under Section 11-A of Presidential Decree No. 122, in whose equities rural banks may be allowed to invest: Provided, that, such businesses are for agricultural production or other agricultural purposes. These business enterprises shall be in the form of a corporation. [Circular 462 4-21-75] SUBSECTION 341.2 Rural banks disqualified from investing in allied/related undertakings . Any of the following shall be a sufficient ground for the disapproval of the application of a rural bank to invest in equities of allied undertakings as defined above: (a) The capital of the rural bank is impaired by actual losses or valuation reserves recommended by the Central Bank; (b) Its lending operations had been suspended on account of reserve or capital deficiency, unless such suspension shall have been lifted for at least one (1) year before the filing of the application; and (c) The rural bank incurred losses from its operations during the year preceding the filing of its application. [Circular 462 4-21-75] SUBSECTION 341.3 Application requirements . Rural banks which desire to invest in the allied undertakings hereinabove defined shall file an application in writing with the Department of Rural Banks and Savings and Loan Associations, such application to be supported by a resolution of their board of directors authorizing the proposed investment, and by the following documents: (a) If the enterprise is still to be organized, the rural bank shall submit, together with its request for authority to invest therein, a feasibility study/plan of operations covering a period of three (3) years; (b) If the enterprise is already established and a going concern, the rural bank shall submit, together with its request for authority to invest therein, a comparative statement of condition and income statements of the enterprise covering the last three (3) years prior to the filing of the application; and (c) In any case, the application shall state the amount of the proposed equity investment by the rural bank in the enterprise and the ratio thereof both to the net worth of the rural bank and to the total capitalization of the enterprise. [Circular 462 4-21-75] SUBSECTION 341.4 Requirements in the grant of authority to invest in allied related undertakings (a) The authority to invest in the equities of the above-listed business undertakings shall be covered by the following guidelines and shall be subject to prior approval by the Central Bank: (1) The total paid-up capital of the rural bank shall not include any government counterpart fund and shall not be less than P1,000,000 at the date of the filing of the application; (2) The liquid assets (cash and due from banks) at the time the investment will be made shall not be less than 20% of the total resources of the rural bank: (3) The rural bank has not incurred any net reserve deficiency for at least six (6) weeks immediately preceding the date of approval of the application; (4) The total (combined) equity investments of the rural bank in the equities of the above-listed enterprises shall not exceed twenty-five per cent (25%) of the net worth of the rural bank; (5) The total equity investment of the rural bank in any single enterprise shall not exceed fifteen per cent (15%) of the net worth of the bank; (6) A rural bank shall not be allowed to invest in an allied undertaking if a stockholder or group of stockholders owning more than twenty per cent (20%) of the voting stock of the rural bank owns or controls directly or indirectly (within the third degree of consanguinity or affinity) thirty per cent (30%) or more of the voting stock of the allied undertaking, except as may otherwise be authorized by the Monetary Board; (7) Where the enterprise is a wholly or majority-owned subsidiary of the rural bank, the same may be subject to examination by the Central Bank; and (8) As part of the evaluation process, the Central Bank reserves the right to require a technical review of the operations of proposed allied undertakings. (b) Except as may be authorized by the Monetary Board, concurrent directorship/officership in a rural bank and an allied undertaking shall not be permitted. [Circular 462 4-21-75] PART 5 Deposit Operations SECTION 351. Savings and Time Deposits SUBSECTION 351.1 Savings and time deposits distinguished . Savings and time deposits may be distinguished as follows: (a) Savings deposit . The period or term of this deposit is indeterminate and is subject to the will of the depositor who may withdraw his deposit at any time, unless notice is reserved by the depository bank. (b) Time deposit . This deposit is for a definite period or term and cannot be withdrawn by the depositor until after the expiration of the period or term, unless the depository bank waives its right to the period or term. SUBSECTION 351.2 Requisites for the grant of authority to accept savings and time deposits . With the written permission of the Monetary Board, a rural bank may be authorized to accept savings and time deposits, provided it complies with the following requirements: (a) It must have a minimum private paid-up capital (common) stock of P100,000.00, except as may otherwise be required by the Monetary Board; (b) It must have good credit standing and its management must be efficient and trustworthy; (c) It must have a standard steel-reinforced concrete vault and safe in accordance with the specifications of the Central Bank in which the bank's cash, corporate records, books of accounts, and other important records shall be kept; (d) It must have adequate and sufficiently trained personnel to handle the responsibilities incident to the acceptance and servicing of savings and time deposits; and cdlex (e) The manager, cashier, bookkeeper, and their assistants and other officers and employees handling cash must be sufficiently bonded. SUBSECTION 351.21 Application for authority to accept savings and time deposits . The application for authority to accept savings and time deposits shall state the following: (a) Name of applicant rural bank; (b) Municipalities included in the bank's area of operation; (c) The bank's authorized subscribed and paid-up capital; (d) Names of the directors and principal officers of the bank; (e) Names of the stockholders owning at least sixty per cent (60%) of the voting (common) stock; (f) The authority applied for, whether savings or time deposits or both; (g) Justification in support of the application; and (h) Adequacy of the bank's facilities and personnel to handle the services incident to the grant of authority applied for. The applicant rural bank must attach the following in support of the application: (a) resolution of the board of directors requesting the grant of authority to accept savings and time deposits; (b) specimen signatures and handwriting and fingerprints of the manager, cashier, bookkeeper, and their assistants, if any; and (c) latest financial statements of the bank. Upon receipt of the application, the Central Bank shall make the necessary investigation and report its findings and recommendations thereon to the Monetary Board. SUBSECTION 351.22 When a rural bank may be granted authority to accept deposits simultaneously with authority to operate . Rural banks may be granted authority to accept savings and time deposits simultaneously with the grant of authority to operate, subject to the following conditions: (a) The rural bank must have a minimum paid-up capital of one hundred thousand pesos (P100,000.00) of the common stock owned and held by private stockholders, except those which the Monetary Board may require to have a smaller paid-up capital by reason of their geographical location; (b) Aside from an office as required under subsection 315.6 hereof, the rural bank must have a standard steel-reinforced concrete vault measuring at least 2.4 meters x 3.0 meters x 2.4 meters in height, fire-proof 30 cm. thick reinforced concrete walls and 20 cm. thick concrete top and floor slabs, and with steel burglar-proof doors, as mentioned in aforesaid subsection 315.6, within which shall be deposited the bank's steel safe of adequate size, its corporate records, books of accounts and other important documents; (c) The rural bank must have sufficiently educated and well-trained personnel adequate to handle the responsibilities and services incident to accepting and servicing savings deposits; and (d) The manager, cashier, bookkeeper, tellers and their assistants, if any, and all other officers and employees handling cash and accounting records must be sufficiently bonded. In the memorandum to the Governor recommending the issuance of the certificate of authority to operate, specific mention should be made regarding the compliance with the foregoing guidelines. Depending on the extent of such compliance, a separate recommendation whether authority to accept savings and time deposits is to be granted simultaneously should be contained in the said memorandum. [MB Res. No. 102 1-10-73] SUBSECTION 351.23 Bonds for manager, cashier, and other accountable personnel . Before a rural bank may be authorized to accept savings and time deposits, the manager, cashier, bookkeeper and their assistants, and other accountable officers and employees of the bank must be bonded in an amount commensurate to the additional responsibilities incident to the acceptance of the savings and time deposits as may be determined by the Central Bank. SUBSECTION 351.3 Opening of deposit accounts; prohibitions . Subject to the provisions of the following subsections, natural or juridical persons may individually or jointly and severally, open a savings, time, or current deposit account. A juridical person such as a corporation, partnership, cooperative or association must furnish the rural bank with written proof of its juridical personality and authority to make the deposit together with the name of the persons authorized to make withdrawals from the deposit. The cashier, bookkeeper and their assistants, and other employees of a rural bank whose duties consist of handling cash or checks are prohibited from opening deposit accounts with the bank where they are employed as such. SUBSECTION 351.31 Right of bank to reject deposit . Notwithstanding the provisions of the preceding subsection, a rural bank may reject or return a deposit on any ground it may deem reasonable which it may not be compelled to state. When a person is not known to the management of a rural bank, such person must be properly identified by another person known to the bank. A rural bank shall not permit a person of doubtful character and integrity to open a deposit account with the bank. Whenever necessary, the bank may require an applicant to furnish it with business references. SUBSECTION 351.32 Number of deposit accounts . A depositor shall not open more than one deposit account of each kind, whether savings, time, or current deposits, in his own name, in one and the same rural bank. However, he may, in addition to his own deposit account, open other deposit accounts of the same kind in his capacity as guardian, trustee, administrator or fiduciary for the person or estate entrusted to his care. All savings deposit accounts shall be consecutively numbered according to the dates they were opened, and the savings deposit passbooks issued shall bear the corresponding number of the accounts. SUBSECTION 351.33 Procedure in opening deposit accounts . The cashier or his assistant must personally interview every person desiring to open a deposit account with the rural bank and, by courteous and tactful inquiry, shall determine the moral and financial responsibility of the applicant in accordance with the preceding subsections. If the acceptance of the applicant as depositor will not jeopardize the interests of the bank, the cashier or his assistant may accept him as depositor of the bank. SUBSECTION 351.34 Depositor's signature card and deposit slip . When an applicant has been accepted by a rural bank as depositor, he shall accomplish the depositor's signature card, and the deposit slip forms prescribed by the Central Bank. The depositor's signature card shall contain the following: (a) name and address; (b) age and other personal circumstances; (c) signature; and (d) right thumb mark. The card shall be accomplished in triplicate and, to forestall substitution, must be identified by the cashier's signature and seal of the bank and kept in the vault as a permanent reference record of the bank. The card shall contain a minimum of three (3) specimen signatures of the depositor which shall be updated every two (2) years or sooner, at the discretion of the bank. Rural banks may, at their option, require their depositors to submit ID photos together with the specimen signatures. [Circular 407 5-31-74] The deposit slip shall specify the kind of deposit, whether current, savings or time. It must state the name of depositor, date and amount of deposit, and signed by the depositor or by the person opening the deposit account. If the depositor cannot write, he shall place his right thumbmark over his name written clearly by another person on the deposit slip and who shall also sign the deposit slip as a witness thereof. SUBSECTION 351.35 Verification of deposit ; issuance or loss of savings passbook/certificate of time deposit . After the deposit slip has been duly accomplished by the depositor, he shall hand it, together with the money to be deposited, to the cashier or teller who shall carefully verify the items in the deposit slip and the amount to be deposited in the presence of the depositor. After verification, the deposit slip shall be stamped "Received" and signed by the cashier or teller. (a) Issuance of savings passbook . When a savings account is opened by a depositor, he shall be issued a savings deposit passbook in his name, showing the account number in the passbook; date of deposit; amount of deposit; and balance of deposit. The last two items shall be initialled by the cashier or receiving teller and bookkeeper, respectively. (b) Issuance of certificate of time deposit . In the case of time deposit, the corresponding "Certificate of Time Deposit" shall be issued in the name of the depositor, showing the date the deposit is made; amount of deposit; due date and interest rate. The certificate shall be signed by the cashier and countersigned by the president or manager of the bank. (c) Loss of savings passbook/certificate of time deposit . The savings deposit passbook and the certificate of time deposit duly issued in the manner specified above shall serve as the contracts between the rural bank and the depositor. Any depositor who loses his passbook and desires a duplicate to be issued in lieu thereof must file an affidavit of such loss in the form to be prescribed by the Central Bank stating: the date and place of affidavit; number of the account; date when the loss occurred; circumstances surrounding the loss; invalidation of original passbook; and guaranty to hold the rural bank free from any liability arising from the original passbook. In case of loss of the certificate of time deposit, the depositor must comply with the requirements mentioned above and give a guaranty to the bank, holding the latter free from any liability arising from the original certificate of time deposit. Upon compliance with these requisites, a duplicate of the certificate of time deposit which was lost shall be issued in favor of the depositor. SUBSECTION 351.36 Deposit in checks and other cash items . Checks and other cash items may be accepted by a rural bank for deposit. Pencil notations shall, however, be placed on the corresponding savings ledger cards to the effect that, until the amounts in such checks are collected, withdrawal against the amounts deposited covered by such checks shall not be allowed. SUBSECTION 351.4 Interest Rates SUBSECTION 351.41 Savings deposits . The minimum amount which may be deposited in a savings account shall be P1.00. (a) Maximum interest . Until the Monetary Board shall fix a different rate of interest, rural banks shall be allowed to pay a maximum of seven and one-half per cent (7-%) per annum compounded quarterly, on the basis of average daily balance. (b) Computation of interest . Interest on savings deposits may be compounded other than quarterly, provided the aggregate amount resulting from such compounding does not exceed the aggregate amount of interest rates prescribed above when compounded quarterly on the basis of average daily balance. [Circular 492 1-2-76] Interest shall be credited on the last business day of each calendar quarter, based on the smallest monthly balance of the account, in accordance with the following rules: (i) Deposits made during the first five days of the month, together with the balance carried from the previous month, shall earn interest from the first day of the month; (ii) Balances of accounts below P10.00 on any day after the fifth day to the end of the month shall not earn interest during that month; and (iii) Only accounts closed at the end of the quarter shall earn interest during that month. [Circular 414 7-29-74] SUBSECTION 351.42 Time deposits . Rural banks shall not impose a minimum time deposit level greater than P100.00, and no time deposit shall be accepted for a term of less than ninety (90) days. [Circular 414 7-29-74] (a) Interest payment . Interest on time deposits shall be paid only at maturity or upon withdrawal or in advance: Provided, however, that interest paid in advance shall not exceed the interest for one year. Time deposits having a maturity period of not more than 360 days or twelve months from date of deposit may be paid interest thereon at the end of every twelve months and at maturity. [Circular 460 4-21-75] (b) Schedule of interest rates . The following schedule of maximum interest rates on time deposits is prescribed for rural banks: 90 days 9% 180 days 9-% 360 days 10-% 540 days 11-% 730 days 12-% [Circular 492 1-2-76] (c) Treatment of matured time deposits . A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest as such from date of maturity to date of actual withdrawal or renewal. [Circular 414 7-29-74] (d) Withdrawal before maturity date . A time deposit that is withdrawn before the maturity date fixed in the certificate of time deposit shall earn interest in accordance with the following schedule: Original Interest rate per annum if terminated Maturity before maturity Period 0-89 90-179 180-359 360-539 540-729 90 days 6% - - - - 180 days 6% 6-% - - - 360 days 6% 6-% 7-% - - 540 days 6% 6-% 7-% 8-% - 730 days 6% 6-% 7-% 8-% 9-% Provided, that, if interest had been paid in advance the corresponding rebate shall be charged against the principal of the time deposit. [Circular 492 1-2-76] (e) Time deposit with maturity of over 730 days . A certificate of time deposit issued by a banking institution with a maturity of more than seven hundred thirty (730) days shall not be subject to the interest rate ceilings prescribed in the Usury Law, as amended: Provided , that in no event shall withdrawal before maturity date be allowed: Provided, further , that it shall not be used as collateral for a loan from the depository banking institution concerned or any of its affiliates or subsidiaries. [Circular 493 1-2-76] SUBSECTION 351.43 Interest payment in kind prohibited . Interest on deposits and deposit substitutes are not payable in kind. [Circular 460 4-21-75] SUBSECTION 351.44 Special time deposit under IGLF . The interest rate charged by qualified banks on loans covered by special time deposits under the Industrial Guarantee and Loan Fund has been increased from four and a half per cent (4-%) to five per cent (5%), thereby giving the banks a ceiling rate of ten per cent (10%) interest to be charged the borrower-firms. [MAAB 6-18-70] SUBSECTION 351.45 Special time deposit for special financing programs . Interest rate on special time deposits for special financing programs under subsection 334.2 shall be lower than the rate allowed on time deposits accepted from the general public. Such deposit shall be exempt from the legal reserve requirement, as an exception to the existing policies of the Monetary Board. [MB Res. No. 775 5-14-73] SUBSECTION 351.46 Special savings deposits of farmer-borrowers . Loans granted by a rural bank to a farmer-borrower under the special financing program of the government for agricultural production shall be released in one lump sum and shall be automatically credited in a special savings deposit in the name of said farmer-borrower. Withdrawals against such special savings deposit shall be allowed on staggered basis in accordance with the farm plan and budget. The special savings deposit shall earn interest at the same rate that the rural bank charges the farmer-borrower for such loans, and shall be exempt from the legal reserve requirement, as an exception to the existing policies of the Monetary Board. [MB Res. No. 775 5-14-73] SUBSECTION 351.5 Barrio Savings and Barrio Guarantee Funds SUBSECTION 351.51 Barrio Savings Fund . The Barrio Savings Fund, constituted out of the five per cent (5%) deduction from every production loan granted by rural banks to a Samahang Nayon member as his contribution to said Fund, pursuant to Letter of implementation No. 23 implementing Presidential Decree No. 175, shall be placed in ordinary savings deposit under the joint account of the Samahang Nayon and the member thereof concerned. Such deposit shall be subject to the rules and procedure under Memorandum Circular to All Rural Banks No. 74-1, 74-11 and 74-27 issued by the Department of Rural Banks and Savings and Loan Associations and such rules and procedure as may be issued by the Central Bank. (Appendix A) SUBSECTION 351.52 Barrio Guarantee Fund . Contributions of Samahang Nayon members to the Barrio Guarantee Fund provided for in Regulation No. 9 of Letter of Implementation No. 23 implementing Presidential Decree No. 175, shall be accepted by rural banks in the form of time deposits in the name of the Samahang Nayon with its president and its treasurer as authorized signatories in accordance with the rules and procedure under Memorandum Circular to All Rural Banks No. 74-11 issued by the Department of Rural Banks and Savings and Loan Associations. (Appendix B) SUBSECTION 351.6 Withdrawals from savings deposits SUBSECTION 351.61 Manner and requirements . A depositor desiring to withdraw from his savings account shall fill out a withdrawal slip in the form prescribed by the Central Bank which shall state the following: (a) Date of withdrawal; (b) Number of the deposit account; (c) Name of depositor; (d) Amount to be withdrawn in words and figures (no fraction of a peso shall be allowed to be withdrawn, except when closing the account); and (e) Signature of the depositor, identified by his right thumbmark which shall be presented, together with his passbook, to the cashier of the rural bank. No withdrawal shall be allowed except upon presentation of the passbook and proper identification of the holder thereof. In case of doubt, he must be identified by a person known to the cashier. If the cashier is fully satisfied as to the identity of the holder of the passbook, after verifying the genuineness of the depositor's signature on the withdrawal slip, the bookkeeper or his assistant shall verify the bank balance with the records of the rural bank and shall make the following corresponding entries in the passbook and the savings ledger card: date of withdrawal; amount withdrawn, and balance of the deposit as of the date of withdrawal. The cashier shall then pay the amount withdrawn and return the passbook to the holder. SUBSECTION 351.62 Notice of withdrawal . A rural bank may require a notice of withdrawal from a savings deposit of not more than thirty days from the depositor: Provided, that this right was agreed upon between the depositor and the rural bank when the deposit was made. If there is no such agreement, the rural bank shall not be entitled to such notice and the depositor may withdraw from his deposit at any time without notice. SECTION 352. Demand or Current Deposits SUBSECTION 352.1 Distinguished from savings and time deposits . Demand deposits are withdrawable by check at any time. Unlike savings and time deposits, they do not earn interest. The passbook issued for current account does not show balance or condition of the accounts, and is not necessary to be presented when making withdrawals. It does not serve as a contract between the bank and the depositor, but merely as evidence of the dates and amounts of deposits when properly authenticated by the cashier or teller of the bank. SUBSECTION 352.2 Limitation on authority to accept demand deposits . Upon the effectivity of Presidential Decree No. 71 amending RA No. 337, only commercial banks may accept or create demand deposits withdrawable by checks: Provided, however, that rural banks which have been authorized by the Central Bank to accept demand deposits before the effectivity of said Presidential Decree may continue accepting demand deposits at the discretion of the Monetary Board. [Sec. 12, P. D. No. 71] SUBSECTION 352.3 Regulations applicable to demand or current deposits . The rules governing savings and time deposits in the preceding sections shall also apply to demand or current deposits, except in cases expressly provided for in the following subsections. SUBSECTION 352.4 Who may open demand or current deposit ; minimum deposit requirement ; issuance of passbook ; serial number of checks . Any person who has the capacity to contract and who does not suffer from any legal disability may open a demand or current deposit account with a rural bank subject to the provisions of subsections 351.3 (second and third paragraphs) and 351.33. The account may be opened in the manner provided for in subsection 351.34 with a minimum initial deposit of P500.00. When these requisites have been complied with and the deposit verified in accordance with subsection 351.34 hereof, the cashier shall issue in the name of the depositor a passbook and a checkbook. The initial and subsequent deposits made on the demand or current deposit account shall be recorded in chronological order in the passbook indicating the date and amount of the deposit. The entry in the passbook shall be initialled by the cashier and/or teller attesting to the receipt of the deposit. The checkbook contains the blank checks wherein withdrawals on the account may be made. A blank check duly filled up in accordance with the following subsection, and presented to the rural bank in due course, is an authority for the bank to pay the payee, or holder thereof, against the deposit of the drawer. The serial numbers of the checks issued must be recorded on the depositor's ledger card for follow-up purposes. A nominal fee for the cost of printing the passbook and checkbook shall be charged the depositor. SUBSECTION 352.5 Withdrawal from current deposits . Withdrawal of any amount from the current deposit shall be made only by check, duly signed by the depositor as drawer, indicating thereon the payee and the amount to be paid, and presented to the rural bank for acceptance or payment. Before accepting or paying the check, and to protect itself against loss from forgery and other irregularities, the rural bank must first establish: (a) That the drawer is the depositor; (b) That the deposit is enough to cover the amount of the check, and that it is not garnished, subject of litigation, or stop-payment orders of any court of competent jurisdiction; (c) That the amount specified in the check is not tampered; (d) That the party presenting the check is the one entitled to accept payment; (e) That the check is not postdated, nor too long past due as to give rise to presumptions of lapse or discharge; and (f) That the check is regular on its face and does not contain irregularities, like discrepancy between words and figures; changes; erasures; insertions and modifications. Unless it is the depositor, as drawer, who presents the check for acceptance or payment, the depositor's identity can only be established by referring to the signature card on file with the bank. If there is no discrepancy, acceptance or payment can be made. In case of doubt, as to the compliance of a proposed withdrawal or presentation of a check with the preceding requirements, the check must be returned immediately to the holder, with the bank's return slip stating the reasons for the return. SUBSECTION 352.6 Crossed check ; effect and purpose . A crossed check is one wherein two parallel transverse lines are drawn on its face usually at the left-hand corner, signifying that payment of the check shall be made only to a bank; or if the particular bank is named in the check, only to that bank. The purpose of crossing is to prevent payment to wrongful holders and to minimize chances of loss from forgery and other irregularities, since the check cannot be paid over the counter but only through a deposit account of the payee at the bank, even if the payee can establish his identity. A crossed check presented to a rural bank shall only be accepted for deposit to be paid in the manner above indicated. The addition of the words "And Company", "& Co." or "Non-Negotiable" between or below the parallel transverse lines does not affect or change the nature of crossed checks. SUBSECTION 352.7 Required minimum daily balance ; service charges . A minimum of P100.00 must be maintained daily for every current account. A service fee of one peso (P1.00) shall be charged against the account for any month in which the balance of the account falls below P100.00 any day during the month; and for every check returned or dishonored due to insufficiency of the account to cover the check. SUBSECTION 352.8 Monthly statement ; right of depositor to inquire on status of his account ; prohibition . Immediately at the close of banking hours at the end of every month, a rural bank authorized to accept current deposits shall send to its depositors a monthly statement of the status of their accounts in the form prescribed by the department of the Central Bank charged with the supervision and examination of rural banks, giving the following information: (a) Dates and amounts of current deposits made; (b) Dates when checks were paid, amounts and serial numbers thereof; (c) Balance after every withdrawal; and (d) Balance brought forward at the end of the month. The monthly statement must be signed by the manager after proper verification by an authorized personnel of the rural bank other than the bookkeeper or cashier. It must be mailed to the depositor at his address appearing in his signature card, accompanied by a return notice and a bank self-addressed envelope, either confirming or correcting the statement. The statement is notice to the depositor of the status of his account. As a matter of right, a depositor is entitled to inquire from the bank during office hours on the status of his account. LLjur A bank may not give any information regarding any deposit, except when requested by the depositor himself, or when legally ordered by the courts or other authorized persons, or in other cases expressly allowed by law. SECTION 353. Reserve Requirements SUBSECTION 353.1 Required reserves . Until the Monetary Board shall provide otherwise, any rural bank authorized to accept demand or current, savings and time deposits is required to maintain the following reserves: (a) Against demand deposits fourteen per cent (14%) of such deposit liabilities; and (b) Against savings and time deposits eight per cent (8%) of each type of deposit liability. Time deposits with remaining maturities of two (2) years or more shall be exempt from the above reserve requirement. SUBSECTION 353.11 Form of reserves . At least ten per cent (10%) of the total required reserves shall be in the form of cash deposited with the Central Bank. In the case of rural banks in areas where the Central Bank has no regional offices, deposit balances of their required reserves with the Central Bank shall be deposited with branches of the Philippine National Bank authorized to accept such deposits in trust for the Central Bank. The portion of the required reserves remaining after the cash deposit with the Central Bank has been deducted, may be held in the form of cash in vaults and/or government securities or evidences of indebtedness of the Republic of the Philippines and/or its instrumentalities and subdivisions as specified in the following paragraph. Only securities which are Central Bank supported and which are expressly authorized by the Monetary Board shall be allowed as reserves against deposit liabilities. (Appendix C) Regular Certificate of Indebtedness (CBCIs) may also be used: Provided, however, that such holdings shall not exceed twenty per cent (20%) of the maximum ninety per cent (90%) allowable reserves held in the form of government securities and/or cash in vault. [Circular 468 6-8-74 and Circular 469 6-9-75] SUBSECTION 353.12 Temporary use of CBCIs . The temporary use of CBCIs (except special series) and other government securities, with maturities of less than two years, not otherwise eligible, shall be allowed as reserves against deposit liabilities of banks during the period that they are deficient in their reserves, but not for more than fifteen days in any case. The amount of CBCIs and other government securities with remaining maturities of less than two years, not otherwise eligible to be allowed as reserves against deposit liabilities of banks, shall be to the extent of the reserve deficiency for the day. Banks desiring to avail themselves of the above privilege shall file their applications (pro-forma CBP-7-16-29) in duplicate on the date immediately following that when the applicant banks have incurred a reserve deficiency. The application may be filled with the appropriate supervising and examining department of the Central Bank either personally or through other faster means of delivery: Provided, that in any case, the actual date of acknowledgment by the department shall be stated in the application including the cause/s of the reserve deficiency and the justification for its request. The applicant bank shall strive to improve its reserve position. [Circular 406 5-15-74] SUBSECTION 353.2 Where reserve in cash may be deposited ; withdrawable by check ; report of deposits and withdrawals to the Central Bank . A rural bank may deposit in current account withdrawable by check the cash portion of its required reserves with the Philippine National Bank or any of its branches or agencies nearest to it, in trust for the Central Bank: Provided, however, that the minimum reserve requirement referred to in Subsection 353.1 is not impaired. Deposits and withdrawals must be reported by the depository bank to the Central Bank the quickest way possible or by telegram, on the same day in which they are made. SUBSECTION 353.3 Computation of reserve position ; effects of deficiencies . The reserve position of a rural bank shall be computed daily based on the amount of its reserve and total deposit liabilities at the close of business for the day. Whenever the reserve position of a rural bank computed in the manner provided for in the immediately preceding paragraph falls below the required minimum, the bank shall pay the Central Bank one-tenth of one per cent (1/10 of 1%) per day on the amount of deficiency: Provided, however, that banks shall ordinarily be permitted to offset any reserve deficiency occurring on one or more days of the same week and shall be required to pay the penalty only on the average daily deficiency during the week. In cases of abuse, the rural bank concerned shall be denied the privilege of offsetting reserve deficiencies in the aforesaid manner for as long as that bank fails to maintain its daily reserve position above the required minimum for at least four consecutive weeks. For purposes hereof, a series of reserve deficiencies, whether or not resulting in net weekly deficiencies, but occurring three or more times during any given week for four consecutive weeks, shall constitute abuse of the privilege of offsetting reserve deficiencies against excess reserves. Whenever a rural bank chronically has a reserve deficiency, the Monetary Board may limit or prohibit the making of new loans or investments by the bank and may require that part or all of the net profits of the bank be assigned to surplus. Such limitation, prohibition or requirement shall be lifted only after the bank has had no reserve deficiencies for four consecutive weeks. For purposes of this subsection, a rural bank shall be considered chronically deficient in its reserves when it shall have incurred net reserve deficiencies for four consecutive weeks. [Circular 430 8-27-74] SUBSECTION 353.4 Required reserves in bonds or securities . Only bonds or securities of the kind mentioned in the second paragraph of subsection 353.11 which are free from lien or encumbrance are eligible for the minimum reserve requirements. If after acceptance, a bond or security is hypothecated or encumbered, it shall ipso facto lose its eligibility. The value of bonds or securities for purposes of minimum reserve requirements shall be determined on the basis of their acquisition costs. Bonds or securities held for minimum reserve requirements shall be deposited with the Central Bank, or the nearest PNB branch or agency (excluding metropolitan branches). For this purpose, the rural bank should furnish the PNB branch or agency with a copy of the board resolution designating the rural bank official authorized to withdraw or deposit the bank's securities. Whenever securities are deposited or withdrawn, the PNB branch or agency shall immediately wire the Central Bank of the amount so deposited or withdrawn. The rural bank shall forward to the Central Bank a copy of the deposit or release receipt immediately. Securities deposited with the PNB branch or agency may be withdrawn without prior approval by the Central Bank, but the rural bank must see to it that the withdrawal does not impair the legal reserve requirements. The privilege of depositing securities with a PNB branch or agency may be withdrawn from a rural bank if the latter is found violating the preceding requirement. SECTION 354. Government Deposits SUBSECTION 354.1 Authority to accept government deposits . Except as otherwise provided hereunder, all authorities to accept government deposits heretofore granted to all banks are hereby withdrawn. Accordingly, all previously authorized depository banks no longer have authority to accept government deposits nor to renew maturing time deposits. As a corollary to the foregoing rule, no bank or non-bank financial intermediary, whether authorized to engage in quasi-banking functions or not, shall, without the prior approval of the Monetary Board, borrow funds from the government; its branches, political subdivisions or instrumentalities; or from government-owned or controlled corporations, other than the Philippine National Bank, the Development Bank of the Philippines or the Land Bank of the Philippines, through the issuance or sale of its acceptances, notes or other evidences of debt. The Philippine National Bank and the Development Bank of the Philippines, being instruments of national monetary policy, are exempted from the provisions hereof. On the other hand, the Philippine Veterans Bank and the Land Bank of the Philippines which, by their respective charters, are depositories of government funds, shall continue to act as such, subject to the liquidity floor requirements of Circular No. 220, dated April 22, 1966 (Appendix D). [Circular 446 4-4-75, Revised] SUBSECTION 354.2 Types of deposits covered . All types of deposits are covered by the withdrawal under Subsection 354.1 including the following: (a) Demand, savings and time deposits; (b) Deposit substitutes; and (c) Other forms of deposits or lendings to private financial institutions. LLphil SUBSECTION 354.3 Effectivity of withdrawal of authority ; transitory period . Banks with outstanding holdings of deposits, deposit substitutes, and/or borrowings not otherwise allowed under existing regulations or previously authorized by the Central Bank, from government entities referred to in Section 118 of R.A. No. 265, as amended, are enjoined to comply with the provisions of Subsection 354.1 and are given thirty (30) calendar days from September 24, 1975 within which to clear such outstanding unauthorized holdings; Provided, however, that such outstanding holdings with specific maturities may be allowed to run through their original maturities but the same shall not be renewed thereafter. SUBSECTION 354.4 Sanctions . Without prejudice to the imposition of the administrative sanctions under Section 34-A of R.A. 265, as amended, and unless otherwise exempted by the Central Bank, any violation found subsequent to the transitory period prescribed in Subsection 354.3 shall be sufficient ground for the Accounting Department of the Central Bank to debit the deposit account with the Central Bank of the bank concerned in the amount of the unauthorized deposit, deposit substitute and/or borrowings upon receipt of a report/notice from the appropriate supervising and examining department of the Central Bank, and the deposit account with the Central Bank of the Philippine National Bank shall be credited for the same amount. A copy of paid report/notice of the supervising and examining department shall be furnished each to the bank concerned and the Philippine National Bank. [Circular 481 9-24-75, as amended by Circular 488 11-19-75] SECTION 355. Schemes to Attract Deposits SUBSECTION 355.1 Contests, raffles or lotteries . A rural bank may adopt, subject to prior approval of the Monetary Board, any plan, program, benefit or incentive, including raffles and lotteries designed to attract savings and time deposits: Provided, however, that they shall meet the following requirements: (a) It must not be offered more than once every quarter; (b) It must not be tied up with the size of the deposit; (c) It must not provide depositors with financial compensation for the use of their deposits; (d) New and old depositors are qualified, but shall be entitled to only one prize in contests of any kind, including raffles and lotteries; (e) Accounts of personnel of sponsoring banks 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 bank, branch or agency shall not be more than P10,000.00 for rural banks located in the Greater Manila Area and all other cities, and P5,000.00 for those in other areas; (g) The results of contests, raffles or lotteries shall be appropriately announced; the list of winners with the corresponding prizes shall be posted in a conspicuous place within the bank premises; and the winners shall be notified; (h) The results of such contests shall be attested to by two authorized bank officers and reported to the Central Bank; and (i) To provide sufficient time for processing of applications, banks are required to file these with the appropriate supervising and examining department of the Central Bank at least thirty days before the scheduled date of the contest, raffle or lottery, in case of banks situated within the Greater Manila Area; at least forty days, for banks situated outside this Area. For this purpose, Greater Manila includes Manila, Quezon City, Pasay City and Caloocan City and the municipalities of Makati, Malabon, Mandaluyong, Marikina, Navotas, Paraaque, Pasig and San Juan. [Circular 419 8-5-74] SUBSECTION 355.2 Gifts and giveaways (a) As used herein, the term "gift" or give-away" shall mean anything of value given at no charge to a depositor by the depository bank, including donations, as an inducement for the opening of a new savings, time or demand deposit account or the maintenance of an existing deposit account; (b) The period for the distribution of the gifts or give-aways shall not exceed thirty days and only in connection with (i) the inauguration or transfer of office; (ii) a bank anniversary celebration; and (iii) the Christmas season; (c) No cash, certificate, check, or instrument which can be exchanged for cash, except government securities, shall be allowed as gift or give-away; (d) The cost of the gift or give-away to be offered shall not exceed ten pesos (P10.00) for each deposit account; (e) In no case shall the money value of the gift or give-away be credited to the depositor's account; (f) Each deposit account shall be entitled to only one gift or give-away; and (g) No promotional plan involving the distribution of gifts or give-aways shall be advertised, disseminated or implemented without the prior approval of the Central Bank. SUBSECTION 355.3 Applications . To provide sufficient time for the processing thereof, programs or plans for the holding of contests, raffles or lotteries, or for the distribution of gifts or give-aways must be received by the appropriate supervising and examining department of the Central Bank at least thirty days before the scheduled date of the contest, raffle, lottery or distribution, for banks situated in the Greater Manila Area and at least forty days for banks outside this area. [Circular 434 10-14-74] SUBSECTION 355.4 Extension of existing promotional schemes . Existing promotional campaigns are to terminate on cut-off dates previously approved by the Central Bank. All extensions will again require prior approval of the Central Bank. [Circular 419 8-5-74] SECTION 356. Solicitation of Deposits SUBSECTION 356.1 Conditions under which banks may solicit deposits . Upon application, rural banks are allowed to solicit and accept deposits outside their bank premises, subject to the following conditions: (a) The proposed area where applicant bank intends to solicit should be clearly defined; (b) Solicitation of deposits should be confined within a locality where there are no other banks in operation, except applicant bank, or where it can be clearly established that the deposit potentials of the said locality are still untapped; (c) Applicant bank shall institute and maintain the following minimum safeguards: (i) All deposit solicitors shall be initially bonded for at least P1,000.00, subject to the increase thereof to approximate their daily collections; (ii) Deposit solicitors shall be provided with proper identification cards with photograph and signature of each respective solicitor, certified to by the appropriate officer of the bank. Said identification cards shall be worn by each solicitor at all times at the upper left breast of his outer garment when soliciting deposits. (iii) Adequate insurance coverage for funds in transit (representing deposits collected outside banking premises) should be secured by applicant bank from insurance companies not included in the list of companies blacklisted by the Insurance Commissioner. (iv) Deposit slips, different from that issued by tellers in the counter, shall be in booklet form, prenumbered, in triplicate copies and in three colors the original to be issued to the depositor, the second copy to be used for posting reference, and the third copy to be retained in the booklet. (v) All collections shall be turned over to the cashier at the end of each day, accompanied by a "Collection Summary Report" to be accomplished in duplicate which shall contain the following minimum information: date of the report; names and addresses of the depositors; deposit slip numbers; amounts of deposit; savings account and passbook numbers; name and signature of solicitor rendering the report. (vi) Depositors shall always be required to accomplish "Signature Cards" when opening an account, which cards shall be used always as reference in checking the genuineness/authenticity of signatures affixed on withdrawal slips or authorizations for withdrawals; cdpr (vii) Deposits/withdrawals shall be recorded by the bookkeeper or any ledger clerk, except any bank solicitor, in the depositors' ledger cards and passbooks on the same day that such deposits/withdrawals are accepted/approved by the bank. Passbooks shall be returned to the depositors not later than the following business day. (viii) At the end of each month, depositors shall be advised in writing of the balances of their deposits with the bank, the advice slips of which shall never be hand-carried by the solicitors themselves. (ix) Places of assignments of bank solicitors shall be rotated, at least quarterly. (d) The department charged with the supervision and examination of rural banks shall certify that the financial condition of the bank applying for authority to solicit and collect savings deposits outside its bank premises is sound and that the operations and the quality of the management thereof could reasonably assure the safety of the funds which may be entrusted to its deposit collectors and/or solicitors. [MB Res. No. 1177 6-29-73] SUBSECTION 356.2 Solicitation of deposit under the TIPID Movement . Banks participating in the TIPID Movement shall be authorized to solicit deposits of students within the premises of schools assigned to these banks through the appointment of savings deposit solicitors who shall be properly bonded. The solicitation of such deposits shall be in accordance with the rules and regulations in Appendix E of this Part. [Circular 475 6-30-75] APPENDIX A IMPLEMENTING GUIDELINES FOR COLLECTION OF BARRIO SAVINGS FUND The Department of Agriculture and Natural Resources, the Department of Local Government and Community Development, and the Central Bank of the Philippines hereby issue the following guidelines for the proper collection of the Barrio Savings Fund of the Samahang Nayon pursuant to Letter of Implementation No. 23 Regulation 9 issued on July 9, 1973. The following steps are to be followed in the collection of Barrio Savings Fund (BSF) for the Second Crop of Masagana 99. 1. The Department of Local Government and Community Development thru its Bureau of Cooperatives Development will furnish all rural banks and PNB branches a list of registered Samahang Nayon and their bona-fide farmer-members. The same listing will be furnished to the Chairman of the Provincial Action Committee of National Food and Agriculture Council (NFAC) for distribution to all Farm Management Technicians. 2. The Farm Management Technician will include in the loan the amount to be collected for the BSF which is five per cent (5%) of the total loan proceeds to be released if the farmer is a member of a registered Samahang Nayon . 3. The participating Rural Bank or PNB branch or agency, upon releasing an amount to the farmer-borrower, will deduct five per cent (5%) of this amount to be released and credit the amount deducted to the account of the Samahang Nayon . It is understood that the account of the particular Samahang Nayon must be deposited in the same financing institution where the farmer-borrower obtains his loan. In this case, a Samahang Nayon must have more than one financing institution as its depository because not all its members may borrow in the same financing institution. The procedure of deduction must be: a. If the farmer needs his cash portion say P465, then 5% of P465 is P23.25. So P23.25 goes to account of the Samahang Nayon and the balance of P441.75 is released to the farmer. b. The same procedure will be followed in the succeeding releases. PROCEDURE IN THE IMPLEMENTATION OF THE BARRIO SAVINGS FUND PROGRAM The following procedure shall be observed regarding the 5% deductions to be made by rural banks on every production loan granted to the Samahang Nayon member, representing his contribution to the Barrio Savings Fund provided for under Letter of Implementation No. 23 (implementing Presidential Decree No. 175): 1. A loan release sheet or discount slip shall be issued by the rural bank to the Samahang Nayon member indicating therein: a. The loan amount; b. The 5% deduction representing his contribution to the Barrio Savings Fund; and c. The name of the Samahang Nayon to which his contribution is to be credited. A copy of the loan release sheet or discount slip shall be furnished each Samahang Nayon concerned when the rural bank renders its monthly report/statement required in No. 4 of this Circular. 2. A savings ledger for each Samahang Nayon shall be maintained and the postings therein shall include the names of the Samahang Nayon members and their respective contributions to the Barrio Savings Fund. A savings passbook shall be issued in the name of the Samahang Nayon . The Samahang Nayon , for purposes of facility and practicability, may entrust by way of a resolution of its board of directors, custody of the savings passbook to the depository rural bank, provided, however, that in such case, said bank shall submit to the DRBSLA a copy of the monthly report/statement required under No. 4 of this Circular. 3. A control account shall be set up in the general ledger which shall be called "Savings Deposits Barrio Savings Fund". The savings ledgers corresponding to this account shall be reconciled at least once a month. 4. A monthly report/statement shall be submitted by the rural bank to the President or authorized officer of the Samahang Nayon on the status of its Barrio Savings Fund, together with copies of the loan release sheet or discount slip mentioned in No. 1 hereof. [Source: Memorandum Circular to All Rural Banks No. 74-1 dated January 2, 1974 and Memorandum Circular to All Rural Banks No. 74-27 dated May 13, 1974.] APPENDIX B GUIDELINES ON BARRIO SAVINGS FUND AND BARRIO GUARANTEE FUND The following guidelines shall be observed on the Barrio Savings Fund and the Barrio Guarantee Fund provided for under Letter of Implementation No. 23 implementing Presidential Decree No. 175: 1. The proceeds of the 5% deductions made by rural banks on every production loan granted to the samahang nayon member representing his contribution to the Barrio Savings Fund shall be placed in ordinary savings deposit under a joint account of the samahang nayon and said member; 2. Contributions of the samahang nayon member to the Barrio Guarantee Fund shall be accepted by rural banks in the form of time deposit in the name of the samahang nayon with the President and the Treasurer of the samahang nayon as authorized signatories; 3. In both the aforementioned cases, the rural bank concerned shall require the submission by the samahang nayon of written proof of its juridical personality and a copy of the resolution of the Board of Directors required under the third paragraph of Section 157 of the Revised Rules and Regulations Governing Rural Banks. 4. Any withdrawal against the Barrio Savings Fund and the Barrio Guarantee Fund shall be allowed only upon presentation of the passbook (Barrio Savings Fund) or surrender of the original copy of the certificate of time deposit (Barrio Guarantee Fund), together with the resolution of the board of directors of the samahang nayon authorizing such withdrawal duly approved by the Bureau of Cooperatives Development of the Department of Local Government and Community Development. 5. Barrio Savings Fund and Barrio Guarantee Fund deposits shall earn interests in accordance with Section 164 of the Revised Rules and Regulations Governing Rural Banks. Under Central Bank Circular No. 292 dated February 21, 1970 (Circularized under our Memorandum Circular to All Rural Banks No. 70-7 dated March 2, 1970) the rates of interest prescribed for time deposits are as follows: ". . . A maximum annual interest of eight per cent (8%) shall be allowed on time deposits in accordance with the following schedule: (a) 180 days 6-% (b) 360 days 7% (c) 540 days 8% [Source: Memorandum Circular to All Rural Banks No. 74-11 dated 3-7-74.] APPENDIX C GOVERNMENT BONDS AND SECURITIES ELIGIBLE AS RESERVES FOR DEPOSIT LIABILITIES (a) Government bonds with Central Bank support . Only government bonds with Central Bank support shall be eligible as reserves against deposit liabilities of banks. [MAAB 7-12-63] Government bonds without Central Bank support (including the Socio-Economic Bonds, 7% Loan of 1963) shall not be eligible as reserves against deposit liabilities of banks. cdlex [MAAB 7-12-63] Government securities with Central Bank support which are purchased under certain terms, conditions and restrictions are considered hypothecated and, therefore, may not be used as reserves against deposit liabilities of banks. [MB Res. 1699 10-12-71] (b) Evidences of indebtedness acquired prior to July 12, 1963 . Evidences of indebtedness of the Republic of the Philippines and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines which were acquired by any bank prior to July 12, 1963 and were then eligible as reserves at the time of such acquisition, shall remain to be eligible as reserves against deposit liabilities until the maturity or disposition of such evidences of indebtedness or obligations. [MAAB 9-20-66] (c) Treasury Notes (1) 2% Treasury notes . The Central Bank shall make available for sale to commercial banks, savings banks, development banks, rural banks, and savings and loan associations P100 million of 2% Treasury notes and P100 million of 4% PW & ED bonds from the Central Bank portfolio, subject to the following conditions: (i) Any purchase of 4% PW & ED bonds shall be matched with a purchase of an equal amount of 2% Treasury notes; and (ii) The securities shall bear Central Bank support only to the original purchaser. [MB Res. 1767 10-8-68, as amended by MB Res. 630 4-22-69] (2) 3% Treasury notes . The Securities Market Department shall make available for sale to commercial banks, savings banks, development banks, rural banks, and savings and loan associations as reserve assets, not exceeding P100 million worth of three per cent (3%) Treasury notes from the port-folio of the Central Bank, subject to the condition that these Treasury notes shall carry Central Bank support only with respect to the purchaser from the Central Bank. [MAAB 9 1-19-73] (d) Premyo Savings Bonds . Premyo savings bonds shall be eligible as reserves against deposit liabilities. [MAB 8-1-74] APPENDIX D WITHDRAWAL OF AUTHORITY OF BANKS TO ACCEPT GOVERNMENT DEPOSITS; EXCEPTIONS 1. Except as otherwise provided in Paragraph 5 hereof, all authorities to accept Government deposits heretofore granted to all banks are hereby withdrawn. Accordingly, all previously authorized depository banks no longer have authority to accept Government deposits nor to renew maturing time deposits. As a corollary to the foregoing rule, no bank or non-bank financial intermediary, whether authorized to engage in quasi-banking functions or not, shall, without the prior approval of the Monetary Board, borrow funds from the Government; its branches, political subdivisions or instrumentalities; or from Government-owned or controlled corporations, other than the Philippine National Bank, the Development Bank of the Philippines or the Land Bank of the Philippines, through the issuance or sale of its acceptances, notes or other evidences of debt. 2. In municipalities or cities where there are no existing branches, extension offices, or agencies of the Philippine National Bank, the Central Bank may authorize an existing branch, agency, or office thereat, if any, of a commercial bank to accept or continue accepting deposits of funds belonging to government entities located in their respective cities and municipalities and/or municipalities and cities not nearer to municipalities and cities where there exist branches, extension offices or agencies of the Philippine National Bank. The letter of authority shall fix the terms and conditions for the acceptance of such deposits. A commercial bank desiring authority to accept or continue accepting government deposits under the provisions of this paragraph shall file an application with the Monetary Board, through the Superintendent of Banks, stating therein the name(s) of the government entities concerned, the location of their offices, the types of deposits to be accepted and/or being serviced and the balances of these deposits, if any. 3. The present 30% and 90% liquidity floor requirements of government deposits shall continue in force, provided, however, that all government deposits (except those which may be authorized under Paragraph 2 above) still held by banks sixty (60) days from date of this Circular except time deposits, if any, which shall not have matured by then. Deposits which may be authorized under Paragraph 2 above shall be subject to the 30% liquidity floor in the form of Central Bank supported government securities separate and distinct from those used as reserves against deposit liabilities. 4. All previously authorized depository banks shall submit to the Department of Supervision and Examination, Central Bank of the Philippines, not later than 4:30 p.m. on April 26, 1966, a list showing the names of the government entities and the individual outstanding balances of the government demand deposits, savings deposits and time deposits (indicating dates received and dates of maturity); acceptances, notes, or bills sold to or discounted with any Government-owned or controlled corporation, other than the Central Bank, the Philippine National Bank, or the Development Bank of the Philippines; held by the head office and by each of the branches, agencies and extension offices as of the close of business on April 22, 1966. 5. The Philippine National Bank and the Development Bank of the Philippines, being instruments of national monetary policy, are exempted from the provisions of this Circular. On the other hand, the Philippine Veterans Bank and Land Bank of the Philippines which, by their respective charters, are depositories of Government funds, shall continue to act as such, subject to liquidity floor requirements imposed under this Circular. This Circular shall take effect immediately. [Source: Circular No. 220 dated 4-22-66, as amended by Circular 446 dated 4-4-75.] APPENDIX E RULES AND REGULATIONS GOVERNING THE SOLICITATION OF DEPOSITS UNDER THE TIPID MOVEMENT 1. Banks participating in the TIPID Movement shall be authorized to solicit deposits of students within the premises of schools assigned to these banks. 2. An authorized bank shall appoint its Savings Deposit Solicitor who shall be properly bonded. 3. The authorized solicitor shall present a letter of introduction addressed to the head of the school, together with the bank's prescribed identification card which he shall wear at all times during the solicitation. 4. Depositors shall be required to accomplish "Signature Cards" when opening an account. 5. Pre-numbered deposit slips, in duplicate, shall be used. The duplicate is given to the depositor and the original is retained to serve as posting medium. 6. Withdrawals may be effected through the solicitor with proper safeguards. 7. At the close of every solicitation day, a Report of Deposit Collection shall be accomplished in triplicate (original to bank, and copy each to solicitor and school) by the solicitor, containing the following: a) Date of the report b) Name of school c) Total number of deposit transactions d) Total amount of deposits e) Total number of withdrawal transactions f) Total amount of withdrawal g) Net collection (d minus f) h) Name and signature of solicitor rendering the report Inclusive number of used deposit slips, accomplished withdrawal slips and collection as shown in this report shall be turned over to and acknowledged by the cashier. 8. Passbooks shall be returned to the depositors not later than the following soliciting day. A copy of the Report of Deposit Collection (item 7 above) of the last soliciting day shall be submitted to the head of the school. 9. The banks shall arrange with the school the dates, place and time of solicitation and shall post notice thereof in a conspicuous place in the school premises. PART 6 Borrowing Operations SECTION 361. Rural Bank's Authority to Borrow Money A rural bank may borrow money with the prior permission of the Monetary Board in cases authorized by law. [MB Res. 865 5-9-67] SECTION 362. Borrowing from the Development Bank of the Philippines A rural bank may obtain loans from the Development Bank of the Philippines, payable in ten (10) years, with interest at two per cent (2%) per annum, against any security which may be offered by stockholders of the rural bank. SUBSECTION 362.1 Requisites for loan . The grant of a loan to a rural bank by the Development Bank of the Philippines shall be subject to the following conditions: (a) That the Monetary Board is convinced that the resources of the rural bank are inadequate to meet the legitimate credit requirements of the locality wherein the rural bank operates; (b) That there is a dearth of private capital in the said locality; and (c) That it is not possible for the stockholders of the rural bank to increase its paid-up capital. Any stockholder of a rural bank who allows the use of his property as security for any loan obtained by the rural bank under this subsection, may be authorized to collect from the rural bank a special fee not exceeding the difference between the prevailing maximum rate of interest on time deposits and the rate of interest per annum paid to the Development Bank of the Philippines for loans to rural banks under this subsection computed on the outstanding balance of the loan. SUBSECTION 362.2 Application for loan ; investigation . A rural bank desiring to obtain a loan from the Development Bank of the Philippines shall file an application with the Central Bank in quadruplicate, stating the following: (a) Amount of the loan applied for; (b) Purpose of the loan; (c) Plan of amortization, whether monthly, quarterly, semi-annually or annually, spread over a period not exceeding ten (10) years, with interest at two per cent (2%) per annum; and (d) Justification for the loan. SUBSECTION 362.21 Supporting papers and documents . The application for loan mentioned above must be accomplished by the following papers: (a) Resolution of the board of directors of the rural bank, authorizing the negotiation of the loan, and designating the name of the director, manager or officer authorized to negotiate said loan; (b) Statements of assets and liabilities and profit and loss during the semester immediately preceding the request; (c) List of applicants whose applications for loan are held pending because of insufficiency of capital; and (d) List of properties offered to secure the loan applied for. If the property consists of real estate, the certificates of title covering such property shall be submitted together with the tracings or blueprints or sketches of the land, duly certified by the Bureau of Lands or the General Land Registration Office, plans of buildings, if any, tax declarations, and tax receipts for the current year. SUBSECTION 362.22 Investigation by Central Bank ; grant of loan by Development Bank of the Philippines . Upon receipt of the application, the Central Bank shall determine: (a) Whether there is justification for the grant of the loan to the rural bank; (b) The competence and integrity of the rural bank management; and (c) The efforts exerted by the rural bank to raise the amount necessary from private capital. If the Monetary Board finds that the management of the rural bank is efficient and trustworthy and certifies to the Development Bank of the Philippines that the requisites provided for in subsection 362.1 for the grant of a loan have been complied with, the latter shall grant the loan within sixty (60) days from the date it receives the certification, subject to the provisions of the following subsection. SUBSECTION 362.3 Contract of loan . The contract of loan to be executed between the rural bank and the Development Bank of the Philippines shall be subject to the following conditions: (a) The proceeds of the loan shall be used exclusively to meet the normal credit requirements of the rural community where the rural bank is situated for agricultural, commercial, and industrial purposes, as defined by Sections 5 and 6 of the Rural Banks Act, as amended; and to provide funds to meet obligations incident to the rural bank's lending operations; [As amended by MB Res. No. 1412 7-25-74] (b) No part of the proceeds of the loan shall be used by the bank for the creation or acquisition of any fixed or capital assets, or for operating expenses, such as salaries, rents, supplies, and the like; (c) The installments and the terms of payment shall be spread during a period not exceeding ten (10) years, with interest at two per cent (2%) per annum; and (d) The securities for the loan as approved by the Central Bank. [MB Res. No. 865 5-9-67] SUBSECTION 362.4 Separate account . The rural bank shall keep a separate account of the loan obtained under this Section. SECTION 363. Rediscounting The term rediscounting refers to the privilege of a rural bank to negotiate its customer's eligible papers with the Central Bank by transferring the ownership thereof to the creditor Central Bank. In the rural banking system, rediscounting may also be referred to as the process of securing advances from the Central Bank by a rural bank on the security of the borrowing bank's eligible papers. The privilege to rediscount is given by the Central Bank to a rural bank to supplement the rural bank's operating capital which may be insufficient to meet the demands for credit financing in the community where it operates and when additional funds are needed to develop the economy of the community and increase its productivity. The proceeds of rediscounting or advances shall be used exclusively in accordance with paragraphs (a) and (b) of subsection 362.3 hereof: Provided, that, proceeds or rediscounting of papers covering loans extended by rural banks under the third paragraph of Section 16 of Republic Act No. 6390 shall be channeled only to beneficiaries of Agrarian Reform. Operating capital shall include cash in vault, checks and other cash items, due from other banks, and certificates of indebtedness excluding customers' promissory notes and bonds held to cover legal reserves against deposit liabilities and trust funds such as special savings deposits. A rural bank which has utilized in the process of its operations approximately fifty per cent (50%) of its paid-up common capital stock may apply for a loan or rediscount, or a rural bank with big deposit liabilities may apply for a loan if in the process of its operations its operating capital has been depleted to a level equal to thirty per cent (30%) of its total deposit liabilities (exclusive of special time deposits). The term normal credit , as used in subsection 362.3 hereof, refers to the requirements of eligible borrowers for short term credit with maturities not in excess of one (1) year or to meet operating expenses of an annual recurring nature repayable out of the results of such operations or with current income from the project being financed. SUBSECTION 363.1 Papers eligible for rediscounting An eligible paper is a promissory note, draft, or a bill of exchange which has the following requirements: (a) It arises out of agricultural, commercial, or industrial transactions; that it was issued or drawn and the proceeds thereof used, for production, purchase, transportation, or marketing of goods, such as agricultural products, merchandise or wares, on one or more steps of the processes of production, manufacturing or merchandising, provided for in subsections 332.1 to 332.5 hereof, including credit instruments arising from transactions authorized under Sections 15 and 16 of Republic Act No. 6390. (b) It has a maturity period of not more than 360 days from the date of rediscount, discount or acquisition by the Central Bank in the case of agricultural, industrial or production credits, including the marketing of the produce, except papers covering loans granted to small merchants which must have maturities of not more than 180 days. For papers covering loans under the Masagana 99 and Masaganang Maisan and Feedgrains Programs, the maximum loan amount per hectare shall be P1,600.00 for Masagana 99; P500.00 for corn and sorghum and P650.00 for soybeans. As regards commercial credits, the maturity date of said instruments shall not exceed 180 days from date of rediscount, while for production credits, it shall not exceed 360 days also from the date of rediscount or acquisition by the Central Bank. [MCARTB-DLC-3 9-5-75] Notwithstanding the provisions of the preceding paragraph, the following papers are not eligible/acceptable for rediscounting: (a) Those whose proceeds are used or shall be used for permanent or fixed investments, such as land, budding or machineries, except small machineries and equipment for cottage and agro-industrial production, except when otherwise expressly provided by law or regulation; (b) Those whose proceeds have been used for investments of purely speculative character; (c) Those which represent the balance of a renewed loan or advance, or which are overdue; (d) Those whose covering mortgages are not registered; (e) Promissory note(s) drawn by a borrower with non-supervised credit/non-food production supervised credit loans aggregating over P10,000.00 if the total loans of over P10,000.00 extended by the rural bank for non-supervised/non-food production supervised credit loans during the past four months ending at the end of the month immediately preceding the date the rediscount or loan application is filed exceed forty per cent (40%) of the total of such loans granted during the same period; and (f) Those which are incomplete or defective and/or with incomplete or defective supporting documents. SUBSECTION 363.2 Basic terms and conditions for rediscounting (a) Maximum maturities of rediscounts or advances . The maximum periods for rediscounting or advances against eligible papers shall be as follows: (i) For loans secured by agricultural papers for the production of rice not exceeding 270 days; and for corn and commercial papers not exceeding 180 days. (ii) For loans secured by other production credit papers not exceeding 360 days. It is understood that the terms of the loans granted by institutional borrowers shall be synchronized with the maximum maturities of their own loans from the Central Bank as outlined in Appendix A hereof. [MCARTB-DLC-3 9-5-75] (b) Loan value . The loan value or maximum amount that may be granted by the, Central Bank against an eligible rural bank paper under the supervised credit scheme shall be 100% of the outstanding balance or unpaid portion of such eligible paper at the, time of rediscounting. The loan value of eligible papers under the non-supervised credit scheme shall be eighty per cent (80%) of the outstanding balance or unpaid portion thereof at the time of rediscounting. Unsecured loans to beneficiaries of agrarian reform under the "Masagana 99", and "Masaganang Maisan" financing programs shall have an Agricultural Guarantee Fund coverage to be eligible for rediscounting at the preferential rate of 1%. [MCARTB-DLC-3 9-5-75] (c) Rediscount rates . The Central Bank shall charge rediscount or interest rates on rediscounting or advance as follows: (i) eligible papers covering loans under the supervised credit scheme 1% per annum effective April 26, 1974; and (ii) other eligible papers under the non-supervised credit scheme 5% per annum effective July 1, 1974. (d) Liquidated damages . In addition to the rediscount or interest rates specified in the preceding paragraph, the Central Bank shall impose liquidated damages at the rate of seven per cent (7%) per annum on past due accounts of rural banks with the Central Bank, subject, however, to the provisions of item (b), first paragraph of Memorandum Circular to All Rural Banks dated April 16, 1974, suspending the imposition of the seven per cent (7%) liquidated damages effective March 29, 1974 on past due loans which were used exclusively in the financing of Masagana 99, Masaganang Maisan and other food production programs: Provided that such exemptions from liquidated damages shall be limited to the extent of damages ascertained by the Central Bank agricultural examiners and project evaluators. SUBSECTION 363.3 Credit limit . The total obligation of a rural bank with the Central Bank arising from rediscounting authorized herein shall not exceed 100% of its net worth, plus fifty per cent (50%) of its monthly average savings and time deposit liabilities during the four months' period immediately preceding the date of its loan application for papers covering loans granted under the non-food production supervised credit scheme. As regards food production supervised credit papers, the aforementioned limitation has been temporarily set aside under Monetary Board Resolution No. 1432 dated August 3, 1973. SUBSECTION 363.4 Temporary disqualification of rural banks . The following rural banks shall be temporarily disqualified from the credit facilities of the Central Bank: (a) A rural bank which has not submitted a plan or schedule for the payment of the unpaid subscriptions to its capital (common stock) or which has not complied with the said plan or schedule; (b) A rural bank with a past due ratio in excess of twenty-five per cent (25%) of its total outstanding loans. However, for the duration of the special food production program of the government, this subsection shall not apply to supervised credit papers. For this purpose, all papers covering loans granted to beneficiaries of Agrarian Reform and under the special financing programs are excluded in determining the twenty-five per cent (25%) as a criterion in rediscounting; (c) A rural bank which is in default in its obligations with the Central Bank or with collateral deficiencies due to unremitted collections/matured notes. However, rural banks with past due or matured obligations with the Central Bank which are overdue for more than one month but not exceeding two months, irrespective of whether or not said obligations are covered by a plan of payment or even if the non-payment of said obligations is not caused by force majeure provided that this is not caused by misappropriation and/or irregularities in lending operations, may be allowed to rediscount supervised credit food production papers. Likewise, rural banks with past due rediscounting obligations of not exceeding two months may continue availing themselves of ordinary rediscounting against eligible non-supervised food production papers only, provided that the rediscounting proceeds, in their entirety, shall be applied to the rural banks' past due supervised credit rediscounting obligations, including collateral deficiencies, and/or matured STDS, and provided further that non-supervised credit loans of the borrowing rural banks shall not exceed 25% of their total loan portfolios up to the end of the current Phase V of M-99 Program and 15% of Phase VI and thereafter of the same program. [MCARB 7-28-75] (d) A rural bank with deficiency in legal reserves; (e) A rural bank which is deficient in capital requirements (risk asset ratio should not be less than 10%); (f) A rural bank which has over-invested in its bank premises (more than 35% of private paid-in capital) as well as its furniture, office and transportation equipment (more than 15% of private paid-in capital) as set forth in subsection 315.61 of this Book; (g) A rural bank which is in excess of the maximum credit limit under subsection 363.3 hereof; and (h) A rural bank the rediscounting privilege of which has been suspended. SUBSECTION 363.5 Effects of natural calamities . In case a rural bank is adversely affected by natural calamities such as earthquake, typhoon, drought and other natural occurrences, the Central Bank shall not consider paragraphs (b) and (c) of subsection 363.4 as disqualifying grounds, based on the results of the survey to be made by the Department of Rural Banks and Savings and Loan Associations, which results should justify said waiver. A supplementary agreement should be executed between the Department of Loans and Credit of the Central Bank and the affected rural bank. Rural banks in areas which may suffer damages on account of force majeure may restructure their corresponding rediscounting liabilities with the Department of Loans and Credit secured by restructured notes of their borrowers for a period of one (1) year, provided that, in meritorious cases, a second and third restructuring, to cover the maximum period of three (3) years, may be allowed for reasons of force majeure , in the absence of which, however, farmer-borrowers' delinquent accounts may be restructured under this scheme, provided that payment of 30% of principal, plus accrued interest due thereon, shall be made on each of the 1st and 2nd restructuring. Rural banks may continue to avail themselves of their rediscounting privilege during the life of the restructured loans. [MCARB 7-28-75] SUBSECTION 363.6 Number of rediscount or loan availments . A rural bank may avail itself of the privilege of access to the Central Bank's credit facilities for twelve, times only during any calendar year for papers under the non-supervised credit program, but such rediscount or loan availment shall be without limit for papers under the supervised credit scheme. LibLex SUBSECTION 363.7 Credit rating plan . A credit rating plan has been devised by the Department of Loans and Credit as a means of evaluating the credit performance of a rural bank based on such factors as (a) management, (b) loan investments, (c) financial condition, and (d) rediscounting. Under each main factor are sub-factors which are rated according to the degree of conformity with the standards set by the Department of Loans and Credit. The total score for each bank is determined by adding the number of points obtained under the various factors. A rural bank obtaining from 90 to 100 points is given a rating of "A"; 80 to 89 points "B"; 70 to 79 points "C" and below 70 points "D". The Department of Loans and Credit may waive without notice to the rural bank concerned its right of examination (pre-audit) prior to the release of the loans applied for if such bank obtained a credit rating of "A" or "B". SUBSECTION 363.8 Procedures in obtaining and repaying a rediscount or loan with the Central Bank SUBSECTION 363.81 Application to rediscount . All rural banks applying for a loan with the Central Bank shall submit to the Department of loans and Credit, Central Bank, Manila, the following papers: (a) Board resolution . A copy of the resolution of the board of directors of the rural bank, authenticated in accordance with existing regulations, authorizing the rural bank to negotiate for a loan with the Central Bank and designating the officer(s) of the rural bank authorized to endorse promissory notes and sign all papers pertaining to the loan, in behalf of the rural bank. (b) Loan application form . Original and one copy, duly accomplished and signed by the authorized officer(s) of the rural bank. The rural bank may prepare one extra copy for its file. (c) Financial statements . A copy of the Statement of Condition of the rural bank as of the date of the application supported by the corresponding Statement of Income and Expenses. (d) Report on required and available reserves . A copy of the Report on Required and Available Reserves of the rural bank against its deposit liabilities for the week ending the date of the application For rural banks authorized to accept deposits. (e) Promissory note in favor of the Central Bank . Original and two copies duly signed by the authorized officer(s) of the rural bank. One extra copy may be prepared by the rural bank for its file. If the rural bank is applying for two types of loan, two sets should be submitted one for the 360-day loan and one for the 180-day loan. (f) Rediscount schedule . For rural banks depositing collaterals with the Central Bank-original and two copies. For rural banks depositing collaterals with designated depository commercial banks-original and one copy. This rediscount schedule should contain the acknowledgment and certification of the designated depository commercial bank duly signed by its representative. A pro forma certification for this matter is embodied in Section 4 of Memorandum Circular to Rural Banks No. DLC-2. (g) Certification by the rural bank technicians that the loans listed in the rediscount schedules were granted under the supervised credit scheme or were granted to beneficiaries of agrarian reform. [MCARTB-DLC-3 9-5-75] (h) Report on average monthly savings and time deposits for the past four months immediately preceding its date of loan application, for rediscount ceiling purposes for non-supervised credits. (i) Farm plan and budget (for loans/advances under the supervised credit scheme) duly accomplished by an accredited technician knowledgeable on the project financed. [MCARTB DLC-3 9-5-75] SUBSECTION 363.82 Rediscount schedule . The rediscount schedule shall be prepared in quadruplicate distributed as follows: (a) If collateral promissory notes are deposited with the Central Bank: First three copies to Central Bank Fourth copy for rural bank file (b) If collateral promissory notes are deposited with the designated depository commercial bank: First two copies to Central Bank Third copy to designated depository commercial bank Fourth copy for rural bank file All promissory notes offered as collateral for rediscounting shall be listed in the rediscount schedule in alphabetical order and grouped as follows: One group for promissory notes covering agricultural and industrial loans (non-supervised); One group for promissory notes covering agricultural and industrial loans (supervised); and One group for promissory notes covering commercial loans. All promissory notes listed in the rediscount schedule shall be certified as eligible for rediscounting by the authorized officer(s) of the rural bank. SUBSECTION 363.83 Deposit of collaterals . All rural banks applying for loans with the Central Bank shall endorse to the Central Bank and deposit immediately to the Central Bank or designated depositary commercial bank all promissory notes (original) and supporting documents to be used as collateral for the loan applied for. The designated depository commercial bank representative shall acknowledge such deposit in the space provided therefor in the rediscount schedule. SUBSECTION 363.84 Maximum amount of loan application . A rural bank may submit an application for a rediscount or loan in an amount not exceeding the following except for loans granted for food production under the supervised credit scheme: (a) P250,000.00 for rural banks with a credit rating of "A" or "B"; (b) P200,000.00 for rural banks with a credit rating of "C"; and (c) P100,000.00 for rural banks with a credit rating of "D" and for newly established rural banks which have been in operation for not more than one year. [MCARB 7-28-75] SUBSECTION 363.85 Release of loans (a) Time . All loan releases shall be made by the Central Bank within the official banking hours (9:00 AM to 3:00 PM). (b) Manner of release . All loan releases are effected by credit advice. SUBSECTION 363.86 Credit examination of borrowing rural banks . Credit examination of all borrowing rural banks shall be undertaken regularly by the Department of Loans and Credit at which time promissory notes used as collateral for loans with the Central Bank are examined together with the supporting documents. (a) Pre-audit system . The amount allowable for each loan application is determined after deducting all items which have been found ineligible or unacceptable as collateral. (b) Post audit (automatic) system . In the case of loans granted before actual credit examination, the loan value of all collateral promissory notes found to be ineligible or unacceptable for rediscounting, plus accrued interest, must be remitted immediately by the rural bank to the Central Bank. The Central Bank may also debit the reserve account of the rural bank without prior notice, in an amount corresponding to the loan value of papers found to be ineligible or unacceptable, plus accrued interest. Misrepresentations, violations of the terms and conditions of the loans, etc. committed by borrowing rural banks are subject to the penalties contained in their respective letters of application (DLC Form No. 3 Revised) and subsection 363.4 hereof SUBSECTION 363.87 Repayment of loans with the Central Bank and release of collateral (a) The rural bank shall remit to the Central Bank 100% or 80%, as the case may be, of all repayments received from the makers of the notes used as collateral for loans. (b) Upon maturity of the collateral promissory notes, their corresponding loan values shall be paid to the Central Bank. (c) In remitting payments to the Central Bank, the rural bank shall enclose with such remittances a duly accomplished DLC Form No. 5 wherein the application of such payments is indicated and the promissory notes to be released are listed. DLC Form NO. 5 shall be accomplished in quadruplicate and distributed as follows: original and second copy to the Central Bank; third copy to designated depository commercial bank; and the fourth copy to the rural bank. (d) Remittance to the Central Bank covering payment of loans shall be in cash, bank drafts or by authority to debit the current account of the rural bank's designated depository commercial bank. (e) Promissory notes and supporting documents deposited as collateral for loans with the Central Bank shall be released only when the loan value of the note to be released has been paid, and the release is authorized in writing by the Department of Loans and Credit. prLL SUBSECTION 363.88 Other requisites . All borrowing rural banks shall also submit to the Department of Loans and Credit the following: (a) A copy of the resolution of the board of directors of the rural bank confirming and acknowledging receipt of the proceeds of the loan from the Central Bank; (b) Statement of Condition as of the 15th and end of every month supported by the corresponding Statement of Income and Expenses; (c) Summary of loan granted for the four-month period ending at the end of every month; and (d) A copy of the weekly Report on Required and Available Reserves. APPENDIX A MAXIMUM MATURITY OF LOANS FROM THE CENTRAL BANK TO INSTITUTIONAL BORROWERS I. Farm Crops A. 150 days White Corn B. 180 days Sorghum Yellow Corn Soybean C. 210 days Citrus * Rice * * * Mango * D. 240 days Atis * Chico E. 270 days Cotton F. 360 days Abaca * * Ginger Banana * * Papaya * Cassava Pineapple * Coconut * Sugar * Coffee * II. Poultry, Fish and Livestock A. 90 days Poultry: Broiler B. 120 days Fish C. 180 days Poultry: Duck raising (Production, day old 4 mos.) Livestock: Rabbit D. 210 days Livestock: Goats E. 270 days Poultry: Duck raising (Duck egg Production 4 mos. old stock) Livestock: Hog Raising Fattening (2 mos. old stock) F. 360 days Poultry: Egg production (ready to lay pullets) Livestock: Cara beef (yearling stock) Cattle Raising Cattle fattening 270-360 days (1 1- yrs old stock) Hog Raising Fattening 2 mos. old stock) III. Vegetables A. 90 days Mustard Pechay B. 130 days Sweet green corn C. 150 days Cabbage Giant Pepper Carrot Sweet potato Cauliflower D. 180 days Beans (red, Baguio, Bongo, Navy) Cowpea Okra Cucumber Peanut Garlic Peas Irish Potato Sitao Melon E. 210 days Ampalaya Tomato Eggplant F. 270 days Onion G. 300 days Lima (patani) Squash Seguidillas Upo H. 360 days Chayote Footnotes * Financing starts on established and fruit-bearing age crop ** Financing starts six months after planting *** Maximum maturity of loans to finance non-high yielding, traditional varieties - 270 days [Source: MCARTB DLC - 3 9-5-75] PART 9 Other Operations And Miscellaneous Provisions SECTION 391. Other Operations SUBSECTION 391.1 Rural bank as correspondent and collection agent of other financial institutions SUBSECTION 391.11 Authority to act as correspondent and collection agent of other financial institutions and to sell domestic drafts; requisites . A rural bank desiring to act as correspondent and collection agent of other financial institutions shall file with the Central Bank an application for authority therefor, complying with the same requirements provided for under subsections 351.2 and 351.21. The application therefor shall state the name of the financial institution for which it intends to act as correspondent and collection agent and the types of services it desires to undertake. If the application includes a request for authority to sell domestic drafts, the following requirements shall be complied with: (a) The rural bank must be in sound financial condition, operating satisfactorily, and efficiently managed in accordance with law and regulations governing rural banks; (b) There must be no internal dissension among the stockholders, officers and employees of the rural bank; (c) There must be a demand for the type of service for which authority is applied for in the community where the rural bank operates; and (d) The rural bank must be authorized to accept and service current deposits and to act as correspondent and collection agent for financial institutions; and (e) Before a rural bank may be allowed to sell domestic drafts, it must have sufficient amount on deposit in the correspondent bank to cover its sales of domestic drafts. Upon receipt of the application, the Central Bank shall proceed with the investigation in the manner provided for in sub-section 351.21. SUBSECTION 391.12 Agreement to act as correspondent and collection agent; contents; approval of the Central Bank . The arrangements under which a rural bank may act as correspondent and collection agent for another financial institution must appear in a contract approved by the Central Bank, which must specify in clear and definite terms the following: (a) Types of services to be performed by the rural bank which may include any or all of the following: (i) Collection of checks, drafts and other bills of exchange; (ii) Collection of loans and other claims; (iii) Payment of drafts drawn on it by the financial institution as principal; (iv) Credit investigation; and (v) Security inspection; and (b) Rights and obligations of the rural bank and the financial institution with particular reference to the services the rural bank will perform and rates of fees for such services. Subsequent amendments to the contract must also be submitted to and approved by the Central Bank. SUBSECTION 391.13 Collection of checks, drafts and other bills of exchange . (a) Restrictive indorsement . Checks, drafts, and other bills of exchange transmitted for collection shall be restrictively indorsed for "Collection" to the agent bank by the officer of the transmitting institution authorized to make such indorsement. When payment is received, the agent bank shall stamp across it "Received Payment" with the signature of the officer of the agent bank authorized to receive the payment delivering the same to the payor. LLjur The restrictive indorsement for collection shall be sufficient if substantially stated in the following form: "Pay Filipinas Rural Bank, Inc. for collection." (Signature of authorized officer of financial institution represented) To forestall any delay in the remittance of proceeds of checks sent to a rural bank by other banks for collection, and as additional protection or safeguard against possible losses in the handling of these checks, the following regulations shall be observed: (i) The drawee rural bank carrying current deposit against which checks are drawn shall dispose of such checks within 24 hours after receipt thereof excluding Saturdays, Sundays, Holidays and/or other non-banking days. Dispose in this regard means remittance to the collecting bank of the proceeds of checks (if they are honored) or return of dishonored checks together with a note stating the reason for dishonor. (ii) The drawee rural bank carrying current deposit against which checks are drawn shall indicate the date and time checks for collection were received, on the registered mail return receipt if the items are by registered mad, or on the collecting bank's accompanying letter of instruction if by means other than registered mail. For this purpose, a rural bank authorized to accept current deposits shall maintain a register of incoming collection items, which should include the following data: date received; from whom received; check number; amount; date of disposition; and how disposed. The date of disposition of collection items refers to the date when remittance was actually sent (either by mailing a demand draft or dispatching a telegraphic transfer) if the checks are honored, or the mailing of the return slip attached to the items if the checks are dishonored. (iii) To complement the records mentioned in (ii) above, all rural banks shall maintain a register of all incoming mails. (b) When checks, drafts, and other bills of exchange must be presented for payment . In the absence of express instructions or provisions in the contract referred to in subsection 391.12 checks and other demand instruments must be presented for payment within a reasonable time. Time drafts and other bills of exchange must be presented for payment at the time fixed therein without grace. When the maturity date of the instrument falls on a Sunday or Holiday, it must be presented on the next succeeding business day; those falling on a Saturday, shall be presented on the next succeeding business day except instruments payable on demand which may be presented before twelve o'clock on Saturday when the entire day is not a holiday. SUBSECTION 391.14 Collection of loans and other claims . Loans and other claims collected by a rural bank for another financial institution shall be subject to the provisions of the preceding subsection. If the loans or other claims are already due, the rural bank shall demand payment, without unnecessary delay. SUBSECTION 391.15 Failure to collect; return of checks and other evidences of credit . If a rural bank, acting as collection agent for a financial institution, fails to collect after making the demand in accordance with the preceding subsections, it shall notify the financial institution immediately. Checks, drafts, bills of exchange, and other evidences of credit sent to a rural bank for collection in accordance with the preceding subsections must be returned upon demand of the sending institution, whether they have been presented for payment or not. A rural bank shall return all checks, drafts, bills of exchange, and other negotiable instruments after they have been dishonored, giving the reasons for dishonor. With respect to evidences of loans and other claims, the rural bank may keep them for as long as it desires to make collection, unless there are instructions to the contrary. SUBSECTION 391.16 Extension of time; modification of instrument . A rural bank cannot in any manner extend the time or introduce any change or modification of whatever nature in checks, drafts, bills of exchange, or other instruments given to it for collection, unless specific authority to this effect is stated in the contract or in the instructions of the sending financial institution. When there is specific authority, the instruction of the sending institution must be followed. Any change or modification in the checks, drafts, bills of exchange or other instruments referred to in the preceding paragraphs shall not adversely affect any party thereto unless such change or modification is made with his consent. SUBSECTION 391.17 Credit investigation . The investigation which a rural bank may undertake for another financial institution on the credit standing of an individual or entity shall cover the three elements of credit, namely: character (as moral risk); capacity (as business risk); capital (as property risk). A rural bank conducting credit investigation shall make an accurate analysis and complete survey of these elements by personal interviews with the subject of inquiry or his representatives, persons furnished by him as reference and others who know him and have business dealings with him. The report shall include a statement of assets and liabilities. SUBSECTION 391.18 Investigation of securities . The investigation of collateral securities for and in behalf of another financial institution must be conducted in accordance with the instructions, if any, of the requesting financial institution. Collateral security is any property, negotiable security, or documentary evidence of a claim against, or ownership in property, conveyed to the holder as a pledge for the repayment of money or as guarantee for the performance of contract. Unless otherwise directed by the requesting financial institution, the rural bank shall report the following: (a) Existence and identity of the property offered as collateral; (b) Evidences of ownership and possession; (c) Nature of the property, whether real or personal. The following shall also be stated: If the property is real or immovable: (i) Area. (ii) Location, specifying sitio, barrio, town and province, and boundaries of the property; (iii) Accessibility, specifying kind of road and transportation; (iv) Whether improved or unimproved, including description of improvement, if any, yield during the previous three years and prospects of further improvement; and whether the buildings and improvements are insured; and (v) Tax declarations, tax receipts, amount of taxes, and assessed value. If personal property, whether corporeal or incorporeal; chattel or chose in action; fungible or non-fungible; perishable or non-perishable; (d) Marketability and demand; and (e) Appraised value. The investigation must be conducted by ocular and field inspection and every information must be carefully verified. [MB Res. 865 5-9-67] SUBSECTION 391.2 Acceptance of U .S. Treasury warrants, checks and U .S. postal money orders for deposit or repayment of loans . Rural banks may be authorized to accept U.S. treasury warrants, checks and U.S. postal money orders exclusively for deposit or repayment for loans, subject to the following conditions: (a) These banking functions shall not be undertaken by rural banks without the prior written approval of the department of the Central Bank charged with the supervision and examination of rural banks; and (b) The authority to perform these banking facilities shall be subject to conditions designed to safeguard the interests of rural banks, which conditions shall include, as a minimum, the following: (i) Only rural banks with authority to accept savings deposits shall be allowed to engage in these banking functions; (ii) The rural bank shall maintain a deposit account with a Manila bank or a local branch or agency of the Manila bank through which these items may be cleared; (iii) U.S. treasury warrants or checks shall be deposited or used for repayment of a loan by the original payee only who shall be properly identified by an officer or employee of a rural bank. The identifying officer or employee shall be personally liable if the value of the check cannot be collected due to wrong payment; (iv) The peso proceeds of the dollar check shall be credited to the account of the depositor or borrower based on current buying rate for U.S. dollars of the rural bank's depository bank; aisadc (v) If treasury warrants or checks are deposited, no withdrawal in excess of the previous balance shall be allowed until the check shall have been cleared; (vi) A separate register of these cash items shall be maintained by the rural bank, which register shall indicate the date of the receipt of the check; the name of payee and the drawer; the number of the check; the amount in dollars and peso equivalent; the commission collected; the net amount credited to the payee and the date the check was cleared; and (vii) Collection charges shall not be more than one fourth of one per cent (1/4 of 1%). The rural bank, however, may fix a minimum charge of P1 for each item handled. [MB Res. 1224 7-14-67] SUBSECTION 391.3 Sale of Philippine National Bank money orders . A rural bank may sell Philippine National Bank money orders under the following arrangement: (a) The PNB agrees to deliver and entrust to rural banks, acting as consignees, PNB bank money orders (BMO); and (b) The department of the Central Bank supervising and examining rural banks shall determine which of the rural banks may be designated as consignees, and the rural banks concerned agree to sell and dispose of said money orders (BMO) under the following terms and conditions: (i) That, the consignee will collect fees from purchases of BMO as follows: Denomination Fees P300 P1.25 200 1.00 100 .50 50 .25 20 .25 15 .25 10 .25 (ii) That the total fees collected will be divided as follows: 50% to the PNB 50% to the Consignee (iii) That the consignee will remit every Monday proceeds of the sale of BMO for the past week together with the corresponding share of the fees collected. (iv) That the consignee will maintain either a savings or current account with PNB from which PNB may reimburse itself of any amount due from the consignee. (v) That the consignee may encash or accept for deposit or payment BMO in their custody. SUBSECTION 391.31 Application for authority . A rural bank which desires to avail of the arrangement mentioned above shall pass a board resolution to apply for the said arrangement. The resolution shall contain the name of the rural bank's officer who will sign the Agreement . Thereafter, a request to be authorized to act as consignee of PNB bank money orders shall be filed with the department of the Central Bank supervising and examining rural banks. A copy of the board resolution together with the rural bank's latest statement of financial condition shall be attached to the letter/request of the rural bank. SUBSECTION 391.32 Qualification requirements . Before a rural bank may qualify as a consignee of PNB bank money orders, it shall satisfy the following requirements: (a) Its operations shall show adherence to banking laws and the rules and regulations issued by the Central Bank; (b) Its percentage of past due items to total loan portfolio shall not be unreasonably high; (c) Its credit standing with the Central Bank shall be satisfactory; and (d) It is authorized to accept savings deposits. The prior approval of the department of the Central Bank supervising and examining rural banks shall be sent to the PNB (main office) and a copy thereof furnished the rural bank concerned. With this approval, the Agreement between the PNB and the authorized rural bank may be executed. [MCRB 69-5] SUBSECTION 391.4 Authority to act as foreign exchange dealers of the Central Bank . The following rules and regulations shall be observed by rural banks in connection with the grant of authority to act as foreign exchange dealers of the Central Bank: (a) Authorized foreign exchange dealers shall buy US dollars, whether in the form of checks, travellers checks, notes or coins, for pesos at the minimum rate of two per cent (2%) below the interbank guiding rate. For authorized currencies other than the US dollars, the buying rate shall be at a minimum of one per cent (1%) below the Central Bank buying rates for such currencies which rates shall be made available daily to authorized foreign exchange dealers, at the latter's request, by the Foreign Exchange Department of the Central Bank. (b) The Central Bank shall buy from all authorized foreign exchange dealers their acquisitions/purchases of foreign exchange at a guarantee rate of not more than one per cent (1%) below the interbank rate. [CL 2-16-72] SECTION 392. Bank Advertisements The following prohibitions on bank advertisements shall apply to rural banks: (a) No bank shall publish, issue or distribute in any form, any advertisement that shall degrade, deprecate or otherwise prejudice other banking and financial institutions; (b) No bank shall publish, issue or distribute in any form of advertisement (in newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any other medium) or allow itself to be used/mentioned in any form of advertisement related to services, such as the acquisition, sale, resale or lease of real estate, insurance privileges, and other non-banking activities/services which are not directly related to the business of banking or in pursuance of regular banking business; (c) No bank shall place or cause to be placed any advertisement tending to mislead a depositor into believing that he will get more in benefits than what the bank is legally authorized to give. No bank advertisement shall contain any false claim or exaggerated representation as to its liquidity, solvency, resources, deposits and banking services; (d) No bank advertisement shall give the impression that the bank is engaged in a business other than banking; (e) Banks shall inform their depositors and other clients by advertisement or publication of the termination of benefits previously advertised or publicized; (f) Banks shall discontinue any advertisement whenever the same is deemed unethical/unwarranted or violative of the provisions hereof and are directed to do so by the appropriate supervising and examining department of the Central Bank in the exercise of its administrative authority. Towards this end, the client banks and/or their advertising agencies shall incorporate in any contract/agreement for time and space with media the condition that such contract/agreement for time and space can be cancelled/terminated immediately whenever the client bank is directed by the Central Bank to desist or discontinue the particular advertisement in question. Any violation of the provisions of this subsection shall be subject to the penal provisions of Section 34 and 34-A of Republic Act No. 265, as amended. Responsibility for compliance with the above rules and regulations rests with the bank officers or directors who caused the approval or placement of such advertisement. [Circular 457 3-20-75] SECTION 398. Other Miscellaneous Provisions SUBSECTION 398.1 Posting of statement of condition of rural banks . Rural banks are required to post their financial statement in three conspicuous public places in the municipality/city where the rural bank is located in accordance with the following rules and regulations: (a) Forms . The statement of condition required herein to be posted shall be prepared as of the end of every quarter in the condensed form prescribed for the purpose and printed on a 12" x 18" white paper, preferably white buff paper (cartolina). (b) Place of posting . The printed statement of condition of a rural bank shall be posted in the following places: (i) At the front door of the rural bank building; (ii) At the front door or bulletin board, if there is any, of the municipal building; and (iii) At the main gate of the public market; if there is none, at a conspicuous place in the public market. (c) Time of posting the statement of condition . The posting shall be made within twenty days from the end of every quarter and for a period of thirty successive days. (d) Proof of posting . As proof of such posting, two affidavits separately executed by (i) the rural bank president or in his absence, the vice-president or manager, and (ii) the city/municipal treasurer, shall be submitted to the department of the Central Bank supervising and examining rural banks not later than sixty days after the end of the quarter. (e) Penalty . Without prejudice to the curtailment of financial assistance and/or other privileges usually enjoyed by normally operating rural banks, failure to comply with this requirement shall subject the rural bank to the rules and penalties prescribed in Subsec. 324.31 hereof for wilful delay in the posting and/or submission of required affidavits of publications. [Circular 382 10-15-73, as amended by Circular 422 12-12-74] SUBSECTION 398.2 Prescribed educational and training program for rural bank personnel All operating officers and employees shall, before assuming their respective positions in the rural bank, be required to satisfactorily complete the educational and training program prescribed by the Central Bank. SUBSECTION 398.3 Facsimiles of government securities . No person or entity shall design, engrave, print, make or execute in any other manner, or issue, distribute, circulate or use any handbill, advertisement, placard, circular, card or object whatsoever bearing the likeness or similitude of any government securities issued by and/or through the Central Bank of the Philippines, or any part thereof, whether in black and white or any color or combination of colors, without prior written authority therefore having been secured from the Governor of the Central Bank. The reproduction and use of facsimiles of government securities referred in the foregoing paragraph may be authorized by the Governor of the Central Bank for printed illustrations in articles, books, journals, newspapers, or other similar materials, and for education, historical, and/or newsworthy purposes only: Provided, however, That any such illustration shall be in black and white, and of a size less than three-fifths (3/5) or more than one and one-half (1-1/2) times in size of the government securities being illustrated and provided further the procedural guidelines found in Appendix A hereof are observed. [Circular 482 10-13-75] SECTION 399. Sanctions in General . As a general rule, any bank that violates directives/prohibition or restriction orders issued by the Monetary Board shall be penalized by a continuance of the suspension or penalties imposed under such orders until the bank concerned shall have shown strict compliance therewith for four consecutive weeks. In cases where wilful violations of Monetary Board orders have been established, necessary steps shall be taken by the Central Bank in order that the penalties as provided by law (particularly Sections 34 and 34-A of Republic Act No. 265, as amended) could be imposed on the erring bank. [MAB-DSE 7-13-65] APPENDIX A PROCEDURAL GUIDELINES IMPLEMENTING CIRCULAR NO. 482 The following rules shall be observed in the implementation of Central Bank Circular No. 482 dated October 13, 1975: 1. All applications/requests for authority to reproduce and use facsimiles of government securities issued by and/or through the Central Bank shall be submitted to the Office of the Governor through the Securities Marketing Department. To provide sufficient time for the processing thereof, applications/requests must be submitted at least thirty (30) days before the scheduled date of reproduction of the facsimile of the pertinent government security/ies. 2. The application/request must contain, among other things, the following: a. Name of person or entity b. Address c. Purpose/intended use d. Name of printer and address e. Undertaking that applicant shall furnish within five (5) days from the date of reproduction of the facsimile of the corresponding government security/ies. The Securities Marketing Department, Central Bank of the Philippines, for record purposes, with a copy of the facsimile thereof. 3. The Securities Marketing Department shall advise as soon as possible the applicant of the action taken thereon by the Governor. [Source: Guidelines-Governor 10-22-75]